Retail Strategy Exam #1

Limited-Assortment Supermarkets

(also known as extreme-value food retailers) -only stock about 1,500 SKUs -rather than carrying 20 brands of laundry detergent, they offer one or two brands and sizes, one of which is a store brand. -stores are designed to maximize efficiency and reduce costs (merchandise is shipped in cartons or crates that don't need to be unloaded and can be used as a store display; services such as free bags and the use of credit cards are not provided; stores located in 2-3 tier shopping centers with low rents) *by trimming costs, they can offer merchandise at prices 40% lower than those at conventional supermarkets* -these features have appealed strongly to customers who are not loyal to national brands and more willing to try a store brand, especially if it means they pay lower prices. -Save-A-Lot and Aldi (two largest in US)

Continuum of Merchandise and Service Retailers

*All goods/no services* -wholesale club -supermarket -category specialist -speciality/department store (provide higher levels of service) -optical center (lies in the middle) -restaurant (lies in the middle) -airline -bank/university *all services/no goods*

The Wheel of Retailing

*Entry Phase* >Innovation Retailer -low status -low price -minimal service -poor facilities -limited product offerings *Trading-Up Phase* >Traditional Retailers -elaborate facilities -expected, essential, and exotic services -higher-rent locations -fahsion orientations -higher prices -extended product offerings *Vulnerability Phase* >Mature Retailer -top heaviness -conservatism -declining ROI

Two Types of Disruption:

*New Market Disruption* -occurs when a product addresses non-consumption in an existing category, i.e. it is available for customers in a way the incumbents aren't. -It could be cheaper, available in more places, in more countries, in more languages, etc. For some reason there are customers who can't use the existing products, but they will be able to use this new one. -You can only claim your company is disruptive through new markets when the majority of your customers are unable to use any of the incumbents in the market. *Low End Disruption* -is when a product steals the cheapest and worst customers from the bottom of an existing market, usually by figuring out a business model that works with a lower-cost offering. This opportunity presents itself when the leaders of the market are producing products far above what the market wants or needs. It's also important to note that cost refers to "cost of use", which is not necessarily financial. For example, it's cheaper to tweet than it is to blog. -The product is clearly lower quality but the switching customers don't notice or care as they are over-served by the existing products. -You can only claim your company is low end disruptive when you have a working and profitable business model that is stealing low value customers from incumbents.

Two special types of Direct Selling:

*Party Plan System* -salespeople encourage customers to act as hosts and invite friends or coworkers to a "party". -the host receives a gift or commission for arranging the party. -at the party, the merchandise is demonstrated and attendees place orders -about a quarter of all direct selling is made using this *Multilevel System* -independent businesspeople serve as master distributors, recruiting other people to become distributors in their network. -the master distributors either buy merchandise from the firm and resell it to their distributors or receive a commission on all merchandise purchased by the distributors in their network. -masters are involved in recruiting and training other distributors -includes *pyramid schemes*

Whole Foods Retail Mix Example

*Retail Strategy* -target health-conscious, environmentally conscious, middle-class consumers by using a modern supermarket format, rather than small, specialty health food stores. -mission is to promote the vitality and well-being of al individuals by supplying the highest quality, most wholesome foods available *Strategic Advantages* -strong brand image that builds customer loyalty -committed employees who provide excellent customer service -good relationships with organic food suppliers that ensures a supply of organic food even as demand for organic food grows faster than supply -efficient supply chain connecting local growers to a national store network -extensive information about its customers that it uses to develop assortments and target promotions *Merchandise Management* -offers the array of food categories typically found in a supermarket however the assortment emphasizes organic and natural products that are fresh, nutrias, and safe to eat -seeks out and supports local producers whose fruits and vegetables meet its standards, particularly those who farm organically -offers seven lines of private-label products -communicates the benefits of its offerings through its website and social media (its app offers a variety of awesome features like recipes, ingredients, budgets, etc.) -uses social media extensively *Store Management* -all employees are organized into self-managed teams that meet regularly to discuss issues and solve problems -decision on visual merchandising and store design reinforce its strategy (designed to make grocery shopping fun; intimate and safe feel to linger, etc.) -provides excellent customer service

Retailer

*Retailers satisfy consumer needs by offering the right product at the right place and at the right price when the consumer wants it* a business that sells products and/or services to consumers for their personal or family use -retailers are a key component in a supply chain that links manufacturers to consumers -retailers typically buy products from wholesales and/or manufacturers and resell them to consumers

Retail Strategy

*an overall plan for guiding a retail firm* (influences the firm's business activities; influences firm's response to market forces) identifies: 1. the target market, or markets toward which the retailer will direct its efforts 2. the nature of the merchandise and services the retailer will offer to satisfy the needs of the target market 3. how the retailer will develop unique assets that enable it to achieve long-term advantage over its competitors.

While the value-creating activities undertaken by channel members provide benefits to customers, they also....

*increase the cost of products and services* Ex: -costs the manufacturers $10 to make and market a t-shirt (costs include raw materials, design, labor, production equipment, transportation to the wholesaler, etc.) -manufacturer sells the t-shirt to wholesaler for $11 and makes a $1 profit -wholesaler incurs $2 to handle and store the t-shirt and transport it to the retailers -wholesalers sells the t-shirt to the retailers for $14, making a $1 profit -retailer then incurs costs to fold the shirt, put price tags on it, store it, employ sales associates, light and AC the store, etc. -retailer sells the shirt to a customer for $19.95, making a profit of $1.95

Comparison of Electronic and Mobile Phone Internet Channels

*mobile phones* -can easily be carried in pockets, purse, etc. and access the retailers' website from any place they are, as long as their mobile phone connection is available -customer-retailer interactions can be location-sensitive -apps -disadvantage: smaller screen and slower download speeds and having to navigate through multiple separate screens when browsing compared to computer or tablets

General Merchandise Retailers

-Department Stores -Full-line stores -Discount stores -specialty stores -drugstores -category specialists -extreme-value retailers -off-price retailers -outlet stores

Developing a Retail Strategy (Section 2)

-Retail Strategy -Strategic Decision Areas

Entrepreneurial Opportunities in Retail

-Sam Walton: Walmart -Jeff Bezos: Amazon -Do Won and Jin Sook Chang: Forever 21 -Ingvar Kamprad: IKEA -Howard Schulz: Starbucks

Role in developed countries

-consumer spending plays a critical role in the economies of the US and other developed countries. -when consumers spend more money buying goods and services from retailers, a country's economy flourishes. merchandise flies off the shelves, and retailers place orders for replacement merchandise. Manufacturers hire more employees, place orders for raw materials, and make more products *the retail sector plays a key role in developed countries, not only bc consumer demand is an indication of a vibrant financial system, but also bc retailers are large employers*

Challenges facing retailers...

-consumers are bored with shopping -over-saturation -price-cutting wars and low profit margins -high customer service expectations

Retail Life Cycle

-development -introduction (early growth) -growth (accelerated development) -maturity -decline

Why is retail important?

-economic impact of retailers -globalization of retailers

Challenges facing Multichannel Retailing

-multichannel retailers still struggle to provide an integrated shopping experience bc the various channels demand various skills, as well as unique resources -centralized vs. decentralized multichannel retailing -consistent brand image across channels -merchandise assortment (different assortments are often appropriate for each of the channels) -Pricing (customers expect all pricing to be the same across all channels but in some cases retailers need to adjust their pricing strategy bc of the competition they face in different channels) -Reduction of Channel Migration (if customers gather information from one of its channels, then buy from a channel hosted by a competitor, the retailer suffers from the frustrating problem of channel migration) -retaining customers remains a challenge for multichannel retailers

Independent, Single-Store Establishments

-owned-managed start-ups, which means that management has direct contact with customers and can respond quickly to their needs -small retailers are very flexible and can react quickly to market changes and customer needs -not bound by the bureaucracies inherent in large retail organizations -typically must rely on their owner-managers' capabilities to make the broad range of necessary retail decisions

Benefits of Catalog Channel

-provides safety and convenience benefits to customers -can look at merchandise and place an order from almost anywhere, 24/7, without needing a computer, mobile device, or internet connection. -consumers can refer to the information in a catalog any time by simply picking it up from the coffee table -easier to browse through than websites

Perceived Risks in Internet Shopping

-security and privacy violations of credit card transactions is questioned online more so than in the stores -concerned with the ability of retailers to collect information about their purchase history, personal information and search behavior on the internet without their knowledge

Retailing

-the set of business activities that adds value to products and services sold to consumers for their personal or family use -The business activities involved in selling goods and services to consumers for their personal, family, or household use. It includes every sale to the final consumer." -retailing includes tangible goods -services

Breaking Bulk

-to reduce transportation costs, manufacturers and wholesalers typically ship cases of frozen dinners or cartons of blouses to retailers. -retailers then offer the products in smaller quantities tailored to individual consumers' and households' consumption patterns > *allows manufacturers* to efficiently make and ship merchandise in larger quantities at one time and *enables consumers* to purchase merchandise in smaller, more useful quantities.

Benefits of Store Channels

-touching and feeling products -personal service (sales associates can tell customers a suit looks good on them or suggest a tie to go with it) -risk reduction (physical presence of a store increases customers' confidence that any problems with a purchase will be corrected) -immediate gratification (can use merchandise immediately after buying it) -entertainment and social experience -browsing (shoppers only have a general sense of what they want but not exactly) -cash payment (only channel which consumers can make cash payments)

Differences Between Service and Merchandise Retailers

1. *Intangibility* -services are less tangible than products (can't see or touch them) -difficult to evaluate services before they buy them or even after they buy and consume them -due to intangibility of their offerings, service retailers often use tangible symbols to inform customers of the quality of their services (Ex: lawyers often have elegant, carpeted offices with expensive furniture) 2. *Simultaneous production and consumption* -service providers create and deliver the service as the customer is consuming it -Ex: eating at a restaurant, the meal is prepared and consumed almost at the same time -Ex: Build a bear -Ex: obnoxious man next to you on the flight can make your experience unpleasant -it is critical for them to get it right the first time 3. *Perishability* -services are perishable; they cannot be saved, stored, or resold -Ex: once an airplane takes off with an empty seat, the sale is lost forever 4. *Inconsistency of the offering to customers* -bc services are performances produced by people (employees and customers), no two services will be identical -Ex: tax accountant can have different knowledge and skills for preparing tax returns -Ex: waiter can be in a bad mood and make your dining experience a disaster

Major Classifications of Retail Ownership

1. Independent, Single-store establishments 2. Corporate chains 3. Franchises

2018 Retailing Trends

1. More acquisitions of physical retail stores by digital companies and vice versa 2. Reinventing retail with the latest technologies: -AR & VR -Voice controlled electronic devices -In store robots -AI 3. On-demand shopping and fulfillment 4. Creating unique & compelling in-store experiences 5. Personalization (brick and mortar needs to be more entertaining to keep us coming back) 6. Private label grabs the spotlight -Cheaper for the retailer -Leverage against national brand manufacturers

Retail Management Decision Process

1. Understanding the World of Retailing 2. Developing a Retail Strategy 3. Implementing the Retail Strategy

Trends in Supermarket Retailing

1. emphasizing fresh merchandise 2. targeting green and ethnic consumers 3. providing better value with private-label merchandise 4. providing a better shopping experience. -private label brands benefit *consumers* by having more choices and finding the same ingredients and quality as in national brands at a lower price or higher quality at a smilier price to the national brands. -they benefit *retailers* by increased store loyalty, the ability to differentiate themselves from the competition, lower promotional costs, and higher gross margins compared with national brands.

Companies typically go through several stages before they fully integrate CSR into their strategy:

1. engage only in CSR activities required by law (companies are not actually convinced of the importance of CSR actions) 2. companies go beyond activities required by law to engage in CSR activities that also provide a short-term financial benefit to the company (ex: a retailer might reduce the energy consumption of its stores just bc doing so reduces its costs) 3. companies operate responsibly bc they believe this is the "right thing" to do 4. engage in socially and environmentally responsible actions bc they believe these activities must be done for the well-being of everyone. (they have truly incorporated the concept of CSR in their strategy)

When you view your firm's policies or requests as improper, you have 3 choices:

1. ignore your personal values, and do what your company asks you to do 2. take a stand, and tell your employer what you think 3. refuse to compromise your principles (you may get fired or be forced to quit) -don't take a job where any of their policies, products or conduct conflicts with your standards

to deal with their eroding market share, Department Stores are....

1. increasing the amount of exclusive merchandise they sell (national brand vendors sell them merchandise that is not available elsewhere; Ex: J-Lo's clothing line at Kohl's) 2. increasing their use of private-label (or store brands) merchandise (these items are developed and marketed by the retailer, available only in its stores; Ex: Macy's own luxury fabrics, women's fashion, and housewares line) 3. expanding their multichannel and social media presence (Ex: at macy's and nordstrom you can buy or reserve products online and then pick them up in the store)

The value-creating activities undertaken by retailers include:

1. providing an assortment pf products and services 2. breaking bulk 3. holding inventory 4. providing services -by utilizing these, retailers increase the benefits consumers receive from their products and services Ex: a t-shirt in a shipping crate in a manufacturing warehouse will not satisfy the needs of a student who wants to have something to wear at the bball game tonight. Student finds the shirt more valuable and will pay more for it if it is available from a nearby store that also sells other things that can go with it and provides sales associates to help. -**retailers did not provide these benefits, wholesalers or manufacturers would have to provide them, and they would typically not be as efficient as retailers providing these benefits

Benefits of Internal Channels

1. the addition of the internet channels has the potential to offer a greater selection of products (without crowding their aisles or increasing square footage); (more colors, brands and sizes) 2. they allow retailers to provide more information (that helps consumers make buying decisions); information offered in stores are limited while internet is unlimited 3. enable retailers to provide customers with more personalized information about products and services (can format the information so that it can be used to compare to alternatives whereas you have to go back and forth in stores); -live chats are a part of this 4. they offer sellers the unique opportunity to collect information about consumer shopping -recommendations based on previous purchases or previously clicked on items 5. internet channels provide an opportunity for retailer to enter new markets economically -stores only offer limited opportunity for the general area of the customer; while the internet allows anyone from anywhere to reach their site 6. they provide information that they can use to improve the shopping experience across all channels

4 elements of the retail mix are particularly useful to classify retailers:

1. the type of merchandise and/or services offered 2. the variety and assortment of merchandise offered 3. the level of customer service 4. price of the merchandise

Providing Services

Ex: -retailers offer credit so that consumers have a product now and pay for it later -they display products so that consumers can see and test them before buying -some retailers employ salespeople in stores to maintain web sites to answer questions and provide additional info about the products they sell

Outlet stores & Factory Outlets

Outlet stores: -off-price retailers owned by manufacturers or retailers Factory Outlets: -those owned by manufacturers are also referred to this -manufacturers view outlet stores as an opportunity to improve their revenues from irregulars, production overruns, and merchandise returned by retailers. -by selling excess merchandise in outlet stores rather than at markdown prices in their primary stores, these department and specialty store chains can maintain an image of offering desirable merchandise at full price. Ex: Nordstrom Rack -outlet stores can have an adverse effect on profits, however, bc they shift sales from full-price retailers to the lower-priced outlets. -outlets are becoming more promotional to compete with increased activity at other outlet stores within the same mall and with traditional off-price stores

Variety and Assortment

Retailers can offer the same merchandise but differ in the variety and assortment of merchandise offered *Variety*: the number of merchandise categories a retailer offers (often referred to as the "breadth of merchandise") (broad or narrow??) *Assortment*: the number of different items offered in a merchandise category (often referred to as the "death of merchandise") (deep or shallow??) *Store-Keeping Unit (SKU)*: each different item of merchandise Ex: warehouse clubs, discount sores, and toy stores all sell toys, but warehouse clubs and full-liane discount stores sell many other categories of merchandise in addition to toys (they have greater variety) Ex: store specializing in toys stock more types of toys (more SKUs) and thus offer a greater assortment (greater depth in the form of more brands, models, and sizes) than the full-line discount stores and warehouse clubs

Hourglass Effect

The theory encouraged investors to focus on companies best positioned to grab a larger market share of the highest-income and lowest-income earners. The hourglass economy has taken its toll on mid-level retailers such JCP and Sears while high-end retailers, such as Neiman Marcus Group, are flourishing. Home builders have also adjusted their strategy, focusing on bigger and more expensive homes. At the other end of the spectrum, apartment housing construction is booming to cater to the growing lower-income tier, as well as to the middle-income earners who have been squeezed out of the housing market. While companies are adjusting their strategies to capitalize on the hourglass economy, the U.S. economy may be threatened by lower consumption in the middle class, which still represents the majority of income earners. When the middle class isn't buying houses, it creates a ripple effect throughout the economy. As long as wages remains stagnant and job growth doesn't improve dramatically, the hourglass may grow thinner in the middle.

Retail Chains

a company that offers multiple retail units under common ownership and usually has centralized decision making for defining and implementing its strategy -can range from the size of drugstores with two stores to retailers with thousands of stores such as Kroger or Walmart -can more effectively negotiate lower prices for merchandise and advertising bc of their larger size -can and do invest in sophisticated analytical systems to help them buy and price merchandise -have a broader management base, with people who specialize in specific retail activities

Franchising

a contractural agreement in which the franchisor (the company) sells the rights to use its business trademark, service mark, or trade name, or another commercial symbol of the company to the franchisee for a one-time franchise fee and an ongoing royalty fee, typically expressed as a percentage of gross monthly sales. -benefits both the franchisor and the franchisee drawbacks: -in addition to paying the franchisor, the franchisee needs financing for start-up costs, including rent or purchase price of office/retail space; modification of the space according to the guidelines of the franchisor (paint colors, flooring, lighting, etc.); signage; opening inventory; and equipment. -in addition to incurring the capital costs, the franchisee must adhere to the franchisor's rules and operating guidelines.

Vertical Integration

a firm performs more than one set of activities in the channel (on the same production path) -as occurs when a retailer engages in wholesaling activities by operating its own distribution centers to supply its stores. -most supply chains feature some vertical integration -Vertical integration can help companies reduce costs and improve efficiencies by decreasing transportation expenses and reducing turnaround time, among other advantages. Ex: Wal-mart and Lowe's manage their own DC's and perform activities undertaken by wholesales. They buy directly from manufacturers, have merchandise shipped to their warehouses, and then distribute the merchandise to their stores. Ex: Victoria's Secret is even more vertically integrated; they design the merchandise they sell and then contract with manufacturers to produce is exclusively for them

Conventional Supermarket

a large, self-service retail food store offering groceries, meat and produce, as well as some nonfood items, such as health, and beauty aids and general merchandise -perishables, including meat, produce, baked goods and dairy products account for 30% of sales and typically have higher margins than packaged goods -carry about 30,000 SKUs

Holding Inventory

a major value-providing activity performed by retailers is *holding inventory* so that products will be available when consumers wants them -so, consumers can keep a smaller inventory of products at home bc they know local retailers will have the products available when they need more. *particularly important to consumers with limited storage space, such as families living in small apartments*

Catalog Channel

a non store retail channel in which the retail offering is communicated to customers through a catalog mailed to customers -about half of US consumers shop through catalogs each year -catalogs' share of sales is declining relative to the internet (but they are not going away) -their role is shifting from primarily generating sales to building a brand image and driving traffic to the internet and physical stores

Direct-Respone TV (DRTV) Channel

a retail channel in which customers watch a TV advertisement that demonstrates merchandise and then place order for that merchandise -includes infomercials (both short and long ones) -within 24 hours, retailers using this channel can determine how many customers responded to each exposure to an ad. -the results can be analyzed to determine the effects of location, time of week, time of day, and different scripts and creative responses

TV Home Shopping

a retail channel in which customers watch a TV network with programs that demonstrate merchandise and then place order for that merchandise, usually by phone or the internet Ex: HSN and QVC -like catalogs, tv home shopping networks have embraced the internet for taking customer orders, although it is still possible to place an order by phone or mail *major advantage* -customers can see the merchandise demonstrated either on their tv screens or through streaming videos on the internet -consumers are interacting with tv home shopping while also accessing their phones, tablets, etc. (Ex: HSN's facebook page they can ask questions and chat about the program as it happens; the really interesting comments and questions get read on air)

Direct Selling

a retail channel in which salespeople interact with customers face to face in a convenient location either at the customer's home or at work -direct salespeople demonstrate merchandise benefits and/or explain a service, take an order, and deliver the merchandise -highly interactive retail channel in which considerable information is conveyed to customers through face to face discussions and demonstrations. (however, is is costly) -most of these salespeople are independent agents -in most cases, direct salespeople may sell their merchandise to anyone, but some companies, such as Avon, assign territories to salespeople who regularly contact households in their territory.

Supply Chain

a set of firms that make and deliver goods and services to consumers Ex: Manufacturing-->Wholesaler-->Retailer-->Consumer

Hypermarkets

also large (160,000-200,000 sq. ft) combination food (60-70%) and general merchandise (30-40%) stores. -typically stock fewer SKUs than super centers, ranging from groceries, hardware, and sports equipment to furniture and appliances to computers and electronics. -not common in the US -carry a larger proportion of food items than super centers and a greater emphasis on perishables

Backward Integration

arises when a retailer performs does wholesaling and manufacturing activities, such as operating warehouses or designing private-label merchandise (move backward on the supply chain)

Category Specialists

big-box stores that offer a narrow but deep assortment of merchandise -most of them predominately use a self-service approach, but they offer assistance to customers in some areas of the stores (Ex: Staples has a warehouse atmosphere, with cartons of paper stacked on pallets but in certain departments such as computers and high tech products, it provides salespeople in the display area to answer questions and make suggestions) Ex: Bass Pro Shops -intense competition such as Staples vs. Office Depot, Lowes vs Home Depot; have difficulty differentiating themselves on most elements of their retail mixes bc they all provided similar similar assortments and similar level of service; primarily compete on price and location; trying to differentiate themselves with customer service

Wholesalers

buy and store merchandise in large quantities from manufacturers and then resell the merchandise (usually in smaller quantities) to retailers Ex: when manufacturers like Apple and Nike sell directly to consumers, they are performing the production, wholesaling and retail business activities. Ex: Costco and Home Depot function both as retailers and wholesalers: they perform retailing activities when they sell to consumers but they engage in wholesaling activities when they sell to other businesses, such as restaurants or building contractors

Category Killers

by offering a complete assortment in a category, category specialists can "kill" a category of merchandise for other retailers -using their category dominance and buying power, they buy products at low prices and are ensured of supply when items are scarce

The Great Bifurcation

changing demographics and news economic realities have thinned the ranks of households falling within the definition of middle income, while the number of households in the upper and lower incomes tiers is growing. -the polarization of income, with larger upper and lower income tiers, is creating an *hourglass effect* on the economy, causing producers and marketers to focus their strategies on the upper and lower ends of the income spectrum

Intertype Competition

competition among retailers that sell similar merchandise using different types of retail outlets, such as drug and department stores. -increasing inter type competition makes it harder for retailers to identify and monitor their competition. -competition is greatest among retailers whose offerings are viewed as very similar -managements view of competition also may differ depending on the manager's position within the retail firm (department manager vs. entire store manager)

Intratype Competition

competition between the same type of retailers

Speciality Stores

concentrate on a limited number of complementary merchandise categories and provide a high level of service -tailor their retail strategy toward very specific market segments by offering deep but narrow assortment sea sales associate expertise *speciality retailers have such great appeal that they rank among the most profitable and fastest growing firms in the world* Ex: VS is the leading speciality retailer of lingerie and beauty products in the US; using a mutli-pronged location traction that includes malls, lifestyle centers and central business districts they convey their message using runway models) Ex: Sephora (provides cosmetic and perfume speciality store offering a deep assortment in a self-service format) -includes resale stores: thrift stores and consignment shops

Centralized vs. Decentralized Multichannel Retailing

critical decision for multichannel retailers is the degree to which they should integrate the operations of the channels or have different organizations for each channel -at one extreme is complete integration--selling the same products at the same prices through the same distribution system for all channels -on the other extreme is having different organizations manage each channel so that the channels are tailored to different target markets.

The key strategic decisions a retailer makes are....

defining its target market and its financial objectives, development of critical assets (location, HR, information and supply chain systems, supply chain organization, and customer loyalty) -the retailer's market strategy must be consistent with the firm's financial objectives -the development of critical assets enables retailers to build strategic advantages. -location decisions are important bc that is typically customers top consideration when picking a store to go to (when a retailer has the best location, a competing retailer must settle for the second-best location) -retail information and supply chain management systems are important bc these technologies make sure the desired merchandise is available when customers want it and minimize the retailer's inventory investment. -retailers want to develop repeat purchases and loyalty in their best customers

Pyramid Schemes

developed when the firm and its program are designed to sell merchandise and services to other distributors, rather than to end-users. (they want your money and quickly) *a form of investment (illegal in the US and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones* -the founders and initial distributors involved profit from the inventory bought by later participants, but little merchandise is sole to consumers who use it

Internet Retailing

fastest growing channel -involves retailers interacting with consumers via the internet, whether they use a traditional computer or a laptop, a variety of sizes of tablets or a smartphone -the channel that involves accessing the internet on traditional computers is called the electronic channel -almost all of the traditional store-based retailers utilize internet channels to provide a better shopping experience for their customers and now dominate these channels -almost 75% of US consumers use the internet to search for information about clothes, shoes, toys, health and beauty aids before they go to the store to buy the items -83% go online before buying electronics, computers, books, music and movies in stores

Service Retailers

firms that primarily sell services rather than merchandise, are a large and growing part of the retail industry. Ex: your saturday consisted of these errands: Einstein's, laundromat, dry cleaners, Geek Squad at Best Buy, Jiffy Lube, Taco Bell, Hair Salon, Fitness Center, Movie Theater, Club -therefore you interacted with 10 different service retailers throughout the day -several trends suggest considerable future growth in service retailing (aging population will increase demand for health care services; younger people spending more money on health and fitness; 2-income families are willing to have their homes cleaned and lawns moved, clothes washed and pressed and meals prepared to spend more time with their families) -airlines, banks, hotels, and insurance and express mail companies sell their services to businesses as well as consumers

the microenvironment

focuses specifically on the competitors and customers. -(primary competitors are other retailers that use the same retail approach; dept. stores compete with other dept stores, etc.) -second factor in the *microenvironment* is customers; to develop and implement and effective strategy, retailers must understand why customers shop, how they select a store, and how they select among that store's merchandise.

Omniretailing

frequently used when discussing multichannel retailing -it refers to a coordinated multichannel retail offering that provides a seamless customer experience when using all of the retailer's shopping channels Omni is a more seamless experience, with a consistent brand image across channels. -channels are integrated, they work together in a seamless manner. -Ex: bought something online and returned it to the store

Power-Perimeter

fresh-merchandise categories are located in the areas around the outer walls of a supermarket and include the dairy, bakery, meat, florist, produce, deli and coffee bar. -very profitable

Wouldn't is be cheaper and easier for consumers to cut out the middlemen, the wholesalers and retailers, and buy directly from manufacturers?

generally, no. -bc retailers add value and are more efficient at adding this value than manufacturers to wholesalers

Managers in the Merchandise Management area decide.....

how much and what types of merchandise to buy, what vendors to us and how much to interact with them, the retail prices to set, and how much to advertise and promote merchandise. -store managers must determine how to recruit, select, and motivate sales associates; where and how merchandise will be displayed; and the nature of services to provide for the customers.

the development of _________ __________ is one of the forces facilitating the growth of large retail firms--the shift from an industry dominated by small local retailers to large multinational chains.

information systems -prior to the development of these systems, it was difficult for someone other than the local store manager to track how the merchandise in the store was selling--whether it was selling above plan and needed to be reordered or was selling below plan and needed to have its price reduced. -many retailers now use the data they have on their customers to identify their best customers and target customized promotions to them, place products close to each other when they find that many customers are buying the same products at the same time, and tailor the assortment of products in each store to better match the needs of the store's local market

Corporate Social Responsibility

involves an organization voluntarily engaging in business practices that meet or exceed the ethical and legal expectations of its stakeholders--its employees, customers, community, and society in general. Ex: reducing their use of energy, supporting local schools, and working with national organizations such as the American Red Cross and Habitat for Humanity. -these CSR activities promote a positive image to customers, build employee morale, and save money--a win-win scenario for both the companies and the stakeholders. -many retailers are building LEED-certified stores; this is based on an assessment of the store's impact on human and environmental health, sustainable site development, water savings, energy efficiency, materials selection, and indoor environmental quality. -Sustainable Apparel Coalition has developed an index to rate the relative sustainability of apparel. the index considers to entire life of the product from raw materials to disposal

Multichannel Retailing

involves using more than one channel to sell and deliver merchandise and services to customers -almost all large retailers that operate stores are multichannel retailers (most have added an internet channel that offers customers an opportunity to buy merchandise or services by accessing their website as well as patronizing their stores) -many small, store-based retailers also use multiple channels

Supercenters

large stores (160,000-200,000 sq. ft) that combine a supermarket with a full-line discount store. Ex: Walmart operates more than 3,000 in the US; leading competitors are SuperTarget *by offering broad assortments of grocery and general merchandise products under one roof, super centers provide a one-stop shopping experience* -larger percentage of nonfood items and focus more on dry groceries such as breakfast cereals and canned goods instead of fresh items (think SuperTarget layout) -general merchandise is often purchased on impulse when customers' primary reason for coming was to buy groceries (Ex: SuperTarget every time)

Base of the Pyramid or Bottom of the Pyramid (BoP)

low income consumer segment -have a potential spending power of more than $5 trillion which makes it more appealing for firms to enter into this market -however, it is difficult to communicate and complete transactions with people in the BoP market bc they are more likely to lack access to mass media and most of them live in rural areas--remote villages that are not connected to the outside world through adequate roads (limited local demand combined with the high cost of transporting goods to and from remote villages results in higher costs and prices for consumer goods) *engagement at the BoP markets, requires innovative approaches for doing business.*

Hard Goods (Durable Goods)

manufactured items that are expected to last several years, such as appliances, furniture, and consumer electronics

Soft Goods

nondurable or consumable goods, which have a shorter lifespan such as cosmetics, clothing, and bedding

Forward Integration

occurs when a manufacturer undertakes retailing and wholesaling activities, such as Apple operating its own retail stores (move up the supply chain)

Off-Price Retailers

offer an inconsistent assortment of brand-name merchandise at a significant discount off the manufacturers' suggested retail price (MSRP) Ex: TJMaxx, Marshalls, Burlington, Big Lots, Ross, Overstock.com -also includes flash sales, outlets stores, and factory outlets -able to sell brand-name and even designer label merchandise at 20-60% lower than the manufacturers' suggested retail price bc of their unique buying and merchandising practices. -much of there merchandise is bought opportunistically from manufacturers that have overruns, cancelled order, forecasting mistakes cause execs inventory, closeouts, and irregulars; they also buy excess inventory from other retailers. -they can buy at low prices because they do not ask suppliers for advertising allowances, return privileges, markdown adjustments, or delayed payments. -due to the opportunistic buying, customers cannot be confident that they same type of merchandise will be in stock each time they visit the store (for many off-price shoppers, this inconsistency is exactly why they like to go there)

Providing Assortments

offering an assortment enables their customers to choose from a wide selection of products, brands, sizes, and prices at one location Ex: Frito-lay makes chips, Yoplait makes yogurt, Skippy makes PB, etc. -if each of theses manufacturers had its own stores that only sold their specific products, consumers would have to go to many different stores to buy the groceries needed to prepare a single meal

Showrooming

particular form of channel migration -occurs when a consumer goes into a store to learn about different brands and products and then searches the internet for the same product sold at a lower price. *3 approaches to reduce this: -providing better customer service -offering uniquely relevant information based on proprietary data the retailer has collected about the customers -promoting private-label merchandise that can be purchased only from the retailer

Convenience Stores

provide a limited variety and assortment of merchandise at a convenient location in 3,000-5,000 sq. ft. stores, with speedy checkout. -enable customers to make purchases quickly, without having to search through a large store and wait in a long check out line. -easy access, storefront parking, and quick in and out access are key benefits offered. -generally charge higher prices than supermarkets for similar products like milk, eggs, and bread. (these items once represented the majority of their sales but now its from lower profit products like gas and cigs.) -supermarkets and supercenters are competing by attempting to appeal to customers by offering gas and tying gasoline sales to their frequent shopper programs -in response to competition, they are taking steps to decrease dependency on gas sales tailor assortments to local markets, offer more fresh options and make their stores even more convenient to shop; and adding new features like financial service kiosks -to increase convenience they are opening smaller stores close to where consumers shop and work (Ex: 7-11 having stores in airports, office buildings and schools)

Automated Retailing

retail channel in which merchandise or services are stored in a machine and dispensed to customers when they deposit cash or use a credit card. *Vending Machines* -typically placed at convenient, high-traffic locations -Ex: Redbox

Understanding the World of Retailing (Section 1)

retail managers need to know the environment in which they operate before they can develop and implement effective strategies -the critical environmental factors in the world of retailing are 1. the macroenvironment 2. the microenvironment

Department Stores

retailers that carry a broad variety and deep assortment, offer customer services, and organize their stores into distinct departments for displaying merchandise Ex: Dillards, Nordstorm, JCP -most department stores focus almost exclusively on soft goods -main departments include mens, women, and children apparel; home furnishings; cosmetics; kitchenware; and small appliances (each has a designated area of the store with different salespeople to assist customers in each department) 3 tiers: -upscale high fashion, lots of customer service (Neiman's, Bloomingdales, etc.) -traditional department stores/more modest prices, less customer service (nordstrom, macy's, Saks Fifth) -value-oriented, caters to more price-conscious consumers (Sears, JCP, Kohls) -not as convenient bc they are in large malls -customer service has diminished in 2nd and 3rd tiers to increase profits by reducing labor costs

Full-Line Discount Stores

retailers that offer a broad variety of merchandise, limited-service, and low prices. -discount stores offer both private labels and national brands -largest full line discount store chains are Walmart, Target, and Kmart (face intense competition from category specialists such as Staples, Best Buy, Sports Authority, etc.)

Warehouse Clubs

retailers that offer a limited and irregular assortment of food and general merchandise with little service at low prices for ultimate consumers and small businesses Ex: Costco and Sams Club -customers are attracted to these bc they have the chance to buy in bulk -heavy food sampling enhances the shopping experience -large, and typically located in low rent districts, simple interiors and concrete floors, aisles are wide for forklifts, little service is offered -they can offer low prices bc they use low-cost locations, have inexpensive store designs and offer little customer service; they further keep inventory holding costs low by carrying a limited-assortment of fast-selling items; they buy merchandise opportunistically (buy older models of a compeer at a sig. discount and then offer them for sale until the inventory is used up) -most warehouse clubs have two types of members: wholesale members who own small businesses and individual members who purchase for their own use.

Extreme-Value Retailers (Dollar Stores)

small discount stores that offer a broad variety but shallow assortment of household goods, health and beauty care (HBC) products, and groceries. Ex: Dollar General and Family Dollar (do not limit customers to the arbitrary dollar price point; offer products of up to $20) -primarily target low-income consumers (these customers want well-known brands but cannot afford to buy the large-size packages offered by full-line discount stores or warehouse clubs) -cut into other retailers' businesses, including walmart due to their target of low income customers, stores are located where they live, and they have expanded their assortments while keeping unit prices low

Drugstores

speciality stores that concentrate on health and beauty care (HBC) products Ex: Walgreens, CVS -face competition from pharmacies in discount stores and from pressure to reduce health care costs -in response, they are offering a wider assortment of merchandise including more frequently purchased food items, drive thru windows for prescriptions, in-store medical clinics, and even makeovers and spa treatments *although drugstores offer major advantages, especially in terms of convenience, they suffer from a price comparison when it comes to their grocery merchandise* (the same section of goods that cost $75.60 at a supermarket would run customers $102.94 at a nearby drug store)

Price and Cost of Offering Breadth and Depth of Merchandise and Services

stocking a deep and broad assortment, is appealing to customers but costly for retailers. -when a retailer offers many SKUs, its inventory investment increases bc the retailer must have backup stock for each and every SKU services attract customers to the retailer, but they are also costly -more staff must be paid for top notch customer service; child care facilities, restrooms, dressing rooms, etc. take up valuable store space that could be used to stock and display merchandise; offering delayed billing, credit or installment payments requires a financial investment that could be otherwise used to buy more merchandise *to make a profit, retailers that offer a broader variety, deeper assortments, and/or additional services need to charge higher prices* (Ex: department stores have higher prices than discount stores partially bc of their higher costs) *a critical retail decision involves the trade-off between the costs and benefits of maintaining additional inventory or providing additional services*

the type of retailer a consumer chooses to patronize depends on...

the benefits the consumer is seeking Ex: if you're shopping for a gift, you might value the convenience of buying a shirt from a retailer's internet channel so they will ship it to a friend in another city -or you may prefer to buy it in the store if you're buying for yourself so you can try it on -sporting goods stores for fav football team shirt -all of these retailers survive and prosper bc they satisfy a group of consumers' needs more effectively than their competitors and thus consumers patronize different retail types when they have different needs

Mobile Retailing

the mobile channel that involves accessing the internet using a smartphone (mobile commerce or m-commerce) -over half of adults who own a mobile phone use them to get either product reviews or pricing information while in a physical store, a process known as show rooming

Fair Trade

the practice of purchasing from factories that pay workers a living wage, considerably more than the prevailing minimum wage, and offer other benefits such as onsite medical treatment -conventional supermarkets are offering more fair trade, natural, organic and locally source foods for the growing segment of consumers who are health- and environmentally conscious.

Ethics

the principles governing individuals and companies that establish appropriate behavior and indicate what is right and wrong -managers need to consider the ethical and legal implications of their decision and how it will effect profitability on the firms and the satisfaction of customers. -often retail managers have to rely on their firms' and industries codes of ethics and or their own ethics to determine what to do (law does not always regulate) -you should only engage in activities about which you would be proud to tell your family, friends, employer, and customers. (if you wouldn't be able to do this then you probably shouldn't do it bc its most likely unethical)

Scrambled Merchandising

the result when retailers offer merchandise not typically associated with their type of store, such as clothing in a drugstore -increases intertype competition -to appeal to a broader group of consumers, many retailers are increasing the variety of merchandise they offer. By offering greater variety, retailers satisfy the needs of customers seeking a one-stop shopping experience. (Ex: walgreens, amazon) *Advantages* -New target markets -to improve your turnover -higher profit margin -Walgreens and CVS have turned themselves into a one-stop-shop *Disadvantages*: -requires more knowledge than employees might have (gonna have to provide lots of training) -if trying to improve turnover, I probably lowered my profit margin -If I was trying to raise profit margin, I probably lowered my turnover rate (inverse relationship between turnover and profit margin) -it is contagious (ex: fast food restaurants adding salads, once one did the others followed)

Retailing isn't just the sale of products in stores, it also involves...

the sale of services such as overnight lodging in a motel, a doctor's exam, a haircut, or a home delivered pizza. -not all retailing is done in stores Examples of non store retailing: -Avon salesperson, ordering hiking boots from a catalog, and renting a dvd from Redbox

Retail Mix

the set of decisions retailers make to satisfy customer needs and influence their purchase decisions includes: -customer service -store design and display -communication mix -location -merchandise management -pricing (types of merchandise and services offered, merchandise pricing, advertising and promotional programs, store design, merchandise display, assistance to customers provided by salespeople, and convenience of the store's location.)

Retail Channel

the way a retailer sells and delivers merchandise and services to its customers -most common channel is a store -nonstore channels: internet, mobile, catalogs, direct mail, direct selling, tv home shopping, direct response tv, and automated retailing (vending machines) to make sales to customers -a *channel* involves the opportunity to complete a transaction--to sell and deliver merchandise

many retailers are selling the same brands but...

they offer different services, prices, environments, and convenience Ex: if you want to buy a low-priced basic coffeemaker, you can go to a discount store. but if you're interested in a coffeemaker with more features and want to have someone explain the different features to you, you can visit a department store or a category specialist.

North American Industry Classification System (NAICS)

to collect data on business activity in each country: each business is assigned a hierarchical six-digit code based on the type of products and services it sells. -the first 2 digits identify the firm's business sector -the remaining 4 digits identify various subsectors -merchandise retailers are in sectors 44 and 45; the next 3 digits provide a finer classification of merchandise retailers Ex: retailers selling clothing and clothing accessories are classified as 448, clothing stores as 4481, and men's clothing stores as 44811. -the 6th digit captures differences between the North American countries using the classification scheme

Management Opportunities in Retail

to exploit all the new technology and systems to gain advantage in a highly competitive and challenging environment, retailers need to hire and promote the best and brightest. Ex: Macy's says hardest challenge is hiring and retaining managers to lead out company in the coming years; the changing demographics are working against us; our managers needs to be comfortable with new technologies, information and supply chain management systems, and international business as well as managing a diverse workforce and buying merchandise. -retailers employ people with expertise and interests in finance, accounting, HR management, supply chain management, and computer systems as well as management and marketing

Implementing the Retail Strategy (Sections 3 & 4)

to implement a retail strategy, retailers develop a retail mix that satisfies the needs of its target market better than that of its competitors