Transcript Retailing - Sphoorthy Engineering College

RETAILING
Walton’s .5 & .10
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Definition of Retailing
Retailing includes . . . .
all activities involved in selling, renting, and providing
goods and services to ultimate customers for personal,
family or household use.
In the channel of distribution, retailing is where the
customer meets the product. It is through retailing that
exchange occurs.
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Retailing Creates Value
• Retailing’s economic value is represented by:
1. People employed in retailing, and
2. The total amount of money exchanged in
retail sales.
• Utilities provided by retailers create value for
customers. Time, place, possession, and form
utilities are offered by most retailers.
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Which Company Best Represents Which Utilities?
One of the best-run banks in the United States, Wells Fargo is intensifying
it’s drive to reach retail customers by opening minibanks in supermarkets.
This new form of banking is designed to complement ATMs, which already
dispense 75% of the bank’s cash.
Wells Fargo
Saturn dealers have adopted a one-price strategy that eliminates the need for
negotiating. Instead, all customers are offered the same price. Test drives,
financing, trade-ins, and leasing are all offered to encourage customers to
purchase a Saturn.
Saturn
Levi Strauss & Co. now offers the Levi’s Original Spin program which
allows customers to create their own jeans by selecting from three models,
five leg types, two flys, and many color and fabric options. The jeans are
delivered in 2 to 3 weeks for $55.
Levi Strauss
www.levi.com
Toys “ R ” Us
www.toysrus.com
A distinctive toy store with a backwards R, this company is what every kid
dreams about. Walking into a Toys “R” Us store is like living under a
Christmas tree. Unlike most stores, which reduce their space allotted to toys
after the holiday season, a huge selection of toys is always available at
Toys “R” Us.
Can you match them?
Time
Place
Possession
Form
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The Largest Retailers (2005 Sales)
Category
Retailer(s)
Department stores
Apparel
Consumer Electronics
Drug and Discount
Home Improvement
Home Shopping
Specialty Retailers
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Sears (K-Mart)
J C Penney
Limited
TJX
Circuit City
Best Buy
Wal-Mart
Target
Home Depot
Lowe’s
Service Merchandise
Fingerhut
Costco
Toys R Us
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Sales ($, in billions)
49.124
18.781
9.699
16.058
10.472
27.433
315.654
52.620
81.511
43.243
3.327
1.912
52.935
11.194
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Global Economic Impact of Retailing
•
•
•
•
Four of the 30 largest businesses in the U.S.
are retailers.
In 1997, Wal-Mart’s $119 billion in sales
surpassed the gross domestic product of
Finland for the same year.
Sears, Wal-Mart, Kmart, and JC Penny
together employ more than 1.6 million people.
Wal-Mart has 603 stores outside the U.S.,
including joint ventures in China and Korea.
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Retail Sales By Type of Business
Automotive dealers
Food stores
.9
General merchandise
group
Eating and
drinking places
Gasoline service
stations
Building material,
hardware, etc.
Furniture and home
furnishings stores
Apparel and
accessory stores
Drug and
proprietary stores
3.8
9.6
24.5
4.9
5.7
5.9
6.2
16.7
9.2
12.9
Liquor stores
Other
0
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325
Sales
($billions)
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650
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Classifying Retail Outlets
Retail outlets can be classified in several
ways:
-- Form of ownership. Who owns the
outlet.
-- Level of service. The degree of service
provided to the customer.
-- Merchandise line. How many different
types of products a store carries and in
what assortment.
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Classifying retail outlets
METHOD OF CLASSIFICATION
DESCRIPTION OF RETAIL OUTLET
Form of ownership
Independent retailer
Corporate chain
Contractual system
• Retailer-sponsored cooperative
• Wholesaler-sponsored voluntary chain
Franchise
Level of service
Self-service
Limited service
Full-service
Merchandise line
Depth
• Single line
• Limited line
Breadth
• General merchandise
• Scrambled merchandise
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The possibilities and costs of franchising
FRANCHISE
TYPE OF
BUSINESS
McDonald’s
Fast-food restaurant
$385,000-$520,000
Merry Maids
Cleaning Service
$27,500-$40,500
Jiffy Lube
Automobile fluid service $208,000-$229,000
Mail Boxes Etc.
Postal Services
Duds ’N Suds
Laundry and snack bar $60,000
Radio Shack
Electronic accessories
$67,500
Barbizon
School of Modeling
$69,500-$124,000
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TOTAL STARTUP COSTS
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$55,000-$75,000
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NUMBER OF
FRANCHISES
19,500
700
667
2,953
80
1,934
65
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Depth and Breadth of Product Line
• Depth of product line means that the store carries a large
assortment of each item, such as shoe stores that offer
running shoes, dress shoes, and children’s shoes.
• Breadth of product line refers to the variety of different items
a store carries.
-- scrambled merchandising refers to retailers that offer
several unrelated product lines in a single store.
-- hypermarkets are very large retail outlets that have the
goal of offering customers everything at one outlet.
-- Supercenters are retailers that combine a typical
merchandise store with a grocery store.
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Breadth vs. Depth of Merchandise Lines
Breadth: Number of different product lines
Shoes
Depth:
Number of
items within
each product
line
Appliances
Nike running shoes
Florsheim dress
shoes
Top Sider boat
shoes
Adidas tennis shoes
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Amana
refrigerator
Sony TV sets
JVC videocassette
recorders
General Electric
dishwashers
Sharp microwave
ovens
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Men’s Clothing
CDs
Classical
Rock
Jazz
Country Western
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Suits
Ties
Jackets
Overcoats
Socks
Shirts
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Differences in Store Concepts
DISCOUNT STORE
SUPERCENTER
HYPERMARKET
Average size
(in square feet)
70,000
150,000
230,000
Number of employees
200-300
300-350
400-600
Annual Sales
($ millions per store)
$10-$20
$20-$50
$75-$100
Gross margin
18%-19%
15%-16%
7%-8%
Number of items stocked
60,000-80,000
100,000
60,000-70,000
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Forms of Non-store Retailing
Active customer involvement
High
Direct
selling
Telemarketing
On-line
retailing
Direct mail
and
catalogs
Television
home
shopping
Automatic
vending
Low
Low
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Active retailer involvement
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High
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Automatic Vending
• Non-store retailing that makes it possible
to serve customers where stores cannot.
• Maintenance and operating costs are high.
• Small convenience products are available
in vending machines.
• Of the 3 million vending machines now in
use, 1.8 million are soft drink machines.
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Direct Mail & Catalogs
• Marketing efficiency is improved through
segmentation and targeting.
• Customer value is enhance by providing a
fast and convenient means of making a
purchase.
• In 1998 Americans increased their catalog
spending to $87 billion.
• A typical household receives 50 catalogs each
year.
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Television Home Shopping
• TV home shopping is possible when consumers
watch a shopping channel on which products are
displayed; orders are placed over the telephone.
• Two popular home shopping programs reach 60
million homes and have combined sales of $2 billion.
• TV home shopping programs traditionally attract
40-50 year old females.
• Limitations of TV shopping have been the lack of
buyer-seller interaction and the inability of
consumers to control the items they see.
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Online Retailing
• Online retailing allows consumers to search for,
evaluate, and order products through the Internet.
• The advantages of online retailing are:
– ability to comparison shop
– privacy
– variety
• Forecasts suggest that current annual sales of $10
billion could reach $100 billion in just a few years.
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Telemarketing
• Telemarketing involves using the telephone to
interact with and sell directly to consumers.
• According to the American Telemarketing
Association, telemarketing sales exceed $500 billion.
• As the use of telemarketing grows, consumer
privacy has become a topic of discussion among
consumers, Congress, the Federal Trade
Commission, and businesses.
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Direct Selling
• Direct selling involves direct sales of goods and
services to consumers through personal interactions
and demonstrations in their home or office.
• Industry sales are more than $16 billion, but are
declining in the U.S. as retail chains begin to carry
similar products at discount prices, and the
increasing number of dual-career households
reduces the number of potential buyers at home.
• Many direct selling retailers are expanding into
international markets to offset the decline in
domestic sales.
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Retail Positioning Matrix
• The retail positioning matrix positions retail
outlets on two dimensions: breadth of product
line and value added.
• Breadth of product line is the range of
products sold through each outlet.
• Value added includes such elements as
location, product reliability, and/or prestige.
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Retail Positioning Matrix
Broad
Kmart
Bloomingdale’s
Breadth of
product line
Just for Feet
Tiffany
Narrow
Low
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Value added
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High
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Key to Retail Positioning
For a store to be successfully
positioned, it must have an
identity which has some
advantages over competitors,
and at the same time are
recognized and valued by
consumers.
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The Retailing Mix
The retailing mix includes:
1. Goods and services
2. Physical distribution
3. Communications tactics
chosen by a store.
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The Retailing Mix
Store location
Distribution centers
Warehousing
Transportation
Handling goods
Packing
Personal selling
Consumers
Advertising
Window displays
Internal displays
Public relations
Store layout
Catalogs
Telephone sales
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Variety and
assortment
Sales assistance
Customer services
Pricing
Credit
Guarantees and
exchanges
Alterations and
adjustments
Store image and
atmosphere
Parking
Delivery
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Implications of the Retail Positioning Mix
Types of Retailers
High Value-added/
Broad Line
(Bloomingdales)
Low Value-added/
broad line (Kmart)
High Value-added/
narrow line (Tiffany)
Creative merchandising image-excitement, leader
High price/high margin
Store Ambiance
Economies of scale--volume
Image--”good guys”, conveniences
Low price/low margin
Low or self-service
Efficiency of operations
Unique of high quality products
Image--exclusive specialty
High price/high margin
Personal service/advice
Expensive presentation
Specialty mass merchandising
Image--value conscious, consistent
Low price, loss leaders
Little or self-service
“Cookie-cutter” stores
Low Value-added
narrow line
(Just for Feet)
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Keys to Success
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Retail Pricing Terminology
• Markup refers to how much should be added to the
cost the retailer paid for the product to reach a final
selling price.
• Original markup is the difference between the
retailer’s original cost and initial selling price.
• The maintained markup is the difference between the
final selling price and retailer cost and is also the
gross margin.
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Retail Pricing Terminology
• Markdown occurs when the product does not sell at
the original price and an adjustment is necessary.
• Shrinkage is theft of merchandise by customers and
employees.
• Off-price retailing involves selling brand name
merchandise at lower than regular prices. The
difference between the off-price retailer and a
discount store is that off-price merchandise is bought
by the retailer from manufacturers excess inventory
at prices below wholesale prices.
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Store Location
Types of Store Locations
• Central business district
• regional shopping centers
• community shopping centers
• strip location
• power center
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The Wheel of Retailing
As more time passes, outlet
adds still more services
2. Outlet now has:
Higher prices
Higher margins
Higher status
3. Outlet now has:
Still higher prices
Still higher margins
Still higher status
Passage
of time
As time passes,
outlet adds services
4. New form of outlet
enters retailing
environment with
characteristics of
outlet in Box 1
1. Outlet starts with:
Low prices
Low margins
Low status
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Early
growth
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Accelerated
development
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Maturity
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Market share
General store
Catalog Retailers
Malls (?)
Department stores
Supermarkets
Fast food outlets
Convenience stores
Warehouse clubs
Factory outlet stores
Single-price stores
Single-brand stores
On-line retailers
Value-retail stores
Market share or profit
The Retail Life Cycle
Profit
Decline
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Future Changes in Retailing
Impact of Technology
Changing Shopping Behavior
Importance of Brands
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