Part 4: Channel Institutions Chapter 11: Retailing

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Part 4 Channel InstitutionsChapter 11
Retailing

• MKTG 406 Pimentel

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Retailing Defined

• The activities involved in selling goods and
  services to ultimate consumers for personal
  consumption.

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Retailing Defined Example

• Ronnie of Ronneez Custodial Service buys Formula
  409 cleaner at Costco
• A case to sell to clients for small cleanups
  between service calls
• A case for cleaning crews to use cleaning
  clients offices
• A bottle to keep at the office for cleaning there
• A bottle to take home and use for cleaning at
  home

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Worlds Top 10 Retailers
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Worlds Top 10 Retailers
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Retail Positioning Strategies

• Cost-side positioning
• Demand-side positioning

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Cost-Side Positioning

• Margin goals
• Inventory turnover goals

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Cost-Side Positioning

• Measures of performance
• GMROI Gross Margin Return On Inventory
• GMROI Gross Margin x Inventory Turnover
• GM Sales CGS
• GM GM / Sales
• IT
• In units IT Units sold / Avg Inventory in
  units
• Cost method IT CGS / Avg Inventory at cost
• Retail method IT Sales / Avg Inventory at
  retail

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Cost-Side Positioning

• Using retail method for IT
• GMROI (GM / Sales) x (Sales / Avg Inv at
  retail)
• GM / Avg Inv at retail
• Original retail
• Sale retail

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Cost-Side Positioning

• GMROI Example Ronneez Pet Shop
• Sales for year 1,000
• Cost of goods sold 800
• Average inventory at cost 200
• Average inventory at MSRP 250
• GM
• GM
• IT
• GMROI GM x IT
• or
• GMROI GM / Avg Inv

1,000 800 200
200 / 1,000 0.20 20
800 / 200 4
1,000 / 250 4
or
0.20 x 4 0.80 80
200 / 250 0.80 80
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Cost-Side Positioning

• Measures of performance (continued)
• Sales per employee
• Sales / FTE
• GM per full time equivalent employee
• (Sales CGS) / FTE

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Cost-Side Positioning
Taken from The Controllers Report, Dec 2003
Sep 2004
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Cost-Side Positioning

• Measures of performance (continued)
• Sales per square foot
• GM per square foot
• Rent expense
• Anchor stores
• Strategic use of space
• Involves suppliers

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Demand-Side Positioning

• Bulk-breaking
• Warehouse clubs
• BOGO
• Dollar stores

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Demand-Side Positioning

• Spatial convenience
• Based on product class
• Time issues
• Waiting and delivery time
• Out-of-stocks

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Demand-Side Positioning

• Product variety
• Breadth
• Depth

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Demand-Side Positioning

• Customer service
• SGA Sales, General, and Administrative expenses
• Balance costs and benefits

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Multichannel Shopping

• Brick mortar
• Internet
• Hybrid
• Free riding
• Click mortar

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Internet Retailing
Computer hardware Clothing Other
merchandise Furniture Office equipment/supplies
Electronics/appliances Books/magazines Drugs,
health/beauty aids Music/videos Toys/hobbies/gam
es Computer software Sporting
goods Food/beer/wine
0 5 10 15 of
Total Internet Retail Sales
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Direct Selling

• Face-to-face consumer sales away from a fixed
  retail location
• Direct selling organizations (DSO)
• Independent contractors
• Products
• Sideline
• Developing economies

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Direct Selling

• Multi-level direct selling organizations (MLDSO)
• Illegal pyramid schemes
• Frontloading

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DSO Standards

• Low cost to join
• Can return unsold merchandise
• Rewards based on sales, not recruiting
• Recruit only qualified individuals

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Should you join a DSO?

• Do you love selling?
• Are you good at it?
• Are you comfortable asking your friends for
  money?
• Is this really what you want to sell?

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Evaluating A DSO

• Product value
• Financially sound company
• Legal/ethical company
• Follows DSO standards

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Channel Power of Retailers

• Channel power
• Strong power position of retailers
• Pressure suppliers because of own pressures
• Slow growth of aggregate sales
• Need to cut costs to be profitable
• Expanding role of buyers
• Consolidations
• Too many new products
• Have become accustomed to special offers
• Private brands

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Trade Deals

• Off invoice
• Bill-back
• Count-recount
• Free goods
• Co-op advertising
• Advertising allowances
• Display allowances
• Street money

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Trade Deals (cont.)

• Sales drives
• Terms or inventory financing
• Slotting allowances
• Failure fees
• Forward buying
• Diverting

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Private Branding

• Brands created by retailers
• Benefits to retailer
• Store loyalty
• More profitable
• Types of private brands
• Store name
• Retailers own brand
• Designer-exclusive
• License name
• Generic

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Globalization of Retailing

• Lags behind other industries
• Difficulties of going international
• Real estate
• Physical logistics operations
• Supplier relationships
• Different regulations
• Cultural differences

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Globalization of Retailing

• Keys to success
• Balance
• Distinctive retail competency
• Local preferences
• Competing in home market against international
  retailers
• Niche markets
• Superior offering

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Miscellaneous Retail Pricing Terms

• Cash discounts (2/10 net 30)
• F.O.B.
• Freight allowances
• Markdown or off-retail
• Markup
• Quantity discounts
• Cumulative
• Non-cumulative
• Seasonal discount
• Trade discount

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Key Terms

• Retailing
• Retail positioning strategy
• Cost-side positioning
• Demand-side positioning
• GMROI
• GMROL
• GMROS
• Anchor stores
• Out-of-stocks
• SGA
• Brick mortar

• Free riding
• Click mortar
• Direct selling
• DSO
• MLCSO
• Pyramid scheme
• Frontloading
• Channel power
• Buyers
• Off invoice
• Bill-back
• Count-recount
• Co-op advertising
• Advertising allowance

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Key Terms

• Display allowances
• Sales drives
• Terms or inventory financing
• Slotting
• Street money
• Forward buying
• Failure fees
• Private brand
• Store name brand
• Retailers own brand
• Designer-exclusive brand
• License name brand

• Generic brand
• Cash discounts
• F.O.B.
• Freight allowances
• Markdown or off-retail
• Markup
• Cumulative quantity discount
• Non-cumulative quantity discount
• Seasonal discount
• Trade discount