Global Marketing and World Trade

1
C H A P T E R E I G H T E E N
RETAILING
Waltons .5 .10
Irwin/McGraw-Hill
2
AFTER READING THIS CHAPTER YOU SHOULDBE ABLE TO

• Identify retailers in terms of the utilities they
  provide.
• Explain the alternative ways to classify retail
  outlets.
• Understand the many methods of non-store
  retailing.
• Classify retailers in terms of the retail
  positioning matrix.
• Develop retailing mix strategies over the life
  cycle of a retail store.

3
PP18-AA Lowest Prices on Earth!!

• Buy.com is an online retail business that sells
  consumer products at or below cost. The
  companys goal is to become the name all buyers
  associate with low price.
• How does Buy.com make up the deficit? By selling
  advertising space on its Web site. Presently,
  the company is growing at a rate that will make
  it the fastest growing company in U.S. history.
• Can a business survive with a strategy based on
  only having the lowest price?

4
PP18-BB 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.
5
PP18-CC Retailing Creates Value

• Retailings 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.

6
PP18-1 Which Company Best Represents Which
Utilities?
One of the best-run banks in the United States,
Wells Fargo is intensifying its 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 banks cash. 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. Levi Strauss Co. now offers the Levis
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. 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.
Wells Fargo Saturn Levi Strauss www.levi.com
Toys R Us www.toysrus.com
Can you match them? Time Place Possession Form
_____ _____
_____ _____
7
PP18-A The Largest Retailers
Category
Retailer(s)
Sales (, in billions)
Department stores
Sears J C Penney
41.322 30.678
Apparel
Limited TJX
9.347 7.949
Consumer Electronics
Circuit City Best Buy
8.871 8.358
Drug and Discount
Wal-Mart Kmart
139.208 33.674
Home Improvement
Home Depot Lowes
30.219 12.245
Home Shopping
Service Merchandise Fingerhut
3.327 1.912
Specialty Retailers
Costco Toys R Us
24.270 11.200
8
PP18-DD Global Economic Impact of Retailing

• Four of the 25 largest businesses in the U.S. are
  retailers.
• In 1997, Wal-Marts 119 billion in sales
  surpassed the gross domestic product of Finland
  for the same year.
• Sears, Wal-Mart, Kmart, and JCPenny together
  employ more than 1.6 million people.
• Wal-Mart has 603 stores outside the U.S.,
  including joint ventures in China and Korea.

9
PP18-2 Retail Sales By Type of Business
0 325
650
Sales (billions)
10
PP18-EE Concept Check

• 1. When Levi Strauss makes jeans cut to a
  customers exact preferences and measurements,
  what utility is provided?
• 2. Two measures of the importance of retailing in
  the global economy are ________ and ________ .

11
PP18-FF 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.

12
PP18-3 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 Lim
ited service Full-service Merchandise
line Depth Single line Limited
line Breadth General merchandise Scrambled
merchandise
13
PP18-4 The possibilities and costs of franchising
FRANCHISE
TYPE OF BUSINESS
TOTAL START-UP COSTS
NUMBER OF FRANCHISES
McDonalds Fast-food restaurant 385,000-520,000
19,500 Merry Maids Cleaning Service 27,500-40
,500 700 Jiffy Lube Automobile fluid
service 208,000-229,000 667 Mail Boxes
Etc. Postal Services 55,000-75,000
2,953 Duds N Suds Laundry and snack
bar 60,000 80 Radio
Shack Electronic accessories 67,500
1,934 Barbizon School of Modeling 69,500-1
24,000 65
14
PP18-GG 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 childrens 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.

15
PP18-5 Breadth vs. Depth of Merchandise Lines
Breadth Number of different product lines
Shoes Appliances CDs Mens
Clothing
Nike running shoes Florsheim dress shoes Top
Sider boat shoes Adidas tennis shoes
Amana refrigerator Sony TV sets JVC
videocassette recorders General
Electric dishwashers Sharp microwave ovens
Classical Rock Jazz Country Western
Suits Ties Jackets Overcoats Socks Shirts
Depth Number of items within each product line
16
PP18-6 Differences in Store Concepts
DISCOUNT STORE SUPERCENTER HYPERMARKET
70,000 200-300 10-20 18-19 60,000-80,000
Average size (in square feet) Number of
employees Annual Sales ( millions per
store) Gross margin Number of items stocked
230,000 400-600 75-100 7-8 60,000-70,000
150,000 300-350 20-50 15-16 100,000
17
PP18-HH Concept Check

• 1. Centralized decision-making and purchasing are
  an advantage of ________ ownership.
• 2. What are some examples of new forms of
  self-service retailers?
• 3. Would a shop for big mens clothes carrying
  pants in sizes 40 to 60 have a broad or deep
  product line?

18
PP18-7 Forms of Non-store Retailing
High
Active customer involvement
Direct selling
Tele- marketing
On-line retailing
Television home shopping
Direct mail and catalogs
Automatic vending
Low
Active retailer involvement
Low
High
19
PP18-II Automatic Vending

• Nonstore 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.

20
PP18-JJ 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.

21
PP18-KK 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.

22
PP18-LL 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.

23
PP18-MM 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.

24
PP18-NN 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.

25
PP18-OO Concept Check

• 1. Successful catalog retailers often send
  ________ catalogs to ________ markets identified
  in their databases.
• 2. How are retailers increasing consumer interest
  and involvement in online retailing?
• 3. Where are direct-selling retail sales growing?
  Why?

26
PP18-PP 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.

27
PP18-8 Retail Positioning Matrix
Broad
Kmart
Bloomingdales
Breadth of product line
Just for Feet
Tiffany
Narrow
Low
High
Value added
28
PP18-QQ 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.

29
PP18-RR The Retailing Mix

• The retailing mix includes
• 1. Goods and services
• 2. Physical distribution
• 3. Communications tactics chosen by a store.

30
PP18-9 The Retailing Mix
Retailing Mix
Physical distribution mix
Store location Distribution centers
Warehousing Transportation Handling goods Packing
Variety and assortment Sales
assistance Customer services Pricing Credit Guaran
tees and exchanges Alterations and
adjustments Store image and atmosphere Parking D
elivery
Market
Consumers
Personal selling Advertising Window
displays Internal displays Public relations
Store layout Catalogs
Telephone sales
Information
Goods and Service Mix
Communications mix
31
PP18-F Implications of the Retail Positioning
Mix
Types of Retailers
Keys to Success
High Value-added/ Broad Line (Bloomingdales)
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
Low Value-added/ broad line (Kmart)
Unique of high quality products Image--exclusive
specialty High price/high margin Personal
service/advice Expensive presentation
High Value-added/ narrow line (Tiffany)
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)
32
PP18-SSa 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
  retailers 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.

(continued)
33
PP18-SSb 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.

34
PP18-TT Store Location
Types of Store Locations

• Central business district
• regional shopping centers
• community shopping centers
• strip location
• power center

35
PP18-UU Concept Check

• 1. What are the two dimensions of the retail
  positioning matrix?
• 2. How does original markup differ from
  maintained markup?
• 3. A huge shopping strip with multiple anchor
  stores is a ________ center.

36
PP18-10 The Wheel of Retailing
37
PP18-11 The Retail Life Cycle
38
PP18-VV Future Changes in Retailing

• Impact of Technology
• Changing Shopping Behavior
• Importance of Brands

39
PP18-WW Concept Check

• 1. According to the wheel of retailing, when a
  new retail form appears, how would you
  characterize its image?
• 2. Market share is usually fought out before the
  ________ stage of the retail life cycle.
• 3. What is a smart card?