Types of Retailers

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Types of Retailers
Chapter 2
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Questions

• What trends shape todays retailers?
• What are the different types of retailers?
• How do retailers differ in terms of how they
  meet the needs of their customers?
• How do service retailers differ from merchandise
  retailers?
• What are the types of ownership for retail firms?

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General Trends in Retailing

• New Types of Retailers
• Increased Concentration
• Globalization
• Growth In Services Retailer
• Demise of Pure Electronic Retailers (Webvan,
  eToys, etc)
• Growth in Use of Multi-Channel Retailing by
  Traditional Retailers
• Increase Use of Technology to Reduce Cost
  Increase Value Delivered

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Types of Retailers

• Retailers Use Different Retail Mixes
• -merchandise variety (breadth) / assortment
  (depth)
• -services
• -store design, visual merchandising
• -location
• -pricing
• Infinite Variations
• Some combination of retail mixes satisfy the
  needs of significant segments and persist over
  time.

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New Types of Retailers

• Category Specialists
• -PETsMART
• -Bed, Bath and Beyond
• CarMax and Auto Nation
• Netflix, eBay, Priceline, Travelocity

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Bag Borrow or Steal
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Different Retail Mixes

• Merchandise variety (breadth)
• Assortment (depth)
• Services
• Store design, visual merchandising
• Location
• Pricing

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Types of Merchandise Retailers
Food Retailers
General Merchandise Retailers

• Mom and Pop Stores
• Convenience Stores
• Supermarkets
• Supercenters

• Department Stores
• Specialty Stores
• Discount Stores
• Category Specialists
• Off-Price Retailers
• Warehouse Clubs
• Value Retailers

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NAICS Codes for Retailers
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Merchandise Offering

• Variety (breadth of merchandise) wide vs. narrow
• - The number of merchandise categories
• Assortment (depth of merchandise) deep vs.
  shallow
• -the number of items in a category (SKUs)

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Variety and Assortment of Kayaks in Different
Retail Outlets
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Services offered

• Retailers differ in the services they offer
  customers
• EMS offers assistance in selecting the
  appropriate kayak and repairing them
• VS
• Outdoorplay.com and
• Wal-Mart doesnt provide any services

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Illustration of Variety and Assortment
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Variety and Assortment of Coffee Makers
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Variety and Assortment of Bicycle
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In-Store Digital Camera Comparison ShoppingBest
Buy vs. Wal-Mart
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SKUs for Digital Cameras
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Prices and the cost of offering breath and
depth of merchandise and services

• Stocking a deep and broad assortment (like EMS)
  is costly for retailers.

Many SKUs
Because the retailer must have backup stock for
each SKU in addition to holding the inventory
Inventory Investment Cost
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Sales and growth rate for retail sectors
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Food Retailers

• Channel preference for food shopping channel
  where grocery purchasers do most of their food
  shopping

• Supermarkets
• Supercenters
• Warehouse Clubs
• Convenience Stores

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Characteristics of Food Retailers
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Types of Food Retailers
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Supermarkets

• Conventional supermarkets
• 30,000 SKU
• Limited assortment supermarkets (extreme value
  food retailers)
• 2000 SKU
• Offer one or two brands and sizes
• Designed to maximize efficiency and reduce costs
• Offer merchandise at 40-60 lower prices than
  conventional supermarkets
• Save-A-Lot, ALDI (Germans Wal-Mart)

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ALDI Germans Wal-Mart
ALDI provides quality merchandise at low prices
by reducing its assortment in order to control
store operating expenses
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ALDIs Strategy

• 4,100 stores in Germany and 6,600 worldwide,
  including 800 stores in 26 US states
• Cheap..
• Only two brands of toilet paper and one brand of
  pickles
• STRATEGY
• Stores sell less products
• ALDI exclusive label
• High quality of products at cheaper prices
• HOW?
• Strong control over quality and price
• Simplify shipping and handling
• Reduce labor costs by keeping limited store
  staff, etc.

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Save-A-Lot
Save-A-Lots limited assortment format means that
stores carry the most frequently purchased
grocery items in the most popular size and
variety The company carries high
quality exclusive brands many produced by the
same manufacturers of leading name brands and
an assortment of nationally branded items. This
allows Save-A-Lot to offer savings of up to 40
compared to conventional grocery stores without
asking shoppers to sacrifice quality.
Used by permission of Save-A-Lot
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Trends in Supermarket Retailing

• Competition from Discount Stores
• Changing Consumption Patterns

Efficient Distribution
Lower Costs
Lower Prices
Time Pressure
Eating Out More
Meal Solutions
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Conventional Supermarket Survival Pack

• Emphasize Fresh Perishables
• Wegmans
• Target health conscious and ethnic consumers
• Provide a better in-store experience
• Offer more private label brands

Chef-crafted meals on the go at EatZis
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Supercenters and Warehouse Clubs
Supercenters
Warehouse Clubs

• Offer a limited and irregular assortment of food
  and general merchandise with little service at
  low prices
• Use low-locations, inexpensive store design,
  little customer service
• Low inventory holding costs by carrying a limited
  assortment of fast selling items

• The fastest growing retail category
• Large stores (150,000 220,000 square feet) that
  combine a supermarket with a full-line discount
  store
• One-stop shopping experience

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Convenience Store

• Tailors assortments to local market
• Makes more convenient to shop
• Offers fresh, healthy food
• Fast, casual restaurants
• Financial services available
• Opening smaller stores closer to consumers (like
  airports)

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Types of General Merchandise Retailers

• Department Stores
• Specialty Stores
• Category Specialists
• Home Improvement Centers
• Discount Stores
• Drugstores
• Off-Price retailers
• Extreme Value Retailers

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Characteristics of General Merchandise Retailers
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Issues in Department Store Retailing

• Competition
• -Discount Stores on Price
• -Specialty Stores on Service, Depth of
  Assortment
• Lower Cost by Reducing Services (?)
• -Centralized Cash Wraps
• More Sales (?)
• -Customers Wait for Sale
• Focus on Apparel and Soft Home
• Develop Private Labels and Exclusive Brands

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Three Tiers of Department Stores

• First Tier Upscale, high fashion chains with
  exclusive designer merchandise and excellent
  customer service
• Nordstrom, Neiman Marcus, Saks
• Second Tier Retailers sell more modestly priced
  merchandise with less customer service
• Macys
• Third Tier Value oriented caters to more price
  conscious customer
• JCPenney, Sears, Kohls

Rob Melnychuk/Getty Images
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Department StoresWhat To Do With an Eroding
Market

• To deal with an eroding market
• Department stores are
• attempting to increase the amount of exclusive
  merchandise they sell
• undertaking marketing campaigns to develop strong
  images for their stores and brands
• building better relationships with their key
  customers

Royalty-Free/CORBIS
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Issues in Discount Store Retailing

• Only Big Left
• Wal-Mart, Target
• Wal-Marts Dominance
• Differentiate Strategy
• Wal-Mart Low Price and Good value
• Target More Fashionable Apparel
• Competition from Category Specialists
• Toys-R-Us, Circuit City, Sports Authority

McGraw-Hill Companies, Inc./Gary He, photographer
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Issues in Specialty Store Retailing

• Mall-Based Apparel Retailers
• Decline in Mall Shopping and Apparel Sales
• -Lack of New Fashions
• -Less Interest in Fashion
• -Increased Price Consciousness
• Lifestyle Formats
• Abercrombie and Fitch
• Hot Topics

McGraw-Hill Companies, Inc./Andrew Resek,
Photographer
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Specialty Store Retailers
McGraw-Hill Companies, Inc./Andrew Resek,
Photographer
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Issues in Drug Store Retailing

• Consolidation Walgreens, CVS, Rite-Aid
• Competition from Supermarkets, discount Stores
  and mail-in orders
• Evolution to a New Format
• -Stand Alone Sites with Drive Thru Windows
• -offering more frequent purchase food items
• Improved systems provide personalized service in
  the pharmacy

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Category Specialists

• Deep and Narrow Assortments Destination Stores
• Category killers
• Low Price and Service
• Wholesaling to Business Customers and Retailing
  to Consumers
• Incredible Growth

Bass Pro Shops
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Category Specialists
Sephora, Frances leading perfume/cosmetic
chain LVMHs division
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Category Specialists Home Improvement Centers
Home Depot and Lowes act as both Retailer
and Wholesaler
Consumer
Business
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Home Improvement Centers

• Displayed in a warehouse atmosphere
• Customer Service How to select and how to use
  merchandise
• Competition focuses on price, effort to
  differentiate and services provided

Ryan McVay/Getty Images
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Issues in Extreme Value Retailing

• Focuses on Lower Income Consumers
• Names mostly imply good value not 1 price points
• Low Cost Location
• Limited Services
• One of the Fastest Growing Retail Segments

Dollar Tree Family Dollar Dollar
General 99 Cents Only Store
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Off-Price Retailers

• Close-out retailers
• Offer an inconsistent assortment of brand name
  merchandise at low prices
• TJX companies (T.J. Maxx, Marshalls. HomeGoods)
• Ross Stores, Burlington Coat factory, Big Lots,
  Tuesday Morning

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Types of Non-store Retailers
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Electronic Retailing

• Many retailers operate from virtual storefronts
  on the World Wide Web, usually maintaining little
  or no inventory, ordering directly from vendors
  to fill customer orders
• History of frenzied investments and false
  predictions of retail dominance
• Primarily used by traditional retailers to
  compliment store and catalog offerings
• Exclusive e-tailers target small and dispersed
  niche markets

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What are Amazon and eBay?

• Amazon.com Merchandise to consumers. Provides
  website development and fulfillment services to
  other retailers
• eBay Acts as a mall or other shopping center
  providing a place for buyers and sellers to meet

Don Farrall/Getty Images
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Issues in Catalog Retailing

• Low Start Up Cost
• Evolution of Multi-Channel Offering
• Hard to compete with large well established firms
• Increasing Mail Costs
• Clutter from other Catalogs
• General merchandise catalogs like JC Penney
• Specialty Catalogs like Victoria Secret

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Issues in Direct Selling

• Completely bypasses retailers and wholesalers
• Manufacturers set up their own channels to sell
  their products directly to consumers
• Party plan system merchandise is demonstrated in
  a party atmosphere
• Multi-level network Master distributors sell to
  distributors who sell merchandise
• Pyramid schemes Firm sells to other distributors
  and little if any merchandise goes to end users

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Issues in Television Home Shopping

• Consumers watch cable stations, infomercials or
  direct response ads
• Few consumers watch regularly
• Most purchases made by small proportion of
  viewers
• Customers cant examine merchandise
• Customers must wait for merchandise to come on
• Sells predominately jewelry, apparel, cosmetics,
  kitchenware, and exercise equipment

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Issues in Vending Machine Retailing

• Automatic Merchandising
• About 25 billion worth of convenience goods are
  sold to Americans through 4.7 million vending
  machines
• Sales growth has been declining due to higher
  prices and healthier eating habits
• New technology may help sales growth
• Trend of placing machines in captive consumer
  locations

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Services vs. Merchandise Retailers

• Intangibility
• Problems in Evaluating Service Quality
• Performance of Service Provider
• Simultaneous Production and Delivery
• Importance of Service Provider
• Perishability
• No Inventory, Must Fill Capacity
• Inconsistency of the Offering
• Importance of HR Management

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Examples of Service Retailers
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Examples of Service Retailers
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Merchandise/Service Continuum
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Types of Retail Ownership

• Independent, Single Store Establishments
• Wholesale-sponsored voluntary group
• Corporate Retail Chains
• Franchises

(c) Brand X Pictures/PunchStock
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Retailers Using Franchise Business Model
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Franchising

• 30 40 of US Retail Sales
• Franchisee Pays Fixed Fee Plus of Sales
• Franchisee Implements Program
• Why is this Ownership Format Efficient?

The McGraw-Hill Companies, Inc./Jill Braaten,
photographer
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Reasons for Franchising Growth
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Reasons for Franchising Failure
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Franchisor Positions in the Marketing Channel
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Franchisor Benefits
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Franchisee Benefits
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Franchisor Advantages/Disadvantages
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Franchisee Advantages/Disadvantages
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Franchising Trends for the New Millennium