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RETAILING

Walton’s .5 & .10

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Definition of Retailing

Retailing includes .. .. .. ..
Retailing includes
all
allactivities
activitiesinvolved
involvedin
inselling,
selling,renting,
renting,and
andproviding
providing
goods
goodsand
andservices
servicesto
toultimate
ultimatecustomers
customersfor
forpersonal,
personal,
family
familyor
orhousehold
householduse.
use.

In
Inthe
thechannel
channelof
ofdistribution,
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retailingisiswhere
wherethethe
customer
customermeets
meetsthe
theproduct.
product. ItItisisthrough
throughretailing
retailingthat
that
exchange
exchangeoccurs.
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
Wells Fargo 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.

Saturn dealers have adopted a one-price strategy that eliminates the need for
Saturn 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 Levi Strauss & Co. now offers the Levi’s Original Spin program which
allows customers to create their own jeans by selecting from three models,
www.levi.com
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
Toys “ R ” Us dreams about. Walking into a Toys “R” Us store is like living under a
www.toysrus.com 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
Category Retailer(s)
Retailer(s) Sales
Sales($ billions))
($, ,ininbillions
Department Sears
Sears(K-Mart)
(K-Mart) 49.124
49.124
Departmentstores
stores JJCCPenney 18.781
Penney 18.781
Apparel Limited
Limited 9.699
9.699
Apparel TJX 16.058
TJX 16.058
Consumer Circuit
CircuitCity
City 10.472
10.472
ConsumerElectronics
Electronics Best
BestBuy
Buy 27.433
27.433
Drug Wal-Mart
Wal-Mart 315.654
315.654
Drugand
andDiscount
Discount Target 52.620
Target 52.620
Home Home
HomeDepot
Depot 81.511
81.511
HomeImprovement
Improvement Lowe’s 43.243
Lowe’s 43.243
Home Service
ServiceMerchandise
Merchandise 3.327
3.327
HomeShopping
Shopping Fingerhut 1.912
Fingerhut 1.912
Specialty Costco
Costco 52.935
52.935
SpecialtyRetailers
Retailers Toys
ToysRRUsUs 11.194
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 3.8
group 9.6
Eating and
drinking places 4.9 24.5
Gasoline service
stations 5.7
Building material,
hardware, etc. 5.9
Furniture and home 6.2 16.7
furnishings stores
Apparel and 9.2
accessory stores 12.9
Drug and
proprietary stores
Liquor stores

Other

0 325 650
Sales ($billions) Irwin/McGraw-Hill
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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
TOTAL
TYPE OF NUMBER OF
FRANCHISE START-UP
BUSINESS FRANCHISES
COSTS

McDonald’s 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-$124,000 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 Appliances CDs Men’s Clothing

Amana
Nike running shoes
Depth: refrigerator Classical
Suits
Number of Florsheim dress Sony TV sets
Ties
items within shoes JVC videocassette Rock
Jackets
each product recorders
Top Sider boat Overcoats
line General Electric Jazz
shoes Socks
dishwashers
Shirts
Sharp microwave Country Western
Adidas tennis shoes
ovens

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Differences in Store Concepts

DISCOUNT STORE SUPERCENTER HYPERMARKET

Average size 70,000 150,000 230,000


(in square feet)

Number of employees 200-300 300-350 400-600

Annual Sales $10-$20 $20-$50 $75-$100


($ millions per store)

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
High

Direct
selling
Tele-
marketing
On-line
retailing
Television
home
shopping
Direct mail
and
catalogs
Automatic
t s uc e vi t c A

vending
Low
Low Active retailer involvement 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 Value added 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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MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS
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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

Variety and
assortment
Sales assistance
Personal selling Consumers Customer services
Advertising Pricing
Credit
Window displays Guarantees and
Internal displays exchanges
Public relations Alterations and
Store layout adjustments
Catalogs Store image and
atmosphere
Telephone sales Parking
Delivery

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Implications of the Retail Positioning Mix
Types of Retailers Keys to Success
High Value-added/ Creative merchandising image--
Broad Line excitement, leader
High price/high margin
(Bloomingdales) Store Ambiance
Economies of scale--volume
Low Value-added/ Image--”good guys”, conveniences
broad line (Kmart) Low price/low margin
Low or self-service
Efficiency of operations

High Value-added/ Unique of high quality products


Image--exclusive specialty
narrow line (Tiffany) High price/high margin
Personal service/advice
Expensive presentation
Specialty mass merchandising
Low Value-added Image--value conscious, consistent
narrow line Low price, loss leaders
(Just for Feet) Little or self-service
“Cookie-cutter” stores
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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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MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS
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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
2.2.Outlet
Outletnow
nowhas:
has:
Higher prices
Higher prices 3.3.Outlet
Outletnow
nowhas:
has:
Higher
Highermargins
margins Still higher prices
Still higher prices
Higher status
Higher status Still
Stillhigher
highermargins
margins
Still
Stillhigher
higherstatus
status
Passage
of time
As time passes,
outlet adds services

4.4.New
Newform
formofofoutlet
outlet
enters retailing
enters retailing
1.1.Outlet
Outletstarts
startswith: environment
Low prices
with: environmentwithwith
Low prices characteristics
characteristicsofof
Low
Lowmargins outlet
Low
margins
status outletininBox
Box11
Low status

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Market share or profit
Value-retail stores

Early
growth
On-line retailers

MARKETING, 6/e
Single-brand stores

Single-price stores

BERKOWITZ
Factory outlet stores

Accelerated

KERIN
development
Warehouse clubs

Fast food outlets


The Retail Life Cycle

HARTLEY
Profit Convenience stores
Supermarkets

RUDELIUS
Maturity
Department stores
Market share

Malls (?)
Irwin/McGraw-Hill

Catalog Retailers
Decline

General store
© The McGraw-Hill Companies, Inc., 20
Future Changes in Retailing

Impact of Technology

Changing Shopping Behavior

Importance of Brands
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