Académique Documents
Professionnel Documents
Culture Documents
by Store-Based
Strategy Mix
Chapter Objectives
ISBN 0-558-56934-X
Today, Ikea strives to facilitate the shopping process. Most stores have a
spacious and open layout, a cafeteria, and even a playroom that offers
baby-sitting assistance for customers. The layout encourages browsing and
increases impulse purchases. The inexpensive cafeteria, which serves Swedish-style delicacies (such as
potatoes with meat balls and lingonberry juice at low
prices), encourages customers to spend more time
on the premises. The playroom enables shoppers to
go through the store without their children tagging
behind them.
Ikea has consistently been named on Working Mother
magazines annual listing of 100 Best Companies
for Working Mothers, due to its family-friendly
program for workers. It has also been recognized on
Fortunes 100 Best Companies to Work For and in
Fast Companys Fast 50 for its environmentally
responsible products.1
124
OVERVIEW
In Chapter 4, retail institutions were described by type of ownership. In this
chapter, we discuss three key concepts in planning retail strategy mixes: the
wheel of retailing, scrambled merchandising, and the retail life cycle. We then
look at how retail strategies are evolving and study the basic strategies of several
store-based institutions. Chapter 6 deals with nonstore-based, electronic, and
nontraditional strategies.
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
According to the wheel of retailing theory, retail innovators often rst appear as low-price
operators with low costs and low prot margin requirements. Over time, the innovators
upgrade the products they carry and improve their facilities and customer service (by
adding better-quality items, locating in higher-rent sites, providing credit and delivery, and
so on), and prices rise. As innovators mature, they become vulnerable to new discounters
with lower costs, hence, the wheel of retailing.2 See Figure 5-1.
The wheel of retailing is grounded on four principles: (1) There are many price-sensitive
shoppers who will trade customer services, wide selections, and convenient locations
for lower prices. (2) Price-sensitive shoppers are often not loyal and will switch to retailers
with lower prices. However, prestige-sensitive customers enjoy shopping at retailers with
125
FIGURE 5-1
The Wheel of Retailing
As a low-end retailer upgrades
its strategy to increase sales and
prot margins, a new form of
discounter takes its place.
High-end strategy
High prices
Excellent facilities and services
Upscale consumers
Medium strategy
Moderate prices
Improved facilities
Broader base of
value- and serviceconscious consumers
Low-end strategy
Low prices
Limited facilities and services
Price-sensitive consumers
high-end strategies. (3) New institutions are frequently able to have lower operating costs
than existing institutions. (4) As retailers move up the wheel, they typically do so to increase
sales, broaden the target market, and improve their image.
For example, when traditional department store prices became too high for many
consumers, the growth of the full-line discount store (led by Wal-Mart) was the result. The
full-line discount store stressed low prices because of such cost-cutting techniques as
having a small sales force, situating in lower-rent store locations, using inexpensive xtures, emphasizing high stock turnover, and accepting only cash or check payments for
goods. Then, as full-line discount stores prospered, they typically sought to move up a little along the wheel. This meant enlarging the sales force, improving locations, upgrading
xtures, carrying a greater selection of merchandise, and accepting credit. These improvements led to higher costs, which led to somewhat higher prices. The wheel of retailing
ISBN 0-558-56934-X
CAREERS
IN RETAILING
During college, Jay was a sales associate for a regional discount store chain. At that time, he decided that he didnt
want to make his career in discount retailing and thought
the department-store format would be more in line with
his goals.
For his rst position out of training as a merchandise
manager, Jay was put in a department he knew little about.
But he remembered the lesson he had learned in the management training program and relied on his people. Jay
involved the staff in the buying process; they knew the customer and could tell him what they always ran out of, what
would beat the competition, and so on. The department
earned a 25 percent gain in Jays rst year. Jay earned a promotion in just 18 months to a senior merchandise manager,
where he was managing and buying a larger merchandise
volume. Under his leadership, the department enjoyed four
years of strong growth. Ultimately, he became a district personnel and operations manager, which involved multiple
relocations.
Jay then moved into human resources as a regional
college relations manager. He worked out of his home
and visited colleges, exhibiting, recruiting, and interviewing candidates for internships and full-time positions. In
his current position, Jay is the manager of college relations at the corporate ofce. He oversees recruitment programs across the country and does some local recruiting
for entry-level management and corporate positions, as
well as corporate and store-based interns. In this position,
Jay is exposed to all and the highest levels within the company. He earns more than $100,000 per year.
Source: Reprinted by permission of the National Retail Federation.
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
126
again came into play as newer discounters, such as off-price chains, factory outlets, and
permanent ea markets, expanded to satisfy the needs of the most price-conscious consumer. More recently, we have witnessed the birth of discount Web retailers, some of
which have very low costs because they do not have bricks-and-mortar facilities.
As indicated in Figure 5-1, the wheel of retailing reveals three basic strategic positions: low end, medium, and high end. The medium strategy may have some difculties if
retailers in this position are not perceived as distinctive: An unfocused rm stuck in the
mushy middle of its category is ripe picking for competition. As an industry matures, competitors come in and steal market share from above you as well as below you. This is what
happened to Sears. While Sears stayed in the middle of the department-store market, the
department-store industry was diverging into two separate industries, one at the low end
and one at the high end.3 Figure 5-2 shows the opposing alternatives in considering a
strategy mix.
The wheel of retailing suggests that established rms should be wary in adding services or converting a strategy from low end to high end. Because price-conscious shoppers
are not usually loyal, they are apt to switch to lower-priced rms. Furthermore, retailers
may then eliminate the competitive advantages that have led to protability. This occurred
with the retail catalog showroom, which is now a defunct format.
Scrambled Merchandising
Whereas the wheel of retailing focuses on product quality, prices, and customer service,
scrambled merchandising involves a retailer increasing its width of assortment (the number of different product lines carried). Scrambled merchandising occurs when a retailer
adds goods and services that may be unrelated to each other and to the rms original business. See Figure 5-3.
Scrambled merchandising is popular for many reasons: Retailers want to increase
overall revenues; fast-selling, highly protable goods and services are usually the ones
added; consumers make more impulse purchases; people like one-stop shopping; different
target markets may be reached; and the impact of seasonality and competition is reduced.
In addition, the popularity of a retailers original product line(s) may fall, causing it to
scramble to maintain and grow the customer base. Blockbuster, due to the advent of payper-view and premium movie channels on cable and satellite TV, as well as competition
from Netix, now carries magazines, movie merchandise, candy, video games, game players, DVD players, and moreand it offers its own online rental service.
FIGURE 5-2
Retail Strategy
Alternatives
High-End Strategy
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
Low-End Strategy
127
Slippers
Handbags
Slippers
Shoes
Shoes
Original
merchandise
mix
Socks
Rubber
galoshes
Belts
Umbrellas,
hats, and
scarves
Scrambled
merchandise
mix
Socks
Shoe
polish
Shoe
polish
Sweaters
Sandals
Sandals
Gloves
Rubber
galoshes
FIGURE 5-3
Scrambled Merchandising by a Show Store
How much of a
practitioner of scrambled merchandising
is Hammacher
Schlemmer (www.
hammacherschlemmer.
com)?
ISBN 0-558-56934-X
128
FIGURE 5-4
(a) Key Business Characteristics During the Stages of the Retail Life Cycle
Sales
Profitability
Positioning
Competition
Introduction
Low/growing
Negative to
break even
Concept innovation
None
Special need
Limited
Decline
Dropping
Low to
break even
Niche
Intensive/
consolidated
Introduction
(Early Growth)
Growth
(Accelerated
Development)
Maturity
Decline
Accessories Stores
Upscale Department
Stores
Home Furnishings Stores
New Fashion Concepts
Multi-Channel Retailers
Sales
Profits
Time
Of the big national grocery chains, only twoRoyal Ahold, which owns and
operates Peapod.com and Safewayhave a substantial presence online. The
online merchants that rank highest are direct marketers with a long history of
selling specialized food items or Web-only grocers with a national marketing
base, but local and refrigerated supply chains. The leading Web-only rm is
FreshDirect. To succeed in the online grocery business, retailers need to build
successful supply chain and delivery modelssuch as FreshDirect is doing. In
the high-density area of Manhattan, the difculty of getting to the grocery store
and hauling groceries home is already enough to have helped gain FreshDirect
home delivery service a loyal following in the city and surrounding areas.
Then, in May 2008, FreshDirect developed a program to further encourage
loyalty that targets a key barrier keeping more consumers from buying groceries onlinethe cost of delivery. Under FreshDirects Unlimited Delivery
Pass program, customers can buy a pass for six months for $59, or for a year
for $99. The pass covers delivery charges for as many online orders as the customer places during that period.5
See Intouch Kiosks (www.
intouchinteractive.com)
view of the future for
video kiosks.
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
In the second stage (growth), both sales and prots exhibit rapid growth. Existing
rms expand geographically, and newer companies of the same type enter. Toward the end
of accelerated development, cost pressures (to cover a larger staff, a more complex inventory system, and extensive controls) may begin to affect prots.
The interactive electronic video kiosk is an institution in the growth stage. Today,
kiosks sell everything from clothing to magazines to insurance to personal computers
(PCs). According to various sources, U.S. retail sales revenues generated by kiosks are
expected to rise from $1.1 billion in 2001 to more than $10 billion in 2010. Worldwide,
the number of installed interactive kiosks is projected to go from 246,000 kiosks in
2001 to more than 1 million kiosks in 2010.6 This institution is examined further in
Chapter 6.
The third stage (maturity) is characterized by slow sales growth for the institutional
type. Although overall sales may continue to go up, that rise is at a much lower rate
than during prior stages. Prot margins may have to be reduced to stimulate purchases.
129
ISBN 0-558-56934-X
130
FIGURE 5-5
west elm from
Williams-Sonoma
Williams-Sonoma
(www.williams-sonomainc.com)
launched west elm as a new store
concept: By offering a unique
combination of design, quality,
and value, west elm has grown
signicantly since its 2002
launch. Customers can shop
west elm for signature products,
affordable prices, and new
decorating ideas that will update
their homes with style and ease.
Source: Reprinted by permission
of Susan Berry, Retail Image
Consulting, Inc.
Standardizing operating procedures, store layouts, store size, and product offerings.
Using secondary locations, freestanding units, and locations in older strip centers and
by occupying sites abandoned by others (second-use locations).
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
Save-On-Closeouts.com
has a cost-containment
approach that even
extends to its austere
Web site (www.saveon-closeouts.com).
With a cost-containment approach, retailers strive to hold down both initial investments
and operating costs. Many rms use this strategy because of intense competition from
discounters, the need to control complicated chain or franchise operations, high land and
construction costs, the volatility of the economy, and a desire to maximize productivity.
Today, retailers are examining every aspect of their businesses in order to streamline
processes and costs.8
Cost containment can be accomplished through one or more of these approaches:
131
Placing stores in smaller communities where building regulations are less strict, labor
costs are lower, and construction and operating costs are reduced.
Using inexpensive construction materials, such as bare cinder-block walls and
concrete oors.
Using plainer xtures and lower-cost displays.
Buying refurbished equipment.
Joining cooperative buying and advertising groups.
Encouraging manufacturers to nance inventories.
A driving force behind cost containment is the quest to provide good value to customers:
Value remains a retailing buzzword. Its meaning is subjective; it can mean price,
quality, service, convenience, or a combination thereof. Price clearly plays a big
role in what consumers buy and where they buy it. Retailers pricing policies
particularly discountershave encouraged consumers to shop for bargains and
to distrust traditional sales. Pragmatic consumers have discovered they can get
reasonable quality at everyday low prices. Price is no longer an accurate reection of quality.9
Food-Oriented Retailers
The following food-oriented strategic retail formats are described next: convenience
store, conventional supermarket, food-based superstore, combination store, box (limitedline) store, and warehouse store.
TABLE 5-1
Type of Retailer
Atmosphere
and Services
Location
Merchandise
Prices
Promotion
Convenience store
Neighborhood
Average to
above
average
Average
Moderate
Conventional
supermarket
Neighborhood
Competitive
Average
Heavy use of
newspapers,
yers, and
coupons;
self-service
Food-based
superstore
Community shopping
center or
isolated site
Full assortment of
supermarket items,
plus health and
beauty aids and
general merchandise
Competitive
Average
Heavy use of
newspapers
and yers;
self-service
ISBN 0-558-56934-X
Food-Oriented
(Continued )
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
132
TABLE 5-1
Type of Retailer
Location
Merchandise
Prices
Atmosphere
and Services
Combination store
Community
shopping
center or
isolated site
Competitive
Average
Heavy use of
newspapers
and yers;
self-service
Box (limited-line)
store
Neighborhood
Very low
Low
Little or none
Warehouse store
Secondary site,
often in
industrial
area
Very low
Low
Little or none
Promotion
General Merchandise
Business
district or
shopping
center
Competitive
to above
average
Average to
excellent
Heavy use of
displays;
extensive
sales force
Traditional
department
store
Business district,
shopping
center, or
isolated store
Average to
above
average
Good to
excellent
Heavy ad and
catalog use,
direct mail;
personal
selling
Full-line
discount store
Business district,
shopping
center, or
isolated store
Competitive
Slightly below
average to
average
Heavy use of
newspapers;
price-oriented;
moderate
sales force
Variety store
Business district,
shopping center,
or isolated
store
Average
Below average
Use of
newspapers;
self-service
Off-price chain
Low
Below average
Use of
newspapers;
brands not
advertised;
limited sales
force
Factory outlet
Out-of-the-way
site or discount
mall
Very low
Very low
Little;
self-service
Membership club
Isolated store or
secondary site
(industrial park)
Very low
Very low
Little; some
direct mail;
limited sales
force
Flea market
Isolated site,
racetrack,
or arena
Very low
Very low
Limited;
self-service
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
Specialty store
133
CONVENIENCE STORE
7-Eleven (www.7-eleven.
com) dominates the
convenience store
category.
A supermarket is a self-service food store with grocery, meat, and produce departments
and minimum annual sales of $2 million. Included are conventional supermarkets, foodbased superstores, combination stores, box (limited-line) stores, and warehouse stores.
See Figure 5-7.
A conventional supermarket is a departmentalized food store with a wide range
of food and related products; sales of general merchandise are rather limited. This
FIGURE 5-6
ISBN 0-558-56934-X
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
134
FIGURE 5-7
Supermarkets Have Come
a Long Way
Kroger (www.kroger.com) has
been introducing a number of
new Kroger Marketplace stores:
These multi-department stores
offer full-service grocery,
pharmacy, and expanded general
merchandiseincluding outdoor
living products, electronics,
home goods, and toys. They
range in size from 80,000 square
feet to 125,000 square feet.
Source: Reprinted by permission
of Susan Berry, Retail Image
Consulting, Inc.
institution started more than 75 years ago when it was recognized that large-scale
operations would let a retailer combine volume sales, self-service, and low prices.
Self-service enabled supermarkets to both cut costs and increase volume. Personnel
costs were reduced, and impulse buying increased. The car and the refrigerator contributed to the supermarkets success by lowering travel costs and adding to the life
span of perishables.
For several decades, overall supermarket sales have been about 70 to 75 percent of
U.S. grocery sales, with conventional supermarkets now yielding one-fth of total supermarket sales. There are 17,000 conventional units, with annual sales of $110 billion.11
Chains account for the great majority of sales. Among the leaders are Kroger, Safeway,
and Ahold USA. Many independent supermarkets are afliated with cooperative or voluntary organizations, such as IGA and Supervalu.
Conventional supermarkets generally rely on high inventory turnover (volume sales).
Their prot margins are low. In general, average gross margins (selling price less merchandise cost) are 20 to 22 percent of sales, and net prots are 1 to 3 percent of sales.
These stores face intense competition from other food stores: Convenience stores
offer greater customer convenience; food-based superstores and combination stores have
more product lines and greater variety within them, as well as better margins; and box and
warehouse stores have lower operating costs and prices. Membership clubs (discussed
later), with their low prices, also provide competitionespecially now that they have
much expanded food lines. Variations of the supermarket are covered next.
FOOD-BASED SUPERSTORE
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
A food-based superstore is larger and more diversied than a conventional supermarket but
usually smaller and less diversied than a combination store. This format originated in the
1970s as supermarkets sought to stem sales declines by expanding store size and the number
of nonfood items carried. Some supermarkets merged with drugstores or general merchandise stores, but more grew into food-based superstores. There are 11,000 food-based U.S.
superstores, with sales of $250 billion.12
The typical food-based superstore occupies at least 30,000 to 50,000 square feet of space,
and 20 to 25 percent of sales are from general merchandise, including garden supplies, owers, small appliances, and lm developing. It caters to consumers complete grocery needs,
along with ll-in general merchandise.
OPEN
RETAILING AROUND
THE WORLD
135
Like combination stores, food-based superstores are efcient, offer a degree of onestop shopping, stimulate impulse purchases, and feature high-prot general merchandise.
But they also offer other advantages: It is easier and less costly to redesign and convert
supermarkets into food-based superstores than into combination stores. Many consumers
feel more comfortable shopping in true food stores than in huge combination stores.
Management expertise is better focused.
Over the past two decades, U.S. supermarket chains have turned more to food-based
superstores. They have expanded and remodeled existing supermarkets and built numerous new stores. Many independents have also converted to food-based superstores.
COMBINATION STORE
ISBN 0-558-56934-X
Meijers (www.meijer.com)
combination stores are
quite popular with
shoppers. They carry
120,000 items.
A combination store unites supermarket and general merchandise in one facility, with
general merchandise accounting for 25 to 40 percent of sales. The format began in the late
1960s and early 1970s, as common checkout areas were set up for separately owned
supermarkets and drugstores or supermarkets and general merchandise stores. The natural
offshoot was integrating operations under one management. There are 4,000 U.S. combination stores (including supercenters), and annual sales are $145 billion.13 Among those
with combination stores are Meijer, Fred Meyer, and Albertsons.
Combination stores are large, from 30,000 up to 100,000 or more square feet. This
leads to operating efciencies and cost savings. Consumers like one-stop shopping and
will travel to get there. Impulse sales are high. Many general merchandise items have
better margins than food items. Supermarkets and drugstores have commonalities in the
customers served and the low-price, high-turnover items sold. Drugstore and general
merchandise customers are drawn to the store more often.
A supercenter is a combination store blending an economy supermarket with a discount department store. It is the U.S. version of the even larger hypermarket (the
European institution pioneered by rms such as Carrefour that did not succeed in the
United States). As a rule, the majority of supercenter sales are from nonfood items. Stores
usually range from 75,000 to 150,000 square feet in size, and they stock up to 50,000 and
more itemsmuch more than the 30,000 or so items carried by other combination stores.
Wal-Mart, Target, and Kmart all operate some supercenters.
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
136
The box (limited-line) store is a food-based discounter that focuses on a small selection of items, moderate hours of operation (compared with other supermarkets), few
services, and limited manufacturer brands. They carry fewer than 2,000 items, few
refrigerated perishables, and few sizes and brands per item. Prices are on shelves
or overhead signs. Items are displayed in cut cases. Customers bag purchases. Box
stores rely on low-priced private-label brands. Their prices are 20 to 30 percent below
supermarkets.
The box store originated in Europe and was exported to the United States in the mid1970s. The growth of these stores has not been as anticipated, and sales have actually
fallen modestly in recent years. Some other food stores have matched box-store prices.
Many people are loyal to manufacturer brands, and box stores cannot fulll one-stop shopping needs. There are 2,500 box stores in the United States, with sales of $15 billion.14
The leading box store operators are Save-A-Lot and Aldi.
WAREHOUSE STORE
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
A specialty store concentrates on selling one goods or service line, such as young
womens apparel. It usually carries a narrow but deep assortment in the chosen category and tailors the strategy to a given market segment. This enables the store to maintain a better selection and sales expertise than competitors, which are often department
stores. Investments are controlled, and there is a certain amount of flexibility. Among
the most popular categories of specialty stores are apparel, personal care, auto supply,
home furnishings, electronics, books, toys, home improvement, pet supplies, jewelry,
and sporting goods.
Consumers often shop at specialty stores because of the knowledgeable sales personnel, the variety of choices within the given category, customer service policies, intimate
store size and atmosphere (although this is not true of the category killer store), the lack
of crowds (also not true of category killer stores), and the absence of aisles of unrelated
merchandise that they must pass through. Some specialty stores have elaborate xtures
and upscale merchandise for afuent shoppers, whereas others are discount-oriented and
aim at price-conscious consumers.
Total specialty store sales are difficult to determine because these retailers sell virtually all kinds of goods and services, and aggregate specialty store data are not compiled by the government. We do estimate that annual nonfood specialty store sales in
the United States exceed $2 trillion (including auto dealers). The top 50 specialty store
TABLE 5-2
137
Conventional Food-Based
Supermarkets Superstores
Combination
Stores
Number of
stores
145,000
17,000
11,000
4,000
2,500
1,600
Total annual
sales
$165 billiona
$110 billion
$250 billion
$145 billionb
$15 billion
$50 billionc
Average store
selling area
(sq. ft.)
5,000 or less
15,00020,000
30,00050,000+
30,000100,000+
5,0009,000
15,000+
Number of
checkouts
per store
13
610
10+
10+
35
5+
Factor
Gross margin
2530%
2022%
2025%
25%
1012%
1215%
Number of items
stocked per
store
3,0004,000
12,00017,000
20,000+
30,000+
Under 2,000
2,500+
Major emphasis
needs; dairy,
sandwiches,
tobacco,
gas, beverages,
magazines
Daily ll-in
Food; only
510% of
sales from
general
merchandise
Positioned
between
supermarket
and combo
store; 2025%
of sales from
general
merchandise
One-stop
shopping;
general
merchandise
is 2540% of
sales (higher
at supercenters)
Low prices;
few or no
perishables
Low prices;
variable
assortments;
may or may
not stock
perishables
aExcluding
gasoline.
supermarket-item sales at the supercenters of Wal-Mart, Target, and Kmart (which are more heavily oriented to general
merchandise than other combination stores).
cIncluding supermarket-item sales at Costco, Sams, and other membership clubs.
bIncluding
ISBN 0-558-56934-X
Sources: Various issues of Progressive Grocer; Food Marketing Institute, Facts & Figures, www.fmi.org/facts_gs; Convenience Store
News, www.csnews.com; and authors estimates.
chains (excluding auto dealers) have sales of $400 billion and operate more than
115,000 outlets. Among those chains, about one-third are involved with apparel.
Specialty store leaders include Home Depot (home improvement), Best Buy (consumer
electronics), T.J. Maxx (apparel), Toys R Us (toys), GameStop (video games), and
Barnes & Noble (books).16
As noted earlier in the chapter, one type of specialty storethe category killerhas
gained particular strength. A category killer (also known as a power retailer) is an
especially large specialty store. It features an enormous selection in its category and
relatively low prices. Consumers are drawn from wide geographic areas. See Figure 5-8.
Blockbuster, Sephora, Home Depot, Sports Authority, and Staples are among the chains
almost fully based on the concept. At Sephoras 515 stores around the world, the unique,
open-sell environment features over 200 classic and emerging brands across a broad range
of product categories including skincare, color, fragrance, bath & body, smilecare, and
haircare, in addition to Sephoras own private label.17
Nonetheless, smaller specialty stores (even ones with under 1,000 square feet of space)
can prosper if they are focused, offer strong customer service, and avoid imitating larger
rms. Many consumers do not like going to category killer stores: Shoppers looking
for just one or a few basic items and a quick checkout may not want to scour a cavernous
warehouse to nd what they need. Furthermore, some categories of merchandise, such as
high-tech consumer electronics products, require greater support at retail, from specially
trained, knowledgeable employees, than the support typically offered at category killer
stores.18
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
138
FIGURE 5-8
Old Navy: A Discount
Power in Apparel
At many of its stores, Old Navy
carries a huge selection of casual
apparel and accessories, all
under the Old Navy brand.
Source: Reprinted by permission
of Susan Berry, Retail Image
Consulting, Inc.
Any size specialty store can be adversely affected by seasonality or a decline in the
popularity of its product category. This type of store may also fail to attract consumers
who are interested in one-stop shopping for multiple product categories.
TRADITIONAL DEPARTMENT STORE
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
A department store is a large retail unit with an extensive assortment (width and depth)
of goods and services that is organized into separate departments for purposes of buying,
promotion, customer service, and control. It has the most selection of any general merchandise retailer, often serves as the anchor store in a shopping center or district, has
strong credit card penetration, and is usually part of a chain. To be classied as a department store, a retailer must sell a wide range of products (such as apparel, furniture, appliances, and home furnishings), and selected other items (such as paint, hardware, toiletries,
cosmetics, photo equipment, jewelry, toys, and sporting goods) with no one merchandise
line predominating.
Two basic types of retailers meet the preceding criteria: the traditional department
store and the full-line discount store. They account for more than $450 billion in annual
sales (including supercenters, where general merchandise sales exceed food sales and
leased departments), nearly one-tenth of all U.S. retail sales.19 The traditional department
store is discussed here; the full-line discount store is examined next.
At a traditional department store, merchandise quality ranges from average to quite
good. Pricing is moderate to above average. Customer service ranges from medium levels of
sales help, credit, delivery, and so forth to high levels of each. For example, Macys targets
middle-class shoppers interested in assortment and moderate prices, whereas Bloomingdales
aims at upscale consumers through more trendy merchandise and higher prices. Few traditional department stores sell all of the product lines that the category used to carry. Many
place greater emphasis on apparel and may not carry such lines as furniture, electronics, and
major appliances.
Over its history, the traditional department store has contributed many innovations,
such as advertising prices, enacting a one-price policy (whereby all shoppers pay the
same price for the same item), developing computerized checkouts, offering money-back
guarantees, adding branch stores, decentralizing management, and moving into suburban
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TECHNOLOGY
IN RETAILING
Casual Male (www.casualmale.com) is the largest specialty retailer of big and tall mens apparel, with more than
520 store locations throughout the United States, Great
Britain, and Canada. Casual Male operates under Casual
Male XL, Rochester Big & Tall Clothing, and Sears CanadaCasual Male names.
In most recent years, Casual Male has experienced
strong same-store sales increases. These increases can be
attributed to Casual Males stores featuring assortments that
are three to four times larger than what most clothing
chains stock. Casual Males stores carry such brands as
Nautica (www.nautica.com), Izod (www.izod.com), and
Reebok (www.reebok.com); private-label brands (such as
Comfort Zone and Platinum); and a custom clothing line.
Although the large inventories effectively serve its customers, Casual Male is concerned about both potential
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
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Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
A variety store handles an assortment of inexpensive and popularly priced goods and
services, such as apparel and accessories, costume jewelry, notions and small wares,
candy, toys, and other items in the price range. There are open displays and few salespeople. The stores do not carry full product lines, may not be departmentalized, and
do not deliver products. Although the conventional variety store format has faded
away, there are two successful spin-offs from it: dollar discount stores and closeout
chains.
Dollar discount stores sell similar items to those in conventional variety stores but in
plainer surroundings and at much lower prices. They generate $20 billion in yearly sales.
Dollar General and Family Dollar are the two leading dollar discount store chains. The
two rms operate a total of 14,500 stores and have $17 billion in annual sales. Closeout
chains sell similar items to those in conventional variety stores but feature closeouts and
overruns. They account for $8 billion annually. Big Lots is the leader in that category with
1,400 stores and annual sales of $4.7 billion.21
The conventional variety store format (which included Woolworth and McCrory) disappeared from the U.S. marketplace in the mid-1990s after a long, successful run. What
141
happened? There was heavy competition from specialty stores and discounters, most of
the stores were older facilities, and some items had low prot margins. At one time,
Woolworth had 1,200 variety stores with annual sales of $2 billion.
OFF-PRICE CHAIN
ISBN 0-558-56934-X
A factory outlet is a manufacturer-owned store selling closeouts; discontinued merchandise; irregulars; canceled orders; and, sometimes, in-season, rst-quality merchandise.
Manufacturers interest in outlet stores has risen for four basic reasons:
1. Manufacturers can control where their discounted merchandise is sold. By placing
outlets in out-of-the-way spots with low sales penetration of the rms brands, outlet
revenues do not affect sales at key specialty and department store accounts.
2. Outlets are protable despite prices up to 60 percent less than customary retail prices
due to low operating costsfew services, low rent, limited displays, and plain store
xtures.
3. The manufacturer decides on store visibility, sets promotion policies, removes labels,
and ensures that discontinued items and irregulars are disposed of properly.
4. Because many specialty and department stores are increasing private label sales,
manufacturers need revenue from outlet stores to sustain their own growth.
More factory stores now operate in clusters or in outlet malls to expand customer
trafc, and they use cooperative ads. Large outlet malls are in Connecticut, Florida,
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
142
FIGURE 5-9
Brooks Brothers: Realizing
the Value of Outlet Centers
Brooks Brothers has stores in
more than 80 outlet centers
around the country, 32 states
in all.
Source: Reprinted by permission.
Georgia, New York, Pennsylvania, Tennessee, and other states. There are 16,500 U.S.
factory outlet stores representing hundreds of manufacturers, many in the 225 outlet
malls nationwide. These stores have $18 billion in yearly sales, with three-quarters from
apparel and accessories.23 Manufacturers with a major outlet presence include Bass
(footwear), Brooks Brothers (apparel), Harry & David (fruits and gift items), Levis
(apparel), Liz Claiborne (apparel), Samsonite (luggage), and Totes (rain gear). See
Figure 5-9.
When deciding whether to utilize factory outlets, manufacturers must be cautious.
They must evaluate their retailing expertise, the investment costs, the impact on existing
retailers that buy from them, and the response of consumers. Manufacturers do not want to
jeopardize their products sales at full retail prices.
MEMBERSHIP CLUB
Sams (www.samsclub.
com) is Wal-Marts
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
143
The major retailing challenges relate to the allocation of company efforts between
business and nal consumer accounts (without antagonizing one group or the other and
without presenting a blurred store image), the lack of interest by many consumers in shopping at warehouse-type stores, the power of the two industry leaders, and the potential for
saturation caused by overexpansion.
FLEA MARKET
At a ea market, many retail vendors sell a range of products at discount prices in plain
surroundings. It is rooted in the centuries-old tradition of street sellingshoppers touch
and sample items, and they haggle over prices. Vendors used to sell only antiques, brica-brac, and assorted used merchandise. Today, they also frequently sell new goods, such as
clothing, cosmetics, watches, consumer electronics, housewares, and gift items. Many ea
markets are located in nontraditional sites such as racetracks, stadiums, and arenas. Some
are at sites abandoned by other retailers. Typically, vendors rent space. A ea market
might rent individual spaces for $30 to $100 or more per day, depending on location.
Some ea markets impose a parking fee or admission charge for shoppers.
There are a few hundred major U.S. ea markets, but overall sales data are not available. The credibility of permanent ea markets, consumer interest in bargaining, the
broader product mix, the availability of brand-name goods, and the low prices all contribute to the formats appeal. One of the best-known businesses in this genre is the Rose
Bowl Flea Market, which is open the second Sunday of each month. It regularly features
2,500 vendors and attracts 20,000 shoppers a day. The only restricted items are food,
animals, guns, ammunition, and pornography. The costs of vendor spaces range from
$50 to $250 for one day.25
At a ea market, price haggling is encouraged, cash is the predominant currency, and
many vendors gain their rst real experience as retail entrepreneurs. One recent trend involves
nonstore, Web-based ea markets such as eBay (www.ebay.com), eBid (www.ebid.com),
OnlineAuction (www.onlineauction.com), and OZtion (www.oztion.com). Online auction
sites account for several billion dollars in sales annually and are popular among bargain
hunters.
ISBN 0-558-56934-X
ETHICS
IN RETAILING
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144
Many traditional retailers believe ea markets represent an unfair method of competition because the quality of merchandise may be misrepresented, consumers may buy items
at ea markets and return them to other retailers for higher refunds, suppliers are often
unaware their products are sold there, sales taxes can be easily avoided, and operating
costs are quite low. Flea markets may also cause trafc congestion.
The high sales volume from off-price chains, factory outlets, membership clubs, and ea
markets is explained by the wheel of retailing. These institutions are low-cost operators appealing to price-conscious consumers who are not totally satised with other retail formats that have
upgraded their merchandise and customer service, raised prices, and moved along the wheel.
Chapter Summary
1. To describe the wheel of retailing, scrambled merchandising, and the retail life cycle, and to show how
they can help explain the performance of retail strategy mixes. In Chapter 4, retail institutions were examined by ownership. This chapter takes a store-based
strategic retailing perspective. A retail strategy mix
involves a combination of factors: location, operations, goods/services offered, pricing, atmosphere and
customer services, and promotion. To ourish, a rm
should strive to be dominant in some way and, thus,
reach destination retailer status.
Three important concepts help explain the performance of diverse retail strategies. According to
the wheel of retailing, retail innovators often first
appear as low-price operators with low costs and low
profit margins. Over time, they upgrade their offerings and customer services and raise prices. They are
then vulnerable to new discounters with lower costs
that take their place along the wheel. With scrambled
merchandising, a retailer adds goods and services
that are unrelated to each other and its original business to increase overall sales and profits. Scrambled
merchandising is contagious and often used in selfdefense. The retail life cycle states that institutions
pass through identifiable stages of introduction,
growth, maturity, and decline. Strategies change as
institutions mature.
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
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Key Terms
strategy mix (p. 124)
destination retailer (p. 124)
wheel of retailing (p. 124
scrambled merchandising (p. 126)
retail life cycle (p. 127)
mergers (p. 129)
diversication (p. 130)
downsizing (p. 130)
convenience store (p. 133)
6. Contrast the strategy mixes of convenience stores, conventional supermarkets, food-based superstores, and warehouse stores. Is there room for each? Explain your answer.
7. Do you think U.S. combination stores (supercenters)
will dominate grocery retailing? Why or why not?
8. What are the pros and cons of Sephora carrying more
than 200 brands of personal-care products?
9. Contrast the strategy mixes of specialty stores, traditional department stores, and full-line discount stores.
10. What must the off-price chain do to succeed in the future?
11. Do you expect factory outlet centers to keep growing?
Explain your answer.
12. Comment on the decision of many membership clubs
to begin selling gasoline.
Web Exercise
Note: Stop by our Web site (www.pearsonhighered.
com/berman) to experience a number of highly
interactive, appealing Web exercises based on actual
company demonstrations, and sample materials
related to retailing.
ISBN 0-558-56934-X
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.
ISBN 0-558-56934-X
Retail Management: A Strategic Approach, Eleventh Edition, by Barry Berman and Joel R. Evans. Published by Prentice Hall. Copyright 2010 by Pearson Education, Inc.