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Chapter 1

Introduction to the World of Retailing

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The World of Retailing

Introduction to Retailing

Types of Retailers

Multi-Channel Retailing

Customer Buying Behavior

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Questions

Ŷ What is retailing?
Ŷ What do retailers do?
Ŷ Why is retailing important in our society?
Ŷ What career and entrepreneurial opportunities
does retailing offer?
Ŷ What types of decisions do retail managers
make?

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What is Retailing?

Retailing ± a set of business


activities that adds value to
the products and services
sold to consumers for their
personal or family use

A retailer is a business that


sells products and/or
services to consumers for
personal or family use.

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Examples of Retailers

 Retailers:
 ohl¶s, Macy¶s,
Wendy¶s,
Amazon.com, Jiffy
Lube, AMC Theaters,
American Eagle
Outfitter, Avon, J.Crew

 irms that are retailers and wholesalers - sell to


other business as well as consumers:
Office Depot, The Home Depot, United Airlines, Bank of
America, Costco
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Manufacturer¶s Perspective

The Four P¶s of Marketing


Retailers
Retailersare
are part of the
part of the
distribution channel
distribution channel
Product

]istribution Price

Promotion

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Distribution Channel

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Typical Supply Chain Network

Customers

6uppliers Plants

retailers
]istribution
Centers
A Retailer¶s Role in a Supply Chain

 Retailers are the final business within a supply


chain which links manufacturers to consumers.

 A Supply Chain is a set of firms that make and


deliver a given set of goods and services to the
ultimate consumer.

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Manufacturing, Wholesaling and Retailing

wertical Integration ± firm performs more than one set of activities in


the channel
Ex: retailer invests in wholesaling or manufacturing

Backward Integration ± retailer performs some distribution and


manufacturing activities
Ex: JCPenney sells Arizona jeans (Private Label)
orward Integration ± manufacturers undertake retailing activities
Ex: Ralph Lauren (New York Jones, Liz Claiborne) operates its
own stores

Large retailers engage in both wholesaling and retailing


Ex: Wal-Mart, Lowe¶s, Safeway, Brown Shoe Company
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Do Retailers Add Value?

a box of crackers at a grocery store


Ö ample  costs $1 to manufacturer
 sells at a price of $2

Retailers add significantly to the prices consumers face

Why not buy directly from the manufacturer?

Does that mean that grocery stores are very profitable?

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Why Not Get Rid of the Middlemen?

 
  
  

 
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Why Not Get Rid of the Middlemen?

ABetter services to
customers
AMore efficient

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Music Industry Channel

Composer Record
Publisher Music Retailer
Lyricist Company

Artist ]istributor

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Cost for CD

Retailer $5.00
Record Company
‡ 4 out of 5 C]s fail to
Manufacturing .75 make a profit
]istribution 1.50
Marketing 2.00 ‡ $300,000 cost to
Coop advertising 1.00 prepare a C] for
Artist/Repertoire 1.00 release
Artist royalty 1.25
Lyricist .75 ‡ 30,000 recording
Overhead/Profit 2.00
artists
Total 15.25

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How Retailers Add Value

Ŷ Provide Assortment
Buy other products
at the same time
Ŷ Break Bulk
Buy it in quantities
customers want
Ŷ Hold Inventory
Buy it at a
convenient place
when you want it
Ŷ Offer 6ervices
See it before you
buy; get credit;
layaway
Ryan Mcway/Getty Images

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How Retailers Add Value

The value of the product and service


increases as the retailer performs functions.
Bicycle can be
bought on credit or
put on layaway

Bicycle is featured
on floor display

Bicycle is offered in
convenient locations
in quantities of one
Bicycle is
developed in
several styles
Bicycle is developed
at manufacturer
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Examples: How Retailers Add Values

 BagBorrowerSteal.com
 jewelry and bag rental; Get (not buy, but borrow) exactly what you
want
 Home Depot
 DIYer (Do-it-yourselfer); Learn how to do it yourself with in-store
clinics and online workshops

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Social and Economic Significance of Retailing

 Retail Sales:
 Over $4.1 trillion in annual

U.S. sales in 2005


 Employment:
 Employs over 24 million

people in 2005
 One of the largest sectors

for job growth in US


 Social responsibility
 Global player

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Social responsibility

 Corporate social responsibility


 The voluntary actions taken by a
company to address the ethical,
social, and environmental impacts
of its business operations, in
addition to the concerns of its
stakeholders

 Examples: Edun - a fair-trade fashion


brand by the U2 lead singer Bono
 Starbucks: pays its farmers 42%
more than the commodity price of
Arabica coffee beans
 Target: community giving programs
(5% of income, $3 million a week)

 Retail companies give away 1.7% of


their profits, compared with about 0.9%
for companies in other industries

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World¶s 20 Largest Retailers in 2005

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Structure of Retailing and Distribution Channels around the
World: The United States

The United States CHINA

The nature of retailing and


distribution channels in the U.S.
is unique.
 Has the greatest retail density
 Has the greatest concentration of
large retail firms
 Large enough to operate their
own warehouses, eliminating the
need for wholesaling.
 The combination of large stores
and large firms result in a very
efficient distribution system.

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Comparison of Distribution Channels
around the World

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What have created these differences
in distribution systems?

Social &  China, India: To reduce unemployment by


Political protecting small businesses
Objectives  EU: To protect small retailers
To preserve green spaces/town centers
Geography Much lower population density in the US than in India,
China, and EU (where less low-cost real estate are
available for building large stores)

Market size  Large retail markets in US, India, China


 Countries in EU ± distribution channels and retail
chains operate in a single country (no economy of scales
to be achieved; trade barriers still exist)

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Nature of Retail Industry is Changing

To Today¶s Retailer

Mom and Pop 6tore

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Retailing is a High Tech Industry

 Selling Merchandise through the Internet

 Using Internet to manage supply chains

 Analyze POS data to tailor assortments to stores

 Computer systems for merchandise planning and


tracking

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Retailers are a Business Like
Manufacturers

Accounting inance

Marketing
MI6

Operations
Human Resources

The McGraw-Hill Companies,


Inc./Andrew Resek, photographer

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Opportunities in Retailing:
Management opportunities

Ŷ People with a wide range of skills and interests needed


because retailers¶ functions include
 Finance

 Purchase

 Accounting

 Management information system (MIS)

 Supply management including warehouse and


distribution management
 Design and new product development

Ŷ Financially rewarding
 5-year salary of buyers: $50,000 - $60,000

 5-year salary of store managers: $120,000 - $160,000

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Opportunities in Retailing:
Entrepreneurial opportunities
Wal-Mart: Sam Walton
Ŷ Retailing provides opportunities for
people who want to start their own
business
Ŷ Some of the world¶s richest people
are retailing entrepreneurs

Ŷ Examples of retailing I EA: Ingvar  amprad


entrepreneurs
Sam Walton (Wal-Mart)
Jeff Bezos (Amazon.com)
Ingvar  amprad (I EA)
Anita Roddick (the Body Shop)

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Career Opportunities in Retailing
Start Your Own Business

List of Retail Entrepreneurs on Forbes 400 Richest Americans

 Äalton amily (Äal-Mart)


 isher (The Gap)
 Äe ner (The Limited)
 Menard (Menard¶s)
 Marcus (The Home ]epot)
 Kellogg (Kohl¶s)
 6chulze (Best Buy)
 Levine (amily ]ollar)
 Gold (99Cent Only)

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Misconceptions About Careers in Retailing

Ŷ College not needed


Ŷ Low pay
Ŷ Long hours
Ŷ Boring
Ŷ Dead-end job
Ŷ No benefits
Ŷ Everyone is part-time
The McGraw-Hill Companies, Inc./Andrew Resek, photographer

Ŷ Unstable environment
Ŷ No opportunity for women and minorities
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Why You Should Consider Retailing

Ŷ Entry level management positions:


Department manager or assistant buyer/planner
Ŷ Manage and have P&L responsibility on your first job
Ŷ Starting pay average with great benefits
Ŷ Some retailers pay graduate school
Ŷ No two days are alike
Ŷ Buying and planning for financially analytically oriented
Ŷ Management for people-people

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Types of Jobs in Retailing

Most entry level jobs are in


store management or buying, but there¶s«
-accounting and finance
-real estate
-human resource management
-supply chain management
-advertising
-public affairs
-information systems
-loss prevention
-visual merchandising
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Retail Management Decision Process

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Strategic Vs Tactical Decisions

Ŷ Doing the Right Thing (direction) vs.


Doing Things Right (execution)
Ŷ Strategic Decisions Are:
A Made Infrequently
A Long-term
A Require significant investment
A Not easily reversed

Ŷ Location, Organization Design, Information and


Distribution Systems, Customer Service

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Retail Strategy

Ŷ Need to identify the competition


A intratype competition
(e.g., Dillard¶s vs. JCPenney)
A intertype competition
(e.g., Dillard¶s vs. Wal-Mart)

Ŷ Identifying customers
A What are the significant
demographic and life-style
trends
A Who are your target
customers

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Retail Strategy

Ŷ A retail strategy should identify


 the target market

 the product and service mix

 a long-term comparative advantage

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JC Penney¶s Strategic Evolution(1)

 Main Street (small town) private


label, soft goods (apparel, home
furnishings), decentralized retailer
 Changes in environment --
increased disposable income,
growth of suburbs, interstate
highway program
 Emulate Sears in moving to
enclosed suburban malls
 Add hard goods (appliances,
automotive)
 Diversify ± drug stores,
insurance, specialty stores
 Develop catalog channel

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JC Penney¶s Strategic Evolution(2)

 Focus on department store format


and soft goods develop electronic
retail channel
 Mid-market, mall based department
store, between Wal-Mart/Target and
Macy¶s/Dillards
 Competition from Target,  ohl¶s
 Centralization to reduce cost,
increase responsiveness -
centralized buying, warehouse
delivery
 Off the mall stores to increase
customer convenience
 Improving store atmospherics
 Upgrading merchandise offering
(e.g., Sephora, American Living by
Polo Ralph Lauren)

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Wal-Mart¶s Strategic Evolution

 Small Town - Discount Store selling hard goods


and soft goods
 limited service, efficient distribution

 Enter suburban markets


 Warehouse Clubs (Sam¶s)
 Supercenters
 International Expansion
 Supermarkets, neighborhood markets

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Sears¶ Strategic Evolution

 Large number of merchandise categories --


appliances, hardware, apparel
 Malls evolved into places for buying soft goods,
hard goods sold at category killers
 The Softer Side of Sears
 Refocused on value -- Testing carts in stores
 Acquired Lands¶ End
 Acquired by  mart

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Whole Foods Implementation

Strategy - organic and natural foods supermarket chain


Assortment beyond organic/natural foods
Private labels - Whole FoodŒ, 360 Day ValueŒ
Love, trust, and employee empowerment
Equality in compensation

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Decision Variables for Retailers

Customer 6ervice

6tore ]esign Merchandise


and ]isplay Assortment
Retail
6trategy
Pricing Location

Communication
Mi
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Wal-Mart¶s Retail Mix

Customer Location
6ervice

6tore ]esign Merchandise


And ]isplay Retail 6trategy Assortment

Communication Pricing
Mi
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Wal-Mart¶s Retail Mix

Location Strategy

ree-standing 6tores

Customer
Service

Store Display Merchandise


And Design Assortment

Communication
Mix Pricing
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Wal-Mart¶s Retail Mix

Assortment 6trategy

Customer
Service Location

Large Number
Store Design
and Display
of Categories
ew Items
Communication
Mix Pricing
in Öach Category

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Wal-Mart¶s Retail Mix

Location
Pricing Strategy
Customer
Merchandise
Service
Assortment

Store Design
and Display

Communication
Mix Low, Ö]LP

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Wal-Mart¶s Retail Mix

Customer
Service Location

Communication Mix
Store Design Merchandise
and Display Assortment

Pricing

Tw and Newspaper
Insert Ads

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Wal-Mart¶s Retail Mix

Store Design and Display

Customer
Service Location

Basic, 6pecial
Merchandise
]isplays Assortments
for Products
Communication
Mix Pricing

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Wal-Mart¶s Retail Mix

Customer Service

Limited

Location

Merchandise
Assortment

Store Design
and Display Pricing

Communication
Mix

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Claire¶s Retail Mix

Customer 6ervice Location

6tore ]esign Merchandise


Retail 6trategy Assortment
and ]isplay

Communication Mi Pricing

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Claire¶s Retail Mix

Location 6trategy

Önclosed malls

Customer Service

Store Display
And Design Merchandise
Assortment

Communication Mix
Pricing

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Claire¶s Retail Mix

Assortment 6trategy

Customer Service
Location

Store Design åewelry, accessories and


and Display
cosmetics for tweens and

teens
Communication Mix
Pricing

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Claire¶s Retail Mix

Location
Pricing 6trategy
Customer Service
Merchandise Assortment

Store Design
and Display

Communication Mix

Modest with 6ales

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Claire¶s Retail Mix

Customer Service
Location

Communication Mi Store Design


And Display Merchandise Assortment

Pricing

Tw and Magazine Ads

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Claire¶s Retail Mix

6tore ]esign and ]isplay

Customer Service Location

Bright, fashionable and fun Merchandise Assortments

boutique layout

Communication Mix Pricing

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Claire¶s Retail Mix

Customer 6ervice

Modest

Location

Merchandise Assortment

Store Design and Display

Pricing

Communication Mix

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Macy¶s Retail Mix

Customer 6ervice Location

6tore ]esign Merchandise


Retail 6trategy Assortment
and ]isplay

Pricing
Communication Mi

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Macy¶s Retail Mix

Location 6trategy

Önclosed Malls

Customer Service

Store Display
And Design Merchandise
Assortment

Communication Mix
Pricing

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Macy¶s Retail Mix

Assortment 6trategy

Customer Service
Location

Store Design Many Items in Apparel


and Display

and 6oft Home

Communication Mix
Pricing

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Macy¶s Retail Mix

Location
Pricing 6trategy
Customer Service
Merchandise Assortment

Store Design
and Display

Communication Mix
Moderate with
requent 6ales

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Macy¶s Retail Mix

Customer Service
Location

Communication Mi Store Design


And Display Merchandise Assortment

Pricing

Tw, Newspaper Ads and


6pecial Övents

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Macy¶s Retail Mix

6tore ]esign and ]isplay

Customer Service Location

Racetrack with ]isplays Merchandise Assortments

Communication Mix Pricing

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Macy¶s Retail Mix

Customer 6ervice

Modest

Location

Merchandise Assortment

Store Design and Display

Pricing

Communication Mix

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Target¶s Retail Mix

Customer 6ervice Location

6tore ]esign Merchandise


Retail 6trategy Assortment
and ]isplay

Communication Mi Pricing

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Target¶s Retail Mix

Location 6trategy

ree-standing 6tores

Customer Service

Store Display
And Design Merchandise
Assortment

Communication Mix
Pricing

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Target¶s Retail Mix

Assortment 6trategy

Customer Service
Location

Store Design
Large Number of Categories
and Display
Private Labels
ew Items in Öach Category
Communication Mix
Pricing

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Target¶s Retail Mix

Location
Pricing 6trategy
Customer Service
Merchandise Assortment

Store Design
and Display

Communication Mix

Low to Modest

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Target¶s Retail Mix

Communication Mi

Tw and Newspaper
Insert Ads

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Target¶s Retail Mix

6tore ]esign and ]isplay

Customer Service Location

Colorful, wide aisles displays


Merchandise Assortments
for products with a grid layout

Communication Mix Pricing

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Target¶s Retail Mix

Customer 6ervice

Limited

Location

Merchandise Assortment

Store Design and Display

Pricing

Communication Mix

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Ethical Situations for a Retail Manager

 Should a retailer sell merchandise that they suspect utilized


child labor?
 Should it advertise that its prices are the lowest in an area
even though some items are not?
 Should a buyer accept an expensive gift from a vendor?
 Should salespeople use high-pressure sales when they know
the product is not the best for the customer¶s needs?
 Should a retailer give preference to minorities when making a
promotion decision?
 Should a retailer treat some customers better than others?

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Checklist for Making Ethical Decisions

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You are Faced with an Ethical Decision:
What Can You Do?

 Ignore your personal values and do what your


company asks you to do ± you will probably feel
dissatisfied with your job .

 Take a stand and tell your employer what you


think. Work to change the policies.

 Refuse to compromise your principles ± you


could lose your job!

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