Chapter 1 Perspectives on Retailing

1. Chapter 1 Perspectives on Retailing

2. Learning Objectives • Explain what retailing is and why it is undergoing so much change today. • Describe the five methods used to categorize retailers. • Understand what is involved in a retail career and be able to list the prerequisites necessary for success in retailing. • Explain the different methods for the study and practice of retailing. LO 1

3. What is Retailing, and Why is it Undergoing so Much Change Today? • Retailing - Consists of the final activities and steps needed to place merchandise made elsewhere into the hands of the consumer or to provide services to the consumer. • Any firm that sells a product or provides a service to the final consumer is said to be performing the retailing function. • What trends do you see in Retailing? LO 1

4. What is Retailing, and Why is it Undergoing so Much Change Today? • E-tailing • Price competition • Demographic shifts • Store size • Eco-tailing • SocialMarketing1 LO 1

5. E-tailing • The great unknown for retail managers will be the ultimate role of the Internet. • Bricks-and-mortar retailers - Operate out of a physical building. • With the growth of the web 2.0, the Internet has become much more interactive and social in nature. This has important implications for retailers. LO 1

6. E-tailing • To combat e-tailing, bricks-and-mortar retailers must give their customers more control over the shopping experience. LO 1

7. E-tailing • E-tailing has caused a shift in power between retailers and consumers. • Traditionally, the retailers’ control over pricing information provided them the upper hand in most transactions. • The information dissemination capabilities of the Internet are making consumers better informed and thus increasing their power when transacting and negotiating with retailers. LO 1

8. E-tailing • Retailers must keep experimenting with various strategies, both in-store and online because the next generation of technology will change the consumers’ expectations of what they demand from their retailers. LO 1

9. Top on-lineRetailers • Amazon • Netflix • QVC • Apple • Cabelas • Avon • JCP • NewEgg • LLBean • TigerDirect • VictoriasSecret • Which are e-tailers only and which are click and mortar

10. Price Competition • Sam Walton forever changed the face of retailing by realizing that most of any product’s cost gets added after the item is produced. • Walton made a major commitment to computerizing Wal-Mart as a means to reduce expenses. • Costco, a retailer, seeks to boost store traffic by getting shoppers to come in for a “super, low price” on key products. LO 1

11. Demographic Shifts • Significant changes in retailing over the past decade have resulted from changing demographic factors such as: • The fluctuating birthrate, the growing importance of the 70 million Generation Y consumers. • The move of Generation X into middle age. • The beginning movement of the baby boomer generation into retirement. • The increasing number of immigrants. LO 1

12. Demographic Shifts • Successful retailers must: • become more service-oriented • offer better value in price and quality • be more promotion-oriented, and • be better attuned to their customers’ needs. LO 1

13. Demographic Shifts • Profit growth must come by either: • increasing same-store sales at the expense of the competition’s market share or • by reducing expenses without reducing services to the point of losing customers. LO 1

14. Demographic Shifts • Same-store sales - Compares an individual store’s sales to its sales for the same month in the previous year. • Market share - Retailer’s total sales divided by total market sales. LO 1

15. Store Size • As stores increase in size the retailer often employs a scrambled merchandising strategy. • Scrambled merchandising - Exists when a retailer handles many different and unrelated items. • It is the result of the pressure being placed on many retailers to increase profits. LO 1

16. Store Size • Retailers realized that having supersized stores increased several major costs: • Rent • Inventory costs, and • Labor costs. • Two retail formats that have recently seen a significant decrease in average store size and a decrease in number of stores are: • Department stores and • Category killers. LO 1

17. Store Size • Category killer - Retailer that carries such a large amount of merchandise in a single category at such good prices that it makes it impossible for the customers to walk out without purchasing what they need, thus killing the competition. LO 1

18. Exhibit 1.1 - External Environmental Forces Confronting Retail Firms LO 1

19. Categorizing Retailers • Census bureau • Number of outlets • Margin versus Turnover • Location • Size LO 2

20. Census Bureau • The U.S. Bureau of the Census, for purposes of conducting the Census of Retail Trade, classifies all retailers using three-digit North American Industry Classification System (NAICS) codes. • Shortcoming of using the NAICS codes is that they do not reflect all retail activity. LO 2

21. Exhibit 1.2 - The Five Methods Used toCategorize Retailers LO 2

22. Number of Outlets • Retailers with several units are a stronger competitive threat because they can: • Spread many fixed costs over a larger number of stores. • Achieve economies in purchasing. • Advantages of single-unit retailers: • They have harder-working, more motivated employees. • They can focus and tailor their efforts and merchandise in one trade area. LO 2

23. Number of Outlets • Standard stock list - Merchandising method in which all stores in a retail chain stock the same merchandise. • Optional stock list - Merchandising method in which each store in a retail chain is given flexibility to adjust its merchandise mix to local tastes and demands. LO 2

24. Number of Outlets • Channel advisor or Channel captain - Institution in the marketing channel who is able to plan for and get other channel institutions to engage in activities they might not otherwise engage in. • Examples could be manufacturer, wholesaler, broker, or retailer. • Large store retailers are often able to perform the role of channel captain. LO 2

25. Number of Outlets • Private label branding - Occurs when a retailer develops its own brand name and contracts with a manufacturer to produce the merchandise with the retailer’s brand on it instead of the manufacturer’s name. • Also called store branding. LO 2

26. Number of Outlets • The major shortcoming of using the number of outlets scheme for classifying retailers is that it addresses only traditional bricks & mortar retailers. LO 2

27. Margins Versus Turnover • Gross margin percentage - Gross margin divided by net sales or what percent of each sales dollar is gross margin. • Gross margin - Net sales minus the cost of goods sold. • Operating expenses - Expenses the retailer incurs in running the business other than the cost of the merchandise. LO 2

28. Margins Versus Turnover • Inventory turnover - The number of times per year, on average, that a retailer sells its inventory. • High-performance retailers - Produce financial results substantially superior to the industry average. • Low-margin/low turnover retailer - Operates on a low gross margin percentage and a low rate of inventory turnover. LO 2

29. Margins Versus Turnover • Low-margin/high turnover retailer - Operates on a low gross margin percentage and a high rate of inventory turnover. • High-margin/low turnover retailer - Operates on a high gross margin percentage and a low rate of inventory turnover. LO 2

30. Margins Versus Turnover • Clicks & mortar retailers - Sell both online and via physical stores. • High-margin/high turnover retailer - Operates on a high gross margin percentage and a high rate of inventory turnover. LO 2

31. Margins Versus Turnover High Margin Excellent position to withstand a competitive attack Low Turnover High Turnover Least able to withstand a competitive attack Low Margin LO 2

32. Location • Retailers are now aware that opportunities exist in new non-traditional retail areas. • Retailers are reaching out for alternative retail sites, rather than simply renovating the existing stores. • Today, the most significant of the new nontraditional shopping locations could be the one which combines culture with entertainment or shopping. LO 2

33. Size • The reason for classifying by size is that the operating performance of retailers tends to vary according to size. • With advances in technology, using classification of size is unclear. LO 2

34. A Retailing Career • Career path • Common questions about a retailing career • Prerequisites for success LO 3

35. Exhibit 1.4 - Retailing-Two Career Paths LO 3

36. Career Path • Store management - The retailing career path that involves responsibility for: • Selecting • Training • Evaluating personnel • In-store promotions • Displays • Customer service • Building maintenance, and • Security. LO 3

37. Career Path • Buying - The retailing career path whereby one uses quantitative tools to develop appropriate buying plans for the store’s merchandise lines. LO 3

38. Common Questions About a Retailing Career • Salary • Career progression • Geographic mobility • Women in retailing • Societal perspective LO 3

39. Prerequisites for Success • Hard work • Analytical skills • Creativity • Decisiveness • Flexibility • Initiative • Leadership • Organization • Risk taking • Stress tolerance • Perseverance • Enthusiasm LO 3

40. The Study and Practice of Retailing • Analytical method • Creative method • A two-pronged approach • A proposed orientation LO 4

41. The Study and Practice of Retailing Analytical Method Manager is finder and investigator of facts. Creative Method Manager is conceptual and very imaginative. Two-Pronged Method Manager who employs both approaches. LO 4

42. A Proposed Orientation • It has four major orientations: • Environmental - allows the retailers to anticipate and adapt continuously to external forces in the environment. • Management planning - helps the retailers to adapt systematically to a changing environment. • Profit - all retail decisions will have an effect on the firm’s financial performance. • Decision making - allows the retailers to focus on the need to collect and analyze data to make intelligent retail decisions. LO 4

43. Exhibit 1.5 - The Importance of Proactive Planning LO 4