Chapter 1 Perspectives on Retailing

1. Chapter 1 Perspectives on Retailing

2. Primer to Retailing* • What is Marketing?

3. Primer to Retailing* • What is Marketing? • “Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create the exchanges that satisfy individual and organizational goals.” (1985 AMA Definition) • “Marketing is an organizational function and a set of processes for creating, communicating, and delivering valueto customers and for managing customer relationshipsin ways that benefit the organization and its stakeholders.” (Lusch and Marshall 2004 AMA Definition) • “Competition for a Differential Advantage.” (Wroe Alderson 1957)

4. Primer to Retailing* • What is the Marketing Concept? • It’s a marketing-management philosophy which advocates that business organizations…

5. Primer to Retailing* • What is the Marketing Concept? • It’s a marketing-management philosophy which advocates that business organizations… • Exist to identify & satisfy the needs of their customers (i.e., Customer Orientation) • That a customer orientation is accomplished through an integrative effort throughout the firm (i.e., Integrated Effort) • The firm’s focus should be long-term & seek to provide a satisfactory ROI (i.e., Long-Term Profit Orientation)

6. What is Retailing?

7. What is 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. • Notice this is a verb. Thus … • Any firm that sells a product or provides a service to the final consumer is performing the act of retailing. • A retailer is a noun: • It is any firm that generates a majority of its revenues or business from the act of retailing

8. Distinguishing Between a Retailer and Retailing • If you go to the local Walmart to buy a loaf of bread is this a retail activity? from a retailer? • Yes. And Yes. • Say you buy the same loaf of bread from Costco or Sam’s. What are your answers? • Should be 1) yes, and 2) no. • Sam’s & Costco are wholesalers. The majority of their business comes from selling to other businesses; yet, it’s retailing because you’re the consumer. • If the chef of a local restaurant bought the same loaf of bread for her business from Walmart, what would be your answers? • Should be 1) no, and 2) yes. • The chef buying for her business is a wholesale activity, but Walmart is a retailer because the majority of its business comes from the act of retailing.

9. The Nature of Change in Retailing Today • Change is a result of at least four different catalysts: • E-tailing • Price competition • Demographic shifts • Store size

10. E-tailing • Definition: • Retailing activity that occurs online • Represents “the great unknown” for retail managers as current online retail sales account for less than 5%. • With the growth of the 2nd generation web, the Internet has become much more interactive and social in nature. This has important implications for retailers.

11. E-tailing (cont.) • E-tailing’s impact on retailers and the supply chain: • Has Led to a Shift of Power • Many like to talk about the “powerful” manufacturers (e.g., P&G) or retailers (e.g., Walmart), but… • Power is shifting from these firms to consumers • Traditional brick-and-mortar retailers at a loss • Why?

12. E-tailing (cont.) • Why the shift in power? • “Information is Power” • The information dissemination capabilities of the Net make consumers better informed when transacting and negotiating with retailers. • Channel surfing is growing threat to all retailers, but particularly traditional brick-and-mortar retailers • What is “channel surfing”? • Common synonyms also include: Three-tailing and Showrooming*

13. Price Competition • Americans are naturally price conscious, whether shopping online or at a brick-and-mortar store. • Price conscious consumers are naturally price sensitive* • Price sensitivity* • The degree to which price is a deciding factor in a consumer’s purchase decision • High (low) price sensitivity occurs when the percentage change in demand is greater (lower) than the percentage change in price

14. Price Competition (cont.) • So if Americans are naturally price conscious, is having the lowest price key to success in retailing?

15. Price Competition (cont.) • So if Americans are naturally price conscious, is having the lowest price key to success in retailing? • No. Cost management is key. • Retailers that are able to cut costs in order to provide lower prices will be the winners. • Example: • Sam Walton forever changed the face of retailing by realizing that most of any product’s cost gets added after the item is produced, which is why he computerized Walmart (i.e., to reduce expenses).

16. Demographic Shifts • Several changes in demographic factors over the last decade have impacted retail strategy. • The fluctuating birthrate, • The growing importance of Generation Y consumers, • The movement of Generation X into middle age, • The growing number of Baby Boomers entering retirement, • And the increasing number of immigrants.

17. Demographic Shifts (cont.) • To meet these ever changing and increasing number of needs, successful retailers will be those that… • become more service-oriented • offer better value in price and quality • are more promotion-oriented, and • are better attuned to their customers’ needs.

18. Demographic Shifts (cont.) • Shrinking birthrates and greater variance in consumers’ needs means sustainable profit growth will result from… • Increasing same-store sales by stealing competitors’ market share, or • 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 • Reducing expenses without reducing services to the point of losing customers

19. Store Size • Prior to the recession, emphasis on increasing store size • Why? • “The more merchandise customers see, the more they will buy.” • Result: • Growth in scrambled merchandising • When a retailer handles many different and unrelated items.

20. Store Size (cont.) • Yet supersized stores raise several major costs, namely: • Rent • Inventory Carrying Costs (ICCs) • Labor Costs

21. Store Size (cont.) • Recent recession has altered this trend somewhat… • Growing trend towards reducing store size (when possible). • Doing so: • Lessens aforementioned “major cost drivers” • Addresses consumers’ desire for convenience • Those who are “locked-in” to long-term leases or own their own buildings are pushing ahead with greater scrambled merchandising.

22. External EnvironmentalForces Confronting Retail Firms

23. Categorizing Retailers • The five most popular schemes to categorize retailers: • Census bureau (i.e., NAICS) • Number of outlets • Margin versus Turnover • Location • Size

24. Census Bureau NAICS Code – North American Industry Classification System Classifies all retailers using a general set of codes May be either a 3- or 4-digit code Cons: 3-digit codes tend to be too general for any strategic use Year to year comparisons are difficult Codes used do not reflect all retail activity (e.g., no services) • Pros: • Greatest part of a retailer’s competition comes from others in its NAICS category.

25. Number of Outlets Greatest Shortcomings of This Approach: Only considers traditional (brick-and-mortar) retailers Overlooks online retailers and non-traditional retailers Advantages of Single Units: More motivated employees Attune to change in market Tailor their merchandise buying to fit local needs Possible economies from joint-purchasing (IGA) • Advantages of Several Units: • Spread fixed costs • Economies of scale in purchasing • Channel Captain status • Private label products

26. Margin Versus Turnover • Categorizing based upon: • Gross margin percentage • Gross margin divided by netsales or what percent of each sales dollar is gross margin • Inventory turnover • The number of times per year, on average, that a retailer sells its inventory • Using a 2x2 matrix, what is… • The best position? • The least likely to exist, much less succeed? • An example in each of the remaining three cells?

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

28. Size • Refers to either sales volume or the number of employees • Operating performance tends to vary according to size • Larger firms usually have lower operating costs per sales dollar. • While size has been useful in the past, technology advances bring this logic into question. • For example: • The fully automated retailer

29. A Retailing Career • Exposure to all business disciplines… • Economics - Forecasting sales growth • Fashion – Predicting behavior and future trends. • Marketing - Determining which styles will be "in," ordering and stocking these styles, promoting them and properly pricing them. • Finance - Reducing store expenses. • Management – Managing schedules & hiring employees • Logistics – Managing the flow of merchandise • Information Systems - Analyzing sales and other data to determine opportunities for improved management practices. • Accounting - Obtaining bottom line sales and profit figures.

30. 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.

31. What You Should Have Learned…Chapter’s Learning Objectives • What retailing is and why it is undergoing so much change today. • The five methods used to categorize retailers. • What is involved in a retail career and be able to list the prerequisites necessary for success in retailing. • The different methods for the study and practice of retailing.