Chapter 1

Introduction to the World of Retailing

McGraw-Hill/Irwin
Retailing Management,
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The World of Retailing

Content 1: Introduction to Retailing

Content 2: Types of Retailers

Content 3: Multi-Channel Retailing

Content [Link]ustomer
Content Customer Buying Behavior
Buying Behavior

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Questions

1. What is retailing?
2. What are the roles of retailers in our society?
3. Do retailers add value?
4. What career and entrepreneurial opportunities
does retailing offer?
5. What types of decisions do retail managers
make?

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1. 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

n Retailers:
BigC, thegioididong,
Guardian, Target, Macy’s,
Walmart, [Link],
Avon…

n Firms 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
part of the
of the
distribution channel
distribution channel
Product

Distribution Price

Promotion

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Distribution Channel

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Typical Supply Chain Network

Customers

Suppliers Plants

retailers
Distribution
Centers
2. What are the roles of retailers in our
society?

A Retailer’s Role in a Supply Chain

n Retailers are the final business within a supply
chain which links manufacturers to consumers.

n 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

Vertical 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)
Forward 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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3. Do Retailers Add Value?

a box of crackers at a grocery store

Example n costs $1 to manufacturer
n 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?

Price to Price to Price to

Distributor Retailer Consumer
$1.00 $1.20 $2.00

$.85 $.15 $.70

Manufacturer Distributor Retailer Consumer

Vendor Wholesaler
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Why Not Get Rid of the Middlemen?

§Better services to
customers
§More efficient

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Example: Music Industry Channel

Composer Record
Publisher Music Retailer
Lyricist Company

Artist Distributor

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Cost for CD

Retailer $5.00
Record Company • 4 out of 5 CDs fail to
Manufacturing .75 make a profit
Distribution 1.50
Marketing 2.00 • $300,000 cost to
Coop advertising 1.00 prepare a CD 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?

■ Provide Assortment
Buy other products
at the same time
■ Break Bulk
Buy it in quantities
customers want
■ Hold Inventory
Buy it at a
convenient place
when you want it
■ Offer Services
See it before you
buy; get credit;
layaway
Ryan McVay/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

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

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World’s 20 Largest Retailers in 2015
Rank Company 2015 Retail Sales (000)
1 Wal-Mart Stores $353,108,000
Source:
2 The Kroger Co. $103,878,000
[Link]
3 Costco $83,545,000 m/resources/
4 The Home Depot $79,297,000 annual-
retailer-
5 Walgreens Boots Alliance * $76,604,000
lists/top-100-
6 Target $73,226,000 retailers/stor
7 CVS Health $72,151,000 es-top-
8 [Link] $61,619,000 retailers-
2016
9 Albertsons $58,443,000
10 Lowe’s Companies $57,486,000
11 McDonald’s $35,837,000
12 Best Buy $35,148,000
13 Apple Stores / iTunes $34,949,000
14 Publix Super Markets $32,633,000
15 Macy’s $27,002,000 1-20
Nature of Retail Industry is Changing

To Today’s Retailer

Mom and Pop Store

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Retailing is a High Tech Industry

n Selling Merchandise through the Internet

n Using Internet to manage supply chains

n Analyze POS data to tailor assortments to stores

n Computer systems for merchandise planning and

tracking

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Retailers are a Business Like
Manufacturers

Accounting Finance

Marketing
MIS

Operations
Human Resources

The McGraw-Hill Companies,

Inc./Andrew Resek, photographer

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What career and entrepreneurial
opportunities does retailing offer?

■ People with a wide range of skills and interests needed

because retailers’ functions include
n Finance

n Purchase

n Accounting

n Management information system (MIS)

n Supply management including warehouse and

distribution management
n Design and new product development

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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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5. What types of decisions do retail
managers make?

Retail Management
Decision Process

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Retail Strategy

■ Need to identify the competition

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

■ Identifying customers
§ What are the significant
demographic and life-style
trends
§ Who are your target
customers

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Retail Strategy

■ A retail strategy should identify

n the target market

n the product and service mix

n a long-term comparative advantage

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JC Penney’s Strategic Evolution(1)

n Main Street (small town) private

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

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JC Penney’s Strategic Evolution(2)

n Focus on department store format

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

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Wal-Mart’s Strategic Evolution

n Small Town - Discount Store selling hard goods

and soft goods
n limited service, efficient distribution

n Enter suburban markets

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

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Sears’ Strategic Evolution

n Large number of merchandise categories --

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

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Whole Foods Implementation

Strategy - organic and natural foods supermarket chain

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

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Decision Variables for Retailers

Customer Service

Store Design Merchandise

and Display Assortment
Retail
Strategy
Pricing Location

Communication
Mix

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Examples of Retail Mix

1. Walmart
2. Claire
3. Macy
4. Target

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1) Wal-Mart’s Retail Mix

Customer Location
Service

Store Design Merchandise

And Display Retail Strategy Assortment

Communication Pricing
Mix

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1) Wal-Mart’s Retail Mix

Location Strategy

Free-standing Stores

Customer
Service

Store Display Merchandise

And Design Assortment

Communication
Mix Pricing

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1) Wal-Mart’s Retail Mix

Assortment Strategy

Customer
Service Location

Large Number
Store Design
and Display
of Categories
Few Items
Communication
Mix Pricing
in Each Category

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1) Wal-Mart’s Retail Mix

Location
Pricing Strategy
Customer
Merchandise
Service
Assortment

Store Design
and Display

Communication
Mix Low, EDLP

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1) Wal-Mart’s Retail Mix

Customer
Service Location

Communication Mix
Store Design Merchandise
and Display Assortment

Pricing

TV and Newspaper
Insert Ads

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1) Wal-Mart’s Retail Mix

Store Design and Display

Customer
Service Location

Basic, Special
Merchandise
Displays Assortments
for Products
Communication
Mix Pricing

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1) Wal-Mart’s Retail Mix

Customer Service

Limited

Location

Merchandise
Assortment

Store Design
and Display Pricing

Communication
Mix

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2) Claire’s Retail Mix

Customer Service Location

Store Design Merchandise

Retail Strategy Assortment
and Display

Communication Mix Pricing

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2) Claire’s Retail Mix

Location Strategy

Enclosed malls

ust omer
C
e
Servic

splay
Stor e D i
er c h andise
M
nd Design r t ment
A A s s o
n
unicatio
m
Com
Mix g
Pricin

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2) Claire’s Retail Mix

Assortment Strategy

r
t o me
Cu
s
c ation
e Lo
e rvic
S
e sign Jewelry, accessories and
re D
Sto s play
D i
and cosmetics for tweens and teens
c ation
m uni
m
Co Mix g
r icin
P

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2) Claire’s Retail Mix

Location
Pricing Strategy
Customer Merchandise
Service Assortment

Store Design
and Display

Communication
Mix Modest with Sales

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2) Claire’s Retail Mix

Customer
Service Location

Communication Mix Store Design

Merchandise
And Display
Assortment

Pricing

TV and Magazine Ads

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2) Claire’s Retail Mix

Store Design and Display

Customer
Service Location

Bright, fashionable and fun Merchandise

boutique layout Assortments

Communication
Pricing
Mix

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2) Claire’s Retail Mix

Customer Service

Modest

Location

Merchandise
Assortment

Store Design
& Display Pricing

Communication
Mix
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3) Macy’s Retail Mix

Customer Service Location

Store Design Merchandise

Retail Strategy Assortment
and Display

Pricing
Communication Mix

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3) Macy’s Retail Mix

Location Strategy

Enclosed Malls

Customer
Service

Store Display Merchandise

&Design Assortment

Communication
Pricing
Mix

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3) Macy’s Retail Mix

Assortment Strategy

Customer
Service
Location

Store Design Many Items in Apparel

& Display and Soft Home

Communication
Mix Pricing

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3) Macy’s Retail Mix

Location Pricing Strategy

Customer Merchandise
Service Assortment

Store Design
& Display

Communication Moderate with

Mix Frequent Sales

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3) Macy’s Retail Mix

Customer
Service Location

Communication Mix Store Design Merchandise

& Display Assortment

Pricing

TV, Newspaper Ads and

Special Events

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3) Macy’s Retail Mix

Store Design and Display

Customer
Service Location

Merchandise
Racetrack with Displays
Assortments

Communication
Mix Pricing

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3) Macy’s Retail Mix

Customer Service

Modest

Location
Merchandise
Assortment

Store Design
& Display Pricing
Communication
Mix

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4) Target’s Retail Mix

Customer Service Location

Store Design Merchandise

Retail Strategy Assortment
and Display

Communication Mix Pricing

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4) Target’s Retail Mix

Location Strategy

Free-standing Stores

Customer
Service

Store Display
Merchandise
& Design
Assortment

m unication
Com
Mix Pricing

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4) Target’s Retail Mix

Assortment Strategy

Customer
Service
Location
Large Number of Categories
Store Design
Private Labels
& Display
Few Items in Each Category
nic ation
mu
Com
Mix Pricing

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4) Target’s Retail Mix

Location Pricing Strategy

Customer
Merchandise
Service
Assortment

Store Design
& Display

Communication
Low to Modest
Mix

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4) Target’s Retail Mix

Customer
Service Location

Store Design
Communication Mix Merchandise
& Display
Assortment

Pricing

TV and Newspaper
Insert Ads

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4) Target’s Retail Mix

Store Design and Display

Customer
Service Location

Colorful, wide aisles displays Merchandise

for products with a grid layout Assortments
n
unicatio
m
Com
Pricing
Mix

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4) Target’s Retail Mix

Customer Service

Limited
on
Locati

a n dise
ch
Mer
r t m ent
Asso
&
e sign
t o re D ing
S Pric
isp lay
D
ic ation
m un
Com
Mix

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Ethical Situations for a Retail Manager

n Should a retailer sell merchandise that they suspect utilized

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

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Checklist for Making Ethical Decisions

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