Chapter 2

Types of Retailers

McGraw-Hill/Irwin
Retailing Management,
6/e

Copyright 2007 by The McGraw-Hill Companies, Inc. All

rights reserved.

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The World of Retailing

Increasing Industry
Concentration

Globalization

Growing Diversity
of Formats

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General Trends in Retailing

New Types of Retailers

Increased Concentration
Globalization
Growth In Services Retailer
Demise of Pure Electronic Retailers (Webvan,
eToys, etc)
Growth in Use of Multi-Channel Retailing by
Traditional Retailers
Increase Use of Technology to Reduce Cost,
Increase Value Delivered

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Merchandise Offering
Variety (breadth of merchandise)
The number of merchandise categories

Jack Star/PhotoLink/Getty Images

C Squared Studios/Getty Images

Stockbyte/Punchstock Images

Assortment (depth of merchandise)

The number of items in a category (SKUs)

Royalty-Free/CORBIS

Royalty-Free/CORBIS

Royalty-Free/CORBIS

Royalty-Free/CORBIS

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Variety and Assortment of Bicycles

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Types of Retailers
Food Retailers
Mom and Pop Stores
Convenience Stores
Supermarkets
Supercenters

General Merchandise Retailers

Department Stores
Specialty Stores
Discount Stores
Category Specialists
Off-Price Retailers
Warehouse Clubs

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NAICS Codes for Retailers

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Food Retailers
Primary Shopping Format for Food Sales
Growth Rates by Retail Format

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Globalization of Wal-Mart

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Characteristics of Food Retailers

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Limited Assortment Supermarkets

Save-A-Lots limited assortment format
means that stores carry the most
frequently purchased grocery items in
the most popular size and variety
The company carries high quality
exclusive brands many produced by
the
same manufacturers of leading name
brands and an assortment of
nationally
branded items.
Used by permission of Save-A-Lot

This allows Save-A-Lot to offer savings

of up to 40% compared to
conventional grocery stores without
asking shoppers to sacrifice quality.

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Conventional Supermarket Survival Pack

Emphasize Fresh Perishables
Target health conscious and ethnic consumers
Provide a better in-store experience
Offer more private label brands

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Food Retailers
Supermarkets
-Cars, highways and TV to build
brands
-Knowledgeable customers self
service
-Perishable vs. packaged goods

Big Box Retailers

-Warehouse Clubs
-Supercenters
-Hypermarkets

Convenience Stores

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Convenience Stores Fight Competition

Tailors associates to local market

Stores are more convenient to shop
Offers fresh food
Fast, casual restaurants
Financial services available
Opening smaller stores closer to
consumers like airports

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Issues in Food Retailing

Competition from Discount Stores
Efficient
Distribution

Lower Costs

Lower Prices

Changing Consumption Patterns

Time Pressure

Eating Out More

Meal Solutions

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Types of General Merchandise Retailers

Department Stores
Specialty Stores
Category Specialists
Home Improvement Centers
Discount Stores
Drugstores
Off-Price retailers
Extreme Value Retailers

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Characteristics of General Merchandise

Retailers

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Issues in Department Store Retailing

Competition
-Discount Stores on Price
-Specialty Stores on Service, Depth of Assortment
Lower Cost by Reducing Services (?)
-Centralized Cash Wraps
More Sales (?)
-Customers Wait for Sale
Focus on Apparel and Soft Home
Develop Private Labels and Exclusive Brands

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Three Tiers of Department Stores

First Tier: upscale, high fashion chains with
exclusive designer merchandise and excellent
customer service.
Example: Nordstrom, Neiman Marcus,
Bloomingdales, Saks
Second Tier: Retailers sell more modestly
priced merchandise with less customer service:
Example: Macys
Third Tier: Value oriented caters to more price
conscious customer
Example: JCPenney, Sears, Kohls

Rob Melnychuk/Getty Images

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What To Do With an Eroding Market

To deal with an eroding market Department stores are:
attempting to increase the amount of exclusive merchandise
they sell
undertaking marketing campaigns to develop strong images
for their stores and brands
building better relationships with
their key customers

Royalty-Free/CORBIS

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Issues in Discount Store Retailing

Only Big Three Left
Wal-Mart, Kmart, Target
Wal-Marts Dominance
Differentiate Strategy
Wal-Mart = Low Price and Good value
Target = More Fashionable Apparel
Competition from Category Specialists
Toys-R-Us, Circuit City, Sports Authority

McGraw-Hill
Companies, Inc./Gary
He, photographer

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Issues in Specialty Store Retailing

Mall-Based Apparel Retailers
Decline in Mall Shopping and
Apparel Sales
-Lack of New Fashions
-Less Interest in Fashion
-Increase Price Consciousness
McGraw-Hill Companies, Inc./Gary He, photographer

Lifestyle Formats Abercrombie

and Fitch and Hot Topics

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Issues in Drug Store Retailing

Consolidation Walgreens, CVS,
Rite-Aid
Competition from Supermarkets,
discount Stores and mail-in orders
Evolution to a New Format
-Stand Alone Sites with Drive Thru
Windows
-offering more frequent purchase
food items
Improved systems provide
personalized service in the
pharmacy

Keith Brofsky/Getty Images

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Category Specialists
Deep and Narrow Assortments
Destination Stores
Low Price and Service
Wholesaling to Business
Customers and Retailing to
Consumers
Incredible Growth
Ryan McVay/Getty Images

Issues in Home Improvement

Centers
Home Depot and Lowes act as both:
Retailer
Wholesaler

Consumer

and

Business

2--25

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Home Improvement Centers

Displays are warehoused
Customer Service: How to
select and how to use
merchandise
Competition focuses on
price, effort to differentiate
and services provided
Ryan McVay/Getty Images

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Issues in Extreme Value Retailing

Focuses on Lower Income Consumers
Names mostly imply good value not $1 price
points
Low Cost Location
Limited Services
One of the Fastest Growing Retail Segments
Dollar Tree
Dollar General

Family Dollar
99 Cents Only Store
Stockbyte/Punchstock Images

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Non-store Retail Formats

Electronic Retailing
Catalog and Direct Mail
Direct Selling
Television Home Shopping
Vending Machines

Ryan McVay/Getty Images

Royalty-Free/CORBIS

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Electronic Retailing
History of frenzied investments and
false predictions of retail dominance
Primarily used by traditional retailers to
compliment store and catalog offerings
Exclusive e-tailers target small and
dispersed niche markets

Randy Allbritton/Getty Images

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What are Amazon and eBay?

Amazon.com Merchandise to consumers.
Provides website development and
fulfillment services to other retailers
eBay Acts as a mall or other shopping
center providing a place for buyers and
sellers to meet

Don Farrall/Getty Images

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Issues in Catalog Retailing

Low Start Up Cost

Evolution of Multi-Channel Offering
Hard to compete with large well established firms
Increasing Mail Costs
Clutter from other Catalogs
General merchandise catalogs like JC Penney
Specialty Catalogs like JC Whitney, Victoria
Secret

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Issues in Direct Selling

Providing information and demonstrations
is costly
Party plan system: merchandise is
demonstrated in a party atmosphere
Multi-level network: Master distributors sell
to distributors who sell merchandise
Pyramid schemes: Firm sells to other
distributors and little if any merchandise
goes to end users

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Issues in Television Home Shopping

Consumers watch cable stations, infomercials or
direct response ads
Few consumers watch regularly
Most purchases made by small proportion of
viewers
Customers cant examine merchandise
Customers must wait for merchandise to come
on
Sells mostly jewelry, apparel, cosmetics,
kitchenware, exercise equipment
Royalty-Free/CORBIS

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Issues in Vending Machine Retailing

Sales growth has been
declining due to higher
prices and healthier eating
habits
New technology may help
sales growth
Vending machines are
beginning to accept credit
Trend of placing machines in
captive consumer locations

Ryan McVay/Getty Images

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Types of Nonstore Retailers

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Sales by Catalog Retailers

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Services vs. Merchandise Retailers

Intangibility
-Problems in Evaluating Service Quality
-Performance of Service Provider

Simultaneous Production and Delivery

-Importance of Service Provider

Perishability
-No Inventory, Must Fill Capacity

Inconsistency of the Offering

-Importance of HR Management

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Examples of Service Retailers

Type of Service

Service Retail Firms

Airlines

American, Delta, British Airways, Singapore Airways

Automobile maint/repair

Jiffy Lube, Midas, AAMCO

Automobile rental

Hertz, Avis, Budget, Alamo

Banks

Citibank, NCNB, Bank of America

Child care centers

Kindercare, Gymboree

Credit cards

American Express, VISA, Mastercard

Education

University of Florida, Babson College

Entertainment parks

Disney, Universal Studios, Six Flags

Express package delivery Federal Express, UPS, US Postal Service

Financial services

Merrill Lynch, Dean Witter

Fitness

Jazzercise, Ballys, Golds Gym

Health Care

Humana, HCA

Home maintenance

Chemlawn, MiniMaid, Roto-Rooter

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Examples of Service Retailers

Type of Service

Service Retail Firms

Hotels and motels

Hyatt, Sheraton, Marriott, Days Inn

Income tax preparation

H & R Block

Insurance

Allstate, State Farm

Internet access/Elec info.

American On-Line, CompuServe

Movie theaters

AMC, Loews/Sony, Universal

Real estate

Century 21, Coldwell Banker

Restaurants

TGI Fridays, Wendys, Pizza Hut

Truck rentals

U-Haul, Ryder

Weight loss

Weight Watchers, Jenny Craig

Video rental

Blockbuster, Hollywood Video

Vision centers

Lenscrafter, Pearle

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Merchandise/Service Continuum

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Types of Retail Ownership

Independent, Single Store Establishments
Wholesaler Owned Cooperatives
Corporate Chains
Franchises

(c) Brand X Pictures/PunchStock

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Retailers Using Franchise Business Model

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Franchising
30 40% of US Retail Sales
Franchisee Pays Fixed Fee
Plus % of Sales
Franchisee Implements
Program
Why is This Ownership Format
Efficient?

The McGraw-Hill Companies, Inc./Jill Braaten, photographer

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Reasons for Franchising Growth

Technological advances
Profitable utilization of capital resources
Attainment of the American Dream
Demographic expansion
Product/service consistency

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Types of Franchise Systems

Territorial
Operating
Mobile
Distributorship
Co-ownership
Co-management
Leasing/Licensing
Manufacturing
Service

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Reasons for Franchising Failure

Inept management
Fraudulent activities
Market saturation

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Franchisor Positions in the Marketing Channel

Manufacturer - retailer
Manufacturer - wholesaler
Wholesaler - retailer
Service sponsor - retailer

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Franchisor Benefits
Continuous
Continuousmarket
market
Market
Market information
information
Money
Money
Royalty fees
Sales
Salesof
ofproducts
products
Rental
Rentaland
andlease
leasefees
fees
License
Licensefees
fees
Management
Managementfees
fees

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Franchisee Benefits
Initial Services
Market survey and site selection, facility design
and layout, lease negotiation advice, financing
advice, operating manuals, management training
programs, and employee training.
Continuous Services
Field supervision, merchandising and promotional
materials, management and employee retraining,
quality inspection, national advertising,
centralized purchasing, market data and guidance,
auditing and record keeping, management reports,
and group insurance plans.

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Franchisor Advantages/Disadvantages

Advantages
Rapid expansion, highly motivated franchisees
do a good job, additional profits by selling
franchisees products and services.
Disadvantages
Company-owned units may be more profitable,
less control then independent retailers over
advertising, pricing, personnel practices, etc.

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Franchisee Advantages/Disadvantages
Advantages
Established/proven product/service, business
and technical assistance, and reduction in risk.
Disadvantages
Loss of control since only semi-independent,
franchisee outlets may compete with corporateowned outlets, and high royalties, fees, costs on
equipment, supplies, merchandise, rental/lease
rates and mandatory participation in promotional
and support services.

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Franchising Trends for the New Millenium

Sustained growth
Enduring plus un-imagined applications
International expansion
Increasing tensions
Greater emphasis on financial returns

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Which Types of Retailers Will Be the

First to Pursue Global Markets?
Discount Stores
Category Specialists
Department Stores
Supermarkets
Services Retailers

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Increasing Concentration

53% of sales
85% of sales

Drug Stores
Walgreens, CVS, Rite-Aid and Eckerds

Discount Stores
Wal-Mart, Target and Kmart

Why Is the Retail Industry

Becoming More Concentrated?
Traditionally retailers have been local
businesses.
Why are bigger firms emerging?
Why are least concentrated sectors food
retailers and services retailers?

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