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types of retailers.

  1. 1. Mngt. 4a – Retailing Management Chapter 2 – Types of Retailers Professor: Mr. Ronaldo A. Poblete, MBA
  2. 2. Things to know • What trends are shaping today’s retailers? • What are the different types of retailers? • How do retailers differ in terms of how they meet the needs of their customers? • How do services retailers differ from merchandise retailers? • What are the types of ownerships for retail firms?
  3. 3. Retailer Characteristics The different types of retailers offer unique benefits, so consumers patronize different retail types when they have different needs. As consumer needs and competition have changed, new retail formats have been created and continue to evolve. The most basic characteristics used to describe different types of retailers is the retail mix, the elements used by retailers to satisfy their customer’s needs Four elements of the retail mix are particularly useful for classifying retailers: 1.The type of merchandise and/or services sold 2.The variety and assortment of merchandise sold, 3.The level of customer service 4.The price of the merchandise
  4. 4. Retailer Characteristics 1. Types of Merchandise The United State, Canada, and Mexico have developed a classification scheme called the North American Industry Classification System (NAICS), to collect data on business activity in each country. Every business is assigned a hierarchical, six-digit code based on the type of products and services it produces and sells. The first two digits identify the firm’s business sector, and the remaining four digits identify various subsectors. Ex. 448 clothing and clothing accessory stores 4481 Clothing stores 4482 shoe stores 4483 Jewelry, luggage
  5. 5. Retailer Characteristics 2. Variety and Assortment Variety represent the number of merchandise categories a retailer offers. Assortment is the number of different items in a merchandise category. Variety is often referred to as the breath of merchandise carried by a retailer; assortment is referred to as the depth of merchandise. Each different item of merchandise is called a SKU ( stock keeping unit) Ex. of SKU are an original scent, 33-ounce of Tide laundry detergent with bleach or a blue, long-sleeved, button -down-collar Ralph Lauren shirt, size 16-33 Warehouse clubs and discount stores sell many other categories of merchandise in addition to toys ( they have great variety ). Stores specializing in toys stock more type of toys ( more SKU).
  6. 6. Retailer Characteristics 3. Services Offered Customer expect almost all retailers to provide certain services:  Displaying merchandise  Accepting credits cards  Providing parking  Being open at convenient hours Some retailers charge customers for other services;  Home delivery  Gift wrapping Retailers that cater to service-oriented consumers offer customers most of these services at no charge.
  7. 7. Prices and the Cost of Offering Breath and Depth of Merchandise and Services  When retailer offers customers many SKUs, its inventory investment increases because the retailer must have backup stock for each SKU.  Similarly, services attract customers to the retailer, but they’re also costly. More sales people are needed to provide information and assist customers, alter merchandise to meet customer’s needs, and demonstrate merchandise.  To make a profit, retailers that offer broader and deeper assortments and services need to charge higher prices.  In contrast, discount stores appeal to customers who are looking for lower prices and are less interested in services but want to see a wide range of merchandise brands and models.  Thus, a critical retail decisions involves the trade-off between the costs and benefits of maintaining additional inventory or providing additional services.
  8. 8. FOOD RETAILERS • Primary Shopping Format for Food and Sales Growth Rates of Food by Retail Format Supercenters 16% Others 10% Conventional Supermarket 61& Limited assortment Supermarket 6% Warehouse clubs 4% Conventional supermarket Assortment supermarket supercenters Lim ited W arehouse club 23% 10% 6%1% Compound Annual Sales Growth
  9. 9. FOOD RETAILERS Supermarkets A conventional supermarket is a self-service food store offering groceries, meat, and produce with limited sales of nonfood items, such as health and beauty aids and general merchandise. While conventional supermarket carry about 30,000 SKUs, limited assortment supermarkets also called extreme value food retailers, only stock 1,250 SKUs. Stores are typically located in second-or third-tier shopping centers with low rents. By trimming costs, limited assortment supermarkets can offer merchandise at 40 percent lower prices than conventional supermarkets.
  10. 10. FOOD RETAILERS Supermarkets Trends in food Retailing  Although conventional supermarkets still sell a majority of food merchandise, they are under substantial competitive pressure. Everyone wants a piece of the foods pie.  Supermarkets are rapidly attraction convention supermarket customers with their broader assortment of food and general merchandise at attractive prices.  The set of programs supermarkets chains have undertaken to achieve these inventory reductions called efficient customer response (ECR) and includes just-in-time inventory management and better assortment planning.
  11. 11. FOOD RETAILERS  Supermarkets The supermarkets format, however, continues to be more costly than supercenters. To compete successfully against intrusions by other food retailing formats, conventional supermarket are differentiating their offering by; 1.Emphasizing fresh perishables 2.Targeting health-conscious and ethnic consumers 3.Providing a better in-store experience 4.Offering more private label brands For example, fresh merchandise categories, the areas around the outside walls known as the “ power perimeter,” have long been the mainstays of conventional supermarkets. These include the dairy, bakery, meats, florist, produce, deli, and coffee bar departments-high traffic, profitable departments that help full shoppers through the store.
  12. 12. FOOD RETAILERS • Supercenters  Supercenters, the fastest growing retail category, are large stores ( 150,000 – 220,000 square feet) that combine a supermarket in the United States- four times more than its leading competitors.  Hypermarkets are also large (100,000-300,000 square feet) and general merchandise (30-40 percent) stores. Hypermarkets typically stock fewer SKUs than supercenters-between 40,000 and 60,000 items ranging from groceries.  Hypermarkets were created in France after World War II. By building large stores on the outskirts of metropolitan areas, French retailers could attract customers and not violate strict land-use laws. They have spread throughout Europe and become popular in some South American countries such as Argentina and Brazil.
  13. 13. FOOD RETAILERS Warehouse Clubs Warehouse clubs are retailers that offer a limited and irregular assortment of food and general merchandise with little service at low prices for ultimate consumers and small businesses. Warehouse clubs are typically located in low-rent districts. They have simple interiors and concrete floors. Aisles are wide so forklifts can pick up pallets or merchandise and arrange them on the selling floor. Little service is offered. Ex. If Hewlett-Packard is introducing a new models of its printers, warehouse clubs will buy the inventory of the older model at a significant discount and then offer them for sale until the inventory is depleted.
  14. 14. FOOD RETAILERS Convenience Stores Convenience stores provide a limited variety and assortment of merchandise at a convenience location in 2,000-3,000 square feet stores with speedy checkout. Ex. Is 7- Eleven exploring ways to bring its successful fresh-food strategy to the United States.  In a convenience stores at a gasoline station customer can order a custom-made sandwich while filling their tank and pick it up in the store when they are finished.
  15. 15. General Merchandise Retailers  The major types of general merchandise retailers are department stores, full-line discount stores, specialty stores, category specialist, home improvement centers, off-price retailers, and extreme value retailers. Department stores  There are retailers that carrying a broad variety and deep assortment, offer customer services, and organization their stores, into distinctly separate department for displaying merchandise. The largest department store chains in the United States are Macy’s( part of Federal Department Stores), Sears, JC Penney, and Kohl’s.  To deal with their eroding market shares, department stores are (1) attempt to increase the amount of exclusive merchandise they sell,(2) undertaking market campaigns to develop strong images for their stores and brands, and (3) building better relationships with their key customers.
  16. 16. General Merchandise Retailers Other general merchandise retailers  Full-Line Discount Stores are retailers that offer a broad variety of merchandise, limited service, and low prices. Ex. Wal-Mart  Specialty Stores concentrate on a limited number of complementary merchandise categories and provide a high level of service in relatively small stores. These stores tailor retail strategy toward a very specific market segmentation by offering deep but narrow assortments and sales associate expertise. Ex. Music- inspired apparel to teenagers in mall-based stores.
  17. 17. General Merchandise Retailers Drugstore  Drugstore are specialty stores that concentrate on health and personal grooming merchandise. Pharmaceuticals often represent 50% of drugstore sales and an even greater percentage of their profits.  Drugstore retailers are using systems to allow pharmacists time to provide personalized service.  Ex. Walgreens, a drug store in US customer can order prescription refills via the phone or email and receive automatic notification when the prescription is ready. Based on the time customers plan to pick up the prescription, a computer system automatically schedules the workload in the pharmacy. This service as value added customer service.
  18. 18. General Merchandise Retailers Category Specialists  Category specialists are big box discount stores that offer a narrow but deep assortment of merchandise and it is considered as the largest category specialists in the United States.  One good classic example of this is the Home Depot also like Men’s Warehouse, Office Warehouse, Kid “R” Us, Pet Supplies, Musical Instruments, Sporting Goods, Furniture, computers and etc.
  19. 19. General Merchandise Retailers  Extreme Value Retailers  These are small, full-line discount stores that offer a limited merchandise assortment at very low prices. Extreme value retailers are one of the fastest growing segments in retailing.  Like limited assortment food retailers, extreme value full-line retailers reduce costs and maintain low prices by offering a limited assortment and operating in low-rent, urban, or rural locations.  In the past, extreme value retailers were considered low-status retailers that catered to lower-income consumers. Today, however, higher income consumers are increasingly patronizing dollar stores for the thrill of the hunt.  To capitalize on this attraction for unusual items , many supermarkets and full-time discount stores are adding dollar aisles to their stores.
  20. 20. General Merchandise Retailers  Off-Price Retailers  Off-price retailers offer an inconsistent assortment of brand name merchandise at low prices.  Factory Off-price retailers sell brand name and even designer label merchandise at low price through their unique buying and merchandising practices.  Most merchandise is bought opportunistically from manufacturer or other retailers with excess inventory at the end of the season.  List of Off-Price Retailers o Closeout retailers – sell a broad but inconsistent assortment of merchandise. o Outlet stores – owned by manufacturer or department or specialty store chains. o Factory outlets – typically found in one of the fastest growing types of malls
  21. 21. General Merchandise Retailers Electronic Retailers  Electronic retailing (also called e-tailing, online retailing, and Internet retailing) is a retail format in which the retailers communicate with customers and offer products and services for sale over the Internet.  Even though online retail sales continue to grow much faster than retail sales through stores and catalogs, we now realize the Internet is not a revolutionary new retail format that will replace stores and catalogs.  Most of the retailers that sell merchandize exclusively over the internet target niche markets-markets that are so small and dispersed that they cannot be economically serviced by stores.
  22. 22. General Merchandise Retailers  Catalog and Direct-Mail Retailers  Catalog retailing is a nonstore retail format in which the retail offering is communicated to a customer through a catalog, whereas direct-mail retailers communicate with their customers using letters and brochures.  Types of catalog and Direct-Mail Retailers o Two types of firms selling products through the mail are: 1. General merchandise and specialty catalog retailers 2. Direct-mail retailers o General merchandise catalog retailers offer a broad-variety of merchandise in catalogs that are periodically mailed to their customers. o Special catalog retailers focus on specific categories of merchandise, such as fruit, gardening tools. o Direct-mail retailers typically mail brochures and pamphlets to sell a specific product or service to customers at one point in time.
  23. 23. General Merchandise Retailers Direct Selling  Direct selling is a retail format in which salespeople, frequently independent businesspeople, contact customers directly in a convenient location, either at the customer’s home or at work.  Two special types of direct selling are the party plan and multilevel selling. About 30% of all direct sales are made using a party plan system.  About 80% of direct sales are master distributors, recruiting other people to become distributors in their network.  Some multilevel direct-selling firms are illegal pyramid schemes. Pyramid scheme develop when the firms and its program are designed to sell merchandise and services to other distributors rather than to end users.
  24. 24. General Merchandise Retailers Television Home Shopping This retail format in which customers watch a TV program that demonstrates merchandise and then place orders for the merchandise by telephone. The three forms of electronic home shopping retailing are; 1)Cable channels dedicated to television shopping 2)Infomercial – are TV programs, typically 30 minutes long, that mix entertainment with product demonstrations and then solicit orders placed by telephone 3)Direct-response advertising – includes advertisements on TV and radio that describe products and provide an opportunity for consumers to order them.
  25. 25. General Merchandise Retailers Vending Machine Retailing This is a nonstore format in which merchandise or services are stored in a machine and dispensed to customers when they deposit cash or use a credit card. Vending machines are placed at convenient, high- traffic locations, such as in the workplace or on university campuses, and primarily contain snacks or drinks. $ 16 Million in goods are sold annually though vending machines in the United States, but sales growth has been declining over the last few years.
  26. 26. Service Retailing  Service retailers, firms selling primarily services rather than merchandise, are a large and growing part of the retail industry.  The are several trends that suggest considerable future growth in services retailing.  Aging population will increase demand for health care services  Younger people are also spending more time and money on health and fitness  Busy parents in two-income families are willing to pay for clothes washed and pressed  Prepared meals so you can spend more time with your family.  Kiddy center for those your parents with no yaya’s
  27. 27. Service Retailing  Difference Between Services and Merchandise Retailers  Four important differences in the nature of the offering provided by services and merchandise retailers are: 1) Intangibility – They are performances or actions rather than objects. 2) Simultaneous production and consumption – Product are typically made in a factory, stored and sold by a retailer, and then used by consumers in their homes. 3) Perishability – because the creation and consumption of services are inseparable, services are perishable. They can’t be saved, stored, or resold. 4) Inconsistency of the offering to customers – Products can be produced by machines with very tight quality control so customers are reasonably assured that all boxes of Cheerios will be identical. Because services are performances produced by people(employees and customers), no two services will be identical.  The major classification of retail ownership are 1) Independent, single-store establishments 2) Corporate chains 3) franchises
  28. 28. Summary This chapter has explained different types of retailer and how they compete with different retail mixes to sell merchandise and services to customers. To collect statistics about retailing, the federal government classifies retailers by the type of merchandise and services sold. But this classification method may not be useful in determining a retailer’s major competitors. A more useful approach for understanding the retail mix, merchandise variety and assortment, services, location, pricing, and promotion decisions made to attract customers.
  29. 29. Summary ( continuation) Over the past 30 years U.S. retail markets have been characterized by the emergence of many new retail institutions. Traditional institutions (supermarkets, convenience, department, discount, and specialty stores) have been joined by category specialists, superstores, hypermarkets, convenience stores, warehouse clubs, off-price retailers, catalogers , and nonstore retailers. In addition, there has been substantical growth in services retailing.
  30. 30. Summary ( continuation) The inherent differences between services and merchandise result in services retailers emphasizing store management while merchandise retailers emphasize inventory control issues. Traditional retail institutions have changed in response to these new retailers. For example, department stores have increased their emphasis on fashion-oriented apparel and improved the services they offer. Supermarkets are focusing more attention on meal solutions and perishables.