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Ch11 Retailing Handouts

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Ch11 Retailing Handouts

  1. 1. Part 4: Channel Institutions Chapter 11: Retailing MKTG 406 Pimentel
  2. 2. Retailing Defined <ul><li>The activities involved in selling goods and services to ultimate consumers for personal consumption. </li></ul>
  3. 3. <ul><li>Ronnie of Ronneez Custodial Service buys Formula 409 cleaner at Costco </li></ul><ul><ul><li>A case to sell to clients for small cleanups between service calls </li></ul></ul><ul><ul><li>A case for cleaning crews to use cleaning clients’ offices </li></ul></ul><ul><ul><li>A bottle to keep at the office for cleaning there </li></ul></ul><ul><ul><li>A bottle to take home and use for cleaning at home </li></ul></ul>Retailing Defined: Example
  4. 4. World’s Top 10 Retailers 14.4% 11.8% 10.7% 8.9% 12.5% 14.4% 3.1% 16.5% 20.8% 13.2% ANNUAL GROWTH 12 9 21 1 12 1 28 4 30 10 COUN-TRIES 40,060 Aldi Einkauf (Germany) 41,693 Costco (USA) 44,584 Ahold (Netherlands) 46,781 Target (USA) 51,535 Tesco (UK) 53,791 Kroger (USA) 60,503 Metro (Germany) 64,816 Home Depot (USA) 79,796 Carrefour (France) 256,329 WalMart (USA) 2003 SALES ($ mil) RETAILER
  5. 5. World’s Top 10 Retailers Aldi Einkauf (Germany) Costco (USA) Ahold (Netherlands) Target (USA) Tesco (UK) Kroger (USA) Metro (Germany) Home Depot (USA) Carrefour (France) WalMart (USA) RETAILER 2003 SALES
  6. 6. <ul><li>Cost-side positioning </li></ul><ul><li>Demand-side positioning </li></ul>Retail Positioning Strategies
  7. 7. <ul><li>Margin goals </li></ul><ul><li>Inventory turnover goals </li></ul>Cost-Side Positioning
  8. 8. <ul><li>Measures of performance </li></ul><ul><ul><li>GMROI: Gross Margin Return On Inventory </li></ul></ul><ul><li>GMROI = Gross Margin % x Inventory Turnover </li></ul><ul><li>GM = Sales – CGS </li></ul><ul><li>GM% = GM / Sales </li></ul><ul><li>IT: </li></ul><ul><ul><li>In units: IT = Units sold / Avg Inventory in units </li></ul></ul><ul><ul><li>Cost method: IT = CGS / Avg Inventory at cost </li></ul></ul><ul><ul><li>Retail method: IT = Sales / Avg Inventory at retail </li></ul></ul>Cost-Side Positioning
  9. 9. <ul><li>Using retail method for IT: </li></ul><ul><li>GMROI = (GM / Sales) x (Sales / Avg Inv at retail) </li></ul><ul><li>= GM / Avg Inv at retail </li></ul><ul><li>Original retail </li></ul><ul><li>Sale retail </li></ul>Cost-Side Positioning
  10. 10. <ul><li>GMROI Example: Ronneez Pet Shop </li></ul><ul><li>Sales for year: $1,000 </li></ul><ul><li>Cost of goods sold: 800 </li></ul><ul><li>Average inventory at cost: 200 </li></ul><ul><li>Average inventory at MSRP: 250 </li></ul><ul><li>GM = </li></ul><ul><li>GM% = </li></ul><ul><li>IT = </li></ul><ul><li>GMROI = GM% x IT = </li></ul><ul><li>or </li></ul><ul><li>GMROI = GM / Avg Inv = </li></ul>Cost-Side Positioning 1,000 – 800 = 200 200 / 1,000 = 0.20 = 20% 800 / 200 = 4 1,000 / 250 = 4 or 0.20 x 4 = 0.80 = 80% 200 / 250 = 0.80 = 80%
  11. 11. <ul><li>Measures of performance (continued) </li></ul><ul><ul><li>Sales per employee </li></ul></ul><ul><ul><li>= Sales / FTE </li></ul></ul><ul><ul><li>GM per full time equivalent employee </li></ul></ul><ul><ul><li>= (Sales – CGS) / FTE </li></ul></ul>Cost-Side Positioning
  12. 12. Cost-Side Positioning Taken from The Controller’s Report, Dec 2003 & Sep 2004 Eating places Apparel & accessory stores Home furniture & equip stores Department stores Grocery stores Consumer electronics stores Cable & other pay TV services Drug & proprietary stores Auto dealers, gas stations Catalog, mail-order houses Investment advice
  13. 13. <ul><li>Measures of performance (continued) </li></ul><ul><ul><li>Sales per square foot </li></ul></ul><ul><ul><li>GM per square foot </li></ul></ul><ul><ul><ul><li>Rent expense </li></ul></ul></ul><ul><ul><ul><ul><li>Anchor stores </li></ul></ul></ul></ul><ul><ul><ul><li>Strategic use of space </li></ul></ul></ul><ul><li>Involves suppliers </li></ul>Cost-Side Positioning
  14. 14. <ul><li>Bulk-breaking </li></ul><ul><ul><li>Warehouse clubs </li></ul></ul><ul><ul><li>BOGO </li></ul></ul><ul><ul><li>Dollar stores </li></ul></ul>Demand-Side Positioning
  15. 15. <ul><li>Spatial convenience </li></ul><ul><ul><li>Based on product class </li></ul></ul><ul><ul><li>Time issues </li></ul></ul><ul><li>Waiting and delivery time </li></ul><ul><ul><li>Out-of-stocks </li></ul></ul>Demand-Side Positioning
  16. 16. <ul><li>Product variety </li></ul><ul><ul><li>Breadth </li></ul></ul><ul><ul><li>Depth </li></ul></ul>Demand-Side Positioning Comprehensive selection of a limited variety of goods Comprehensive selection of a wide variety of products Deep Limited assortment of a limited variety of goods Limited assortment of a wide variety of products Shallow Narrow Broad
  17. 17. <ul><li>Customer service </li></ul><ul><ul><li>SG&A: Sales, General, and Administrative expenses </li></ul></ul><ul><ul><li>Balance costs and benefits </li></ul></ul>Demand-Side Positioning
  18. 18. Multichannel Shopping <ul><li>Brick & mortar </li></ul><ul><li>Internet </li></ul><ul><li>Hybrid </li></ul><ul><ul><li>Free riding </li></ul></ul><ul><ul><li>Click & mortar </li></ul></ul>Purchasing Brick & Mortar: Traditional Exchange Hybrid: Web-aided Store Exchange In-store Hybrid: Store-aided Electronic Exchange Internet: Electronic Exchange Online In-store Online Shopping
  19. 19. Internet Retailing Computer hardware Clothing Other merchandise Furniture Office equipment/supplies Electronics/appliances Books/magazines Drugs, health/beauty aids Music/videos Toys/hobbies/games Computer software Sporting goods Food/beer/wine 0 5 10 15 % of Total Internet Retail Sales
  20. 20. Direct Selling <ul><li>Face-to-face consumer sales away from a fixed retail location </li></ul><ul><li>Direct selling organizations (DSO) </li></ul><ul><ul><li>Independent contractors </li></ul></ul><ul><ul><li>Products </li></ul></ul><ul><ul><li>Sideline </li></ul></ul><ul><ul><li>Developing economies </li></ul></ul>
  21. 21. Direct Selling <ul><li>Multi-level direct selling organizations (MLDSO) </li></ul><ul><ul><li>Illegal pyramid schemes </li></ul></ul><ul><ul><ul><li>Frontloading </li></ul></ul></ul>
  22. 22. DSO Standards <ul><li>Low cost to join </li></ul><ul><li>Can return unsold merchandise </li></ul><ul><li>Rewards based on sales, not recruiting </li></ul><ul><li>Recruit only qualified individuals </li></ul>
  23. 23. Should you join a DSO? <ul><li>Do you love selling? </li></ul><ul><li>Are you good at it? </li></ul><ul><li>Are you comfortable asking your friends for money? </li></ul><ul><li>Is this really what you want to sell? </li></ul>
  24. 24. Evaluating A DSO <ul><li>Product value </li></ul><ul><li>Financially sound company </li></ul><ul><li>Legal/ethical company </li></ul><ul><li>Follows DSO standards </li></ul>
  25. 25. Channel Power of Retailers <ul><li>Channel power </li></ul><ul><li>Strong power position of retailers </li></ul><ul><ul><li>Pressure suppliers because of own pressures </li></ul></ul><ul><ul><ul><li>Slow growth of aggregate sales </li></ul></ul></ul><ul><ul><ul><li>Need to cut costs to be profitable </li></ul></ul></ul><ul><ul><ul><li>Expanding role of buyers </li></ul></ul></ul><ul><ul><li>Consolidations </li></ul></ul><ul><ul><li>Too many new products </li></ul></ul><ul><ul><li>Have become accustomed to special offers </li></ul></ul><ul><ul><li>Private brands </li></ul></ul>
  26. 26. Trade Deals <ul><li>Off invoice </li></ul><ul><li>Bill-back </li></ul><ul><li>Count-recount </li></ul><ul><li>Free goods </li></ul><ul><li>Co-op advertising </li></ul><ul><li>Advertising allowances </li></ul><ul><li>Display allowances </li></ul><ul><li>Street money </li></ul>
  27. 27. Trade Deals (cont.) <ul><li>Sales drives </li></ul><ul><li>Terms or inventory financing </li></ul><ul><li>Slotting allowances </li></ul><ul><li>Failure fees </li></ul><ul><li>Forward buying </li></ul><ul><li>Diverting </li></ul>
  28. 28. Private Branding <ul><li>Brands created by retailers </li></ul><ul><li>Benefits to retailer </li></ul><ul><ul><li>Store loyalty </li></ul></ul><ul><ul><li>More profitable </li></ul></ul><ul><li>Types of private brands </li></ul><ul><ul><li>Store name </li></ul></ul><ul><ul><li>Retailer’s own brand </li></ul></ul><ul><ul><li>Designer-exclusive </li></ul></ul><ul><ul><li>License name </li></ul></ul><ul><ul><li>Generic </li></ul></ul>
  29. 29. Globalization of Retailing <ul><li>Lags behind other industries </li></ul><ul><li>Difficulties of going international </li></ul><ul><ul><li>Real estate </li></ul></ul><ul><ul><li>Physical logistics operations </li></ul></ul><ul><ul><li>Supplier relationships </li></ul></ul><ul><ul><li>Different regulations </li></ul></ul><ul><ul><li>Cultural differences </li></ul></ul>
  30. 30. Globalization of Retailing <ul><li>Keys to success </li></ul><ul><ul><li>Balance </li></ul></ul><ul><ul><ul><li>Distinctive retail competency </li></ul></ul></ul><ul><ul><ul><li>Local preferences </li></ul></ul></ul><ul><li>Competing in home market against international retailers </li></ul><ul><ul><li>Niche markets </li></ul></ul><ul><ul><li>Superior offering </li></ul></ul>
  31. 31. Miscellaneous Retail Pricing Terms <ul><li>Cash discounts (2/10 net 30) </li></ul><ul><li>F.O.B. </li></ul><ul><li>Freight allowances </li></ul><ul><li>Markdown or off-retail </li></ul><ul><li>Markup </li></ul><ul><li>Quantity discounts </li></ul><ul><ul><li>Cumulative </li></ul></ul><ul><ul><li>Non-cumulative </li></ul></ul><ul><li>Seasonal discount </li></ul><ul><li>Trade discount </li></ul>
  32. 32. Key Terms <ul><li>Retailing </li></ul><ul><li>Retail positioning strategy </li></ul><ul><li>Cost-side positioning </li></ul><ul><li>Demand-side positioning </li></ul><ul><li>GMROI </li></ul><ul><li>GMROL </li></ul><ul><li>GMROS </li></ul><ul><li>Anchor stores </li></ul><ul><li>Out-of-stocks </li></ul><ul><li>SG&A </li></ul><ul><li>Brick & mortar </li></ul><ul><li>Free riding </li></ul><ul><li>Click & mortar </li></ul><ul><li>Direct selling </li></ul><ul><li>DSO </li></ul><ul><li>MLCSO </li></ul><ul><li>Pyramid scheme </li></ul><ul><li>Frontloading </li></ul><ul><li>Channel power </li></ul><ul><li>Buyers </li></ul><ul><li>Off invoice </li></ul><ul><li>Bill-back </li></ul><ul><li>Count-recount </li></ul><ul><li>Co-op advertising </li></ul><ul><li>Advertising allowance </li></ul>
  33. 33. Key Terms <ul><li>Display allowances </li></ul><ul><li>Sales drives </li></ul><ul><li>Terms or inventory financing </li></ul><ul><li>Slotting </li></ul><ul><li>Street money </li></ul><ul><li>Forward buying </li></ul><ul><li>Failure fees </li></ul><ul><li>Private brand </li></ul><ul><li>Store name brand </li></ul><ul><li>Retailer’s own brand </li></ul><ul><li>Designer-exclusive brand </li></ul><ul><li>License name brand </li></ul><ul><li>Generic brand </li></ul><ul><li>Cash discounts </li></ul><ul><li>F.O.B. </li></ul><ul><li>Freight allowances </li></ul><ul><li>Markdown or off-retail </li></ul><ul><li>Markup </li></ul><ul><li>Cumulative quantity discount </li></ul><ul><li>Non-cumulative quantity discount </li></ul><ul><li>Seasonal discount </li></ul><ul><li>Trade discount </li></ul>

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