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Information about Chap2

Published on January 30, 2008

Author: Petronilla


Chapter 2:  Chapter 2 Types of Retailers Trends in Retailing (pp.34-36):  Trends in Retailing (pp.34-36) Increasing Concentration - mergers and acquisitions - some formats dominated by just 2 or 3 large competitors Globalization - saturated domestic markets - information and distribution systems - global sourcing, reduced trade barriers Growing Diversity of Formats (and Cross-Shopping) e.g., category specialists, supercenters, off-price retailers, value retailers, catalog retailing, electronic retailing, hybrids, etc. Types of Retailers – Classifying by “Retail Mix” Elements (pp. 36-41):  Types of Retailers – Classifying by “Retail Mix” Elements (pp. 36-41) Price (price & cost trade-off) Customer service Type of merchandise sold NAICS codes – US Census Bureau with NAFTA countries Does not capture the effects of intertype competition (see Exhibit 2-1, p. 38) Variety and Assortment of merchandise sold “Variety” = number of merchandise categories = “breadth” More variety g more intertype competition “Assortment” = number of different merchandise items within a merchandise category = “depth” # of SKUs = 20,000 warehouse club = broad but shallow supermarket = narrow but deep # of SKUs = 30,000 discount store = broad but shallow category specialist = narrow but deep Types of Food Retailers / Issues (Exh. 2-4, pp. 41-46):  Types of Food Retailers / Issues (Exh. 2-4, pp. 41-46) Superstores Consolidation Private brands Loyalty cards Take-out/meal solutions Niches High margin goods & departments Leases (e.g., banks, Starbucks) “Big box stores” Supercenter is fastest-growing (Wal-Mart, Target, Fred Meyer) EDLP (vs. high-low pricing) Warehouse clubs = off-price Time/place utility Women? Gas stations Indoor locations (e.g., malls) Intratype competition, plus much more intertype competition diverse formats (+ restaurants, drug stores, etc.) Issues in Food Retailing (pp. 45-46):  Issues in Food Retailing (pp. 45-46) Competition from Discount Stores (e.g., Wal-Mart) Changing Consumption Patterns Efficient purchasing Lower costs Time pressure - Eating out Convenience (response – meal solutions, take-out) - One-stop-shopping (many formats sell food) - Efficient distribution Efficient management Slide6:  Retail Format % Shopping 1 Number of Weekly Trips 2 Supermarkets 100% 2.4 General merchandise 92 1.3 discount stores Drugstore 86 1.2 Supercenter 63 1.2 Dollar store 62 n.a. Wholesale clubs 52 1.7 Convenience store 46 n.a. Sources: 1 American Demographics, May 2003 2 Progressive Grocer Shopping Patterns by Types of Retail Outlets Fast food – 8x/month; Pizza – 2x/month; Restaurant – 5x/month Source: American Demographics, ~2000 Characteristics of General Merchandise Retailers/Issues (Exh. 2-5, pp. 47-57):  Characteristics of General Merchandise Retailers/Issues (Exh. 2-5, pp. 47-57) Increased intertype competition ! Issues in Specialty Store and Department Store Retailing (pp. 48, 50, 54):  Issues in Specialty Store and Department Store Retailing (pp. 48, 50, 54) Less efficient operations than newer retail formats Decline in mall shopping and apparel sales Aging population - less interest in fashion among large market segments Malls no longer viewed as convenient or exciting – turning to new types of shopping centers (e.g., lifestyle centers, power centers) Increased price consciousness Department stores threatened by discount stores (better price) and specialty stores (better service) Trends Borrowing ideas from discount stores (e.g., shopping carts, central cash wraps, extended hours) Private brands – more profitable, can generate loyalty Department stores limiting product lines – private brands & exclusive merchandise, middle price/quality, concentration on apparel/accessories/ cosmetics and soft home = “specialty department stores,” smaller locations More promotional pricing (training consumers to wait for sale!) High and low price/quality/service doing the best – middle doing worst Issues in Drugstore Retailing (pp. 54-55):  Issues in Drugstore Retailing (pp. 54-55) Consolidation Walgreen's, CVS, Rite-Aid, Eckerds = 53% sales Increasing intertype competition discount stores, warehouse clubs, internet retailers, supermarkets Trends more emphasis on full service from pharmacists stand-alone sites with drive-through windows more groceries and general merchandise Growth General Merchandise Retailing Formats (pp. 50-51, 55-57):  Growth General Merchandise Retailing Formats (pp. 50-51, 55-57) Retailing formats representing greatest growth in sales of general merchandise Discount stores Category specialists including home improvement centers Off-price stores including warehouse clubs including value retailers (extremely rapid recent growth) Issues in Discount Store Retailing (p. 48):  Issues in Discount Store Retailing (p. 48) Consolidation – Wal-Mart, Target, Kmart = >85% sales Intratype competition – must differentiate from one another Wal-Mart = low price and good value Target = more fashionable apparel and housewares Face strong intertype competition in every category Competition from category specialists (“category killers”) -- appeal of narrow but deep assortments (e.g., Circuit City, Sports Authority, Linens & Things, Borders, Home Depot, Michaels, Mens Wearhouse, etc.) BUT – Toys-R-Us is losing the toy market !! Competition from Kohl’s (department store/discount store hybrid) Competition from other retailing formats Trends (strategic responses) -- Offering broader range of merchandise (e.g., food, pharmacy) Upgrading décor, service, merchandise, overall image Issues in Category Specialist Retailing (pp. 50-51, 55-57):  Issues in Category Specialist Retailing (pp. 50-51, 55-57) “Category killers” = discount specialty stores – “kill” the category of merchandise for other retailers deep assortments within a narrow specialty limited “variety (breadth)” but much “assortment (depth)” buying efficiencies low price, often simple décor, limited service (some exceptions) typically become destination stores growth – specialists in more (and smaller) categories Wholesaling to business customers and retailing to consumers e.g., Office Depot, Office Max, Staples; Home Depot Increased intratype competition with national expansion, and intertype competition (largely from GM discount stores) Consolidation (only room for 1-3 retailers per category) Issues in Off-Price Retailing (pp. 55-56):  Issues in Off-Price Retailing (pp. 55-56) Opportunistic buying at less-than-wholesale price inconsistent assortment of brand-name goods – “treasure hunt” factory over-runs, excess inventory from other retailers, irregular some first-run merchandise (e.g., Carole Little at TJ Maxx; Costco, Sam’s Club, Trader Joe’s) often low-cost locations, simple décor, minimal service Many types of off-price retailers Off-price fashion/home retailers – TJ Maxx, Marshall’s, Ross, Burlington, DSW, Home Goods, Loehman’s, SteinMart,, etc. Closeout retailers – Big Lots, Tuesday Morning, MacFrugal’s Outlet stores – factory outlets (e.g., Nike, Ralph Lauren, Mikasa); retailer outlets (e.g., Saks Off Fifth, Nordstrom Rack) Warehouse clubs – Costco, Sam’s Club Food/specialty – Trader Joe’s Value retailers (growth!) – e.g., 99-Cent Store, Dollar Tree Intratype competition (e.g., factory outlets – overstored) Intertype competition (e.g., with department store sales) How Off-Price Retailing Works (pp. 55-56):  How Off-Price Retailing Works (pp. 55-56) Traditional Retailer Discount Store Off-Price Retailer MSRP Discount Price $ Off-Price Wholesale cost Wholesale cost < Wholesale cost $ Gross margin Gross margin Gross margin For the retailer to buy at less-than-regular-wholesale-price, must buy opportunistically So, merchandise assortment is unstable For consumer, it’s a “treasure hunt” Non-Store Retail Formats (pp. 57-62):  Non-Store Retail Formats (pp. 57-62) 1996 - Catalog & DM $142m (78%) - Electronic $.5m (.1%) - Vending machines $20m (11%) - Direct selling $15m (8%) - TV home shopping $5m (3%) Issues in Non-Store Retailing (pp. 57-59):  Issues in Non-Store Retailing (pp. 57-59) Electronic Retailing Growth and profitability expectations diminished in 2000 Best performance by store-based and catalog-based retailers (versus “pure-play”) Catalog and Direct Mail General merchandise catalogs – J. C. Penney, Spiegel Specialty catalogs – 10,000 companies, 14,000 catalogs Direct mail – letters, brochures Average hh receives 1.9 catalogs per week (+ ~same DM offers) Catalog shoppers/DM responsive receive >6 per week >50% of hh purchased from catalog in last year (36% of men) Appeals to dual-income, affluent, time conscious consumers Trend – multichannel marketing (Chapter 3) Complement to store retailing (and vice versa) Internet is natural extension and complement of catalog ( 53% = catalog/Internet/store; 42% = catalog/Internet ) Issues in Non-Store Retailing (pp. 57-59):  Issues in Non-Store Retailing (pp. 57-59) Catalog and Direct Mail (continued) Advantages Low start-up costs Manufacturers – vertical integration Retailers – expand with minimal inventory, fewer stores Access to national and international markets Appeals to time-oriented consumers (time/place utility) Challenges Rising costs – paper, printing, mailing Increased competition – catalog and direct mail clutter – harder to get consumer attention Difficulty responding quickly to fashion trends (works best for classic merchandise) Regulation (e.g., sales tax, privacy concerns; returns/delays) Issues in Non-Store Retailing (pp. 60-62):  Issues in Non-Store Retailing (pp. 60-62) Direct selling Independent distributors (e.g., Tupperware, Amway, Avon, Pampered Chef, Cookie Lee jewelry) Party plan (28%), multi-level networks (75%) vs. illegal pyramid schemes Television home shopping Infomercials (30 minutes) vs. direct response ads (usually 1-2 minutes) Home shopping networks (QVC, HSN, ValueVision) Lower income consumers, small group of loyal buyers, no growth QVC – 300,000 consumers account for 50% of sales + demonstration, - consumer has little control Vending machines Traditionally - <$1, blue collar workers – little growth Trends – credit cards, cell phone, creative placement, wider range of goods, store-retailers adding vending machines in store Slide19:  Types of Retail Ownership (pp. 66-69) Independent, single store establishment + entrepreneurial - compared with chains, lack market presence and buying power Wholesaler cooperative wholesaler organizes merchandising (Certified, IGA, True Value, Ace) + more market presence and buying power Franchise (1/3 of all U.S. retail sales, 1 in 12 businesses) contractual arrangement franchisor and franchisee, using name and format developed and supported by franchisor For franchisee + [limited] benefits of entrepreneurship + market presence and buying power For franchisor + capital for expansion - less control, more conflict (e.g., McDonald’s vs. Starbucks) Corporate chain (trends = consolidation, multiple chains under single corporate ownership)

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