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Chapter 1
Perspectives on Retailing
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objectives
Explain what retailing is and why it is undergoing so much change today.
Describe the five methods used to categorize retailers.
Understand what is involved in a retail career and be able to list the prerequisites necessary for success in retailing.
Explain the different methods for the study and practice of retailing.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
What is Retailing, and Why is it Undergoing so Much Change Today?
Retailing - Consists of the final activities and steps needed to place merchandise made elsewhere into the hands of the consumer or to provide services to the consumer.
Any firm that sells a product or provides a service to the final consumer is said to be performing the retailing function.
What trends do you see in Retailing? LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
What is Retailing, and Why is it Undergoing so Much Change Today?
E-tailingPrice competitionDemographic shiftsStore sizeEco-tailingSocial Marketing 1
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
E-tailing
The great unknown for retail managers will be the ultimate role of the Internet.
Bricks-and-mortar retailers - Operate out of a physical building.
With the growth of the web 2.0, the Internet has become much more interactive and social in nature. This has important implications for retailers.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
E-tailing
To combat e-tailing, bricks-and-mortar retailers must give their customers more control over the shopping experience.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
E-tailing
E-tailing has caused a shift in power between retailers and consumers.Traditionally, the retailers’ control over pricing
information provided them the upper hand in most transactions.
The information dissemination capabilities of the Internet are making consumers better informed and thus increasing their power when transacting and negotiating with retailers.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
E-tailing
Retailers must keep experimenting with various strategies, both in-store and online because the next generation of technology will change the consumers’ expectations of what they demand from their retailers.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Top on-line Retailers
Amazon Netflix QVC Apple Cabelas Avon JCP NewEgg
LLBean TigerDirect VictoriasSecret
Which are e-tailers only and which are click and mortar
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Price Competition
Sam Walton forever changed the face of retailing by realizing that most of any product’s cost gets added after the item is produced.
Walton made a major commitment to computerizing Wal-Mart as a means to reduce expenses.
Costco, a retailer, seeks to boost store traffic by getting shoppers to come in for a “super, low price” on key products.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Demographic Shifts
Significant changes in retailing over the past decade have resulted from changing demographic factors such as:The fluctuating birthrate, the growing importance of
the 70 million Generation Y consumers.The move of Generation X into middle age.The beginning movement of the baby boomer
generation into retirement.The increasing number of immigrants.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Demographic Shifts
Successful retailers must:become more service-orientedoffer better value in price and qualitybe more promotion-oriented, andbe better attuned to their customers’ needs.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Demographic Shifts
Profit growth must come by either:increasing same-store sales at the expense of the
competition’s market share or by reducing expenses without reducing services to the
point of losing customers.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Demographic Shifts
Same-store sales - Compares an individual store’s sales to its sales for the same month in the previous year.
Market share - Retailer’s total sales divided by total market sales.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Store Size
As stores increase in size the retailer often employs a scrambled merchandising strategy.
Scrambled merchandising - Exists when a retailer handles many different and unrelated items.It is the result of the pressure being placed on many
retailers to increase profits.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Store Size
Retailers realized that having supersized stores increased several major costs: RentInventory costs, andLabor costs.
Two retail formats that have recently seen a significant decrease in average store size and a decrease in number of stores are:Department stores and Category killers.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Store Size
Category killer - Retailer that carries such a large amount of merchandise in a single category at such good prices that it makes it impossible for the customers to walk out without purchasing what they need, thus killing the competition.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.1 - External Environmental Forces Confronting Retail Firms
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Categorizing Retailers
Census bureauNumber of outletsMargin versus TurnoverLocationSize
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Census Bureau
The U.S. Bureau of the Census, for purposes of conducting the Census of Retail Trade, classifies all retailers using three-digit North American Industry Classification System (NAICS) codes.
Shortcoming of using the NAICS codes is that they do not reflect all retail activity.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.2 - The Five Methods Used toCategorize Retailers
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Number of Outlets
Retailers with several units are a stronger competitive threat because they can:Spread many fixed costs over a larger number of
stores.Achieve economies in purchasing.
Advantages of single-unit retailers:They have harder-working, more motivated
employees.They can focus and tailor their efforts and
merchandise in one trade area.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Number of Outlets
Standard stock list - Merchandising method in which all stores in a retail chain stock the same merchandise.
Optional stock list - Merchandising method in which each store in a retail chain is given flexibility to adjust its merchandise mix to local tastes and demands.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Number of Outlets
Channel advisor or Channel captain - Institution in the marketing channel who is able to plan for and get other channel institutions to engage in activities they might not otherwise engage in.Examples could be manufacturer, wholesaler, broker,
or retailer.Large store retailers are often able to perform the role
of channel captain.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Number of Outlets
Private label branding - Occurs when a retailer develops its own brand name and contracts with a manufacturer to produce the merchandise with the retailer’s brand on it instead of the manufacturer’s name.
Also called store branding.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Number of Outlets
The major shortcoming of using the number of outlets scheme for classifying retailers is that it addresses only traditional bricks & mortar retailers.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Margins Versus Turnover
Gross margin percentage - Gross margin divided by net sales or what percent of each sales dollar is gross margin.
Gross margin - Net sales minus the cost of goods sold.
Operating expenses - Expenses the retailer incurs in running the business other than the cost of the merchandise.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Margins Versus Turnover
Inventory turnover - The number of times per year, on average, that a retailer sells its inventory.
High-performance retailers - Produce financial results substantially superior to the industry average.
Low-margin/low turnover retailer - Operates on a low gross margin percentage and a low rate of inventory turnover.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Margins Versus Turnover
Low-margin/high turnover retailer - Operates on a low gross margin percentage and a high rate of inventory turnover.
High-margin/low turnover retailer - Operates on a high gross margin percentage and a low rate of inventory turnover.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Margins Versus Turnover
Clicks & mortar retailers - Sell both online and via physical stores.
High-margin/high turnover retailer - Operates on a high gross margin percentage and a high rate of inventory turnover.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
LowTurnover
HighTurnover
High Margin
Low Margin
Excellent positionto withstand a
competitive attack
Least able towithstand a
competitive attack
Margins Versus Turnover
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Location
Retailers are now aware that opportunities exist in new non-traditional retail areas.
Retailers are reaching out for alternative retail sites, rather than simply renovating the existing stores.
Today, the most significant of the new nontraditional shopping locations could be the one which combines culture with entertainment or shopping.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Size
The reason for classifying by size is that the operating performance of retailers tends to vary according to size.
With advances in technology, using classification of size is unclear.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
A Retailing Career
Career pathCommon questions about a retailing careerPrerequisites for success
LO 3
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.4 - Retailing-Two Career Paths
LO 3
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Career Path
Store management - The retailing career path that involves responsibility for:SelectingTrainingEvaluating personnel In-store promotionsDisplaysCustomer serviceBuilding maintenance, and Security.
LO 3
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Career Path
Buying - The retailing career path whereby one uses quantitative tools to develop appropriate buying plans for the store’s merchandise lines.
LO 3
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Common Questions About a Retailing Career
SalaryCareer progressionGeographic mobilityWomen in retailingSocietal perspective
LO 3
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Prerequisites for Success
Hard workAnalytical skillsCreativityDecisivenessFlexibilityInitiative
LeadershipOrganizationRisk takingStress tolerancePerseveranceEnthusiasm
LO 3
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Study and Practice of Retailing
Analytical methodCreative methodA two-pronged approachA proposed orientation
LO 4
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Study and Practice of Retailing
Analytical Method
Manager is finder and
investigator of facts.
Creative Method
Manager is conceptual
and very imaginative.
Two-Pronged Method
Manager who employs both
approaches.
LO 4
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
A Proposed Orientation
It has four major orientations:Environmental - allows the retailers to anticipate and
adapt continuously to external forces in the environment.
Management planning - helps the retailers to adapt systematically to a changing environment.
Profit - all retail decisions will have an effect on the firm’s financial performance.
Decision making - allows the retailers to focus on the need to collect and analyze data to make intelligent retail decisions.
LO 4
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.5 - The Importance of Proactive Planning
LO 4