Retail Marketing Chapter 2: Types of Retailers

Retailer Characteristics
The most basic characteristics of a retailer is its retail mix – the elements used to satisfy its customers’ needs
Four elements of retail mix:
The type of merchandise sold
The variety and assortment of merchandise sold
The level of customer service
The price of the merchandise
Types of Retailers
Retailers Use Different Retail Mixes
-**Variety – the number of merchandise categories a retailer offers. Often referred to as the breadth of merchandise.
– Assortment – the number of different items in a merchandise category. Often referred to as the depth of merchandise.
– SKU – each different item of merchandise (stock keeping unit)
Merchandise Offering
Variety (breadth of merchandise): wide vs. narrow
– The number of merchandise categories

Assortment (depth of merchandise): deep vs. shallow
-the number of items in a category (SKUs)

Prices and the cost of offering breadth and depth of merchandise and services
Stocking a deep and broad assortment is appealing to customers but costly for retailers (many SKU’s for backup increases inventory cost)
Services Offered
Retailers differ in the services they offer customers
Services attract customers but are costly.
Example:
Wal-Mart: doesn’t provide any services
LL Bean: offers lessons, delivery
Supermarkets
Conventional supermarkets
Self-service food store offering groceries, meat, produce and limited non-food items
30,000 SKU
Supermarkets CONTD
Limited Assortment Supermarket or Extreme Value Food Retailer
2,000 SKUs
Offer one or two brands and sizes
Designed to maximize efficiency and reduce costs
Offer merchandise at 40-60% lower prices than conventional supermarkets
Examples: Aldi’s and Save-A-Lot
ALDI Strat
8,500 worldwide, including 1000 stores in 26 US states
90 percent of population in Germany shop at Aldi

Cheap..
Only two brands of toilet paper and one brand of pickles

STRATEGY:
Stores sell less products
ALDI exclusive label
High quality of products at cheaper prices

HOW?
Strong control over quality and price
Simplify shipping and handling
Reduce labor costs by keeping limited store staff, etc

Conventional Supermarket Survival Pack
**To compete successfully with intrusions by other types of retailers, conventional supermarkets have taken steps to differentiate their offerings, such as emphasizing their “power perimeters” (areas around outside walls with fresh perishables such as dairy, produce, deli, bakery and florist)
How can supermarkets differentiate themselves from competition?
**Conventional supermarkets also offering more natural, organic and fair trade foods for increasingly health and environmentally aware customers.
**Fair trade means purchasing from factories that pay workers a living wage, well more than the prevailing minimum wage, and offer benefits like onsite medical treatment.
**Target health conscious and ethnic customer
**Private labels offered as part of supermarket strategy to demonstrate quality, value and standards.
**Provide a better shopping experience
Supercenters (hypermarkets) VS.
The fastest growing retail category
Large stores (185,000 square feet) that combine a supermarket with a full-line discount store
One-stop shopping experience
Some customers find too large and inconvenient to locate items
Warehouse
Offer a limited and irregular assortment of food and general merchandise with little service at low prices
Use low-locations, inexpensive store design, little customer service
Low inventory holding costs by carrying a limited assortment of fast selling items
Wholesale / Individual members paying annual fees
Hypermarkets
Large – 100,000 to 300,000 sf
Food and General Merchandise
Popular in Europe and South America, less common in US
Located in large, warehouse structures
Convenience Store
Limited variety and assortment in convenient 2,000 – 3,000 sf locations
Speedy checkout
Higher prices
Tailors assortments to local market
Makes more convenient to shop
Offers fresh, healthy food
Fast, casual restaurants
Financial services available
Opening smaller stores closer to consumers (like airports)
Facing increasing competition as supermarket chains/ discounters adding gasoline, typically as a saving program for frequent shoppers
Department Store
Broad variety and deep assortment
Customer Service
Organized in departments (Kids, Shoes, Home)
Each department a “specialty” shop
Examples: Macy’s, Sears, JC Penney, Dillards
Focus on soft goods (women’s, men’s, clothing)
*Three Tiers:
Upscale/ High Fashion (Nordstrom, Nieman’s)
High-end merchandise, excellent service
Traditional/ Moderate Prices (Macy’s, Dillards)
Value (Kohl’s, JC Penney)
Caters to cost-sensitive
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 (where goods are purchased)
More Sales
…Customers Wait for Sale
Focus on Apparel and Soft Home
Develop Private Labels and Exclusive Brands
Department Stores: What To Do 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
Full-Line Discount Stores
Broad variety of merchandise
Limited Service
Low Prices
Examples: Wal-mart, Target, Kmart
Issues in Full-line Discount Store Retailing
Only Big Left
Wal-Mart, Target
Wal-Mart’s Dominance
Differentiate Strategy
Wal-Mart = Low Price and Good value
Target = More Fashionable Apparel
Competition from Category Specialists
Toys-R-Us, Best Buy, Sports Authority
Specialty Stores
Concentrates on limited number of complimentary merchandise categories
High level of customer service
Small store
Tailored retail strategy towards target market
Narrow but deep assortments
Sales Associate expertise
Increase in competitors from outside US. Growth is “fast fashion”, which is cheap but hottest trend
Zara
H&M
Drugstores
Concentrates on health and personal grooming merchandise
Pharmaceuticals often 50% of sales and higher % of profits
High sales growth due to aging population
Shrinking pharmaceutical margins due to governmental health care policies and HMO’s
Increased competition as supermarkets and discounters add pharmacy counters
Adding more convenient locations, with drive through windows
Increased personalized service
Category Specialists
Deep and Narrow Assortments
Destination Stores
Category killers
Low Price and Service
Wholesaling to Business Customers and Retailing to Consumers
Incredible Growth
Category Specialist CONTD
Example: **Office Depot
Offers customers a huge selection of office supply merchandise
As a result, inventory investment increases because they have to carry back up stock for each SKU
Office Depot finds success by carrying a wide variety of products but must offer ample stock.
Being in stock is part of their customer service.
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
Family Dollar
Dollar General
Off-Price Retailers
Close-out retailers
Offer an inconsistent assortment of brand name merchandise at low prices
TJX Companies (which operates T.J.Maxx, Marshalls, Winners, HomeGoods, TKMaxx, AJWright, and HomeSense),
Ross Stores,
Burlington Coat Factory,
Big Lots.
Services Retailing
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
Examples of Service Retailers
*slide 38
Merchandise/service continuum
*slide 39
Types of Retail Ownership
Independent, Single Store Establishments
Wholesale-sponsored voluntary group
Corporate Retail Chains
Franchises
Franchising
30 – 40% of US Retail Sales
Franchisee Pays Fixed Fee Plus % of Sales
Franchisee Implements Program
Why is this Ownership Format Efficient?
Franchisee Benefits
*Slide 44, 45, 46
KEYWORDS
depth of merchandise
The number of SKUs within a merchandise category. Also called depth of merchandise.
discount store
A general merchandise retailer that offers a wide variety of merchandise, limited service, and low prices
franchising
A contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a retail outlet using a name and format developed and supported by the franchisor.
full-line discount store
Retailers that offer a broad variety of merchandise, limited service, and low prices.
hypermarket
Large (100,000-300,000 square feet) combination food (60-70 percent) and general merchandise (30-40 percent) retailer
North American Industry Classification System (NAICS)
Classification of retail firms into a hierarchical set of six-digit codes based on the types of products and services they produce and sell.
off-price retailer
A retailer that offers an inconsistent assortment of brand-name, fashion-oriented soft goods at low prices.
specialty store
A type of store concentrating on a limited number of complementary merchandise categories and providing a high level of service.
stock-keeping unit (SKU)
The smallest unit available for keeping inventory control. In soft goods merchandise, an SKU usually means a size, color, and style
supercenter
Large store (150,000 to 220,000 square feet) combining a discount store with a supermarket.
supermarket
A conventional supermarket is a large, self-service retail food store offering groceries, meat, and produce, as well as some nonfood items, such as health and beauty aids and general merchandise.
value retailers
Small, full-line discount stores that offer a limited merchandise assortment at very low prices.
variety
The number of different merchandise categories within a store or department
warehouse club
A retailer that offers a limited assortment of food and general merchandise with little service and low prices to ultimate consumers and small businesses.
wholesale-sponsored voluntary cooperative group
An organization operated by a wholesaler offering a merchandising program to small, independent retailers on a voluntary basis