Chapter 1

Chapter 1
Perspectives on Retailing
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.
© 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. LO 1
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 is Retailing, and Why is it Undergoing
so Much Change Today?
 E-tailing
 Price competition
 Demographic shifts
 Store size
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.
E-tailing
 To combat e-tailing, bricks-and-mortar retailers

must give their customers more control over the
shopping experience.
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.
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.
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.
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.
Demographic Shifts
 Successful retailers must:

become more service-oriented
offer better value in price and quality
be more promotion-oriented, and
be better attuned to their customers’ needs.
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.
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.
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.
Store Size
Retailers realized that having supersized stores
increased several major costs:
Rent
Inventory costs, and
Labor 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.
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.
Exhibit 1.1 - External Environmental Forces
Confronting Retail Firms
Categorizing Retailers
 Census bureau
 Number of outlets
 Margin versus Turnover
 Location
 Size
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.
Exhibit 1.2 - The Five Methods Used to
Categorize Retailers
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.
Number of Outlets
 Standard stock list - Merchandising method in

which all stores in a retail chain stock the same
merchandise.
 Optimal 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.
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.
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.
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.
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.
 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.
 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
 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
High Margin
Excellent position
to withstand a
Low
competitive attack
High
Turnover Turnover
Least able to
withstand a
competitive attack
Low Margin
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.
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.
A Retailing Career
 Career path
 Common questions about a retailing career
 Prerequisites for success
Exhibit 1.4 - Retailing-Two Career Paths
Career Path
 Store management - The retailing career path
that involves responsibility for:
Selecting
Training
Evaluating personnel
In-store promotions
Displays
Customer service
Building maintenance, and
Security.
Career Path
 Buying - The retailing career path whereby one

uses quantitative tools to develop appropriate
buying plans for the store’s merchandise lines.
Common Questions About a Retailing Career
 Salary
 Career progression
 Geographic mobility
 Women in retailing
 Societal perspective
Prerequisites for Success
Hard work Leadership

Analytical skills Organization
Creativity Risk taking
Decisiveness Stress tolerance
Flexibility Perseverance
Initiative Enthusiasm
The Study and Practice of Retailing
 Analytical method
 Creative method
 A two-pronged approach
 A proposed orientation
The Study and Practice of Retailing
Analytical Method Creative Method
Manager is finder and Manager is conceptual
investigator of facts. and very imaginative.
Two-Pronged Method
Manager who employs both
approaches.
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.
Exhibit 1.5 - The Importance of Proactive
Planning

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Explain what retailing is and why it is undergoing

 The great unknown for retail managers will be the

 To combat e-tailing, bricks-and-mortar retailers

 E-tailing has caused a shift in power between

 Retailers must keep experimenting with various

 Sam Walton forever changed the face of retailing

 Significant changes in retailing over the past

 Successful retailers must:

 Profit growth must come by either:

 Same-store sales - Compares an individual

 As stores increase in size the retailer often

 Category killer - Retailer that carries such a large

 The U.S. Bureau of the Census, for purposes of

 Retailers with several units are a stronger

 Standard stock list - Merchandising method in

 Channel advisor or Channel captain -

 Private label branding - Occurs when a retailer

 The major shortcoming of using the number of

 Gross margin percentage - Gross margin

 Inventory turnover - The number of times per

 Low-margin/high turnover retailer - Operates

 Clicks & mortar retailers - Sell both online and

 Retailers are now aware that opportunities exist in

 The reason for classifying by size is that the

 Buying - The retailing career path whereby one

Hard work Leadership

 It has four major orientations:

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