Chapter 2

Types of Retailers

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Types of Retailers

■ Retailers Use Different Retail Mixes

-merchandise: variety (breadth) / assortment (depth)
-services
-store design, visual merchandising
-location
-pricing
■ Infinite Variations
■ Some combination of retail mixes satisfy the needs of
significant segments and persist over time.

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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)

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Trends in Supermarket Retailing

Competition from Discount Stores

Efficient
Lower Costs Lower Prices
Distribution

Changing Consumption Patterns

Time Pressure Eating Out More Meal Solutions

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Three Tiers of Department Stores

■ First Tier: Upscale, high fashion chains with exclusive

designer merchandise and excellent customer service
Nordstrom, Neiman Marcus, Saks

■ Second Tier: Retailers sell more modestly priced

merchandise with less customer service
Macy’s

■ Third Tier: Value oriented caters to more price conscious

customer
JCPenney, Sears, Kohl’s

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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
■ More Sales (?)
-Customers Wait for Sale
■ Focus on Apparel and Soft Home
■ Develop Private Labels and Exclusive Brands

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Issues in 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, Circuit City, Sports Authority

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Issues in Specialty Store Retailing

■ Mall-Based Apparel Retailers

■ Decline in Mall Shopping and

Apparel Sales
-Lack of New Fashions
-Less Interest in Fashion
-Increased Price Consciousness

■ Lifestyle Formats – McGraw-Hill Companies, Inc./Andrew Resek, Photographer

Abercrombie and Fitch

Hot Topics
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Issues in Drug Store Retailing

■ Consolidation – Walgreens,
CVS, Rite-Aid
■ Competition from Supermarkets,
discount Stores and mail-in
orders
■ Evolution to a New Format
-Stand Alone Sites with Drive Thru
Windows
-offering more frequent purchase food
items
■ Improved systems provide
personalized service in the
pharmacy

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Category Specialists

■ Deep and Narrow

Assortments
Destination Stores
■ Category killers
■ Low Price and Service
■ Wholesaling to
Business Customers
and Retailing to
Consumers
Bass Pro Shops
■ Incredible Growth

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Category Specialists:
Home Improvement Centers

Home Depot and Lowes act as both:

Retailer and Wholesaler

Consumer Business

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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
99 Cents Only Store

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Off-Price Retailers

■ Close-out retailers
■ Offer an inconsistent assortment of brand name
merchandise at low prices
TJX companies (T.J. Maxx, Marshalls. HomeGoods)
Ross Stores, Burlington Coat factory, Big Lots, Tuesday
Morning

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Types of Non-store Retailers

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 What are Amazon and eBay?

■ http://www.Amazon.com – Merchandise to
consumers. Provides website development and
fulfillment services to other retailers

■ eBay – Acts as a mall or other shopping center

providing a “place” for buyers and sellers to meet

Don Farrall/Getty Images 2-15

Issues in Catalog Retailing

■ Low Start Up Cost

■ Evolution of Multi-Channel Offering
■ Hard to compete with large well established firms
■ Increasing Mail Costs
■ Clutter from other Catalogs
■ General merchandise catalogs like JC Penney
■ Specialty Catalogs like Victoria Secret

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Issues in Direct Selling

■ Completely bypasses retailers and wholesalers

 Manufacturers set up their own channels to sell their products
directly to consumers
■ Party plan system: merchandise is demonstrated in a
party atmosphere
■ Multi-level network: Master distributors sell to distributors
who sell merchandise
■ Pyramid schemes: Firm sells to other distributors and
little if any merchandise goes to end users

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Issues in Television Home Shopping

■ Consumers watch cable stations, infomercials or direct

response ads
■ Few consumers watch regularly
■ Most purchases made by small proportion of viewers
■ Customers can’t examine merchandise
■ Customers must wait for merchandise to come on
■ Sells predominately jewelry, apparel, cosmetics,
kitchenware, and exercise equipment

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Issues in Vending Machine Retailing

■ Automatic Merchandising
 About $25 billion worth of convenience goods are sold to

Americans through 4.7 million vending machines

■ Sales growth has been declining due to higher prices and
healthier eating habits
■ New technology may help sales growth
■ Trend of placing machines in captive consumer locations

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Services vs. Merchandise Retailers

■ 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
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Types of Retail Ownership

■ Independent, Single Store

Establishments
 Wholesale-sponsored
voluntary group
■ Corporate Retail Chains
■ Franchises (c) Brand X Pictures/PunchStock

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Franchisee Advantages/Disadvantages

Advantages
Established/proven product/service, business and
technical assistance, and reduction in risk.
Disadvantages
Loss of control since only semi-independent,
franchisee outlets may compete with corporate-
owned outlets, and high royalties, fees, costs on
equipment, supplies, merchandise, rental/lease rates
and mandatory participation in promotional and
support services.

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