Because learning changes everything.

Introduction to the
World of Retailing
CHAPTER 1

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 Learning Objectives
LO 1-1 Identify retailing activities.
LO 1-2 Realize the importance of retailing in the U.S. and world economies.
LO 1-3 Analyze the changing retail industry.
LO 1-4 Recognize the opportunities for you in retailing.
LO 1-5 Understand the strategic retail management decision process.

© McGraw Hill LLC 2

 What is Retailing? 1

Learning Objective 1-1 Identify retailing activities.

The Retailer’s Role in a Supply Chain

Retailing – adds value to products and services sold to consumers.
• Stores, apps, and online.
• May include lodging in a motel, home-delivered pizza.
Retailer – sells products and services to consumers.
• Supply chain.

© McGraw Hill LLC 3

 EXHIBIT 1–1 Example of a Supply Chain

Access the text alternative for slide images.

© McGraw Hill LLC 4

 What is Retailing? 2

Retailers Create Value 零售

商创造价值
1. Providing an assortment. 分
类
2. Providing services.
3. Breaking bulk.
4. Holding inventory. Retailers add value by providing an assortment of goods
that can satisfy consumers’ needs.

© McGraw Hill LLC Tony Thiethoaly/Shutterstock 5

 What is Retailing? 3

Costs of Channel Activities

• Value-creating activities increase the costs of products and services.
• The costs in the supply chain can be almost as much as the cost to make the
product.

© McGraw Hill LLC 6

 EXHIBIT 1–2 Costs of Value-Added Activities in the
Distribution Channel for a T-Shirt

Access the text alternative for slide images.

© McGraw Hill LLC 7

 What is Retailing? 4

Retailers Perform Wholesaling and Production Activities

• Vertical integration.
• Backward integration.
• Forward integration.

IKEA and Zara manufacture a lot of the products available in their stores.

© McGraw Hill LLC Left: Tanawat Chantradilokrat/Shutterstock; Right: Maryia Kazlouskaya/Alamy Stock Photo 8
 What is Retailing? 5

Differences in Distribution Channels around the World

U.S. has the largest retail market in the world.
• Have scale economies to operate their own warehouses, eliminating the need for wholesalers.
Result is an efficient distribution system.

© McGraw Hill LLC 9

 What is Retailing? 6

Differences in Distribution Channels around the World continued

• Indian distribution system has small stores operated by relatively small firms and a
large independent wholesale industry.
• Infrastructure not well developed.
• Supply chain costs are higher.
• Modernizing with attention to e-commerce.

© McGraw Hill LLC 10

 What is Retailing? 7

Differences in Distribution Channels around the World continued

• Chinese retail industry is highly fragmented.
• Government has removed most restrictions on direct foreign investments.
• China is the world’s fastest-growing retail market and leads the world in e-commerce
sales.

© McGraw Hill LLC 11

 Economic and Social Significance of Retailing 1

Learning Objective 1-2 Realize the importance of retailing in the U.S. and world economies.

Role in Developed Economies

Retail Sales.
• $5.3 trillion in annual U.S. sales in 2019.
• 5.5% of the U.S GDP comes from retailing.
Employment.
• Employ 26 million people.

© McGraw Hill LLC 12

 Economic and Social Significance of Retailing 2

Role in Developing Economies – The Base of the Pyramid

• 9% of world population lives on under $2 a day.
• Base of the pyramid.
• Difficult to communicate and complete transactions.
• Lack access to mass media, the Internet, or credit cards.
• Rural, remote: high cost of transporting goods.

© McGraw Hill LLC 13

 Economic and Social Significance of Retailing 3

Role in Society
Stakeholders:
• Prospective customers.
• Supply chain partners.
• Employees.
• Shareholders.
• Government agencies.
• Members of the firm’s communities.

© McGraw Hill LLC 14

 Economic and Social Significance of Retailing 4

Role in Society continued

Corporate social responsibility (CSR).
• Voluntary.
• Meets or exceeds the ethical and legal expectations of stakeholders .

Conscious marketing.
• Recognition of the retailer’s greater purpose.
• Consideration of stakeholders and their interdependence.
• The presence of conscious leadership, creating a conscious corporate culture.
• The understanding that decisions are ethically based.
• A commitment to social issues.

© McGraw Hill LLC 15

 Economic and Social Significance of Retailing 5

Examples of social responsibility

• TOMS provides free shoes to residents of poor nations.
• Patagonia invented a reusable climbing piton that didn’t damage the rock.
• Ben & Jerry’s supports social justice movements.

© McGraw Hill LLC Source: Patagonia, Inc 16

 The Growing Importance of Retailing and Retailers 1

Learning Objective 1-3 Analyze the changing retail industry.

Evolution of the Retail Industry

• More than 80% of retail sales still made in stores.
• The COVID-19 pandemic drove more people to online purchases.
• 250 of the top-earning retailers take in revenues in excess of $4.5 trillion.

© McGraw Hill LLC 17

 EXHIBIT 1–3 Top 20 U.S. Retailers 1

Rank Name Headquarters 2019 Retail Sales Primary Format

(billions)
1 Walmart Bentonville, AR $399.80 Full-line discount store
2 Amazon Seattle, WA $193.64 E-commerce
3 The Kroger Co. Cincinnati, OH $122.28 Supermarket
4 Costco Issaquah, WA $111.75 Warehouse Club
5 Walgreens Boots Alliance Deerfield, IL $104.53 Drugstore/Pharmacy
6 The Home Depot Atlanta, GA $102.17 Home Improvement
7 CVS Health Corp Woonsocket, RI $88.51 Drugstore/Pharmacy
8 Target Minneapolis, MN $77.13 Full-line discount store
9 Lowe’s Companies Mooresville, NC $65.51 Home Improvement
10 Albertsons Companies Boise, ID $62.41 Supermarket

© McGraw Hill LLC Source: Top 100 Retailers 2020 List. National Retail Federation, 2020. https://nrf.com/resources/top-retailers/top-100-retailers/ top-100-retailers-2020-list. 18
 EXHIBIT 1–3 Top 20 U.S. Retailers 2

Rank Name Headquarters 2019 Retail Sales Primary Format

(billions)
11 Apple Store/iTunes Cupertino, CA $53.99 Electronics
12 Ahold Delhaize USA Carlisle, PA $44.81 Supermarket
13 McDonald’s Oak Brook, IL $40.41 Restaurant/fast food
14 Best Buy Richfield, MN $40.04 Electronics
15 Publix Super Markets Lakeland, FL $38.13 Supermarket
16 TJX Companies Framingham, MA $31.48 Off-price
17 Aldi Batavia, IL $31.12 Discount supermarket
18 Dollar General Goodlettsville, TN $27.75 Extreme value
19 H.E. Butt Grocery San Antonio, TX $26.00 Supermarket
20 Macy’s Cincinnati, OH $24.44 Department store

© McGraw Hill LLC Source: Top 100 Retailers 2020 List. National Retail Federation, 2020. https://nrf.com/resources/top-retailers/top-100-retailers/ top-100-retailers-2020-list. 19
 The Growing Importance of Retailing and Retailers 2

Evolution of the Retail Industry Walmart’s new app makes in-person shopping
continued easier than ever.

Accelerated Shifts Due to the COVID-

19 Pandemic.
• E-commerce interactions are more intuitive.
• Brick and mortar stores closed for extended
periods, and many went out of business
entirely.
• U.S. online sales rose 76 percent compared
with the previous year.

Access the text alternative for slide images.

© McGraw Hill LLC Jeff Chiu/AP Images 20

 Management and Entrepreneurial Opportunities 1

Learning Objective 1-4 Recognize the opportunities for you in retailing.

Management Opportunities
People with a wide range of skills and interests needed because retailers’ functions
include:
• Finance.
• Purchasing.
• Accounting.
• Management information system (MIS).
• Supply chain management.
• International business.
• Design and new product development.
• Marketing.

© McGraw Hill LLC 21

 Management and Entrepreneurial Opportunities 2

Entrepreneurial Opportunities Glossier is leading the way in the direct-to-consumer beauty

space.
Retailing entrepreneurs.
• Sam Walton(Walmart).
• Emily Weiss (Glossier).
• Ingvar Kamprad (IKEA).
• Howard Schultz (Starbucks).

© McGraw Hill LLC Emiliano Granado/Redux 22

 EXHIBIT 1–4 Retail Management Decision Process

Access the text alternative for slide images.

© McGraw Hill LLC 23

 The Retail Management Decision Process 1

Learning Objective 1-5 Understand the strategic retail management decision process.

Understanding the World of Retailing—Section I

The first step in the retail management process.
Critical environmental factors.
• The macroenvironment.
• Technological, social, and ethical/legal/political.
• The microenvironment.
• Competitors and customers.

© McGraw Hill LLC 24

 The Retail Management Decision Process 2

Understanding the World of Retailing—Section I continued

Competitors.
• Intratype competition.
• Scrambled merchandising.
• Increases intertype competition.

Consumers.

© McGraw Hill LLC 25

 The Retail Management Decision Process 3

Developing a Retail Strategy—Section II

Retail strategy identifies:
• The target market.
• The nature of merchandise and services.
• How to develop unique assets for long-term advantage.

Example – Walmart vs. Amazon.

© McGraw Hill LLC 26

 The Retail Management Decision Process 4

Developing a Retail Strategy—Section II continued

Strategic decision areas.
• Defining the target market.
• Analyzing the environment/firm’s strengths and weaknesses.

• Financial objectives.
• Return on investment, inventory turnover, and profit margin.

• Development of critical assets.

• Location, human resource, information and supply chain systems, supply chain organization, and customer loyalty.

© McGraw Hill LLC 27

 The Retail Management Decision Process 5

Implementing the Retail Strategy—Sections III and IV

Retail mix:
• Types of merchandise and services.
• Merchandise pricing.
• Advertising and promotional programs.
• Store design.
• Merchandise display.
• Assistance to customers provided by salespeople.
• Convenience of the store’s location.

© McGraw Hill LLC 28

 EXHIBIT 1–5 The Retailing Mix

Access the text alternative for slide images.

© McGraw Hill LLC 29

 Key Terms 1

backward integration – a form of vertical integration in which a retailer owns some or

all of its suppliers.
base of the pyramid – the 25% of the world’s population at the lowest end of the global
income distribution, with combined spending power of approximately US$5 trillion.
breaking bulk – a function performed by retailers or wholesalers in which they receive
large quantities of merchandise and sell them in smaller quantities.
conscious retailing – entails a sense of purpose for the firm higher than simply making a
profit by selling products and services.

© McGraw Hill LLC 30

 Key Terms 2

corporate social responsibility (CSR) – voluntary actions taken by a company to

address the ethical, social, and environmental impacts of its business operations and the
concerns of its stakeholders.
ethics – a system or code of conduct based on universal moral duties and obligations
that indicate how one should behave.
forward integration – a form of vertical integration in which a manufacturer owns
wholesalers or retailers.
holding inventory – a major value-providing activity performed by retailers whereby
products will be available when consumers want them.

© McGraw Hill LLC 31

 Key Terms 3

intertype competition – competition between retailers that sell similar merchandise

using different formats, such as discount and department stores.
intratype competition – competition between the same type of retailers (e.g., Kroger
versus Safeway).
retailer – a business that sells products and services to consumers for their personal of
family use.
retailing – a set of business activities that adds value to the products or services sold to
consumers for their personal or family use.

© McGraw Hill LLC 32

 Key Terms 4

retail mix – The combination of factors used by a retailer to satisfy customers needs
and influence their purchase decisions.
retail strategy – a statement that indicates 1) the target market toward which a retailer
plans to commit its resources, 2) the nature of the retail offering that the retailer plans to
use to satisfy the needs of the target market, and 3) the bases on which the retailer will
attempt to build a sustainable competitive advantage over competitors.
scrambled merchandising – an offering of merchandise not typically associated with
the store type, such as clothing in a drugstore.

© McGraw Hill LLC 33

 Key Terms 5

stakeholders – the broad set of people who might be affected by a firm’s actions, from
current and prospective customers, top supply chain partners, to employees, to
shareholders, to government agencies, to members of the communities in which the
firm operates, to a general view of society.
supply chain – a set of firms that make and deliver a given set of goods and services to
the ultimate consumers.
vertical integration – an example of diversification by retailers involving investments
by retailers in wholesaling or manufacturing merchandise.
wholesaler – firms that buy products from manufacturers and resell them to retailers.

© McGraw Hill LLC 34