Stores & Nonstores

PPT2-1

Types of Retailers
Use Different Mixes merchandise
Variety (Breadth) Assortment (Depth)

services store design, visual merchandising location pricing

Infinite Variations Survival of the Fitness -- Formats that

Satisfy the Needs of Significant Segment

LO3

Categorizing Retailers
Census Bureau Number of Outlets Margin versus Turnover Location Size

LO3

Retailers Classified by Margin and Turnover

High Margin High-Margin/ Low-Turnover Retailers Low-Margin/ Low-Turnover Retailers High-Margin/ High-Turnover Retailers Low-Margin/ High-Turnover Retailers

Low Turnover

High Turnover

Low Margin

PPT2-2

SIC System for Classifying Retailers by Type of Merchandise

PPT2-3

Sales by SIC Category

Source: U.S. Department of Commerce, 1998 Census of Retail Trade.

PPT2-4

Merchandise Offering
Variety (breadth of Merchandise) The number of merchandise categories offered by a retailer Assortment (Depth of Merchandise) The number of different items (SKUs) offered in a merchandise category

PPT2-7

Types of Retailers
Food Retailers
Mom and Pop Stores Convenience stores Supermarkets

General Merchandise Retailers

Department Stores

Specialty Stores
Discount Stores Category Specialists

Supercenters

Off-Price Retailer
Warehouse Club

PPT2-8

Shopping Patterns by Types of Retail Outlets

Outlet % Shopping Number of Weekly Trips Weekly Spending

Supermarkets General merchandise discount stores Fast-food restaurants Drug stores Convenience stores Wholesale clubs Specialty food stores

100 68 65 39 37 27 9

2.4 1.3 1.9 1.2 2.4 1.7 1.0

$ 72.82 32.53 16.32 18.70 19.72 75.12 23.70

Source: Consumers Are Skeptical Again, 63rd Annual Report of the Grocery Industry, Progressive Grocer, April 1996, p.42.

PPT2-6

Trends in the Retail Industry

Growing Diversity of Formats New retail formats (category specialist & supercenters Non store retailing & Electronic Retailers Increasing Industry Concentration Centralization of Decision-Making Information and Communication Systems Globalization Private labels

LO2

E-tailing

E-tailing is one of the most dynamic areas of retailing accounting for more than 20 billion dollars in 2000 and estimated to rise to over 100 billion by 2005. Bluefly, a leading on-line retailer since its launch in Sept. 1997 continues to find success in the on-line format.

LO2

E-tailing

Although the opportunities in e-tailing can be enormous. E-tailers, such as eToys, which closed its web site in February of 2001, have found that the competition is intense and sustaining a competitive etail enterprise is challenging.

LO2

U.S. On-line Sales Forecast

Category #1 #2 #3 #4 #5 Books Computers CDs Apparel Tickets 2000 $1.9 5.2 .6 1.4 7.8 2003 $ 4.9 10.2 2.6 6.7 13.6

LO2

Category Killers
Just For Feet, the category killer in the athletic footware and apparel sector founded in 1977, cruised through the 1990s. However, Just For Feet has suffered financial setbacks from a lack of adapting to changes in the evolving retail landscape.

LO4: Exhibit 4.6

Future Changes in Retail Competition: Supercenters

Number of Supercenters by Retailer
Wal-Mart Meijer Kroger Kmart Target
1998 564 117 105 102 14 1999 721 127 126 105 16 2000 894 144 135 115 31

LO4

Leading U.S. Retailers by Sales

$200B

$30B $10B $ 8B $ 7B $ 6B $ 5B $ 4B $ 3B $ 2B $ 1B

Sears

Wal-Mart K-Mart

A&P

$800m $500m $300m $200m

1900 20 30 40 50 60 70 80 90 2000

The Relationship of Price Versus Nonprice Actions and Demand Curve

Price Price D2 D1

LO4

Quantity Pricing Actions move the consumer up and down the current demand curve.

Quantity Non-price Actions seek to shift the demand curve to right and make it more inelastic.

LO4

Global Competition in Theme Park Industry

California theme park giant Disneyland saw competition increase dramatically with the introduction of Legoland from Danish competitor Lego. Today, competition in the theme park industry is global and intense.

LO4

Future Changes in Retail Competition

Integration of Technology 1. Supply Chain Management 2. Customer Management 3. Customer Satisfaction

LO4

Future Changes in Retail Competition

Increasing Use of Private Labels 1. Helps in protecting retailer niche 2. Sets retailer apart from competition

Arizona Jeans Co.

JCPenney has built significant store loyalty through the introduction and development of the private label brand Arizona Jeans Co.

LO4

MQ4

Managerial Question
Should retailers advertise the fact that they are the owners of the private label brand(s) they sell?

LO4

Future Changes in Retail Competition

Private Label Branding Strategies 1. Developing a partnership with well-known celebrities, noted experts, and institutional authorities. 2. Developing a partnership with traditionally higher-end suppliers to bring an exclusive variation on their highly regarded brand name to the market. 3. Reintroducing products with strong name recognition that have fallen from the retail scene. 4. Branding an entire department or business; not just a product line.

Kmart and Martha Stewart

Kmart and Sears have joined together with well known celebrity, Martha Stewart, to employ a private label branding strategy to position themselves in the marketplace.

LO4

LO3

Evolution of Retail Competition

1. The Wheel of Retailing 2. The Retail Accordion 3. Retail Life Cycle

LO3

Evolution of Retail Competition Wheel of Retailing Theory

New types of retailers enter the market as low-status, low-margin, low-price competitors and take market share away from established retailers. These new retailers gradually acquire more elaborate facilities, becoming less efficient, and are replaced by new low-status, low-margin, low-price retailers.

LO3

Wheel of Retailing
Some would argue that McDonalds has become a victim of the wheel of retailing. When McDonalds started out, it served a select menu. Over the years, the McDonalds product offering has expanded to the inclusion of playgrounds, thus opening the way for new, low-cost fast-food providers, such as Checkers.

LO3

Evolution of Retail Competition The Retail Accordion

Wide Assortment

Time

Narrow Assortment

Wide Assortment

LO3

Evolution of Retail Competition The Retail Accordion

Retail institutions evolve from outlets that offer wide assortments to specialized stores that offer narrow assortments and continue repeatedly through the pattern.

LO3

Evolution of Retail Competition The Retail Life Cycle

Retail institutions pass through an identifiable cycle which includes: 1. Introduction 2. Growth 3. Maturity 4. Decline

Evolution of Retail Competition: The Retail Life Cycle Introduction

Begins with an aggressive, bold entrepreneur who is willing and able to develop a different approach to retailing of certain products. During this stage profits are low, despite increasing sales levels.

LO3

Evolution of Retail Competition: The Retail Life Cycle Growth

Sales and profits increase, validating the entrepreneurs good idea. New retailers enter the market and begin to copy the retailers idea. Late in this stage both market share and profitability approach their maximum levels.

LO3

Evolution of Retail Competition: The Retail Life Cycle Maturity

Market share stabilizes and profits decline because: 1. managers used to managing simple small retail outlets must now manage large complex firms, 2. industry has over expanded, and 3. competitive assaults by new retail formats.

LO3

Evolution of Retail Competition: The Retail Life Cycle

LO3

Decline
The once promising idea is no longer needed in the marketplace. As a result, market share and profits fall.

LO3: Exhibit 4.5

Retail Institutions in their Various Stages of the Retail Life Cycle

Introduction

Growth

Maturity

Decline Variety Stores (1890s) Factory Outlet Malls (1970s)

E-tailing (1990s) Food Courts (1980s) Warehouse Clubs (1970s) Supercenters (1990s) Airport-based Department Stores (1860s) Retailers (1980s) Supermarkets (1930s) Convenience Stores (1960s) Category Killers (1970s)