C HAPTER 11

1. CHAPTER 11 Retailing and Wholesaling

2. What Is Retailing? • Retailing includes all the activities involved in selling products or services directly to final consumers for their personal or business use. Most retailing is done by retailers, but nonstore retailing has recently grown substantially. Copyright 2007, Prentice-Hall Inc.

3. Classification of Types of Retailers • Retailers are classified based on: • Level of service they offer. • Breadth and depth of product lines. • Relative prices charged. • How they are organized. Copyright 2007, Prentice-Hall Inc.

4. Level of Service Classification • Self-Service Retailers: • Serve customers who are willing to perform their own “locate-compare-select” process to save money. • Limited-Service Retailers: • Provide more sales assistance because they carry more shopping goods about which customers need information. • Full-Service Retailers: • Usually carry more specialty goods for which customers like to be “waited on.” Copyright 2007, Prentice-Hall Inc.

5. Major Store Retailer Types • See table 11-1 • Specialty stores • Limited product line, but an unique assortment, usually smaller stores with a distribution “personality”. Knowledgeable sales clerks, and good service…Helzberg. • Department stores • Large stores, many separate departments, each with limited product lines. Usually strong in customer service-credit, merchandise return, delivery, and sales consistence… Jones Store, Dillard, Halls Crown Center, JC Penney. • Supermarkets • Category Killers Copyright 2007, Prentice-Hall Inc.

6. Major Store Retailer Types • Supermarkets • Large stores specializing in groceries, primarily self-service with wide assortments. Profits come from volume, most from high markup. • Category Killers • Giant specialty stores that carry deep assortments of particular lines of a wide range of category: books, baby gear, toys, home improvement… Home Depot, Lowes • Convenience stores • Limited lines of high-turnover convenience goods, gasoline, tobacco, beverages, and snack items… Quick Trip, Conoco convenience store • Superstores • Large stores that sell large assortments of routinely sold food products, non-food products, and services Copyright 2007, Prentice-Hall Inc.

7. Relative Prices Classification • See table 11-1. • Most retailers charge “regular”/”average” prices for average quality and service. Increases in either or both will usually increase retail prices accordingly. • Discount stores • Sell standard merchandise at lower prices by accepting lower cost form manufactures and selling at lower margins at higher volumes… Wal-Mart, Target, Kmart, and Circuit City. Copyright 2007, Prentice-Hall Inc.

8. Relative Prices Classification • Off-price retailers • Independent off-price retailers • Buy at less then regular wholesale prices and less then normal retail or by divisions of large retail corporations… TJ Maxx, Half Price Stores, and Marshalls • Factory outlets • Producer operated stores… Liz Claiborne, Carters, Levi Strauss • Factory outlet malls • Value-retail centers May be clearance outlets selling out of style, overstock merchandise. Many mall outlets are combined manufacturer/retailer stores. Department store outlets of specialty goods naturally charge higher prices. Outlet brands include Nordstrom, Neiman Marcus, Saks, Fifth Avenue, Coach, Polo, Ralph Lauren, Gucci, Georgia Armani Copyright 2007, Prentice-Hall Inc.

9. Relative Prices Classification • Warehouse club • Appeal to variety of customer types, with large variety of products from food to furniture to appliances. Usually have deep discounts and a variety of marketing mixes… Sam’s Club, Costco Copyright 2007, Prentice-Hall Inc.

10. Organizational Classification • Corporate chain stores • Owned and operated, usually with central buying similar lines of merchandise… Sears, CVS, Williams-Sonoma, Tower Records, Pottery Barn. • Voluntary chain • Wholesaler-sponsored groups of independent retailers engaged in bulk buying and common merchandising… IGA, Sentry Hardware, True Value Hardware. Copyright 2007, Prentice-Hall Inc.

11. Organizational Classification • Retailer cooperative • Groups of independent retailers who set up a central buying organization and conduct joint promotional efforts…. Associated Grocers, Ace Hardware. • Franchise • Contractional relationship between a manufacturer, wholesaler, or service and a retailer which buys the right to one or more “franchise”… owner may be manufacturer, wholesaler or service… McDonalds, Pizza Hut, Jiffy Lube • Merchandising conglomerates • Corporate entities that own, run, and manage several widely diverse/different (product or service) franchises, along with some integration of their distribution and management functions… Target Corporation. Copyright 2007, Prentice-Hall Inc.

12. Specialty stores Department stores Supermarkets Convenience stores Superstores Category killers Supercenters Hypermarkets Product Line Classification Video Snippet What type of retailers carry the Reebok shoe brand? Learn more by watching this video snippet. Copyright 2007, Prentice-Hall Inc.

13. Product Line Classification • Specialty stores • Carry narrow product lines with deep assortments within those lines. • Department stores • Carry a wide variety of product lines – typically clothing, home furnishings, and household goods. Each product line is operated by a separate department managed by specialist buyers or merchandisers. Copyright 2007, Prentice-Hall Inc.

14. Marketing in Action Specialty Stores The Gap’s product lines are limited to clothing and accessories for men, women, kids, and babies. In addition to regular sizes, petite and tall sizes are available in a variety of clothing items. http://www.gap.com/browse/home.do Copyright 2007, Prentice-Hall Inc.

15. Product Line Classification • Supermarkets • Large, low-cost, low-margin, high-volume, self-service store that carries a wide variety of food, laundry, and household products. • Convenience stores • Small stores located near residential areas that are open long hours 7 days a week and carry a limited line of high-turnover convenience goods. Copyright 2007, Prentice-Hall Inc.

16. Superstores • Larger than regular supermarkets and offer a large assortment of routinely purchased food products, nonfood items, and services. • Category Killers • Giant specialty stores that carry a very deep assortment of a particular line and are staffed by knowledgeable employees. • Supercenters • Large combination discount and grocery stores. • Hypermarkets • Gigantic supercenters the size of 6 football fields. Copyright 2007, Prentice-Hall Inc.

17. Would you consider Lowe’s to be a category killer? Why or why not? Let’s Talk! Copyright 2007, Prentice-Hall Inc.

18. Relative Prices Classification • Discount stores • Off-price retailers • Independent off-price retailers • Factory outlets • Factory outlet malls • Value-retail centers • Warehouse club Copyright 2007, Prentice-Hall Inc.

19. Discount Stores • A retail institution that sells standard merchandise at lower prices by accepting lower margins and selling at higher volume. Wal-Mart is such a successful discounter that they now sell more toys than category killer Toys ‘R Us. Copyright 2007, Prentice-Hall Inc.

20. Relative Prices Classification • Off-price Retailers • Independent Off-price Retailers: • Either owned and run by entrepreneurs or as a division of a larger retail operation. • Factory Outlets: • Owned and operated by a manufacturer. Normally carries the manufacturer’s surplus, discontinued, or irregular goods. • Warehouse Club: • Sells a limited selection of brand-name grocery items, appliances, clothing, and a hodgepodge of other goods at deep discounts to members who pay annual membership fees. Copyright 2007, Prentice-Hall Inc.

21. Marketing in Action Factory Outlet Malls Factory outlet malls and value-retail centers have blossomed in recent years, making them one of the hottest growth areas in retailing. Copyright 2007, Prentice-Hall Inc.

22. Organizational Classification • Corporate chain stores • Voluntary chain • Retailer cooperative • Franchise • Merchandising conglomerates True Value is an example of a voluntary chain. Copyright 2007, Prentice-Hall Inc.

23. Organizational Classification • Chain Stores • Two or more outlets that are owned and controlled, have central buying and merchandising, and sell similar lines of merchandise. • Voluntary Chains • A wholesaler-sponsored group of independent retailers that engages in bulk buying and common merchandising. Copyright 2007, Prentice-Hall Inc.

24. Organizational Classification • Retailer Cooperatives • A group of independent retailers that bands together to set up a jointly owned, central wholesale operation and conducts joint merchandising and promotion efforts. • Franchises • Contractual association between a manufacturer, wholesaler, or service organization (a franchiser) and independent businesspeople (franchisees) who buy the right to own and operate one or more units in the franchise system. Copyright 2007, Prentice-Hall Inc.

25. Marketing in Action Retailing Franchise Opportunities Not all franchise opportunities are in fast food. In fact, franchises now account for 40 percent of all retail sales in the United States. Copyright 2007, Prentice-Hall Inc.

26. Organizational Classification • Merchandising Conglomerates • Corporation that combines several diversified retailing lines and forms under central ownership, as well as some integration of their distribution and management functions. Limited Brands operates six retail brands. Visit the Web site for details. www.limitedbrands.com Copyright 2007, Prentice-Hall Inc.

27. Figure 11-1Retailer Marketing Decisions Copyright 2007, Prentice-Hall Inc.

28. Marketing in Action Amazon Targets Its Market Online retailer Amazon uses a sophisticated database to track customer purchases and individually target buyers by suggesting other items that fit past purchase profiles. Copyright 2007, Prentice-Hall Inc.

29. Assortment and Service Decisions • Product assortment • Should differentiate the retailer while matching target shoppers’ expectations. • Services mix • Another opportunity for differentiation. • Store atmosphere • Physical layout can help/hinder shopping. • Experiential retailing helps sell goods. • Unusual, exciting shopping environments are becoming more common. Copyright 2007, Prentice-Hall Inc.

30. Marketing in Action Experiential Retailing Mall of America pioneered the experiential retailing concept and remains the #1 retail tourist attraction in the nation. www.mallofamerica.com Copyright 2007, Prentice-Hall Inc.

31. Price and Promotion Decisions • Pricing: • Must fit its target market and positioning, product and service assortment, and competition. • Promotion: • Can use any or all of the promotion tools—advertising, personal selling, sales promotion, public relations, and direct marketing—to reach consumers. • Place: • Retailers can locate in central business districts, various types of shopping centers, strip malls, or power centers. • Location is the key to success. Copyright 2007, Prentice-Hall Inc.

32. Types of Shopping Centers • Regional shopping center or mall • Community shopping center • Neighborhood shopping center (strip mall) • Power center • Megamalls • Lifestyle centers Which form of shopping center appears to be represented by the photo? Copyright 2007, Prentice-Hall Inc.

33. Marketing in Action What’s Next for Mall of America? Megamall superstar, the Mall of America, has begun a billion dollar Phase II expansion that will include a world class casino, concert and performing arts hall, multi-cultural exhibits, indoor golf course, NHL-sized ice rink, themed hotel rooms, and of course, high-end retail stores. Copyright 2007, Prentice-Hall Inc.

34. New Retail Forms and Shortening Retail Life Cycles Growth of Nonstore Retailing Retail Convergence Rise of the Megaretailers Growing Importance of Retail Technology Global Expansion of Major Retailers Retail Stores as “Communities” or “Hangouts” The Future of Retailing Copyright 2007, Prentice-Hall Inc.

35. Which retailing trend may contribute the most to the demise of traditional malls? Why? Let’s Talk! What other factors have contributed to the declining popularity of this retail form? Explain. Copyright 2007, Prentice-Hall Inc.

36. Wholesaling • Wholesaling: • includes all activities involved in selling goods and services to those buying for resale or business use. • Wholesalers add value for producers by performing one or more channel functions. Copyright 2007, Prentice-Hall Inc.

37. Financing Risk bearing Market information Management services and advice Selling and promoting Buying and assortment building Bulk-breaking Warehousing Transportation Functions Provided by Wholesalers Copyright 2007, Prentice-Hall Inc.

38. Types of Wholesalers • Merchant Wholesalers • Largest group of wholesalers • Account for 50 percent of wholesaling • Two broad categories: • Full-service wholesalers • Limited-service wholesalers Copyright 2007, Prentice-Hall Inc.

39. Types of Wholesalers • Brokers and Agents • Do not take title to goods. • Perform fewer functions. • Brokers bring buyers and sellers together. • Agents represent buyers on more permanent basis. • Manufacturers’ agents are most common type of agent wholesaler. Copyright 2007, Prentice-Hall Inc.

40. Types of Wholesalers • Manufacturers’ and Retailers’ Sales Branches and Offices • Wholesaling by sellers or buyers themselves rather than through independent wholesalers. • Sales branches carry inventory. • Sales offices do not. • Many retailers set up purchasing centers in major market areas. Copyright 2007, Prentice-Hall Inc.

41. Marketing in Action Wholesalers Grainger, the leading wholesaler of maintenance, repair, and operating (MRO) supplies, succeeds by making life easier for the entire marketing channel. Copyright 2007, Prentice-Hall Inc.

42. Figure 11-2Wholesaler Marketing Decisions Copyright 2007, Prentice-Hall Inc.

43. Trends in Wholesaling • Fierce resistance to price increases. • Winnowing out of suppliers who are not adding value based on cost and quality. • Distinction between large retailers and wholesalers is blurry. • Will continue to increase the services provided to retailers. • Wholesalers are now going global. Copyright 2007, Prentice-Hall Inc.

44. Whole Foods Market Has 170 stores worldwide with $4 billion in sales vs. 5000 stores and sales of $285 billion for Wal-Mart. Offers organic, natural, and gourmet foods. Positions itself AWAY from Wal-Mart: “Whole Foods, Whole People, Whole Planet.” Marketing Efforts Web site reinforces the company’s positioning. Caters to health conscious, affluent, liberal, educated consumer base. Both in-store and online shopping is a customer experience. Cares about employees, customers, & community. WHOLE FOODS MARKET – Finding Its Niche Copyright 2007, Prentice-Hall Inc.