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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.

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chapter 1 perspectives on retailing
Chapter 1

Perspectives on Retailing

learning objectives
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.

LO 1

what is retailing and why is it undergoing so much change today
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 trends do you see in Retailing?

LO 1

what is retailing and why is it undergoing so much change today1
What is Retailing, and Why is it Undergoing so Much Change Today?
  • E-tailing
  • Price competition
  • Demographic shifts
  • Store size
  • Eco-tailing
  • SocialMarketing1

LO 1

e tailing
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.

LO 1

e tailing1
E-tailing
  • To combat e-tailing, bricks-and-mortar retailers must give their customers more control over the shopping experience.

LO 1

e tailing2
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.

LO 1

e tailing3
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.

LO 1

top on line retailers
Top on-lineRetailers
  • Amazon
  • Netflix
  • QVC
  • Apple
  • Cabelas
  • Avon
  • JCP
  • NewEgg
  • LLBean
  • TigerDirect
  • VictoriasSecret
  • Which are e-tailers only and which are click and mortar
price competition
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.

LO 1

demographic shifts
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.

LO 1

demographic shifts1
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.

LO 1

demographic shifts2
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.

LO 1

demographic shifts3
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.

LO 1

store size
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.

LO 1

store size1
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.

LO 1

store size2
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.

LO 1

categorizing retailers
Categorizing Retailers
  • Census bureau
  • Number of outlets
  • Margin versus Turnover
  • Location
  • Size

LO 2

census bureau
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.

LO 2

number of outlets
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.

LO 2

number of outlets1
Number of Outlets
  • Standard stock list - Merchandising method in which all stores in a retail chain stock the same merchandise.
  • Optional 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.

LO 2

number of outlets2
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.

LO 2

number of outlets3
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.

LO 2

number of outlets4
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.

LO 2

margins versus turnover
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.

LO 2

margins versus turnover1
Margins Versus Turnover
  • 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.

LO 2

margins versus turnover2
Margins Versus 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 of inventory turnover.

LO 2

margins versus turnover3
Margins Versus Turnover
  • 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 of inventory turnover.

LO 2

margins versus turnover4
Margins Versus Turnover

High Margin

Excellent position

to withstand a

competitive attack

Low

Turnover

High

Turnover

Least able to

withstand a

competitive attack

Low Margin

LO 2

location
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.

LO 2

slide33
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.

LO 2

a retailing career
A Retailing Career
  • Career path
  • Common questions about a retailing career
  • Prerequisites for success

LO 3

career path
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.

LO 3

career path1
Career Path
  • Buying - The retailing career path whereby one uses quantitative tools to develop appropriate buying plans for the store’s merchandise lines.

LO 3

common questions about a retailing career
Common Questions About a Retailing Career
  • Salary
  • Career progression
  • Geographic mobility
  • Women in retailing
  • Societal perspective

LO 3

prerequisites for success
Prerequisites for Success
  • Hard work
  • Analytical skills
  • Creativity
  • Decisiveness
  • Flexibility
  • Initiative
  • Leadership
  • Organization
  • Risk taking
  • Stress tolerance
  • Perseverance
  • Enthusiasm

LO 3

the study and practice of retailing
The Study and Practice of Retailing
  • Analytical method
  • Creative method
  • A two-pronged approach
  • A proposed orientation

LO 4

the study and practice of retailing1
The Study and Practice of Retailing

Analytical Method

Manager is finder and

investigator of facts.

Creative Method

Manager is conceptual

and very imaginative.

Two-Pronged Method

Manager who employs both

approaches.

LO 4

a proposed orientation
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.

LO 4

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