Chapter 1

Introduction to the World of Retailing

McGraw-Hill/Irwin
Class Exercise

 List as many retailers as you can think of in 5

minutes.
 Who has the most on their list?
 Read out list

1-2
1-3
The World of Retailing

Introduction to Retailing

Types of Retailers

Multi-Channel Retailing

Customer Buying Behavior

1-4
Questions

■ What is retailing?
■ What do retailers do?
■ Why is retailing important in our society?
■ What career and entrepreneurial opportunities
does retailing offer?
■ What types of decisions do retail managers
make?

1-5
What is Retailing?

Retailing – a set of business

activities that adds value to
the products and services
sold to consumers for their
personal or family use

A retailer is a business that

sells products and/or
services to consumers for
personal or family use.

1-6
Examples of Retailers

 Retailers:
Kohl’s, Macy’s,
Wendy’s, Amazon.com
, Jiffy Lube, AMC
Theaters, American
Eagle Outfitter, Avon,
J.Crew

 Firms that are retailers and wholesalers - sell to

other business as well as consumers:
Office Depot, The Home Depot, United Airlines, Bank of
America, Costco
1-7
Manufacturer’s Perspective

The Four P’s of Marketing

Retailers
Retailersare
are part of the
part of the
distribution channel
distribution channel
Product

Distribution Price

Promotion

1-8
Distribution Channel

1-9
Typical Supply Chain Network

Customers

Suppliers Plants

retailers
Distribution
Centers

1-10
A Retailer’s Role in a Supply Chain

 Retailers are the final business within a supply

chain which links manufacturers to consumers.

 A Supply Chain is a set of firms that make and

deliver a given set of goods and services to the
ultimate consumer.

1-11
Pakistan – Importance Globally

 $152 billion market – 2018

 8.2 % ACGR from 2015-2017 – highest in the
world
 E commerce is only 0.5% of all Retail – 2019
 But it’s growing at 70% per year
 Young buyers
 Capable human resource
Retail Planet
Linked In :

1-12
Manufacturing, Wholesaling and Retailing

Vertical Integration – firm performs more than one set of activities in

the channel
Ex: retailer invests in wholesaling or manufacturing

Backward Integration – retailer performs some distribution and

manufacturing activities
Ex: JCPenney sells Arizona jeans (Private Label), Khaadi in
Pakistan
Forward Integration – manufacturers undertake retailing activities
Ex: Ralph Lauren (New York Jones, Liz Claiborne) operates its
own stores, Gul Ahmed (Ideas) in Pakistan

Large retailers engage in both wholesaling and retailing

Ex: Wal-Mart, Lowe’s, Safeway, Brown Shoe Company
1-13
Important Terms

■ Variety
■ Assortment
■ SKUs

1-14
Financial Performance of Retailers

Outputs – Performance Inputs Used by Retailers

 Sales  Inventory ($)

 Profits  Real Estate (sq. ft.)
  Employees (#)
Cash flow
 Overhead (Corporate
 Growth in sales, profits Staff and Expenses)
 Same store sales  Advertising
growth  Energy Costs
 MIS expenses

6-15
 Productivity: Outputs/Input

 Corporate Level
 ROA = Profits/Assets
 Comparable store sales growth (same-store sales growth)
 Buyers (Inventory, Pricing, Advertising)
 Gross Margin % = Gross Margin/Sales
 Inv Turnover = COGS/ Avg. Inventory (cost)
 GMROI = Gross Margin/Average Inventory
 Advertising as % of sales
 Stores (Real Estate, Employees)
 Sales/Square Feet
 Sales/Employee
 inv. Shrinkage/sales
 Transactions / Footfall
 Ticket Size(sales/# of transactions)
 Items Per Ticket (total items sold/total transactions)
 Conversion Rate (total transactions/total traffic)

6-16
Why Not Get Rid of the Middlemen?

 Better services to
customers
 More efficient

1-19
How Retailers Add Value

■ Provide Assortment
Buy other products
at the same time
■ Break Bulk
Buy it in quantities
customers want
■ Hold Inventory
Buy it at a
convenient place
when you want it
■ Offer Services
See it before you
buy; get credit;
layaway
Ryan McVay/Getty Images

1-22
Social and Economic Significance of Retailing

 Retail Sales:
 Over $5.5 trillion in annual

U.S. sales in 2019 (93%

bricks and mortar)
 Employment:
 Employs over 16 million

people in 2019
 One of the largest sectors

for job growth in US

 Social responsibility
 Global player

1-25
Social responsibility

 Corporate social responsibility

 The voluntary actions taken by a
company to address the ethical,
social, and environmental impacts
of its business operations, in
addition to the concerns of its
stakeholders

 Examples: Edun - a fair-trade fashion

brand by the U2 lead singer Bono
 Starbucks: pays its farmers 42%
more than the commodity price of
Arabica coffee beans
 Target: community giving programs
(5% of income, $3 million a week)

 Retail companies give away 1.7% of

their profits, compared with about 0.9%
for companies in other industries

1-26
World’s 10 Largest Retailers in 2018

RETAILER SALES COUNTRY PRIMARY FORMAT

(US $ B)
1%
WALMART 517 US DISCOUNT

AMAZON 213 US ONLINE

22%
COSTCO 144 US WAREHOUSE CLUB

SCHWARZ 130 GERMANY MULTIPLE FORMATS

KROGER 124 US SUPERMARKET Source:

Forbes
WALGREENS / 114 US PHARMACY
BOOTS
HOME DEPOT 108 US CATEGORY SPECIALIST

ALDI 108 GERMANY SUPERMARKET

CARREFOUR 101 FRANCE HYPERMARKET

JD.COM 94 CHINA ON LINE

1-27
World’s 20 Largest Retailers in 2005

1-28
Comparison of Distribution Channels
around the World

1-30
What have created these differences
in distribution systems?

Social &  China, India: To reduce unemployment by

Political protecting small businesses
Objectives  EU: To protect small retailers
To preserve green spaces/town centers
Geography Much lower population density in the US than in India,
China, and EU (where less low-cost real estate are
available for building large stores)

Market size  Large retail markets in US, India, China

 Countries in EU – distribution channels and retail
chains operate in a single country (no economy of scales
to be achieved; trade barriers still exist)

1-31
Opportunities in Retailing:
Management opportunities

■ People with a wide range of skills and interests needed

because retailers’ functions include
 Finance

 Purchase

 Accounting

 Management information system (MIS)

 Supply management including warehouse and

distribution management
 Design and new product development

■ Financially rewarding
 5-year salary of buyers: $50,000 - $60,000

 5-year salary of store managers: $120,000 - $160,000

1-32
 Nature of Retail Industry is Changing

To Today’s Retailer

Mom and Pop Store

1-33
Retailers are a Business Like
Manufacturers

Real Estate Finance

Store Design
Promotion/Advertising

MIS
Loss Prevention

Operations
Human Resources

The McGraw-Hill Companies,

Inc./Andrew Resek, photographer

1-34
Retailing is a High Tech Industry

 Selling Merchandise through the Internet

 Using Internet to manage supply chains

 Analyze POS data to tailor assortments to stores

 Computer systems for merchandise planning and

tracking

1-35
Opportunities in Retailing:
Entrepreneurial opportunities
Wal-Mart: Sam Walton
■ Retailing provides opportunities for
people who want to start their own
business
■ Some of the world’s richest people
are retailing entrepreneurs

■ Examples of retailing
IKEA: Ingvar Kamprad
entrepreneurs
Sam Walton (Wal-Mart)
Jeff Bezos (Amazon.com)
Ingvar Kamprad (IKEA)
Anita Roddick (the Body Shop)

1-36
Retail Management Decision Process

1-38
Strategic Vs Tactical Decisions

■ Doing the Right Thing (direction) vs.

Doing Things Right (execution)
■ Strategic Decisions Are:
 Made Infrequently
 Long-term
 Require significant investment
 Not easily reversed

■ Location, Organization Design, Information and

Distribution Systems, Customer Service

1-39
Retail Strategy

■ Need to identify the competition

 intratype competition
(e.g., Ideas vs. Khaadi)
 intertype competition
(e.g., Dvago vs. Imtiaz)

■ Identifying customers
 What are the significant
demographic and life-style
trends
 Who are your target
customers

1-40
Retail Strategy

■ A retail strategy should identify

 the target market

 the product and service mix

 a long-term comparative advantage

1-41
Wal-Mart’s Strategic Evolution

 Small Town - Discount Store selling hard goods

and soft goods
 limited service, efficient distribution

 Enter suburban markets

 Warehouse Clubs (Sam’s)
 Supercenters
 International Expansion
 Supermarkets, neighborhood markets

1-42
Decision Variables for Retailers

Customer Service

Store Design Merchandise

and Display Assortment
Retail
Strategy
Pricing Location

Communication
Mix
1-43
Wal-Mart’s Retail Mix

Customer Location
Service

Store Design Merchandise

And Display Retail Strategy Assortment

Communication Pricing
Mix

1-44
Wal-Mart’s Retail Mix

Location Strategy

Free-standing Stores

Customer
Service

Store Display Merchandise

And Design Assortment

Communication
Mix Pricing

1-45
Wal-Mart’s Retail Mix

Assortment Strategy

Customer
Service Location

Large Number
Store Design
and Display
of Categories
Few Items
Communication
Mix Pricing
in Each Category

1-46
Wal-Mart’s Retail Mix

Location
Pricing Strategy
Customer
Merchandise
Service
Assortment

Store Design
and Display

Communication
Mix Low, EDLP

1-47
Wal-Mart’s Retail Mix

Customer
Service Location

Communication Mix
Store Design Merchandise
and Display Assortment

Pricing

TV and On Line
Ads

1-48
Wal-Mart’s Retail Mix

Store Design and Display

Customer
Service Location

Basic, Special
Merchandise
Displays Assortments
for Products
Communication
Mix Pricing

1-49
Wal-Mart’s Retail Mix

Customer Service

Limited

Location

Merchandise
Assortment

Store Design
and Display Pricing

Communication
Mix

1-50
Target’s Retail Mix

Customer Service Location

Store Design Merchandise

and Display Retail Strategy Assortment

Communication Mix Pricing

1-51
 Target’s Retail Mix

Location Strategy

Free-standing Stores

Customer Service

Store Display
And Design Merchandise
Assortment

Communication Mix
Pricing

1-52
Target’s Retail Mix

Assortment Strategy

Customer Service
Location

Store Design
Large Number of Categories
Private Labels
and Display

Few Items in Each Category

Communication Mix
Pricing

1-53
Target’s Retail Mix

Pricing Strategy
Location

Customer Service
Merchandise Assortment

Store Design
and Display

Communication Mix

Low to Modest

1-54
 Target’s Retail Mix

Customer Service
Location

Communication Mix Store Design

And Display
Merchandise Assortment

Pricing

TV and On line Ads

1-55
Target’s Retail Mix

Store Design and Display

Customer Service Location

Colorful, wide aisles displays

for products with a grid layout Merchandise Assortments

Communication Mix Pricing

1-56
Target’s Retail Mix

Customer Service

Limited

Location

Merchandise Assortment

Store Design and Display

Pricing

Communication Mix

1-57
Ethical Situations for a Retail Manager

 Should a retailer sell merchandise that they suspect utilized

child labor?
 Should it advertise that its prices are the lowest in an area
even though some items are not?
 Should a buyer accept an expensive gift from a vendor?
 Should salespeople use high-pressure sales when they know
the product is not the best for the customer’s needs?
 Should a retailer give preference to minorities when making a
promotion decision?
 Should a retailer treat some customers better than others?

1-58
Checklist for Making Ethical Decisions

1-59
You are Faced with an Ethical Decision:
What Can You Do?

 Ignore your personal values and do what your

company asks you to do – you will probably feel
dissatisfied with your job .

 Take a stand and tell your employer what you

think. Work to change the policies.

 Refuse to compromise your principles – you

could lose your job!

1-60
Careers in Retailing

 Career Opportunities
 Store Management

 Merchandise Management

 Corporate Staff

1-61
Why You Should Consider Retailing

■ Entry level management positions:

Department manager or assistant buyer/planner
■ Manage and have P&L responsibility on your first job
■ Starting pay average with great benefits
■ No two days are alike
■ Buying and planning for financially analytically oriented
■ Management for people-people

1-63
Types of Merchandise - NAICS

 Motor Vehicle and parts dealers

 Furniture and Home Furnishing Stores
 Electronic and Appliances Stores
 Building Material and Garden Equipment and
Supplies Dealers
 Food and Beverage Stores
 Health and Personal Care Stores
 Gasoline Stations
 Clothing and Clothing Accessories Stores

1-65
Types of Merchandise - NAICS

 Sporting goods, hobby, book and music stores

 General Merchandise
 Miscellaneous Store Retailers
 Non Store Retailers
 Arts, Entertainment and Recreation
 Food and Drink Services

1-66
Further Sub Divisions - NAICS

 Clothing and Clothing Accessories stores (448)

 Clothing Stores (4481)

 Shoe Stores (4482)

 Jewelry, Luggage and Leather Goods Stores

(4483)

1-67
Further Sub Divisions - NAICS

 Clothing Stores (4481)

• Men’s (44811)
• Women’s (44812)
• Children’s and Infants (44813)
• Family (44814)
• Clothing Accessories (44815)
• Other (44819)
 Shoe Stores (4482)
 Jewelry, Luggage and Leather Goods Stores
(4483)
• Jewelry (44831)
• Luggage and Leather Goods (44832)
1-68
Retail Sectors - Food

 Conventional Supermarkets
 Limited Supermarkets
 Supercenters
 Warehouse Clubs
 Convenience Stores

 Food because the major merchandise is Food

1-69
Characteristics of Food Retailers - USA

CONVENTIONAL LIMITED SUPERCENTRE WAREHOUSE CONVENIENCE

SUPERMARKET ASSORTMENT CLUB STORE
SUPERMARKET

% OF FOOD 70 – 80 80 -90 30 – 40 60 90

SIZE (000) SQ FT 35 – 40 7 – 10 160 – 200 100 – 150 3 -5

SKUs (000) 30 – 40 1 – 1.5 100 – 150 20 2 -- 3

VARIETY AVERAGE NARROW BROAD BROAD NARROW

ASSORTMENT AVERAGE SHALLOW DEEP SHALLOW SHALLOW

AMBIENCE PLEASANT MINIMAL AVERAGE MINIMAL AVERAGE

SERVICE MODEST LIMITED LIMITED LIMITED LIMITED

PRICES AVERAGE LOWEST LOW LOW HIGH

GROSS MARGIN 20 – 22 10 – 12% 15 – 18 12 – 15 25 - 30

%
EXAMPLE IN PK

1-70
Retail Sectors – General Merchandise

 Department Stores
 Apparel and Accessories
 Jewelry
 Shoe
 Furniture
 Home Furnishing
 Office Supply
 Sporting Goods
 Bookstores

1-71
Retail Sectors – General Merchandise

 Building Material, Hardware & Garden Supply

 Consumer Electronics and Appliances
 Pharmacies
 Full Line Discount Stores
 Extreme Value Stores
 Off Price Stores (factory outlets)

1-72
Characteristics of General Merchandise
Retailers - USA
VARIETY ASSORTM SERVICE PRICE SIZE (SQ SKUs LOCATIONS
ENT FEET)

DEPARTMENT BROAD DEEP TO AVERAGE AVERAGE 100 -200 100 REGIONAL

STORE AVERAGE TO HIGH TO HIGH MALLS

DISCOUNT BROAD AVERAGE LOW LOW 60 -80 30 STAND ALONE,

STORES TO POWER STRIP
SHALLOW CENTRES

SPECIALITY NARROW DEEP HIGH HIGH 4 -12 5 REGIONAL

STORES MALLS

CATEGORY NARROW VERY LOW TO LOW 50 -100 20 - 40 STAND ALONE,

SPECIALIST DEEP HIGH POWER STRIP
CENTRES

HOME NARROW VERY LOW TO LOW 80 - 120 20 -40 STAND ALONE,

IMPROVEMENT DEEP HIGH POWER STRIP
DEALES CENTRES

PHARMACIES NARROW VERY AVERAGE AVERAGE 3 - 15 10 -20 STAND ALONE,

DEEP POWER STRIP
CENTRES

OFF PRICE AVERAGE DEEP BUT LOW LOW 20 - 30 50 OUTLET

STORES VARYING MALLS

EXTREME AVERAGE AVERAGE LOW LOW 7 -15 3-4 URBAN, STRIP

VALUE BUT
VARYING 1-73
RETAILERS
Services Retailing

 Hospitals, Airlines, Real Estate, Banks, Hotels

and Motels etc. Should they be classified as
retail?
 Not yet, but they are increasingly using retail
principles to attract/ satisfy customers
 Services are
 Intangible

 Perishable

 Simultaneous production and consumption

 Inconsistent

1-74
Types of Ownership

 Single store, independent

 Chains
 Franchises

1-75