The World of Retailing

The World of Retailing

Questions

• What is retailing?
• What do retailers do?
• Why is retailing important in our society?
• What career and entrepreneurial opportunities
does retailing ofier?
• What types of decisions do retail managers make?
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.
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
Distribution Channel

1-7
Typical Supply Chain Network

Customers

Plants

retailers
Distribution
Centers
1-
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.
 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)
• Forward Integration — manufacturers undertake retailing activities
• Ex: Ralph Lauren (New York Jones, Liz
Claiborne) operates its own stores
• Large retailers engage in both wholesaling and retailing
R
Do Retailers Add Value?

a box of crackers at a grocery store

Exampl costs $1 to manufacturer
e
sells at a OÍ $2

Retailers add significantly to the prices consumers face

Why not buy directly from the mans lecturer?

Why Not Get Rid of the
Middlemen?

Price to Price to Price to

Distributor Retailer Consumer
$1.00 $l.20 $2.00

Manufacturer Distributor Retailer Consumer

Vendor Wholesaler
-*”'...,.,er"....... „.„r''...........'...
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
buv:
get credit; layaway
Social and Economic
Significance of
Retailing
• Retail Sales:
• Over $4.1 trillion in annual
U.S. sales in 2005
• Employment:
• Employs over 24 million
people in 2005
• One of the largest
sectors for job growth in US
• Social responsibility
• Global player
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 42a
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 0.9P
for companies in other industries
World's 20 Largest Retailers

1 - 16
Structure of Retailing and Distribution
Channels around the World: The United States

The United
States
The nature of retailing and
distribution channels in the U.S.
is unique.
Has the greatest retail density
• Has the greatest concentration
of
large retail firms
• Large enough to operate their
own warehouses, eliminating the
need for wholesaling.
The combination of large stores
and large firms result in a very
efficient distribution system.
Comparison of Distribution Channels
around the World

Lau La
w
Los Lsw

I»Iiastr«ci«rs
s«eysxIng Eztensive
elliciant sappfy
chains

fiouree0: 8aseó on data from Wórld Bank Indicadors, htt p!//’wcb.worldbank.org/WBSITE/CXTERNAL/DATASTATISTICS/0.,

nienuPK.232599-pagePK.64 133 I 70-p‹PK.ó4 I 33'198-cheSitePK.7394 I 9.00.h ml (August 23.2fX'l7): CtAWocld Fact Book.
https ’/wwn.cia.gov/Iibrary/publications/the-world-factbook/ {August 23.2007); University of I"ïissouri Archive, htip://www.
umsl.edu/services/govdacs/wofacc92/index.hcml (August 23.2007); Rezail analysis, www1gd.com/nnnlysis/ (Augu3t Z3.2007)
What have created these
differences in distribution
systems?
Social & Political • China, India: To reduce
Objectives unemployment by protecting small
businesses
• 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
Market size available for building large stores)
• 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)
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
Opportunities in Retailing:
Entrepreneurial Opportunities

• Retailing provides opportunities wai-Mart: Sam

for people who want to start their Walton
own business
• Some of the world's richest
people are retailing
entrepreneurs
IKEA: Ingvar Kamprad
• Examples of retailing entrepreneurs
• Sam Walton (WaI-Mart)
° Jeff Bezos (Amazon.com)
° Ingvar Kamprad (IKEA)
• Anita Roddick (the Body Shop)
Career Opportunities in Retailing
Start Your Own Business

• List of Retail Entrepreneurs on Forbes 400

Richest Americans
• Walton Family (Wal-Mart)
• Fisher (The Gap)
• Wexner (The Limited)
• Menard (Menard's)
• Marcus (The Home Depot)
• Kellogg (Kohl’s)
• Schulze (Best Buy)
• Levine (Family Dollar)
• Gold (99Cent Only)
Retail Management Decision Process

1-
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
Retail
Strategy
• Need to identify the competition
• intratype competition
(e.g., Dillard's vs. JCPenney)
• intertype competition
(e.g., Dillard's vs. WaI-Mart)
• Identifying customers
• What are the significant
demographic and life-style
trends
• Who are your
target customers ,
Retail
Strategy

° A retail strategy should

identify
• the target market
• the product and
service

• a long-term
comparative advantage
JC Penney's Strategic Evolution(1)

• Main Street (small town)

private label, soft goods (apparel,
home furnishings), decentralized
retailer
• Changes in environment --
increased disposable
income, growth of suburbs,
interstate highway
program
• Emulate Sears in moving to
enclosed suburban malls
• Add hard goods
(appliances, automotive)
• Diversify - drug
stores, insurance,
JC Penney's Strategic Evolution(2)

• Focus on department store format and

soft
goods develop electronic retail channel
• Mid-market, mall based department store,
between WaI-Mart/Target and
Macy's/Dillards
• Competition from Target, Kohl's
Centralization to reduce cost, increase
responsiveness - centralized buying,
warehouse delivery
• Off the mall stores to increase customer
convenience
Improving store atmospherics
• Upgrading merchandise offering (e.g.,
Sephora, American Living by Polo Ralph
Lauren)
Whole Foods Implementation

• Strategy - organic and natural foods supermarket chain

Assortment beyond organic/natural foods
• Private labels - Whole Food T M , 360 Day
ValueTM
• Love, trust, and employee empowerment
• Equality in compensation
Decision Variables for Retailers
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?
Checklist for Making Ethical Decisions

1. Would I be embarrassed if a customer found out about this

behavior7 ’2 Would my supervisor disapytziva oftbiz bahavier7
3. Would ma4 coworkers feel that this behavior is unusual?

5. Would I be upset if a company did this to me?

6. \I¥oii1d my family or friends think lass of rae if I told them a5a«t
angaginy In this actkity2
7. Am I concerned about the possible consequences ol this behavior?
8. \IgoyId I §e upset ifthiz behavior or activity was yabtkizad in a
aearspayer article?
9. Would society be rorse all il everyone engaged in this behavior or
adivity?
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!
Careers in Retailing

• Career Opportunities
• Store Management
• Merchandise
Management
• Corporate StaP

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Misconceptions About
Careers in Retailing

• College not needed

• Low pay
• Long hours
• Boring
• Dead-end job
• No benefits
• Everyone is part-time
• Unstable environment
• No opportunity for women
and minorities
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
• Some retailers pay graduate school
• No two days are alike
• Buying and planning for financially analytically oriented
• Management for people-people
Types of Jobs in Retailing

• Most entry level jobs are in store management or buying,

but
there's...
• Accounting and finance
• Real estate
• Human resource management
• Supply chain management
• Advertising
• Public affairs
• Information systems
• Loss prevention
• Visual merchandising