CHAPTER 1

Introduction to the
World of Retailing

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Retailing Management 8e © The McGraw-Hill Companies, All rights reserved. 1-1

What is Retailing? CHAPTER 1
2

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.

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 CHAPTER 1
2

• Retail is the final stage of any economic activity. By

virtue of this fact, retail occupies an important place in
the world economy. In an attempt to understand the
scope of the term retail, various definitions of the term
have been examined.

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The Rise of the Retailer
CHAPTER 1
2

• In the not so distant past, manufacturers, created a

product, advertised it slickly and sold it through their
distribution channel.
• The manufacturing companies enjoyed economic
power, as they were significantly bigger in size as
compared to the distributors or the retailers.
• They determined prices of the products that the retailer
could stack and also the dealer and distributors margins.
• In this secretion, we examine the reasons behind this
change
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Proximity to the Customer
CHAPTER 1
2

• Today, with the emergence of large supermarkets and

various other formats like the department stores. The
retailer is the closet to the consumer. Most stores have
their own policies and decide how to influence
shoppers.

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The Rise of Consumerism
CHAPTER 1
2

• Retailers are a part of a dynamic world today. The

retailer faces a more knowledgeable and demanding
consumer and since business exists to satisfy the needs
of the consumers, the demands and expectations of the
consumers often have forced retail organizations to
change their formats and product offerings

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The Introduction of the Private
Label CHAPTER 1
2

• An increasingly large number of retailers now decide on

the products that they want to stock. They decide on
the brands that they want to stock. Retail shelf space I
now of prime importance. Another significant change is
that, most retail stores have developed their own in-
store brands/products known as private labels.

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Technology
CHAPTER 1
2

• With the increasing use of technology and the use of the

Point Sale scanning systems and the barcode, a wealth
of information is now available to the retailer.

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CHAPTER 1
2

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Examples of Retailers CHAPTER 1
2

• Retailers:
Kohl’s, Macy’s, Wendy’s,
www.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

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Distribution Channel CHAPTER 1
2

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The Retailer’s Role in a Supply Chain CHAPTER 1
2

• 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.

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Manufacturing, Wholesaling
and Retailing
CHAPTER 1
2

• 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)

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Manufacturing, Wholesaling
and Retailing
CHAPTER 1
2

• 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

• Ex: Wal-Mart, Lowe’s, Safeway, Brown Shoe Company

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Do Retailers Add Value? CHAPTER 1
2

a box of sweets at a grocery store

Example • costs KES 1 to manufacturer
• sells at a price of KES 2

Retailers add significantly to the prices consumers face

Why not buy directly from the manufacturer?

Does that mean that grocery stores are very profitable?

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How Retailers Add Value CHAPTER 1
2

■ 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

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Social and Economic
Significance of Retailing
CHAPTER 1
2

• 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
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Social Responsibility CHAPTER 1
2

• 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

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Social Responsibility CHAPTER 1
2

• 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

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What have created these differences
in distribution systems?
CHAPTER 1
2

Social & Political • China, India: To reduce unemployment by

Objectives 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
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)

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THE GLOBAL RETAIL MARKET: ISSUES &
CHALLENGE CHAPTER 1
2

• The emergence of new markets: Asia, especially china

and India are the emerging marketplaces.
• The Empowered Consumer. Retaining the consumer is
far more difficult today than it was a decade ago.
Consumer lifestyles and demographics are changing
rapidly.
• Technology Enabled Efficiencies. Technology has
enabled businesses and consumers to build efficiencies
on the basis of the ability to receive and transmit data,
at a fast speed.
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Cnt... CHAPTER 1
2

• The Rise of the E-age. The emergence of Internet

retailing or e-tailing as is popularly known has been a
key driver of change in retail.

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Opportunities in Retailing:
Management Opportunities
CHAPTER 1
2

• 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
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Opportunities in Retailing:
Management Opportunities
CHAPTER 1
2

• Financially rewarding
• 5-year salary of buyers: $50,000 - $60,000
• 5-year salary of store managers: $120,000 - $160,000

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Opportunities in Retailing:
Entrepreneurial Opportunities
CHAPTER 1
2

• Retailing provides opportunities for Wal-Mart: Sam Walton

people who want to start their own
business
• Some of the world’s richest people
are retailing entrepreneurs
IKEA: Ingvar Kamprad
• Examples of retailing entrepreneurs
• Sam Walton (Wal-Mart)
• Jeff Bezos (www.Amazon.com)
• Ingvar Kamprad (IKEA)
• Anita Roddick (the Body Shop)
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Career Opportunities in Retailing
Start Your Own Business
CHAPTER 1
2

• 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)

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Strategic vs. Tactical Decisions CHAPTER 1
2

• 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
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Retail Strategy CHAPTER 1
2

• Need to identify the

competition
• Intratype competition
• (e.g., Dillard’s vs..
JCPenney)
• Intertype competition
• (e.g., Dillard’s vs.. Wal-
Mart)

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Retail Strategy CHAPTER 1
2

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

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Misconceptions About
Careers in Retailing
CHAPTER 1
2

• College not needed

• Low pay
• Long hours
• Boring
• Dead-end job
• No benefits
The McGraw-Hill Companies, Inc./Andrew Resek, photographer

• Everyone is part-time
• Unstable environment
• No opportunity for women and minorities
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Why You Should Consider Retailing CHAPTER 1
2

• 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

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Types of Jobs in Retailing CHAPTER 1
2

• 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

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