Retail Management

Chapter 2: Types of Retailers

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Contents

• Retailer Types: Advantages & Disadvantages

• Retailers’ characteristics
• Foods retailers
• General merchandise retailers
• Service retailing
• Types of ownership
• Additional
Retailer Types: Advantages & Disadvantages

➢ Club and Warehouse Stores: offer value, require memberships

➢ Mass Merchandisers: low prices, busy
➢ Convenience and Drug Stores: limited selection
➢ Discount and Dollar Stores: low prices, lesser: known brands
➢ Natural and Organic Stores: array of unique items at high price
➢ Specialty Retailers: offers alternative to mass merchandisers
➢ Online Retailers: home delivery
➢ Traditional Grocers: wide assortment, local

Source: https://courses.lumenlearning.com/wm-retailmanagement/chapter/advantages-and-
disadvantages-of-retailer-types/
 Retailers’ characteristics

“The type of retailer a consumer chooses to patronize

depends on the benefits the consumer is seeking”
RETAILERS’ CHARACTERISTICS

• From individual street vendors selling hot dogs to multichannel retailers

• The different types of retailers offer unique benefits

• All these retailers survive and prosper because they satisfy a group of
consumers’ needs more effectively than their competitors, and thus
consumers patronize different retail types when they have different
needs

• Many retailers also are broadening their assortments, which means that
their offerings overlap and competition increases.
Retailers’ characteristics

Type of Merchandise

Variety and Assortment

Services Offered

Prices and the Cost of Offering Breadth and Depth of

Merchandise and Services
Retailers’ characteristics - Type of Merchandise

• North American Industry Classification

System (NAICS) ➔ US, MEXICO,
CANADA.

• To collect data on business activity in

each country

• Six-digit code assigned to every

business
NAICS Codes
for
RetailersTypes:
Retailers’ characteristics - Variety and Assortment

• Variety (breadth) is the number of merchandise categories a

retailer offers.

• Assortment (depth) is the number of different items offered in a

merchandise category

• Variety and assortment also apply to a specific merchandise

category rather than entire store

• Stock-keeping unit (SKU)

Retailers’ characteristics - Services Offered

• Retailers also differ in the services they offer customers

• Certain services expected:
✓ Displaying merchandise
✓ Accepting credit cards
✓ Providing parking
✓ Being open at convenient hours

• Some retailers charge customers for other services, such as home

delivery and gift wrapping
Retailers’ characteristics - Prices and the Cost

• Stocking a deep and broad assortment is costly for retailers.

• Many SKUs
✓ Retailer must have backup stock for each SKU
✓ This leads to a rise in inventory investment cost

• Broader variety, deeper assortment, and/or additional services

requires retailer to charge higher prices to make a profit
 Food Retailers

“The food retailing landscape is changing dramatically”

Changes in Food Retailing

Retailers aren’t just competing with one another through the items they offer
and the pricing they set. Instead, they’re competing on a whole host of other
criteria, such as convenience and customer service.

Convenience: is the store nearby? Is there ample parking? Will they have what I
need?

Customer Service: is this a place I like to shop? Is the store clean? Are the staff
available/helpful, can I get in and out quickly
Variety and Assortment of Goods in Food Retail

Categories are divided into several segments & sub-segments, which can be
further divided into brands and into Stock Keeping Units (SKU)
• Segments and sub-segments: dry soup (ramen), ingredients
• Leading brands: Campbell’s, Progresso

Retailers make assortment decisions at category, segment, brand, & SKU level
• Family Dollar vs. Sam’s Club
Current Trends in Food Retail

Increased interest in healthy food

More single-person households

Developing diversity food choices

Increasing convenience services

Popularization of home automation

Wage inflation is a growing concern

Categorize the various types of food retailers

• Conventional supermarkets only account for slightly more

than 60 percent of food sales (not including restaurants):

• Offer services: pharmacies, health care, banks, coffee

• Want customers to think of it as a place to “hang out”

 Sales and
Growth Rate
for Retail
Sectors

Sources: Economic Forecast: Outlook to 2013

Food, Drug, Mass (Columbus, OH: Retail
Forward, November 2008);Economic Forecast:
Outlook to 2013 Homegoods (Columbus, OH.:
Retail Forward, November 2008); Economic
Forecast: Outlook to 2013 Softgoods (Columbus,
OH: Retail Forward, November 2008).
Characteristics of Food Retailers
 Supermarkets

Supercenters
Food Warehouse Clubs
retailers
Convenience Stores

Online Grocery Retailers

Food retailers – Super markets

• Conventional supermarkets
✓ Perishables (meat, dairy, produce) are
almost 54% of sales
• Limited assortment supermarkets:
✓ Extreme-value food retailers
✓ 1500 SKU
✓ Offer one or two brands and sizes
✓ Maximize efficiency to reduce costs
✓ Merchandise up to 40% lower than
conventional supermarkets Kroger is the largest supermarket chain in the United States
Food retailers – Super markets

• Competition
✓ Supercenters
✓ Warehouse Clubs
✓ Convenience Stores
✓ Extreme Price Retailers
✓ Convenience Stores
✓ Drug Stores
Food retailers – Super markets

• Fresh Merchandise: “Power perimeter” (dairy, bakery, meat, florist,

produce, deli, and coffee bar)

• Green Merchandise:
✓ Fair trade (natural, organic, and locally sourced foods)
✓ Locavore movement (focuses on reducing the carbon footprint caused by the
transportation of food throughout the world)

• Ethnic Merchandise
• Private-Label Merchandise
Food retailers – Supercenters

• Supercenters offer a vast assortments

under one roof.

• Combine supermarket with full-line

discount store

• One-stop shopping experience

• Hypermarkets emphasize perishables
• Big-box stores
Food retailers – Warehouse Clubs

• Offer limited and irregular

assortment of food and general
merchandise

• Little service and low prices

• Low-rent districts
• Simple interiors
• Low inventory holding costs
Food retailers – Convenience Stores

• Limited assortment of merchandise

• Convenience shopping

• Prices generally higher than supermarkets

• Tailoring assortment to local markets

• Offering more fresh options

• Adding services: banking, movie tickets,

gift cards
Food retailers – Online Grocery Retailers

• Customers willing to pay more to save

time

• Online retailers continues to expand

• About 30% of orders are for nonfood

items: Paper products, cleaning items

• Slim profit margins continue to be a

problem
 General Merchandise Retailers

“…focus more on product quality to differentiate

themselves from competition…”
Characteristics of General Merchandise Retailers
 Department stores

Full-line discount stores

Specialty stores

Drugstores

Category specialists
8 types
General Merchandise Retailers

Extreme-value retailers

Off-price retailers

Outlet stores
General Merchandise Retailers - Department
Stores
• Broad variety, deep assortment
• Customer services and distinct merchandise
departments
• Soft goods, hard goods, durable goods
• Must minimize eroding market share:
✓ Aggressively seeking exclusive brands
✓ More emphasis on developing private label / store
brands
✓ Expanding omnichannel and social media presence
• Three tiers:
✓ Upscale, high-fashion chains
✓ Moderate pricing with less customer service
✓ Value-oriented
General Merchandise Retailers - Full-Line
Discount Stores
• Broad variety, limited service, low prices
• Walmart:
✓ Converted many discount stores into
supercenters
✓ Online order with store pick-up
✓ Expanding product range
• Target: Fashionable merchandise
“cheap chic” appeal
• Kmart: Seeking innovative solutions as it
continues to struggle
General Merchandise Retailers - Category
Specialists
• Deep, narrow assortment
• Self-service approach
• Category killers –consumers
drawn to deep assortment and
competitive prices
• Intense competition
• Trying to differentiate with
customer service
General Merchandise Retailers - Specialty
Stores
• Concentrate on limited number
of complementary merchandise
categories
• Deep but narrow variety
• Sales associate expertise
• Among most-profitable and
fastest-growing firms
• Growing specialty store sector
✓ Resale stores
✓ Thrift stores
✓ Consignment shops
General Merchandise Retailers - Drugstores

• Concentrate on health and

beauty care
• Competition from pharmacies,
some food retailers, pressure to
reduce costs
• Offer wider assortment of
merchandise
• Offer more services with drive-
through windows, curbside pick-
up, in-store clinics
General Merchandise Retailers - Extreme-
Value Retailers
• Dollar stores
• Broad variety, but shallow
assortment
• Target low income consumers
General Merchandise Retailers - Off-Price
Retailers
• Inconsistent assortment of brand-
name merchandise
• Significant price discounts – 20% to
60% lower than suggested retail price
• Closeouts are end-of-season
merchandise that will not be used in
following seasons
• Irregulars are merchandise with minor
mistakes in construction
• Outlet stores / Factory outlets / Flash
sale sites
Activity

Full line discount stores are retailers that provide name-brand products at a
lower cost than other stores.

What is an example of a full-line discount store near you? What do they sell?
How are they different from a specialty store and a department store?

Discuss your thoughts with a partner, and take notes about your contrast and
comparisons.
 Service Retailing

“Firms that primarily sell services rather than

merchandise, are a large and growing part of the
retail industry”

“…focus of service retailers…”

Services Retailers
Continuum of Merchandise and Services Retailers
Differences between service and merchandise
retailers
Four important differences in the
nature of the offerings provided by
services and merchandise retailers:
1) Intangibility
2) Simultaneous production and
consumption
3) Perishability
4) Inconsistency of offerings to
customers
 Types of Ownership

“Explain the types of ownership for retail firms”

 Independent, Single-Store
Establishments

Types of Corporate Retail Chains

Ownership

Franchising
Independent, Single-Store Establishments

• Many retail start-ups are owner-

managed, which means management
has direct contact with customers and
can respond quickly to their needs
• Rely on owner/manager capabilities to
make retail decisions
• Some join wholesale-sponsored
voluntary cooperative groups
Corporate Retail Chains

• Retail chains operate multiple units

under common ownership
• Centralized decision-making for
defining and implementing
strategy
Franchising

• Franchisor sells rights to use business

trademark to franchisee for a fee
• More than 40% of U.S. retail sales
• Drawbacks:
✓ Start-up costs
✓ Must adhere to franchisor’s
rules/guidelines
Additional
Wheel of Retailing

Entry: retailer penetrates a new market, ex: low prices, low retailer margins, low
customer awareness
• focus on streamlining operations to support new venture
Growth: retailer has foothold in new market and seeks to expand
• higher prices and retailer margins, improved customer awareness
Maturity: retailer operates at full capacity
• robust infrastructure, capabilities, and service
Decline: retailer is vulnerable to lower cost operations
• doesn’t mean retailer will fail
Retail Tactic:
Scrambled Merchandising

Broadens assortment to include items that are generally outside their focus

Adds to shopping experience rather than distracting

Risk comes when unexpected items are included in assortment that confuse
shoppers.

Can detract from experience and tarnish retailer’s brand image

Evolving Through Mergers, Diversification, and
Downsizing

Throughout 1990s, retail food industry underwent period of consolidation

Consolidation lead to long-term trend where sales are concentrated among

fewer number of retailers (1992, 20 largest food retailers accounted for 39.2% of
grocery sales; 2000, 54.7%, 2016, 66.6%)

Mergers and Acquisitions: transactions in which ownership of companies &

business organizations are combined
Obtaining Information on Competition

Collecting from Industry

• Government reports
• white papers
• industry publications

Specific competitors:
• Press releases,
• financial reporting,
• weekly circulars,
• store visits
NAICS Codes and Direct Competitors

North American Industry Classification System: https://www.naics.com/

Common codes:
• 445110: supermarkets and grocery stores
• 445120: convenience stores
• 445220: fish and seafood markets
• 445230: fruit and vegetable markets
• 446110: pharmacies and drug stores
• 452311: warehouse clubs and supercenters
• 452319: all other general merchandise stores
THANK FOR YOUR ATTENTION!