Introduction to Merchandising Chp 2

III. Food Retailers A. Conventional Supermarkets • A conventional supermarket is a self-serviced food store offering groceries, meat, produce, and limited non-food items. • Half of the conventional supermarkets are very promotional. This is called a hi-low pricing strategy. • The other half of conventional supermarkets use very few promotions and sell almost all merchandise at the same price every day. This is called an everyday low pricing (EDLP) policy. III. Food Retailers (Cont.) B. Big Box Food Retailer • Over the past 25 years, supermarkets have increased in size and have begun to sell a broader variety of merchandise. In 1979, conventional supermarkets accounted for 85% of supermarket sales. • By 1998, only 41% of supermarket sales were in conventional supermarkets due to the growth of “big box” food retailing formats- superstores, combination stores, and warehouse-type stores. • Superstores are large supermarkets (20,000 to 50,000 sq. ft) stores that combine a superstore and a full-line discount store. • Combination stores are food-based retailers of 30,000 to 100,000 sq. ft that have over 25% of their sales from non-food merchandise. III. Food Retailers (Cont.) B. Big Box Food Retailer (Cont.) 1. Supercenters are 150,000 to 200,000 sq. ft stores that combine a superstore and a full-line discount store • The supercenters and full-line discount stores, sell groceries at low prices to build store traffic. • By offering broad assortments of grocery and general merchandise under one roof, supercenters provide a one-stop shopping experience. III. Food Retailers (Cont.) B. Big Box Food Retailer (Cont.) 2. Warehouse Club is a retailer that offers a limited assortment of food and general merchandise with little service at low prices to ultimate consumers and small businesses. • Stores are large ( about 100,000 sq. ft) and located in low rent districts. • Along with low-cost locations and store designs, warehouse clubs reduce inventory holding costs by carrying a limited assortment of fast-selling items. • Typically members must pay an annual fee of $25 to $35. III. Food Retailers (Cont.) C. Convenience Stores • Convenience stores provide a limited variety and assortment of merchandise at a convenient location in a 2,000 to 3,000 sq. ft store with a speedy checkout. They are modern versions of the neighborhood mom-and pop stores. • Convenience stores enable consumers to make purchases quickly without having to search through a large store and wait in long checkout lines. • Now almost all convenience stores sell gasoline, that accounts for over 55% of annual sales. III. Food Retailers (Cont.) D. Issues in Food Retailing Two forces affecting traditional food retailers are the changing consumer consumption patterns for food and increased competition from discount store chains. III. Food Retailers (Cont.) 1. Adapting to Changing Food Consumption Patterns • Due to time pressures on two-income families and favorable economic conditions, consumer are cooking meals at home less frequently. • To gain a greater share of food expenditures, supermarkets have made significant investments in providing meal solutions, either hot food or partially cooked entrees. • The response to these food service investments by supermarkets has been disappointing. Only 15% of supermarket customers are loyal purchasers of these products and 43% never buy prepared foods at supermarkets. • Convenience stores are also developing new concepts emphasizing prepared meals. III. Food Retailers (Cont.) 2. Competing Effectively Against Full Line Discount Stores • Traditional supermarket chains are facing increased competition from discount chains. In response to the inroads being made by supercenters and warehouse clubs, supermarket chains are reducing their costs. • Discount store chains were able to undercut supermarket prices because their distribution systems were more efficient, and they focused on reducing inventory investments by selling fast moving items. • Supermarkets continue to sell over 75% of the produce, meat dry/canned goods, frozen food, diary, bakery, and seafood. However, the big box retail formats now account for over 50% of the sales of pet food, paper products, beer, and personal care products. • Convenience stores are also facing significant competition from full-line discount stores with areas near the store front devoted to convenience store merchandise and from the new, larger drug store formats at stand-alone locations. IV. Traditional General Merchandise Retail The major types of general merchandise retailers are department stores, full-line discount stores, specialty stores, drug stores, category specialists, home improvement centers, and off-price retailers. IV. Traditional General Merchandise Retail A. Department Stores • Department Stores are retailers that carry a broad variety and deep assortment, offer considerable customer services and are organized into separate departments for displaying merchandise. • Each department within the store has a specific selling space allocated to it, a POS terminal to transact and record sales, and salespeople to assist customers. • The major departments are women’s , men’s and children’s clothing and accessories; home furnishing and furniture, and kitchenware and small appliances. • In some situations, departments in a department store or discount store are leased and operated by an independent company. • A leased department is an area in a retail store that is leased or rented to an independent firm. IV. Traditional General Merchandise Retail (Cont.) A. Department Stores (Cont.) • Retailers lease departments when they feel they lack expertise to efficiently operate the department. • Specialty Department stores use a department store format but focus primarily on apparel and soft home furnishings. • The nature of traditional department stores has changed considerably over the years, so the distinction between traditional, specialty, and promotional department stores has blurred. With few exceptions, traditional department stores have eliminated many of the departments they originally IV. Traditional General Merchandise Retail (Cont.) A. Department Stores (Cont.) • Department stores’ overall sales have stagnated in recent years due to increased competition from discount stores and specialty stores. • Many consumers wait to buy merchandise when it goes on sale rather than at the initial retail price. 60 to 80% of all merchandise sold by department stores is on sale. • In response to this increased competition, department stores are altering their merchandise mix, improving their in-stock position on fashion merchandise and improving their customer service. IV. Traditional General Merchandise Retail (Cont.) B. Discount Stores • A full-line discount store is a retailer that offers low prices. They offer national brands, but these brands are typically less fashion-oriented than brands in department stores. • Category specialists and home improvement centers compete intensely with full-line discount stores. • To respond to category specialists’ domination of hard goods, full-line discount retailers are creating more attractive shopping environments, placing more emphasis on apparel and developing private label merchandise, and increasing store visits by offering easily accessible, convenience store merchandise. IV. Traditional General Merchandise Retail (Cont.) C. Specialty Stores • A traditional specialty store concentrates on a limited number of complementary merchandise categories and provides a high level of service in an area typically less than 8,000 square feet. • By carrying a narrow variety but deep assortment, they offer customers a better assortment, they offer customers a better selection and sales expertise in that category than department or discount stores provide. • In response to declining interest in high fashion apparel,specialty stores are adopting a concept called “Lifestyle Retailing” which tailors the merchandise to the life style of a specific group of IV. Traditional General Merchandise Retail (Cont.) D. Drug Stores • Drug stores are specialty stores that concentrate on health and personal grooming merchandise. Drug stores are facing considerable competition in pharmaceuticals from discount stores and supermarkets adding pharmacies as well as from mail order retailers filling prescriptions. • Prescription pharmaceutical margins are shrinking due to governmental health care policies and HMO’s. • In response, drug store chains are building larger stores with wider assortments and are increasing service beyond dispensing pills. IV. Traditional General Merchandise Retail (Cont.) E. Category Specialists • A category specialists is a discount store that offers a narrow variety but deep assortment of merchandise. These retailers are basically discount specialty stores. • Most category specialists use a self-service approach, but some specialists in consumer durables offer assistance to customers. • By offering a complete assortment in a category at low prices, category specialists can “kill” a category of merchandise for other retailers and thus are frequently called “category killers”. IV. Traditional General Merchandise Retail (Cont.) E. Category Specialists (Cont.) • Because category specialists dominate a category of merchandise, they can use their buying power to negotiate lower prices, excellent terms, and assured supply when items are scarce. • Competition between specialists in each category is very intense as the firms expand into the regions originally dominated by another firm. In response, category killers continue to concentrate on reducing costs and acquiring smaller chains to gain economies of scale. IV. Traditional General Merchandise Retail (Cont.) F. Home Improvement Centers • A home improvement center is a category specialist that combines the traditional hardware store and lumberyard. It focuses on providing material and information that enables do-ityourselfers to maintain and improve their homes. • While merchandise in home-improvement centers is displayed in a warehouse atmosphere, salespeople are available to assist customers in seeking merchandise and to tell them how to use it. IV. Traditional General Merchandise Retail (Cont.) G. Off-Price Retailers • Off-price retailers offer an inconsistent assortment of brand name, fashion-oriented soft goods at low prices. • Off price retailers can sell brand names and even designer-label merchandise at low prices due to their unique buying and merchandising practices. Typically,merchandise is purchased at one-fifth to one-fourth of the original wholesale price. Off-price retailers can buy at low prices because they don’t ask suppliers for advertising allowances, return privileges, markdown adjustment ,or delayed payments. IV. Traditional General Merchandise Retail (Cont.) G. Off-Price Retailers (Cont.) • Over the last several years, the sales growth of off-price retailers has slowed. With the increase in sales and promotion in department stores, consumers often are able to get fashionable, brand name merchandise in department stores at the same discounted prices offered by offprice retailers. • In response to these conditions ,off-price retailers are buying more current merchandise to complement the excess merchandise bought at the end of a fashion season. IV. Traditional General Merchandise Retail (Cont.) There a 3 types of off-price retailers 1. Outlet Stores • Outlet stores are off-price retailers owned by manufacturers, department or specialty store chains. • Outlet stores owned by manufactures are frequently referred to as Factory Outlets. • Manufacturers view outlet stores as an opportunity to improve their revenue from irregulars, production overruns, and merchandise returned by retailers. 2. Close-out retailers • Closeout retailers are off-price retailers that sell a broad ,but inconsistent assortment of general merchandise as well as apparel and soft home goods. 3. Single price retailers • Single price retailers are closeout stores that sell all their merchandise at a single price typically $1. IV. Traditional General Merchandise Retail (Cont.) H. Hypermarket • A hypermarket is a very large retail store offering low prices that combine a discount store and a superstore food retailer in one warehouse-like building. • Hypermarkets are 300,000 sq. ft. , larger than 6 football fields, and stock over 50,000 different items. Annual revenues are typically over $100 million per store. • Hypermarkets were created in France after World War II. And they have not been very successful in the US for a variety of reasons including less restrictive land laws, competition and store size.