Introduction to Merchandising Chp 1

Chapter 2 : Types of Retailers HDCS 3303 – Section 12711 Introduction to Merchandising Evangeline Caridas I. Types of Retailers Over time, different types of retailers have emerged and prospered because they have attracted and maintained a significant customer base. I. Types of Retailers (Cont.) A. Nature of Retail Mix • The most basic characteristic of a retailer is its retail mix-the elements used by retailers to satisfy their customer’s needs. • 4 elements of the retail mix that are particularly useful for classifying retailers are the type of merchandise sold, the variety and assortment of merchandise sold, the level of customer service, and the price of the merchandise. I. Types of Retailers (Cont.) A. Nature of Retail Mix (Cont.) • The difference between the retail mix of department and discount stores illustrated the tradeoff retailers make between the price of merchandise they sell and the services they offer to their customers. • To make profit and provide these additional benefits to its customers, department stores have to increase the prices of its merchandise to cover the additional costs. This is referred to as the price-cost tradeoff. I. Types of Retailers (Cont.) B. Types of merchandise • The US Bureau of the Census developed and uses a classification scheme to collect data on retail activity in the US. It classifies all retail firms into a hierarchical set of four digit Standard Industrial Classification (SIC) codes. • To address problems with classification using SIC codes and develop economic statistics similar to international trading partners, the US Bureau along with Mexico and Canada, adopted a new classification system, the North American Industrial Classification System (NAICS), which started to appear in 1999. I. Types of Retailers (Cont.) B. Types of merchandise (Cont.) • Conversion from SIC to NAICS will be completed in 2004. • The NAISC system recognized the growth in services and specialty store retailing by assigning numbers to categories such as nail salons and pet supply stores. • The degree to which retailers compete against each other isn’t always based on the similarity of their merchandise. The variety and assortment of the merchandise they offer and the services they provide must also be considered. I. Types of Retailers (Cont.) 1. Variety and Assortment • Variety is the number of different merchandise categories a retailer offers. Assortment is the number of different items in a merchandise category. Each different item of merchandise is called and SKU ( stock keeping unit). • Variety is often referred to as the breadth of merchandise and assortment is referred to as the depth of merchandise. I. Types of Retailers (Cont.) C. Customer Services • Retailers also differ in the services they offer customers. Customers expect retailers to provide some services-accepting personal checks, proving parking, and displaying merchandise. I. Types of Retailers D. Cost of Offering Breadth and Depth of Merchandise and Services • When a retailer offers many SKUs, inventory investment increases because the retailer must have back-up stock for each SKU. • Similarly, services attract customers to the retailer, but they are also costly. • A critical retail decision involves the trade-off between costs and benefits of maintaining additional inventory or providing additional services. II. Trends in Retail Industry The retail industry is changing rapidly. Some of the most important changes involve the greater diversity of retailers, increasing industry concentration and globalization. II. Trends in Retail Industry (Cont.) A. Greater Diversity of Retail Formats • Consumers now can purchase the same merchandise form a wider variety of retailers. • The Internet has spawned a new set of retailers offering consumers the opportunity to buy merchandise and services at fixed prices, participate in an auction, or submit a “take-it-or-leave-it” bid. • New types of retailers coexist with traditional retailers. Each type of retailer offers a different set of benefits, thus consumers patronize different retailers for different purchase occasions. II. Trends in Retail Industry (Cont.) B. Increasing Industry Concentrations • While the number of different retail formats has grown, the number of competitors within each format is decreasing. • A few national retailers dominate most formats. • Much of this consolidation has occurred through acquisitions and mergers. • Historically retailing was a local business. However, the development of efficient distribution and communication systems meant that large national firms could gain substantial cost advantages over smaller regional and local retailers. II. Trends in Retail Industry (Cont.) C. Globalization Some factors stimulating globalization of retailing are the maturation of the domestic market, the development of skills and systems to effectively manage global operations, and the removal of trade barriers. II. Trends in Retail Industry (Cont.) 1. Maturation of Domestic Markets: Most large retailers have saturated their domestic markets. Opening additional stores in the U.S. results in limited additional sales leading large U.S. retailers to look for growth opportunities in international markets. 2. Skills and Systems: Retail firms are better prepared with international knowledge and experience to effectively manage stores in non-domestic markets. To facilitate global sourcing of merchandise, retailers operate global information and distribution systems. 3. Trade Barriers: The relaxation of trade barriers makes global expansion easier.