Chapter 16 Retailing: Bricks and Clicks

I. CHAPTER OVERVIEW

The face of retailing is constantly evolving. From bricks-and=mortar establishments to online transactions, retailing is changing to meet the needs of consumers. In this chapter, students explore the concept of wheel-of-retailing and learn how retailers are classified. The promise of B2C e-commerce is explored as well as associated limitations. The importance of store image is discussed in relationship to customer base and store purchases.

II. CHAPTER OBJECTIVES

1. Define retailing; understand how retailing evolves and some ethical issues in retailing. 2. Understand how we classify retailers. 3. Describe the more common forms of non-store retailing including B2C e-commerce. 4. Understand the importance of store image to a retail positioning strategy and explain how a retailer can create a desirable image in the marketplace.

III. CHAPTER OUTLINE

►MARKETING MOMENT INTRODUCTION Ask students to recall a shopping trip when they went to a store for a few items and returned with many more items than what they had planned to buy. Why did they spend so much money? (Hint: retailing) p. 479 1. REAL PEOPLE, REAL CHOICES—HERE’S MY PROBLEM AT ESKIMO JOE’S

In 1975, Stan Clark, a colorful entrepreneur, opened Eskimo Joe’s bar in Stillwater, Oklahoma—the home of Oklahoma State University. Situated right across from the OSU campus, Joe’s carved out a niche as “the” place to go for beer, music, pool, and foosball in this college town. Trading on the popularity of the bar as well as its quirky logo, Stan had also begun to sell some logo apparel. Students, friends, parents, alums, and other visitors simply could not get enough of the t-shirts sporting the wide smiles by the boy and his faithful dog.

Unfortunately, for Joe’s, the state of Oklahoma passed a statewide “liquor by the drink” law; part of the new law was an increase in the legal drinking age from 18 to 21. This new law was about to regulate Eskimo Joe’s out of its core business forcing Stan to take a new look at his business and think about what he might do to ensure his retail enterprise would survive. The situation could be life or death for Eskimo Joe’s. Stan considered his options:

1. Convert the beer bar into a full-service restaurant that focuses on selling great food. 2. Continue operating as a beer bar at the core and work to offset declining beer sales with an increase in apparel sales. 3. Close Eskimo Joe’s bar and refocus resources on building the growing apparel business.

The vignette ends by asking the student which option he/she would choose.

 Stan chose option #1. p. 480 2. RETAILING: SPECIAL DELIVERY Retailing is the final stop on the distribution path—the process by which goods and services are sold to the consumer for their personal use. p. 480 2.1 Retailing: A Mixed (Shopping) Bag Order your Big Over 1 million retail businesses employ more I over 14.5 million Mac or a spicy workers, —more than 1 of every 10 U.S. workers. Retailers vegetable dragon belong to a channel of distribution, and as such, they provide roll for delivery time, place, and ownership utility to customers. online: Egypt’s www.otlob.com p. 481 3.2 The Evolution of Retailing Figure 16.1 As the economic and socio-cultural pictures change, different The Wheel of types of retailers emerge—and they often squeeze out older, Retailing outmoded types. p. 481 3.2.1 The Wheel of Retailing The wheel-of-retailing hypothesis states that new types of retailers begin at the entry phase where they find it easiest to enter the market with low-end strategies as they offer goods at lower prices than their competitors do. After they gain a foothold, they gradually trade up. They improve their facilities and increase the quality and assortment of merchandise. Finally, retailers move on to a high-end strategy with even higher prices, better facilities and amenities such as parking and gift-wrapping. Upscaling results in greater investment and operating costs, so the store must raise its prices to remain profitable, which then makes it vulnerable to still newer entrants that can afford to charge lower prices? Therefore, the wheel turns. ►Marketing Moment In-Class Activity Ask students to recall (or ask their parents about) the early days of McDonalds in terms of prices, service, restaurant seating etc. How has the wheel of retailing been exemplified in the fast-food industry? (As McDonald’s, Burger King, and Wendy’s continue to upscale, bare-bone entrants such as Rally’s and White Castle can enter the market.) p. 482 3.2.2 The Retail Life Cycle Figure 16.2 Retailers evolve through the retail life cycle. This perspective The Retail Life recognizes that retailers are born, they grow and mature, and Cycle eventually most die or become obsolete.

In the introduction stage, the new retailer often is an aggressive entrepreneur who takes a unique approach to doing business. This may mean it competes based on low price, as the wheel of retailing suggests. However, the new guy on the block may also enter the market by offering a distinctive assortment or a different way to distribute items, such as through the Internet.

As the business enters the growth stage, the retailer (hopefully) catches on with shoppers, and sales and profits rise. However, a new idea does not stay new for long. Others start to copy it and competition increases, so the store needs to expand what it offers.

By the time the business reaches the maturity stage, many other individual retailers have copied the unique idea of the original entrepreneur to form an entire industry. The industry probably has over-expanded and intense competition makes it difficult to maintain customer loyalty. Profits decline as competitors resort to price cutting to keep their customers. Other retailers use mergers to survive when their retail category matures. Mergers are when two or more separately owned retail firms combine. For example, Sears, a department store chain, recently merged with Kmart, a discount chain. Another strategy a firm in a mature industry may choose is downsizing where it closes unprofitable stores or sells off entire divisions.

In the decline stage, retail businesses, like the general store or the peddler, become obsolete as newer ways of doing business emerge. p. 484 3.3 The Evolution Continues: What’s “In Store” for the PETA ad Future? Four factors motivate innovative merchants to reinvent the way they do business: the economic environment, changing demographics, technology, and globalization. p. 484 3.3.1 The Changing Economy The 2008-2009 downturn meant that consumers worldwide were less willing to spend discretionary income. Instead, they chose to lower their level of debt and to save. Retail sales, including the all-important Christmas sales, fell in nearly all retail segments. p. 484 3.3.2 Demographics Some of the ways changing demographics are altering the face of retailing include:  Convenience for working consumers.  Recognizing ethnic diversity. ►Marketing Moment In-Class Activity Metrosexual males, or just plain men, have been generally overlooked in terms of shopping malls that tend to cater to women. How would you design a mall that would appeal to men and encourage them to shop?

Discussion: How do the wheel-of-retailing and retail life cycle theories explain the evolution of retailing? How do demographics, technology, and globalization affect the future of retailing? p. 484 3.3.3 Technology Technology is revolutionizing retailing. The Internet has brought us the age of e-tailing.

Some of the most profound changes are not even visible to shoppers, such as advanced electronic point-of-sale (POS) systems. These devices contain computer brains that collect sales data and connect directly into the store’s inventory-control system. Store may use POS systems to create perpetual inventory unit control systems that keeps a running total on sales, returns, transfers to other stores, etc. This technology allows stores to develop computerized automatic reordering systems that are automatically activated with inventories reach a certain reorder level. p. 485 3.3.4 Globalization Retailers are busy expanding to other countries and bringing with them innovations and new management philosophies. Still, retailers need to adjust to different conditions around the world. p. 486 3.4 Ethical Problems in Retailing Ripped From the Retailers must deal with ethical problems that involve both their Headlines: customers and their employees. Losses due to shrinkage are a growing Ethical/ problem. Shrinkage is the term retailers use to describe stock losses due Sustainable to shoplifting, employee theft, and damage to merchandise. Decisions in the  Shoplifting Real World  Employee Theft  Retail Borrowing  Ethical Treatment of Customers p. 487 4. FROM MOM-AND-POP TO SUPER WALMART: HOW MARKETERS CLASSIFY RETAIL STORES Retail marketers need to understand all the possible ways they might offer their products in the market, and they need a way to benchmark their performance compared to other similar retailers. p. 487 4.1 Classify Retailers by What They Sell One of the most important strategic decisions a retailer makes is what to sell—its merchandise mix. This choice is similar to settling on a market segment (as we discussed in Chapter 7): If a store’s merchandise mix is too limited, it may not have enough potential customers, whereas if it is too broad the retailer runs the risk of being a “jack of all trades, master of none.”

A product line is a set of related products offered by a retailer.

As retailers experiment with different merchandise mixes, it is getting harder to make these direct comparisons. For example, even though marketers like to distinguish between food and nonfood retailers, in reality these lines are blurring. Combination stores offer consumers food and general merchandise in the same store. Supercenters such as Wal-Mart Supercenters are combination stores that combine an economy supermarket with other lower-priced merchandise. p. 488 4.2 Classify Retailers by Level of Service Retailers differ in the level of service they provide to consumers and realize there is a tradeoff between service and low prices.

When customers shop at self-service retailers, they make their product selection without any assistance, they often must bring their own bags or containers to carry their purchases, and they may even handle the checkout process with self-service scanners. Contrast that experience to visiting a full-service retailer. Many of us prefer to shop at major department stores like Bloomingdale’s and specialty stores like Victoria’s Secret because they provide supporting services such as gift wrapping, and they offer trained sales associates who can help us select that perfect gift.

Limited-service retailers fall somewhere between self-service and full-service retailers. p. 488 4.3 Classify Retailers by Merchandise Selection Figure 16.3 A retailer’s merchandise assortment, or selection of products Classification of sold, has two dimensions: breadth and depth. Merchandise Book Retailers breadth, or variety, is the number of different product lines by Merchandise available. A narrow assortment means that shoppers will find Selection only a limited selection of product lines. A broad assortment means there is a wide range of items.

Merchandise depth is the variety of choices available within each specific product line. A shallow assortment means that the selection within a product category is limited. A deep assortment means that there is a great deal of selection within a product category. p. 489 4.4 Major Types of Retailers Table 16. 1 Major Types of p. 489 4.4.1 Convenience Stores Retailers Convenience stores carry a limited number of frequently purchased items and cater to consumers willing to pay a premium for the ease of buying staple items close to home. Maverick Country Store Photo p. 489 4.4.2 Supermarkets Supermarkets are food stores that carry a wide selection of edibles and non-edible products p. 491 4.4.3 Box Stores Box stores are food stores that have a limited selection of items, few brands per item and few refrigerated items. Generally, they are open fewer hours than supermarkets, are smaller, and carry fewer items than warehouse clubs. p. 491 4.4.4 Specialty Stores Staples Store Specialty stores have narrow and deep inventories. They do not Photo sell many product lines, but they offer a good selection of brands within the lines they do sell. Specialty stores can tailor their assortment to the specific needs of a targeted consumer, and they can offer a high level of knowledgeable service. Use Websites Here: http://www.oldnavy.com Old Navy is an example of a specialty store. http://www.aeropostale.com Aeropostale is an example of a specialty store. p. 491 4.4.5 Leased Departments Leased departments are departments within a larger retail store that an outside firm rents. This arrangement allows larger stores to offer a broader variety of products than they would otherwise carry. p. 491 4.4.6 Variety Stores Variety stores originated as the five-and-dime or dime stores that began in the late 1800s. In these early variety stores such the iconic Woolworth’s, all items sold for a nickel or a dime. Today’s variety stores carry a variety of inexpensive items from kitchen gadgets to toys to candy and candles. p. 491 4.4.7 Discount Stores A British General merchandise discount stores, such as Target, Kmart, and Wal-Mart, Discount Store offer a broad assortment of items at low prices and with minimal ad service and are the dominant outlet for many products.

Off-price retailers obtain surplus merchandise from manufacturers and offer brand name, fashion-oriented goods at low prices.

Warehouse clubs such as COSTCO and BJ’s are a newer version of the discount store. These establishments do not offer any of the amenities of a full-service store. Customers buy many of the products in larger-than-normal packages and quantities. These clubs often charge a membership fee to consumers and small businesses. A recent survey showed that the typical warehouse shopper shops about once a month, is intrigued by bulk buying, hates long lines, and is drawn to the club retailer because of specific product areas such as fresh groceries.

A manufacturer owns the factory outlet store. Some factory outlets enable the manufacturer to sell defective merchandise or excess inventory. Other factory outlets are simply another distribution channel. Most are located in outlet malls where a large number of factory outlet stores cluster together in the same location. p. 492 4.4.8 Department Stores Kohl’s ad Department stores sell a broad range of items and offer a deep selection organized into different sections of the store. In the United States, department stores have struggled in recent years. In other parts of the world, they are thriving. Use Website Here: http://shop.nordstrom.com Nordstrom is an example of a department store p. 492 4.4.9 Hypermarkets Hypermarkets combine the characteristics of warehouse stores and supermarkets. These stores are very popular in different parts of the world. Consumers in the United States find the hypermarkets to be too large and shopping in them too time- consuming. p. 493 5. NONSTORE RETAILING Figure 16.4 Non-store retailing is any method a firm uses to complete an Types of Non- exchange that does not require a customer to visit a store. The store Retailing following is a discussion of two other types of non-store retailing: direct selling and automatic vending. p. 493 5.1 Direct Selling Direct selling occurs when a salesperson presents a product to one individual or a small group, takes orders, and delivers the merchandise. Use Website Here: http://www.marykay.com Mary Kay cosmetics p. 494 5.1.1 Door-to-Door Sales Door-to-door selling is still popular in some countries, such as China. However, it is declining in the United States, where two- income households are the norm, because fewer people are home during the day, and those who are home are reluctant to open their doors to strangers. Door-to-door selling is illegal in communities that have Green River Ordinances; they prohibit door-to-door selling unless the household gives prior permission. p. 494 5.1.2 Parties and Networks With home-shopping parties, a company representative makes a sales presentation to a group of people who have gathered in the home of a friend. One reason that these parties are so effective is that people who attend may be caught up in the “group spirit,” and buy things they would not normally purchase if they were alone—even Botox injections to get rid of those nasty wrinkles. We call this sales technique a party plan system. Perhaps the most famous home shopping parties were the Tupperware parties popular in the 1950s. p. 494 5.1.3 Multilevel Marketing Another form of direct selling, which the Amway Company epitomizes, is a multilevel marketing or network marketing. In this system, a master distributor recruits other people to become distributors. The master distributor sells the company’s products to the people she entices to join, and then she receives commissions on all the merchandise sold by the people she recruits.

One of the advantages of multilevel marketing is that it allows firms to reach consumers who belong to tightly knit groups that are not so easy to reach.

Despite the growing popularity of this technique, some network systems are illegal. They are really pyramid schemes: illegal scams which promise consumers or investors large profits from recruiting others to join the program rather than from any real investment or sale of good to the public. ►Marketing Moment In-Class Activity Ask students to describe the different products that are sold at “parties.” Who is the target market for most of these products? (i.e., women). Can the students come up with a “party” product for men? Would this method of selling work for targeting men? p. 494 5.2 Automatic Vending Coin-operated vending machines are a tried-and-true way to sell convenience goods. They are best suited to the sales of inexpensive merchandise, food, and beverages.

Most consumers are reluctant to buy pricey items from a machine. New vending machines may spur more interest, however, as technological developments loom on the horizon

Discussion: Macy’s and other stores are using vending machines to sell electronics such as iPods. What are some other opportunities for vending-machine sales? What are the negative and positive elements of vending-machine sales? p. 495 5.3 B2C E-Commerce Table 16.2 Business-to-consumer (B2C) e-commerce is the online Benefits and exchange between companies and individual consumers. Limitations of E- commerce A number of factors prevent online sales from growing even more. Most consumers prefer stores where they can touch and feel items and avoid issues with returns and shipping costs. In addition, many consumers do not like to buy online because they want the product immediately. p. 495 5.3.1 Benefits of B2C E-Commerce www.bloomingd From the consumer’s perspective, electronic marketing increases ales.com convenience as it breaks down many of the barriers time and location cause. The Cutting Edge: Be Your For some consumers, online shopping provides an additional Own Virtual benefit because it fulfills their experiential needs, that is, their Stylist desire to shop for fun. Consumers who are collectors or who enjoy hobbies are most likely to be experiential shoppers. www.overstock.c om Marketers realize equally important benefits from e-commerce. Because an organization can reach such a large number of “Shop bots”: consumers via electronic commerce, it is possible to develop very www.ask.com specialized businesses that could not be profitable if limited by geographic constraints. The Internet provides an excellent opportunity to bring merchants with excess merchandise and bargain-hunting consumers together.

One of the biggest advantages of e-commerce is that it is easy to get price information.

E-commerce also allows businesses to reduce costs. Compared to traditional bricks-and-mortar retailers, e-tailers’ costs are minimal—no expensive mall sites to maintain and no sales associates to pay. Activity: As a college graduate, you and a friend think the career you really would enjoy means being your own boss—you want to start your own business. You feel the future of e-commerce is the place for you to make your fortune. You and your friend are considering two options: (1) an online business that sells custom-made blue jeans based on customers’ measurements and (2) an online business that sells gourmet foods from around the world. In a role-playing exercise, debate with your friend the pros and cons of each of these two online retail businesses and make a decision about which is better.

Activity: Brainstorm with a group of students the future of business-to-consumer e-commerce. Your text tells you there is enormous retailing potential but that reaching potential will depend on offering sites that are entertaining and informative and worth surfing even when the novelty wears off. What other factors will contribute to retailing e-commerce success? How have your own shopping patterns changed over the last few years? Are you doing more or less e- commerce? What contributes to the changes in your shopping behavior? p. 497 5.3.2 Limitations of B2C E-Commerce One drawback is that customers must wait a few days to receive most products. Another is that many e-commerce sites suffer from poor design that people find confusing or irritating. In addition, Security is a concern to both consumers and marketers, and consumers are concerned about Internet fraud. Consumers cannot touch and feel information before buying many products.

Developing countries with primarily cash economies pose another obstacle to the success of B2C e-commerce. Because few consumers use credit cards, they cannot easily pay for items they purchase over the Internet. For consumers in these countries there are a growing number of alternatives for safely paying for online purchases. PayPal is a global leader in online payments. Twitpay is a service that permits consumers to send payments using the social network site Twitter.

As major marketers beef up their presence on the web, they worry that inventory they sell online will cannibalize their store sales. p. 498 5.3.3 B2C’s Effect on the Future of Retailing It is unlikely that virtual distribution channels will completely replace traditional ones. However, this does not mean that physical retailers can rest easy. Stores as we know them will continue to evolve to lure shoppers away from their computer screens. In the future, the trend will be destination retail; that is, consumers will visit retailers not so much to buy a product but for the entertainment they receive from the total experience. p. 498 6. DEVELOPING A STORE POSITIONING STRATEGY: RETAILING AS THEATER A “destination retail” strategy reminds us that shopping is often part buying, part entertainment, and part social outlet.

In today’s competitive marketplace, retailers have to do more than offer good inventory at reasonable prices. They need to position their stores so that they offer a competitive advantage over other stores that also vie for the shopper’s attention—not to mention the catalogs, websites, and shopping channels that may offer the same or similar merchandise. p. 499 6.1 Store Image Figure 16.5 Store image is how the target market perceives the store—its Elements of a market position relative to the competition. Store managers work Store Image hard to create a distinctive and appealing personality. Planet p. 499 6.1.1 Store Design: Set the Stage Hollywood Atmospherics is the use of color, lighting, scents, furnishings, Marquee Photo sounds, and other design elements to create a desired setting. Marketers manipulate these elements to create a certain “feeling” Figure 16.6 for the retail environment. Grid Layout

Here are some other design factors that retailers consider:  Store layout: This is the arrangement of merchandise in the store. The placement of fixtures such as shelves, racks, and cash registers is important because store layout determines traffic flow—how shoppers will move through the store and which areas they will pass or avoid. o A grid layout we usually find in supermarkets and discount stores consists of rows of neatly spaced shelves that are at right angles or parallel to one another. This configuration is useful when management wants to move shoppers systematically down each aisle, being sure that they pass through such high-margin sections as deli and meat. In contrast, department and specialty stores typically use a free-flow layout because it is more conducive to browsing. A retailer might arrange merchandise in circles or arches or perhaps in separate areas, each with its own distinct image and merchandise mix.  Visual merchandising: Just as we form impressions of people from their home decor, our feelings about stores are affected by furnishings, fixtures (shelves and racks that display merchandise), and even how much “stuff” is packed into the sales area. Visual merchandising includes all the things customers see both inside and outside the store. Generally, clutter conveys a store with lower-priced merchandise. Upscale stores allocate space for sitting areas, dressing rooms, and elaborate displays of merchandise. Before customers even enter the store, the storefront or physical exterior and the sign that shows the store’s name called a marquee contribute to the store’s image. Retailers try to create a unique design that customers will associate with personality of the store.  The sound of music: The music a store plays has become so central to its personality that many retailers.  Color and lighting: Marketers use color and lighting to set a mood.

Discussion: What is meant by store atmospherics? How can the elements of atmospherics be used to increase the store’s success? How are store personnel a part of store image? p. 501 6.1.2 Store Personnel Store personnel (the actors) should complement a store’s image. Each employee has a part to play, complete with props and costumes.

Retailers work hard to maintain service quality, though they often find that the rapid turnover of salespeople makes this a difficult goal to achieve. Some U.S. firms have turned superior customer service into a competitive advantage. p. 501 6.1.3 Pricing Policy: How Much for a Ticket to the Show? When consumers form an image of a store in their minds, the price points, or price ranges, of its merchandise often play a role.

In recent years, department stores have been hurt by consumers’ desires for bargains. Many department stores ran frequent sales, a strategy that often backfired because many consumers would only buy when the store had a sale. p. 502 6.2 Build the Theater: Store Location The location of a store is one of the most important factors relating to the success of the store. p. 502 6.2.1 Types of Store Locations Popup Store There are four basic types of store locations. Stores locate in a Photo business district, in a shopping center, as a freestanding entity, or in a nontraditional location. Figure 16.7  Business districts: a central business district (CBD) is Types of Store the traditional downtown business area found in a town or Locations city. CBDs have suffered in recent years because of concerns about security, lack of parking, and the lack of customer traffic on evenings and weekends.  Shopping centers: A shopping center is a group of commercial establishments owned and managed as a single property. They range in size and scope from strip centers to massive super regional centers. Rents tend to be high in shopping malls, making it difficult for many stores to be profitable. Many small specialty stores find it hard to compete with a mall’s anchor stores. A lifestyle center combines the feel of a neighborhood park with the convenience of a strip mall.  Freestanding retailers: Some stores, usually larger ones such as IKEA, occupy their own facility. These retailers benefit from lower rents and fewer parking problems. However, the store must be attractive enough on its own to be a destination point for shoppers.  Nontraditional store locations: are stores that come in a variety of forms from carts, small moveable stores, to kiosks, which are larger than carts and offer telephone hookups and electricity. p. 503 6.2.2 Site Selection: Choose Where to Build Factors such as long-term population patterns, the location of competitors, and the demographic makeup of an area enter into retailers’ decisions. The choice of where to open a new store should reflect the company’s overall growth strategy. It should be consistent with long-term goals and be in a place that allows the company to best support the outlet.

Location planners look at many factors when they select a site. They want to find a place that is convenient to customers in the store’s trade area, the geographic zone that accounts for the majority of its sales and customers. A site evaluation considers specific factors such as traffic flow; number of parking spaces available; ease of delivery access; visibility from the street; local zoning laws that determine the types of buildings, parking, and signage allowed; and cost factors such as the length of the lease and the amount of local taxes.

Planners also consider population characteristics such as age profile (is the area witnessing an influx of new families?), community life cycle (is the community relatively new, stable, or in decline?), and mobility (how often do people move into and out of the area?).

Planners also have to consider the degree of competition they will encounter if they locate in one place versus another. One strategy that fast-food outlets follow is to locate in a saturated trade area. This is a site where a sufficient number of stores already exist so that high customer traffic is present but where the retailer believes it can compete successfully if it goes head-to-head with the competition.

Another strategy is to find an understored trade area, where too few stores exist to satisfy the needs of the population (this was Wal-Mart’s strategy) and the retailer can establish itself as a dominant presence in the community. Over time, these areas may become overstored so that too many stores exist to sell the same goods. p. 504 REAL PEOPLE, REAL CHOICES: Here’s My Choice at Eskimo Joe’s  Stan chose option #1.

Brand You: You’re hired! You successfully created and communicated your personal brand. Now you have job offers to consider. How do you orchestrate the timing so you get all your offers at the same time? How do you determine which offer is really best for you? How do you negotiate and finalize the offer you want? Enjoy reading Chapter 16 in Brand You where your job search comes together.