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.