LLev2899x_ch02_034-065.inddev2899x_ch02_034-065.indd PagePage 3434 8/2/138/2/13 2:322:32 AMAM f-494f-494 //202/MH01986/Lev2899x_disk1of1/007802899x/Lev2899x_pagefiles202/MH01986/Lev2899x_disk1of1/007802899x/Lev2899x_pagefiles Types of Retailers EXECUTIVE BRIEFING Debbie Ferree, Vice Chairman and Chief Merchant, DSW Inc. Math was always my favorite subject in school and retail. In 2004, I was promoted to president and chief came quite naturally to me, so it was no surprise that merchandising officer of DSW and we took the I entered college with the goal to become a college company public in 2005. math professor, but my passion for fashion and love To implement this new concept, we developed for business and retail caused me to change my career strategic partnerships with the leading designer aspirations and transfer to the college of business. brands in footwear. These vendors were focused on Before joining DSW (Designer Shoe Warehouse), I selling their brands through the department store worked in senior management positions for a variety channel and were initially skeptical about the new of retailers, which gave me broad experience in differ- business model. The new model had many advan- ent channels of distribution and business models: tages and financial benefits: when they sold to DSW, May Company and Burdines/Federated Department there would be no extra charges such as advertising Stores—department stores; Ross Dress for Less— allowances or vendor chargebacks, and no renego- discount stores; and Harris Company—specialty retail. tiations on prices at the end of the season or mer- In 1997, I joined DSW, a true off-price retailer, of- chandise returns. Through collaboration and the fering customers an assortment of end-of-season, development of financial and strategic plans that closeout merchandise at deeply discounted prices. would support mutually profitable growth for both The department store landscape was changing rapidly parties, we aligned on a plan that today generates and dramatically, where point-of-service discounting over $2 billion in sales revenue in over 375 stores, was the norm and customers were confused about an e-commerce business, and provides a long-term the price they paid for a product. This created an plan for continued growth. opportunity in DSW to architect a new “hybrid” busi- The pillars of our success are a breathtaking as- ness model that would provide a very different sortment of on-trend merchandise, simple conve- shopping experience for the customer: an assortment nience, and irresistible value. We are using social of current, on-trend, in-season, fashion merchandise media to create a community of shoe lovers who are from well-known national brands at fair, everyday loyal to our offerings, and regularly inform their value (EDV) in an open-sell, attractive environment. friends about the new additions to our assortment This would define a new direction for the future in and about their shopping experience in our stores LLev2899x_ch02_034-065.inddev2899x_ch02_034-065.indd PagePage 3535 8/5/138/5/13 9:059:05 PMPM f-494f-494 //202/MH01986/Lev2899x_disk1of1/007802899x/Lev2899x_pagefiles202/MH01986/Lev2899x_disk1of1/007802899x/Lev2899x_pagefiles CHAPTER 2 LEARNING OBJECTIVES LO1 List the different characteristics that LO4 Explain the differences between service define retailers. and merchandise retailers. LO2 Categorize the various types of food LO5 Illustrate the types of ownership for retailers. retail firms. LO3 Identify the various types of general merchandise retailers. and on our website. Our fan page is a place where DSW’s aspiration is to become “America’s Favorite shoe lovers can hang out and talk about shoes. We Place for Shoes” and “America’s Favorite Place to stimulate interaction between our over two million Work.” We have a strong culture that incorporates followers by presenting what our followers think of our core values—humility, accountability, collabora- new styles, thanking them for their suggestions, tion, and passion—into a fun environment that answering their questions promptly, and running stretches talent, supports individual development, fun trivia contests with free pairs of shoes as prizes. and provides a rewarding career experience! ou want to have a good cup of coffee in the morning, not instant, but you don’t want to bother with grinding coffee beans, boiling water, pouring it Ythrough ground coffee in a filter, and waiting. Think of all the different retailers that could help you satisfy this need. You could get your cup of brewed coffee from the drive-through window at the local Starbucks, or you could decide to buy an automatic coffeemaker with a timer so that your coffee will be ready when you wake up. You could purchase the coffeemaker at a discount store like Walmart or Target, a department store such as Macy’s, a drugstore like CVS, or a category specialist such as Best Buy. If you want to buy the coffeemaker without taking the time to visit a store, you could visit www.thefind.com , search for “coffee and espresso maker,” and review the details about 83,392 products sold by 5,485 retailers, ranging from Bed Bath & Beyond to Sur La Table to Newegg. All these retailers are competing against one another to satisfy your need for a hassle-free, good cup of coffee. Many are selling the same brands, but they offer dif- ferent services, prices, environments, and convenience. For example, if you want to LLev2899x_ch02_034-065.inddev2899x_ch02_034-065.indd PagePage 3636 8/2/138/2/13 2:322:32 AMAM f-494f-494 //202/MH01986/Lev2899x_disk1of1/007802899x/Lev2899x_pagefiles202/MH01986/Lev2899x_disk1of1/007802899x/Lev2899x_pagefiles 36 SECTION I The World of Retailing buy a low-priced, basic coffeemaker, you can go to a discount store. But if you are interested in a coffeemaker with more features and want to have someone explain the different features, you can visit a department store or a category specialist. To develop and implement a retail strategy, retailers need to understand the nature of competition in the retail marketplace. This chapter describes the differ- ent types of retailers and how they compete against one another by offering differ- ent benefits to consumers. These benefits are reflected in the nature of the retail mixes used by the retailers to satisfy customer needs: the types of merchandise and services offered, the degree to which their offerings emphasize services versus merchandise, and the prices charged. RETAILER CHARACTERISTICS LO1 The 1.1 million 1 retailers in the United States range from individual street ven- List the different dors selling hot dogs to multichannel retailers that offer thousands of products in characteristics that define their stores and through catalog and Internet channels. The different types of re- retailers. tailers offer unique benefits. The type of retailer a consumer chooses to patronize depends on the benefits the consumer is seeking. For example, if you are shopping for a gift, you might value the convenience of buying a shirt from a retailer’s Inter- net channel so the retailer will ship it to a friend in another city. Alternatively, you might prefer to buy a shirt from a local store when making a purchase for yourself so that you can try it on. You might go to a discount store to buy an inexpensive shirt for a camping trip or a sporting goods specialty store to buy a shirt with the insignia of your favorite football team. All these retailers survive and prosper because they satisfy a group of consum- ers’ needs more effectively than their competitors, and thus consumers patronize different retail types when they have different needs. As consumer needs and com- petition change, new retail formats are created and existing formats evolve. Many retailers also are broadening their assortments, which means that their offerings overlap and competition increases. At eBay Motors, for example, con- sumers can buy cars and motorcycles from thousands of individual sellers and es- tablished dealers. The eBay sellers compete with traditional automobile dealers that sell cars and motorcycles through conventional dealerships. In another example, office supply stores compete with warehouse clubs, supercenters, supermarkets, and convenience stores because they sell many of the same products. The most basic characteristic used to describe the different types of retailers is their retail mix, or the elements retailers use to satisfy their customers’ needs. Four elements of the retail mix are particularly useful for classifying retailers: the type of merchandise and/or services offered, the variety and assortment of mer- chandise offered, the level of customer service, and the price of the merchandise. Type of Merchandise The United States, Canada, and Mexico have developed a classification scheme, called the North American Industry Classification System (NAICS), to collect data on business activity in each country. Every business is assigned a hierarchical, six-digit code based on the type of products and services it sells. The first two digits identify the firm’s business sector, and the remaining four digits identify various subsectors. REFACT The classifications for retailers selling merchandise, based largely on the type Nearly 19 percent of all of merchandise sold, are illustrated in Exhibit 2–1. Merchandise retailers are in U.S. retail sales are for sectors 44 and 45. The next three digits provide a finer classification of merchan- motor vehicles and parts dise retailers. For example, retailers selling clothing and clothing