RETAIL MANAGEMENT

LECTURE 2: TYPES OF RETAILERS

TYPES OF RETAILERS
» Retailer Characteristic
» Retailers range from street vendors selling siomai to multichannel retailers such as Staples that offer products in their
stores and through catalog and Internet channels.
» The different types of retailers offer unique benefits.
» The type of retailer a consumer chooses to patronize depends on the benefits the consumer is seeking.
» Retailers survive and prosper because they satisfy a group of consumers’ needs more effectively than their
competitors, and thus consumers patronize different retail types when they have different needs.
» As consumer needs and competition change, new retail formats are created and existing formats evolve.
» 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 merchandise offered,
˃ the level of customer service
˃ the price of the merchandise.

» Retail Mix: Merchandise

» Philippine Standard Industrial Classification (PSIC): Every business is assigned a hierarchical,
code based on the type of products and services it sells.
» The first two digits represent the division
» The first two digit and the third digit (taken together) indicate the group
» The first three digits and the fourth digit (taken together) indicate the class
» All five digits identify the sub-class of industries
» Example:
» 47411 – Retail sale of computers
» Division 47: Retail trade, except of motor vehicles and motorcycles
» Group 474: Retail sale of information and communication equipment in specialized
stores
» Class 4741: Retail sale of computers, peripheral units, software and
telecommunications equipment in specialized stores
» Sub-class 47411: Retail sale of computers

» Retail Mix: Variety and Assortment

» Variety is the number of merchandise categories a retailer offers.
» Assortment is the number of different items offered in a merchandise category.
» Variety is often referred to as the breadth of merchandise
» Assortment is referred to as the depth of merchandise.
» Each different item of merchandise is called a stock-keeping unit (SKU).

» Retail Mix: Services Offered

» Retailers also differ in the services they offer customers.
» Customers expect almost all retailers to provide certain services: displaying merchandise,
accepting credit cards, providing parking, and being open at convenient hours.
» Some retailers charge customers for other services, such as home delivery and gift
wrapping.

» Retail Mix: Price

» Stocking a deep and broad assortment is appealing to customers but costly for retailers.
» When a retailer offers many SKUs, its inventory investment increases, because the retailer
must have backup stock for each and every SKU.
» To make a profit, retailers that offer broader variety, deeper assortments, and/or additional
services need to charge higher prices.
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LECTURE 2: TYPES OF RETAILERS

» Food Retailers
˃ Supermarket
» CONVENTIONAL SUPERMARKET is a large, self-service retail food store offering groceries, meat, and
produce, as well as some nonfood items, such as health and beauty aids and general merchandise.
» LIMITED ASSORTMENT SUPERMARKETS, or EXTREME-VALUE FOOD RETAILERS

» Supermarket
» Supercenters and warehouse clubs are particularly troublesome for supermarkets because
their superior operating efficiencies enable them to have low costs and prices.
» Fresh Merchandise
» Areas around the outer walls of a supermarket, known as the “power perimeter,” that
include the dairy, bakery, meat, florist, produce, deli, and coffee bar.
» FRESH SUPERMARKETS are smaller (30,000 versus 40,000 square feet) and more
convenient than traditional supermarkets and have less space devoted to packaged goods.
» Health/Organic Merchandise
» Conventional supermarkets are offering more natural, organic, and fair-trade foods for the
growing segment of consumers who are health-conscious and environmentally conscious.
» FAIR TRADE is the practice of purchasing from factories that pay workers a living wage,
considerably more than the prevailing minimum wage, and offer other benefits such as
onsite medical treatment.
» LOCAVORE MOVEMENT focuses on reducing the carbon footprint caused by the
transportation of food throughout the world.
» FOOD MILES are calculated using the distance that foods travel from the farm to the plate.
» ETHNIC MERCHANDISE
» Private-Label Merchandise
» Conventional supermarket chains are leveraging their quality reputation to offer more
private-label merchandise.
» Private-label brands benefit both customers and retailers. The benefits to customers
include having more choices and finding the same ingredients and quality as in national
brands at a lower price.
» The benefits of private-label brands to retailers include increased store loyalty, the ability
to differentiate themselves from the competition, lower promotional costs, and higher
gross margins compared with national brands.
» Improving the Shopping Experience

˃ Food Retailers: Supercenters

» SUPERCENTERS are large stores (185,000 square feet) that combine a supermarket with a full-line
discount store.
» By offering broad assortments of grocery and general merchandise products under one
roof, supercenters provide a one-stop shopping experience.
» HYPERMARKETS are also large (100,000 to 300,000 square feet), combination food (60 to 70
percent) and general merchandise (30 to 40 percent) stores.
» Hypermarkets typically stock fewer SKUs than do supercenters—between 40,000 and
60,000 items, ranging from groceries, hardware, and sports equipment to furniture and
appliances to computers and electronics.

˃ Food Retailers: Warehouse Clubs

» WAREHOUSE CLUBS are retailers that offer a limited and irregular assortment of food and general
merchandise with little service at low prices for ultimate consumers and small businesses.
» Warehouse clubs are large (100,000 to 150,000 square feet) and typically located in low-
rent districts. They have simple interiors and concrete floors. Aisles are wide so that
forklifts can pick up pallets of merchandise and arrange them on the selling floor. Little
service is offered.
» Warehouse clubs can offer low prices because they use low-cost locations, have
inexpensive store designs, and offer little customer service; they further keep inventory
holding costs low by carrying a limited assortment of fast-selling items.
» They also buy their merchandise opportunistically.
» Types of members: wholesale and individual
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LECTURE 2: TYPES OF RETAILERS

˃ Food Retailers: Convenience Stores

» Convenience stores provide a limited variety and assortment of merchandise at a convenient
location in 3,000- to 5,000-square-foot stores with speedy checkout.
» Enable consumers to make purchases quickly, without having to search through a large
store and wait in a long checkout line.
» Offer only limited assortments and variety, and they charge higher prices than
supermarkets.

˃ General Merchandise Retailers: Department Stores

» DEPARTMENT STORES are retailers that carry a broad variety and deep assortment, offer customer
services, and organize their stores into distinct departments for displaying merchandise.
» Attract customers by offering a pleasing ambience, attentive service, and a wide variety of
merchandise under one roof.
» CATEGORIES OF DEPARTMENT STORES
» Upscale, high-fashion chains with exclusive designer merchandise and excellent
customer service
» Traditional department stores, in which retailers sell more modestly priced
merchandise with less customer service.
» Value-oriented caters to more price-conscious consumers.

˃ General Merchandise Retailers: Full-Line Discount Stores

» FULL-LINE DISCOUNT STORES are retailers that offer a broad variety of merchandise, limited service,
and low prices.
» Discount stores offer both private labels and national brands.

˃ General Merchandise Retailers: Specialty Stores

» SPECIALTY STORES concentrate on a limited number of complementary merchandise categories and
provide a high level of service.
» Tailor their retail strategy toward very specific market segments by offering deep but
narrow assortments and sales associate expertise.

˃ General Merchandise Retailers: Drug Stores

» Drugstores are specialty stores that concentrate on health and personal grooming merchandise.

˃ General Merchandise Retailers: Category Specialists

» CATEGORY SPECIALISTS are big-box stores that offer a narrow but deep assortment of merchandise.
» Predominantly use a self-service approach, but they offer assistance to customers in some
areas of the stores.
» By offering a complete assortment in a category, category specialists can “kill” a category of
merchandise for other retailers (CATEGORY KILLERS)

˃ General Merchandise Retailers: Extreme Value Retailers

» EXTREME-VALUE RETAILERS are small discount stores that offer a limited merchandise assortment
at very low prices.
» They offer a broad variety but shallow assortment of household goods, health and beauty
aids, and groceries.
» Primarily target low-income consumers.

˃ General Merchandise Retailers: Off-Price Retailers

» Off-price retailers, also known as closeout retailers, offer an inconsistent assortment of brand-name
merchandise at a significant discount off the manufacturers’ suggested retail price (MSRP).
» Able to sell brand-name and even designer-label merchandise at 20 to 60 percent lower
than the MSRP because of their unique buying and merchandising practices
» CLOSEOUTS are end-of-season merchandise that will not be used in following seasons.
» IRREGULARS are merchandise that has minor mistakes in construction. Typically,
merchandise is purchased at one-fifth to one-fourth of the original wholesale price.
» OUTLET STORES are offprice retailers owned by manufacturers or retailers. Those owned
by manufacturers are also referred to as factory outlets.
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LECTURE 2: TYPES OF RETAILERS

˃ General Merchandise Retailers: Services Retailing

» SERVICES RETAILERS: Firms that primarily sell services rather than merchandise, are a large and
growing part of the retail industry.

» Continuum of Merchandise and Service Retailers

» Differences between Services and Merchandise Retailers

˃ Intangibility
˃ Simultaneous production and consumption,
˃ Perishability
˃ Inconsistency of the offering to customers.

» Major Classification of Retail Ownership

˃ Independent, Single-store establishments
˃ Corporate chains
˃ Franchises.

» Independent
» To compete against corporate chains, some independent retailers join a WHOLESALE
SPONSORED VOLUNTARY COOPERATIVE GROUP (an organization operated by a wholesaler
offering a merchandising program to small, independent retailers on a voluntary basis)

» Corporate Chains
» RETAIL CHAIN is a company that operates multiple retail units under common ownership
and usually has centralized decision making for defining and implementing its strategy.

» Franchising
» FRANCHISING is a contractual agreement between a franchisor and a franchisee that allows
the franchisee to operate a retail outlet using a name and format developed and supported
by the franchisor.
» The franchisee pays a lump sum plus a royalty on all sales for the right to operate a
store in a specific location.
» The franchisee also agrees to operate the outlet in accordance with procedures
prescribed by the franchisor.
» The franchisor provides assistance in locating and building the store, developing