6/6/2024

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Learning Objectives
LO 1-1 Identify retailing activities.
LO 1-2 Realize the importance of retailing in the U.S. and world economies.
LO 1-3 Analyze the changing retail industry.
Introduction to the LO 1-4 Recognize the opportunities for you in retailing.
World of Retailing
LO 1-5 Understand the strategic retail management decision process.
CHAPTER 1

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What is Retailing? 1 EXHIBIT 1–1 Example of a Supply Chain

Learning Objective 1-1 Identify retailing activities.

The Retailer’s Role in a Supply Chain

Retailing – adds value to products and services sold to
consumers.
• Stores, apps, and online.
• May include lodging in a motel, home-delivered pizza.
Retailer – sells products and services to consumers.
• Supply chain.

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What is Retailing? 2 What is Retailing? 3

Costs of Channel Activities
• Value-creating activities increase the costs of products and services.
Retailers Create Value
• The costs in the supply chain can be almost as much as the cost to make
1. Providing an assortment. the product.
2. Providing services.
3. Breaking bulk.
4. Holding inventory.

Retailers add value by providing an assortment of

goods that can satisfy consumers’ needs.

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EXHIBIT 1–2 Costs of Value-Added Activities in the

Distribution Channel for a T-Shirt
What is Retailing? 4
Retailers Perform Wholesaling and Production Activities
• Vertical integration.
• Backward integration.
• Forward integration.

Access the text alternative for slide images. IKEA and Zara manufacture a lot of the products available in their stores.

© McGraw Hill LLC 7 © McGraw Hill LLC Left: Tanawat Chantradilokrat/Shutterstock; Right: Maryia Kazlouskaya/Alamy Stock Photo 8

What is Retailing? 5 What is Retailing? 6

Differences in Distribution Channels around the World Differences in Distribution Channels around the World continued
U.S. has the largest retail market in the world. • Indian distribution system has small stores operated by relatively small firms
• Have scale economies to operate their own warehouses, eliminating the need for and a large independent wholesale industry.
wholesalers. • Infrastructure not well developed.
Result is an efficient distribution system. • Supply chain costs are higher.
• Modernizing with attention to e-commerce.

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What is Retailing? 7 Economic and Social Significance of Retailing 1

Learning Objective 1-2 Realize the importance of retailing in the U.S. and world economies.
Differences in Distribution Channels around the World continued
• Chinese retail industry is highly fragmented.
Role in Developed Economies
• Government has removed most restrictions on direct foreign investments.
Retail Sales.
• China is the world’s fastest-growing retail market and leads the world in e- • $5.3 trillion in annual U.S. sales in 2019.
commerce sales. • 5.5% of the U.S GDP comes from retailing.
Employment.
• Employ 26 million people.

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Economic and Social Significance of Retailing 2 Economic and Social Significance of Retailing 3
Role in Developing Economies – The Base of the Pyramid Role in Society
• 9% of world population lives on under $2 a day. Stakeholders:
• Base of the pyramid. • Prospective customers.

• Difficult to communicate and complete transactions. • Supply chain partners.

• Employees.
• Lack access to mass media, the Internet, or credit cards.
• Shareholders.
• Rural, remote: high cost of transporting goods.
• Government agencies.
• Members of the firm’s communities.

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Economic and Social Significance of Retailing 4 Economic and Social Significance of Retailing 5
Role in Society continued Examples of social responsibility
Corporate social responsibility (CSR). • TOMS provides free shoes to residents of poor nations.
• Voluntary. • Patagonia invented a reusable climbing piton that didn’t damage the rock.
• Meets or exceeds the ethical and legal expectations of stakeholders. • Ben & Jerry’s supports social justice movements.
Conscious marketing.
• Recognition of the retailer’s greater purpose.
• Consideration of stakeholders and their interdependence.
• The presence of conscious leadership, creating a conscious corporate culture.
• The understanding that decisions are ethically based.
• A commitment to social issues.

© McGraw Hill LLC 15 © McGraw Hill LLC Source: Patagonia, Inc 16

The Growing Importance of Retailing and Retailers 1 EXHIBIT 1–3 Top 20 U.S. Retailers 1
Learning Objective 1-3 Analyze the changing retail industry.
Rank Name Headquarters 2019 Retail Sales Primary Format
(billions)
Evolution of the Retail Industry 1 Walmart Bentonville, AR $399.80 Full-line discount store

• More than 80% of retail sales still made in stores. 2 Amazon Seattle, WA $193.64 E-commerce

• The COVID-19 pandemic drove more people to online purchases. 3 The Kroger Co. Cincinnati, OH $122.28 Supermarket
4 Costco Issaquah, WA $111.75 Warehouse Club
• 250 of the top-earning retailers take in revenues in excess of $4.5 trillion.
5 Walgreens Boots Deerfield, IL $104.53 Drugstore/Pharmacy
Alliance
6 The Home Depot Atlanta, GA $102.17 Home Improvement
7 CVS Health Corp Woonsocket, RI $88.51 Drugstore/Pharmacy
8 Target Minneapolis, MN $77.13 Full-line discount store
9 Lowe’s Companies Mooresville, NC $65.51 Home Improvement
10 Albertsons Companies Boise, ID $62.41 Supermarket

© McGraw Hill LLC 17 © McGraw Hill LLC Source: Top 100 Retailers 2020 List. National Retail Federation, 2020. https://nrf.com/resources/top-retailers/top-100-retailers/ top-100-retailers-2020-list. 18

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EXHIBIT 1–3 Top 20 U.S. Retailers 2 The Growing Importance of Retailing and Retailers 2

Rank Name Headquarters 2019 Retail Sales Primary Format

Evolution of the Retail Industry Walmart’s new app makes in-person shopping
continued easier than ever.
(billions)
11 Apple Store/iTunes Cupertino, CA $53.99 Electronics Accelerated Shifts Due to the
12 Ahold Delhaize USA Carlisle, PA $44.81 Supermarket COVID-19 Pandemic.
13 McDonald’s Oak Brook, IL $40.41 Restaurant/fast food
• E-commerce interactions are more
14 Best Buy Richfield, MN $40.04 Electronics intuitive.
15 Publix Super Markets Lakeland, FL $38.13 Supermarket • Brick and mortar stores closed for
16 TJX Companies Framingham, MA $31.48 Off-price extended periods, and many went out
17 Aldi Batavia, IL $31.12 Discount supermarket
of business entirely.
18 Dollar General Goodlettsville, TN $27.75 Extreme value • U.S. online sales rose 76 percent
compared with the previous year.
19 H.E. Butt Grocery San Antonio, TX $26.00 Supermarket
20 Macy’s Cincinnati, OH $24.44 Department store

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© McGraw Hill LLC Source: Top 100 Retailers 2020 List. National Retail Federation, 2020. https://nrf.com/resources/top-retailers/top-100-retailers/ top-100-retailers-2020-list. 19 © McGraw Hill LLC Jeff Chiu/AP Images 20

Management and Entrepreneurial Opportunities 1 Management and Entrepreneurial Opportunities 2

Learning Objective 1-4 Recognize the opportunities for you in retailing.
Entrepreneurial Opportunities Glossier is leading the way in the direct-to-consumer
beauty space.
Management Opportunities Retailing entrepreneurs.
People with a wide range of skills and interests needed because retailers’ • Sam Walton(Walmart).
functions include: • Emily Weiss (Glossier).
• Finance.
• Ingvar Kamprad (IKEA).
• Purchasing.
• Accounting. • Howard Schultz (Starbucks).
• Management information system (MIS).
• Supply chain management.
• International business.
• Design and new product development.
• Marketing.

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EXHIBIT 1–4 Retail Management Decision Process The Retail Management Decision Process 1
Learning Objective 1-5 Understand the strategic retail management decision process.

Understanding the World of Retailing—Section I

The first step in the retail management process.
Critical environmental factors.
• The macroenvironment.
• Technological, social, and ethical/legal/political.
• The microenvironment.
• Competitors and customers.

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The Retail Management Decision Process 2 The Retail Management Decision Process 3
Understanding the World of Retailing—Section I continued Developing a Retail Strategy—Section II
Competitors. Retail strategy identifies:
• Intratype competition. • The target market.
• Scrambled merchandising. • The nature of merchandise and services.
• Increases intertype competition. • How to develop unique assets for long-term advantage.
Consumers. Example – Walmart vs. Amazon.

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The Retail Management Decision Process 4 The Retail Management Decision Process 5
Developing a Retail Strategy—Section II continued Implementing the Retail Strategy—Sections III and IV
Strategic decision areas. Retail mix:
• Defining the target market. • Types of merchandise and services.
• Analyzing the environment/firm’s strengths and weaknesses. • Merchandise pricing.
• Financial objectives. • Advertising and promotional programs.
• Return on investment, inventory turnover, and profit margin.
• Store design.
• Development of critical assets.
• Merchandise display.
• Location, human resource, information and supply chain systems, supply chain organization, and
customer loyalty. • Assistance to customers provided by salespeople.
• Convenience of the store’s location.

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EXHIBIT 1–5 The Retailing Mix Key Terms 1

backward integration – a form of vertical integration in which a retailer owns
some or all of its suppliers.
base of the pyramid – the 25% of the world’s population at the lowest end of
the global income distribution, with combined spending power of approximately
US$5 trillion.
breaking bulk – a function performed by retailers or wholesalers in which they
receive large quantities of merchandise and sell them in smaller quantities.
conscious retailing – entails a sense of purpose for the firm higher than simply
making a profit by selling products and services.

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Key Terms 2 Key Terms 3

corporate social responsibility (CSR) – voluntary actions taken by a intertype competition – competition between retailers that sell similar
company to address the ethical, social, and environmental impacts of its merchandise using different formats, such as discount and department stores.
business operations and the concerns of its stakeholders.
intratype competition – competition between the same type of retailers (e.g.,
ethics – a system or code of conduct based on universal moral duties and Kroger versus Safeway).
obligations that indicate how one should behave.
retailer – a business that sells products and services to consumers for their
forward integration – a form of vertical integration in which a manufacturer personal of family use.
owns wholesalers or retailers.
retailing – a set of business activities that adds value to the products or
holding inventory – a major value-providing activity performed by retailers services sold to consumers for their personal or family use.
whereby products will be available when consumers want them.

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Key Terms 4 Key Terms 5

retail mix – The combination of factors used by a retailer to satisfy customers stakeholders – the broad set of people who might be affected by a firm’s
needs and influence their purchase decisions. actions, from current and prospective customers, top supply chain partners, to
employees, to shareholders, to government agencies, to members of the
retail strategy – a statement that indicates 1) the target market toward which a
communities in which the firm operates, to a general view of society.
retailer plans to commit its resources, 2) the nature of the retail offering that the
retailer plans to use to satisfy the needs of the target market, and 3) the bases supply chain – a set of firms that make and deliver a given set of goods and
on which the retailer will attempt to build a sustainable competitive advantage services to the ultimate consumers.
over competitors.
vertical integration – an example of diversification by retailers involving
scrambled merchandising – an offering of merchandise not typically investments by retailers in wholesaling or manufacturing merchandise.
associated with the store type, such as clothing in a drugstore.
wholesaler – firms that buy products from manufacturers and resell them to
retailers.

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