Chapter 1 Perspectives on Retailing Overview: In this chapter, we acquaint you with the nature and scope of retailing. We present retailing as a major economic force in the United States and as a significant area for career opportunities. Finally, we introduce the approach to be used throughout this text as you study and learn about the operation of retail firms. Learning Objectives: After reading this chapter, you should be able to: 1. Explain what retailing is. 2.
Explain why retailing is undergoing so much change today.
3. Describe five methods used to categorize retailers. 4. Understand what is involved in a retail career and be able to list the prerequisites necessary for success in retailing. 5. Be able to explain the different methods for the study and practice of retailing. Outline: I. What Is Retailing? A. Retailing – consists of the final activities and steps needed to place a product in the hands of the consumer or to provide services to the consumer. B.
Can be performed by any firm that sells a product or provides a service to the final consumer.
II. The Nature of Change In Retailing – Retailing, which accounts for 20 percent of the worldwide labor force and includes every living individual as a customer, is the largest single industry in most nations and is currently undergoing many exciting changes. A. E-tailing – The great unknown for retail managers is what the ultimate role of the Internet will be. 1. It is still unclear if online shopping will reach ts projections for “every day” needs. 2. A dramatic change created by e-tailing is a shift in power between retailers and consumers. The information dissemination capabilities of the Internet are making consumers better informed and thus increasing their power when transacting and negotiating with retailers. B. Price Competition – Americans are price conscious, whether shopping at brick & mortar stores or on-line, and retailers that are able to cut costs in order to provide lower prices will be the winners. C.
Demographic Shifts – Other significant changes in retailing over the past decade have resulted from changing demographic factors, such as: the fluctuating birth rate, the increasing number of immigrants, the growing importance of the 70 million Generation Y consumers, and the fact that Generation Xers are now middle-aged and baby boomers are now reaching retirement. 1. Profit growth must come by either increasing same store sales at the expense of the competition’s market share (Same store sales is a retailing term that compares an individual store’s sales to its sales for the same month in the previous year.
Market share refers to a retailer’s sales as a percentage of total market sales for the product line or service category under consideration. ) or by reducing expenses without reducing services to the point of losing customers. 2. As a result, today’s retail firms are run by professionals who can look at the changing environment and see opportunities, exert enormous buying power over manufacturers, and anticipate future changes before they impact the market, rather than just react to these changes after they occur. D.
Store Size – The size of retail stores has increased in recent years because of: 1. The phenomenon referred to as scrambled merchandising, whereby stores handle many different unrelated items, and; 2. The growth of category killer stores. These retailers got their name from their marketing strategy: carry such a large amount of merchandise in a single category at such good prices that it makes it impossible for the customer to walk-out without purchasing what they needed; thus “killing” the competition. III.
Categorizing Retailers – There are five popular schemes for categorizing retailers. A. Census Bureau Classification 1. North American Industry Classification System (NAICS) codes – Reflects the type of merchandise a retailer sells. The major portion of a retailer’s competition comes from other retailers in its NAICS category. 2. Three-digit codes are very broad; four-digit codes provide much more information on the structure of retail competition and are easier to work with. B. Number of Outlets 1. Another method of classifying retailers is by the number of outlets each firm operates.
Generally, retailers with several units are a stronger competitive threat because they can spread many fixed costs, such as advertising and top management salaries, over a large number of stores and can achieve economies in purchasing. 2. Chain Stores – account 41% of all retail sales. a. Size categories – Broken down by the Census Bureau into “2 to 10 stores,” and “11 or more stores” categories. b. Large chains take advantage of their economies of scale and centralized buying by using: (1)Standard Stock List – Method whereby all stores in a chain stock the same merchandise. 2)Optional Stock List – Method which gives each store in a retail chain flexibility to adjust its merchandise mix to local tastes and demands. (3)Providing Supply Chain Leadership – by directing the channel and having other channel members do what they might not otherwise do, the retailer by serving as the channel advisor can make it more effective. (4)Private Label Branding – Chains use their own brand name instead of a manufacturer’s brand name; results in lower costs for consumers. 3.
A shortcoming of using the number of outlets scheme for classifying retailers is that it addresses only traditional brick & mortar retailers, or those operating in a physical building. C. Margin vs. Turnover 1. Gross Margin Percentage – Indicates how much gross margin the retailer makes as a percentage of sales; gross margin is used to pay the retailer’s operating expenses. a. Gross Margin – Net sales minus the cost of goods sold. b. Operating Expenses – Expenses the retailer incurs while running the business other than the cost of merchandise [i. e. rent, wages, utilities, depreciation, insurance]. 2. Inventory Turnover – Number of times per year, on average, that a retailer sells its inventory. 3. Classifying Retailers by Margin/Turnover a. Low-margin/Low-turnover – These retailers will not be able to generate sufficient profits to remain competitive and survive. There are no good examples of successful retailers using this approach. b. Low-margin/High-turnover – Common in the United States. Examples include the discount department stores, the warehouse clubs, and the category killers. Amazon. om is probably the best known example of low-margin/high-turnover e-tailers. c. High-margin/Low-turnover – The types of retailers in this category include brick & mortar retailers such as furniture stores, high-end women’s specialty stores and furriers, jewelry stores, gift shops, funeral homes and most of the mom-and-pop stores located in small towns across the country. Some click & mortar retailers using this approach include Coach and Sharper Image. d. High-margin/High-turnover – Convenience store retailers fall into this category. Best able to withstand and counter competitive attacks.
Because in the early stages of Internet commerce most retailers are trying to achieve a high turnover rate, there are not any examples of e-tailers using this strategy. 4. While the Margin/Turnover scheme provides an encompassing classification, it fails to capture the complete array of retailers operating in today’s marketplace. For example, service retailers, and even some e-tailers, such as Priceline. com, carry no inventory. Thus, while this scheme is a good way of analyzing retail competition, it neglects an important type of retailing. D.
Location – Retailers can improve financial performance results not only by improving the sales per square foot of traditional sites but by operating in new nontraditional retail areas or over the Internet. E. Size – Retailers are often classified by sales volume or by number of employees. 1. Operating performance tends to vary according to size; larger firms usually have lower operating costs per sales dollar. 2. While size has been useful in the past, it is unclear whether the changes brought about by technology will not make this obsolete.
For example, imagine a fully automated retailer, where as a consumer places an order on-line, an automated stock picking warehouse packages the selected merchandize and forwards it to the shipping area to be sent by UPS to the customer. IV. A Retailing Career A. Exposure to All Business Disciplines – Retailing provides professionals with the opportunity to gain knowledge on all facets of the business world. A retailer’s role may include a combination of the following positions and responsibilities: 1. Economist – Forecasting sales growth 2.
Fashion Expert – Predicting consumer behavior and how it will affect future fashion trends. 3. Marketing Manager – Determining how to promote, price, and display your merchandise. 4. Financial Analyst – Reducing store expenses. 5. Personnel Manager – Hiring the right people, training them to perform their duties in an efficient manner, and developing their work schedules. 6. Logistics Manager – Arranging delivery of a “hot item. ” 7. Information System Manager – Analyzing sales and other data to determine opportunities for improved management practices. 8.
Accountant – Arriving at a profitable bottom line. B. There are two major career paths in Retailing: 1. Store Management – Involves responsibility for selecting, training, and evaluating personnel, as well as in-store promotions, displays, customer service, building maintenance, and security. 2. Buying – Involves the use of quantitative tools to develop appropriate buying plans for the store’s merchandise lines. C. Common Questions About a Retailing Career 1. Salary – Starting salaries in executive training programs will be around $38,000 to $50,000 per year.
That, however, is only the short-run perspective. In the long run, the retail manager or buyer is directly rewarded on individual performance. Entry-level retail managers or buyers who do exceptionally well can double or triple their incomes in three to five years and often can have incomes twice those of classmates who chose other career fields. 2. Career Progression – The speed of a retail professional’s progression is dependent upon an individual’s capabilities and the growth of the organization. There is no “standard” career progression for a retailer. . Geographic Mobility – The willingness and ability to make geographic moves often increases a retail professional’s opportunities for advancement. 4. Women in Retailing – Retailing has always been viewed as a good career for women. Today females constitute over 50 percent of all department store executives, making it the profession where women have attained the highest level of achievement. 5. Societal Perspective – Leading retail executives are well-rounded individuals with a high social consciousness.
Professionals entering the retail field must develop a sound set of ethical principles by which they may guide their actions. D. Prerequisites for Success 1. Hard Work – A willingness to work extra hours, evenings and weekends often pays off through career advancements. 2. Analytical Skills – An ability to interpret the facts and data that are related to the past and present performance of a store, merchandise lines and departments. 3. Creativity – An ability to develop and capitalize on unique ideas and opportunities. 4.
Decisiveness – The ability to make rapid decisions, render judgments, take action and commit oneself to a course of action until completion. 5. Flexibility – A willingness to and enthusiasm for accommodating change; ability to thrive in an “expect the unexpected” environment. 6. Initiative – The ability to originate action. 7. Leadership – The ability to inspire others to trust and respect your judgment and an aptitude for delegating, guiding and persuading others. 8. Organization – The ability to establish priorities and courses of action and to plan and follow up to achieve results. . Risk Taking – The willingness to take calculated risks and to accept responsibility for the results. 10. Stress Tolerance – Retailing is a fast-paced and demanding career in a changing environment. The retailing leaders of the 21st century must be able to perform consistently under pressure and to thrive on constant change and challenge. 11. Perseverance – Successful retailers must have perseverance. All too often retailers may become frustrated due to the many things occurring that they can’t control.
Individuals that have the ability to persevere and take marketplace changes in stride will find an increasing number of career advancement opportunities. 12. Enthusiasm – Successful retailers must have a strong warmth of feeling for their job, otherwise they will convey the wrong image to their customers and associates in their department. Retailers today are training their sales force to smile even when talking to customers on the telephone because it shows through in your voice. V. The Study and Practice of Retailing A. Analytical Method – The analytical retail manager is a finder and investigator of facts.
The use of models and theories of retailing as a means of making systematic decisions about all aspects of the business; concentrate on facts. B. Creative Method – The creative retail manager is an idea person. The use of insight and intuition in the process of handling retail difficulties; emphasis is on ideas C. Two-Pronged Approach – The combination of creativity and analysis when responding to problems. D. A Proposed Orientation – The approach to the study and practice of retailing that is reflected in this book is an outgrowth of the previous discussion.
This approach has four major orientations: 1. Environmental Orientation – Allows retailers to continuously adapt to external forces in the environment. 2. Management Planning Orientation – Allows retailers to adapt systematically to a changing environment. 3. Profit Orientation – Allows retailers to focus on the fundamental management of assets, revenues and expenses. 4. Decision Making Orientation – Allows retailers to focus efforts on the need to collect and analyze data for making intelligent retail decisions.
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