CHAPTER 1 INTRODUCTION TO THE WORLD OF RETAILING ANNOTATED OUTLINE INSTRUCTOR’S NOTES I. The World of Retailing • Retailing is evolving into a global, high-tech business. • Retailing is a common part of our everyday lives. • When today’s consumer makes a purchase in their local store, that purchase is often made possible through the use of sophisticated communications and information systems. The use of new technologies helps retailers reduce their operations costs, while better serving their customers. • Retail managers today must make complex decisions on selecting target markets and retail locations, determining what merchandise and services to offer, negotiating with suppliers and distributing merchandise to stores, training and motivating sales associates, and deciding how to price, promote and present merchandise. Ask students about where they bought their textbook for the course. One will likely get a mix of responses, including the college bookstore or the downtown store, in addition to the Internet or even from another student. Question students on the pros and cons of each type of transaction. II. What Is Retailing? • Retailing is the set of business activities that adds value to the products and services sold to consumers for their personal or family use. • A retailer is a business that sells products and/or services to consumers for personal or family use. See PPT 1-3, 1-4 Ask students to give examples of retailers. One ice-breaking activity is to ask each student to list as many retailers as they can think of in a specified period of time. Ask the student with the most listed retailers to read his or her list to the class. Generally, the student will think of traditional retailers that sell through stores. Be sure to discuss the many other examples such as Quizno’s, QVC, Avon, Jiffy Lube, Pizza Hut, and airlines. Certainly students should be encouraged to consider Internet retailers and multi-channel retailers like Amazon.com or Barnes and Noble and BN.com. As part of your discussion you may also wish to include universities and colleges. These organizations sell some services to end users and thus are retailers, but they also sell some services to businesses and thus are channel members, but not retailers. A. A Retailer's Role in a Supply Chain • Retailers are the final business in a supply chain that links manufacturers with consumers. A supply chain is a set of firms that make and deliver a given set of goods and services to the ultimate consumer. • Manufacturers make products and sell them to retailers or wholesalers. Wholesalers engage in buying, taking title to, often storing, and physically handling goods in large quantities, then reselling the goods (usually in smaller quantities) to retailers or industrial or business users. • Some retail chains are both retailers and wholesalers. They’re performing retailing activities when they sell to consumers and wholesaling activities when they sell to other businesses like building contractors or restaurant owners. • In some supply chains, manufacturing, wholesaling, and retailing activities are performed by independent firms. • But most supply chains have some vertical integration. Vertical integration means that a firm performs more than one level of activity in the channel. For example, most large retailers--such as Safeway, See PPT 1-8, 1-9, 1-10 A typical supply chain network is illustrated in PPT 1-10 Discuss how, in some channels, consumers can perform some of the functions performed by retailers, wholesalers, and manufacturers in other channels. For example, assembling furniture or toys is a function frequently performed by manufacturers (providing services). Consumers who buy through discount stores have to discover information about products on their own. When buying at warehouse stores, consumers might buy in large quantities and repackage the food into smaller packages (breaking bulk and holding inventory.) Why is Victoria’s Secret vertically integrated while the local department store is not? Advantages: Develop unique merchandise only sold in your stores. Wal-Mart, and Office Depot --do both wholesaling and retailing activities • Backward integration occurs when a retailer performs some distribution and manufacturing activities, such as operating warehouses and/or designing private label merchandise. • Forward integration occurs when a manufacturer undertakes its own retailing activities, such as Ralph Lauren opening its own retail stores. Better coordination between manufacturing and retailing. Disadvantages: Higher costs because retailer might not be an efficient manufacturer. B. Retailers Create Value • Retailers undertake business activities and perform functions that increase the value of the products and services they sell to consumers. • These functions are: PPT 1-5, 1-6, 1-7 illustrate the value question for retailers. Note that retailers and distributors account for a lot of the cost of a product. A retailer's markup of 50% adds half of the cost in making and getting the product to the consumer. Students could be given a hypothetical issue to debate: Suppose the local grocery store markups all its products by about 50%? Is the grocery store profitable? Some students may confuse the markup of 50% with profits. The various functions performed by retailers as noted below would help students understand the costs borne by retailers. As an aside, standard industry average profits for grocery retailing are only in 1-3% range. 1. Providing Assortments • Offering an assortment enables customers to choose from a wide selection of brands, designs, sizes, colors, and prices in one location. • All retailers offer assortments of products, but they specialize in the assortments they offer. Supermarkets Ask students to describe the difference in the assortments of bicycles provided by Wal-Mart and the local bike shop. What is the difference in assortment of body lotions and creams provided by Bath and Body Works and Kmart? provide assortments of food, health and beauty care (HBC), and household products; while Abercrombie and Fitch provides assortments of clothing and accessories. 2. Breaking Bulk • To reduce transportation costs, manufacturers and wholesalers typically ship cases/cartons of products to retailers. • Retailers then offer the products in smaller quantities tailored to individual consumers’ and households’ consumption patterns. How many students have made purchases at Sam’s Club/BJ’s/Costco? What items have the students or family members purchased in bulk? Discuss the advantages of buying in bulk. For what purchases and what types of consumers does buying in bulk make sense? 3. Holding Inventory • A major function of retailers is to keep inventory so that products will be available when consumers want them, reducing the consumer’s cost of storing products. Discuss product categories for which holding inventory is particularly appealing (e.g., holiday decorations, seasonal gear). 4. Providing Services • Retailers provide services such as credit, product displays, and sales staff to make it easier for customers to compare, buy and use products. Ask the students what kind of services retailers provide. Some services are: acceptance of credit cards, alteration of merchandise, assembly of merchandise, bridal registry, check cashing, child-care facilities, credit, delivery to home, demonstrations of merchandise, displaying merchandise, dressing rooms, gift wrapping, lay-away plans, parking, personal assistance in selecting merchandise, personal shoppers, play areas for children, presentations on how to use merchandise, provisions for customers with special needs (wheelchairs, translators), repair services, rest rooms, special orders and warranties. Which of these services do students believe offer the greatest value to the consumer? Do their opinions differ for different retailers? 5. Increasing the value of products and services. • By providing assortments, breaking bulk, holding inventory, and providing services, retailers increase the value consumers receive from their products and services. Ask students how a computer retail store can increase the value of a computer for a consumer. Compare the service of a computer store with an on-line store like Dell or with an Apple store. C. Structure of Retailing and Distribution Channels Around the World • Compared with distribution channels in the European Union, China and India, the US distribution system has the greatest retail density with the greatest concentration of large retail firms. The combination of large stores and large firms results in a very efficient distribution system. • The Chinese and Indian distribution systems are characterized by small stores operated by relatively small firms and a large, independent wholesale industry. As a result, a larger percentage of labor is employed in distribution and retailing than in the US. • Northern European retailing is most similar to the US system. Southern European retailing is more fragmented across all sectors. Central European retailing has changed from a highly concentrated structure to one of extreme fragmentation (involving small family owned stores). • Factors that have created differences in distribution systems include: (1) social and political objectives, (2) geography, and (3) market size. PPT 1-11, 1-12, illustrate these different distribution channels Ask students to consider several reasons for differences in distribution systems in various nations. How do differences in distribution systems lead to differences in retail experiences for consumers? III. Social and Economic Significance Of Retailing See PPT 1-14 A. Social Responsibility • Retailers are socially responsible businesses. Corporate social responsibility describes the voluntary actions taken by a company to address the ethical, social and environmental impacts of its business operations and the concerns of its stakeholders. • Some retailers are building LEED certified stores as well as distribution centers and manufacturing facilities. • Retailers also need to focus on meeting the needs of 4 billion people at the lowest end of income distribution. Consumers in this low income segment are referred to as the base of the pyramid. Ask students which retailers are actively engaged in CSR. B. Top 20 Global Retailers/ Evolution of Retailing • Retailing is becoming a global industry as more retailers pursue growth by expanding their operations to other countries. 9 of the top 20 are headquartered in the United States. • Large retailers in particular are becoming increasingly international in geographic scope. • Exhibit 1-5 lists the 20 largest global retailers. • The exhibit includes companies that compete on the basis of price (such as Wal-Mart), firms that are known for specific categories (such as Safeway for groceries and CVS for drugs), and firms that sell a wide variety of merchandise through different retail formats (such as Target). • The 20 largest retailers account for about 35% of the world market. Of the top global retailers, 36% are See PPT 1-17 Are students surprised by any companies on the list? Why or why not? Ask what companies will be in the top 5 in 5 years. Why? Discuss how some companies are doing a good job of dealing with changing customer needs and others are not. What global retailers have students experienced while traveling abroad? How do these experiences compare to the students’ experiences in the local marketplace? headquartered in the U.S., 36% in Europe and 14% in Japan. IV. Management and Entreprenuerial Opportunities in Retailing A. Management Opportunities • Retailers employ people with expertise and interest in finance, accounting, human resource management, logistics, computer systems, and marketing. • A typical buyer in a department store earns $50,000 to $60,000 per year. Store managers often make over $100,000. See PPT 1-18, 1-19, and 1-20 for more information and examples of opportunities in the retailing field Ask students what they think of retailing as a career. If there are many opportunities and they seem to pay well, why do most students think that retailing is not a good job to get after graduation? B. Entrepreneurial Opportunities • Retailing provides opportunities for people wishing to start their own business. Many retail entrepreneurs are among the wealthiest people in the United States. • The successes of Jeff Bezos (Amazon.com), Anita Roddick (The Body Shop), Ingvar Kamprad (IKEA) and (Sam Walton (Wal-Mart) show how each capitalized on entrepreneurial opportunities. Examples of entrepreneurs in retail are shown in PPT 1-21 and 1-22 What are some ideas that a retail entrepreneur might consider now near the campus or in the students’ hometowns? V. The Retail Management Decision Process • The book is organized around the management decisions retailers make to provide value to their customers and develop an advantage over their competitors. Use this to discuss the organization of the course and the book A. Understanding the World of Retailing (Section I) • Retail managers need a good understanding of their environment, especially their customers and See PPT 1-23 for the Retail Management Decision Process Ask students about some changes occurring in the environment now that will affect retailing in general and specific retailers. Corporate Social Responsibility may come up competition, before they can develop and implement effective strategies. • The critical environmental factors in the world of retailing are: (1) the macroenvironment, and (2) the microenvironment. The impact of the macroenvironment includes technological, social and ethical/legal/political factors on retailing. The retailer’s microenvironment includes the retailer’s competitors and customers. as an answer and the impacts of CSR on the practice of retailing could be discussed in detail. 1. Competitors • A retailer’s primary competitors are those with the same format. Thus, department stores compete against other department stores and supermarkets compete with other supermarkets. This competition between retailers with the same format is called intratype competition. • To appeal to a broader group of consumers and provide one-stop shopping, many retailers are increasing their variety of merchandise. Variety is the number of different merchandise categories within a store or department. The offering of merchandise not typically associated with the store type, such as clothing in a drug store, is called scrambled merchandising. • Competition between retailers that sell similar merchandise using different formats, such as discount and department stores, is called intertype competition. • Increasing intertype competition has made it harder for retailers to identify and monitor their competition. In one sense, all retailers compete against each other for the dollars consumers spend buying goods and services. See PPT 1-25 In going through this section, you might pick a specific local retailer. Ask students to identify the retailer’s customers, intratype competitors, intertype competitors, and environmental trends affecting the retailer. Ask students to give an example of intratype competition – local department store competing against another department store in the same mall Ask students to compare the different types of merchandise offered at Wal-Mart to those offered at, say, Bath and Body Works or McDonald's. Ask students to give an example of intertype competition – drug store and discount store that sell the same brand of cosmetics. • Since convenience of location is important in store choice, a store’s proximity to competitors is a critical factor in identifying competition. • Management’s view of competition also can differ, depending on the manager’s position within the retail firm. • The CEO of a retail chain may view competition from a much broader geographic perspective as compared to a specific store's manager or a departmental sales manager within the store. 2. Customers • Retailers are responding to broad demographic and life-style trends in our society, such as the growth in the elderly and minority segments of the U.S. population and the importance of shopping convenience to the rising number of two-income families. • To develop and implement an effective strategy, retailers need to know why customers shop, how they select a store, and how they select among that store’s merchandise. Query students on the specific impacts of an aging population or dual-income households on retailing, including retail location, store layout, etc. What needs for specific types of merchandise and services do these markets create? B. Developing a Retail Strategy (Section II) • Understanding of the macro- and microenvironments is needed to formulate and implement a retail strategy. • The retail strategy indicates how the firm plans to focus its resources to accomplish its objectives. The retail strategy identifies: (1) the target market, (2) the nature of merchandise and services to be offered, and (3) how the retailer will build a long-term advantage over competitors. See PPT 1-32 How can one retailer gain long-term competitive advantage over competitors in the marketplace? (Potential areas for discussion may include: location, customer relationships, technology, merchandising, etc.) 1. Strategic Decision Areas • Key strategic decision areas include the determination of market strategy, financial strategy, location strategy, organizational structure and human resource strategy, information systems and supply chain strategies, and customer relationship management (CRM) strategies. • When major environmental changes occur, the current strategy and the reasoning behind it are reexamined. The retailer then decides what, if any, strategy changes are needed to take advantage of new opportunities or avoid new threats in the environment. • The retailer’s market strategy must be consistent with the firm’s financial objectives. Location decisions are important for both consumer and competitive reasons. A retailer’s organizational design and human resource management strategies are intimately related to its market strategy. Retail information and supply chain management systems will be significant opportunities for retailers to gain strategic advantage in the coming decade. • Basic to any strategy is understanding the customer so as to provide them with the goods and services they want. Customer Relationship Management (CRM) is a business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with the firm's most valued customers. C. Implementing the Retail Strategy (Sections III and IV) • To implement the retail strategy, management develops a retail mix that satisfies the needs of its target market better than its competitors. See PPT 1-33 for Key Decision Variables for Retailers Ask students what McDonald’s needs to do to implement its strategy effectively. Have them discuss each of the elements of the retail mix • Elements in the retail mix include the types of merchandise and services offered, merchandise pricing, advertising and promotional programs, store design, merchandise display, assistance to customers provided by salespeople, and convenience of the store’s location. used by McDonalds. Compare the retail mix elements used by McDonalds to the retail mix elements used by an upscale restaurant in town. Why the retail are mixes of these two types of restaurants different? – [They have different target markets with different needs.] 1. Whole Foods Market: An Organic and Natural Food Supermarket Chain • When John Mackey, founder and CEO of Whole Foods Market, found that textbooks weren’t going to provide the answers he was looking for, he dropped out of college, lived in a vegetarian housing co-op, and worked in an Austin natural food store. • After he opened his own health-food store and restaurant, he teamed up with a local organic grocer to open the first Whole Foods, which was an instant success. • Whole Foods stores, at 25,000 to 60,000 square feet, are much larger and carry a much broader assortment than the typical natural and organic grocery store. • The stores offer vegetarians as well as health-conscious nonvegetarians a one-stop shopping experience. • The flower power of the 60’s is reflected in Mackey’s guiding management principles – love, trust, and employee empowerment. • Mackey also has an old fashioned competitive drive to dominate Whole Foods’ segment of the supermarket industry. • Whole Foods’ latest venture is the opening of new, exciting 50,000 See PPT 1-28 Ask students what Whole Foods needs to do to implement its strategy effectively. Have them discuss each of the elements of the retail mix used by Whole Foods. Compare the retail mix elements used by Whole Foods to the retail mix elements used by a traditional supermarket in town. Why are the retail mixes of these two types of food retailers different? – [They have different target markets with different needs.] square foot versions of its stores pioneering a new lifestyle concept that synthesizes health and pleasure. VI. Ethical and Legal Considerations • Retail managers need to consider the ethical and legal implications of their decisions in addition to the effects those decisions have on the profitability of their firms and the satisfaction of their customers. • Ethics are the principles governing the behavior of individuals and companies to establish appropriate behavior and indicate what is right and wrong. • Determining appropriate ethical principles is a difficult task. Ethical principles can vary from country to country and can also change over time. • Many companies have developed codes of ethics to provide guidelines for their employees. Ask students who have worked for retailers whether the firm had a code of ethics. What were some common elements of those codes? See PPT 1-35 for a review of ethical decision making situations and ethical decision strategies. Discuss recent news articles relating to retailers and legal/ethical issues. VII. Summary • Retailing provides considerable value to consumers while giving people opportunities for rewarding and challenging careers. • The key to successful retailing is offering the right product, at the right price, in the right place, at the right time, and making a profit. To accomplish this, retailers must understand what customers want and what competitors are offering. VIII. Appendix 1A: Careers in Retailing • Retailing offers exciting and challenging career opportunities. Few other industries grant as many responsibilities to young managers. • Retailing offers a variety of career paths such as buying, store management, sales promotion and advertising, personnel, operations/distribution, loss prevention, and finance in several different corporate forms such as department stores, specialty stores, food stores, and discount stores. • In addition, retailing offers almost immediate accountability for talented people to reach key management positions within a decade. Starting salaries are competitive, and the compensation of top management ranks among the highest in any industry. See PPT 1-32, 1-33, and 1-34 A. Career Opportunities • Career opportunities in retail firms occur in merchandising/buying, store management, and corporate staff functions. • Primary entry-level opportunities for a retailing career are in the areas of buying and store management. Buying positions are more numbers oriented, whereas store management positions are more people oriented. 1. Store Management • Successful store managers must have the ability to lead and motivate employees. Store management involves all the disciplines necessary to run a successful business: sales planning and goal setting, overall store image and merchandise presentation, budgets and expense control, customer service and sales supervision, personnel administration and development, and community relations. 2. Merchandise Management • Merchandise management attracts people with strong analytical capabilities, an ability to predict what merchandise will appeal to their target markets, and a skill to negotiate with vendors as well as store management to get things done. Many retailers break the merchandise/buying function into two career paths: buying and merchandise planning. 3. Corporate Staff • Corporate staff opportunities include positions in MIS, operations/distribution, promotions/advertising, loss prevention, finance/control, real estate, store design, and human resource management. • Career opportunities for corporate staff positions are more difficult to break into. B. Myths About Retailing 1. Sales Clerk Is the Entry-Level Job in Retailing 2. College and University Degrees Are Not Needed to Succeed in Retailing 3. Retail Jobs Are Low Paying 4. Retailing Is a Low Growth Industry with Little Opportunity for Advancement 5. Working in Retailing Requires Long Hours and Frequent Relocation 6. Retailing Doesn’t Provide Opportunities for Women and Minorities ANSWERS TO SELECTED “GET OUT AND DO ITS” 2. GO SHOPPING Students should visit a local retailer and discuss the different elements of the retailer, its variety, assortment, location, etc. How do these variables help the retailer succeed or attract customers? 3. INTERNET EXERCISE Data on U.S. retail sales are available at the U.S. Bureau of the Census Internet site at http://www.census.gov/retail/#ecommerce. Look at the Estimates of Monthly Retail and Food Services Sales by Kind of Business for the most recent year. In which months are sales the highest? Which kinds of businesses experience the greatest fluctuations in monthly sales? List reasons that help to explain your findings. Students should notice the importance of the 4th quarter for retail sales during the winter holiday season. The second largest sales increase is timed with back to school. Many types of US retailers posted their highest sales in the 4th quarter including Home Furnishings Retailers, Electronics and Appliances Retailers, and Jewelry Stores. In fact, Jewelry Stores posted sales for the month of December alone at 37% of their total sales. 4. INTERNET EXERCISE Go to the home pages of Macy’s, Target, Walmart, Toys R Us, and the National Retail Federation Retail Careers Center (www.nrf.com/RetailCareers) to find information about retail careers with these companies/organizations. Review the information about the different positions described. In which positions would you be interested? Which positions are not of interest to you? Which employer would interest you? Why? Students’ answers will vary considerably here. Some students may take a more long-term view looking to Buyer or Planner positions which call for a variety of skills including strong organizational and analytical skills, excellent verbal and written communication skills and extensive computer experience. These positions also require several years of prior experience in lower-level buying positions. Other students may find these positions to be more quantitative or analytical than their interests lie. Students looking at entry-level positions, as well as those seeking more creative positions or those with a broader focus may be attracted to the entry-level Fashion Assistant or Product Assistant positions. These positions request a less comprehensive skill set as well as less emphasis on prior job experience. 5. INTERNET EXERCISE Choose one of the top 20 retailers (Exhibit 1-5). Go to the company’s Web site and find out how the company started and how it has changed over time. From the Exhibit of the Top 20 retailers, students can see that in general, European retailers have been more successful in expanding to more countries as compared to U.S. retailers. In general, given smaller sizes of the countries in which these retailers originated, they had to expand to other country markets to sustain their growth strategies. By contrast, the U.S. retailers have enjoyed a larger market size within the U.S. alone, thereby rendering global expansion less of a priority for them. Students will also note that food retailing dominates among the largest retailers. 6. INTERNET EXERCISE Go online and find an example of a retailer involved in corporate social responsibility. In a brief paragraph describe how this retailer is taking steps to contribute to a social or ethical cause. An article in Forbes Magazine, “Corporate Social Responsibility: America's Most Generous Corporations”, by Matthew Kirdahy, 10.16.08, lists firms that made the greatest contributions to charitable causes. http://www.forbes.com/2008/10/16/most-generous- corporations-corprespons08-lead-cx_mk_1016charity.html. Many of this firms are retailers. Students will select a variety of retail organizations. Below is a slide to begin a class discussion. ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS 1. How do retailers add value to the products bought by consumers? Retailers add value in a number of ways. First, retailers provide an assortment of products and services. Second, retailers break bulk to enable customers to buy smaller quantities. Third, retailers hold inventory so that products will be available when consumers want them. Finally, retailers provide services like alterations, financing, and sales associate assistance. 2. What is your favorite retailer? Why do you like this retailer? What would a competitive retailer have to do to get your patronage? Students may choose an example from a wide variety of retailers. Answers will likely range from national chains including but not limited to K-Mart, The Gap, Bloomingdale's, McDonald's, The Sports Authority, Starbucks, JC Penney, to online retailers like Amazon.com and eBay to favorite local shops and hangouts. Whatever selection is made, ask students to concentrate on the specific aspects of retail strategy, such as: (1) intended target market of the retailer; (2) nature of merchandise and services and the specific consumer needs sought to be satisfied; (3) product variety and assortments carried; (4) store location strategy; (5) pricing strategies; (6) specific service strategies; (7) strategies designed to attract and retain customers; and, (8) strategies specifically designed at gaining a long-term advantage over competitors. 3. What are the benefits and limitations of purchasing a home entertainment system directly from a number of component manufacturers rather than from a retailer? Students may indicate benefits typically associated with “removing the middleman” such as reduced price and effort in completing the transaction. While these benefits will occur in specific cases, it must be noted that the average consumer engages in buying dozens of items on a regular basis. Even if all manufacturers were to offer their products directly to consumers, it can be readily noted that the consumer would now have to spend an extraordinary amount of time each day ordering directly from each manufacturer. This should lead to discussion of the limitations of purchasing directly from the manufacturer rather than a retailer. Here, the various functions performed by retailers, such as bulk-breaking, holding inventories, and providing information, service and assortments can be brought to bear on overcoming the limitations discussed above for the consumer. Bulk-breaking enables consumers to buy only the specific amount they would need. Retail inventory helps eliminate the need for consumers to hold their own inventory, since they could simply satisfy their needs for a specific and immediate time-period, such as buying one unit of dish washing detergent that would last the next 2 months. Retailers provide valuable information and services that save consumers time and effort as compared to when consumers attempt to obtain such information by themselves or serve themselves. By providing an assortment of products and brands in one location – in some cases of scrambled merchandising, a very wide assortment of products and brands – retailers help consumers engage in one-stop shopping, thereby saving them the time and effort for other productive and leisure activities. Further, it would be uneconomical for most manufacturers, especially those selling low- priced items, such as toothpaste directly to each consumer or household. In general, even if retailers are eliminated from the supply chain, their functions remain. Often these functions would be distributed between the manufacturer and consumers. For example, manufacturers would now have to produce a wider variety of products (in order to offer an assortment) and consumers would have to carry greater amounts of inventory (to buy a case-load of toothpastes!). The distribution of retail functions would increase manufacturer costs as well as consumer costs and efforts. One may argue that "buying cheaper from the manufacturer" is, in a vast majority of cases, a myth. 4. What retailers would be considered intratype competitors for a convenience store chain such as 7-Eleven? What firms would be intertype competitors? Discussion should lead to those convenience stores in the local market offering the traditional convenience store retail mix including gasoline, snacks, newspapers, coffee, and a limited variety of grocery items. Ask students to discover intertype competitors for 7-Eleven by focusing on a particular merchandise offering such as a gallon of milk, a fountain soda or a candy bar. This discussion will illustrate that intertype competition for 7-Eleven may come from a number of retailers offering similar merchandise through different formats, such as supermarkets, fast food restaurants or discount stores. 5. How does Walmart contribute and detract from the communities in which it operates stores? Students may argue either in favor of or against the large discount stores, such as Wal-Mart. The arguments against may include: (1) smaller family-owned firms may not be able to compete on the basis of price with Wal- Mart and hence would have to close down, resulting in loss of entrepreneurial opportunities within the community; (2) the personal service of a Mom-and-Pop store is now replaced by an impersonal cash register clerk and very few employees offering information and service within the store; and, (3) over a period of time, there may be no competition for the larger store, which may begin to charge higher prices, from a monopoly position. On the other hand, the arguments in favor include: (1) greater product assortment and choice for the consumer at lower prices; (2) one-stop shopping convenience for the consumer, freeing up the consumer's time for other productive and leisure activities; (3) immediate increase in employment at various levels of the local, large store organization; and, (4) greater opportunities at the supply level, since the large store would have to rely on local supply sources for a variety of products, especially perishables. In general, students would see both the arguments for and against the large store. However, one could also add that smaller firms providing superior service or other forms of consumer value apart from price would prevail despite the presence of a large store competing on the basis of price. Examples include electronics stores that provide greater consumer information and expertise, or customized services such as portrait framing, etc. Given that modern retailing has seen several different types of retailers emerge and compete successfully, it is debatable if the large store would ever actually become a monopoly. As long as some consumers continue to seek a wide variety of retail offerings beyond price, other retailers or retail formats will emerge to challenge the growing monopolization by the larger store. 6. The same brand and style of men’s suits are sold at different prices at a department store like Macy’s and at a specialty store like Men’s Wearhouse. Why would a customer choose to buy the suit from one store rather than the other? There are many different reasons why customers choose one retailer over another. Some customers might choose a department store if they have other shopping needs besides the men’s suit. Also, department stores often offer services like alterations. If a customer has never purchased a suit before, he might choose the Men’s Wearhouse because of its expertise in the area and the hands-on attention he will get from the sales associate. 7. Compare and contrast the retail mixes of department stores and full-line discount stores. Use bullet points or a table to list the similarities and differences. A department store’s retail mix would include: • Customer Service- Department stores provide a higher level of customer service with increased sales associate interactions and add-on services like alterations, shipping and gift wrapping. • Store design and display- Department stores are organized by departments. For example, Macy’s might have a children’s department, women’s department, men’s department, shoe department, and cosmetics department. Each department is merchandised differently. • Communication mix- Department stores use advertising, social media, personal selling and loyalty programs to reach customers. • Locations- Department stores are typically in malls and act as anchor stores for the mall. • Merchandise management- Department stores offer customers a wide variety of merchandise. • Pricing- Department stores have higher prices than discount stores. Some department stores, like Saks Fifth Avenue and Neiman Marcus, have significantly higher prices, other department stores, like Macy’s and Dillard’s, are more moderately priced. A full-line discount store’s retail mix would include: • Customer Service- Discount stores have less customer service than department stores as they are more focused on keeping the price point down. • Store design and display- Discount stores optimize display areas to showcase merchandise. The display may not be as organized as a department store. • Communication Mix-Discount stores communicate with their customers through advertisements, social media and sales promotions. • Location- Full line discount stores are usually in strip malls or free-standing locations. • Merchandise management- The merchandise offered by full line discount stores is usually a wide variety that is constantly changing depending on the inventory that is available. • Pricing- Full-line discount stores are less expensive than department stores. These stores compete primarily on price. 8. An entrepreneur approaches you about how to sell her new writing pens to consumers. The pens have a unique benefit-they are more comfortable to use than traditional pens. The entrepreneur is concerned the retailer she has approached wanted to buy the pens from her at $10.00 a piece and then sell the pens in their stores for $18.00 to consumers. The entrepreneur is dismayed at the extra $8.00 the retailers are getting and has decided to sell the product directly to consumers for $10.00. She wants to know your opinion. What do you think? Why? Students’ answers may vary on this question. Traditionally, the entrepreneur would be better off selling the pen through the retailer because the retailer already has a client base and can absorb the cost of promoting the pen. In addition, retailers add value by providing assortment to the customer and the pen might be a great purchase along with other items the retailer offers. However, with the increased use of the internet, entrepreneurs are able to reach audiences more directly. She may be able to sell her pen to customers directly, but she has to build the client base on her own. She might not be guaranteed the sales if she sells directly, vs. selling in bulk to the retailer. 9. From a personal perspective how does retailing rate as a potential career compared to others you are considering? Why? After reading the chapter, some students may already be attracted to retailing as a career, since they would now have realized the wide variety of opportunities provided in the retail sector. At the same time, some may compare retailing less favorably to other potential career paths, such as advertising, or more immediately lucrative endeavors, such as the stock market. Ultimately, all students should have recognized that retailing is not simply being a store associate, greeting the customer and making a sale. Those students interested in the technology field should see a variety of opportunities to make a career in retailing, as should those with interests in finance, accounting or human resource management. 10. In this chapter, some socially responsible activities engaged in by retailers are described. Take the perspective of a stockholder in one of these companies. What effect will these activities have on the value of its stock? Why might they have a positive or negative effect? Sometimes CSR initiatives are expensive for a company, making the value of the stock drop. However, CSR initiatives, like building greener buildings and reducing the carbon footprint have long-term implications that add value to a retailer. For example, engaging in CSR activities can attract new customers as well as increase loyalty with current customers. Furthermore, some of these activities might be required of retailers in the future, so it might be best, and more cost-effective, to implement them now. Chapter 1 – Introduction to the World of Retailing Debate: Is Walmart good for society? Format/Procedure • Break into 6 teams, 3 on each side of the issue. • Teams will have 10 minutes to prepare Opening Statements. • 5 minute Opening Statements from each side. State your position and give supporting arguments. • Teams will have 5 minutes to prepare for the Rebuttal. • 5 minute Rebuttals from each side. Respond to the opposition's Opening Statement. • Teams will have 5 minutes to prepare Concluding Statements. Incorporate the strongest points made in the Opening Statements and Rebuttals. This is a Summary and not a second Rebuttal. • 5 minute Concluding Statements from each side. • Individually answer the question: Where do you stand on this issue and why? Group Assignment In-Class Debate Yes No Opening 1 2 Rebuttal 3 4 Concluding 5 6 Take aways on debating • Begin by stating the side of the issue that you are discussing and then give supporting examples to illustrate • Summarize what was said before leaving the podium • Strengthen arguments by using “facts” such as direct quotes from article • Pose questions to the opposition to illustrate the weaknesses in their arguments Solution Manual for Retailing Management Michael Levy, Barton A. Weitz, Dhruv Grewal 9780078028991
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