CHAPTER 2

Types of
Retailers
H r in

CHAPTER 02

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Learning Objectives
• What trends shape today’s retailers?
• What are the different types of retailers?
• How do retailers differ in terms of how they meet the
needs of their customers?
• How do service retailers differ from merchandise
retailers?
• What are the types of ownership for retail firms?

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General Trends in Retailing
• New types of retailers
• Globalization
• Growth in services
retailing
• Growth in
omnishopping by
traditional retailers
• Increase use of
technology to reduce
cost; Increase value
delivered
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Types of Retailers
• Retailers use different retail mixes
- merchandise:
variety (breadth) / assortment (depth)
stock keeping unit (SKU)
- services
- store design, visual merchandising
- location
- pricing

• Infinite variations
• Some combination of retail mixes satisfy the needs of
significant segments and persist over time.
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Retailer Characteristics
• Variety (breadth of merchandise)
A number of merchandise categories a
retailer offers
• Assortment (depth of merchandise)
The number of different items in a
merchandise category
• Services offered
Some retailers charge customer for other
services such as: home delivery, gift
wrapping
• Prices and the cost of offering
breath and depth of merchandise
and services
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 Merchandise Offering
Variety (breadth of merchandise): wide vs. narrow
- The number of merchandise categories

Assortment (depth of merchandise): deep vs. shallow

-the number of items in a category (SKUs)

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Retailer Characteristics
Price-Cost Tradeoff
• The tradeoff retailers make between the price of
merchandise they sell and the services they offer to
their customers.
• To make profit and provide these additional benefits to
its customers, department stores have to increase the
prices of its merchandise to cover the additional costs.

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 Services Offered
• Retailers differ in
the services they
offer customers
• Wheelworks offers
assistance in
selecting the
appropriate bicycle
as well as bicycle
repairs.
• Walmart, however,
doesn’t provide any
additional services.
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Prices and the cost of offering breath and depth of
merchandise and services
• Stocking a deep and broad assortment (like Wheelworks)
is costly for retailers.

Many SKUs

Because the retailer must have backup stock for each SKU
in addition to holding the inventory

Inventory Investment Cost

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Types of Merchandise Retailers

Food Retailers General Merchandise Retailers

Department Stores
Specialty Stores
Mom and Pop Stores
Discount Stores
Convenience Stores
Supermarkets Category Specialists
Supercenters Off-Price Retailers
Warehouse Clubs
Value Retailers

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Characteristics of Food Retailers

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 Supermarkets
• Conventional supermarkets
• Perishables (meat, dairy, produce, and baked
goods) account for 30% of supermarket sales

• Limited assortment supermarkets

(extreme value food retailers)
• 2000 SKU
• Offer one or two brands and sizes
• Designed to maximize efficiency and reduce
costs
• Offer merchandise at 40-60% lower prices
than conventional supermarkets

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ALDI

ALDI provides quality merchandise at low prices by reducing its

assortment in order to control store operating expenses

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Discount Stores
A general merchandise retailer
that offers a wide variety of
merchandise, limited service, and
low prices.

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 Issues in Full-line Discount Store Retailing

• Broad variety, limited services, and

low prices
• Only big left
• WalMart, Target
• Walmart’s dominance
• Differentiate strategy McGraw-Hill Companies, Inc.
Gary He, photographer

• WalMart = Low price and good value

• Target = More Fashionable Apparel
• Competition from category
specialists
• Toys-R-Us, Best Buy, Sports Authority

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Supercenters
• Large store (150,000 to
220,000 square feet)
combining a discount
store with a supermarket.

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Warehouse Clubs
A retailer that offers a
limited assortment of food
and general merchandise
with little service and low
prices to ultimate
consumers and small
businesses.

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Supercenters and Warehouse Clubs
Supercenters (Hypermarkets) Warehouse Clubs

• The fastest growing retail • Offer a limited and irregular

category assortment of food and general
• Large stores (185,000 square merchandise with little service
feet) that combine a at low prices
supermarket with a full-line • Use low-locations, inexpensive
discount store store design, little customer
• One-stop shopping experience service
• Low inventory holding costs by
carrying a limited assortment of
fast selling items

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Convenience Store

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 Convenience Store
• Tailors assortments to local market

• Makes more convenient to shop

• Offers fresh, healthy food

• Fast, casual restaurants

• Financial services available

• Opening smaller stores closer to

consumers (like airports)

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Trends in Supermarket Retailing
• Competition
• Supercenters: attract customer with their broader
assortments and merchandise at attractive prices.
• Warehouse Clubs
• Extreme Price Retailers: operating efficiencies
• Convenience Stores: selling more fresh
merchandise
• Drug Stores
=> Need to offer differentiate their offerings
• Changing Consumption Patterns

Time Pressure Eating Out More Meal Solutions

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 Specialty Store
• A type of store
concentrating on a
limited number of
complementary
merchandise categories
and providing a high
level of service.

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Premium Store

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

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 Department Store Retailing
• Broad variety

• Deep assortment

• Customer service

• Merchandise displayed into distinct

departments

• Soft goods

• Hard goods

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 Issues in Department Store Retailing
• Competition
• Discount stores on price
• Specialty stores on service, depth of
assortment
• Lower cost by reducing service
• Centralized cash wraps
• More sales
• Customers wait for sale
• Focus on apparel and soft home
• Develop private labels and exclusive
brands

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Department Stores:
What To Do With an Eroding Market
Department stores are:
• Attempting to increase the
amount of exclusive
merchandise they sell
• Increase private-label
merchandise
• Expand multichannel and
social media presence

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Issues in Extreme Value Retailing
• Focuses on lower income
consumers
• Names mostly imply good
value not $1 price points
• Low cost location
• Limited services
• More private-label options
and impulse buys
• Adding food services

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 Off-Price Retailers
• Close-out retailers
• Offer an inconsistent
assortment of brand name
merchandise at low prices
• Factory outlets are owned
& operated by a
manufacturer who sells the
product directly to the
customer at a low
price because there is no
middleman involved.

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Nonstore Retail Formats
• Electronic retailing
• Catalog & Direct-mail retailing
• Direct selling
• TV home shopping
• Vending machine

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Services Retailing
• Primarily sell services rather than merchandise
• Intangibility
• Problems in evaluating service quality
• Performance of service provider

• Simultaneous production and delivery

• Importance of service provider
• Perishability
• No inventory, must fill capacity

• Inconsistency of the Offering

• Importance of HR management

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Examples of Service Retailers
Type of Service Service Retail Firms

Airlines
Automobile maint/repair
Automobile rental
Banks
Child care centers
Credit cards
Education
Entertainment parks
Express package delivery
Financial services
Fitness
Health Care
Home maintenance

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Services Retailing
• Aging population will
increase demand for health
care services
• Young people are spending
more time on health and fitness
• Busy parents are using
services like home cleaning,
child care, and meal preparation
to balance lifestyles

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Merchandise/Service Continuum

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Types of Retail Ownership
• Independent,Single Store Establishments
• Corporate Retail Chains (operates multiple retail
units under common ownership and usually has centralized
decision making for defining and implementing its strategy)
• Franchising

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Independent, Single Store Establishments
Many retail start-ups are owner-
managed à management has direct
contact with customers and can
respond quickly to their needs.

While single-store retailers can

tailor their offering to their
customers' needs, corporate chains
can more effectively negotiate lower
prices for merchandise and
advertising due to their larger size.
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Corporate Retail Chains
A 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.

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 Retailers Using Franchise Business Model
• The store is owned &
operated by individuals on
behalf of & is licensed by a
big supporting organization
• Franchisee pays fixed fee
plus % of sales
• Franchisee implements
program
• Why is this ownership
format efficient?
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Reasons for Franchising Growth

Technological advances

Profitable utilization of capital resources

Demographic expansion

Product/service consistency

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Franchisor Benefits
Continuous market

Market information

Money

Royalty fees
Sales of products

Rental and lease fees

License fees

Management fees

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Keywords
• assortment The number of SKUs within a merchandise category. Also called depth of
merchandise.
• breadth of merchandise The number of different merchandise categories within a
store or department.
• category killer A discount retailer that offers a narrow but deep assortment of
merchandise in a category and thus dominates the category from the customers’
perspective. Also called a category specialist.
• category specialist A discount retailer that offers a narrow but deep assortment of
merchandise in a category and thus dominates the category from the customers’
perspective. Also called a category killer.
• convenience store A store that provides a limited variety and assortment of
merchandise at a convenient location in a 2,000- to 3,000-square-foot store with
speedy checkout.
• conventional supermarket A self-service food store that offers groceries, meat, and
produce with limited sales of nonfood items, such as health and beauty aids and
general merchandise.
• department store A retailer that carries a wide variety and deep assortment, offers
considerable customer services, and is organized into separate departments for
displaying merchandise.

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Keywords
• depth of merchandise The number of SKUs within a merchandise category. Also
called depth of merchandise.
• discount store A general merchandise retailer that offers a wide variety of
merchandise, limited service, and low prices.
• franchising 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.
• full-line discount store Retailers that offer a broad variety of merchandise, limited
service, and low prices.
• hypermarket Large (100,000–300,000 square feet) combination food (60–70 percent)
and general merchandise (30–40 percent) retailer.
• North American Industry Classification System (NAICS) Classification of retail firms
into a hierarchical set of six-digit codes based on the types of products and services
they produce and sell.
• off-price retailer A retailer that offers an inconsistent assortment of brand-name,
fashion-oriented soft goods at low prices.
• specialty store A type of store concentrating on a limited number of complementary
merchandise categories and providing a high level of service.

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Keywords
• stock-keeping unit (SKU) The smallest unit available for keeping inventory control. In
soft goods merchandise, an SKU usually means a size, color, and style.
• supercenter Large store (150,000 to 220,000 square feet) combining a discount store
with a supermarket.
• supermarket A 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.
• value retailers Small, full-line discount stores that offer a limited merchandise
assortment at very low prices.
• variety The number of different merchandise categories within a store or department.
• warehouse club A retailer that offers a limited assortment of food and general
merchandise with little service and low prices to ultimate consumers and small
businesses.
• wholesale-sponsored voluntary cooperative group An organization operated by a
wholesaler offering a merchandising program to small, independent retailers on a
voluntary basis.

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