types of retailers.

Mngt. 4a – Retailing Management
Chapter 2 – Types of Retailers
Professor: Mr. Ronaldo A. Poblete, MBA

Things to know
• What trends are shaping 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 services retailers differ from merchandise
retailers?
• What are the types of ownerships for retail firms?

Retailer Characteristics
The different types of retailers offer unique benefits, so
consumers patronize different retail types when they have
different needs.
As consumer needs and competition have changed, new
retail formats have been created and continue to evolve.
The most basic characteristics used to describe different
types of retailers is the retail mix, the elements used by
retailers to satisfy their customer’s needs
Four elements of the retail mix are particularly useful for
classifying retailers:
1.The type of merchandise and/or services sold
2.The variety and assortment of merchandise sold,
3.The level of customer service
4.The price of the merchandise

1. Types of Merchandise
The United State, Canada, and Mexico have developed
a classification scheme called the North American
Industry Classification System (NAICS), to collect data
on business activity in each country. Every business is
assigned a hierarchical, six-digit code based on the
type of products and services it produces and sells.
The first two digits identify the firm’s business sector,
and the remaining four digits identify various
subsectors.
Ex.
448 clothing and clothing
accessory stores
4481 Clothing
stores
4482 shoe stores
4483 Jewelry,
luggage

2. Variety and Assortment
Variety represent the number of merchandise categories a
retailer offers. Assortment is the number of different items
in a merchandise category. Variety is often referred to as
the breath of merchandise carried by a retailer;
assortment is referred to as the depth of merchandise.
Each different item of merchandise is called a SKU ( stock
keeping unit)
Ex. of SKU are an original scent, 33-ounce of Tide laundry
detergent with bleach or a blue, long-sleeved, button
-down-collar Ralph Lauren shirt, size 16-33
Warehouse clubs and discount stores sell many other
categories of merchandise in addition to toys ( they have
great variety ). Stores specializing in toys stock more type
of toys ( more SKU).

3. Services Offered
Customer expect almost all retailers to provide certain
services:
 Displaying merchandise
 Accepting credits cards
 Providing parking
 Being open at convenient hours
Some retailers charge customers for other services;
 Home delivery
 Gift wrapping
Retailers that cater to service-oriented consumers
offer customers most of these services at no charge.

Prices and the Cost of Offering Breath and Depth of
Merchandise and Services
 When retailer offers customers many SKUs, its inventory
investment increases because the retailer must have backup stock
for each SKU.
 Similarly, services attract customers to the retailer, but they’re also
costly. More sales people are needed to provide information and
assist customers, alter merchandise to meet customer’s needs, and
demonstrate merchandise.
 To make a profit, retailers that offer broader and deeper
assortments and services need to charge higher prices.
 In contrast, discount stores appeal to customers who are looking
for lower prices and are less interested in services but want to see
a wide range of merchandise brands and models.
 Thus, a critical retail decisions involves the trade-off between the
costs and benefits of maintaining additional inventory or providing
additional services.

FOOD RETAILERS
• Primary Shopping Format for Food and Sales
Growth Rates of Food by Retail Format
Supercenters
16%
Others
10%
Conventional
Supermarket
61&
Limited assortment
Supermarket
6%
Warehouse clubs
4%
Conventional
supermarket
Assortment
supermarket
supercenters
Lim
ited
W
arehouse
club
23%
10%
6%1%
Compound Annual Sales Growth

FOOD RETAILERS
Supermarkets
A conventional supermarket is a self-service food store
offering groceries, meat, and produce with limited sales of
nonfood items, such as health and beauty aids and general
merchandise.
While conventional supermarket carry about 30,000 SKUs,
limited assortment supermarkets also called extreme
value food retailers, only stock 1,250 SKUs.
Stores are typically located in second-or third-tier shopping
centers with low rents. By trimming costs, limited
assortment supermarkets can offer merchandise at 40
percent lower prices than conventional supermarkets.

FOOD RETAILERS
Supermarkets
Trends in food Retailing
 Although conventional supermarkets still sell a majority of
food merchandise, they are under substantial competitive
pressure. Everyone wants a piece of the foods pie.
 Supermarkets are rapidly attraction convention
supermarket customers with their broader assortment of
food and general merchandise at attractive prices.
 The set of programs supermarkets chains have undertaken
to achieve these inventory reductions called efficient
customer response (ECR) and includes just-in-time
inventory management and better assortment planning.

FOOD RETAILERS
 Supermarkets
The supermarkets format, however, continues to be more costly than
supercenters. To compete successfully against intrusions by other
food retailing formats, conventional supermarket are differentiating
their offering by;
1.Emphasizing fresh perishables
2.Targeting health-conscious and ethnic consumers
3.Providing a better in-store experience
4.Offering more private label brands
For example, fresh merchandise categories, the areas around the
outside walls known as the “ power perimeter,” have long been the
mainstays of conventional supermarkets. These include the dairy,
bakery, meats, florist, produce, deli, and coffee bar departments-high
traffic, profitable departments that help full shoppers through the
store.

FOOD RETAILERS
• Supercenters
 Supercenters, the fastest growing retail category, are large stores ( 150,000
– 220,000 square feet) that combine a supermarket in the United States-
four times more than its leading competitors.
 Hypermarkets are also large (100,000-300,000 square feet) and general
merchandise (30-40 percent) stores. Hypermarkets typically stock fewer
SKUs than supercenters-between 40,000 and 60,000 items ranging from
groceries.
 Hypermarkets were created in France after World War II. By building large
stores on the outskirts of metropolitan areas, French retailers could attract
customers and not violate strict land-use laws. They have spread
throughout Europe and become popular in some South American countries
such as Argentina and Brazil.

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 typically located in low-rent districts.
They have simple interiors and concrete floors. Aisles are
wide so forklifts can pick up pallets or merchandise and
arrange them on the selling floor. Little service is offered.
Ex. If Hewlett-Packard is introducing a new models of its
printers, warehouse clubs will buy the inventory of the
older model at a significant discount and then offer them
for sale until the inventory is depleted.

FOOD RETAILERS
Convenience Stores
Convenience stores provide a limited variety and
assortment of merchandise at a convenience
location in 2,000-3,000 square feet stores with
speedy checkout. Ex. Is 7- Eleven exploring ways
to bring its successful fresh-food strategy to the
United States.
 In a convenience stores at a gasoline station
customer can order a custom-made sandwich
while filling their tank and pick it up in the store
when they are finished.

General Merchandise Retailers
 The major types of general merchandise retailers are department stores,
full-line discount stores, specialty stores, category specialist, home
improvement centers, off-price retailers, and extreme value retailers.
Department stores
 There are retailers that carrying a broad variety and deep assortment,
offer customer services, and organization their stores, into distinctly
separate department for displaying merchandise. The largest department
store chains in the United States are Macy’s( part of Federal Department
Stores), Sears, JC Penney, and Kohl’s.
 To deal with their eroding market shares, department stores are (1)
attempt to increase the amount of exclusive merchandise they sell,(2)
undertaking market campaigns to develop strong images for their stores
and brands, and (3) building better relationships with their key customers.

Other general merchandise retailers
 Full-Line Discount Stores are retailers that offer a
broad variety of merchandise, limited service, and low
prices. Ex. Wal-Mart
 Specialty Stores concentrate on a limited number of
complementary merchandise categories and provide a
high level of service in relatively small stores. These
stores tailor retail strategy toward a very specific
market segmentation by offering deep but narrow
assortments and sales associate expertise. Ex. Music-
inspired apparel to teenagers in mall-based stores.

Drugstore
 Drugstore are specialty stores that concentrate on
health and personal grooming merchandise.
Pharmaceuticals often represent 50% of drugstore
sales and an even greater percentage of their profits.
 Drugstore retailers are using systems to allow
pharmacists time to provide personalized service.
 Ex. Walgreens, a drug store in US customer can order
prescription refills via the phone or email and receive
automatic notification when the prescription is ready.
Based on the time customers plan to pick up the
prescription, a computer system automatically
schedules the workload in the pharmacy. This service
as value added customer service.

Category Specialists
 Category specialists are big box discount stores
that offer a narrow but deep assortment of
merchandise and it is considered as the largest
category specialists in the United States.
 One good classic example of this is the Home
Depot also like Men’s Warehouse, Office
Warehouse, Kid “R” Us, Pet Supplies, Musical
Instruments, Sporting Goods, Furniture,
computers and etc.

 Extreme Value Retailers
 These are small, full-line discount stores that offer a limited
merchandise assortment at very low prices. Extreme value retailers
are one of the fastest growing segments in retailing.
 Like limited assortment food retailers, extreme value full-line
retailers reduce costs and maintain low prices by offering a limited
assortment and operating in low-rent, urban, or rural locations.
 In the past, extreme value retailers were considered low-status
retailers that catered to lower-income consumers. Today, however,
higher income consumers are increasingly patronizing dollar stores
for the thrill of the hunt.
 To capitalize on this attraction for unusual items , many
supermarkets and full-time discount stores are adding dollar aisles
to their stores.

 Off-Price Retailers
 Off-price retailers offer an inconsistent assortment of brand name
merchandise at low prices.
 Factory Off-price retailers sell brand name and even designer label
merchandise at low price through their unique buying and
merchandising practices.
 Most merchandise is bought opportunistically from manufacturer
or other retailers with excess inventory at the end of the season.
 List of Off-Price Retailers
o Closeout retailers – sell a broad but inconsistent assortment of
merchandise.
o Outlet stores – owned by manufacturer or department or specialty
store chains.
o Factory outlets – typically found in one of the fastest growing types
of malls

Electronic Retailers
 Electronic retailing (also called e-tailing, online retailing, and
Internet retailing) is a retail format in which the retailers
communicate with customers and offer products and
services for sale over the Internet.
 Even though online retail sales continue to grow much faster
than retail sales through stores and catalogs, we now realize
the Internet is not a revolutionary new retail format that will
replace stores and catalogs.
 Most of the retailers that sell merchandize exclusively over
the internet target niche markets-markets that are so small
and dispersed that they cannot be economically serviced by
stores.

 Catalog and Direct-Mail Retailers
 Catalog retailing is a nonstore retail format in which the retail
offering is communicated to a customer through a catalog, whereas
direct-mail retailers communicate with their customers using
letters and brochures.
 Types of catalog and Direct-Mail Retailers
o Two types of firms selling products through the mail are:
1. General merchandise and specialty catalog retailers
2. Direct-mail retailers
o General merchandise catalog retailers offer a broad-variety of
merchandise in catalogs that are periodically mailed to their
customers.
o Special catalog retailers focus on specific categories of
merchandise, such as fruit, gardening tools.
o Direct-mail retailers typically mail brochures and pamphlets to sell
a specific product or service to customers at one point in time.

Direct Selling
 Direct selling is a retail format in which salespeople,
frequently independent businesspeople, contact customers
directly in a convenient location, either at the customer’s
home or at work.
 Two special types of direct selling are the party plan and
multilevel selling. About 30% of all direct sales are made
using a party plan system.
 About 80% of direct sales are master distributors,
recruiting other people to become distributors in their
network.
 Some multilevel direct-selling firms are illegal pyramid
schemes. Pyramid scheme develop when the firms and its
program are designed to sell merchandise and services to
other distributors rather than to end users.

Television Home Shopping
This retail format in which customers watch a TV program
that demonstrates merchandise and then place orders for
the merchandise by telephone.
The three forms of electronic home shopping retailing are;
1)Cable channels dedicated to television shopping
2)Infomercial – are TV programs, typically 30 minutes long,
that mix entertainment with product demonstrations and
then solicit orders placed by telephone
3)Direct-response advertising – includes advertisements on
TV and radio that describe products and provide an
opportunity for consumers to order them.

Vending Machine Retailing
This is a nonstore format in which merchandise or
services are stored in a machine and dispensed to
customers when they deposit cash or use a credit card.
Vending machines are placed at convenient, high-
traffic locations, such as in the workplace or on
university campuses, and primarily contain snacks or
drinks.
$ 16 Million in goods are sold annually though vending
machines in the United States, but sales growth has
been declining over the last few years.

Service Retailing
 Service retailers, firms selling primarily services rather than
merchandise, are a large and growing part of the retail industry.
 The are several trends that suggest considerable future growth in
services retailing.
 Aging population will increase demand for health care services
 Younger people are also spending more time and money on health
and fitness
 Busy parents in two-income families are willing to pay for clothes
washed and pressed
 Prepared meals so you can spend more time with your family.
 Kiddy center for those your parents with no yaya’s

Service Retailing
 Difference Between Services and Merchandise Retailers
 Four important differences in the nature of the offering provided by
services and merchandise retailers are:
1) Intangibility – They are performances or actions rather than objects.
2) Simultaneous production and consumption – Product are typically made
in a factory, stored and sold by a retailer, and then used by consumers in
their homes.
3) Perishability – because the creation and consumption of services are
inseparable, services are perishable. They can’t be saved, stored, or
resold.
4) Inconsistency of the offering to customers – Products can be produced by
machines with very tight quality control so customers are reasonably
assured that all boxes of Cheerios will be identical. Because services are
performances produced by people(employees and customers), no two
services will be identical.
 The major classification of retail ownership are
1) Independent, single-store establishments
2) Corporate chains
3) franchises

Summary
This chapter has explained different types of
retailer and how they compete with different
retail mixes to sell merchandise and services to
customers. To collect statistics about retailing,
the federal government classifies retailers by the
type of merchandise and services sold. But this
classification method may not be useful in
determining a retailer’s major competitors. A
more useful approach for understanding the
retail mix, merchandise variety and assortment,
services, location, pricing, and promotion
decisions made to attract customers.

Summary ( continuation)
Over the past 30 years U.S. retail markets
have been characterized by the emergence of
many new retail institutions. Traditional
institutions (supermarkets, convenience,
department, discount, and specialty stores)
have been joined by category specialists,
superstores, hypermarkets, convenience
stores, warehouse clubs, off-price retailers,
catalogers , and nonstore retailers. In
addition, there has been substantical growth
in services retailing.

Summary ( continuation)
The inherent differences between services and
merchandise result in services retailers
emphasizing store management while
merchandise retailers emphasize inventory
control issues. Traditional retail institutions have
changed in response to these new retailers. For
example, department stores have increased their
emphasis on fashion-oriented apparel and
improved the services they offer. Supermarkets
are focusing more attention on meal solutions
and perishables.

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