Types of Retailers-Delivering Value Through Retail Formats

Types of Retailers-
Delivering Value
through Retail Formats
Managing Retailing 2e
© Oxford University Press 2012 All rights reserved
Objectives
 Understand the formats used by retailers
 Differentiate formats on the basis of values derived by the
customers
 Develop an appreciation of the challenges in e-tailing
 Chalk out a process for deciding about the format for delivering
the required value
The World of Retailing
Questions
• 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?
Types of Retailers
• Retailers Use Different Retail Mixes
• Merchandise: variety (breadth) /
assortment (depth)
• Services
• Store design, visual merchandising
• Location
• Pricing
• Infinite Variations
• Some combination of retail mixes
satisfy the needs of significant
segments and persist over time
Retailer Characteristics
• Variety (breadth)
• Assortment (depth)
• Services Offered
• Prices and the cost of offering breath and depth of

merchandise and services
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)
Services Offered
• Retailers differ in the

services they offer
customers
• EMS offers assistance in
selecting the appropriate
kayak and repairing them
VS
• http://www.outdoorplay
.com and
• Wal-Mart: doesn’t provide
any services
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
Food Retailers
• Channel preference for food shopping channel
where grocery purchasers do most of their food
shopping:
• Supermarkets
• Supercenters
• Warehouse Clubs
• Convenience Stores
Characteristics of Food
Retailers
Supermarkets
• Conventional supermarkets
• 30,000 SKU
• 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
Trends in Supermarket
Retailing
• Competition from Discount Stores
Efficient
Lower Costs Lower Prices
Distribution
• Changing Consumption Patterns
Time Pressure Eating Out More Meal Solutions
Supercenters and
Warehouse Clubs
Supercenters (Hypermarkets) Warehouse Clubs
• The fastest growing • Offer a limited and irregular
assortment of food and
retail category general merchandise with
• Large stores (185,000 little service at low prices
square feet) that combine • Use low-locations,
a supermarket with a inexpensive store design, little
full-line discount store customer service
• Low inventory holding costs
• One-stop shopping by carrying a limited
experience assortment of fast selling
items
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)
Characteristics of
General Merchandise Retailers
Issues in Department Store
Retailing
• Competition
• Discount Stores on Price
• Specialty Stores on Service, Depth of
Assortment
• Lower Cost by Reducing Services
• Centralized Cash Wraps
• More Sales
• Customers Wait for Sale
• Focus on Apparel and Soft Home
• Develop Private Labels and
Exclusive Brands
Three Tiers of Department
Stores
• First Tier: Upscale, high fashion
chains with exclusive designer
merchandise and excellent
customer service
• Nordstrom, Neiman Marcus, Saks
• Second Tier: Retailers sell more
modestly priced merchandise
with less customer service
• Macy’s
• Third Tier: Value oriented
caters to more price conscious
customer
• JCPenney,
Managing Sears, Kohl’s
Retailing 2e
Department Stores:
What To Do With an Eroding Market
• Department stores are:

• attempting to increase
the amount of exclusive
merchandise they sell
• undertaking marketing
campaigns to develop
strong images for their
stores and brands
• building better
relationships with their
key customers
Issues in Full-line Discount
Store Retailing
• Only Big Left
• Wal-Mart, Target
• Wal-Mart’s Dominance
• Differentiate Strategy
• Wal-Mart = Low Price and Good value
• Target = More Fashionable Apparel
• Competition from Category
Specialists
• Toys-R-Us, Best Buy, Sports Authority
Issues in Specialty Store
Retailing
• Mall-Based Apparel
Retailers
• Decline in Mall Shopping
and Apparel Sales
• Lack of New Fashions
• Less Interest in Fashion
• Increased Price Consciousness
• Lifestyle Formats
• Abercrombie and Fitch
• Victoria’s Secrets
• Manufacturers opening
their own stores
Issues in Drug Store Retailing
• Consolidation
• Walgreens, CVS, Rite-Aid
• Competition
• Supermarkets, Discount Stores and Mail-
in orders
• Evolution to a New Format
• Stand Alone Sites with Drive Thru
Windows
• Offering more frequent purchase food
items
• Improved systems provide
personalized service
Category Specialists
• Deep and Narrow
Assortments
• Destination Stores
• Category killers
• Low Price and Service
• Wholesaling to Business
Customers and
Retailing to Consumers
• Incredible Growth
Issues in Extreme Value
Retailing
• Focuses on Lower Income Consumers
• Names mostly imply good value not $1 price points
• Low Cost Location
• Limited Services
• One of the Fastest Growing Retail Segments
• Dollar Tree
• Family Dollar
• Dollar General
Services Retailing
• 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
Examples of Service Retailers
Type of Service Service Retail Firms
Airlines American, Delta, British Airways, Singapore Airways

Automobile maint/repair Jiffy Lube, Midas, AAMCO
Automobile rental Hertz, Avis, Budget, Alamo
Banks Citibank, NCNB, Bank of America
Child care centers Kindercare, Gymboree
Credit cards American Express, VISA, Mastercard
Education University of Florida, Babson College
Entertainment parks Disney, Universal Studios, Six Flags
Express package delivery Federal Express, UPS, US Postal Service
Financial services Merrill Lynch, Dean Witter
Fitness Jazzercise, Bally’s, Gold’s Gym
Health Care Humana, HCA
Managing
Home Retailing 2e
maintenance Chemlawn, MiniMaid, Roto-Rooter
TYPE LOCATION ASSORTMENT SERVICES PRICES AND
PROMOTIONS
Traditional Business Extensive width Good to Average to high
department Store district and depth of excellent Prices Heavy ad
shopping assortment; and catalogue use,
centre Or average to good direct mail;
isolated store quality personal selling
Full –line Business Extensive width Slightly below Low Prices; Heavy
discount store district and depth of average-to- use of newspapers,
shopping assortment; average price oriented,
centre Or average to good moderate sales
isolated store quality force
power strip
centres
Speciality store Business Very narrow Average to High Prices, Heavy
district width of high excellent use of displays;
Or shopping assortments; extensive sales
centre extensive depth of force
Regional malls Assortments;
Hypermarkets Stand-alone Average Low Low
Variety Store Business Good width and Below Heavy use of
district depth of Average newspapers, self
shopping assortment; below service
centre Or average to
isolated store average quality
Off-price Chain Business Moderate width, Below Use of newspapers,
district, but poor depth of Average brands not
suburban assortment; advertised; limited
shopping strip average to good sales force
or isolated quality, low
store. continuity
Factory Outlet Out-of –the Moderate width Very low Little; self-
–way site or but poor depth of service
discount mall assortment; some
irregular
merchandise; low
continuity
Membership Isolated store Moderate width Very low Little; some direct
Club or but poor depth of mail; limited sales
Secondary site assortment; low force
continuity
Flea market Isolated site, Extensive width, Very low Limited ; self
race track but poor depth of service
Or arena assortment;
Drugstore Stand alone, Very deep Average Average to high
strip centres
Home Stand-alone, Very deep Low to high Low
improvement power strip
Centres centres

Non-Store-based Retailers
• Non-store retailing is a form of retailing in which sales are made
to consumers without using physical stores.
• Non-store retailers are known by the medium they use to
communicate with their customers, for example, direct
marketing, direct selling, vending machines, and e-tailing.
• Non-store retailing is patronized by time conscious consumers,
consumers who can not easily go to stores, and compulsive
buyers.
• Most non-store retailers offer consumers the convenience of
buying 24 hours a day, seven days a week and delivery at a
location and time of their choice.
• Vending Machine:
• It is a retailing format involving coin or card operated dispensing of

goods (such as beverages) and services (such as life insurance sales at
airports).
• It eliminates the need for sales personnel and allows for round-the-
clock sales.
• Machines can be placed wherever they are most convenient for the
consumers—inside or outside a store, in a hotel corridor, at a station,
airport, or a street corner.
• Although many attempts have been made to ‘vend’ other products,
beverages and food items remain the largest category.
• Many consumers are reluctant to purchase more expensive items
from vending machines as they cannot see them displayed or have
them explained, and there is the difficulty of returning unsatisfactory
merchandise.
• Electronic Retailing
• Electronic retailing, also called e-tailing, online retailing, or

Internet retailing, is a retail format in which the retailer and
customer communicate which each other through an
interactive electronic network.
• After an electronic dialogue between the retailer and customer,
the customer can order merchandise directly through the
interactive network or by telephone.
• The merchandise is then delivered to the customer’s address.
• WWW is used to:
• project a retail presence

• generate sales as the major source of revenue for an online retailer or as a
complementary source of revenue for a store-based retailer
• enhance the retailer’s image
• reach geographically dispersed consumers, including foreign ones
• provide information to consumers about the products carried, store locations, usage
information, answers to common questions, customer loyalty programmes, and so on
• promote new products and fully explain and demonstrate their features
• furnish customer service in the form of e-mail, ‘hot links’, and other communications
• be more personal with consumers by letting them point and click on topics they
choose
• conduct a retail business in a cost efficient manner
• obtain customer feedback
• give special offers and send coupons to web customers
• describe employment opportunities
• present information to potential investors, potential franchisees, and the media
• E-tailing Myths
• Stickiness is good
• More is better
• Personalization drives profitability
• E-commerce cannot make money
• Factors Affecting the Growth of Electronic Retailing
• Trying Out Electronic Shopping

• Perceived Risks in Electronic Shopping
• Benefits delivered by e-tailers
Definition of a Format
• The retail format is the store ‘package’ that the retailer
presents to the shopper. A format is defined as a type of
retail mix, used by a set of retailers.
• Formats are the media through which retailers deliver their

values to the chosen segments of customers.
Classification of Formats
Formats are broadly classified as:
• Ownership based
• Store-based and
• Non-store based
• The store-based retailers operate in a given physical area
defined by their value and merchandise
• The non-store-based retailing uses a virtual or a movable
location
Ownership-based Retailers
• Independents
• An independent retailer owns a single retail unit.
• They account for more than 80% of total retail establishments.
• However, their share in value terms varies based on the development of the economies.
While in the US these firms account for just 3% of the total US store sales, in developing
countries like India their share is almost 98%.
• Independents enjoy a great deal of flexibility in choosing retail formats and locations.
• They look for smaller consumer segments and choose a location so that they can serve
theRetailing
Managing customers2e with targeted merchandise mix, prices, and other services.
Independents
• These stores are labour intensive with a very low level of technology.
• These are owner-managed establishments with only the owner making all the decisions.
Most of the work related to buying, merchandising, and fund management are carried out
by the owner.
• Independents have limited bargaining power with suppliers as they often buy in small
quantities.
• The personal attention paid to the customers by the owner is the most potent tool for
customer retention.
• Compared to other formats, independents tend to use less of advertising and more of
Managing Retailing
personal 2e
communication and POP.
• Chains:
• A chain retailer operates multiple outlets (store units) under a common ownership and
name.
• In developed economies, they account for nearly a quarter of retail outlets and over 50% of
retail sales.
• They enjoy strong bargaining power with suppliers due to the volumes of purchases. Many
of them buy directly from the manufacturers.
• New brands reach these stores faster. Most of these chains sell private brands.
• Chains achieve efficiency due to the centralization of purchasing and warehousing and
© Oxford University Press 2012
computerization. All rights reserved
Chains
• Wider geographic coverage of markets allows chains to utilize all forms of media.
• Most of the chains invest considerable time and resources in long-term planning,
monitoring opportunities, and threats.
• Chain retailers suffer from limited flexibility, as they need to be consistent throughout
in terms of prices, promotions, and product assortments.
• Chain retailers have high investments in fixed asset and rent, product assortments,
and employees.
• Due to their spread, these retailers have reduced control, lack of communication, and
time
Managing delays.2e
Retailing
• Franchise:
• More than one-third of all retail sales are made by franchisees.
• It signifies a contractual agreement that allows the franchisee to operate a retail
outlet using the name and format of the franchiser.
• The franchisee pays a fee and royalty on all for operating a store on behalf of the
franchiser.
• There are two types of franchising: product/trademark and business format.
• Franchisers gain a wide presence quickly and with less investment.

Franchise
• It improves cash flow as money is obtained from fee, royalty, and merchandise sales.
• Individual franchisees can become part of a chain and take advantage of the
economies as well as knowledge of the franchiser with relatively small capital
investments.
• Since franchisees are owners and not employees, they tend to bring their
entrepreneurial skill in growing the business.
• Bad franchisees can harm a retailer’s overall reputation. Ineffective franchisees impact
the profitability and may lead to a network with a long tail.
• Leased department
• A leased department is a department in a retail store rented generally by a manufacturer. The
manufacturer is responsible for running the department.
• The leased departments are generally on the fringe of the store’s major product lines, such as in-store
beauty salons, banks, photographic studios, and food courts.
• They require a different set of skills that the main store personnel may not posses, and hence
complement each other despite being independent.
• Leased departments help the stores in generating greater traffic and providing one-stop shopping.
• This arrangement reduces expenses as many expenses, such as advertising and shared facilities.
• Consumer cooperative
• A consumer cooperative is a retail firm where a group of consumers invest in the enterprise. They are
started mainly to guard against the malpractices that many retailers indulge in and either charge
higher prices or offer inconsistent quality of merchandise.
• The profits are distributed among the members as dividends. So even when these stores sell at the
same prices, consumers tend to gain.
• The stores are managed by officers who are elected by the consumers.
• Such retailers are most popular in food retailing.
• Consumer cooperatives are limited in number because consumers are usually not experts in buying,
handling, and selling goods and services, and the cost savings and low selling prices have not been as
expected
© Oxford in many
University cases.
Press 2012 All rights reserved
New Retailing Formats
• Supercentres
• Supercentres are one-stop combination of supermarket and discount department
stores that carry from 80,000 to more than 100,000 products.
• These stores offer the customer the convenience of one-stop shopping with service
and variety. They draw customers from very far.
• Malls
• Malls are formats that house a cluster of stores that are owned and managed by
independent retailers. Malls are generally designed to offer products and services
that would complete the basket.
• They also have cinema and food as an integrated part. Most customers come to malls
to spend almost the whole day.
• Recycled Merchandise Retailers

• Recycled merchandise retailers sell cast-off clothes, furniture, sporting goods, and
computers. They include pawnshops, thrift shops, consignment shops, and even flea
markets.
• Liquidators
• Liquidators are a retail format that comes in and liquidates leftover
merchandise when an established retailer shuts down or downsizes.
• They are often called retailing undertakers or vultures. They earn by buying
the merchandise at a price less 30 cents on the wholesaler price for the
closeout retailers.
• Mobile Vans
• Mobile vans are modified vehicles that usually sell poultry and meat
products, books, and newspapers. They move from location to location, for
fixed periods of time, thus providing convenience by coming closer to
customers.
• This might not be true for India, as here mobile vans are most likely to sell
fast food.
• Video Kiosks
• The video kiosk is a freestanding, interactive, electronic computer terminal that

displays products and related information on a video screen. It often uses a touch
screen for consumers to make selections.
• Many shopping centres and individual store-based retailers are setting up video
kiosks in open hallways.
• Car Boot Sales
• Car boot sales are becoming increasingly popular, where often a vehicle is modified
for the sale of a variety of merchandise like books, magazines, clothes, music
cassettes, export surplus and/or rejects, and fast food items.
• The boot sale boom has given software pirates, for example, ‘an ideal outlet and
quick getaway’. It also provides opportunities for small traders who may lack the
capital for permanent premises.
• They are often situated near the university campus and commercial areas. Its target
Managing Retailing
audience 2e
is lower middle and middle class customers looking for ‘value for money
products’.
A Value-based Model of Format Choice
A format is defined as the system for delivering the value
promised to the shoppers so as to create a sustainable
competitive advantage.
Process of Format Selection
Retailer’s
Shoppers Objectives Competitors
Define Value Proposition
Find out the Enablers and Deterrents in the Environment
Find out what it takes to deliver the Value Proposition
Location Size Merchandise Display Service Price
Decide on Store or Non-Store Format and their Derivatives
Table 5.5: Click, Click and Brick and Brick and Mortar
Factors Pure Play (Click) Click and Brick Brick and Mortar
Ease of Distribution Low High High
Scalability High Moderate Low
Market Valuation High Moderate Low
Inventory Costs Low High High
Infrastructure Cost Low High High
Security of Payment Low Mixed High
Variable Costs High Low Low
Consumer Tracking Easy Easy Difficult
Channel Conflict Low High Low
Brand Equity Low High High
Customer Acquisition Cost High Moderate Low
Process of Format Selection
• Based on the value chosen to deliver and the success
parameters of each of the formats, a retailer tries to
differentiate from competitors and create a customer
franchise.
• In many cases the retailer chooses a combination as it aims

to cater to different segments and their expectations.
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Types of Retailers-

• Prices and the cost of offering breath and depth of

Assortment (depth of merchandise): deep vs. shallow

• Retailers differ in the

Food Retailers General Merchandise Retailers

• Competition from Discount Stores

• Changing Consumption Patterns

Time Pressure Eating Out More Meal Solutions

• Department stores are:

Type of Service Service Retail Firms

Airlines American, Delta, British Airways, Singapore Airways

© Oxford University Press 2012 All rights reserved

• It is a retailing format involving coin or card operated dispensing of

• Electronic retailing, also called e-tailing, online retailing, or

• project a retail presence

• Factors Affecting the Growth of Electronic Retailing

• Trying Out Electronic Shopping

• Formats are the media through which retailers deliver their

• They account for more than 80% of total retail establishments.

countries like India their share is almost 98%.

of them buy directly from the manufacturers.

monitoring opportunities, and threats.

in terms of prices, promotions, and product assortments.

• It signifies a contractual agreement that allows the franchisee to operate a retail

outlet using the name and format of the franchiser.

• There are two types of franchising: product/trademark and business format.

• Franchisers gain a wide presence quickly and with less investment.

economies as well as knowledge of the franchiser with relatively small capital

entrepreneurial skill in growing the business.

the profitability and may lead to a network with a long tail.

manufacturer is responsible for running the department.

beauty salons, banks, photographic studios, and food courts.

complement each other despite being independent.

higher prices or offer inconsistent quality of merchandise.

same prices, consumers tend to gain.

• Such retailers are most popular in food retailing.

• Recycled Merchandise Retailers

• The video kiosk is a freestanding, interactive, electronic computer terminal that

• Car Boot Sales

Define Value Proposition

Find out the Enablers and Deterrents in the Environment

Find out what it takes to deliver the Value Proposition

Location Size Merchandise Display Service Price

Decide on Store or Non-Store Format and their Derivatives

• In many cases the retailer chooses a combination as it aims

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