Retailing

Retailing consists of the set of business activities involved in selling products and services to consumers for their personal, family, or household use. Traditionally, a retailer serves as the last distribution channel that links manufacturers and consumers; however, in order to have control and exclusivity with their merchandise, most large retailers, such as Wal-Mart and the Gap, are vertically integrated and perform more than one set of activities in the distribution channel, such as both wholesaling and retailing activities or both manufacturing and retailing activities.

Retailing is a significant portion of world commerce. The world’s 200 largest retailers generated $2.14 trillion in sales during 2002 and captured 30 percent of worldwide sales. These firms represent a variety of nations and such categories as department stores, specialty stores, category killers, discount stores, mail order, and so forth. However, the top nine largest retailers are discount stores or category killers, indicating a consumer trend to demand low prices. With increasing globalization, 56 percent of the top 200 retailers operated in more than one country. Geographically, U.S. companies, including Wal-Mart, Home Depot, Kroger, and Target, represented 53 percent of the total sales from the top 200 global retailers. Wal-Mart was the world’s largest retailer in terms of sales and number of stores in the world. It was more than three times the size of the second largest retailer, France’s Carrefour.

Retailers are characterized by their retail mix, including the type of merchandise sold, the price of the merchandise, the variety and assortment of merchandise, and the level of customer service. Retailers are also categorized by a primary channel that they use to reach their customers such as store-based (specialty stores, department stores, discount stores) or nonstore (catalog, TV home shopping, Internet) retailers. However, successful retailers in the early 2000s are multichannel retailers that sell products or services through more than one channel. For example, retailers such as Wal-Mart (discount store) and Macy’s (department store) use Internet and catalog channels, and utilize the unique feature provided by each channel.

Store-Based Retail Channel

Store-based retailers use brick-and-mortar stores as primary modes of operation. Major types of store-based retailers include department stores, specialty stores, category killers, discount stores, off-price stores, outlet stores, and boutiques.

Department stores. A department store is a large-scale retail unit that carries a wide and in-depth assortment of merchandise that is classified into section divisions by product type and brand name. While department stores originated in downtown areas of major cities in the nineteenth century, with the advent of car travel and suburban flight, they came to be located in regional malls and have a typical size of between 100,000 and 200,000 square feet (930-1860 square meters). Merchandise quality, pricing, and customer service (sales help, credit card, and delivery) range from average to quite high. Accordingly, department stores target consumers with household incomes that are at least average. Two types of department store are commonly noted: the full-line department store and the specialized department store. Full-line department stores such as Macy’s and Marshall Field’s carry both hard goods (such as furniture, housewares, and home electronics) and soft goods (apparel, accessories, and bedding). Except for Sears, most full-line department stores no longer offer major appliances. Specialized department stores or limited-line department stores restrict their inventories rather than carry full lines. For example, Saks Fifth Avenue, Neiman Marcus, and Nordstrom focus on apparel and wearable accessories and may not carry lines such as furniture and home electronics. Other merchants emphasize jewelry and home furnishings, such as Fortunoff.

In the early twenty-first century, the largest department stores in the United States in terms of sales include Sears ($41.4 billion), JCPenny ($32.3 billion), Federated Department Stores, which owns Macy’s and Blooming-dale’s among others ($15.4 billion), and the May company, which owns such entities as Filene’s, Lord & Taylor, and Famous-Barr ($13.5 billion). With the fierce competition that arises from specialty stores and discount stores, department stores’ market shares have fallen since the mid-1990s. This decline has resulted in the reduced perceived-value for merchandise and services, unproductive selling space, low turnover merchandise, and fuzzy store images. A vast majority of department-store merchants in the early 2000s place great emphasis on soft goods and accessories, and less emphasis on hard goods.

Specialty stores. Specialty stores, also called limited-line stores, focus on selling one line of merchandise (such as jewelry) or serving one particular market (for example, maternity apparel). Specialty stores offer a narrow but deep assortment in the chosen category and tailor selection of products to a defined market segment. Specialty stores also feature a high level of customer service with knowledgeable sales personnel and customer service policies and intimate store size and atmosphere. A typical size of specialty stores is less than 8,000 square feet. Some specialty stores target affluent consumers with high price and upscale merchandise, whereas others target price-conscious consumers with discount merchandise. Popular product categories of specialty stores include apparel, personal care, home furnishings, jewelry, and sporting goods. The largest U.S. specialty stores in sales include GAP brands, which includes Gap, Baby Gap, Banana Republic, Gap Kids, and Old Navy ($14.4 billion), and Limited brands, which includes The Limited, Henri Bendel, Intimate Brands, Lane Bryant, Lerner New York, Limited Too, Structure, and Express ($8.4 billion).

Category killers. Also known as category specialist, category killers combine attributes of both specialty stores and discount stores because they feature a great breadth of assortment in one classification of merchandise (e.g., toys, electronics) and low prices. Because of the large volume of merchandise they require from suppliers, category killers can use their buying power to negotiate for low prices. Category killers provide consumers a warehouse environment with a typical store size of 50,000 to 120,000 square feet. Few sales people are available for assistance, but some category killers such as Office Depot (office supply) make knowledgeable salespeople available throughout the store to answer questions and make suggestions. The largest U.S. category killers in sales are Home Depot ($58.2 billion), Lowe’s ($26.5 billion) and Best Buy ($20.9 billion). Home Depot and Lowe’s offer equipment and material used to make home improvements while Best Buy carries consumer electronics.

Discount stores. Discount stores offer customers broad assortments of merchandise, limited services, and low prices. Discount stores are also referred to full-line discount stores or discount department stores. For their commonly recognizable huge retail format, discount stores are also referred to as big box retailers. The biggest U.S. discount stores in terms of sales include Wal-Mart ($246.5 billion), Target ($42.7 billion), and Kmart ($30.8 billion). In discount stores, customers can expect a similar range of product lines as those offered by full-line department stores, such as electronics, furniture, appliances, auto accessories, housewares, apparel, and wearable accessories, but these product lines in discount stores are less fashion-oriented than the product lines in department stores. Discount stores usually sell on only one floor rather than in a multifloored building, as traditional department stores do. A typical size of a discount store is between 60,000 and 80,000 square feet, but a supercenter that combines a discount store with a supermarket ranges from 150,000 to 220,000 square feet. Wal-Mart, Kmart, and Target all operate supercenters.

The maintenance of low prices and lean gross margin contribute to the fast growing business of discount stores. Due to intense competition from category killers, the trends for discount stores are to create attractive shopping environments, to provide consumers branded merchandise (such as Levi Strauss in Wal-Mart) or to develop licensing agreements (for example, Isaac Mizrahi in Target).

Off-price stores. Off-price stores offer an inconsistent assortment of fashion-oriented and brand-name products at low prices and limited customer services. The leading U.S. off-price retailers are T.J. Maxx and Marshalls (both owned by TJX), Ross Stores, and Burlington Coat Factory. Most merchandise is purchased opportunistically from manufactures or from other retailers late in a selling season in exchange for low prices. This merchandise might be end-of-season excess inventory, unpopular styles and colors, returned merchandise, or irregulars. Due to this opportunistic buying practice, consumers cannot expect consistent offerings of merchandise. However, off-price stores appeal to budget and fashion-conscious consumers.

Outlet stores. Outlet stores are retailing units owned by manufacturers or by retailers that sell their leftover, low-quality, discontinued, irregular, out-of-season, or overstock merchandise at prices less than full retail prices of their regular stores. Manufacturer-owned outlet stores are frequently referred to as factory outlets. Outlet stores were traditionally located at or near the manufacturing plant. Contemporary outlet stores are typically clustered in outlet centers or malls and located far enough from key department stores or specialty stores to avoid jeopardizing sales at full retail prices. There are 14,000 U.S. outlet stores and many are located in one of the 260 outlet centers nationwide. These stores generated total sales of $14.3 billion in 1999. Stores are characterized by few services, low rents, limited displays, and plain store fixtures, which reduce operating costs of the stores. Outlet retailing has been a popular way of disposing of unwanted merchandise by manufacturers and retailers. Even popular designers such as DKNY, Ralph Lauren, Calvin Klein, and Gucci use outlet stores to dispose of leftover items. However, most outlets also have product made especially for them—which is not just unwanted merchandise but low-quality product produced specially for that market.

Boutiques. A boutique is a small store that concentrates on a specific and narrow market niche and features top-of-the-line merchandise. “Boutique” is a French term for little shop; the term was first used for small stores run by Paris couturiers. American boutique retailers include many top designers, such as Donna Karan, Calvin Klein, and Ralph Lauren. Boutiques offer high-priced, fashion-oriented merchandise and attract customers who want more sophisticated and individualized products than mass-produced goods. Boutiques cater to narrow, well-defined customer segments that usually consist of affluent men and women. Key to a boutique’s attraction is its personal one-to-one service. Many designers are building flagship stores in their home country as well as in foreign markets.

Nonstore Retail Channels

Nonstore retailers utilize their retail mix in environments that are not store-based. U.S. nonstore retailers generated a total of $156 billion in 2001, accounting for roughly 5 percent of all U.S. retail sales. The major appeal of nonstore retailers is the convenience of shopping: shopping anytime and anywhere. Three major types of nonstore retailers include catalog retailers, electronic retailers (e-tailing), and television home-shopping retailers.

Catalog retailers. Catalog retailers promote products by mailing merchandise directly to a target market and process sales transactions using the mail, telephone, or fax, or Internet. Many catalog retailers embrace the Internet. When customers are mailed a catalog from the retailer, they either can order products by telephone or mail, or through the retailer’s Web site. According to Catalog Age (2001), the most popular catalogers recognized by U.S consumers include J.C. Penny, Land’s End, L.L. Bean, and Sears.

Television home-shopping retailers. Television home-shopping retailers use a program to promote and demonstrate their merchandise and process transaction over the telephone or Internet or through the mail. The two biggest home shopping retailers are QVC (“Quality, Value, Convenience”) and HSN (Home Shopping Network). The best-selling merchandise of TV home shopping is inexpensive jewelry. Other categories include apparel, cosmetics, and exercise equipment.

E-tailers. The fastest-growing form of nonstore retailing is electronic retailing (e-tailing). Electronic retailers interact with customers and provide products or services for sale using the Internet. During the last five years of the 1990s, electronic retailing had a rapid growth with the creation of more than 10,000 entrepreneurial electronic retailing ventures. However, a large number of electronic retailers, especially electronic retailers that only used the Internet for selling products or services, have gone out of business since the Internet bubble burst in 2000. In 2001, U.S. electronic retailers generated about $50 billion in sales, accounting for 1.5 percent of total retail sales. The best-selling merchandise online includes computers and electronics, sporting goods, books and CDs, toys, and apparel. Due to continued consumer interest in shopping using the Internet, store-based and catalog retailers have also began to sell their merchandise using the Internet.

BIBLIOGRAPHY

Berman, Barry, and Joel R. Evans. Retail Management. 9th ed. Upper Saddle River, N.J.: Prentice Hall, 2004.

Levy, Michael, and Barton A. Weitz. Retailing Management. 5th ed. New York: McGraw-Hill/Irwin, 2004.

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