Chapter 17 Retailing I Introduction The First National Bank of Wal Mart a Public opposition has all but killed Wal Mart s plans to open its own bank in the US b Wal Mart s primary motivator in this effort was to reduce the cost of allowing customers to buy on credit with the use of Discover MasterCard and Visa branded charge cards c BUT US bankers did not like the idea of d This story isn t over yet i Wal Mart HAS 38 branch banks in ii And NOW is turning to II Retailing and Retailers a Retailing i All activities related to the sale or rental of goods and services to the ultimate consumers for personal non business use b Retailer i Lots of firms can sell to the final consumer but a Retailer is a firm engaged primarily in retailing c Retailing Economic Justification and Realities i Retailers serve as Purchasing Agents for you and as Sales Specialists for their suppliers 1 They do this by a anticipating customer wants b developing assortments of products c acquiring market information and d providing financing 2 So retailers offer the utilities of a Time 178 b Place c Form e g value packs d Possession ii It is relatively easy to become a retailer 1 No large investment in production is required 2 merchandise can often be purchased on credit and 3 store can be leased with no down payment or 4 a simple website can be set up at a modest costs iii BUT success in retailing is hardly assured 1 A successful retailer is a merchant who sells goods that won t come back to customers who will 2 Of course a retail firm also must fulfill its other role of serving 3 This dual role is both the justification for retailing and the key to producers and wholesalers their success in retailing d Retail Operating Costs and Profits i Retail Operating costs are about 28 of sales ii This is much higher than that for wholesalers which is only about 11 iii Retailers Costs are higher due to 1 Dealing with customers meet expectation keep inventory etc 2 Meeting their expectations iv Net Profits for retailers vary quite a bit 1 Supermarkets have huge volume but only earn 1 of sales 2 Specialized retailers can earn 10 or more 179 3 An average net after tax profit for retailers would be 2 to 3 of sales only 3 in 2nd quarter of 2010 4 How to keep track of profits Retail Pro a retail point of sale software system a http www onestepretail com email articles article 09 13 07 php e Four Factors Related to Physical Facilities i Location 1 Central Business District Acorn Alley 2 Regional Shopping Centers Chapel Hill Mall a Anchor Stores sears and macys 3 Community Shopping Center 4 Strip Location 5 Power Center Mall of America ii Size square feet iii Store Design iv Product Layout f Classification of Retailers i Based on form of ownership and marketing strategy 1 Sears Example Sears is a corporate chain of department stores with Broad relatively deep assortment Moderate prices and a level of personal services that caries across departments 180 g Figure 17 8 The four positioning strategies for retailers h Retailers Classified by Ownership i Corporate Chains 1 organization of two or more centrally owned and centrally managed stores that generally handle the same lines of products 2 Three factors differentiate a chain from an independent store and the contractual form of VMS a Size i technically two or more stores constitute a chain an independent retailer opening another store on the west side may think of themselves as owning a chain but the US Bureau of the Census considers to be the minimum size for a chain b A corporate chain has and 181 c Because of centralized management individual units in a chain typically have little i Corporate chains are tremendously significant in retailing accounting for about of the total retail trade ii Independent Stores 1 A single store that is not affiliated 2 Most retailers are and 3 Most are 4 May have higher prices than chain stores 5 WHY Their customers are willing to pay extra for such as a credit b delivery c alterations installation d e a liberal return policy and f friendly knowledgeable personal service iii Contractual Vertical Marketing Systems 1 a Formed by a group of small b Who agree to establish and operate a c May then purchase and advertise together to achieve Examples 2 a sponsored by a wholesaler that enters into a contract with b Retailer coops and voluntary chains differ in terms of who interested retailers organizes them c But BOTH have been created for defensive reasons to allow independent retailers to with larger stronger chains Examples 182 3 Franchise Systems a a b in which a parent company provides management assistance and the right to use its trademark c in return for of the individual business unit d The is the parent company e The is the owner of the business unit f and the franchise system is the combination of the franchisor and franchisee i This type of contractual VMS generates 1 trillion in annual sales and accounts for as much as 2 5 of retail sales iv Top 5 Franchises for 2009 2009 Rank Franchise Type Startup Costs Number of 1 2 3 4 5 Subway Sandwich McDonald s Fast Food Liberty Tax Service Income Tax Preparation 78 600 to 238 300 950 200 to 1 800 000 56 800 to 69 900 Sonic Drive In Restaurants InterContinental Hotels Group Drive In Restaurant Hotels 1 200 000 to 3 200 000 Varies 29 612 32 060 3 169 3 516 3 514 http www entrepreneur com franchises rankings franchise500 115608 2009 html 183 v Top 5 Franchises for 2010 2010 Rank Franchise Type Startup Costs 1 2 3 4 5 Subway Sandwich McDonald s Fast Food 7 Eleven Inc Hampton Inn Hampton Inn Suites Supercuts Convenience Store Mid price hotels Hair Salon 84 300 258 300 995 900 1 842 700 40 500 775 300 3 716 000 13 148 800 111 000 239 700 http www entrepreneur com franchises franchise500 index html i Non store Retailing i Direct Selling 1 between a sales person and a consumer away from a store that results in a sale 2 Door to door in house or in office party plans Examples 3 Advantages 4 Disadvantages a b a b 184 ii Telemarketing 1 sometimes called telephone selling refers to a sales person initiating contact with a prospective customer and closing a sale over the phone 1 Advantages Some people like the convenience 2 Disadvantages iii Automatic Vending 1 sale of products through a machine with no personal contact between buyer and seller 2 Advantages Convenient Expand Reach Efficiencies machines report when stock is low 3 Disadvantages Expensive to service stock update 4 What s NEW in Vending iv Online