TXMI 5250 Exam 1 Study Guide Chapter 1 Perspectives on Retailing What is Retailing and why is it undergoing so much change today Retailing has a significant impact on the economic prosperity of any nation as well as the lifestyle of individuals History has shown that the nations that have benefitted from the greatest economic and social progress have been those with a strong retail sector It is retailing that is responsible for matching the individual demands of the consumer with vast quantities of supplies produced by a huge range of manufacturers and service providers Ex WalMart provides more than 2 million jobs and the best way to battle poverty is with jobs WalMart has raised consumer discretionary spending but 1 due to it s low prices the company enhances the business of other nearby stores because the retailer increases the area from which to attract customers One reason Eastern European countries experienced such low rates of economic growth when they were under Communist power was their lack of a retail structure o When American and Western European retailers opened for business in these countries they became an instant success Retailing consists of the final activities and steps needed to place merchandise made elsewhere into the hands of the consumer or to provide services to the consumer o Retailing is the last step in a supply chain that may stretch from Europe to Asia to your hometown o Therefore any firm that sells a product or provides a service to the final consumer is performing the retailing function regardless of whether they are selling in a store over the phone mail or internet The Nature of Change in Retailing o Retailing includes every living individual as a customer and accounts for 20 of the worldwide labor force and consumer spending represents nearly a third of America s total economy o During the recent recession the number 1 reason that CEO s were replaced was due to mismanaging change o The number of new retail enterprises that were developed in the last quartercentury is truly amazing o Most of these new businesses have actually been institutional forms such as internet retailing warehouse retailing supercenters and home delivery of fast food Change is truly the driving force behind retailing E Tailing o Contrary to the fears of many retailers a decade ago the Internet hasn t destroyed Bricks and Mortar retailers that operate our of a physical building o Internet which accounts for less than 5 of retail sales has changed consumer behavior o Today bricks and mortar retailers have to adopt to changing customers Now we are accustomed not only to the speed and convenience of buying online but also the control it gives us o E tailing gives customers vast amounts of information ranging from a product s attributes to the lowest prices which no physical store can match o Retailers should not fight this trend but instead embrace it within their physical stores o The most important thing for physical store retailers to grasp is the shift in power between retailers and consumers Traditionally the retailers control over pricing information proved them the upper hand in most transactions today the information dissemination capabilities of the Internet have made consumers better informed which has increased the power when transacting and negotiating prices o Outshopping occurs when the customer gets needed information proper size or how to assemble a product in the sore and then orders it online for a lower price and to avoid paying state sales tax Price Competition o America s fixation on low prices began with the birth of WalMart in 1962 What Sam Walton did before anyone else that forever changed the face of retailing was to realize that most of any product s cost gets added after the item is produced He began enlisting suppliers to help him reduce these costs and increase the efficiency of the product s movement from production to placement on the shelves he also made a major commitment to computerizing WalMart as a means to reduce these expenses o Both in the 1990 s and today all of WalMart s competitors operating expenses are 3 5 higher which continues to put them at a relative competitive advantage o WalMart became the world s largest retailer by relentlessly cutting unnecessary costs and demanding that it s suppliers do the same Demographic Shifts o 1 Fluctuating birthrate o 2 The growing importance of the 70 million Generation Y consumers those born between 1978 1994 o 3 The move of Generation X into middle age o 4 The beginning movement of the baby boomer generation into retirement Presence of three generation households o 5 The increasing number of immigrants Presence of once considered exotic foods like burritos and sushi as everyday options o Successful retailers must become more service oriented offering better value in price and quality as well as more convenient store hours more promotion oriented to include more effective and useful in store signage and better attuned to their customers needs o Same store Sales compares an individual store s sales to its sales for the same month in the previous year o Market Share is the retailer s total sales divided by total market sales Store Size o Scrambled Merchandising Exists when a retailer handles many different and unrelated items ex superstores The result of the pressure being placed on many retailers to increase profits by carrying additional merchandise or services o Supersized stores increased several major costs Rent Inventory costs Labor costs o Some consumers actually prefer smaller stores since they can get in and out more quickly retailers have recently begun reducing their store size o Two retail formats that have recently seen not only a significant decrease in average store size but also a decrease in number of stores are department stores and category killers Department Stores closing many downtown locations which were often their largest location because most downtown areas now are ghost towns also what made department stores so special were their ability to have several different types of merchandise under one roof which is now being overtaken by malls Category Killers a retailer that carries such a large amount of merchandise in a single category at such a good price that it makes it impossible for customers to walk out without purchasing what they need thus killing the competition Toys R Us was the first category killer also the largest category killer to fail Other examples Best Buy