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Introduction to the
World of Retailing
CHAPTER 1
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Learning Objectives
LO 1-1 Identify retailing activities.
LO 1-2 Realize the importance of retailing in the U.S. and world economies.
LO 1-3 Analyze the changing retail industry.
LO 1-4 Recognize the opportunities for you in retailing.
LO 1-5 Understand the strategic retail management decision process.
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What is Retailing? 1
Learning Objective 1-1 Identify retailing activities.
Retailing is a set of business activities that adds value to
products and services sold to consumers for their personal or
family use.
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What is Retailing? 1
Providing
assortments
The retailer’s role in
supply chain
Breaking bulk
Retailers create
value
Retailing Holding inventory
Costs of channel
activities
Providing services
Retailers perform
wholesaling and
production activities
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What is Retailing? 1
Learning Objective 1-1 Identify retailing activities.
The Retailer’s Role in a Supply Chain
Retailer – sells products and services to consumers.
Supply chain – a set of firms that make and deliver goods and
services to consumers.
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EXHIBIT 1–1 Example of a Supply Chain
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What is Retailing? 2
Retailers Create Value
1. Providing an assortment.
2. Providing services.
3. Breaking bulk.
4. Holding inventory.
Retailers add value by
providing an assortment of
goods that can satisfy
consumers’ needs.
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1. Providing Product Assortments
Conventional supermarkets typically carries about 33,000
different items made by more than 500 companies.
A broad assortment enables customers to choose from a wide
selection of products, brands, sizes, and prices at one location.
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2. Providing Services
Retailers provide services that make it easier for
customers to buy and use products.
For example:
• Retailers offer credit so that consumers can have a
product now and pay for it later;
• Display products so that consumers can see and
test them before buying;
• Employ salespeople in stores or maintain websites
to answer questions and provide additional
information about the products they sell.
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3. Breaking Bulk
To reduce transportation costs, manufacturers and
wholesalers typically ship cases of frozen dinners or cartons
of blouses to retailers.
Retailers then offer the products in smaller quantities tailored
to individual consumers’ and households’ consumption
patterns—an activity called breaking bulk.
Breaking bulk enables consumers to purchase the specific
merchandise they want in smaller, more useful quantities.
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4. Holding Inventory
A major value-providing activity performed by retailers is holding
inventory so that products will be available when consumers want them.
Consumers can keep a smaller inventory of products at home, because
they know local retailers will have the products available when they need
more.
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What is Retailing? 3
Costs of Channel Activities
• Value-creating activities increase the costs of products and services.
• The costs in the supply chain can be almost as much as the cost to make
the product.
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EXHIBIT 1–2 Costs of Value-Added Activities in the
Distribution Channel for a T-Shirt
Access the text alternative for slide images.
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What is Retailing? 4
Retailers Perform Wholesaling and Production
Activities
Vertical Integration – firm performs more than one set
of activities in the channel
•Eg: retailer invests in wholesaling or manufacturing
Backward Integration – retailer performs some
distribution and manufacturing activities
•Eg: KFC owns chicken farm
Forward Integration – manufacturers undertake
retailing activities
•Eg: Nike owns retail stores
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Economic and Social Significance of Retailing 1
Learning Objective 1-2 Realize the importance of retailing in the U.S. and world economies.
Role in Developed Economies
Consumer spending plays a critical role in the economies of
the United States and other developed economies.
When consumers spend more money buying goods and
services from retailers, a country’s economy flourishes.
• Merchandise flies off the shelves, and retailers place
orders for replacement merchandise.
• Manufacturers hire more employees, place orders for
raw materials, and make more products.
However, if consumers feel uncertain about their financial
future and decide to refrain from buying nonessential goods
and services, the economy slows down.
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Economic and Social Significance of Retailing 2
Role in Developing Economies – The Base of the
Pyramid
• 9% of world population lives on under $2 a day.
• Consumers in this low-income consumer segment, referred to
as the base of the pyramid (BoP), still have significant
spending power.
• Undertaking retailing activities for BoP markets is challenging.
• Difficult to communicate and complete transactions.
• Lack access to mass media, the Internet, or credit cards.
• Rural, remote: high cost of transporting goods.
• Engagement in BoP markets requires innovative approaches
for doing business.
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Economic and Social Significance of Retailing 3
Role in Society
Stakeholders:
• Prospective customers.
• Supply chain partners.
• Employees.
• Shareholders.
• Government agencies.
• Members of the firm’s communities.
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Economic and Social Significance of Retailing 4
Role in Society continued
Corporate social responsibility (CSR).
• Voluntary. Meets or exceeds the ethical and legal expectations of stakeholders.
Conscious retailing.
• Recognition of the retailer’s greater purpose. Eg: TOMS, Eye Mitra
• Consideration of stakeholders and their interdependence. Ie: Giving up on
maximizing profits.
• The presence of conscious leadership, creating a conscious corporate culture.
Eg: Founder of Patagonia
• The understanding that decisions are ethically based. Eg: should retail salespeople
use hard selling approach when they know the product is not the best for customer’s
needs?
• A commitment to social issues. Eg: Ben&Jerry was among the first corporations
to voice vigorous support of the Black Lives Matter movement.
[Link]
on-political-or-social-issues
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Management and Entrepreneurial Opportunities 1
Learning Objective 1-4 Recognize the opportunities for you in retailing.
Management Opportunities
People with a wide range of skills and interests needed because retailers’
functions include:
• Finance.
• Purchasing.
• Accounting.
• Management information system (MIS).
• Supply chain management.
• International business.
• Design and new product development.
• Marketing.
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Management and Entrepreneurial Opportunities 2
Entrepreneurial Opportunities Glossier is leading the way in the direct-to-consumer
beauty space.
Retailing entrepreneurs.
• Sam Walton(Walmart).
• Jeff Bezos (Amazon).
• Ingvar Kamprad (IKEA).
• Howard Schultz (Starbucks).
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