CHAPTER 1

Introduction to the World of

Retailing

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 Learning Objectives
Learning Objective 1-1 Identify retailing activities.
Learning Objective 1-2 Realize the importance of retailing
in the U.S. and world economies.
Learning Objective 1-3 Analyze the changing retail
industry.
Learning Objective 1-4 Recognize the opportunities for
you in retailing.
Learning Objective 1-5 Understand the strategic retail
management decision process.

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 What is Retailing? 1 of 7
Learning Objective 1-1 Identify retailing activities.

The Retailer’s Role in a Supply Chain

• Retailing – adds value to products and services sold
to consumers
• Not always in stores
• May include lodging in a motel, home-delivered pizza
• Retailer – sells products and services to consumers
• Supply chain

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 EXHIBIT 1–1 Example of a Supply Chain

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 What is Retailing? 2 of 7

Retailers Create Value

1. providing an assortment
2. breaking bulk
3. holding inventory
4. providing services

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 What is Retailing? 3 of 7
Costs of Channel 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

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 What is Retailing? 4 of 7

Retailers Perform Wholesaling and Production

Activities
• Vertical integration
• Backward integration
• Forward integration

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 What is Retailing? 5 of 7

Differences in Distribution Channels around the

World
• U.S. retail industry has greatest retail density and
concentration of large retail firms.
• Have scale economies to operate their own warehouses,
eliminating the need for wholesalers.
• Result is an efficient distribution system.

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 What is Retailing? 6 of 7

Differences in Distribution Channels around the

World continued
• Indian distribution system has small stores
operated by relatively small firms and a large
independent wholesale industry.
• Infrastructure not well developed
• Supply chain costs are higher

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 What is Retailing? 7 of 7

Differences in Distribution Channels around the

World continued
• Chinese retail industry is highly fragmented.
• China’s distribution system is developing.
• Government has removed most restrictions on direct
foreign investments.
• China is the world’s fastest-growing retail market.

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 EXHIBIT 1–3 Comparison of Retailing and
Distribution across the World
United Northern
States Europe India China

Concentration (percent of Highest High Lowest Low

sales made by large retailers
Retail density (square feet of
retail space per person) Highest Modest Lowest Low
Average store size Highest Modest Lowest Modest
Role of wholesalers Minimal Modest Extensive Extensive
Infrastructure supporting
efficient supply chain Best Good Weakest Weak
Restrictions on retail locations,
store size, and ownership Minimal Extensive Extensive Modest

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 Economic and Social Significance of
Retailing 1 of 5
Learning Objective 1-2 Realize the importance of retailing in the U.S.
and world economies.

Role in Developed Countries

• Retail Sales
• Over $5.3 trillion in annual U.S. sales in 2015
• More than 8% of the U.S GDP comes from retailing
• Employment
• Employed over 14 million people in 2015

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 Economic and Social Significance of
Retailing 2 of 5

Role in Developing Economies – The Bottom of

the Pyramid
• 40% of world population lives on under $2.50 a day
• Base of the pyramid
• Difficult to communicate and complete transactions
• Lack access to mass media, the Internet, mobile phones,
or credit cards
• Rural, remote

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 Economic and Social Significance of
Retailing 3 of 5

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 of 5

Role in Society continued

• Corporate social responsibility
• Voluntary
• Meets or exceeds the ethical and legal expectations of
stakeholders
• Conscious marketing
• Recognition of the retailing firm’s greater purpose
• Consideration of stakeholders and their interdependence
• The presence of conscious leadership, creating a corporate
culture
• The understanding that decisions are ethically based

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 Economic and Social Significance of
Retailing 5 of 5
Examples of social responsibility
• TOMS provides free shoes to residents of poor nations.
• Walmart issues standards for farms that supply it with
livestock products.
• Whole Foods’ motto, “Whole Foods, Whole People, Whole
Planet,” emphasizes its goals of supporting the health and
well-being of people and the planet.

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 The Growing Importance of Retailing and
Retailers 1 of 3
Learning Objective 1-3 Analyze the changing retail industry.

Evolution of the Retail Industry

• More than 90% of retail sales still made in stores
• 50 years ago, retail was small, independent, local
• Now consists of large, national and international firms

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 The Growing Importance of Retailing and
Retailers 2 of 3
Evolution of the Retail Industry continued
• Development of information systems
• Caused shift from an industry dominated by small local
retailers to large multinational chains
• Systems are very complex.
• Must be able to convert raw data into useable information

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 The Growing Importance of Retailing and
Retailers 3 of 3

The scanning of the onions at the POS terminal at

the checkout counter of the grocery store launches a
chain of activities that ensures that the store will not
run out before the next order arrives.

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 Management and Entrepreneurial
Opportunities 1 of 4
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
• Purchase
• Accounting
• Management information system (MIS)
• Supply management including warehouse and distribution
management
• Design and new product development

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 Management and Entrepreneurial
Opportunities 2 of 4
Management Opportunities continued
• Financially rewarding
• Management trainees make $35,000-$65,000
• Senior buyers and store managers make $120,000 -
$160,000

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 Management and Entrepreneurial
Opportunities 3 of 4
Entrepreneurial Opportunities
• Retailing entrepreneurs
• Sam Walton
• Started at JCPenney, became
America’s wealthiest person
• Do Won and Jin Sook Chang
(Forever 21)
• Emigrated from South Korea
and became American citizens
• Operate more than 600 stores
worldwide

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 Management and Entrepreneurial
Opportunities 4 of 4
Entrepreneurial Opportunities continued

• Retailing entrepreneurs continued

• Ingvar Kamprad (IKEA)
• Started with a loan from his father
• Once the wealthiest person in Europe
• Howard Schultz (Starbucks)
• Began as head of marketing for Starbucks
• Later acquired Starbucks and built it into 24,000 stores

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 EXHIBIT 1–5 Retail Management Decision
Process

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 The Retail Management Decision Process 1 of 5
Learning Objective 1-5 Understand the strategic retail management decision
process.

Understanding the World of Retailing—Section I

• The first step in the retail management process
• Critical environmental factors
• The macroenvironment
• Technological, social, and ethical/legal/political
• The microenvironment
• Competitors and customers

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 EXHIBIT 1–6 The Retail Mix

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 The Retail Management Decision Process 2 of 5

Understanding the World of Retailing—Section I

continued
• Competitors
• Intratype competition
• Scrambled merchandising
• Increases intertype competition
• Customers

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 The Retail Management Decision Process 3 of 5
Developing a Retail Strategy—Section II
• Retail strategy identifies
• the target market
• the nature of merchandise and services
• how to develop unique assets for long-term advantage

• Example – Walmart vs. Toys “R” Us

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 The Retail Management Decision Process 4 of 5
Developing a Retail Strategy—Section II continued

• Strategic decision areas

• Defining the target market
• Analyzing the environment/firm’s strengths and weaknesses
• Financial objectives
• Return on investment, inventory turnover, and profit margin
• Development of critical assets
• Location, human resource, information and supply chain
systems, supply chain organization, and customer loyalty

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 The Retail Management Decision Process 5 of 5
Implementing the Retail Strategy—Sections III
and IV
• Retail mix
• Types of merchandise and services, merchandise pricing,
advertising and promotional programs, store design,
merchandise display, assistance to customers provided by
salespeople, and convenience of the store’s location

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 Key Terms 1 of 5
backward integration – a form of vertical integration in
which a retailer owns some or all of its suppliers
base of the pyramid – the 25% of the world’s population at
the lowest end of the global income distribution, with
combined spending power of approximately US$5 trillion.
Also known as the bottom of the pyramid.
breaking bulk - a function performed by retailers or
wholesalers in which they receive large quantities of
merchandise and sell them in smaller quantities.
conscious marketing – entails a sense of purpose for the
firm higher than simply making a profit by selling products
and services

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 Key Terms 2 of 5
corporate social responsibility (CSR) – voluntary actions
taken by a company to address the ethical, social, and
environmental impacts of its business operations and the
concerns of its stakeholders.
ethics – a system or code of conduct based on universal
moral duties and obligations that indicate how one should
behave.
forward integration – a form of vertical integration in
which a manufacturer owns wholesalers or retailers.
holding inventory – a major value-providing activity
performed by retailers whereby products will be available
when consumers want them.

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 Key Terms 3 of 5
intertype competition - competition between retailers that
sell similar merchandise using different formats, such as
discount and department stores.
intratype competition - competition between the same
type of retailers (e.g., Kroger versus Safeway).
retailer – a business that sells products and services to
consumers for their personal of family use.
retailing – a set of business activities that adds value to
the products or services sold to consumers for their
personal or family use.

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 Key Terms 4 of 5
retail mix – The combination of factors used by a retailer to
satisfy customers needs and influence their purchase
decisions.
retail strategy – a statement that indicates 1) the target
market toward which a retailer plans to commit its
resources, 2) the nature of the retail offering that the retailer
plans to use to satisfy the needs of the target market, and
3) the bases on which the retailer will attempt to build a
sustainable competitive advantage over competitors.
scrambled merchandising – an offering of merchandise
not typically associated with the store type, such as clothing
in a drugstore.

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 Key Terms 5 of 5
stakeholders – the broad set of people who might be
affected by a firm’s actions, from current and prospective
customers, top supply chain partners, to employees, to
shareholders, to government agencies, to members of the
communities in which the firm operates, to a general view
of society.
supply chain – a set of firms that make and deliver a given
set of goods and services to the ultimate consumers.
vertical integration – an example of diversification by
retailers involving investments by retailers in wholesaling or
manufacturing merchandise.
wholesaler – firms that buy products from manufacturers
and resell them to retailers.
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