Ch11 Retailing Handouts

Part 4: Channel InstitutionsPart 4: Channel Institutions

Chapter 11: RetailingChapter 11: Retailing

MKTG 406 PimentelMKTG 406 Pimentel

Retailing DefinedRetailing Defined

• The activities involved in selling goods and services to ultimate consumers for personal consumption.

Ronnie of Ronneez Custodial Service buys Formula 409 cleaner at Costco1. A case to sell to clients for small cleanups

between service calls2. A case for cleaning crews to use cleaning

clients’ offices3. A bottle to keep at the office for cleaning

there4. A bottle to take home and use for cleaning at

home

Retailing Defined: ExampleRetailing Defined: Example

World’s Top 10 RetailersWorld’s Top 10 Retailers

RETAILER 2003 SALES ($ mil)

ANNUAL GROWTH

COUN-TRIES

WalMart (USA) 256,329 13.2% 10

Carrefour (France) 79,796 20.8% 30

Home Depot (USA) 64,816 16.5% 4

Metro (Germany) 60,503 3.1% 28

Kroger (USA) 53,791 14.4% 1

Tesco (UK) 51,535 12.5% 12

Target (USA) 46,781 8.9% 1

Ahold (Netherlands) 44,584 10.7% 21

Costco (USA) 41,693 11.8% 9

Aldi Einkauf (Germany) 40,060 14.4% 12

0 50,000 100,000 150,000 200,000 250,000 300,000

Aldi Einkauf (Germany)

Costco (USA)

Ahold (Netherlands)

Target (USA)

Tesco (UK)

Kroger (USA)

Metro (Germany)

Home Depot (USA)

Carrefour (France)

WalMart (USA)

World’s Top 10 RetailersWorld’s Top 10 RetailersRETAILER

WalMart (USA)

Carrefour (France)

Home Depot (USA)

Metro (Germany)

Kroger (USA)

Tesco (UK)

Target (USA)

Ahold (Netherlands)

Costco (USA)

Aldi Einkauf (Germany)

2003 SALES

• Cost-side positioning• Demand-side positioning

Retail Positioning StrategiesRetail Positioning Strategies

• Margin goals• Inventory turnover goals

Cost-Side PositioningCost-Side Positioning

• Measures of performance• GMROI: Gross Margin Return On Inventory

GMROI = Gross Margin % x Inventory Turnover

GM = Sales – CGSGM% = GM / SalesIT:

In units: IT = Units sold / Avg Inventory in unitsCost method: IT = CGS / Avg Inventory at costRetail method: IT = Sales / Avg Inventory at retail


Using retail method for IT:GMROI = (GM / Sales) x (Sales / Avg Inv at retail)

= GM / Avg Inv at retail

• Original retail• Sale retail


GMROI Example: Ronneez Pet Shop• Sales for year: $1,000• Cost of goods sold: 800• Average inventory at cost: 200 • Average inventory at MSRP: 250• GM =• GM% = • IT =• GMROI = GM% x IT = or• GMROI = GM / Avg Inv =


1,000 – 800 = 200200 / 1,000 = 0.20 = 20%

800 / 200 = 4 1,000 / 250 = 4or0.20 x 4 = 0.80 = 80%

200 / 250 = 0.80 = 80%

• Measures of performance (continued)• Sales per employee = Sales / FTE• GM per full time equivalent employee= (Sales – CGS) / FTE



0.0 200.0 400.0 600.0

Eating

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Gro

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Auto

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Sales/FTE

GM/FTE

Investment advice

Catalog, mail-order houses

Auto dealers, gas stations

Drug & proprietary stores

Cable & other pay TV services

Consumer electronics stores

Grocery stores

Department stores

Home furniture & equip stores

Apparel & accessory stores

Eating places

Taken from The Controller’s Report, Dec 2003 & Sep 2004

• Measures of performance (continued)• Sales per square foot• GM per square foot

• Rent expense• Anchor stores

• Strategic use of space

• Involves suppliers


• Bulk-breaking• Warehouse clubs• BOGO• Dollar stores

Demand-Side PositioningDemand-Side Positioning

• Spatial convenience• Based on product class• Time issues

• Waiting and delivery time• Out-of-stocks


• Product variety• Breadth• Depth


Broad Narrow

Shallow

Limited assortment of a wide variety of products

Limited assortment of a limited variety of goods

Deep

Comprehensive selection of a wide variety of products

Comprehensive selection of a limited variety of goods

• Customer service• SG&A: Sales, General, and Administrative

expenses• Balance costs and benefits


Multichannel ShoppingMultichannel Shopping

• Brick & mortar• Internet• Hybrid

• Free riding• Click & mortar

Shopping

Online In-store

Purchasing

OnlineInternet:Internet:

Electronic Exchange

Hybrid:Hybrid:Store-aided Electronic Exchange

In-store

Hybrid:Hybrid:Web-aided

Store Exchange

Brick & Brick & Mortar:Mortar:

Traditional Exchange

Internet RetailingInternet Retailing

0 5 10 15 20

Computer hardwareClothingOther merchandiseFurnitureOffice equipment/suppliesElectronics/appliancesBooks/magazinesDrugs, health/beauty aidsMusic/videosToys/hobbies/gamesComputer softwareSporting goodsFood/beer/wine

0 5 10 15 % of Total Internet Retail Sales

Direct SellingDirect Selling

• Face-to-face consumer sales away from a fixed retail location

• Direct selling organizations (DSO)• Independent contractors• Products• Sideline• Developing economies

Direct SellingDirect Selling

• Multi-level direct selling organizations (MLDSO)• Illegal pyramid schemes

• Frontloading

DSO StandardsDSO Standards

• Low cost to join• Can return unsold merchandise• Rewards based on sales, not recruiting• Recruit only qualified individuals

Should you join a DSO?Should you join a DSO?

• Do you love selling?• Are you good at it?• Are you comfortable asking your friends for

money?• Is this really what you want to sell?

Evaluating A DSOEvaluating A DSO

• Product value• Financially sound company• Legal/ethical company• Follows DSO standards

Channel Power of RetailersChannel Power of Retailers

• Channel power• Strong power position of retailers

• Pressure suppliers because of own pressures• Slow growth of aggregate sales• Need to cut costs to be profitable• Expanding role of buyers

• Consolidations• Too many new products• Have become accustomed to special offers• Private brands

Trade DealsTrade Deals

• Off invoice• Bill-back• Count-recount• Free goods• Co-op advertising • Advertising allowances• Display allowances• Street money

Trade Deals (cont.)Trade Deals (cont.)

• Sales drives• Terms or inventory financing• Slotting allowances • Failure fees• Forward buying• Diverting

Private BrandingPrivate Branding

• Brands created by retailers• Benefits to retailer

• Store loyalty• More profitable

• Types of private brands• Store name• Retailer’s own brand• Designer-exclusive• License name• Generic

Globalization of RetailingGlobalization of Retailing

• Lags behind other industries• Difficulties of going international

• Real estate• Physical logistics operations• Supplier relationships• Different regulations• Cultural differences

Globalization of RetailingGlobalization of Retailing

• Keys to success• Balance

• Distinctive retail competency• Local preferences

• Competing in home market against international retailers• Niche markets• Superior offering

Miscellaneous Retail Pricing TermsMiscellaneous Retail Pricing Terms

• Cash discounts (2/10 net 30)• F.O.B.• Freight allowances• Markdown or off-retail• Markup• Quantity discounts

• Cumulative• Non-cumulative

• Seasonal discount• Trade discount

Key TermsKey Terms

• Retailing• Retail positioning

strategy• Cost-side positioning• Demand-side

positioning• GMROI• GMROL• GMROS• Anchor stores• Out-of-stocks• SG&A• Brick & mortar

• Free riding• Click & mortar• Direct selling• DSO• MLCSO• Pyramid scheme• Frontloading• Channel power• Buyers• Off invoice• Bill-back• Count-recount• Co-op advertising • Advertising allowance

Key TermsKey Terms

• Display allowances• Sales drives• Terms or inventory

financing• Slotting • Street money• Forward buying• Failure fees• Private brand• Store name brand• Retailer’s own brand• Designer-exclusive

brand• License name brand

• Generic brand• Cash discounts • F.O.B.• Freight allowances• Markdown or off-retail• Markup• Cumulative quantity

discount• Non-cumulative

quantity discount• Seasonal discount• Trade discount

Business

Ch11 Retailing Handouts