Chapter 02 – Types of Retailers
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CHAPTER 2
TYPES OF RETAILERS
ANNOTATED OUTLINE
INSTRUCTOR NOTES
I. Retailer Characteristics
• The 1.1 million U.S. store-based retailers range from street
vendors selling hot dogs to omnichannel retailers that offer
thousands of products in their stores, through catalog and
Internet channels.
LO 2-1 List the different
characteristics that define
retailers.
Ask students to compare the four
elements of the retail mix — the
type of merchandise sold, the
store.
PPT 2-5 illustrates classification of
retailers by merchandise offering
and by variety and assortment.
A. Type of Merchandise
• The United States, Canada, and Mexico have developed a
B. Variety and Assortment
• Variety is the number of merchandise categories a retailer
offers. Assortment is the number of different items in a
See PPT 2-7
Ask students to give examples of
local retailers with low variety and
high assortment, and retailers
Chapter 02 – Types of Retailers
C. Services Offered
• Retailers also differ in the services they offer customers.
Customers expect retailers to provide some services—
See PPT 2-9
Discuss the different customer
Why don’t discount stores offer
D. Prices and the Cost of Offering Breadth and Depth of
Merchandise and Services
• Stocking a deep and broad assortment is appealing to
customers but costly for retailers. When a retailer offers
many SKUs, inventory investment increases because the
retailer must have back-up stock for each SKU.
See example in PPT 2-10 for
illustration
Customers like wide variety, deep
assortments, and a lot of service,
though some customers
appreciate having the retailer edit
the assortment for them. Ask
2-3
II. Food Retailers
• Twenty years ago, consumers purchased food primarily at
conventional supermarkets. Now conventional
supermarkets account for less than 65 percent of food
sales.
LO 2-2 Categorize the various
types of food retailers.
See PPT 2-13
Where do students make the
A. Supermarkets
• A conventional supermarket is a self-service food store
offering groceries, meat, produce, and limited nonfood
items.
See PPT 2-14
Ask students to consider the retail
mixes of the major supermarkets
in the area surrounding campus.
Which compete on price? On
1. Trends in Supermarket Retailing
• Today, conventional supermarkets are under substantial
competitive pressure on multiple sides: from supercenters,
online retailers, warehouse clubs, extreme-value retailers,
convenience stores, and even drugstores. All these types of
retailers have increased the amount of space (virtual or
physical) that they devote to consumables.
See PPT 2-17
Ask students about why they
would continue to shop at
conventional supermarkets.
Alternatively, why would they
shop for food at supercenters,
warehouse clubs, or convenience
stores? What types of needs are
Chapter 02 – Types of Retailers
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2. Fresh Merchandise
• Fresh-merchandise categories are located in the areas
around the outer walls of a supermarket, known as the
3. Green Merchandise
• Conventional supermarkets are offering more fair trade,
natural, organic, and locally sourced foods for the growing
segment of consumers who are health and
environmentally conscious.
Discuss if students would pay
more for local produce, and if by
doing so, it would improve the
carbon footprint in the world.
Does paying more for fair trade
make students feel like they are
4. Ethnic Merchandise
• Retailers are adding more ethnic merchandise in
5. Private-Label Merchandise
Ask students to think about what
products they purchase at food
Chapter 02 – Types of Retailers
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• Conventional supermarket chains are leveraging their
quality reputation to offer more private-label merchandise
stores that are “private label.”
Discuss if quality or price plays a
6. Improving the Shopping Experience
• Creating an enjoyable shopping experience through better
store ambience and customer service is used to
Ask students to list what types of
experiences they have seen in the
food retailers they visit. Discuss if
B. Supercenters
• Supercenters are the fastest growing retail category. At
160,000 to 20,000 square feet, these stores offer a wide
variety of food and non-food merchandise. The largest
supercenters are Walmart supercenters, Meijer, Super
See PPT 2-18 for an illustration of
the characteristics of supercenters
and warehouse clubs.
The supercenter is one of the
fastest growing retail formats.
Chapter 02 – Types of Retailers
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than supercenters.
• Popular in both Europe and South America, hypermarkets
are not common in the United States. Located in large,
warehouse-type structures with large parking facilities,
hypermarkets typically carry a larger selection of food
items than supercenters and have a greater emphasis on
perishables.
C. Warehouse Clubs
• A warehouse club is a retailer that offers a limited and
irregular assortment of food and general merchandise with
little service at low prices to ultimate consumers and small
businesses.
• Warehouse clubs accordingly have had substantial
influences on retailing and its structure. Between 1992 and
2013, warehouse club sales increased from $40 billion to
$420 billion.
See PPT 2-18 for an illustration of
the characteristics of supercenters
and warehouse clubs.
Ask students to give local
examples of warehouse clubs.
What is the target market for
or household use, they are
retailers.)
Ask students if they are members
of a warehouse club. Do they
prefer warehouse clubs to
D. Convenience Stores
• Convenience stores provide a limited variety and
See PPT 2-19 for an overview of
the characteristics of convenience
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assortment of merchandise at a convenient location in a
3,000-to-5,000-square-foot store with a speedy checkout,
with higher prices than supermarkets. They are a modern
version of the neighborhood mom-and-pop
grocery/general store.
• In response to these competitive threats, convenience
stores are taking steps to decrease their dependency on
gasoline sales by tailoring their merchandise assortments
to local markets, making their stores even more convenient
to shop, and adding new services.
stores
Ask students to give examples of
local convenience stores.
What services do students believe
would make a convenience store
more “convenient”?
E. Online Grocery Retailers
• Time-poor customers are willing to pay more to access
options for ordering groceries online and having them
delivered.
III. General Merchandise Retailers
• The major types of general merchandise retailers are
department stores, full-line discount stores, specialty
stores, drugstores, category specialists, extreme-value
LO 2-3 Identify the various types of
general merchandise retailers.
See PPT 2-20
PPT 2-20 compares the various
Chapter 02 – Types of Retailers
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A. Department Stores
• Department stores are retailers that carry a broad variety
and deep assortment, offer some customer services, and
are organized into separate departments for displaying
merchandise.
• The largest department store chains in the U.S. are Macy’s,
Sears, JCPenney, Kohl’s, and Nordstrom.
• Department store chains can be categorized into three
tiers: (1) upscale, high-fashion chains with exclusive
designer merchandise and excellent customer service
(Neiman Marcus, Nordstrom, Bloomingdale’s, Saks); (2)
traditional chains with more moderately priced
merchandise and less customer service (Macy’s and
Dillard’s); and (2) value-oriented chains catering to price-
conscious consumers (Sears, Kohl’s and JCPenney).
See PPT 2-21, 2-22, 2-23
Ask students to give examples of
local department stores. Why do
customers go to department
stores? What do they like/dislike
about them?
Which department stores do
students prefer? Which tier do
they shop most often? Discuss
differences in these responses.
B. Full-Line Discount Stores
• A full-line discount store is a retailer that offers a broad
variety of merchandise, limited service, and low prices.
See PPT 2-24
Discuss the target markets of the
three largest full-line discount
store chains (Walmart, Target,
Chapter 02 – Types of Retailers
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They offer both private and national brands.
• The big three full-line discount store chains are Walmart,
Target, and Kmart (Sears Holding).
and Kmart). How will the category
specialists (Staples, Best Buy,
Home Depot) affect the retail
strategy of full-line discount store
C. Category Specialist
• A category specialist is a big-box discount store that offers
a narrow variety but deep assortment of merchandise.
These retailers predominantly use a self-service approach,
but they offer assistance to customers in some areas of the
store.
• One of the largest and most successful types of category
specialist is the home improvement center. A home
improvement center is a category specialist offering
equipment and material used by do-it-yourselfers and
contractors to make home improvements.
See PPT 2-25
Ask students to give local
examples of category specialists.
How are they similar to specialty
stores? Discuss the differences
and similarities with discount
stores.
experience at a home
improvement center such as Home
Depot or Lowe’s in terms of
merchandise, atmosphere, and
customer service.
Chapter 02 – Types of Retailers
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resulting in reduced profits because the competitors have
difficulty differentiating themselves on other elements of
the retail mix.
D. Specialty Stores
• A specialty store concentrates on a limited number of
complementary merchandise categories and provides a
high level of service in a relatively small store.
• Many manufacturers have opened their own specialty
stores. Consider, for instance, Levi’s (jeans and casual
apparel), Godiva (chocolate), Cole Haan (shoes and
accessories), Lacoste (apparel), Coach (purses and leather
accessories), Tumi (luggage), Wolford (intimate apparel),
Lucky Brand (jeans and casual apparel), Samsonite
(luggage), and Polo/Ralph Lauren (apparel and home).
See PPT 2-26
Why do customers go to specialty
stores? What do they like/dislike
about them?
E. Drugstores
See PPT 2-27
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• Drugstores are specialty stores that concentrate on health
and beauty care (HBC) products. Many drugstores have
steadily increased the space devoted to cosmetics, but
prescription pharmaceuticals still represent a substantial
and growing portion of drugstore sales.
Ask students if they have shopped
online for drugstore products.
What has been their experience?
Do they think the Internet is a
viable channel for drugstore
merchandise?
F. Extreme-Value Retailers
• Extreme-value retailers, such as Dollar Tree (which
purchased the Family Dollar chain) and Dollar General, are
small discount stores that offer a broad variety but shallow
assortment of household goods, health and beauty care
(HBC) products, and groceries..
See PPT 2-28 for a summary of
issues facing extreme-value
retailers.
Ask students to name the
extreme-value retailers in the local
marketplace. How many have
shopped at one of them? For what
Chapter 02 – Types of Retailers
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G. Off-Price Retailers
• Off-price retailers, offer an inconsistent assortment of
brand-name merchandise at low prices.
• America’s largest off-price retail chains are TJX Companies
(which operates TJ Maxx, Marshalls, Winners [Canada],
HomeGoods, HomeSense [Canada]), Ross Stores,
• Typically, merchandise is sold at prices that are20 to 60
percent lower than the manufacturer’s suggested retail
price. Off-price retailers can buy at low prices because
they do not ask suppliers for advertising allowances, return
privileges, markdown adjustments, or delayed payments.
Ask students to give examples of
local off-price retailers. What do
consumers like about off-price
retailers? What don’t they like?
Ask students which type of off-
price retailer offers consumers
Chapter 02 – Types of Retailers
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IV. Service Retailing
• Service retailers, or firms that primarily sell services rather
than merchandise, are a large and growing part of the
retail industry.
LO 2-4 Explain the differences
between service and
merchandise retailers.
PPT 2-30
A. Differences between Service and Merchandise Retailers
• Four important differences in the nature of the offerings
1. Intangibility
• Services are generally intangible — customers cannot see,
touch, or feel them. Services are performances or actions
rather than objects.
• Intangibility introduces several challenges for service
Ask students how customers can
evaluate the quality of an
intangible service offering. What
problems does intangibility cause
for the services retailer?
2. Simultaneous Production and Consumption
• Service providers create and deliver the service as the
customer is consuming it. The simultaneity of production
and consumption creates some special problems for
services retailers.
What problems does simultaneous
production cause for the service
retailer?
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3. Perishability
• Because the creation and consumption of services is
inseparable, services are perishable. They can’t be saved,
stored, or resold. This contrasts with merchandise, which
can be held in inventory until a customer is ready to buy it.
Give examples of retailers for
which perishability is a real
problem. (movie theaters,
airlines, cruise lines, public golf
courses) What do these retailers
4. Inconsistency
• Merchandise is often produced by machines with very tight
quality control. Because services are performed by people,
no two services will be identical.
What problems does inconsistency
cause for the service retailer? Are
there service retailers whose
inconsistency is acceptable?
(Custom designers, hair “artists”)
V. Types of Ownership
• Another way to classify retailers is by their ownership. The
major classifications of retail ownership are: (1)
independent, single-store establishments, (2) corporate
chains, and (3) franchising.
LO 2-5 Explain the types of
ownership for retail firms.
See PPT 2-34
.
A. Independent, Single-Store Establishments
Ask students to give examples of
local independent, single-store
Do students believe national
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quickly to those customers’ needs.
• While single-store retailers can tailor their offering to their
customers’ needs, corporate chains can more effectively
negotiate lower prices for merchandise and advertising due
to their larger size.
chains will drive all independents
out of business?
B. Corporate Retail Chains
• A retail chain is a company operating multiple retail units
under common ownership and usually having some
Walmart has pursued a strategy
of opening stores on the outskirts
of small rural towns with
populations between 25,000 and
C. Franchising
• Franchising is a contractual agreement between a
franchisor and a franchisee that allows the franchisee to
operate a retail outlet using a name and format developed
and supported by the franchisor. Approximately 40
percent of all U.S. retail sales are made by franchisees.
• In a franchise contract, the franchisee pays a lump sum
Ask students to give examples of
local franchises. If they wanted to
own a retail business, would they
want a franchise or their own
store? Why? What are the
advantages of being a franchisee?
PPT 2-35 provides a brief
Chapter 02 – Types of Retailers
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VI. Summary
• Over the past 30 years, U.S. retail markets have been
characterized by the emergence of many new retail
Chapter 02 – Types of Retailers
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ANSWERS TO SELECTED “GET OUT AND DO IT!” QUESTIONS
2. GO SHOPPING Go to an athletic footwear specialty store such as Foot Locker, a department
store, and a discount store. Analyze their variety and assortment of athletic footwear by
creating a table similar to that in Exhibit 2–2.
Students should be able to fill in this type of table and explain their findings.
Variety of Athletic Footwear
Breath of Merchandise
Assortment of Athletic
Footwear
Depth of Merchandise
3. GO SHOPPING Keep a diary for two weeks of where you shop, what you buy, and how
much you spend. Get your parents to do the same thing. Tabulate your results by type of
retailer. Are your shopping habits significantly different from or are they similar to those of
your parents? Do you and your parents’ shopping habits coincide with the trends discussed in
this chapter? Why or why not?
Students should keep a list of places shopped. Results can be compared to a parent or
4. GO SHOPPING Describe how the supermarket where you shop is implementing organic,
locally grown, ethnic, and private-label merchandise. If any of these categories of
merchandise are missing, explain whether you believe it could be a potential opportunity for
growth for this supermarket. Then describe any strategies or activities that you believe are
providing a better shopping experience than its competition. If you believe that competing
stores are providing a better shopping experience than your store, explain what they are
doing, and evaluate whether or not these activities would benefit your supermarket.
Chapter 02 – Types of Retailers
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Responses here will vary. Some stores have a big commitment to organic, locally grown,
5. INTERNET EXERCISE Data on U.S. retail sales are available at the U.S. Bureau of the Census
monthly sales by NAICS (found in the Monthly Retail Trade Report section). Which categories
of retailers have the largest percentage of sales in November and December (the holiday
season)? Do your findings make sense to you? Why or why not?
Students will notice that many retail categories generate their largest percentage of sales in the
fourth quarter. Some are:
(443) Electronics and Appliance Stores
6. INTERNET EXERCISE Three large associations of retailers are the National Retail Federation
the latest retail developments and issues confronting the industry.
Information on these sites will change daily. The National Retail Federation will likely have
information on trends in retailing like showrooming and omnishopping. Similarly, the NRF will
7. INTERNET EXERCISE Go to Entrepreneur franchise zone web page at
year. How many of these retailers in the top 10 have you patronized as a customer? Did you
know that they were operated as a franchise? Finally, what is the nature of the business that
seems to lend themselves to franchising?