CHAPTER 1
INTRODUCTION TO THE WORLD OF RETAILING
ANNOTATED OUTLINE
INSTRUCTOR’S NOTES
I. Introduction
• Retailing is a common part of our everyday lives. For most
people, retailers simply are places to buy things.
• However, behind the stores, websites, sales associates,
and cashiers are an army of managers responsible for
making sure that the products and services that people
want are available when they want them, where they want
them, and at a fair price.
Ask students about where they
bought their school supplies. One
will likely get a mix of responses,
including the college bookstore or
the downtown store, in addition
to online or even from another
student. Question students on the
pros and cons of each type of
II. What Is Retailing?
• Retailing is the set of business activities that adds value to
the products and services sold to consumers for their
personal or family use.
LO 1-1 Identify retailing activities.
See PPT 1-3, 1-4.
Ask students to give examples of
retailers. One ice-breaking activity
Generally, the student will think of
traditional retailers that sell
through stores. Be sure to discuss
the many other examples such as
Amazon, QVC, Avon, Jiffy Lube,
Pizza Hut, and airlines.
Certainly students should be
encouraged to consider Internet
retailers and multichannel
retailers like Amazon.com or
Delta.
A. The Retailer’s Role in a Supply Chain
• A retailer is a business that sells products and/or services
to consumers for their personal or family use. Retailers are
a key component in a supply chain that links
manufacturers to consumers.
See PPT 1-8, 1-9, 1-10.
A typical supply chain network is
illustrated in PPT 1-10.
B. Retailers Create Value
• Retailers undertake business activities and perform
functions that increase the value of the products and
services they sell to consumers.
PPT 1-5, 1-6, 1-7 illustrate the
value question for retailers.
.
1. Providing Assortments
• Offering an assortment enables customers to choose from
a wide selection of brands, designs, sizes, colors, and
prices in one location.
• Conventional supermarkets typically carry about 30,000
different items made by more than 500 companies.
Ask students to describe the
difference in the assortments of
bicycles provided by Walmart and
the local bike shop. What is the
difference in assortment of body
lotions and creams provided by
Bath and Body Works and CVS?
2. Breaking Bulk
How many students have made
purchases at Sam’s
Discuss the advantages of buying
3. Holding Inventory
• A major value-providing activity performed by retailers is
to keep inventory so that products will be available when
consumers want them, reducing the consumer’s cost of
storing products.
Discuss product categories for
which holding inventory is
particularly appealing (e.g.,
holiday decorations, seasonal
gear).
4. Providing Services
Ask the students what kind of
rooms, gift wrapping, lay-away
plans, parking, personal
assistance in selecting
merchandise, personal shoppers,
play areas for children,
presentations on how to use
merchandise, provisions for
customers with special needs
(wheelchairs, translators), repair
services, rest rooms, special
orders, and warranties.
Which of these services do
students believe offer the greatest
value to the consumer? Do their
opinions differ for different
retailers?
C. Costs of Channel Activities
• While the value-creating activities undertaken by channel
members provide benefits to customers, they also increase
the cost of products and services.
Exhibit 1–2 illustrates the supply
chain costs of getting a T-shirt
from the manufacturer to the
consumer.
D. Retailers Perform Wholesaling and Production Activities
• Wholesalers buy and store merchandise in large quantities
from manufacturers and then resell the merchandise
(usually in smaller quantities) to retailers or industrial or
business users.
• But most supply chains have some vertical integration.
Vertical integration means that a firm performs more than
one level of activity in the channel. For example, most
large retailers—such as Safeway, Walmart, and Office
Depot—do both wholesaling and retailing activities
Discuss the advantages and
disadvantages of being vertically
integrated.
Advantages:
Disadvantages:
Higher costs because retailer
might not be an efficient
manufacturer
More complex infrastructure
E. Differences in Distribution Channels around the World
• Compared with distribution channels in the European
Union, China. and India, the U.S. retail industry has the
greatest retail density (retail stores per person) with the
greatest concentration of large retail firms. The
combination of large stores and large firms results in a very
efficient distribution system.
PPT 1-11, 1-12, illustrate these
different distribution channels.
Ask students to consider several
reasons for differences in
distribution systems in various
nations.
distribution and retailing than in the U.S.
• Factors that have created differences in distribution
systems include: (1) social and political objectives, (2)
geography, and (3) market size.
III. Economic and Social Significance of Retailing
• Realize the importance of retailing in the U.S. and world
economies.
LO 1-2 Realize the importance of
retailing in the U.S. and world
economies.
See PPT 1-14
A. Role in Developed Economies
• Consumer spending plays a critical role in the economies
of the United States and other developed countries. When
consumers spend more money buying goods and services
from retailers, a country’s economy flourishes.
B. Role in Developing Economies—The Bottom of the Pyramid
• Retailers need to also focus on opportunities available by
serving the needs of the 3 billion people living at the
lowest end of the income distribution.
Discuss technologies that are in
abundant supply in developed
markets and how those may
impact retail at BoP markets.
What can be done to lessen this
goods higher.
C. Role in Society
• In addition to providing goods and services to their
customers, some retailers are realizing that their
responsibility includes considering the needs and
objectives of all its stakeholders.
• Retailers are socially responsible businesses. Corporate
social responsibility (CSR) describes the voluntary actions
taken by a company to address the ethical, social. and
environmental impacts of its business operations and the
concerns of its stakeholders.
Ask students which retailers are
actively engaged in CSR.
1. Recognition of the retailing firm’s greater purpose.
• Retailers recognize that its purpose should be more than
just making profits.
2. Consideration of stakeholders and their interdependence.
• Retailers that embrace the notion of conscious marketing
consider how their actions will affect the expansive range
of potential stakeholders.
3. The presence of conscious leadership, creating a
corporate culture.
• A conscious marketing approach implies that the firm’s
leaders are dedicated to the proposition of being
conscious at all levels of the business, throughout its entire
culture.
4. The understanding that decisions are ethically based.
• Retailers that are engaged in conscious marketing make
decisions that are based on sound business ethics.
IV. The Growing Importance of Retailers and Retailing
LO 1-3 Analyze the changing
retail industry.
See PPT 1-17
A. Evolution of the Retail Industry
• Fifty years ago, the retail industry consisted of small,
independent, local retailers competing against other small,
independent retailers in the same community.
• The development of information systems is one of the
forces facilitating the growth of large retail firms—the shift
from an industry dominated by small local retailers to large
multinational chains.
• Retailing is becoming a global industry as more retailers
pursue growth by expanding their operations to other
countries.
The largest retailers in the world
are shown in Exhibit 1–4
Are students surprised by any
companies on the list? Why or
Discuss how some companies are
doing a good job of dealing with
changing customer needs and
others are not.
What global retailers have
students experienced while
merchandise through different retail formats (such as
Target).
• Though 2014 revenues for 250 of the world’s top retailers
approached $4.5 trillion, an estimated $100 billion of that
amount went to just four massive retailers. About one-
quarter of the retailers included in the top 250 list actually
account for less than $5 billion in revenues total.
Ask students what type of
V. Management and Entrepreneurial Opportunities
• Retailing provides personal opportunities to work for a
company in an exciting, challenging environment or to
start an entrepreneurial venture.
LO 1-4 Recognize the
opportunities for you in
retailing.
A. Management Opportunities
• Retailers employ people with expertise and interests in
finance, accounting, human resource management, supply
chain management, and computer systems, as well as
management and marketing.
• Senior buyers and others in higher managerial positions
and store managers make between $120,000 and
$300,000.
See PPT 1-18, 1-19, and 1-20 for
more information and examples
of opportunities in the retailing
field.
students think that retailing is not
a good job to get after
graduation?
B. Entrepreneurial Opportunities
• Retailing provides opportunities for people wishing to start
their own business. Many retail entrepreneurs are among
the wealthiest people in the United States.
Examples of entrepreneurs in
retail are shown in PPT 1-21 and
1-22.
VI. The Retail Management Decision Process
LO 1-5 Understand the strategic
A. Understanding the World of Retailing (Section I)
• Retail managers need a good understanding of their
environment, especially their customers and competition,
before they can develop and implement effective
strategies.
See PPT 1-23 for the Retail
Management Decision Process
Ask students about some changes
occurring in the environment now
that will affect retailing in general
and specific retailers. Corporate
1. Competitors
• A retailer’s primary competitors are those with the same
format. Thus, department stores compete against other
department stores and supermarkets compete with other
supermarkets. This competition between retailers with the
same format is called intratype competition.
• Competition between retailers that sell similar
merchandise using different formats, such as discount and
department stores, is called intertype competition.
• Increasing intertype competition has made it harder for
See PPT 1-25
In going through this section, you
might pick a specific local retailer.
Ask students to identify the
retailer’s customers, intratype
department store competing
against another department store
in the same mall.
a store’s proximity to competitors is a critical factor in
identifying competition.
• Management’s view of competition also can differ,
depending on the manager’s position within the retail firm.
Works or McDonald’s.
2. Customers
• Retailers are responding to broad demographic and life-
style trends in our society, such as the growth in the
elderly and minority segments of the U.S. population and
the importance of shopping convenience to the rising
number of two-income families.
Query students on the specific
impacts of an aging population or
dual-income households on
retailing, including retail location,
store layout, etc. What needs for
specific types of merchandise and
B. Developing a Retail Strategy (Section II)
• Understanding of the macro- and microenvironments is
needed to formulate and implement a retail strategy.
See PPT 1-32.
1. The retail strategy indicates how the firm plans to focus its
resources to accomplish its objectives.
How can one retailer gain long-
term competitive advantage over
2. Strategic Decision Areas
• Key strategic decision areas include the determination of
market strategy, financial strategy, location strategy,
organizational structure and human resource strategy,
information systems and supply chain strategies, and
customer relationship management (CRM) strategies.
retailer then decides what, if any, strategy changes are
needed to take advantage of new opportunities or avoid
new threats in the environment.
• Retailers, like most businesses, want to develop repeat
purchases and loyalty in their best customers. Customer
Relationship Management (CRM) is a business philosophy
and set of strategies, programs, and systems that focus on
identifying and building loyalty with the firm’s most valued
customers.
C. Implementing the Retail Strategy (Sections III and IV)
• To implement the retail strategy, management develops a
retail mix that satisfies the needs of its target market
better than its competitors.
See PPT 1-33 for Key Decision
Variables for Retailers.
Ask students what McDonald’s
mix elements used by an upscale
restaurant in town. Why are the
retail mixes of these two types of
restaurants different? [They have
different target markets with
different needs.]