Chapter 01 – Introduction to the World of Retailing
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CHAPTER 1
INTRODUCTION TO THE WORLD OF RETAILING
ANNOTATED OUTLINE
INSTRUCTOR’S NOTES
I. The World of Retailing
• Retailing is evolving into a global, high-
tech business.
• Retailing is a common part of our everyday
lives.
• Retail managers today must make complex
decisions on selecting target markets and
retail locations, determining what
merchandise and services to offer,
negotiating with suppliers and distributing
merchandise to stores, training and
motivating sales associates, and deciding
how to price, promote and present
merchandise.
Ask students about where they bought their
textbook for the course. One will likely get a
mix of responses, including the college
bookstore or the downtown store, in addition
to the Internet or even from another student.
II. What Is Retailing?
See PPT 1-3, 1-4
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A. A Retailer’s Role in a Supply Chain
• Retailers are the final business in a supply
chain that links manufacturers with
consumers. A supply chain is a set of
firms that make and deliver a given set of
goods and services to the ultimate
consumer.
• In some supply chains, manufacturing,
wholesaling, and retailing activities are
performed by independent firms.
• 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, Wal-Mart,
and Office Depot —do both wholesaling
and retailing activities
See PPT 1-8, 1-9, 1-10
A typical supply chain network is illustrated in PPT
1-10
Why is Victoria’s Secret vertically integrated
while the local department store is not?
Advantages:
Develop unique merchandise only sold in your
stores.
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B. Retailers Create Value
• Retailers undertake business activities and
perform functions that increase the value of
the products and services they sell to
consumers.
• These functions are:
PPT 1-5, 1-6, 1-7 illustrate the value question
for retailers.
Note that retailers and distributors account for
a lot of the cost of a product. A retailer’s
markup of 50% adds half of the cost in making
and getting the product to the consumer.
Students could be given a hypothetical issue to
debate: Suppose the local grocery store markups
all its products by about 50%? Is the grocery store
profitable?
1. Providing Assortments
• Offering an assortment enables customers
to choose from a wide selection of brands,
designs, sizes, colors, and prices in one
location.
Ask students to describe the difference in the
assortments of bicycles provided by Wal-Mart
and the local bike shop. What is the difference
in assortment of body lotions and creams
provided by Bath and Body Works and Kmart?
2. Breaking Bulk
• To reduce transportation costs,
How many students have made purchases at
Sam’s Club/BJ’s/Costco? What items have the
students or family members purchased in bulk?
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manufacturers and wholesalers typically
ship cases/cartons of products to retailers.
• Retailers then offer the products in smaller
quantities tailored to individual consumers’
and households’ consumption patterns.
Discuss the advantages of buying in bulk. For
what purchases and what types of consumers
does buying in bulk make sense?
4. Providing Services
• Retailers provide services such as credit,
product displays, and sales staff to make it
easier for customers to compare, buy and
use products.
Ask the students what kind of services retailers
provide. Some services are: acceptance of
credit cards, alteration of merchandise,
assembly of merchandise, bridal registry,
check cashing, child-care facilities, credit,
delivery to home, demonstrations of
merchandise, displaying merchandise,
dressing rooms, gift wrapping, lay-away plans,
5. Increasing the value of products and
services.
• By providing assortments, breaking bulk,
holding inventory, and providing services,
retailers increase the value consumers
receive from their products and services.
Ask students how a computer retail store can
increase the value of a computer for a
consumer. Compare the service of a computer
store with an on-line store like Dell or with an
Apple store.
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European Union, China and India, the US
distribution system has the greatest retail
density with the greatest concentration of
large retail firms. The combination of large
stores and large firms results in a very
efficient distribution system.
• Factors that have created differences in
distribution systems include: (1) social and
political objectives, (2) geography, and (3)
market size.
differences in distribution systems in various
nations.
How do differences in distribution systems lead to
III. Social and Economic Significance Of
Retailing
See PPT 1-14
A. Social Responsibility
• Retailers are socially responsible
businesses. Corporate social
responsibility 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.
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B. Top 20 Global Retailers/ Evolution of
Retailing
• Retailing is becoming a global industry as
more retailers pursue growth by expanding
their operations to other countries. 9 of the
top 20 are headquartered in the United
States.
• The 20 largest retailers account for about
35% of the world market. Of the top global
retailers, 36% are headquartered in the
U.S., 36% in Europe and 14% in Japan.
See PPT 1-17
Are students surprised by any companies on
the list? Why or why not?
IV. Management and Entreprenuerial
Opportunities in Retailing
A. Management Opportunities
• Retailers employ people with expertise and
interest in finance, accounting, human
resource management, logistics, computer
systems, and marketing.
• A typical buyer in a department store earns
$50,000 to $60,000 per year. Store
managers often make over $100,000.
See PPT 1-18, 1-19, and 1-20 for more
information and examples of opportunities in
the retailing field
Ask students what they think of retailing as a
career. If there are many opportunities and
they seem to pay well, why do most students
think that retailing is not a good job to get
after graduation?
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capitalized on entrepreneurial
V. The Retail Management Decision Process
• The book is organized around the
management decisions retailers make to
provide value to their customers and
develop an advantage over their
competitors.
Use this to discuss the organization of the
course and the book
A. Understanding the World of Retailing
(Section I)
See PPT 1-23 for the Retail Management
Decision Process
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.
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 competitors,
intertype competitors, and environmental
trends affecting the retailer.
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services.
• Since convenience of location is important
in store choice, 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.
Ask students to give an example of intertype
competition – drug store and discount store
that sell the same brand of cosmetics.
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
services do these markets create?
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1. 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.
• The retailer’s market strategy must be
consistent with the firm’s financial
objectives. Location decisions are
important for both consumer and
competitive reasons. A retailer’s
organizational design and human resource
management strategies are intimately
related to its market strategy. Retail
information and supply chain management
systems will be significant opportunities
for retailers to gain strategic advantage in
the coming decade.
C. Implementing the Retail Strategy (Sections
III and IV)
• To implement the retail strategy,
See PPT 1-33 for Key Decision Variables for
Retailers
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1. Whole Foods Market: An
Organic and Natural Food Supermarket
Chain
• When John Mackey, founder and CEO of
Whole Foods Market, found that textbooks
weren’t going to provide the answers he
was looking for, he dropped out of college,
lived in a vegetarian housing co-op, and
worked in an Austin natural food store.
• The stores offer vegetarians as well as
health-conscious nonvegetarians a one-stop
shopping experience.
• The flower power of the 60’s is reflected in
Mackey’s guiding management principles
– love, trust, and employee empowerment.
See PPT 1-28
Ask students what Whole Foods needs to do to
implement its strategy effectively. Have them
discuss each of the elements of the retail mix
used by Whole Foods. Compare the retail mix
elements used by Whole Foods to the retail mix
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and pleasure.
VI. Ethical and Legal Considerations
• Retail managers need to consider the
ethical and legal implications of their
decisions in addition to the effects those
decisions have on the profitability of their
firms and the satisfaction of their
customers.
Ask students who have worked for retailers
whether the firm had a code of ethics. What
were some common elements of those codes?
See PPT 1-35 for a review of ethical decision
making situations and ethical decision strategies.
VII. Summary
• Retailing provides considerable value to
consumers while giving people
opportunities for rewarding and
challenging careers.
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stores, food stores, and discount stores.
people to reach key management positions
management ranks among the highest in
VIII. Appendix 1A: Careers in Retailing
• Retailing offers exciting and challenging
career opportunities. Few other industries
grant as many responsibilities to young
managers.
See PPT 1-32, 1-33, and 1-34
A. Career Opportunities
• Career opportunities in retail firms occur in
merchandising/buying, store management,
and corporate staff functions.
1. Store Management
• Successful store managers must have the
ability to lead and motivate employees.
Store management involves all the
disciplines necessary to run a successful
business: sales planning and goal setting,
overall store image and merchandise
presentation, budgets and expense control,
customer service and sales supervision,
personnel administration and development,
and community relations.
2. Merchandise Management
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3. Corporate Staff
• Corporate staff opportunities include
positions in MIS, operations/distribution,
promotions/advertising, loss prevention,
finance/control, real estate, store design,
and human resource management.
B. Myths About Retailing
1. Sales Clerk Is the Entry-Level Job in
Retailing
2. College and University Degrees Are Not
Needed to Succeed in Retailing
3. Retail Jobs Are Low Paying
ANSWERS TO SELECTED “GET OUT AND DO ITS”
2. GO SHOPPING Students should visit a local retailer and discuss the different elements of
the retailer, its variety, assortment, location, etc. How do these variables help the retailer
succeed or attract customers?
3. INTERNET EXERCISE Data on U.S. retail sales are available at the U.S. Bureau of the
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information about retail careers with these companies/organizations. Review the information
about the different positions described. In which positions would you be interested? Which
positions are not of interest to you? Which employer would interest you? Why?
5. INTERNET EXERCISE Choose one of the top 20 retailers (Exhibit 1-5). Go to the
company’s Web site and find out how the company started and how it has changed over time.
among the largest retailers.
6. INTERNET EXERCISE Go online and find an example of a retailer involved in corporate
social responsibility. In a brief paragraph describe how this retailer is taking steps to contribute
to a social or ethical cause.
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ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS
1. How do retailers add value to the products bought by consumers?
Retailers add value in a number of ways. First, retailers provide an assortment of products
2. What is your favorite retailer? Why do you like this retailer? What would a competitive
retailer have to do to get your patronage?
Students may choose an example from a wide variety of retailers. Answers will likely range
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3. What are the benefits and limitations of purchasing a home entertainment system
directly from a number of component manufacturers rather than from a retailer?
Students may indicate benefits typically associated with “removing the middleman” such as
reduced price and effort in completing the transaction.
4. What retailers would be considered intratype competitors for a convenience store chain
such as 7-Eleven? What firms would be intertype competitors?
Chapter 01 – Introduction to the World of Retailing
Discussion should lead to those convenience stores in the local market offering the traditional
5. How does Walmart contribute and detract from the communities in which it operates
stores?
Students may argue either in favor of or against the large discount stores, such as Wal-Mart.
The arguments against may include:
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6. The same brand and style of men’s suits are sold at different prices at a department
store like Macy’s and at a specialty store like Men’s Wearhouse. Why would a
customer choose to buy the suit from one store rather than the other?
There are many different reasons why customers choose one retailer over another. Some
7. Compare and contrast the retail mixes of department stores and full-line discount
stores. Use bullet points or a table to list the similarities and differences.
A department store’s retail mix would include:
• Customer Service- Department stores provide a higher level of customer service with
increased sales associate interactions and add-on services like alterations, shipping
Chapter 01 – Introduction to the World of Retailing
8. An entrepreneur approaches you about how to sell her new writing pens to consumers.
The pens have a unique benefit-they are more comfortable to use than traditional pens.
The entrepreneur is concerned the retailer she has approached wanted to buy the pens
from her at $10.00 a piece and then sell the pens in their stores for $18.00 to consumers.
The entrepreneur is dismayed at the extra $8.00 the retailers are getting and has
decided to sell the product directly to consumers for $10.00. She wants to know your
opinion. What do you think? Why?
Students’ answers may vary on this question. Traditionally, the entrepreneur would be better
9. From a personal perspective how does retailing rate as a potential career compared to
others you are considering? Why?
After reading the chapter, some students may already be attracted to retailing as a career,
10. In this chapter, some socially responsible activities engaged in by retailers are
described. Take the perspective of a stockholder in one of these companies. What
effect will these activities have on the value of its stock? Why might they have a positive
or negative effect?
Sometimes CSR initiatives are expensive for a company, making the value of the stock drop.