Chapter 02 – Types of Retailers
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CHAPTER 2
TYPES OF RETAILERS
ANNOTATED OUTLINE
INSTRUCTOR NOTES
I. Retailer Characteristics
• The retail industry is always evolving. As
consumer needs and competition within the
industry change, new retail formats are
created to respond to those changes.
• The most basic characteristic of a retailer is
its retail mix – the elements used to satisfy
its customers’ needs.
compare the retail mixes of one of the specialty
stores and the local discount store (e.g., Wal-
Mart). Use this comparison to illustrate how
the competition between the two specialty
stores is stronger than the competition between
the specialty store and the discount store.
A. 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, with
B. 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 service policies
of a specialty store like Apple and a local
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accepting personal checks, displaying
merchandise, providing parking, and being
open long and convenient hours.
department store or an Internet retailer.
C. 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 students why all
retailers don’t have this type of offering?
Retailers have constraints of money , size of
II. Food Retailers
• Twenty years ago, consumers purchased
food primarily at conventional
supermarkets. Now conventional
supermarkets account for only 60 percent
of food sales.
See PPT 2-13
Where do students make the majority of their
off-campus food purchases? What are the pros
and cons of these different food retailer
formats?
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A. Supermarkets
• A conventional supermarket is a self-
service food store offering groceries, meat,
produce, and limited non-food items.
See PPT 2-14
Ask students to consider the retail mixes of the
major supermarkets in the area surrounding
1. Trends in Supermarket Retailing
• Today, conventional supermarkets are
under substantial competitive pressure.
Supercenters are attracting customers with
their broader assortments and general
merchandise at attractive prices. Full-line
discount chains and extreme value retailers
are increasing the amount of shelf space
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 fulfilled by conventional
supermarkets that can’t be filled through other
food retailing formats? Based on these
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offering more private-label brands.
• Through adjustments to the traditional
merchandise mix, conventional
supermarkets are also targeting more ethnic
shoppers.
• Conventional supermarkets chains are
leveraging their quality reputations to offer
more private-label merchandise. Private-
label brands benefit both customers and
retailers.
B. Supercenters
• Supercenters are the fastest growing retail
category. At 150,000 to 220,000 square
foot these stores offer a wide variety of
food and non-food merchandise. The
largest supercenters are Wal-Mart
supercenters, Meijer, Kmart, Fred Meyer (a
division of Kroger), and Target.
experience.
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. Why is the supercenter more
attractive than a hypermarket in the U.S., but
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• General merchandise items are often
purchased at supercenters. These items
have higher margins, which allows
supercenters to offer food items at a more
aggressive price.
• 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 with a focus on perishables.
Ask students if they prefer the supercenter model to
a traditional supermarket? How do students feel
about the growth of Walmart? Do students prefer
Walmart’s format over Target? Why?
C. Warehouse Club
• 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.
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
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• Warehouse clubs reduce prices by using
low-cost locations and inexpensive store
designs, and offering little customer
service. They reduce inventory holding
costs by carrying a limited assortment of
fast-selling items and buying merchandise
opportunistically.
Are warehouse clubs wholesalers or retailers?
(When they sell to small businesses they are
wholesalers. When they sell to individual
members for personal or household use, they
are retailers.)
D. Convenience Stores
• Convenience stores provide a limited
variety and 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.
• Convenience stores are facing increasing
competition from other retail formats,
especially from supercenters and
supermarket chains who have added
gasoline to their merchandise offerings,
offering tying gasoline sales to their
frequent shopper programs.
See PPT 2-19 for an overview of the
characteristics of convenience stores
Ask students to give examples of local
convenience stores.
Which products do they tend to buy most often
What services do students believe would make a
convenience store more “convenient”?
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III. General Merchandise Retailers
• The major types of general merchandise
retailers are department stores, full-line
discount stores, specialty stores, category
specialists, home improvement centers, off–
price retailers, and extreme value retailers.
See PPT 2-20
PPT 2-20 compares the various types of general
merchandise retailers along several
characteristics.
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.
• Each department within the store has a
specific selling space allocated to it as well
as salespeople to assist customers, often
resembling a collection of specialty shops.
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?
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• Today many customers question the
benefits of shopping at department stores
due to: (1) lack of convenient locations, (2)
decreases in customer service and (3)
relatively high prices.
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. They offer
both private and national brands.
See PPT 2-24
Discuss the target markets of the three largest full-
line discount store chains (Wal-Mart, Target and
Kmart). How will the category specialists (Toys R
Us, Staples, and Home Depot) affect the retail
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.
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.
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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.
• In response to this increasing competitive
intensity, the category killers continue to
concentrate on reducing costs by increasing
operating efficiency and acquiring smaller
chains to gain scale economies, although
some category killers, like Home Depot
and Lowe’s are attempting to differentiate
themselves with service through licensed
contractors.
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.
See PPT 2-26
Why do customers go to specialty stores?
What do they like/dislike about them?
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E. Drugstores
• Drugstores are specialty stores that
concentrate on health and personal
grooming merchandise. Pharmaceuticals
often represent 50 percent of drugstore
sales and an even greater percentage of
their profits.
• In response, drug store chains are building
larger stand-alone stores offering a wider
assortment of merchandise, more
frequently purchased food items, and drive-
through windows for picking up
prescriptions. Also, drugstore retailers are
encouraging pharmacists to take the time to
provide personalized service.
See PPT 2-27
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
See PPT 2-28 for a summary of issues facing
extreme value retailers.
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• Despite some of these chains’ names, few
just sell merchandise for $1. Rather, the
names imply a good value but do not limit
prices to the arbitrary dollar price point.
merchandise.
G. Off-Price Retailers
* Off-price retailers, also known as close-
out retailers, offer an inconsistent
assortment of brand name merchandise at
low prices.
* Off price retailers can sell brand name and
even designer-label merchandise at low
prices due to their unique buying and
merchandising practices. Most
merchandise is bought opportunistically
from manufacturers or other retailers with
excess inventory at the end of the season.
Ask students to give examples of local off-price
retailers. What do consumers like about off-
price retailers? What don’t they like?
See PPT 2-29 for a summary of the issues
facing off-price retailers
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time they visit the store.
* Outlet stores are off-price retailers owned
by manufacturers, or by department or
specialty store chains.
* Outlet stores owned by manufacturers are
frequently referred to as factory outlets.
IV Differences between Services and
Merchandise Retailers
* Four important differences in the nature of
the offering provided by services and
merchandise retailers are: (1) intangibility,
(2) simultaneous production and
consumption, (3) perishability, and (4)
inconsistency of the offering to customers.
PPT 2-30
* Services retailers also have difficulty in
evaluating the quality of services they are
providing. To evaluate the quality of their
offering, services retailers place emphasis
on soliciting customer evaluations and
complaints.
1. Intangibility
* Services are generally intangible —
customers cannot see, touch, or feel them.
Services are performances or actions rather
than objects.
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
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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.
* Finally, the services retailer often does not
get a second chance to satisfy the needs of
their customers. While customers can
return damaged merchandise to a store,
customers that are dissatisfied with
services have limited recourse. Thus it is
critical for services retailers to get it right
the first time.
What problems does simultaneous production
cause for the services retailer?
3. Perishability
* Because the creation and consumption of
services is inseparable, services are
perishable. They can’t be saved, stored, or
resold. This is in contrast to 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 do to
minimize the problem?
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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 services retailer? Are there services
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) franchises.
See PPT 2-34
.
A. Independent, Single-Store
Establishments
* To better compete against corporate chains,
some independent retailers join a
wholesale-sponsored voluntary chain. A
wholesale-sponsored voluntary
cooperative group is an organization
operated by a wholesaler offering a
merchandising program to small,
independent retailers on a voluntary basis.
Ask students to give examples of local
independent, single-store retailers. Do they
B. Corporate Retail Chains
Wal-Mart has pursued a strategy of opening
stores on the outskirts of small rural towns
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defining and implementing its strategy.
Discuss the pros and cons of this strategy in
class. What ramifications may result?
(Monopolizing market, demise of small stores,
potential to become major employer in rural
area).
C. Franchising
* In a franchise contract, the franchisee pays
a lump sum plus a royalty on all sales for
the right to operate a store in a specific
location. The franchisee also agrees to
operate the outlet as per the procedures
prescribed by the franchisor. The
franchisor provides assistance in locating
and building the store, developing the
products and/or services sold, management
training, and advertising.
Ask students to give examples of local
franchises. If they wanted to own a retail
Franchising form of retail ownership.
VIII. Summary
• Over the past 30 years, U.S. retail markets
have been characterized by the emergence
of many new retail institutions. Traditional
institutions have been joined by category
specialists, hypermarkets and superstores,
extreme value retailers, and nonstore
retailers among others.
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store.
* The first step is to define the scope of the
comparison; the comparison might be
between two retail chains, two specific
stores, two departments, or two categories
of merchandise, depending on
responsibilities of the person undertaking
the comparison.
compare different institutions selling the same
merchandise category. For example, men’s
suits in a department store and men’s specialty
store, athletic shoes in a discount store and
specialty shoe store, CD’s in a discount store
and a specialty music store.
ANSWERS TO SELECTED “GET OUT AND DO ITS”
2. GO SHOPPING Go to an athletic footwear specialty store such as Foot Locker, a sporting
goods category specialist, 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 of where you shop, what you buy, and how much you spend
for two weeks. How did each retailer meet your shopping needs? Get your parents to do the same
Chapter 02 – Types of Retailers
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 how this could be a potential opportunity for growth for this supermarket.
5. INTERNET EXERCISE Data on U.S. retail sales are available at the U.S. Bureau of the
(found in the Monthly Retail Trade Report Section). Which categories of retailers have the
largest percentage of sales in November and December? Do your findings make sense to you?
The higher level of sales in the last quarter of the year are likely due to holiday sales. Do these
categories make sense to students? Are there other categories students would expect to see
similar sales?
6. INTERNET EXERCISE Three large associations of retailers are the National Retail
report on 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
also report on federal regulations, like taxes and swipe fees, that impact retailing. The Food
Marketing Institute will provide information on trends in food retailing and manufacturing as