Because of permissions issues, some material (e.g.

, photographs) has been removed from this chapter, though reference to it may occur in the text. The omitted content was intentionally deleted and is not needed to meet the University's requirements for this course.

part one
An Overview of Strategic Retail Management
Welcome to Retail Management: A Strategic Approach, 10e. We hope you find this book to be both informative and reader-friendly. Please visit our Web site (www.prenhall.com/bermanevans) for interactive, useful, up-to-date features that complement the textincluding chapter hot links, a study guide, and much more! The complete Web features are highlighted on the end pages of the print book. In Part One, we explore the field of retailing, establishing and maintaining relationships, and the basic principles of strategic planning and the decisions made in owning or managing a retail business. Chapter 1 describes retailing, shows why it should be studied, and examines its special characteristics. We note the value of strategic planning, including a detailed review of Target Corporation (a titan of retailing). The retailing concept is presented, along with the total retail experience, customer service, and relationship retailing. The focus and format of the text are detailed. Chapter 2 looks at the complexities of retailers relationshipswith both customers and other channel members. We examine value and the value chain, customer relationships and channel relationships, the differences in relationshipbuilding between goods and service retailers, the impact of technology on retailing relationships, and the interplay between ethical performance and relationships in retailing. The chapter ends with an appendix on planning for the unique aspects of service retailing. Chapter 3 shows the usefulness of strategic planning for all kinds of retailers. We focus on the planning process: situation analysis, objectives, identifying consumers, overall strategy, specific activities, control, and feedback. We also look at the controllable and uncontrollable parts of a retail strategy. Strategic planning is shown as a series of interrelated steps that are continuously reviewed. A detailed computerized strategic planning template, available at our Web site, is described. At the end of the chapter, there is an appendix on the strategic implications of global retailing.

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Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

2008933025 Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

Chapter 1
AN INTRODUCTION
TO

RETAILING

A perfect example of a dream come true is the story of Sam Walton, the founder of Wal-Mart (www.walmart.com). From a single store, Wal-Mart has grown to become the largest company in the United States in terms of revenues. And today it dwarfs every other retailer. In 2005, Wal-Mart was rated as one of Americas top five most admired corporations by Fortune magazine.

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As a store owner in Bentonville, Arkansas, Sam Walton had a simple strategy: to take his retail stores to rural areas of the United States and then sell goods at the lowest prices around. Sam was convinced that a large discount format would work in rural communities. Wal-Marts strategy is based on everyday low prices (which reduces its advertising costs), having the lowest prices on 1,500 key items, and on a low-cost distribution system (based on scanning and a satellite communications system). Waltons first discount store opened in 1962 and used such slogans as We sell for less and Satisfaction guaranteed, two of the retailers current hallmarks. By the end of 1969, Wal-Mart had expanded to 31 locations. Within a year, Wal-Mart became a public corporation and rapidly grew on the basis of additional discount stores and global expansion. Wal-Mart has become a true textbook example of how a retailer can maintain growth without losing sight of its original core values of low overhead, the use of innovative distribution systems, and customer orientation whereby employees swear to serve the customer. So help me, Sam.1

chapter objectives
1. To define retailing, consider it from various perspectives, demonstrate

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its impact, and note its special characteristics 2. To introduce the concept of strategic planning and apply it 3. To show why the retailing concept is the foundation of a successful business, with an emphasis on the total retail experience, customer service, and relationship retailing 4. To indicate the focus and format of the text

3
Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

4 PART ONE AN OVERVIEW OF STRATEGIC RETAIL MANAGEMENT

OVERVIEW
Retailing encompasses the business activities involved in selling goods and services to consumers for their personal, family, or household use. It includes every sale to the final consumerranging from cars to apparel to meals at restaurants to movie tickets. Retailing is the last stage in the distribution process. Retailing today is at a fascinating crossroads. On the one hand, retail sales are at their highest point in history. Wal-Mart is now the leading company in the world in terms of salesahead of ExxonMobil, General Motors, and other manufacturing giants. New technologies are improving retail productivity. There are lots of opportunities to start a new retail businessor work for an existing oneand to become a franchisee. Global retailing possibilities abound. On the other hand, retailers face numerous challenges. Many consumers are bored with shopping or do not have much time for it. Some locales have too many stores, and retailers often spur one another into frequent price cutting (and low profit margins). Customer service expectations are high at a time when more retailers offer self-service and automated systems. At the same time, some retailers remain unsure what to do with the Web; they are still grappling with the emphasis to place on image enhancement, customer information and feedback, and sales transactions. These are the key issues that retailers must resolve: How can we best serve our customers while earning a fair profit? How can we stand out in a highly competitive environment where consumers have so many choices? How can we grow our business while retaining a core of loyal customers? Our point of view: Retail decision makers can best address these questions by fully understanding and applying the basic principles of retailing in a well-structured, systematic, and focused retail strategy. That is the philosophy behind Retail Management: A Strategic Approach. Can retailers flourish in todays tough marketplace? You bet! Just look at your favorite restaurant, gift shop, and food store. Look at the growth of Costco, Starbucks, and Lowes. What do they have in common? A desire to please the customer and a strong market niche. To prosper in the long term, they all need a strategic plan and a willingness to adapt, both central thrusts of this book. See Figure 1-1.

Visit Lowes Web site (www.lowes.com) and see what drives one of the worlds hot retailers.

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CHAPTER 1 AN INTRODUCTION TO RETAILING

In Chapter 1, we look at the framework of retailing, the importance of developing and applying a sound retail strategy, and the focus and format of the text.

THE FRAMEWORK OF RETAILING

To better appreciate retailings role and the range of retailing activities, let us view it from three different perspectives:

Suppose we manage a manufacturing firm that makes vacuum cleaners. How should we sell these items? We could distribute via big chains such as Best Buy or small neighborhood appliance stores, have our own sales force visit people in their homes (as Aerusformerly Electroluxdoes), or set up our own stores (if we have the ability and resources to do so). We could sponsor TV infomercials or magazine ads, complete with a toll-free phone number. Suppose we have an idea for a new way to teach first graders how to use computer software for spelling and vocabulary. How should we implement this idea? We could lease a store in a strip shopping center and run ads in a local paper, rent space in a Y and rely on teacher referrals, or do mailings to parents and visit children in their homes. In each case, the service is offered live. But there is another option: We could use an animated Web site to teach children online. Suppose that we, as consumers, want to buy apparel. What choices do we have? We could go to a department store or an apparel store. We could shop with a full-service retailer or a discounter. We could go to a shopping center or order from a catalog. We could look to retailers that carry a wide range of clothing (from outerwear to jeans to suits) or look to firms that specialize in one clothing category (such as leather coats). We could surf around the Web and visit retailers around the globe.

Service businesses such as Lawn Doctor (www.lawndoctor.com) often engage in retailing.

There is a tendency to think of retailing as primarily involving the sale of tangible (physical) goods. However, retailing also includes the sale of services. And this is a big part of retailing! A service may be the shoppers primary purchase (such as a haircut) or it may be part of the shoppers purchase of a good (such as furniture delivery). Retailing does not have to involve a store. Mail and phone orders, direct selling to consumers in their homes and offices, Web transactions, and vending machine sales all fall within the scope of retailing. Retailing does not even have to include a retailer. Manufacturers, importers, nonprofit firms, and wholesalers act as retailers when they sell to final consumers. Let us now examine various reasons for studying retailing and its special characteristics.

Reasons for Studying Retailing

Learn more about the exciting array of retailing career opportunities (www.allretailjobs.com).
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Retailing is an important field to study because of its impact on the economy, its functions in distribution, and its relationship with firms selling goods and services to retailers for their resale or use. These factors are discussed next. A fourth factor for students of retailing is the broad range of career opportunities, as highlighted with a Careers in Retailing box in each chapter, Appendix A at the end of this book, and our Web site (www.prenhall.com/bermanevans). See Figure 1-2.

Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

6 PART ONE AN OVERVIEW OF STRATEGIC RETAIL MANAGEMENT

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The Impact of Retailing on the Economy

Retailing is a major part of U.S. and world commerce. Retail sales and employment are vital economic contributors, and retail trends often mirror trends in a nations overall economy. According to the Department of Commerce, annual U.S. retail store sales exceed $4 trillionrepresenting one-third of the total economy. Telephone and mail-order sales by nonstore retailers, vending machines, direct selling, and the Web generate hundreds of billions of dollars in additional yearly revenues. And personal consumption expenditures on financial, medical, legal, educational, and other services account for another several hundred billion dollars in annual retail revenues. Outside the United States, retail sales are several trillions of dollars per year.

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CHAPTER 1 AN INTRODUCTION TO RETAILING

The Occupational Outlook Handbook (www.bls.gov/oco) is a great source of information on employment trends.

Durable goods storesincluding motor vehicles and parts dealers; furniture, home furnishings, electronics, and appliances stores; and building materials and hardware storesmake up 38 percent of U.S. retail store sales. Nondurable goods and services storesincluding general merchandise stores; food and beverage stores; health and personal care stores; gasoline stations; clothing and accessories stores; sporting goods, hobby, book, and music stores; eating and drinking places; and miscellaneous retailerstogether account for 62 percent of U.S. retail store sales. The worlds 100 largest retailers generate more than $2.4 trillion in annual revenues. They represent 17 nations. Forty-three of the 100 are based in the United States, 12 in Great Britain, 9 in France, 9 in Germany, and 9 in Japan.2 Table 1-1 shows the 10 largest U.S. retailers. In 2004, they produced more than $700 billion in sales, operated about 25,000 stores, and had 3.5 million employees. Visit our Web site for links to a lot of current information on retailing (www.prenhall.com/bermanevans). Retailing is a major source of jobs. In the United States alone, 25 million peopleabout one-sixth of the total labor forcework for traditional retailers (including food and beverage places). Yet this figure understates the true number of people who work in retailing because it does not include the several million persons employed by service firms, seasonal employees, proprietors, and unreported workers in family businesses or partnerships. From a cost perspective, retailing is a significant field of study. In the United States, on average, 30 cents of every dollar spent in department stores, 44 cents spent in furniture and home furnishings stores, and 28 cents spent in grocery stores go to the retailers to cover operating costs, activities performed, and profits. Costs include rent, displays, wages, ads, and maintenance. Only a small part of each dollar is profit. In 2004, the 10 largest U.S. retailers after-tax profits averaged

TABLE 1-1

The 10 Largest Retailers in the United States

2004 2004 After-Tax Sales Earnings (millions) (millions)
$289,189 $10,267

Rank
1

Company
Wal-Mart

Web Address
www.walmart.com

Major Retail Emphasis

Full-line discount stores, supercenters, membership clubs Home centers, design centers Supermarkets, convenience stores, jewelry stores Full-line discount stores, supercenters Membership clubs Supermarkets, drugstores Drugstores Home centers Department stores, specialty stores Supermarkets

2005 Number of Stores

5,200+

2005 Number of Employees

1,500,000+

2 3 4 5 6 7 8 9 10

Home Depot Kroger Target Costco Albertsons Walgreens Lowes

www.homedepot.com www.kroger.com www.target.com www.costco.com www.albertsons.com www.walgreens.com www.lowes.com

73,094 56,434 49,934 48,107 40,052 37,508 36,464 36,099 35,823

5,001 (128) 3,198 882 444 1,350 2,176 (507) 560

1,800+ 3,800+ 1,350+ 450+ 2,300+ 4,750+ 1,100+ 2,400+ 1,800+

300,000+ 290,000+ 295,000+ 110,000+ 230,000+ 160,000+ 160,000+ 240,000+ 190,000+

Sears Roebuck www.sears.com Safeway www.safeway.com

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Sources: Largest U.S. Corporations, Fortune (April 18, 2005); and company annual reports.

Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

8 PART ONE AN OVERVIEW OF STRATEGIC RETAIL MANAGEMENT

FIGURE 1-3 The High Costs and Low Profits of RetailingWhere the Typical $100 Spent with Walgreens Went in 2004
Source: Computed by the authors from Walgreens 2004 Annual Report. Retailer's operating, personnel, advertising, and other costs

Manufacturer's costs and profits

Retailer's income taxes

Retailer's after-tax profits

$72.75

$21.50

$2.15 $3.60

3.3 percent of sales.3 Figure 1-3 shows costs and profits for Walgreens, a drugstore chain.

Retail Functions in Distribution

Retailing is the last stage in a channel of distributionall of the businesses and people involved in the physical movement and transfer of ownership of goods and services from producer to consumer. A typical distribution channel is shown in Figure 1-4. Retailers often act as the contact between manufacturers, wholesalers, and the consumer. Many manufacturers would like to make one basic type of item and sell their entire inventory to as few buyers as possible, but consumers usually want to choose from a variety of goods and services and purchase a limited quantity. Retailers collect an assortment from various sources, buy in large quantity, and sell in small amounts. This is the sorting process. See Figure 1-5. Another job for retailers is communicating both with customers and with manufacturers and wholesalers. Shoppers learn about the availability and characteristics of goods and services, store hours, sales, and so on from retailer ads, salespeople, and displays. Manufacturers and wholesalers are informed by their retailers with regard to sales forecasts, delivery delays, customer complaints, defective items, inventory turnover, and more. Many goods and services have been modified due to retailer feedback. For small suppliers, retailers can provide assistance by transporting, storing, marking, advertising, and pre-paying for products. Small retailers may need the same type of help from their suppliers. The tasks performed by retailers affect the percentage of each sales dollar they need to cover costs and profits. Retailers also complete transactions with customers. This means having convenient locations, filling orders promptly and accurately, and processing

FIGURE 1-4 A Typical Channel of Distribution

Manufacturer

Wholesaler

Retailer

Final consumer

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Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

CHAPTER 1 AN INTRODUCTION TO RETAILING 9

FIGURE 1-5 The Retailers Role in the Sorting Process
Manufacturer Brand A

Wholesaler
Manufacturer Brand B

Brand A customers Brand B customers

Manufacturer Brand C

Wholesaler
Manufacturer Brand D

Retailer

Brand C customers Brand D customers Brand E customers Brand F customers

Manufacturer Brand E

Wholesaler
Manufacturer Brand F

credit purchases. Some retailers also provide customer services such as gift wrapping, delivery, and installation. To make themselves even more appealing, many firms now engage in multi-channel retailing, whereby a retailer sells to consumers through multiple retail formats (points of contact). Most large retailers operate both physical stores and Web sites to make shopping easier and to accommodate consumer desires. Some firms even sell to customers through retail stores, mail-order catalogs, a Web site, and a toll-free phone number. See Figure 1-6. For these reasons, products are usually sold through retailers not owned by manufacturers (wholesalers). This lets the manufacturers reach more customers,

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10 PART ONE AN OVERVIEW OF STRATEGIC RETAIL MANAGEMENT

Sherwin-Williams (www.sherwin-williams. com) is not only a designer but also a retailer. reduce costs, improve cash flow, increase sales more rapidly, and focus on their area of expertise. Select manufacturers such as Sherwin-Williams and Polo Ralph Lauren do operate retail facilities (besides selling at traditional retailers). In running their stores, these firms complete the full range of retailing functions and compete with conventional retailers.

The Relationships Among Retailers and Their Suppliers

Relationships among retailers and suppliers can be complex. Because retailers are part of a distribution channel, manufacturers and wholesalers must be concerned about the caliber of displays, customer service, store hours, and retailers reliability as business partners. Retailers are also major customers of goods and services for resale, store fixtures, computers, management consulting, and insurance. These are some issues over which retailers and suppliers have different priorities: control over the distribution channel, profit allocation, the number of competing retailers handling suppliers products, product displays, promotion support, payment terms, and operating flexibility. Due to the growth of chains, retailers have more power than ever. Unless suppliers know retailers needs, they cannot have good rapport with them; and as long as retailers have a choice of suppliers, they will pick those that offer more. Channel relations tend to be smoothest with exclusive distribution, whereby suppliers make agreements with one or a few retailers that designate the latter as the only ones in specified geographic areas to carry certain brands or products. This stimulates both parties to work together to maintain an image, assign shelf space, allot profits and costs, and advertise. It also usually requires that retailers limit their brand selection in the specified product lines; they might have to decline to handle other suppliers brands. From the manufacturers perspective, exclusive distribution may limit their long-run total sales. Channel relations tend to be most volatile with intensive distribution, whereby suppliers sell through as many retailers as possible. This often maximizes suppliers sales and lets retailers offer many brands and product versions.

FIGURE 1-7 Comparing Exclusive, Intensive, and Selective Distribution

Exclusive Distribution Number of retailers Potential for conflict Support from supplier (retailer) Supplier's sales Retailer's brand selection Product (retailer) image Competition among retailers

Intensive Distribution

Selective Distribution

Lowest Medium

Highest

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Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

CHAPTER 1 AN INTRODUCTION TO RETAILING

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Around the World

RETAILING

Upscale Retailer Slowly Enters China

to build awareness for its brand when it first entered the Chinese market. Later, Vuitton sponsored a five-day classic car China Run from Dalian to Beijing, which attracted over 6 million people. Giorgio Armani (www.giorgioarmani.com) already has several stores in China and plans a total of 30 as of 2008. Prada (www.prada.com) planned to have 13 stores in China by the end of 2005.

Even though there is no Louis Vuitton (www.vuitton. com) store in either Philadelphia or Nashville, the luxury leather goods retailer just opened its 338th boutique in Qingdao, a Chinese sea resort. According to some market analysts, the China market may become the new Japan. While Japanese consumers account for approximately 41 percent of global luxury sales, the Chinese (including residents of Hong Kong) already account for 12 percent. A Goldman Sachs analyst predicts that the Chinese will account for one-fifth of total luxury sales by 2008 and become as important as the Japanese market by 2015. Since there are no glossy magazines in China, Vuitton used a touring exhibition on the history of luxury goods

Source: Sarah Raper Larenaudie, Luxury for the People! Time Style & Design (Spring 2005).

Competition among retailers selling the same items is high; and retailers may use tactics not beneficial to individual suppliers, as they are more concerned about their own results. Retailers may assign little shelf space to specific brands, set very high prices on them, and not advertise them. With selective distribution, suppliers sell through a moderate number of retailers. This combines aspects of exclusive and intensive distribution. Suppliers have higher sales than in exclusive distribution, and retailers carry some competing brands. It encourages suppliers to provide some marketing support and retailers to give adequate shelf space. See Figure 1-7.

The Special Characteristics of Retailing

Three factors that distinguish retailing from other types of business are noted in Figure 1-8 and discussed here. Each factor imposes unique requirements on retail firms. The average amount of a sales transaction for retailers is much less than for manufacturers. The average sales transaction per shopping trip is well under $100 for department stores, specialty stores, and supermarkets. This low amount creates a need to tightly control the costs associated with each transaction (such as credit verification, sales personnel, and bagging); to maximize the number of customers drawn FIGURE 1-8 Special Characteristics Affecting Retailers

Small average sale

Impulse purchases

Retailer's strategy

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Popularity of stores

Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

12 PART ONE AN OVERVIEW OF STRATEGIC RETAIL MANAGEMENT

to the retailer, which may place more emphasis on ads and special promotions; and to increase impulse sales by more aggressive selling. However, cost control can be tough. For instance, inventory management is often expensive due to the many small transactions to a large number of customers. A typical supermarket has several thousand customer transactions per week, which makes it harder to find the proper in-stock level and product selection. Thus, retailers are expanding their use of computerized inventory systems. Final consumers make many unplanned or impulse purchases. Surveys show that a large percentage of consumers do not look at ads before shopping, do not prepare shopping lists (or deviate from the lists once in stores), and make fully unplanned purchases. This behavior indicates the value of in-store displays, attractive store layouts, and well-organized stores, catalogs, and Web sites. Candy, cosmetics, snack foods, magazines, and other items are sold as impulse goods when placed in visible, high-traffic areas in a store, catalog, or Web site. Because so many purchases are unplanned, the retailers ability to forecast, budget, order merchandise, and have sufficient personnel on the selling floor is more difficult. Bloomingdales (www.bloomingdales.com) has a Web site to accompany its traditional stores and catalogs. Retail customers usually visit a store, even though mail, phone, and web sales have increased. Despite the inroads made by nonstore retailers, most retail transactions are still conducted in storesand will continue to be in the future. Many people like to shop in person; want to touch, smell, and/or try on products; like to browse for unplanned purchases; feel more comfortable taking a purchase home with them than waiting for a delivery; and desire privacy while at home. This store-based shopping orientation has implications for retailers; they must work to attract shoppers to stores and consider such factors as store location, transportation, store hours, proximity of competitors, product selection, parking, and ads.

THE IMPORTANCE OF DEVELOPING AND APPLYING A RETAIL STRATEGY

A retail strategy is the overall plan guiding a retail firm. It influences the firms business activities and its response to market forces, such as competition and the economy. Any retailer, regardless of size or type, should utilize these six steps in strategic planning: 1. Define the type of business in terms of the goods or service category and the companys specific orientation (such as full service or no frills). 2. Set long-run and short-run objectives for sales and profit, market share, image, and so on. 3. Determine the customer market to target on the basis of its characteristics (such as gender and income level) and needs (such as product and brand preferences). 4. Devise an overall, long-run plan that gives general direction to the firm and its employees. 5. Implement an integrated strategy that combines such factors as store location, product assortment, pricing, and advertising and displays to achieve objectives. 6. Regularly evaluate performance and correct weaknesses or problems when observed.

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Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

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To illustrate these points, the background and strategy of Target Storesone of the worlds foremost retailersare presented. Then the retailing concept is explained and applied.

Target Stores: The Successful Saga of an Upscale Discounter!4 Company Background

See the mass/class approach of Target Stores (www.target.com). Target Stores is the leading division of Target Corporation. A brief history of Target Stores appears at its Web site (www.target.com): Unlike most other mass merchandisers, we have department store roots. Back in 1961, Daytons department store identified a demand for a store that sold less expensive goods in a quick, convenient format. Target was born. In 1962, the first Target store opened in Roseville, Minnesota. We were the first retail store to offer well-known national brands at discounted prices. We paved new ground by implementing electronic cash registers storewide to monitor inventory and speed up guest service. We also began hosting an annual shopping event for seniors and people with disabilities, plus a toy safety campaign. Opening new stores all the time, we rolled out electronic scanning nationwide. In the 1990s, we launched our first Target Greatland store. Our Club Wedd bridal gift registry went nationwide in 1995, and Lullaby Club soon followed. We next opened our first SuperTarget store, which combined groceries and special services with a Target Greatland store. We introduced our credit card, the Target Guest Card. After divesting itself of the underperforming Mervyns and Marshall Fields chains, today Target Corporation is an upscale discounter that provides quality merchandise at attractive prices in clean, spacious, and guest-friendly stores through its various Target Stores and its Target.com Web site. Target Corporation has nearly 1,400 stores in 47 states with almost 300,000 employees. Besides operating a popular Web shopping site of its own, the firm is a partner of Amazon.com. Target Corporation is the fourth largest U.S. retailer (in terms of revenues).

The Target Stores Strategy: Keys to Success

Throughout its existence, Target Stores has adhered to a consistent, far-sighted, customer-oriented strategyone that has paved the way for its long-term achievements:

Growth-oriented objectives. Target Corporation has long been guided by principles that are designed to enhance our long-term financial performance and we remain steadfastly committed to strategies that fuel consistent growth and profitable market share gains. We believe that by managing our business like this, we can continue to deliver average annual growth in earnings per share of 15 percent or more over time and generate substantial value for our shareholders. Appeal to a prime market. The firm is strong with middle-income, well-educated adults, who have an average income that is about 20 percent higher than the typical Wal-Mart shopper. It is quite popular among female shoppers, parents with children under 18, and 25- to 54-year-olds.

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14 PART ONE AN OVERVIEW OF STRATEGIC RETAIL MANAGEMENT

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Distinctive company image. Target Stores has done a superb job of positioning itself: Pay Less + Expect More. See Figure 1-9. It is a true discount department store chain with everyday low prices. Along with Wal-Mart and Kmart, Target Stores makes up the big three of discounting. It has linoleum floors, shopping carts, and a simple store layout. But Target is also perceived as an upscale discounter. It carries products from such designers as Mossimo (apparel), Isaac Mizrahi (apparel and home products), Michael Graves (home products), Liz Lange (maternity clothes), and Amy Coe (babys nursery). Focus. The chain never loses sight of its discount store niche: Our strategic direction at Target is clear: to continue to delight our guests with differentiated merchandising and exceptional value while we continue to invest in our technology and leverage our resources throughout our organization to enhance our performance. Strong customer service for its retail category. The firm prides itself on offering excellent customer service for a discount store. For example, at the end of many aisles, there is a red service phone so shoppers can check a price or ask a question. Multiple points of contact. Target reaches its customers through extensive advertising, stores in 47 states, a toll-free telephone service center (open 7 days a week, 17 hours per day), and a Web site. Employee relations. These are some of the awards recently won by Target: Top 30 Companies for Executive Women by the National Association for Female Executives, Best for Latinas in Latina Style magazines 50 Best Companies for Latinas, Top Work Place for Women in Working Mother magazines 100 Best Companies for Working Women, 100 Best Corporate Citizens by Business Ethics magazine (for diversity efforts), and Top in Training in Training magazines Training Top 100 list. Innovation. The firm has long embraced the concepts of innovation and newness, recognizing the importance of creating unique ways to delight our guests every time they visit our stores.
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Commitment to technology. Target is devoted to new technologies. Consider the Target Visa card: It has a built-in computer chip, called a smart chip. Today, you can use your Target Visa with an in-home smart card reader to access exclusive offers. And soon, youll see exciting new smart chip features popping up! The chip makes the Target Visa smart. Community involvement. Target believes in giving back. One of its popular programs is School Fundraising: You can support your school just by shopping with your Target Visa or Target Guest Card. Target will donate an amount equal to one percent of your qualifying purchases at Target Stores or target.com to the eligible K12 school of your choice. Constantly monitoring performance. Two years ago, Target sold off two divisions: Both Marshall Fields and Mervyns were saddled with declining sales and most experts believed Target would be better off getting rid of both and flying solo. Today, Target is on its own with a lighter load and more free cash after selling the two chains for a total of $4.9 billion.

The Retailing Concept

As we just described, Target Stores has a sincere long-term desire to please customers. In doing so, it uses a customer-centered, chainwide approach to strategy development and implementation; it is value-driven; and it has clear goals. Together, these four principles form the retailing concept (depicted in Figure 1-10), which should be understood and applied by all retailers: 1. Customer orientation. The retailer determines the attributes and needs of its customers and endeavors to satisfy these needs to the fullest. 2. Coordinated effort. The retailer integrates all plans and activities to maximize efficiency. 3. Value-driven. The retailer offers good value to customers, whether it be upscale or discount. This means having prices appropriate for the level of products and customer service. 4. Goal orientation. The retailer sets goals and then uses its strategy to attain them. Unfortunately, this concept is not grasped by every retailer. Some are indifferent to customer needs, plan haphazardly, have prices that do not reflect the value offered, and have unclear goals. Some are not receptive to change, or they blindly

FIGURE 1-10 Applying the Retailing Concept

Customer orientation

Coordinated effort

Retailing concept

Retail strategy

Value-driven

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Goal orientation

Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

16 PART ONE AN OVERVIEW OF STRATEGIC RETAIL MANAGEMENT

follow strategies enacted by competitors. Some do not get feedback from customers; they rely on supplier reports or their own past sales trends. The retailing concept is straightforward. It means communicating with shoppers and viewing their desires as critical to the firms success, having a consistent strategy (such as offering designer brands, plentiful sales personnel, attractive displays, and above-average prices in an upscale store), offering prices perceived as fair (a good value for the money) by customers, and working to achieve meaningful, specific, and reachable goals. However, the retailing concept is only a strategic guide. It does not deal with a firms internal capabilities or competitive advantages but offers a broad planning framework. Lets look at three issues that relate to a retailers performance in terms of the retailing concept: the total retail experience, customer service, and relationship retailing.

The Total Retail Experience

While one consumer may shop at a discount retailer, another at a neighborhood store, and a third at a full-service firm, these diverse customers all have something crucial in common: They each encounter a total retail experience (including everything from parking to checkout counter) in making a purchase. According to the director of IBMs global retail consulting practice, Consumers are clearly telling retailers that they want a personalized and interactive shopping experience. They want immediate access to promotions based on past purchases and loyalty, as well as precise details on product availability or items that are out-of-stock. They also want helpful sales associates, fast service, and a store that is easy to shop, sometimes even more than they want low prices.5 The total retail experience includes all the elements in a retail offering that encourage or inhibit consumers during their contact with a retailer. Many elements, such as the number of salespeople, displays, prices, the brands carried, and inventory on hand, are controllable by a retailer; others, such as the adequacy of on-street parking, the speed of a consumers modem, and sales taxes, are not. If some part of the total retail experience is unsatisfactory, consumers may not make a purchasethey may even decide not to patronize a retailer again: Recently, I was in a store and couldnt find my charge card fast enough to apparently make

Ethics in
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McDonalds Introduces a More Well-Rounded Menu

Implementing the healthy options menu items has not been easy. Although a large percentage of consumers say they want healthy foods, less than 10 percent of McDonalds customers actually buy the salads. The healthy items are also more costly for McDonalds to purchase, as well as to store. The apple dippers and salads, for example, must be delivered several times per week to be fresh since McDonalds does not use any preservatives or additives in these items.

McDonalds (www.mcdonalds.com) now offers sliced apples, called Apple Dippers, as an alternative to french fries in its Happy Meals. McDonalds has also recently added a line of premium salads and a specialty salad consisting of grapes, walnuts, and apples to its menu. While McDonalds has offered salads on its menu since the late 1980s, these new salads are among its most successful new products in the past 10 years. The company hopes that the healthy new menu additions will reduce criticism that McDonalds offers fat- and salt-laden foods to an unsuspecting public, including small children. What remains to be seen is the extent to which these healthier alternatives result in positive changes in consumer tastes.

Sources: Melanie Warner, You Want Any Fruit with That Big Mac? New York Times (February 20, 2005); and Fruit & Walnut Salad, www.
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mcdonalds.com/usa/eat/features/fruitnwalnut.html (November 19, 2005).

Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

CHAPTER 1 AN INTRODUCTION TO RETAILING 17 my clerk happy. As I searched through my wallet, I apologized for the delay apologized several times. All the while she was visibly annoyed with my lack of organization and remained unresponsive to my conversation. My experience with that store was impacted by this salesperson. Her bad attitude could easily translate into a substantial loss of revenue for the store. She wasnt the owner, and her behavior may not have reflected the attitude of the management, but the fact remains, she does represent the management.6 In planning its strategy, a retailer must be sure that all strategic elements are in place. For the shopper segment to which it appeals, the total retail experience must be aimed at fulfilling that segments expectations. A discounter should have ample stock on hand when it runs sales but not plush carpeting; and a full-service store should have superior personnel but not have them perceived as haughty by customers. Various retailers have not learned this lesson, which is why some theme restaurants are in trouble. The novelty has worn off, and many people believe the food is only fair while prices are high. A big challenge for retailers is generating customer excitement because many people are bored with shopping or have little time for it. Here is what one retailer, highlighted in Figure 1-11, is doing: Build-A-Bear Workshop (www.buildabear.com) even offers a great online shopping experience. Build-A-Bear Workshop is a unique and exceptional approach to the entertainment retail industry. The teddy bear theme is carried throughout the store with original teddy bear fixtures, murals, and artwork. The store associates, known as master Bear Builder associates, share the experience with Guests at each phase of the bear-making process. Regardless of age, Guests enjoy the highly visual environment, the sounds, and the fantasy of this special place while they create a memory with their friends and family. Guests who visit a Build-A-Bear Workshop store enter a lighthearted teddy-bear-themed environment consisting of eight bear-making stations: Choose Me, Hear Me (sounds), Stuff Me and Heart Stuff, Stitch Me, Fluff Me, Name Me, Dress Me, and Take Me Home.7

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2008933025 Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

18 PART ONE AN OVERVIEW OF STRATEGIC RETAIL MANAGEMENT

Customer Service
Customer service refers to the identifiable, but sometimes intangible, activities undertaken by a retailer in conjunction with the basic goods and services it sells. It has a strong impact on the total retail experience. Among the factors comprising a customer service strategy are store hours, parking, shopper friendliness of the store layout, credit acceptance, salespeople, amenities such as gift wrapping, rest rooms, employee politeness, delivery policies, the time shoppers spend on checkout lines, and customer follow-up. This list is not all inclusive, and it differs in terms of the retail strategy undertaken. Customer service is discussed further in Chapter 2, Building and Sustaining Relationships in Retailing. Satisfaction with customer service is affected by expectations (based on the type of retailer) and past experience, and peoples assessment of customer service depends on their perceptionsnot necessarily reality. Different people may evaluate the same service quite differently. The same person may even rate a firms customer service differently over time due to its intangibility, though the service stays constant: Costco shoppers dont expect anyone to help them to their car with bundles of commodities. Teens at Abercrombie & Fitch would be pretty turned off if a tuxedo-clad piano player serenaded them while they shopped. And Wal-Mart customers would protest loudly if the company traded its shopping carts for oversized nylon tote bags. On the other hand, helping shoppers to their cars when they have an oversized purchase is part of the service package at P.C. Richard & Sons, piano music sets the mood at Nordstrom, and nylon totes jammed full of value-priced apparel are in sync with the Old Navy image. Service varies widely from one retailer to the next, and from one shopping channel to the next. The challenge for retailers is to ask shoppers what they expect in the way of service, listen to what they say, and then make every attempt to satisfy them.8 Interestingly, despite a desire to provide excellent customer service, a number of outstanding retailers now wonder if the customer is always right. Are there limits? Ponder this scenario: Companies such as Home Depot, Saks Fifth Avenue, and Old Navy are among those that have tightened their return policies. Furthermore, Burlington Coat Factory gives only store credit, not cash, when accepting any kind of return. Dont have a receipt? Then you cant get cash or store credit at Kmart stores. Changed your mind about your new laptop? Youre stuck with it after 14 days at Circuit City. Returning 20 pieces of clothing you bought at Express in a week? You may be stuck with all of it when your return is declined. Why the policy change? About 6 percent of retail purchases are returned annually.9

At L.L. Bean (www.llbean.com), customer service means satisfaction is guaranteed. 100%.

Relationship Retailing
As with the retailers profiled in this book, we want to engage in relationship retailing. So please visit our Web site (www.prenhall.com/ bermanevans). The best retailers know it is in their interest to engage in relationship retailing, whereby they seek to establish and maintain long-term bonds with customers, rather than act as if each sales transaction is a completely new encounter. This means concentrating on the total retail experience, monitoring satisfaction with customer service, and staying in touch with customers. Figure 1-12 shows a customer respect checklist that retailers could use to assess their relationship efforts. To be effective in relationship retailing, a firm should keep two points in mind: (1) Because it is harder to lure new customers than to make existing ones happy, a win-win approach is critical. For a retailer to win in the long run

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Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

CHAPTER 1 AN INTRODUCTION TO RETAILING 19

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(attract shoppers, make sales, earn profits), the customer must also win in the long run (receive good value, be treated with respect, feel welcome by the firm). Otherwise, that retailer loses (shoppers patronize competitors) and customers lose (by spending time and money to learn about other retailers). (2) Due to the advances in computer technology, it is now much easier to develop a customer database with information on peoples attributes and past shopping behavior. Ongoing customer contact can be better, more frequent, and more focused. This topic is covered further in Chapter 2, Building and Sustaining Relationships in Retailing.

THE FOCUS AND FORMAT OF THE TEXT

There are various approaches to the study of retailing: an institutional approach, which describes the types of retailers and their development; a functional approach, which concentrates on the activities that retailers perform (such as buying, pricing, and personnel practices); and a strategic approach, which centers on defining the retail business, setting objectives, appealing to an appropriate customer market, developing an overall plan, implementing an integrated strategy, and regularly reviewing operations. We will study retailing from each perspective but center on a strategic approach. Our basic premise is that the retailer has to plan for and adapt to a complex, changing environment. Both opportunities and threats must be considered. By engaging in strategic retail management, the retailer is encouraged to study competitors, suppliers, economic factors, consumer changes, marketplace trends, legal restrictions, and other elements. A firm prospers if its competitive strengths match the opportunities in the environment, weaknesses are eliminated or minimized, and plans look to the future (as well as the past).

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Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

20 PART ONE AN OVERVIEW OF STRATEGIC RETAIL MANAGEMENT

Technology in
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Lillian Vernon: Keeping Things Running 24/7

is 30,000 page views per hour, customer visits can increase to 350,000 page views within 10 minutes of a banner ad appearing on a major Web portal or search engine. As Admire says, because our site operates 24/7, we want immediate notification if the site isnt performing properly. Thats what the monitoring solution tells us. We dont want to have to wait for the customers to tell us the site isnt working.

For Lillian Vernon, any downtime on its Web site (www.lillianvernon.com) can be quite detrimental as the site accounts for 40 percent of the firms total retail sales. According to Ellis Admire, Lillian Vernons director of emerging technology, We cant afford for our Web store to go down for even a few minutes. Until recently, Lillian Vernon monitored its Web site with load-testing software that simulated the effect of a large number of Lillian Vernon customers accessing the site at one time. Now, Lillian Vernon is able to constantly assess its Web sites performance. This is especially helpful since the amount of Web site traffic is highly variable. Although the firms average Web traffic

Source: Dan Scheraga, Better Safe Than Sorry, Chain Store Age (March 2005), p. 77.

Retail Management: A Strategic Approach is divided into eight parts. The balance of Part One looks at building relationships and strategic planning in retailing. Part Two characterizes retailing institutions on the basis of their ownership, storebased strategy mix, and Web, nonstore-based, and other nontraditional retailing format. Part Three deals with consumer behavior and information gathering in retailing. Parts Four to Seven discuss the specific elements of a retailing strategy: planning the store location; managing a retail business; planning, handling, and pricing merchandise; and communicating with the customer. Part Eight shows how a retailing strategy may be integrated, analyzed, and improved. These topics have special end-of-chapter appendixes: service retailing (Chapter 2), global retailing (Chapter 3), franchising (Chapter 4), and multi-channel retailing (Chapter 6). There are three end-of-text appendixes: retailing careers, about the Web site accompanying Retail Management, and a glossary. And our Web site includes How to Solve a Case Study (www.prenhall.com/bermanevans), which will aid you in your case analyses. To underscore retailings exciting nature, four real-world boxes appear in each chapter: Careers in Retailing, Ethics in Retailing, Retailing Around the World, and Technology in Retailing.

Summary
In this and every chapter, the summary is related to the objectives stated at the beginning of the chapter. 1. To define retailing, consider it from various perspectives, demonstrate its impact, and note its special characteristics. Retailing comprises the business activities involved in selling goods and services to consumers for personal, family, or household use. It is the last stage in the distribution process. Today, retailing is at a fascinating crossroads, with many challenges ahead. Retailing may be viewed from multiple perspectives. It includes tangible and intangible items, does not have to involve a store, and can be done by manufacturers and othersas well as retailers. Annual U.S. store sales exceed $4 trillion, with other forms of retailing accounting for hundreds of billions of dollars more. The worlds 100 largest retailers generate $2.4 trillion in yearly revenues. About 25 million people in the United States work for retailers (including food and beverage places), which understates the number of those actually employed in a retailing capacity. Retail firms receive up to 40 cents or more of every sales dollar as compensation for operating costs, the functions performed, and the profits earned.

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Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

CHAPTER 1 AN INTRODUCTION TO RETAILING Retailing encompasses all of the businesses and people involved in physically moving and transferring ownership of goods and services from producer to consumer. In a distribution channel, retailers do valuable functions as the contact for manufacturers, wholesalers, and final consumers. They collect assortments from various suppliers and offer them to customers. They communicate with both customers and other channel members. They may ship, store, mark, advertise, and pre-pay for items. They complete transactions with customers and often provide customer services. They may offer multiple formats (multi-channel retailing) to facilitate shopping. Retailers and their suppliers have complex relationships because retailers serve in two capacities. They are part of a distribution channel aimed at the final consumer, and they are major customers for suppliers. Channel relations are smoothest with exclusive distribution; they are most volatile with intensive distribution. Selective distribution is a way to balance sales goals and channel cooperation. Retailing has several special characteristics. The average sales transaction is small. Final consumers make many unplanned purchases. Most customers visit a store location. 2. To introduce the concept of strategic planning and apply it. A retail strategy is the overall plan guiding the firm. It has six basic steps: defining the business, setting objectives, defining the customer market, developing an overall plan, enacting an integrated

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strategy, and evaluating performance and making modifications. Target Stores strategy has been particularly well designed and enacted. 3. To show why the retailing concept is the foundation of a successful business, with an emphasis on the total retail experience, customer service, and relationship retailing. The retailing concept should be understood and used by all retailers. It requires a firm to have a customer orientation, use a coordinated effort, and be value-driven and goal-oriented. Despite its straightforward nature, many firms do not adhere to one or more elements of the retailing concept. The total retail experience consists of all the elements in a retail offering that encourage or inhibit consumers during their contact with a retailer. Some elements are controllable by the retailer; others are not. Customer service includes identifiable, but sometimes intangible, activities undertaken by a retailer in association with the basic goods and services sold. It has an effect on the total retail experience. In relationship retailing, a firm seeks long-term bonds with customers rather than acting as if each sales transaction is a totally new encounter with them. 4. To indicate the focus and format of the text. Retailing may be studied by using an institutional approach, a functional approach, and a strategic approach. Although all three approaches are covered in this book, our focus is on the strategic approach. The underlying principle is that a retail firm needs to plan for and adapt to a complex, changing environment.

Key Terms
retailing (p. 4) channel of distribution (p. 8) sorting process (p. 8) multi-channel retailing (p. 9) exclusive distribution (p. 10) intensive distribution (p. 10) selective distribution (p. 11) retail strategy (p. 12) retailing concept (p. 15) total retail experience (p. 16) customer service (p. 18) relationship retailing (p. 18)

Questions for Discussion

1. What is your favorite consumer electronics retailer? Discuss the criteria you have used in making your selection. What can a competing firm do to lure you away from your favorite firm? Apply your answer to retailing in general. 2. What kinds of information do retailers communicate to customers? To suppliers?
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4. Why would one retailer seek to be part of an exclusive distribution channel while another seeks to be part of an intensive distribution channel? 5. Describe how the special characteristics of retailing offer unique opportunities and problems for gift stores. 6. What is the purpose of developing a formal retail strategy? How could a strategic plan be used by a local delicatessen?

3. What are the pros and cons of a firm such as Nine West having its own retail facilities and E-commerce Web site (www.ninewest.com), as well as selling through traditional retailers?

Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.

22 PART ONE AN OVERVIEW OF STRATEGIC RETAIL MANAGEMENT

7. On the basis of the chapter description of Target Stores, present five suggestions that a new retailer should consider. 8. Explain the retailing concept. Apply it to a local Dunkin Donuts store. 9. Define the term total retail experience. Then describe a recent retail situation in which your expectations were surpassed and state why. 10. Do you believe that customer service in retailing is improving or declining? Why? 11. How could a small Web-only retailer engage in relationship retailing? 12. What checklist item(s) in Figure 1-12 do you think would be most difficult for Ikea, as the worlds largest furniture retailer, to address? Why?

Web-Based Exercise
Visit Clickz Stats Retailing (www.clickz.com/stats/ sectors/retailing). Describe the site and give several examples of what a prospective retailer could learn from this site. Note: Stop by our Web site (www.prenhall.com/bermanevans) to experience a number of highly interactive, appealing Web exercises based on actual company demonstrations and sample materials related to retailing.

Chapter Endnotes
1. Various company sources. 2. Estimated by the authors from data in 2005 Global Powers of Retailing, Stores (January 2005), special section. 3. Annual Benchmark Report for Retail and Food Services (Washington, DC: U.S. Census Bureau, March 2005); and retailer annual reports. 4. The material in this section is drawn from www.target.com; www.targetcorp.com; Target Corporation Annual Report 2005; Doug Desjardins, Simple Merchandising Sells Toys at Target, DSN Retailing Today (May 23, 2005), p. 20; Right on the Mark: Target Excels in Apparel, DSN Retailing Today (April 11, 2005), pp. 12, 14; Laura Heller, Target Fine-Tuning the Right Formula for Success, DSN Retailing Today (April 11, 2005), p. 31; Doug Desjardins, Cash from M&M Sale Pays Way to Stock Buyback, Debt Reduction, DSN Retailing Today (April 11, 2005), pp. 3233; Target Merchandising, DSN Retailing Today (April 11, 2005), pp. 38, 43; and Laura Heller, Innovative Thinking Permeates Entire Business Model, DSN Retailing Today (April 11, 2005), pp. 40, 43. 5. IBM, Retailers Offering a One Size Fits All Shopping Experience Will Lose Customer Loyalty, www.marketwire.com (May 24, 2005). 6. Terri Murphy, What Customers Dont Tell You Can Hurt, http://realtytimes.com/rtapages/20050530_ customersatisfaction.htm (May 30, 2005). 7. Fact Sheet, www.buildabear.com/aboutUs/Our Company/FactSheet.pdf (February 3, 2006). 8. Susan Reda, Saving Customer Service: Are Retailers Up to the Challenge? Stores (January 2001), p. 50. 9. Tenisha Mercer, Retailers Rein in Returns, www. detnews.com/2005/business/0502/03/C01-78357.htm (February 3, 2005); and Linda Stern, Rite of Return, Newsweek (January 10, 2005), p. 61.

2008933025 Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc. Published by Prentice Hall.