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BMA329 Retailing and Sales

Dr Louise Grimmer | Lecturer in Marketing + Retail Researcher


Unit Coordinator, Lecturer and Tutor
Textbook
Levy, M, Weits, BA & Grewal, D
2018/2019 Retailing Management
(10th Edition), McGraw-Hill, New
York [ISBN 9781260084764].
Teaching Arrangements
Tutorials
Tuesday 9.00am to 10.00am or
Tuesday 10.00am to 11.00am
Seminar Room 477A, Humanities Building

Lecture
Friday 10.00am to 12.00pm
Geography 211 Lecture Theatre
Teaching
Unit Coordinator, Lecturer & Tutor
Dr Louise Grimmer

Room 314, Centenary Building, Hobart


Telephone 03 6226 1587
Louise.Grimmer@utas.edu.au
Twitter @LouiseGrimmer

Please email me to make consultation appointments.


Assessment
Assessment Item Value Due Date
1
Online Quizzes 10 Weeks 2 to 11
Class Participation 10

2
Essay 20 Week 5

3
Team Agreement 10 Week 6
Team Report 30 Week 10
Team Presentation 20 Weeks 12 and 13*
(you must present in each week)
Lodging Assignments
• Full Name
• Student ID
• Unit Code

Please carefully read the Late Assessment and Extension


Policy information in the Unit Outline, noting that
extensions can only be given in very specific circumstances
and that there are penalties for late submission.
Unit Aims
1. Discuss the theories and concepts underpinning retailing
and sales activities.
2. Apply and integrate theories and concepts of retailing
and sales to critically evaluate retail businesses.
3. Communicate in oral and written formats and work in a
team.
Week 1
Introduction to the World of Retailing
Types of Retailers
Chapter 1 | Introduction to the
World of Retailing
What is retailing?
What do retailers do?
Why is retailing important in our society?
What career and entrepreneurial opportunities does retailing
offer?
What types of decisions do retail managers make?
Retailing is a set of business activities that
adds value to the products and services sold
to consumers for their personal or family use.

A retailer is a business that sells products


and/or services to consumers for personal or
family use.
Examples of Retailers
Coles, Woolworths, Hill Street, Salamanca Fresh, Country
Road, Gorman, Bed Bath and Table, T2, Wittner, Fullers
Bookshop, Muji, JB Hi-Fi, Amazon, Seed, Target, etc.

Firms that are retailers AND wholesalers sell to other


businesses as well as to consumers (e.g. Office Works,
Bunnings, Costco)
Do Retailers Add Value?
Retailers add significantly to the prices consumers face.

Why not buy directly from the manufacturer?

Retailers undertake business activities


and perform functions that increase
the value of the products and services
they sell to consumers.
How Retailers Add Value
Retailers Provide Assortment
• Customers can buy other products at the same time.

• Offering an assortment enables customers to choose from a


wide variety of selection of brands, designs, sizes, colours and
prices in one location.

• All retailers offer assortments of products but usually specialise


in product offerings, such as supermarkets provide food,
cleaning and beauty products; clothing shops such as Routley’s
or Yeltour specialise in clothing and accessories.
How Retailers Add Value
Retailers Break Bulk
• Customers can buy products in quantities they want.

• To reduce transportation costs, manufacturers and wholesalers


typically shop cases/cartons of products to retailers.

• Retailers then offer the products in smaller quantities tailored to


individual consumers’ and households’ consumption patterns.
How Retailers Add Value
Retailers Hold Inventory
• Customers can buy products at a convenient place when they
need to.

• A major function of retailers is to keep inventory so that


products will available when consumers want them, reducing
the consumers’ cost of storing products.
How Retailers Add Value
Retailers Provide Services
• Retailers provide services such as credit, lay-by, delivery,
assembly etc.

• They also provide product display and demonstrations.

• Sales staff make it easier for customers to compare, buy and use
products.
The Retailer’s Role in a Supply Chain
Retailers are the final business within a supply chain which links
manufacturers to consumers.

A Supply Chain is a set of firms that make and deliver a given set
of goods and services to the ultimate consumer.

Wholesalers buy and store merchandise in large quantities from


manufacturers and then resell the merchandise (usually in smaller
quantities) to retailers.
Manufacturing, Wholesaling
and Retailing
Vertical Integration – firm performs more than one set of activities
in the channel, e.g. retailer invests in wholesaling or manufacturing
(e.g. Apple, Victoria’s Secret)

• Backward Integration – retailer performs some distribution


and manufacturing activities, e.g. Starbucks, Amazon.

• Forward Integration – manufacturers undertake retailing


activities, e.g. American Apparel.
Typical Distribution Channel

Manufacturing Wholesaler Retailer Consumer


Differences in Distribution Channels
Around the World
• Compared with distribution channels in the EU, 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.
• Chinese and Indian distribution systems are characterised by relatively small
firms and a large, independent wholesale industry.
• Northern European retailing is most similar to the US system. Southern and
Central European Retailing is highly fragmented and involves mainly small
family owned stores.
• Australian retailing is dominated by national chains and smaller, independent
retail firms.
What has created these differences
in distribution systems?
Social & Political • China, India: To reduce unemployment by
Objectives protecting small businesses
• EU: To protect small retailers
• To preserve green spaces/town centers
Geography • Much lower population density in the US than in India,
China, and EU (where less low-cost real estate are available
for building large stores)
Market size • Large retail markets in US, India, China
• Countries in EU – distribution channels and retail chains
operate in a single country (no economy of scales to be
achieved; trade barriers still exist)
Retailing in Australia
• From an industry perspective, retailing is Australia’s second largest employer (the
largest being the healthcare and social assistance industry), followed by construction
and manufacturing.
• The Australian retail industry employs around 1.5 million people or about 11% of the
working population.
• There are around 140,000 retail businesses in Australia and almost half employ four or
fewer workers, making them micro businesses.
• The Productivity Commission reports that the retail industry in Australia is diverse, with
considerable differences between retailers in terms of business size, format and
offerings; these differences are further highlighted across different regions throughout
the country.
• Retailers have been forced to deal competitively with the growth in online retailing and
the entry of large international retailers. In Australia there are also a number of
regulations (e.g. planning and zoning, trading hours, importer compliance legislation
and workplace relations).
Retailing and Social Responsibility
Corporate social responsibility is the voluntary actions taken by a
company to address the ethical, social, and environmental impacts of
its business operations, in addition to the concerns of its stakeholders.
International Examples:
• Walmart
• Costco
• Target
• Home Depot
• Marks & Spencer
World’s 10 Largest Retailers
Rank Name Country
1 Walmart United States
2 Costco United States
3 Kroger United States
4 Schwarz Germany
5 Tesco PLC United Kingdom
6 Carrefour France
7 Aldi Germany
8 Metro Group AG Germany
9 The Home Depot United States
10 Walgreens Boots United States
10 Largest Retailers in Australia
Rank Name
1 Woolworths Food
2 Coles Food
3 Bunnings Warehouse
4 Aldi
5 Woolworths Liquor
6 Harvey Norman
7 Coles Fuel & Convenience
8 JB Hi-Fi
9 Kmart
10 Woolworths Fuel & Convenience
Opportunities in Retailing:
Management Opportunities
People with a wide range of skills and interests find careers in retailing because
retailers’ functions include:

• Finance
• Purchasing
• Accounting
• Management Information System (MIS)
• Supply management including
warehouse and distribution
management (logistics)
• Design and new product development
• Human Resource Management
• Marketing
Opportunities in Retailing:
Entrepreneurial Opportunities
Retailing provides opportunities for people
who want to start their own business.
Some of the world’s richest people are
retailing entrepreneurs.

• Examples of Australian retailing


entrepreneurs:
• Janine Ellis, Boost Juice
• Jodie Fox-Guest, Shoes of Prey
• Kate Morris, Adore Beauty
Career Opportunities in Retailing:
Start Your Own Business
Strategic vs. Tactical Decisions
Retail managers need a good understanding of their
environment, especially their customers and competition,
before they can develop and implement effective strategies.

The crucial environmental factors in the world of retailing are:


• The macroenvironment – technological, social and
ethical/legal/political factors.
• The microenvironment – the retailer’s competitors and
customers.
Retail Strategy: Competitors
• A retailer’s primary competitors are those with the same format. For
example department stores compete with other department stores and
supermarkets compete with other supermarkets (e.g. Coles versus
Woolworths; Hill Street Grocer versus Salamanca Fresh). This competition
between retailers with the same format is called intratype competition.
• To appeal to a broader group of consumers and provide one-stop shopping,
many retailers are increasing their variety of merchandise. Variety is the
number of different merchandise categories within a store or department.
The offering of merchandise not typically associated with the store type, is
called scrambled merchandising.

1-35
Retail Strategy: Competitors
• Competition between retailers that sell similar merchandise using different
formats, such as discount and department stores is called intertype
competition (e.g. Kmart and Myer; Target and Priceline).
• Increasing intertype competition has made it harder for retailers to identify
and monitor their competition. All retailers compete against each other for
the dollar consumers spend buying goods and services.
• Since convenience of location is important in store choice, a store’s
proximity to competitors is a critical factor in identifying competition for
bricks and mortar stores. Online offerings have ‘disrupted’ the traditional
view of competition.

1-36
Retail Strategy: Customers
• Retailers are responding to broad demographic and life-style trends in
society, such as the growth of the elderly, multiculturalism, the
importance of shopping convenience as the number of two-income
families grows.

• To develop and implement an effective strategy, retailers need to know


why customers shop, how they select a store, and how they select
among that store’s merchandise.

• In order to gain long-term competitive advantage over competitors a


retailer needs to consider location, customer relationships,
technology, merchandising etc.
1-37
Retail Strategy
• Understanding the macro- and microenvironments is needed
to formulate and implement a retail strategy.
• The retail strategy indicates how the firm plans to focus its
resources to accomplish its objectives.
• The retail strategy identifies:
1. The target market
2. The nature of merchandise and services to be offered (the
product and services mix)
3. How the retailer will build a long-term advantage over
competitors
1-38
Retail Strategy
• Key strategic decision areas include the determination of market
strategy, financial strategy, location strategy, organisational structure and
human resources strategy, information systems and supply chain
strategies, and customer relationship management (CRM) strategies.
• When major environmental changes occur, the current strategy and the
reasoning behind it must be reexamined to take advantage of new
opportunities or avoid new threats in the environment.
• Basic to any strategy is understanding the customer so as to provide
them with the goods and services they want. CRM is a business
philosophy and set of strategies, programs, and systems that focus on
identifying and building loyalty with the firm’s most valued customers.
1-39
The Retail Mix
Customer
service

Store design and Merchandise


display assortment

Retail
Strategy

Pricing Location

Communication
Mix
Whole Foods Implementation
• Strategy - organic and natural foods supermarket chain
Assortment beyond organic/natural foods
• Private labels - Whole Food™, 360 Day Value™
• Love, trust, and employee empowerment
• Equality in compensation
Ethics
• Ethics are the principles governing individuals and companies that
establish appropriate behavior and indicate what is right and wrong.
• What is ethical can vary from country to country and from industry to
industry.
• Ethical principles can also change over time.
• Many companies have codes of ethics or conduct to provide
guidelines for their employees.
• However, many business decisions are not regulated by laws. Often
retail managers have to rely on their own codes of ethics – their
personal sense of what is right or wrong - to determine the right
thing to do.
Ethical Situations for a Retail
Manager
• Should a retailer sell merchandise that they suspect utilised child
labor?
• Should a retailer advertise that its prices are the lowest in an area
even though some items are not?
• Should a buyer accept an expensive gift from a vendor?
• Should a retailer charge a supplier a fee for getting a new
• Should salespeople use high-pressure sales when they know the
product is not the best for the customer’s needs?
• Should a retailer treat some customers better than others?
• Should a retailer promote a product as being ‘on sale’ if it never sold
it at a higher, non-sale price?
Keywords
• breaking bulk A function performed by retailers or wholesalers in which they receive
large quantities of merchandise and sell them in smaller quantities.
• ethics A system or code of conduct based on universal moral duties and obligations that
indicate how one should behave.
• holding inventory A major value-providing activity performed by retailers whereby
products will be available when consumers want them.
• intertype competition Competition between retailers that sell similar merchandise using
different formats, such as discount and department stores (e.g. Kmart and Myer).
• intratype competition Competition between the same type of retailers (e.g. Coles versus
Woolworths).
• wholesaler A merchant establishment operated by a concern that is primarily engaged in
buying, taking title to, usually storing, and physically handling goods in large quantities,
and reselling the goods (usually in smaller quantities) to retailers or industrial or business
users.
1. What is your favourite retailer?
2. Why do you like this retailer?
3. What would a competitive retailer have to
do to get your patronage?
Chapter 2 | Types of Retailers
• What trends shape today’s retailers?
• What are the different types of retailers?
• How do retailers differ in terms of how they meet
the needs of their customers?
• How do service retailers differ from merchandise
retailers?
• What are the types of ownership for retail firms?
General Trends in Retailing
• New types of retailers
• Globalisation
• Growth in services retailing
• Growth in omni-channel/omni-
shopping by traditional retailers
• Increased use of technology to
reduce costs and increase value to
customers
ANZSIC Codes for Retail Trade
G RETAIL TRADE
39 Motor Vehicle and Motor Vehicle Parts Retailing
40 Fuel Retailing
41 Food Retailing 411 Supermarket and Grocery Stores
412 Specialised Food Retailing
42 Other Store Based Retailing 421 Furniture, Floor Coverings, Houseware and Textile goods
Retailing
422 Electrical and Electronic Goods Retailing
423 Hardware, Building and Garden Supplies Retailing
424 Recreational Goods Retailing
425 Clothing, Footwear and Personal Accessory Retailing
426 Department Store Retailing
427 Pharmaceutical, Cosmetic and Toiletry Goods Retailing
43 Non-Store Retailing and Commission Based
Buying and/or Selling
Retailer Characteristics
• Successful retailers survive and prosper because they satisfy a group
of consumers’ needs more effectively than their competitors.

• As consumer needs and competition change, new retail formats are


created and existing formats evolve.

• The most basic characteristic of a retailer is its retail mix – the


elements used to satisfy its customers’ needs.
Types of Retailers
Retailers use different retail mixes:
-merchandise:
variety (breadth) / assortment (depth)
stock keeping units (SKU)
-services
-store design and
visual merchandising
-location
-pricing
Merchandise Offering
Variety (breadth of merchandise): wide vs. narrow
- The number of merchandise categories a retailer offers.
Example: Coles or Woolworths (wide variety) versus local corner
store (narrow variety).

Assortment (depth of merchandise): deep vs. shallow


- The number of different items in a category. Each different item of
merchandise is called a SKU (stock keeping unit).
Example: Bikes sold at McBains Cycles (deep assortment) versus
bikes sold in Kmart (shallow assortment).
Services Offered
• Retailers differ in the services they offer customers.
• Customers expect retailers to provide some services (e.g. offering
a variety of payment methods, displaying merchandise, parking,
convenient opening hours).
• Some retailers charge customers for other services such as home
delivery and gift wrapping, although depending on the retailer
these services may be offered free of charge.
• Sunglass Hut offers assistance in selecting the appropriate
glasses as well as free fitting, delivery and returns.
• Target doesn’t provide any additional services for sunglass
purchases.
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 retailers offers many SKUs, inventory investment increases
because the retailer must have back-up stock for each SKU.
• Services attract customers to the retailer, but they are also costly.
• To make a profit, retailers that offer broader and deeper assortments and
services need to charge higher prices.
• A critical retail decision involves the trade-off between costs and benefits of
maintaining additional inventory or providing additional services.
Types of Merchandise Retailers
Food Retailers General Merchandise Retailers
Corner Store Department Stores
Convenience Stores Specialty Stores
Supermarkets Discount Stores
Limited Assortment Supermarket Category Specialists
Off-Price Retailers
Warehouse Clubs
Supermarkets
• A conventional supermarket is a self-service food store offering
groceries, meat, baked goods, dairy, fresh produce and limited non-
food items (stocks around 18,000 to 20,000 SKUs).
• A limited assortment supermarket:
• only stocks about 2,000 SKUs (e.g. Aldi which also sells around
70% private label products)
• Offer one or two brands and sizes
• Designed to maximize efficiency and reduce costs
• Offer merchandise at 40-60% lower prices than conventional
supermarkets
Trends in Supermarket Retailing
Supermarkets are facing fierce competition from other food retailers. To compete
conventional supermarkets are differentiating and upgrading their offerings by
emphasizing their fresh perishables such as dairy, fruit and vegetables, meat, florist,
deli and baker. Targeting health conscious and multi-cultural consumers, providing
better in-store experiences and offering more private-label brands.
Changing consumption patterns are also having an effect:
• Time pressure
• People are eating out more/meal delivery
• Growth in natural, organic and fair trade products
• Environmentally conscious consumers
• Growing shop and eat local movements
• Online grocery shopping
Supercenters and Warehouse Clubs
Supercentres (Hypermarkets) Warehouse Clubs
The fastest growing retail category (in Offer a limited and irregular assortment of
the US) food and general merchandise with little
service and low prices
Large stores that combine a Use low-rent locations, inexpensive store
supermarket with a full-line discount design, little customer service offered
store
One stop shopping experience Low inventory holding costs by carrying a
limited assortment of fast selling items
Convenience Stores
• Provide a limited variety and assortment
of merchandise at a convenient location.
• Small stores with speedy checkout and
higher prices than supermarkets.
• Modern version of the corner grocer.
• Traditionally associated with fuel sales but
increasingly lessening their dependency on
fuel sales and opening smaller stores close
to where people work and shop, and
opening self serve kiosks.
General Merchandise Retailers
Major Types of General Merchandise Retailers
Department Stores
Full-Line Discount Stores
Category Specialist
Specialty Stores
Pharmacies
Extreme Value Retailers
Off-Price Retailers
Department Store Retailing
• Carry a broad variety and deep assortment, offer some
customer services, and are organized into separate
departments for displaying merchandise.
• Most department stores focus on soft goods – women’s
men’s and children’s clothing and accessories, home
furnishings, cosmetics, and kitchenware and small
appliances.
• 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.
• Upscale, high fashion chains with exclusive designer
merchandise and excellent customer service (David Jones);
traditional chains with more moderately priced merchandise
and less customer service (Myer), and value oriented chains
catering to price-conscious consumers (Harris Scarfe).
Full-line Discount Store Retailing
• Offers a broad variety of merchandise,
limited services, and low prices
• Examples: Big W, Kmart, Target, Wal-Mart
• Differentiation strategy
• Big W = Low Price and Good Value
• Target = More Fashionable Apparel
• Kmart = On Trend Products and Good Value
• Competition from category specialists and
online retailers
Category Specialists
• Deep and narrow assortments
• Destination stores
• ‘Category killers’
• Low price and service
• Intense competition in some countries
• Wholesaling to business customers and
retailing to consumers
• Incredible growth
• Use their buying power to negotiate low
prices and assured supply when items are
scarce
Specialty Store Retailing
• Concentrates on a limited number of
complementary merchandise categories
• Narrow but deep assortments
• High level of service in a relatively small
store
• Among the most profitable and fastest
growing firms in the world
• Store like Zara and H&M have introduced
‘fast fashion’ which is cheap and on-trend
and offers new, fresh merchandise 2-3
times per week.
Pharmacy Retailing
• Specialty stores that concentrate on health
and beauty care as well as prescription and
non-prescription pharmaceuticals
• Facing increased competition from
supermarkets and discount stores
• Evolution to a new Format
• Stand alone sites with drive-thru windows
• Offering more frequent purchase food
items
• Improved systems provide personalised
service (loyalty clubs)
Extreme Value Retailing
• Focuses on lower income
consumers
• Names mostly imply good value
not $1 price points
• Low cost location
• Limited services
• More private-label options and
impulse buys
• Adding food services
• One of the fastest growing retail
segments
Off-Price Retailers
• Close-out retailers (end of season
merchandise)
• Odd sizes, unpopular colours or styles or
irregulars (minor mistakes in construction)
• Offer an inconsistent assortment of brand
name merchandise at low prices
• Brand name and designer-label merchandise
at 20-60% lower than RRP
• TJX Companies (which operates T.J.Maxx,
Marshalls, Winners, HomeGoods, TKMaxx,
AJWright, and HomeSense)
• Outlet stores are off-price retailers owned by
manufacturers or by department of specialty
store chains – referred to as factory outlets
Examples of Service Retailers
Type of Service
Airlines
Vehicle Maintenance and Repair
Car Rental
Banks and Financial Services
Child Care Centres
Education
Fitness and Healthcare
Home Maintenance
Services Retailing
• Primarily sell services rather than merchandise
• Intangibility
• Problems in evaluating service quality
• Performance of service provider
• Simultaneous production and delivery
• Importance of service provider
• Perishability
• No inventory, must fill capacity
• Inconsistency of the Offering
• Importance of HR management
• Aging population will increase demand for health
care services
• Young people are spending more time on health
and fitness
• Busy parents are using services like home
cleaning, lawn services, and meal preparation to
balance lifestyles
Merchandise/Service
Continuum
Types of Retail Ownership
Another way to classify retailers is by
their ownership.
The major classifications are:
1. Independent, single-store
establishments
2. Corporate chains
3. Franchises
Franchising
• Franchising is a contractual agreement between a
franchisor and a franchisee that allows the
franchisee to operate a retail outlet using a name
and format developed and supported by the
franchisor.
• 30 – 40% of US retail sales
• Franchisee pays fixed fee plus % of sales
• Franchisee implements agreed program
prescribed by the franchisor
• Franchisor provides assistance in locating and
building the store, developing the products
and/or services, management training and
advertising
• Why is this ownership format efficient?
Franchisor Benefits and Trends
Franchisor Benefits Trends
Money, royalty fees Sustained growth
Sales of product International expansion
Rental and lease fees Greater emphasis on financial returns
Licence fees and management fees
Keywords
• assortment The number of SKUs within a merchandise category. Also called depth of merchandise.
• breadth of merchandise The number of different merchandise categories within a store or
department.
• category killer A discount retailer that offers a narrow but deep assortment of merchandise in a
category and thus dominates the category from the customers’ perspective. Also called a category
specialist.
• category specialist A discount retailer that offers a narrow but deep assortment of merchandise in a
category and thus dominates the category from the customers’ perspective. Also called a category
killer.
• convenience store A store that provides a limited variety and assortment of merchandise at a
convenient location in a 2,000- to 3,000-square-foot store with speedy checkout.
• conventional supermarket A self-service food store that offers groceries, meat, and produce with
limited sales of nonfood items, such as health and beauty aids and general merchandise.
• department store A retailer that carries a wide variety and deep assortment, offers considerable
customer services, and is organized into separate departments for displaying merchandise.
Keywords
• depth of merchandise The number of SKUs within a merchandise category. Also called depth of
merchandise.
• discount store A general merchandise retailer that offers a wide variety of merchandise, limited
service, and low prices.
• franchising A contractual agreement between a franchisor and a franchisee that allows the franchisee
to operate a retail outlet using a name and format developed and supported by the franchisor.
• full-line discount store Retailers that offer a broad variety of merchandise, limited service, and low
prices.
• hypermarket Large (100,000–300,000 square feet) combination food (60–70 percent) and general
merchandise (30–40 percent) retailer.
• North American Industry Classification System (NAICS) Classification of retail firms into a hierarchical
set of six-digit codes based on the types of products and services they produce and sell.
• off-price retailer A retailer that offers an inconsistent assortment of brand-name, fashion-oriented soft
goods at low prices.
• specialty store A type of store concentrating on a limited number of complementary merchandise
categories and providing a high level of service.
Keywords
• stock-keeping unit (SKU) The smallest unit available for keeping inventory control. In soft goods
merchandise, an SKU usually means a size, color, and style.
• supercenter Large store (150,000 to 220,000 square feet) combining a discount store with a
supermarket.
• supermarket A conventional supermarket is a large, self-service retail food store offering
groceries, meat, and produce, as well as some nonfood items, such as health and beauty aids
and general merchandise.
• value retailers Small, full-line discount stores that offer a limited merchandise assortment at
very low prices.
• variety The number of different merchandise categories within a store or department.
• warehouse club A retailer that offers a limited assortment of food and general merchandise with
little service and low prices to ultimate consumers and small businesses.
• wholesale-sponsored voluntary cooperative group An organization operated by a wholesaler
offering a merchandising program to small, independent retailers on a voluntary basis.

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