TYPES OF RETAILERS

Retailer Characteristics

The most basic characteristics used to describe different types of retailers is the retail mix, the elements used by retailers to satisfy their customers’ needs.

Four elements of the retail mix are particularly useful for classifying retailers- •the type of merchandise and/ or services sold•the variety and assortment of merchandise sold•the level of customer service•the price of the merchandise

Type of Merchandise-Merchandise Coding The United States, Canada, and Mexico have developed a

classification scheme, called the North American Industry Classification System (NAICS), to collect data on business activity in each country.

Every business is assigned a hierarchical, six-digit code based on the type of products and services it produces and sells. The first two digits identify the firm’s business sector, and the remaining four digits identify various sub sectors.

Category-448-Clothing & clothing accessory stores

4481-Clothing Stores

44811-Men’s Clothing Stores

Variety and Assortment

• Variety represents the number of merchandise categories, a retailer offers.

• Assortment is the number of different items in a merchandise category.

• Variety is often referred to as the breadth of merchandise carried by a retailer; assortment is referred to as the depth of merchandise.

• Each different item of merchandise is called as SKU (stock keeping unit).

Services Offered Retailers also differ in the services they offer customers. Customers

expect almost all retailers to provide certain services: • displaying merchandise, • accepting credit cards, • providing parking, • being open at convenient hours.

Some retailers charge customers for other services, such as home delivery and gift wrapping. Retailers that cater to service-oriented consumers offer customers most of these services at no charge.

Prices and the Cost of Offering Breadth and Depth of Merchandise and Services

When a retailer offers customers many SKU’s, its inventory investment increases because the retailer must have backup stock for each SKU.

Services attract customers to the retailer, but they’re also costly.

More salespeople are needed to provide information and assist customers. Alter merchandise to meet customers’ needs, and demonstrate merchandise.

Child care facilities, rest rooms and dressing rooms take up valuable store places that could be used to stock and display merchandise.

Offering credit, or installment payments requires a financial investment that could be used to buy more merchandise.

Prices and the Cost of Offering Breadth and Depth of Merchandise and ServicesTo make a profit, retailers that offer broader and deeper assortments and services need to charge higher prices.

Department stores have higher prices because they have higher costs due to stocking a lot of fashionable merchandise, discounting merchandise when errors are made in forecasting consumer tastes and having expensive mall locations.

In contrast, discount stores appeal to customers who are looking for lower prices and are less interested in services but want to see a wide range of merchandise brands and models.

Food Retailers

• Supermarkets

• Supercentres

• Hypermarkets

• Warehouse Clubs

• Convenience Stores

Supermarkets

A conventional supermarket is a self-service food store offering groceries meat, and produce with limited sales of nonfood items, such as health and beauty aids and general merchandise.

Perishables like meat and produce account for 44 percent of supermarket sales and typically have higher margins than packaged goods. The Largest supermarket chains in the United States and are Kroger, Albertson’s Safeway, Ahold USA, and Pubix.

Whereas conventional supermarkets carry about 30,000 SKUs, limited assortment supermarkets, also called extreme value food retailers, only stock 1,250 SKUs. The two largest limited assortment supermarket chains in the United States are Save-A-Lot and ALDI.

Supercentres

Supercentres, the fastest growing retail category, are large stores (150,000-220,000 square feet) that combine a supermarket with a full-time discount store. Wal-Mart operates over 2,000 supercentres in the United States.

HypermarketsHypermarkets are also large (100,000-300,000 square feet)

combination food (60-70 percent) and general merchandise (30-40 percent) stores.

Hypermarkets typically stock fewer SKUs than supercentres- between 40,000 and 60,000 items ranging from groceries, hardware, and sports equipments to furniture and appliances to computers and electronics.

Hypermarkets are not common in the United States, though hypermarkets and supercentres are similar. Both hypermarkets and supercentres are large, carry grocery and general merchandise categories, offer self-service, and are located in warehouse-type structure with large parking facilities.

However , hypermarkets carry a larger proportion of food items than supercentres with a greater emphasis placed on perishables- produce, meat, fish and bakery .

Warehouse Clubs

Warehouse Clubs are retailers that offer a limited and irregular assortment of food and general merchandise with little service at low prices for ultimate consumers and small businesses. Warehouse clubs are large ( atleast 100,000-150,000 square feet) and typically located in low-rent districts.

They have simple interiors and concrete floors. Warehouse clubs can offer low prices because they use low-cost locations, inexpensive store designs, and little customer service and keep inventory holding costs low by carrying a limited assortment of fast selling items .

In addition , they buy merchandise opportunistically. Most warehouse clubs have two types of members; wholesale members who own small businesses and individual members who purchase for their own use.

Convenience Store Convenience Store provide a limited variety and assortment of merchandise at a convenient location in 2,000-3,000 square foot stores with speedy check-out.

They are then modern version of the neighborhood mom-and-pop grocery/general store. Convenience stores enable consumers to make purchases quickly, without having to search through a large store and wait in a long checkout line. Over half the items bought are consumes within 30 minutes of purchase.

Due to their small size high sales, convenience stores typically receive deliveries every day. Convenience stores operators also are tailoring their merchandise assortments to cater to the need of local markets. To increase convenience , convenience stores are opening smaller stores close to where consumers shop and work.

Characteristics of Food RetailersConventionalSupermarket

Limited Assortment

Supermarket

Supercentre WarehouseClub

Convenience Store

Percentage Food

70-80 80-90 30-40 60 90

Size (000sq ft) 20-30 7-10 150-220 100-150 2-3

SKUs (000) 20-40 1-1.5 100-150 20 2-3

Variety Average Narrow Broad Broad Narrow

Assortment Average Shallow Deep Shallow Shallow

Ambience Pleasant Minimal Average Minimal Average

Service Modest Limited Limited Limited Limited

Prices Average Lowest Low Low High

Trends in Food Retaining Although conventional supermarkets still sell a majority of food

merchandise, they are under substantial competitive pressure, Everyone wants a price of the food pie. Supercentres are rapidly attracting conventional supermarket customers with their broader assortments of food and general merchandise at attractive prices. To complete successfully against intrusions by other food retaining formats, conventional supermarkets are differentiating their offering by (1) emphasizing fresh perishables, (2) targeting health –conscious and ethnic consumers, (3) providing a better in-store experience, and (4) offering more private label brands. For example , fresh merchandise categories,

Conventional supermarkets are also offering more natural , organic, low-fat-sugar, and low-salt merchandise for the growing segment of consumers who are health conscious or have dietary restrictions that they must follow.

General Merchandise Retailers

•Department Stores•Discount Stores•Speciality Stores•Category Stores•Home Improvement Centers•Drugstores•Off-Price Stores•Extreme Value Stores

Department StoresDepartment stores are retailers, that carry a broad variety and deep assortment, offer customer services, and organize their stores into distinctly separate departments for displaying merchandise. The largest department store chains in the United States are Macy’s ( part of Federated Department Stores), Sears, JC Penney and Kohl’s

Traditionally , department stores attracted customers by offering a pleasing ambience, attentive services, and a wide variety of merchandise under one roof.

They sell both soft goods ( apparel and bedding) and hard goods ( appliances, furniture, and consumer electronics). But now most department stores focus almost exclusively on soft goods. The major departments are women’s men’s and children’s apparel and accessories; home furnishings; cosmetics; and kitchenware and small appliances

Each department within the store has a specific selling space allocated to it, a POS terminal to transact and record sales, and salespeople to assist customers. The department store often resembles a collection of specialty shops.

Department StoresDepartment store chains can be categorized into three tiers-

The first tier includes upscale, high fashion chains with exclusive designer merchandise and excellent customer service.

The second tier of upscale traditional department stores, in which retailers sell more modestly priced merchandise with less customer service,

The value-oriented third tier-Sears, JC Penney and Kohl’s- caters to more price-conscious consumer.

Full –Line Discount Stores

Full-line discounts stores are retailers that offer a broad variety of merchandise , limited service ,a and low prices.

Discount stores offer both private labels and national brands, but these brands are typically less fashion oriented than the brands in department stores.

The big three full-line discount store chains are Wal-Mart, Kmart, , and Target, which account for 84 percent of the sales in this retail format.

The most significant trend in this sector ins Wal-Mart’s conversion of discount stores to supercentres.

Specialty Stores

Specialty stores concentrate on a limited number of complementary merchandise categories and provide a high level of service in relatively small stores .

Drugstores

Drugstores are specialty stores that concentrate on health and personal grooming merchandise, Pharmaceuticals often represent over 50 percent of drugstores sales and an even greater percentage of their profits.

Home Improvement Centre

• Category specialists offering equipments and material used by do-it-yourselfers and contractors to make home improvements.

• Like warehouse clubs and office supply category specialists, home improvement centres operate as retailers when they sell merchandise to consumers and as wholesalers when they sell merchandise to contractors and other businesses.

Category Specialists

Category Specialists are big box discount stores that offer a narrow but deep assortment of merchandise. These retailers are basically discount specialty stores.

Most category specialists use a self-service approach but some specialists in consumer durables offer assistance to customers.

By offering a complete assortment in a category at low prices, category specialists can “kill” a category of merchandise for other retailers and thus are frequently called category killers. Due to their category dominance, the use their buying power to negotiate low prices and are assured of supply when items are scarce.

Extreme Value Retailers

Extreme value retailers are small, full –line discount stores that offer a limited merchandise assortment at very low prices. The largest extreme value retailers are dollar General And Family Dollar stores.

Like limited assortment food retailers, extreme value full-time retailers reduce costs and maintain low prices by offerings a limited assortment and operating in low-rent , urban, or rural locations.

Off-Price Retailers

Off-Price Retailers offer an inconsistent assortment of brand name merchandise at low prices. Off-price retailers sell brand name and even designer label merchandise at low prices through their unique buying and merchandising practices. Most merchandise is bought opportunistically from manufacturers or other retail merchandising practices.

Most merchandise is bought opportunistically from manufacturers or other retailers with excess inventory at the end of the season. The merchandise might be in odd sizes or unpopular colors and styles, or it may be irregulars ( having minor mistakes in construction), Typically, merchandise is purchased at one-fifth to one-fourth of the original wholesale price.

Due to this pattern of opportunistic buying , customers can’t be confident that the same type of merchandise will be in stock each time they visit the store. Different bargains will be available on each visit.

General Merchandise Retailers Type Variety Assortment Service Prices Size

(000 sq.ft)SKUs(000)

Departmentstores

Broad Deep to average

Average to high

Average to high

100-200 100

Discounts stores

Broad Average to shallow

Low Low 60-80 30

Specially stores Category specialists

Narrow Deep High High 4-12 5

Home Improvementcentres

Narrow Very deep Low to high Low 80-120 20-40

Drugstores Narrow Very Deep Average Average to high

3-15 10-20

Off-price stores

Average Deep but varying

Low Low 20-30 50

Extreme value retailers

Average Average and varying

Low Low 7-15 3-4

Nonstore Retailers

The major nonstore channels are the Internet, catalogs, direct mail, direct selling, television home shopping, and vending machines.

Electronic Retailers

Electronic retailing (also called e-tailing, online retailing, and Internet retailing) is a retail format in which the retailers communicate with customers and offer products and services for sale over the Internet.

Catalog and Direct-Mail Retailers

Catalog retailing is a nonstore retail format in which the retail offering is communicated to a customer through a catalog , whereas direct-mail retailers communicate with their customers using letters and brochures.

Direct Selling

Direct selling is a retail format in which salespeople frequently independent businesspeople, contact customers directly in a convenient location either at the customer’s home or at work; demonstrate merchandise benefits and/ or explain a service; take an order; and deliver the merchandise or perform the service.

Direct selling is a highly interactive form of retailing in which considerable information is conveyed to customers through face-to-face discussions with sales people. However, providing this high level of information , including extensive demonstrations, is costly.

Television Home Shopping

Television home sopping is a retail format in which customers watch a TV program that demonstrates merchandise and then place orders for the merchandising by telephone.

Vending Machine Retailing

Vending machine retailing is a nonstore format in which merchandise or services are stored in a machine and dispensed to customers when they deposit cash or use a credit card. Vending machines are placed at convenient , high-traffic locations , such as in the workplace or on university campuses, and primarily contain snacks or drinks.

Services Retailing

Service retailers, firms selling primarily services rather than merchandise, are a large and growing part of the retail industry.

Differences between Services & Merchandise Retailers

Four important differences in the nature of the offering provided by services and merchandise retailers are

(1) intangibility,

(2) simultaneously production and consumption,

(3) perishablity, and

(4) inconsistency of the offering to customers.

Types of Ownership

• Independent, Single-Store Establishments

• Corporate Retail Chains

• Franchising

Retailer Original Formats Later Formats

RPG Retail Supermarket (Food world) Hypermarket (Spencer’s). Specialty store (Health & Glow)

Piramal’s Department Store (Pyramid Mega store) Discount store (TruMart)

Pantaloon Retail Small format outlets (Shoppe) Department store (Pantaloon)

Supermarket (Food Bazar), Hypermarket (Big Bazar) Mall (Central)

K. Raheja Group Department store (Shopper’s Stop) Specialty store (Crossword)

Supermarket (TBA), Hypermarket (TBA)

Tata/ Trent Department store (Westside) Hypermarket (Star India Bazaar)Specialty (Croma)

Others Discount store (Apna Bazaar), Supermarket (NIlgiri’s), Specialty Electronics (Vivek’s, Vijay Sales)

Source : KPMG in India analysis 2005

The Indian Retail Space