Retailers

Store Retailers

Store retailers vary in size, in the kinds of services, the assortment of merchandise they carry, and many other respects.

Learning Objectives

Compare the different types of store retail facilities

Key Takeaways

Key Points

  • Department stores are characterized by their very wide product mixes. That is, they carry many different types of merchandise that may include hardware, clothing, and appliances.
  • Chain Stores: The 1920s saw the evolution of the chain store movement. Because chains were so large, they were able to buy a wide variety of merchandise in large quantity discounts.
  • Supermarkets were among the first to experiment with such innovations as mass merchandising and low-cost distribution methods.
  • Warehouse retailing is a relatively new type of retail institution that experienced considerable growth in the 1970s.

Key Terms

  • franchising: Franchising is the practice of using another firm’s successful business model.

Store Retailers

Store retailers vary in size, in the kinds of services that are provided, in the assortment of merchandise they carry, and in many other respects. Most stores are small and have daily sales of only a few hundred dollars. Few are extremely large, having sales of $500,000 or more on a single day. In fact, on special sale days, some stores have exceeded $1 million in sales.

Department Stores: Department stores are characterized by their very wide product mixes. That is, they carry many different types of merchandise that may include hardware, clothing, and appliances. Each type of merchandise is typically displayed in a different section or department within the store. The depth of the product mix depends on the store.

Chain Stores: The 1920s saw the evolution of the chain store movement. Because chains were so large, they were able to buy a wide variety of merchandise in large quantity discounts. The discounts substantially lowered their cost compared to costs of single-unit retailers. As a result, they could set retail prices that were lower than those of their small competitors and, thereby, increase their share of the market. Furthermore, chains were able to attract many customers because of their convenient locations, made possible by their financial resources and expertise in selecting locations.

Supermarkets: Supermarkets evolved in the 1920s and 1930s. For example, Piggly Wiggly Food Stores, founded by Clarence Saunders around 1920, introduced self-service and customer checkout counters. Supermarkets are large, self-service stores with central check-out facilities, they carry an extensive line of food items and often non-food products. Supermarkets were among the first to experiment with such innovations as mass merchandising and low-cost distribution methods. Their entire approach to the distribution of food and household cleaning and maintenance products was to make available to the public large assortments of a variety of such goods at each store at a minimal price.

Discount Houses: Cut-rate retailers have existed for a long time. However, since the end of World War II, the growth of discount houses as a legitimate and extremely competitive retailer has assured this type of outlet a permanent place among retail institutions. It essentially followed the growth of the suburbs. Discount houses are characterized by an emphasis on price as their main sales appeal. Merchandise assortments are generally broad, including both hard and soft goods, but assortments are typically limited to the most popular items, colors, and sizes. Such stores are usually large, self-service operations with long hours, free parking, and relatively simple fixtures.

Warehouse Retailing: Warehouse retailing is a relatively new type of retail institution that experienced considerable growth in the 1970s. Catalog showrooms are the largest type of warehouse retailer, at least in terms of the number of stores operated. Their growth rate has slowed in comparison to previous decades, but they still have a huge presence in terms of their sales.

Franchises: Over the years, particularly since the 1930s, large chain store retailers have posed a serious competitive threat to small store owners. One of the responses to this threat has been the rapid growth of franchising. Franchising is not a new development. The major oil companies such as Mobil have long enfranchised its dealers, who only sell the products of the franchiser (the oil companies). Automobile manufacturers also enfranchise their dealers, who sell a stipulated make of car (e.g., Chevrolet) end operate their business to some extent as the manufacturer wishes.

Planned Shopping Centers: After World War II, the United States underwent many changes. Among those most influential on retailing were the growth of the population and of the economy. New highway construction enabled people to leave the congested central cities and move to newly developed suburban residential communities. This movement to the suburbs established the need for new centers of retailing to serve the exploding populations. By 1960 there were 4,500 such centers with both chains and non-chains vying for location. Such regional shopping centers are successful because they provide customers with a wide assortment of products. If you want to buy a suit or a dress, a regional shopping center provides many alternatives in one location.

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Macy’s Department Store: The Macy’s flagship department store with the famous brownstone at 34th and Broadway.

Nonstore Retailers

Non-store retailing is the selling of goods and services outside the confines of a retail facility.

Learning Objectives

Discuss non-store retailing as a sales channel

Key Takeaways

Key Points

  • E-commerce is growing by leaps and bounds, as consumers become more comfortable with the concept and their options increase.
  • In total, non-store retailing accounts for a relatively small percentage of total retail sales, but it is growing and very important with certain types of merchandise, such as life insurance, cigarettes, magazines, books, CDs, and clothing.
  • The non-store distribution channel can be divided into direct selling (off-premises sales), and distance selling, the latter include all forms of electronic commerce.

Key Terms

  • Direct selling: Direct selling is the marketing and selling of products directly to consumers away from a fixed retail location.

Non-store retailing is the selling of goods and services outside the confines of a retail facility. It is a generic term describing retailing taking place outside of shops and stores (i.e., off the premises of fixed retail locations and of markets stands). The non-store distribution channel can be divided into direct selling (off-premises sales) and distance selling, the latter including all forms of electronic commerce. Distance selling includes mail order, catalogue sales, telephone solicitations, and automated vending. Electronic commerce includes online shopping, Internet trading platforms, travel portals, global distribution systems, and teleshopping. Direct selling includes party sales and all forms of selling in consumers’ homes and offices, including even garage sales.

E-commerce is growing by leaps and bounds, as consumers become more comfortable with the concept and their options increase. Flash deal sites have been the trend of the moment, where consumers generally have a membership with a specific site and are given access to a limited-time price on a good. E-commerce sites now cover almost every nook and cranny of the retail space. You can go to the wildly successful Alibaba.com to buy machinery from Asia. You can go to CustomMade.com to purchase a good made specifically for you by one of those same machines. With all the e-commerce growth comes interesting trends relating to consumers becoming more comfortable with making purchase on their mobile phones and tablets. Mobile phones also aid purchases everywhere now more than ever, and play a crucial role in any retailer’s marketing strategy.

In total, non-store retailing accounts for a relatively small percentage of total retail sales, but it is growing and very important with certain types of merchandise, such as life insurance, cigarettes, magazines, books, CDs, and clothing. One type of non-store retailing used by such companies as Avon, Electrolux, and many insurance agencies is in-home selling. Such sales calls may be made to preselected prospects or in some cases on a cold call basis. A variation of door-to-door selling is the demonstration party. Here one customer acts as a host and invites friends. Tupperware has been very successful with this approach. Vending machines are another type of non-store retailing. Mail order is a form of non-store retailing that relies on product description to sell merchandise. The communication with the customer can be by flyer or catalog. Magazines, CDs, clothing, and assorted household items are often sold in this fashion. Mail order offers convenience but limited service, and it is an efficient way to cover a very large geographical area when shoppers are not concentrated in one location.

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Tupperware Party: Tupperware party in the 1960’s.

Internet Retailers

Online retailing is a form of electronic commerce where consumers directly buy goods or services from a seller using the Internet.

Learning Objectives

Outline the process of online shopping

Key Takeaways

Key Points

  • An online shop, e-store, or virtual store evokes the physical analogy of buying products or services at a shopping center. The process is called business-to- consumer (B2C) online shopping. When a business buys from another business, it is called business-to-business (B2B) online shopping.
  • Consumers find a product of interest by visiting the website of the retailer directly or by searching among alternative vendors using a shopping search engine. A “checkout” process follows in which payment and delivery information is collected, if necessary.
  • Once a payment has been accepted the goods or services can be delivered in the following ways: downloading, shipping, in-store pick up, “at the door” pick up, and printing out or emailing.

Key Terms

  • electronic commerce: Electronic commerce, commonly known as e-commerce, is the buying and selling of products or services over electronic systems such as the Internet and other computer networks.

Internet Retailers

Online retailing is a form of electronic commerce whereby consumers directly buy goods or services from a seller over the Internet without an intermediary. An online shop, eshop, e-store, Internet shop, webshop, webstore, online store, or virtual store evokes the physical analogy of buying products or services at a bricks-and-mortar retailer or shopping center. The process is called business-to-consumer (B2C) online shopping. When a business buys from another business it is called business-to-business (B2B) online shopping. The largest online retailing corporations are eBay and Amazon.com, both of which are US-based.

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Amazon.com Headquarters: This is the headquarters of Amazon.com, the largest online retailer in the world.

The Process of Shopping Online

Consumers find a product of interest by visiting the website of the retailer directly or by searching among alternative vendors using a shopping search engine. Once a particular product has been found on the web site of the seller, most online retailers use shopping cart software to allow the consumer to accumulate multiple items and to adjust quantities, much similar to the process of filling a physical shopping cart or basket in a conventional store. A “checkout” process follows (continuing the physical-store analogy) in which payment and delivery information is collected, if necessary.

Some stores allow consumers to sign up for a permanent online account so that some or all of this information only needs to be entered once. The consumer often receives an e-mail confirmation once the transaction is complete. Less sophisticated stores may rely on consumers to phone or e-mail their orders (though credit card numbers are not accepted by e-mail, for security reasons). Online shoppers commonly use a credit card to make payments, but some systems enable users to create accounts and pay by alternative means, such as: billing to mobile phones and landlines, cash on delivery (or C.O.D., which is offered by very few online stores), checks, and wire transfers.

The Methods of Delivery

Once a payment has been accepted, the goods or services can be delivered in the following ways:

Downloading: This method is often used for digital media products such as software, music, movies, or images.

Drop shipping: The order is passed to the manufacturer or third-party distributor, who ships the item directly to the consumer, bypassing the retailer’s physical location to save time, money, and space.

In-store pickup: The customer orders online, finds the closest local store using locator software and picks the product up there. This method is often used in the bricks and clicks business model.

Printing out, provision of a code for, or emailing of such items as admission tickets and scrip (e.g., gift certificates and coupons ): The tickets, codes, or coupons may be redeemed at the appropriate physical or online premises and their content reviewed to verify their eligility (e.g., assurances that the right of admission or use is redeemed at the correct time and place, for the correct dollar amount, and for the correct number of uses).

Shipping: The product is shipped to the customer’s address or that of a customer-designated third party.

Will call, in care of box office (ICOBO), or “at the door” pickup: The patron picks up pre-purchased tickets for an event, such as a play, sporting event, or concert, either just before the event or in advance. With the onset of the Internet and e-commerce sites, which allow customers to buy tickets online, the popularity of this service has increased.

Telemarketing

Telemarketing is a method of direct marketing where a salesperson solicits prospective customers directly, usually over the phone.

Learning Objectives

Break down the elements of telemarketing

Key Takeaways

Key Points

  • Telemarketing can also be done through a subsequent face-to-face or Web conferencing appointment scheduled during the call, and can include recorded sales pitches programmed to be played over the phone via automatic dialing.
  • Telemarketing has come under fire in recent years, being viewed as an annoyance and a disturbance by many.
  • Prospective customers are identified by various means, including past purchase history, previous requests for information, credit limit, competition entry forms, application forms, or purchases from another company’s consumer database or obtained from a telephone directory or another public list.

Key Terms

  • robocalling: a form of voice broadcasting which is most frequently associated with political messages.

Telemarketing

Telemarketing is a method of direct marketing in which a salesperson solicits prospective customers to buy products or services, either over the phone or through a subsequent face-to-face or Web conferencing appointment scheduled during the call. Telemarketing can also include recorded sales pitches programmed to be played over the phone via automatic dialing. Telemarketing has come under fire in recent years, being viewed as an annoyance and a disturbance by many. While many methods of marketing will suffer this criticism to some degree by those who prefer not to be disturbed, telemarketing seems to be criticized particularly because of its direct, intrusive nature. The two major categories of telemarketing are business-to-business and business-to-consumer.

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Telemarketing: Author and activist Bob Wood places one of his numerous phone calls to residents in Muskegon County, Michigan.

Some important terms used in telemarketing are:

  • Lead Generation – the gathering of information and contacts.
  • Sales – using persuasion to sell a product or service.
  • Outbound – proactive marketing in which prospective and preexisting customers are contacted directly.
  • Inbound – reception of incoming orders and requests for information.

Demand is generally created by advertising, publicity, or the efforts of outside salespeople. Telemarketing may be done from a company office, from a call center, or from home. It may involve either a live operator or a recorded message, in which case it is known as “automated telemarketing” using voice broadcasting. “Robocalling” is a form of voice broadcasting that is most frequently associated with political messages. An effective telemarketing process often involves two or more calls. The first call (or series of calls) determines the customer’s needs. The final call (or series of calls) motivates the customer to make a purchase.

Prospective customers are identified by various means, including past purchase history, previous requests for information, credit limit, competition entry forms, and application forms. Names may also be purchased from another company’s consumer database or obtained from a telephone directory or another public list. The qualification process is intended to determine which customers are most likely to purchase the product or service. Charitable organizations, alumni associations, and political parties often use telemarketing to solicit donations. Marketing research companies use telemarketing techniques to survey the prospective or past customers of a client’s business in order to assess market acceptance of or satisfaction with a particular product, service, brand, or company. Public opinion polls are conducted in a similar manner. Telemarketing techniques are also applied to other forms of electronic marketing using e-mail or fax messages, in which case they are frequently considered spam by receivers.

Vending Machines

A vending machine can dispense a wide variety of merchandise when the consumer inserts money into it.

Learning Objectives

Explain the vending machine process

Key Takeaways

Key Points

  • Vending machines have a huge variety of goods that they may dispense: snacks, beverages, alcohol, cigarettes, lottery tickets, consumer products, electronics, full meals, and even jewellery.
  • The main example of a vending machine giving access to all merchandise after paying for one item is a newspaper vending machine (also called vending box) found mainly in the U.S. and Canada.
  • Some products need to be prepared to become available. For example, tickets are printed or magnetized on the spot, and coffee is freshly concocted. Others, such as newspapers, are already ready for use.

Key Terms

  • vending machine: A automatic machine that accepts money and dispenses merchandise.

A vending machine is a machine which dispenses items such as snacks, beverages, alcohol, cigarettes, lottery tickets, consumer products and even gold and gems to customers automatically, after the customer inserts currency or credit into the machine. After paying, a product may become available by: the machine releasing it, so that it falls in an open compartment at the bottom, or into a cup, either released first, or put in by the customer; the unlocking of a door or drawer; or the turning of a knob. Some products need to be prepared to become available. For example, tickets are printed or magnetized on the spot, and coffee is freshly concocted. The most common form of vending machine, the snack machine, often uses a metal coil which rotates to release an ordered product.

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Best Buy Vending Machine: This is a Best Buy Express vending machine at an airport terminal, stocked with electronics. These are referred to as automated retail kiosks.

The main example of a vending machine giving access to all merchandise after paying for one item is a newspaper vending machine (also called vending box) found mainly in the U.S. and Canada. It contains a pile of identical newspapers. After a sale, the door automatically returns to a locked position. A customer could open the box and take all of the newspapers or, for the benefit of other customers, leave all of the newspapers outside of the box, slowly return the door to an unlatched position, or block the door from fully closing. All of these possibilities are frequently discouraged, sometimes by a security clamp. The success of such machines is predicated on the assumption that the customer will be honest (hence the nickname “honor box”), and need only one copy.

A wide variety of goods can be dispensed by vending machines, and in some places, even burgers and steaks!

Mall Kiosks

A retail kiosk (or mall kiosk) is a store operated out of a merchant supplied kiosk.

Learning Objectives

Explain the benefits and drawbacks of employing a retail kiosk (RMU)

Key Takeaways

Key Points

  • Kiosks are located in shopping malls, airports, stadiums, or larger stores. Their placement guarantees high foot traffic from shoppers and offers opportunities for impulse sales.
  • Holiday rents are generally term rents that encompass both November and December. These holiday rents are often three to four times the non-holiday rents for each of these two months.
  • Benefits of kiosks include high visibility, low overhead, small inventories, and low or non-existent CAM, tax, utility, and marketing fees, as compared to their in-line storefront counterparts.

Key Terms

  • kiosk: A small enclosed structure, often freestanding, open on one side or with a window, used as a booth to sell newspapers, cigarettes, etc.

A retail kiosk (or mall kiosk) is a store operated out of a merchant supplied kiosk. It is typically enclosed with the operator located in the center and the customer approaching the vendor from across a counter. These units are located in shopping malls, airports, stadiums, or larger stores. The industry term for smaller units is retail merchandising unit (RMU) cart or mall cart. These smaller desk size units were created to avoid lease conflicts with existing stores with “kiosk” language exclusions and local fire codes requiring greater distance between units by placing them on wheels. RMUs function with the operator approaching the customer from the area surrounding the unit and showing or even demonstrating the product firsthand. Their placement guarantees high foot traffic from shoppers and offers opportunities for impulse sales.

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Mall Kiosk: These are mall kiosks in Haifa Mall, Haifa, Israel.

RMUs are usually supplied by the property owner and licensed rather than leased. Kiosks are also available under the same conditions and may even be supplied by the property owner when they have been abandoned by former tenants. Rents vary by market conditions and mall traffic. Holiday rents are generally term rents that encompass both November and December with a combined sales breakpoint for the holiday term on short-term agreements or annual sales breakpoints on permanent agreements. These holiday rents are often three to four times the non-holiday rents for each of these two months.

Due to the high visibility of these units, which are most often located in the common areas of malls, these businesses can often gain a relatively trackable monthly sales figure after a three or four month trial. Many other benefits exist, such as low overhead, small inventories, and low or non-existent CAM, tax, utility, and marketing fees, as compared to their in-line storefront counterparts, which can often have fees equal to or in excess of the rents themselves.

Direct Selling

Direct selling is the marketing and selling of products directly to consumers, away from a fixed retail location.

Learning Objectives

Explain the role of direct selling in retail

Key Takeaways

Key Points

  • In contrast to franchising, the cost for an individual to start an independent direct selling business is typically very low with little or no required inventory or other cash commitments in the beginning.
  • The World Federation of Direct Selling Associations (WFDSA) reports that its 59 regional member associations accounted for more than U.S. $114 billion in retail sales in 2007 through the activities of more than 62 million independent sales representatives.
  • Direct selling is distinct from direct marketing because it is about individual sales agents reaching and dealing directly with clients, while direct marketing is about business organizations seeking a relationship with their customers without going through an agent/consultant or retail outlet.

Key Terms

  • Direct Marketing: is a channel-agnostic form of advertising that allows businesses and nonprofits organizations to communicate straight to the customer

Direct Selling in Retail

Direct selling is the marketing and selling of products directly to consumers, away from a fixed retail location. Peddling is the oldest form of direct selling. Modern direct selling is done through personal presentation and includes sales made through the party plan, one-on-one demonstrations, and other personal contact arrangements as well as internet sales.

The World Federation of Direct Selling Associations (WFDSA) reports that its 59 regional member associations accounted for more than U.S. $114 billion in retail sales in 2007 through the activities of more than 62 million independent sales representatives. The United States Direct Selling Association (DSA) reported that in 2000, 55 percent of adult Americans had at some point purchased goods or services from a direct selling representative, and 20 percent reported that they were currently (6 percent) direct selling representatives or had been in the past (14 percent).

According to the WFDSA, consumers benefit from direct selling because of the convenience and service it provides, including personal demonstrations and explanations of products, home delivery, and generous satisfaction guarantees. In contrast to franchising, the cost for an individual to start an independent direct selling business is typically very low with little or no required inventory or other cash commitments in the beginning.

Most direct selling associations, including the Bundesverband Direktvertrieb Deutschland (the direct selling association of Germany), the WFDSA, and the DSA, require their members to abide by a code of conduct ensuring a fair partnership both with customers and salesmen. Most national direct selling associations are represented in the World Federation of Direct Selling Associations (WFDSA).

Direct selling is distinct from direct marketing because it is about individual sales agents reaching and dealing directly with clients. Direct marketing is about business organizations seeking a relationship with their customers without going through an agent, consultant, or retail outlet. Direct selling frequently uses multi-level marketing rather than single-level marketing. In multi-level marketing, the salesperson is paid both for selling and for the sales made by the people he or she recruits or sponsors. In single-level marketing, the salesperson is paid only for the sales he or she makes individually.

Largest Direct Selling Companies

According to Direct Selling News, the largest direct selling companies by ‘ revenue in 2011’ were:

  • Avon Products, founded 1886, U.S. $ 11.3 billion
  • Amway, founded 1959, U.S. $ 10.9 billion
  • Herbalife, founded 1980, U.S. $ 3.5 billion
  • Natura, founded 1969, U.S. $ 3.01 billion
  • Vorwerk, founded 1883, U.S. $ 3.0 billion
  • Mary Kay, founded 1963, U.S. $ 2.9 billion
  • Tupperware, founded 1946, U.S. $ 2.6 billion
  • Oriflame, founded 1967, U.S. $ 2.1 billion
  • Nu Skin Enterprises, founded 1984, U.S. $ 1.7 billion
  • Belcorp, founded 1967, U.S. $ 1.6 billion
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Direct Selling: A peddler in Vietnam