CHAPTER 1 – PERSPECTIVES ON RETAILINGChapter 1

Title of the Book: RETAILING

(Author: Patrick M. Dunne, Robert F. Lusch, James R. Carver)

Perspectives on Retailing

Overview:

In this chapter, we acquaint you with the nature and scope of retailing. We present retailing as a
major economic force in the United States and as a significant area for career opportunities. Finally,
we introduce the approach to be used throughout this text as you study and learn about the
operation of retail firms.

Learning Objectives:

After reading this chapter, you should be able to:

1. Explain what retailing is and why it is undergoing so much change today.
2. Describe five methods used to categorize retailers.
3. Understand what is involved in a retail career and be able to list the prerequisites necessary
for success in retailing.
4. Explain the different methods for the study and practice of retailing.

Outline:

I. What Is Retailing, and Why Is It Undergoing So Much Change Today?

A. Retailing - consists of the final activities and steps needed either to place a product
in the hands of the consumer or to provide a service to the consumer.
B. The last step in a supply chain.
C. Can be performed by any firm that sells a product or provides a service to the final
consumer.
D. The Nature of Change in Retailing - Retailing accounts for 20 percent of the
worldwide labor force and includes every living individual as a customer, is the
largest single industry in most nations and is currently undergoing many exciting
changes.
1. E-tailing - One of the most important trends for retailing.
a. The Internet hasn’t destroyed bricks-and-mortar
retailers - retailers that operate out of a physical building. These
retailers have to adapt to changing customers.

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 b. The Internet has changed consumer behavior. Customers are
used to speed, convenience, vast amounts of information on the
product, group discounts, etc. This has important implications for
retailers.
c. A dramatic change created by e-tailing is a shift in power
between retailers and consumers. The information dissemination
capabilities of the Internet are making consumers better informed
and thus increasing their power when transacting and negotiating
with retailers.
2. Price Competition - Americans are price conscious, whether
shopping at bricks & mortar stores or on-line, and retailers that are able to
cut costs in order to provide lower prices will be the winners.
3. Demographic Shifts - Other significant changes in retailing over the
past decade have resulted from changing demographic factors, such as: the
fluctuating birth rate, the increasing number of immigrants, the growing
importance of the 70 million Generation Y consumers, and the fact that
Generation Xers are now middle-aged and baby boomers are now reaching
retirement.
a. Profit growth must come by either increasing same store
sales at the expense of the competition’s market share (Same store
sales is a retailing term that compares an individual store’s sales to
its sales for the same month in the previous year. Market share
refers to a retailer’s sales as a percentage of total market sales for the
product line or service category under consideration) or by reducing
expenses without reducing services to the point of losing customers.
b. As a result, today’s retail firms are run by professionals who
can look at the changing environment and see opportunities, exert
enormous buying power over manufacturers, and anticipate future
changes before they impact the market, rather than just react to these
changes after they occur.
4. Store Size – Prior to recession, emphasis was on increasing store size
– more merchandise a customer sees, the more they buy.
a. The phenomenon of scrambled merchandising, whereby
stores handle many different unrelated items, is the result of the
pressure being placed on many retailers to increase profits by
carrying additional merchandise or services (with higher profit
margins) that will also increase store traffic. Consumers save money
by traveling to just one center selling everything they need. Probably
the best example of scrambled merchandising is the supercenter,
which is a combination of the more traditional general merchandise
store with a supermarket and an automotive service center.

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 b. The recent economic downturn and slowdown in consumer
purchasing have resulted in downsizing of stores as retailers are
realizing the additional costs involved in having super-sized stores
and that consumers prefer smaller stores with the convenience of
being able to get in and out more quickly.
c. Two retail formats that have recently seen not only a
significant decrease in average store size but also a decrease in
number of stores are department stores and category killers.
Category killer stores got their name from their marketing strategy:
carry such a large amount of merchandise in a single category at
such good prices that it makes it impossible for the customer to
walk-out without purchasing what they needed; thus “killing” the
competition.
d. Because of the economic, social and cultural differences
what happens in retail in America might not be applicable to other
regions of the world.
e. The external environmental forces confronting retail firms
are - the behavior of consumers, the behavior of competition, and the
behavior of supply-chain members (the manufacturers and
wholesalers that the retailer buys from), the legal system, the state of
technology, and the socioeconomic nature of society.

II. Categorizing Retailers

There are five popular schemes for categorizing retailers.
A. Census Bureau
1. The U.S. Bureau of the Census classifies all retailers using three-digit North
American Industry Classification System (NAICS) codes. The code reflects
the type of merchandise a retailer sells.
2. Three-digit codes are very broad; four-digit codes provide much more
information on the structure of retail competition and are easier to work
with.
3. The major portion of a retailer’s competition comes from other retailers in
its NAICS category. General merchandise stores which carry a variety of
merchandise are the exception to this rule.
4. Census Bureau data might not be accurate. The Census Bureau
cautions that sales made to a customer in a foreign country through a U.S.
website are included in the bureau’s estimates.
5. Shortcoming of using the NAICS codes - do not reflect all retail activity.
According to the Census Bureau, retailing is associated only with the sale of
“tangible” goods or merchandise. However, by our definition, selling of

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 services to the final consumer is also retailing.
B. Number of Outlets
1. Another method of classifying retailers is by the number of outlets each firm
operates. Generally, retailers with several units are a stronger competitive
threat because they can spread many fixed costs, such as advertising and top
management salaries, over a large number of stores and can achieve
economies in purchasing.
2. Chain Stores - This text considers a retail operation to be a chain if it has 10
or more stores.
a. Account for 43% of all retail sales.
b. Large chains take advantage of their economies of scale and
centralized buying by using:
(1) Standard Stock List – Method whereby all stores in a chain
stock the same merchandise.
(2) Optional Stock List - Method which gives each store in a
retail chain flexibility to adjust its merchandise mix to local
tastes and demands.
(3) Providing Supply Chain Leadership - by directing the
channel and having other channel members do what they
might not otherwise do, the retailer by serving as the channel
advisor can make it more effective. Channel advisor or
channel captain is the institution (manufacturer, wholesaler,
broker, or retailer) in the marketing channel that is able to
plan for and get other channel institutions to engage in
activities they might not otherwise engage in. Large store
retailers are often able to perform the role of channel captain.
(4) Private Label Branding - Chains use their own brand name
instead of a manufacturer’s brand name; results in lower
costs for consumers. Private-label branding may be
(i) Store branding - when a retailer develops its
own brand name and contracts with a manufacturer to
produce the product with the retailer’s brand.
(ii) Designer lines - where a known designer
develops a line exclusively for the retailer.
3. A disadvantage of using the number of outlets scheme for classifying
retailers is that it addresses only traditional bricks & mortar retailers. It
ignores many nontraditional retailers such as catalog-only sellers and e-
tailers.
C. Margin vs. Turnover
1. Gross-Margin Percentage or Gross-Margin Return on Sales - It is a
measure of profitability derived by dividing gross margin by net sales. Gross

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 margin is used to pay the retailer’s operating expenses.
a. Gross Margin - Net sales minus the cost of goods sold.
b. Operating Expenses - Expenses the retailer incurs while running
the business other than the cost of merchandise [i.e., rent, wages,
utilities, depreciation, and insurance].
2. Inventory Turnover - Number of times per year, on average, that a retailer
sells its inventory.
3. High-performance Retailers - Are those retailers that produce financial
results substantially superior to the industry average.
4. Retailers can be classified into 4 types based on margin and turnover
a. Low-margin/Low-turnover - These retailers will not be able to
generate sufficient profits to remain competitive and survive. Least
able to withstand a competitive attack because this retailer is usually
unprofitable or barely profitable; when competition increases, profits
are driven even lower.
b. High-margin/Low-turnover - The types of retailers in this category
include bricks & mortar retailers such as furniture stores, high-end
women’s specialty stores and furriers, jewelry stores, gift shops,
funeral homes and most of the mom-and-pop stores located in small
towns across the country. They also include some clicks-and-
mortar retailers - Retailers who sell both online and in physical
stores.
c. Low-margin/High-turnover - Is one that operates on a low gross
margin percentage and a high rate of inventory turnover.
d. High-margin/High-turnover - Convenience store retailers fall into
this category. Best able to withstand and counter competitive attacks.
Because in the early stages of Internet commerce most retailers are
trying to achieve a high turnover rate, there are not any examples of
e-tailers using this strategy.
3. While the Margin/Turnover scheme provides an encompassing
classification, it fails to capture the complete array of retailers operating in
today’s marketplace. Service retailers and e-tailers that carry no inventory
are neglected in this classification.
D. Location - Retailers can improve financial performance results not only by
improving the sales per square foot of traditional sites but by operating in new
nontraditional retail areas or over the Internet.
E. Size - Retailers are often classified by sales volume or by number of employees.
1. Operating performance tends to vary according to size; larger firms usually
have lower operating costs per sales dollar.
2. While size has been useful in the past, it is unclear whether the changes
brought about by technology will not make this obsolete.

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III. A Retailing Career
A. Exposure to All Business Disciplines - Retailing provides professionals with the
opportunity to gain knowledge on all facets of the business world. A retailer’s role
may include a combination of the following positions and responsibilities:
1. Economist - Forecasting sales growth
2. Fashion Expert - Predicting consumer behavior and how it will affect future
fashion trends.
3. Marketing Manager - Determining how to promote, price, and display your
merchandise.
4. Financial Analyst - Reducing store expenses.
5. Personnel Manager – Hiring the right people, training them to perform their
duties in an efficient manner, and developing their work schedules.
6. Logistics Manager - Arranging delivery of a “hot item.”
7. Information System Manager - Analyzing sales and other data to determine
opportunities for improved management practices.
8. Accountant – Arriving at a profitable bottom line.
B. There are two major career paths in retailing:
1. Store Management – Involves responsibility for selecting, training, and
evaluating personnel, as well as in-store promotions, displays, customer
service, building maintenance, and security.
2. Buying – Involves the use of quantitative tools to develop appropriate
buying plans for the store’s merchandise lines.
C. Common Questions about a Retailing Career
1. Salary – Starting salaries in executive training programs will be around
$42,000 to $56,000 per year. That, however, is only the short-run
perspective. In the long run, the retail manager or buyer is directly rewarded
on individual performance. Entry-level retail managers or buyers who do
exceptionally well can double or triple their incomes in three to five years
and often can have incomes twice those of classmates who chose other
career fields.
2. Career Progression - The speed of a retail professional’s progression is
dependent upon an individual’s capabilities and the growth of the
organization. There is no “standard” career progression for a retailer.
3. Geographic Mobility - The willingness and ability to make geographic
moves often increases a retail professional’s opportunities for advancement.
4. Societal Perspective - Leading retail executives are well-rounded individuals
with a high social consciousness. Professionals entering the retail field must
develop a sound set of ethical principles to guide them through their
managerial career.

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 D. Prerequisites for Success
1. Hard Work - A willingness to work extra hours, evenings and weekends
often pays off through career advancements.
2. Analytical Skills - An ability to interpret the facts and data that are related to
the past and present performance of a store, merchandise lines and
departments.
3. Creativity - An ability to develop and capitalize on unique ideas and
opportunities.
4. Decisiveness - The ability to make rapid decisions, render judgments, take
action and commit oneself to a course of action until completion.
5. Flexibility - A willingness to and enthusiasm for accommodating change;
ability to thrive in an "expect the unexpected" environment.
6. Initiative - The ability to originate action.
7. Leadership - The ability to inspire others to trust and respect your judgment
and an aptitude for delegating, guiding and persuading others.
8. Organization - The ability to establish priorities and courses of action and to
plan and follow up to achieve results.
9. Risk Taking - The willingness to take calculated risks and to accept
responsibility for the results.
10. Stress Tolerance - Retailing is a fast-paced and demanding career in a
changing environment. The retailing leaders of the 21st century must be able
to perform consistently under pressure and to thrive on constant change and
challenge.
11. Perseverance - Successful retailers must have perseverance. All too often
retailers may become frustrated due to the many things occurring that they
can’t control. Individuals that have the ability to persevere and take
marketplace changes in stride will find an increasing number of career
advancement opportunities.
12. Enthusiasm - The ability to have a strong feeling of warmth for their job
which would convey the correct image to customers and department
associates is a prerequisite to be a successful retailer.

IV. The Study and Practice of Retailing

A. Analytical Method - The analytical retail manager is a finder and investigator of
facts. Models and theories of retailing are used to summarize and synthesize facts,
enabling managers to take systematic decisions about all aspects of the business;
emphasis is on facts.
B. Creative Method - The creative retail manager is an idea person. The use of insight
and intuition in the process of handling retail difficulties; emphasis is on ideas.
C. A Two-Pronged Approach - The combination of creativity and analysis when

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 responding to problems.
D. A Proposed Orientation - The approach to the study and practice of retailing that is
reflected in this book is an outgrowth of the previous discussion. This approach has
four major orientations:
1. Environmental Orientation - Allows retailers to continuously adapt to
external forces in the environment. Assess environmental changes from an
analytical perspective and respond with creative actions.
2. Management Planning Orientation - Allows retailers to adapt systematically
to a changing environment.
3. Profit Orientation - Allows retailers to focus on the fundamental
management of assets, revenues and expenses.
4. Decision Making Orientation - Allows retailers to focus efforts on the need
to collect and analyze data for making intelligent retail decisions.

V. The Book Outline

The book is divided into five parts and is composed of 14 chapters.
A. Introduction to Retailing (Chapters 1-2)
B. The Retailing Environment (Chapters 3-6)
C. Market Selection and Location Analysis (Chapter 7)
D. Managing Retail Operations (Chapters 8-13)
E. Retail Administration (Chapter 14)

Review and Discussion Questions:

[LO01] What is retailing, and why is it undergoing so much change today? (2-16)

1. Wouldn’t a country be better off with fewer retail outlets? After all, with fewer stores,
consumers would not waste money making impulsive purchases, and they
would save more.
SOLUTION: (2-4) Students can be made to give their viewpoints on whether a nation can become
prosperous without a well managed retail system. The instructor can point
out that retailing has made a significant contribution to the economic
prosperity that we enjoy so much. A strong retail sector contributes to low
inflation, subsequently increasing discretionary income. Without a well-
managed retail structure, national economies tend to experience low rates of
economic growth. As most economies are consumer-centric and rely on
consumer spending, having fewer retail stores might lead to insufficient
market activity to support flow of money in the economy. Moreover, retail
stores provide the much needed choice to customers. The worst cases of
poor retail systems are from communist countries where product choices are

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 dictated by the state.

2. Is scrambled merchandising really a good idea? Does it make sense that if you are good in
one area of merchandising that you will be good in all areas? Talbots, after
all, is excellent in merchandising fashionable women’s clothing but failed in
selling men’s and kids’ clothing.
SOLUTION: (10-11) Scrambled merchandising refers to a practice by wholesalers and retailers that
carry an increasingly wider assortment of merchandise. It occurs when a
retailer adds goods and services that are unrelated to each other and to the
firm’s original business. The answer whether to adopt this technique or not
lies in understanding how people make decisions about where to shop. The
decision to implement concepts of scrambled merchandising depends upon
the customers expectations, nature of business, nature of competition in the
trading area, financial resources etc. So, while it makes sense for a gasoline
station or a drug store to expand its assortment of products, it might not
make sense in some other cases. Scrambled merchandising policy attracts
customers for a complete shopping experience and has benefits of increased
customer traffic and revenues.
The answers to this question may vary and students maybe divided into two schools of thought –
those that agree and those who don’t. Discussing relevant examples in each
category wherein a scrambled merchandising venture proved successful and
one that failed would benefit.
The fact that Talbots failed in selling men’s and kids’ clothing could be because for long the
brand Talbots had been associated with women’s clothing. To adapt to a
scrambled merchandising approach, Talbot first needs to undergo a complete
brand overhaul of what it stood for. A failure of one retailer cannot be
generalized and held for others in that category.

3. What factors are contributing to the recent trend of decreasing store size?
SOLUTION: (11) The recent economic downturn and the resulting slowdown in consumer
purchasing is one of the reasons why retailers are keen on reducing store
size. Having super sized stores involves major costs like increased rent,
inventory costs and higher labor costs. Moreover, some customers actually
prefer smaller stores, since these stores provide the convenience of being
able to get in and out more quickly. Therefore, retailers have recently begun
reducing their store size. However, this might be applicable for those
retailers who are locked into a lease or own the building.

4. Currently there is a great deal of debate about the future impact of the Internet on retailing.
Which of the following items – a vacation package for spring break, a
wedding gift for a friend, a pair of jeans for yourself, or an end table for

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 your apartment – would you be least likely to purchase online? Why?
SOLUTION: (6-7) The instructor will need to facilitate discussion to deal with this question.
Student answers will vary depending on personal preferences, experiences,
and individual attitudes. Thus, the instructor will want to draw out these
differences among students to capture insights as they relate to the future
impact of the Internet on retailing. The authors suggest directing students to
think not only about their willingness to shop online, but also how the
individuals use the Internet (for research, entertainment, general information
gathering, etc.). These uses can enhance the discussion as to what the future
may look like based on current trends.

[LO02] Describe the five methods used to categorize retailers. (16-24)

5. How can a retailer operate with a high margin/high turnover strategy? Won’t customers
avoid this type of store and shop at a low margin store?
SOLUTION: (21-22) The high-margin, high-turnover retailer is in an excellent position to
withstand and counter competitive threats because profit margins enable it to
finance competitive price wars.
A high margin/high turnover retailer can be successful because of the shopper’s need and desire for
convenience. Customers will not necessarily avoid this type of store but
instead will often seek it out. For example, a shopper needing a quart of milk
and a bottle of ketchup could go to the closest possible place (a convenience
food store), even though they realize that both prices to be lower at a
national supermarket chain and that selection will be much greater.
Specifically, the shopper using high margin/high turnover retailers is looking
for convenience and is therefore often willing to sacrifice price and selection
in order to satisfy their purchase needs.

6. Isn’t it better for a retail chain to always use a standard stock list? After all, it would confuse
a customer if a JCPenney’s in Chicago is different than one in Miami.
SOLUTION: (18-19) Focusing efforts on one trade area and tailoring merchandise to an
area is not the exclusive domain of locally owned, single-unit retailer. It can
also be employed by larger chains to meet the specific needs of a target
market. Some national chains recognize the variations of regional tastes and
utilize the optional stock list approach as opposed to the standard stock list.
This approach gives each store the flexibility to adjust its merchandise mix
to local tastes and demands.
The needs of a shopper in Chicago will be different from the one in Miami. By utilizing an

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 optional stock list approach, retail chains can adapt to these differences. A
JC Penney in Chicago, on a daily basis, would have more footfalls from
local customers. The percentage of people visiting the Chicago store from
other regions would be relatively smaller. It would not make much business
sense for a chain of stores like JC Penney to forgo the advantages of optional
stock lists for the smaller percentage of customers who might look for
standard items.

[LO03] What is involved in a retailing career? (24-32)

7. What concepts or techniques from economics, fashion, accounting, or information systems

do you believe would be most useful in retail decision making?
SOLUTION: (24) Skills from all the above disciplines would be useful in retail decision making.
Forecasting future sales is a technique that comes from economics.
Similarly, a retailer can also fit into the shoes of a fashion expert by
predicting consumer behavior and how it will affect future fashion trends.
Arriving at a profitable bottom line is a concept from accounting and the
skills of information systems come in handy to analyze sales and other data
to determine opportunities for improved management practices.

8. What kind of leadership skills does it take to be successful in retailing? Isn’t leadership the
most important prerequisite for success in retailing?
SOLUTION: (31) Working in retailing is really working on a team. The ability to inspire the team
members to trust and respect your judgment and the ability to delegate,
guide, and persuade this team calls for leadership. A manager succeeds when
his or her subordinates do their jobs. In fact, the concept of the team
approach is one of the most important hiring criteria for many retailers. As
the team approach requires some form of leadership, it may be argued that
leadership is the most important prerequisite for success in retailing. Student
opinions may vary.

[LO04] Explain the different methods for the study and practice of retailing. (32-34)

9. To be successful in retailing, which skill is most important: being creative or being

analytical? Why?
SOLUTION: (33) Retailing can be practiced from both analytical and creative perspectives. The
retailer who employs both approaches is the most successful in the long run.
The synthesis of creativity and analysis is necessary in all fields of retailing.
Thus, retailers can’t do without either creativity or analytical skills. The two-

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 pronged approach involving analytical and creative skills is required for
success in retailing.

According to an expert (quoted in the text), “creativity in retailing is for the sake of increasing the
sales and profits of the firm.” If creativity is tied to sales and profits, then
analysis follows as profit and sales statistics require analysis.

10. Visit a local retailer who you would describe as creative and seek to determine which
analytical skills that retailer also possesses.
SOLUTION: (entire chapter) Class discussion can compare the answers based upon size of retailers
interviewed, types of retailers interviewed, location (independent or chain
store), and so on. Students can prepare a short report on their findings.

Writing and Speaking Exercise:

Halfway between your apartment and the campus is a small convenience store where you regularly
purchase a cup of coffee to get you ready for those early morning classes.
Over the past two years you have become friends with the owner. Late last
night when you filled your gas tank, you noticed that he was still there
working on his books. While chatting with you, he states that the store has
been profitable, but he feels it could be more profitable if he could lower the
high rate of employee turnover. He asks you for advice on this problem.
Prepare a short presentation for the owner listing what you think he should look for in
hiring part-time employees. Also, list what employee traits he should seek to
avoid.

Suggested Answer: A retailer seeking part-time employees looks for different characteristics
than when he is trying to recruit full-time employees or executives. For the
selection of part-timers, some traits the convenience store owner would be
looking for are:
1. Willingness to work hard - there are peak times and the person should be
willing to make the necessary effort without being prodded.
2. Enthusiasm - you would want someone who was excited about working and
the benefits the job provided. Otherwise the employee may have a high rate
of absenteeism.
3. Flexibility - the ability to do more than one job.
4. Stress tolerance - the ability to deal with a myriad section of people.
5. Appearance - you do not want someone who will turn off customers by
shabby appearance and/or person hygiene.
Since the position is part-time and this retailer is not large, some traits you might attempt to avoid

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 are:
1. People who will be trying to advance up the executive ladder.
2. A creative person - a large part of a part-timer’s job is sheer drudgery.
3. People who would need to travel a lot to reach the convenience store. Find
talent from the neighborhood.
4. People with higher educational degrees might leave soon in pursuit of
careers with bigger firms.
5. People with good leadership skills might not like taking orders for long. The
part-time resource usually carries out orders.
6. People with initiative - as discussed above, you want people who will follow
directions.
7. People in their prime years of working – aim at employing young or older
people for better employee retention.
Student opinions on traits might vary. Students should be encouraged to provide sound rationale for
their choices. For example, you might prefer someone with leadership skills,
if that person should be managing a store (with two other part-timers) during
evening hours.

Retail Project:

How would you use the Internet to purchase your next car? Using the search engine on either your
own computer or one at school, select two or three different auto websites.
List their address, such as http://www.autobytel.com, and make a report
describing what they have on their website. Which one did you like best?
Why? Can you purchase online from each website? What is the buying
process? Can competitors gain anything from looking at these websites?
Finally, what is missing from these websites that you feel should be on
them?

Suggested Answer: Student responses will vary. The point of this project is getting the students to
visit/know these retailers, especially those who do not have a physical
presence in their local market. It also offers students an opportunity to begin
to analyze/compare e-tailers.

Planning Your Own Retail Business:

If you think you might want to be a retail entrepreneur, you can use the ‘‘Planning Your Own
Retail Business’’ computer exercises at the end of each chapter to assist you
in this process. In addition, this text’s website
(www.cengage.com/marketing/dunne) has an exercise called ‘‘The House:

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or in part.
 Understanding A Retail Enterprise Using Spreadsheet Analysis’’ that can be
used to help you understand the dollars and cents of retailing.
This first exercise is intended to acquaint you with how sensitive your retail business will be
to changes in sales volume. Let’s assume that you plan that your retail
business will generate $350,000 per year in annual sales and that it will
operate at a gross-margin percentage of 40 percent. If your fixed operating
expenses are $80,000 annually and variable operating costs are 10 percent of
sales, then how much profit will you make?
{Hint: Sales x Gross-margin percentage = Gross Margin; Gross margin - Fixed operating
expenses - (Sales x Variable operating expenses as a % of Sales) = Net
profit.}
Use a spreadsheet program on your computer to compute your firm’s net profits; next
analyze what happens if sales drop 10 percent and if sales rise 10 percent.
Why are bottom line results (net profits) so sensitive to changes in sales
volume?

Suggested Answer:

Current -10% +10%

Sales $350,000 $315,000 $385,000

Gross Margin 140,000 126,000 154,000

Operating Expenses
Fixed 80,000 80,000 80,000
Variable 35,000 31,500 38,500
Total Operating Expenses $115,000 $111,500 $118,500
Profits $ 25,000 $ 14,500 $ 35,500

The reason that profits fluctuate so much in comparison to changes in sales is because the majority
of the firm’s expenses are fixed expenses that do not change as sales rise or
fall.

TEACHING TIPS
1. One of best exercises an instructor can do when introducing the idea of change in retailing is
to have the students try to project what retailing will be like in five years.
The authors, when writing this chapter, had to be careful when discussing
this topic. Consider, for example, the issue of in-home shopping using the
Internet. Given the time involved between writing this text and its actual use
in the classroom, the authors tried to avoid using detailed predictions, so as
not to be wrong and give the reader a negative impression of the textbook in

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or in part.
 the first chapter.
Still, it is always fun to have students develop a David Letterman style “Top Ten”
list of future changes in retailing as well as the reasons for these changes.
Some of the most commonly cited predictions include:
a. Consumers will spend less time shopping
b. Consumers will receive less enjoyment from shopping
c. All shopping will be done via the Internet
d. An infomercial will become one of the “Top Ten” shows on cable television
e. Chain stores will soon account for over 90% of all retail sales
Even though all of these predictions probably may not come true, the pros and cons
of all five predictions are discussed in this text. It can be interesting to note
in your lecture that with the growth of chains such as Wal-Mart and Target,
the chances that chains may someday account for 90% of total retail sales
are increased. Before the advent of such chains, the chances of such an
occurrence were slim. Another change that might be of interest in your class
discussion is taking place today in the stationery paper business where retail
sales are down well over 15% from a decade ago. Many people are now
using e-mail over printed cards to send their expressions.

2. One of the unique features of this text is that the authors have attempted to fully integrate
global retailing, service retailing and what’s new in retailing throughout.
Additionally, the authors provide unique insight into the retail sector through
their “Retailing: The Inside Story” boxes. The instructor may wish to draw
attention to the Retailing: The Inside Story box (5), which discusses
strategies that airline operators are using to stay ahead in competition. The
box details how, as a result of attempting to improve profits by eliminating
the travel agent’s commission, airlines saw their revenues decline only to be
rescued by a major increase in oil prices. The oil crisis instead of destroying
the industry, gave the airlines a way to increase revenues without having to
make expensive upgrades to the system.

3. The instructor may also wish to discuss the impact of technology on the retail industry.
The box “What’s New?” (8) discusses the use of information technology
and how YouTube can prove to be an inexpensive way to reach
customers. The instructor can initiate a discussion on technology and
delve into e-tailing and ask students to list any other means in which
information technology is helping retailers.

4. The Chapter’s “Global Retailing” box (14) illustrates that the opportunities for success in
retailing are available both in the United States and globally for those who
create exciting and engaging shopping experiences coupled with more

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or in part.
 customized offerings. According to a study, there is a revival of
uniqueness and novelty which is centered on creating unique and not
mass-produced merchandising/shopping experiences.

5. Classification of retailers is an important topic in retail analysis. Instructors can stimulate

classroom discussion by asking students to consider the advantages and
disadvantages of each classification method. Once the class has completed
the advantages and disadvantages of category, students should be asked to
decide on each category’s effectiveness.

6. The authors illustrate the two common retail career paths in exhibit 1.4 (25). The instructor
may take this opportunity to refer students to any relevant campus speaker
series where a retail executive is participating. Moreover, the instructor may
opt to bring in a former student for insights into the progression through
these career paths. This will provide the students with a realistic and
practical view of what they may expect should they pursue a career in
retailing.

7. The chapter’s “Service Retailing” (29) box illustrates one of the most creative ways a small
bike sales and repair retailer took on the big discounters. Moore’s Bicycle
Shop simply did it by using the discounter as a supply source. There are
several factors that influence a retailer’s success and a combination of
analytical and creative skills. Creativity is one of the easiest ways for small
retailers to compete with the discounters. Discussing the example in the box,
the instructor can bring out the point of how a small time Moore’s Bicycle
Shop, surfaced as a winner in its dealings with Walmart.

8. Direct your students to go to http://www.nrffoundation.com/CareersCenter/default.asp. This

website provides a section titled “Experience Retail” where the student can
check out a variety of careers in retail. The “Employer Partners” section
provides a list of companies. Have the students select any of the listed
retailers. Then, direct the students to compare the retailer’s website to that of
several other retailers. Keeping in mind that the intention of the website is to
make individuals interested in working for that particular retail enterprise,
have the students make recommended changes to the website. The instructor
may want to use classroom time to review some of these opportunities.
While students will probably opt for careers in specialty apparel, the
instructor should provide students with information regarding other career
options. The instructor can indicate the retailing career paths of some of his
or her past students.

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or in part.
9. The authors argue that retail stores with managers who possess the twelve prerequisite
characteristics of successful retail managers will be more profitable. Often,
individuals are unaware of their own strengths and weaknesses. The
instructor can use this opportunity to introduce the students to a variety of
self-assessments available to them via the on-campus career services
department.

10. Another feature of this manual will be a Teaching in Action (TiA) at the end of each
chapter. These TiAs are similar to the text’s different types of boxes (What’s
New?, Service Retailing, Global Retailing and Retailing: The Inside Story)
and are intended to be used in lecturing on the chapter’s coverage.
Since the major emphasis of this chapter was to introduce the importance of change
to success in retailing, the TiA here is a column by Peter Thorner, the
Chairman and CEO of Bradlees, Inc., on this topic. This article, which is
reprinted from Inside Retailing, is full of ideas that can be used in your
lectures.

TEACHING IN ACTION
Change is a Necessary Condition For Survival
By Peter Thorner
Former Chairman & CEO, Bradlees, Inc.

I’d like to talk to you about one of the most important issues that we as discount retailers face
today-changing customers and what we can do to keep pace with their
demands. From the outset, I won’t pretend that I have all the answers. But
what I will tell you is that the transformation sweeping through the retail
industry is hardly news. When have you ever seen a time when retailing
wasn’t in a period of transition? What has changed, of course, is the pace of
change itself and its impact on customers. The old lifestyle discriminators
had the comfort of cement.
Historically, as a person’s circumstances changed, behavior changed ...as behavior changed,
consumption patterns changed ... as predictably as the seasons. As retailers,
we could plan for these changes the same way-slow and steady. Yesterday’s
50-year-old wanted what the 30-year-old didn’t. It was never that simple, of
course, but at least it seemed that way.
There was loyalty to a spouse, a job, an age group and a lifestyle. And, yes, even to retail
chains. And it all worked as long as change remained slow and constant. But
ratchet up and compound the rate of change and loyalty falls apart. The new
lifestyle discriminators-the orientation to time, media, change and
processing information-are nowhere near as set-neither are such broad

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 stereotypes as "senior citizens." Their activities and geographic
dispersion-and their disposable incomes-do not fit the old archetype patterns.
In fact, the 70 million Americans older than 50 belong to five different
generations. Each group is a different size, and each has different attitudes
and consumer behavior. In the next decade, the older half of the Baby Boom
generation will enter the 50 to 59 age group. Americans in their 50s were
one-third of the 70 million mature population in 1997 and will be 43% of
the 85 million population by 2005.
The new 50-something generation was born between 1946 and 1955, and they came of age
between 1964 and 1973. Although their spending power is overwhelming,
much of their income may be shunted into retirement savings. People
moving into the 60 to 64 age group in the next decade are War Babies, born
between 1941 and 1945. They began their adult lives in JFK’s Camelot of
the early 1960s. They are an economically blessed generation, so the
short-term outlook for early retirement looks bright.
Depression Babies, born between 1931 and 1940, will turn 65 to 74 in the next decade. The
Great Depression yielded the lowest birth rates in U.S. history, so expect
absolute declines in this age group. But these babies celebrated their 18th
birthdays between 1949 and 1958, so their careers began during a rapid
economic expansion. They have lots to spend, and most still live in
married-couple families. The G.I. generation will be moving into the 75 to
84 age bracket in the next decade. Longer life spans will contribute to
moderate growth in this group, and comprehensive coverage by Social
Security, Medicare and pensions will ensure their security. The fifth
generation, age 85 and older, are Depression survivors. Born before 1920,
they are now preparing legacies for their great grandchildren.
As customers, members of each of these groups have their own distinct method of
approaching our business. Regardless of their age, however, customers
expect us to offer up new products and ideas faster and at lower prices than
yesterday. Agility, robustness, total flexibility-that is what’s necessary to be
properly positioned to meet customers’ changing needs. Obviously, the place
to start is by trying to understand the mindsets of potential customers. To
capture their attention, as retailers our essential focus must be on what they
perceive as problems and what needs are unmet. What we sell and how we
sell it must be done to satisfy the customer’s hierarchy of needs-not
necessarily our taste levels as retailers.
It’s pretty clear to me that shopping has become a sport for most customers. It’s a game
where they need to feel that they’ve won. What’s the definition of a win?
Everything on their shopping list at a good price-offered in a clean, friendly,
efficient store environment. Customers also believe they’ve "won" when
they find something they didn’t expect ... Something that compels them to

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 buy based on price ... Opportunistic merchandising ... Something that’s
interesting or new ...Or something that makes their lives easier. That golden
age of retail expansion between 1960 and 1990 was fueled by the post-war
Baby Boom, rising car ownership and, on the supply side, the push by local
retailers to expand to regional or national chains. The Baby Boom gave way
to a 1970s and ‘80s "birth dearth." While we’re in the midst of a mini-Baby
Boomlet, the majority of American shoppers are over 35.
They’re spending more on their homes-housing costs now consume up to a quarter of many
people’s income-and their children’s education. While the stock market hits
record highs and employment is stable and consumer confidence appears
healthy, the bottom line for consumers is teetering. On one hand, the macro
financial outlook is robust. On the micro level, however, consumers are
extending themselves more than ever before. In part, this is due to the 300%
increase in the last seven years in the amount of credit cards being offered.
Statistics show that outstanding balances per bankcard rose from $1,500 in 1992 to $2,200
last year. Total consumer debt as a percentage of disposable income has
risen dramatically in just five years-from 16.2% in 1992 to an estimated
20% this year. Given any slowdown in economic growth and job creation,
bad debt write-offs and personal bankruptcy filings will continue to rise. The
record consumer debt comes at the same time consumers are significantly
changing their buying patterns. They’re finding shopping less enjoyable.
Two-income families are much more commonplace. Discretionary time is frequently
allocated to the pursuit of entertainment rather than shopping. But changing
consumer attitudes are more than a function of pure financial issues. There
has been a profound psychological shift in attitudes as well. Consumers
today are far more conscious than they were in 1980s of value - that
somewhat indefinable quotient of price and quality. It’s a trend that has
outlasted recession and spurred the further growth of the discount industry.
It represents a major opportunity to capture customer loyalty.
Brands are changing. Originally, they were just a company name that became famous by its
association with predictable quality and reliability. That’s now taken for
granted. Today’s so called power brands represent a lifestyle. Think Polo,
Tommy Hilfiger, Nautica, Nike. Those labels might all belong to the
department stores, but the brand as lifestyle can work at the discount level
via meaningful institutional promotion of private labels.
Private label is increasing in importance-NOT private label as a markup vehicle, but what
can become well-developed store brands. These store brands can offer
significant quality improvements over branded product or to merely round
out a merchandise category that may be otherwise anemic. At Bradlees,
we’re now using in-store fliers and signage to point out the quality level of
key private label apparel items to customers.

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 Callouts mark our products as superior to some of their branded counterparts. That’s
revolutionary for us. Before, we were content to build in the quality and
would expect the customers to deduce just how good the product was. While
we were smugly anticipating the customers’ thanks for such quality, they
were assuming that private label equaled cheap knockoffs. Some education
was called for, if we were to build equity in our own brands.
On the other hand, as they become more knowledgeable, consumers started to second-guess
retailers. For example, many of them delayed buying presents last
Christmas-and will likely do so this year, too. They knew that lower prices
would inevitably follow because of retailers’ need to move merchandise
even at markdown levels, during principal selling seasons. This phenomenon
has led department stores to a strategy of early Christmas discounting to
attract discretionary dollars from discount store customers.
Subtle changes also have occurred in the attitudes of consumers-especially women-toward
shopping as a pastime. Where they once viewed stores as integrated
providers of shopping and cultural needs, they now often see them as boring
and tedious. One reason for this is the expansion of the leisure industry: the
Internet, satellite TV, theme parks, casinos, new hotels, restaurants
specializing in various cuisines and low-cost travel opportunities through
spending plans that accumulate airline mileage. All of these offer
competition for the attention span of customers.
Time-pressed customers are looking to retailers to supply what they’ve already decided is
their lifestyle. Remember that these customers have access to more
information than any in history. More than ever, they will want to be
entertained and stimulated, and some form of entertainment is the price of
entry. Competing retail formats include the new hybrid entertainment many
have called "shopper-tainment." Shopper-tainment applies to retail concepts
such as theme restaurants, which derive 30% to 40% of their volume from
merchandise sales. Such theme restaurants include the Harley-Davidson
Cafe, House of Blues, Hard Rock Cafe, TGI Friday’s and sports bars, as
well as entertainment-dominant stores such as Warner Bros., Disney,
Sharper Image and Brookstone.
During the last 15 years, the growth of entertainment expenditures has outstripped the
growth of apparel expenditures to the point where today we spend roughly
30% more on recreation than we do on apparel. A decade and a half ago, we
spent 20% more on apparel than on recreation. How pervasive is this? Look
at Foxwoods Casino-a shopping mall with gambling and food stuck in its
center. An article from last month’s Wall Street Journal describes a new
"shopper-tainment" concept: a man-made nature preserve in an L.A. mall
that will be home to 160 wild animals. Of course, retailing as entertainment
doesn’t necessarily spell success. Incredible Universe and Barney’s are two

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or in part.
 notable failures that while they were undeniably glitzy, didn’t match
customers’ needs. As discount retailers, we’re not only faced with changing
customers, but with other newfound forms of competition. How do we
compete for shifting customer dollars? There’s only one way-by becoming
more imaginative and less "low-price" oriented. While most retailers to try
to gain market share use price promotion, it’s historically proven to be a
questionable long-term concept. Lowest prices imply that retailers offering
such programs are likewise the lowest-cost operators. In most cases, though,
this doesn’t hold true. Price competition then becomes a short-term strategy
for long-term failure. Price may drive some competitors out of the market,
but minor price spreads between reasonably big players are no longer the
most efficient way to gain market share. As a matter of fact, focusing on
low-price commodities alone will probably increase discounters’
vulnerability. Why? Because commodity products are ideally suited to direct
market selling. The Internet channel will do better and better. The smartest
way to gain or protect market share is to provide customers with an easy,
enjoyable experience. Now, discount stores, by their nature, are not likely to
rival other retail concepts; but that doesn’t mean that discount store shopping
can’t be an enjoyable experience when the conditions are right. The
atmosphere needs to be calm and conducive to browsing: good lighting,
unobtrusive music, wide aisles, neat displays and helpful, friendly associates.
An enjoyable shopping experience means that the fundamental convenience
issues have been met: convenient locations with easy access, ample parking
with safe and effective lighting, sufficiently staffed checkouts offering
accurate speedy transactions and how about this-being consistently in stock.
And it means adding customer-friendly features, such as: delivery and
assembly of bulky or heavy items, toll-free numbers for store locations and
rain check follow-ups, a bridal registry and baby sitting services-just to
name a few.
In fact, convenience is becoming a more important factor overall. This is especially true for
today’s time-pressed, two-income families. According to a recent survey by
Yankelovich Partners-while customers continue to cite price as the primary
driver of shopping patterns-convenient hours and locations are gaining in
importance. Much of this is due to the fact that many consumers are getting
older and wealthier and may, therefore, value time as much as they value
money. That’s why I believe that conveniently located stores offering a
pleasant shopping experience will continue to enjoy market share gains. This
means countering lower prices with better service and cutting costs to
become more efficient. It still means reaching out to customers with mass
offerings. But it also will require much more tailoring of products, services
and marketing to local markets.

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 To some extent, for the changing customer, the shopping experience becomes the retailer’s
brand. This matters tremendously when customers are pressed for time,
looking for one-stop shopping and convenience. Many of tomorrow’s
challenges will be identical to today’s: How do you make it easier for the
customer to shop? How do you present merchandise more innovatively?
How do you best use electronic commerce-for direct ordering and
delivery-to supplement your physical stores? In many cases, it boils down to
a tweaking of what’s already out there. But it means more. A lot more.
Revolutionary change must replace incremental adjustments. The price of
mediocrity is complete failure. This means improvements that reduce the
frustration factor of shopping in a discount store. Such things as
point-of-sale technology that speeds customer transactions, cutting the 50%
of checkout time spent tendering. It means POS systems that can trigger
automatic inventory reorders. And it means investing in store remodels,
effective in-store signing, improved department adjacencies and
merchandise allocations. All of this costs money. It’s this issue of capital
that brings me to a key point for my fellow regional discounters and me. The
issue: Industry consolidation through mergers. Mergers of regional
discounters have long been expected, but nothing has happened yet. I think,
however, that one or more mergers will occur in the next three to five years.
Imagine the economies of scale and increase in buying clout achieved by
consolidating two or more regionals. As regionals, each of us is doing
between $1 billion and $3 billion in sales. We’re all running $75 million to
$150 million in overhead. We’re investing tens of millions in systems,
logistics and store remodels. Each of us is essentially replicating what we’re
all doing. The result? We’re fighting each other with little or no substantial
sales increases. At the same time, the competition between the Big Three
puts more and more pressure on us all. Fewer, bigger and stronger regional
discounters will be the most effective advocates for the customer. I’ll get
down off my soapbox now, so we can return to our regular programming.
As discount retailers, we talk a lot about the need for differentiation, about standing out
from the crowd. To most customers, however, discounters are
interchangeable. Too many stores look too similar and offer essentially the
same merchandise assortments. If you don’t believe me, imagine stripping
out the in-store signage and then depositing customer in the center of a
racetrack layout. How long would it take her to figure out which store she’s
in? How would she decide? Would she even care?
We need to consider ways to dramatically distinguish ourselves to our customers. One key
way would be through major alterations in the use of store space, say for
instance, through the establishment of category-killer departments, increased
numbers of service departments or the selling of merchandise according to

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 individual store buying patterns.
Are these logical? Are they practical? That depends on how you’re approaching the
changing customer. Remember that even today many consumers find the
sheer size of discount stores intimidating. The time, the money, the hassle
can outweigh the benefits-the quality, the selections and the fashions. In the
end, of course, the only true limitations to fulfilling consumers’ dreams of
the ideal discount store are the minds and organizational structure that
prevail in the traditional retailer. At Ogden, 15 years ago, our credo was "Do
not be constrained by what you know." This new discount shopping vision
requires everyone-from the CEO to buyers to store managers and sales
associates-to rethink not only the way they do business, but how the business
is organized internally and externally. Responding to changing customers’
ideas means challenging traditional store organization, policies and
procedures. It means letting customer needs define corporate structures and
strategies. There are key focus areas that should also be investigated:
Customer loyalty-building activities; enhancing customer intimacy through
technology, such as merchandise preferences captured from credit card data;
and ideas to reinvent the organization and shopping experience at least every
five years.
What direction will consumers take in the future? We’re an aging culture, so we’ll need to
rethink our interiors and the amenities inside and how they can be used to
bring in the most sales. Let me leave you with these three thoughts in
approaching our business:
1. Swiftness of execution and excitement of merchandise assortments are the
new retail measurements.
2. Take a look at the obvious and unglamorous, such as the enormous levels of
employee turnover and resulting training costs. Changing how we approach
the business can have an enormously positive impact on this key challenge.
3. And finally, stay focused; don’t spend needless energy ruminating on
competitors. If you’re concentrating on your rearview mirror, you’re likely
to crash head-on. Know your customers’ needs and then position your store
to stand for something that satisfies those needs. Remember, the changing
customer is you, our parents, our kids, grandkids and me. We can give them
what they want, now and tomorrow, if we just listen.
XXXXXX

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