MODULE 1

Introduction to the World of Retailing

Learning Outcomes:
✓ Perform the basic functions of retail management.
✓ Work effectively and independently with different types of retailers.
✓ Analyze the business environment for strategic direction.

1.1 Structure of Retailing and Distribution Channels Around the World

1.3.1 Global Retailers – retailing is a global industry and many retailers are
pursuing growth by expanding their operations to other countries. The table
below shows the top 10 global retailers who kept on leading the industry across
nations as of 2023.
Table 1: Top 10 Global Retailers
Ranking Retailer Home Country Foundation Total Revenues
(Billions)
1 Walmart USA Mass/Hyper $ 628.56
2 Amazon USA Ecommerce $ 355.11
3 Schwarz Group Germany Discount $ 176.37
Grocery
4 Aldi Germany Discount $ 145.44
Grocery
5 Costco USA Club $ 234.02
6 Ahold Delhaize Netherlands Grocery $ 97.01
7 Carrefour France Mass/Hyper $ 89.71
8 Seven and I Japan Convenience $ 84.95
9 The Home Depot USA DIY $ 151.57
10 IKEA Netherlands Furniture $ 45.56
(source: Kantar Consulting & National Retail Federtion)

Table 2: Philippine Top Retailers as of 2024

Rank Retailers
1 SM Investment Corp. (SM Retail Inc.)
2 Puregold Price Club Inc.
3 SSI Group Philippines
4 Metro Retail Stores Group Inc.
5 Robinson’s Retail Holdings Inc.
6 Rustan Supercenters Inc.
7 Alfamart
8 7-Eleven
9 Golden ABC Inc.
10 Mercury Drug Corp
(Source: mordorintelligence.com)

1.3.2 Differences in Distribution Channels – the nature of retailing and

distribution channels across nations are different from each other. Social and
political objectives are important factors that have created the differences in
distribution systems in the major markets. Some countries passed laws
protecting small retailers, as well as zoning laws to preserve green spaces,
protect town centers, and inhibit the development of large-scale retailing in the
suburbs.
1.2 Opportunities in Retailing
1.4.1 Management Opportunities – to cope with the highly competitive and
challenging environment, retailers hire and promote people with a wide
range of skills and interests. Hence, retailers employ people with expertise
and interests in finance, accounting, human resource management,
supply chain management, computer systems and marketing.

1.4.2 Entrepreneurial Opportunities – retailing also provides opportunities

for people who wish to start their own business. And, some of the world’s
richest people are retailing entrepreneurs, such as Jeff Bezos
(Amazon.com), Anita Roddick (the body shop) and Ingvar Kamprad (IKEA).

1.3 The Retail Management Decision Process

1.3.1 Understanding the World of Retailing – retail managers must know the
environment which they operate before they can plan and implement effective
strategies.
a. Competitors – identifying competitors may be easy at
first because people can compare same types of stores
and it is called intratype competition. Comparing
convenience stores with convenience stores is an
example. Many retailers, nowadays, are increasing the
variety of merchandise they offer making different kinds
of products available in one place. When a store offers a
product that is not naturally offered in the store, the
result is scrambled merchandise. Example, mercury
drug to sell food products. Thus, it increases intertype
competition, a competition between different types of
stores who are selling similar merchandise, example:
department store and discount stores

b. Customers – the second factor in the microenvironment

is customers, which retailers must respond to broad
demographic lifestyle trends in our society, such as the
growth in the senior and minority segments of the
country’s population. To be effective in creating
strategies, the retailers must understand first why do
the customers buy, their preferences, and how they
select stores.
 Figure 1: Retail Management Decision Process

1.3.2 Developing a Retail Strategy – the next stage in the retail management
decision-making process is formulating and implementing a retail strategy, which are
based on an understanding the macro and microenvironments. The retail strategy
indicates how the retailer plans and focus its resources to accomplish its objectives.
It identifies: 1) the target market, 2) the nature of the merchandise and services the
retailer offers, and 3) how to build a long-term advantage over the competition.

a. Strategic Decision Areas – the key strategic decision

areas for a firm involves the definition of its market,
financial status, location, organization, and customer
relationship, which will be elaborated in the succeeding
chapters of this module.

b. Main Street to Multichannel Retailing – many

retailers nowadays, are tailoring their offerings to their
local communities, who are their first-hand customers.
They are to identify which among the products available
are in demand in each place that decided to put up an
outlet. The retailers also have to analyze the behavioral
purchase patterns of the community. In this way, these
retailers had succeeded the market and are opening
their retail stores in different places. Example of which
is SM who had established shopping malls in the entire
country. For local retailers, NOVO had penetrated 3
provinces namely, Nueva Ecija, Nueva Vizcaya and
Isabela.

1.3.3 Implementing the Retail Strategy – to implement a retail strategy, a retailer

must develop a retail mix that satisfies the needs of the target market. The retail mix
is a set of decisions retailers make to satisfy customer needs and influence their
 purchase decision. Below is a figure of which among retail decision be included to be
effective in retail strategy.

Customer Service

Store Design and Display

Communication Mix

Location

Merchandise Management

Pricing

Figure 2: Elements in Retail Mix

a. Merchandise Management – in terms of merchandise,

the retailers must be clear to what kind of goods and
services are being offered. Sorting of the products will
also help the retailers to preserve the interest of the
buyers in purchasing the products.

b. Store Management – the management teams in retail

industry must be able to coordinate issues within the
stores and help themselves to solve the issues. Some
stores offer their employees motivations such as
employee’s discounts, health care coverage, and
personal wellness accounts. Through these, the
employees are able to provide more than satisfying
customer service. The retailers may also invest in
designing their stores fun, interactive, creating a feeling
of intimacy and encouraging to linger.

1.3.4 Ethical and Legal Considerations

• When making the decision, managers need to consider the
ethical and legal implications of their decisions. In addition,
ethics are the principles governing individuals and
companies that establish appropriate behavior and indicate
what is wrong from what is right. Thus, ethical varies from
one place to another, one conduct may be acceptable for a
place but is prohibited in another. The retailers must pattern
their decisions within those variations to full implement the
retail mix in different places.

• Moreover, laws dictate which activities society has deemed to

be clearly wrong, those activities which are punishable
through federal or state legal systems. Many firms have code
of conduct to provide guidelines for their employees in
making their ethical decisions that provides clear sense of
 right and wrong, which may also help the firm, the employees
and the customers when situation arises.

When you engage in retail firms, you may ask yourselves the following questions regarding
to your ethical decision-making:

1. Would I be embarrassed if a customer found out about this behavior?

2. Would my supervisor disapprove of this behavior?
3. Would most coworkers feel this behavior is unusual?
4. Am I about to do this because I think I can get away with it?
5. Would I be upset if a company did this to me?
6. Would my family or friends think less of me if I told them about engaging in this
activity?
7. Would I be upset if this behavior or activity was publicized in a newspaper article?
8. Would the society be worse off if everyone engaged in this behavior or activity?

If you think the policies of the firm are improper, you may:
1. Ignore your personal values, and do what your company ask you to do – self-
respect is disregarded in this type of response for you to just impress your employer.
2. Take a stand, and tell your employer what you think – try influencing the company
about their policies and of the supervisor’s principles.
3. Refuse to compromise your principles – get fired or quit the company.

1.4 Retailer’s Characteristics

• Retailers range from street vendors selling candies to multichannel retailers
that offer products in their stores and through catalogs and in the internet
and that these retailers offer unique benefits from their goods and services.
This is becoming the criteria of the consumers to whom they are to purchase
their needs, wants and demands. Hence, the most basic characteristic used to
describe the different types of retailers is their retail mix, or the elements
retailers use to satisfy their customer’s needs. The elements of retail mix in
particular are: 1) type of merchandise and/or. The service offered, 2) the variety
and assortment of the merchandise offered, 3) the level of customer service, and
4) the price of merchandise.

a. Types of Merchandise – the international association of industry

classification identified different kinds of merchandise where they have
identified the product offerings per category.

Motor Vehicles and Parts Dealers

Furniture and Home Furnishing

Men’s Clothing Stores
Stores

Electronics and Appliance Stores

 Women’s Clothing Stores

Building Materials, Garden

Children and Infant Clothing
Equipment and Supplies Dealer
Stores
Food and Beverage Stores
Family Clothing Stores
Health and Personal Care Stores
Clothing Accessories
Gasoline Stations Store

Other Clothing Stores

Clothing and Accessories Stores Clothing Stores

Sporting Goods, Hobby, Books Shoe Stores Shoe Store

and Music Stores
Jewelry, Luggage and Jewelry Stores
General Merchandise Stores Leather Goods Stores

Miscellaneous Store Retailers Motor Vehicles and Parts

Dealers
Non-Store Retailers

Figure 3: Types of Merchandise

b. Variety and Assortment – variety is number of merchandise categories a

retailer offer or the breadth, while assortment is the number of different items
offered in a merchandise category or the depth. Thus, variety and assortment
can be applied to a merchandise category rather than an entire store.

c. Services Offered – customers expect almost all retailers to provide certain

services: displaying merchandise, accepting credit cards, providing parking
and being open at convenient hours. Some retailers charge customers for other
services, such as home delivery and other added services.

d. Prices and Cost of Offering – to make a profit, Retailers that offer a broader
variety, deeper assortments, and/or additional services needed to charge
higher prices. In contrast, some of the retailers, such as discount stores,
charge their consumers in more affordable cost for those who are looking for
savings.

e. Retail Channels
• Internet Channel – also called online retailing which offers products
and services for sale is communicated to customers over the internet
and letting everyone do their shopping on line.

• Catalog Channel – a non-store retail channel in which the retail

offering is communicated to customers through a catalog mailed to
the customers and the merchandise that is being sold mostly in
greatest numbers through this method up to now are medicinal
drugs, beauty aids, computers and software, clothing and
accessories, furniture and housewares, books, music, and
magazines.

• Direct Selling – is a retail channel in which salespeople interact with

customers face-to-face in a convenient location, either at the
customer’s home or at work. Salespeople demonstrate merchandise
 benefits and/or explain a service, take an order, and deliver
merchandise. It is also highly interactive retail channel which
considerable information is conveyed to customers through face-to-
face interaction and discussions.

• Television Home Shopping – is a retail channel in which customers

watch a television program that demonstrates a merchandise and
then place orders for that merchandise, usually by telephone, via the
internet, or via the TV remote. Through direct-response advertising,
people were provided with product’s information and provided the
opportunity to react quickly with the call of the advertisements.

• Automated Retailing – a retail channel in which merchandise or

services are stored in a machine and dispensed to customers when
they deposit cash or use credit card. Automated retailing machines,
also known as vending machines, are typically placed at convenient,
high-traffic locations, such as in workplaces or on university
campuses. The vast majority of automated retailing are from cold
beverages, candy and snacks.

f. Benefits offered by the Retail Channel

• Stores offer several benefits to customers that they cannot get when
they shop through non-store channels as catalogs or the internet.
And thus, store channels offer one of the greatest benefits which
people can touch, smell, taste, see and hear the products and can
evaluate before they purchase the products.

• Another is personal service, even though it is one of the most critical

aspect of giving a service, the sales associates can still have the ability
to provide unique, meaningful, and personalized information to their
clients.

• Risk reduction is one of the benefits that can be assured by store

channels for they are able to let their customers evaluate the
products being offered. Also, the physical presence of the store
reduces the perceived risk and increases confidence in customers
that the purchased goods are corrected.

• Stores offer another convenience to the customers by having the

product in their possession after purchasing the product from their
stores. The customers can shop even at the last minute and do not
worry the time consumed for delivery.

• In-store shopping can be a stimulating experience for some people,

providing a break in their daily routine and enabling them to interact
with friend and all the non-store are limited in the degree to which
they can satisfy these entertainment and social needs

• Shoppers often have only a general sense of what they want but don’t
know the specific item they want. They customers can easily find a
specific product that they want and can look around the stores to
look for what product may satisfy them.

• Stores are the only channel through which consumers can make
cash payments immediately. It is more convenient for some of the
 customers since they can resolve transactions faster and will not
result to additional payments to have the products.

• Thus, catalog channels also provide some benefits to customers like

safety and convenience that are associated with all non-store
channels. However, catalogs also have some unique convenience
advantage over other non-store formats. Safety – they can browse in
safe environment; Convenience – people can browse the catalogs
anytime and anywhere; Internet Channel – it offers a wider selection
of products and more personalize information for people will be
educated of the product offers of firms; Broder and Deeper
Assortments – the catalogs offer vast number of alternatives that the
consumers can consider especially on the comparison of the product
offerings; Timely Information - it is one of the best offerings of the
firms by giving the customers information to better their decision-
making and that the firms can let the customers access information
in varied depths; Personalization – the most significant benefit of
the internet channel is the ability to personalize merchandise
offerings and information for each of the customers economically;
and lastly, perceive risk in electronic shopping for it is becoming the
main concern of the customers who are accessing products online
because they fear phishing where their information can be accessed
and usage of their credit cards for other transactions which they
never facilitated. Thus, federal or governing laws can be applied to
the establishment for security breach and harm the retailer’s
reputation and exposes to legal liability.

1.5 Food Retailers

• The food retailing landscape is changing dramatically. The fastest-growing
sectors of the food retail market are supercenters, warehouse clubs,
convenience stores, and extreme-value food retailers.
a. Supermarkets
o A conventional supermarket is large, self-service retail food store
offering groceries, meat, and other products, as well as some non-food
items such as health and beauty aids and general merchandise.
Although conventional supermarkets still sell majority of food
merchandise, they are under substantial competitive pressure.
Supercenters and warehouse clubs are particularly troublesome for
supermarkets because their superior operating efficiencies enable
them to have a low costs and prices because these stores have
tremendous bargaining power in the market because they can buy
large quantities.

b. Supercenters
o Supercenters are large stores that combine a supermarket with a full-
line of discount store. This type of shopping center provides one-stop
shop experience for they are offering a wide assortment of goods and
general merchandises under one roof. Also, general merchandise or the
non-food items are often purchased on impulse when customers’
primary reason for coming to the supercenter is to buy groceries.
Another, hypermarkets are also large combination of food and general
merchandise stores. Supercenters and hypermarkets face challenges
in finding locations for new big box stores and times, in saturated
areas, these stores have a multistory that may reduce the convenience
of shopping.
 c. Warehouse Clubs
o They are retailers that offer limited and irregular assortment of food
and general merchandise with little service at low prices for ultimate
consumers and small businesses, and customers are attracted to these
stores because they can stock up on large packs of basics like paper
towels, large sized packages groceries and an unpredictable
assortment of upscale merchandise and services at low prices.

d. Convenience Stores
o This kind of store provides a limited variety and assortment of
merchandise at a convenient location with speedy check out. It enables
the consumers to make purchases quickly, without having to search
through a large store and wait in a long checkout line. Though they
offer limited variety and assortment, the prices of the products are
much higher than of the supermarkets. To increase convenience, the
stores are placed near the market with smaller spaces so that working
groups can easily access the products in their most convenient time of
the day.

1.6 General Merchandise Retailers

a. Department Stores
o These are retailers that carry a broad variety and deep assortment,
offer customer services, and organize their stores into distinct
departments for displaying merchandise. Traditionally, department
stores attracted customers by offering a pleasing ambience, attentive
service, and a wide variety of merchandise under one roof. They sell
both soft goods such as apparels and beddings, and hard goods such
as appliances, furniture and electronics. Also, it is often resembles a
collection of specialty shops. Nowadays, most department stores are
becoming active participants in multichannel retailing.

b. Full-line Discount Stores

o They are retailers that offer a broad variety of merchandise, limited
service, and low prices. Discount stores offer both private labels and
national brands. Example of this store is Furniture Source Philippines
in San Juan, Zalora Pop-Up Store, IKEA Philippines.

c. Specialty Stores
o Are stores that are concentrated on a limited number of complementary
merchandise categories and provide a high level of service. Special
stores tailor their retail strategy toward a very specific market segments
by offering deep but narrow assortments and sales associate expertise.
Examples of these stores are Victoria’s secret, Tupperware Brand,
MSE, and Dakki.

d. Drugstores
o Are specialty stores that concentrate on health and personal grooming
merchandise. Prescription pharmaceuticals represent almost 70% of
drugstore sales. Drugstore face competition from pharmacies in
discount stores and from pressure to reduce health care costs. The
major drugstore chains are offering a wide assortment of merchandise,
including more frequently purchased food items, the convenience of a
drive-through windows to pick-up prescriptions, and in-store medical
clinics.

e. Category Specialists
 o Are big-box stores that offer narrow but deep assortment of
merchandise. Most category specialists predominantly use a self-
service approach, but they offer assistances to customers in some
areas of the store. By offering a complete assortment in a category,
category specialists can kill s category of merchandise for other
retailers and thus are frequently called category killers by using their
category dominance and purchasing power, they buy products at a low
price and are ensured of supply when items are scarce. Although
category specialists compete with other types retailers, the competition
between them is intense. Some category specialists are trying to
differentiate themselves through customer service.

f. Extreme-Value Retailers
o Are small discount stores that offer s limited merchandise assortment
at very low prices. They offer a broad variety but shallow assortment of
household goods, health and beauty aids, and groceries. Extreme-
value retailers primarily target low income consumers. These
customers want well-known brands but cannot afford to buy the large-
size packages offered a full-line discount stores that is why extreme-
value retailers create smaller sizes of packages for them.

g. Off-Price Retailers
o Also known as closeout retailers, they offer an inconsistent assortment
of brand-name merchandise at a significant discount of the
manufacturer’s suggested retail price. Off-price retailers are able to sell
brand-name and even designer-label merchandise in a much lesser
price than of the SRP because of their unique buying and
merchandising practices. They also buy excess inventory from other
retailers. Closeouts are end of the season merchandise that will not be
used in following season while irregulars are merchandise that has
minor mistakes in constructions. Outlets are off-price retailers are
owned by the manufacturers and referred to as factory outlets.

1.7 Service Retailers

• Are large and growing part of the retail industry and several trends suggest
considerable future growth in services retailing. Hence, companies that sells
wide variety of good and services to consumers are still recognized as retailers.
Organizations such as banks, hospitals, health spas, legal clinics,
entertainment firms, and universities that offer services to consumers are part
of the retail industry but traditionally, they did not consider themselves as
one. They made realized that they belong to the industry when the competition
got stiffer and are now adopting retailing principles to attract and satisfy the
customers.

Differences between Service and Merchandise Retailers

There are four (4) important differences in the nature of offerings provided by
services and merchandise retailers and these are the following:

o Intangibility – services are less tangible that products since they are
not able to move from one place to another and that customers are not
able to hold, smell, taste, see and feel to evaluate the product before
they purchase services. Because of this, service retailers often use
tangible symbols to inform customers about the quality of their
services.
 o Simultaneous Production and Consumption – the simultaneity of
production and consumption also creates some special problems for
services retailers. At some point, customers may witness how the goods
are being produced and may be presented how the products are
produced or be part in the production process. At the same time, they
may be able to influence the quality of the service being provided. And,
service retailers may not be able to get a second chance to satisfy the
needs of their customers. Because services are produced and
consumed at the same time, it is difficult to reduce costs through mass
production.

o Perishability – services are perishable for they cannot be saved, stored

or resold. and because of the perishability of services, services retailing
must match supply and demand. Most of the service retailers have a
capacity constraint and the capacity cannot be changed easily. Thus,
the services retailers use varieties of programs to match demand with
supply. They are making their capacity flexible to be able to
accommodate more customers.

o Inconsistency – products can be produced by machines with very tight

quality control, so customers are reasonably assured that products will
be identical. But because services are performances produced by
people, no two services will be identical. Many factors that determine
service quality are beyond the control of retailers, however, service
retailers expend considerable time and effort selecting, training, and
motivating their service providers.

1.8 Types of Ownership

a. Independent, Single-Store Establishment
o Retailing is one of the few sectors in the economy in which
entrepreneurial activity is extensive. Many retail start-ups are owner-
managed, which means management has direct contact with
customers and can respond quickly to their needs. Small retailers are
also flexible and can react quickly to market changes and customer
needs. They are not bound by the bureaucracies inherent in large retail
organizations. Whereas, single-store retailers can tailor their offerings
to their customers’ needs, corporate chains can more effectively
negotiate low process for merchandise and advertising because of their
larger sizes.

o To compete against corporate chains, some independent retailers join

a wholesale-sponsored voluntary cooperative group, which is an
organization operated by a wholesaler offering a merchandising
program to small, independent retailers on voluntary basis.

b. Corporate Retail Chains

o Retail chain is a company that operates multiple retail units under
common ownership and usually has centralized decision making for
defining and implementing its strategy. Retail chains can range in size
from a drugstore with two stores to retailers with thousands of stores.

c. Franchising
Is a contractual agreement between a franchisor and a franchisee that
allows the franchisee to operate a retail outlet using a name and format
developed and supported by the franchisor. In a franchise contract, the
franchisee pays a lump sum plus a royalty on all sales for the right to
operate the outlet in accordance with procedures prescribed by the
franchisor.
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