Retail Management A Strategic Approach TWELFTH EDITION Hofstra University Hofstra University International Edition contributions by Mohua Banerjee International Management Institute, Kolkata PEARSON Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
Contents Preface 19 About the Authors 25 Acknowledgments 27 PART 1 An Overview of Strategic Retail Management Chapter 1 An Introduction to Retailing 32 Chapter Objectives Overview 33 32 The Framework of Retailing 34 Reasons for Studying Retailing 34 The Special Characteristics of Retailing 38 The Importance of Developing and Applying a Retail Strategy 40 Target Corporation: The Winning Approach of an Upscale Discounter! 40 The Retailing Concept 43 The Focus and Format of the Text 46 Chapter Summary 47 Key Terms 48 Questions for Discussion 48» Web-Based Exercise: Berman Evans Blog (www.bermanevansretail.com) 49 Appendix Understanding the Recent Economic Downturn in the United States and Around the Globe 50 The Current Economic Downturn 50 The Impact of the Downturn on Economies Around the World 51 The Effect of the Economic Downturn on Retailing 51 Strategic Options for Retailers in Weak Economic Times 53 31 Chapter 2 Chapter 3 Building and Sustaining Relationships in Retailing 55 Chapter Objectives 55 Overview 56 Value and the Value Chain 56 Retailer Relationships 58 Customer Relationships 59 Channel Relationships 66 The Differences in Relationship Building Between Goods and Service Retailers 67 Technology and Relationships in Retailing 69 Electronic Banking 70 Customer and Supplier Interactions 71 Ethical Performance and Relationships in Retailing 72 Ethics 73 Social Responsibility 74 Consumerism 75 Chapter Summary 76 Key Terms 78 Questions for Discussion 78 Web-Based Exercise: Sephora (www.sephora.com) 78 Appendix Planning for the Unique Aspects of Service Retailing 79 Abilities Required to Be a Successful Service Retailer 79 Improving the Performance of Service Retailers 79 The Strategy of Pal's Sudden Service: A Baldrige Award Winner 81 Strategic Planning in Retailing Chapter Objectives 83 Overview 84 83
10 CONTENTS Situation Analysis 84 Organizational Mission 85 Ownership and Management Alternatives 87 Goods/Service Category 89 Personal Abilities 90 Financial Resources 91 Time Demands 91 Objectives 92 Sales 93 Profit 93 Satisfaction of Publics 94 Image (Positioning) 94 Selection of Objectives 96 Identification of Consumer Characteristics and Needs 97 Overall Strategy 98 Controllable Variables 99 Uncontrollable Variables 100 Integrating Overall Strategy 101 Specific Activities 102 Control 103 Feedback 103 A Strategic Planning Template for Retail Management 104 Chapter Summary 107 Key Terms 107 Questions for Discussion 108 Web-Based Exercise: Angie's List (www.angieslist.com) 108 Appendix The Special Dimensions of Strategic Planning in a Global Retailing Environment 109 The Strategic Planning Process and Global Retailing 109 Opportunities and Threats in Global Retailing 109 Ten Trends in Global Retailing 111 U.S. Retailers in Foreign Markets 112 Foreign Retailers in the U.S. Market 112 Parti Short Cases 114 1: Howard Schultz on Starbucks' Future Plans to Grow 114 2: Manufacturer-Retailer Relations in the Chocolate Business 114 3: Carrefour's and Best Buy's Chinese Adventures 115 4: Ahold: A European Powerhouse Facing Tough Times 116 Part 1 Comprehensive Case: Abercrombie & Fitch Co.: Looking to the Future 117 PART 2 Situation Analysis 121 Chapter 4 Retail Institutions by Ownership 122 Chapter Objectives 122 Overview 123 Retail Institutions Characterized by Ownership 123 Independent 124 r Chain 126 Franchising 128 Leased Department 131 Vertical Marketing System 133 Consumer Cooperative 134 Chapter Summary 135 Key Terms 136 Questions for Discussion 136 a Web-Based Exercise: 7-Eleven (www.franchise.7-eleven.com) 136
CONTENTS 11 Appendix The Dynamics of Franchising 137 Managerial Issues in Franchising 137 Franchisor-Franchisee Relationships 140 Chapter 5 Retail Institutions by Store-Based Strategy Mix 142 Chapter Objectives 142 Overview 143 Considerations in Planning a Retail Strategy Mix 143 The Wheel of Retailing 143 Scrambled Merchandising 145 The Retail Life Cycle 146 How Retail Institutions Are Evolving 148 Mergers, Diversification, and Downsizing 148 Cost Containment and Value-Driven Retailing 148 Retail Institutions Categorized by Store-Based Strategy Mix 149 Food-Oriented Retailers 149 General Merchandise Retailers 154 Chapter Summary 161 Key Terms 162 Questions for Discussion 162 Web-Based Exercise: Dillard's (www.dillards.com) 163 Chapter 6 Web, IMonstore-Based, and Other Forms of Nontraditional Retailing 164 Chapter Objectives 164 Overview 165 Direct Marketing 166 The Domain of Direct Marketing 168 The Customer Data Base: Key to Successful Direct Marketing 168 Emerging Trends 169 / The Steps in a Direct Marketing Strategy 171 Key Issues Facing Direct Marketers 173 Direct Selling 173 Vending Machines 176 Electronic Retailing: The Emergence of the World Wide Web 177 The Role of the Web 177 The Scope of Web Retailing 178 Characteristics of Web Users 179 Factors to Consider in Planning Whether to Have a Web Site 180 Examples of Web Retailing in Action 182 Other Nontraditional Forms of Retailing 183 Video Kiosks 183 Airport Retailing 184 Chapter Summary 186 Key Terms 187 Questions for Discussion 187 Web-Based Exercise: "Trends & Data" Section of Internet Retailer's Web Site (www.internetretailer.com) 187 Appendix Multi-Channel Retailing 188 Advantages of Multi-Channel Retail Strategies 189 Developing a Well-Integrated Multi-Channel Strategy 190 Special Challenges 191 Part 2 Short Cases 193 1: Ernie's Auto Body: Utilizing the Key Choice Collision Center Network 193 2: Family Dollar: Reinventing the Discount Store 193 3: Amazon.com's Mom Program 194 4: The Status of E-Tailing in China 195 Part 2 Comprehensive Case: Retailing Around the Globe 196
12 CONTENTS PART 3 Targeting Customers and Gathering Information 201 Chapter 7 Identifying and Understanding Consumers 202 Chapter Objectives 202 Overview 203 Consumer Demographics and Lifestyles 204 Consumer Demographics 204 Consumer Lifestyles 206 Retailing Implications of Consumer Demographics and Lifestyles 208 Consumer Profiles 210 Consumer Needs and Desires 211 Shopping Attitudes and Behavior 212 Attitudes Toward Shopping 212 Where People Shop 213 The Consumer Decision Process 214 Types of Consumer Decision Making 218 Impulse Purchases and Customer Loyalty 219 Retailer Actions 221 Retailers with Mass Marketing Strategies 221 Retailers with Concentrated Marketing Strategies 223 Retailers with Differentiated Marketing Strategies Environmental Factors Affecting Consumers 223 223 Chapter Summary 224» Key Terms 225 Questions for Discussion 225 Web-Based Exercise: Macy's and Bloomingdale's (www.macysinc.com) 225 Chapter 8 Information Gathering and Processing in Retailing 226 Chapter Objectives 226 Overview 227 Information Flows in a Retail Distribution Channel 228 Avoiding Retail Strategies Based on Inadequate Information 229 The Retail Information System 230 Building and Using a Retail Information System 230 Data-Base Management 233 Gathering Information Through the UPC and EDI 236 The Marketing Research Process 236 Secondary Data 238 Primary Data 242 Chapter Summary 245 s Key Terms 246 Questions for Discussion Web-Based Exercise: Coca-Cola Retailing Research Council (www.ccrrc.org) 246 247 Part 3 Short Cases 248 1:The Costco Mindset: Appealing to Consumers' Interest in Quantity Discounts 248 2: 7-Eleven: A New Focus on the Customer ("the Guest") 248 3: Testing Channel Formats at Wal-Mart 249 4: Growth Reimagined: Prospects in Emerging Markets 250 Part 3 Comprehensive Case: Starbucks' Customer Appeal 251 PART 4 Choosing a Store Location 255 Chapter 9 Trading-Area Analysis 256 Chapter Objectives 256 Overview 257
CONTENTS 13 The Importance of Location to a Retailer 257 Trading-Area Analysis 258 The Use of Geographic Information Systems in Trading-Area Delineation and Analysis 260 The Size and Shape of Trading Areas 264 Delineating the Trading Area of an Existing Store 266 Delineating the Trading Area of a New Store 267 Characteristics of Trading Areas 270 Characteristics of the Population 273 Economic Base Characteristics 275 The Nature of Competition and the Level of Saturation 277 Chapter Summary 279 Key Terms 279 Questions for Discussion 280 Web-Based Exercise: Site Selection Online (www.siteselection.com) 280 Chapter 10 Site Selection 281 Chapter Objectives 281 Overview 282 Types of Locations 282 The Isolated Store 282 The Unplanned Business District 283 The Planned Shopping Center 287 The Choice of a General Location 292 Location and Site Evaluation 292 Pedestrian Traffic 293 Vehicular Traffic 293 Parking Facilities 294 Transportation 295 Store Composition 295 Specific Site 295 Terms of Occupancy 296 Overall Rating 299 Chapter Summary 299 Key Terms 300 Questions for Discussion 300 o Web-Based Exercise: MainStreet.org (www.preservationnation.org/ main-street) 300 Part 4 Short Cases 301 Part 4 1: Adapting Store Size to the Type of Location 301 2: Examining Perfumania's Site-Selection Strategy 301 3: Examining Rue 21 's Location Strategy 302 4: Coach Expands into China's Tier 2 and Tier 3 Cities 303 Comprehensive Case: The Growing Appeal of Nontraditional Retail Locations 304 PART 5 Managing a Retail Business 309 Chapter 11 Retail Organization and Human Resource Management 310 Chapter Objectives 310 Overview 311 Setting Up a Retail Organization 311 Specifying Tasks to Be Performed 312 Dividing Tasks Among Channel Members and Customers 312 Grouping Tasks into Jobs 313 Classifying Jobs 314 Developing an Organization Chart 314
14 CONTENTS Organizational Patterns in Retailing 315 Organizational Arrangements Used by Small Independent Retailers 316 Organizational Arrangements Used by Department Stores 317 Organizational Arrangements Used by Chain Retailers 319 Organizational Arrangements Used by Diversified Retailers 319 Human Resource Management in Retailing 320 The Special Human Resource Environment of Retailing 322 The Human Resource Management Process in Retailing 324 Chapter Summary 332 Key Terms 333 Questions for Discussion 333 Web-Based Exercise: Macy's, Inc. (www.macyscollege.com/college) 334 Chapter 12 Operations Management: Financial Dimensions 335 1 Chapter Objectives 335 Overview 336 Profit Planning 336 Asset Management 337 The Strategic Profit Model 339 Other Key Business Ratios 340 Financial Trends in Retailing 341 Budgeting 344 Preliminary Budgeting Decisions 345 Ongoing Budgeting Process 346 Resource Allocation 348 The Magnitude of Various Costs 348 Productivity 349 Chapter Summary 350 Key Terms 351 Questions for Discussion 351 Web-Based Exercise: QuickBooks (http://support.qbo.intuitcom/interactive_,' tour_movie.cfm) 351 Chapter 13 Operations Management: Operational Dimensions 352 Chapter Objectives 352 Overview 353 Operating a Retail Business 353 Operations Blueprint 353 Store Format, Size, and Space Allocation 353, Personnel Utilization 356 Store Maintenance, Energy Management, and Renovations 358 Inventory Management 360 Store Security 360 Insurance 361 Credit Management 362 Computerization 363 Outsourcing 365 Crisis Management 366 Chapter Summary 366 Key Terms 367 Questions for Discussion 367 Web-Based Exercise: Fifth Gear (www.infifthgear.com) 368 Part 5 Short Cases 369 1: Predicting Retail Worker Engagement 369 2: Buying Local Cuts Costs for Wal-Mart 369 3:1-800-Flowers.com Teams with IBM's E-Commerce Platform 370 4: Chico's Steps Up Its Technology 371 Part 5 Comprehensive Case: Automated Retailing: A Driver of Profits and Cost Savings 372
CONTENTS 15 PART 6 Merchandise Management and Pricing 377 Chapter 14 Developing Merchandise Plans 378 Chapter Objectives 378 Overview 379 Merchandising Philosophy 379 Buying Organization Formats and Processes 382 Level of Formality 382 Degree of Centralization 382 Organizational Breadth 383 Personnel Resources 383 Functions Performed 384 Staffing 385 Devising Merchandise Plans 386 Forecasts 386 Innovativeness 387 Assortment 391 Brands 394 Timing 397 Allocation 397 Category Management 398 What Manufacturers Feel About Retailers 399 What Retailers Feel About Manufacturers 399 Merchandising Software 400 General Merchandise Planning Software 400 Forecasting Software 400 Innovativeness Software 401 Assortment Software 401 Allocation Software 401 Category Management Software 401 Chapter Summary 402 Key Terms 403 Questions for Discussion 403 Web-Based Exercise: Planning Factory (www.planfact.co.uk/ merchandise_planning_impact.htm) 404 Chapter 15 Implementing Merchandise Plans 405 Chapter Objectives 405 Overview 406 Implementing Merchandise Plans 406 Gathering Information 406 Selecting and Interacting with Merchandise Sources 408 Evaluating Merchandise 409 Negotiating the Purchase 411 Concluding Purchases 411 Receiving and Stocking Merchandise 412 Reordering Merchandise 414 Re-evaluating on a Regular Basis 416 Logistics 416 Performance Goals 417 Supply Chain Management 418 Order Processing and Fulfillment 418 Transportation and Warehousing 420 Customer Transactions and Customer Service 421 Inventory Management 422 Retailer Tasks 422 Inventory Levels 423 Merchandise Security 423
16 CONTENTS Reverse Logistics 425 Inventory Analysis 426 Chapter Summary 426 Key Terms 427 Questions for Discussion 427 Web-Based Exercise: "Business Solutions" Section of the U.S. Postal Service's Web Site (www.usps.com/business/businesssolutions.htm) 427 Chapter 16 Financial Merchandise Management 428 Chapter Objectives 428 Overview 429 Inventory Valuation: The Cost and Retail Methods of Accounting 429 The Cost Method 430 The Retail Method 432 Merchandise Forecasting and Budgeting: Dollar Control 435 Designating Control Units 435 Sales Forecasting 436 Inventory-Level Planning 439 Reduction Planning 440 Planning Purchases 441 Planning Profit Margins 442 Unit Control Systems 442 Physical Inventory Systems 443 Perpetual Inventory Systems 444 Unit Control Systems in Practice 445 Financial Inventory Control: Integrating Dollar and Unit Concepts 445 Stock Turnover and Gross Margin Return on Investment 446 When to Reorder 447 How Much to Reorder 448 Chapter Summary 449 Key Terms 450 Questions for Discussion 450 e Web-Based Exercise: Benchmarking Section of the Retail Owners Institute Web site (www.retailowner.com/storebenchmarkratios.aspx) 451 Chapter 17 Pricing in Retailing 452 Chapter Objectives 452 Overview 453 External Factors Affecting a Retail Price Strategy 455 The Consumer and Retail Pricing 455 The Government and Retail Pricing 457 Manufacturers, Wholesalers, and Other Suppliers and Retail Pricing 459 Competition and Retail Pricing 460 Developing a Retail Price Strategy 460 Retail Objectives and Pricing 461 Broad Price Policy 463 Price Strategy 464 Implementation of Price Strategy 469 Price Adjustments 474 Chapter Summary 476 Key Terms 476 Questions for Discussion 477 Web-Based Exercise: Neiman Marcus (www.neimanmarcus.com) 477 Part 6 Short Cases 478 1: Making McDonald's Recession-Resistant 478 2: The Merchandising of Private Brands 478 3: Destocking as a Strategy 479 4: Cheap Chic from Forever 21 480 Part 6 Comprehensive Case: The Unique Merchandising Strategy of ebay 481
CONTENTS 17 PART 7 Communicating with the Customer 485 Chapter 18 Establishing and Maintaining a Retail Image 486 Chapter Objectives 486 Overview 487 The Significance of Retail Image 488 Components of a Retail Image 488 The Dynamics of Creating and Maintaining a Retail Image 489 Atmosphere 491 A Store-Based Retailing Perspective 491 A Nonstore-Based Retailing Perspective 501 Encouraging Customers to Spend More Time Shopping 503 Community Relations 506 Chapter Summary 507 Key Terms 507 Questions for Discussion 508 Web-Based Exercise: Johnny Rockets (www.johnnyrockets.com) 508 Chapter 19 Promotional Strategy 509 Chapter Objectives 509 Overview 510 Elements of the Retail Promotional Mix 510 Advertising 510 Public Relations 516 Personal Selling 518 Sales Promotion 520 Planning a Retail Promotional Strategy 525 Determining Promotional Objectives 525 Establishing an Overall Promotional Budget 527 Selecting the Promotional Mix 528.Implementing the Promotional Mix 529 ' Reviewing and Revising the Promotional Plan 532 Chapter Summary 533 Key Terms 534 «Questions for Discussion 534 Web-Based Exercise: Business Know-How (www.businessknowhow.com/ marketing/24waysto.htm) 534 Part 7 Short Cases 535 1: Making Every Day Seem Special 535 2: Shopper Marketing Ramps Up 535 3: Best Buy: Promoting Its Insignia Consumer Electronics Brand 536 4: Coupons in the Digital Era 536 Part 7 Comprehensive Case: Evolving Communication Channels and Tools 538 PART 8 Putting It All Together 543 Chapter 20 Integrating and Controlling the Retail Strategy 544 Chapter Objectives 544 Overview 545 Integrating the Retail Strategy 546 Planning Procedures and Opportunity Analysis 546 Defining Productivity in a Manner Consistent with the Strategy 548 Performance Measures 550 Scenario Analysis 555 Control: Using the Retail Audit 556 Undertaking an Audit 556 Responding to an Audit 558
18 CONTENTS Possible Difficulties in Conducting a Retail Audit 559 Illustrations of Retail Audit Forms 559 Chapter Summary 561 Key Terms 562 Questions for Discussion 562 Web-Based Exercise: American Customer Satisfaction Index (www.theacsi.org) 562 Part 8 Short Cases 563 Part 8 Case 1: After the Recession: Preparing for a Brighter Retail Future 563 Case 2: Fixing the Gap 563 Comprehensive Case: Assessing Best Buy's Long-Term Business Plan 565 Appendix: Careers in Retailing 571 Overview 571 The Bright Future of a Career in Retailing 571 Owning a Business 572 Opportunities as a Retail Employee 572 Types of Positions in Retailing 573 Career Paths and Compensation in Retailing 573 Getting Your First Position as a Retail Professional 575 Searching for Career Opportunities in Retailing 575 Preparing for the Interview 575 Evaluating Retail Career Opportunities 576 Glossary 577 End notes 591 Name Index 603 Subject Index 611