A Strategic Approach PEARSON

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Retail Management

A Strategic Approach

TWELFTH EDITION

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

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Preface 19

About the Authors 25

Acknowledgments 27

PART 1 An Overview of Strategic Retail Management

Chapter 1 An Introduction to Retailing 32

32

31

Chapter 2

Chapter 3

Chapter Objectives Overview 33

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

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

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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

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

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CONTENTS 1 1 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

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

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

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PART 3 Targeting Customers and Gathering Information 201

Chapter 7 Identifying and Understanding Consumers 202

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 Retailers with Differentiated Marketing Strategies

Environmental Factors Affecting Consumers

Chapter Summary 224 » Key Terms 225 •

• Web-Based Exercise: Macy's and Bloomingdale's (www.macysinc.com) 225

Information Gathering and Processing

in Retailing 226

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)

223 223

223

Questions for Discussion 225

Chapter 8

246 247

Part 3

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

Comprehensive Case: Starbucks' Customer Appeal

251 PART 4 Choosing a Store Location 255

Chapter 9 Trading-Area Analysis 256

Chapter Objectives Overview 257

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CONTENTS 1 3

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

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

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

Part 4 Comprehensive Case: The Growing Appeal

of Nontraditional Retail Locations 304

PART 5 M a n a g i n g a Retail Business 309

Chapter 11 Retail Organization and Human Resource

Management 310

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

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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

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

1 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

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

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CONTENTS 15

PART 6 Merchandise Management and Pricing 377

Chapter 14 Developing Merchandise Plans 378

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

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

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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

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

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

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CONTENTS 17

PART 7 Communicating w i t h the Customer 485

Chapter 18 Establishing and Maintaining a Retail Image 486

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

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

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

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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

Case 1: After the Recession: Preparing for a Brighter Retail Future 563 Case 2: Fixing the Gap 563

Part 8 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

A Strategic Approach PEARSON

Retail Management