Week 1

Week 1

Chapter 1: Retailing Formats and StructuresVarious ways to classify businesses

FM10211 – Retail Operations

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FM10211 - Retail Operations 4

Industrial Classification• What does the business do?• SIC

– Standard Industrial Classification– Old System

• NAICS– North American Industry Classification System– As of 2002

• Why use codes?– Classifies businesses in standard categories– Words can be vague– One business may fall into multiple categories


Why Classify?

• Identify businesses independent of current business lingo

• Business Census taken every 5 years

• Data can be used for a variety of purposes:– zapdata.com – prospect lists, mailing lists– infousa.com – mailing lists


Types of Ownership

• Who owns the business?

• Several business structures to choose from– Each has benefits and drawbacks


Types of Ownership:Sole Proprietorship

• A company owned by one person

• Benefits– Simple!– Fully controlled by the owner– Taxed once

• Drawbacks– Full personal liability


Types of Ownership: Partnership

• A company owned by two or more persons, each with a financial interest

• Benefits– Simpler than a corporation– Shared workload– Taxed once

• Drawbacks– Shared decisions– Can be personally liable, depending on type


Types of Ownership: Corporation

• A company that exists as an independent entity• Owned by shareholders• Benefits

– No personal liability

– Easier to raise money through sale of stock

• Drawbacks– More complicated

– Double Taxation (depending on type)


Types of Stores

• Who owns the store?

• Are there others?


Types of Stores: Independent• A single unit owned by an individual, small group,

or family• 1.5 million in operation today• Trend is away from independent stores

– Very hard to survive– 1/3 of all new retailers fail within the first year

• Largest Independent Department Stores?– Nordstrom– Dillard’s

• Other examples?


Types of Stores: Chain

• Multiple retail units owned by one company– Can be as few as two, usually many more

• Usually has centralized buying and management

• Examples?


Types of Stores: Franchise

• Contractual arrangement between a franchiser (the licensor) and a franchisee (the individual owner)

• Company may own some, but not all, stores• License can include:

– Name

– Operating Procedures

– Buying rights

– Etc.

• Examples?


Types of Retailers

• Wide variety, offering various types of – Merchandise– Service level– Price level


Stored Retailers

• Has a physical location

• Classifications have changed over time


Department Stores• Extensive assortment• Organized by department• U.S. Bureau of Census definition:

– At least 25 employees– At least $10 million in sales– Carries:

• Dry goods and household items• Family apparel• Furniture• Home furnishings

• What about Nordstrom, Saks, etc?• Criteria has been relaxed


Specialty Stores

• Limited type and/or assortment

• Specialized service

• Examples– Gap– Home Depot– Best Buy


Other Stored Retailers - I• Boutiques

– Small specialty stores– Often owned or franchised by designer

• Variety stores– Wide assortment

• Mom and Pop stores– Small– Privately owned

• Discount stores– Lower Prices– Lower operating costs – why?


Other Stored Retailers - II• Mass merchandisers

– Large discount stores

• Off-price stores– Sell brand-name merchandise lower than department

stores, due to low overhead and overruns

• Catalog showrooms– Samples on floor

– Order from catalog

– Filled from warehouse


Other Stored Retailers - III

• Warehouse stores– Discounters– No-frills setting – no credit cards?– Often make special purchases of brands– Sometimes have membership fee

• Factory outlets– Manufacturer-owned (traditionally)– Closeouts, overruns, discontinued items


Non-stored Retailers – I• Catalog/Mail order

– Independent or an extension of a store’s business– Can be highly specialized– Serves specific customers

• not necessarily within one geographical area

• Direct marketing– Mailed catalogs– Flyers– Radio– Telemarketing– TV Home Shopping


Non-stored Retailers – II• Home parties

– Opening your home to guests– Tupperware parties– Pickle parties

• Kiosks– Small stationary facilities– Order through a computer

• Temporary retailers– Small vendors who set up carts– More recently short-term rentals

• Halloween stores


Non-stored Retailers – III

• Door-to-door selling– Personal contact with the consumer at home or

office– Avon, Avon Mark– Mary Kay


Malls and Shopping Centers• Large Malls

– Anchor store• One or more large retailers

• Usually located at the ends of the mall

• Traditionally department stores, but no longer a rule

– Specialty stores

• King of Prussia Mall– 8 Anchors!

– Over 400 Specialties!

• Why malls?


Other Malls

• Factory outlet malls– No longer attached to factories– Can include clearance centers– Where are they located?

• Strip malls (shopping centers)– May have supermarket or other type of anchor– Attracting larger retailers


International Retailing

• Going global: opening stores international– Increase their business– Overseas investors buying parts of American

companies– Examples

• Gap

• Benetton


Mergers and Integration

• Combines businesses– Sustain or enhance growth– Create competitive advantage– Diversify– Share overhead


Vertical integration

• Acquiring a company or developing a function above or below in the supply chain

• Examples– The Limited acquired Mast

Industries, which manufactured the company’s apparel

– Designer Boutiques

• Why?

The Marketing Chain

Fibers

Yarn

Fabric

Garment/Final Product

Design and Marketing

Retail


Horizontal integration• Buying or forming a

company on the same level of the marketing chain

• The Limited owns:• Victoria’s Secret

• Express

• Bath & Body Works

• The White Barn Candle Co.

• Aura Science

• Henri Bendel

• Why?

The Marketing Chain

Fibers

Yarn

Fabric

Garment/Final Product

Design and Marketing

Retail


Private-Label Merchandising

• Retailers have products made for them to sell exclusively

• A form of vertical integration

• Eliminates the buying level

• Examples– The Limited– Gap


Instructor

• Instructor: Max Minkoff

• Teaching style: Interactive!

• To contact me: [email protected]

• Other availability: Immediately after class

• Website: www.planetminkoff.com/AIPh/RetailOps/


Course Content• Teaching Strategies

– Interactive Class Discussion– PowerPoint w/printed notes

• Textbook: – Retail and Merchandise Management, Rabolt

and Miler

• Technology Needed: – Word Processing– PowerPoint


Evaluation

• 40%: Class Participation– including attendance

• 15%: Midterm Exam

• 15%: Final Exam

• 20%: Project

• 10%: Case Presentation


Attendance Policy

• Two absences = one full grade drop

• A third absence = an additional grade drop

• Four absences = Failure

• NOTE: – There are NO excused absences. – Lates and/or early departures add up!

I WILL FAIL YOU IF I HAVE TO!


How to do well in this class

• I’m not here to test your memory!

• Come to class– Don’t be late – they add up!

• Participate– We all know about retail

• Think about retail– Why have companies decided to do what they do?


Case Presentations

• Every student must present a case at some point during the quarter

• Sign up be end of class week 2• Cases are first come, first served• No more than 5 cases per week!• Presentation should be about 5 minutes

– 5-8 slides

• Follow with Major Question and 2+ Study Questions• Presentations cannot be made up!


Design Guidelines

• Use a pre-established design schemes– In the form of a grid.

• All type should be at least 20-24pt• Use standard type fonts

– Helvetica, Times, and Arial

• Use a low-key design template, or none at all• Maintain a consistent theme. • Use minimal or no animation.• Don't use sound effects.


More Design Guidelines

• Your presentation is a visual aid. – Support what you say, not duplicate it.

• Provide talking points, not a script. – Do not read from the screen!

• Unless a quote, each point should fit on one line– If it doesn't, it's probably too long.

• Do not talk "to" the screen


Example: Case 7: The Limited

• Created in 1963 by Leslie Wexner– Borrowed $5,000 from his aunt– Now a billionaire

• 2,400 Limited Stores– 7 different market segments– Huge increases in sales and profit

• By-passed traditional production system– Created global manuf. & distrib. Network


The Limited’s Strengths

• Specialty Fashion chains - newest trend

• Unrelenting acquisition strategy

• In touch with trends - example:– President was in Italy in 1983– Saw teens buying bulky yachting sweaters– Knocked off sweaters, sold millions


Limited Merchandise Meeting

• Spring offensive: safari clothing– Established by Banana Republic– Basis for new line

• Banana Republic safari jacket

• Flower print shirt from Laura Ashley

• Tan cotton pants from Europe

– Other elements to be added– New line named Outback Limited


Market Test

• Late November:– Samples sent to handful of Southern stores– Results monitored daily– Final results after Thanksgiving weekend– It’s a hit!

• Certain adjustments necessary


The Plan• 500,000 garments in stores w/in 10 weeks

– Can’t patent - must establish first!– Most retailers must deal with middlemen

• Could take 10 months!

• Limited had bought Mast Industries in ‘78– Knows how to get things done in Far East– Track down fabric– Get products through customs– Etc.


Delivery: Late January• On jets to New York and California• Then trucked to Columbus Distribution Center

– Wexner wants airfield in Columbus OK’d• Would cut trip from 6 days to 3

• Efficient, computerized sorting and packing– Price tagged

– Sorted

– Packed

– Out the door in 48 hours• Most retailers could take weeks!


In Stores

• Centralized visual merchandising– Every two weeks– No deviation allowed

• “We don’t want 100 managers out there deciding what the stores should look like” - Limited President

• Industry analysts report no markdowns– Suggests line is successful– “The could be a $500 million line”

• Would be 4th largest U.S. women’s sportswear brand


Major Question:

• How Does The Limited get its product to the consumer faster than conventional manufacturer selling to retailers?


Question 2

• Discuss how operations of The Limited (a chain) are different from department stores and small independent stores in terms of product acquisition.


Question 4 & 5

• Why would Verna Gibson (president of The Limited division) want to check the potential for sales appeal for the Outback Red line before she commits to production?

• Why would The Limited test market the new Outback Red line in November in Southern cities?

Week 1

Documents

Transcript of Week 1