Understanding Retailing: A Comprehensive Guide, Exams of Economics

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RETAILING MANAGEMENT E L E V E N T H E D I T I O N Michael Levy, PhD Babson College University of Denver Dhruv Grewal, PhD Babson College SECTION I THE WORLD OF RETAILING 1 Introduction to the World of Retailing 4 2 Types of Retailers 34 3 Digital Retailing 68 4 Multichannel and Omnichannel Retailing 106 5 Consumer Behavior 126 SECTION II RETAILING STRATEGY 6 Retail Market Strategy 160 7 Financial Strategy 194 8 Retail Locations 220 9 Retail Site Location 242 10 Information Systems and Supply Chain Management 268 11 Customer Relationship Management 292 SECTION III MERCHANDISE MANAGEMENT 12 Managing the Merchandise Planning Process 314 13 Buying Merchandise 356 14 Retail Pricing 384 15 Retail Communication Mix 410 SECTION IV HUMAN RESOURCES AND STORE MANAGEMENT 16 Human Resources and Managing the Store 440 17 Store Layout, Design, and Visual Merchandising 474 18 Customer Service 510 SECTION V CASES Cases 538 Glossary 602 Company Index 617 Name Index 622 Subject Index 632 BRIEF CONTENTS xix Market Segmentation 146 Criteria for Evaluating Market Segments 147 Retailing View 5.4: Making a Fairy-Tale Wedding a Reality for Fashionable, Plus-Size Brides 148 Approaches for Segmenting Markets 149 Composite Segmentation Approaches 151 Summary 151 Key Terms 152 Get Out and Do It! 152 Discussion Questions and Problems 153 Appendix 5A Consumer Buying Behavior and Fashion 153 Chapter Endnotes 156 CHAPTER 7 FINANCIAL STRATEGY 194 Objectives and Goals 196 Financial Objectives 196 Societal Objectives 196 Personal Objectives 196 Strategic Profit Model 197 Profit Margin Management Path 198 Retailing View 7.1: Target and Walmart: Examining the Retail Strategies of Two Very Successful Retailers 199 Retailing View 7.2: Calculating the Costs and Profits of Online Channels 202 Asset Turnover Management Path 204 Retailing View 7.3: Multilevel Marketing: A Lesson in Merchandise Management 206 Combining the Profit Margin and Asset Turnover Management Paths 207 Retailing View 7.4: The Bottom Line of Best Buy’s Progressive Lending Program 208 Implications for Improving Financial Performance 208 Evaluating Growth Opportunities 209 Profit Margin Management Path 209 Asset Turnover Management Path 211 Using the Strategic Profit Model to Analyze Other Decisions 212 Setting and Measuring Performance Objectives 213 Top-Down versus Bottom-Up Process 213 Who Is Accountable for Performance? 214 Performance Objectives and Measures 214 Types of Measures 214 Assessing Performance: The Role of Benchmarks 216 Summary 216 Key Terms 217 Get Out and Do It! 217 Discussion Questions and Problems 217 Chapter Endnotes 218 CHAPTER 6 RETAIL MARKET STRATEGY 160 What Is a Retail Strategy? 161 Definition of Retail Market Strategy 161 Central Concepts in a Retail Market Strategy 163 Target Market and Retail Format 163 Building a Sustainable Competitive Advantage 164 Relationships with Customers—Customer Loyalty 166 Retailing View 6.1: Burger King’s Growing Appeal to Non-Burger Eaters 167 Relationships with Suppliers 170 Efficiency of Internal Operations 170 Retailing View 6.2: Making Technology Personal: How Wayfair Is Leveraging High-Tech Tools to Connect with Consumers 171 Location 172 Retailing View 6.3: Madewell’s Multipart, Denim-Led Success 173 Multiple Sources of Advantage 173 Growth Strategies 174 Growth Opportunities 174 Growth Opportunities and Competitive Advantage 176 Global Growth Opportunities 177 Attractiveness of International Markets 177 Keys to Success in Global Retailing 179 Entry Strategies 180 The Strategic Retail Planning Process 182 Step 1: Define the Business Mission 183 Step 2: Conduct a SWOT Analysis 183 Retailing View 6.4: Hot Topic Is Still Hot 187 Step 3: Identify Strategic Opportunities 188 Step 4: Evaluate Strategic Opportunities 188 Step 5: Establish Specific Objectives and Allocate Resources 188 Step 6: Develop a Retail Mix to Implement the Strategy 189 Step 7: Evaluate Performance and Make Adjustments 189 Strategic Planning in the Real World 189 Summary 189 Key Terms 190 Get Out and Do It! 190 Discussion Questions and Problems 191 Chapter Endnotes 191 SECTION II RETAILING STRATEGY xxii CHAPTER 8 RETAIL LOCATIONS 220 Types of Retail Locations 221 Unplanned Locations 222 Freestanding Sites 222 Retailing View 8.1: Food Trucks Follow Customers to Work 223 Urban Locations 223 Main Street 225 Shopping Centers and Planned Retail Locations 226 Convenience, Neighborhood, and Community Shopping Centers 227 Power Centers 228 Malls 228 Lifestyle Centers 229 Outlet Centers 230 Theme/Festival Centers 230 Mixed-Use Developments 231 Larger, Multiformat Developments 231 Nontraditional Locations 232 Pop-Up Stores and Other Temporary Locations 232 Retailing View 8.2: Luxury Pop-Ups in Rarified Settings 232 Store-within-a-Store 233 Merchandise Kiosks 233 Location and Retail Strategy 233 Shopping Behavior of Consumers in Retailer’s Target Market 234 Retailing View 8.3: Clustering Together to Appeal to Fitness Shoppers 235 Density of Target Market 236 Uniqueness of Retail Offering 236 Societal and Legal Considerations 236 Urban Sprawl 237 Opposition to Big-Box Retailers 237 Zoning 237 Building Codes 238 Summary 239 Key Terms 239 Get Out and Do It! 240 Discussion Questions and Problems 240 Chapter Endnotes 241 CHAPTER 9 RETAIL SITE LOCATION 242 Evaluating Areas for Locations and Determining the Number of Stores in an Area 243 Metropolitan Statistical Area 244 Considerations in Evaluating Store Locations 244 Number of Stores in an Area 246 Evaluating Specific Sites 248 Site Characteristics 248 Retailing View 9.1: No Flights, No Passengers, No Retail? 249 Locations within a Shopping Center 251 Defining Trade Areas 252 Trade Area Definition 252 Factors Affecting the Size of the Trade Area 253 Measuring the Trade Area for a Retail Site 254 Sources of Information about Trade Areas 254 Retailing View 9.2: How Lululemon’s Flagship Store Reflects Its Location Strategy 256 Competition in the Trade Area 258 Estimating Potential Sales for a Store Site 258 Regression Analysis 258 Analog Approach 259 CHAPTER 10 INFORMATION SYSTEMS AND SUPPLY CHAIN MANAGEMENT 268 Creating Strategic Advantage through Supply Chain Management and Information Systems 270 Strategic Advantage 271 Improved Product Availability 272 Illustration of Site Selection: Edward Beiner Purveyor of Fine Eyewear 259 Step 1: Conduct a Competitive Analysis 260 Step 2: Define the Present Trade Area 260 Step 3: Analyze the Trade Area Characteristics 261 Step 4: Match Characteristics of the Present Trade Area with Potential Sites 262 Negotiating a Lease 262 Types of Leases 262 Retailing View 9.3: High-Tech Options to Support Location Choices 263 Terms of the Lease 264 Retailing View 9.4: A Different Kind of Buyer’s Market: Retail Tenants Still in Business Demand New Lease Agreements from Landlords 265 Summary 265 Key Terms 266 Get Out and Do It! 266 Discussion Questions and Problems 267 Chapter Endnotes 267 Retailing View 10.1: When a Differentiation Advantage Becomes a Supply Detriment: Wendy’s Limited Fresh Beef Supplies 273 Higher Return on Assets 274 The Flow of Information through a Supply Chain 274 Data Warehouse 276 xxiii Vendor-Managed Inventory and Collaborative Planning, Forecasting, and Replenishment 276 The Flow of Merchandise through a Supply Chain 277 Distribution Centers versus Direct Store Delivery 277 The Distribution (or Fulfillment) Center 279 Retailing View 10.2: The IKEA Way 282 Inventory Management through Just-in-Time Inventory Systems 283 System Design Issues and Trends 284 Outsourcing Supply Chain Functions 284 Pull and Push Supply Chains 284 Radio Frequency Identification Devices 285 Supply Chain for Fulfilling Catalog and Internet Orders 285 Retailing View 10.3: Collaborating More Widely to Provide Expanding Shipping 286 Drop Shipping 286 Customer Store Pickup 287 Reverse Supply Chain 287 Retailing View 10.4: Amazon Returns Are Getting Easier—and More Environmentally Friendly 289 Summary 289 Key Terms 290 Get Out and Do It! 290 Discussion Questions and Problems 290 Chapter Endnotes 291 CHAPTER 11 CUSTOMER RELATIONSHIP MANAGEMENT 292 The CRM Process 294 Retailing View 11.1: At Wegmans, Love Equals Loyalty 295 Overview of the CRM Process 295 Collecting Customer Shopping Data 296 Data Warehouse 296 Identifying Information 297 Privacy and CRM Programs 297 Analyzing Customer Data and Identifying Target Customers 298 Identifying the Best Customers 298 Retail Analytics 299 Developing CRM through Frequent-Shopper Programs 300 Effectiveness of Frequent-Shopper Programs 300 Making Frequent-Shopper Programs More Effective 301 Retailing View 11.2: More Ways to Earn and Pay with the Starbucks Loyalty App 303 Implementing CRM Programs 303 Customer Pyramid 303 Customer Retention 304 Retailing View 11.3: Chatbots Respond Just in Time 305 Retailing View 11.4: Etsy Enhancing Community Relationships 307 Customer Conversion: Making Good Customers into Best Customers 307 Dealing with Unprofitable Customers 308 Summary 308 Key Terms 309 Get Out and Do It! 309 Discussion Questions and Problems 310 Chapter Endnotes 310 CHAPTER 12 MANAGING THE MERCHANDISE PLANNING PROCESS 314 Merchandise Management Overview 316 The Buying Organization 316 Merchandise Category—The Planning Unit 318 Evaluating Merchandise Management Performance 319 Retailing View 12.1: In Cutting Out Category Captains, Grocers Are Making Their Own Shelf Decisions 320 Improving GMROI 322 Merchandise Planning Processes 323 Types of Merchandise Management Planning Systems 324 Retailing View 12.2: Casually Reshaping Fashion Merchandising 325 Forecasting Category Sales 327 Forecasting Staple Merchandise 327 Forecasting Fashion Merchandise Categories 327 Retailing View 12.3: Wrapping AI in a Comfy Quilt of Reassurance and Information 330 Sales Forecasting for Service Retailers 330 Developing an Assortment Plan 331 Category Variety and Assortment 331 Determining Variety and Assortment 332 Retailing View 12.4: Expanding the Product Line, Condensing Storefronts: The Gap Brands’ Plan 333 Setting Inventory and Product Availability Levels 335 Model Stock Plan 335 Product Availability 335 SECTION III MERCHANDISE MANAGEMENT xxiv Control Costs to Increase Profits 479 Meet Legal Considerations—Americans with Disabilities Act 479 Design Trade-Offs 480 Store Design Elements 481 Layouts 481 Signage and Graphics 484 Feature Areas 486 Store Exteriors 488 Space Management 491 Space Allocated to Merchandise Categories 491 Location of Merchandise Categories 492 Retailing View 17.3: Getting Consumers into the TerraCycle Loop by Designing Stores for Container Returns 494 Determining Store Size 497 Visual Merchandising 498 Fixtures 498 Presentation Techniques 499 Creating an Appealing Store Atmosphere 501 Lighting 501 Color 502 Music 502 Scent 502 Taste 503 Just How Exciting Should a Store Be? 503 Retailing View 17.4: What Is Amazon Trying to Achieve with Its Newest Experiment, a Hair Salon? 504 Summary 505 Key Terms 506 Get Out and Do It! 506 Discussion Questions and Problems 507 Chapter Endnotes 507 CHAPTER 18 CUSTOMER SERVICE 510 Balancing Customer Service: Personalization versus Standardization 512 Personalized Service 512 Standardized Service 513 Customer Evaluations of Service Quality 514 Perceived Service 514 Role of Expectations 517 Retailing View 18.1: Won’t You Visit Your Neighbor? Staycations and Travel Services in the Pandemic 518 The Gaps Model for Improving Retail Customer Service Quality 519 Retailing View 18.2: How Appealing to Women Has Helped Home Depot 520 Knowing What Customers Want: The Knowledge Gap 520 Retailing View 18.3: Gaining Insights in the Moment, Using It on the Site 523 Setting Service Standards: The Standards Gap 524 Meeting and Exceeding Service Standards: The Delivery Gap 526 Communicating the Service Promise: The Communication Gap 528 Use Technology 529 Retailing View 18.4: Service-Providing Retail Robots 531 Service Recovery 531 Listening to Customers 532 Providing a Fair Solution 532 Resolving Problems Quickly 533 Summary 533 Key Terms 534 Get Out and Do It! 534 Discussion Questions and Problems 534 Chapter Endnotes 535 1. Get It, Go, Just Walk Out: Amazon’s Proposed Reinvention of the Checkout Process 540 2. Making Technology Personal: How Wayfair Is Leveraging High-Tech Tools to Connect with Consumers 541 3. Making Macy’s Meaningful: Moves by the Retail Chain to Maintain Its Competitiveness 542 4. Find “Good Stuff Cheap” at Ollie’s Bargain Outlet 543 5. Tractor Supply Company Targets the Part-Time Rancher 545 6. Fast Fashion and Fast Digital Upgrades by H&M 546 7. Home Depot Is Winning on Nearly Every Metric. How Is It Doing So? 547 8. Walmart and Grocery Delivery 548 9. “A Blooming Company” 549 10. Blue Tomato: Internationalization of a Multichannel Retailer 551 11 . Staples, Inc. 553 12. Daily Table 554 13. Remixing a Green Business: The Green Painter 556 14. Ashley Stewart 557 15. The Decision-Making Process for Buying a Bicycle 559 SECTION V CASES xxvii 16. McDonald’s—A Global Giant 560 17. The Coffee Wars 562 18. A True Platform for Sellers: How Alibaba Is Trying to Take Over the World 563 19. Parisian Patisserie “Maison Ladurée” Goes Global 564 20. Retailing in India: The Impact of Hypermarkets 565 21 . Diamonds: From Mine to Market 567 22. Starbucks’s Expansion into China 570 23. Planet Fitness: Pricing for Success 573 24. Tiffany and TJX: Comparing Financial Performance 574 25. Choosing a Store Location for a Boutique 575 26. Hutch: Locating a New Store 575 27. Understanding Grubhub’s Service Quality 580 28. Zara Delivers Fast Fashion 581 29. Avon Embraces Diversity 583 30. Sephora Loyalty Programs: A Comparison between France and the United States 584 31. Attracting Generation Y to a Retail Career 586 32. Active Endeavors Analyzes Its Customer Database 587 33. Pizza Players, Pizza Prices 587 34. Mel’s Department Store under New Management 590 35. Developing an Assortment Plan for Hughes 591 36. Preparing a Merchandise Budget Plan 591 37. American Furniture Warehouse Sources Globally 593 38. How Much for a Good Smell? 594 39. Promoting a Sale 594 40. Target Marketing with Google AdWords 595 41 . A Stockout at Discmart 596 42. Yankee Candle: Product Management and Innovation 597 43. Interviewing for a Management Trainee Position 598 Glossary 602 Company Index 617 Name Index 622 Subject Index 632 xxviii