Retailers combine the elements of the retailing mix to come up with a single retailing method to attract the target market. The retailing mix consists of six Ps: the four Ps of the marketing mix (product, place, promotion, and price) plus presentation and personnel (see Exhibit 15.5).
The combination of the six Ps projects a store’s image, which influences consumers’ perceptions.
Using these impressions of stores, shoppers position one store against another. A retail marketing manager must make sure that the store’s positioning is compatible with the target customers’ expectations. As dis- cussed at the beginning of the chapter, retail stores can be positioned on three
broad dimensions: service provided by store personnel, product assortment, and price. Management should use everything else—place, presentation, and promotion—to fine-tune the basic positioning of the store.
The Product Offering
The first element in the retailing mix is the product offering, also called theproduct assortment or merchandise mix. Retailers decide what to sell on the basis of what their target market wants to buy. They can base their decision on market research, past sales, fashion trends, customer requests, and other sources. A recent approach, called data mining, uses complex mathematical models to help retailers make better product mix decisions. Early users of the approach, such as Dillard’s, Tar- get, and Wal-Mart, use data mining to When Beth McLaughlin launched a line of clothing stores,
Torrid, aimed exclusively at teenaged girls sizes 12 to 26, she clearly identified her target. Her product offering was tailored to meet that target, as were her choices of location, pricing, and promotion. Torrid has expanded from 6 to 33 stores, with plans for another 19, as a result of McLaughlin’s successful strategy.
© DOROTHY LOW
Product Width and depth of product assortment
Price
Promotion Advertising, publicity, and public relations Place (distribution) Location and hours Personnel
Customer service and personal selling
Presentation Layout and atmosphere
Target market
Exhibit 15.5
The Retailing Mix
Distribution Decisions
determine which products to stock at what price, how to manage markdowns, and how to advertise to draw target customers.
Developing a product offering is essentially a question of the width and depth of the product assortment. Width refers to the assortment of products offered; depth re-
fers to the number of different brands offered within each assortment. Price, store design, displays, and service are important to consumers in determining where
to shop, but the most critical factor is merchandise selection. This reasoning also holds true for online retailers. Amazon.com, for instance, is building the world’s biggest online department store so that shoppers can get whatever
they want with one click on their Web browsers. Like a traditional department store or mass merchandiser, Amazon offers considerable width in its product
assortment with millions of different items, including books, music, toys, videos, tools and hardware, health and beauty aids, electronics, and soft-
ware. Conversely, online specialty retailers, such as 1-800-Flowers.com, gloss.com (makeup), and polo.com (clothing), focus on a single category
of merchandise, hoping to attract loyal customers with a larger depth of products at lower prices and better customer service. Many online retailers purposely focus on single product line niches that could never garner enough foot traffic to support a traditional brick-and-mortar store.
After determining what products will satisfy target customers’ desires, retailers must find sources of supply and evaluate the products. When the right products are found, the retail buyer negotiates a purchase contract. The buying function can either be performed in-house or be delegated to an outside firm. The goods must then be moved from the seller to the retailer, which means shipping, storing, and stocking the inventory. The trick is to manage the inventory by cutting prices to move slow goods and by keeping adequate supplies of hot-selling items in stock. As in all good systems, the final step is to evaluate the entire process to seek more efficient meth- ods and eliminate problems and bottlenecks.
As margins drop and competition intensifies, retailers are becoming ever more aware of the advantages of private brands, or those brands that are designed and developed using the retailer’s name. Because the cost of goods typically makes up between 60 and 75 percent of a retailer’s expenses, eliminating intermediaries can shave costs. As a result, prices of private-label goods are typically lower than for national brands, giving customers greater value. Private-label branding is not new.
For decades, Sears has fashioned its Kenmore, Craftsman, and DieHard brands into household names. Wal-Mart has several successful private-label brands such as White Cloud paper products, Spring Valley nutritional supplements, Sam’s American Choice laundry detergent, EverActive alkaline batteries, and EverStart auto batteries.
Its Ol’ Roy dog food and Sam’s American Choice garden fertilizer are now the best- selling brands in their categories.
Promotion Strategy
Retail promotion strategy includes advertising, public relations and publicity, and sales promotion. The goal is to help position the store in consumers’ minds. Retail- ers design intriguing ads, stage special events, and develop promotions aimed at their target markets. Today’s grand openings are a carefully orchestrated blend of advertising, merchandising, goodwill, and glitter. All the elements of an opening—
press coverage, special events, media advertising, and store displays—are carefully planned. For example, when Victoria’s Secret opened its megastore in Dallas, the opening featured a $150 gift with a $50 purchase, free makeovers from a Victoria’s Secret Fashion Show makeup artist, $10 gift cards that could be redeemed in the store, and an appearance by supermodel Heidi Klum.
Retailers’ advertising is carried out mostly at the local level. Local advertising by retailers usually provides specific information about their stores, such as location, merchandise, hours, prices, and special sales. In contrast, national retail advertis- ing generally focuses on image. For example, Target has used its “sign of the times”
advertising campaign to effectively position itself as the “chic place to buy cheap.”
© REUTERS/CORBIS
Target’s advertising campaign also takes advantage of cooperative advertis- ing, another popular retail advertising practice. Traditionally, marketers would pay retailers to feature their products in store mailers, or a marketer would develop a TV campaign for the product and simply tack on several retailers’ names at the end. But Target’s advertising makes use of a more collaborative trend by integrating products such as Tide laundry detergent, Tums antacids, or Coca-Cola into the ac- tual campaign. Another common form of cooperative advertising involves promo- tion of exclusive products. For example, Target hires famous designers to develop reasonably priced product lines available exclusively at Target stores.
Many retailers are forgoing media advertising these days in favor of direct-mail or frequent shopper programs. Direct-mail and catalog programs are luring many retailers, which hope they will prove to be a cost-effective means of increasing brand loyalty and spending by core customers. Nordstrom, for example, mails cat- alogs featuring brand-name and private-brand clothing, shoes, and accessories to target the shop-at-home crowd. Restaurants and small retailers have successfully used frequent diner or frequent shopper programs for years. For example, custom- ers with a Victoria’s Secret Angel credit card are offered monthly specials on store merchandise, including items that generally are not put on sale to the public.
The Proper Location
The retailing axiom “location, location, location” has long emphasized the impor- tance of place to the retail mix. The location decision is important first because
These days, developing countries are consistently winning out when it comes to luxury retail invest- ments. The most attractive of these emerging mar- kets include China, India, Russia, Brazil, the United Arab Emirates, South Africa, Vietnam, Malaysia, and Indonesia. Juicy Couture’s founders say they have 63 stores in the U.S., and within ten years, they’ll have 47 in Asia. Malaysia, a country that does not even aim to achieve
“developed” status until 2020, suddenly boasts one of the most prestigious luxury shopping malls in Asia. In Dubai, designer bou- tiques such as Harvey Nichols, Marc Jacobs, and Missoni entice luxury shoppers to the Mall of the Emirates—winner of the “Retail Destination of the Year” award.
In China, a booming economy has driven the emergence of new millionaires and a new middle class with money to spend.
And spend they do—especially on luxury shoes, handbags, cars, and jewelry. Cartier recently created a massive ice replica of its flagship Paris jewelry store at a winter festival in Harbin city as part of its bid to become a well-known prestige brand there. After nearly doubling its sales in China in recent years, Cartier plans to build another 30 boutique stores across China—more stores than it has in any other country other than the United States. Such confidence is merited—industry analysts expect the Chinese to purchase at least 30 percent of the world’s luxury goods in the next ten years.
India’s retail market is expected to nearly double to $635 billion by 2015. Retail analysts have gone so far as to call India’s current economic climate a “retail gold rush.” This could be in part because of India’s recently relaxed retail laws that finally allow foreign,
single-brand retailers to own a majority interest, or 51 percent, of a joint venture with a local partner. That was just the incentive luxury retail conglomerates were waiting for it seems, as many rushed to build freestanding stores in India’s largest cities. For example, Gucci built a 3,400 square-foot boutique—the largest luxury retail unit in India—in partnership with the Indian apparel conglomer- ate Murjani Group in Mumbai. Access to attractive building sites is a continuing challenge to retailers hoping to move into India’s wealthy cities; many are limited to hotel shopping arcades. Murjani Group, however, hired European architects to design its freestand- ing retail stores. Mohan Murjani himself said, “At the end of the day, the Indian consumer doesn’t want to feel like they are going to Gucci in India. They should feel like they have walked into Gucci, period. It has to be world class.” The Murjani Group plans to estab- lish 500 new, freestanding, single-brand retail stores in India over the next five years.
Luxury and fashion companies are similarly flocking to Russia to take advantage of that country’s growing petroleum-fueled wealth.
Department stores in Russia that 20 years ago were stocked with pots, pans, and homey scarves, are now home to a variety of designer shops such as Dior, Cartier, Gucci, Louis Vuitton, and Hermés. Moscow’s mayor just recently built a $350 million, three- story, underground mall loaded with 100 designer stores such as Tommy Hilfiger, Yves Rocher, and Diesel.
Why do you think luxury goods brands are opening stores in emerging markets? How do you think technology has contributed to the expanding global luxury market? The World Bank estimates that more than 600 million people in Asia live on less than a dollar a day. How do you suppose luxury goods purveyors thrive there? 32
GLOBAL Perspectives
Luxury Retail Goes Global
RetailingChapter 15
Distribution Decisions
the retailer is making a large, semipermanent commitment of resources that can reduce its future flexibility. Second, the location will affect the store’s future growth and profitability.
Site location begins by choosing a community. Important factors to consider are the area’s economic growth potential, the amount of competition, and geography. For instance, retailers like T. J. Maxx, Wal-Mart, and Target build stores in areas where the population is growing. Often these large retailers will build stores in new commu- nities that are still under development. On the other hand, while population growth is an important consideration for fast-food restaurants, most also look for an area with other fast-food restaurants because being located in clusters helps to draw cus- tomers for each restaurant. However, even after careful research the perfect position can be elusive in the face of changing markets. For example, Wendy’s found when attempting to enter the competitive breakfast business that its locations weren’t positioned on the right side of the road to attract the bulk of commuters looking for breakfast.33 Finally, for many retailers geography remains the most important factor in choosing a community. For example, Starbucks coffee looks for densely populated urban communities for its stores, Talbots looks for locations near upper-class neigh- borhoods, and Buckle stores look for locations in small, underserved cities.
After settling on a geographic region or community, retailers must choose a specific site. In addition to growth potential, the important factors are neighborhood
socioeconomic characteristics, traffic flows, land costs, zoning regulations, and public transportation. A particular site’s visibility, parking, entrance and exit locations, accessibility, and safety and security are also considered. Additionally, a retailer should con- sider how its store would fit into the surrounding environment.
Retail decision makers probably would not locate a Dollar General store next door to a Neiman Marcus department store.
Retailers face one final decision about location: whether to have a freestanding unit or to become a tenant in a shopping center or mall.
Freestanding Stores An isolated, freestanding location can be used by large retailers like Wal-Mart or Target and sellers of shop- ping goods like furniture and cars because they are “destination”
stores.Destination stores are stores consumers seek out and purposely plan to visit. An isolated store location may have the ad- vantages of low site cost or rent and no nearby competitors. On the other hand, it may be hard to attract customers to a freestanding location, and no other retailers are around to share costs.
Freestanding units are increasing in popularity as retailers strive to make their stores more convenient to access, more entic- ing to shop, and more profitable. Freestanding sites now account for more than half of all retail construction in the United States as more and more retailers are deciding not to locate in pedestrian malls. Perhaps the greatest reason for developing a freestand- ing site is greater visibility. Retailers often feel they get lost in huge centers and malls, but freestanding units can help stores develop an identity with shoppers. The ability to grow at faster rates through freestanding buildings has also propelled the surge toward stand-alone units. Retailers like The Sports Authority, Linens N Things, Best Buy, and Bed Bath & Beyond choose to be freestanding to achieve their expansion objectives. An aggressive expansion plan may not allow time to wait for shopping centers to be built. Similarly, drugstore chains like Walgreens and Rite-Aid have been aggressively relocating their existing mall and shopping center stores to freestanding sites, especially street corner sites for drive-through accessibility.
destination stores
Stores that consumers purposely plan to visit.
destination stores
Stores that consumers purposely plan to visit.
© ED ZURGA/BLOOMBERG NEWS/LANDOV
For supercenter retailers such as Target, offering almost everything a customer might want under one roof—including designer clothing, groceries, and pharmacy items—
makes their customer more likely to make their store a one-stop destination.
RetailingChapter 15
Shopping Centers Shopping centers began in the 1950s when the U.S. population started migrating to the suburbs. The first shopping centers were strip centers, typically located along busy streets. They usually included a supermarket, a variety store, and perhaps a few specialty stores. Then community shop- ping centers emerged, with one or two small department stores, more specialty stores, a couple of restaurants, and several apparel stores. These community shopping centers provided off-street parking and a broader variety of merchandise.
Regional malls offering a much wider variety of merchan- dise started appearing in the mid-1970s. Regional malls are either entirely enclosed or roofed to allow shopping in any weather. Most are landscaped with trees, fountains, sculp- tures, and the like to enhance the shopping environment.
They have acres of free parking. The anchor stores or generator stores (JCPenney, Sears, or major department stores) are usu- ally located at opposite ends of the mall to create heavy foot traffic. Las Vegas’s Fashion Show Mall takes the concept to the extreme. The mall has 2 million square feet of retail space and boasts over 250 stores, eight of which are anchor stores, in- cluding Neiman Marcus, Saks Fifth Avenue, Macy’s, Blooming- dale Home, and Nordstrom. Mall of America goes even further, with 2.5 million square feet of retail space and over 520 stores.
According to shopping center developers, the newest gener- ation of shopping centers are lifestyle centers. These new open-air shopping centers are targeted to upper-income shoppers with an aversion for “the mall” and seek to create an atmosphere that is part neighborhood park and part urban shopping cen- ter. Lifestyle centers typically combine outdoor shopping areas comprised of upscale retailers and restaurants, with plazas, fountains, and pedestrian streets. Newer centers like the Easton Town Center in Columbus, Ohio and the Legacy Town Center in Plano, Texas, also include luxury apartments and condomini- ums. Lifestyle centers are appealing to retail developers looking for an alternative to the traditional shopping mall, a concept rapidly losing favor among shoppers.
Consumers have also become more pressed for time in recent years and are choos- ing more convenient stand-alone stores and neighborhood centers instead of malls.
Faced with this trend, mall developers have improved the layout of many malls to make it more convenient for customers to shop. For instance, the RiverTown Cross- ings center in Grandville, Michigan, clusters competing stores, like Abercrombie Kids,
GapKids, Gymboree, and other kids’
clothing stores in one section of the mall to accommodate time-strapped par- ents.34 Locating in a community shop- ping center or regional mall offers several advantages and disadvantages, as shown in Exhibit 15.6.
Retail Prices
Another important element in the re- tailing mix is price. Retailing’s ultimate goal is to sell products to consumers, and the right price is critical in ensuring sales. Because retail prices are usually based on the cost of the merchandise, an essential part of pricing is efficient and timely buying.
© PR NEWSFOTO/MALL OF AMERICA
In addition to being commercial centers, shopping malls were once a hub of community social activity.
Lately, however, malls have struggled to compete against newer lifestyle centers and freestanding stores. Even with 520 stores, Mall of America regularly adds rides to its entertainment section to attract shoppers.
Exhibit 15.6
Advantages and Disadvantages of Locating in a Community Shopping Center or Regional Mall
Advantages Disadvantages facilities present a unified image and are
designed to attract shoppers
expensive leases tenants share the expenses of the mall’s
common area and promotions for the whole mall
common promotion efforts might not attract customers to a particular store
the shopping environment, anchor stores, and
“village square” activities draw customers
anchor stores dominate the tenants’
association malls can target different demographic
groups, such as upscale or bargain shoppers
possibility of having direct competitors within the same facility
ample parking is available lease restrictions on merchandise carried and hours of operation