3. Store Retailers

Question 1

Store retailing

Answer 1

Store retailing refers to a retailing type in which the retailer operates in a physical store that consumers may visit. For example, Checkers, Ackermans and KFC participate in store retailing because consumers need to physically visit the store before making a purchase. To help you identify other retail firms that participate in this type of retailing, various characteristics are used, namely the number of services provided, the type of product line sold, the control of the outlets and the type of store cluster. Let us now review the various elements that make up store retailing by applying the theory to various South African retailers.

Question 2

Ownership Alternatives

Answer 2

Retailers can select various types of ownership when entering the retailing industry, as highlighted below.

• Independent retailers
• Chain retailers
• Franchise retailing
• Leased departments
• Vertical marketing systems
• Consumer cooperatives

Question 3

Ownership alternatives
Retailers can select various types of ownership when entering the retailing industry, as highlighted below.
• Independent retailers

Answer 3

• Independent retailers own one retail firm that serves a niche target market. These retailers thus make use of concentrated marketing tactics. This type of ownership is advantageous for the following reasons: the owner is independent and can become a specialist in the selected goods or service category. The pitfalls include a reduced level of bargaining power with suppliers and the fact that huge demands are made on the owner’s time. A hair salon is an example of this type of retailer.

Question 4

Ownership alternatives
Retailers can select various types of ownership when entering the retailing industry, as highlighted below.
• Chain retailers

Answer 4

• Chain retailers own multiple retail firms but the ownership is centralised. This type of ownership is beneficial because it enjoys economies of scale and high levels of bargaining power with suppliers (owing to high purchase levels). The pitfalls include a limited amount of flexibility and high investments that are required for multiple leases and fixtures. PnP is an example of such a retailer.

Question 5

Ownership alternatives
Retailers can select various types of ownership when entering the retailing industry, as highlighted below
• Franchise retailing .

Answer 5

• Franchise retailing occurs when a retail franchisee enters into a contractual agreement with the franchisor (eg the manufacturer) to operate under an established name. In return, the franchisor expects the franchisee to pay an initial fee as well as a percentage of gross sales. This type of ownership is advantageous because the franchisee obtains exclusive rights to sell the products and services in a specified geographical region. Two disadvantages are that there may be too many franchisees in one geographical area and there is limited entrepreneurial independence. The franchisors also benefit because money is earned when the products are delivered to the franchisees, and strict operating policies are followed, thereby ensuring consistent operational activities. McDonald’s is an example of a franchise retailing type.

Question 6

Ownership alternatives
Retailers can select various types of ownership when entering the retailing industry, as highlighted below.
• Leased departments

Answer 6

• Leased departments occur when an independent retailer decides to lease floor space in a store, thus providing consumers with a one-stop shopping experience. The pitfall of this type of ownership is that poor performance on the lessee’s part may hamper the store’s image because consumers will blame the problems on the store instead of on the lessee. An example of such a retailer would be an in-store beauty salon located inside an Edgars store.

Question 7

Ownership alternatives
Retailers can select various types of ownership when entering the retailing industry, as highlighted below.
• Vertical marketing systems

Answer 7

• Vertical marketing systems comprise “all the levels of independently owned businesses along” the distribution channel. These firms (ie the manufacturers, wholesaler and retailers) may, therefore, exert channel control over their counterparts because of certain strengths they possess (say, knowledge, customer loyalty and so forth).

Question 8

Ownership alternatives
Retailers can select various types of ownership when entering the retailing industry, as highlighted below.
• Consumer cooperatives

Answer 8

• Consumer cooperatives exist when consumers choose to own a retail firm because they feel that they can operate the firm as well as or even better than a traditional retailer. Hence a group of consumers “invest, elect officers, manage operations and share the pro ts or savings that accrue”. This type of retailing often fails because consumers lack the required expertise and initiative to make it a success.

Question 9

Food-oriented retailers

Retailers who are food-oriented may choose to utilise one of the following types of store:

Answer 9

• Convenience stores
• A conventional supermarket
• Food-based superstores
• Combinational stores
• Box (limited-line) stores
• Warehouse stores

Question 10

Food-oriented retailers
Retailers who are food-oriented may choose to utilise one of the following types of store:
• Convenience stores

Answer 10

• Convenience stores sell a moderate number of convenience products such as milk and bread to consumers during extended trading hours. “Open from 8 till late” is an ideal example of a convenience store.

Question 11

Food-oriented retailers
Retailers who are food-oriented may choose to utilise one of the following types of store:
• A conventional supermarket

Answer 11

• A conventional supermarket like PnP is a “decentralised food store with a wide range of food and related products”. These types of retailer often depend on high sales volumes while experiencing low pro t margins on account of intense competition from other retailers.

Question 12

Food-oriented retailers
Retailers who are food-oriented may choose to utilise one of the following types of store:
• Food-based superstores

Answer 12

• Food-based superstores are “larger and more diverse than conventional supermarkets and less diverse than a combination store”. These retailers generally o er their consumers a comprehensive shopping experience. Spar is one such superstore.

Question 13

Food-oriented retailers
Retailers who are food-oriented may choose to utilise one of the following types of store:
• Combinational stores

Answer 13

• Combinational stores are large retailers that combine supermarkets and general merchandise into one store. This makes it possible to integrate various operational activities under one management structure. Can you think of any South African examples of a combinational store? If you thought of Hyperama or PnP Hypermarket then you would have been correct.

Question 14

Food-oriented retailers
Retailers who are food-oriented may choose to utilise one of the following types of store:
• Box (limited-line) stores

Answer 14

• Box (limited-line) stores o er consumers a limited line of products that are made available during moderate trading hours. An apt example of this type of retailing would include retailers who operate spaza shops in rural ethic areas.

Question 15

Food-oriented retailers
Retailers who are food-oriented may choose to utilise one of the following types of store:
• Warehouse

Answer 15

• Warehouse stores like Kit Kat Cash & Carry sell a moderate number of products in a warehouse setting. These stores often target consumers who seek convenience in the form of a one-stop shopping experience.

Question 16

General merchandise retailers

Let us now examine the different types of general merchandise retailers.

Answer 16

• Speciality stores
• Traditional department stores
• Full-line discount stores
• Variety stores
• O -price chain retailers
• Factory outlets
• Membership (warehouse) clubs
• Flea markets

Question 17

General merchandise retailers
Let us now examine the different types of general merchandise retailers.
• Speciality stores

Answer 17

• Speciality stores sell one product or service line - for example, a retailer that sells swimsuits for babies. These retailers are experts in terms of their offering and can thereby provide consumers expert assistance and advice. This type of store is often affected by seasonality, which results in a rapid decline of sales and pro ts (eg the above retailer that sells only babies’ swimsuits).

Question 18

General merchandise retailers
Let us now examine the different types of general merchandise retailers.
• Traditional department stores

Answer 18

• Traditional department stores are large retailers with an extensive assortment of products, which are categorised according to various departments. By structuring the store layout in this manner, retailers are able to structure their buying, customer service and control processes. Edgars and Stuttafords are examples of this type of retail format.

Question 19

General merchandise retailers
Let us now examine the different types of general merchandise retailers.
• Full-line discount stores

Answer 19

• Full-line discount stores carry a range of product lines while providing little to no customer service. For example, PnP encourages consumers to collect shopping carts and move through the aisles where they select the products without assistance. The consumers then proceed to the centralised till points to pay for their purchases.

Question 20

General merchandise retailers
Let us now examine the different types of general merchandise retailers.
• Variety stores

Answer 20

• Variety stores sells an inexpensive and popularly priced assortment of products and services. The Crazy Store is an example of this type of retailing.

Question 21

General merchandise retailers
Let us now examine the different types of general merchandise retailers.
• O -price chain retailers

Answer 21

• O -price chain retailers sell brand-name products at everyday low prices. These retailers are able to do this because they have established long-term relationships with suppliers who purchase large quantities of products at wholesale prices. Meltz is an example of this type of store retailing format.

Question 22

General merchandise retailers
Let us now examine the different types of general merchandise retailers.
• Factory outlets

Answer 22

• Factory outlets such as PQs o er products to the consumer that are discontinued, irregular and out of season. These outlets can also expand their product assortment by carrying products that are in season and of a high quality.

Question 23

General merchandise retailers
Let us now examine the different types of general merchandise retailers.
• Membership (warehouse)

Answer 23

• Membership (warehouse) clubs are retailers that sell products to consumers who are members. These retailers often own large stores where forklifts are used to access high shelves. Makro is an example of a membership club because consumers need to show their Makro card at the till points before being allowed to make a purchase.

Question 24

General merchandise retailers
Let us now examine the different types of general merchandise retailers.
• Flea markets

Answer 24

• Flea markets are set up in an informal setting where retailers may sell diverse products and services. For example, Irene Flea Market sells second-hand, used or antique items at competitive process. Retailers often encourage price haggling, and cash purchase

Question 25

TYPES OF NONSTORE RETAILING

Answer 25

Direct marketing
Direct selling
Vending machines
Online retailing

Question 26

TYPES OF NONSTORE RETAILING

Direct marketing

Answer 26

Direct marketing is a form of marketing communication that allows retailers to communicate their product range to the consumer via various media (eg mail, telephone or the world wide web). Direct marketing activities are often guided by a database that houses information about consumers and their purchase behaviour. This information can then be used to customise the product and service offering as well as the retail firm’s communication activities. Bear in mind that this form of marketing allows consumers from various geographical regions to conveniently do their shopping in the privacy of their homes.

Question 27

Direct marketers face key issues such as:

Answer 27

Consumers are wary of purchasing products that they have not seen and they also generally dislike disclosing private information to the various direct marketing retailers.

Question 28

TYPES OF NONSTORE RETAILING

Direct selling

Answer 28

Direct selling refers to the door-to-door selling activity undertaken by the retailer. More speci cally, it involves “personal contact with consumers in their homes and/or telephone or mobile solicitations”. For example, items such as Tupperware, books and household equipment are often sold at parties hosted by the retailer.
This form of retailing o ers a personalised, relaxed and unintimidating shopping experience that it is also convenient to the consumer.

Question 29

TYPES OF NONSTORE RETAILING

Vending machines

Answer 29

Vending machines are a cash- or card-operated retailing format, which o ers an impersonal and convenient method of selling convenience products. For example, chocolate, cigarettes, beverages and chips can be sold to consumers at any time of the day or night.
The disadvantages of operating a vending machine include the high levels of theft, vandalism, stockouts and above-average prices.

Question 30

TYPES OF NONSTORE RETAILING

Online retailing

Answer 30

Consumers are becoming more involved in the purchase transaction as they actively seek information on the products they want. More specifcally, a dynamic and well-informed consumer will often resort to surfing the world wide web to research products, compare prices and complain about customer service.
As a retailer, you must be aware of who your web users are. This information is imperative because it will allow you to target web users who share similar characteristics (eg gender, age, average time spent online, income level, education and so forth). This will enable you to develop a plan of action that will ensure the success of your electronic retailing format.
Kalahari.net is a prime example of online retailing because it encourages consumers to order books and other reading material online. Someone living in Brazil can order and pay for a South African book online and have it delivered within a specified time. This example indicates that online retailing efficiently and effectively captures a large and geographically dispersed market by making products and services available online.

Question 31

RETAIL INNOVATION

Answer 31

• Wheel of retailing.
• Scrambled merchandising.
• Retail life cycle.

Question 32

RETAIL INNOVATION

• Wheel of retailing.

Answer 32

The key point that you need to understand in this section is the wheel of retailing, which is a tool that allows retail firms to identify the three phases that new retail firms progress through when entering the retail industry.

Question 33

RETAIL INNOVATION

The three phases of the wheel of retailing are

Answer 33

(1) the entry phase,
(2) the trading-up phase, and lastly
(3) the final phase. These phases are discussed in detail in the prescribed book. You should be able to discuss these phases after studying them.

Question 34

RETAIL INNOVATION

• Scrambled merchandising.

Answer 34

This occurs when a retailer chooses to add unrelated products and services to its current product mix - that is, the retailer widens its current product assortment (eg the number of different product lines carried). For instance, every time McDonalds introduces a new type of fast-food item on its menu, it has managed to increase the width of assortment. Why would retailers choose to do this? Well, scrambled merchandising increases overall revenues, encourages unplanned purchases, o ers a complete shopping solution to consumers, targets different target markets and o sets the impact of seasonality.

Question 35

RETAIL INNOVATION

• Retail life cycle.

Answer 35

The retail life cycle demonstrates how retailers pass through recognisable life stages, namely the introduction, growth, maturity and decline phases. These phases are explained in detail in the prescribed book, and after studying this section, you should be able to describe each of the stages that a retailer may go through when operating a retail firm.