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Introduction to Business

12.3 The Competitive World of Retailing

Introduction to Business12.3 The Competitive World of Retailing

  1. What are the different kinds of retail operations?

Some 15 million Americans are engaged in retailing. Of this number, almost half work in service businesses such as barbershops, lawyers’ offices, and amusement parks. Although most retailers are involved in small businesses, most sales are made by the giant retail organizations, such as Walmart, Target, and Macy’s. Half of all retail sales come from fewer than 10 percent of all retail businesses. This small group employs about 40 percent of all retail workers. Retailers feel the impact of changes in the economy more than many other types of businesses. Survival depends on keeping up with changing lifestyles and customer shopping patterns. In recent years, online retailing trends have significantly impacted retailing organizations, providing more opportunity for smaller retailers and more competition for larger retailers.

Types of Retail Operations

There is a great deal of variety in retail operations. The major types of retailers are described in Table 12.1, which divides them into two main categories: in-store and nonstore retailing. Examples of in-store retailing include Walmart, Target, Macy’s, and Neiman Marcus. These retailers get most of their revenue from people who come to the store to buy what they want. Many in-store retailers also do some catalog and telephone sales.

Retailing Takes Many Forms
Types of In-Store Retailing Description Examples
Department store Houses many departments under one roof with each treated as a separate buying center to achieve economies of buying, promotion, and control Macy’s, Nordstrom, Bloomingdale’s, Kohl’s
Specialty store Specializes in a category of merchandise and carries a complete assortment Toys “R” Us, Zales Jewelers
Convenience store Offers convenience goods with long store hours and quick checkout 7-Eleven, Circle K
Supermarket Specializes in a wide assortment of food, with self-service Safeway, Kroger, Winn-Dixie
Discount store Competes on the basis of low prices and high turnover; offers few services Walmart, Target
Off-price retailer Sells at prices 25 percent or more below traditional department store prices in a spartan environment TJ Maxx, HomeGoods
Factory outlet Owned by manufacturer; sells closeouts, factory seconds, and canceled orders Levi Strauss, Dansk
Catalog store Sends catalogs to customers and displays merchandise in showrooms where customers can order from attached warehouse Ikea
Types of Nonstore
Description Examples
Vending machine Sells merchandise by machine Canteen
Direct selling Sells face-to-face, usually in the person’s home Avon, Amway
Direct-response marketing Attempts to get immediate consumer sale through media advertising, catalogs, pop-up ads, or direct mail K-Tel Music, Ronco
Home shopping networks Selling via cable television Home Shopping Network, QVC
Internet retailing (e-retailing) Selling over the internet,,,,,
Table 12.1

Nonstore retailing includes vending, direct selling, direct-response marketing, home shopping networks, and internet retailing. Vending uses machines to sell food and other items, usually as a convenience in institutions such as schools and hospitals.

Atmosphere and Retail Image

In considering retailing as a distribution strategy (place in the 5Ps), it is important to understand that place includes more than channel members or logistics. It also includes atmospherics—the image of the actual retailing store (or, in the case of nonstore retailing, the platform from which the product is offered, such as a website or vending machine). An important task in retailing is to create this image. Marketers combine the store’s merchandise mix, service level, and atmosphere to make up a retail image. Atmosphere refers to the physical layout and décor of the store. They can create a relaxed or busy feeling, a sense of luxury, a friendly or cold attitude, and a sense of organization or clutter.

These are the most influential factors in creating a store’s atmosphere:

  • Employee type and density: Employee type refers to an employee’s general characteristics—for instance, neat, friendly, knowledgeable, or service-oriented. Density is the number of employees per 1,000 square feet of selling space. A discount retailer such as Target has a low employee density that creates a “do-it-yourself” casual atmosphere.
  • Merchandise type and density: The type of merchandise carried and how it is displayed add to the atmosphere the retailer is trying to create. A prestigious retailer such as Saks or Nordstrom carries the best brand names and displays them in a neat, uncluttered arrangement. Other retailers such as Dollar Tree may display goods in a more cluttered, crowded, disheveled way because their target market (lower-income individuals) equates clutter with open markets (and with lower prices and “deals”).
    A photograph shows the outside of a Neiman Marcus store. It is a large building with a large metal clock statue, and covered walkway decorated with Christmas decorations.
    Exhibit 12.6 Whether peering through department store windows, buying holiday gifts, or going on a spending spree, people love to shop. Shopping makes people feel good, and a growing body of research suggests that shopping activates key areas of the brain, boosting one’s mood—at least until the bill arrives. Feelings of pleasure and satisfaction derived from a buying binge may be linked to brain chemicals that produce a “shopping high.” How might retailers use atmosphere to stimulate consumers’ natural impulse to shop? (Montgomery County Planning Commission/ Flickr/ Attribution 2.0 Generic (CC BY 2.0))
  • Fixture type and density: Fixtures can be elegant (rich woods) or trendy (chrome and smoked glass), or they can be old, beat-up tables, as in an antique store. The fixtures should be consistent with the general atmosphere the store is trying to create. By displaying its merchandise on tables and shelves rather than on traditional pipe racks, the Gap creates a relaxed and uncluttered atmosphere that enables customers to see and touch the merchandise more easily. In addition to traditional display racks, Cabela’s retail stores feature two 5,000-gallon aquariums stocked with carp, trout, and other fish and a diorama featuring elephants, lions, zebras, hyenas, and other animals. A typical Cabela’s has several million customers a year. It is not unusual for someone to drive many miles to get to a Cabela’s, where you can often see license plates from many states and Canadian provinces.1
  • Sound: Sound can be pleasant or unpleasant for a customer. Classical music at a nice Italian restaurant helps create ambiance, just as country and western music does at a truck stop. Music can also entice customers to stay in the store longer and buy more, or it can encourage them to eat quickly and leave a table for others.
  • Odors: Smell can either stimulate or detract from sales. The wonderful smell of pastries and breads entices bakery customers, as does the smell of freshly brewed coffee in a shopping mall. Conversely, customers can be repulsed by bad odors, such as cigarette smoke, musty smells, antiseptic odors, and overly powerful room deodorizers.

Expanding Around the Globe

Creative Retailing at Selfridges

To steer traffic to its flagship store in London, Selfridges sought divine intervention—that is, a 50-foot statue of Jesus. The small-scale replica of Rio de Janeiro’s famous monument gazed down on shoppers during a month-long Brazilian-themed promotion.

Combined with a radical redesign of the retail space that makes each of Selfridges’ four outlets feel more like a collection of quirky boutiques than one gargantuan marketplace, stunts like the Brazil 40° celebration have transformed the once-staid 95-year-old British retail chain into a premier arbiter of hip. Selfridges’ success has spurred retailers worldwide to take a closer look. “A department store chief who has not made his way to Selfridges to study its operation,” says Arnold Aronson, former CEO of Saks Fifth Avenue, “is an executive not doing his job.”

Typically, department stores develop their own merchandising strategies, resulting in a retail space crowded with Tommy Hilfiger, Ralph Lauren, and other predictable names arranged in displays that rarely vary from one chain to the next. Selfridges, however, operates on the theory that no one understands a product better than the designer or vendor that created it. So individual designers are allotted space in Selfridges and asked to create in-store displays that highlight their work. Traditional “departments” such as shoes, cosmetics, and men’s business wear have been organized by lifestyle—youth, sports, or women’s contemporary. This helps expose customers to merchandise they might not otherwise see.

Recently, Selfridges asked a tattoo and body-piercing parlor called Metal Morphosis to set up shop next to some women’s fashion vendors. Metal Morphosis was such a huge hit with shoppers en route to the clothing racks that it will soon expand to other Selfridges outlets.

Selfridges is also known for its “happenings.” They recently opened a low-cost interfaith charity shop within the confines of their luxury brand Oxford street store in London. Performance artist Miranda July was involved in the creation of this shop-within-a-shop, which partners with Islamic, Jewish, and other faith groups to promote the charity store. Ironically, shoppers can find bargain-priced donated blouses just feet away from some priced at over $3,000.

Critical Thinking Questions
  1. Selfridges opened a new store described as a “silver blob” or “spaceship.” The building has no straight lines and is covered with 15,000 anodized aluminum disks. The atrium is an array of high-gloss white elevators and balconies that are all slanted to avoid “the atrium look.” Do you think Selfridges is becoming too cool or hip? What impact will this have on sales?
  2. Would Selfridges be successful in the United States? Why or why not?

Sources: “The Secrets Behind Our House,”, accessed September 27, 2017; Barry Toberman, “Norwood Delight as Interfaith Shop at Selfridges Brings in the Punters,” The Jewish Chronicle,, September 1, 2017; Hannah Ellis-Petersen, “Miranda July Curates Interfaith Charity Shop Opening up in Selfridges,” The Guardian,, August 30, 2017.

Concept Check

  1. Describe at least five types of in-store retailing and four forms of nonstore retailing.
  2. What factors most influence a retail store’s atmosphere?
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