Chapter 14 - Managing Retailing, Wholesaling, and Logistics
I. Learning Objectives
After reading this chapter, students should:
q Know what the major types of marketing intermediaries are that occupy this sector
q Know what marketing decisions these marketing intermediaries make
q Know what the major trends are with marketing intermediaries

II. Chapter Summary
Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, nonbusiness use. Retailers can be understood in terms of store retailing, nonstore retailing, and retail organizations.

Like products, retail-store types pass through stages of growth and decline. As existing stores offer more services to remain competitive, costs and prices go up, which opens the door to new retail forms that offer a mix of merchandise and services at lower prices. The major types of retail stores are specialty stores; department stores; supermarkets; convenience stores; discount stores; off-price retailers (factory outlets, independent off-price retailers, and warehouse clubs); superstores (combination stores and supermarkets); and catalog showrooms.

Although most goods and services are sold through stores, nonstore retailing has been growing. The major types of nonstore retailing are direct selling (one-to-one selling, one-to-many-party selling, and multilevel network marketing); direct marketing (which includes e-commerce and Internet retailing); automatic vending; and buying services.

Although many retail stores are independently owned, an increasing number are falling under some form of corporate retailing. Retail organizations achieve many economies of scale, such as greater purchasing power, wider brand recognition, and better-trained employees. The major types of corporate retailing are corporate chain stores, voluntary chains, retailer cooperatives, consumer cooperatives, franchise organizations, and merchandising conglomerates.

Like all marketers, retailers must prepare marketing plans that include decisions on target markets, product assortment and procurement, services and store atmosphere, price, promotion, and place. These decisions must take into account major trends, such as the growth of private labels, new retail forms and combinations, growth of intertype retail competition, competition between store-based and nonstore-based retailing, growth of giant retailers, decline of middle-market retailers, growing investment in technology, and global presence of major retailers.
Wholesaling includes all the activities involved in selling goods or services to those who buy for resale or business use. Wholesalers can perform functions better and more cost-effectively than the manufacturer can. These functions include selling and promoting, buying and assortment building, bulk breaking, warehousing, transportation, financing, risk bearing, dissemination of market information, and provision of management services and consulting.

There are four types of wholesalers: merchant wholesalers; brokers and agents; manufacturers’ and retailers’ sales branches, sales offices, and purchasing offices; and miscellaneous wholesalers such as agricultural assemblers and auction companies.

Like retailers, wholesalers must decide on target markets, product assortment and services, price, promotion, and place. The most successful wholesalers are those who adapt their services to meet suppliers’ and target customers’ needs.

Producers of physical products and services must decide on market logistics—the best way to store and move goods and services to market destinations; to coordinate the activities of suppliers, purchasing agents, manufacturers, marketers, channel members, and customers. Major gains in logistical efficiency have come from advances in information technology.

III. Chapter Outline
I. Retailing - Includes all the activities involved in selling goods and services directly to consumers for their personal, nonbusiness use
A. The New Retail Environment - models for department stores’ success seem to be emerging:
1. Strong retail brand approach
2. The showcase store
3. Supermarkets have opened larger stores, with wider variety of items and upgraded facilities
B. Types of Retailers
1. Levels of service (wheel of retailing) - self-service, self-selection, full service
a) Major retailer types
b) Nonstore retailing
c) Direct selling (multilevel and network)
d) Direct marketing
e) Automatic vending
f) Buying service
2. Corporate retailing - voluntary chains, retailer cooperatives, franchises, and merchandising conglomerate

C. Retailer Marketing Decisions
1. Target market - until the target market is defined, the retailer cannot make consistent decisions on product assortment, store decor, advertising message and media, price levels, etc. Too many retailers have not defined their target markets
2. Product assortment and procurement breadth and depth - several differentiation strategies are available. Growing use of direct product profitable (DPP) measurement
3. Services and store atmosphere - the services mix, prepurchase services, postpurchase services, and ancillary services enable store differentiation 
4. Store activities and experiences - brick-and-mortar entities creating experiences that cannot be reproduced on the Internet to differentiate themselves
5. Price decision - key positioning factor related to the target market, product/service assortment mix, and competition
6. Promotion decision - various tools used to generate traffic and support image positioning
7. Location decision - central business district, regional shopping center, community shopping center, shopping strip, or within a larger store
D. Retailing Private Label Brands (brands developed and owned by resellers, retailers, wholesalers, distributors). Do not usually exceed 50% due to consumer preferences for national brands
1. House brands
a) More profitable for retailer
b) Marketing-mix cost lower
c) Lower price to consumer
d) Generic brand prices even lower
2. The private label threat creates advantages and power for retailer
a) Retailers charge slot fee for new national brand requiring new shelf space
b) Retailers display their own brands more prominently than national brands
c) Lower prices appeal to consumer especially when value is close or same as national brand
d) National brands have price constraints as marketing-mix costs command a higher margin, which creates higher prices

II. Wholesaling - includes all activities involved in selling goods or services to those who buy for resale or business use. They provide selling and promoting, buying and assortment building, bulk breaking, warehousing, transportation, financing, risk bearing, market information, management services, and consulting
A. Growth and Types of Wholesaling - merchants, brokers, and agents, manufacturers’ and retailers’ branches and offices, and miscellaneous
B. Trends in Wholesaling - new level of adaptation in face of growth in direct buying. Ways to strengthen relationships can include:
1. Seek clear agreement with manufacturers about their expected functions in the channel
2. Visit manufacturers’ facilities and attend industry events to gain insights
3. Fulfill requirements reliably and provide customer feedback to manufacturers
4. Offer value-added services to manufacturers

III. Market Logistics - The process of getting goods to customers, use of supply chain management (SCM), demand chain planning, and integrated logistics systems. Involves planning, implementing, and controlling the physical flows of materials and final goods from points of origin to points of use to meet customer requirements at a profit
A. Integrated Logistics Systems (ILS)
1. Utilize technology to enhance efforts in linking materials management, material flow systems, and physical distribution
2. Market logistics increasing in costs which can amount to 30% to 40% of the product’s cost. There is much room for cost reduction efforts
B. Market-Logistics Objectives - getting the right goods to the right places at the right time for the least cost
C. Market-Logistics Decisions
1. Order processing - goal is to shorten order-to-remittance cycle
2. Warehousing - storage of finished goods. Distribution warehouses receive goods from various company plants and suppliers, and move them out as soon as possible
3. Inventory - growing interest in “just in time” production to offset the costs of carrying inventory
4. Transportation (five modes) - rail, air, trucks, waterways, and pipelines. All have advantages and disadvantages
D. Organizational Lessons - market-logistics strategies must be derived from business strategies, rather than solely from cost considerations 
1. The company should set its logistics goals to match or exceed competitors’ service standards and should involve members of all relevant teams in the planning process
2. Today’s stronger demands for logistical support from large customers will increase suppliers’ costs
3. Set up differentiated distribution by offering bundled service programs for different customers

IV. Summary

IV. Opening Thought
Most students are familiar with the retailer from which they have bought products. What is not so obvious to students is that retailers, wholesalers, and distributors pass through stages of growth and decline. Students, for the most part, will be familiar with some but not all of the retailer concepts described in the chapter. Second, nonstore retailing may not be a familiar concept to some students. Others might have some familiarity with nonstore retailing because they hold summer or part-time jobs.

The increasing power of retailers, especially mega-retailers, on their manufacturers and the channels of distribution will not be evident to the students. Wholesalers and distributors are generally unseen by the public and thus the students will probably not have any previous information about how these channels work or that they even existed. Guest speakers from the wholesaling or distribution industry can offer insights to the students about the services they perform and the value they add to the end consumer.

Students will be familiar with such industries as trucking and logistic firms but not about inventory management or control. The instructor is encouraged to spend some additional class time on the concepts of the market-logistic formula, order costs, set-up costs, processing costs, and inventory carrying costs. Accounting and financial textbooks would be a good source of additional information and explanations of how these costs affect the overall corporation.

V. Teaching Strategy and Class Organization
PROJECTS
1. At this point in the semester-long project for the “fictional” product or service, students should be directed to turn in their retailing, wholesaling, and logistical marketing plans. Those students who are acting in the role of providing a new service should include their plans for locations, hours of operation, and how their service will manage demand and capacity issues.

2. This chapter is an appropriate one for out-of-class assignments because many students will not need to be encouraged to “go shopping.” The chapter identifies four levels of service in retailing—self-service, self-selection, limited service, and full-service. Students are to visit at least one of each type of the described retailers and are to comment vis-à-vis the retailer-positioning map (Figure 14.3). On their shopping trips, did students experience a dissonance between the service they received and their initial characterization of the store? In other words, did students receive better service than they initially expected to receive from a self- or limited-service retailer? Did the students experience a lack of service from the stores they perceived as full service? If either of these conditions occurred, ask the students to postulate a causal relationship for what happened.

ASSIGNMENTS
Small Group Assignments
1. Two models for department store success seem to be emerging—one with a strong retail brand approach and one as a showcase store. In small groups, students are to investigate these two differing approaches to department store retailing and comment on the future of these models using the concepts defined in this chapter (target market selection, product assortment decisions, etc.).
2. Atmospherics is an important component of store attractiveness. Every store has its own unique look, feel, and smell. Yet each consumer may react differently to each of these elements. In groups composed of male and female students, they are to visit three retailers of their own choosing, comment on how the store atmospherics affected them personally, and then group the findings by sex. Why are there such differences? What can a store do to appeal to both sexes?

Individual Assignments
1. In his 1999 book entitled, “How We Buy,” Simon & Schuster, New York, 1999, Paco Underhill examines the shopping phenomena that consumers and retailers alike need to know. Students should be assigned to read this book and comment on the lessons learned.

2. New retail forms and combinations is one of the trends in retailing today. Examples include supermarkets with banks and bookstores featuring coffee shops. After reading the material in this chapter, ask students to speculate on potential new retail forms or retail combinations yet undeveloped. In their selection of a new form or combination of retailing, ask students to defend their choices using the ideas and concepts presented in this chapter.

Think-Pair-Share
1. Have students visit as many differing types of retailers (and nonstore retailers) as they can over the course of a week. For each shopping occasion, ask students to record their impressions of the store’s atmospherics, location, service levels, product selections, and others. Then rank their preferences from best to worst and be able to explain why they assigned such rankings to each store in terms of the material covered in this chapter.

2. Store brands, or private label brands, often account for a large proportion of retail sales in some product categories. Students should purchase differing store brands/private label items (ice cream is a favorite choice for this and can be conducted in class), the national branded product, and do a test comparing the store brand and the national brand. Does the store or private label item meet or exceed the taste and quality of the national brand? What are the implications for national branded products if store/private label items meet or exceed the national brand? What should or could marketers do to differentiate these products?

END-OF-CHAPTER SUPPORT
MARKETING DEBATE

Store retailing versus nonstore retailing

VI. Case Study
1. Marketing in China: Wal-Mart and Carrefour in China
1) What influential factors of the local environment and consumer behaviors should be taken into consideration in the retail competition?
2) China’s market has provided more opportunities for newcomers to catch up. Analyze this phenomenon with other similar cases such as Nokia and Motorola;  Toyota and Honda; ”，“Uni-President (Taiwan) and Kanshifu (Taiwan); ”etc.
2. Chapter Case: Gome
1) As an outstanding representative of China’s domestic retailers, what does Gome’s rapid development reveal about the key factors in the retail business?
2) Collect more materials and conduct a comparison between Gome and BestBuy, examining the similarities and differences between these two electrical appliance retailers.

3. To prepare case studies based on the following materials from Chapter 14 and to present these:
• Mini Case: Zara 
• Innovative Marketing: Target
• Innovative Marketing: 7-Eleven in Taiwan
• Innovative Marketing: TESCO

VII. Main Topic(s)
A. “Retailing Versus e-Tailing”
The focus is on retailing strategy in the modern marketing environment. In addition, there is emphasis on the role and value of understanding the history and role of retailing in the larger scheme of the overall marketing process and strategy. It is useful to update the examples so that students will be able to identify readily with this concept based on their general knowledge of the companies and products involved in the lecture/discussion.

Teaching Objectives
· To stimulate students to think about important retailing issues.
· To consider points in analyzing the changes in retail pricing strategy.
· To understand how to achieve a balanced position in a changing retail environment, especially in terms of the consumer, the competition, and the technology driving the changes.

Discussion
Introduction
The key changes in the retailing field are a result or a by-product of the changes in our population, in where and how people live, work, and buy. During the next few decades the trends will continue, but most changes will come via the technological revolution (handling information, communication, management, and in serving the needs of customers).
The major retailers must develop responses to include:
· Reviving shrinking profits by improvement of man and machine in store systems.
· Taking advantage of the trend toward a service-oriented society by offering new and more profitable services (e.g. the boutique concept), and also store image management and creativity.
· For department stores, facing up to the increase in competition from discounters, specialty stores, food and drug chains, and direct marketing (shuffling the merchandise mix).
Economic Forces
Economic forces are changing the way retailers must react. While many retailers expect volume to grow despite birth rate decline and the fact that total population will not decline, there are some issues to consider more closely. Real family income is not increasing, but there are trends related to a growing demand for quality, value, and specialty merchandise. Also, despite the self-service and online trends, there are indications of higher demand for increased customer service in certain retail categories.
Interestingly, most retailers are not presently planning for future developments. Why? Various studies seem to indicate that there is a general view among many retailers that affluence, education, and aspirations will continue to grow and accordingly will aid in the growth of their area of retailing. This viewpoint indicates the general optimism held by most retailers as sales-oriented marketers.
Social Forces
There is some optimism—a minority view—that there will be a solution to urban ghettos and a revival of the core cities. While this has occurred to some degree, completion of the process is still some years in the future. Mass transit is in the same category because many retail analysts feel that consumer mobility will change little in the coming years. Obviously, mobility would mean there is more demand for household-type goods to enable mobility to continue to increase (e.g. household cleaning products).
Employment Patterns
There is a continuing trend toward a four-day workweek, more part-timers, and 365-day, 24-hours-per-day openings, but retailers apparently do not see the need to plan for this development. There will be more women in the labor market, more Sunday openings, more late openings, and more convenience-store growth. Employee turnover remains a big problem for retailers, but retailers are not ready to pursue actively a course of change. However, the Internet gradually is forcing them to either change or lose their customers.
Technological Innovations
Cable TV has had a tremendous impact on nonstore promotion and sales methods. The Internet, interactive TV, and broadband will continue to be the wave of the future. Cable opened up the arena of in-home shopping, and in-store computerized information (via scanners, etc.) brought an end to the centralization of decision making in the large retail chains. 
There has been a push to reduce transaction time, consumer anxiety, and customer inconvenience. With the existence of the nationwide centralized credit and banking systems, there is an increased reduction in store and brand loyalty. The rise in the number and sales volume at the so-called wholesale clubs (Sam’s Club, Price Club and B.J.’s Wholesale Club) has been both a symptom and a cause in this area. The Internet is bringing the possibility of general buying facilities or cooperatives with central buying capabilities. This could become an important wave of the future. 
Store Operations
There is a continuing trend toward shrinking profit margins on most primary or utilitarian retail items. This, in turn, requires tighter internal cost controls, promotion of higher margin products and services, and elimination of unprofitable items. Most retail operations have eliminated free home delivery and ended real estate ownership, choosing to lease instead. At the same time the number of stores is coming down all the time, with the volume for the remaining operations rising. 
The question is: Will the changes in the future allow the same volume with 25% fewer stores and with a 20% decline in the number of items carried? For example, 10 years ago, stores with $25 million in sales averaged over 100,000 items on the shelves. Today, the number of items carried has dropped and is continuing to drop, with just-in-time (effectively 1 to 2 days’ delay) inventory activities on the rise in many retail categories. Likewise, productivity levels have changed dramatically, requiring even greater flexibility in store layouts. One reason for this is the growth in the number of self-service racks, automatic vending machines, and similar developments.
In the mid-1980s, approximately 50% of all department store volume was self-service; it is estimated that currently the number is in excess of 60%. This trend will continue. Much of this is due to standardized packaging units in modular form. While this occurred originally to simplify the warehousing, handling, and inventory control, the process has been equally accepted in the retail arena. Despite this, there has been no decrease in specialty and high fashion merchandise volume; only now there is more flexibility in the fashion business, especially within retail chains, both general and specialty operations. With the evolution of more scrambled merchandising and competition, and more geographical spread, suburban discounters and warehouse selling centers, the lines between budget and upscale have become increasingly blurred.
There’s no doubt that retailers need to go through a shakeout before the industry can prosper again. With over 19 square feet of space for every person in the country, more than double the level of 20 years ago, there are simply too many stores. In 1974, each square foot generated an average of $175 a year in sales. Now, each square foot brings in only about $166.
Competitive Trends
With cable TV home shopping networks, catalog stores, direct mail, telemarketing, etc., it does not appear that as much merchandise activity will be in the stores. In 1984, less than one-third of all retail business was conducted outside the retail store; in 2001, it was estimated that in excess of 55% of retail business was conducted outside the store. This trend has continued, due to such developments as stronger warranties, a rising image of quality, and an abundance of nonstore options. However, there are areas, such as appliances and furniture, where the trend toward nonstore growth may not develop in the near future. A similar trend is occurring in the discount area, with discount retailers reaching over 27% of total retail volume by 2002. There appears to be an opposite reaction taking place with the department store. In addition, the one-stop shopping orientation continues in the United States and many other developed countries.
The trend to specialization and “category killers” began in the 1980s. Today, following on the precepts of the “Wheel of Retailing”, general merchandisers continue to develop boutique and specialty shop areas within department stores. Even more important is the trend toward greater focus and size in specialty categories, ranging from pet products to sports clothing.
Future Strategies
Retailing faces some fundamental problems. This is an industry that has lost touch with its customers. The consumers who made shopping a recreational sport in the 1980s now have less time, less money, and less stomach for the whole experience. With 75% of women working full- or part-time and still shouldering most of the family chores, consumers have become precision shoppers. Over the past 15 years, they have cut down from three mall visits a month to 1.6. And instead of stopping by seven stores at a clip, they’re down to just three. The consumer today is not only tightfisted but also increasingly stressed out and has lower tolerance for all the imperfections found in retailing.
In almost every category, the answer to the question of what the consumer wants is disarmingly simple: more for less. Wal-Mart Stores Inc. and Home Depot Inc. became national powerhouses based on this simple insight. They did it by relentlessly cutting costs at every stage, from manufacturer to store shelf, and by demanding help from their suppliers who became increasingly dependent on them as they grew in size and clout. Since 1984, Wal-Mart’s expenses have shrunk from 19.1% of sales to just above 15.5%. With yearly sales well over $100 billion, slated to grow to $200 billion in coming years, those savings add up fast. The contrast between the quick and near dead in retailing is stark indeed. Bankrupt Bradlees, had an expense ratio of 29.4%; Caldor Corp., also bankrupt, had a 24.4% expense ratio. Likewise, Kmart Corp. devoted 22.2% of its sales to expenses and went into bankruptcy during January 2002. 
There is no one formula for retailing success. Some hyper-efficient operators, such as Wal-Mart and Home Depot, have expanded their offerings and reduced their prices. Single-minded specialists, meanwhile, dominate narrow categories such as sunglasses or pet specialties with the deepest selections and competitive prices. Still other retailers are staking their claim to convenience, whether it’s McDonald’s Corp., making sure you can buy a Big Mac wherever you happen to be, or other firms that let you shop by phone or Internet for everything from a new car to a vacation. There are even signs of life among department stores, especially those with successful Internet business-to-consumer sites. It appears that for the time being they have pared down their operations and have fought to a standstill with the specialty retailers.
Some other examples include retailers who have never been considered efficient or interesting. Such formats as supermarkets, hardware stores, discount stores, travel agencies, and car dealerships are being transformed or superseded. From vast megastores to tiny one-product kiosks, new kinds of outlets are springing up that look nothing like the stores of 10 years ago. The innovative retailers are taking market share from everybody else. Not all of these new formats will succeed, but as retailers grapple with change, these innovators point the way to the possible “re-storing” of America.
Even as the number of stores declines, those that remain will get bigger. The “big box” or “category killer” has already made its mark in some segments, such as home improvement, discounting and toys. Now, the approach of offering mind-boggling assortments of a familiar product at a reasonable price is spreading to some surprising categories. Superstores devoted to single lines, from baby items to books, abound. Where does their market share come from? It comes out of the hides of traditional stores that have already ceded entire departments such as appliances, books, and sporting goods. The same thing will happen to other categories.
Online retailing is still impacting retailers, but since the smartest physical retailers have responded to the challenge, it is possible they will remain in the game. The number and dollar-value of products ordered online from home has continued to rise every year and is expected to continue for the indefinite future.

[Note to the Instructor: Ask students what they would do to encourage consumers to spend more time shopping in physical stores.]

B.  “International Retailing - Business Without Borders”
The focus is on the increasing level of cross-border retailing that is significantly changing the modern marketing environment. There is emphasis also on the role of retailing in the larger scheme of the overall marketing process and strategy. It is useful to update the examples so that students will be able to identify readily with this concept based on their general knowledge of the companies and products involved in the lecture/discussion.
Teaching Objectives
· To stimulate students to think about important international retailing actions that impact society.
· To help students learn more about the sophisticated techniques and abilities that multinational retailers possess and how they use them to gain competitive advantage.
· To make clear to students the high level of knowledge-intensity required to compete in markets at home and around the globe.
Discussion
Introduction
“I remain adamant that consumers, products, and communication will always be local.” That comment, made by the CEO of Nestle, may seem unusual for the leader of a global giant. But many agree with him.
From one point of view, despite the talk of globalization, there is no such thing as a global consumer. Most large companies are well aware of the necessity to adapt their products to differing regional or national tastes and needs.
However, based on research conducted over the past three years by Ernst & Young with more than 10,000 consumers, there is also a universal desire to be treated with respect, courtesy, and honesty, regardless of the product purchased or the retail channel shopped. It is clear that global retailers understand the need to provide local content in their commercial offerings, while at the same time surrounding those offerings with the kind of contextual values desired by consumers.
This formula explains the global success of companies such as Wal-Mart. Consider that in less than a decade since Wal-Mart opened its first store outside the United States, the company has become the world’s largest retailer, with more than 1,100 stores in nine countries in addition to its 3,200-plus units in the United States. There’s little denying that retailing rapidly has become a global business.
Trends
Retailers often are the first to recognize the actual trends among billions of consumers. Wal-Mart and others are building their retail operations beyond their home base. German-based Metro AG, the fifth-largest global retailer, now operates in 20 countries through its Metro Cash & Carry subsidiary, which achieves 75% of its sales abroad. Similarly, Cologne-based Rewet Retail Group, No. 11 on the list of leading global retailers, operates in 11 European countries that account for 20% of the company’s total sales.
European retail giant SPAR, operating 16,800 stores on five continents, moved into the Russian market in 2001, opening its first store in Moscow. The Home Depot, headquartered in Atlanta, bowed out of Chile and Argentina due to the lingering recession in those nations, but it expanded operations through its acquisition of Total Home, a Mexico-based home center retailer.
In terms of global ranking, Wal-Mart and French hypermarket operator Carrefour are No. 1 and 2, followed by Kroger and Home Depot. Then there are two big European firms, followed by Kmart, Albertson’s, Sears, and Target (the Top 10 in the world). Other significant international retailers include electronics retailer Best Buy, office products retailer Staples, and Swedish-based furniture chain IKEA. 

Tech support
What does it take to succeed as a global retailer? Let’s start with technology. Recent retail growth largely reflects the benefits from the introduction of electronic-data interchange, barcode developments, radio-frequency gun screening and improved inventory management. Such developments, together with information technology (IT) and, of course, the quality of management, are the keys to raising productivity. 
The emergence of virtual business-to-business (B2B) marketplaces, including CPG Markets, Transora, GlobalNetXchange, and the WorldWide Retail Exchange, are another major development. These e-marketplaces potentially can play a vital role in a global-retailing environment because they also give rise to the need for standards. To maximize the potential of these exchanges, we need to speak one language across our worldwide sector.
Work on such standards predates the B2B exchange. In late 1999, the Global Commerce Initiative (GCI), which consists of representatives from more than 45 retail and manufacturing companies doing business across continents or via global supply chains, was formed. The voluntary body was designed to improve the performance of the international supply chain for consumer goods through the collaborative development and endorsement of recommended standards and key business processes.
The chairman and CEO of U.K.-based Marks & Spencer pointed to the accelerated pace of change in global retailing. Today, with the rapid emergence of the Internet, exchanges, and improved IT, the pressure to develop a common language of business is more intense and more immediate than anyone imagined just a few years ago.
The search is on for a unifying force to bring manufacturers and retailers together on a worldwide parity basis to simplify global commerce and improve consumer value in the overall retail supply chain.  Proponents point out that standardization will not only improve efficiency in the supply chain, but it also will decrease the wastage of raw materials and consumer products, through better and faster combinations of supply and demand. These developments will turn many logistical dreams into daily reality: having the right product at the right place at the right time.
After all, should this not be the goal of any global retailer? Regardless of what technology applications retailers are investing in, the critical criterion should be on those systems that support a company’s consumer-centric strategy. Too often, IT applications do not align with a company’s strategic framework, resulting in misdirected investments. This becomes a critical issue as companies face increasing cost pressures in the weakening global economy.
Successful global retailers recognize the need for alignment between their strategy and their technology. Consider Home Depot, whose business strategy focuses first on product and second on service. The home-improvement giant has staked out its competitive ground by offering a broad assortment of nearly every type of hardware, lumber, and gardening product consumers might need and offering superior service. IT activity clearly is designed to support the service aspect of Home Depot’s strategy. In 2001, for instance, the company introduced a new wireless scanner, called Unleashed. With it Home Depot Associates scan and record the customers’ purchases while they’re in line. Once they get to the checkout counter, the cashier electronically retrieves the purchase record. The customer then pays and is out the door. Nobody likes waiting in line. Anything that can be done to expedite this process makes customers happier.
Knowledge and Accountability
Global retailers are also beginning to recognize that their business is more knowledge-intensive than they may previously have thought. This led some operators to embark upon applied knowledge-management projects within their worldwide operations. Analysts estimate that sharing best practices throughout their far-flung organizations can contribute as much as 1% to 2% to the bottom line. The challenge comes in determining how to capture the best practices, share the information, and implement it. In fact, implementation and execution remain key challenges in the retail sector, leading some global companies to consider strategic outsourcing relationships for IT knowledge-management applications, as well as other technology systems.
Global retailers are also emphasizing corporate social responsibility and environmental policies and practices. Consumers and consumer groups increasingly make their choices, positively and negatively, based on the social reputations of companies, and governments are acting to hold companies accountable for their behavior everywhere in the world. All of this translates into a need for companies to operate in a more transparent manner and to report on their social and environmental policies and practices. Many believe that retailers should take the lead in demonstrating and reporting on corporate social responsibility. Why? They are closest to consumers.
Research has indicated executives of global companies confirm that social accountability and corporate responsibility have become increasingly important aspects of business. This is for good reason. These are issues that matter to today’s consumers. Customers are looking for commercial offerings to reflect fundamental human values, such as trust, respect, dignity, and fairness (i.e. the context surrounding a transaction), and not simply the products and services themselves (the content of the transaction). The results of this consumer research formed the foundation for the book The Myth of Excellence, published in July 2001. For more information, visit www.us.cgey.com/consumerelevancy.
An example of the responsibility theme is Stop & Shop. The firm recently opened a new low-energy superstore in Foxboro, MA. The project was the result of three years of research and development aimed at reducing the energy usage of a single store by 30%. Energy-saving features include skylights, dimming controls, high-efficiency luminaries, state-of-the-art refrigeration systems, rooftop insulation and reflective paint, and construction materials selected for their environmental performance and recycled content. By using innovative methods to cut energy use, the company argues that it drives significant costs out of the business and at the same time demonstrates a high level of commitment on the issue. Studies indicate that their customers appreciate this.
The increasing consumer focus on value and values in commercial transactions is also one of the drivers behind growth of the so-called organic-products business. This fact has not been lost on global retailers that have begun to devote more attention to the organic segment. As a sign of its commitment to the organic market, British retailer Tesco recently announced a new program to build its organic business to a level where it would account for at least 5% of all food sold at the company’s stores. To reach that goal, the retailer plans to introduce hundreds of new organic products in a wide variety of categories. “Our research has highlighted a demand for change,” said the Tesco CEO when he announced the new program. He went on to say, “Tesco’s success is based on understanding that change and making it happen. They (customers) tell us that the main barriers preventing them from buying more are availability and affordability. We are determined to act on these concerns.”
Food-safety issues also have clearly become top-of-mind in the global economy and are reflected in the planned establishment of expanded food-safety controls in the United States and elsewhere. Executives from several European companies have listed food safety as the No. 1 issue facing their business. In the United States, food safety was also among the leading concerns, although executives in the Asia-Pacific region did not rank it quite as high on the list. 
The emerging food-safety benchmarks allow existing standards to be checked and validated. The effort involves retailers representing nearly two-thirds of food retail revenue worldwide. The task force appointed by these retailers has identified four goals:
· To have global food-safety standards as a benchmark model everywhere in the world.
· To maintain an early-warning system to avoid spillover into food-safety incidents that could impact the consumer.
· To develop joint food-safety initiatives with governments and organizations, ensuring that safety practices are in place, and that they are properly controlled.
· To inform consumers about food safety.
Key to food-safety initiatives is the growing role played by IT applications. Technology will be a primary enabler of programs that focus on tracking and traceability and early-warning systems, particularly in a global environment where the need to process food-safety information quickly and effectively is crucial. Getting IT systems up-to-speed to handle these kinds of applications will be of paramount importance.
The Future
Looking ahead, many global retailers anticipate continuing to expand into new international markets and to increase their global sourcing. As the marketplace evolves, one thing is certain: Change will continue to occur at a rapid pace and those retailers that respond to consumers in a fast and relevant fashion stand to succeed in the global economy.
Source: Chain Store Age Executive, December 2001.

VIII. Background Article(s)
Issue:  Retailing in the New Economy
Source: “Target unifies e-initiatives to enhance relations with customers,” Retail Merchandiser, May 2002, p. 14.

Target Corp. wants its “expect more, pay less” message to ring clear across three technology initiatives that are separate but closely linked to one another and the overall Target brand: eTarget—its online selling arm that will soon integrate all Target-owned properties online, the Target Smart Card Visa, and an enhanced category management strategy called Guest Relationship Management (GRM).

These initiatives support what the president of Target. direct labels as “Target’s six strategic imperatives”: ascendance of the Target brand, improving the profit formula, consistent guest experience, reinforcing price perception without sacrificing differentiation, sustaining a world-class team, and growing through multidimensional integration.
“We must have a vision that reinforces our core strategy,” says the head of the division. “A retailer must achieve and convey a clear understanding of the ‘what’, ‘why’, and ‘how’ of each project. No experience is less important than another. This means consistent cross-channel delivery. Technology also requires top-management engagement.”
Via eTarget, a business arm that covers B2B, B2C, and internal technologies, is spearheading an online, cross-brand effort called Target.common. Each of the corporation’s store chains and other sub-brands will retain its original URL. When a consumer logs on under an individual name, he or she will automatically be linked to all selling channels. When a customer searches for a product, all resources will be scanned. One online shopping basket will collect purchases from multiple online sources. Target wants to create one basket, one search, and one experience; and channels owned by Target Corp. include Target, Mervyn’s and Marshall Fields, the Clubb Wedd and Lullaby Club girl registries, Target Pharmacy, guest cards as well as catalogs, and selections of books, music, and videos.
The concept reflects “the reality” of the fact that consumers shop through multiple channels. While Target’s websites use Amazon.com as a platform, target.direct “owns the customer” with regard to collecting data and other initiatives. Created in early 2000, target.direct offers over 15,000 products and services.
With Smart Card, the Minneapolis-based retailer aims to be on the forefront of this burgeoning data collection/consumer payment technology. Participating guests even receive a Smart Card reader for their home computers. By November 2002, every store will also have a Smart Card reader. When consumers use Smart Cards online and in stores, they can receive 10% off a purchase of $500 or more. Vendors may partner with Smart Card on special offers. Consumers will be able to access Smart Card accounts via Target’s websites.
Launched September 2001, Target’s Smart Card is now the 11th largest VISA card in the United States and is the country’s first Smart Card, says the executive. The cards are embedded with a special chip that allows both purchasing and consumer data collection. Target must identify, acquire, and retain guests while enabling personalized communication.
The Smart Card is becoming part of a three-year-old GRM. This company-wide project pulls together all databases, allowing Target to make business decisions and investments based on correlations found across various consumer behaviors. While Target is “already running data”, it will be another two or three years before GRM is implemented into the total store execution plan.
The obvious goal is to drive sales frequency by improving Target’s ability to deliver shopper preferences to vendors. GRM could impact store layouts and the designated customer targets of new products.