Retail Notes

Welcome to Retail

What is Retail?

Objectives:
- Define retail terms and recognize distribution channels.
- Describe the retail ecosystem, multichannel and omnichannel retailing.
- Recognize different ownership models.
- Discuss new and future retail capabilities.
- Describe the economic impact of retail.

Retail Industry Fundamentals

Retail has evolved into a multifaceted industry over the past 25 years since the launch of Amazon.com and eBay.
In 2000, U.S. retail e-commerce sales reached $29 billion.
Retailers are reimagining what they do to be both in-person and online to capture customer loyalty.
The lines are blurring between physical and online environments.
Customers can compare prices and look up product information on their mobile phones.

Important Terms:

Retail: The process of selling products and/or services to customers in order to earn a profit.
Retailer: A business or person that sells products and/or services to customers.
Retailers select merchandise or services based on the needs of a specific store, region, or community.
Customers/Shoppers: People who purchase goods or services from a business.
Products/Merchandise: Physical goods that are bought and sold (e.g., food, clothes, household items).
Services: Intangible offerings that can't be physically owned (e.g., lawn mowing, hair care, personal training, ride-sharing, video streaming).
Retailers sell products and services from stores, online, and/or directly via people.

Retail Ecosystem

A retail ecosystem is an interconnected system designed to provide customers with the merchandise and services they want - when, where, and how they want them.
A retailer's ecosystem may offer a network of physical store formats, direct or phone sales options, online or “ecommerce” sites, apps, targeted marketing, experiences, services, amenities and interactions.
Each different format or option is referred to as a channel.
Many retailers today have multichannel or omnichannel environments, meaning that they employ multiple channels, sometimes in a way that provides a seamless experience for customers across channels.
Physical store locations are still very important. It is forecasted that $72\%$ of U.S. retail sales will still occur in brick-and-mortar stores in 2028.
Retailers are making physical stores more dynamic and leveraging technology to make the shopping experience quicker and more efficient.
Physical stores are now a place of discovery.
Retailers are offering more in-store events and "touch and try" shopping experiences.
There are over 4 million retail establishments in the U.S.
Retail stores need employees who are flexible, have a positive attitude toward change, and desire to learn new things.

Multichannel and Omnichannel Retailing

Multichannel and omnichannel environments provide practical and convenient options for consumers to interact with retailers in multiple ways.
Multichannel Retailing: Offers customers the opportunity to interact with multiple channels (e.g., online and in-store), but the channels are not systemically connected to each other.
Example: A multichannel retailer may carry some merchandise in their physical stores and offer different products on their website.
Omnichannel Retailing: Integrates the channels through the use of technology to create a seamless consumer experience.
Most companies today are trending toward using omnichannel retailing.
Example: At Stop & Shop, customers use the chain's Scan It app to shop, review and pay for their items in stores using their mobile phone, all without ever interacting with an employee and they receive personalized coupons and discount offers based on past purchases.

Omnichannel Retailing in Action

The use of technology is transforming the industry, simplifying and personalizing purchasing for both customers and retailers.
Example: Buy Online, Pick Up In Store (BOPIS)
Retailers create their strategies based on the types of products and services they offer, as well as their customer's preferences.

Examples of Omnichannel Retailing in Action:

An employee with a mobile device greets a customer and processes the payment on the spot.
A sales associate locates an out-of-stock item anywhere in the company's system and has it shipped directly to the customer.
Customers purchase items using an app or website, and omnichannel systems provide merchandise fulfillment options such as holding an item for pickup, shipping an item to a customer's preferred location, preparing food items for pickup, or delivering an order the same day.
A customer views an item in a catalog, then marks it as a "favorite" on the retailer's website, and the product is later offered to them via targeted social media advertising.
Geotargeting uses customers' location information to provide personalized, customized product and service offers.
A customer at a large store uses a touch-screen kiosk to locate an item within the store.

Retail Channels - Exercise

Think of a retailer that you have shopped with and the channels used.
Consider if you have retailer apps on your phone and how you use them.
Pick a retail channel that you have not previously used, but would like to try, and consider how this would change your shopping experience.

Distribution Channels

Retailers are a link in the distribution channel, connecting customers with the products and services they want and need to purchase.
The channel often begins with a manufacturer who produces finished products.
A wholesaler buys large quantities of products directly from the manufacturer and then sells smaller quantities to retailers.
Services are generally provided either directly between the retailer and the customer or are facilitated by the retailer for a third party.
The product distribution channel is not the same for every retailer or for every retail transaction.

Product Distribution Channel Options:

Manufacturer → Wholesaler → Retailer → Customer
Example: Kraft Heinz Company manufactures Kraft Macaroni and Cheese. A wholesaler, SpartanNash, purchases truckloads of Kraft Macaroni and Cheese every year. Grocery retailers purchase the boxed macaroni and cheese from Spartan Nash in large quantities and consumers buy the boxes in the grocery stores.
Manufacturer → Retailer → Distribution Center → Retailer → Customer
Example: Iams manufactures several varieties of dog food. Target purchases truckloads of Iams dog food directly from Iams and uses its own distribution centers to temporarily warehouse the product. Then the Iams dog food is distributed to Target's stores, as needed, and customers purchase the food at a Target store.
Manufacturer → Customer
Example: For some online retail purchases, merchandise is shipped from the manufacturer directly to the customer. For example, a customer who buys furniture from Neiman Marcus.com may receive the furniture directly from the manufacturer rather than from Neiman Marcus.
Manufacturer → Retailer (Online Order) → Customer
Manufacturer (Online Order) → Customer
Example: Sometimes a manufacturer is also a retailer who offers its products directly to customers. For example, a customer may have purchased a set of Pyrex glass bowls from Walmart, but when one of the bowls breaks, the customer may decide to order a new bowl directly from Pyrex.

Types of Retail Ownership

Independent:
Typically a single store or a small regional chain, able to tailor offerings to local customers.
Amazing but true - $98\%$ of retailers are small businesses!
Corporation:
A business owned by shareholders through publicly traded stock, with centralized decision-making for multiple store locations.
Private Company:
Ownership is typically limited to a single or small number of owner investors, can be large companies with many retail locations and centralized business operations
Franchise:
A license is granted to another entity to retail a company's products or services in a particular area; consistency in the customer experience is critical.

Retail Career Planner

Imagine looking for a retail job in places you like to shop.
- Consider which types of products or service you would like to work with.
List positions that interest you, both now and potentially in the future.
Review lists and select your favorite; write names of retailers that might match your combination.

The Ever-Changing Future of Retail

Online stores open physical locations and vice versa.
Buy Online, Pick Up In Store (BOPIS).
Artificial intelligence (AI) enables voice-activated ordering. Retail chatbots can also provide customer support and product information.
AI shopping assistants can provide customers with product information, make recommendations, and help facilitate product discovery.
Retail locations focus on offering the customer brand experiences, rather than just products and/or services, since transactions can happen anywhere.
Receipts are sent to customers via email or text.
Customers of subscription-based e-commerce sites sign up to receive curated merchandise shipped directly to them on a regular basis.
Virtual environments enable customers to see what products will look like on them or in their house.
Robots perform customer service and inventory tasks in stores.
Retailer apps track customer purchases, reward loyal customers with targeted promotions, help them locate merchandise and send useful coupons.
Customers can take a picture of an item and use an app to search the internet for the item.
Customers who don't want to browse in stores can receive customized, personalized service to select their items and have the purchased items sent to their home or to a convenient pickup location.

Industry Spotlight: Dick's Sporting Goods

Embraces experiential retail to build customer loyalty.
Interactive and immersive shopping experiences that allow customers to build a relationship with the brand.
Examples: rock climbing wall, golf simulator, sports cages for baseball, field hockey, ice hockey, lacrosse, and soccer.

Retailer Innovation - Exercise

Consider which retailers come to mind when you think of retail innovation, and why.
Reflect on innovations you've seen in retail stores or online that involve technology.

The Economic Impact of Retail

Retail is one of America's largest industries, with 4.6 million retailers contributing $5.3$ trillion to annual GDP.
The retail industry is the leading indicator of job growth, consumer spending, sales, and inventory.
Retail Drives the U.S. Economy: Retailers support more than one in four U.S. jobs - 55 million employees across the nation.
The retail industry is the largest employer of teenagers, hiring over half of all working teens.
There are nearly 1.6 million U.S. employees at Walmart alone!

Retail Helps Communities:

Volunteering.
Joining civic organizations.
Providing community education.
Sponsoring events, clubs, and/or projects.
Partnering with national and local non-profit organizations.
Supporting sustainability efforts.

Retailers Address Environmental Issues By:

Recycling.
Improving water and energy efficiency.
Transitioning to renewable energy and electric vehicles.
Selling more sustainable products.
Reducing food waste.

Retailers Address Social and Community Issues By:

Ensuring retail employees reflect the full diversity of the communities they serve.
Focusing on broader community-focused activities.
Top 250 U.S retailers have stores, e-commerce or support functions in countries around the world.
Many of the world's leading retailers are American companies, such as Walmart and Amazon.
The industry's vast, global, overlapping and interconnected supply chain networks are what enable products from around the world to reach retailers for sale to the consumer.
Frontline team members should be well-informed and able to discuss supply chain issues with customers

The Environmental Impact of Retail

Sustainability involves a commitment to create net positive environmental, social, and community benefits.
Retail practices have an impact on the overall environment.
Several states have banned plastic bags in order to reduce the impact on the environment.

Sustainability Practices:

Starbucks and Disney have banned plastic straws.
Sephora collects beauty product containers for recycling.
Staples offers free in-store recycling for electronics, ink and toner cartridges, and batteries with small cash-back rewards for select products.
Through programs like Amazon Renewed, eBay Refurbished and Best Buy Outlets, retailers are repairing, refurbishing, repackaging and reselling products with the same warrantees as unopened products to create both environmental and financial benefits.
Retailers are also tracking the reasons consumers return products and sharing the information with manufacturers so that they can improve products and reduce waste.
Every retail role is a sustainability role.
Every single employee should do their part to make it possible for retailers to meet customer demand for more sustainable products and services and to meet retailers' own sustainability goals.
Customers trust information from an informed salesperson about product quality, value and style.
Informed salespeople can help consumers select more energy- or water-efficient products, choose more durable and timeless fashions, or navigate the transition to refillable packaging.

Career Spotlight: Store Leader, PetSmart

Overview of the role of a Store Leader at PetSmart, including responsibilities such as managing store safety, customer experience, operations, financial outcomes, and human resources.
Highlights the need for flexibility, adaptability, and continuous learning in the retail industry.

The Retail Product Cycle

Both physical and online shopping retailers follow a similar pattern, from choosing the products and services to offer to getting them in the hands of customers.
An important part of retailing is keeping the product assortment fresh and updated, in order to encourage shoppers to keep coming back to see what's new.

Retail Follows A Repetitive Product Cycle That Includes The Following Phases:

Selection of products to offer customers.
Allocation of products to various locations.
Distribution of products and replenishing them.
Selling products.
Moving excess and seasonal inventory out through markdowns.

The entire process is focused on the customers' experience and is facilitated by quality customer service.

Product and Service Selection

Retailers aim to get the right products and/or services in the right place at the right time for customers to purchase.
Retailers typically separate candidate products into categories for selection purposes.
Product categories are types of merchandise and services that are organized together into groups.
A dedicated person or team who is familiar with all of a category's products, pricing, vendors and industry specifications generally manages that category.
Retailers determine the product and service assortment that best represents their company brand, appeals to their customers, and will allow them to be profitable.

Selecting Products for Physical Stores - Retailers Select Products Based On The Following:

The store's location.
Local customer preferences.
Available space in the store.
Any manufacturer incentives.

Selecting Products to Sell Online- Retailers Often Offer All Of The Merchandise In Their Inventory For Purchase On Their Online Shopping Website And/Or App

Online offerings typically include products in warehouses and distribution centers and products available directly through the manufacturer, as well as the products that are available in the retailer's stores.
The product selection on a retailer's website is generally much larger than the selection in any single store.

Determining What to Buy- For Each Category and Product, Retailers Consider The Following Questions When Deciding What To Buy:

What is the customer demand for this product or service?
Does this product or service fit with our brand?
How will we supply this product or service to customers?
Do our competitors offer a similar product? If so, how will our offering compare in quality and price?
Will selling this item be profitable? How profitable should it be?
Will our sales or customer service associates need additional product or service knowledge training?
What is this product's shelf life? How often will our inventory of this product turn over?
What are the upcoming manufacturer innovations? When will new and innovative products be available?
Product buyers are often planning two to three seasons ahead of the current offerings.

Jobs In Product Selection:

Buyer
Assistant Buyer
Category Manager
Procurement Manager
Product Planner
Sourcing Specialist

Product Allocation

Once a retailer has made the decision to purchase specific items, the company needs to focus on getting the items in the right place for customers to purchase.
Allocation is the term for distributing merchandise from the manufacturer to a retailer's locations, which may include stores, distribution centers and other locations.

Example: A retailer orders Tide from Procter & Gamble (P&G) and splits the shipments to send some amount of Tide to each of their three distribution centers. The retailer allocates the quantities for each shipment based on the amount of Tide that the stores served by each distribution center need.

Jobs in Product Allocation:

Replenishment Analyst
Inventory Allocator
Demand Planner
Inventory Allocation Analyst
Stocker
Receiving Associate

Distribution

Manufacturers generally ship products from their facilities to the retailer's distribution centers (DCs) or warehouses.
Products are then shipped to stores either immediately upon receipt at the DC or warehouse, or as needed to replenish items as they are sold.
In perishable food distribution environments, employees work in refrigerated or frozen temperatures that maintain food freshness and shelf-life standards.

Distribution Center Areas:

Logistics: Employees in this department schedule the arrival of trucks in partnership with the buyers, allocation analysts, drivers, parcel delivery services and/or manufacturers.
Inbound: These associates unload the incoming pallets of product from manufacturers and then either send them to the Outbound team to go directly on a store's trailer, or place the product in a warehouse location.
Picking: These team members use replenishment reports and systems to retrieve, or pick, case quantities of items that will be sent to the Outbound team and placed on a store's trailer.
Packing: Small items, items that need additional handling before being sent to stores or other items that are not sent in full-case quantities need to be re-packed, and will then be sent to stores in this area of the distribution center.
Outbound: Associates in this area load trailers with full pallets, boxes and other merchandise or non-retail items, such as fixtures, to be sent to a store.
Facilities and Maintenance: This team maintains all of the distribution center's equipment and keeps the center and grounds safe and clean.

Specific Job Roles in Distribution Centers Include:

Warehouse associate
Carton handler
Picker
Packer
Warehouse Manager
Facilities and Maintenance Manager
General Manager
Distribution Center Operations Manager

Selling and Customer Service

Wherever a product is in a retailer's ecosystem, the goal is for it to be sold.

Purchasing Options:

Physical stores
Retailer websites
Mobile apps
Phone orders
Online retailers
In large retailers, as products are sold, inventory tracking systems record the amounts and generate reorder requests from the distribution center for available items.
For items such as seasonal merchandise that are not restocked when they're sold, retailers often keep additional product in the stockroom, so they can replenish it as it sells.

On-Hand Inventory

Once a retailer has purchased merchandise, its goal is to sell it as quickly as possible.
Products that sit on shelves or in the stockroom are not generating sales revenues and are simply tying up the retailer's dollars.
Shelf life refers to the time an item remains usable, salable, or fit for consumption.

Continuum:

Shorter:
Prepared foods, perishable foods.
Longer:
Non-perishable foods, seasonal merchandise, merchandise without expiration.
Products are often code-dated with a sell-by date, a use-by date, or both.

Jobs in Retail Sales and Customer Service Include:

Sales manager
Sales professional
Sales associate
Counter sales
Cashier
Clerk
Service desk associate
Call center associate

Pricing and Markdowns

Retailers offer promotional discounts, sale prices, and specials to entice customers to purchase products.
Markdowns are reductions to the original selling price of items in order to encourage rapid sales.
Retailers are careful not to take markdowns too early, since marked-down items generate less profit than retailers would prefer.
Markdowns often start at a low percentage discount to see if the product will sell at that price; if it doesn't, the discount will likely be increased.
Once a product has sold out at a store, whether it needed to be marked down or not, that ends the retail product cycle for that item.
Markdowns are sometimes associated with closeout sales and merchandise is usually final sale. Also, markdowns can be due to a season ending, and item or colors no longer trending or in style.

Jobs in Retail Pricing Include:

Pricing coordinator
Pricing analyst
Pricing specialist