Retail Marketing Fall 2025

The World of Retailing (Chapter 1)

The Retailer's Role in a Supply Chain

• Retailing: Adds value to products and services sold to consumers.

  • Examples include stores, apps, online platforms, lodging in a motel, and home-delivered pizza.

• Retailer: Sells products and services directly to consumers.

  • Operates within a supply chain, which is a set of firms that facilitates the movement of products from the point of production to the point of sale to the ultimate consumer.

Retailers Create Value

Retailers perform four key value-creating activities:

1. Providing an assortment: Offering a wide selection of products and services, such as a grocery store providing various brands and types of food.

2. Providing services: Enhancing the shopping experience, like accepting credit cards or facilitating returns.

3. Breaking bulk: Allowing consumers to buy products in smaller, more convenient quantities rather than in bulk directly from manufacturers. For example, buying individual packs instead of a case.

4. Holding inventory: Maintaining a stock of products readily available for purchase, often utilizing backrooms for storage, ensuring consumers can buy products when they want them.

Costs of Channel Activities

• Value-creating activities inherently increase the cost of products and services.

  • These costs include operational expenses such as mortgage/rent for a store, utilities, employee wages, insurance, and the direct cost of purchasing merchandise.

• The total cost incurred throughout the supply chain (including manufacturer, wholesaler, and retailer) can be almost as much as the initial cost to manufacture the product.

Retailers Performing Wholesaling and Production Activities

• Vertical Integration: A firm performs more than one set of activities in the channel, such as a retailer engaging in wholesaling or manufacturing.

  • Backward Integration: A retailer undertakes wholesaling or manufacturing activities.

    • Example: Ikea, starting as a retailer, began manufacturing its own goods.

  • Forward Integration: A manufacturer undertakes retailing activities.

    • Example: Coach, initially a manufacturer, opened its own retail stores.

Differences in Distribution Channels Around the World

• United States: Has the largest retail market globally.

  • U.S. retailers often achieve scale economies that allow them to operate their own warehouses, thereby reducing or eliminating the need for independent wholesalers.

  • This leads to a highly efficient distribution system.

• India: Characterized by numerous small stores, operated by relatively small firms, and a large independent wholesale industry.

  • The infrastructure is less developed, resulting in higher supply chain costs.

  • The market is in the process of modernizing, with increasing attention to e-commerce.

• China: Features a highly fragmented retail industry.

  • The government has substantially removed restrictions on direct foreign investments, fostering growth.

  • China is the world's fastest-growing retail market and leads globally in e-commerce sales.

Economic and Social Significance of Retailing

Role in Developed Economies

• Retail Sales:

  • In $2019$, the U.S. recorded $5.3$ trillion dollars in annual retail sales.

  • Retailing contributes approximately $5.5\%$ of the U.S. Gross Domestic Product (GDP).

• Employment:

  • The retail sector employs around $26$ million people in the U.S.

Role in Developing Economies – The Base of the Pyramid

• Approximately $9\%$ of the world’s population lives on under $2$ dollars a day, constituting the