Retail Channel

retailing

Retailing involves all activities required to market consumer goods and services to ultimate consumers who are purchasing for individual or family needs.

 

By definition, B2B purchases are not included in the retail channel since they are not made for individual or family needs. In practice this can be confusing because many retail outlets do serve both consumers and business customers. For example, Home Depot sells to consumers as well as to builders and contractors. Generally, retailers that have a significant B2B or wholesale business report those numbers separately in their financial statements, acknowledging that they are separate lines of business within the same company. Those with a pure retail emphasis do not seek to exclude business purchasers. They simply focus their offering to appeal to individual consumers, knowing that some businesses may also choose to purchase from them.

We typically think of a store when we think of a retail sale, even though retail sales occur in other places and settings. For instance, they can be made by a Pampered Chef salesperson in someone’s home. Retail sales also happen online, through catalogs, by vending machines, and in hotels and restaurants. 

Beyond the distinction in the products they provide, there are structural differences among retailers that influence their strategies and results. One of the reasons the retail industry is so large and powerful is its diversity.

Department Stores

Department stores are characterized by their very wide product mixes. That is, they carry many different types of merchandise, which may include hardware, clothing, and appliances. Each type of merchandise is typically displayed in a different section or department within the store. The depth of the product mix depends on the store, but department stores’ primary distinction is the ability to provide a wide range of products within a single store. For example, people shopping at Macy’s can buy clothing for a woman, a man, and children, as well as housewares such as dishes and luggage.

Chain Stores

Chain stores operate in multiple locations under the same brand. Because chain store businesses are so large, they are able to buy a wide variety of merchandise at discounted prices. The discounts substantially lowered their cost compared to costs of single-unit retailers (think Home Depot compared to a single, family-run hardware store). As a result, they could set retail prices that were lower than those of their small competitors and thereby increase their share of the market. Furthermore, chains were able to attract many customers because of their convenient locations, made possible by their financial resources and expertise in selecting locations.

Supermarkets

Supermarkets evolved in the 1920s and 1930s. For example, Piggly Wiggly Food Stores, founded by Clarence Saunders around 1920, introduced self-service and customer checkout counters. Supermarkets are large, self-service stores with central checkout facilities. They carry an extensive line of food items and often nonfood products. There are 37,459 supermarkets operating in the United States, and the average store now carries nearly 44,000 products in roughly 46,500 square feet of space. The average customer visits a store just under twice a week, spending just over $30 per trip. Supermarkets’ entire approach to the distribution of food and household cleaning and maintenance products is to offer large assortments of these goods at each store at a minimal price.

Discount Retailers

Discount retailers, like Ross Dress for Less and Big Lots, are characterized by a focus on price as their main sales appeal. Merchandise assortments are generally broad and include both hard and soft goods, but assortments are typically more limited compared to a department store. The stores are usually large, self-service operations with long hours, free parking, and relatively simple fixtures. Online retailers such as Overstock.com have aggregated products and offered them at deep discounts. Generally, customers sacrifice having a stable assortment of products to receive deep discounts on the available products.

Warehouse Retailers

Warehouse retailers provide a bare-bones shopping experience at very low prices. Costco is the dominant warehouse retailer, selling goods in bulk sizes, with $222.7 billion in sales in 2022.^[1] Warehouse retailers streamline all operational aspects of their business and pass on the efficiency savings to customers. Costco generally uses a mark-up of approximately 14-15% above cost on goods with draws customers with loss leaders like their $1.50 food court hot dogs and $4.99 rotisserie chicken.^[2]

Franchises

The franchise approach brings together national chains and local ownership. An owner purchases a franchise along with the right to use the firm’s business model and brand for a set period of time. Often, the franchise agreement includes well-defined guidance for the owner including training and ongoing support. The owner, or franchisee, builds and manages the local business.

Entrepreneur magazine posts a list each year of the 500 top franchises according to an evaluation of financial strength and stability, growth rate, and size.

Malls and Shopping Centers

Malls and shopping centers are successful because they provide customers with a wide assortment of products across many stores. If you want to buy a suit or a dress, a mall provides many alternatives in one location. Malls are larger centers that typically have one or more department stores as major tenants or anchors. Strip malls are a string of stores grouped together, often along a main road. Stores in isolated locations must use promotion or some other aspect of their marketing mix to attract shoppers.

Online Retailing

Online retailing is unquestionably a dominant force in the retail industry, but today it accounts for only a small percentage of total retail sales. Companies like Amazon and Overstock.com complete all or most of their sales online. Many other online sales result from online sales from traditional retailers, such as purchases made at Nordstrom.com. Online marketing plays a significant role in preparing the buyers who shop in stores. In a similar integrated approach, catalogs that are mailed to customers’ homes drive online orders. In a survey on its Web site, Land’s End found that 75 percent of customers who were making purchases had reviewed the catalog first.^[3]

Catalog Retailing

Catalogs have long been used as a marketing device to drive phone and in-store sales. As online retailing began to grow, it had a significant impact on catalog sales. Many retailers who depended on catalog sales—Sears, Land’s End, and J.C. Penney, to name a few—suffered as online retailers and online sales from traditional retailers pulled convenience shoppers away from catalog sales. Industry experts note that catalogs are changing, as is their role in the retail marketing process. Marketers are designing catalogs to look like lifestyle magazines.^[4] Despite significant declines, U.S. households still receive 12 billion catalogs each year and 90 million people make a purchase from a catalog each year.^[5]

Nonstore Retailing

Beyond those mentioned in the categories above, there’s a wide range of traditional and innovative retailing approaches. Although the Avon lady largely disappeared at the end of the last century, there are still in-home sales from Arbonne facial products, cabi women’s clothing, WineShop at Home, and others. Many of these models are based on the idea of a woman using her personal network to sell products to her friends and their friends, often in a party setting.

Vending machines and point-of-sale kiosks have long been a popular retail device. Today they are becoming more targeted, such as companies selling easily forgotten items—such as small electronics devices and makeup items—to travelers in airports.

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