Retailers Types PDF

**Types of retailers** Retail. In 2004, I was promoted to president and chief merchandising officer of DSW and we took the company public in 2005. To implement this new concept, we developed strategic partnerships with the leading designer brands in footwear. These vendors were focused on selling...

**Types of retailers** Retail. In 2004, I was promoted to president and chief merchandising officer of DSW and we took the company public in 2005. To implement this new concept, we developed strategic partnerships with the leading designer brands in footwear. These vendors were focused on selling their brands through the department store channel and were initially skeptical about the new business model. The new model had many advantages and financial benefits: when they sold to DSW, there would be no extra charges such as advertising allowances or vendor chargebacks, and no renegotiations on prices at the end of the season or merchandise returns. Through collaboration and the development of financial and strategic plans that would support mutually profitable growth for both parties, we aligned on a plan that today generates over \$2 billion in sales revenue in over 375 stores, an e-commerce business, and provides a long-term plan for continued growth. The pillars of our success are a breathtaking assortment of on-trend merchandise, simple convenience , and irresistible value. We are using social media to create a community of shoe lovers who are loyal to our offerings, and regularly inform their friends about the new additions to our assortment and about their shopping experience in our stores and on our website. Our fan page is a place where shoe lovers can hang out and talk about shoes. We stimulate interaction between our over two million followers by presenting what our followers think of new styles, thanking them for their suggestions, answering their questions promptly, and running fun trivia contests with free pairs of shoes as prizes. **RETAILER CHARACTERISTICS** The 1.1 million retailers in the United States range from individual street vendors selling hot dogs to multichannel retailers that offer thousands of products in their stores and through catalog and Internet channels. The different types of retailers offer unique benefits. The type of retailer a consumer chooses to patronize depends on the benefits the consumer is seeking. For example, if you are shopping for a gift, you might value the convenience of buying a shirt from a retailer\'s Inter- net channel so the retailer will ship it to a friend in another city. Alternatively, you might prefer to buy a shirt from a local store when making a purchase for yourself so that you can try it on. You might go to a discount store to buy an inexpensive shirt for a camping trip or a sporting goods specialty store to buy a shirt with the insignia of your favorite football team All these retailers survive and prosper because they satisfy a group of consumers needs more effectively than their competitors, and thus consumers patronize different retail types when they have different needs. As consumer needs and com- petition change, new retail formats are created and existing formats evolve. Many retailers also are broadening their assortments, which means that their offerings overlap and competition increases. At eBay Motors, for example, consumer can buy cars and motorcycles from thousands of individual sellers and established dealers. The eBay sellers compete with traditional automobile dealers that sell cars and motorcycles through conventional dealerships. In another example, office supply stores compete with warehouse clubs, supercenters, supermarkets, and convenience stores because they sell many of the same products. The most basic characteristic used to describe the different types of retailers is their retail mix, or the elements retailers use to satisfy their customers\' needs. Four elements of the retail mix are particularly useful for classifying retailers: the type of merchandise and/or services offered, the variety and assortment of merchandise offered, the level of customer service, and the price of the merchandise. **Type of Merchandise** The United States, Canada, and Mexico have developed a classification scheme,called the North American Industry Classification System (NAICS), to collect data on business activity in each country. Every business is assigned a hierarchical, six-digit code based on the type of products and services it sells. The first two digits identify the firm\'s business sector, and the remaining four digits. The classifications for retailers selling merchandise, based largely on the type of merchandise sold, are illustrated in Exhibit 2-1. Merchandise retailers are in sectors 44 and 45. The next three digits provide a finer classification of merchan dise retailers. For example, retailers selling clothing and clothing accessories are classified as 448, clothing stores as 4481, and men\'s clothing stores as 44811. Most services retailers are classified in sectors 71 (arts, entertainment, and recre- ation) and 72 (accommodation and food services). For example, food services and drinking places are in category 722, which is subdivided into full-service restaurants (7221) and limited-service eating places like fast-food restaurants (7222). Retailers can offer the same merchandise but differ in the variety and assortment of merchandise offered. Variety is the number of merchandise categories a retailer offers. Assortment is the number of different items offered in a merchandise cat- egory. Variety is often referred to as the breadth of merchandise, and assortment is referred to as the depth of merchandise. Each different item of merchandise is called a stock-keeping unit (SKU). Some examples of SKUs include an original scent, 33-ounce box of Tide laundry detergent with bleach or a blue, long-sleeve, button-down-collar Ralph Lauren shirt, size medium. Warehouse clubs, discount stores, and toy stores all sell toys, but warehouse clubs and full-line discount stores sell many other categories of merchandise in addition to toys (i.e., they have greater variety). Stores specializing in toys stock Variety and assortment can also be applied to a specific merchandise category rather than an entire store. One of the most interesting retailers that sells an amazing variety and assortment of merchandise is Amazon, which is highlighted in Retailing View 2.1. more types of toys (more SKUs) and thus offer a greater assortment (i.e., greater depth in the form of more models, sizes, and brands) than the full-line discount stores or warehouse clubs. **Services Offered** Retailers also differ in the services they offer customers. Customers expect almost all retailers to provide certain services: displaying merchandise, accepting credit cards, providing parking, and being open at convenient hours. Some retailers charge customers for other services, such as home delivery and gift wrapping. However, retailers may differ on other services. For example, Wheelworks offers assistance in selecting the appropriate bicycle, as well as repairs. Walmart does not provide these services. **Prices and the Cost of Offering Breadth and Depth of Merchandise and Services** Stocking a deep and broad assortment, like the one Wheelworks offers in bicycles, is appealing to customers but costly for retailers. When a retailer offers many SKUs, its inventory investment increases because the retailer must have backup stock for each and every SKU. Similarly, services attract customers to the retailer, but they also are costly. More staff must be paid to provide information and assist customers, alter prod- ucts to meet customers' needs, and demonstrate merchandise. Child care facilities, restrooms, dressing rooms, and coat check rooms take up valuable store space that could be used to stock and display merchandise. Offering delayed billing, credit, or installment payments requires a financial investment that could be otherwise used to buy more merchandise. To make a profit, retailers that offer broader variety, deeper assortments, and/or **Additional services need to charge higher prices. For example, department stores** Have higher prices than discount stores partially because of their higher costs. De- partment stores stock more fashionable merchandise and have to reduce prices when they make a mistake in guessing what the popular styles will be. They also provide more personal sales service and have more expensive mall locations. In con- trast, discount stores appeal to customers who are looking for lower prices. These consumers are less interested in the costly services provided by department stores. Thus, a critical retail decision involves the trade-off between the costs and benefits of maintaining additional inventory or providing additional services. Chapters 6 and 12 address the considerations required in making this trade-off. In the next sections, we discuss the different types of food and general merchandise retailers. When it started out in 1994, Amazon simply promised more books than anyone else. It took a few years sars for the online retailer to grow large enough to threaten the b ames-Borders, Barnes & Noble, and so on. But today, its competitive threat spreads far beyond bookstores to take on virtually any type of retailer you might find. Consider, for example, evidence showing that Walmart is losing sales to Amazon. Now that Amazon stocks interns such as baby formula, clothing, and electronic goods, Often at lower prices than even the low-price master, people see little reason to fight with traffic or search for parking at the world\'s largest retailer. Instead, they sit at home and wait for the items to arrive. Won't be home during the day to receive your delivery? No problem-Amazon is testing an option to ship deliveries to local 7-Eleven convenience stores, then e-mail customers with bar codes that identify them, and their package, to the convenience store clerks. As we know though, retail isn't simply about physical Goods. It also includes services, and on that front, Amazon is also taking on a wide spread of competitors. It offers. Textbook rentals through its Kindle products to college students. The Kindle Lending Library allows Amazon Prime members to receive free books each month. It pro- vides authors an easy route to self-publishing their work. Its cloud computing services are free for the first year- and its cloud offers enough storage for every person on the planet to store 82 books. With the Amazon Flow Powered app, shoppers in stores also can scan barcodes and find Amazon's (usually competitive) price immedi- ately. And of course, for Prime customers, Amazon always offers free shipping. But its influence is not all threat. For small-business Despite their similarly large sizes, most of Walmart's food sales are generated from its supercenter format, whereas Carrefour garners most of its sales using the hypermarket format that it developed. The remaining larger food retailers pri- marily sell through conventional supermarkets. Exhibit 2-4 shows the retail mixes for different types of food retailers. Supermarkets A conventional supermarket is a large, self-service retail food store offering groceries, meat, and produce, as well as some nonfood items, such as health and beauty aids and general merchandise. Perishables, including meat, produce, baked goods, and dairy products, account for 30 percent of supermarket sales and typically have higher margins than packaged goods. Whereas conventional supermarkets carry about 30,000 SKUs, limited- assortment supermarkets, or extreme-value food retailers, only stock about 1,500 SKUs. The two largest limited-assortment supermarket chains in the United States are Save-A-Lot and ALDI. Rather than carrying 20 brands of laundry detergent, limited-assortment super- markets offer one or two brands and sizes, one of which is a store brand. Stores are designed to maximize efficiency and reduce costs. For example, merchandise is shipped in cartons on crates that can serve as displays so that no unloading is needed. Some costly services that consumers take for granted, such as free bags and paying with credit cards, are not provided. Stores are typically located in second- or third- tier shopping centers with low rents. By trimming costs, limited-assortment super- markets can offer merchandise at prices 40 percent lower than those at conventional supermarkets. These features have supported the substantial growth of such retail- ers, which appeal strongly to customers who are not loyal to national brands and more willing to try a store brand, especially if it means they pay lower prices. Trends in Supermarket Retailing Although conventional supermarkets still sell the majority of food merchandise, they are under substantial competitive pressures ure on multiple sides: from supercenters, warehouse clubs, extreme-value retailers , convenience stores, and even drug stores. All these types of retailers have increased the amount of space they devote to consumables. Family Dollar, which previously offered only discounted store brands, has expanded its assortment by about 20 percent, to include national brands such as Pepsi. **Green Merchandise** Conventional supermarkets are offering more fair trade, natural, organic, and locally sourced foods for the growing segment of consumers who are health- and environmentally conscious. Fair trade is the practice of purchasing from factories that pay workers a living wage, considerably more than the prevailing minimum wage, and offer other benefits such as onsite medical treatment. Organic food purchases have jumped in recent years, with sales in- creasing by nearly 20 percent annually. Consumers also are buying a wider range of organic products, including staple items such as milk, eggs, and vegetables, as well as more fun options, such as ice cream and hair care products. 19 Traditional supermarket chains REFACT A recent survey found that one in three people have something organic over a recent three-month period. A 43 also are opening smaller-format stores such as Green Wise Market (Publix) targeting health-conscious consumers who patronize Whole Foods. In a related food retailing trend, they offer locally grown products, a trend brought about in response to environmental concerns and the increasing financial costs (e.g., fuel) of transporting food long distances. The locavore movement focuses on reducing Health-conscious and environmentally conscious consumers are demanding the carbon footprint caused by the organic and locally produced foods from food retailers. The World of Retailing transportation of food throughout the world. Food miles are calculated using the distance that foods travel from the farm to the plate. Many Americans appreciate the idea of supporting local businesses, but they also want the variety of products they can find everyday in their grocery store. It is difficult to maintain a balance between buying locally and maintaining such variety. Ethnic Merchandise Hispanics, who now constitute 15 percent of the U.S. pop- ulation, have significantly different shopping and eating patterns from those of the general population. They are more likely to to prepare meals from scratch, spend more on groceries, prefer stores with bilingual staff and signage, and place importance on fresh food. In addition to adding more ethnic merchandise in conventional supermarkets, retailers are opening supermarkets targeting Hispanic consumers. For example, Northgate markets in California cater to just Hispanic consumers. Their 36 stores, each approximately 50,000 square feet, feature both domestic and imported Latin American grocery items. Furthermore, they contain a dedicated tortilleria, prepared foods, and a well-stocked and staffed meat department. **Private-Label Merchandise** Conventional supermarkets chains are leveraging their quality reputation to offer more private-label merchandise. Private-label brands (discussed in Chapter 13) benefits both customers and retailers. The benefits to customers include having more choices and finding the same ingredients and quality as in national brands at a lower price or higher quality at a similar price to the national brands. The benefits of private- label brands to retailers include increased store loyalty lty, the ability to differentiate themselves from the competition, lower promotional costs, and higher gross margins compared with national brands. Improving the Shopping Experience Creating an enjoyable shopping experience through better \$298 Low Price \$350 store ambience and customer service is another approach that supermarket chains use to differentiate themselves from low-cost, low-price competitors. Supermarkets are increasingly incorporating "food as theater" concepts, such as in-store restaurants, open-air market designs, cooking and nutrition classes, demonstrations, baby-sitting services, and food and wine tasting. To appeal to on-the-go con- sumers, other supermarkets are offering self-service kiosks that are both fun and convenient. Among the offerings, in place at both conventional super markets and limited-assortment stores, are Coinstar, a change counting machine; Redbox, a movie rental kiosk; and Starbucks kiosks selling freshly ground and brewed cups of its subbranded Seattle's Best Coffee." **Supercenters** Supercenters are large stores (160,000 to 200,000 square feet) that combine a supermarket with a full- line discount store. Walmart operates more than 3,000 supercenters in the United States. Its leading competitors include Meijer, Super Target (Target),Fred Meyer (Kroger), and Super Kmart Center (Sears Holding). By offering broad assortments of grocery and general merchandise products under one roof, supercenters provide a one-stop shopping experience. General merchandise (nonfood) items are often purchased on impulse when customers' primary reason for coming to the supercenter is to buy groceries. General merchandise has higher margins, enabling the supercenters to price food items more aggressively. However, supercenters are very large, so some customers find them inconvenient because it can take a long time to find the items they want. Hypermarkets are also large (160,000 to 200,000 square feet), combination food (60 to 70 percent) and general merchandise (30 to 40 percent) stores. The world\'s second-largest retailer, Carrefour, operates hypermarkets. Hypermarkets typically stock fewer SKUs than do supercenters-between 40,000 and 60,000 items, ranging from groceries, hardware, and sports equipment to furniture and appliances to computers and electronics. Hypermarkets were created in France after World War II. By building large stores on the outskirts of metropolitan areas, French retailers could attract customers and not violate strict land-use laws. They have spread throughout Europe and become popular in some South American countries such as Argentina and Brazil. Hypermarkets are not common in the United States, though they are similar to supercenters. Both hypermarkets and supercenters are large, carry grocery and general merchandise categories, offer self-service, and are located in warehouse- type structures with large parking facilities. However, hypermarkets carry a larger proportion of food items than do supercenters and have a greater emphasis on perishables-produce, meat, fish, and bakery items. Supercenters, in contrast, have a larger percentage of nonfood items and focus more on dry groceries, such as breakfast cereal and canned goods, instead of fresh items. Both supercenters and hypermarkets face challenges in finding locations for new big-box (large, limited-service) stores. Although Brazil and China are promising emerging markets, many others are shrinking." In Europe and Japan, land for building large stores is limited and expensive. New supercenters and hyper- markets in these areas often have to be multistory, which increases operating costs and reduces shopper convenience. Furthermore, some countries place restrictions on the size of new retail outlets. In the United States, there has been a backlash against large retail stores, particularly Walmart outlets. These opposing senti- ments are based on local views that big-box stores drive local retailers out of business, offer low wages, provide nonunion jobs, have unfair labor prac- tices, threaten U.S. workers through their purchase of imported merchan- dise, and cause excessive automobile and delivery truck traffic. **Warehouse Clubs** Warehouse clubs are retailers that offer a limited and irregular assort- ment of food and general merchan- dise with little service at low prices for ultimate consumers and small businesses. The largest warehouse club chains are Costco, Sam's Club (Walmart), and BJ's Wholesale Club (operating only on the East Coast of the United States). Customers are at- tracted to these stores because they Can stock up on large packs of basies like paper towels, large-size packaged groceries like a quart of ketchup, best-selling books and CDs, fresh meat and produce, and an unpredictable assortinent of upscale merchandise and services at low prices. For example, at Costco you can buy a 5-carat diamond ring for \$99,999,99 with an appraised value of \$153,450. Heavy food sampling adds to the shopping experience. Sam's Club focuses more on small businesses, provid- ing services such as group health insurance as well as products. BJ's has beefed up its assortment of fresh meat and produce in recent years. Although package sizes are large compared to those in conventional grocery stores, BJ's provides convenient individual packaging an attribute that is particularly appealing to its more upscale customers. Warehouse clubs are large (100,000 to 150,000 square feet) and typically lo- cated in low-rent districts. They have simple interiors and concrete floors. Aisles are wide so that forklifts can pick up pallets of merchandise and arrange them on the selling floor. Little service is offered. Warehouse clubs can offer low prices because they use low-cost locations, have inexpensive store designs, and offer little customer service, they further keep inventory holding costs low by carrying a limited assortment of fast-selling items. In addition, they buy merchandise oppor- tunistically. For example, if Hewlett-Packard is introducing new models of its printers, warehouse clubs will buy the inventory of the older models at a signifi- cant discount and then offer them for sale until the inventory is depleted. Most warehouse clubs have two types of members: wholesale members who own small businesses and individual members who purchase for their own use. For example, many small restaurants are wholesale customers that buy their sup- plies, food ingredients, and desserts from a warehouse club rather than from food distributors. To cater to their business customers, warehouse clubs sell food items in very large containers and packages-sizes that also appeal to larger families. Typically, members pay an annual fee of around \$50, which amounts to significant additional income for the chains. **Convenience Stores** Convenience stores provide a limited variety and assortment of merchandise at a convenient location in 3,000-to 5,000-square-foot stores with speedy checkout. Convenience stores enable consumers to make purchases quickly, without having to search through a large store and REFA Convenie tor 7-Ele McDonal largest c number July 2012 total of 16 count with 33, outlets wait in a long checkout line. More than half the items bought are con- sumed within 30 minutes of purchase. Convenience stores generally charge higher prices than supermarkets for similar products like milk, eggs, and bread. These products once represented the majority of their sales, but now the majority of sales come from lower profit products, such as gasoline and ciga- rettes, putting a strain on their profits. Convenience stores also face in- creased competition from other for- mats. Supercenter and supermarket chains are attempting to appeal to cus tomers by offering gasoline and tying gasoline sales to their frequent shop- per programs. For example, shoppers who spend at least \$50 and swipe their Giant Eagle Advantage Card at any GetGo, Market District, Giant Eagle, or Giant Eagle Express location receive a 10-cent discount per gallon on their next fill-up. Drugstores and full-line dis- count stores also have easily accessible areas of their stores filled with convenience store merchandise. In response to to decrease their dependency on gasoline sales, tailor assortments to local markets, offer more fresh options, and make their stores even more convenient to example, to get gasoline customers to spend more on other merchandise and ser vices, convenience stores are offering more food options that appeal consumers, especially women and young adults. Finally, convenience stores are adding new services, such as financial service kiosks that give customers the op- portunity to cash checks,pay bills, and buy prepaid telephone minutes, theater ticket and gift cards. To increase convenience, convenience stores are opening smaller stores close to where consumers shop and work. For example, 7-Eleven has stores in airports, of- fice buildings, and schools. Easy access, storefront parking, and quick in-and-out access are key benefits offered by convenience stores. They also are exploring the use of technology to increase shopping convenience. Sheetz, a Pennsylvania-based convenience store chain, has touch-screen "Made-to-Order" kiosks at which cus- tomers can order customized deli sandwiches, wraps, salads, subs, and nachos while pumping gasoline. Retailing View 2.2 describes. Japanese corporations might own several U.S. conve- nience store chains (eg., 7-Eleven, Circle K), but conve nience stores (konbinis) in Japan and in the United States have little in common. Whereas shoppers in the United States depend heavily on their cars, most Japanese con- sumers commute using public transportation and work very long hours. To be convenient, the convenience stores thus locate in central business districts and train and subway stations. Rather than gasoline, konbinis sell a broad as sortment of services, in addition to their extensive food options, include- ing concert and amusement park tickets. Shoppers can pay their bills or make copies, as well as pick up some fashionable clothing. In turn, Japanese consumers visit conve nience stores for approximately 30% of their found purchases whereas in the United States, convenience stores only ac count for 5 to 10 percent of this market. Part of the reason for this greater share is the quality of food available in konbinis. Whereas late night U.S. snackers might embrace microwaveable burritos, konbinis often offer pasta dishes, fresh vegetables, fruit, and prepared meals of restaurant quality. Although they traditionally catered to male customers, more Japanese women in the workforce have led the konbinis to adjust their assortments accordingly. A traditional bento box. might contain rice with grilled fish or fatty meat-a meal not particularly appealing to female customers. Instead, today\'s chains healthier food in nicer looking packages, such as pho Vietnamese-style noodles; soup in bowls, and elaborate, high-quality desserts, With their relatively small sizes-around 300 to 600 square feet-and limited storage space, Japanese conve nience stores need stellar information and supply chain management capabilities to succeed. That is, they must precisely match store-specific demand with just-in-time supply provisions. The most successful store operators gather customer information during every checkout: automatically, with a system that specifies the time of purchase, product barcode, and price, and manually, when the cashier notes the customer\'s approximate age and gender. An efficient data analysis system then deter- mines when, how, and what to send to restock each konbini. Some stores even might receive up to seven restocking deliveries per day. **GENERAL MERCHANDISE RETAILERS** The major types of general merchandise retailers are department stores, full-line discount stores, specialty stores, drugstores, category specialists, extreme-value re- tailers, off-price retailers, and outlet stores. Exhibit 2-5 summarizes the character- istics of general merchandise retailers that sell through stores. **Department Stores** Department stores are retailers that carry a broad variety and deep assortment, offer customer services, and organize their stores into distinct departments for displaying merchandise. The largest department store chains in the United States are Sears, Macy\'s, Kohl\'s, JCPenney, Nordstrom, and Dillards. Traditionally, department stores attracted customers by offering a pleasing ambience, attentive service, and a wide variety of merchandise under one roof. They sold both soft goods (nondurable or consumable goods), which have a shorter lifespan such as cosmetics, clothing, and bedding) and hard goods, also known as durable goods, which are manufactured items that are expected to last several years, such as appliances, furniture, and consumer elec- tronics. But now, most department stores focus almost exclusively on soft goods. The major departments are women\'s, men\'s, and children\'s apparel; home furnishings; cosmetics; kitchenware; and small appliances. Each depart- ment within the store has a specific selling space allocated to it, as well as salespeople to assist customers. The department store often resembles a collection of specialty shops. Department store chains can be categorized into three tiers. The first tier includes upscale, high-fashion chains with exclusive designer merchandise and excellent customer service, such as Neiman Marcus, Bloomingdale\'s (part of Macy\'s Inc.), Nordstrom, and Saks Fifth Avenue (part of Saks Inc.). Macy\'s and Dillards are in the second tier of traditional department stores, in which retailers sell more modestly priced merchandise with less customer service. The value- oriented third tier-Sears, JCPenney, and Kohl\'s-caters to more price-conscious consumers. Department stores account for some of retailing\'s most cherished traditions- special events and parades (Macy\'s Thanksgiving parade in New York City), Santa Claus lands, and holiday decorations. But many consumers question the benefits and costs of shopping at department stores. Department stores are not as convenient as discount stores, such as Target, because they are located in large regional malls rather than local neighborhoods. JCPenney and Sears thus are following Kohl\'s by opening stores in nonmall locations. Customer service has diminished in the second- and third-tier stores because of the retailers\' desire to increase profits by reducing labor costs. To deal with their eroding market share, department stores are (1) increasing the amount of exclusive merchandise they sell, (2) increasing their use of private- label merchandise, (3) expanding their multichannel presence. Increase exclusive merchandise. To differentiate of their Merchandise offering and strengthen their image, department stores are aggressively seeking exclusive brands in which national brand vendors sell them merchandise that is not available elsewhere. Jennifer Lopez has a clothing line at Kohl\'s. Ralph Lauren designed a line of casual apparel exclusively for JCPenney called American Living. Furthermore, clothing is not the only category with exclusive lines: Customers looking for exclusive dinnerware collections can go to Macy\'s and get the Rachel Bilson line or else find the Kardashian Kollection at Sears. Increase private-label merchandise. Department stores are placing more emphasis on developing their own private-label brands, or store brands. These items are developed and marketed by the retailer, available only in its stores. Macy\'s has been very successful in developing a strong image for its brands, including Alfani (women\'s fashion), Hotel Collection (luxury fabrics), and Tools of the Trade (housewares).\" Expand multichannel and social media presence. Finally, like most retailers, most departinent stores have become active participants in multichannel retailing. At Macy\'s and Nordstrom, customers can buy or reserve products online and then pick them up at the store. Customers can also return online purchases to stores. At Macy\'s and JCPenney, sales associates can order out-of-stock merchandise online via their point-of-sale (POS) terminals and have it delivered directly to the customer. As Retailing View 2.3 describes, Nordstrom may be one of the most connected companies of the world. Are For Mordstrom, electronic offerings, such as a facebook alte or allowing sustomers to order online and pick up their purchases in stores, are old news its fonnard looting aggressive approach to social and mobile retalling has widespread recognition as a leader in terms of its connecthitys well as a strong rompetitive advantage as retail cont Back in 2010, Nordstre trointrod ability in inttones The move esempill ognition of frow in shop Nearly all in modern customers sliep sture marcharlive is avatistile on its website. Further more, sales personnel Lare equipped Pad devices so that t with Pod Touch and they can help a customer check out limmediately track Invertory levels, and get suggestiom for various depertments. Staff members also are encour aged to interact with customen through social media following Nordstron's detailed guidelines. Such efforts reflect its goal to a achiave starless integration in th customer engage agement, whether on the through mobile devices in stores Continuing its cutting edge approach, social media for Nordstrom goes Twitter and of Farebouk, YouTube it also makes it presence felt Twitter, an the online buletin board, instagram, Face Pinterest, the online buliet and the Tashianita meeting place Polyvore. As a Nordstrom repro Some puople look at it as you have a Facebook site, mobile devices in stores Continuing its cutting edge approach, social media for Nordstrom goes Twitter and of Farebouk, YouTube it also makes it presence felt Twitter, an the online buletin board, instagram, Face Pinterest, the online buliet and the Tashianita meeting place Polyvore. As a Nordstrom repro Some puople look at it as you have a Facebook site, M DISCUSSION QUESTION New is social media helping Nordstrom stay connected Full-Line Discount Stores Full-line discount stores are retailers that offer a brraad variety of merchan ind service, and low prices. Discount stores offer both pri private labels and national brands. The largest full-line discount store chains are Walmart. Target, and Kmart (Sours Holding). However, these full-line discount stores confront intense competition from category specialists that category of merchandise, such as Staples, Best Buy, focus on a single Mod Buth & Beyond, Sports Authority, and Lowe In response, Walmart has taken s craple of routes. First, it has converted many ofite discount stures іппо чиретселено which Bicient than traditional discount scores becane of the eccevomies of scale that result from the high traffic generated by th the food offering. Second, d, it its is expandin expanding into more urban locations, sing smaller storefronts that can I to prier-oriented markets, be located in wating buildings, and appealing Targoclus experienced considerable growth in the last decade because its stores REFACT Hadar Ray Comparty the oldest retaller North Amerio conquer the Gadian wildness by trading far more than 300 years ago Todey one of the largest res Canadating offer fashionable merchandise at low prices in a pleasant shopping environment. It has developed an image of dep chesive apparel and un cheap chic, continuously offering limited-edition ex dummetic lines. In in GO International campaign, the retailer hes teamed with mich well-known designers as Missoni, Surfani, to Mint Albertas Swanepoel, and Josis Natori La coormart, Sears-and its Kmart brand has ruggled a and therefore is mempting an innovative and space in its stores to indepe hit in recent year unomal solution. It will lease retail to independene merchants. For example, in a huge s California, Wetum Athlene has leased aproximately one quarter of the space to insert a health club. Sears store in thars of discount, de ment, and home stores it a social media strategy I think that's then you've got shortighte To expand its anfine reach, Murditron hai turned to an acquisitions egy purchasing shares in the flash sale cok, the children's dotting retailer Perk, the site HauteLook, Sole Society The th and the rapidly growing Ronobos menswear site It places with she purchased advertising space in widespread reach, tke in the massively popu tar Words with Frienis game appito application theforts have paid off, not only in its image as a con nected retailer, but also in the buttom lin It has attracted Tweter. And the retailer more than trillion followers on Twi Internet sales grew w by 30 persent in 2011. The result has prompted it to invest even more in its e-commerce efforts, up to \$140 million in 2012. **Full-Line Discount Stores Full-line discount stores** are retailers that offer a brraad variety of merchan ind service, and low prices. Discount stores offer both pri private labels and national brands. The largest full-line discount store chains are Walmart. Target, and Kmart (Sours Holding). However, these full-line discount stores confront intense competition from category specialists that category of merchandise, such as Staples, Best Buy, focus on a single Mod Buth & Beyond, Sports Authority, and Lowe In response, Walmart has taken s craple of routes. First, it has converted many ofite discount stures іппо чиретселено which Bicient than traditional discount scores becane of the eccevomies of scale that result from the high traffic generated by th the food offering. Second, d, it its is expandin expanding into more urban locations, sing smaller storefronts that can I to prier-oriented markets, be located in wating buildings, and appealing Targoclus experienced considerable growth in the last decade because its stores offer fashionable merchandise at low prices in a pleasant shopping environment. It has developed an image of dep chesive apparel and un cheap chic, continuously offering limited-edition ex dummetic lines. In in GO International campaign, the retailer hes teamed with mich well-known designers as Missoni, Surfani, to Mint Albertas Swanepoel, and Josis Natori La coormart, Sears-and its Kmart brand has ruggled a and therefore is mempting an innovative and space in its stores to indepe hit in recent year unomal solution. It will lease retail to independene merchants. For example, in a huge s California, Wetum Athlene has leased aproximately one quarter of the space to has leased approximately one-quarter of the space to insert health club. **Category Specialists** Category specialists are big-box stores that offer a narrow but deep assortment of merchandise. Exhibit 2-6 lists some of the largest category specialists in the United States. Most category specialists predominantly use a self-service approach, but they offer assistance to customers in some areas of the stores. For example, Staples stores have a warehouse atmosphere, with cartons of copy paper stacked on pallets, plus equipment in boxes on shelves. But in some departments, such as computers and other high-tech products, it provides salespeople in the display area to answer ques- tions and make suggestions. Bass Pro Shops Outdoor World is a category specialist offering merchandise for outdoor recreational activities. The stores offer everything a person needs for hunting and fishing-from 27-cent plastic bait to boats and rec- reational vehicles costing \$45,000. Sales associates are knowledgeable outdoors people. Each is hired for a particular department that matches that person's exper- tise. All private-branded products are field-tested by Bass Pro Shops' professional teams: the Redhead Pro Hunting Team and Tracker Pro Fishing Team. By offering a complete assortment in a category, category specialists can "kill" a category of merchandise for other retailers and thus are frequently called category killers. Using their category dominance and buying power, they buy products at low prices and are ensured of supply when items are scarce. Department stores and full-line discount stores located near category specialists often have to reduce their offerings in the category because consumers are drawn to the deep as- sortment and competitive prices at the category killer. Although category specialists compete with other types of retailers, competition between them is intense. Competing category specialists such as Lowe's and Home Depot, or Staples and Office Depot, have difficulty differenti- ating themselves on most of the elements of their retail mixes. They all provide similar assortments because they have similar access to national brands, and they all provide a similar level of service. Primarily then, they compete on price and location. Some category specialists are also experience- ing intense competition from warehouse clubs like Sam's Club and Costco. Therefore, many of them are attempting to differentiate themselves with customer service. For example, Home Depot and Lowe's hire experienced builders as sales associates to help customers with electrical and plumbing re- pairs. They also provide classes to train home owners in tiling, painting, and other tasks to give shoppers the confidence to tackle their do-it-yourself (DIY) projects on their own. Home Depot offers an integrated line of Martha Stewart brand products, with different themes marked by unique icons, such that a customer can create a professional-looking decorated space simply by choosing products with matching icons. Besides beefing up its sales associates' training to help customers purchase high-tech products like computers and printers, Staples has implemented "Easy Tech" in its stores to help people with computer and related problems and has installed Staples Copy and Print shops to com- pete with FedEx Office. **Specialty Stores** Specialty stores concentrate on a limited number of complementary merchan- dise categories and provide a high level of service. Exhibit 2-7 lists some of the largest specialty store chains. Specialty stores tailor their retail strategy toward very specific market segments by offering deep but narrow assortments and sales associate expertise. Victoria's Secret is the leading specialty retailer of lingerie and beauty products in the United States. Using a multipronged location strategy that includes malls, lifestyle centers, and central business districts, the company conveys its message using supermodels and world-famous runway shows." Sephora, France's leading perfume and cosmetic chain-a division of luxury- goods conglomerate LVMH (Louis Vuitton-Moet Hennessy) is another exam- ple of an innovative specialty store concept. Sephora provides a cosmetic and perfume specialty store offering a deep assortment in a self-service format. It also maintains separate stores-within-stores at JCPenney. The approximately 15,000 SKUs and 200 brands, including its own private-label brand, are grouped by prod- uct category instead of by brand like in department stores, with brands displayed alphabetically so customers can locate them easily. Customers are free to shop and experiment on their own. Sampling is encouraged. Knowledgeable salespeople are available to assist customers. The low-key environment results in customers' spending more time shopping. Specialty retailers have such great appeal that they rank among the most prof- itable and fastest growing firms in the world. Apple stores sell a remarkable \$5,647 per square foot on average, CHAPTER 2 Types of Retailers and its stock price jumped more than 25 percent in 2011. Lululemon's spe- cialty is far less technical, involving yoga-inspired apparel and accessories, but it keeps opening its specialty stores at a remarkable rate of several per month. These stores earn an aver- age of \$1,800 per square foot. Charming Charlie stores are not quite as well known as the preceding brands, but the small company's suc- cess confirms the appeal of specialty retailers. In just seven years, the ac- cessories and jewelry chain has grown to 178 stores, spread over 33 states. Its rapid growth is well matched by its influence: It was one of the first retailers to group merchandise by color instead of category. Further- more, it works to maintain affordable prices ranging from less than \$5 to no more than \$50. That is, this spe- cialty store specializes in helping customers update their wardrobes with new pieces, rather than forcing them to start all over again." In addition, many manufacturers have opened their own specialty stores. Consider, for instance, Levi's (jeans and casual apparel), Godiva (chocolate), Cole Haan (shoes and accessories), Lacoste (apparel), Coach (purses and leather acces- sories), Tumi (luggage), Wolford (intimate apparel), Lucky brand (jeans and casual apparel), Samsonite (luggage), and Polo/Ralph Lauren (apparel and home). Tired of being at the mercy of retailers to purchase and merchandise their products, these manufacturers and specialty retailers can control their own destiny by oper- ating their own stores. Another growing specialty store sector is the resale store. Resale stores are retailers that sell secondhand or used merchandise. A special type of resale store is the thrift store, where merchandise is donated and proceeds go to charity. Another type of resale store is the consignment shop, a store that accepts used merchandise from people and pays them after it is sold. Resale stores earn national revenues of more than \$13 billion. They also have enjoyed double-digit growth rates in the past few years." Although the ambiance of resale stores traditionally was less appealing than that of other clothing or housewares retailers, the remark- able prices for used merchandise drew in customers. Today, many resale stores also have increased their value by making their shop- ping space more pleasant and increasing levels of service. 50 With their lower ex- penses (in that they pay a discounted price to people selling their used apparel), resale stores are moving into storefronts in higher-end locations that have been abandoned by traditional retailers.51 Perhaps the best known and most widely expanded thrift shop is Goodwill Industries. In addition to its retail outlets, Goodwill runs an extensive job training and placement division, such that customers shopping at these outlets get a warm glow from knowing that their purchases help others. Unlike most other resale stores, Goodwill accepts all goods. The old stereotype of a cluttered, dark, odd- smelling Goodwill store has changed. The company has revamped and updated stores nationwide. Local stores seek to meet local needs, such that the New England-area Goodwill stores host annual bridal dress sales, and the Suncoast division in Florida maintains a catering department. Despite some of these chains' names, few just sell merchandise for a dollar. The two largest-Dollar General and Family Dollar-do not employ a strict dollar limit and sell merchandise for up to \$20. The names imply a good value but do not limit customers to the arbitrary dollar price point. Dollar Tree experimented with selling merchandise for more than a dollar, but it is back to being a dollar purist. **Off-Price Retailers** Off-price retailers offer an inconsistent assortment of brand-name merchandise at a significant discount off the manufacturers\' suggested retail price (MSRP). America\'s largest off-price retail chains are TJX Companies (which operates TJ Maxx, Marshalls, Winners, HomeGoods, TKMaxx, AJWright, and HomeSense), Ross Stores, Burlington Coat Factory, and Big Lots. Overstock.com and Bluefly.com are the largest Internet off-price retailers. Off-price retailers are able to sell brand-name and even designer-label mer- chandise at 20 to 60 percent lower than the manufacturer\'s suggested retail price because of their unique buying and merchandising practices. Much of the merchandise is bought opportunistically from manufacturers that have overruns, canceled orders, forecasting mistakes causing excess inventory, closeouts, and irregulars. They also buy excess inventory from other retailers. Closeouts are end-of-season merchandise that will not be used in following seasons. Irregulars are merchandise with minor mistakes in construction. Off-price retailers can buy at low prices because they do not ask suppliers for advertising allowances, return privileges, markdown adjustments, or delayed payments. (These terms and condi- tions for buying merchandise are detailed in Chapter 13.) Due to this opportunistic buying, customers cannot be confident that the same type of merchandise will be in stock each time they visit the store. Different bar- gains will be available on each visit. For many off-price shoppers, inconsistency is exactly why they like to go there. They enjoy hunting for hidden treasures. To improve their offerings\' consistency, some off-price retailers complement their opportunistically bought merchandise with merchandise purchased at regular wholesale prices. Although not well known because few vendors to off-price retail- ers want to advertise their presence, the CEO of TJX asserts that the vast majority Typ Air Au Ba Ch Dr Ed of merchandise in its stores is same-season items, purchased directly from manufacturers. She also claims less than 5 percent of TJX merchandise is irregular. An online twist to off-price retailing are flash- sale sights such as Gilt Groupe, Rue La La, and Haute Look. They are called flash sales because each day at the same time, members receive an e- mail that announces the deals available. Each deal lasts for a specific and limited time, and the sales are first-come, first-served. A shopper who misses out on a great deal is far more likely to buy the next time around. These sites often require mem- bers to register. A special type of off-price retailer is the outlet store. Outlet stores are off-price retailers owned by manufacturers or retailers. Those owned by manufacturers are also referred to as factory outlets. Manufacturers view outlet stores as an opportunity to improve their revenues from irregulars, production overruns, and merchandise returned by retailers. Others view it as simply another channel in which to sell their merchandise. Retailers with strong brand names such as Saks Fifth Avenue (Saks Fifth Avenue\'s Off 5th) and Williams-Sonoma operate outlet stores too. By selling excess merchandise in outlet stores rather than at markdown prices in their primary stores, these department and specialty store chains can maintain an image of offering desirable merchandise at full price. For some retailers, their outlet stores are the wave of the future. Nordstrom expects that sometime soon, it will have more Nordstrom Rack stores than regular Nordstrom department stores. Outlet stores can have an adverse effect on profits, however, because they shift sales from full-price retailers to the lower-priced outlets. Additionally, outlet stores are becoming more promotional to compete with increased activity at other outlet stores within the same mall and with traditional off-price stores. **SERVICE RETAILING** The retail firms discussed in the previous sections sell products to consumers. However, service retailers, or firms that primarily sell services rather than mer- chandise, are a large and growing part of the retail industry. Consider a typical Saturday: After a bagel and cup of coffee at a nearby Einstein Bros. Bagels, you go to the laundromat to wash and dry your clothes, drop a suit off at a dry cleaner, leave your computer to be serviced by the Geek Squad at Best Buy, and make your way to Jiffy Lube to have your car\'s oil changed. In a hurry, you drive through a Taco Bell so that you can eat lunch quickly and not be late for your 1:00 p.m. hair- cut. By midafternoon, you\'re ready for a workout at your health club. After stop- ping at home for a change of clothes, you\'re off to dinner, a movie, and finally clubbing with a friend. You end your day having interacted with 10 different LOG services retailers throughout the day. Several trends suggest considerable future growth in service retailing. For example, the aging population will increase demand for health care services. Younger people are also spending more time and money on health and fitness. Busy parents in two-income families are willing to pay to have their homes cleaned, lawns maintained, clothes washed and pressed, and meals prepared so that they can spend more time with their families. Exhibit 2-8 shows the wide variety of services, along with some national com- panies that provide these services. These companies are retailers because they sell goods and services to consumers. However, some are not just retailers. For example, airlines, banks, hotels, and in- and express mail companies sell their services to businesses as well as consumers. Organizations such as banks, hospitals, health spas, legal clinics, entertainment firms, and universities that offer services to consumers traditionally have not consid- ered themselves retailers. Yet due to increased competi- tion, these organizations are adopting retailing principles to attract customers and satisfy their needs. For example, Zoots is a dry-cleaning chain in the Boston area. Founded by a former Staples executive, Zoots has adopted many retailing best practices: It has convenient locations, and it offers pickup and delivery service. Zoots stores also provide extended hours, are open on week- ends, and offer a drop-off option for those who cannot get to the store during operating hours. The stores are bright and clean. Customers can check their order status, schedule a pickup, and provide special instructions using the online MY ZOOT\'S service. Clerks are taught to welcome customers and acknowledge their presence, especially if there is a line. Most retailers provide both merchandise and services merchandise versus the service differs across retail for for their customers. However, the emphasis placed on the mats, as Exhibit 2-9 shows. On the left side of the exhibit are supermarkets and warehouse clubs. These retail formats consist of self-service stores that offer very few services, except perhaps cashing checks and assisting customers at checkout. Moving.along the continuum from left to right, department and specialty stores provide higher levels of service. In addition to providing assistance from sales as- sociates, they offer services such as gift wrapping, bridal registries, and alterations. Optical centers and restaurants lie somewhere in the middle of the merchandise- service continuum. In addition to selling frames, eyeglasses, and contact lenses, optical centers provide important services like eye examinations and eyeglass fit- tings. Similarly, restaurants offer food plus a place to eat, music in the background, a pleasant ambience, and table service. As we move to the right end of the continuum, we encounter retailers whose offerings are primarily services. However, even these retailers have some products associated with the services offered, such as a meal on an airplane or a checkbook at a bank. **Differences between Service and Merchandise Retailers** Four important differences in the nature of the offerings provided by services and merchandise retailers are (1) intangibility, (2) simultaneous production and con- sumption, (3) perishability, and (4) inconsistency of the offering to customers. **Intangibility Services** are less tangible than products-customers cannot see or touch them. They are performances or actions rather than objects. For example, health care services cannot be seen or touched by a patient. Intangibility intro- duces several challenges for services retailers. Because customers cannot touch and feel services, it is difficult for them to evaluate services before they buy them or even after they buy and consume them. Due to the intangibility of their offer- ings, services retailers often use tangible symbols to inform customers about the quality of their services. For example, lawyers frequently have elegant, carpeted offices with expensive antique furniture. Services retailers also have difficulty eval- uating the quality of services they are providing. For example, it can be hard for a law firm to evaluate how well its lawyers are performing their jobs. To determine the quality of their offerings, services retailers often solicit customer evaluations and scrutinize complaints. In addition, online evaluation systems such as Angie\'sList and Yelp compile reviews from other consumers. The summary reviews give a sense of how well the service provider performs, according to people who have already purchased the service. **Production and Consumption Products** are typically made in a factory, stored and sold by a retailer, and then used by consumers in their Simultaneous Service Providers, however, consuming it. For example, when you eat at a restaurant, the meal is prepared and consumed sumption also same time. The simultaneity of production and con- creates some special problems for services retailers. First, the cus- it produced, and in some service is produced, may even have an oppst, the cus cases may part of the production process. ex- ample, customers at Build-A-Bear Workshop make their own teddy beess. For ex other customers consuming the service at the same time can affect the quality of the service provided. For example, an obnoxious passenger next to you on an air plane can make the flight very unpleasant. Third, services retailers often do not get a second chance to satisfy the needs of their customers. Whereas customers can return damaged merchandise to a store, customers who are dissatisfied with services have limited recourse. Thus, it is critical for services retailers to get it right the first time. Because services are produced and consumed at the same time, it is difficult to reduce costs through mass production. For this reason, most services retailers are small, local firms. Some national services retailers are able to reduce costs by \"industrializing\" the services they offer. They make substantial investments in equipment and training to provide a uniform service. **Perishability Services ar**e perishable. They cannot be saved, stored, or resold. Once an airplane takes off with an empty seat, the sale is lost forever. In contrast, merchandise can be held in inventory until a customer is ready to buy it. Due to the perishability of services, services retailing must match supply and demand. Most services retailers have a capacity constraint, and their capacity cannot be changed easily. There are a fixed number of tables in a restaurant, seats in a class- room, beds in a hospital, and electricity that can be generated by a power plant. To increase capacity, services retailers need to make major investments, such as buy- ing more airplanes or building an addition to increase the size of the hospital or restaurant. In addition, demand for service varies considerably over time. Con- sumers are most likely to fly on airplanes during holidays and the summer, eat in restaurants at lunch- and dinnertime, and use electricity in the evening rather than earlier in the day. Services retailers use a variety of programs to match demand and supply. For example, airlines and hotels set lower prices on weekends, when they have excess capacity because businesspeople are not traveling. To achieve more capacity flexibility, health clinics stay open longer during flu season and tax preparation services are open on weekends during March and April. Restau-, rants increase staffing on weekends, may not open until dinnertime, and use a reservation system to guarantee service delivery at a specific time. Finally,services retailers attempt to make customers\' waiting time more enjoyable. For example, videos and park employees entertain customers while they wait in line at Disney theme parks. **Inconsistency Products c**an be produced by machines with very tight quality control, so customers are reasonably assured that all boxes of Cheerios will be identical. But because services are performances produced by people (employees and customers), no two services will be identical. For example, tax accountants can have different knowledge and skills for preparing tax returns. The waiter at the Olive Garden can be in a bad mood and make your dining experience a disaster. Thus, an important challenge for services retailers is to provide consistent high- quality services. Many factors that determine service quality are beyond the con- trol of retailers, however, services retailers expend considérable time and effort selecting, training, managing, and motivating their service providers. 60 **TYPES OF OOWNERSHIP** **Independent, Single-Store Establishments** Retailing is one of the few sectors in most countries in which entrepreneurial ac- tivity is extensive. Many retail start-ups are owner-managed, which means man- agement has direct contact with customers and can respond quickly to their needs. Small retailers are also very flexible and can react quickly to market changes and customer needs. They are not bound by the bureaucracies inherent in large retail organizations.71 For example, after more than a decade working for other UK fashion firms, Deryane Todd decided to open her own shop and, since then has expanded multiple times. The secret to the success of The Dressing Room is Todd\'s strong attention to determining and then providing exactly what her customers want. Despite the long hours and seven-day workweek, \"Todd expresses her love for her job because of the options it provides her. Todd hires her staff, trains them in her own way, determines the layout of the store, and designs the website.\" Whereas single-store retailers can tailor their offerings to their customers\' needs, corporate chains can more effectively negotiate lower prices for merchandise and advertising because of their larger size. Corporate chains can and do invest in so- phisticated analytical systems to help them buy and price merchandise. In addition, corporate chains have a broader management base, with people who specialize in specific retail activities. Single-store retailers typically must rely on their owner- Previous sections of this chapter discussed how retailers may be classified in terms of their retail mix and the merchandise and services they sell. Another way to classify retailers is by their ownership. The major classifications of retail own- ership are (1) independent, single-store establishments; (2) corporate chains; and managers\' capabilities to make the broad range of necessary retail decisions. To compete against corporate chains, some independent retailers join a wholesale-sponsored voluntary cooperative group, which is an organization operated by a wholesaler offering a merchandising program to small, independent. **Corporate retail chain** **A** retail chain is a company that operates multiple retail units under common ownership and usually has centralized decision making for defining and implementing its strategy. Retail chains can range in size from a drugstore with two stores to retailers with thousands of stores, such as Kroger, Walmart, Best Buy, and. Macy\'s. Some retail chains are divisions of larger corporations or holding companies. For example, the Williams Sonoma corporation actually consists of four brands, Williams Sonoma, Pottery Barn, west elm, and Rejuvenation. Furthermore, its Pottery Barn branch features the PB teen and pottery barn kids lines. Royal Ahold owns 14 retail chains, including Stop and Shop, Giant, and Peapod in the United States and ICA and Albert Heijh in Europe. **Franchising73** **Franchising** is a contractual agreement in which the franchisor (the company) sells the rights to use its business trademark, service mark, or trade name, or another commercial symbol of the company, to the franchi- see for a one-time franchise fee and an ongoing roy- alty fee, typically expressed as a percentage of gross monthly sales. More than 40 percent of all U.S. re- tail sales are made by franchisees, 74 and this type of retail ownership is growing around the world.75 When considering the franchise option, potential franchisees must understand the attractions and drawbacks of buying a franchise versus starting a retail business from scratch. There are many reasons to consider franchise ownership, including the success rate, which results partially from the proven business model that the franchisor offers. Success also results from the unique relationship between the franchisor and the franchisee, in which both parties benefit from the success of the franchisee. To get franchisees off to a good start, most franchisors provide off- and onsite training, location analysis assistance, advertising, and some- times a protected territory (i.e., no other franchise may open a store within a certain radius of the first store). Some franchisors even provide financ- ing or offer third-party financing opportunities. There are also several drawbacks to franchise ownership. In addition to having to pay money to the franchisor, the franchisee needs financing for start-up costs, including rent or purchase price of office/retail space; modification of the space accord- ing to the guidelines of the franchisor (e.g., paint colors, flooring, lighting, layout); signage; opening inventory; and equipment. In addition to incurring the capital costs, the franchisee must adhere to the franchisor\'s rules and operating guidelines. In many McDonald\'s franchises are growing all over the world\... **2.4 RETAILING VIEW Tart Frozen Yogurt-The Sweet Franchise** Frozen yogurt franchise operations Pinkberry and Red Mango both opened in the mid-2000s; they compete with old standby TCBY and some smaller regional chains. The appeal of Pinkberry and Red Mango to customers is not just the low fat of frozen yogurt but also its ability to boost people's immune system and improve calcium Absorption. The tart frozen yogurt is dense with active cultures and probiotics. These health benefits, along with the great taste, has changed the way consumers think about frozen yogurt. Consumers are making multiple yogurt purchases each week, instead of buying it as an occasional nonroutine indulgence. In addition to a limited number of exotic flavors-co- Conut, lychee and mango, many of which are seasonal- both Pinkberry and Red Mango offer a wide array of high-end toppings. The minimalism in the flavor choices is part of both companies' brand image, as reflected in the stark, bright store layouts. That is, these popular new chains offer consistency across their products and store images, even as it promises that customers can eat healthy, low-fat, hormone-free milk products, and still in- dulge in unusual yogurt flavors and interesting toppings Howard Schultz, the chair of Starbucks, invested \$27.5 million in Pinkberry through his venture capital firm of fro And appears to be trying to make it the Starbucks zen yogurt chains. Expectations are high, including a growth plan to have one Pinkberry for every 10 Starbucks in the country. Red Mango would like to have 500 units in the United States but is controlling its growth by carefully selecting its franchisees and monitoring their perfor mance. Many franchises become very popular and ulti- mately fall within five years as a result of growing too large, too fast. An interesting incentive to attract franchi- sees by reducing their risk is Red Mango's Store Buy Back cases, the franchisee is required to purchase operating materials from the franchisor, especially in fast-food franchises that rely on standardized products across franchises for the success of the brand. The franchisor also might require the franchisee to pur chase the equipment needed to offer a new product, such as fryers at a McDonald\'s or beds at a Holiday Inn. The hours of operation and days of the year that the business is allowed to close also may be dictated by the franchisor. Retailing View 2.4 describes the sweet and tart world of frozen-yogurt franchises.