476 Retail Multinational PDF.pdf

Retail and Multinationals BA / HISTORY 476 Dr. Hinesly Marketing or…TRADING STAMPS Gas Stations, Supermarkets, Antitrust, Warren Buffet, everyone did it! Trading Stamps were the precursor to __________________________ Can you guess what franchises these are today? Outline I. II. III...

Retail and Multinationals BA / HISTORY 476 Dr. Hinesly Marketing or…TRADING STAMPS Gas Stations, Supermarkets, Antitrust, Warren Buffet, everyone did it! Trading Stamps were the precursor to __________________________ Can you guess what franchises these are today? Outline I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. Department Stores/ Mail Order Houses Game Break #1 Chain Stores/ Grocery Stores Game Break #2 Variety Chains/ Discount Stores Game Break #3 Franchises Game Break #4 Multinationals Game Break #5 Current Topics Price Is Right Final Showdown Wrap Up Department Stores Rise of Department Stores • Large variety of goods at a discounted price • Profits made on volume, not mark-ups • Metropolitan population • Rural population: more options, cheaper prices than general stores • Alexander T. Stewart opens the first department store, the Marble Dry Goods Palace, in 1846 • Business model was replicated in other cities shortly after • Marshall Field, R.H. Macy, John Wanamaker Drivers of Success 1. Growth of urban markets 2. Improved transportation and communication • Railroads, phonograph 3. Vertical integration • Cut out wholesalers 4. Provided delivery services and free returns guaranteed if product was unsatisfactory • Profits made on volume, not mark-ups Mail Order-Houses • 1870s: rise of large-scale mail order houses • Extensive catalogues, low prices • Incentive to purchase from them instead of general stores • Rural free delivery and parcel post allowed mail-order houses to move products from their warehouses to rural consumers • 1872: Montgomery Ward issues first catalogue The Sears Effect • Sears was founded in 1893 • Sears organized company into departments that specialized in particular lines of goods • Organizational structure efficiencies allowed Sears to pass Montgomery Ward to become leading mail-order firm • When rural citizens began moving to cities, Sears moved into retail merchandising in addition to mailorder houses (chain stores) Sears Today • Sears merges with Kmart in 2004 • Same-store sales in both Sears and Kmart dropping by double digits next 2 years • Capital-raising activities: • Selling off successful brands (Craftsman, Lands’ End, Sears Canada) • Closing unprofitable stores • Shop Your Way loyalty initiative intro in 2009 • Collect points that become coupons • Social networking with shopyourway.com • Collect and sell customer data • Too little, too late? • Sears declares bankruptcy, Oct. 15, 2018 • Sears closes 2020 In Brighter News…The Sears Catalogue was Back  Retail and Multinationals Rules F i n a l Showcase 2 Rounds of Now or Then: A question will describe a firm and you must guess whether it is now or in the past. Those who get it right both rounds move on to the Guess Who. Guess Who: A series of clues will be revealed. The team that guesses right first wins the Price is Right C o n t esta n t Pool 1 Co nte stant R o w Estimate the closest answer to the question. Winning pair moves to the finale Co nte stant R o w 10 P r i c i n g Ro unds C o nt est a nt Row C o n test a nt Pool 2 C o n t esta n t Pool 3 P r i c i n g R o u n d #1 H o w much did A.T. Stewart distribute in g o o d s ($) in 1870? $42 M i l l i o n P r i c i n g R o u n d #2 In 1908, Sears began s e l l i n g homes in it ’s c a t a l o g . H o w much was the most expensive one t h a t year? $2,890 Chain Stores Chain Stores- Beginnings • Demography and Economic Change • As number of urban and suburban households increased, they turned to stores • Because women became an increased percentage in labor force, fewer foods were canned or preserved and fewer clothes were made at home. • Department stores reached large cities and rising suburbs, but not smaller mid-sized cities: chain stores developed in those places JC Penney • James Cash Penney opened a chain dry goods store called Golden Rule in Wyoming in 1902 • Huge growth post WWI→ sharing profits with store managers, mail-order, charge accounts • Moved to full-scale department stores in 1962 after huge growth • Many dry goods chains followed this same process as Penney’s, growing slowly in smaller towns until they also became big 2023 Penny’s is in trouble but holding on Emergence of Chains and Malls • Rise of the shopping center → suburban sprawl, automobiles, many chain stores • First in Kansas City in 1922 by J.C. Nichols • Shopping centers with multiple department and chain stores opened • Many store chains built the malls or helped finance them • Malls became the focus of community life (skating rinks, art shows, concerts, restaurants, movies, hotels) • Malls emerged as the chain stores came to dominate all areas of the retail economy rising to over 20,000 by 1977 Walmart • Found in Arkansas by Sam Walton in 1962 • By 1980’s, third largest retailer in the U.S. • Success attributed to deep discount vision, evangelistic enthusiasm, and merchandising skills of Walton • Walton turned small group of dime-stores into a chain of 1200 discount stores Grocery Chains and A&P • First major grocery chain in 1860s • Innovated the supermarket in comparison to onemanned stores • A&P success due to credit policy and delivery services • A&P acquired or built food-processing plants and began to market its own brand name items called Ann Page • Didn’t expand everywhere—avoided competing in some areas→ grocery largely regional • Others: self-service grocery stores started by Clarence Saunders’ Piggly Wiggly which became popular among other chains (Kroger, Safeway) P r i c i n g R o u n d #3 What percentage o f women were in the w o r k f o r c e in 1920? 21% P r i c i n g R o u n d #4 When JC Penney became the 3 rd l a r g e s t r e t a i l e r in 1962, h o w many sto re s did they have? 3,000 Variety Stores Variety Chains- Beginnings • Alongside rise of grocery stores was chains of variety or “dime” stores, and later drug store chains • Offered greater variety and lower prices due to buyer power. • Did not offer charge accounts or deliveries, in order to focus on deep discounts, but were still wildly popular • Colloquially known as “5-10” stores (or dime store) Woolworth • Frank Woolworth: One of the first variety chain stores • Started in Lancaster, PA in 1879, success not instantaneous • → Moved to NY for better locations in 1913 • Success led to competitors and emulators in SH Kress, S.S. Kresge, John McCrory etc. • Eventually outgrew “5-10” idea in 1930’s, but smallware idea remained • Opened discount store Woolco in the 1960’s • One of the largest retail chains in mid-20th century • Went defunct in 1990’s Drug Chains and Walgreens • Drug store chains paralleled rise of variety stores but at a later date, emerging after turn of century • Founded in 1909 by Charles Walgreens, Walgreens emphasized good locations, low prices, high volume, advertising, and quality pharmaceuticals • Often carried goods in the stores that competed directly with the variety chains, but also had drugs, health, and bath items that varieties did not stock Discount Stores • Discount stores opened up that would accept margins of less than 25% if volume could be raised to a very high level • Before 1951, attempted to prevent unfair competition by price cutting • Fair trade rules stood until 1951 • Discount stores explode in 1960s • Forced established chains and department stores to open similar operations or create new divisions as discounters • Discount stores selected locations in suburban areas P r i c i n g R o u n d #5 Approximately how many p r o d u c t s a re f o r sale a t Walmart? 16,859,211 P r i c i n g R o u n d #6 In o u r basket we have 3 c a n s o f c o r n , a j a r o f peanut butter, a n d coffee, h o w much does t h a t c o s t us a t A&P in 1922? $0.64 Franchised Stores Franchising- Beginnings • What is a franchise? • Name and corporate image of a national firm • Sells only specified products • Paying an initial fee for the franchise • Return the franchiser a percentage of sales • Emerged in in fast-food, electronics, bookstores, handicrafts, toys, clothing, etc. • Rexall drug chain • Western Auto • Ability to “be your own boss” • 1945 saw the spread of franchises The Franchises We Love: KFC and McDonald’s KFC • Founded by Colonel Harland Sanders 1955 • Sold out for 2 million to John Brown and Jack Massey • More than 100 franchise holders today McDonald’s • Founded in the early 1950’s by Richard and Maurice Donald • 1955-Sold to salesman Ray Croc who created the empire • McDonald’s now has more than 33,000 outlets in 111 countries • Success of KFC and McDonalds inspired a wave of fast buck artists • Together own 16% of the fast food market P r i c i n g R o u n d #7 w h a t y e a r did Wo o l wo r t h become the largest chain s t o r e in the world? 1979 P r i c i n g R o u n d #8 H o w many people does McDonald’s feed ever y day? 68 mil. (Nearly 1% o f the w o r l d ’ s p o p u l a t i o n ) Birth of Multinationals • Mid-19th century, transition from simple trading to direct investment in foreign businesses • 1857- foreign investment in the US reached a quarter billion • Multinationals accelerated by faster transportation, communication, and maturation of local firms into national enterprises • IM Singer’s opens plant in Scotland • Many of the enterprises that expanded abroad produced goods superior in quality to those manufactured elsewhere • Profits from sales and marketing would be reinvested • American investment abroad accelerated at turn of century when firms purchased subsidiaries, opened new facilities, or initiated international cartels Adapting to foreign business climate • Europe had no antitrust laws, American companies purchase markets abroad • American firms dominated petroleum industry in Mexico after gaining landholdings and mining interest • 1914- investors refused to risk additional capital in Mexico, and Canada became leading nation for American multinational expansion • Caribbean investment came after Spanish-American War, high-risk area due to competition, political instability, disease, untrained workers WWI: Catalyst for Expansion • Post-WWI: Europe ripe for heavy investment • Wilson Administration (then Harding, Coolidge, Hoover) • Huge supporters of foreign investment • Tax laws, information, and diplomatic negotiation to pave way for U.S. penetration & positive reception • Pre-Crash: Huge prosperity, diversifying operations, communication / electrical networks expanding • U.S. corps dominate the Western Hemisphere • Key learnings: each country is unique • Governments and business practices Crash, WWII & Recovery • 1929: Stock Market Crash has obvious implications • Government sentiment shifts: 1931: Smoot-Hawley Tariff highly protectionist; imports & exports drop by half • Retaliation by European government • WWII: Investments abroad destroyed by military action • Threat of expropriation, isolation of businesses from U.S. parent • Corporations feared communism / socialism / currency issues • Legislation paves way for growth: • Marshall Plan to rebuild Western Europe and Japan (1948) • Truman Doctrine and creation of NATO (1949) P r i c i n g R o u n d #9 H o w many c o u n t r i e s does E x xo n m o b i l operate in? 21 P r i c i n g R o u n d #10 N o w a $900 billion giant, h o w much c a s h does Apple have o ffs h o re ? $230.2 Bil l io n A p p r o x i m a t e l y Current Trends E-Commerce vs. Traditional Brick and Mortar • Primary story in retail: 15%+ CAGR over next 10 years • Brick and Mortar finding it difficult (or impossible) to keep up • Bankruptcies of old giants: Macy’s RiteAid Closed: Sears, KMart • ‘Anchor Malls’ going completely out of style • Over 8,600 retail stores projected to close in the U.S. in 2017 Amazon vs. Walmart • Not as simple of a story as it may seem • Amazon rapidly expanding its brick and mortar presence • Whole Foods, Kohl's partnership, Amazon Lockers, Bookstores, etc. • Betting on the longevity of retail • Walmart aggressively pursuing online strategy • Jet.com, Bonobos, ShoeBuy • Also working to improve their physical stores • Intersection of these trends is centered around omnichannel Omni Channel • Enabler of a single, seamless experience: same day delivery / pickup, return in store, ‘showrooming’ • Blur between online and offline shopping • Digital advertising interplay with social media • Massive emphasis on customer data and insights Future of Brick and Mortar • Malls turn into mixed use, lifestyle properties with entertainment, hospitality and residential; focus on millennial • Many large ones turn into warehouses for Amazon Brand Houses Expansion of Private Label • Department stores / retailers have long relied on branded sales • Private label making significant market share gains • Opportunity: Trader Joe’s • Threat: Amazon Basics • Interesting case: Brandless • Startup to eliminate the “BrandTax” that they estimate to > 40% Multinational Trends • U.S. corporations hold > $2.6tn in cash overseas • Invest or bring home • Complex tax schemes came to light by “The Paradise Papers” • Corporate tax rate (35%) highest in the world • Potential for new rate (20%) or one time ‘holiday’ • Precedent: 2004 G.W. Bush tax rate at 5.25% N o w o r Then #1 N o w = l a s t 15y e a r s then = more t h a n 15y e a r s Target: “we have o v e r 1800 sto re s a n d we l o o k t o a d d more sto re s in the next few ye a rs ” No w ! Guess Who? My c u r r e n t name is f o o t l o c k e r My f i r s t s t o r e was a five-and-ten cent s t o r e in La nca ster, Pennsylvania O u r h e a d q u a r te rs were moved t o NYC in 1913, t o a 50sto r y building 2500 sto re s by 1960 in the U.S. , Mexico , U.K. , a n d C a n a d a O u r sto re s name is o u r o w n e r ’s l a s t name Woolworth “The Business of America is Business” Primary Environment (Natural) Secondary Environment (Man Made) Social Economic Political Right to Property Capitalism Right to Profit 1776 – 1815 No Access To World Markets, Developed American Style of Business 1800’s Westward Expansion • Rise in urbanization, industrialization • Business spilled across state lines, government supported ventures/expansion. • Corporations replaced individual proprietors/ partnerships • Rise of small business Invention + Innovation Rise of Energy and Insurance Industries Banking + Money Systems Government Involvement GLOBALIZATION • Companies pushed oversees, became a massive part of world economy • Managed the world’s money • Helped develop 3rd world countries • OPEC, Trade Agreements Economic Instability • 1970’s started a period of economic instability that leaked over into the late 1980’s • America developed populistic tendencies, began questioning roll of big business in society • Government grew bigger than business Higher Taxes Bigger Government More Regulation Labor Unions Protected 12X Growth in New Businesses 1960-1980 Problem Solving Problem Creating