What is Retailing?

Retailing is a distribution channel function where one organization buys products from supplying firms or manufactures the product themselves, and then sells these directly to consumers. A retailer is a reseller (i.e., obtains product from one party in order to sell to another) from which a consumer purchases products. In the US alone there are over 1,100,000 retailers according to the 2002 US Census of Retail Trade.

In the majority of retail situations, the organization from which a consumer makes purchases is a reseller of products obtained from others and not the product manufacturer. But as we discussed in the Distribution Decisions tutorial, some manufacturers also operate their own retail outlets in a corporate channel arrangement. While consumers are the retailer’s buyers, a consumer does not always buy from retailers. For instance, when a consumer purchases from another consumer (e.g., eBay) the consumer purchase would not be classified as a retail purchase. This distinction can get confusing but in the US and other countries the dividing line is whether the one selling to consumers is classified as a business (e.g., legal and tax purposes) or is selling as a hobby without a legal business standing.

As a reseller, retailers offer many benefits to suppliers and customers as we discussed in the Distribution Decisions tutorial. For consumers the most important benefits relate to the ability to purchase small quantities of a wide assortment of products at prices that are considered reasonably affordable. For suppliers the most important benefits relate to offering opportunities to reach their target market, build product demand through retail promotions, and provide consumer feedback to the product marketer.

Ways to Categorize Retailers

There are many ways retailers can be categorized depending on the characteristics being evaluated. For our purposes we will separate retailers based on six factors directly related to major marketing decisions:

• Target Markets Served
• Product Offerings
• Pricing Structure
• Promotional Emphasis
• Distribution Method
• Service Level

and one operational factor:

• Ownership Structure

However, these groups are not meant to be mutually exclusive. In fact, as we will see in some way all retailers can placed into each category.

Retail Categories: Ownership Structure

Finally, we can categorize retailers based on the ownership structure of the business.

• Individually Owned and Operated – Under this ownership structure an individual or corporate entity owns and operates one or a very small number of outlets. Single ownership of retail outlets most frequently occurs with small retail stores, though there are some cases, for instance in the automotive or furniture industries, where single ownership involves very large outlets.
• Corporate Chain – A retail chain consists of multiple retail outlets owned and operated by a single entity all performing similar retail activities. While the number of retail outlets required to be classified as a chain has never been specified, we will assume that anyone owning more than five retail locations would be considered a chain.
• Corporate Structure – This classification covers large retailers predominantly operating in the non-store retail arena such as online, catalog and vending.
• Contractually Licensed and Individually Operated – The contractual channel arrangement discussed in the Distribution Decisions tutorial has lead to a retail ownership structure in which operators of the retail outlet are not the out-right owners of the business. Instead, the arrangement often involves a legal agreement in which the owner of the retail concept allows the operator to run the owner’s business concept in exchange for financial considerations such as a percentage of revenue. This structure is most often seen in retail franchising.
• Retailer Summary Chart

Below we summarize each retail format by using the seven categorization characteristics. The characteristics identified for each format should be viewed as the “most likely” case for that format and are not necessarily representative of all retailers that fall into this format. For example, under distribution, clearly most retailers today have an online presence, however, for many the predominant distribution methods is still selling through retail stores.

Format	Target Market	Products Carried	Pricing Strategy	Promotion Emphasis	Distribution	Service Level	Ownership Structure
Mom-and-Pop	mass specialty	general specialty	competitive	advertising direct mail	stand-alone strip center shopping area	assorted	individually o/o
Mass Discounter	mass	general	discount	advertising	stand-alone strip-center	self	corp. chain
Warehouse Store	mass	general	discount	advertising	stand-alone	self	corp. chain
Category Killer	mass	specialty	discount competitive	advertising	stand-alone strip center	assorted	corp. chain
Department Store	specialty	general	competitive	advertising	shopping area shopping mall	assorted	corp. chain
Boutique	speciatly exclusive	specialty	full	selling	stand-alone strip center shopping area	full	individually o/o chain
Catalog	mass specialty	general specialty	discount competitive	direct mail	direct marketer	assorted	corp. structure
e-tailer	mass specialty	general specialty	discount competitive full	advertising	online seller	self	corp. structure
Franchise	mass	specialty	competitive	advertising	stand-alone strip center	assorted	contractual
Convenience	mass	general	full	advertising	stand-alone	self	individually o/o corp. chain
Vending	mass	specialty	full	none	vending	self	corp. structure