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Chapter

RMG 200 Chapter Notes -Floor Area (Building), Dubailand, Inventory Turnover


Department
Retail Management
Course Code
RMG 200
Professor
Brent Barr

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Copycat approach to retail strategy provides no strong basis for being a competitor in the American
marketplace and is a formula for disaster
A more successful route for Canadian retailers has been to expand cautiously through:
o Acquisition of existing U.S retailers
o Developing a unique product that people want
GLOBAL GROWTH OPPORTUNITIES
Reasons why retailers engage in international ventures
Saturated home marketplace with no room to grow
Highly competitive marketplace
Aging population that spends less and saves more
Economic recession, which limits consumer spending
High operating costs, including staff wages, rental costs, and taxes
Restrictive policies on retail development
Shareholder pressure
International retailers must have thorough understanding of the macro-environment, including:
Cultural differences
Government policies
Economic stability
Sources of product production
Distribution capabilities
Factors that would encourage a retailer to enter into the international marketplace include:
Limited competition in the international marketplace
Rising numbers of middle-class consumers with improved standard of living
Younger population with purchasing power
Trade agreements including North American Free Trade Act (NAFTA). World Trade Organizational (WTO),
European Union (EU)
Relaxed regulatory framework
Favorable operating costs, including lower wages and taxes
Opportunity to diversify
Opportunity to try innovative concepts
The World’s largest shopping District
Launched may 2006
Badwadi in Dubailand
40 million square meters of gross leasable area
Who is Successful and who Isn’t
specialty store retailers with strong brand names
retailers targeted towards young people
Category killers and hypermarket retailers because of their expertise
o Leaders in use of technology to maintain inventories, control global logistical systems, and tailor
merchandise assortments to local needs
o Low-price provider in everyday market they enter because of their buying scale economies and efficient
distribution systems
o Develop unique systems and standardized formats that facilitate control over multiple stores
o Communications across national boundaries and cultures are specifically focused, which improves
management coordination
Keys to Success
A. Globally sustainable competitive advantage

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B. Adaptability recognize cultural differences and adapt their core strategy to the needs of local markets (eg.
Colour preference, the preferred cut of apparel, sizes)
Selling season vary across countries (eg. Back to school)
Store designs (eg. In some cultures men’s and women’s clothing cannot be displayed next to each other)
Government regulations and cultural values (eg. Hours of operation, regulations governing part-time
employees and terminations)
C. Global culture
D. Deep pockets
Entry Strategies
A. Direct investment: the investment and ownership by a retailer firm or a division or subsidiary that builds and
operated stores in a foreign country
Requires the highest level of investment and exposes the retailer to significant risks, but its has highest
potential results
Advantage retailer has complete control of the operates
B. Joint venture: an entity formed when the entering retailer pools its resources with a local retailer to form a
new company in which ownership, control, and profits shared
Reduces the entrant’s risks because sharing financial burden and local partner undemands the market and has
access to resources
Problem if partners disagree or the government places restrictions on the repatriation profits
C. Strategic alliance: collaborative relationship between independent firms. For example, a foreign retailer might
enter an international market through direct investment but develop an alliance with a local firm to perform
logistical and warehousing activities
D. Franchising
Lowest risk and requires least investment
Entrant has limited control over retail operations in foreign country, potential profit is reduced, and the risk of
assisting in the creation of a local domestic competitor is increased
Costs Associated with Global Sourcing Decisions
Currency Fluctuations
Retailers use financial instruments such as operations and futures contracts to
mimize the effects of currency fluctutations
Tariffs
Tariffs (aka duties): a tax placed by government upon imports
Longer lead times
Inventory turnover is likely to be lower when purchasing from suppliers outside the
U.S than from domestic suppliers, which will result in higher inventory carrying
costs
Increased
transportation costs
Global versus Multinational Retailers
Global strategy: replicating a retailer’s standard retail format and centralized management throughout the
world in each new market (Eg. McDonalds)
Multinational strategy: a strategy that involves changing a retailer’s products and image to reflect the
international marketplace, using a decentralized format, learning about the country’s culture, and changing the
retail concept to adapt to cultural difference and cater to local market demands
Global Location Issues
Traffic flow: the balance between a substantial number of cats and not so many that congestion impedes access
to the store
Real estate restriction

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Structure of Retailing and Distribution Channels Around the World
U.S distribution has the greatest retail density and the greatest concentration of large retail firms
Japanese distribution system is characterized by small stores operated by retaltively small firms and a large
independent wholesale industry
European distribution systems falls between North American and Japanese systems
Factors that have created these differences in distributions systems are:
Social and political objectives (eg. Laws protecting small local businesses)
Geography (eg. Population density)
Market size
Counterfeiting is a global Threat
Counterfeit: goods that are made and sold without permission of the owner of a trademark, a copyright or
patented invention that is legally protected in the country where it is marketed
Bootleg: the sale of imitation goods where there is little or no attempt at hiding the fact that the product is
counterfeit
Knockoff: a copy of the latest styles displayed at designer fashion shows and sold in exclusive specialty stores,
these copies are sold at lower prices through retailers targeting a broader market
Ch 12: Retail Pricing
Value: relationship of what a customer gets (goods/services) to what he or she has to pay for it
Retailers can increase value and stimulate more sales by either increasing the perceived benefits offered or
reduce pricing
Cost cutting issues might include:
o Buying merchandise offshore to maintain higher profit potential due to higher Canadian dollar
o Cutting packaging costs by including three languages English, French, Spanish to serve all North
American markets
o Retailers and suppliers partnering to maintain competitive prices
o Using price optimization software technology to sell as much inventory as possible at the highest possible
price
APPROACHES FOR SETTING PRICES
Retailers must consider the following in order to set prices that will maximize long-term profits:
Cost of the merchandise and services
Demand, the price sensitivity of consumers
Competition because customers shop around and compare prices
Legal considerations
Three approaches for setting retail prices
Cost-oriented
method
Determining the retail price by adding a fixed
percentage to the cost of the merchandise (aka
cost-plus pricing)
Quick, mechanical,
simple to use
Demand-
oriented method
Prices are based on what customers expect or
are willing to pay
Allows retailers to
determine which
price will give them
the greatest profit.
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