03. Merchandise Retailer Types
Retailers sell products. That’s what they do. But we have to make a distinction of what type of product a retailer sells. You see, while you you might envision a retailer selling physical products that a customer carry out of the store in a bag, that’s not what all retailers do. So there are two types of products: physical goods products and service products. We’re going to be talking about goods products, what we also call merchandise. We’ll be talking about service products or services later on.
When we speak about merchandise retailers, we typically put them into two broad categories: Food retailers and general merchandise retailers.
First Food retailers.
Supermarket
The typical supermarket carries perishable items (meaning meat, dairy, product, and baked goods) and those account for 30% of sales. They also tend to carry anywhere from 15 to 60 thousand different SKUs (or stock keeping units)—these are discreet inventory items with unique barcodes, so a 6-pack and a 12-pack of the exact same soda would be two different SKUs.
There is also a subset of supermarkets call Limited Assortment Supermarkets. These typically carry less that 2000 SKUs and are designed to maximize efficiency and reduce costs. Stores such as Aldi, Lidl, and Trader Joes fit this category.
Supercenters
Supercenters come about in one of two ways. Either a full-line discount retailer adds supermarket (grocery) products. Or a supermarket adds discount store products. When Target, a full-line discount retailer, added grocery products, it because SuperTarget. But when Kroger, a supermarket, added full-line discount products, it became a Kroger Marketplace. The stores are designed to capture more of the customer’s wallet by providing the convenience of selling a wide range of products under one roof. The is especially appealing to young families where traveling from store to store is not as feasible given the time constraint young children impose.
Warehouse Clubs
Warehouse clubs are no-frills environments where the retailer can offer products at a steeper discount by removing the more refined environment of a typical retail location and offer products in larger quantities or in bulk. Many require a yearly membership and oftentimes the memberships are the primary source of the retailer’s profits. Costco and Sam’s Club are great examples.
Convenience Stores
Convenience stores are small, neighborhood stores with limited SKUs (usually less than 1000). Many often sell gasoline as the primary mechanism for attracting customers. Other can be located in densely populated areas to attract foot traffic from passing shoppers. Most tend to focus on beverage products. These stores are always looking for new convenience capabilities to add to attract customers. Recent additions include EV charging and delivery self-service lockers
Now let’s take a look at the retailers that sell general or (non-food) merchandise.
Department Stores
Ever since one of the earliest department stores open in Paris in 1852, Le Bon Marché if you’re wondering, this has been a successful retail format. These stores feature a broad variety of products (many product categories) and a deep assortment (many options to choose from in each category). They separate the products by department (ladies’ wear, home goods, etc.) and most carry a variety of soft goods (clothing, linens, etc.) as well as hard goods (appliances, tools, etc.). These retailers also put an emphasis on customer service. Department stores like Macy’s have seen a lot of pressures on many fronts the past decades, most of which were intensified by the eCommernce revolution.
Full-line Discount Stores
Full-line discount stores offer a broad variety of merchandise, low prices, and somewhat limited service. Walmart, Target, and Kmart are good examples of these retailers. These stores have seen increased competition from stores specializing in specific product categories (category specialists) and they have a difficult time competing on price since category specialists tend to leverage their buying quantities into prices that full-line discount stores have a difficult time matching.
Category Specialist (Category Killers)
Category specialists pick a specific product category and try to meet the customer’s needs in every which way for that type of product. This means that category specialist retailers are excellent resources for shoppers to use for comparison shopping as the product selection is usually very good. We also call these types of retailers category killers, as once they move into a particular category they’ve effectively killed it off for the competition. For example, Dick’s Sporting Goods offers a huge selection in sports equipment and sports related products. Their buying power means that other non-specialist stores would have a difficult time competing. Other examples of category specialists include Staples in office products, Best Buy in electronics, Guitar Center for musical instruments, and Petsmart for pet-related goods.
Specialty Stores
Specialty stores are among the most profitable, fastest growing, and a great mechanism for product manufacturers to interface directly with customers. Apple is one great example. Before they open the retail stores, Apple had to rely on the selling skills of retail partners, which were often lacking. Apple now boasts the highest sales per square foot of any retailer at over $5500.
Drugstores
Drugstores are one of the most common forms of specialty retailers. So common we consider them a separate category. There has been a lot of consolidation among the drugstore retailers. The top 4 drugstore retailers earned over two-thirds of all drug revenue. Walgreens purchased RiteAid. CVS purchased Target’s pharmacy business. Kroger merged with Roundy’s and its pharmacy locations.
Extreme-Value Retailers
Extreme-value retailers also go by the name dollar stores as every prominent extreme-value retailer uses the word dollar in its name (Dollar General, Family Dollar, Dollar Tree and so on. These stores target low-income customers and locate their stores in low-income areas.
Off-Price Retailers
Finally, off-price retailers do not have a consistent inventory of products, but instead sell brand-name products as closeouts and irregulars. This randomness and inconsistency helps create a unique experience for shoppers every trip and drives bargain hunting behavior. Marshalls and TJ Maxx are good examples.
To wrap up, there are two overall types of merchandise retailers: food and general merchandise. Food retailers which consist of supermarkets, supercenters, warehouse clubs, and convenience stores. General merchandise retailers consist of department stores, full-line discount retailers, category specialists, speciality stores including drugstores, extreme value retailers, and off-price retailers.