Service and Merchandise Retailers

What you’ll learn to do: Compare and contrast service and merchandise retailers

For many retailers, it is difficult to differentiate themselves because the items they carry are also available at their competition. Therefore, retailers are left to compete in other ways, either through unique products or on exceptional customer service. Retailers who are unable to be excel at those areas over their competition are left to compete on price alone. This is a dangerous game, given the small margins within food retailing.

Assortment Levels and Types of Retailers

Imagine the difference between shopping at a Macy’s, a Staples, a shoe store, and a Wal-Mart. These retailers all differ in their assortments and you likely wouldn’t buy everything you need from just one of them. Obviously, a shoe store would not be the place to go for groceries, but it would be a good place to find a new pair of sandals. We will examine the differences in assortment and variety between different types of merchandise retailers below.

Department Stores

Department stores offer a broad assortments of products with multiple departments separating product categories. Their assortments have depth within each category and they have some variety, but usually focus mainly on soft goods such as apparel and bedding, but some hard goods, like appliances, are usually included as well.

Category Specialist

As the name suggests, category specialists are retailers that specialize in one category of products. These categories are fairly broad, such as clothing or hardware. Think of stores like Office Depot or Toys R Us that clearly have a specific type of product they’re selling, but still have a very broad assortment with lots of depth within that category.

Specialty Stores

Specialty stores, like category specialists, have a specific type of product that they sell, but specialty stores are even more particular than category specialists. While category specialists sell products of a certain category, specialty stores are much more product-specific. They don’t have much in the way of variety, but their assortment is very deep. Specialty stores would include florists, locksmiths, and hardware stores, among others.

Full Line Discount Stores

Full line discount stores are retailers that provide name-brand products at a lower cost than other stores. They make money by keeping sales high in order to be able to sell name-brand products at a lower cost than elsewhere. This system also necessitates lots of variety and a wide assortment so that sales can be driven up more easily.

Drug Stores

Drug stores don’t stock a wide variety of products, but have depth in their assortment of health products. It’s important for them to have this depth because they have to compete with other larger super center stores that have pharmacy departments.

Off-Price Stores

Off-price retailers offer high quality products at cheap prices. They buy from other retailers that overbought, manufacturers that overproduced, retailers selling their remaining inventory that is going out-of-season, and in other similar ways. Their assortments are primarily soft goods and because of the nature of their purchasing system, their inventory is inconsistent. T.J. Maxx and Marshalls are examples of off-price retailers.

Types of Service Retailers

If retailers are unable to differentiate the products they carry, how can they compete?  They’re competing on a whole host of other criteria, including:

• Convenience
  • Is the store nearby?
  • Is there ample parking?
  • Will they have what I need?
    • Is it likely that the item will be in stock?
    • Will I be able to find the item quickly?

• Customer Service
  • Is this a place I like to shop?
  • Is the store clean?
  • Are the staff available? Are they helpful?
  • Can I get in and out quickly?
    • Will there be enough cashiers working?
    • Is self-checkout offered?

As you can see, for many shoppers, the questions for the retailer aren’t just “do you have it?” and “what does it cost?” Instead, shoppers are considering a number of factors that are based upon their individual needs. If you were just picking up milk on a Saturday afternoon, would you rather stop at a club store or go to the local grocery? How would that decision change if you were planning to shop for a two-week supply of groceries?

To some degree, customer service is fundamental to all retail because it supports customer loyalty and contributes to the customer’s overall retail experience. However, retailers must decide what level of service they will provide for their customers:

• No service, such as Amazon Go concept stores that do not have associates or check lanes
• Self-service, such as most grocery shopping experiences where the product is available on-shelf for the shopper’s selection. This goes a step further when shoppers use the self-checkout and scan the items, process the transaction, and bag the product themselves.
• Full-service

The variety of supporting services, known as the service type, range from self-service operators that provide few basic services to full-service operators with a wide range of highly personalized services.

Full-service retailers compete by providing support to consumers at every touch-point in the shopping process. This isn’t just confined to the realm of personal interaction, but includes service types that can make the shopping process easier:

• Accepting multiple forms of payments, such as cash, check, credit card, or debit card
• Offering delivery services
• Making recommendations or providing demonstrations, such as offering recipes, cooking classes, or product samples
• Allowing exchanges or returns (limited in New York cannabis dispensaries)
• Allowing special orders
• Providing customer loyalty programs (not allowed in New York cannabis dispensaries)

However, it should be noted that services often come at some cost to the retailer, primarily in the form of increased labor. Thus, retailers must balance the desire to offer several services against customers’ willingness to pay for the additional supporting services. Full-service typically requires premium pricing. Thus, it’s extremely important that full-service retailers train their personnel well to provide excellent customer service enough to make their customer service a meaningful differentiator against competitors. By providing excellent customer service, retailers create opportunities to build customer relationships with the potential to increase loyalty and referrals.

There are several ways that food retailers deliver services to consumers. They can have counter service, where goods are out of reach of buyers and must be obtained from the seller. This type of retail is common for small expensive items, such as jewelry, and controlled items, like medicine and liquor. In food retail, counter service typically takes the form of the deli counter or meat department, where an associate will make recommendations, portion items, and package them for the shopper.

Another method is special orders, which can be online, in-person, or by phone. Many food retailers offer this service in their bakery departments, where cakes can be special ordered. The meat and floral departments may offer similar services.

Some retailers offer in-store pick (ship to store) or delivery to the consumer’s home (home delivery). Wal-Mart is experimenting with similar services for in-store pick-up or home delivery of online grocery orders. Several other retailers are doing the same through InstaCart.

There is also self-service, where goods may be handled and examined prior to purchase. In food retailing, this is much more common with sampling or product demonstrations. For example, warehouse club stores often offer sample items to overcome the large ticket price and quantities of their items.

Scrambled Merchandising

Scrambled merchandising refers to a retail tactic in which a retailer broadens their assortment to include items that are generally outside their focus or are usually sold in a different retail format. It might be easiest to think about scrambled merchandising by considering it in practice. For example, think about how the traditional grocery store has evolved to a supermarket format that sells magazines, books, toys, seasonal decorations, housewares, hardware, and so on. In none of these cases does the supermarket carry a wide variety of items in the specific departments compared to specialty retailers. However, they carry enough to have a presence in the category to benefit the shopper through contact efficiency.

When done well, scrambled merchandising adds to the shopping experience rather than distracting from it. Consider the example of Kohl’s department stores. They offer limited food items to complement their kitchenware offerings. This works because the items are complementary to one another. Another example is a sandwich deli that is known for its delicious handmade sandwiches that start selling wine, olives, and crackers. Scrambled merchandising, in these examples, helps expand the retail offerings of the store without detracting from its reputation.

When retailers experiment with scrambled merchandising, they are trying to become more of a one-stop shop for their customers. For instance, let’s say that a well-known clothing retail store starts offering nonperishable groceries. If customers who are shopping for clothes may also purchase some of their grocery items, the store is increasing its appeal to customers. A place where you would normally purchase a sweater or pajamas may also be the store where you buy your family’s groceries for that week.

The risk in this strategy comes when unexpected items are included in the assortment that confuse shoppers. This can detract from the shopper’s experience and tarnish the retailer’s brand image. Furthermore, if the new products aren’t appreciated or shopped, they can risk high inventory, leading to markdowns and write-offs. Most stores limit their complementary categories to maintain their brand. It’s a risk; thus, scrambled merchandising should be approached cautiously and leveraged only to complement the current assortment.

Can you think of a scrambled merchandising example where you’ve noticed new products at a retail establishment?