Case Study MS250

Retail

 

Case author

Professor Anthony Goerzen, PhD

Learning objectives

After you completed this course module, you will be able to conceptually solve holistic management problems within a case study of the retail sector.

Topic

"Online-Books" was founded in May 2006 by Joe Reynolds and Bill Sommers. This founding team possessed not only technical know-how, but also had years of experience in the antiquarian book trade. The idea for Online-Books emerged in the light of the difficulties antiquarian booksellers had in trying to provide customers with rare books and in trying to exchange information about book inventories with other book dealers.

Not long after the company's formation, book dealers from all over North America were eagerly using the Online-Books network to sell their books. Since then, the company had grown rapidly expanding its leading market position through alliances with Barnes & Noble in the United States, Akaikutsu in Japan, Chapitre in France, Biblioquest in the US, and the auction giant eBay in the US. By October 2014, there were 80 permanent staff members working for Online-Books, which had become one the most successful Internet firms. Online-Books was used by more than 8,800 independent book dealers, selling 30 million titles worldwide.

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Reading extract Retail Case Study

 

Some introducing thoughts on the retail sector

As a global market, the retail industry is one of the largest business markets in the world. The future of the industry is global trade, and the executives, consultants, and other upper level leaders of the industry who wish to adapt well in this future should consider the global aspects of the retail market to be of chief importance.

 

Size of the Worldwide Retail Market

The global retail market's size is truly staggering. Exact figure of its size and market cap are difficult to determine due to its diverse nature, but there are a few figures which can be presented here to give at least some idea of the size of the retail sector worldwide. In 2013, the five leading retailers worldwide brought in nearly $9 trillion (in USD) in total revenues. While these five are far and away the leader in the overall global retail market, it should not be forgotten that this number represents the earnings of only a fraction of the global retailers in the market today. These numbers also equate over to total GDP output from the world economy. GDP percentages vary from country to country, but there are very few countries in the world today where retail revenues account for less than 10% of the GDP. In many cases, this number is much higher.

Employment rates in the retail industry worldwide are equally staggering. It is again difficult to say exactly how many employees work in retail outlets worldwide, but the three largest global retailers employ a total of roughly 3 million people between them. It is to be noted that of these three, the leading retailer, WalMart, employs approximately 2.2 million, with the other two, Tesco and Costco, filling in the rest between them to make roughly 3 million employees in total. Again, these number represent only three employers, giving one an least some idea of the huge numbers of people employed in the retail market globally.

 

Future of the Global Retail Market

International growth is increasingly being seen as the wave of the future for retailers. Because of developments in transportation and communications, the economy has developed from being based on individual countries to being based on global trade as a whole. Modern retailers, taking advantage of this fact, have diversified their businesses into many different countries, allowing them to work in wide ranging markets. Developing markets also play a key role in this equation. Countries that are still developing their economic and business structures give global retailers the opportunity to establish their market share early on in markets that are still growing. An excellent example of this strategy has been WalMart's diversification into the Chinese and Indian markets, which has allowed it to reach customers which previously would have made their purchases elsewhere.

 

Structure of a Worldwide Retailer

Contrary to popular belief, retail companies are not simple things. In order to grow into being a leading global retailer, a company requires not only the standard hierarchy of store level and corporate level employees, but also a range of specialized staff intended to perform specific functions on all levels of the company.

For example, any company with multiple outlets, particularly global outlets, requires a highly efficient system for the shipping, tracking, and distribution of its wares to those outlets. It also requires warehouses in which to hold these goods until they are sent to stores, as well as buying specialists who are responsible for the purchase of those goods from manufacturers and wholesalers. At every level of this support staff, employees who are specially trained in their task within this system are required. This is also true of store, marketing, call center, and corporate employees, all of whom work within this same framework. For these reasons, employee specialization has become an integral part of the structure of worldwide retailers.

 

Structure of the Global Retail Market

Ignoring the many levels of support staff for each step of the process, the structure of the global retail market can be simplified by breaking it into four basic parts: vendors, transport, retail outlets, and consumer.

Vendors are the manufacturers or intermediary wholesalers who provide goods to the retailers. They are crucially important, and work on a specialized structure similar to retailers. These vendors are responsible for selling bulk wares to retail companies, who will then distribute them to the consumer.

The transportation portion of the market is possibly the most critical step for global retailers. Without a well laid out and handled strategy, goods cannot be efficiently shipped worldwide. Often, this step of the process involves third party companies which contract with retailers to handle transportation of wares for them, as well as transportation support staff who are directly employed by the retailers.

Retail outlets are where the goods are sold. Physical stores give consumers access to the goods a company has to offer, and are where customers will go to physically purchase these goods. However, as the age of digital commerce has developed, retailers have been forced to begin offering goods online as well as in store in order to keep up with the times. This somewhat alters the concept of a retail outlet, as a website can also be considered as an outlet, to some degree. In the case of products purchased online, major retailers usually have dedicated fulfillment centers specifically to house wares for digital orders.

The consumer, of course, is the company's customer base. They are the people who spend money with the company, and are ultimately the end users of the goods that the company has purchased and shipped to its outlets.

While there are many other factors such as advertising, promotional planning, and corporate oversight, not to mention the many levels of management separating store and executive level employees, these four basic levels form the skeleton of the worldwide retail market.

 

History of Global Trade and the Evolution of Retail Markets

The history of retail goes back to the first merchants. It is not exactly known when the concept of trade first caught on, but it is reasonably agreed upon that the rudimentary trade of goods was being practiced in ancient Sumer by the time the first writing system was developed, sometime around 3100 B.C.E. In this time, before monetary systems had developed, a barter system of trade was employed.

This system would go unchanged for many years. Trade routes, however, diversified throughout the ancient world. This was the first example of international trading, although it was very different from our modern idea of it. Trading expeditions could often take years, and the distances involved made them very dangerous to ancient merchants.

As monetary systems became more developed and seafaring technology advanced, worldwide trade grew with them. By the time of the Age of Exploration in Europe, land trade routes with the East had given Europeans a taste of the goods that could be purchased from that part of the world, and explorers from England, Portugal, France, Spain, the Netherlands, and many other countries started to establish navigable sea routes for trade. This led not only to an increase in trade, but also to the discovery of many lands which were new to the Europeans.

By the 1800s, the mercantile trade had begun to develop systems we would recognize today, such as normalized bulk buying from manufacturers driven by the Industrial Revolution. International trade had also become much more regular, and the first true multi-outlet retailers were beginning to take shape.

In the later part of the 1800s, Woolworth's became one of the first large chain retailers. At the same time, future retail giant Macy's was growing out of its roots as a dried goods seller, and would soon go on to introduce the world to the idea of the mass department store.

Throughout the 20th century, these and other chains grew into great prominence, and began to expand their operations around the world. Improved communications and increasingly efficient methods of transportation allowed the chains to establish themselves as suppliers of goods to the entire world. Late in the 20th century, the digital age allowed completely digital sellers to develop and thrive. It also gave established retailers a powerful new tool to sell to markets worldwide, even to customers who did not live within reasonable distance of a physical outlet.

 

Conclusion

As can be concluded from the information presented here, the global retail market is a complex and highly specialized thing. It has a long history, and is now moving into a new phase of its existence. This new age will be defined by ever greater availability to customers around the world and diversification into new markets. The retail market as a worldwide entity is one of the largest employers and producers of wealth. Continued innovation, specialization, and connection to potential customers will allow it to continue to grow, and promoting these factors should be the ultimate goal of both companies and their executive employees.

 

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