PART A

1. A company is said to be vertically integrated when it performs more than one set of activities in the same supply chain. In the context of retailing, when a company undertakes additional activities such as distribution or manufacturing along with retailing, it is said to be vertically integrated.

A retail company is said to be backward integrated when it takes up some amount of manufacturing and distribution activities. An example of this is Wal-Mart selling goods under its private label Great Value. Wal-Mart, which houses products of various types and brands, also sells this private label in order to maintain its image as a low cost retailer.

A manufacturer who expands activities into distribution and retailing is said to be forward integrated. An example of this is Nike which operates its own stores along with selling its products in major retail outlets.

A company would consider vertical integration for the following reasons:

a) To secure supplies and future orders If a company performs more functions in its supply chain, it will be better able to forecast demand of final product and hence optimize its manufacturing and distribution functions.

b) To regulate cost of the final product By selling a product under the Great Value brand, Wal-Mart is able to increase pressure on competing brands to reduce the cost of their products. This helps Wal-Mart maintain their Low Price image. c) To study customer purchasing strategy and trend By operating its own stores, Nike is better able to interact with customers and identify their requirements. This helps them to work on their future products.

d) Reduce supply chain cost Vertical integration increases gross profit in the supply chain as it eliminates a lot of costs which would arise by having multiple entities. Although initial costs and capital required may be high, the running costs are much lower. Some of the trade-offs a company will have to make if it chooses vertical integration are:

a) Large initial capital A company will require to spend a large amount of money initially to take up an additional responsibility. In most cases, companies achieve vertical integration by acquiring one or more operations in its supply chain. These decisions involve huge costs.

b) Complete Vertical Integration almost impossible For a large company, it is almost impossible to achieve total vertical integration as it will always have to depend on other companies for some operations in its supply chain. c) Affect performance or product brand image A company may lose focus of its primary activity by trying to undertake additional operations. This may affect its product image.

2. Multi-Channel Retailing is a strategy adopted by many retailers to reach out to as many customers as possible by offering their services using different media. Beside the traditional brick and mortar stores, retailers offer goods for purchase online through their websites and by creating catalogs which carry descriptions of the products. The end user is given the choice of media to shop. Some modes of multi-channel retailing are:

a) Online Shopping via website b) Catalog Shopping c) Television commercials and Teleshopping d) Door-to-Door salesmen

e) Selling products via auctions f) Sale via vending machines Multi-channel retailing is a very important component of retailing for both the retailer and the end consumer. As a retailer, the different channels allow better reach to consumers and also gives the retailer an option of which strategy to adopt and hence control cost. Multichannel retailing also increases awareness about a product and ensures that the product stays fresh in the consumers mind. From the consumers point of view, Multi-channel retailing gives more options for shopping media. It also is a good method to find bargains and sales. Online shopping and catalog shopping gives the consumer the ability to compare products before shopping. Multi-channel retailing enhances the shopping experience. The continuous implementation of new channels gives both the retailers and consumers different ways to sell and shop for goods.

3. Cross-channel shopping is an increasingly visible trend adopted by consumers before finally buying the desired product. The availability of multiple channels for shopping has initiated such a trend. Consumers now have the option of browsing their products on the retailers website or catalog before choosing what they want. They can then visit the store to physically see/try the product before buying it. This could also work the other way where the consumer could buy a product online after having seen it in a store. Cross-channel shopping gives the consumer access to greater variety and even better prices. It allows them to compare similar products before shopping. An example of cross-channel shopping that I have experienced is when I purchased my laptop. I paid a visit to retail outlets like Best Buy and Wal-Mart and came back home to check out the same product on the companys websites before finally customizing and buying one online.

4. The ease of access provided by e-retailing has allowed the end consumer to get access to a greater variety of products. It has also allowed users to personalize their goods before shopping. E-retailing allows users to choose every aspect of their product before buying it. This is very common when shopping for computers where the user can choose every component of the final assembly. One interesting example of personalization I would like to share is a service offered by Mars on their M&M candies. M&Ms can be purchased online where the consumer has the option of printing a message or an image on individual candies and package it specifically as gifts for occasions. I found this to be a very novel idea which is well appreciated by the recipient of the gift.

5. Chronodrives strategy is an excellent example of a retail chain modifying its offerings to best suit the requirements of its customers. By realizing that grocery shopping is time consuming and not the most enjoyable activity, Chronodrive decided to adopt the concept of online shopping. However, in order to succeed, they had to eliminate the high costs of home delivery. They achieved this by setting up drive-thrus which allow customers to pick up the products they ordered online. Chronodrives retail mix can be described as follows:

a) Location Neighborhood Warehouses. By setting up warehouses which are not too far away from customers Chronodrive ensures that its store-pick up strategy is successful

b) Merchandise Assortment Grocery Items. Chronodrive supplies regular grocery items which is a necessity for the consumers and the requirement is usually known. Grocery items can easily be bought online as there is no need to try it on or check it before purchasing.

c) Pricing Strategy Competitive with supermarkets. By eliminating the cost of home delivery, Chronodrive can afford to price their goods at prices similar to supermarkets. They also eliminate costs of huge outlets with walking space and display shelves. d) Communication Mix TV and Newspaper advertisements, Website.

Chronodrives services can be communicated to the consumer through these media which can also inform them of sales/ discounts. e) Store Design and Display Basic, Warehouse-like with ample space for driving through and waiting. Chronodrives strategy ensures that they can do away with brightly colored display shelves and well designed store layouts. However, they will have to design efficient counters for pick-up of goods and loading into vehicles. This will have to be similar to a drive through restaurant or a gas station. f) Customer Service Efficient. Chronodrive promises pickup of goods within hours of ordering online and loading up in vehicles in minutes. To successfully implement this, they will have to ensure efficient customer service.

Chronodrives retail mix is quite different from other supermarkets who are their main competition. In order to ensure they can stay ahead of the competition, they have to ensure that customer service, which is vital to their USP, is very efficient.

6. Comparison of Retail Outlets Comparison of Retail Outlets Name of Retail Chain Headquarters Annual Revenue Number of Stores Number of Employees Net Profit Margin Number of Countries operated in Formats of Retailing 1) Supercenters 2) Food and Drugs 3) General merchandise stores 4) Bodegas 5) Cash and carry stores 6) Membership warehouse clubs 7) Apparel stores 8) Soft discount stores 9) Restaurants 10) Online/ Web stores *Note: All figures are obtained from the 2009-2010 Annual reports of the respective firms. 1) Discount Stores 2) Superstores 3) Hypermarkets 4) Food Stores 5) Online/Web stores 1) Super Stores 2) Mid- Size Metro stores 3) Convenience stores 4) Garden Centers 5) Specialty stores 6) Fuel outlets 7) Online/ Web stores Wal-Mart Arkansas, US USD 405.05 billion 8416 2 million USD 16.93 billion 16 Target Minnesota, US USD 67.39 billion 1750 355,000 USD 2.92 billion 1 TESCO United Kingdom GBP 56.91 billion 5380 471,732 GBP 2.67 billion 14

7. Wal-Mart has for many years been one of the most closely studied retail outlets and has been the role-model for many other retail chains. Wal-Marts USP has always been EDLP (Every Day Low Pricing), which means customers get best prices everyday and do not have to look out for discounts or sales. By offering a large variety of products at high quality, WalMart has been the preferred store for most consumers. Wal-Mart has branched out its offerings into many channels including Warehouse clubs (Sams Club), supercenters, neighborhood stores and supermarkets. By effectively implementing their pricing strategy, Wal-Mart has stayed above its competition in all segments. Riding on their success in the US, Wal-Mart has started to establish its operations internationally. Wal-Marts supply chain has been one of the most important reasons for the success of its retail outlets. Wal-Mart has successfully achieved backward integration and taken care of the distribution and transportation. This has been possible because of their proactive use of IT and internet technology to manage information transfer. This technology is extended to its suppliers which increases supply chain efficiency greatly. Wal-Mart has adopted and successfully implemented many of the technologies and services which were described and simulated in the Future Store Video. They have implemented EDI (Electronic Data Interchange) to reduce their distribution cycles and taken the help of RFID to automate tasks. Self-Checkout counters are common at Wal-Mart outlets. Wal-Marts retail mix strategy of maintaining a low product cost, low delivery-response time, high product variety and high quality has helped them become the worlds largest retailer. Wal-Mart also has ensured they keep up to date with the needs of the shopper by making their products available for purchase on their websites. The also announce special schemes and discounts using TV and newspaper advertisements to reach out to every type of customer. This has helped cross-channel shoppers to compare products amongst multiple stores before purchase. With the successful and efficient implementation of the most fruitful retail strategies, Wal-Mart will ensure that they replicate their American success internationally.

CITATIONS 1) Retailing Management, 7th edition, Michael Levy and Barton A. Weitz (Chapter 1 and Chapter 2)

2) IE478 Course videos and powerpoint presentations 3) Multi Channel Retailing Goes Mainstream INFOSYS 2005 4) Competitive effects of Vertical Integration Columbia University Dept. of Economics 5) Wal-Mart Annual Report 2010 6) Target Annual Report 2010 7) TESCO Annual Report 2010 8) www.investopedia.com