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Lecture notes 1-10

Retail Management Unit-I Lecture no.:1 Topic: Introduction of Retail What is Retail? Retail is the final stage of any economic activity. BY virtue of this fact Retail occupies an important place in the world economy. In an attempt to understand the scope of the term retail, various definitions of the term have been examined. According to Philip Kotler: "Retailing includes all the activities involved in selling goods or Services to the final consumers for personal, non-business use. A retailer or retail store is any business enterprise whose sale volume comes primarily from retailing. Any organisation selling to final consumers whether it is a manufacturer, wholesaler or retailer is doing retailing It does not matter how the goods services are sold (by person, mail, telephone, vending machine or internet or where the are sold - in a store, on the street or in the consumer's home)" . The North American Industry Classification System (NAICS)2 specifies that the retail trade sector comprises establishments primarily engaged in retailing merchandise, generally without transformation, and rendering services incidental to the sale of merchandise. The word retail is derived from the French word retaillier, which means to cut off a piece or to ~k bulk. A retailer may be defined, as a 'dealer or trader who sells goods in small quantities' or 'one who repeats or relates'. Retailing thus may be understood as the final step in the distribution of merchandise, for consumption by the end consumers. Put simply, an firm that sells products to the final consumer is performing the function of retailing. It thus consists of all activities involved in the marketing of goods and services directly to the consumers for their personal, family or household use. It is necessary to understand that in the complex world of trade today, retail would include !2.0t only goods but also services, which may be provided to the end consumer. In an age where the customer is the king and marketers are focusing on customer delight, retail may be redefined as the first point of customer contact.

Functions of a Retailer: From the customers point of view, the retailer serves him by providing the goods that he needs in the required assortment, at the required place and time. From an economic standpoint, the role of a retailer is to provide real added value or utility to the customer. This comes from four different perspectives:

1. First is utility regarding the form of a product that is acceptable to the customer. The retailer does not supply raw materials, but rather offers finished goods and services in a form that the customers want. Retailer performs the function of storing the goods, and providing us with an assortment of products in various categories. 2. He create; time utility.-by keeping the store open when the consumers prefer to shop. 3. By being available at a convenient location, he creates .place utility. 4. Finally, when the product is sold, ownership utility is created.

The rise of retailer In the not so distant past, manufacturers created a product, advertised it slickly and sold it through their distribution channel. The manufacturing companies enjoyed economic power, as they were significantly bigger in size as compared to the distributors or the retailers. They determined prices, the products that the retailer could stock and also the dealer and distributor margins. They would also independently advertise for their products. In case of a dispute with the distributor or retailer it would not be rare for the manufacturer to discontinue supplies. However, much has changed. Today, retail has emerged as a separate function by itself. The environment in a large organized retail store is significantly different from that of a traditional or a mom and pop store. In this section, we examine the reasons behind this change. Proximity to the Customer Today, with the emergence of large supermarkets, hypermarkets and various other formats like the department stores, the retailer is the closest to the consumer. Most stores have their own policies and decide how to inf1uen~hoppers. In an age of global manufacturing and selling, the organization may be based in one part of the world and may actually retail its products in various other regions. The retailer is the first contact point that the consumer has with the product, and this fact has given the retailer tremendous power. Technology With the increasing use of technology and the use of the Point of Sale scanning systems at barcode, a wealth of information is now available to the retailer

Lecture no.: 2 Topic: Retail as a career RETAIL AS A CAREER Retail is a people-centric industry, and is one industry which simultaneously can expose you to many skills and disciplines. It offers many choices in terms of a career, chief among them are: Buying and Merchandising Merchandising and Buying is often termed as a combination of art and statistics. It is a key function for any retailer as this department is responsible for the procurement of merchandise to be sold in the stores by it, sourcing it from vendors or manufacturers. Key tasks in this career area include the selection of vendors, costing of merchandise procured, allocation of merchandise to the stores, developing distribution plans and calculating gross margins. A key aspect to be remembered is that very often, it may require extensive traveling to locate vendors and exclusive merchandise for the retail stores. Marketing In retail, marketing functions may be centralized and may include different departments like advertising, sales promotion, and public/press relations. Marketing would also look at ways of understanding the customer and his behavior by way of focus groups and analysis of customer buying patterns to develop strategies and plans that guide marketing components like advertisement, websites, store signage, etc. The size of the retail organization would determine whether various functions would be in one department or would be divided into various combinations. Store Operations Retail professionals in the store operations career area oversee the overall store operations and profits. Positions include Head of Store Operations, Regional Manager and District Manager, and responsibilities in this area may include managing staff functions like loss prevention and/or human resources. Responsibilities in operations may vary from being responsible for a department, floor, the entire store or a group of stores. Very often, sales is considered to be a part of store operations. Positions in sales include sales associate, cashier, store stock associate and stock receiver. The primary duty of a sales staff is to serve customers on the selling floor, actually selling goods. However In front-end sales staff may also be involved in receiving merchandise into the store, counting it and then displaying it on the store shelf. Responsibilities would also include receiving merchandise returned by customers. These front-end positions need the ability to deal with people, flexibility and importantly, the ability to working teams. Finance

The finance retail career area includes all accounting and treasury functions like accounting for income, paying expenses, compiling and maintaining financial records, money management and cash flow control, banking, investment and managing credit lines. Auditing of stores for merchandise and money may also be a part of the responsibilities of this department. With the rapid development of retail in the country, understanding and implementing project finance may also emerge as a key area of responsibility in the next few years. Human Resources Human Resource in retail may range from recruiting and hiring employees to larger areas like identifying training needs at various levels within the organization and then designing and implementing the programmes. Responsibilities may also include overseeing compensation and benefits, and planning for and ensuring legal compliances in hiring and employment practices. It is necessary to remember that retail is a people focused business, but at the same time, it calls for long working hours at both the front and back end. The Human Resources department, needs to understand these aspects of the retail business while creating and implementing performance appraisals and promotions. Technology and e-commerce Retail is one of the most mature users of information technology. From RFID implementation to e- technology-driven training programs delivered over satellites or the internet, to state-of-the-art cash register and credit systems. Careers in this department may involve the overall responsibility for the data processing efforts within the chain, including systems design, programming, computer operations, and information systems (IS). A retailer who has a presence in the e-commerce segment may also look for individuals who may be made responsible for strategy development, procurement of merchandise, fulfillment of orders and payments as specific areas. Visual Merchandising Visual merchandising is largely associated with creating the look of the store. Visual merchandisers are responsible for the total merchandise or service presentation, the overall business image, and even the building and placement of design elements. The increase in competition has necessitated retailers to differentiate themselves from the competition. While products and services are the primary methods of differentiation, visual merchandising is fast becoming an area of differential advantage, as it is believed that attractive displays attract and stimulate, which in turn is believed to cause increased sales.

Supply Chain Management and Logistics Supply chain management and logistics are fast emerging as key focus areas in retail. Supply Chain Management is the integrated management of the flow of materials and products, services and information from raw material suppliers, through operations, to the final customer and back again. Supply chain management and logistics is an integral factor affecting cost. Effective

management of the supply chain enhances profitability. Depending on the size of the organization, a job in supply chain management may involve analyzing and negotiating contracts with suppliers, manufacturers and/or distributors, capacity and production planning, resource allocation and facility location and scheduling the transportation and logistics of a product/service to its final destination.

Lecture no.: 3 Topic: Retail in India The Evolution of Retail in India While barter would be considered to be the oldest form of retail trade, since independence, retail

in India has evolved to support the unique needs of our country, given its size and complexity. Haats, Mandis and Melas have always been a part of the Indian landscape. They still continue to be present 'in most parts o[ the country and form an essential part of life and trade in various areas. Traditional Indian Retail-Some Facts: Haats: Haats are periodic markets that form a major part of the rural market system in India. This is a location which witnesses a public gathering of buyers and sellers at fixed times and at fixed locations. Some interesting facts about Haats are: Average sale per day: Rs. 2.25 lakh Number of sales outlets per haat: 300 + Number of visitors per haat: 4,500 + Average sale per outlet: Rs 900 Villages covered by a 'mat: 20 50 Melas: Melas are fairs, and they can range from commodity fairs to religious fairs. Virtually every state in India has melas for which it is known; it is estimated that more than 25,000 melas are held annually in the country. It is also estimated that the average outlets in every mela would be more than 800 and the average sale per mela would be Rs.1431akh. Mandis: Mandis are market set up by the state government for the sale of agricultural produce directly from the fanners. Close to 6,800 Mandis exist in India and are believed to cater to a population ofl.36Iakh. The PDS or the Public Distribution System would easily emerge as the single largest retail chain existing in the country. The evolution of the public distribution of grains in India has its origin in the 'rationing' system introduced by the British during World War II. The system was started in 1939 in Bombay and subsequently extended to other cities and towns. By the year 1946, as many as 771 cities/towns were covered. The system was abolished post war, however, on attaining Independence, India was forced to reintroduce it in 1950 in the face of renewed inflationary pressures in the economy. The system, however continued to remain an essentially urban oriented activity. In fact, towards the end of the first five-year plan (1956), the system was losing its relevance due to comfortable food grains availability. At this point in time, PDS was rell1trooucedand other essential commodities like sugar, cooking coal, and kerosene oil were added to the commodity basket of PDS.

The Khadi & Village Industries (KVIC) was also set up post Independence. Today, there are more than 7,000 KVIC stores across the country. Retail Snapshot 2.2 focuses on the growth of KVIC as an Indian retailer. The co-operative movement was again championed by the government, which setup the Kendriya Bhandars in 1963. Today, they operate a network of 112

stores and 42 fair price shops across the country. Mother Dairy, another early starter, controls as many as 250 stores, selling foods and provisions at attractive prices. In Maharashtra, Bombay Bazaar, which runs stores under the label Sahakari Bhandar and Apna Bazaars, runs a large chain of co-operative stores. Fig.: Evolution of Retail in India.

Lecture no.: 4 Topics: Retail Models Retail models Various retail models exist in the world of retail. To start with, let us first understand what a business model in retail entails. A business model is the manner in which a business chooses to serve its customers and stakeholders. In retail, a business model would dictate the product and/or services Classification:

Lecture no.: 5

Topic: Theories of Retail

Theories of Retail Development Retail development can also be looked at from the theoretical perspective. No single theory can be universally applicable or acceptable. The application of each theory varies from market to market, depending on the level of maturity and the socio-economic conditions in that market. The theories developed to explain the process of retail development revolve around the importance of competitive pressures, the investments in organisational capabilities and the creation of a sustainable competitive advantage, which requires the implementation of strategic planning by retail organisations Growth in retail is a result of understand in market signals and responding, to the opportunities that arise in a dynamic manner. Theories of retail development can broadly be classified as: 1. Environmental- where a change in retail is attributed to the change in the environment in which the retailers operate. 2. Cyclical- where change follows a pattern and phases can have definite identifiable attributes associated with them. 3 Conflictual- where the competition or conflict between two opposite types of retailers, leads to a new format being developed. Environmental Theory Darwin's the of natural selection has been popularized by the phrase "survival the fittest". Retail institutions are economic entities and retailers confront an environment which is made up of customers, competitors and changing technology. This environment can alter the profitability of a single retail state as well as-of clusters and centers. The environment that a retailer competes in is sufficiently robust to squash any retail form that does not adjust. Thus, the birth, success or decline of different forms of retail enterprises is many a times ""attributed to the business environment. For example, the decline of department stores in the ?western markets is attributed to the general inability of those retailers to react quickly and positively to environmental change. Cyclical Theory The most well known theory of retail evolution is The Wheel of Retailing theory. This theory, described by McNair II, helps us understand retail changes. This theory suggests that retail innovators often first appear as low-price operators with a low-cost structure and low profitmargin requirements, offering some real advantages, such as specific merchandise, which enables them to take customers away from more established competitors. As they prosper, they develop their businesses, offering a greater range or acquiring more expensive facilities, but this can mean that they lose the focus that was so important when they

entered the market. Such 'trading up' occurs as the retailer becomes established in his own right. Conflict Theory Conflict always exists between operators of similar formats or within broad retail categories. It is believed that retail innovation does not necessarily reduce the number of formats available to the consumer; instead, it leads to the development of more formats. Retailing thus evolves through a dialectic process, i.e., the blending of two opposites to create a new format. This can be applied to Developments in retailing as follows: -a. Thesis Individual retailers as corner shops all across the country b. Antithesis A position opposed to the thesis develops over a period of time. These are the department stores. The antithesis is a "challenge" to the thesis. c. Synthesis There is a blending of the thesis and antithesis. The result is position between the "thesis" and "antithesis". Super markets and hypermarkets thrive. This "synthesis" becomes the "thesis" for the next round of evolution. Fig.: Wheel of Retailing Lecture no.: 6 Topic: Understanding the Retail Customer A key challenge faced by the retailer is creating products and services which would be successful in the market. The accurate understanding of consumer needs helps the retailer create a product that is likely to be successful in the market. Consumer understanding or an understanding of the consumer buying behaviour is the starting point of strategy creation. It is not only important to understand what consumers know about a product. But also what they do not know this helps in determining the channels of communication and the products that need to be created to cater to the need of consumer. Evaluating consumer knowledge can also help a firm assess. how well it has achieved its product positioning goal. The firm needs to study consumers to see how it product perceived; if there is a good match. the positioning strategy can be deemed to have been a success, Retailers need to know the various influences that lead up to a purchase, not just the store where the purchase was made. This includes looking at a host of external and internal influences, the process starts with: ~ Understanding how the need for a product/service was determined; ~ Understanding how information was sought by the customer; ~ The process of evaluation or \'various products and stores;

~ The payment process; and ~ The post purchase behaviour. Factors influencing the retail shopper: The behaviour of retail shoppers is a subject of study across the world. The basic difference however Continues to be the maturity of markets and formats. While retail I in the West has evolved in terms of formats over the past hundred years, organised retail in India are still a new phenomenon The factors which influence the customer's decision-making process are: 1. Range of Merchandise The range of merchandise is perhaps the most important reason for customers to patronize a particular outlet. The initial curiosity about the store may draw a consumer to a retail store, but to convert him into a buyer and to retain him over a period of time is largely dependent on the quality and the range of merchandise offered by the store. If the merchandise is similar to that of another store or what is commonly available, the customer may not see any reason why he should not switch stores. The range of merchandise offered plays an important role in the case of categories like durables, books and music, apparel and other lifestyle product.

2. Convenience of Shopping at a Particular Outlet The element of convenience is fast gaining prominence in the world of organised retail. This is especially true in case of items like grocery/fruits and chemists.

3. Time to Travel The time required to reach a particular retail location is again fast becoming critical. This is especially true in the case of metros like Mumbai, where travel time is high. This has resulted in many local areas developing in terms of shopping, to facilitate buying. We see the appearance of multiple outlets for a brand, departmental stores and malls making their appearance across most Indian cities.

4. Socio-economic Background and Culture The socio-economic background of the consumer largely determines his lifestyle. This influences the kind of store that he may be comfortable shopping in. Consumer buying behaviour varies from market to market and is largely influenced b the culture of the region, for example, Asian culture is very different from Western culture3. The need hierarchy is different for each market. The need that the retailer can fulfill needs to be clearly understood by him. This will not only help him in determining the right merchandise mix, but it will also help him in evolving an effective communication strategy. 5. The Stage of the Family Life Cycle

The stage of the family life cycle that the customer belongs to, also largely influences his needs. For example, the needs of a young bachelor will be different from the needs of a family with children in their teens, which will again be different from the requirements of an elderly retired couple. The retailer needs to be clear about the target market that he is catering to, as he cannot be everything to everybody.

Fig.: Customer Decision making process:

Lecture no.: 9 Topic: Retail marketing Strategy The word strategy comes from ancient Greece. A strategos,' as an army general, and his post was a strategia. Over time, strategia came to mean the craft of generalship instead of just the job. The word spread to French as stratigie and then to English as "strategy" in 1980 Some of the definitions in use to Which Steiner pointed, include the following: 1. Strategy is that which top management does that is of great importance to the organization. 2. Strategy refers to basic directional decisions, that is, to purposes and missions. 3. Strategy consists of the important actions necessary to realize these directions. 4. Strategy answers the question: what should the organisation be doing? 5. Strategy answers the question: what are the ends we seek and how should we achieve them. The rise and subsequent fall of strategic planning brings us to the definition of strategy put forth by Henry Mintzberg3. According to Henry Mintzberg, people use "strategy" in several different ways, the most common being these four: 1. Strategy is a plan, a "how," a means of getting from here to there. 2. Strategy is a pattern in actions over time; for example, a company that regularly

markets very expensive products is using a "high end" strategy. 3. Strategy is position; that is, it reflects decisions to offer particular products or services in particular markets. 4. Strategy is perspective, that is, vision and direction. In Top Management Strategy, Benjamin Tregoe and John Zimmerman5 define strategy as "the framework which guides those choices that determine the nature and direction of an organisation", This can be interpreted as selecting products (or services) to offer and the markets in which to alter them. The notion of restricting the basis on which strategy might be formulated has been carried one step farther by Michael Treacy and Fred Wierseman, authors of The Discipline of Market Leaders6, Treacy and Wierseman assert that companies achieve leadership positions by narrowing, not broadening their business focus. Treacy and Wierseman identify three "value-disciplines" that can serve as the basis for strategy: operational excellence, customer intimacy and product leadership. As with driving forces, only one of these value disciplines can serve as the basis for strategy. Tracy and Wierseman's three value disciplines are briefly defined below: 1. Operational Excellence-Strategy is predicated on the production and delivery of products and services. The objective is to lead the industry in terms of price and convenience. 2. Customer Intimacy-Strategy is predicated on tailoring and shaping products and services to fit an increasingly fine definition of the customer. The objective is long-term customer loyalty and long-term profitability. 3. Product Leadership-Strategy is predicated on producing a continuous stream of state-of theart products and services. The objective is the quick commercialization of new ideas. Each of the three value disciplines suggests different requirements. Operational excellence implies world-class marketing, manufacturing and distribution processes. Customer intimacy suggests staying close to the customer and entails long-term relationships. Product leadership clearly hinges on market-focused R & D, as well as on organisational nimbleness and agility. What, then, is strategy? Is it a plan? Is it a method of doing business? Is it a position taken? Strategy is all these - it is perspective, position, plan and pattern. Strategy is the bridge between policy or high-order goals on the one hand and tactics or concrete actions on the other Strategy and tactics together bridge the gap between ends and means. Strategy is a general framework that provides guidance for actions to be taken and, at the same time, is shaped by the actions taken. This means that the necessary precondition for formulating strategy is a clear and widespread understanding of the ends to be obtained. Fig. Steps involved in developing a retail strategy Lecture no.: 10 Topic: Franchising.

In order to understand the concept of franchising, let us start by studying some definitions of the term franchising: Websters dictionary defines "franchise" as - "1. A privilege or right granted to a person or a group by a government, state, or sovereign. 2. Authorization granted by a manufacturer to a distributor or dealer to sell his products." According to the International Franchise Association, a franchise is a "continuing relationshi1 in which the franchisor provides a licensed privilege to do business, plus assistance in organizing training, merchandising, and management, in return for a consideration from the franchisee.' The legal definition expands this meaning - a franchise may also extend the right to use a predetermined method for marketing products or services, through outlets that use a known name or trademark. Franchising is not a business or an industry, but it is a method used by business for the marketing and distribution of products or services . The two parties which emerge are: a) The Franchisor and b) The Franchisee

Types of Franchising The basic objective of franchising is the expansion of a business, by furthering the distribution of products/services. By virtue of this fact, at a very broad level, franchising can be divided into two formats. The first type being a product trade name franchise and the second, a business format franchise. Under product/trade name franchising, the franchisee concentrates on one manufacturer's product, and thereby acquires the manufacturer's identity to some extent. Typical examples are automobile dealerships and gas service stations. Business format franchising has been defined as the granting of a license for a predetermined financial return, by a franchising company (the franchisor) to its franchisees, entitling them to make useofa complete business package, including training, support and the corporate name; thus enablingthem to operate their own businesses according to exactly the same standards and "format" asthe other units in the franchised chain. Examples of business format franchising include restaurants. convenience stores, and personal and business services. Fig.: Franchise relation.