Concept of Retailing

Retailing is the set of business activities that adds value to the

products and services sold to consumers for their personal or family
use. Retailing also involves the sale of services such as overnight
lodging in a motel, a doctors exam, a haircut, a DVD rental or a
home delivered book. No all retailing is done in stores. Examples of
non-store retailing include internet sales of mobile phones, the
direct sales of cosmetics by Avon, catalog sales by L.L. Bean and
Patagonia and DVD rentals through Redboxs kiosks.
Value adding activities of Retailing are as follows: Retailers create
value through the following activities:
(i)
(ii)
(iii)
(iv)

Provide an assortment of products and services

Breaking bulk
Holding inventory
Providing services

The Evolution of retailing is as follows:

Historical /Rural Reach: Village Fairs/ Melas
Traditional/ Pervasive Reach: Mom and Pop Stores / Convenience
Stores/ Kirana Stores
Government Supported: Public Distribution System Outlets/
Cooperative Stores/ Khadi Stores
Modern Formats/International: Exclusive Brand Outlets, Hyper
Markets Supermarkets, Department Stores/Shopping Malls
Customer Relationship Management

CRM is a business philosophy and set of strategies, programs and

systems that focuses on identifying and building loyalty with a
retailers most valued customers. The retailers goal of CRM is to
develop a base of loyal customers and increase its share of valet i.e.
percentage of the customers purchases made from the retailer.
CRM is an iterative process that turns customer data into customer
loyalty through four activities, which are as follows:
I.
II.
III.
IV.

Collecting customer data

Analyzing the customer data and identify target customers
Develop CRM programs
Implement programs

RFM Analysis is a scheme for identifying the retailers best

prospects on the basis of how recently they have made a purchase,
how frequently they make purchases, and how much they have
bought. RFM analysis helps to determine which customer groups
should receive catalogs. For each of the RFM groups, retailers
determine the percentage of customers in a group who made a
purchase from the last catalog sent to them. RFM analysis is
basically a method of estimating Customer Life Time Value using
the recency, frequency and monetary value of past purchases.
Customer

Loyalty

means

that

customers

are

committed

to

purchasing merchandise and services from the retailers and will

resist the activities of competitors attempt to attract their patronage.
Loyal customers have a bond with the retailer and the bond is
based on more than a positive feeling about the retailer. All the
elements in the retail mix contribute to the development of
customer loyalty and repeat purchase behavior. Customer loyalty
can be enhanced by creating an appealing brand image and
providing
2

convenient

locations,

attractive

merchandise

at

compelling prices and an engaging shopping experience. However,

personal attention is one of the most effective methods for
developing loyalty.
Marketing Calendar: A marketing calendar is a tool used by retailers
to

show

what

marketing

events,

media

campaigns

and

merchandising efforts are happening when and where, as well as

the results.

Variety, Assortment and SKU

Variety is the number of merchandise categories that a retailer
offers. Assortment is the number of different items offered in a
merchandise category. Variety is often referred to as the breadth of
merchandise and assortment is referred to as the depth of
merchandise. Each different item of merchandise is called a stock
keeping unit (SKU). Variety and assortment can also be applied to a
specific merchandise category rather than an entire store.
Breadth and Depth
Product Depth: Product Depth is the number of each item or
particular style of a product on the shelves. Product depth is also
known as product assortment or merchandise depth.
Product Breadth: The product breadth is the variety of product lines
offered by a retailer.
Softlines is a retailing term referring to a store department or
product line primarily consisting of merchandise such as clothing,
footwear, jewelery, linens and towels.

Hardlines is a retailing term referring to a store department or

product line primarily consisting of merchandise such as hardware,
housewares, automotive, electronics, sporting goods, health and
beauty aids or toys.
Inventory is the merchandise a retail store has on-hand. The term
also refers to the act of counting, itemizing and recording in-stock
merchandise or supplies.
Inventory Turnover: How many times during a period that a
business sells its inventory and replaces it.
Layaway is the act of taking a deposit to store merchandise for a
customer to purchase at a later date.
Loss Leader Strategy: Merchandise sold below cost by a retailer in
an effort to attract new customers or stimulate other profitable
sales.
Loss prevention is the act of reducing the amount of theft and
shrinkage within a business.
Merchandise Mix
A merchandise mix is the breadth and depth of the products carried
by retailers. Also known as product assortment.
Visual merchandising is the art of implementing effective design
ideas to increase store traffic and sales volume.
Wholesale is the sale of goods, generally in large quantity, to a
retailer for resale purposes.
Difference between Stocking and Merchandising

In

the

broadest

sense, merchandising is

any

practice

which

contributes to the sale of products to a retail consumer. At a retail

in-store level, merchandising refers to the variety of products
available for sale and the display of those products in such a way
that it stimulates interest and entices customers to make a
purchase. Stocking is the process of filling the store's shelves and
displays with merchandise for sale, commonly referred to as "stock."
Stocking can also refer to the process of replenishing and storing
goods in the store's backroom or warehouse.
Pricing strategies in Retailing
The two basic pricing strategies used by retailers are as follows:
(I)

High/Low Pricing

Retailers using a high/low pricing strategy frequently - often

weekly - discount the initial prices for merchandise through sales
promotions.
(II)

Everyday Low Pricing

The Every Day Low Prices strategy emphasizes the
continuity of retail prices at a level somewhere between the
regular non-sale price and the deep discount sale price of
high/low retailers

Advantages of pricing strategies:

Increases profits
Creates excitement
Sells merchandise
Assures customers of low prices
Reduces advertising and operating expenses
Reduces stock out and improves inventory management

Broad Categories of Retailers

(1)
(2)

Food Retailers
General Merchandise Retailers
Comparison of Food Retailers

S.No

Conventional

Limited

Super Market

Assortment

Super Center

Warehouse

Convenience

Club

store

Super Market

1.

Percentage

70-80

80-90

30-40

60

90

2.

Food
Size (000

35-40

7-10

160-200

100-150

3-5

3.
4.
5.
6.
7.
8.
9.

Square Feet)
SKUs (000)
Variety
Assortment
Ambience
Service
Prices
Gross Margin

30-40
Average
Average
Pleasant
Modest
Average
20-22

1-1.5
Narrow
Shallow
Minimal
Limited
Lowest
15-18%

100-150
Broad
Deep
Average
Limited
Low
15-18

20
Broad
Shallow
Minimal
Limited
Low
12-15

2-3
Narrow
Shallow
Average
Limited
High
25-30

(%)

Comparison of General Merchandise Retailers

S.No.

1.

Type of Retail Store

Department Stores

2.

Variety

Service

Prices

Size (000

SKUs

Square

(000)

Location

Broad

Deep to

Average

Average

Feet)
100-200

100

Regional Malls

Broad

Average
Average to

to High
Low

to high
Low

60-80

30

Stand alone

Discount Store
3.

Assortment

Shallow

power strip

Narrow

Deep

High

High

4-12

centers
Regional malls

Narrow

Very Deep

Low to

Low

50-100

20-40

Stand alone

Specialty Store
4.
Category Specialist

High

power strip

5.

Narrow

Very Deep

Home Improvement
6.

Store
Drugstore

Low to

Low

80-120

20-40

High
Narrow

Very Deep

Low to

power strip
Low

80-120

20-40

High
7.

Off Price Store

Average

Deep but

Low

retailer
Stand alone
centers
Stand alone
power strip

Low

20-30

50

centers
Outlet Malls

varying

Anchor Store: An anchor store is a major retail store used to drive

business to smaller retailers. These larger department stores or
grocery stores are generally part of a retail chain and are the
prominent business in a shopping mall.
Atmosphere:

Atmosphere is the

physical

characteristics and

surrounding influence of a retail store that is used to create an

image in order to attract customers.
Big Box Stores: A large stand-alone store with varying market
niches.
Category Killer: Category Killer is a large retail chain store that is
dominant in its product category. This type of store generally offers
an extensive selection of merchandise at prices so low smaller
stores cannot compete.
Chain Store: A chain store is one of a number of retail stores under
the same ownership and dealing in the same merchandise.
Kiosk: The term kiosk, as related to retailing, refers to a small
stand-alone structure used as a point of purchase. This can be
either a computer or display screen used to disseminate information
to customers or may be a free-standing, full-service retail location.
Kiosk are often found in malls and other high-traffic locations.
7

Power Perimeter: The areas around the outer walls of a super

market. (dairy, bakery, meat, florist, produce, deli and coffee bar).
Retail Channels
Retail Channels: A retail channel is the way a retailer sells and
delivers merchandise and services to its customers. The most
common channel used by retailer is a store. Retailers also use a
variety of channels including the Internet, catalogs and direct mail,
direct selling, television home shopping and automated retailing.
Internet Channel: Internet retailing also called online retailing,
electronic retailing, and e-tailing is a retail channel in which the
offering of products or services for sale is communicated to
customers over the internet.
Catalog Channel: The catalog channel is a non store retail channel
in which the retail offering is communicated to customers through a
catalog mailed to customers. The merchandise categories with the
greatest catalog sales are medicines and beauty aids, computers
and softwares, clothing and accessories, furniture and house ware
and books, music and magazines.
Direct Selling: Direct Selling is a retail channel in which salespeople
interact with customers face-to-face in a convenient location, either
at customers home or at work. Direct sales people demonstrate
merchandise benefits and/or explain a service, take an order, and
deliver the merchandise. Direct selling is a highly interactive retail
channel in which considerable information is conveyed to customers
through face-to-face discussions. However, providing the high level
of information, including extensive demonstrations, is costly.

Two

special types of direct selling are the party plan and multi level
system.
Television Home Shopping: television home shopping is a retail
channel in which customers watch a television program that
demonstrates

merchandise

and

then

place

orders

for

that

merchandise usually by telephone or via the Internet. The three

forms of TV home shopping retailing are (a) cable channels
dedicated to television shopping (b) infomercials and (c) direct
response advertising
Infomercials are programs typically 30 to 60 minutes long that mix
entertainment with product demonstrations and then solicit orders
placed by telephone. Direct response advertising consists of one to
two minute advertisement on television and radio that describe
products and provide an opportunity for consumers to order them.
The major advantage of TV home shopping is that customers can
see the merchandise demonstrated either on their television screens
or through streaming videos on internet. In response to the increase
in

cooking,

decorating,

do-it-yourself,

and

other

lifestyle

programming, home shopping retailers have incorporated more

demonstrations into their programming in an attempt to educate
their potential customers and create more drama.
Automated Retailing: Automated Retailing is a retail channel in
which merchandise or services are stored in a machine and
dispensed to customer when they deposit cash or use a credit card.
Automated retailing machine, also known as vending machines, are
typically placed at convenient and high-traffic locations such as in
work places or on university campuses. The vast majority of
automated retailing sales are from cold beverages, candy and
9

snacks. Automated retailing isnt just for soda and candy bars
anymore. Zoomshops, for instance, are automated self-service
stores

that

offer

customers

the

convenience

of

purchasing

merchandise using touch screen technology. At the stores, located

in more than 800 airports, malls and retail stores, customers can
purchase i-pods, Sony products.
Benefits provided by different channels
S.No.
1.
2.
3.

Stores
Touching and feeling
Personal Service
Risk Reduction

Catalogs
Safety
Convenience
Ease of use

Internet
Safety
Convenience
Broad and Deep

Immediate gratification

assortment
Extensive

5.

Entertainment

timely information
Personalisation

6.
7.

interaction
Browsing
Cash payment

4.

and

social

and

Benefits of Multi Channel Retailing

(i)
(ii)
(iii)
(iv)
(v)

Overcoming the limitations of an existing format

Increasing customer satisfaction and loyalty
Gaining insights into consumer shopping behavior
Expanding market presence
Building a strategic advantage

Important issues relating to Multi Channel Retailing

(i)
(ii)
10

Which channel has the lowest costs?

Will manufacturers bypass retailers and sell

directly to consumers?
Challenges of Multi Channel Retailing

(i)
(ii)

Providing an integrated shopping experience

Supporting M-commerce

Organizing for Multi Channel Retailing

(i)
Organising for databases
(ii) Brand Image
(iii) Merchandise Assortment
(iv) Pricing
(v) Reduction of Channel Migration

Evaluation of a Site for a Retail Store

The estimated potential sales that can be generated by a store at the
site
I.

Characteristics of the Site: The characteristics of the site

are judged by the following:
a. Traffic flow past the site and accessibility to the site
b. Characteristics of the location namely parking space,

visibility, adjacent retailers

c. Costs associated with locating at the site
II. Characteristics of the trading area for a store at the site
a. Nature of merchandise sold
b. Assortment offered
c. Location of alternative sources for the merchandise
III.

The estimated potential sales that can be generated by a

store at the site

11

Three methods are used to estimate potential sales that can be

generated by a store at the site
Huff Gravity Model, Regression Analysis, Analog Method
Branding Options for a Retailer
a.
b.
c.
d.
e.
f.

National Brands
Private Label Brands
Premium Private Labels
Copycat Brands
Exclusive Brands
Generic brands

Categorization of Retailers
There are two major ways of categorizing retailers namely food
retailers and general merchandise retailers.
Food Retailers:
I.
II.
III.
IV.
V.

Conventional Super Markets

Limited Assortment Supermarket
Super Centers
Warehouse clubs
Convenience Stores

General Merchandise Retailers

i.
ii.
iii.
iv.
12

Department Store
Discount Store
Specialty Store
Category Specialist

v.
vi.
vii.
viii.

Home Improvement Centers

Drug Stores
Off-price retailers
Extreme Value Retailers

Retail Layouts
The different layouts that are commonly used by retailers as
follows:
a. Grid layout: The grid layout has parallel aisles with
merchandise on shelves on both sides of the aisles. Cash
registers are located at the entrances/exits of the stores
b. Race Track: The racetrack layout also known as a loop, is a
store layout that provides a major aisle that loops around
the store to guide customer traffic around different
departments within the store. Cash register stations are
typically located in each departure bordering the race track.
c. Free Form: A free-form layout also known as boutique
layout, arranged fixtures and aisles in an asymmetric
pattern. It provides an intimate, relaxing environment that
facilitates shopping and browsing.
Grid Layout
Advantages
i.

ii.

Easy location of

Race Track
Advantages
i.

Facilitates the

Free Form
Advantages
i.

Intimate and relaxing

products for

goal of getting

environment that

customers
Enables customers

customer to see

facilitates shopping

the

and browsing

13

to purchase as
iii.
iv.

ii.

merchandise

quickly as possible
Cost effective
Less wastage of

available in

space

and encourages

ii.

multiple

No well-defined traffic
pattern

departments
unplanned
purchasing.
Enables

iii.

modification for

Disadvantages

better results
Disadvantages

Disadvantages:
i.

ii.

i.
Customers

selling to enhance

limited exposure to

forced to take

customers to explore

the merchandise
Not visually exciting

different

merchandise.

viewing

design

angles

Customer has

(i)

Need for personal

ii.

Limits the amount of

merchandise that can
be displayed.

Retail Pricing
The two basic pricing strategies used by retailers are as follows:
(III) High/Low Pricing
14

Retailers using a high/low pricing strategy frequently

often weekly
discount the initial prices for merchandise through sales
promotions.
(IV) Everyday Low Pricing
The Every Day Low Prices strategy emphasizes the
continuity of retail prices at a level somewhere between the
regular non-sale price and the deep discount sale price of
high/low retailers
Advantages of pricing strategies:

15

Increases profits
Creates excitement
Sells merchandise
Assures customers of low prices
Reduces advertising and operating expenses
Reduces stock out and improves inventory management

Human Resources Management in Retailing

Human Resources (HRM) Management in Retailing
In any retail organization, the people who deal with the customers
at a one to one level are considered the face of the organization.
Thus, people who work at the store level are important. Hiring the
persons with right attitude is important as in the case of most retail
stores, the employees need to work long hours, and also need to
work when the rest of the people may be on a holiday e.g. on
Sundays or on occasions like Diwali, Christmas etc. Secondly the
retailer needs to have the persons with the right skill sets taking
care of functions like buying and merchandising, as the product is
the key in a retail set up.
The Human Resources function in retail involves:
1. Identifying various roles in the organization.
2. Recruiting the persons with right attitude to fit the jobs.
3. Training
4. Motivation of employees
5. Evaluation of employee performance.
1. Identifying the various roles in the organization:
The first step starts with the identification of the various tasks or
jobs that need to be performed in the organization. This helps in
determining the number of people required from various jobs, the
skill sets and educational background needed and the location,
where they are doing to be based depending on the organization
structure defined and the size of the retail operation.
16

Key tasks in a typical retail organization involve:

1) Buying and merchandising
2) Store management and operations, and
3) Technology support.
It is necessary that persons with the right attitude and skill sets are
recruited for the above mentioned functions as they are the key in
any retail organization. While professional qualifications for the
various tasks are important, it is also necessary to hire persons
who understand consumer trends and technology and what it can
provide. This is extremely important, as traditionally retail has been
one of the oldest users of information technology.
2. Recruitment and Selection
After determining the tasks to be performed within the organization,
the jobs need to be categorized on the basis of the functional or
geographic needs. The aim of the recruitment process is to make
available job applicants for a specified job/s. Common ways of
recruitment include newspaper advertisements, visits to colleges,
existing employees, references, recruitment agencies and even
websites.
Many organizations create an application blank, which has to be
filled in by the applicant and gives the details of education, work,
hobbies and family background. It helps the organization obtain
information about the applicant in standard and structured
manner. Once the applications are received, they are screened on
17

the basis of parameters that are important to the retailer. This

serves as the primary basis for acceptance or rejection of the
candidate.
In case of most of the organizations, the candidates who are short
listed on the basis of the bio data or application blank are called for
a personal interview. A personal interview enables the interviewer
gauge the attitude of the person and his suitability for the desired
job. Depending on the position applied for, the selection procedure
may comprise of one or more interviews. When the candidate
passes the interviews stage, reference checks may be done and the
final decision is taken.
3. Training
Training is an important aspect of human resource management in
retail. Typically, in retail training needs arise at the following points:
1) Induction new persons / staff into the organization
2) Training of sales staff, as they are the persons who are in direct
contact with the customers.
3) Training of staff / personnel for skill enhancements.
When new persons join any organization, an induction program is
conducted. The purpose of such an induction program is to
familiarize the new entrants about the organizations policies and
methods of doing business.
In retail special importance is given to the training of sales staff as
they are commonly termed as the face of the organization.

18

4. Motivation of Employees
Motivation doesn't have to be strictly monetary.
(i)

Be generous with discounts.

Store savings of 25 percent to 30 percent are the norm at
many retail companies

(ii)

Consider benefits for part-timers.

(iii) Support for continuing education of the employees

(iv) Send staff to industry events.
(v) Host contests and raffles.
(vi) Support volunteer time.
(vii) Sponsor local events.
(viii) Distribute free samples.
(ix) Give presents.
(x)

Develop a family culture. (Example: Celebrate birthdays.)

5. Evaluation of Employee Performance

19

(i)

Accountability is a two-way street. If you want employees to

be responsible for their performance, you must also be
responsible in how you quantify their performance. You
must have a process.

(ii)

Optimize the return on your time by sticking to the facts.

Talk about performance examples, both recently and in past
months.

(iii)

Have
data
to
back
up
everything
you
say.
Having specific examples assumes you already conduct
regular retail sales audits and property inspections. If
theres an ongoing problem at one of your retail locations, it
should already be on record.

(iv)

Use
visual
examples.
Words can be poignant but photos can be powerful. Imagine
if you had the capability to call up a photo that proves your
point about store cleanliness or retail execution.

(v)

Capture
data
from
your
employee
reviews.
You wont be the only person conducting employee reviews.
By using a mobile solution, you can easily create new forms
that employees can fill out via their smartphone or tablets.
Store managers can evaluate store employees, regional
managers can evaluate store managers, and so on, right up
the chain.

(vi)

When everyone uses the same form, data is collected

accurately for analysis.

(vii) Stay Positive. Remember to stay positive throughout the

employee evaluation and be sure to point out what your
employees did right along with areas in need of
improvement. Dont argue! If you need to criticize, do it
constructively with factual support.

Category Management
Category Management is a retailing and purchasing concept in
which the range of products purchased by a business organization
or sold by a retailer is broken down into discrete groups of similar
or related products; these groups are known as product categories
(examples of grocery categories might be: tinned fish, washing
detergent, toothpastes). It is a systematic, disciplined approach to
managing a product category as a strategic business unit. The
phrase "category management" was coined by Brian F.Harris.

20

One key reason for the introduction of category management was

the retailers' desire for suppliers to add value to their (i.e. the
retailer's) business rather than just the supplier's own. For
example, in a category containing brands A and B, the situation
could arise such that every time brand A promoted its products, the
sales of brand B would go down by the amount that brand A would
increase, resulting in no net gain for the retailer. A second reason
was the realization that only a finite amount of profit could be
milked from price negotiations and that there was more profit to be
made in increasing the total level of sales.
A third reason was that the collaboration with the supplier meant
that supplier's expertise about the market could be drawn upon,
and also that a considerable amount of workload in developing the
category could be delegated to the supplier.
Category
Management
is
a collaborative
continuous
process between manufacturers and retailers to manage a shopper
need state which we refer to as a category. The purpose of this
process is to optimize shopper satisfaction and fulfill the role chosen
by the retailer for that category within the overall portfolio of
categories in the retail format. The end state of the category
management process is that combination of assortment, price, shelf
presentation and promotion which optimizes the category role over
time.
Some of the key aspects that contribute to the success of category
management are as follows:
(i)

Analytics

Analytics, both basic and advanced, are at the heart of category

management. As a road map to achieving your goals, they
encompass all aspects of trade management, business planning,
assortment analysis and consumer awareness. When applied
21

correctly, they provide invaluable business insights and actionable

recommendations.
(ii)

Trade Marketing Support

Trade marketing encompasses all aspects of promotion, pricing,

product placement, assortment, merchandising and brand
development. It includes analysis of historical events as well as
projections for future sales trends.
(iii) Consumer Insights
Consumer insights include all consumer-related information
including consumer buying and shopping habits. From reducing
long checkout lines to providing the best selection of merchandise at
the best possible price, the ultimate goal is to improve customer
satisfaction.
(iv) Database Management
Database management, also known as business intelligence,
encompasses several different data sources such as internal and
external data sources, syndicated data, retailer point-of-sale data,
consumer data and marketing data. Talented category managers
can help you bring together all the different data sources in a useful
way. This will maximize efficiencies within the organization while
building a strong sales story to help you win at shelf.
(v)

Shelf Management

Shelf management includes product placement and merchandising

on retailer shelves. Specifically it helps the retailer maximize sales
per linear foot, drive foot traffic to stores, increase customer
shopping basket size and have a competitive advantage in their
marketplace.
22

(vi) Category Reviews

Category reviews serve as a review of category performance. They
provide the framework for retailers and manufacturers to work
together in setting goals, expectations and strategic plans for future
category growth. Scorecards can be used to help obtain and
measure category growth objectives.
(vii) Retail Sales Support
Category managers can and should support sales at retail, such as
by providing fact-based selling to support traditional sales
efforts. Category management should offer a somewhat unbiased
objective with the purpose of increasing a retailer's sales.
The industry standard model for category management in retail is
the 8-step process, or 8-step cycle developed by the Partnering
Group. The eight steps are shown in the diagram on the right; they
are :
i.
ii.

Define the category (i.e. what products are included/excluded).

Define the role of the category within the retailer.

iii.

Assess the current performance.

iv.

Set objectives and targets for the category.

v.
vi.
vii.
viii.

23

Devise an overall Strategy.

Devise specific tactics.
Implementation.
The eighth step is one of review which takes us back to Step 1

24