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Q.1 a. List out the various features of retailing and explain its
importance. (7 marks)
Ans: The word RETAIL is derived from French word ‘retailer’, meaning ‘to cut a
piece off or ‘to break bulk. Retail trade may be defined as “a trade, which
consists of selling to ultimate consumers of a variety of products in small lots”.
It is exactly and literally so and is meaningful that retail trade is that cuts off
smaller portions from large lumps of goods. From the bulk of products
procured by the wholesaler, small lots are3 cut and distributed through
retailers. Retailers are the last link in the channel of the distribution between
the manufacture and the ultimate consumer. The retail shop is one of the
oldest and most widely used business establishments in any country.
d. Selling: The final aim of a retailer is to sell the products so bought and
held by him. Retailer is rightly called as the buying agent of consumers.
He is the means to dispose the goods to the consumers. Successful
retailing needs good deal of salesmanship tactics.
h. Advertising: Retailers are the best agents to advertise the products and
ideas. In collaboration with the wholesaler and producer, retailers do
undertake ship display, distribution of sales literature, introduction of new
product etc.
Ans: Departmental stores are retailers that carry a broad variety and deep
assortment, offer considerable customer service and are organised into
separate departments for displaying merchandise. Each department within the
store has a specific selling space allocated to it, a POS terminal to transact and
record sales, and salespeople to assist customers. The major departments are
women’s, men’s and children’s clothing and accessories; home furnishing and
furniture, and kitchenware and small appliances. In some situations,
departments in a departmental store or discount store and leased and operated
by an independent company. A leased department is an area in a store is
leased or rented to an independent firm. Retailers lease departments when
they lack expertise to efficiently operate the department. Speciality
departmental stores use a department store format but focus primarily on
apparel and soft home furnishings.
Ans: Store layout is the term used to refer the interiors and the allocation or
the plan in which the products are displayed in the store. It is quite imperative
for the retailers to understand the customer and prepare a customer friendly
layout.
A customer friendly layout gives and impetus to the shopper to spend more
time in store hence increasing the chances of shoppers buying more
merchandise. In the case of India many of the independent retailers do not
have or have limited spaces for customer movement. Especially in smaller
stores, one would find cash counter located at the store entrance. This
treatment is common with so called ‘Kinara Stores”.
But on the other hand, many organized retailers provide adequate space within
the store for shopper and create layouts and that facilitate a definite pattern of
customer traffic. In other words the layout creates ‘Aisles’ so that the shopper
can move on a predefined path inside the store. Layout planning caters to
decisions about nature of traffic flow, kinds of products, space available and
maintenance of the space on a daily basis.
Store layout is one of the many facets of retail atmospherics and hence is it
significant. Store layout plays a very important part in the cost analysis by the
retail firm and also the general brand communication of the store. Store layouts
generally show the size and location of size and location of each department,
ant permanent structures, fixture locations and customer traffic patterns. Each
floor plan and store layout will depend on the type of products sold, the
building location and how much business can afford to put into the overall store
design.
Ans: A retailer estimates its expected future revenues for a given period by
sales forecasting. Forecasts may be companywide, departmental, and for
individual merchandise classifications. Perhaps the most important step in
financial merchandise planning is accurate sales forecasting, because an
incorrect projection of sales throws off the entire process. That is why many
retailers have state-of the art forecasting systems. Longs Drug Stores has
dramatically improved its cash flows by using a system from event. Larger
retailers often forecast total and department sales by techniques such as trend
analysis, time series analysis, and multiple regression analysis. Small retailers
rely more on guesstimates, projections based on experience. Even for larger
firms, sales forecasting for merchandise classifications within departments
relies on more qualitative methods. One way to forecast sales for narrow
categories is first to project sales on a company basis and by department, and
then to break down figures judgmentally into merchandise classifications.
Ans: Location is the most important ingredient for any business that relies on
customers. It is also one of the most difficult to plan for completely. Location
decisions can be complex, costs can be quite high, there is often little flexibility
once a location has been chosen and attributes of locations have a strong
impact on a retailer’s overall strategy. Choosing the wrong side have a lead to
poor results and in some cases insolvency and closure.
Since more than 90% of the retails sales are made at the stores, the selection
of a store location is one of the most significant strategic decisions in retailing.
Although the small store features personal service and long hours, it cannot
match the supermarket’s product selection and prices. A large supermarket or
a discount store can offer lower prices since they get economies of scale in
purchasing and operations. The reasons for locating a store in a certain place
vary with the type of business. Hence retails location and layout plays a vital
role in business of the retail outlets.
d. Ease of traffic flow and accessibility: These two are the more important
factors to some businesses than others. Retailers selling convenience
goods must attract business from the existing flow of traffic. Studying
the flow of traffic, nothing one-way streets, streets width and parking
lots is hence important. The flowing factors like parking availability,
distance from residential areas, side of the street, part of the block etc
is to be considered.
Ans: Following are the various pricing strategies followed by the retailer to
meet his short-and long-term objectives. The adoption of these strategies is
guided by the basic pricing approach of the retailer.
Every Day Low Pricing (EDLP): Here, goods are either sold below their normal
prices, or some sales promotion scheme is available. For EDLP to work, volumes
are necessary so that the store can negotiate with the manufacturers for
bargain prices.
High-low Pricing: In high-low pricing, retailers offer prices that are sometimes
above their competitor’s ELDP, but they use advertisements to promote
frequent sales. In the past, retailers would mark down merchandise at the end
of a season to clear the stock. Grocery stores would only have sales when they
were overstocked. Sale is very common in garment retailing.
Loss Leader Pricing: Retailers sometimes price particular fast moving products
at a lower price to attract customers to the store. Once the customers are in
the store, they can be persuaded to buy more profitable products. For example,
a retailer can sell eggs cheaper than other competing stores so that customers
consider him while purchasing groceries.
Since the customer is also likely to buy milk, bread, flour, etc. along with eggs,
these products are priced slightly higher. So, the profit foregone on eggs is less
than that recovered on other items of groceries.
Cost-Plus Pricing: Set the price at your production cost, including both cost of
goods and fixed costs at your current volume, plus a certain profit margin. For
Example, your widest cost $20 in raw materials and production costs, and at
current Sales volume (or anticipated initial sales volume), your fixed costs
come to $30 per unit. Your total cost is $50 per unit. You decide that you want
to operate at a 20% markup, so you add $10 (20% x $50) to the cost and come
up with a price of $60 per unit. So long as you have your costs calculated
correctly and have accurately predicted your sales volume, you will always be
operating at a profit.
Value-based-pricing: Price your product based on the value it creates for the
customer. This is usually the most profitable form of pricing, if you can achieve
it. The most extreme variation on this is “pay for performance” Pricing for
services, in which you charge on a variable scale according to the results you
achieve. Let’s say that your wider above saves the typical customer $1,000 a
year in, say energy costs. In that case $60 seems like a bargain maybe even
too cheap. If your product reliably produced that kind of cost savings, you could
easily charge $200, $300 or more for it, and customers would gladly pay it,
since they would get their money back in a matter of months. However, there is
one more major factor that must be considered.
• Positioning: If you want to be the “low cost leader”, you must be priced
lower than your completion. If you want to single high quality, you
must be priced higher than most of your competition.
• Popular price ends: There are certain “Price points” (Specific Prices) at
which people become much more willing to buy a certain type of
product. For example, “under $100” is a popular price point. \”Enough
under $20 to be under $20 with sales tax” is another popular price
point, because its “one bill” that people commonly carries. Meals
under $5 are still a popular price point, as are entrée or snack items
under $1 (notice how many fast food places have $0.99 “value
menu”). Dropping your price point might mean a lower margin, but
more than enough increase in sales to offset it.
• Fair pricing: Sometimes it simply doesn’t matter what the value of the
product is, even if you don’t have any direct completion. There is
simply a limit to what consumer’s perspective as “fair”. If it’s obvious
that your product only cost $20 to manufacture, even if it delivered
$10,000 in value, you’d have a hard time charging two or three
thousand dollars for it, people would just feel like they were being
gouged. A little market testing will help you determine the
examination the maximum price consumers will perceive as fair.
Ans: Traditionally, the retail industry has lagged behind other industries in
adopting new technologies, and this holds true in its acceptance of BI
technology. Some industries, such as financial services, have become very
sophisticated in using BI software for financial reporting and consolidation,
customer intelligence, regulatory compliance, and risk management. However,
retailers are quickly catching up and beginning to recognize the many areas of
BI that can be applied specifically to their businesses. As the industry continues
to consolidate, retailers have begun to realize that using technology to better
understand customer buying behavior, to drive sales and profitability, and to
reduce operational costs is a necessity for long-term survival. Retailers are now
paying significant attention to BI software, specifically in the areas of
merchandise intelligence (including merchandise planning, assortment, size,
space, price, promotion, and markdown optimization), customer intelligence
(including marketing automation, marketing optimization, and market basket
analysis), and operational intelligence (including IT portfolio management, labor
optimization, and real estate site selection). There are many factors that have
led retailers to adopt BI software: increased competition, the need to squeeze
more profitability out of less space, prevalent credit card usage, the Internet's
role as an alternative sales channel, the popularity of loyalty cards, and soon,
RFID (radio frequency identification). These milestones have created a wealth
of data that retailers are now beginning to appreciate and use.
Within individual companies, we view the history of BI in retail through the lens
of the Information Evolution Model, a framework that we devised to describe
the status of any company's evolution toward becoming an intelligent
enterprise. In this model, we determined that organizations pass through five
fundamental stages as they advance in their use of BI as a competitive
differentiator:
Operate -- At this most basic level are the companies rife with information
mavericks: the guys in basement offices hammering away on desktop
spreadsheets. If they go, the knowledge goes with them. There are no
processes, and each request becomes an ad hoc data rebuild, resulting in
multiple versions of the truth, with the likelihood of a different answer to any
one question every time it is asked.
Consolidate -- At this stage, a company has pulled together its data at the
departmental level. Here, a question gets the same answer every time, at least
within the department. However, departmental interests and interdepartmental
competition can skew the integrity of the output and result in multiple versions
of the truth.
Optimize -- At this stage, the company's knowledge workers are very focused
on incremental process improvements and refining the value-creation process.
Everyone understands and uses analysis, trending, pattern analysis, and
predictive results to increase efficiency and effectiveness. The extended value
chain becomes increasingly critical to the organization, including the
customers, suppliers, and partners who constitute intercompany communities.
Innovate -- This level represents a major, quantum break with the past. It
exploits the understanding of the value-creation process acquired in the
optimize stage and replicates that efficiency with new products in new markets.
Companies operating at this level understand what they do well and apply this
expertise to new areas of opportunity, thus multiplying the number of revenue
streams flowing into the enterprise. Armed with information and business
process knowledge, organizations approaching the innovate level will introduce
truly innovative products and services that reflect their unique understanding
of the market, their internal strengths and weaknesses, and an unfailing flow of
ideas from continuously engaged employees.
We are finding that most large retailers have reached or are approaching the
integrate stage, with many making great strides toward the optimize and
innovate levels. There is an enormous opportunity for the evolution to continue
-- within every retail organization.
2. Inventory plan
3. Estimated reductions
4. Estimated purchases
Budget planning starts with the development of a sales plan, this shows the
expected or projected rupees volume of sales for each merchandise or
department. Sales forecasting helps the management in a forecast of expected
sales. Without having information on how much is to be sold, the retailer cannot
determine how much to buy. Mistakes made at this stage will be reflected in
the entire budgeting plan and may incur huge losses to the management in the
future.
The variety available in cellular phone was small at its introductory stage.
However, today the Indian retail market is experiencing a huge expansion with
a wide range of choices based on colour, product features, and price levels.
Inventory Plan
The inventory plan helps to devise the stock support levels for a specific sales
period. Most widely used methods to determine the stock support levels are:
beginning-of-the-month ratios, weeks’ supply method, the percentage variation
method, and the basic stock method.
Estimated Reductions
Retailers are required to provide for retail reductions along with sales forecast
and inventory support levels. Retail reduction is anticipated sales below the list
price. Retail reductions are classified into three types of sales below price:
markdowns, discounts, and shortages. Markdown is defined as reduction in the
original list price to encourage sales of the product. Discounts are reduction in
the original retail price given to special customer groups, such as loyal
customers. Shortages are reductions in the total value of inventory that results
from damages to merchandise, shoplifting, or pilferage. The retailers on the
bases of their past experience on retail reductions make adequate
arrangements while evolving merchandise budgets.