Retail

Management
PART 1
The changing structure of retailing
• All dynamic developments in retailing (department stores, warehouse clubs,
and hypermarkets) are responses to a changing environment
• Changing customer demand, new technologies, intense competition, and
social change create new opportunities even as they shake up existing business
• The Internet and web technologies have itself created a myriad of
opportunities for web based business model of retailing
• This has created competition for the retailer in order to maintain and grow
its share of market and compete within its band of retailers
• For e.g.: Bharat Petroleum - Making A Difference through Innovati

Retailing
Theories of structural change in
retailing
Theories of structural change in
retailing
Retailing has always been a dynamic industry. There are certai
theories of how firms evolve and change the industry in th
process. They are:
• The wheel of retailing
• The dialectic process
• Natural selection
The wheel of retailing

1. New retailers often enter the market place

with low prices, margins, and status. The low
prices are usually the result of some
innovative cost- cutting procedures and soon
attract competitors.
2. With the passage of time, these businesses
strive to broaden their customer base and
increase sales. Their operations and facilities
increase and become more expensive.
The wheel of retailing

3. They may move to better up market locations, start

carrying higher quality products or add services
and ultimately emerge as a high cost price service
retailer.

4. By this time newer competitors as low price, low

margin, low status emerge and these competitors too
follow the same evolutionary process.

5. The wheel keeps on turning and department stories,

supermarkets, and mass merchandise went through
this cycles.
The wheel of retailing
The wheel of retailing
The wheel of retailing
The dialectic process

Another theory explaining the changes that take place in the retail
institutions is the Dialectic process or ‘melting pot’ theory. According
to this theory, two institutional forms with different advantages
modify their formats till they develop a format that combines the
advantages of both formats
This second theory holds that retailing evolves through a
dialectic process- the blending of two opposite store types
into a superior form. For example- Fabindia and Nalli offer
both a wide array of customer services and a broad
assortment of specialized merchandise.
The dialectic process
Natural selection

According to this theory, retail stores evolve to meet

changes in micro-environment. The retailers that
the successfully adapt to
technological, social, demographic, economic, and political
changes are most likely to grow and prosper.
What is Retail Management?

Retailing encompasses the business activities involved in selling goods &

services to consumers for their personal, family, or household use.
It includes every sale to the final consumer – ranging from cars to apparel to
meals at restaurants to movie tickets.

Key issues that retailer must resolve:

How can we best serve our customer while earning a fair profit?
How can we stand out in a highly competitive environment where customers
have so many choices?
How can we grow our business while retailing a core of loyal customers?
Retail Functions in Distribution

Final
Manufacturer Wholesaler consumer
Retailer

A Typical Channel of Distribution

Manufacturer
Brand A Brand A
Wholesaler customer
Manufacturer s
Brand B
Retailer Brand B
Manufacturer customer
Brand C s
Wholesaler Brand C
Manufacturer customer
Brand D s
Retailers role in sorting process
Brand D
customer
Retail Functions in Distribution
contd..
Retailers often act as the contact between manufacturers, wholesalers, & customers.
Retailers collect an assortment (variety) from various sources, buy in large quantity, &
sell in small amount. This is sorting process.
Retailers communicate with customers, wholesalers & manufacturers.
Shoppers learn about the availability & characteristics of goods & services, store hours,
sales etc., from retailers advt., sales people & displays.
Manufacturers & wholesalers are informed by their retailers with regard to sales forecast,
delivery delays, customer complaints, defective items, inventory turnover and so on..
Many goods & services have been modified due to retailer feedback.
For small suppliers, retailers provide assistance by transporting, sorting, marketing,
advertising, & pre-paying for the products.
Retailers also complete transactions with customers i.e., having convenient locations,
filling order promptly & accurately, & processing credit purchase.
Some retailers also provide customer services such as gifts wrapping, delivery, &
installation.
To be more appealing, many firms engage in multi-channel retailing i.e., multiple point
of contact like physical stores, websites, mail-order catalogs etc.
Retail Functions in Distribution
contd..
Benefits
Reach more customers
Reduce costs
Improve cash flow
Increase sales more rapidly
Focus on area of expertise

Manufacturers also do operate retail

facilities (besides selling at
conventional retailers). In running their
stores, these firms compete the full
range of retailing functions & compete
with conventional retailers.
Retailer-Supplier Relationship
Retailers are part of distribution channel, so manufacturers (wholesalers) are concerned
about:
Caliber of displays
Customer service
Store hours
Retailer‘s
reliability as
business
partners
Retailers are also
major customers
of goods &
services for
resale, store
fixtures,
computers,
management
consulting ,&
insurance.
Retailers and
supplier have
Retailer-Supplier Relationship
contd..
Channel Relations
Exclusive Distribution
Suppliers make agreements with one or a few retailers that designates them the only one
to carry certain brands/products in a specific geographic region.
Both parties work together to maintain an image, assign self space, allot profits & costs,
& advertise.
This is the smoothest channel relationship.
Intensive Distribution
Suppliers sell through as many retailers as possible.
This maximizes suppliers‘ sales & lets retailers offer many brands & product versions.
Retailers may assign little self space to specific brands, set high price on them, & not
advertise them.
This is most volatile channel relationship.
Selective Distribution
Suppliers sell through a moderate no. of retailers carrying some competing brands.
This combines aspects of Exclusive & Intensive Distribution
The Special Characteristics of
Retailing
The average amount of a sales transaction for retailers is much less than
manufacturers.
This low amount creates the need to tightly control the cost associated
with each
transaction like sales personnel, credit verification, & bagging.
To maximize the no. of customer the retailer has to emphasize more on ads & special
promotions.
Increase impulse sales by more aggressive selling.
Final consumers make many unplanned or impulse purchases.
Large %age of consumers do not look at ads before shopping.
They do not prepare shopping list.
Make fully unplanned purchases.
This indicates the value of in-store displays, attractive store layouts, & well organized
stores, catalogs, & website.
Retailer‘s ability to forecast, budget, order merchandise, & sufficient personnel on the
selling floor becomes difficult.
The Special Characteristics of
Retailing
Retail customers usually visit a store, even though mail, phone, & web sales has
increased.
Most retail transactions happen in stores & will continue in future.
Many people like to shop in person, want to touch, smell, and/or try on products.
Many people to browse for unplanned purchases.
They feel more comfortable talking a purchase home with them than waiting for a
delivery.
Desire privacy while at home.
Retailers must work to attract shoppers to stores & consider such factors such as store
location, transportation, store hours, proximity (nearness) of competitors, product
selection, parking & ads.
Importance of Retail Strategy
Retail strategy is the overall plan guiding a retail firm. It influences the firm’s business
activities & its response to market forces, such as competition & economy.
Six steps in strategic planning
Define the type of business in terms of the goods or services & company‘s specific
orientation.
Set long-run & short-run objectives for sales & profit, market share, image etc.
Determine the customer market to target on the basis of its characteristics (like gender
& income level) & needs (like product & brand preferences).
Devise an overall, long-run plan that gives general direction to the firms & its
employees.
Implement an integrated strategy that combines factors like store location,
transportation, product variety, pricing, and advertising & display to achieve objectives.
Regularly evaluate performance & correct weaknesses or problems when observed.
Key to success

Growth-oriented objectives
Appeal to prime market
Distinctive company image
Focus
Strong customer service for its retail category
Multiple points of contact
Employee relations
Innovation
Commitment to technology
Community involvement
Constantly monitoring
performance
The Retailing Concept
Customer
orientation

Coordinated effort
Retailing
Retail Strategy
concept
Value- driven

Goal orientation

Customer orientation - The retailer determines the attributes & needs of its customers
& endeavors (take action) to satisfy these needs.
Coordinated effort - The retailers integrates all plans & activities to maximize
efficiency.
Value-driven - The retailer offers good value to the customers, whether it be
upscale
(expensive) or discount i.e., ―appropriate pricing‖ for goods & customer
service.
Goal oriented - The retailer sets goal & uses its strategy to attain them.
Classification of Retail Institutions

Nonstore-based
Store-based retail retail strategy mix
Ownership & nontraditional
strategy mix
retailing

• Independent • Convenience store • Direct marketing

• Chain
• Franchise
• Leased department
• Vertical marketing system
• Consumer cooperative
• Conventional supermarket • Direct selling
• Food-based supermarket • Vending machine
• Combination store • World wide web (WWW)
• Box (limited line) store
• Warehouse store
• Specialty store
• Variety store
• Traditional department store
• Full-line department store
• Off-price chain
• Factory outlet
• Membership club
• Flea (louse) market
Retail Institution by Ownership
Ownership format serves a marketplace niche.
Independent retailers capitalize on a very small targeted customer base & please
shoppers in a friendly, folksy (simple) way. Word-of mouth communication is important.
These retailers should not try to serve too many customer & enter into price wars.
Chain retailers benefit from widely known image, economies of scales (i.e. cost
advantages that a business obtains due to expansion), & mass promotion possibilities.
They should maintain their image chain wide & not be inflexible in adapting changes in
the marketplace.
Franchisors have strong geographic coverage & motivation of the franchisees as owner-
operators. They should not get bogged down in policy disputes with franchisees or charge
excessive royalty fees.
Leased departments enable store operators & outside parties to join forces & enhance
the shopping experience, while sharing expertise & expenses. They should not hurt the
image of the store or place too much pressure on the lessee to bring in store traffic.
A vertically integrated channel gives a firm greater control over sources of supply, but it
should not provide consumers with too little choice of products or too few outlets.
Cooperatives provide members with price savings. They should not expect too much
involvement by members or add facilities that raise costs too much.
Independent Retailer
An independent retailer owns one retail unit.
Advantages
There is flexibility in choosing retail formats, location, assortment (variety), prices, hours etc.,
& devising strategy based on the target customers.
Investment costs for leases, fixtures, workers, & merchandise can be brought down. There is no
duplication of stock or personnel function. Responsibilities are clearly delineated (defined)
within the store.
Independents frequently act as specialist in a niche of the particular goods/services category.
They are then more efficient & can lure (attract) shoppers interested in specialized
retailers.
Independents exert strong control over their strategies, & the owner-operator is typically on
the premises. Decision making is centralized & layers of management personnel are minimized.
There are certain image attached to independents, particularly small ones, that chains cannot
readily capture.
Independents can easily sustain consistency in their efforts because only one store is operated.
Independents have ―Independence‖. No meetings, union, stockholders & labor unrest etc.
Entrepreneurial drive.
Independent Retailer
Disadvantages
Less bargaining power with the suppliers as they buy less quantity.
Cannot gain economies of scale (i.e. cost advantages that a business obtains due to expansion)
in buying & maintaining inventory. Transportation, ordering, & handling costs are high.
Operations are labor intensive.
They are limited to certain media for advt. because of financial constraints.
Family-run independents is overdependence on the owner. It is difficult to keep it up &
running.
Limited time allotted to long-run planning, since owner is intimately involved in day-to day
operations.
Chain Retailer
Chain retailer operates multiple outlets (store units) under common ownership. It
usually involves in some level of centralized purchasing & decision making.
Advantages
Many chains have bargaining power due to their purchase volume. They receive new items
when introduced, have orders promptly filled, get sales support, & obtain volume discounts.
Chains achieve cost efficiencies when they buy directly from the manufacturers & in large
volumes, ship and store goods, & attend trade shows sponsored by the suppliers to learn about
new offerings. They can sometimes bypass wholesalers.
Efficiency is gained by sharing warehouse facilities; purchasing standardized store fixtures;
centralized buying & decision making etc. Headquarters have broad authority for
personnel policies & for buying, pricing, & advt. decisions.
Computerized ordering merchandise, inventory, forecasting, sales, & bookkeeping. This reduces
overall costs.
Take advantage of variety of media from print to electronic.
Detailed & clear responsibility for employees with available substitute incase any employee is
retiring or quitting.
Spend considerable time in strategic planning. Opportunity & threat are closely monitored.
Chain Retailer
Disadvantages
Flexibility may be limited. Consistent strategies on pricing, promotions, & product variety must
be followed throughout all units which may be difficult to adapt to local diverse market.
Investment is high due to infrastructure & store as multiple store has to be stocked.
Managerial control is complex due to geographically dispersed branches.
Limited independence to the personnel.
Franchising
Franchising involves a contractual arrangement between a franchisor (a
manufacturer, wholesaler, or service sponsor) & a retail franchisee, which allows
the franchisee to conduct business under a established name & according to a given
pattern of business.
The franchisee pays an initial fees & a monthly %age of the gross sales in exchange
for the rights to sell goods & services in an area.
A franchisee operates autonomously in setting store hours, chooses a location, &
determines facilities & displays.
Three structural arrangements dominate retail franchising
Manufacturer-retailer – A manufacturer gives independent franchisees the right to sell goods &
related services through licensing agreement. (Eg., Auto/truck dealers like GM, Petroleum
products dealers like IOC).
Wholesaler-retailer
Voluntary - A wholesaler sets up a franchise system & grants franchises to individual
retailer. (Eg., Auto accessories stores, Consumer electronics stores).
Cooperative – A group of retailers sets up a franchise system & shares the ownership &
operations of a wholesaling organization. (Eg., Food stores).
Service sponsor-retailer – A service firm licenses individual retailers so they can offer specific
service packages to customers. (Eg., McDoland‘s).
Franchising contd..
Advantages of Franchisees
They own a retail enterprise with a relatively small capital.
They acquire well-known names & goods/services lines.
Standard operating procedures & management skills may
be taught to them.
Cooperative marketing efforts (like national advt.) are
facilitated.
They obtain exclusive selling rights for specified
geographical territories.
Their purchases may be less costly per unit due to the
volume of the overall franchise.

Disadvantages of Franchisees
Oversaturation could occur if too many franchisees are there in one geographical area.
Due to overzealous selling by some franchisors, franchisees‘ income potential, required
managerial ability, & investment may be incorrectly stated.
They may be locked into contracts requiring purchases from franchisors or certain
vendors.
Cancellation clauses may give franchisors the right to void agreement if provisions are not
satisfied.
Franchising contd..
Advantages of Franchisors
A national & global presence is developed more quickly & with less franchisor investment.
Franchisee qualification for ownership are set & enforced.
Agreement require franchisees to abide by stringent operating rules set by franchisors.
Money is obtained when goods are delivered rather than when goods are sold.
Because franchisees are owners & not employees, they have greater initiative to work
hard.
Even after franchisees have paid for their outlets, franchisors receive royalties & may sell
products to the individual proprietors.

Disadvantages of Franchisors
Franchisees harm the overall reputation if they do not adhere to company standards.
Lack of uniformity among outlets adversely affects customer loyalty.
Intra-franchise competition is not desirable.
The resale value of individual units is injured if franchisees perform poorly.
Ineffective franchised units directly injure franchisors‘ profitability.
Franchisees, in greater number, are seeking to limit franchisors‘ rules &
regulations.
Leased Department
A leased department is a department in a retail store – usually a department,
discount, or specialty store – that is rented to outside party.
The leased department proprietor is responsible for all aspects of its business &
normally pays a %age of sales as rent.
The store sets operating restrictions for the leased department to ensure overall
consistency & coordination.

A dvantages (from the stores’ prespective)

The market is enlarged by providing one-stop customer shopping.
Personnel management, merchandise displays, & reordering items are undertaken by lessees.
Regular store personnel do not have to be involved.
Leased department operators pay for some expenses, thus reducing store costs.
A %age of revenue is received regularly.

D isadvantages (from the stores’ prespective)

Leased department operating procedures may conflict with store procedures.
Lessees may adversely affect the stores‘ image.
Customers may blame problems on the store rather than on the lessees.
Leased Department
Advantages for Leased department operators
Stores are known, have steady customers, & generate immediate sales for leased departments.
Some costs are reduced through shared facilities like security equipment & display windows.
Their image is enhanced by the relationships with popular stores.

Disadvantages for Leased department operators

There may be inflexibility as to the store hours they must be open & the operating style.
The goods / services lines are usually restricted.
If they are successful, the store may raise rent or not renew leases when they expire.
In-store locations may not generate the sales expected.
Vertical Marketing System
A vertical marketing system consists of all the levels of independently owned businesses along
a
channel of distribution.
Type of channel Channel Functions Ownership
Independent system Manufacturing Independent manufacturer
• Manufacturers or retailers are small
• Intensive distribution is sought
• Customers are widely dispersed Wholesaling Independent wholesaler
• Unit sales are high
• Company resources are low
• Channel members share costs & risk Retailing Independent retailer
• Task specialization is desirable

Partially integrated system Manufacturing Two channel members own all

• Manufacturers & retailers are large facilities & perform all functions.
• Selective or exclusive distribution
• Unit sales are moderate Wholesaling
• Company resources are high
• Greater channel control is desired
• Existing wholesalers are too expensive or Retailing
unavailable

Fully integrated system Manufacturing All production & distribution

• Firm has total control over its strategy functions are performed by one
• Direct customer contact
channel member.
• Exclusive offerings Wholesaling
• System is costly & requires lot of
expertise
Retailing
Consumer Cooperative
A consumer cooperative is a retail firm owned by its customer members.
A group of customers invests, elects officers, manages operations & share profits.
They account for tiny piece of retail sales.
Cooperatives are formed because they think they can do retailing function,
traditional retailers are inadequate & prices are high.
They have not grown because consumer initiative is required, expertise
may be
lacking, expectations have frequently not been met, & boredom occurs.
Thank you