Table of Contents
Version: 1.0
Definition of Retailing
Features of Retailing
Functions of Retailing
Storing Inventories
Breaking the Bulk
Assortments
Services
Retail Operational Process
Plan
Buy
Move
Sell
Organized Vs Unorganized Retailing
Retail Industry Facts
Global
US
Classification of Retailing
By Ownership
Independent
Co-operative
Corporate Chains
Franchise Chains
By Format
Store Based
Non-Store Based
Retailing
Definition:
Retail is derived from the French word “retaillier” means “cutting off”. Retailing means sale of merchandise or services from a fixed location for consumption. The location could be store based or non-store based.
Features:
- Retailers add value to the products/services by making it easier for the manufacturers to sell and consumer to buy.
- A retailer acts as an interface between the consumer and manufacturers and/or wholesalers.
- Retailer is the last step in the supply chain where the goods or services are placed in the hands of the consumer for their personal/non-business use.
Functions of Retailing:
Storing Inventory: Retailers holds inventory to meet consumer’s demand. This in-turn reduces consumer’s inventory holding cost.
Breaking the Bulk: Retailers purchases items at large quantities and converts them into smaller consumable packs suitable for the consumers
Assortments: Retailers carries a large range of products from different manufacturers/service providers under the same roof. However, retailers specialize into a particular stream such as Apparel, Grocery, Consumer Electronic and so on.
Services: Retailers appoint specialized sales personnel and provide additional information/services to the customers.
Retail Operational Process:
The operational process of a retailer includes four basic steps: Plan, Buy, Move and Sell.
Plan: At this step the retailer plans merchandise, it is going to sell in the retail shop. The planning process includes:
- Deciding the assortment
- Estimating the demand for merchandise
- Preparation of Merchandise budget
Buy: Following to the planning, the retailer executes the buying plans and focuses on:
- Purchasing the SKUs
- Managing the vendors
- Merchandising of the SKUs
- Allocation of Merchandising to the stores
- Cost and retail price management
Move: This process focuses on warehouse management, supply chain management and inventory management.
Sell: This is the final step of the retail process. At this step, the retailer ensures the sell of the merchandise procured and hence focuses on
- Store operations
- Advertisement and communication
- Customer relationship management
- Sales management
Organized Vs Unorganized Retailing
| Factor | Organized Retail Stores | Unorganized Retail Stores |
| Ownership | Owned by a corporate and operates on large scale | Mostly a family owned business and operates on a small scale basis |
| Customer Base | Targets at a large customer base, hence operates in multiple locations. | Manages a small customer base near the vicinity of the stores. |
| Assortment | Offers verity and deep assortments and economies on large scale. | Offers a very low assortment of products mostly demanded by frequent shoppers. |
| Formats | These stores operates in various formats such as; Super Markets, Big Box Stores, Specialty Stores. | These are specialty stores mostly focused on grocery or apparel categories. |
| Process and technology | These stores are process dependent and employs latest technologies | A people dependent store operates on average technological standards |
| Analysis | Analyzes the market data for decision making. And doesn’t involve in personal bias. | Decision making is based on personal judgment. |
Global Retail Industry Facts
- Worldwide retail sales are estimated at $7 trillion (USD).
- The top 200 largest retailers account for 30% of worldwide demand.
- The money spent on household consumption worldwide increased 68% between 1980 and 1998.
- Retail sales are generally driven by people’s ability (disposable income) and willingness (consumer confidence) to buy.
- Approximately 2,000 companies voluntarily report on their economic, environmental and social policies, practices and performance.
- The 1998 UNDP Human Development Report points to the fact that advertising has global expenditures (including in developing countries) increasing faster than the world economy, suggesting that the sector is becoming one of the major players in the development process.
- An Arthur D. Little survey of 481 executives world-wide published in 1999 found that 95% of managers believed that sustainable development offered real business value and 75% said that companies would have to make the required adjustments in vision and strategy. But only 19% said that their companies were “well down the road” in making such changes
Source: United Nations Environmental Program
US Retail Industry Facts
- Some two-thirds or $6.6 trillion out of the $10 trillion American economy is consumer spending. About 40% of that ($3 trillion) is spending on discretionary products and services.
- Retail turnover in the EU was almost €2,000 billion in 2001 and the sector’s better than average growth looks set to continue in the future.
- Retail trade in
- The Asian economies (excluding
- US retail CEOs and senior executives are not very optimistic about the short-term future, according to the results of the NRF-BTM (National Retail Federation-Bank of Tokyo-Mitsubishi) Retail Executive Opinion Survey, a new monthly survey that indexes key aspects of industry operations. According to this survey, despite price-cutting, customer traffic still falls below normal levels, however of customers that are buying, it appears they are spending more per transaction.
- Positive forces at work in the retail consumer market today (by Plunkett Research, Ltd 2001-2002) include a high rate of personal expenditures, low interest rates, low unemployment and very low inflation. Negative factors which hold retail sales back include weakening consumer confidence, slowly increasing unemployment, growing numbers of store closings, decreasing levels of consumer household wealth due to stock portfolios and 401k plans that have seen huge losses in the past year, consumers with record high debt levels are defaulting on credit card balances at an alarming rate, volatility in global markets and significant continued layoffs at larger corporations require job migration and lead to large numbers of consumers employed as temp workers.
Source: United Nations Environmental Program
Classification of Retailing:
Retailers can be classified based on:
Ownership
Format
Retailing can be classified by:
- Channel
- Ownership
- Assortment and Variety of Merchandise
- Customer Service
- Limited Line of Retailing
- Other Types
By Ownership
Independent / Sole Traders:
Retailing is one of the largest industries in any economy and contributes to the growth in terms of providing employment and turnover.
Independent or sole traders are the one of the oldest form of retailing exist in any economy. In this form retailing are mostly family owned businesses and the managed by the owners. Flexibility and quick decision-making are the major features for this form of ownership besides simple forms of management and better visibility of the customers to the management. Since, management has direct contact with the customers and can customize the offerings to the consumer needs much faster than other forms.
However these forms of ownership lack in specializations, unorganized and cannot negotiate for lower price, as the turnovers are very low.
Corporate Retail Chains:
These are multiple retail units under one company operates with a common objective. In this form of ownership management is different from the owners.
These kind of ownership enjoys the benefit of economies of large scale, high degree of specializations in the offerings and very much organized in their operation besides large customer base, better employee service, broad range of merchandise and better quality of merchandise at low price
However, these forms suffer from low visibility of customer and lacks in flexibility in decision-making.
Franchising:
In this form of ownership, the two major parties involved are Franchiser and Franchisee. Both the parties entered into an agreement, which enables the franchisee to use the store format and the brand developed and supported by the franchiser. In return the franchisee pays a lump sum and royalty on the sales for the right to operate in a specific location.
This kind of ownership enjoys the benefit of independent retailers as well as the corporate chains. The franchisee manages the day-today activity of retail stores based on the guidelines and procedures prescribed by the franchiser.
Co-operative Retail Chains:
Independent retailers join together to form a co-operative and run their retail stores under the co-operative brand. The objective of this co-operative form is to improve the operative efficiency and buying power. These co-operatives can be sponsored by retailers or by wholesaler
Retail Sponsored Cooperatives: The cooperative is owned by small retailers and operate wholesale buying and distribution system. The members source all their required items from the cooperatives.
Wholesaler Sponsored Cooperatives: Owned and operated by a wholesaler and offers various member services such as store planning and layout design, site selection besides buying, warehousing and distribution of the products.
By Format
Store Based Retail Format
Comparative Study of Store Based Formats:
| Type of Channel | Avg. Size (in 000' Sft) | Variety | Assortment | Services | Prices | Avg. # of SKUs (In 000') |
| Super Market | 20 | Average | Average | Average | Average | 20 |
| Super Store | 20 - 70 | Broad | Deep | Average | Low | 30 |
| | 100 - 200 | Broad | Deep | Average | Low | 30 |
| Club Store | 100 - 200 | Broad | Low | Low | Low | 20 |
| Convenience Store | 2 - 3 | Narrow | Low | Average | High | 3 |
| Department Store | 100 - 200 | Broad | Deep to Average | Average to High | Average to High | 100 |
| Discount Store | 60 - 80 | Broad | Average to Low | Low | Low | 30 |
| Specialty Store | 4 - 12 | Narrow | Deep | High | High | 5 |
| Drug Store | 3 - 15 | Narrow | Very Deep | Average | Average to High | 20 |
| Category Specialists | 50 - 120 | Narrow | Very Deep | Low to High | Low | 40 |
Convenience Store:
Convenience Store is a small store or shop ranging from 2000 to 3000 sft area. These stores offer a very low variety of products as well as assortment. The services are limited and offer products at a high price. These stores are located alongside busy roads, or at gas/petrol stations. This can take the form of gas stations supplementing their income with retail outlets, or convenience stores adding gas to the list of goods that they offer. Railway stations also often have convenience stores. They are also frequently located in densely populated urban neighborhoods.
Super Markets:
Super Markets are self serviced stores with broad range of food and a limited assortment of non-food items. The product mix comprises of meat, produce, dairy and baked goods departments along with shelf space reserved for canned and packaged goods, alcohols. The non-food range includes personal care items, household cleaners, pharmacy products, and pet supplies.
Supermarkets are located near the residential area and have an average size of 20,000 sft. The super markets also provide other services such as: banks, video rentals, cafes, photo development, bakery and pharmacy.
Big Box Stores:
These are large formats ranging from more than 20,000 sft up to 200,000 sft area. These stores carry a broad variety of products with deep assortments and offer the products at relatively lower prices. Basing on the size the big box retail stores can be classified into 2 categories; super stores (20,000 to 70,000 sft) and super centers (100,000 to 200,000 sft) also referred as Hypermarkets in Europe .
These stores are mostly located in suburban or rural areas and sells broader range of both food and non-food items. This is a combination of a super market and a departmental store. The product categories include groceries, home care, personal care, toys, electronics, furniture, sporting goods, automotive supplies, etc.
Department Stores:
Department store offers a wide range of products without a single predominant merchandise line. The product range includes apparel, furniture, appliances, electronics, and additionally select other lines of products such as paint, hardware, toiletries, cosmetics, photographic equipment, jewellery, toys, and sporting goods. Certain department stores are further classified as discount department stores.
Discount Stores:
Discount stores are similar to Department Stores but it sells products at prices lower than traditional retail outlets. The prices vary widely between two products. Most discount department stores offer wide assortments of goods; others specialize in such merchandise as jewelry, electronic equipment, or electrical appliances.
Specialty Stores:
Specialty stores are small stores, which specialize, in a specific range of merchandise and related items. Most stores have an extensive width and depth of stock in the item and provide high levels of service and expertise. The pricing policy is generally in the medium to high range, depending on factors like the type and exclusivity of merchandise and ownership, that is, whether they are owner operated or a chain operation which has the advantage of bulk purchasing and centralized warehousing system. They differ from department stores and supermarkets, which carry a wide range of merchandise.
Department Stores Vs Discount Stores | ||
| Parameters | Department Stores | Discount store |
| Definition | A department store is a retail establishment, which specializes in selling a wide range of products without a single predominant merchandise line. | A discount store is a type of department store, which sells products at prices lower than those asked by traditional retail outlets. |
| Assortment | Sell products including apparel, furniture, appliances, electronics, and additionally select other lines of products such as paint, hardware, toiletries, cosmetics, photographic equipment, jewellery, toys, and sporting goods. | Offer low assortments of goods; But specialize in such merchandise as jewelry, electronic equipment, or electrical appliances. |
| Pricing | Maintain a medium pricing strategy. | Pricing strategy in based on low price strategy |
| Target Consumers | Convenience and wide variety driven | Price driven |
| Focus | The focus is on large variety of categories. | Focuses on price points and offers a low price. |
Category Killers
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 that smaller stores cannot compete. Major characteristics of a category killer are:
- Inexpensive
- Deep assortment
- Large in size but specific to a category
- More popular than the competition
Since they offer a wide range in a specific category, they through a tough competition to the other market entities and force them to leave the industry or stop selling the particular category. In other terms it kills the category of a retailer, hence these kinds of the stores are called as category killers. A category killer can be a specialty store but a specialty store cannot be a category killer.
Club Store:
Club stores are similar to big box retail stores, which offer a wide variety of merchandise at very low price. However, the customer needs to take the annual membership of the store and the products are sold in bulk. The clubs are able to keep prices low due to the no-frills format of the stores.
| Specialty Stores Vs Category Killers | ||
| Parameters | Category Killers | Specialty Stores |
| Objective | Primarily profit driven | Strengthen the brand in addition to sells and profit |
| Assortment | Multi label Deep assortment | Mostly single label deep assortment |
| Store Focus | Offers value for money | Offers a wide range of brands |
| Pricing | Discount price | Average pricing |
| Club Store Vs Super Centers | ||
| Parameters | Club store | Super centers |
| Membership | The Consumers have to take a membership to buy products from the store | No membership required |
| Pricing | The clubs are able to keep prices low due to the no-frills format of the stores and the different things like low real estate cost, bulk purchasing etc | The super center are selling the products to the end customers and are located in the hot spots, middle of the city and the real estate cost are high so prices are not as low as Club store prices |
| Objective | Customers are required to buy large, wholesale quantities of the store's products, which makes these clubs attractive to both bargain hunters and small business owners | No restriction on the volume of the product purchase |
| Target Consumers | Volume driven with Very Low price (B2B customers) working like Distribution center | Low Price and sell to the end customers |
Non-store Based Retail Formats:
E-commerce/Internet Sellers/Virtual Stores:
Virtual stores operate through Internet and don’t have a store, where consumer cannot touch and feel the product. These stores accept the orders through the web site and deliver the products to the doorstep of the consumer.
These kinds of formats are technology intensive and logistics is the backbone of the organization. The products are normally supplied to the consumer direct from the warehouse.
Catalog Marketing
Catalog marketing is a kind of direct marketing channel, markets the products through one-to-one communication with the consumer. The catalog offers a variety of products and the catalog provides al the relevant information about the product. The elements of catalog marketing are:1. Catalog personnel
2. Merchandise
3. Catalog design and format
4. Sales promotion
5. Mailing lists and databases
6. Order processing and fulfillment
Network Marketing
Network Marketing also known as Multilevel Marketing (MLM) sells the products through direct selling and referrals. Unlike catalog marketing company, the parent MLM Company sales the product through the independent distributors. The distributors are independent business owners, franchise owners, sales consultants, consultants or independent agents for commission.
The independent distributors builds an active customer base, who buy direct from the parent company or recruits independent distributors who also build a customer base, expanding the overall organization.
Additionally, distributors make profit by retailing products, which they purchased from the parent company at wholesale price.
Retailing questions :
• List the major tasks involved in developing a retail marketing strategy.
• Discuss the challenges of expanding retailing operations into global markets.
• Describe future trends in retailing.
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