Channel Institutions Retailing

Learning Objectives
Understand what retailing is all about Global retail scene and trends Indian retail scene and trends Types of retailers Trade and retail formats, trading area Retail management strategies and operations Measuring retail performance Franchising and e-tailing FDI in retail in India
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What is Retailing?
Any business entity selling to consumers directly is retailing in a shop, in person, by mail, on the internet, telephone or a vending machine Retail also has a life cycle newer forms of retail come to replace the older ones the corner grocer may change to a supermarket Includes all activities involved in selling or renting products or services to consumers for their home or personal consumption

Retailing
Term retail derived from French word retaillier meaning to break bulk Characteristics:
Order sizes tend to be small but many Caters to a wide variety of customers. Keeps a large assortment of goods Lot of buying in the outlet is impulse- inventory management is critical Selling personnel and displays are important elements of the selling process Strengths in availability and visibility Targeted customer mix decides the marketing mix of the retailer
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Retailing
Retail stores are independent of the producers not attached to any of them A survey shows that only 35% of supermarket purchases are preplanned. The rest are impulse- greatly influenced by quality of the merchandising efforts

Functions of Retailers
Marketing functions to provide consumers a wide variety Helps create time, place and possession utilities May add form utility (alteration of a trouser bought by a customer) Helps create an image for the products he sells
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Functions of Retailers
Add value through:
Additional services extended store timings, credit, home delivery Personnel to identify and solve customer problems Location in a bazaar to facilitate comparison shopping

How do Customers Decide on a Retailer?

Price Location Product selection Fairness in dealings Friendly sales people Specialized services provided
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Kinds of Retailers
Type of retailer
Specialty store

Characteristics
Narrow product line with deep assortment apparel, furniture, books

Department store
Supermarket Convenience store Discount store

Several product line in different departments Shoppers Stop, Big Bazaar

Large, low-cost, low-margin, high volume, self-service operation with a wide offering Small stores in residential areas, open long hours all days of the week limited variety of fast moving products like groceries, food Standard merchandise sold at lower prices for low margins - Subhiksha

Kinds of Retailers
Type of retailer
Corporate chains Voluntary chain

Characteristics
More outlets owned and controlled by one firm Globus Wholesaler sponsored group of independent retailers

Retailer co-ops
Consumer coops Franchise organisation

Independent retailers with centralized buying operations and common promotions

Co-op societies of groups of consumers operating their own stores farmers, industrial workers etc Contractual arrangement between the producer and retailers selling products exclusively Kemp Toys

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Retailing Scene - Global

Well organised in most developing countries Global biz worth about $ 6.6 trillion Retail market size is $2325 bln in the US and $ 280 bln in India. Organised retail is 85% in the US and about 5% in India. China 20% Taiwan 80% Retail sector is part of the service sector and if organised, is a major contributor to a countrys GDP
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Retailing Scene - Global

High potential for generating employment 2 mln retail outlets in the US employ about 22 mln people Retail sector contributes significantly to the growth of the economy Organised retail is becoming powerful over its suppliers (who may also be big corporates) Producers of goods taking action to protect their turf
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Retailers Strengths
Choice of merchandise is their prerogative put pressure on producer suppliers Many new products on offer. Can charge penalty if products do not do well New developments in IT help them run operations optimally and keep track of loyal customers. Also helps them identify profitable store locations.
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The Indian Retail Scene

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Salient Features
Estimated over 12 mln retail outlets with most of them in the unorganized sector 10 outlets per 1000 population Average per capita space 2 sq ft compared to 15 sq ft in the US Organized retail is estimated between 4 to 7% but growing fast
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Organized Retail
Growing trends attracting global players Some of them like Wal Mart and Tesco have already created buying hubs here. In Jan 2006, GOI has permitted FDI upto 51% in single brand retail outlets Well known brands like Marks & Spencer, Reebok, Levis, Adidas, Nike, Reebok, McDonalds, KFC, Swarowski are already in India.
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Organized Retail - Features

Sponsored by companies or corporate groups Large formats like supermarkets, department stores and now hypermarkets Right ambience to make shopping a pleasure Use latest technology for customer care and supply chain management. Large employment potential Effectively manage operating costs Offer consumers value for money
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Retailing Trends - India

Consumer wants more benefits without additional costs Rising income levels cheap no longer works, but value for money Explosion of communication channels influences choices of products Increased literacy has made consumer more conscious of his bargaining power Growing number of urban nuclear families
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Retailing Trends - India

Influence of retailer increasing assortment plus other facilities offered Rural consumers want the same things and as their urban counterparts and are willing to pay for it Better organized supply chains to cater to a large number of outlets in different locations Improved infrastructure helping the consumers Bigger volumes help in economies of scale
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FDI in Retail in India

MNC players showing interest to operate in India Resistance from the existing players So far only cash-and-carry permitted Franchisees also allowed KFC, Tag Heuer, Swatch, McDonalds Jan 2006, 51% FDI permitted in single brand businesses:
All products should be under the same brand name Same brands should be sold internationally Branding at the time of manufacturing itself
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Trade / Retail Format

Range of goods and customer service dimensions determine the format. Elements distinguish between stores and include:
Store ambience. (Kemp Fort) Saving in time for shopping interiors of practical design reduce time for search and pick-up of goods Location Physical characteristics external appearance, arrangement of goods

All these are parts of the positioning strategy and influence the footfalls to the store.
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Categories of Shoppers (1)

Identified by Cook & Walters Task focused shopper visits the store to buy specific things he has planned for
Convenience, minimum time, easily accessible goods, pleasing store format Grocery shopping is an example

Leisure shopper more interested in the ambience and environment

Has plenty of time, wants to have a good time while shopping Lifestyle stores are examples
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Category of Shoppers (2)

Convenience goods (low value): probable gain from shopping and making comparisons is small compared to the time, effort and mental discomfort required in the search toothpaste Shopping goods (high value): gain is large refrigerator Specialty goods: clearly distinguished by brand preferences Maruti Zen car or TagHeuer watch
Trading area
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Trading Area
Catchment area from where most of the customers of a retail store come
Corner grocery store caters to the locality in which it is situated Discount stores have a wider area. Subhiksha locations for consumers in 2 km radius Specialty stores have a much wider trading area MTR, Shoppers Stop etc

Trading area increases with the size of the store and the variety it offers
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Retail Strategy
Positioning of the retailer Merchandising Customer service Customer communication

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Positioning Strategy
Wide range with a high value add Lifestyle brand of stores Limited range but a high value add Tanishque jewelry store Limited range with a limited value add Bata stores Wide range of goods but a limited value add a Food World outlet
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Merchandising
A set of activities involved in acquiring goods and services and making them available at the places, times and prices and the quantity that enable a retailer to reach his goals The most critical function in retail Directly effects the revenue and profitability of the store Also takes into account the assortment of goods and their quality
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Customer Service Strategy

Developed to create stickiness in customers Personal data collected using IT including purchasing practices and preferences Customer loyalty programs planned Create customer delight Location strategy to give competitive advantage Understanding the buying profile of the customers
Communication
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Customer Communication
The manner in which the retailer makes himself known to his customers. Has two parts to it:
The messages which the retailer sends to his customers and prospects The word of mouth support which satisfied customers give to the retailer by talking to others

Retailer communicates about:

Announcing the opening of a store Promotions running in the store Additional facilities introduced by the stores
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Pricing Strategy
Premium and indicating high value Reasonable pricing with good value Low pricing but high value for money All strategies are focused on giving value to the customer

Product differentiation.
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Product Differentiation
Feature exclusive national brands not available in competing retailers unlikely Exclusivity of products specialty stores Mostly private labels Westside Feature, big, specially planned merchandising events Kemp Fashion sows Introduce new products before competition -again unlikely
Performance measures
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Retail Performance Measures

Gross margin return on inventory investment GMROI
Gross margin multiplied by ratio of sales to inventory (50%*4= 200%)

Gross margin per full time equivalent employee Gross margin per square foot
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Franchising
Franchisor is the firm which wants to sell its goods or services Franchisee is the firm or group that are willing to sell the products or services on behalf of the franchisor
The first party gives advice and help to the second to find good locations, blue prints for a store, financial, marketing and management assistance
Franchisor benefits
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Benefits to Franchisor
Faster expansion Local franchisee pays lower advertising rates than a national firm Owners motivated to work more hours than mere employees Local taxes and licenses are responsibility of franchisees
Franchisee benefits
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Benefits to Franchisee
Quick recognition among potential customers Management training provided by principal Principal may buy ingredients and supplies and sell to franchisee at lower prices Financial assistance Promotional aids, in-store displays etc
Electronic channels
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Retailing on the Internet

Unlimited assortment Items may not be on hold someone has to deliver the product delays No product touch or feel More info makes the customer a better shopper Comparison shopping possible Consumer has to plan purchases ahead No need to handle cash payment can be on-line Shopping is 24X7
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E-tailing Issues
Logistics support to selling Payment gateway Customer product returns Conflicts with Brick &Mortar overcome by selling separate products

FDI in retail.
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Key Learnings
Any business selling / renting a product or service to a consumer is retailing A consumer selects a retailer based on price, location, merchandise selection, fairness in dealings, helpful sales people and other services Organized retail is growing strong and negotiating better terms from producer suppliers In India, upto 51% foreign investment is permitted in single brand businesses
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Key Learnings
Format defines the physical features of the store and its service Trading area is the catchment area from where the customers of store come from Retail strategy is built on positioning, product offerings, merchandising and communication Retail performance is measured by utilisation of space, inventory and manpower E-tailing is buying goods on the Internet
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