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Chapter 1: Retail Overview Retailing
is defined as “the activities involved in the sale of goods and services to consumers for their personal, family, or household use”. The final link between consumers and manufacturers, Retailers are a vital part of the business world. Retailers add value to products by making it easier for manufacturers to sell and consumers to buy.




Retailing is the final step in the distribution of merchandise - the last link in the Supply Chain

• •

No significant change in the product except breaking the bulk Value proposition a retailer offers to a consumer is easy availability of the desired product in the desired sizes at the desired times (at desired prices).

Typical Marketing Channels for

Consumer Products

Classification of Retailing Retailing can be classified based on various parameters 1) By Ownership • • Unaffiliated operations) Corporate retail chains (multiple retail units under common ownership and management) independents (owned and operated by single-unit .

low-margin. Sony) Outlet stores are owned and operated by manufacturers as a way to alleviate the over-production of goods and bypass the traditional department and specialty retail stores. Marshall Fields) Physically large stores that occupy prominent positions in the traditional heart of the town or city or as anchor stores in out-of-town malls and offer wide variety of high-quality items divided into specialized departments. and usually. Macy’s.Penney. Ben Franklin) A retail store that carries a large variety of usually inexpensive merchandise Super Markets (Nilgiris.Woolworth. laundry. distributors and service firms) 2) By Channel • Store Non-store (Mail Orders. Montogomery Ward. Catalogue. CubFoods. low-cost. Dollar General. • Membership Warehouse Stores (Sam’s Club. shoes and housewares. e-tailing. Nike. Dayton’s. leather goods. Tele-shopping. Call Centers. They are usually located on the outskirts of major cities and towns . They typically require an annual membership fee and may have requirements or conditions for joining. Burdines. Dillard’s. clothing. • • Variety Stores (F. in large quantities. high-volume. self-service store that carries a wide variety of food. • Factory Outlets (Arrow.W. Sears.C.• • • Cooperative chain (voluntary associations sponsored by retailers) Voluntary chain (voluntary associations sponsored by wholesalers) Franchise systems (independent retailers sponsored by manufacturers. Royal SuperMarket) They are large. Outlet stores include first-quality products including sporting goods. Price/Costco) These chains consist of huge warehouses of products on large shelves that are sold with no frills at low prices. Direct Selling) 3) By Assortment and Variety of Merchandise General-line Stores • • Department Stores (J. and household products. luggage.

Nalli Silks. Kmart. Target) A retail institution that sells standard merchandise at lower prices by accepting lower margins and selling at higher volume • Combination Super stores Convenience Stores ( 7 Eleven) A small store. located near a residential area. CompUSA.Limited-Line Retailing • Specialty Stores ( Gap.000 square feet or larger. gasoline. Musicworld) A retail store that carries a narrow product line with a deep assortment within that line • Boutiques A free standing shop or an area within a retail store. usually a combination of a drugstore. devoted to specialized merchandise for a special interest customer. milk. supermarket. self-service basis and carry lines of soft goods. that is open long hours seven days a week for the convenience of the customers and carries a limited line of high-turnover convenience goods like bread. Circuit City. and groceries. . At 200. GIANT) They are mass merchandisers that operate on a low-price. Prada) 5) Other Types • Discount Stores (Wal-Mart. It is usually a specialty shop or a section within a department store devoted to unusual merchandise which is often presented in a nontraditional manner. hard goods. • Category Dominant Stores (Toys R Us. Kids Kemp. Bed Bath & Beyond) 4) By Amount of Customer Service • • • Self-Service Retailer (Vending Machines) Limited Service Retailer (JC Penney. and discount store. this is the most capital intensive of all supermarket formats. cigarettes etc • • Hypermarkets (STAR India. Target) Full Service Retailer (Tanishq. In short they are huge retail stores. Sears.

Retail Processes Core Processes & Respective Sub Processes Plan  Demand Forecasting  Merchandise Plan (including OTB)  Assortment Plan Buy  Merchandising  Purchasing  Contracts/ deals management  Vendor management  Allocations  Replenishments  Cost and retail price management Move  Shipping and Transportation o o Freight Planning/Scheduling Transportation .

Good stock selection is important because it: • • • • • Ties up the optimum amount of capital Reduces the amount of space taken up by the stock Provides an adequate choice for the customer Enhances the image of the business and encourages repeat purchases Increases the overall profitability of the business . Stock is one of the largest form of investment made by the retailer. Warehouse Management o o o o o Receiving Repacking Shipping Cross-docking Trailer/Yard Management  Inventory Management o o Allocation Replenishment Optimization  Reverse Logistics Sell  Store Operations. including POS  Customer Relationship Management  Sales Management  Advertisement management Buying • • • • • is the process of implementing the decisions dictated by the merchandise philosophy. There are five major areas to consider: who buys what to buy how much to buy from whom to buy and when to buy The importance of good merchandise buying cannot be overstated. long term sellers) the majority of sales will be made in the most successful lines of the recent past. buying for larger stores will usually require specialist in order to do the job properly. fashion items. However.WHO BUYS? One individual or specialists The buyer may be responsible for the purchase of a comparatively small range of merchandise or for several complete approach: this determines in cash the amount of purchases to make for a particular selling period Assortment planning approach: Here stock requirements are calculated on a unit rather than a cash basis Model stock plans .to -date information on customer demands can be gleaned from the normal accounting and control records of a retail business External sources: merchandise information can be obtained from: • • • • Organized comparison-shopping of competitive stores Suppliers Consumer research Trade fairs HOW MUCH TO BUY? Open . By using specialist buyers greater knowledge and control of merchandise can be developed and maintained. WHAT TO BUY? The general guidelines are as follows: Past experience: with staple merchandise (non.g. The advantage of having one individual responsible for buying for the entire store is that consistency within the merchandise mix will be maximized. With merchandise whose sales change markedly with shifts in consumer taste. depending on the size and type of the retail . past experience is less helpful Current information: a good deal of up.

Model stocking is a quantitative method of planning to buy which provides general guidelines on the size and composition of stock but does not specify the exact nature of the merchandise. with higher discounts as the purchase becomes larger ♦ Clerical work per unit ordered is reduced Disadvantages: ♦ Higher sales and stock turn are required to keep ‘in balance’ ♦ Deterioration and pilferage may increase ♦ Valuable storage space is tied up ♦ Cash can be over committed ♦ Price markdowns tend to occur with stock which is out of date FROM WHOM TO BUY? Types of suppliers: Manufacturers and Primary producers: These will normally tend to be limited in the range of goods they produce and to vary considerably in the nature and extent of distributive services they provide Wholesalers: These carry stocks at their own risk in either wide (general) or more limited (specialist) assortments. This is particularly important in clothing and fashion stores where customers naturally buy most in middle sizes in the popular colours and in the medium price range Bulk buying Buying large amounts of stock has certain advantages for the large retail store or chain able to afford it but it also produces problems Advantages: ♦ Less possibility of run-outs at times of unexpectedly heavy demand ♦ Minimum quantity discounts are possible. Importers: These are usually linked in the range of merchandise carried and the extent of the services provided. Some agents do not handle the goods at all and others may carry sample ranges . They may specialize by type of goods wherever produced or by the products of a particular country or area Agents: These intermediaries do not carry stock at their own risk.

However. This practice can be termed illegal when other retailers have no access to similar products and therefore cannot compete . often a weak manufacturer has to offer one-way exclusive dealing arrangements to get shelf space at the retail level Exclusive territories and restricted distribution: A supplier may grant a retailer an exclusive right to sell the supplier’s product within a specified geographic area. WHEN TO BUY? Merchandise should be purchased so that there will be sufficient stock to meet consumer demand.but do not hold stock at their own risk. In addition. This practice is only illegal when it creates a monopoly or substantially lessens competition. Essentially this leads to a geographic monopoly for the retailer. etc. the public remains an important source of supply. members of the public. damaged or discontinued stock Manufacturer-owned retail chains: The problems of supply are somewhat reduced for such retail stores because substantial percentage of the product ranges are self-supplied Government and semi-government sources: A very broad spectrum of products comes from this source The public: In merchandise fields such as antiques and second-hand items. The range of merchandise carried and the services provided depends largely on their principals Other Retailers: The three main ways in which retailers act as sources of supply are: • • • For ‘specials’ For finished goods which themselves form part of a more complex product For bankrupt. sources of ideas for products can be obtained from exhibitions. bearing in mind seasonal factors and the need to keep down inventory levels to acceptable levels Exclusive dealing: Exclusive dealing occurs when a retailer agrees with a supplier not to sell its competitor’s product. trade journals.

insurance and freight): This means that the seller quotes a price including all transportation. (free alongside ship): This means that the seller quotes a price for the goods. and C.O. The cost of unloading.A.D. point.S.Tying contracts: In a tying contract. The merchandise is the responsibility of the supplier till then F. F.D.B.B.O.I.B. quantity and the seasonal discounts offered to retailers .O. the supplier allows the retailer to purchase a product or products only on the condition that the retailer also buys other specific items from the supplier Refusal to deal: Normally.F.O.S. including charges for delivery alongside a vessel at a named port. (cash on delivery): These terms are used when the supplier is unfamiliar with the retailer or when the retailer may be a poor credit risk DISCOUNTS:-Discount is a reduction in price given to retailers by their suppliers Treatment of discounts can be done under two heads: Terms of sale: they are the conditions under which merchandise is sold. or an airplane.O. F. and insurance is paid by the buyer C. Net: terms such as net 30 mean that payment of the invoice must be made within 30 days of the invoice date F. (cost.. (free on board): This means that merchandise is placed onboard a truck. The seller handles the cost of loading.I. insurance and miscellaneous expenses to a named destination C. The terms specify the trade.F. both a retailer and a supplier have the right to deal or refuse to deal with anyone they choose PAYMENT TERMS:-There are five major types of terms given to retailers when purchasing goods: Net. Title to the goods passes from the seller to buyer at the F. ocean transportation. C. a railroad car.A..

Trade discounts are usually quoted in a series and are expressed as a percentage reduction from a supplier’s list or suggested retail price Quantity discounts: This discount is offered to retailers who buy a given quantity Seasonal discount: This discount is one that retailers earn by ordering or taking delivery of merchandise before the normal selling period has begun. and it helps suppliers obtain business during slack periods Terms of Payment Cash discounts: Cash discounts are a reduction in price given by suppliers in return for prompt payment of the invoice VENDOR RELATIONSHIPS:Earlier an adversarial relationship existed between the suppliers of goods and the buyers. Among these changes were increased competition among suppliers. They indicate the permissible discounts and describe the circumstances under which payment must be made Terms of sale Trade discounts: This is a reduction in price available to some class of buyers. As a result. The size of most retailers was dwarfed by that of the vendor. Several changes in both the external and internal environments of retailing caused a shift in attitudes. Large retailer accounts were heavily sought after by the vendors. retailers dictated terms of . It is the supplier’s inducement to encourage retailers to buy early. such as wholesalers and retailers. Companies and consumers sought the lowest price and the highest quality through the bidding process and “shopping around’. increase in the market power of large retailers and the introduction of strategic partnership by innovative retailers and vendors. This was necessary because the manufacturer usually had a greater power in the negotiating process. introduction of new management techniques. Suppliers were continually played against each other in an attempt by the buyer to obtain the best possible deal.Terms of payment: they are the conditions under which retailers must make payment.

The advent of computers and information transfer technologies allowed coordination between retailers and vendors to reach a degree never before possible. Using key suppliers Many retailers have found it advantageous to do the bulk of their business with a few suppliers. Merchandise Hierarchy: Discussed in Class  . Partnerships also include a give-and-take component that cannot be overlooked. There are several reasons for doing this. This is where the manufacturer will share losses of margin incurred by the retailer under certain condition. these retailers now had the volumes and market power to skip over intermediaries and buy directly from the manufacturers. Many manufacturers now help their retail accounts in the development of merchandise and assortment plans. delivery. Manufacturers and retailers have started what is referred to as margin sharing. Also. price breaks and service arrangements such as liberal adjustment policies • Suppliers are usually able to give considerable attention to retailers who account for a significant portion of their business Strategic Partnership and Relationship Marketing Vendor/ Retailer partnerships have focused on getting the right products to the retailer at the right time and at the right price. it is confusing to work with too many of them • • Retailers who purchase from only a few suppliers reduce the amount of time they must devote to buying Consolidating orders may bring advantages in credit terms. • There are a large number of retailers in the market and since each one handles a large number of lines. There is less worry about receiving the products ordered and getting them on time. The retailer may agree to devote prime space and/or more space to a manufacturer’s product under these to a much greater extent than in the past.