Lesson 1: Introduction to Retail Management

What Is Retailing?

Retailing is the set of business activities that adds value to the products and services sold to
the customers for their personal and family use. Often people think of retailing only as the
sale of products in stores, but retailing also involves the sale of services such as overnight
lodging in a hotel, a doctor’s exam, a haircut or home delivery pizza. Not all retailing is done
in store. Examples of non-stores retailing are the internet sales of hot sauces, direct sales of
cosmetics by Avon, Catalog by Natasha and others.

The Retailer’s Role in Supply Chain

A retailer is a business that sells products and/or services to consumers for their personal or
family use. Retailers are the key component in a supply chain that connects manufacturers
and consumers. A supply chain is a set of firms that make and deliver goods and services to
consumers.

Manufacturers design and make products and sell them to retailers or wholesalers.
Wholesalers engage in buying, taking title to, often storing and physically handling goods in
large quantities and then reselling the goods to retailers or other businesses. Usually
wholesalers focus on satisfying retailer’s needs, while retailers direct their effort to satisfying
the needs of consumers.

Retailers Create Value

Why are retailers needed? Retailers are more efficient at performing the activities prescribed
below that increase the value of products and services for consumers. These value creating
activities include (1) providing an assortment of products and services, (2) breaking bulk, (3)
holding inventory, and (4) providing services.

The word retail is derived from the French word retailer, meaning to cut a piece off or break
bulk.
 Lesson 1: Introduction to Retail Management

1. Providing assortment. Supermarkets usually carry 20,000 to 30,000 different items

made by more than 500 companies. Offering an assortment enables their customers
to choose from a wide selection of products, brands, sizes, and prices at one
location.
2. Breaking bulk. To reduce transportation costs, manufacturers and wholesalers
typically ship cases of frozen dinners or cartons of blouses to retailers. Retailers offer
the products in smaller quantities tailored to individual consumers’ and households’
consumption patterns – an activity called breaking bulk. It is important to
manufacturers because it enables them to efficiently make and ship merchandise in
large quantities. It is also important to consumers because it enables them to
purchase in smaller, more useful quantities.
3. Holding inventory. A major value-providing activity performed by retailers is holding
inventory so the products will be available when consumers want them. Consumers
can keep a small inventory of products at home because they know local retailers will
have the products available when they need more.
4. Providing services. Retailers provide services that make it easier for customers to
buy and use products. For example retailers offer credit so that consumers can have
a product now and pay for it later. They display products so consumers can see and
test them before buying.

Social And Economic Significance Of Retailing

1. Social Responsibility - Corporate Social Responsibility (CSR) involves an

organization voluntarily taking responsibility for the impact of its activities on its
employees, its customers, the community and the environment.
2. Retailing is one of the nation’s largest industries in terms of employment.
a. Opportunities in Retailing
i. Management Opportunities - Retailers hire and promote people
with a wide range of skills and interests. They employ people with
expertise and interest in finance, accounting, human resource
management, supply chain management, and computer systems as
well as marketing.
ii. Entrepreneurial Opportunities - Retailing also provides opportunities
for people who wish to start their own business. Some innovative retail
entrepreneurs are Jeff Bezos of Amazon.com, Anita Roddick (Body
Shop) and Ingvar Kamprad (IKEA).
 Lesson 1: Introduction to Retail Management

The Retail Management Decision Process

● Understanding the World of Retailing

The critical factors in the world of retailing are (1) the microenvironment and (2)
macroenvironment. The impacts of macroenvironment – include the technological, social
and ethical/legal/political factors. The retailer’s microenvironment focuses specifically on its
competitors and customers.

Competitors – a retailer’s primary competitors are other retailers that use the same type of
store, thus, department stores against other department stores. This competition between
the same type of retailers is called intratype competition. Scrambled merchandising
where the retailers offer merchandise not typically associated with their type of stores such
as clothing in a drugstore. Scrambled merchandising increases intertype competition.

Customers – the second factor in the microenvironment is customers. Retailers must

respond to broad demographic and lifestyle trends in our society such as growth in the
senior and minority segments of the US population or the importance of shopping
convenience to the increasing number of two-income families. To develop and implement an
effective strategy, retailers must understand why customers shop, how they select a store
and how they select among the store’s merchandise.