THE RETAIL BUSINESS

What Is Retailing

WHAT IS RETAILING  

RetailingRetailing- Set of Business Activities that adds value to the products and services sold to customers for their personal and family use. Retailing is not only the sale of products in stores ± also involves sale of services e.g. selling an insurance policy ; selling hotel accomodation; airline ticket etc.

What is Retailing 


All Retailing is not done through stores. NonNon-Store Retailing is also common e.g. - Direct Selling e.g. Aqua Guard - Internet Retailing or E-Tailing. E- Catalog selling. - Channel Retailing ± Amway.

Retailers Role in Distribution Channel   

A Retailer sells products or services or both for personal and / or family use.. Retailer must have the Right Merchandise, at the Right Place, at the Right Price, at the Right Time, in the Right Quantity, in the Right Assortment. Retailers provide markets for manufacturers to sell their products.

Retailers Role   

Retailer is the final point that links a manufacturer to the consumer. A Distribution Channel facilitates movement of products from point of production to the point of sale to the ultimate consumer. Manufacturer ± Wholesaler ± Retailer ± Consumer.

Retailers Role   

Manufacturers typically make products and sell them to Retailers or Wholesalers. When a manufacturer ± like Eureka Forbes ± sells directly to the consumer, it is performing both the production and retailing business activities. Wholesalers satisfy Retailer¶s needs whereas Retailers satisfy the needs of the ultimate consumer.

Retailers Role   

Some Retail Chains like Home Depot and Sam¶s Wholesale Club are both retailers and wholesalers. They perform wholesale activities when they sell to other business activities like contractors, restaurant owners. Manufacturing, wholesaling and retailing activities are also performed by individual firms but in such channels there must be vertical integration.

Retailers Role  

Vertical Integration means that a firm has to perform more than one set of activities such as investments by retailers in wholesaling or manufacturing. Many Retailers like Walmart, Safeway, Office Depot ± in India ± Bata, ITC, Bombay Dyeing etc. do both wholesaling and Retailing activities.

Retailers Role 

Other Retailers are even more vertically integrated. They design the merchandise they sell and then contract vendors to manufacture the same exclusively. Example will be : Jini & Jony.

Explore other retailers who observe this practice

Retailers Functions  

 

Providing an assortment of products and services. Breaking Bulk. Holding Inventory. Providing services.

Providing Assortments.  

Supermarkets can carry 15000 to 20000 different items made by , maybe, 300 different companies. Offering assortments helps customers to choose from large selection of brands, designs, sizes, colors and prices in one location.

Providing Assortments 

Manufacturers specialise in producing specific types of products e.g. Amul makes dairy products, Cadbury makes chocolates, Kellog makes breakfast cereals, Hind.Lever makes toiletries etc.If each manufacturer has its own store and sold its own products only then a customer would have to go to different stores to buy different products for domestic use.

Providing Assortments   

All Retailers specialize in the assortments they offer. Supermarkets offer assortments of food, health and beauty products e.g. Big Apple, Big Bazar; Shoppers Stop offers assortments of clothing and accessories. Consumers are well aware of these different assortments on offer. Even small children are now aware of what to find and where.

Breaking Bulk  

³Retail´ is deried from the French word µRetaillier¶ which means to cut a piece off or break bulk. Manufacturers or Wholesalers supply in bulk to Retailers who in turn sell in small quantities to individual consumers. This is called µbreaking bulk¶. E.g. A Retailer buys One doz. Tubes of Colgate toothpaste from the wholesaler but sells one tube to the consumer.

Holding Inventory  

Major function of Retailers is to keep stock in user friendly packs or sizes for the consumer to buy as per his needs. Thus, consumer need not keep large inventory at home because he knows that the retailer will have the stock when he needs it. This is particularly important for food stuff and perishables.

Providing Services 
   

Retailers offer credit to customers. Retailers put up attractive display of their products for the benefit of their customers. Sales persons are available to assist customers with product information etc. Multi channel retailers offer flexibility of buying anytime- day or night. anytimeCustomers have the option of home delivery.

Value Addition 

Giving Assortments, breaking bulk, holding inventory, providing services, retailers increase the value that the consumer receives from their products and services. Assignment: Illustrate the above with an example.

Retail Sales  

Retailing affects every facet of one¶s life. Every action in day to day life involves retailing.e.g. Eating, dressing, furnishing one¶s house, repairing one¶s car or bike, buying medicines, etc.etc. are all part of retail. Apart from direct retailing, there are other nonnonstore retailing like E-Tailing, TV shopping, Esale of movie tickets, hotel rooms, legal assistance etc.

Employment in Retail  

Retail is one of the largest employers in the world. In India, employment situation and the future is as follows:

Retail Potential in Future 
 

By 2011 around 600 malls will be there. Around 1.50 million jobs are from retail industry. In another one and half year there will be around 50% increase in the job requirements. 

Around 2 million direct jobs would be generated from the retail industry

Top 25 Global Retailers   

The top 25 Global Retailers in the world are as follows: ( List enclosed) WalWal-Mart is the biggest retailer in the world and its sales being three times more than Carrefour , the second largest retailer. Many large retailers are diversifying their format offerings to consumers but 50% of the 200 largest retailers focus on a single segment only.

Global Retailers   

Majority of Global Retailers are in Food Sector. More than half of the top 200 Retailers have supermarket, warehouse, hypermarket or cash and carry formats. US companies dominate the largest 200 list. 78 American companies in top 200 list represent 49% of the sales. Wal-Mart alone contributes Walmore than 9% of top 200 sales.

Global Retailers  

Japanese companies remain major global retailers. 30 Japanese companies form the second largest group of the top 200. European retailers have larger global coverage than US firms- who operate in an average of firmsthree countries (except Avon and Mcdonalds)Mcdonalds)as against European firms which operate in an average of seven countries.

Structure of Retailing and Distribution Channels  

Nature of Retailing & Distribution Channels in US is quite unique ± US distribution system has greater density and large sizes. They operate own warehouses eliminating need for wholesalers. They have sizes of 20,000 + sq.ft. Large stores and large firms result in very efficient distribution system

Structure of Retailing and Distribution Channels   

Japanese have small stores operated by small firms and a large independent wholesale industry. For efficient daily deliveries to small retailers, merchandise might often pass through three distributors between manufacturer and retailer. Thus larger labor force in Japanese system engaged in distribution and retailing than in the U.S.

Structure of Retailing and Distribution Channels   

European system falls in between US and Japanese in efficiency and scale. Northern European retailers are similar to US system ± concentration levels are high. In some national markets 80% or more of sales in food or home products are accounted for by less than five firms. In Southern Europe, retailing is more fragmented ± traditional retail operate alongside big box retailers.

Structure of Retailing and Distribution Channels  

In Central Europe, privatization of retail trade resulted in change from highly concentrated govt. controlled system to a system which is highly fragmented by many small family owned retailers. Factors which have created these differences are social & political objectives; geographical and market size.

Structure of Retailing & Distribution Channels   

Top priority of Japanese policy is to reduce unemployment by protecting small retailers. Several European countries have laws protecting small retailers. E.g. in 1996 France tightened laws for opening stores over 3000 sq.ft. Several European govts. Passed strict zoning laws to prevent green spaces, inhibit large scale retailing in suburbs.

Structure of Retailing & Distribution Channels  

Second, population density in U.S.is much lower than in Europe and Japan. Thus Europe and Japan have low cost real estate available for building large stores. Third, US Retail market is larger than Japan or any single European country. In Europe retail chains and distribution centres operate within a single country, hence cannot economies of scale of US firms serving broader customer base.

Structure of Retailing & Distribution Channels 

Even with efforts to make trade within European countries simple and more efficient, there are several trade barriers which are not existent in the U.S.

OPPORTUNITIES IN RETAILING Management Opportunities 
 

Retailers hire people with wide range of skills and interests to cope with the competition. Students view Retailing as part of marketing as Distribution is part of manufacturer¶s marketing function. But Retailers undertake most traditional business activitiesactivities- raising finance, purchase goods and services, develop MIS, design & develop new products, undertake marketing activities like advertising, promotions, sales force management, and market research.

OPPORTUNITIES IN RETAILING Management Opportunities  

Retail Managers are often given considerable responsibility early in their careers. Retail Management is also financially rewarding for those who perform well.

Significance of Retail Industry  

Consumer money drives the economy and retail is where the consumers spend the money. Retailers ± restaurants, boutiques, mail-order mailcompanies, e-tailers - these are establishments ewhere retailers spend their hard earned money. When a sale takes place, retailers realize revenue and so do the wholesalers, distributors, manufacturers etc.

Significance of Retail Industry   

Retail transactions serve as a means for collecting sales taxes which supports public services of all kinds. Retail goods are traditionally divided into durables and non- durables. nonDurables are furniture, appliances, cars which are expected to last 5 years or more; NonNondurables include food, clothing and numerous others which form the bulk.

Significance of Retail Industry 

Retail industry offers immense opportunities to entrepreneurs and workforce for various jobs. Retail offers opportunities to buyers, suppliers, and those managing the operations, finances, and administration of retail companies.

Entrepreneurial Opportunities   

Retailing provides opportunities who wish to start their own business. Some of the world¶s richest people are retailing entrepreneurs. E.g. Sam Walton. In 1994, Jeffrey Bezos, 30 year old son of a Cuban refugee, quit his highly paying job in Wall Street to start an Internet business when he found that Internet usage was growing at 2300%.

Entrepreneurial Opportunities  

While his wife was driving the cross country, Jeffrey made his business plan on a laptop and rounded up the business plan to launch the first internet book retailer ± Amazon.com It was so named after the river that carries the largest volume of water symbolizing Bezos¶s objective of having the greatest volume of internet sales.

Entrepreneurial Opportunities  

Today, Amazon. com sells more than just books and CDs e.g. its consumer electronics business sells 25,000 items compared to 5000 in a big electronics superstore. Amazon has also developed partnerships with Sotheby¶s auction house, Toys ³R´ Us, and others.

Entrepreneurial Opportunities   

In 1945, Luciano Benetton lost his father when he was only 10 years old. In 1960s, he started a sweater company with his sister which has now grown to UCB operating in 120 countries with business of over $2 billion. Most know Georgio Armani as a fashion designer. His worth is $ 1.7 billion and he owns more than 260 stores.

Entrepreneurial Opportunities 

As many as 10% of the world¶s billionaires are retailers. Retail accounts for over 8% of GDP in western countries and is one of the largest employers. In U.S.A., more than 22 million Ameriacns are employed in the retailing industry in over 2 million retail stores.

Entrepreneurial Opportunities 

Retailing in the developed world is more organized than in India. In USA it is 80%; Western Europe is 70%; it is 40% in Brazil and Argentina and 35% in Korea and Taiwan.

DEVELOPING A RETAIL STRATEGY 
  

Retail Strategy identifies Target Market Nature of Merchandise and services which Retailer will offer to cater to the Target Market. How Retailer will develop long-term longadvantage over competition.

DEVELOPING A RETAIL STRATEGY
Strategy of Wal-Mart and Toys ´R´ Us. WalWALWAL-MART:  Target Market ± Small Towns (under 35,000 popn).  Merchandise ± Branded; Low Price in broad categories ranging from laundry detergents to girl¶s dresses. Wal-Mart offers different categories of Walmerchandise but selection in each category is limited. E.g. A store may have only 3 brands of detergents in two sizes while a supermarket carries 8 brands in five sizes. 

DEVELOPING A RETAIL STRATEGY 
 

TOYS ³ R ³ US: Target Market ± Suburban areas of large cities. Merchandise ± Specialize in Toys, games, bicycles and furniture for children. Has limited categories of merchandise but has all different types and brands of toys and games currently available.

DEVELOPING A RETAIL STRATEGY 
  

Both Wal-Mart and Toys ³ R ³ Us emphasize self Walservice. Since they emphasize Low-price, both have taken Lowstrategic decisions to develop cost advantage over their competitors. Both have sophisticated distribution and management information systems to manage inventory. They buy at low prices because of their strong relationship with their suppliers.

STRATEGIC DECISION AREAS 

a) b) c) d)

e)

Key Strategic Decision Areas are: Market Strategy. Financial Strategy. Organizational Structure and HR Strategy. Information Systems and Supply Chain Strategies. Customer Relationship Management Strategies.

STRATEGIC DECISION AREAS  

Retail Market Strategy based on Environment and the firm¶s strengths and weaknesses. When major environmental changes occur, the Retailer has to suitably alter current strategy to take advantage of new opportunities or avoid new threats. Retailer¶s market strategy must be consistent with the financial objectives.

STRATEGIC DECISION AREAS  

Location Strategy important for both consumer and competition. First, location is consumer¶s prime consideration for patronizing a store - e.g. a customer buys petrol from the service station closest to his residence or place of work; patronizes a mall also for the same reasons.

STRATEGIC DECISION AREAS 

Second, Location means long-term advantage longover competition. When a Retailer has the best location, a competing retailer has to settle for the second best location.

STRATEGIC DECISION AREAS 

Organization Design and HRM Strategy connected to market strategy. E.g. Retailers serving national or regional markets must choose between efficiency of centralized buying and the need to tailor products and services to suit local requirements. Retailers who require high-end quality of service for hightheir customers must motivate their sales associates to fulfill the same.

STRATEGIC DECISION AREAS 

Improved Information and SCM systems provide retailers strategic advantage over competitors. Sophisticated computer and distribution system monitors flow of information and merchandise from vendors to RDCs to Stores. These technologies are part of an over-all inventory management system that overenables retailers to give customers better choice of merchandise with lesser inventory investment.

STRATEGIC DECISION AREAS    

Basic strategy is understanding and satisfying customer¶s needs. More important is to understand and cater to the wants of the retailer¶s valued customers ± these are the ones who contribute the major share of the retailer¶s sales and profits. CRM focuses on identifying and building loyalty with the retailer¶s most valued customers. Example: J.C.Penney ± Case Study.

Implementing Retail Strategy 

To implement Retail Strategy, you need to develop a Retail Mix which is a combination of factors used to satisfy customer needs and influence their purchase decisions.

Implementing Retail Strategy 
      

Elements in Retail Mix are: Types of Merchandise and Services. Merchandise Pricing. Advertising & Promotional Programmes. Store design. Merchandise display. Customer service. Store Location.

Implementing Retail Strategy 

Managers responsible for buying have to decide - how much and what to buy. - select the right vendors and purchase terms. - Fix retail prices. - How to advertise & promote.

Implementing Retail Strategy 

Store Managers have to decide - how to recruit, select the right kind of sales people. - how to motivate them. - where and how to display merchandise. - the kind of service to provide customers.

The Retail Business  

Key to successful Retailing is offering the right product, at the right price, in the right place, at the right time, in the right quantity, in the right assortments and make a profit. To accomplish this, retailers must understand the customers needs and wants and what competitors offer now and in the future.

The Retail Business  

A Retailer has to take a wide range of decisions ± from deciding the price of a piece of apparel or whether a big store should be built in a mall or not. Correct decision making is the key to success in a retail venture.

Retailer¶s Characteristics 
 

 

Direct end-user interaction in Retailing. endOnly point in Value Chain to provide a platform for promotions. Sales at Retail level in smaller unit sizes. Location is critical in Retail. In most Retail business, service is as important as the core products.

Retailer¶s Characteristics 

There are a larger no. of retail units compared to other members of the value chain. This happens primarily to meet the requirements of geographical coverage and population density.

Retailer¶s Characteristics 

Direct Interaction with Customers: Retailer has direct interaction with the end user of goods or services ± act as intermediaries between end users and wholesalers and manufacturers. As such they are in a better position to gauge the consumers response and preferences to the manufacturers or suppliers. This helps manufacturers to redefine products and marketing strategy.

Retailer¶s Characteristics  

Manufacturers require strong retail network for reach of product and to obtain strong platform for promotions and point ± of-purchase ofadvertising. Because of the importance of retailing in the value chain, many manufacturers have become retailers themselves by setting up exclusive stores for their brands.

Retailer¶s Characteristics  

This has provided direct contact with customers and also wide publicity. Retailing provides extensive support for products which are information intensive e.g. consumer durables.

Retailer¶s Characteristics  

Hence, retailers must have proper inventory control and enforce effective cost control measures with each transaction. Credit verification, personnel and value added activities like packaging, gift ± wrapping, promotional incentives all add up to costs. To offset this, retailers must attract max. no. of shoppers.

Retailer¶s Characteristics 

Many customers in India buy grocery items on a daily basis rather than on weekly or monthly basis. Inventory management is tough for retailers because of the many minor transactions and large no. of customers.

Retailer¶s Characteristics 

Point of Purchase Display and Promotions: A big chunk of retail sales is a result of unplanned or impulse purchases. Hence, a retailer must take advantage of this and tries to attract he customer through eye catching display, point-of- purchase merchandise, store point-oflayout etc. Impulse goods like chocolates, snack food, magazines, shaving blades sell faster in high visibility and high traffic locations.

Retailer¶s Characteristics 

Large No. of Retail Outlets: No. of outlets have to be high to reach out to the max. number of customers. Location of the retail store plays an important role and this is done keeping in mind potential demand, supply of merchandise, store image and the geographical location.

Role of Services in Retailing  

Store location and facilities are important. Parking facilities, extended hours of shopping, children¶s play areas, wash rooms, trial rooms are important. Efficient customer service to make the customer feel comfortable and important.

Role of Services in Retailing  

Though shopping over the phone or through internet have become popular, majority of Indian customers still prefer to visit stores for shopping. Stores are popular because consumers need to see and test products, there is social interaction, compare different brands and leads to impulse buying.

Theories of Retailing  

Retailing is dynamic. New Retail firms bring innovative approaches and change the industry as enter, develop and grow. New Retailers introduce new ideas e.g. Home shopping clubs through Cable TV. Such retailers are at the entry stage ± development and introduction. Over time consumer¶s acceptance of this can be known.

Theories of Retailing   

Retailers who survive the development and introduction stage enter the µgrowth¶ stage. As business grows, it gradually moves into the µmaturity¶ stage. Here, competition intensifies and strategies must be developed to maintain existing market share. Most department stores today are in this stage. Those who cannot compete effectively move into the µdecline¶ stage and ultimately are out of business.

Theories of Retailing  

In Retailing, change is not a matter of chance; it is virtual certainty. Identify three Retailers who are now in the µdecline¶ stage and the reasons.

Theories of Retailing 

Dialectic Process: This is an evolutionary Process: theory based on the premise that retail institutions evolve. New retail formats emerge by adopting characteristics from other forms of retailers similar to the theory of human evolution ± a child is the result of pooled genes of two individuals.

Theories of Retailing 

Dialectic Process: It is also the blending of two opposite store types into a superior form. E.g. a specialty store offers specialized merchandise, wide array of services, attractive surroundings. This combined with a discount store will become a speciality discount store with wide customer services, broad assortment of specialized merchandise, attractive surroundings and at discounted prices.

Theories of Retailing 

Gravity Model: This is a theory about the structure of market areas. Volume of purchases by consumers and the frequency of trips to the outlets are a function of the size of the size of the store and also decides on the distance between the store and the origin of the shopping trip.

Theories of Retailing 

Retail Accordion Theory: This theory Theory: suggests that retail institutions go from outlets with wide assortments to specialized, narrow and compact assortments and then back again to the more general and wide assortment situation. This is also called the general ± specific ± general theory.

Theories of Retailing 

Retail Lifecycle Theory: This is a theory of Theory: retail competition that states that retail institutions ± like the products they distribute, pass through an identifiable cycle. This cycle is in four distinct stages ± Innovation ± Accelerated development ± maturity ± decline.

Theories of Retailing 

Wheel of Retailing Theory: A theory of retail Theory: institutional changes that explains retail evolution with an institutional life cycle concept. New retailers enter as low-status, low lowmargin, and low price operations. As they achieve success, they increase their customer base an sales; products are upgraded, facilities improved, new services added. Prices and margins are increased to support higher costs.

Theories of Retailing 

New retailers enter market to fill the gap in lowlow-status, low margin and low price niche. A retail store type emerges, enjoys accelerated growth, reaches maturity and declines. The µwheel of retailing¶ theory has been criticized because it does not explain all the changes in retailing ± e.g. many stores do not begin as low price, low service outlets.

Theories of Retailing 

Natural Selection Theory: A theory of retail Theory: institutional changes that states retailers that can most effectively adapt to environmental changes are the ones that are most likely to prosper and survive. E.g. TV home shopping is expanding and growing because they are responding to changes in the demands of the consumers.

Theories of Retailing 

Central Place Theory: This represents a Theory: model that ranks communities according to the assortment of goods available in each. At the bottom of the hierarchy ae communities that represent the smallest central places which provide the basic necessities of life. Further up the hierarchy are larger central places which carry all goods and services found in lower order central places plus more specialized ones that are not necessary.

Theories of Retailing  

All the theories suffer from lack of emphasis on customer taste, wants, desires and expectations. By patronizing stores that meet their needs and avoiding those that do not, consumers exert a powerful force on the evolution of retailing. Retailers will succeed by knowing their customers well. Customers expect retailers to provide value not only in the merchandise but in the total shopping experience ± pleasant atmospherics, courteous service and special touches like live entertainment.

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