Channel Institutions

Retailing

Prepared By:

Prof. Nishant Agrawal

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

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 – 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.

– Inventory management is critical

– Selling personnel and displays are important elements of the selling

process

– Strengths in ‘availability’ and ‘visibility’

Functions of Retailers

• Marketing functions to provide consumers a wide variety

• Helps create time, place and possession utilities

• May add form utility / value

• Helps create an ‘image’ for the products he sells

• Add value through:

– Additional services – extended store timings, credit, home

delivery

– Personnel to identify and solve customer problems

How do Customers Decide on a Retailer?

• Price

• Location

• Product selection

• Fairness / justice in dealings

• Friendly sales people

• Specialized services provided

Kinds of Retailers

Type of retailer Characteristics

Specialty store Narrow product line with deep assortment – apparel, furniture, books

Department store Several product line in different departments – Shoppers Stop, Big Bazaar

Supermarket Large, low-cost, low-margin, high volume, self-service operation with a wide offering

Convenience store Small stores in residential areas, open long hours all days of the week – limited variety of fast moving products like groceries, food

Discount store Standard merchandise sold at lower prices for low margins – Subhiksha , FB’s

Kinds of Retailers

Type of retailer Characteristics

Corporate chains More outlets owned and controlled by one firm – Globus , Zara

Voluntary chain Wholesaler sponsored group of independent retailers

Retailer co-ops Independent retailers with centralized buying operations and common promotions

Franchise organisation

Contractual arrangement between the producer and retailers – selling products exclusively – Kemp Toys

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 country’s GDP

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

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.

The Indian Retail Scene

Salient Features

• Estimated over 12 million retail outlets with most of them in the

unorganized sector

• 10 outlets per 1000 population

• Organized retail is estimated between 4 to 7% but growing fast

Organized Retail

• Growing trends attracting global players

• Some of them like Wall Mart and Tesco have already created

buying hubs

• Well known brands like Marks & Spencer, Reebok, Levis,

Adidas, Nike, Reebok, McDonalds, KFC, Swarowski are

already in India.

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

Retailing Trends - India

• Consumer wants more benefits without additional costs

• Rising income levels – cheap no longer works, but ‘value for

money’

• Increased literacy has made consumer more conscious of his

bargaining power

• Growing number of urban nuclear families

• Improved infrastructure helping the consumers

• Bigger volumes help in economies of scale

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

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.

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

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 Tag-Heuer watch

Trading area…

Trading Area

• 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 – BATA, Shoppers’

Stop etc

• Trading area increases with the size of the store and the variety

it offers

Retail Strategy

1. Positioning of the retailer

2. Merchandising

3. Customer service

4. Customer communication

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

Merchandising

• Activity of promoting the sale of goods, especially by their

presentation in retail outlets is called 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

Customer Service Strategy

• Personal data collected using IT – including purchasing

practices and preferences

• Customer loyalty programs planned

• Location strategy to give competitive advantage

• Understanding the buying profile of the customers

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

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

• Exclusivity of products – specialty stores

• Mostly private labels – Westside

• Feature, big, specially planned merchandising events

• Introduce new products before competition

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

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

Benefits to Franchisor

• Faster expansion

• Local franchisee pays lower advertising rates than a

national firm

• Owners motivated to work more hours

• Local taxes and licenses are responsibility of franchisees

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

• Promotional aids, in-store displays etc

Retailing on the Internet

• 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

E-tailing Issues

• Logistics support to selling

• Payment gateway

• Customer product returns

End of Session

“If you Think You Can , You Can and

If you Think You Can’t , You are

Right”