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UNIT I-INTRODUCTION TO RETAILING
STRUCTURE
OVERVIEW
Retailing is a distribution channel function where one organization buys products from supplying firms or manufactures the product themselves, and then sells these directly to consumers. A retailer is a reseller (i.e., obtains product from one party in order to sell to another) from whom a consumer purchases products.Retailing in more developed countries is a big business and better organized than what is in India. According to a report published by Mc kinsey &co along with the confederation of the Indian industry the global retail business is worth a staggering US$6-6 trillion. In the developed world most of it accounted for by the organized retail sector. For instance, the organized sector has an 80%share of retail sales in the united states whereas in western Europe it is 70%,Malaysia it is 50%,Thailand 50%,40% in brazil and argentina,35%in Philippines,25% in Indonesia and 15%in south Korea and around 10% in china.An effort is made to explain Retailing - Definition, Nature, Scope and Meaning, Classification, Retail formats, Retailing & Marketing , Growing importance of retailing, Factors influencing retailing and Steps in choosing a retail location.
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1.1 INTRODUCTION
Retailing is set of business activities that adds value to the products and services sold to consumers for their use. Retailing includes sale of services like health care,hotels,internet centers,legal consultants etc., .Not all retailing is done in stores. Non store retailing include web based retailing,direct sales,catalog sales etc.,to quote as examples.
The word retail is derived from the French term retaillier meaning “to break bulk”. This means it is the final link in the distribution channel.A distribution channel is a set of firms that facilitate movement of products from point of production to the point of sale to the ultimate consumer.
Retailing involves a direct interface with the customer and coordination of business activities from conception to delivery and post delivery service to customers.
Retailing is evolving into a global, high-tech industry that plays a major role in the global economy. More than 60 percent of U.S economic activity is affected by retailing and about one in five U.S workers are employed by retailers.
1.2 EVOLUTION OF RETAILING
The industrial revolution necessitated dramatic changes on the retail front. The increase in urbanization meant that consumers were now clustered .in small geographic areas. These led to the emergence of shops to serve the needs of locals. The consumers increased and mass transportation became a way of life.Mass manufacturing ,longer distribution channels and mass merchandisers evolved.Retail evolved in many ways over the 20th century.self service is a concept started in 1916 helped the retailer in reducing costs,as fewer workers were required to service the customers.The emergence of the supermarkets during 1930s,discounted stores and hypermarket like Carrefour in France in 1963 indicated retail boom. As the needs of the consumers grew and changed one saw the emergence of the commodity specialized mass merchandisers in the 1970s. the seventies also witnessed the use of technology in the retail sector with the introduction of the barcode specialty chains developed in the 80s as did large shopping malls. In 1995 the world of retail opened the doors to global market on the web. with the growth of the world wide web ,both the retailers and consumers can find suppliers and products from anywhere in the world.
= SCOPE OF RETAILING=
In the last two decades of the twentieth century,the UK and many otherb developed nations have seen their economies change from being manufacturing led to being service led in terms of wealth creation,employment and investment.around one third of consumer expenditure takes place through reail outlets .The retail price index is a frequently referred to economic indicator. It is a measure that is based on a ‘basket’ of products across all retail sectors and compares prices over time in order to reveal the changes in the cost to households of typical purchase needs. In recent years the retail price index in U.K has been stable indicating stability in the economy.Retailing is increasingly a global business. A more structured retail industry with more multiple retailers is a sign that an economy is developing, as organizations specialize and gain economies of scale. As the artificial barriers to trade such as import duty and quota restrictions are removed from global economy many retailers view world as their market place and make sourcing and outlet operation decisions on a set of criteria that are relevant across the globe.
==IMPORTANCE OF RETAILING==
Retailing is important to the national economy for the following reasons:
1. A big part of our personal income is spent for retail goods.
2. It is a major source of employment.
3. In the distribution system, it is the link to the ultimate consumers.
4. The level of retail sales indicates the consumer's purchasing power, thus it becomes
the basis for determining our economic status.
5. It adds value to the product because it created use for places, time, and property.
6. It accounts for a major portion of marketing costs.
7. Taxes from retail store add income to our national treasury.
=1.4 CLASSIFICATION OF RETAILERS=
There are many ways retailers can be categorized depending on the characteristics being evaluated. For our purposes we will separate retailers based on six factors directly related to major marketing decisions:
Target Markets Served
Product Offerings
Pricing Structure
Promotional Emphasis
Distribution Method
Service Level
and one operational factor:
Ownership Structure
However, these groups are not meant to be mutually exclusive. In fact, as we will see in some way all retailers can placed into each category
==1.4.1 Retail categories based on : Target Markets Served==
The first classification looks at the type of markets a retailer intends to target.
Mass Market – Mass market retailers appeal to the largest market possible by selling products of interest to nearly all consumers. With such a large market from which to draw customers, the competition among these retailers is often fierce.
Specialty Market – Retailers categorized as servicing the specialty market are likely to target buyers looking for products having certain features that go beyond mass marketed products, such as customers who require more advanced product options or higher level of customer service. While not as large as the mass market, the target market serviced by specialty retailers can be sizable.
Exclusive Market – Appealing to this market means appealing to discriminating customers who are often willing to pay a premium for features found in very few products and for highly personalized services. Since this target market is small, the number of retailers addressing this market within a given geographic area may also be small.
==1.4.2 Retail Categories: Product Offerings==
Under this classification retailers are divided based on the width (i.e., number of different product lines) and depth (i.e., number of different products within a product line) of the products they carry.General Merchandisers – These retailers carry a wide range of product categories (i.e., broad width) though the number of different items within a particular product line is generally limited (i.e., shallow depth). Multiple Lines Specialty Merchandisers - Retailers classified in this category stock a limited number of product lines (i.e., narrow width) but within the categories they handle they often offer a greater selection (i.e., extended depth) than are offered by general merchandisers. For example, a consumer electronics retailer would fall into this category. Single Line Specialty Merchandisers – Some retailers limit their offerings to just one product line (i.e., very narrow width), and sometimes only one product (i.e., very shallow depth). This can be seen online where a relatively small website may sell a single product such as computer gaming software. Another example may be a small jewelry store that only handles watches.
==1.4.3Retail Categories: Pricing Strategy==
Retailers can be classified based on their general pricing strategy. Retailers must decide whether their approach is to use price as a competitive advantage or to seek competitive advantage in non-price ways.Discount Pricing – Discount retailers are best known for selling low priced products that have a low profit margin (i.e., price minus cost). To make profits these retailers look to sell in high volume. Typically discount retailers operate with low overhead costs by vigorously controlling operational spending on such things as real estate, design issues (e.g., store layout, website presentation), and by offering fewer services to their customers. Competitive Pricing – The objective of some retailers is not to compete on price but alternatively not to be seen as charging the highest price. These retailers, who often operate in specialty markets, aggressively monitor the market to insure their pricing is competitive but they do not desire to get into price wars with discount retailers. Thus, other elements of the marketing mix (e.g., higher quality products, nicer store setting) are used to create higher value for which the customer will pay more. Full Price Pricing – Retailers targeting exclusive markets find such markets are far less price sensitive than mass or specialty markets. In these cases the additional value added through increased operational spending (e.g., expensive locations, more attractive design, more services) justify higher retail prices. While these retailers are likely to sell in lower volume than discount or competitive pricing retailers, the profit margins for each product are much higher.
==1.4.4 Retail Categories: Promotional Focus==
Retailers generate customer interest using a variety of promotional technique, yet some retailers rely on certain methods more than others as their principle promotional approach.Advertising – Many retailers find traditional mass promotional methods of advertising, such as through newspapers or television, continue to be their best means for creating customer interest. Retailers selling online rely mostly on Internet advertising as their promotional method of choice. Direct Mail – A particular form of advertising that many retailers use for the bulk of their promotion is direct mail – advertising through postal mail. Using direct mail for promotion is the primary way catalogue retailers distribute their materials and is often utilized by smaller local companies who promote using postcard mailings. Personal Selling – Retailers selling expensive or high-end products find a considerable amount of their promotional effort is spent in person-to-person contact with customers. While many of these retailers use other promotional methods, in particular advertising, the consumer-salesperson relationship is key to persuading consumers to make purchase decisions.
==1.4.5 Retail Categories: Distribution Method==
Retailers sell in many different formats with some requiring consumers visit a physical location while others sell to customers in a virtual space. It should be noted that many retailers are not tied to a single distribution method but operate using multiple methods.Store-Based Sellers – By far the predominant method consumers use to obtain products is to acquire these by physically visiting retail outlets (a.k.a. brick-and-mortar). Store outlets can be further divided into several categories. One key characteristic that distinguishes categories is whether retail outlets are physically connected to one or more others stores:
Stand-Alone – These are retail outlets that do not have other retail outlets connected.
Strip-Shopping Center – A retail arrangement with two or more outlets physically connected or that share physical resources (e.g., share parking lot).
Shopping Area – A local center of retail operations containing many retail outlets that may or may not be physically connected but are in close proximity to each other such as a city shopping district.
Regional Shopping Mall – Consists of a large self-contained shopping area with many connected outlets.
Non-Store Sellers – A fast growing method used by retailers to sell products is through methods that do not have customers physically visiting a retail outlet. In fact, in many cases customers make their purchase from within their own homes.
Online Sellers – The fastest growing retail distribution method allows consumer to purchase products via the Internet. In most cases delivery is then handled by a third-party shipping service.
Direct Marketers – Retailers that are principally selling via direct methods may have a primary location that receives orders but does not host shopping visits. Rather, orders are received via mail or phone.
Vending – While purchasing through vending machines does require the consumer to physically visit a location, this type of retailing is considered as non-store retailing as the vending operations are not located at the vending company’s place of business.
==1.4.6 Retail Categories: Service Level==
Retailers attract customers not only with desirable products and affordable prices, but also by offering services that enhance the purchase experience. There are at least three levels of retail service:
Self-Service – This service level allows consumers to perform most or all of the services associated with retail purchasing. For some consumers self-service is considered a benefit while others may view it as an inconvenience. Self-service can be seen with: 1) self-selection services, such as online purchasing and vending machine purchases, and 2) self-checkout services where the consumer may get help selecting the product but they use self-checkout stations to process the purchase including scanning and payment.
Assorted-Service – The majority of retailers offer some level of service to consumers. Service includes handling the point-of-purchase transaction; product selection assistance; arrange payment plans; offer delivery; and many more.
Full-Service – The full-service retailer attempts to handle nearly all aspects of the purchase to the point where all the consumer does is select the item they wish to purchase. Retailers that follow a full-price strategy often follow the full-service approach as a way of adding value to a customer’s purchase.
==1.4.7 Retail Categories: Ownership Structure==
Finally, we can categorize retailers based on the ownership structure of the business.
Individually Owned and Operated – Under this ownership structure an individual or corporate entity owns and operates one or a very small number of outlets. Single ownership of retail outlets most frequently occurs with small retail stores, though there are some cases, for instance in the automotive or furniture industries, where single ownership involves very large outlets.
Corporate Chain – A retail chain consists of multiple retail outlets owned and operated by a single entity all performing similar retail activities. While the number of retail outlets required to be classified as a chain has never been specified, we will assume that anyone owning more than five retail locations would be considered a chain.
Corporate Structure – This classification covers large retailers predominantly operating in the non-store retail arena such as online, catalogue and vending.
Contractually Licensed and Individually Operated – The contractual channel arrangement in the Distribution Decisions has lead to a retail ownership structure in which operators of the retail outlet are not the out-right owners of the business. Instead, the arrangement often involves a legal agreement in which the owner of the retail concept allows the operator to run the owner’s business concept in exchange for financial considerations such as a percentage of revenue. This structure is most often seen in retail franchising.
=1.5 RETAILING AND MARKETING=
The marketing concepts are known as the retailing concept when applied to retail situations. The retailing concept comprises of four elements:
1.Customer orientation-the retailer determines the attributes and needs of the customers and endeavours to satisfy to the fullest.
2.Coordinated effort-the retailer integrates all plans and activities to maximise efficiency.
3.Value- driven –The retailer’s offer good value to the consumers, whether it be a discount or value for money that includes all elements in the shopping experience and beyond sale the service.
4.Goal orientation-The retailer sets goals and then uses its strategy to attain them.
Retailing forms an integral part of marketing mix and includes elements like product, place, price, people, presentation and promotion. Place relates to the distribution and the availability of products in various locations. The total retail experience consists of all the elements in a retail offering that encourage or inhibit consumers during their contact with a retailer. Customer service includes identifiable, but sometimes intangible activities undertaken by a retailer in association with the basic goods and services sold. It has an effect on the total retail experience. In relationship retailing the firm seeks long term bonds with customers rather than acting as each sales transaction is a totally new encounter with them. Thus, all marketing concepts apply well in retailing.
=1.6 Factors influencing retail=
The transformation of supply-led market to demand- led market accelerated a new meaning to the evolution of consumer oriented retail industry. The factors that influence retailing are rising income, explosion of media, change in consumer behaviour, the waking up of rural market, change in the scale of operations, entry of corporate sector, expansion of family oriented business, new entrepreneurs, building chains around brands, technological options and global operations and entry options for foreign retailers act as key drivers to influence the retail sector.
==1.6.1 Growth Factors in Indian Organized Retail sector==
=1.7 Retail Store Location :Factors to be considered in choosing a
location=
==1.7.1 Population and the Customer==
To locate a retail store location, research the area thoroughly before making a final decision. Inforation search should include reading local papers and speaking to other small businesses in the area. Obtain location demographics from the local library, chamber of commerce or the Census Bureau. Any of these sources should have information on the area's population, income and age. As the retailer has identified the who the customers are, he can make sure to find a location where your customers live, work and shop.
==1.7.2 Accessibility, Visibility and Traffic==
It should be borne in mind that a retailer does not confuse a lot of traffic for a lot of customers. Retailers want to be located where there are many shoppers but only if that shopper meets the definition of their target market. Small retail stores may benefit from the traffic of nearby larger stores.
How many people walk or drive past the location.
Is the area served by public transportation?
Can customers and delivery trucks easily get in and out of the parking lot?
Is there adequate parking?
Depending on the type of business, it would be wise to have somewhere between 5 to 8 parking spaces per 1,000 square feet of retail space.
When considering visibility, look at the location from the customer's view point. Can the store be seen from the main flow of traffic? Will your sign be easily seen? In many cases, the better visibility your retail store has, the less advertising needed. A specialty retail store located six miles out of town in a free standing building will need more marketing than a shopping store located in a mall.
1.7.3 Signage, Zoning and Planning
Before signing a lease, one should understand all the rules, policies and procedures related to retail store location. Contact the local city authorities for zoning for information on regulations regarding signage. Study on restrictions that may affect retail operation and any future planning that could change traffic, such as highway construction should be analysed.
1.7.4 Competition and Neighbours
Other area businesses in the prospective location can actually help or hurt retail shop operations. The types of businesses nearby are compatible to the store shall be determined for compatibility. For example, a high-end fashion boutique may not be successful next door to a discount variety store. If the location is next to a hair salon it may do much more business.
1.7.5 Location Costs
Besides the base rent, all costs involved shall be considered when choosing a retail store location.
Who pays for lawn care, building maintenance, utilities and security?
Who pays for the upkeep and repair of the air-conditioning/heating units?
If the location is remote, how much additional marketing will it take for customers to find you?
How much is the average utility bill?
Will you need to make any repairs, do any painting or remodelling to have the location fit your needs?
Will the retailer be responsible for property taxes?
The location you can afford now and what you can afford in the future should vary. It is difficult to create sales projects on a new business, but one way to get help in determining how much rent you can pay is to find out what sales similar retail businesses are making and how much rent they're paying.
1.7.6 Personal Factors
Personal considerations like the distance from the shop to points of personal and business operations could be taken into consideration. The cost of time and travel to and from work and any other restrictions placed on a tenant by a landlord, management company or community can hamper a retailer's independence.
1.7.7 Special Considerations
Retail shop may require special considerations. Make a list of any unique characteristic of your business that may need to be addressed.
Will the store require special lighting, fixtures or other hardware installed?
Are restrooms for staff and customers available?
Is there adequate fire and police protection for the area?
Is there sanitation service available?
Does the parking lot and building exterior have adequate lighting?
Does the building have a canopy that provides shelter if raining?
What is the crime rate in the area?
Are there restrictions on Sunday sales?
With the option of choosing an ideal location it has to be understood that one should not feel rushed into making a decision. Considerable time has to be taken to research the area and have patience. Waiting to find the perfect store location is better than just settling for the first place that comes along. The wrong location choice could be devastating to retail business.
1.8 Types of Retail Locations -Store Location Options
Commercial retail locations are available in many different forms. Stop and think about the businesses in your town. Like most communities, there are probably older shopping areas, new bustling retail locations and some tucked away shops.
Retailers have many store location factors to consider when choosing a place for their business. Here are a few of the more common types of retail locations.
1.8.1 Mall Space
From kiosks to large anchor stores, a mall has many retailers competing with each other under one roof. There are generally 3 to 5 anchor stores, or large chain stores, and then dozens of smaller retail shops. Typically the rent in a mall location is much higher than other retail locations. This is due to the high amount of customer traffic a mall generates. Before selecting this type of store location, be sure the shopper demographic matches the description of your customers. Mall retailers will have to make some sacrifices in independence and adhere to a set of rules supplied by mall management.
1.8.2 Shopping Center
Strip malls and other attached, adjoining retail locations will also have guidelines or rules for how they prefer their tenants to do business. These rules are probably more lenient than a mall, but make sure you can live with them before signing a lease. Your community probably has many shopping centers in various sizes. Some shopping centers may have as few as 3 units or as many as 20 stores. The types of retailers, and the goods or services they offer, in the strip mall will also vary. One area to investigate before choosing this type of store location is parking. Smaller shopping centers and strip malls may have a limited parking area for your customers.
1.8.3 Downtown Area
Like the mall, this type of store location may be another premium choice. However, there may be more freedom and fewer rules for the business owner. Many communities are hard at work to revitalize their downtown areas and retailers can greatly benefit from this effort. However, the lack of parking is generally a big issue for downtown retailers. You'll find many older, well-established specialty stores in a downtown area. This type of store seems to thrive in the downtown setting.
1.8.4 Free Standing Locations
This type of retail location is basically any stand-alone building. It can be tucked away in a neighborhood location or right off a busy highway. Depending on the landlord, there are generally no restrictions on how a retailer should operate his business. It will probably have ample parking and the cost per square foot will be reasonable. The price for all that freedom may be traffic. Unlike the attached retail locations where customers may wander in because they were shopping nearby, the retailer of a free standing location has to work at marketing to get the customer inside.
1.8.5 Office Building
The business park or office building may be another option for a retailer, especially when they cater to other businesses. Tenants share maintenance costs and the image of the building is usually upscale and professional.
1.8.6 Home-based
More and more retail businesses are getting a start at home. Some may eventually move to a commercial store location, while many remain in the business owner's spare room. This type of location is an inexpensive option, but growth may be limited. It is harder to separate business and personal life in this setup and the retailer may run into problems if there isn't a different address and/or phone number for the business.
SUMMARY
Traditionally retailing in can be traced to
The emergence of the neighborhood ‘Kirana’ stores catering to the convenience of the consumers
Era of government support for rural retail: Indigenous franchise model of store chains run by Khadi & Village Industries Commission
1980s experienced slow change as India began to open up economy.
Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim first saw the emergence of retail chains
Later Titan successfully created an organized retailing concept and established a series of showrooms for its premium watches
The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure Retailers.
For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music World in music; Crossword and Fountainhead in books.
Post 1995 onwards saw an emergence of shopping centers,
mainly in urban areas, with facilities like car parking
targeted to provide a complete destination experience for all segments of society
Emergence of hyper and super markets trying to provide customer with 3 V’s - Value, Variety and Volume
Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom of the pyramid.
The key drivers of growth of organized retailing in India are going to be growing consumerism that will pave way for greater consumer orientation and consumer enlightenment. Establishing cost effective supply chain backed by technology, creating a liberalized economic platform that will enable global retailers to enter India through various methods such as joint ventures, licensing, franchising etc., Retail organizations are scaling up operations rapidly to minimize costs and increase margins so that they can sustain and expand their business which would help in the consolidation of retail growth.
KEYWORDS
Retailing Retail formats unorganized retail
Retailing concepts Target markets organized retail
Total retail experience Relationship retailing
REVIEW QUESTIONS
1.What is your understanding of retailing?
2.Compare current status of organized retailing in India with the international scenario.
3.What is the role of retailing in the marketing mix?
4.Enlist the factors that are to be considered by a retailer in making an ideal choice of store location?
5.How are retailers classified?
SUGGESTED READINGS
1.Retail management by Leivy, Weitz & Pandit
2.Retail management by Gibson G. Vedamani
3.Principles of retail management by Rosemary Varley and Mohammed Rafiq
