WHAT IS RETAIL MANAGEMENT
RETAIL FUNCTION AND DISTRIBUTION
BENEFITS OF RETAIL
CLASIFICATION OF RETAIL
RETAIL LOCATION STRATEGY AND
SERVICING THE RETAIN CUSTOMER
Retailing : - According to Kotler: “Retailing includes all the activities
involved in selling goods or services to the final consumers for personal,
non business use”
It is responsible for matching individual demands of the consumer with
supplies of all the manufacturers.
WHAT IS RETAIL MANAGEMENT
Definition :- A process of promoting greater sales and customer
satisfaction by gaining a better understanding of the consumers of goods
and services produced by a company. A typical retail management
strategy for a manufacturing business might research the retail process
that distributes the finished products created by the business to
consumers to determine and satisfy what buyers want and require.
The various processes which help the customers to procure the
desired merchandise from the retail stores for their end use refer to
Retail management includes all the steps required to bring the
customers into the store and fulfill their buying needs.
Let us understand the concept with the help of an example:
Tim wanted to purchase a mobile handset. He went to the nearby
store and purchased one for himself.
In the above case, Tim is the buyer who went to a fixed location (in
this case the nearby store). He purchased a mobile handset
(Quantity - One) to be used by him. An example of retail.
The store from where Tim purchased the handset must have
shown him several options for him to select one according to his
budget and need.
From where do you think the store owner (also called the retailer)
purchased all the handsets?
Here the manufacturers and the wholesalers come into the picture.
The retailers purchase goods in bulk quantities (huge numbers) to
be sold to the end-users either directly from the manufacturers or
through a wholesaler.
RETAIL FUNCTION AND DISTRIBUTION
Retailers play a significant role as a conduit between manufacturers, wholesalers,
suppliers and consumers. In this context, they perform various functions like sorting,
breaking bulk, holding stock, as a channel of communication, storage, advertising
and certain additional services.
Manufacturers usually make one or a variety of products and would like to sell their
entire inventory to a few buyers to redu7ce costs. Final consumers, in contrast,
prefer a large variety of goods and services to choose from and usually buy them in
small quantities. Retailers are able to balance the demands of both sides, by
collection an assortment of goods from different sources, buying them in sufficiently
large quantities and selling them to consumers in small units.
The above process is referred to as the sorting process. Through this process,
retailers undertake activities and perform functions that add to the value of the
products and services sold to the consumer. Supermarkets in the US offer, on and
average, 15,000 different items from 500 companies. Customers are able to choose
from a wide range of designs, sizes and brands from just one location. If each
manufacturer had a separate store for its own products, customers would have to
visit several stores to complete their shopping. While all retailers offer an assortment,
they specialize in types of assortment offered and the market to which the offering is
made. Westside provides clothing and accessories, while a chain like Nilgiris
specializes in food and bakery items. Shoppers‟ Stop targets the elite urban class,
while Pantaloons is targeted at the middle class.
2: Breaking Bulk
Breaking bulk is another function performed by retailing. The word retailing is derived
from the French word retailer, meaning „to cut a piece off‟. To reduce transportation
costs, manufacturers and wholesalers typically ship large cartons of the product,
which are then tailored by the retailers into smaller quantities to meet individual
3: Holding Stock
Retailers also offer the service of holding stock for the manufacturers. Retailers
maintain an inventory that allows for instant availability of the product to the
consumers. It helps to keep prices stable and enables the manufacturer to regulate
production. Consumers can keep a small stock of products at home as they know
that this can be replenished by the retailer and can save on inventory carrying costs.
4: Additional Services
Retailers ease the change in ownership of merchandise by providing services that
make it convenient to buy and use products. Providing product guarantees, aftersales service and dealing with consumer complaints are some of the services that
add value to the actual product at the retailers‟ end. Retailers also offer credit and
hire-purchase facilities to the customers to enable them to buy a product now and
pay for it later. Retailers fill orders, promptly process, deliver and install products.
Salespeople are also employed by retailers to answer queries and provide additional
information about the displayed products. The display itself allows the consumer to
see and test products before actual purchase. Retail essentially completes
transactions with customers.
5: Channel of Communication
Retailers also act as the channel of communication and information between the
wholesalers or suppliers and the consumers. From advertisements, salespeople and
display, shoppers learn about the characteristics and features of a product or
services offered. Manufacturers, in their turn, learn of sales forecasts, delivery
delays, and customer complaints. The manufacturer can then modify defective or
unsatisfactory merchandise and services.
6: Transport and Advertising Functions
Small manufacturers can use retailers to provide assistance with transport, storage,
advertising and pre-payment of merchandise. This also works the other way round in
case the number of retailers is small. The number of functions performed by a
particular retailer has a direct relation to the percentage and volume of sales needed
to cover both their costs and profits.
7: Arranging Assortment
Manufacturers usually make one or a variety of products and would like to sell their
entire inventory to few buyers to reduce costs. Final consumers in contrast prefer a
large variety of goods and services to choose from and usually buy them in small
8: Promotional support:
Small manufacturers can use retailers to provide assistance with transport, storage,
advertising, and pre- payment of merchandise.
The implementation of such a retail marketing strategy yields benefits for consumers,
manufacturers and wholesalers and creates economic utility.
The first point under retailing benefits for customers, bulk breaking refers to the act
of retailers of buying goods in large quantities and then breaking them into smaller
sizes for their individual customers.
As a result purchases become convenient for customers - in terms of quantity
bought as well as expenditures made.
The assorting function is nothing but evaluating all the different products available
and offering to the target the optimum array of products from which to choose.
The storing function performed by the retailers relieves customers of the task of
anticipating their desires too far in advance of their needs as the retailers keep
goods in inventory until customers are willing to buy and use them.
Further, retailers help manufacturers smoothen the production cycle by placing
orders for peak demands well in advance and by managing inventory even on behalf
of the manufacturer.
They create economic utility for consumers by providing the products in the form and
at the place and time desired by the consumer.
Reach more customers
Improve cash flow
Increase sales more rapidly
Focus on area of expertise
CLASIFICATION OF RETAIL INSTITUTION
Ownership format serves a marketplace niche.
Independent retailers capitalize on a very small targeted customer base &
please shoppers in a friendly, folksy (simple) way. Word-of mouth
communication is important. These retailers should not try to serve too
many customer & enter into price wars.
Chain retailers benefit from widely known image, economies of scales (i.e.
cost advantages that a business obtains due to expansion), & mass
promotion possibilities. They should maintain their image chain wide & not
be inflexible in adapting changes in the marketplace.
Franchisors have strong geographic coverage & motivation of the
franchisees as owner-operators. They should not get bogged down in
policy disputes with franchisees or charge excessive royalty fees.
Leased departments enable store operators & outside parties to join forces
& enhance the shopping experience, while sharing expertise & expenses.
They should not hurt the image of the store or place too much pressure on
the lessee to bring in store traffic.
A vertically integrated channel gives a firm greater control over sources of
supply, but it should not provide consumers with too little choice of
products or too few outlets.
Cooperatives provide members with price savings. They should not expect
too much involvement by members or add facilities that raise costs too
a) Independent Retailer : - An independent retailer owns one retail
There is flexibility in choosing retail formats, location, assortment (variety),
prices, hours etc., & devising strategy based on the target customers.
Investment costs for leases, fixtures, workers, & merchandise can be brought
down. There is no duplication of stock or personnel function. Responsibilities
are clearly delineated (defined) within the store.
Independents frequently act as specialist in a niche of the particular
goods/services category. They are then more efficient & can lure (attract)
shoppers interested in specialized retailers.
Independents exert strong control over their strategies, & the owner-operator
is typically on the premises. Decision making is centralized & layers of
management personnel are minimized.
There are certain image attached to independents, particularly small ones,
that chains cannot readily capture.
Independents can easily sustain consistency in their efforts because only one
store is operated.
Independents have “Independence”. No meetings, union, stockholders & labor
Less bargaining power with the suppliers as they buy less quantity.
Cannot gain economies of scale (i.e. cost advantages that a business obtains
due to expansion) in buying & maintaining inventory. Transportation, ordering,
& handling costs are high.
Operations are labor intensive.
They are limited to certain media for advt. because of financial constraints.
Family-run independents is overdependence on the owner. It is difficult to
keep it up & running.
Limited time allotted to long-run planning, since owner is intimately involved in
day-to day operations.
Chain Retailer :- Chain retailer operates multiple outlets (store units) under
common ownership. It usually involves in some level of centralized purchasing &
Many chains have bargaining power due to their purchase volume. They
receive new items when introduced, have orders promptly filled, get sales
support, & obtain volume discounts.
Chains achieve cost efficiencies when they buy directly from the
manufacturers & in large volumes, ship and store goods, & attend trade
shows sponsored by the suppliers to learn about new offerings. They can
sometimes bypass wholesalers.
Efficiency is gained by sharing warehouse facilities; purchasing standardized
store fixtures; centralized buying & decision making etc. Headquarters have
broad authority for personnel policies & for buying, pricing, & advt. decisions.
Computerized ordering merchandise, inventory, forecasting, sales, &
bookkeeping. This reduces overall costs.
Take advantage of variety of media from print to electronic.
Detailed & clear responsibility for employees with available substitute incase
any employee is retiring or quitting.
Flexibility may be limited. Consistent strategies on pricing, promotions, &
product variety must be followed throughout all units which may be difficult to
adapt to local diverse market.
Investment is high due to infrastructure & store as multiple store has to be
Managerial control is complex due to geographically dispersed branches.
Limited independence to the personnel.
Franchising :- Franchising involves a contractual arrangement between a
franchisor (a manufacturer, wholesaler, or service sponsor) & a retail franchisee,
which allows the franchisee to conduct business under a established name &
according to a given pattern of business.
The franchisee pays an initial fees & a monthly %age of the gross sales in
exchange for the rights to sell goods & services in an area.
A franchisee operates autonomously in setting store hours, chooses a location,
& determines facilities & displays.
Advantages of Franchisees
They own a retail enterprise with a relatively small capital.
They acquire well-known names & goods/services lines.
Standard operating procedures & management skills may be taught to them.
Cooperative marketing efforts (like national advt.) are facilitated.
They obtain exclusive selling rights for specified geographical territories.
Their purchases may be less costly per unit due to the volume of the overall
Disadvantages of Franchisees
Oversaturation could occur if too many franchisees are there in one
Due to overzealous selling by some franchisors, franchisees‟ income
potential, required managerial ability, & investment may be incorrectly stated.
They may be locked into contracts requiring purchases from franchisors or
Cancellation clauses may give franchisors the right to void agreement if
provisions are not satisfied.
In some industries, franchise agreements are of short duration.
Royalties are often a %age of gross sales, regardless of franchisee profits.
Advantages of Franchisors
A national & global presence is developed more quickly & with less franchisor
Franchisee qualification for ownership are set & enforced.
Agreement require franchisees to abide by stringent operating rules set by
Money is obtained when goods are delivered rather than when goods are
Because franchisees are owners & not employees, they have greater initiative
to work hard.
Even after franchisees have paid for their outlets, franchisors receive royalties
& may sell products to the individual proprietors.
Disadvantages of Franchisors
Franchisees harm the overall reputation if they do not adhere to company
Lack of uniformity among outlets adversely affects customer loyalty.
Intra-franchise competition is not desirable.
The resale value of individual units is injured if franchisees perform poorly.
Ineffective franchised units directly injure franchisors‟ profitability.
Franchisees, in greater number, are seeking to limit franchisors‟ rules &
Leased Department :- A leased department is a department in a retail store –
usually a department, discount, or specialty store – that is rented to outside party.
The leased department proprietor is responsible for all aspects of its business &
normally pays a %age of sales as rent.
The store sets operating restrictions for the leased department to ensure overall
consistency & coordination.
Advantages (from the stores‟ prespective)
The market is enlarged by providing one-stop customer shopping.
Personnel management, merchandise displays, & reordering items are
undertaken by lessees.
Regular store personnel do not have to be involved.
Leased department operators pay for some expenses, thus reducing store
A %age of revenue is received regularly.
Disadvantages (from the stores‟ prespective)
Leased department operating procedures may conflict with store procedures.
Lessees may adversely affect the stores‟ image.
Customers may blame problems on the store rather than on the lessees.
Advantages for Leased department operators
Stores are known, have steady customers, & generate immediate sales for
Some costs are reduced through shared facilities like security equipment &
Their image is enhanced by the relationships with popular stores
Disadvantages for Leased department operators
There may be inflexibility as to the store hours they must be open & the
The goods / services lines are usually restricted.
If they are successful, the store may raise rent or not renew leases when they
In-store locations may not generate the sales expected.
A convenience store is usually a retailer that is well located, open long hours, and
carries a moderate number of items. It‟s a small store with average prices, goods
A Department store is a large retail unit with an extensive assortment of goods
and services that is organized into separate departments for purposes of buying,
promotion, customer service and control.
A conventional supermarket is a departmentalized food store with a wide range of
food and related products; sales of general merchandise are rather limited.
A specialty store concentrates on selling goods or service line, such as apparel
and accessories, toys, furniture. In contrast to a mass marketing approach,
specialty stores usually carry a narrow assortment in their chosen category
tailoring to selective market segments.
It is a type of department store with following features:
High-volume, low-cost, fast-turnover outlet.
Centralized checkout service.
Lower operating costs.
Clear customer focus: shoppers looking for good value.
A factory outlet is a manufacturer-owned store selling manufacturer closeouts,
discontinued merchandise, irregulars, cancelled orders, and, sometimes, inseason, first quality merchandise. Factory outlets can be profitable despite prices
up to 60 percent less than customary retail prices due to low operating costs. At
factory outlets, manufacturers can decide on store visibility, set promotion
policies, etc. E.g. .Levi‟s Factory Outlet Store at Marine Lines, Mumbai. Reebok,
Nike & Adidas Stores on the Delhi-Haryana border.
It is a form of retailing in which a customer is exposed to a good or service
through a non-personal medium (e.g. Direct mail, T.V., radio, magazines, or
internet.). It has the following features:
Low costs and inventories
More geographical coverage.
Convenience for customers.
No prior to purchase examination of goods.
Direct selling includes both personal contacts with consumers in their homes as
also phone solicitations. The strategy mix for direct selling emphasizes
convenience in shopping and a personal touch. Besides, for the retailer, direct
selling has lower overhead costs.
A vending machine is a retailing format involving the coin-or card-operated
dispensing of goods and services. It eliminates the use of sales personnel and
allows for 24-hour sales.
WORLD WIDE WEB
Is another aspect of modern retailing. I shall touch upon this in our part on role of
I.T. in retailing.
RETAIL LOCATION STRATEGY AND DECICIONS
Location is the most important ingredient for any business that relies on
customers. It is also one of the most difficult to plan for completely.
Location decisions can be complex, costs can be quite high, there is
often little flexibility once a location has been chosen and the attributes
of location have a strong impact on a retailer‟s overall strategy. In India,
most retailers prefer to own the property rather than avail of the desired
property through lease or rental. This makes the location decision even
more critical. Choosing the wrong site can lead to poor results and in
some cases insolvency and closure.
Importance of Location Decision
The importance of the location decision is due to the following factors.
Location is a major cost factor because it
Involves large capital investment
Affects transportation costs
Affects human resources cost, e.g., salaries
Location is a major revenue factor because it
Affects the amount of customer traffic
Affects the volume of business
The terms „location‟ and „site‟ are often used interchangeably but there is
a distinct difference between the two. „Location‟ is a broader concept,
which denotes the store and its trading area from where a majority of its
customers originate, while a site refers to the specific building or part of
the building where a store is located. Location and site characteristics
should interact in a positive and synergistic way with a store‟s
merchandising, operations and customer service characteristics. For
example, a designer men‟s store located in an up market shopping
centre or a mall near posh residential colonies, housed in an attractive
building with adequate parking facilities.
Levels of Location Decisions and its Determining Factors
A retailer has to take the location decision, basing on three aspects:
1. Selection of a city
2. Selection of an area or type of location within a city
3. Identification of a specific site
The factors which influence these decisions are discussed below:
1. Selection of a City
The following factors play a significant role in the selection of a particular
city for starting or relocating an existing retail business:
Size of the city’s trading area: A city‟s trading area is the
geographic region from which customers come to the city for
shopping. A city‟s trading area would comprise its suburbs as well
as neighboring cities and towns. Cities like Mumbai and Delhi have
a large trading area as they draw customers from far off cities and
Population of population growth in the trading area: The larger
the population of the trading area, the greater the potential of the
city as a shopping location. A high growth n population in the
trading area can also increase the retail potential.
Total purchasing power and its distribution: The retail potential
of a city also depends on the purchasing power of the customers
and its distribution networks in its trading area. Cities with a large
population of affluent and upper middle-class customers can be an
attractive location for stores selling high-priced products such as
designer men‟s wear. The fast growth in purchasing power and its
distribution among a large base of middle class is contribution to a
retailing boom around major cities in India.
Total retail trade potential for different lines of trade: A city
may b become specialized in certain lines of trade and attract
customers from other cities. Moradabad has become an important
retail location for brassware products while Mysore is famous for
Number, size and quality of competition: The retailer also
considers the number, size and quality of competition before
selecting a city.
Development cost: The cost of land, rental value and other
2. Selection of an Area or Type of Location within a City
In the selection of a particular area or type of location within a city,
evaluation of the following factors is required.
Customer attraction power of a shopping district or a
particular store: Major shopping centres like Chandni Chowk in
Delhi, Colaba in Mumbai and Commercial Street in Bangalore
attract customers from far off, while small shopping centres located
in colonies attract customers from immediate neighborhood.
Quantitative and qualitative nature of competitive stores:
Retailers would like to evaluate the product lines carried by other
sores, number of stores in the area, etc. before selecting the area.
Availability of access routes: The area or shopping centre
should provide easy access routes.
Nature of zoning regulations: The retailer should also consider
the zoning regulations in the city.
Direction of spread of the city: The retailer should consider the
direction in which the city is developing while selection the
3. Selection of a Specific Site
The choice of a specific site is particularly important. In central and
secondary shopping centre, non-anchor sores depend on customers
coming to the market and the traffic generated by anchor stores. The
large stores in turn depend on attracting customers from the existing
flow of traffic. Where sales depend on nearby settlements, selecting the
trading area is even more important than picking the specific site.
Servicing the retail customer
To start with let us understand what is meant by the term customer service. Is it a
returns policy? Is it a loyalty program? In India customer service is largely associated
with loyalty programs however by itself customer service is a subject of a
phenomenal amount of research world over. Customer service continues to remain
an enigma to most retailers. Defining customer service is difficult as the concept
itself is multi faced. The definition given by Lovelock focuses on various aspects:
Customer service is a task, other than proactive selling that involves interactions with
customers in person or by telecommunications, mail or automated processes. It is
designed performed and communicated with two goals in mind: operational
productivity and customer satisfaction.
Thus, customer service may be termed as all the functions and activities performed
by a retailer in order to satisfy the customer thereby building customers for life. In
case of most customers, what is uppermost in the mind is their last experience with
the retailer. They may have had a positive experience on the past ten occasions, but
if the eleventh experience with the brand has been negative, it will subsume all the
good ones that came before. Hence, customer service has in fact, become a
Very often, the terms customer service and customer satisfaction are used
interchangeably however, the basic difference between them needs to be
understood. Customer service focuses on measurement of how well a firm meets the
established performance standards that re viewed as important to meeting
customers‟ needs Customers satisfaction on the other hand is how the customer
measure externally the service performance of a firm. An important key to customer
satisfaction is obtaining customer feedback. The aim of customer satisfaction is to
identify the gap between customer perception of service and the actual service.
It is believed that every encounter that a customer has with a service provider in any
form – personal on the phone, complaint handling bills etc – is a moment of truth.
What customers know of the organization comes from various encounters that they
had with the organization. How they feel about the organization is a result of the
quality of these encounters. A moment of truth occurs any time a customer comes in
contact with some aspect of the organization and uses the opportunity to judge the
quality of service the organization provides. This when applied to the retailer, helps
us understand why customers choose to patronize some retailers over others.