Principles of retailing

POR Pooja Sehgal Tabeck
PRINCIPLES OF RETAILING

WHY RETAIL???
• Provide employment to 8% of total workforce.
• Growth of Retail sector :-From US $ 410 billion in 2008 ,Indian
Retail is expected to grow US $ 535 billion by 2018.
• Highest retail density – 12 million retail outlets for a
population of over 1000 million
• Contribution in GDP

The Retailer’s Role in the Sorting
Process

Retailing
Retailing – a set of business activities that adds
value to the products and services sold to
consumers for their personal or family use.
According to Kotler: “Retailing includes all the
activities involved in selling goods or
services to the final consumers for personal,
non business use”

How Retailers Add
Value
The value of the product and service
increases as the retailer performs functions.
BREAKING BULK
HOLDING
INVENTORY
PROVIDING
SERVICES
PROVIDING AN
ASSORTMENT

Doll can be bought
on credit or put on
layaway
Doll is featured on
floor display
Doll is offered in
convenient
locations in
quantities of oneDoll is developed in
several styles
How Retailers Add Value
Doll is developed at
manufacturer
The value of the product and service increases
as the retailer performs functions.

Customer Service
• Activities undertaken by a retailer in conjunction with the basic goods
and services it sells.
Store hours
Parking
Shopper-friendliness
Credit acceptance
Salespeople

Retailing Concept
Customer Orientation
Coordination Effort
Value -Driven
Goal -Orientation
Retailing
Concept
Value is based on perceived
Benefits Vs the price paid

The Nature of Retailing
• Retailers
• Organizations that purchase products for the purpose of
reselling them to ultimate consumers
• Retailing
• Transactions in which ultimate consumers are the buyers
• Retailers create utility—time, place, possession, and form
• Success in retailing comes from having a strong customer
focus coupled with desired levels of service, product quality,
and innovation.

1-10
Manufacturing, Wholesaling and Retailing
Vertical Integration – firm performs more than one set of activities
Ex: retailer invests in wholesaling or manufacturing
Backward Integration – retailer performs some distribution and
manufacturing activities
Forward Integration – manufacturers undertake retailing activities

RETAIL BENEFITS
CONSUMERS
MANUFACTURERS
/WHOLESALERS
BULK BREAKING
ASSORTMENT
STORING
SERVICES
ABSORBS RISKS
Physical deterioration
Fashion change
Technological obsolescence

RETAIL MIX
• STORE DESIGN AND DISPLAY
• STORE LOCATION
• CUSTOMER SERVICE
• COMMUNICATION MIX
• PRICING
• MERCHANDISE ASSORTMENT

Evolution of Organized Retailing

Industry Evolution in India
• Traditionally retailing in India 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.

Weekly Markets
Village Fairs
Melas
Convenience Stores
Mom and
Pop/Kiranas
PDS Outlets
Khadi Stores
Cooperatives
Exclusive Brand
Outlets
Hyper/Super Markets
Department Stores
Shopping Malls
Traditional/Pervasiv
e Reach
Government
SupportedHistoric/Rural
Reach
Modern PORmats/
International
Evolution of Indian
retail
Source of
Entertainment
Neighborhood
Stores/Convenience
Availability/ Low
Costs /
Distribution
Shopping
Experience/Efficiency

CLASSIFICATION OF RETAIL
ESTABLISMENTS

• On the basis of ownership
• INDEPENDENT
• CHAIN
• FRANCHISE
• LEASED DEPARTMENT
• VERTICAL MARKETING SYSTEM
• CONSUMER COOPERATIVE

COMPETITIVE ADVANTAGE OF INDEPENDENTS
• FLEXIBILITY
• EASE OF ENTRY
• CONTROL OVER STRATEGIES
• INDEPENDENTS HAVE INDEPENDENCE
• SPECIALIST IN NICHE

DISADVANTAGES OF INDEPENDENTS
• BARGAINING POWER
• ECONOMIES OF SCALE
• LABOR INTENSIVE OPERATIONS
• LIMITED ACCESS TO MEDIA

Classification of Retail Establishments
Chain
Operates multiple outlets under same ownership
Engages in some level of organized / centralized buying &
decision making
High on bargaining power due to volume buying
Can create private label brands
Achieve economy in buying / warehousing
High on investments due to spread
Control is difficult due to dispersed location

Leased Departments
Is a department in a retail store – rented to a 3rd party
Usually specialized products / services are offered to broaden
the merchandize / service offering e.g. chemist / photo-shop or
cafeteria
Pros / cons for both lessor & lessee

Vertical Marketing System
 Network of several levels of independent owned businesses along a
channel of distribution.
INDEPENDENT VERTICAL MARKETING SYSTEM
PARTIALLY INTEGRATED SYSTEM
FULLY INTEGRATED SYSTEM

CONSUMER COOPERATIVE
• Retail firm owned by its customer members.
• Three Basic Reasons for Existence
• Consumer feels they operate store better than traditional retailers.
• They think existing retailers inadequately fulfill customer needs.
• Retailer makes excessive profits.

Store Based Retail Institutions
General merchandise retailers
Specialty stores
Traditional department stores
Full line discount store
Variety store
Off-price chain
Factory outlet
Membership Club
Flea Markets

A Department store is a large retail unit with an extensive assortment
of goods and services that is organized into separate department for
the purpose of buying, promotion, customer service and control.

Store Based Retail Institutions
Food merchandise retailers
Convenience stores
Conventional Supermarkets
Food Based Superstore
Combination store
Box (Limited Line Store
Warehouse stores

• Convenience store is typically a well located ,food-oriented retailer
that is open for long hours and carries a moderate number of items.
• Conventional supermarket is a self service store with grocery meat
and other departments.

• Food- Based Superstore is larger and more diversified than a
conventional supermarket.
• Combination store unites supermarket and general merchandise .
• Box store is a food based discounter.

Retailing
•Amount of service
•Product lines
•Relative prices
•Organizational
approach
• Self-service retailers
• Customers are willing to self-
serve to save money
• Discount stores
• Limited-service retailers
• Most department stores
• Full-service retailers
• Salespeople assist customers in
every aspect of shopping
experience
• High-end department stores
• Specialty stores
Retailers Are
Classified By:

Retailing
•Product lines
•Relative prices
•Organizational
approach
• Specialty stores
• Narrow product lines with deep
assortments
• Department stores
• Wide variety of product lines
• Supermarkets
• Convenience stores
• Limited line
• Superstores
• Food, nonfood, and services
• Category killers
• Giant specialty stores
Retailers Are
Classified By:

Retailing
•Product lines
•Relative prices
•Organizational
approach
• Discount stores
• Low margins are offset by high
volume
• Off-price retailers
• Independent off-price retailers
• TJ Maxx, Marshall’s
• Factory outlets
• Levi Strauss, Reebok
• Warehouse clubs
• Sam’s Club, Costco
Retailers Are
Classified By:

14 - 32
Retailing
•Product lines
•Relative prices
•Organizational
approach
• Discount stores
• Low margins are offset by high
volume
• Off-price retailers
• Independent off-price retailers
• TJ Maxx, Marshall’s
• Factory outlets
• Levi Strauss, Reebok
• Warehouse clubs
• Sam’s Club, Costco
Retailers Are
Classified By:

Retailing
•Product lines
•Relative prices
•Organizational
approach
• Corporate chain stores
• Commonly owned / controlled
• Voluntary chains
• Wholesaler-sponsored groups of
independent retailers
• Retailer cooperatives
• Groups of independent retailers
who buy in bulk
• Franchise organizations
• Based on something unique
Retailers Are
Classified By:

Non Traditional Retail Formats
• Kiosks
• Airport Retailing
• Recycled Retailers
• Liquidators
• Hospital Retailing
• Car Boot Retailers

NON-STORE BASED RETAILING
• Direct Marketing
• Direct Selling
• Vending Machines
• Electronic Retailing

• Factors effecting Growth of E- retailing
• Ease with which customer try innovation
• Trying out Electronic shopping
• Perceived risk
• Social & Entertainment experience
• Ordering & Receiving Merchandise
• Number of Alternatives
• Cost of Merchandise
• Benefits offered by innovation compared to present alternatives.

Merchandise/Service Continuum

Nature of Service Retailers
• Intangibility
• Customers cannot touch, see or feel them
• Simultaneous Production & Consumption
• Customers are present when service is produced
• Other consumers can affect the quality of Service
• Service retailers does not get a second chance
• Perishability
• Services can’t be saved, stored or resold.
• Inconsistency of the Offering to Customers

MULTICHANNEL RETAILING
• Why Multichannel Retailing????
• Expanding Market Presence
• Leveraging Existing assets
• Overcoming Limitations of Existing formats
• Insights into customer Shopping Behavior
• Increasing Share of Wallet

PET- MODEL
• Protect—Maintain competitive parity and protect existing revenue
streams
• Evolve—Significantly increase wallet share and customer loyalty, as
well as achieve large gains in productivity and efficiency.
• Transform—Change the basis of industry competition by developing
defensible,long-term competitive strengths.

PET –MODEL

Issues in Multichannel Retailing
•Brand Image:-Multi channel retailers need to
project the same image to the customers across all
channels. The visuals, colour schemes etc should be
coordinated between all retail channels.
•Merchandise assortment:-A significant product
overlap across channels reinforces the brand image
in the customers mind.

• Merchandise offerings however should be integrated across
channels else customers would end up getting confused.
Further, assortments can be expanded, optimized, tailored &
customized based on merchandise strategy.
• Pricing :-This is yet another difficult decision. Customers
expect consistent pricing however store retailer often set
different prices of the same merchandise to deal with local
competition. Often e-retail channels have to offer lower
prices to compete with other e-retailers.

• As complexity increases, customer satisfaction suffers:-While
providing greater flexibility, alternate channels are
also creating increased complexity for consumers
and retailers alike.
•This complexity might be contributing to the
greater-than-average erosion in the customer
satisfaction of certain retailers.

Process of Format Selection
Shoppers Retailer’s objective Competitors
Define value Preposition
Find out enablers and deterrents in environment
Find out what it takes to deliver the value preposition
Decide on store or non store format

RETAIL INSTITUTIONS
THEORIES OF INSTITUTIONAL CHANGE (evolution of
retailing through the Four Gears)
 Wheel of retailing
 Retail accordion
 Dialectic Process
 Natural selection

Wheel of retailing
• Malcolm P McNair’s
• Retail institutions changes takes place in a cyclical manner:
– New retailer often enters market (low-status, low profit margin, low price
store formats) ,

Cont….3 phases of this theory
• Entry phase
• Trading-up phase
• Vulnerability phase
Vulnerability phas
ENTRY PHASE
Trading up phase
NEW ENTRANT
Traditional
Retailer
Mature
Retailer
Low status, low price ,minimal service ,
Minimal facilities & limited product offering
Elaborate facilities expected
& essential & exotic services,
Higher-rent locations ,fashion
Orientation, higher prices, extended
Product offerings
Top
Heaviness,
Conservatism,
Declining
ROI.

• Based on four principles :-
• There are many price-sensitive shoppers who will trade customer
services, wide selection and convenient location for lower prices.
• Price-sensitive shoppers are often not loyal and will switch to
retailers with lower prices.

• New institutions are frequently able to have lower operating cost
than existing institutions.
• As retailers move up the wheel ,they typically do so to increase
sales,broaden the target market and improve their image.

DIALECTIC PROCESS
( OR MELTING POT THEORY)
• Thomas j Maronick and Bruce J Walker
• According to this model retailers mutually adapt in the face of
competition from “opposites”.
• When challenged by competitor with differential advantage (adopt
strategies & tactics in the direction of that advantage thereby negating
some of the innovators attraction)

• The innovator upgrade (modify products and institutions)
• The two retailers gradually moves together in terms of offerings,
facilities, supplementary services & prices.
• They become indistinguishable or quite similar (synthesis)
• Established firm---Profits thru Economies of scale
New firm ------- new technology (it gains competitive advantage)

THE DIALECTIC PROCESS (diagram)
•Discount Store
•Low margin, high turnover ,low price,
•No service
Specialty Store
•High margin
• Low turnover
•High price
•Full service
•Deep assortment
•Plush facilities
Category Killers
• Average margin
•Average turnover
•Low price
•Limited service
•Deep assotment

RETAIL ACCORDION THEORY
• This is the theory of “retail institutional change”
--- Evolution process: outlets offering wide variety of merchandise to
stores offering specialized products & then to wide variety of
merchandise
• Merchandise mix strategies of retailers change, while the retail prices
& margins remain the same

Natural Selection theory
• Based on the Darwin’s theory of evolution
• Retail institution should be flexible enough to adapt to
the changing environment and should adapt it’s behavior
to survive in the market
• RIGID Behavior (to change) stagnate and PORce the retail
institution to exit
• Retail institution change product line, price ,location and
promotional strategies (as per the retail environment)

Principles of retailing

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