Chapter 2 Retail Formats Faiza Nasir

Retail formats?

Store Formats by Location a) Chain store   Operates multiple outlets under common ownership   Engages in some level of centralized or coordinated purchasing and decision making b) High street format:   A retail chain that seeks to locate itself in busy shopping areas (generally less than 2,000 sft, with no parking facilities and focused merchandise categories) c) Destination format:   Independent retail stores located specifically in an area with alluring propositions (usually large in size, with ample concessions, huge parking space, wide merchandise categories) d) Convenience store format:   Accessible carrying wide array of consumable goods (less than 5,000 sft, extended hours, parking for few vehicles, convenience merchandise)

Competitive State of Chains Advantages  Bargaining power  Cost efficiencies  Efficiency from computerization, sharing warehouse and other functions  Defined management philosophy  Considerable efforts in long-run planning Disadvantages  Limited flexibility  Higher investment costs  Complex managerial control  Limited independence among personnel

Convenience Store Strategy Mix Location: Neighborhood Merchandise: Medium width and low depth of assortment; average quality Prices: Average to Above average Atmosphere & Services: Average Promotion: Moderate

Store Formats by Ownership a) Independent   Generally higher level of independent retailers exists   50% of these are run by owners and their families   Why so many? Ease of entry b) Franchise:   A contractual agreement between a franchisor and a retail franchisee, which allows the franchisee to conduct business under an established name and according to a given pattern of business   Franchisee pays an initial fee and a monthly percentage of gross sales in exchange for the exclusive rights to sell goods and services in an area

Competitive State of Independents Advantages   Flexibility in formats, locations, and strategy   Control over investment costs and personnel functions, strategies   Personal image   Consistency and independence   Strong entrepreneurial leadership Disadvantages  Lack of bargaining power  Lack of economies of scale  Labor intensive operations  Over-dependence on owner  Limited long-run planning

Competitive State of Franchising Advantages   small capital required   acquire well-known names   operating/management skills taught   cooperative marketing possible   exclusive selling rights   less costly per unit Disadvantages  oversaturation could occur  franchisors may overstate potential  locked into contracts  agreements may be cancelled or voided  royalties are based on sales, not profits

From the Franchisor’s Perspective Benefits  national or global presence possible  qualifications for franchisee/ operations are set and enforced  money obtained at delivery  royalties represent revenue stream Potential Problems  potential for harm to reputation  lack of uniformity may affect customer loyalty  ineffective franchised units may damage resale value, profitability  potential limits to franchisor rules

Store Formats by Merchandise Category a) Family store  Store dealing in all categories of related (For e.g. apparel store offering merchandise to suit the wardrobe of a family) b) Specialty format:  Narrow product lines with good depth. Specializing in a given type of merchandise, offering attentive customer services. c) Department store format:  Large in size having several departments working as SBUs d) Super market format:  Departmentalized, specializing in foodstuff, grocery and limited non-food categories, free access displays so that customers can pick from shelves. e) Emporium:  Selling a variety of a particular group of merchandise (sari emporium).

Merchandise: Very narrow width and extensive depth of assortment; average to good quality Prices: Competitive to Above average Atmosphere and Services: Average to excellent Promotion: Heavy use of displays Extensive sales force Specialty Store Strategy Mix

Department Store Strategy Mix Location: Business district, shopping center or isolated store Merchandise: Extensive width and depth of assortment; average to good quality Prices: Average to Above average Atmosphere and Services: Good to excellent Promotion: Heavy ad and catalog use; direct mail; personal selling

Conventional Supermarket Strategy Mix Location: Neighborhood Merchandise: Extensive width and depth of assortment; average quality; manufacturer, private, & generic brands Prices: Competitive Atmosphere and Services: Average Promotion: Heavy use of newspapers, flyers, and coupons

Store Formats by Size a) Superstore format  Single-level large store, twice the size of a supermarket, offers non-traditional goods and services like pharmacy, flower shop, bookstore, salad bar, bakery etc. b) Shopping Mall:  Spread over a large area, arrangement of retail stores and places for leisure activities. c) Shopping Center:  Plaza combining five or more tenant spaces developed under one building. d) Hypermarket:  Wide variety, offering in large quantities in each category selling huge volumes at low margins.

Store Formats by Price a) Discount format  Bazaar format, believing in discounts more often. b) EDLP format:  Specialize in a particular merchandise line, assuring consistently low prices. c) Category killer format:  Large specialty store having enormous selection of its product category at relatively low prices. d) Factory-outlet format:  Owned and operated by the manufacturer e) Warehouse format:  Large sale of discontinued merchandise, has large width and depth in many categories it retails. f) Single-price denomination format:  Scrambled merchandise at just one price point, generally at a low one.

Discount Store Strategy Mix Merchandise: Extensive width and depth of assortment; average to good quality (overruns, irregulars, cut-sizes) Prices: 25% or more below MRP Atmosphere/ Services: Slightly below average to average Promotion: Heavy on newspapers; price-oriented; selling

Factory Outlet Strategy Mix Merchandise: Moderate width and poor depth of assortment; low continuity (cancelled orders, discontinued merchandise) Prices: Very Low Atmosphere/ Services: Very low Promotion: Little

Warehouse Store Strategy Mix Location: Secondary site, often in industrial area Merchandise: Moderate width and low depth of assortment; emphasis on manufacturer brands bought at discount Prices: Very low Atmosphere and Services: Low Promotion: Little or none

Store Formats by Concessions a) Stopover store format  Like petrol pump, offers instant use or ready-to-eat categories of merchandise. b) Kiosk:  Small freestanding pavilion c) Alliances:  With brands that customers trusts

Scalability and its importance -Demanding Customers - Complex Supply Chain -Fluctuations in Staffing and Inventory - Paper-thin Margins -Seasonal Peaks and Valleys - Regional Product Variations -Millions of stores and SKU combinations -Multiple Channels (stores, call centers, online) Requires Technical Scalability leading towards Business Scalability

Technical Scalability  Technical scalability is the ability for the retail infrastructure (technology and equipment) to expand in order to support the business model without disproportionate increases in investments or losses in performance.  Analyzing each business process scenario to identify all operations that must be performed to make the transaction valid and then streamlines the process to remove unnecessary steps that will impede system performance.  True scalability is achieved when an application consistently processes high volumes of business transactions without performance degradation.  Only through the combination of optimal business processes and application performance and scalability can retailers achieve optimum agility in a constantly changing environment.

Scalability in Practice