1. Channel Institutions - Retailing
Chapter 10
Channel Institutions - Retailing
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2. 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
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3. 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 – newer forms of retail come to replace the older ones – 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
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4. 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. Keeps a large assortment of goods
Lot of buying in the outlet is ‘impulse’- inventory management is critical
Selling personnel and displays are important elements of the selling process
Strengths in ‘availability’ and ‘visibility’
Targeted customer mix decides the marketing mix of the retailer
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5. Retailing
Retail stores are independent of the producers – not attached to any of them
A survey shows that only 35% of supermarket purchases are pre-planned. The rest are ‘impulse’- greatly influenced by quality of the merchandising efforts
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6. Functions of Retailers
All marketing functions in order to provide consumers a wide variety
Helps create time, place and possession utilities
May add form utility (alteration of a trouser bought by a customer)
Helps create an ‘image’ for the products he sells
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7. Functions of Retailers
Add value through:
Additional services – extended store timings, credit, home delivery
Personnel to identify and solve customer problems
Location in a bazaar to facilitate comparison shopping
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8. How do Customers Decide on a Retailer?
Price
Location and right ambience
Product selection
Fairness in dealings
Friendly sales people
Vehicle parking facilities
Specialized services provided
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9. Theories in Retailing A
Wheel of retailing: from a simple, low margin retailer to adding value through additional services and going on to a premium store.
Accordion theory: a general retailer grows into a specialized one and then on to being a bigger general retailer
Theory of natural selection: environmental factors influence the evolution of retail stores
Retail life cycle: innovation, quick growth, maturity and decline
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10. Kinds of Retailers Type of retailer Characteristics Specialty store
Narrow product lines with deep assortment – apparel, furniture, books
Department store
Several product lines 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
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11. Kinds of Retailers Type of retailer Characteristics Corporate chains
More outlets owned and controlled by one firm – Globus
Voluntary chain
Wholesaler sponsored group of independent retailers
Retailer co-ops
Independent retailers with centralized buying operations and common promotions
Consumer co-ops
Co-op societies of groups of consumers operating their own stores – farmers, industrial workers etc
Franchise organisation
Contractual arrangement between the producer and retailers – selling products exclusively – Kemp Toys
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12. 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
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13. 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
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14. 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.
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15. The Indian Retail Scene
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16. Salient Features
Estimated over 12 mln retail outlets with most of them in the unorganized sector
10 outlets per 1000 population
Average per capita space – 2 sq ft compared to 15 sq ft in the US
Organized retail is estimated between 4 to 7% but growing fast
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17. Organized Retail Growing trends attracting global players
Some of them like Wal Mart and Tesco have already created buying hubs here.
In Jan 2006, GOI has permitted FDI upto 51% in single brand retail outlets
Well known brands like Marks & Spencer, Reebok, Levis, Adidas, Nike,McDonalds, KFC, Swarowski are already in India.
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18. 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
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19. Retailing Trends - India
Consumer wants more benefits without additional costs
Rising income levels – cheap no longer works, but ‘value for money’
Explosion of communication channels influences choices of products
Increased literacy has made consumer more conscious of his bargaining power
Growing number of urban nuclear families
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20. Retailing Trends - India
Influence of retailer increasing – assortment plus other facilities offered
Rural consumers want the same things as their urban counterparts and are willing to pay for it
Better organized supply chains to cater to a large number of outlets in different locations
Improved infrastructure helping the consumers
Bigger volumes help in economies of scale
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21. 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
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22. 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.
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23. 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
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24. 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
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Trading area…

25. Trading Area
Catchment 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 – MTR, Shoppers’ Stop etc
Trading area increases with the size of the store and the variety it offers
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26. Retail Strategy A
Some of the ‘convenience’ factors expected by customers:
Access to the store
Access to products within the store
Possession utility – making goods available and visible
Speed of completing the transaction process
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27. Strategy Guidelines A Existing Current Market penetration New
Market focus
Format selected
Appropriate strategy
Existing
Current
Market penetration
New
Format development
Market expansion
Diversification
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28. Retail Strategy Steps Mission statement – purpose of the organisation
The ownership pattern
Clearly stated objectives
Segmentation and positioning of the retailer
Overall operational strategy
Planning of routine activities
‘Control’ mechanisms to be put in place
Define parameters for measuring performance
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29. Retail Strategy Positioning of the retailer Merchandising
Pricing strategy
Target market segments
Customer service
Customer communication
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30. 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
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31. 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
Also takes into account the assortment of goods and their quality
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32. Customer Service Strategy
Developed to create ‘stickiness’ in customers
Personal data collected using IT – including purchasing practices and preferences
Customer loyalty programs planned
Create ‘customer’ delight
Location strategy to give competitive advantage
Understanding the buying profile of the customers
Communication …
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33. 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
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34. 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….
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35. Product Differentiation
Feature exclusive national brands not available in competing retailers – unlikely
Exclusivity of products – specialty stores
Mostly private labels – Westside
Feature, big, specially planned merchandising events – Kemp Fashion sows
Introduce new products before competition - -again unlikely
Performance measures…
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36. Competitive Advantage
Location: most important
Building customer relationship through service
Getting preferential treatment from vendors
Managing information effectively
People management – employees should demonstrate ‘ownership’ of the stores
Good management of the merchandise
Overall store management – ambience, easy access, quick check-outs, help in buying decisions
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37. Building Relationships
Customer value= product value + service value + image value
Some of the factors to deliver customer value:
Should be what the customer thinks is right
Should be consistent
System in place to measure customer satisfaction
Retailer communication to customer is clear on promised value proposition
Positioning of retailer in line with targeted market
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38. 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
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39. Category Types Routine: small value items like milk, bread etc
Destination: customer’s first choice for specific products – apparel, footwear
Season: retailer is known for selling seasonal merchandise – mangoes, strawberries
Convenience: cigarettes from panwalas
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40. Category Management A
Category is a ‘basic unit’ for making buying decisions by a retailer
Category management focuses on:
Efficient introduction of new products into stores
Effective product promotions to improve off-takes
Optimum store assortment reflecting trading area customer needs
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41. Category Management A Reflects the trading area customer profile
Stocking on shelves in a manner which customers would prefer
Serves as a differentiator between two retailers selling same merchandise
Ensure multiple purchases and impulse buying through proper availability and visibility
Dynamic decisions to reflect changing customer needs
Create unique customer value to ensure ‘stickiness’
Ensure profitability of all categories
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42. Merchandise Buying Rules
Selection of vendor: price, quality, reliability
Selection of merchandise: sampling, negotiated terms, order and delivery times, inventory norms, re-ordering costs etc
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43. 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
Franchisor benefits…
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44. Benefits to Franchisor
Faster expansion
Local franchisee pays lower advertising rates than a national firm
Owners motivated to work more hours than mere employees
Local taxes and licenses are responsibility of franchisees
Franchisee benefits…
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45. 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
Financial assistance
Promotional aids, in-store displays etc
Electronic channels…
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46. Retailing on the Internet
Unlimited assortment
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
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47. E-tailing Issues Logistics support to selling Payment gateway
Customer product returns
Conflicts with Brick &Mortar – overcome by selling separate products
FDI in retail….
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48. Key Learnings
Any business selling / renting a product or service to a consumer is retailing
A consumer selects a retailer based on price, location, merchandise selection, fairness in dealings, helpful sales people and other services
Organized retail is growing strong and negotiating better terms from producer suppliers
In India, upto 51% foreign investment is permitted in single brand businesses
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49. Key Learnings
Most theories in retailing highlight the way in which retailers progress through different stages line in a life cycle.
Consumers look for convenience factors like location, access to products, visibility and quick transactions.
Providing these elements could also help build competitive advantage for a retailer.
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50. Key Learnings
Category is a basic unit for making buying decisions for a retailer.
Category management focuses on right assortment, introduction of new products and effective promotions.
Categories reflect the profile of the trading area of the retailer.
The purpose of category management is to ensure both footfalls and stickiness.
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51. Key Learnings
Format defines the physical features of the store and its service
Trading area is the catchment area from where the customers of store come from
Retail strategy is built on positioning, product offerings, merchandising and communication
Retail performance is measured by utilisation of space, inventory and manpower
E-tailing is buying goods on the Internet
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52. End of Notes – Chapter 10
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