Retail Business

THE RETAIL
BUSINESS
What Is Retailing
WHAT IS RETAILING
 Retailing- Set of Business Activities that adds
value to the products and services sold to
customers for their personal and family use.
 Retailing is not only the sale of products in
stores – also involves sale of services e.g.
selling an insurance policy ; selling hotel
accomodation; airline ticket etc.
What is Retailing
 All Retailing is not done through stores.
 Non-Store Retailing is also common e.g.
- Direct Selling e.g. Aqua Guard
- Internet Retailing or E-Tailing.
- Catalog selling.
- Channel Retailing – Amway.
Retailers Role in Distribution
Channel
 A Retailer sells products or services or both
for personal and / or family use..
 Retailer must have the Right Merchandise, at
the Right Place, at the Right Price, at the Right
Time, in the Right Quantity, in the Right
Assortment.
 Retailers provide markets for manufacturers to
sell their products.
Retailers Role
 Retailer is the final point that links a
manufacturer to the consumer.
 A Distribution Channel facilitates movement
of products from point of production to the
point of sale to the ultimate consumer.
 Manufacturer – Wholesaler – Retailer –
Consumer.
Retailers Role
 Manufacturers typically make products and
sell them to Retailers or Wholesalers.
 When a manufacturer – like Eureka Forbes –
sells directly to the consumer, it is performing
both the production and retailing business
activities.
 Wholesalers satisfy Retailer’s needs whereas
Retailers satisfy the needs of the ultimate
consumer.
Retailers Role
 Some Retail Chains like Home Depot and Sam’s
Wholesale Club are both retailers and wholesalers.
 They perform wholesale activities when they sell to
other business activities like contractors, restaurant
owners.
 Manufacturing, wholesaling and retailing activities
are also performed by individual firms but in such
channels there must be vertical integration.
Retailers Role
 Vertical Integration means that a firm has to
perform more than one set of activities such as
investments by retailers in wholesaling or
manufacturing.
 Many Retailers like Walmart, Safeway, Office
Depot – in India – Bata, ITC, Bombay Dyeing
etc. do both wholesaling and Retailing
activities.
Retailers Role
 Other Retailers are even more vertically
integrated. They design the merchandise they
sell and then contract vendors to manufacture
the same exclusively.
Example will be : Jini & Jony.
Explore other retailers who observe this practice

Retailers Functions
 Providing an assortment of products and
services.
 Breaking Bulk.
 Holding Inventory.
 Providing services.
Providing Assortments.
 Supermarkets can carry 15000 to 20000
different items made by , maybe, 300 different
companies.
 Offering assortments helps customers to
choose from large selection of brands, designs,
sizes, colors and prices in one location.
Providing Assortments
 Manufacturers specialise in producing specific
types of products e.g. Amul makes dairy
products, Cadbury makes chocolates, Kellog
makes breakfast cereals, Hind.Lever makes
toiletries etc.If each manufacturer has its own
store and sold its own products only then a
customer would have to go to different stores
to buy different products for domestic use.
Providing Assortments
 All Retailers specialize in the assortments they
offer.
 Supermarkets offer assortments of food, health
and beauty products e.g. Big Apple, Big Bazar;
Shoppers Stop offers assortments of clothing and
accessories.
 Consumers are well aware of these different
assortments on offer. Even small children are
now aware of what to find and where.
Breaking Bulk
 “Retail” is deried from the French word
‘Retaillier’ which means to cut a piece off or
break bulk.
 Manufacturers or Wholesalers supply in bulk to
Retailers who in turn sell in small quantities to
individual consumers. This is called ‘breaking
bulk’. E.g. A Retailer buys One doz. Tubes of
Colgate toothpaste from the wholesaler but sells
one tube to the consumer.
Holding Inventory
 Major function of Retailers is to keep stock in
user friendly packs or sizes for the consumer
to buy as per his needs.
 Thus, consumer need not keep large inventory
at home because he knows that the retailer will
have the stock when he needs it. This is
particularly important for food stuff and
perishables.
Providing Services
 Retailers offer credit to customers.
 Retailers put up attractive display of their
products for the benefit of their customers.
 Sales persons are available to assist customers
with product information etc.
 Multi channel retailers offer flexibility of
buying anytime- day or night.
 Customers have the option of home delivery.
Value Addition
 Giving Assortments, breaking bulk, holding
inventory, providing services, retailers
increase the value that the consumer receives
from their products and services.
Assignment:
Illustrate the above with an example.
Retail Sales
 Retailing affects every facet of one’s life. Every
action in day to day life involves retailing.e.g.
Eating, dressing, furnishing one’s house,
repairing one’s car or bike, buying medicines,
etc.etc. are all part of retail.
 Apart from direct retailing, there are other non-
store retailing like E-Tailing, TV shopping, sale
of movie tickets, hotel rooms, legal assistance
etc.
Employment in Retail
 Retail is one of the largest employers in the
world.
 In India, employment situation and the future
is as follows:
Retail Potential in Future
 By 2011 around 600 malls will be there.
 Around 1.50 million jobs are from retail industry.
 In another one and half year there will be around 50% increase
in the job requirements.
 Around 2 million direct jobs would be generated from
the retail industry
Top 25 Global Retailers
 The top 25 Global Retailers in the world are as
follows: ( List enclosed)
 Wal-Mart is the biggest retailer in the world and
its sales being three times more than Carrefour ,
the second largest retailer.
 Many large retailers are diversifying their format
offerings to consumers but 50% of the 200
largest retailers focus on a single segment only.
Global Retailers
 Majority of Global Retailers are in Food Sector.
 More than half of the top 200 Retailers have
supermarket, warehouse, hypermarket or cash
and carry formats.
 US companies dominate the largest 200 list. 78
American companies in top 200 list represent
49% of the sales. Wal-Mart alone contributes
more than 9% of top 200 sales.
Global Retailers
 Japanese companies remain major global
retailers. 30 Japanese companies form the
second largest group of the top 200.
 European retailers have larger global coverage
than US firms- who operate in an average of
three countries (except Avon and Mcdonalds)-
as against European firms which operate in an
average of seven countries.
Structure of Retailing and
Distribution Channels
 Nature of Retailing & Distribution Channels in
US is quite unique – US distribution system
has greater density and large sizes. They
operate own warehouses eliminating need for
wholesalers. They have sizes of 20,000 + sq.ft.
 Large stores and large firms result in very
efficient distribution system
Structure of Retailing and Distribution
Channels
 Japanese have small stores operated by small
firms and a large independent wholesale
industry.
 For efficient daily deliveries to small retailers,
merchandise might often pass through three
distributors between manufacturer and retailer.
 Thus larger labor force in Japanese system
engaged in distribution and retailing than in the
U.S.
 European system falls in between US and Japanese
in efficiency and scale.
 Northern European retailers are similar to US
system – concentration levels are high. In some
national markets 80% or more of sales in food or
home products are accounted for by less than five
firms.
 In Southern Europe, retailing is more fragmented –
traditional retail operate alongside big box retailers.
 In Central Europe, privatization of retail trade
resulted in change from highly concentrated
govt. controlled system to a system which is
highly fragmented by many small family
owned retailers.
 Factors which have created these differences
are social & political objectives; geographical
and market size.
Structure of Retailing &
 Top priority of Japanese policy is to reduce
unemployment by protecting small retailers.
 Several European countries have laws protecting
small retailers. E.g. in 1996 France tightened
laws for opening stores over 3000 sq.ft.
 Several European govts. Passed strict zoning
laws to prevent green spaces, inhibit large scale
retailing in suburbs.
 Second, population density in U.S.is much
lower than in Europe and Japan. Thus Europe
and Japan have low cost real estate available for
building large stores.
 Third, US Retail market is larger than Japan or
any single European country. In Europe retail
chains and distribution centres operate within a
single country, hence cannot economies of scale
of US firms serving broader customer base.
 Even with efforts to make trade within
European countries simple and more efficient,
there are several trade barriers which are not
existent in the U.S.
OPPORTUNITIES IN RETAILING
Management Opportunities
 Retailers hire people with wide range of skills and
interests to cope with the competition.
 Students view Retailing as part of marketing as
Distribution is part of manufacturer’s marketing
function.
 But Retailers undertake most traditional business
activities- raising finance, purchase goods and
services, develop MIS, design & develop new
products, undertake marketing activities like
advertising, promotions, sales force management, and
market research.
OPPORTUNITIES IN RETAILING
Management Opportunities
 Retail Managers are often given considerable
responsibility early in their careers.
 Retail Management is also financially
rewarding for those who perform well.
Significance of Retail Industry
 Consumer money drives the economy and retail
is where the consumers spend the money.
Retailers – restaurants, boutiques, mail-order
companies, e-tailers - these are establishments
where retailers spend their hard earned money.
 When a sale takes place, retailers realize
revenue and so do the wholesalers, distributors,
manufacturers etc.
 Retail transactions serve as a means for
collecting sales taxes which supports public
services of all kinds.
 Retail goods are traditionally divided into
durables and non- durables.
 Durables are furniture, appliances, cars which
are expected to last 5 years or more; Non-
durables include food, clothing and numerous
others which form the bulk.
 Retail industry offers immense opportunities
to entrepreneurs and workforce for various
jobs. Retail offers opportunities to buyers,
suppliers, and those managing the operations,
finances, and administration of retail
companies.
Entrepreneurial Opportunities
 Retailing provides opportunities who wish to
start their own business.
 Some of the world’s richest people are
retailing entrepreneurs. E.g. Sam Walton.
 In 1994, Jeffrey Bezos, 30 year old son of a
Cuban refugee, quit his highly paying job in
Wall Street to start an Internet business when
he found that Internet usage was growing at
2300%.
 While his wife was driving the cross country,
Jeffrey made his business plan on a laptop and
rounded up the business plan to launch the first
internet book retailer – Amazon.com
 It was so named after the river that carries the
largest volume of water symbolizing Bezos’s
objective of having the greatest volume of
internet sales.
 Today, Amazon. com sells more than just
books and CDs e.g. its consumer electronics
business sells 25,000 items compared to 5000
in a big electronics superstore.
 Amazon has also developed partnerships with
Sotheby’s auction house, Toys “R” Us, and
others.
 In 1945, Luciano Benetton lost his father when
he was only 10 years old.
 In 1960s, he started a sweater company with
his sister which has now grown to UCB
operating in 120 countries with business of
over $2 billion.
 Most know Georgio Armani as a fashion
designer. His worth is $ 1.7 billion and he
owns more than 260 stores.
 As many as 10% of the world’s billionaires are
retailers. Retail accounts for over 8% of GDP
in western countries and is one of the largest
employers. In U.S.A., more than 22 million
Ameriacns are employed in the retailing
industry in over 2 million retail stores.
 Retailing in the developed world is more
organized than in India. In USA it is 80%;
Western Europe is 70%; it is 40% in Brazil
and Argentina and 35% in Korea and Taiwan.
DEVELOPING A RETAIL
STRATEGY
 Retail Strategy identifies
 Target Market
 Nature of Merchandise and services which
Retailer will offer to cater to the Target
Market.
 How Retailer will develop long-term
advantage over competition.
DEVELOPING A RETAIL
STRATEGY
 Strategy of Wal-Mart and Toys ”R” Us.
WAL-MART:
 Target Market – Small Towns (under 35,000 popn).
 Merchandise – Branded; Low Price in broad

categories ranging from laundry detergents to girl’s
dresses. Wal-Mart offers different categories of
merchandise but selection in each category is limited.
E.g. A store may have only 3 brands of detergents in
two sizes while a supermarket carries 8 brands in five
sizes.
DEVELOPING A RETAIL
STRATEGY
 TOYS “ R “ US:
 Target Market – Suburban areas of large cities.
 Merchandise – Specialize in Toys, games,
bicycles and furniture for children. Has limited
categories of merchandise but has all different
types and brands of toys and games currently
available.
DEVELOPING A RETAIL
STRATEGY
 Both Wal-Mart and Toys “ R “ Us emphasize self
service.
 Since they emphasize Low-price, both have taken
strategic decisions to develop cost advantage over
their competitors.
 Both have sophisticated distribution and management
information systems to manage inventory.
 They buy at low prices because of their strong
relationship with their suppliers.
STRATEGIC DECISION AREAS
 Key Strategic Decision Areas are:
a) Market Strategy.
b) Financial Strategy.
c) Organizational Structure and HR Strategy.
d) Information Systems and Supply Chain
Strategies.
e) Customer Relationship Management
Strategies.
 Retail Market Strategy based on Environment
and the firm’s strengths and weaknesses.
When major environmental changes occur, the
Retailer has to suitably alter current strategy to
take advantage of new opportunities or avoid
new threats.
 Retailer’s market strategy must be consistent
with the financial objectives.
 Location Strategy important for both consumer
and competition.
 First, location is consumer’s prime
consideration for patronizing a store - e.g. a
customer buys petrol from the service station
closest to his residence or place of work;
patronizes a mall also for the same reasons.
 Second, Location means long-term advantage
over competition. When a Retailer has the best
location, a competing retailer has to settle for
the second best location.
 Organization Design and HRM Strategy
connected to market strategy. E.g. Retailers
serving national or regional markets must
choose between efficiency of centralized
buying and the need to tailor products and
services to suit local requirements. Retailers
who require high-end quality of service for
their customers must motivate their sales
associates to fulfill the same.
 Improved Information and SCM systems provide
retailers strategic advantage over competitors.
Sophisticated computer and distribution system
monitors flow of information and merchandise from
vendors to RDCs to Stores. These technologies are
part of an over-all inventory management system that
enables retailers to give customers better choice of
merchandise with lesser inventory investment.
 Basic strategy is understanding and satisfying
customer’s needs.
 More important is to understand and cater to the
wants of the retailer’s valued customers – these are
the ones who contribute the major share of the
retailer’s sales and profits.
 CRM focuses on identifying and building loyalty
with the retailer’s most valued customers.
 Example: J.C.Penney – Case Study.
Implementing Retail Strategy
 To implement Retail Strategy, you need to
develop a Retail Mix which is a combination
of factors used to satisfy customer needs and
influence their purchase decisions.
 Elements in Retail Mix are:
 Types of Merchandise and Services.
 Merchandise Pricing.
 Advertising & Promotional Programmes.
 Store design.
 Merchandise display.
 Customer service.
 Store Location.
 Managers responsible for buying have to
decide
- how much and what to buy.
- select the right vendors and purchase terms.
- Fix retail prices.
- How to advertise & promote.
 Store Managers have to decide
- how to recruit, select the right kind of sales
people.
- how to motivate them.
- where and how to display merchandise.
- the kind of service to provide customers.
The Retail Business
 Key to successful Retailing is offering the
right product, at the right price, in the right
place, at the right time, in the right quantity, in
the right assortments and make a profit.
 To accomplish this, retailers must understand
the customers needs and wants and what
competitors offer now and in the future.
The Retail Business
 A Retailer has to take a wide range of
decisions – from deciding the price of a piece
of apparel or whether a big store should be
built in a mall or not.
 Correct decision making is the key to success
in a retail venture.
Retailer’s Characteristics
 Direct end-user interaction in Retailing.
 Only point in Value Chain to provide a
platform for promotions.
 Sales at Retail level in smaller unit sizes.
 Location is critical in Retail.
 In most Retail business, service is as important
as the core products.
 There are a larger no. of retail units compared
to other members of the value chain. This
happens primarily to meet the requirements of
geographical coverage and population density.
 Direct Interaction with Customers: Retailer
has direct interaction with the end user of
goods or services – act as intermediaries
between end users and wholesalers and
manufacturers. As such they are in a better
position to gauge the consumers response and
preferences to the manufacturers or suppliers.
This helps manufacturers to redefine products
and marketing strategy.
 Manufacturers require strong retail network
for reach of product and to obtain strong
platform for promotions and point – of-
purchase advertising.
 Because of the importance of retailing in the
value chain, many manufacturers have become
retailers themselves by setting up exclusive
stores for their brands.
 This has provided direct contact with
customers and also wide publicity.
 Retailing provides extensive support for
products which are information intensive e.g.
consumer durables.
 Hence, retailers must have proper inventory
control and enforce effective cost control
measures with each transaction.
 Credit verification, personnel and value added
activities like packaging, gift – wrapping,
promotional incentives all add up to costs. To
offset this, retailers must attract max. no. of
shoppers.
 Many customers in India buy grocery items
on a daily basis rather than on weekly or
monthly basis. Inventory management is tough
for retailers because of the many minor
transactions and large no. of customers.
 Point of Purchase Display and Promotions: A
big chunk of retail sales is a result of unplanned
or impulse purchases. Hence, a retailer must
take advantage of this and tries to attract he
customer through eye catching display, point-
of- purchase merchandise, store layout etc.
Impulse goods like chocolates, snack food,
magazines, shaving blades sell faster in high
visibility and high traffic locations.
 Large No. of Retail Outlets: No. of outlets
have to be high to reach out to the max.
number of customers. Location of the retail
store plays an important role and this is done
keeping in mind potential demand, supply of
merchandise, store image and the geographical
location.
Role of Services in Retailing
 Store location and facilities are important.
Parking facilities, extended hours of shopping,
children’s play areas, wash rooms, trial rooms
are important.
 Efficient customer service to make the
customer feel comfortable and important.
Role of Services in Retailing
 Though shopping over the phone or through
internet have become popular, majority of
Indian customers still prefer to visit stores for
shopping.
 Stores are popular because consumers need to
see and test products, there is social
interaction, compare different brands and leads
to impulse buying.
Theories of Retailing
 Retailing is dynamic. New Retail firms bring
innovative approaches and change the industry
as enter, develop and grow.
 New Retailers introduce new ideas e.g. Home
shopping clubs through Cable TV. Such
retailers are at the entry stage – development
and introduction. Over time consumer’s
acceptance of this can be known.
 Retailers who survive the development and
introduction stage enter the ‘growth’ stage.
 As business grows, it gradually moves into the
‘maturity’ stage. Here, competition intensifies and
strategies must be developed to maintain existing
market share. Most department stores today are in
this stage.
 Those who cannot compete effectively move into the
‘decline’ stage and ultimately are out of business.
 In Retailing, change is not a matter of chance;
it is virtual certainty.
 Identify three Retailers who are now in the
‘decline’ stage and the reasons.
 Dialectic Process: This is an evolutionary
theory based on the premise that retail
institutions evolve. New retail formats emerge
by adopting characteristics from other forms of
retailers similar to the theory of human
evolution – a child is the result of pooled
genes of two individuals.
 Dialectic Process: It is also the blending of two
opposite store types into a superior form. E.g.
a specialty store offers specialized
merchandise, wide array of services, attractive
surroundings. This combined with a discount
store will become a speciality discount store
with wide customer services, broad assortment
of specialized merchandise, attractive
surroundings and at discounted prices.
 Gravity Model: This is a theory about the
structure of market areas. Volume of
purchases by consumers and the frequency of
trips to the outlets are a function of the size of
the size of the store and also decides on the
distance between the store and the origin of the
shopping trip.
 Retail Accordion Theory: This theory
suggests that retail institutions go from outlets
with wide assortments to specialized, narrow
and compact assortments and then back again
to the more general and wide assortment
situation. This is also called the general –
specific – general theory.
 Retail Lifecycle Theory: This is a theory of
retail competition that states that retail
institutions – like the products they distribute,
pass through an identifiable cycle. This cycle
is in four distinct stages – Innovation –
Accelerated development – maturity – decline.
 Wheel of Retailing Theory: A theory of retail
institutional changes that explains retail
evolution with an institutional life cycle
concept. New retailers enter as low-status, low
margin, and low price operations. As they
achieve success, they increase their customer
base an sales; products are upgraded, facilities
improved, new services added. Prices and
margins are increased to support higher costs.
 New retailers enter market to fill the gap in
low-status, low margin and low price niche. A
retail store type emerges, enjoys accelerated
growth, reaches maturity and declines. The
‘wheel of retailing’ theory has been criticized
because it does not explain all the changes in
retailing – e.g. many stores do not begin as
low price, low service outlets.
 Natural Selection Theory: A theory of retail
institutional changes that states retailers that
can most effectively adapt to environmental
changes are the ones that are most likely to
prosper and survive. E.g. TV home shopping
is expanding and growing because they are
responding to changes in the demands of the
consumers.
 Central Place Theory: This represents a model
that ranks communities according to the assortment
of goods available in each. At the bottom of the
hierarchy ae communities that represent the
smallest central places which provide the basic
necessities of life. Further up the hierarchy are
larger central places which carry all goods and
services found in lower order central places plus
more specialized ones that are not necessary.
 All the theories suffer from lack of emphasis on
customer taste, wants, desires and expectations. By
patronizing stores that meet their needs and avoiding
those that do not, consumers exert a powerful force
on the evolution of retailing.
 Retailers will succeed by knowing their customers
well. Customers expect retailers to provide value not
only in the merchandise but in the total shopping
experience – pleasant atmospherics, courteous service
and special touches like live entertainment.

Retail Business

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THE RETAIL

Explore other retailers who observe this practice

 Merchandise – Branded; Low Price in broad

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