JNANA VIKAS INSTITUTE OF MANAGEMENT STUDIES & COMMERCE

[Link] 2nd SEMESTER

RETAIL MANAGEMENT
UNIT 2: RETAIL ORGANIZATION & FUNCTIONAL MANAGEMENT

Business Models in Retailing:

It is the way by which an organization makes money (revenue and profit) by selling their products and/or
services. It is a simple yet complex model depending on the scale an organization operates & play and the
expertise they possess.

Types of Business Models:

Business Models

Online Models Offline Models Omni Channel Models

Online Models: In this, a retailer operates its shop completely online i.e. website and apps without physically
going to a store. No matter what time or day it is, one can order 24x7x365.

Amazon

Bigbasket Flipkart

[Link] Paytm

Ajio

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Customers can view, compare and place an order products and/or services just at a touch of a button or click of
a mouse through their mobiles, tablets, laptops or PCs.

Offline Models: As the name suggests, customers physically go to a shop to experience and purchase products
and/or services in small quantities for their personal and family use to fulfil their needs and satisfy themselves

Wallmart

LuLu market Reliance

More store Metro

Bigbazar

A number of formats such as hypermarket, supermarket, convenience, cash & carry and many more are
available for customers depending on their catchment, needs and wallet.

Examples:

 Convenience stores
 Departmental stores
 Discount stores
 Specialty stores
 Hypermarkets
 Factory Outlet stores
 Category Killers
 Destination stores
 Conventional super market
 Food based super stores
 Combination stores
 Membership stores

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Omni-Channel Model: It is also known as hybrid channel. This new age shopping format is mix of online and
offline model where consumers can shop from a variety of mediums. It is seen as the new way to shop bridging
the gap between online and offline shopping and combining both synergies to create an exceptional shopping
experience for the customer.

An Omni-channel retailer is one whose customers use both offline shopping tools + online shopping tools to
purchase their products and /or services.

Classification of Retailing Formats:

Following chart shows the classification of Indian retail formats:

Retailing formats

Store based Retailing Non – Store based Retailing

 Direct selling
 Mail order
Forms of Ownership Merchandise offered  Telemarketing
 Automated vending
 World Wide web

 Independent /Mom & Pop  Convenience stores

stores  Departmental stores
 Chain stores/Retail chain  Discount stores
 Retail Franchising  Specialty stores
 Co-operative society  Hypermarkets
 Leased departments  Factory outlet stores
 Vertical Marketing System  Category killers
 Destination stores
 Conventional super market
 Food based superstores
 Combination stores
 Membership stores

Operational Stages in Retailing:

 Retail Store Operation

 Location of Retail store
 Retail store layout
 Retail store design
 Space planning

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  Atmospherics
 Visual merchandising
 Merchandise management
 Category management
 Inventory management

Retail Store Operation:

Retail Store: A retail store is a place of business usually owned and operated by a retailer but sometimes owned
and operated by a manufacturer or by someone other than a retailer in which merchandise is sold primarily to
ultimate consumers.

Retail Store Operation: Retail operation involves managing the day-to-day functions of retail establishments
and are responsible for maximizing store profits.

Elements of Retail Store Operations:

 Administration operations
 Merchandising Operations
 Customer related operations

Administration operations:

 Store Opening
 Staffing
 Handling Payments
 Shrinkage and Theft
 Events and Promotions
 Management of Premises
 Store Closing

Merchandising Operations:

 Receive
 Tally
 Order
 Replenish
 Return
 Display

Customer related operations:

 Service
 Advice
 Returns
 Complaint

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Retail Store Location:

Location of Retail store in a place convenient to the customers will add to the success of the retail business.
Location should be the destination of the customer’s choice. Location of stores facilitates the consumer to get
right merchandise (goods) at right time, at right place, at right price and in right quantity.

Decisions’ relating to location of retail store is very crucial because of the following considerations:

 It involves huge capital investment in purchase of land and construction of stores etc.
 It helps in developing sustainable competitive advantage over the competitors
 It helps in typically prime consideration in customer’s store choice

Essentials of Ideal Retail Store Locations:

 Convenience
 Competition
 High Traffic
 Cost of operating stores
 Economic conditions
 Parking space
 Ease of expansion

Convenience: The store location should be convenient for the shoppers to travel. It should have good public
transport system, easily accessible from the residence, etc.

Competition: The presence of competition may motivate retailers to be on par with the competitive advantage.

High Traffic: The location of the stores should be in a place which is crowded and in the middle of the city. It
should have both vehicular and pedestrian traffic. The passersby may be attracted by the offers displayed by the
retailer and may step into the stores. When traffic is greater more customer shop

Cost of operating stores: The Rental factor is also an important criterion for deciding the location of the stores.
If the rent of the area is too high, then establishing a store in such area will be a difficult task.

Economic conditions: The growth of population and employment rate determines the demand for merchandise
sold in its stores.

Parking space: The shoppers who come to the stores may find difficulty in parking their vehicles, which will
discourage them to visit the stores. The availability of sufficient parking space will add to the convenience of
the shopping.

Ease of expansion: The location should be such that, it can facilitate expansion in future.

Retail Store Layout:

A retail store layout (whether physical or digital) is the strategic use of space to influence the customer
experience.

Retail store layout describes the overall look and feel of the interior of a retail store, including the placement
of fixtures and products within the stores is called retail store layout.

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A store layout is the design in which a store’s interior is set up. They are designed to create an attractive image
for consumers.

Store layout includes:

Selling space:

 Interior displays
 Sales demonstrations
 Sales transactions

Merchandise space:

 Inventory space
 Backrooms
 Drawers, shelves

Personnel space:

 For employees
 Break room
 Restroom
 Lockers

Customer space:

 For their comfort

 Dressing rooms
 Restaurants
 Lounges

Types of Retail store layout:

 Racetrack form layout

 Grid form layout
 Free flow form layout
 Mixed form layout
 Dead block format

Racetrack layout: This layout ensures that shoppers start from the point where they enter the stores, flow
through the entire store and then get back to where they started from.

Customers are able to see multiple merchandise from different departments encouraging unplanned purchase.

Advantages:

 Ease of browsing
 Ideal for small stores

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Disadvantages:

 Very costly
 Problem in cleaning

Grid form layout: The grid format is the most widely used layout for a store and it caters to goal oriented
shoppers.

The shoppers’ movements are in parallel paths and very predictable and easy to navigate.

Examples: Super markets and hyper markets

Advantages:

 Low cost and customer familiarity

 Merchandise exposure
 Ease of cleaning
 Possibility of self service
Disadvantages:

 Plain and uninteresting

 Limited browsing
 There is stimulation of rushed shopping behaviour
 High shelving limits customers
Free form layout: A free flow, as the name suggests, is a circulation that does not specifically direct the
shopper to any specific part of the store.

Free form layout is a type of layout where the fixtures and aisles are arranged asymmetrically.

Advantages:

 Allowances for browsing and wandering freely

 Increasing impulse purchases
 Visual appeal and flexibility
Disadvantages:

 Possible confusion
 Cost
 Waste of floor space and problem in cleaning

Mixed form layout: The mixed form layout incorporates the racetrack, grid and free form layout to create the
most functional store design.

Dead Block Format: Dead block format is mostly used and adopted in the small kirana shops having 150 Sq.
ft. this format makes the customer shop without entering the store.

Retail Store design: Store design refers to the physical characteristics associated with the store that includes
interior and exterior elements, as well as layout planning and display.

Retail store design is a well-through-out strategy to set up a store in a certain way to optimize space and sales.

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Types of Store design:

 Interior Store design

 Exterior Store design

Interior store design: Interior store design refers to all aspects of physical environment found inside the store.

Interior store design includes:

 Fixtures
 Flooring and ceiling
 Lighting
 Graphics and signage
 Atmospherics
Exterior store design: Exterior store design refers to all aspects of physical environment found outside the
store which includes:

 Location
 Parking
 Ease of access
 The building architecture
 Health and safety standards
 Store windows, lighting
Atmospherics: Retail atmospherics refers to anything inside of a retail environment that is intended to
influence buyer behaviour. This often includes the use of certain colors, designs, smells, lighting or even music.

Space Planning: Space planning determines where, and how, to place merchandise within a store to increase
sales and can be used to adjust the visibility, appearance and presence of products to make them appear more
desirable or to ensure sufficient inventory levels on the shelf or display.

Visual merchandising: It is an orderly, logical and systematic way of displaying of merchandise or products
within the store for the purpose of maximizing the sales and profit.

Visual merchandising is the art of presentation, which puts the merchandise in focus. It educates the
customers, creates desire and finally augments the selling process. A team of senior managers, architects,
merchandising managers, industrial designers and staff etc are required in the process of designing the visual
merchandising. It involves skills, creativity, lightings, props, background, interiors and flooring.

Visual merchandising helps in:

 Educating customers about the product/services in an effective and creative way

 Establishing a medium to present merchandise in 3D environment, thereby enabling long lasting impact
and recall value
 Establishing linkage between fashions, product design and marketing by keeping the product in prime
focus
 Combining the creative, technical and operational aspects of a product and the business
 Drawing the attention of the customer to enable him to take purchase decision within shortest possible
time, and thus augmented the selling process.

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Visual merchandising is useful not only for showcasing the merchandise but it also provides certain basic
information such as directions, working time, offers and discount, price of products, entry and exit location,
caution, fire exist and emergency exits etc.

Merchandise management:

Meaning of Merchandise: It is the commodities or goods that are bought and sold in business.

Meaning of Merchandising: Merchandising is the sequence of various activities performed by the retailer
such as planning, buying, and selling of products to the customers for their use. It is an integral part of
retailing and is also one of the most challenging functions

Meaning of Merchandise Management: It is termed as the analysis, planning, acquisition, handling and
control of merchandise investment of retail operation with the objective of maximizing the sales and profits of
a category.

Definition of Merchandise Management:

According to American Marketing Association, merchandising encompasses “Planning involved in marketing

the right merchandise or service at the right place, at the right time, in the right quantities, and at the right
price”

Functions of Merchandise Management:

Merchandise Management

Analysis Planning Acquisition Handling Control

Analysis: It is required because a retailer needs to understand the needs and wants of his target customers.

Planning: It is necessary to plan since the merchandise to be sold in future must be bought in advance.

Acquisition: Acquisition of goods can be either directly from manufacturer or distributors.

Handling: It is necessary to determine where merchandise is needed and ensure that the merchandise reaches
the required stores at the right time and the right conditions.

Control: It is required since the function of merchandise involves spending money for acquiring of products, it
is necessary to control the amount of money spent on buying.

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Process of Merchandise management:

Right Product

At Right Price
Process of Merchandise management

To Right Location

At Right Time

To Meet Projected Sale

Generate Required Margin

Maintain Defined Stock Cover

Category Management: Category management is a retailing and purchasing concept in which the range of
products purchased by a business organization or sold by a retailer is broken down into discrete groups of
similar or related products; these groups are known as product categories is called category management.

It is a systematic, disciplined approach to managing a product category as a strategic business plan.

Steps/Process of Category Management:

 Define the category

 Define the role of the category within the retailer
 Assess the current performance
 Set objectives and targets for the category
 Device an overall strategy
 Device specific tactics
 Implementation
 Review and feedback

Inventory Management:

Meaning of Inventory: Inventory refers to a physical stock of company’s goods and products that are ready to
sell, along with the raw materials that are used to produce them. Inventory can be categorized in three different
ways, including raw materials, work-in-progress, and finished goods.

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Meaning of Inventory Management: Inventory management refers to the process of ordering, storing, using,
and selling a company's inventory. This includes the management of raw materials, components, and finished
products, as well as warehousing and processing of such items.

Reasons for keeping Inventories:

 To stabilize production
 To take advantage of price discounts, offers and rewards
 To meet the demand during the replenishment period
 To prevent loss of orders (Sales)
 To keep pace with changing market conditions

Inventories control techniques:

 ABC Analysis:
 Just in Time (JIT)
 Perpetual Inventory System
 Economic Order Quantity (EOQ)
 VED Analysis
 Stock Level

ABC Analysis: ABC analysis is an inventory management technique that determines the value of inventory
items based on their importance to the business. A category has highest value of items, B category has lower
than A category and C category has the lowers value of items.

Just in Time (JIT): It is a technique where items will be ordered only it is needed for shipping or
manufacturing. The item may be ordered by considering the lead time (Delivery time). Under this system, the
required inventories should be identified and before ordering it.

Perpetual Inventory System: A perpetual inventory system is a program that continuously estimates your
inventory based on your electronic records, not a physical inventory.

It is a method of recording stores balances after every receipt and issue, to facilitate regular checking and
ascertain closing down for stock taking.

Economic Order Quantity (EOQ): EOQ is the quantity that minimizes total inventory holding costs and
ordering costs. It is calculated by the following formula:

√2 (Annual demand in units) (Ordering cost per oreder

EOQ =
Annual carrying cost(Holding)per unit

VED Analysis: It is also known as Vital, Essential and Desirable analysis. In this analysis inventories are
classified into three categories namely: Vital, Essential and Desirable.

Stock Level: Stock level means the level of stock required for an efficient and effective control of goods, to
avoid over-and under-stocking of goods. The need of inventory control is to maintain the stock of goods as low
as possible but at the same time make them available as and when required.

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Factors influencing location of store:

Type of Goods

Population

Customer profile

Retail Rules, Policies and Procedures

Factors influencing on location of Retail stores

Selection Area

Competition

Cost of Location

Site Choice

Scale of operation

Capital

Shop decoration

Selection of Goods

Supply Source

Policy of Sales

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Type of Goods:

The retailers need to examine what kind of products to be sold. It includes:

 Convenience goods
 Specialty goods
 Shopping store

Population:

If retailers are choosing a city or state to locate retail store, they need to research the area thoroughly before
making a final decision. Read local papers and speak to other small business in the area. Obtain location
demographics from the local library, chamber of commerce or the Census Bureau. Any of these sources should
have information on the area’s population, income and age.

Customer profile:

The retailers must know their customers. They must ensure to find a location where customer live, work and
shop.

The following questions should be considered with respect to customer profile:

 What kind of customers visits in the area?

 Where they live, work and shop?
 Educational qualification of the sutomers
 Age and income of the customers

Retail Rules, Policies and Procedures:

Before signing a lease, be sure you understand all the rules, policies and procedures related to retail store
location. Contact the local city hall and zoning commission for information on regulations regarding signage.
Ask about any restrictions that may affect retail operation and any future planning that could change traffic,
such as highway construction.

Selection Area:

Before commencing business, retailers should decide about the area. The selection of the area includes:

 Identifying the population of the area

 Income level of the people
 Nearness to big markets
 Transport facilities
 Communication facilities

Competition:

Other area business in your prospective location can actually help or hurt your retail shop. Determine if the
types of businesses nearby are compatible to store. For example: A high end fashion boutique may not be
successful next door to a discount variety store. Place it next to a nail or hair salon and it may do much more
business.

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Cost of Location:

Besides the base rent, consider all costs involved when choosing a retail store location. It includes pays for lawn
care, building maintenance costs, cost of security etc.

Site Choice:

Once the area is decided, a specific site is selected for location of the retail shop. A retailer may open his shop
in special markets or in residential areas. The shop should be near the consumers in a congested locality or at a
place frequently visited by the consumers. The place of location should be easily accessible to consumers.

Scale of operation:

A retailer should decide the size of his business. Size will depend upon his financial and managerial resources,
capacity to bear risks and demand potential of the area.

Capital:

Then the retailer has to decide the amount and sources of capital. the amount of capital required depends on the
size of business, terms of trade, availability of credit, cost of decoration of shop and display of goods. Adequate
of finance is necessary for success in any business.

Shop decoration:

The layout and decoration of shop are decided so that customers find the place attractive and comfortable for
shopping. The retailer should arrange and display the goods in an attractive manner to attract more and more
customers.

Selection of Goods:

The goods to be sold are selected on the basis of the nature, status and needs of the customers. Changes in
incomes, habits, and fashions of customers must be considered in the choice of goods.

Supply Source:

The Manufacturers and wholesalers from whom goods are to be purchased must be selected carefully.
Availability of suppliers, reputation of the brand, price range and distance from the shop, means of transport etc.
should be considered.

Policy of Sales:

The retailer should adopt a suitable sales policy to increase sales and profits. Sales policy and prices should be
decided keeping in mind competition and customers

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