CHANNEL INSTITUTIONS -

RETAILING
 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
 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
 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
 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
 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
 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
 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
 Theories in Retail

• Cyclical Theories:
– Wheel of Retailing – simple, low price, low margin on to
premium, high prices and margins and introduction of low
price margins again
– Accordion – general retailer into specialized and then on to
even bigger general retailer
 Theories in Retail

• Evolutionary Theories:
– Dialectic Process – retailers tend to adapt practices from
their opposites as in competitors. This conflict may result in
a new retail format also
– Natural Selection – successful adaptation to environmental
factors
 Kinds of Retailers
Type of Characteristics
retailer
Specialty store Narrow product lines with deep assortment – apparel,
furniture, books
Department Several product lines in different departments –
store Shoppers Stop, Big Bazaar
Supermarket Large, low-cost, low-margin, high volume, self-service
operation with a wide offering
Convenience Small stores in residential areas, open long hours all
store days of the week – limited variety of fast moving
products like groceries, food
Discount store Standard merchandise sold at lower prices for low
margins
 Kinds of Retailers
Type of Characteristics
retailer
Corporate More outlets owned and controlled by one firm – Globus
chains
Voluntary chain Wholesaler sponsored group of independent retailers

Retailer co-ops Independent retailers with centralized buying operations

and common promotions
Consumer co- Co-op societies of groups of consumers operating their
ops own stores – farmers, industrial workers etc
Franchise Contractual arrangement between the producer and
organisation retailers – selling products exclusively
 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
 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
 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.
The Indian Retail Scene
 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
 Indian Retail Market

• Growing at 12% pa, Modern 20% and Traditional 10% pa

• Value: 2015: $600 bln and 2020: $ 1 trillion
• Modern Trade: 2015 - $60 bln, 2020: $180 B
• E-commerce: 2015 - $15 bln, 2020: $ 60 bln
 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.
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
 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
 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
FDI in Retail
Foreign Direct Investment
 FDI in Retail in India
• MNC players showing interest to operate in India
• Resistance from the existing players
• Initially 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
 FDI Milestones
Year Permitted
2006 100% in C&C Wholesale. 51% in retail with Government
approval
2010 Stakeholders opinion sought in allowing 100% in multi-
brand retail
2012 100% in single brand and 51% in multi-brand retail. 30%
local sourcing from SMEs
2015 Single brand – global technology brands to open own
stores
2016 100% FDI in market-place formats of e-commerce
 FDI in Retail - 2016
• 100% FDI in market place formats of e-com – defined
inventory led and market place models clearly
• Discount limits specified
• Sourcing not more than 25% from any vendor
• 100% FDI in multi-brand food processing retail – sourced and
made in India – approval required from FIPB
• Single brand retail and food retail in e-com – 3 years no
sourcing norms
• State of the art and cutting edge technology – sourcing
relaxed for 5 years
 Favorable Policy Changes

• Retail to remain open 365 days

• Timings relaxed – 5 am to 11 pm
• Additional 50% FSI in retail space
• Women employees can work up-to 10 pm with safety
measures in place
 Trade / Retail Format
• Range of goods and customer service dimensions determine
the ‘format’. Elements distinguish between stores and include:
– Store ambience.
– 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.
 Possible Retail Formats
• General merchandise: departmental stores, full line
discounter, specialty stores, variety stores, factory outlets
• Food retailers: conventional store, food based superstore,
hypermarkets
• Non-store retailing: direct selling, vending machines,
catalogue marketing, telemarketing
• Non-conventional channels: internet, airport retailing,
franchising
 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
 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

Trading area…
 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 (no longer
exists) 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
Retail Strategy
 Retail Strategy
• 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
 Strategy Guidelines

Market focus Format selected Appropriate strategy

Existing Current Market penetration
Existing New Format development
New Existing Market expansion
New New Diversification
 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
 Retail Strategy
• Positioning of the retailer
• Merchandising
• Pricing strategy
• Target market segments
• Customer service
• Customer communication
 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
 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
 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 …
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
 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….
 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
• Introduce new products before competition - again unlikely
for too long
 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
 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
 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
 Other Performance
Measures
• Return on Equity, Assets, Sales
• Sales per transaction
• Hourly customer traffic (footfalls)
• Shrinkage to sales ratio
• Number of customers served by FTE employee
• Value of purchases per buyer
 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
 Category Management
• 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
 Category Management
• 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
 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
 Technology – Store
Operations
• Need to optimize resources in space and time + maximize
customer satisfaction = protect razor thin margins
• Objectives: a) work closely with vendors to predict consumer
demand b) shorten lead times c) reduce inventory and d) save
costs
• Some systems: Bar coding and scanners, credit / debit card
payments, wifi for in-store connectivity, RFID for inventory
management, messages on cell phones – promos, smart
shopping carts, bi-directional infra-red sensors on store
shelves to measure traffic, electronic shelf labeling
 Warehouse Information
Systems
• Are developed to enable the following:
– Inventory control, invoicing / receiving, interface with
accounting, reports, enforced accuracy, integrated
customer care handling, general ledger, AP, AR, support
for tax audit
• Some retail warehouse systems in use:
– Hand-held POS systems
– Customer data base
– RFID – electronic tagging
– Planogram for product layout
– Magic mirrors – depict appearance in any outfit without
having to wear it
Rural Retail
 Retail in Rural
• Features of rural markets:
– Dispersed population and trade. Large number of small
markets. Poor road connectivity
– Low density of shops per village. Poor storage systems.
Poor visibility and product display. Poor reach of media
and hence communication.
– Estimated that nearly 50% of rural population prefers
buying from the weekly shandies / haats
– Rural retailers stock mostly local and regional brands with
higher margins and longer credit periods.
 Providing Rural Reach
• Using feeder markets with a hub and spoke model to reach
village retailers
• Company vans carry goods on a pre-defined beat plan to
cover rural retail – ready stocks, promotion support. Effective,
but expensive
• Unorganized mobile traders – deliver daily need products
directly to rural homes
• Exploit weekly markets known as shandies / haats
• Corporate efforts like HUL Shakti
• Some companies set up retail chains
 Companies’ Rural Chains

• Godrej Aadhar – managed by Godrej Agrovet to provide crop

advisory services, water testing, crop finance, products. 24
outlets each outlet covering 20 villages.
• ITC Choupal Sagar - An extension of the e-Choupal system.
Rural malls created. Each mall spread over 5 acres, costing
about Rs 4 cr. Proposed in 15 states with about 1000 rural
malls
• DSCL Hariyali Kisan Bazar - 302 outlets in 8 states providing all
agri services and most of the products required in rural. They
have qualified agronomists working 24x7 and helping 10 million
farmers covering 30 million acres.
 Support for Retail
• Pradhan Mantri Graam Sadak Yojana: 48812 kms of rural
roads in 2017
• NABARD to provide 200, 000 POS machines to enable
farmers to do cashless transactions
• Support to artisans and weavers provided by 20 e-commerce
companies with the Ministry of Textiles
• One lakh family size biogas plants to be set up in 2017
• High budget allocation of Rs 48,000 cr for MNREGA
• 100% village electrification by 2018
Retailing on the Internet

e-Tailing
 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
Features of On-line Retail
Advantages Disadvantages

Fast, easy
Saves money
24X7 shopping
Interesting shopping No product touch and feel
experience Delays in shipping and receipt
Shopping from home Risk of card mis-use
Rich product availability
Returns also made easy
Easy payment options
 E-tailing Issues
• Logistics support to selling
• Payment gateway
• Customer product returns
• Conflicts with Brick &Mortar – could be overcome by selling
separate products
 Payment Options

Paytm Mobikwik
MomoeXpress CitrusPay
PayUMoney State Bank Buddy
Citi Master Pass ICICI Bank Pockets
HDFC Chillr LIME
 Digital Payment Options
• M-wallets
• NEFT and RTGS
• Plastic Money
• Immediate Payment Service
• Mobile Banking
• Unified Payments Interface (UPI)
• Aadhar enabled payment system
• Bharat Interface for Money (BHIM)
Mobile Payment Options
• Airtel Money Mobikwik
• Citi Master Plus Momoexpress
• Citrus Pay Money on mobile
• Eze Tap Mswipe
• Free Charge Ola Money
• HDFC Pay Zapp Oxigen
• ICICI Pocket Pay Mate
• Jio Money PayTM
• Jus Pay Pay U Money
• LIME State Bank Buddy
 Logistics Support to e-
Tailing
• Product / delivery options available to e-commerce
companies:
– Create own logistics division – heavy investment but
complete control. Also requires a lot of warehouse space.
Customer faith will be high.
– Entrust all the responsibilities to a 3rd party – reasonable
rates, stable track record, low volumes, high billing
– Most common – work jointly with a 3P service provider
• Speed of delivery is considered as a competitive advantage
Franchising
 Franchising
• Franchisor is the firm which wants to sell its goods or services
• Franchisee is the firm or group that is 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…
 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…
 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
 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 100% foreign investment is permitted in
single brand businesses
 Key Learnings
• Most theories in retailing highlight the way in which retailers
progress through different stages 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.
 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.
 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
Thank You