Channel Institutions - Retailing

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 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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 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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 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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 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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 Functions of Retailers
• Marketing functions 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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 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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How do Customers Decide on
a Retailer?
• Price
• Location
• Product selection
• Fairness in dealings
• Friendly sales people
• Specialized services provided

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 Kinds of Retailers
Type of Characteristics
retailer
Specialty store Narrow product line with deep assortment – apparel,
furniture, books
Department Several product line in different departments – Shoppers
store 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 - Subhiksha
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 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

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 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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 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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 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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The Indian Retail Scene

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 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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 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, Reebok,
McDonalds, KFC, Swarowski are already in
India.

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 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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 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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 Retailing Trends - India
• Influence of retailer increasing – assortment
plus other facilities offered
• Rural consumers want the same things and
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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 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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 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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 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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 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… 23
 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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 Retail Strategy
• Positioning of the retailer
• Merchandising
• Customer service
• Customer communication

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 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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 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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 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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 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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 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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 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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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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 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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 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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 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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 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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 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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 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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 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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