Introduction to retail

Introduction to Retailing

Retailing is the set of business activities that adds value to the products and services sold to consumers for their personal or family use

Retailing is not just sale of products in stores; it also involves the sale of services

Not all retailing is done in stores

Retailer's role in a Distribution Channel

A distribution channel is a set of firms that facilitate the movement of products from the point of production to the point of sale and finally to the ulimate consumer / customer

Retailers are final business in a distribution channel and link the manufacturers to the consumers

Manufacturers------->Wholesaler------->Retailer------->Consumer

There are manufacturing retailers (Levis, Polo Ralph Lauren) and then there are manufacturers who sell products to wholesalers, who then sell them to retailers (FMCG).

Some retailers also function as wholesalers (Cash 'n' Carry)

Retailer's role in a Distribution Channel

A distribution channel is a set of firms that facilitate the movement of products from the point of production to the point of sale and finally to the ulimate consumer / customer

Retailers are final business in a distribution channel and link the manufacturers to the consumers

Manufacturers------->Wholesaler------->Retailer------->Consumer

There are manufacturing retailers (Levis, Polo Ralph Lauren) and then there are manufacturers who sell products to wholesalers, who then sell them to retailers (FMCG).

Some retailers also function as wholesalers (Cash 'n' Carry)

Functions performed by Retailers

Providing an assortment of products and services

Breaking bulk

Holding inventory

Providing services

Functions performed by RetailersProviding Assortments

Manufacturers specialise in producing specific types of products

(Cadbury makes chocolates, Amul makes dairy products, Kellogg makes breakfast cereals)

If each of these manufacturers had its own stores selling only its own products, customers would be required to go to many different stores

All retailers offer assortment of products, but they specialise in the assortments they offer

Supermarkets (assortments of food, household products, personal care etc. -----> 20,000 to 30,000 different items from over 500 companies)

Department stores (assortments of clothing and accessories)

Functions performed by RetailersBreaking Bulk

Manufacturers, to reduce transportation costs, ship large quantities of merchandise to retailers, who then offer these products in smaller, manageable quantities to customers

Holding Inventory

Retailers maintain requisite inventory of broken user friendly sizes so that products will be available when consumers want them thereby facilitating storage of small inventory of products at customers' homes

This is particularly beneficial for customers with limited storage space and those who want to purchase perishable merchandise like meat and dairy produce


Providing Services

Retailers provide services that make it easier for customers to buy and use products

Customer Service Associates are the most tangible representatives of services provided by retailers

Home delivery and product trial are a few other services which retailers provide


Value to customers / consumers is provided by the execution of the above mentioned functions performed by retailers

Changing Retail Landscape

Policy Landscape

Operational Landscape

Theories of Retail Development

Environmental – where a change in retail is attributed to the change in the environment in which the retailers operate

Cyclical – where change follows a pattern and phases can have definite identifiable attributes associated with them

Conflictual – the competition or conflict between two opposite type of retailers leads to a new format being developed.


Environmental Theory of Retail Development

Charles Darwin's “Survival of the Fittest” - Natural Selection

Retail institutions are economic entities and are influenced by a business environment comprising Government policies, competitors, customers and fast changing technology

Thus the success or failure of a retail institution will depend upon its capability to manoeuvre to the environmental changes


Cyclical Theory of Retail Development

Entry phase Low status & price, minimum services, limited product offers, poor

services

Trading up phaseExpensive facilities, higher rents, more locations, higher prices, more

products

Vulnerability phase Declining ROI, myopic by nature, scrambled merchandising


Conflictual Theory of Retail Development

Thesis

Antithesis

Synthesis

Evolution of Retail in India

Retail in India has evolved to support the unique needs of our country, given its size and complexity Haats, Mandis and Melas have always been a part of the Indian landscape. They still continue to be present in most parts of the country and form an essential part of life and trade in Various areas.

The PDS (Public Distribution System) would easily qualify as the single largest retail chain existing in the country. the evolution of the PDS of Grains in India has its origin in the “rationing system” introduced by the British during World War II


The system was started in 1939 in Bombay and subsequently extended to other cities and towns. The system was abolished post war but after attaining independence, India was forced to reintroduce it in 1950.

There was rapid increase in the ration shops ( being increasingly called the Fair Price Shop or FPSs)

The Canteen Stores Department (CSD) has also among the largest network of outlets in the country reaching the defence personnel across the country.


The Khadi & Village industries (KVIC) was also set up post independence. The cooperative movement was again championed by the government.

Types of RetailersFood RetailersSupercentresHypermarketsSupermarketsConvenience stores

General Merchandise RetailersDepartment StoresDiscount storesSpeciality storesHome Improvement CentresDrug stores

Nonstore RetailersElectronic RetailersCatalog RetailersDirect SellingVending Machines / KiosksTelevision Home Shopping

Variety and AssortmentVariety: represents the number of merchandise categories a retailer

offers. It is often referred to as the Breadth of Merchandise

Assortment: is the number of different items in a merchandise category. It is often referred to as the Depth of Merchandise

SKU (Stock Keeping Unit): Each different item of merchandise is called an SKU

Food Retailers – Specifications

Type Variety Assortment Size ('000 sq. ft.)

SKUs ('000)

Supercentre Very Broad Very deep 150 - 350 60 - 100

Hypermarket Very Broad Deep 100 - 300 40 - 60

Supemarket Broad Deep 60 - 100 30

Convenience Store

Average Shallow 2 - 3 1 - 3

General Merchandise Retailers – Specifications

Type Variety Assortment Size ('000 sq. ft.)

SKUs ('000)

Department Store

Broad Deep to Average

100 - 200 100

Discount Store Broad Average to Shallow

60 - 80 30

Specialty Store Narrow Deep 4 - 12 5

Home Improvement Centre

Narrow Very Deep 80 - 120 20 - 40

Drugstore Narrow Very Deep 3 - 15 10 - 20

Types of Merchandise* – Retail Verticals

Automobile and sparesFurniture and home furnishing storesElectronics and appliances stores (CDIT)Building materials and garden equipment and suppliersFood and beverage storesHealth and personal care storesGasoline stationsClothing and clothing accessory storesSporting goods, hobby, books and music storesGeneral merchandise storesNon-store retailers

*(North American Industry Classification System (NAICS))

Differences between Services and Merchandise Retailers

Characterstics of a Service

Intangibility

Simultaneous production and consumption

Perishability

Inconsistency of the offering to customers

Business

Introduction to retail