Channels - Retailing

8/8/2019 Channels - Retailing

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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 consumersdirectly is retailing ± in a shop, in person, bymail, on the internet, telephone or a vendingmachine

Retail also has a life cycle ± newer forms of retail come to replace the older ones ± thecorner 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 wordµretaillier¶ meaning µto break bulk¶

Characteristics: ± Order sizes tend to be small but many

± Caters to a wide variety of customers. Keeps alarge assortment of goods

± Lot of buying in the outlet is µimpulse¶- inventorymanagement is critical

± Selling personnel and displays are importantelements of the selling process

± Strengths in µavailability¶ and µvisibility¶

± Targeted customer mix decides the marketing mixof the retailer



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Retailing

Retail stores are independent of theproducers ± not attached to any of them

A survey shows that only 35% of

supermarket purchases are pre-planned. The rest are µimpulse¶- greatlyinfluenced 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 andpossession utilities

May add form utility (alteration of a

trouser bought by a customer) Helps create an µimage¶ for the productshe sells



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Functions of Retailers Add value through:

± Additional services ± extended storetimings, credit, home delivery

± Personnel to identify and solve customer problems

± Location in a bazaar to facilitatecomparison 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 RetailersType of

retailer

Characteristics

Specialty store Narrow product line with deep assortment ± apparel,furniture, books

Departmentstore

Several product line in different departments ± ShoppersStop, Big Bazaar

Supermarket Large, low-cost, low-margin, high volume, self-serviceoperation with a wide offering

Convenience

store

Small stores in residential areas, open long hours all

days of the week ± limited variety of fast movingproducts like groceries, food

Discount store Standard merchandise sold at lower prices for lowmargins - Subhiksha



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Kinds of RetailersType of

retailer

Characteristics

Corporatechains

More outlets owned and controlled by one firm ± Globus

Voluntary chain Wholesaler sponsored group of independent retailers

Retailer co-ops Independent retailers with centralized buying operationsand common promotions

Consumer co-ops Co-op societies of groups of consumers operating their own stores ± farmers, industrial workers etc

Franchiseorganisation

Contractual arrangement between the producer andretailers ± selling products exclusively ± Kemp Toys



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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 about5% in India. China 20% Taiwan 80%

Retail sector is part of the service sector andif organised, is a major contributor to acountry¶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 thegrowth 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 chargepenalty if products do not do well

New developments in IT help them runoperations optimally and keep track of loyalcustomers. Also helps them identify profitablestore 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 ftcompared to 15 sq ft in the US

Organized retail is estimated between 4to 7% but growing fast



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Organized Retail Growing trends attracting global players

Some of them likeWal 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 inIndia.



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Organized Retail - Features Sponsored by companies or corporate groups

Large formats like supermarkets, departmentstores 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 µvalue for money¶ Explosion of communication channels

influences choices of products

Increased literacy has made consumer moreconscious of his bargaining power

Growing number of urban nuclear families



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Retailing Trends - India Influence of retailer increasing ± assortmentplus other facilities offered

Rural consumers want the same things and

as their urban counterparts and are willing topay for it

Better organized supply chains to cater to alarge number of outlets in different locations

Improved infrastructure helping theconsumers

Bigger volumes help in economies of scale



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FDI in Retail in India

MNC players showing interest to operate inIndia

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 brandbusinesses:

± All products should be under the same brandname

± 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 servicedimensions determine the µformat¶. Elementsdistinguish between stores and include: ± Store ambience. (Kemp Fort)

± Saving in time for shopping ± interiors of practicaldesign ± 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 µfootfalls¶ to the store.



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Categories of Shoppers (1) Identified by Cook & Walters

Task focused shopper ± visits the store to buyspecific things he has planned for

± Convenience, minimum time, easily accessiblegoods, 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 andmental discomfort required in the search -toothpaste

Shopping goods (high value): gain is large -refrigerator

Specialty goods: clearly distinguished bybrand preferences ± Maruti Zen car or Tag-Heuer watch

Trading area«



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Trading Area Catchment area from where most of the

customers of a retail store come

± Corner grocery store caters to the locality in whichit is situated

± Discount stores have a wider area. Subhikshalocations 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 valueadd ± 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 quantitythat 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 µstickiness¶ in customers

Personal data collected using IT ± including

purchasing practices and preferences Customer loyalty programs planned

Create µcustomer¶ delight

Location strategy to give competitive

advantage Understanding the buying profile of the

customersCommunication «



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Customer Communication The manner in which the retailer makeshimself known to his customers. Has twoparts to it:

± The messages which the retailer sends to hiscustomers and prospects

± The word of mouth support which satisfiedcustomers 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 givingvalue to the customer

Pr oduct diffe r entiation«.



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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

P e r fo r mance measu r es«



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Retail Performance Measures Gross margin return on inventory

investment ± GMROI

± Gross margin multiplied by ratio of sales toinventory (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 arewilling to sell the products or serviceson behalf of the franchisor ± The first party gives advice and help to the

second to find good locations, blue printsfor a store, financial, marketing andmanagement assistance

F r anchiso r benefits«



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Benefits to Franchisor Faster expansion

Local franchisee pays lower advertisingrates than a national firm

Owners motivated to work more hoursthan mere employees

Local taxes and licenses areresponsibility of franchisees

F r anchisee benefits«



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Benefits to Franchisee Quick recognition among potential customers

Management training provided by principal

Principal may buy ingredients and suppliesand sell to franchisee at lower prices

Financial assistance

Promotional aids, in-store displays etc

El ect r onic channe l s«



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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 ± overcomeby selling separate products

FDI in r etai l «.



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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 andnegotiating 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 fromwhere the customers of store come from

Retail strategy is built on positioning, productofferings, merchandising and communication

Retail performance is measured by utilisationof space, inventory and manpower

E-tailing is buying goods on the Internet

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Channels - Retailing

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