Course Contents:

Definition, importance and scope of Retailing; Evolution of Retail Competition,- The

Wheel of Retailing, the Accordion, the Retail Life Cycle; Emerging Trends in Retailing;
The Retail Scenario in India; Retail Formats. (10 hours)

Information Gathering in Retailing; Retail Strategic Planning and Operation

Management; Retail Financial Strategy; Target Market Selection and Retail Location;
Store Design and Layout; Visual Merchandising and Displays. (12 hours)

Merchandise Planning, Buying and Handling; Merchandise Pricing; Retail

Communication Mix; Promotional Strategy; Retail Human Resources Management;
Customer Service, The GAPs Model, Customer Relationship Management. (10 hours)

Retail Management Information Systems; Retail Audits; Online Retailing; Global

Retailing; Legal and Ethical Issues in Retailing. (10 hours)

Text Books
1. Levy IM. And Weitz B.A (2004), Retailing Management, 5 th ed., Tata McGraw Hill.
2. Berman B. Evans J. R. (2004), Retail Management, 9 th Edition, Pearson Education.

Reference Books
1. Bajaj C; Tuli R., Srivanstava N.V. (2005), Retail Management, Oxford University
Press, Delhi.
2. Dunne P.M, Lusch R.F. and David A. (2002), Retailing, 4 th ed., South-Western,
Thomson Learning Inc.

Unit 1 Definition, importance and scope of Retailing; Evolution of Retail Competition,-

The Wheel of Retailing, the Accordion, the Retail Life Cycle; Emerging Trends in
Retailing; The Retail Scenario in India; Retail Formats. (10 hours)

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 Lecture 1
Definition
Retailing is the set of business activities that adds value to the products and services sold
to consumers for their personal or family use.

A retailer is a business that sells products or services, or both, to consumers for their
personal or family use.

A distribution channel is a set of firms that facilitate the movement of products from the
point of production to the point of sale to the ultimate consumer.

Traditional example of a distribution channel

Manufacturer -> Wholesaler -> Retailer -> Consumer

Functions performed by Retailers

1. Providing an assortment of products and services
2. Breaking bulk
3. Holding inventory
4. Providing services

Importance of Retailing
U.S. retail sales in 2001 were $3 trillion. These official statistics include only store and
catalog sales; they don’t include other type of non store retail sales, such as internet sales
to consumers.

Retailing is also one of the nation’s largest industries in terms of employment. By 2010,
approximately 17% of the total US workforce will be employed in the retailing sector.

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Scope of Retailing
Management opportunities
Entrepreneurial opportunities

Evolution of retail competition

A number of theories have been developed to explain the present structure of the retail
industry and predict how the structure will change. No individual theory explains all of
the changes in the retailing environment. Yet as a whole, the theories provide insights for
understanding the evolution of retail institutions. Four theories of retail evolution are the
wheel of retailing, accordion theory, dialectic process and natural selection.

Lecture 2
The Wheel of Retailing
One of the first and most famous frameworks for explaining changes in retailing
institutions is the wheel of retailing. The wheel represents phases through which some
types of retailers pass. The cycle begins with retailers attracting customers by offering
low price and low service. Overtime, these retailers want to expand their market and they
begin to stock more expensive merchandise, provide more services, and open more
convenient locations. This trading-up process increases the retailers’ costs and the prices
of their merchandise, creating opportunity for new low-price retailers to enter the market.

Eg:- In its entry phase, the department store was a low-cost, low service venture. After
WW II, department stores moved into the trading-up phase. They upgraded their
facilities, stock selection, advertising and service. Today, department stores are in the
vulnerability phase. They are vulnerable to various types of low cost, low service formats
such as full-line discount stores and category specialists.

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 Innovation Retailer (Entry
Mature Retailer Phase)
(Vulnerability Low status
Phase) Low price
Top Heaviness Minimal service
Conservatism Poor facilities
Declining ROI Limited product offerings

Traditional Retailer (Trading

up Phase)
Elaborate facilities
Expected, essential and exotic
services
Higher-rent locations
Higher prices
Extended product offerings

The Accordion Theory

The Accordion Theory, the second cyclical theory, proposes that the retail institutions
fluctuate from the strategy of offering many merchandise categories with a shallow
assortment to the strategy of offering a deep assortment with a limited number of
categories. This expansion and contractions calls to mind an accordion. During this
nation’s early development, relatively small general stores succeeded by offering rural
Americans many categories of merchandise under one roof. As towns grew, they were
able to support retails specialists like shoe, clothing, drug, and food stores. Department
stores developed during the next expansion of the accordion. Department stores,
somewhat like giant general stores, again offered customers multiple merchandise
categories under one roof. This time, however, the depth of selection improved as well.
The next contraction of the retail accordion results from specialty stores’ tendency to
have become even more specialize in the past two decades. These retail formats known as

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 category killers or category specialists offer consumers deep selections in a limited
number of merchandise categories.

Emerging Trends in the Retail Industry

 Growing Diversity of Retail Formats
For eg: In America, MARS (Musical Instruments), PETsMART (pet supplies) and
CARMAX (selling used cars)
 Increasing Industry Concentration
In India, only 2% of the retail industry is under organized category (backed by industries
and MNC’s), however this concentration is likely to increase as seen in many other Asian
countries
 Globalization because of maturation of domestic markets, skills and systems, trade
barriers.
Markets in the developed have become saturated. Also, there is a negative population
growth in many developed countries. Compared to this, developing and underdeveloped
countries have growing population and the citizens also have more dispensable income.

Lecture 3
Retail Life Cycle
The retail life cycle describes four distinct stages that a retail institution progresses
through:
Introduction
Growth
Maturity
Decline
 Introduction - B
egins with an aggressive, bold entrepreneur who is willing and able to develop a different
approach to retailing of certain products. During this stage profits are low, despite
increasing sales levels. E-tailing (1990’s)
Recyclers (2000’s)
 Growth -

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 Sales and profits explode, validating the entrepreneur’s good idea. New retailers enter
the market and begin to copy the retailers idea. Late in this stage both market share and
profitability approach their maximum levels. Food Courts (1980’s)
Airport-based retailers (1980’s)
Supercenters (2000’s)

 Maturity -
 Market share stabilizes and profits decline because:
1. Managers use to managing simple small
2. Retail outlets must now manage large complex firms,
3. Industry has overexpanded, and
4. Competitive assaults by new retail formats.
Warehouse clubs(1970’s) Department stores (1860’s) Supermarkets (1930’s)
Convenience stores (1960’s) Category killers (1970’s) Fast food
(2000’s’)
 Decline -
The once promising idea is no longer needed in the marketplace. As a result, market
share and profits fall. Variety Stores (1890’s)
Factory outlet malls (1970’s)
Department stores (2000’s)

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 Retailer Characteristics
Price cost trade off
Variety and Assortment
Customer Services
Cost of Offering Breadth and Dept of Merchandise and Services

Variety and Assortment

Variety is the number of merchandise categories a retailer offers. Assortment is the
number of different items in a merchandise category. Each different item of merchandise
is called a SKU (stock keeping unit).

Variety is often referred to as the breadth of merchandise carried by a retailer; assortment

is referred to as the depth of merchandise.

Lecture 4
Retail Formats
A retail format is the retailer’s mix (nature of merchandise and services offered, pricing
policy, advertising and promotion program, approach to store design and visual
merchandising, and typical location).

Types of Retailers
The retailers are classified according to various lines:
 Ownership (Independent, Chain, Franchises)
 Level of Service (Full to self service)
 Variety and Assortment
 Price

Based on the above dimensions we have these major retailing formats:

Food Retailers
 Conventional Supermarket

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 Supercenter
 Hypermarket
 Warehouse Club
 Convenience Store

Conventional Supercenter Hypermarket Warehouse Convenience

Supermarket Club Store
Percentage 70-90 30-40 60-70 60 90
Food
Size (000 20-50 150-220 100-300 100-150 2-3
sq. ft.)
SKUs 20-30 100-150 40-60 20 2-3
(000)s
Variety Average Broad Average Broad Narrow
Assortment Average Deep Deep Shallow Shallow
No. of 6-10 20-30 40-60 10-15 1-2
checkout
lines
Prices Average Low Low Low High

Lecture 5
General Merchandise Retailers
 Discount Stores
 Specialty Stores
 Category Specialists
 Home Improvement centers
 Department Stores
 Drugstores
 Off-price stores
 Value retailers

Type Variety Assortment Service Prices Size SKUs Location

(000 (000)

8
 sq.
ft.)
Discount Broad Average to Low Low 60-80 30 Stand
Stores Shallow alone,
power
strip
centers
Specialty Narrow Deep High High 4-12 5 Regional
Stores malls
Category Narrow Very Deep Low to Low 50- 20-40 Stand
Specialists high 120 alone,
power
strip
centers
Home Narrow Very Deep Low to Low 80- 20-40 Stand
Improvement high 120 alone,
Centers power
strip
centers
Department Broad Deep to Average Average 100- 100 Regional
Stores average to high to high 200 malls
Drugstores Narrow Very Deep Average Average 3-15 10-20 Stand
to high alone,
strip
centers
Off-price Average Deep but Low Low 20-30 50 Outlet
Stores varying malls
Value Average Average Low Low 7-15 3-4 Urban,
Retailers and strip
varying

Non store Retail Formats

 Electronic retailing
 Catalog and Direct-Mail retailing

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 Direct Selling
 Television Home Shopping
 Vending Machine Retailing

Electronic Retailing
Electronic retailing (also called e-tailing and internet retailing) is a retail format in whch
the retailers communicate with customers and offer products and services for sale over
the Internet. The rapid diffusion of internet access and usage and the perceived low cost
of entry stimulated the creation of over 10000 entrepreneurial electronic retailing
ventures during the last five years of the twentieth century.

Catalog and Direct-Mail retailing

Catalog retailing is a non store retail format in which the retail offering is communicated
to a customer through a catalog, whereas direct-mail retailers communicate with their
customers using letters and brochures.

Direct Selling
Direct selling is a retail format in which a salesperson, frequently an independent
businessperson, contacts a customer directly in a convenient location, either at the
customer’s home or at work, and demonstrates merchandise benefits, takes an order, and
delivers the merchandise to the customer. Direct selling is a highly interactive form of
retailing in which considerable information is conveyed to customers through face-to-
face discussions with a salesperson.

Television Home Shopping

Television home shopping is a retail format in which customers watch a TV program
demonstrating merchandise and then place orders for the merchandise by telephone. The
three forms of electronic home shopping retailing are
1. Cable channels dedicated to television shopping
2. Infomercials
3. Direct response advertising

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Vending Machine Retailing
Vending machine retailing is a non store format in which merchandise or services are
stored in a machine and dispensed to customers when they deposit cash or use a credit
card.

Types of Ownership
Independent, Single-Store Establishments- These stores are owner managed.
Management has direct contact with customers and can respond quickly to their needs.

Corporate Retail Chains – A retail chain is a company operating multiple retail units
under common ownership and usually has centralized decision making for defining and
implementing his strategy

Franchises- Franchising is a contractual agreement between a franchisor and a franchisee

that allows the franchisee to operate a retail outlet using a name and format developed
and supported by the franchisor. In a franchise contract, a franchisee pays a lump sum
plus a royalty on all sales for the right to operate a store in a specific location.

Services Retailing
Format for Merchandise comparisons

Retailer Factor Comments

J C Penny Style
Brands
Price
% mix
Depth
Breadth
Father/Son Style
Brands
Shoes
Price
% mix
Depth
Breadth

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Haruwyns Style
Brands
Price
% mix
Depth
Breadth

Style For clothing, style might be the fabric or cut. For example, sweater styles might be
split into wool, cotton, or polyblend and V-neck, crewneck or cardigan.

Brands The identifying label. Indicate whether or not the brand is a national brand or
store brand.

Price The price marked on the merchandise. If the item has been marked down, indicate
the original price and the marked-down price.

Percent mix The percentage of the total assortment devoted to this style of merchandise.

Depth – The amount of inventory for this style. The amount on display is one indicator of
inventory depth. Another indicator is the amount of space devoted to the style.

Breadth – The number of SKUs in this style.

Lecture 7
The Global Retail Industry: An Overview
Retail has played a major role world over in increasing productivity across a wide range
of consumer goods and services .The impact can be best seen in countries like U.S.A.,
U.K.,Mexico, Thailand and more recently China. Economies of countries like Singapore,
Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector.
Retail is the second-largest industry in the United States both in number of stablishments

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and number of employees. It is also one of the largest world wide. The retail industry
employs more than 22 million Americans and generates more than $3 trillion in retail sale
annually. Retailing is a U.S. $7 trillion sector.

Wal-Mart is the world’s largest retailer. Already the world’s largest employer with over
1million associates, Wal-Mart displaced oil giant Exxon Mobil as the world’s largest
company when it posted $219 billion in sales for fiscal 2001. Wal-Mart has become the
most successful retail brand in the world due its ability to leverage size, market clout, and
efficiency to create market dominance. Wal-Mart heads Fortune magazine list of top 500
companies in the world. Forbes Annual List of Billionaires has the largest number
(45/497) from the retail business.

GLOBAL RETAIL (Source: CSO, MGI Study)

1999 2002 2005

Total Retail 150 180 225
Organized Retail 1.1 3.3 7
% Share of .7 1.8 3.2
Organized Retail

Retail Scenario in India: Touching Meteoric Scales

As the corporates – the Piramals, the Tatas, the Rahejas, ITC, S.Kumar’s, RPG
Enterprises, and mega retailers- Crosswords, Shopper’s Stop, and Pantaloons race to
revolutionize the retailing sector, retail as an industry in India is coming alive. Retail
sales in India amounted to about Rs.7400 billion in 2002, expanded at an average annual
rate of 7% during 1999-2002. With the upturn in economic growth during 2003, retail
sales are also expected to expand at a higher pace of nearly 10%. Across the country,
retail sales in real terms are predicted to rise more rapidly than consumer expenditure
during 2003-08. The forecast growth in real retail sales during 2003- 2008 is 8.3% per
year, compared with 7.1% for consumer expenditure. Modernization of the Indian retail
sector will be reflected in rapid growth in sales of supermarkets, departmental stores and

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 hypermarts. Sales from these large-format stores are to expand at growth rates ranging
from 24% to 49% per year during 2003-2008, according to a latest report by Euromonitor
International, a leading provider of global consumer-market intelligence. A. T. Kearney
Inc. places India 6th on a global retail development index. The country has the highest
per capita outlets in the world - 5.5 outlets per 1000 population. Around 7% of the
population in India is engaged in retailing, as compared to 20% in the USA. In a
developing country like India, a large chunk of consumer expenditure is on basic
necessities, especially food-related items. Hence, it is not surprising that food, beverages
and tobacco accounted for as much as 71% of retail sales in 2002. The share of food-
related items had, however, declined over the review period, down from 73% in 1999.
this is not unexpected, because with income growth, Indians, like consumers elsewhere,
have started spending more on non-food items compared with food products. Sales
through supermarkets and department stores are small compared with overall retail sales.
Nevertheless, their sales have grown much more rapidly, at almost a triple rate (about
30% per year during the review period). This high acceleration in sales through modern
retail formats is expected to continue during the next few years, with the rapid growth in
numbers of such outlets due to consumer demand and business potential. The factors
responsible for the development of the retail sector in India can be broadly summarized
as follows:
 Rising incomes and improvements in infrastructure are enlarging consumer markets
and accelerating the convergence of consumer tastes. Looking at income classification,
the National Council of Applied Economic Research (NCAER) classified approximately
50% of the Indian population as low income in 1994- 95; this is expected to decline to
17.8% by 2006-07.
 Liberalization of the Indian economy which has led to the opening up of the market
for consumer goods has helped the MNC brands like Kellogs, Unilever, Nestle, etc. to
make significant inroads into the vast consumer market by offering a wide range of
choices to the Indian consumers.
 Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc.
 The internet revolution is making the Indian consumer more accessible to the growing
influences of domestic and foreign retail chains. Reach of satellite T.V. channels is

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 helping in creating awareness about global products for local markets. About 47% of
India’s population is under the age of 20; and this will increase to 55% by 2015. This
young population, which is technology-savvy, watch more than 50 TV satellite channels,
and display the highest propensity to spend, will immensely contribute to the growth of
the retail sector in the country. As India continues to get strongly integrated with the
world economy riding the waves of globalization, the retail sector is bound to take big
leaps in the years to come. The Indian retail sector is estimated to have a market size of
about $ 180 billion; but the organized sector represents only 2% share of this market.
Most of the organised retailing in the country has just started recently, and has been
concentrated mainly in the metro cities. India is the last large Asian economy to liberalize
its retail sector. In Thailand, more than 40% of all consumer goods are sold through the
super markets and departmental stores. A similar phenomenon has swept through all
other Asian countries. Organised retailing in India has a huge scope because of the vast
market and the growing consciousness of the consumer about product quality and
services. A study conducted by Fitch, expects the organized retail industry to continue to
grow rapidly, especially through increased levels of penetration in larger towns and
metros and also as it begins to spread to smaller cities and B class towns. Fuelling this
growth is the growth in development of the retail-specific properties and malls.

According to the estimates available with Fitch, close to 25mn sq. ft. of retail space is
being developed and will be available for occupation over the next 36-48 months. Fitch
expects organized retail to capture 15%-20% market share by 2010. A McKinsey report
on India says organised retailing would increase the efficiency and productivity of entire
gamut of economic activities, and would help in achieving higher GDP growth. At 6%,
the share of employment of retail in India is low, even when compared to Brazil (14%),
and Poland (12%).

Lecture 8
Different Forms of Retailing: Emergence of new formats of retailing in India
Popular Formats
 Hypermarts

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 Large supermarkets, typically (3,500 - 5,000 sq. ft)
 Mini supermarkets, typically (1,000 - 2,000 sq. ft)
 Convenience store, typically (7,50 - 1,000 sq. ft)
 Discount/shopping list grocer
 Traditional retailers trying to reinvent by introducing self-service formats as well as
value-added services such as credit, free home delivery etc.

The Indian retail sector can be broadly classified into:

a) FOOD RETAILERS
There are large number and variety of retailers in the food-retailing sector. Traditional
types of retailers, who operate small single-outlet businesses mainly using family labour,
dominate this sector .In comparison, super markets account for a small proportion of food
sales in India. However the growth rate of super market sales has being significant in
recent years because greater numbers of higher-income Indians prefer to shop at super
markets due to higher standards of hygiene and attractive ambience.

b) HEALTH & BEAUTY PRODUCTS

With growth in income levels, Indians have started spending more on health and beauty
products .Here also small, single-outlet retailers dominate the market .However in recent
years, a few retail chains specializing in these products have come into the market.
Although these retail chains account for only a small share of the total market , their
business is expected to grow significantly in the future due to the growing quality
consciousness of buyers for these products .

c) CLOTHING & FOOTWEAR

Numerous clothing and footwear shops in shopping centers and markets operate all over
India. Traditional outlets stock a limited range of cheap and popular items; in contrast,
modern clothing and footwear stores have modern products and attractive displays to lure
customers. However, with rapid urbanization, and changing patterns of consumer tastes
and preferences, it is unlikely that the traditional outlets will survive the test of time.

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d) HOME FURNITURE & HOUSEHOLD GOODS
Small retailers again dominate this sector. Despite the large size of this market, very few
large and modern retailers have established specialized stores for these products.
However there is considerable potential for the entry or expansion of specialized retail
chains in the country.

e) DURABLE GOODS
The Indian durable goods sector has seen the entry of a large number of foreign
companies during the post liberalization period. A greater variety of consumer electronic
items and household appliances became available to the Indian customer. Intense
competition among companies to sell their brands provided a strong impetus to the
growth for retailers doing business in this sector.

f) LEISURE & PERSONAL GOODS

Increasing household incomes due to better economic opportunities have encouraged
consumer expenditure on leisure and personal goods in the country. There are specialized
retailers for each category of products (books, music products, etc.) in this sector.
Another prominent feature of this sector is popularity of franchising agreements between
established manufacturers and retailers.

Malls In India
Over the last 2-3 years, the Indian consumer market has seen a significant growth in the
number of modern-day shopping centers, popularly known as ‘malls’. There is an
increased demand for quality retail space from a varied segment of large-format retailers
and brands, which include food and apparel chains, consumer durables and multiplex
operators. Shopping-centre development has attracted real-estate developers and
corporate housesacross cities in India. As a result, from just 3 malls in 2000, India is all
set to have over 220 malls by 2005. Today, the expected demand for quality retail space
in 2006 is estimated to be around 40 million square feet. While previously it was the
large, organised retailers – with their modern, up-market outlets, and direct consumer

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 interface- who had been a key factor driving the growth of organised retail in the country,
now it is the malls which are playing the role. Factors such as availability of physical
space, population densities, city planning, and socio-economic parameters have driven
the Indian market to evolve, to a certain extent, its own definition of a ‘mall’. For
example, while a mall in USA is 400,000 to 1 million sq.ft. in size, an Indian version can
be anywhere between 80,000 sq.ft. and 500,000 sq.ft. By 2005, total mall space in the 6
cities of Mumbai, Bangalore, Hyderabad, Chennai, Kolkata, and National Capital Region
(Delhi, Noida, Gurgaon) is expected to increase to over 21.1 million sq. ft. Compared to
other big cities, Kolkata and Hyderabad are relatively new entrants in the mall segment,
but are witnessing quick growth. Smaller cities like Pune, Ahmedabad, Lucknow,
Ludhiana, Jaipur, Chandigarh and Indore, are also expected to see a formidable growth in
the growth of malls in the near future. But malls in India need to have a clear positioning
through the development of differential product assortment and differential pricing, in
order to compete effectively in a growing mall market. Segmentation in malls, like up-
market malls, mid-market malls, etc. , proper planning, correct identification of needs,
quality products at lower prices, the right store mix, and the right timing, would ensure
the success of the ‘mall revolution’ in India.

Lecture 9
Challenges of Retailing in India
Retailing as an industry in India has still a long way to go. To become a truly flourishing
industry, retailing needs to cross the following hurdles:
 Automatic approval is not allowed for foreign investment in retail.
 Regulations restricting real estate purchases, and cumbersome local laws.
 Taxation, which favours small retail businesses.
 Absence of developed supply chain and integrated IT management.
 Lack of trained work force.
 Low skill level for retailing management.
 Intrinsic complexity of retailing – rapid price changes, constant threat of product
obsolescence and low margins. The retailers in India have to learn both the art and
science of retailing by closely following how retailers in other parts of the world are

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organizing, managing, and coping up with new challenges in an ever-changing
marketplace. Indian retailers must use innovative retail formats to enhance shopping
experience, and try to understand the regional variations in consumer attitudes to
retailing. Retail marketing efforts have to improve in the country - advertising,
promotions, and campaigns to attract customers; building loyalty by identifying regular
shoppers and offering benefits to them; efficiently managing high-value customers; and
monitoring customer needs constantly, are some of the aspects which Indian retailers
need to focus upon on a more pro-active basis. Despite the presence of the basic
ingredients required for growth of the retail industry in India, it still faces substantial
hurdles that will retard and inhibit its growth in the future. One of the key impediments is
the lack of FDI status. This has largely limited capital investments in supply chain
infrastructure, which is a key for development and growth of food retailing and has also
constrained access to world-class retail practices. Multiplicity and complexity of taxes,
lack of proper infrastructure and relatively high cost of real estate are the other
impediments to the growth of retailing. While the industry and the government are trying
to remove many of these hurdles, some of the roadblocks will remain and will continue to
affect the smooth growth of this industry. Fitch believes that while the market share of
organised retail will grow and become significant in the next decade, this growth would,
however, not be at the same rapid pace as in other emerging markets. Organised retailing
in India is gaining wider acceptance. The development of the organised retail sector,
during the last decade, has begun to change the face of retailing, especially, in the major
metros of the country. Experiences in the developed and developing countries prove that
performance of organised retail is strongly linked to the performance of the economy as a
whole. This is mainly on account of the reach and penetration of this business and its
scientific approach in dealing with customers and their needs. In spite of the positive
prospects of this industry, Indian retailing faces some major hurdles (see Table 1), which
have stymied its growth. Early signs of organized retail were visible even in the 1970s
when Nilgiris (food), Viveks (consumer durables) and Nallis (sarees) started their
operations. However, as a result of the roadblocks (mentioned in Table 1), the industry
remained in a rudimentary stage. While these retailers gave the necessary ambience to
customers, little effort was made to introduce world-class customer care practices and

19
improve operating efficiencies. Moreover, most of these modern developments were
restricted to south India, which is still regarded as a ‘Mecca of Indian Retail’.

Factors Description Implications

Barriers to
FDI
Lack of Industry Status
Structural Impediments
FDI not permitted in pure Absence of global players
retailing. Limited exposure to best
Franchisee arrangement practices
allowed
Government does not Restricted availability of
recognize the industry finance
Restricts growth and scaling
up
Lack of urbanization Lack of awareness of Indian
Poor transportation consumers
infrastructure Restricted retail growth
Consumer habit of buying Growth of small, one-store
fresh foods formats, with unmatchable
Administered pricing cost structure
Wastage of almost 20%-
25% of farm produce

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High Cost of Real Estate Pro-tenant rent laws Difficult to find good real
Non-availability of estate in terms of location
government land, zoning and size
restrictions High land cost owing to
Lack of clear ownership constrained supply
titles, high stamp Disorganized nature of
transactions duty (10%)
Supply Chain Bottlenecks Several segments like food Limited product range
and apparel reserved for Makes scaling up difficult
SSIs High cost and complexity of
Distribution, logistics sourcing & planning
constraints – restrictions of Lack of value addition and
purchase and movement of increase in costs by almost
food grains, absence of cold 15%
chain infrastructure
Long intermediation chain
Complex Taxation System Differential sales tax rates Added cost and complexity
across states of distribution
Multi-point octroi Cost advantage for smaller
Sales tax avoidance by stores through tax evasion
smaller stores
Multiple Legislations Stringent labor laws Limits flexibility in
governing hours of work, operations
minimum wage payments Irritant value in establishing
Multiple licenses/clearances chain operations; adds to
required overall costs
Customer Preferences Local consumption habits Leads to product
Need for variety proliferation
Cultural issues Need to stock larger number
of SKUs at store level
Increases complexity in
sourcing & planning

21

Availability of Talent
Manufacturers Backlash
Increases the cost of store
management
Highly educated class does Lack of trained personnel
not consider retailing a Higher trial and error in
profession of choice managing retail operations
Lack of proper training Increase in personnel costs
No increase in margins Manufacturers refuse to dis-
intermediate and pass on
intermediary margins to
retailers

Source: Market Participants, Fitch

Lecture 10
Retail as an Employment Generator
The retail sector can generate huge employment opportunities, and can lead to job-led
economic growth. In most major economies, ‘services’ form the largest sector for
creating employment. US alone have over 12% of its employable workforce engaged in
the retail sector. The retail sector in India employs nearly 21 million people, accounting
for roughly 6.7% of the total employment. However, employment in organised retailing
is still very low, because of the small share of organised retail business in the total Indian
retail trade. The share of organised retailing in India, at around 2%, is abysmally low,
compared to 80% in the USA, 40% in Thailand, or 20% in China, thus leaving the huge
market potential largely untapped. A modern retail/retail services sector has the potential
of creating over 2 million new (direct) jobs within the next 6 years in the country
(assuming only 8-10% share of organised retailing), according to Arvind Singhal, CMD,
KSA Technopak. Retail can create as many new jobs as the BPO/ITeS sector in India. A
strong retail front-end can also provide the necessary fillip to agriculture & food
processing, handicrafts, and small &medium manufacturing enterprises, creating millions
of new jobs indirectly. Through it’s strong linkages with sectors like tourism and
hospitality, retail has the potential of creating jobs in these sectors also. Though the
Planning Commission has identified retail as a prospective employment generator, in

22
order to strengthen the multiplier effect of the growth in organised retailing upon the
overall employment situation, a pro-active governmental support mechanism needs to
evolve for nurturing the sector. Issues like FDI in retail, allocation of government-
controlled land on more favorable terms, strong political and bureaucratic leadership,
etc., need to be addressed adequately.

Conclusion
In India the retail sector is the second largest employer after agriculture, although it is
highly fragmented and predominantly consists of small independent, owner – managed
shops .There are over 12 million retail outlets in India , and organised retail trade is worth
about Rs.12,90,000 crore (September,2003). The country is witnessing a period of boom
in retail trade, mainly on account of a gradual increase in the disposable incomes of the
middle and upper-middle class households. More and more corporate houses including
large real estate companies are coming into the retail business, directly or indirectly, in
the form of mall and shopping center builders and managers. New formats like super
markets and large discount and department stores have started influencing the traditional
looks of bookstores, furnishing stores and chemist shops. The retail revolution, apart
from bringing in sweeping, positive changes in the quality of life in the metros and bigger
towns, is also bringing in slow changes in lifestyle in the smaller towns of India. Increase
in literacy, exposure to media, greater availability and penetration of a variety of
consumer goods into the interiors of the country, have all resulted in narrowing down the
spending differences between the consumers of larger metros and those of smaller towns.
However, the supply of quality real estate space would be instrumental in propelling the
future growth momentum of the retail sector in India. The addition of better and
affordable retail space would enable retailers to deliver more better-quality products and
services to the consumers, resulting in increase in operational efficiencies and decline in
costs for the supply chain. India is one of the complex real estate markets in the world
due to the large degree of variation and inconsistence in the market practice and
regulatory norms. A combined effort by both central and state governments in terms of
appropriate zoning laws, transparency in ownership, and availability of loans for retail
land, is very much necessary for reducing existing bottlenecks.

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Accordance of ‘industry status’ to retail in India is an issue that needs to be addressed
soon. Recognition would ease financing prospects, as well as standardize and unify taxes
for the industry. An alignment of the retail sector with the tourism sector could also
promote India as a global shopping hub. For the retail sector to achieve further growth,
the spread of organised retailing has to become a national phenomenon. According to
KSA Technopak, a leading consulting firm, the organised sector will grow to almost
Rs.30, 000 crores by 2005, representing 6% of the total retail market. The top 6 cities will
account for 66% of total organised retailing. Although many international retailers and
brands still regard India as too difficult, they would welcome the opportunity to create an
appropriate joint venture, if they felt India was changing. The growth of the organised
retail industry in the country will mean thousands of new jobs, increasing income levels
and living standards, better products, and services, a better shopping experience, and
more social activities.

http://classes.bus.oregonstate.edu/ba542/

24
 Unit II Information Gathering in Retailing; Retail Strategic Planning and
Operation Management; Retail Financial Strategy; Target Market Selection and
Retail Location; Store Design and Layout; Visual Merchandising and Displays. (12
hours)

Lecture 11
Information Gathering in Retailing by consumers:
Consumers use different mediums to get information. The most commonly used methods
are catalog and electronic mediums. Catalogs, like all non store formats, offer the
convenience of looking at merchandise and placing an order any day at any time from
almost anywhere. The electronic channel provides the customers with a large number of
alternatives. It also gives more information to evaluate merchandise without being
influenced by the seller. The most significant potential benefit of the electronic channel is
the ability to economically personalize the information for each customer. The electronic
channel also offers an opportunity to go beyond the traditional product information
offered in stores to provide tools and information for solving customer problems.

Definition of Retail Market Strategy

The word strategy comes from the Greek word meaning the “art of the general.”
A retail strategy is a statement identifying
1. The retailer’s target market
2. The format the retailer plans to use to satisfy the target market’s needs
3. The bases upon which the retailer plans to build a sustainable competitive advantage

Each retail strategy involves

 Selecting a target market segment and retail format
 Developing sustainable competitive advantage that enables the retailer to reduce the level
of competition it faces

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 A target market is the market segment towards which the retailer plans to focuses its
resources & retail mix
A retail format is the retailer’s mix.
A sustainable competitive advantage is an advantage over competition that can be
maintained over a long time.

TARGET MARKET AND RETAIL FORMAT

The retailing concept is a management orientation that focuses a retailer on determining
the needs of its target market and satisfying those needs more effectively and efficiently
than its competitors.

A retail market is a group of consumers with similar needs (a market segment) and a
group of retailers using a similar retail format to satisfy that consumer needs.
Positioning is the design and implementation of a retail mix to create an image of the
retailer in the customer’s mind relative to its competitors.

Lecture 12
Building a Sustainable competitive advantage
Seven important opportunities for retailers to develop sustainable competitive advantages
are
 Customer loyalty
 Location
 Human resource management
 Distribution and information systems
 Unique merchandise
 Vendor relations
 Customer Service

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 Customer Loyalty
Customer loyalty means that customers are committed to shopping at the retailer’s
locations. It means customer will be reluctant to patronize competitive retailers. Some
ways in which retailers keep customers loyal are
1. Developing clear and precise positioning strategies
2. Creating an emotional attachment with customers through loyalty programs

- Positioning
A retailer builds customer loyalty by developing a clear, distinctive image of its retail
offering and consistently reinforcing that image through its merchandise and service.
Positioning is the design and implementation of a retail mix to create an image of the
retailer in the customer’s mind relative to its competitors.

- Loyalty Programs
Loyalty programs are part of an overall customer relationship management program. The
purchase information is stored in huge database known as a data warehouse.

Location
Location is that competitive advantage which is not easily duplicated.

Human Resource management

Retailing is a lobor intensive business. Employees play a major role in providing services
for customers and building customer loyalty.

Distribution and Information Systems

Retailers achieve efficiencies by developing sophisticated distribution and information
systems.

Unique merchandise
Its difficult to develop a competitive advantage through merchandise because competitors
can purchase them and sell the same popular national brands but many retailers realize a

27
 sustainable competitive advantage by developing private-label brands (store brands),
which are product developed and marketed by a retailer and available only from the
retailer.

Vendor Relations
By developing strong relations with vendors, retailers may gain exclusive rights
1. to sell merchandise in a region
2. to obtain special terms of purchase that are not available to competitors who lack
such relations
3. to receive popular merchandise in short supply.

Customer Service
Retail employees provide customer service and humans are less consistent than machines.
Retailers that offer good customer service instill its importance in their employees over a
long period of time to become a part of their organizational culture.

Growth Strategies
Four types of growth opportunities that retailers may pursue (market penetration, market
expansion, retail format development and diversification)

X Axis – Target Markets ranging from Existing to New

Y Axis – Retail Format ranging from New to Existing

1. Existing target market with existing retail format – Market Penetration

2. Existing target market with new retail format – Format Development
3. Existing Retail format with new target markets – Market Expansion
4. New retail format with new target markets – Diversification (unrelated/related)

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Lecture 13
Market Penetration
A market penetration opportunity involves directing efforts toward existing customers by
using the present retailing format. The retailer can achieve this growth strategy either by
attracting customers in its current target market who don’t shop at its outlets or by
devising strategies that induce current customers to visit a store more often or to buy
more merchandise on each visit.

Cross selling means that sales associates in one department attempt to sell
complementary merchandise from other departments to their customers.

Market Expansion
A market expansion opportunity employs the existing retail format in new market
segments.

Retail Format Development

A retail format development opportunity involves offering a new retail format – a format
with a different retail mix – to the same target market.

Diversification
A diversification opportunity is when a retailer introduces a new retail format directed
toward a market segment that’s not currently served. Diversification opportunities are
either related or unrelated.
In a related diversification opportunity, the present target market or retail format shares
something in common with the new opportunity. An unrelated diversification lacks any
commonality between the present business and the new business.

Vertical Integration
It is diversification by retailers into wholesaling or manufacturing. When a retailer
integrates by purchasing or otherwise partnering with distribution or manufacturing

29
concerns, it is engaging in backward integration because the requisite skills are different
from those usually associated with retailing.
Alternatively, some manufacturers and designers like Ritu Kumar, Nike, Prada etc
forward integrate into retailing.

For Global Success, the success mantras are

 Globally sustainable competitive advantage - Expansion opportunity should be
consistent with the retailer’s core bases of competitive advantage.
 Adaptability – Royal Ahold’s global mantra is: “Everything the customer sees, we
localize. All else, we globalize”.
 Global Culture
 Deep Pockets

Entry Strategies for Global Retailers

Four approaches are available to retailers to enter non-domestic markets. These are:
 Direct Investment
 Joint Venture
 Strategic Alliance
 Franchising

Direct Investment
Direct investment involves a retail firm investing in and owning a division or subsidiary
that builds and operates stores in a foreign country. It has very high risk but significant
returns may follow. Also, retailer has complete control over operations. For eg.
McDonald’s.

Joint Venture
A joint venture is formed when the entering retailer pools its resources with a local
retailer to form a new company in which ownership, control and profits are shared. A
joint venture reduces the entrant’s risk. Besides, sharing the financial burden, the local
partner understands the market and has access to resources – vendors and real estate. In

30
India, only joint ventures are allowed in most retail sectors with maximum foreign
ownership being 51%. However, the government is considering opening up the retail
sector and there may be more liberalized view in the coming months.

Strategic Alliance
A strategic alliance is a collaborative relationship between independent firms. For eg. A
foreign retailer might enter an international market through direct investment but develop
an alliance with a local firm to perform logistical and warehousing activities.

Franchising
Franchising offers the lowest risk and requires the least investment. However, the entrant
has limited control over the retail operations in the foreign country, potential profit is
reduced, and the risk of assisting in the creation of local domestic competitor is increased.

31
 Lecture 14
Retail Strategic Planning and Operation Management

The Strategic Retail Planning Process

The strategic retail planning process is the set of steps a retailer goes through to develop a
strategic retail plan.

Strategic Retail plan consists of following steps

1. Define the business mission
2. Conduct a situation audit: Market attractiveness analysis, competitor analysis, self
analysis
3. Identify strategic opportunities
4. Evaluate strategic alternatives
5. Establish specific objectives and allocate resources
6. Develop a retail mix to implement strategy
7. Evaluate performance and make adjustments

Define the Business Mission

The mission statement is abroad description of a retailer’s objectives and the scope of
activities it plans to undertake. The mission statement should define the general nature of
the target segments and retail formats that the firm will consider.

Conduct a Situation Audit

A situation audit is an analysis of the opportunities and threat in the retail environment
and the strength and weaknesses of the retail business relative to its competitors. The
elements of situation audit are

Market Factors Competitive Environmental Analysis of

Factors Factors Strengths and
Weaknesses

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Size Barriers to entry Technology Management
Capabilities
Growth Bargaining Power Economic Financial resources
of Vendors
Seasonality Competitive Rivalry Regulatory Locations
Business Cycles Social Operations
Merchandise
Store Management
Customer Loyalty

Competitive Factors
Retail markets are more attractive when competitive entry is costly. Barriers to entry are
conditions in the retail market that make it difficult for firms to enter the market. These
include scale economies, customer loyalty and availability of great locations.
Scale economies are cost advantages due to a retailer’s size.
Competitive rivalry is the frequency and intensity of reactions to actions undertaken by
competitors

Strengths and Weaknesses analysis

These include
 Management Capability – Capabilities and experience of top management,
depth of management – capabilities of middle management, management’s
commitment to firm
 Financial Resources – Cash flow from existing business, ability to raise debt or
equity financing
 Operations – Overhead cost structure, Quality of operating systems, distribution
capabilities, management information systems, loss prevention systems, inventory
control systems
 Merchandising Capabilities – Knowledge and skills of buyers, relationships
with vendors, capabilities in developing private brands, advertising and promotion
capabilities
 Store Management Capabilities – Management capabilities, quality of sales
associates, commitment of sales associates to firm

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  Locations
 Customers – Loyalty of customers

Lecture 15
Identify Strategic Opportunities
Various strategies that can be adapted should be identified like in for the growth phase
the strategies could be market penetration, market expansion, retail format development
and diversification.

Evaluate Strategic Alternatives

The evaluation determines the retailer’s potential to establish a sustainable competitive
advantage and reap long-term profits from the opportunities that utilize its strengths and
its area of competitive advantage.

Establish Specific Objectives and Allocate Resources

The specific objectives are goals against which progress toward the overall objective can
be measured. Thus, these specific objectives have three components:
1. The performance sought, including a numerical index against which progress may be
measured
2. A time frame within which the goal is to be achieved
3. The level of investment needed to achieve the objective

Develop a Retail Mix to Implement Strategy

The sixth step in the planning process is to develop a retail mix for each opportunity in
which investment will be made and to control and evaluate performance.

Evaluate Performance and Make Adjustments

The final step in the planning process is evaluating the results of the strategy and
implementation program. If the retailer is meeting or exceeding its objectives, changes
aren’t needed.

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Operations Management

Retail Financial Strategy

Strategically, retails have two paths available to achieve high performance: the profit path
and the turnover path. These two paths are combined in the strategic profit model.

Strategic Profit Model

Return on Assets can be divided into two paths: the profit path (which is measured by net
profit margin) and the turnover path (which is measured by asset turnover). Net profit
margin is simply how much profit (after tax) a firm makes divided by its net sales. Asset
turnover is used to measure the productivity of a firm’s investment in assets. It is
expressed as net profit / (total assets).
When net profit margin is multiplied by asset turnover, the net sales cancels out of the
equation and we get return on assets:
Net Profit * Asset Turnover = Return on Assets
Net Profit/Net Sales * Net Sales/Total Assets = Net Profit/Total Assets

The Profit Path

Net Sales – The term net sales refers to the total number of rupees received by a retailer
after all refunds have been paid to customers for return merchandise:
Net Sales = Gross amount of Sales – Customer Returns – Customer Allowances
Customer Return represents the value of merchandise that customers’ return because it’s
damaged, doesn’t fit and so forth. Customer allowances represents any additional price
reduction given to the customer.

Gross Margin
Gross Margin = Net sales – Cost of goods sold
Gross margin, also called gross profit, is an important measure in retailing. It gives the
retailer a measure of how much profit it’s making on merchandise sales without

35
considering the expenses associated with operating the store. Gross margin is also
expressed as a percentage of net sales so retailers can compare
1. Performances of various types of merchandise
2. Their own performance with other retailers
Gross Margin/Net sales = Gross margin%

Expenses
Expenses are costs incurred in the normal course of business to generate revenues
Selling expenses = Sales staff salaries + Commission + Benefits
General expenses = Rent + Utilities + Miscellaneous expenses
Administrative expenses = Salaries of all employees other than salespeople + Operations
of buying offices + Other administrative expenses.
Interest is the cost of financing everything from inventory to the purchase of new store
location.
Total expenses/Net sales = Total expense/Net sales ratio

Net Profit
Net Profit is a measure of the firm’s overall performance:
Net Profit = Gross margin – Expenses
Net profit can be expressed either before or after taxes. Generally, its more useful to
express net profit after taxes, since this is the amount of money left over to reinvest in the
business, disburse as dividends to stockholders or owners, or repay debt.
Net profit margin = Net profit/Net sales

Lecture 16
The Turnover Path
The information used to analyze a firm’s turnover path primarily comes from the balance
sheet. While the income statement summarizes the financial performance over a period of
time, the balance sheet summarizes a retailer’s financial position at a given point of time,
such as the last day of the year. The balance sheet shows the following relationship:
Assets = Liabilities + Owner’s equity

36
Assets are economic resources (such as inventory or store fixtures) owned or controlled
by an enterprise as a result of past transactions or events. Liabilities are an enterprise’s
obligations

37
 Target Market Selection
The retailing concept is a management orientation that focuses a retailer on determining
the needs of its target market and satisfying those needs more effectively and efficiently
than its competitors. Successful retailers satisfy the needs of customers in their target
market segment better than the competition does. The selection of a target market focuses
the retailer on a group of consumers whose needs it will attempt to satisfy. The selection
of a retail format outlines the retail mix to be used to satisfy needs of those consumers.
The retail strategy determines the markets in which a retailer will compete.

Retail Location
Retailers have three basic types of locations to choose from:
A shopping center,
A city or town location, or
A freestanding location.
Retailers can also locate in a nontraditional location like an airport or within another
store.

Shopping Centers
A shopping center is a group of retail and other commercial establishments that is
planned, developed, owned and managed as a single property. The two main
configurations of shopping centers are strip centers and enclosed malls. Strip centers are
shopping centers that usually have parking directly in front of the stores. Malls are
shopping centers in which customer’s park in outlying areas and walk to the stores.

Various types of shopping centers are

1. Traditional Strip center
2. Power centers
3. Shopping malls
4. Regional Centers
5. Super regional Centers

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6. Lifestyle centers
7. Fashion/specialty centers
8. Outlet centers
9. Theme/Festival Centers
10. Merchandise Kiosks

City or Town Locations

These are typically unplanned, have multiple owners and have access from the street.
They are of following types:
1. Central business districts
2. Inner city locations
3. Main street locations

Free Standing Site

A freestanding site is a retail location that’s not connected to other retailers, although
many are located adjacent to malls

Other retail location opportunities are:

1. Multiple Use Developments, Mixed Use Developments
2. Airports
3. Resorts
4. Hospitals
5. Store within a store

Location and retail strategy

Department stores are usually located in central business districts and regional or super
regional shopping centers. It is because they draw a large number of people due to their
large size and merchandise selection. They also are a source of entertainment, have
controlled climate and give a secure environment.

Specialty Apparel Stores

39
Specialty store thrive in central business districts, main street locations, and most type of
malls, including regional and superregional shopping centers, lifestyle centers,
fashion/specialty centers and theme/festival centers.

Category Specialists
Category specialists are likely to be found in power centers or in freestanding locations.

Grocery Stores
Grocery stores are typically located in strip centers. Like category specialists, grocery
stores are price competitive, and strip centers have relatively inexpensive rent.

40
Lecture 17
Store Design and Layout; Visual Merchandising and Displays
A well-planned retail store layout allows a retailer to maximize the sales for each foot of
the allocated selling space within the store. Store layouts generally show the size and
location of each department, any permanent structures, fixture locations and customer
traffic patterns.
Each floor plan and store layout will depend on the type of products sold, the building
location and how much the business can afford to put into the overall store design. Below
are a few basic store layouts.

Straight Floor Plan

Straight Floor Plan

The straight floor plan is an excellent store layout for most any type of retail store. It
makes use of the walls and fixtures to create small spaces within the retail store. The
straight floor plan is one of the most economical store designs.

41
Diagonal Floor Plan

Diagonal Floor Plan

The diagonal floor plan is a good store layout for self-service types of retail stores. It
offers excellent visibility for cashiers and customers. The diagonal floor plan invites
movement and traffic flow to the retail store.

Angular Floor Plan

Angular Floor Plan

The angular floor plan is best used for high-end specialty stores. The curves and angles of
fixtures and walls makes for a more expensive store design. However, the soft angles
create better traffic flow throughout the retail store.

42
Geometric Floor Plan

Geometric Floor Plan

The geometric floor plan is a suitable store design for clothing and apparel shops. It uses
racks and fixtures to create an interesting and out-of-the-ordinary type of store design
without a high cost.

Mixed Floor Plan

Mixed Floor Plan

The mixed floor plan incorporates the straight, diagonal and angular floor plans to create
the most functional store design. The layout moves traffic towards the walls and back of
the store.

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Lecture 18
Store Design
A good store design should be like a good story, a beginning, middle and an end, in that
order. Objectives of a good store design:
1. Design should be consistent with image and strategy
2. Design should positively influence consumer behavior
3. Design should consider costs versus value
4. Design should be flexible
5. Design should recognize the needs of the differently abled

Feature Areas-----??
Besides the area where most of the merchandise is displayed and stored, there are feature
areas – areas within a store designed to get the customer’s attention. They include end
caps, promotional aisles or areas, freestanding fixtures and mannequins that introduce a
soft goods department, windows, and point of sale or cash wrap areas, and walls.
2
 End Caps are displays located at the end of an aisle. Due to their high visibility, end
caps can also be used to feature special promotional items.
 Promotional Aisle or Area – A promotional aisle or area is an aisle or area used to
display merchandise that is being promoted.
 Freestanding Fixtures and Mannequins – Freestanding fixtures and mannequins
located on aisles are designed primarily to get customers’ attention and bring them
into a department. These fixtures often display and store the newest, most exciting
merchandise in the department.
 Windows – Although windows are clearly external to the store, they can be an
important component of the store layout. Properly used, window displays can help
draw customers into the store. They provide a visual message about the type of
merchandise for sale in the store and the type of image the store wishes to portray.
 Point of Sale Areas - POS also known as POP, checkout or cash wrap areas, are
places in the store where customers can purchase merchandise. These areas can be the

44
 most valuable piece of real estate in the store, because the customers often wait there
for the transactions to be completed.
 Walls – Since retail space is often scarce and expensive, many retailers have
successfully increased their ability to store extra stock, display merchandise, and
creatively present a message by utilizing wall space.

Merchandise Presentation Techniques

 Idea oriented presentation
 Style/Item presentation
 Color presentation
 Price lining
 Vertical merchandising
 Tonnage merchandising
 Frontage presentation
 Fixtures
 Atmospherics

Lecture 19
Visual Merchandising
Visual communications – comprising graphics, signs and theatrical effects, both in the
store and in windows – help boost sales by providing information on products and
suggesting items or special purchases. Retailers should consider the following issues in
designing the visual communication

 Coordinate signs and graphics with the store’s image

 Inform the customer
 Use signs and graphics as Props
 Keep signs and graphics fresh
 Limit the copy of signs
 Use appropriate typefaces on signs

45
  Create theatrical effects

Lighting
Good lighting in a store involves more than simply illuminating space. Lighting is used to
highlight merchandise, sculpt space, and capture a mood or feeling that enhances the
store’s image. Lighting can also be used to downplay less attractive features that can’t be
changed.
Lighting can be used to:
 Highlight merchandise or popping the merchandise
 Capture a mood and maintain an image
 Downplay features

Colour
The creative use of colour can enhance a retailer’s image and help create a mood.
Research has indicated the warm colours (red and yellow) have been found to increase
blood pressure, respiratory rate and other physiological responses. Or we can say that
warm colors attract customers and gain attention.

Music
Music can either add or detract from a retailer’s total atmospheric package. Unlike other
atmospheric elements, however, music can be easily changed.

Scent
Many buying decisions are base on emotions, and smell has a large impact on our
emotions.

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UNIT 3
Lecture 20
Merchandise Planning, Buying and Handling; Merchandise Pricing; Retail
Communication Mix; Promotional Strategy; Retail Human Resources Management;
Customer Service, The GAPs Model, Customer Relationship Management. (10 hours)

Retail Management Information Systems; Retail Audits; Online Retailing; Global

Retailing; Legal and Ethical Issues in Retailing. (10 hours)

Merchandise management is the process by which a retailer attempt to offer the right
quantity of the right merchandise in the right place at the right time while meeting the
company’s financial goals.

Planning Merchandise Assortments

Organize the buying process by categories
Set merchandise financial objectives
Develop and assortment plan

Buying systems are of two types:

Staple merchandise buying systems and fashion merchandise buying systems
Open to buy systems
Allocate merchandise to stores
Analyze merchandise performance

Planning Merchandise assortments – once the financial objectives are set, the retailer
starts the task of determining what to buy. Retailers are limited by the amount of money
available for merchandise and the space in the store. They must decide whether to carry a
large variety of different types of clothing (categories) – or carry fewer categories but a
larger assortment of more styles and colours within each category. To complicate the
situation, one needs to decide how much backup stock to carry for each item. The process
of trading off variety, assortment and backup stock is called assortment planning.

47
The culmination of planning the financial and merchandising objectives for a particular
merchandise category is the assortment plan. An assortment plan is a list of merchandise
that indicates in general terms what the retailer wants to carry in a particular merchandise
category.

Organizing the buying process by categories

The Category
In general, a category is an assortment of items that the customer sees as reasonable
substitutes for each other. Categories can be defined in different manners but no matter
how the category is defined, supply chain members must agree on the category definition,
and it must be based on what is logical to the customer.

Lecture 21
Category Management
Category management is the process of managing a retail business with the objective of
maximizing the sale and profits of a category. Many retailers organize their
merchandising activities around brands or vendors. For instance, in a grocery store chain
there might be three buyers for breakfast cereal: Kellogg’s, General Mills and General
Foods. If all three buyers have merchandise on the same shelves, they will be, in essence,
competing with one another. Further, the salespeople for the three vendors will each be
vying for the same shelf space. The category management approach to managing
breakfast cereals would be to have one buyer or category manager who oversees every
aspect of the merchandising function. An important reason for adopting category
management is that one person, the category manager, is ultimate responsible for the
success or failure of a category. Managing by category can help assure that the store’s
assortment is represented by the best combination of sizes and vendors, that is, the one
that will get the most profit from the allocated space.

The Category Captain

48
There should be strategic relationships with vendors. Since vendors can develop systems
for collecting information for all of the areas that they service, they can provide buyers
with valuable information.
Some retailers turn to one favored vendor to help them manage a particular category.
Known as the category captain, this supplier forms an alliance with the retailer to help
gain consumer insight, satisfy consumer needs, and improve the performance and profit
potential across the entire category.
A potential problem with establishing a category captain is that vendors could take
advantage of their position.

The Buying Organization

Although each retailer has its own system of categorizing merchandise, the standard
merchandise classification scheme used by the National Retail Federation (NRF) is often
employed.
The merchandise group is managed by the senior vice president of merchandise, also
called general merchandise managers, or GMMs. These merchandise managers are
responsible for several departments.

Department – the second division in the classification scheme in the exhibit is the
department. These departments are managed by divisional merchandise managers who
report to the vice presidents.

Classification – the classification is the third level in the exhibit’s classification scheme.
Each divisional merchandise manager is responsible for a number of buyers or category
managers.

Categories – Categories are the next level in the classification scheme. Each buyer
purchases a number of categories.

Stock Keeping Unit – A SKU is the smallest unit available for keeping inventory control.

49
Lecture 22
Advantages of High Inventory Turnover
1. Increased sales volume
2. Less risk of obsolescence and markdowns
3. Improved salesperson morale
4. More money for market opportunities
5. Decreased operating expenses
6. Increased Asset turnover

Disadvantages of Too high an Inventory Turnover

1. Lowered sales volume
2. Increased cost to goods sold
3. Increased operating expenses

The Category Life Cycle

Fad Fashion Staple Seasonal

Sales over No Yes Yes Yes
many seasons
Sales of a No No Yes Yes
specific style
over many
seasons
Sales vary No Yes No Yes
dramatically
from one
season to the
next
Illustration
(sales against
time)

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A FAD is a merchandise category that generates a lot of sales for a relatively short time –
often less than a season. Examples are Pokemon

Unlike a Fad a Fashion is a category of merchandise that typically lasts several seasons,
and sales can vary dramatically from one season to the next.

Items within a staple merchandise category are in demand over an extended period of
time. Seasonal merchandise is inventory whose sales fluctuate dramatically according to
the time of the year.

Lecture 23
The Assortment Planning Process
Variety
Variety is the number of different merchandising categories within a store or department.
Stores with a large variety are said to have good breadth – the terms variety and breadth
are often used interchangeably.

Assortment
Assortment is the number of SKUs within a category. Stores with large assortments are
said to have good depth – the terms assortment and depth are also used interchangeably.

Product Availability
Product availability defines the percentage of demand for a particular SKU that is
satisfied.

Trade offs between variety, assortment and product availability.

Strategy depends on three things
1. The target market toward which a retailer plans to commit its resources

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 2. The nature of the retail offering that the retailer plans to use to satisfy the target
market needs
3. the bases upon which the retailer will attempt to build a sustainable competitive
advantage
The difference between cycle stock and buffer stock/backup stock/safety stock.

Lead-time is the amount of time between recognition that an order needs to be placed and
the point at which the merchandise arrives in the store and is ready for sale.

Lecture 24
Staple Merchandise Buying Systems
Staple merchandise buying systems are used for merchandise that follows a predictable
order-receipt-order cycle. Most merchandise fits this criterion but this system doesn’t
works well with fashion merchandise.

What does a staple merchandise buying system does

Staple merchandise buying systems contain a number of program modules that show how
much to order and when. These systems assist buyers by performing three functions:
 Monitoring and measuring average current demand for items at the SKU level
 Forecasting future SKU demand with allowances made for seasonal variations
and changes in trend
 Developing ordering decision rules for optimum restocking

The Inventory Management Report

Basic Stock List – The basic stock list describes each SKU and summarizes the inventory
position. Specifically, it contains the stock number and description of the item, how many
items are on hand and on order, and sales for the past 12 and 4 weeks.

Inventory Turnover – The planned inventory turnover is based on overall financial goals
and drives the inventory management system.

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Product Availability – The percentage of customers who found the SKU in stock to the
total number of customers who wanted that item constitute product availability.

Backup Stock – It’s the inventory used to guard against going out of stock when demand
exceeds forecast.

Forecast – sales forecasts for staple merchandise is simply extending the past trends into
the future.

New Forecast = Old forecast + a (Actual Demand – Old forecast)

Order Point – it’s the amount of inventory below which the quantity available shouldn’t
go or the item will be out of stock before the next order arrives.
Order point = [(7 units)* (14 + 7) days] + (20 units) = 167 units from page 408, Levy and
Weitz, Retailing Management.

Order Quantity – It is the difference between the quantity available and the order point.

Monthly sales percent distribution to season

Monthly sales
Monthly reductions percent distribution to season
Shrinkage is an inventory reduction that is caused by shoplifting by employees or
customers, by merchandise being misplaced or damaged, or by poor bookkeeping.
Monthly reductions
BOM (Beginning of Month) Stock to sales Ratio
EOM stock

Lecture 25
Buying Merchandise
Branding Strategies

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Manufacturer Brands – Manufacturer brands also known as national brands, are products
designed, produced, and marketed by a vendor. The manufacturer is responsible for
developing the merchandise and establishing an image for the brand.

Licensed Brands – A special type of manufacturer brand in which the owner of a well
known brand name enters a contract with a license to develop, produce and sell the
branded merchandise.

Private Label brands

Private label brands, also called store brands, are products developed by a retailer and
available for sale only from that retailer.
Type of Vendor
Impact on Store Manufacturer Brands Private-Label Brands
Store Loyalty ? +
Store Image + +
Traffic flow + +
Selling and Promotional + -
expenses
Restrictions - +
Differential Advantages - +
Margins ? ?
+ Advantage to the retailer
- Disadvantage to the retailer
? Depends on circumstances

Some strategies:
Bargain branding targets a price sensitive segment by offering a no-frills product at a
discount price. Known as generic or house brands, such unbranded, unadvertised
merchandise is found mainly in drug, grocery and discount stores.

Premium branding offers the consumer a private label at a comparable manufacturer-

brand quality, usually with modest price savings.

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Copycat branding imitates the manufacturer brand in appearance and packaging,
generally is perceived to be of lower quality, and is offered at a lower price.

Parallel branding represents private labels that closely imitate the packaging and product
attributes of leading manufacturer brands but with a clearly articulated “invitation to
compare” in its merchandising approach and on its product label.

Lecture 26
Pricing Strategies
Everyday low pricing

Many retailers have adapted an EDLP strategy. This strategy emphasizes continuity of
retail prices at a level somewhere between the regular non-sale price and the deep-
discount sale price of the retailer’s competitors.

Since it is difficult to always have the lowest prices, some retailers have adopted a low
price guarantee policy in which they guarantee that they will have the lowest possible
price for a product or a group of products.

High/Low Pricing
In a high/low pricing strategy, retailers offer prices that are sometimes above their
competition’s EDLP, but they use advertising to promote frequent sales.

EDLP has three relative benefits

 Reduced price wars
 Reduce advertising
 Reduced stockouts and improved inventory management

A high/low strategy has several strengths too:

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  The same merchandise appeals to multiple markets
 Sales create excitement
 Sales move merchandise
 Emphasis is on quality

Approaches for setting prices:

There are basically two approaches. Under the cost-oriented method, the retail price is
determined by adding a fixed percentage to the cost of the merchandise. With the
demand-oriented method, prices are based on what customers expect or a willing to pay.
The competition oriented method of setting retail prices – when retailers use competition
oriented pricing, they set their prices on the basis of their competition rather than cost or
demand considerations. Retailers can price above, below or at parity with the
competitors.

Use of BEP for setting prices.

Markdowns are reductions in the initial retail price. Markdowns are a type of second
degree price discrimination because the lower price induces price sensitive customers to
buy more merchandise. Reasons of merchandise markdowns can be classified as
clearance or promotional.

Merchandising optimization software is a set of algorithms that monitors merchandise

sales, promotions, competitors’ actions, and other factors to determine the optimal price
and timing for merchandise activities. Working with the vendors can reduce the amount
of markdowns.

Liquidating markdown merchandise-

1. “Job-out the remaining merchandise to another retailer”
2. Consolidate the marked down merchandise
3. Place the remaining merchandise on an Internet auction site like eBay, or have a
special clearance location on its own website.

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 4. Give the merchandise to charity
5. Carry the merchandise over to the next season

Lecture 27
Coupons offer a discount on the price of specific items when they’re purchased at a
store. The evidence on couponing’s overall profitability is mixed, depending on the
product category. Since coupons have the seemingly positive effect of encouraging larger
purchases than without coupons, the coupon promotion may be stealing sales from a
future period without any net increase in sales.
Rebates
A rebate is a portion of the purchase price returned to the buyer. Generally, the consumer
sends a proof of purchase to the manufacturer, and the consumer is sent the rebate.

Price Bundling
Price Bundling is the practice of offering two or more different products or services for
sale at one price.

Multiple Unit Pricing

Multiple unit pricing is similar to price bundling in that the lower total merchandise price
increases sales, but the products or services are similar rather than different.

Variable Pricing
Variable pricing (or zone pricing) means charging different prices in different stores,
markets or zones. Retailers generally use variable pricing to address different competitive
situations in their various markets.

Pricing on the Internet

Leader Pricing

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In leader pricing, certain items are priced lower than normal to increase customers’
traffic flow or to boost sales of complementary products. Some retailers call these
products loss leaders.

Price Lining
In price lining, retailers offer a limited number of predetermined price points within a
classification.

Odd Pricing
Odd pricing refer to the practice of using a price that ends in an odd number, typically a
nine.
Price Discrimination
Price discrimination occurs when a vendor sells identical products to two or more
customers at different prices.

Predatory Pricing
Predatory pricing is a particular form of price discrimination where a market-dominating
firm charges below-cost prices for some goods or in some areas in order to drive out or
discipline one or more rival firms.

Vertical Price Fixing

Vertical price fixing involves agreements to fix prices between parties at different levels
of the same marketing channel (eg retailers and vendors). The agreements are usually to
set prices at the manufacturer’s suggested retail price (MSRP).

Horizontal Price Fixing

Horizontal price fixing involves agreements between retailers that are in direct
competition with each other to have the same prices.

Comparative Price Advertising

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This is a common retailing practice where the price of the merchandise offered for sale is
compared with the higher “regular” price or a manufacturer’s list price.

Bait and Switch Tactics

Bait and switch is a deceptive practice that lures customers into a store by advertising
product at a lower than usual price and then induces the customer to switch to a higher
priced model.

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Lecture 28
Retail Communication Mix
The retail communication mix is the process of developing and implementing a
communication program to build appealing brand images, attract customers to stores and
internet sites, and encourage them to buy merchandise.

Brand Equity – The value that brand image offers retailers is referred to as brand equity.

To build Brand Equity the retailer must:

1. Create a high level of brand awareness
2. Develop favorable associations with the brand name
3. Consistently reinforce the image of the brand.

Brand Awareness – Brand awareness is the ability of a potential customer to recognize

or recall that the brand name is a type of retailer or product/service. Aided recall and top
of the mind recall.

Associations – Brand associations are anything linked to or connected with the brand
4rname in a consumer’s memory.

Some common associations that retailers develop with their brand name are
1. Merchandise category
2. Price/quality
3. Specific attribute or benefit
4. Lifestyle or activity

Brand Image is a set of associations that are usually organized around some meaningful
themes.

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Methods of communicating with customers

Impersonal Personal
Paid Advertising Personal selling
Sales Promotions Email
Store Atmosphere
Websites
Unpaid Publicity Word of mouth

1. Paid impersonal communications – Advertising, sales promotions, store

atmosphere, and websites are examples of paid impersonal communications.

 Advertising- Advertising is a form of paid communication to customers

using impersonal mass media such as newspapers, radio, TV, direct mail
and the internet

 Sales Promotions – Sales promotions offer extra value and incentives to

customers to visit a store or purchase merchandise during a specific period
of time.

- Sale
- Special events
- In store demonstrations
- Contests: are promotional games of chance
- Coupons: offer a discount on the price of specific items when they’re
purchased at a store.

 Store Atmosphere – store atmosphere is the combination of the store’s

physical characteristics, such as architecture, layout, signs and displays,
colors, lighting, temperature, sounds, and smells, which together create an
image in the customer’s mind.

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  Website –

Lecture 29
2. Paid Personal Communications
 Personal selling is a communication process in which salespeople assist
customers in satisfying their needs through face-to-face exchanges of
information.
 E-mail is another paid personal communication vehicle that involves sending
messages over the Internet.

3. Unpaid impersonal communication – Publicity is communication through

significant unpaid presentations about the retailer.
4. Unpaid personal communications – Retailers communicate with their customers
at no cost through word of mouth, communication between people about a
retailer.

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