Objective

Retailing is among the upcoming industries where marketers have a

scope to improvise the existing systems; retail development is far
more complex than it used to be. Studying the trends, it is evident that
mass markets are dissolving into highly fragmented micro markets.

Primary research shows that, Micro-retailing is where retailers

distinguish the different groups that make up a market and develop
corresponding propositions targeted at each micro market. One can
identify six main customer reach strategies for retailers:
Multi-location
Multi-format
Multi channel
Range diversification
Retail branding
Multinational operations
Each of the customer reach strategies brings with it a new set of
retailing competencies and disciplines which retailers must address.

In addition to the strategies listed above, formulation of newer

processes for the retailers to make them aware of the different
characteristics of customers' shopping missions. Analyze the array of
unexploited opportunities that every retailer should be addressing to
target the segregated shopping patterns and preferences which had
started to direct the style and substance of our shopping destinations.

Various other issues of the retail business would be analyzed; such as

Payoffs
Leasing
Packaging
Experience
Shopping behavior
Consumer trends
Spatial analysis
 Retail
Global Scene

United States; a four runner in the evolution of the organized retailing

witnessed the emergence of malls in the 1950s. In 1960s Express
highways took organized retail to smaller town in US like the Wal-Mart
(1962) and Gap (1969). In 1970s value retail chains gained prominence
and competition dictated the course of the sector developments;
volumes became the name of the game. The retail developments in
the US happened in two distinct fronts – Off-price retailing as
compared to Mega Malls with unique shopping experience.

Scenario in India

India's largest industry, the retail sector is valued at $200 billion

accounting for over 10 per cent of the country's GDP and around eight
per cent of the country's employment. The retail industry in India,
estimated at INR 930,000 crore (2003-04) is expected to grow at 5
percent per annum. The present retail business is largely accounted for
by over 12 Million retail outlets of all shapes and formats, and
supported by street vendors, hawkers, food service outlets as well as
periodic street Bazaars and Haats. Organized retailing is a decade old
industry in India with an overall market share of 3 percent. Currently,
the estimated total sales of organized retailers are Rs.175 billion. The
retail revolution in India has provided a much wider range and depth of
products for the Indian consumers along with a choice of retail
destination that reflect global formats. The late 1990s witnessed the
proliferation of well endowed modern malls which caused the older
shopping destinations to move down the scale. Shopping malls have
now become the visible face of Indian retail. The sector has witnessed
robust growth during the last two years which could mainly be
attributed to the establishment of international quality formats
modified to suit the Indian purchase behavior; entry of several
domestic and international players; development of retail-specific
properties; improvement in retail processes and turnaround in
operations of some existing retailers. Modern retail has entered India
as seen in sprawling shopping centers, multi-storied malls and huge
complexes offer shopping, entertainment and food all under one roof.
Future Growth Plans

Retailing in India is gradually inching its way towards becoming the

next boom industry. Given that only 3 per cent of the market is
organized, the potential for expansion is almost endless. Over 35-40
million square ft. of new retail space may come to the market in the
next 12-24 months (including re-developments) in over 50 cities across
the country. Further, by 2010, 500-600 malls occupying approx 120
million square ft. are at various stages of planning at this point in time.

The boom in the sector has been fuelled by the flood of new players,
Indian and foreign, looking to cash in on rising incomes, increasing
indulgence and greater frequency of purchase. It’s not enough
anymore to be merely glitzy; stores have to have the right blend of
ambience, products and, most important, customer service to keep the
customer satisfied.

Growth Drivers
The growth in organized retail is being driven by a number of
structural, social, and demographic and macroeconomic factors. The
increasing globalization of the Indian economy has led to growing
exposure to foreign markets resulting in increasing demand for
international shopping experience in India. Availability of credit cards,
increased ‘lifestyle spending’ and higher mobility due to increase in car
/ scooter owning families for whom shopping also becomes a family
outing, have also helped in driving the growth of organized retailing in
India.

The Indian retailing industry has been witnessing some exciting

developments which are putting the entire industry on the growth
path; as follows

Emergence of Region-Specific Formats: With organized retail

penetrating beyond metros, the retail industry has witnessed the
emergence of stores with different sizes and formats. To illustrate,
within the departmental stores’ format, there are different sizes for
metros and different for other cities.

Emergence of Discount Formats: Larger discount formats are now

emerging as major competitors to both unorganized and organized
retailers. This has resulted on account of penetration of organized
retail into the lower strata of income groups and consumer demand for
increased value-for-money.
Entry of International Players: Over the years, a number of well-known
international brands have capitalized on the opportunities available in
the sector by executing licensing agreements with Indian players.

Development of malls: The establishment of malls has increased

dramatically and funds for such products are being earmarked for non
–metros as well.

Improvement in Retail Operating Efficiencies: Existing retail players are

taking steps to improve the internal operations of their businesses and
are implementing ERP and planning support systems.

Improving Profitability and Retail Revenues: Most of the retail players

in the country are experiencing improved profitability, which is also
expected to improve their credit profile in the industry. Expected
sector earnings growth is at a CAGR of 55-60% over the next 2 years.

Positive Demographics: GDP growth is fast translating into higher

income levels and with a median population age of 25 years, Indian
earning class is expected to multiply. India’s urban population at 28%
is expected to rise to 38% by 2025.This coupled with the benign
interest rates and growing plastic money is resulting in higher
consumer spending.

Ascending the learning curve: With most of the players operating for
over 5 years now, new formats have been tested and back end
systems have been put in place. Not only are footfalls growing, but
conversions are rising and so are average ticket sizes. Most of the
players have raised capital either through private placement, rights or
public issue and are in the process of executing their aggressive
growth plans.
Players
Major retail players having prominence in the organized retail market
include Shopper’s Stop Limited, Pantaloon Retail (India) Limited, Trent
Limited etc.

Pantaloon Retail India Ltd (PRIL)

The market leader
Pantaloon Retail India Ltd (PRIL) is India’s biggest retailer with a
pan India presence. The company has attained leadership through
rapid expansion, which is slated to continue over the next few
years. The company has a clear strategy of consolidating its
 position in the existing cities and expanding in the tier II cities for
growth.

A strong management team with deep understanding of consumer

Mr Kishore Biyani, CMD of PRIL has rich experience in the Indian
garment and retailing industry. He is ably assisted by the former
CEO of Globus Pvt Ltd, Mr Ved Prakash Arya who is the Chief
Operating Officer at PRIL. The company’s major strength is the
management’s deep understanding of the Indian consumer and its
trends, which has helped them innovate new formats.

Multi formats- capturing the complete wallet share

PRIL’s market positioning gives it a distinctive advantage over its
peers. While most of its peers are at a new format-testing phase,
PRIL has already treaded the learning curve. Its multi formats (Food
Bazaar Big Bazaar, Pantaloon and Central) target consumers with all
income levels. Its latest format Central Mall covers almost 60% of
the customer’s wallet share.

Maintaining a healthy product mix, Central Malls driving up margins

The management intends to maintain a mix of value retailing
and life style retailing in the 55:45 ratios. With 45% of the sales
coming from life style segment, operating margins could be
maintained at around 9%. PRIL’s new format Central Malls has
shaped up well and the company managed to grow its sales rapidly
and also improve margins.

Trent Limited
Hypermarket to drive sales growth
Trent’s past concentration was solely on life style retailing
(Westside), which kept its sales growth at a modest growth rate
compared to its competitor Pantaloon. The company met with good
success with its recently launched hypermarket store “STAR INDIA
Bazaar”. However, the successful foray into hypermarket should
give its sales a much-needed fillip.

Changing gears- getting in the fast lane through expansions

The company recently raised capital through a rights issue.
Along with its earlier free cash flows (investments) it is in a position
to fund its rapid expansion plans.

Higher private labels to help maintain margins

Trent’s product mix has a huge concentration of private labels,
almost to the tune of 80%. Spread between bought out labels and
private labels ranges between 8-10%. However, Trent’s operating
margins are lower viz a viz competition, due to a higher staff costs.
 Strong group goodwill and management focus
The company is one of the TATA group companies and enjoys
support from the group. As a result future funding is not a matter of
concern. A professional management runs the company with a
strong focus on quality.

Shoppers’ Stop
Pioneer in organized retailing
Shoppers' Stop, commenced operations in 1994, and is one of
the pioneers in the retail industry, with 16 stores across major town
and cities. It now intends to consolidate its position and expand its
operations in new cities. The recent public issue would give it
enough capital to jump on to a higher growth horizon.

Professional and experienced top management

Mr.B.S.Nagesh heads the operations of Shopper’s Stop and has
been at the helms since inception. He has rich experience of over a
decade in the retail industry and is ably supported by a
management team of experienced professionals and varied
experience in the retail and FMCG industry.

Significant revenue coming from loyal customers

The company has been successful in converting one timer into
loyal customers making repeat purchases. As on March 15, 2005
the company had a first citizen (loyalty members) base of 4.1 lakh,
which contributed almost 50% of the retail sales in FY04.

Low margins despite being a lifestyle retailer

The company’s product mix consists of 68% apparel and 32%
non-apparel products. Shoppers' Stop has a low proportion of
private labels in its apparel sales amounting to a share of just
around 16%. As a result, its margins are lower than its competitors.

Slow in expansion
Shoppers' Stop has been relatively slow in adding retail space in
the last 2-3 years, while competition has breezed ahead. Although
pace of expansion is expected to pick up with funding in place, it
may have lost out few strategic locations to competition.

Business model
There are four stages in retailing:
 • Communication — where you attract the customer through
advertising.
• Store experience — this embraces ambience, facilities, layout
and products.
• Interaction — ensuring that customers receive top-quality
service.
• Post-purchase experience — keeping the quality of your goods in
the highest bracket.

The retail business is driven in equal measure by products and

customers. One can take in customer suggestions on products, firms
own style consultants look at international trends and ensure they will
be relevant in the Indian context. This business is based on
forecasting.

Issues
Traditional form of retailing is inefficient for almost all the entities:
Retailers themselves (the average retailer earns less that
Rs. 10,000 per month for all his effort, as data shows);
Consumers (who typically end up paying substantially
more while getting practically little or no service)
Small/medium manufacturers

India has amongst the lowest per capita retail space availability in the
world. India needs to create at least 110 Million square foot of
additional retail space per year for several years just to meet the
demand created on account of a sustained GDP growth rate of about
6%. This space crunch is leading to a situation wherein prime retail
space commands exceptionally high rates. With the retail boom, the
government must realize there’s extreme mismatch between supply
and demand for space.

Secondly, the heavy initial investments required, break even is difficult

to achieve.

Thirdly, the urban as well as suburban infrastructure development has

not kept pace with growth of population. As a result, there is more
pressure on time due to increase in traffic and commute. This has led
to an actual “reduction” of distance that consumers travel from their
“home” for non-work related activity.

And finally, consumers’ expectations in terms of product and services

have undergone a sea change in the last 10 years and still undergoing
major changes. Value was earlier having a single determinant: Price.
Today, for the middle class and upward customers, Value is a complex
equation having Quality, Comfort, Image and Convenience on one side
and Price, Time taken, and Hassle to shop on the other.

Retailing is one of the few sectors where foreign direct investment

(FDI) is not allowed at present. Providing valuable policy inputs in
terms of the time-frame and the process through which the Indian
government can open up this sector to FDI so as to maximize the
welfare and minimize the adjustment. The issues before the
government of India are in what phases they would allow FDI in India,
to provide enough time for domestic players to be globally
competitive. Entry of global retailers like Wal-Mart, Carefour, Tesco and
Home Depot, with established systems and deep pockets pave a major
threat to the local players.

Managing growth - the key challenge : The fast pace of growth throws
up major worries and players inability to manage the growth and high
inventory write-offs could be the key risk.

Prominent questions that should be looked at:

Do the players have the necessary supply chain and IT systems in
place to manage the growth?
Is FDI in the sector really required?
Are increasing footfalls resulting in conversions?
Is the product portfolio, the prices or the quality of goods or service
competitive in terms of global benchmarks?
CUSTOMER ANALYTICS
Retailers have always focused on setting up stores, expanding their
network, getting the logistics right and ensuring that there is large
number of footfalls. In comparison, not enough attention has gone into
understanding customer behavior as growth would rest not on footfalls,
but on conversion of window shoppers to consumers. With increased
competition and wafer thin margins, traditional differentiators like
price, range and service are becoming hygiene factors. Customer
intelligence is likely to emerge as the key differentiator for retailers
across the world.

All retailers have data on point of sale transactions and information on

their loyalty card program.
Added to this there is data on complaints and customer response to
promotions. This level of data is enough to provide new customer and
business insights. For example, Shoppers Stop’s FCC Membership data
or PlanetM’s m-xtasy world data, combined with POS data can give a
huge competitive advantage to these organizations.
With the threat of the global players, domestic players should try to
leverage their know-how of Indian consumer behavior over the new
global entrants. They definitely have better distribution channels and
network as of now, and it would take time for the global entrants to
implement the whole supply chain and distribution network effectively.

What the retailers need to know is…

Who are my most profitable customers and what do they want?
How can I keep them coming back and attract more like them?
How can I identify the ones likely to leave me and what can I do retain
them?
How can I get them to spend more?
… and leverage this data for customer intelligence.

Profiling

The first step towards customer intelligence is to segment your current

customers and identify the most profitable ones. Marks and Spencer
profiles its customers into 11 customer segments and uses them to
focus its communication and sales promotions. Knowing who your
profitable customers are will help you acquire more such customers
apart from helping you focus on serving your best customers more
effectively.

Personalized Campaigns

Personalized marketing communication can dramatically improve

customer response and drive incremental sales and profits. Apparel
retailer Eddie Bauer uses predictive analytics to identify which of its
customers should receive specialized mailings and catalogues. This
apart from increasing response rates and optimizing marketing spend
also increases customer loyalty.
The key to personalized communication is an understanding of
customer preferences and response patterns using response modeling
– identifying what offer will excite which set of customers. A
personalized direct marketing program can deliver an immediate ROI
for most retailers.

Customer Retention

Competition is always trying to find ways of enticing your customers.

You can identify which of your profitable customers are likely to leave
or significantly reduce spends by profiling customers who have
“churned” in the past. This exercise, called attrition modeling, can help
you to devise retention strategies for your loyal customers. Even a
simple telephonic contact with a potential churner can significantly
improve retention.

Increasing share of customer wallet

Using techniques like Market Basket Analysis, Retailers have made

interesting discoveries of product purchase association – the classic
case being young fathers stocking up for the weekend buying beer and
diapers together. These insights can lead to better shelf layout
management or better bundled marketing offers. Analytics makes it
possible to do such analyses in real time at the point of sale to print
appropriate discount coupons along with the invoice.

Many retailers are not actively pursuing these initiatives because

customer analytics is still seen as an IT activity at most retail stores.
With the focus of retailers shifting from expansion to customer
management, more customer intelligence initiatives would see the
light of day.
 IT
The IT departments are typically full up in just managing the
transaction and logistics systems.
Retailers should organize the IT set-up according to the following
framework:

Customer interfacing system

Bar coding and scanners
Point of sale systems use scanners and bar coding to identify an
item, use pre-stored data to calculate the cost and generate the total
bill for a client. Tunnel scanning is a new concept where the consumer
pushers the full shopping cart through an electronic gate to the point
of scale. In a matter of seconds, the items in the cart are hit with laser
beams and scanned. All that the consumers have to do is to pay for the
goods.

Payment
Payment through credit cards (plastic money) has become quite
widespread and this enables a fast and easy payment process.
Electronic cheque conversion, a recent development in this area,
processes a cheque electronically by transmitting transaction
information to the retailer and consumer’s bank. Rather than manually
processing a cheque, the retailer voids it and hands it back to the
consumer along with the receipt, keying digitally captured and stored
the image of the cheque, which makes the process very fast.

Internet
Internet helps to remove the need of a consumer to physically
visit the store.

Operation support system

ERP system
Various ERP vendors have developed retail-specific systems
which help in integrating all the functions from warehousing to
distribution, front and back office store systems and merchandising. An
integrated supply chain helps the retailer in maintaining his stocks,
getting his supplies on time, preventing stock outs and thus reducing
his costs, while servicing the customer better.

CRM system
The rise of loyalty programs, mail order and Internet has
provided retailers with real access to consumer data. Data
warehousing & mining technologies offers retailers the tools they need
to make sense of their consumer data and apply into business. This,
along with the various available CRM systems, allows the retailers to
study the purchase behavior of consumers in detail and grow the value
of individual consumers to their business.

Advanced Planning and Scheduling Systems

APS systems can provide improved control across the supply
chain, all the way from raw materials suppliers’ right through to retail
shelf. These APS packages complement existing (but often limited) ERP
packages. They enable consolidation of activities such as long term
budgeting, monthly forecasting, weekly factory scheduling and daily
distribution scheduling into one overall planning process using a single
set of data.

Strategic Decision Support System

Store Site Location
Demographics and buying patterns of residents of an area can
be used to compare various possible sites for opening new stores.
Today, software packages are helping retailers not only in their
location decisions but in decisions regarding store sizing and floor-
spaces as well.

Visual Merchandising
The decision on how to place & stack items in a store is no more
taken on the gut feel of the store manager. A large number of visual
merchandising tools are available to him to evaluate the impact of his
stacking options. The SPACEMAN Store Suit from AC Neilson and
ModaCAD are example of products helping in modeling a retail store
design.

E-Commerce
E-commerce in India ha almost doubled in size in the last few
years, despite of relatively low Internet penetration of 15%. The
number of Internet users grew from 5 million in 2000 to 16.6 million by
the end of 2002, a rise of 232% over a span of just 2 years. In 2003-04,
B2C (Business to Consumer) turnover was up by 76% from the
previous year.

The cost savings global giants could achieve, may be in procurement,

supply chain, distribution, retention of customers, reducing least
expenses per customers per sale, has been achieved though optimum
use of technology and IT.
 CRM (Customer Relationship Management)
CRM implies way of differentiation between customers to provide
greater value to more valuable customers in terms of the monetary
spending received from the customer and frequency of visit. Customer
relationship management as a transactional exchange helps the
marketer to understand the customer's sentiments and buying habits
so that the customer can be provided with products and services
before he starts demanding them. Expectations of customer is
increasing, he asks for more and more value for the same price, and
whoever provides him increasing value for money, he buys products
from that marketer. A shopper always wants to feel that he is an
important person and more so when he enters a known retail outlet
with his guests or relatives.

A successful and effective CRM programme results in increase of

Customers Lifetime Value for the store. A good CRM Strategy should
focus on: Building dynamic relationship with the customer, making
CRM the key element to building customer loyalty to a store brand and
to build a significant competitive advantage. This is possible through
the integration of four important components i.e. people, process,
technology and data.
Effective Customer Relationship Management (CRM) translates to
increased Customer Lifetime Value (CLV)

Pareto's Principle talks about generating 80% of sales from 20% of the
customers, which can be identified through data mining. The variety of
activities together play an important role in bringing repeat customers
and in turn generating positive word of mouth to also increase new
footfalls into the store.

Let's understand the kind of CRM programme offered by some of the

lifestyle retailers having a national presence to lure its customers:

Pantaloons
Known as the ‘Green Card' it is divided hierarchically into One star,
Three star and Five star. Every point generated at all the levels is
equivalent to Rs.1
Criteria for points generation are:
Upto 399 points – One Star – 1 point for Rs.50
400 or more additional points - Three star - 1 point for Rs.40
800 or more additional points – Five star - 1 point for Rs.25
It also stays in touch with its loyal customers through Mailers, SMSes E-
mails and Telephone informing them about the developments and
promotions.

Shoppers Stop
Known as the ‘First Citizen Card'
Classic Moments – Earn 1 Reward Point for every Rs.100
purchased.
Silver Edge - Earn 1 Reward Point for every Rs.50 purchased.
Golden Glow - Earn 1 Reward Point for every Rs.34 purchased.
Every point generated at all the levels is equivalent to Rs.1
It has a special scheme wherein it offers private label reward points to
its silver edge and golden glow members.
Lifestyle
Known as the ‘The Inner Circle'
For every Rs.50 spent at any of the stores, 1 point is earned.
For every 100 points earned, gift voucher of Rs.100 is received

Westside
Known as ‘Club West'
It offers Classic and Gold membership
Offers 25 and 50 as the bonus points to Classic and Gold
members
Classic - For every Rs.50 spent at any of the stores, 1 point is
earned.
 Gold - For every Rs.40 spent at any of the stores, 1 point is
earned.

Piramyd Megastore
Known as the ‘Piramyd Power Club'
It offers Silver, Gold and Platinum cards.
There are discount % which is offered on both Piramyd Store and its
supermarket. As one moves from Silver to Gold the discount percent
also increases. Piramyd Power Points are offered on all purchases.
Silver, Gold and Platinum are awarded 1 point on every Rs. 80/-, Rs.
60/- and Rs. 40/- spent respectively.

Globus
Known as the Privilege Club card
An enhanced version with larger offerings is the ‘Gold Card'
The monetary benefits which it offers is a holiday package depending
upon the amount spent. The larger the spending higher is the value of
the gift.

Tangible and Intangible Benefits together translates in brand loyalty

The Tangible Value

I. Discounts, Offers, Promotions, Payback
There are regular discounts offered by a store either as a special
scheme, yearly sale discount, mark down discount etc. Over and
above such schemes when a store offers additional offer to certain
customers selected on certain specific criteria that would become
a part of a CRM initiative.
Promotion would indicate stress on any or a group of products for
its maximum sale. These are footfall drivers to the store and store
keeps on launching some or the other promotion schemes from
time to time.
Payback can be linked to the parking fee. There are some stores
and malls which charge a token fee for vehicle parking; however
the same is reimbursed against any purchase (as specified) at the
store.

II. Loyalty point redemption system: The loyalty points earned by the
customers can be reimbursed any time after minimum specific
points are generated by the customer.

III. Card Upgradation: The loyal customers are generally automatically

upgraded as per the purchase habits and number of points
generated.
 IV. Exclusive offers: These are offers either designed for the loyal
customers to make them come back or may even be designed for
all to showcase and differentiate their offerings from that of the
competitors.

V. Exclusive Invites to get-togethers and events: These are

invitations meant for loyal customers to make them feel special.
Lot of times customers are invited when any celebrity comes to
the store for any new launch at the store. Or these may be
invitations sent to customers for any event happening in their city
or town.

VI. Differentiated offers (linked to behavior): These are offers which

are linked to behaviour of any particular set of customers
depending upon a mix of their demographics and previous
purchase habits. Lot of times product bundling is done as per the
area where the store is located since it catches a specific
catchment area.
Special movie shows
Free home delivery of altered merchandise
Birthday and anniversary greetings

VII. Recommendations: The customers are invited to provide their

suggestions and recommendations for improvement of their
shopping experience.

VIII. External offers: This would mean a retail store offering another
discount coupon or some freebie which is connected to a different
brand. For e.g. Pantaloons store offering a discount to any
merchandise purchased from Liberty.

IX. Reserved Car Parking

Offering them space for car parking is like inviting people with
arms wide open. The reason for this is the increasing
inconvenience customers face to shop on weekends due to non-
availability of parking when the stores are huge crowd pullers.

X. Special Counters
To facilitate and serve the loyal customers better, stores designate
special counters both for cash and customer service so that the
premium customers can be attended with ease.

The Intangible Value

The Emotional Connect

This implies the homeliness aspect which the customer feels for the
time he/she spends inside the store. It is the inner feeling which they
develop for the store. The reasons for visiting may not always be
purchase, however if emotional connect is developed with the store
then as and when need arises the stores enjoy top of the mind recall
from the customers. The emotional connect coupled with strong
functional value creates a long lasting relationship with the customer

ONLINE RETAIL
The segment of online shoppers has increased dramatically in recent
years due to the convenience of shopping in the comforts of the home
and the accessibility of the Internet. The firm can offer online shopping
services and partnership opportunities. The products that they can sell
include an array of audio, video and book titles, greeting cards, online
auction, toys, electronics, health info, grocery, sports items, pets,
software, magazines, prints, posters.

New Entrants
There are different barriers such as distributing capabilities and the
variety of the selection offered that are supposed to be hurdled. One
can pioneer on first mover advantage. Solution: A network of "actual"
retail spaces to make it easier for the consumer to return or exchange
the products they were not satisfied with it.

Buyers
Consumers also tend to compare prices among the retail leaders such
that buyers are able to buy products with very big discounts compared
to ones bought in "actual" retail outlets. The bargaining power of the
consumer is based on the competitive strategies of each active firm in
the industry.

Life Cycle
Initially the industry had shown negative income due to the high
distribution costs, but with the popularity of the concept and consumer
acceptability gives the operating system more flexibility. Costs
constraints are taken care by the sales volume. Amazon, in its first
years, had negative income but the rise of e-commerce sites and being
the pioneer made the succeeding years led to boom time for them.
With the entire industry flourishing, we see heavy investments being
made to take care of the initial cost issues.
Degree of Vertical Integration
Retail firm’s primary value chain includes purchasing/sourcing,
marketing, distribution and after-sales services, which includes returns
and exchanges from unsatisfied customers. Their main focus is in the
purchasing/sourcing and in the distribution of the products to the
consumers. Their investments are therefore, geared towards
warehouses in key points of high consumer demand areas and an
efficient delivery and distributing system to service all its consumers.

Dynamics of New Knowledge Generation

Online retailing relies on the work of an excellent distribution system.
Heavy investments are required for expanding their network of
distribution centers; even the timing of the investments makes a heavy
impact. They also have investments in creating better technology for
tracking orders and giving efficient delivery systems for their
customers.

For any company into online retailing, to remain prosperous and

income generating, they must invest a lot of time and money into
research and development of more efficient operations and
distributions systems. They should aim to be a Cost leader in which
their firm has lower costs than the competitors.

Key areas
wide selections
international shipping
An all around online shopping experience
Ability to go to store location to exchange or return
products.
Brand name
Competitive parameters: discount schemes, faster
delivery, quality, selection base
An established selection base in the retail operations
Scope for globalization
Low government regulations on online retail
Alliances with the local products
Highly sensitive business cycle due to speed of technology
involved in the services offered
Venturing in retail options
Hurdle: need to touch and feel the product before purchase
Marketing, Innovative inventory and distribution systems,
and brand recall
 PRE-MARKETING ACTIVITIES
Consumers today have a growing choice of shopping destination which
includes freestanding stores, retail parks, malls, specialty and festival
centers, and ancillary retailing, as well as an increasing variety of
home shopping by mail, computer, television and telephone. Shopping
centers can no longer rely on a captive market, and there is an
increasing need for centers to compete and to market themselves
effectively.

Definition of “shopping centers” focus on their fundamental differences

compared to traditional high street retail locations – i.e. planned
developments that are managed and marketed as a unified whole.
Often implicit is the suggestion that shopping centers are coherently
and proactively marketed, and that centers typically have a strong
marketing profile. However, many studies have pointed out the
noticeable lack of marketing orientation among shopping centers.
There is also confusion as to what marketing actually means in the
context of shopping centers.

The marketing task for managed shopping centers may be viewed as

offering of a service for targeted consumers to gain convenient access
to a desirable mix of retailers within the managed environment that
provides a satisfying and safe shopping and leisure experience. This
definition differentiates “managed shopping centers”. The marketing
task for shopping centers includes major decisions to be made prior to
the opening of the center – relating to design of the center, location
and market positioning.

There exist a range of studies on the design and development process,

center success and failure factors, occupancy dynamics, and
discussions on particular aspects of shopping center management such
as tenant relationships and their implications for management.
However, little research has been undertaken on the marketing issues
with respect to shopping centers.
The current research addresses the issue of understanding the
shopper’s needs and shopping behavior, so that shopping center
managers can meet today’s market challenges effectively. A detailed
study about factors such as respondents’ demographic attributes,
shopping motivations, situational factors and purchase behaviors has
to be undertaken. It should address the issue of how mall scan
leverage their particular strength and compete more effectively by
adjusting their strategies in the face of competition. Malls need to
position themselves distinctively and develop appropriate marketing
strategies by aligning their marketing mix with their desired
positioning.

TRADING AREA ANALYSIS

A trading area is a geographic area containing the customers of a
particular firm or group of firms for specific goods or services. This
analysis helps you understand
Importance of store location for a retailer and outlines the process
for choosing a store location
Concept of a trading area and its related components
Delineating trading areas for existing and new stores
Examine three major factors in trading-area analysis
o Population characteristics
o Economic base characteristics
o Competition and level of saturation
Opportunity to determine focus of promotional activities; review
media coverage patterns
Assessment of effects of trading area overlap, whether chain’s
competitors will open nearby
Discovery of ideal number of outlets, geographic weaknesses

Criteria to consider while deciding the store location include

population size and traits
competition, nature of nearby stores
transportation access
parking availability
property costs
length of agreement
legal restrictions

Choosing a Store Location

Step 1: Evaluate alternate geographic (trading) areas in terms of
residents and existing retailers
Step 2: Determine whether to locate as an isolated store or in a
planned shopping center
Step 3: Select the location type
Step 4: Analyze alternate sites contained in the specific retail location
type

The Trading Areas of Current and Proposed Outlets

GIS Software
Geographic Information Systems digitized mapping with key locational
data to graphically depict trading-area characteristics such as
 population demographics
 data on customer purchases
 listings of current, proposed, and competitor locations

The Size and Shape of Trading Areas

Primary trading area - 50-80% of a store’s customers
Secondary trading area - 15-25% of a store’s customers
Fringe trading area - all remaining customers

Destinations versus Parasites

• Destination stores have a better assortment, better promotion,
and/or better image. It generates a trading area much larger
than that of its competitors
• Parasite stores do not create their own traffic and have no real
trading area of their own. These stores depend on people who
are drawn to area for other reasons

Trading Areas and Store Type

Largest Hyper Markets

Department stores

TRADING Supermarkets
AREAS
Apparel stores

Gift stores

Smallest Convenience stores

The Trading Area of a New Store
Different tools must be used when an area must be evaluated in terms
of opportunities rather than current patronage and traffic patterns
– Trend analysis
– Consumer surveys
– Computerized trading area analysis models

Limitations of Reilly’s Law

– Distance is only measured by major thoroughfares; some people
will travel shorter distances along cross streets
– Travel time does not reflect distance traveled. Many people are
more concerned with time traveled than with distance
– Actual distance may not correspond with perceptions of distance

Huff’s Law
Huff’s law of shopper attraction delineates trading areas on the basis
of product assortment (of the items desired by the consumer) carried
at various shopping locations, travel times from the shopper’s home to
alternative locations, and the sensitivity of the kind of shopping to
travel time.

Chief Factors to Consider in Evaluating Retail Trading Areas

Population Size and Characteristics
• Total size and density
• Age distribution
• Average educational level
• Percentage of residents owning homes
• Total disposable income
• Per capita disposable income
• Occupation distribution
• Trends

Availability of Labor (Management & Clerical)

Closeness to Sources of Supply

• Delivery costs
• Timeliness
• Number of manufacturers
• Number of wholesalers
• Availability of product lines
• Reliability of product lines

Economic Base
 • Dominant industry
• Extent of diversification
• Growth projections
• Freedom from economic and seasonal fluctuations
• Availability of credit and financial facilities

Competitive Situation
• Number and size of existing competition
• Evaluation of competitor strengths and weaknesses
• Short-run and long-run outlook
• Level of saturation

Availability of Store Locations

• Number and type of store locations
• Access to transportation
• Owning versus leasing opportunities
• Zoning restrictions
• Costs

Regulations (Taxes, Licensing, Zoning, Operations, etc.)

BRANDING
In the race to achieve sustainable competitive advantage within a
saturated marketplace, mall branding has become a high priority for
shopping centre operators. The emphasis on creating unique brands is
a decisive development in the evolution of planned shopping centers.
Retailer branding considers shopping centre branding from the
viewpoint of image and attractiveness attributes, which is derived from
the practice of shopping centre operators to cluster similar retailers
into shopping ‘precincts’. For example, food retailers could be grouped
and marketed as a “Food Hall” precinct. These shopping precincts
often assume unique sub-brands, which exist within the bigger picture
of the shopping centre brand.

A key determinant of the shopping centre brand is the strategic

marketing of a collection of sub-branded precincts. A conceptual model
of mall and precinct branding outlines potential relationships between
the shopping mall brand, the tenant mix and individual retailers.

Current practice shows that most mall operators use the brand name
and logo of the property developer to create brand recognition across
a portfolio of centers. However, this approach misses the point
because it fails to recognize that a brand embodies much more than
name and a logo

The sustainable value of a shopping mall brand is in the creation of

meaningful experiences and the substantiation of internal and external
relationships. Shopping mall developers create a unique mall brand by
establishing tenant mix largely determines the image of a shopping
centre.

Category management theory, usually focused on product categories,

can be adapted for the strategic marketing management of multiple
retailers within the sub-branded precinct.

‘Image’ and ‘attractiveness’ are the terms used to describe intangible

benefits of shopping centers.

Retail categories, which classify a retailer according to the type of

product or service, are important in determining the optimal tenant
mix, and create a ‘center’s micro-retailing environment’. The use of
categories to determine optimal tenant mix also increases traffic, and
ultimately increases the pull-power of a particular category of
merchandise.

The strategic clustering of competing retailers with large mall

operators leads to rearranging tenants into clusters of similar stores.
The intuitive use of ‘clustering’ in shopping malls further strengthens
the argument of creating sub-branded precincts, which reinforces the
shopping centre brand.

One major focus is on supermarkets, where the effective use of

category management principles has achieved many objectives such
as increased profitability, revenue and an optimal product mix. Product
categories are complementary groupings of merchandise here there
exists “…reasonable substitutes and …complementary products… with
differences being forged by criteria such as product brand, flavour,
colour variation, product quality and price level.” “…category
management is a philosophy, a process and an organizational concept”
category management “…aims to optimize the range of products
stocked in store, and the efficiency of promotions, new product
introductions and product replenishment.”
Conceptual Model

The conceptual model shows the potential relationships between the

over-arching shopping mall brand and the sub-branded precincts. It is
proposed that sub-branded precincts contribute to operationalising the
shopping mall brand as perceived by customers and other
stakeholders (internal and external). The result is a strategic emphasis
on the role of retailers (goods and services) within defined locational
areas which is consistent with the generic branding strategy.

The primary goal is achieving an effective shopping mall brand. The

conceptual model suggests that the brand can be supported and
implemented through multiple precincts. Within each precinct there
are multiple retailers. These retailers must be categorically managed in
a way that reinforces the unique precinct brand. The precinct brand
communicates to consumers what they can expect in terms of specific
merchandise. Mall operators have strategic control over the precinct,
which can be manipulated, just like the retail mix, in order to create a
unique brand. Additionally, shopping mall operators may be able to
develop a precinct portfolio, which increasingly enhances the strategic
control of shopping mall marketers.

More effective precinct branding will increase consumer perceptions of

their precinct experience and of the overall shopping mall brand. It
would enhance the understanding the relationships between the
shopping mall and its stakeholders.

GROWTH STRATEGIES
With overall growth of the retail industry generally reflecting
population growth rates, meeting the financial markets expectations of
growth is a major challenge facing every retail CEO across the globe.
However the rewards from actual intrinsic growth are huge, as studies
have shown that the market values incremental profit dollars that are
earned from revenue growth 30% to 100% higher than those earned
from cost reduction.

Customer Relationship Management – Rising consumer expectations,

multiple communication channels and cross-enterprise collaboration
are raising the bar on customer management. Growth is as much
about retaining existing customers as it is about gaining new ones.

Business Intelligence – In information driven economy the advantage

goes to the retailer that can acquire, analyze and act on information
faster than its competitors. This “intelligence-execution” capability is
the reason that the top retailers of today are in their position, and the
top retailers of yesterday have departed: develop knowledge
management systems, document management systems, data
warehouses and executive information systems to help clients
understand their unique competitive advantages.

Business Integration – Acquisitions enable retailers to enter new

markets and add new channels much more quickly than internal
development. However, acquisition premiums demand that acquiring
companies quickly extract cost reductions and attain operating
synergies with no loss in market share. The difficulties of integrating
disparate information systems and corporate cultures are frequently
underestimated.

Retail Logistics

Trade-offs between cost & service, and changing business needs, e.g.
new selling channels mount pressure on logistics operations.
Warehouse Management Systems (WMS) and Event Management
deployment, distribution network design, development and
deployment of RFID solutions within retail and operational process
optimization are few methods to improvise on the existing systems to
gain the following;

Improved operational performance

Improved customer service-levels
Increased on-shelf availability
Improved inventory management processes
Greater responsiveness to business change
Effective Supplier Relationship Management

Operational Excellence

In today’s competitive, low-inflation environment every corporate

resource must be focused on adding value for the customer. Business
strategies that will defeat the competition must be supported by
excellence in execution at every touch-point. Whether the business
strategy is to win through customer intimacy, through product/service
innovation or through low prices, the enterprise’s business processes
must consistently meet the customer’s requirements with the most
effective use of resources.

Reengineering reorganizes work around customer-focused business

processes supported by tools and technologies to get work done most
effectively and efficiently. Reengineering results in Operational
Excellence in the core business processes on both the demand
creation and demand fulfillment side.
Merchandise Flow Management (MFM) – Today’s retailers will not thrive
simply by "buying low and selling high." This is because there are
many costs beyond the purchase cost which influence the total
Corporate Profitability equation. In order to maximize total company
results, retail buyers and category managers must be able to juggle a
large number of costs - transportation, distribution, receiving,
advertising, store operations, staffing - even manufacturer purchase
terms, in order to efficiently support corporate profitability. MFM
analytical process is a proven tool for retailers to evaluate these
seemingly disparate costs in a consistent framework, producing profit-
maximizing results.

Organizational Effectiveness - Contrary to many retailers’ corporate

experience, organizational design and performance evaluation metrics
can be altered to reflect new realities and newly emerging business
needs. While only a few retailers have begun to experiment with direct
consumer responsibilities in a position that some are calling
"Consumer Community Manager," many retailers have yet to create
organizations which maximize their Inventory Management
effectiveness. Fewer still those who have strayed from the traditional
measures of Gross Margin and monthly Turnover.

Private Label Manufacturing – Many retailers are reevaluating their

private label manufacturing operations, including bakery, diary and
others, choosing to source some manufactured products from contract
manufacturers while maximizing the efficient utilization of their
retained manufacturing assets. Manufacturing services help clients
determine the optimum configuration of manufacturing assets
(internal, contract, outsourced) and implement manufacturing control
and execution systems (MES) to maximize quality and productivity
levels in owned manufacturing facilities.

Fulfillment – Retailers have seen dramatic changes in fulfillment

operations in the last decade. Many retailers that were formerly only in
the Brick and Mortar world have taken on new tasks like packing and
shipping individual customer orders in their own distribution facilities.
Consumer expectations for order cycle time and service levels are
extremely high, requiring significant changes in processes and
procedures. Fulfillment services helps clients develop their fulfillment
strategy, design and implement processes and select and install
systems for order management and warehouse management.

Trade Promotion Optimization

Understanding the impact of promotional activity in the marketplace

has been a well-documented challenge for the Consumer Product
Goods (CPG) industry for over 100 years. The marketplace continues to
grow more complex in terms of the number of factors impacting
promotional activity. Additionally, the types of venues in with
consumer goods are available also continues to grow.
These trends have made the understanding of the impact of
promotions more difficult for a CPG company. Yet more than ever, such
understanding is vital to their success.

• More effectively spent trade promotional funds

• Enhanced negotiation position with retailers regarding
promotional and marketing initiatives
• Increased business insights regarding product performance on a
granular level by retailer and/or market
• Ability to have an aligned marketing, trade and sales strategy by
retailer and account

It can be achieved as follows;

• Executed Proof of Concept within your business environment

• Determination of both short and long term business
requirements
• Development of the business case
• Modeling process enhancement
• Solution integration with other systems
• Deployment including organizational change management
support

Supply Chain Diagnostic

Determine a strategy for demand planning, forecasting and

replenishment.

To achieve:

Better responsiveness to customer's need

Improved availability driving sales
Reduced exposure to margin erosion
New product ranges quicker to market
Lower levels of stock providing more space
Release of stock holding capital
More effective promotions