Académique Documents
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- Subir Guha
What Is Retailing?
Retailing is defined as a conclusive set of
activities or steps used to sell products or
services to consumers.
Retailer is the one who links the
producers and the ultimate consumers.
The word retail is derived from the
French word retallier , meaning to cut a
piece off or to break bulk.
Retailing is buying in large quantity from
a whole seller or directly from a
manufacturer and selling the goods/
services to consumer for personal
consumption.
Manufacturer
Retailer
Consumer
IMPORTANT CHARACTERISTICS OF
ORGANISED RETAIL BUSINESS
Positive characteristics
1. Choice of wide range from small (500 sq ft)
to very big (hyper market >1,00,000 sq. ft)
- Variety of business (products very large
(food items- restaurants/textile garments)
2. Franchisee option / own retail store choice.
3. Easy mobility because the principle and
concepts are the same everywhere.
4. People oriented industry.
5. Fairly stable and secure business many
retail businesses are least affected by
recession in the economy (like food).
RETAILING IN INDIA
Retailing in India is one of the significant
contributors to the Indian economy and accounts
for about 10% of the GDP and employment of
around 8%.
It is expected to grow at a rate of 25% because
rising income, changing lifestyle and
demographic patterns.
However this sector is in a highly fragmented
state as per estimates over 12 million outlets
operate in the country. But only 4% of these are
larger than 500 Sq ft in size.
As against 12 million outlets in India there are
only one million in USA but it caters to a retail
market which is almost 12 times larger.
Per capita retail space in India is 2 sq ft where as
in USA it is 16 sq ft.
RETAILING IN INDIA
The retail sale was around $380 billion in 2008,
compared to $300 billion on 2007. According to a
study by the Associated Chambers of Commerce
and Industry (ASSOCHAM), year-on-year growth
will remain between 30-35% and is likely to reach
more than $450 billion by the end of 2010.
IT IS DISTRIBUTED AS FOLLOWS:
Food & Grocery. 77%
Clothes 7%
Durables. 4%
Health & Beauty 2%
Home furnishing 2%
Medical services 2%
Books & Music.. 1%
Footwear 1%
Retailing Concept
Retail strategy
A retail strategy identifies the following:
The target market the segment of the
market the retailer wants to focus on.
The retail format which represents the retail
mix which comprises of the merchandise/
services, pricing policy, advertising/
promotion programme, location, store design/
visual merchandise. The retail mix must be
directed towards the needs of the customer.
A sustainable competitive advantage which
enables the retailer to have an edge over its
competition with a futuristic approach.
Wheel of retailing
Wheel of retailing is
a hypothesis of M.P.
McNair explaining
the patterns of
change in retailing.
The hypothesis is
that new types of
retailers cut prices
by lowering or
eliminating
customer services,
but once
established they
increase prices and
customer services
and so become
vulnerable
themselves to new,
low-price retailers.
Wheel of retailing
The wheel of retailing is based on four principles:
1. There are shoppers who are very price sensitive
they do not mind compromising on customer
services, wide selection and convenient location
for the sake of buying at lower prices.
2. Price sensitive shoppers are not loyal. They switch
to retailers with lower prices.
3. New retailers often have lower operating costs
than existing retailers
4. Retailers move up the wheel in order to increase
sales, widen the target market and to enhance
their image.
Although the wheel theory was formulated with respect
to the evolution of retailing institutions is the US, it has
been observed to hold good in awide variety of
national settings.
Scrambled merchandising
Scrambled merchandising is offering of merchandises which
are not typically associated with the store type, such as
clothing, cosmetics in a drug store or belts, hats, T shirts in a
shoe store.
There is a tendency on the part of retailers to increase their
width of assortment. Scrambled merchandising takes place
when a retailer adds goods and services that may be
unrelated to each other and to the retailers original business.
Scrambled merchandising is resorted to because of several
reasons : retailer wants to revenues (fast selling or highly profitable
goods are added)
customers make more impulse purchases
customers like one stop shopping
different target markets can be addressed.
impact of seasonality is reduced.
To
To
To
To
To
2. Receiving merchandise:
employees
Orientation and training of store employees
Motivating and managing the store
employees
Evaluating store employees and providing
feedback
Rewarding and compensating the store
employees
Job analysis
Locating prospective candidates
Screening applicants ( short listing) to interview
Selecting applicants
employees
Selecting Applicants: Personal interview is carried out
for this. The following needs to be done:
Maintaining morale
Following helps help in maintaining morale:
Daily meeting on daily basis before opening of
the store.
Educate the employees regarding firms
finances, set realistic goals, celebrate
achievement of goals.
Make employees important by displaying their
names on the jobs they have done.
Multiple shifts
Use of part time workers for 12 hrs and 7 days in a week
Variation in customer traffic during the day and week
Normal shopping patterns, hence the requirement of
staffs/ workers, are affected due to weather, holidays and
sales promotions.
Employee training:
They should be trained to be observant, alert and visible.
Possible shoplifters should feel that employees are around.
Security measures:
Closed circuit TV some live and some dummy. Live CCTVs are
expensive so sometimes dummies ( non operating equipments
looking like TV cameras) are put in places to deter shoplifting.
Chaining expensive merchandise so that they can not be
removed by customers.
Placing Convex mirrors in proper positions so that a wide range
of area can be viewed with the help of the mirror.
EAS (Electronic article surveillance) systems is a method that can
be adopted to prevent shoplifting. In this system merchandises
have special tags placed in them. These are removed while
purchases are made. When a shoplifter tries to pass a detection
device at the exit, an alarm is activated.
Presence of guards, mirrors, CCTV can be an unpleasant
experience for shoppers. But EAS is a good method because it is
inconspicuous so it does not make the customers uncomfortable
and shopping experience unpleasant.
Prosecution:
Many retailers believe that prosecuting shoplifters is a good
deterrent.
Stores Design
Stores design plays a very important role in
retail strategy because it :
Stores Design
Stores Design
It considers Costs Vs Value:
The costs associated with store design should be
commensurate with the value received in terms of
higher sales and profit. Design should be cost
effective in terms of space utilisation.
It has flexibility:
This is required to make periodic changes in plan or
to give the store a new and fresh look. Flexibility can
be incorporated by having modular designs so that
the store components can be easily moved and the
store components can be modified. As merchandise
mix changes the design needs to changed so
flexibility is very desirable property of store design.
-
Atmospherics
Atmospherics is the store's physical characteristics
that are used to develop a retail unit image and
draw customers.
Atmospherics
Four key components of atmospherics:
1.Exterior atmospherics
2. Interior atmospherics
3. Store layout
4. Visual merchandising
Exterior Atmospherics
Exterior atmospherics
All aspects of the physical
environment found outside
the store are external
atmospherics
This significantly affects store
traffic and sales
Elements of Exterior
atmospherics are:
Storefront
Marquee ( it is the sign that
displays the stores name)
Visibility
Entrances
Unique building design
Surroundings of the store
Interior atmospherics
Interior Atmospherics:
Interior atmospherics refers to
all aspects of physical
environment found inside the
store
Key ingredients of interior
atmospherics are flooring, walls,
Lighting, colour, music, scents,
store fixture design, paintings
and level of cleanliness
This affects sales, time spent by
the customer in the store, and
approach/avoidance behavior of
the target segment
The quality of interaction with
the store personnel influences
interior atmosphere.
Store Layout
Store layout:
It is the interior retail store arrangement of
departments or groupings of merchandise.
It is the physical organization of astorethat creates
specifictrafficpatterns, assists in the presentation of
merchandise, and helps to create a particular
atmosphere.
Efficient store layout pays adequate attention to
- the expected movement of the customers
visiting the store
- space allotted to customers to shop
- adequate facilities for merchandise display
Customer friendly store layouts motivate shoppers to
move around the store and shop more than what they
had planned
Store Layout
Logical sequencing and category adjacency is
essential in planning store layout
Store layout planning involves decisions about
allocation of floor space, product groupings, and
nature of traffic flow
Store Layout
Types of retail store layout:
Grid layout
Race track layout
Free form layout
Store Layout
Grid Layout
It is a layout or arrangement
in which the retailer arranges
the merchandise in gondolas
or racks. This type of layout
helps the customer to easily
locate the merchandise.
Grid layout is generally
found in grocery stores,
discount stores, drug stores
Its characteristics are:
Long gondolas in repetitive
pattern.
Easy to locate merchandise
Does not encourage
customers to explore store
Allows more merchandise
to be displayed
Cost efficient
Store Layout
Advantages of Grid layout
Low cost
Customer familiarity
Merchandise exposure
Ease of cleaning
Simplified security
Possibility of self- service
Store Layout
Race Track Layout
Its a type of store layout that provides major aisle to
facilitate costumer traffic.
Different departments are allotted separate space. So
it is also called shop-in-shop layout. It provides easy
accessibility to all the department of the store.
This type of layout is adopted by departmental stores.
The objective of the design is to get the customer to
visit multiple stores
Different departments generally distinguish
themselves by distinctive decor and carpet flooring.
The entire layout of the retail layout is done in such a
way that a customer can view many shops standing
in a particular position.
It increases impulse purchase.
Store Layout
Race track layout has a loop with a major aisle that has access
to departments and stores multiple entrances.
Draws customers around the store.
Advantages are that 1. Facilitate customer traffic.2. Easy
accessibility to all departments. 3. Encourages impulse buying.
Disadvantage is that it requires large space.
Store Layout
Free Form Layout
Fixtures and aisles
arranged
asymmetrically.
Pleasant relaxing
ambiance doesnt
come cheap.
Abundant open space
with select furniture
and fixtures.
Inefficient use of
space.
More susceptible to
shoplifting
salespeople can not
view adjacent spaces.
Used in specialty
stores and upscale
department stores.
Store Layout
Advantages
Allowance for
browsing &
wandering freely
Increased impulse
purchase
Visual appeal
Flexibility
Disadvantages
Encourages
loitering
Possible confusion
Waste of floor space
Cost
Difficulty of
cleanliness
Space Planning
Space Planning:
Space Planning
Types of spaces generally required in stores:
Back room
Office & functional spaces
Wall merchandising space
Floor merchandising space
Aisles, service areas & other non selling area of the
main sales floor.
Visual Merchandising
Visual merchandising:
Visual merchandising or display is the
presentation of products in order to sell them
Key aspects: store floor plan, store windows,
signs, merchandise display, space design,
fixtures and hardware
It goes beyond merely arranging merchandise
for easy access to customers.
Process is set in motion with designing the
floor plan of the store, placing of mannequins,
etc,.
Visual Merchandising
Popular presentation techniques are:
Visual merchandising innovative shelving
Category wise presentation - logical display
Tonnage merchandising large quantities displayed
to give an impression of bargain sale.
Exclusive displays of high return items like watches,
jewellary etc.
Impulse purchase location is important Eg: check
out areas, area near cash counters display items
like batteries, news papers, chocolates, chips etc.
Live setting presentations like mannequins,
furniture setting displays.
Promotion areas attract customers so, often they
are kept at the end of departmental stores.
Definition of Merchandise
Management
Planning and implementation of the acquisition,
handling and monitoring of merchandise categories for
an identified retail organisation.
The definition highlights that following activities are
covered under the ambit of merchandising management :
Forward planning to cater to the changing consumption
tastes and demand related to the merchandise.
Effective acquisition of the merchandise from either the
wholesalers or manufacturers.
Appropriate handling of merchandise in order to ensure
that the merchandise can be sold in perfect condition.
Monitoring all aspects of the process to ensure that the
merchandise is available at the places, times, prices
and in the quantity that enable the retailer to achieve
adequate returns from the buying of the merchandise.
Merchandise planning
Devising a sound merchandise planning is
crucial for success because:
A retail outlet can be of exceptional design,
located most strategically, backed up by the
shrewdest marketing promotion and
manned by the most efficient sales team
but if it does not have the right items at the
right time, at the right price, then it is
heading for a sure failure.
The rapidly changing consumer demand
makes merchandise planning activity all the
more challenging.
It can be a profitable business proposition
only if it buys the merchandise in a planned
and efficient manner.
Merchandise planning
General considerations for a merchandising plan :
1. Market considerations: Store and image, format,
environment, fashion trends, customer base etc.
2. Merchandise strategy options: Assortment profiles and
issues of choice (width and depth), quality, exclusivity,
seasonality of range, estimated cost, promotions.
3. Type of customer base: Items and range purchased,
average transaction value for different lines, frequency of
visits and purchases.
4. Financial considerations: Profitability and sales
performance projections, stock investment/ return, type
of contract and payment terms, corporate objectives and
pricing.
5. Merchandise assortment evaluation: Ensuring
merchandise meets criteria of : required range, cost, price
range , brand policy, availability, delivery, financial returns
.
Merchandise planning
devising the merchandising plan following
While
aspects are to be kept in mind :
Forecasting.
needs to be done.
Innovativeness is essential.
Assortment to be determined keeping the needs
of the target segment in mind
Brands
- of the products should be aligned to
Forecasting:
Merchandise planning
While forecasting, it is necessary to take into account
Merchandise planning
Innovativeness :
Merchandise planning
- Amount of investment ( additional personnel,
specific training requirements, new accessories/
fixtures) required in introducing the new item.
- What is the overall and specific items potential
profit?
- What are the involved risks ( investment cost,
opportunity costs of not having the item,
possibility of damage of image if the item fails)?
The growth potential of a product can be determined
by studying the product life cycle. PLC has four
stages with different characteristics 1.Introduction
2.Growth 3.Maturity 4.Decline.
While introducing new products/ items in
merchandise mix decisions regarding dropping/
eliminating existing items becomes necessary due to
constraint of shelf space and other resources. The
elimination of items should also be logically and
rationally done.
Merchandise planning
Assortment :
Merchandise planning
Important criteria for selecting a particular item are:
- must match the other items in the assortment.
- profitability
- good enough demand.
- speed of movement ( fast/medium/slow moving)
- must match the stores image.
- potential to generate traffic.
- popularity of the product/ brand.
- profitability of the item.
The sources of information regarding item selection are
- competition
- customers
- vendors
- publications
- trade shows
Merchandise planning
Brands :
Merchandise planning
Timing:
A merchandiser must determine when each item is
to be stocked. For new goods he has to decide as
to when they should be first displayed and sold. For
established goods he has to plan the merchandise
flow during the year. Stock turnover greatly
influences the frequency of ordering.
Allocation:
A single unit retailer has to decide how much of
merchandise is to be placed on the floor, how
much is to be kept in stock-room and whether to
use a ware house. A retail chain has to also decide
on allocating items among the retail stores/ outlets
it has.
Quality of merchandise.
Price and terms of supply of the merchandise.
Vendors reputation and capacity.
Location of the vendor.
Record of timeliness and consistency of supplies.
Authorised source or not.
Response to emergencies.
Prices.
Quantity discounts.
Credit terms.
Timely delivery late delivery clauses.
Transport cost who should bear it ?
Transit insurance cost will be borne by whom?
Exclusivity clause and or sharing of advertising costs.
Issues related to rejections and complaints.
Placement of orders:
Retailer-supplier relationship
development
While dealing with its suppliers, a retailer can adopt
two types approaches :
1. Transactional approach
2. Partnership approach.
The characteristics of Transactional approach
are:
Retailer-supplier relationship
development
The characteristics of a partnership approach
are:
Long term and ongoing .
Few suppliers.
Loyalty and commitment.
High switching costs, significant investments are made
on the partnership.
Strict procedural guidelines.
Many people and departments involved in exchanges.
Change in customer/supplier causes disruption.
Retailer-supplier relationship
development
To achieve competitive advantage it is essential
Retailer-supplier relationship
development
Retailer-supplier relationship
development
Retailer-supplier relationship
development
Retailer-supplier relationship
development
Retailer-supplier relationship
development
Retailer-supplier relationship
development
Factors that improve vendorretailer relationship:
Detailed feedback on sales from the retailer to the
supplier.
Co-operation and Co-ordination in marketing
activities.
Sharing of information on relevant consumer trends
and product/market trends and innovations.
Systems integration to facilitate information sharing
,includes sales data stock and delivery information
An understanding of the retailers target customer
and the brand image, that the retailer is trying to
build, by the supplier.
Complete understanding by the supplier, of the
retailers quality standards requirements both in
terms of product quality and compliance on delivery
and administration
Inventory management
Inventory/ stock management of Staple
merchandise:
Inventory management
In Fixed order quantity system the stock of an item is
continuously reviewed. A reorder level is decided on.
Whenever the stock of the item equals the reorder
level, a new order is placed. The time between orders
can vary. In this system, the order quantity ordered is
always fixed (i.e. same) and is equal to the EOQ. EOQ
(Economic Order Quantity) is calculated by a formula
which ensures that the total cost is minimum. (Refer
to the class discussions for details).
Inventory management
Inventory management
ECR & QR approaches:
The ECR (Efficient Consumer Response) approach has
Inventory management
EDI (electronic data interchange) with the vendor
helps the QR inventory planning.
Floor ready merchandise is used in conjunction with
QR, so that the merchandise can be directly put on
shelf without preparatory work. Suppliers perform
functions that might otherwise take place in
retailers distribution centres. Pre-retailing activities
like labelling/ ticketing is done at the vendors end .
Both ECR and QR approaches to stock control are
aimed to cut all stock holding by the retailers to bare
minimum. But essentially ECR approach is adopted for
food and fast moving items which have relatively
stable demand patterns and higher volumes, while QR
approach is adopted for higher value and lower volume
products (clothing and home furnishings as examples).
QR involve supply techniques that allow retailers to
respond more effectively to fashion and seasonal sales
variations.
Inventory management
VMI (vendor managed inventory):
In this system,a retailer passes the responsibility for
managing stock levels with in the stores to the
supplier. The retailer provides the information that
allows the supplier to schedule its production and
finished stock level so that automatic replenishment
system is guaranteed.
In certain cases (such as batteries or spices) the
vendor takes on the responsibility to provide shelf
stacking service as well.The suppliers employee
keeps track of the shelf stock and replenishes the
same during his visits.
VMI is similar to QR but here the supplier has more
control over range development.
Obviously VMI can not operate without a true
partnership between the retailer and the vendor. It
takes the role of category captain one step further.
Inventory management
Inventory valuation methods in retailing
Inventory management
Perpetual inventory system (also known as book
inventory system) is based on the record keeping
entries. In this the purchases are regularly added to
the existing inventory and the sales subtracted in each
transaction to determine the new current inventory. As
the current stock is updated continuously the problem
of infrequent financial analysis is not there in this
system. This system also allows to compare the actual
inventory with the book inventory at any point of time.
To take care of changes in cost of the merchandise
either FIFO or LIFO method can be adopted. FIFO
assumes old merchandise is sold first, hence the item
is assumed to be sold based on old cost structure .
LIFO assumes that new merchandise is sold first,
hence the current sale is made based on current cost
structure.
Cost based method obviously is not suitable for
merchandise with rapid changes in cost structure.
Sales Promotion
Sales Promotion
Sales Promotion
Contests and games: This is to create
excitement. This may be in the form of
completing a puzzle, or picking up a lucky
number.
Free samples: This is often done to promote
a new product by a manufacturer.
Coupons: These are distributed to entitle
customers to get a product at a reduced
price.
Special events: Fashion shows, magic
shows, mini rock concerts are conducted
and often celebrities are invited to
participate.
Sales Promotion
Some methods followed for laying down a
promotion plan or fixing a promotion budget are:
Margin analysis method:
In this the retailer starts with a conservative
budget for advertisement. Thereafter evaluates
this budget against the performance and makes
the adjustments for the next month/period. This
is a scientific method.
Intuition method:
Here the retailer does not do step by step
evaluation but follows his intuitions to lay down
the plans and fix up the budget.
Percentage of sales method:
Voume of sale or turnover is a logical basis for
fixing the promotion budget. But here the type
and nature of merchandise should also be
considered.
Publicity
Publicity is the method for generating unpaid
impersonal communication. . This is done by
establishing a good rapport with the press. A free
publicity helps the retailer. The customer is
convinced more with an unpaid communication.
This form generates new customers. This helps
word of mouth publicity also. For example
inauguration of a store or a special event getting
an extensive coverage in the TV or Newspaper. An
unpaid item /article in the media, if regarded as
impartial and unbiased, can boost the image of a
retail business immensely.
Word of mouth is a very effective form of publicity.
This may be slow but it helps to create a very
credible image in the mind of prospective
customers. This mode of communication can be
very harmful if its negative in nature.
Advertising
Different types of retail advertising are:
Data base marketing This form of marketing
implies generating a large data bank and
then targeting customers in innovative forms.
Newspapers / magazines
Shopping guides and yellow pages
T.V / radio
Bill boards and banners
Advertising with the vendors cooperation
Special events / sponsorships to improve
stores image and goodwill.
Information Technology in
Retailing
Database management in
retailing
Database management in
retailing
Database management in
retailing
Database management in
retailing
Targeted communication
- avoids the waste in the case of mass media by
only communications with potential buyers.
- makes it cost efficient
Loyalty programme
- preferred customer cards (loyalty programme)
can be given to select loyal customers.
(as per CRM it is eight times cheaper to retain
an old customers than makes a new one.)
Merchandise management
- Can help time merchandising activities
and decision making process.
Store localization
- study the differences between stores.