Session 3 Chap 1 - Retailing & Chap 2 - Retail Institutions

Derived from French word, Retailier, meaning To cut a piece off A set of business activities that add value to the products & services sold to final consumer for their personal, family & household uses. Benefits to the Economy 10% of GDP

Retailing involves:
1) Understanding the needs of a consumer

2)
3)

Developing a good assortment of merchandise

Displaying the merchandise in an effective manner to make it attractive & easy to buy.

Benefits of Consumers through Retailing

1) 2) 3) 4) 5) Breaking bulk Providing Assortments Holding of Inventory Providing services like Free Delivery, Card facility, loans, hire purchase etc Providing Information through Ads, Kiosks and Salesmen.

Benefits to Manufacturers & Wholesalers

1) 2) 3) 4) 5) Channel for delivering products/services to end customers. Provides manufacturers with revenue that can be used later. Acts as the sensory organs for manufacturer. Providing feedback on goods and services. Shares physical, technological & fashion obsolescence risks with manufacturer.

Theories of Institutional Change in Retailing

1) 2) Wheel of Retailing Theory Malcolm P McNair Dialectic Process or Melting Pot Theory Thomas Maronick & Bruce Walker

3)
4)

Retail Accordion Theory Hollander

Natural Selection Theory

1)

Wheel of Retailing (Malcolm P McNair)

Change takes place cyclically Three Phases Entry Trading Up Vulnerability

ENTRY PHASE Low status, low price, minimal service, minimal facility & limited product offerings. TRADING UP PHASE Elaborate facilities, essential & Exotic services, Higher rent locations, Fashion oriented, Higher prices, Extended offerings. VULNERABILITY PHASE Top Heaviness, Conservatism and Declining ROI, Competition from innovative new retailer who goes through same cycle.

2) Dialectic Process or Melting Pot Theory (Thomas Maronick & Bruce Walker)
When challenged by a competitor with a differential strategic advantage, an established player will adopt strategies and tactics in the direction of that advantage to negate the innovators attraction.

Two institutional forms modify their formats and mutually adapt & move together in terms of offerings, facilities, supplementary services, prices and become quite similar. The new format now becomes vulnerable to negation by new competitors.

3) Retail Accordion Theory (Hollander)

Institutions evolve over time from outlets offering a wide variety of merchandise to stores offering specialized products and then eventually these stores begin to offer a wide variety of merchandise or the other way around.

4) Natural Selection
Based on Darwins theory of Evolution. A firm or retail institution should be flexible enough to adapt to the changing environment and should adapt its behaviour to those changes, to survive in the market. The one that is flexible enough to adapt to changes will be most successful.

CLASSIFICATION OF RETAILERS
Based on their selling process Store Based Retailers 2) Non Store Based Retailers STORE BASED RETAILERS
Fixed point of sale locations High volume of walk in Wide variety of merchandise Sell for personal, household, business & institutional clients & customers.

NON STORE BASED RETAILERS

Reach customers and market their merchandise using various methods like Broadcasting of Infomercials 5) In House demonstrations Direct response advertising 6) Selling from portable stalls Paper & Electronic catalogs 7) Vending machines Door to door soliciting and other innovative methods

CLASSIFICATION OF STORE BASED RETAILERS A) Based on Ownership

1) Independent Stores 2) Chain Stores 3) Franchise Stores 4) Leased Department Stores 5) Vertical Marketing System (VMS) 6) Consumer Cooperatives

STORE BASED RETAILERS A) BASED ON OWNERSHIP 1) Independent Retail store

Store owned by a single retailer. Retailer does not own any other store.

Advantages
a) b) c) d) e) f) Free to select a convenient location & store format. Can concentrate on small target market. Can decide on timing, assortments & price. Entry barriers are low, cost of setting up lower. No duplication of store functions. Owner takes all decisions & can respond quickly to changes.

Disadvantages
a) b) c) d) Bargaining power is less than that of other retail formats. Labour intensive methods are used for ordering, stocktaking, merchandising & accounting. Total operational costs increases. Lack exposure to modern retailing techniques. Fail to attract customers from distant locations.

A) BASED ON OWNERSHIP 2) Chain Stores

Two or more retail outlets that are commonly owned and controlled Centralized buying and merchandising system with similar merchandise.

Advantages
1) 2) 3) 4) 5) Can purchase at a low price, can keep shipping costs low due to bulk purchase. Can bargain with suppliers over price, quantity, discounts & re-order. Centralized decision making system & Use of latest technology. Can afford promotion of their products as stores are spread over large area. Full time experts employed for long term planning.

Disadvantages
1) 2) 3) 4) 5) Need to maintain consistency across all stores. Initial cost of establishment is high for chain stores. Difficult for top management to control activities of every store. Location of stores is geographically dispersed. Sole owners take personal interest in managing chain stores effectively.