Part 2

Retail Management

TopicsPlace of Retailing in marketing mixRetail EnvironmentRetail formatsEvolution of RetailTheories of Retail DevelopmentScalability and shop displays

Place of Retail in mkt mix Mix includes the 6”p”s: product,

price,place,promotion,presentation, people Place: includes the distribution and

availability of products in various locations.Customers introduced to the product at the

store.“Point of Sale” or “Point of Purchase”Channel Power

Last channel in distribution

Manufacturer

Wholesaler

Retailer

Final consumerTypical channel

Retailers role in sorting process

Manufacturer Brand F

Manufacturer Brand B

Manufacturer Brand A

Manufacturer Brand C

Manufacturer Brand D

Manufacturer Brand E

Wholesaler

Wholesaler

Wholesaler

Retailer

Brand A customers

Brand B customers

Brand Ccustomers

Brand D customers

Brand Ecustomers

Retail EnvironmentBreaking bulkAssorting function: evaluates all the

different products available and offers to target the optimum array of products to cvhoose from

Storing function: stocking goods till customers are willing to buy and use them

Contribution of Retailing to Indian Economic Scenario Real estateTourism/outbound shoppingHigher GDPOutsourcing opportunities

Evolution of retail formats

EvolutionSocial developments and their impact: development of rail

road and telegraph-order placementBon Marche- 1852 Paris.Relied on volume,money back

guarantee5 and 10 cent stores- needs of poor classesMontgomery Ward- mail order catalogue for rural marketAtlantic & Pacific- first chain grocery storeThe Industrial Revolution: urnbanization,mass mfgSelf service: Piggly Wiggly, reduce costsSupermarketsSpeciality stores, malls and other formats- first

hypermarket:Carrefour:France, advent of massmerchandisers, barcode, all consumer needs in a single shopping area

The World Wide Web

3 principles of Modern Selling Fixed price before sale, customers

purchased at the set price Prices were determined on basis of stock

turns and the amount of profit that was generated from the product

Products were departmentalized

Considerations in planning a retail strategy mix

Retail Strategy mix Store location: store/non store format,

geographic area, site Operating procedures: Personnel,

management style, store hours. Goods/Services offered: one or many

product categories (low/med/high) Pricing: prestige/competitive/penetration

pricing Store atmosphere/customer services:

physical facilities, personal attention, return policies, deliveries

Promotion: Store displays, advt, personal selling and sales promotion

Theories of retail development

Theories of RetailingEnvironmental theoryCyclical theoryScrambled merchandisingThe Wheel of Retailing

Environmental Theory Change in retail is attributed to change

in environment where the retailers operate

“Survival of the fittest” Retail institutions are economic entities

and retailers confront an environment- customers+competitors+technology

Environmental change- alter the profitability

Retailers which adapt to this change successfully (technological, economic,demographic ) will grow and prosper

Cyclical Theory :Wheel of Retailing

E

ntry phase

Trading up phase

V

ulne

rabi

lity

phas

e

Mature retailer Top heavy Conservative Declining ROI

Innovative retailer Low status and price Minimum service Poor facilities Limited product offering

Traditional retailer Elaborate facilities Higher rent More locations Higher prices Extended product offerings

E

ntry phase

Trading up phase

V

ulne

rabi

lity

phas

e

Mature retailer Top heavy Conservative Declining ROI

Innovative retailer Low status and price Minimum service Poor facilities Limited product offering

Traditional retailer Elaborate facilities Higher rent More locations Higher prices Extended product offerings

Many price sensitive shoppers who will trade

customer services, wide selections and

convenient locations for lower prices

P.S. shoppers not loyal- will switch for lower

prices

New outlets will have lower operating costs

Moving up, retailers try to improve sales, image.

need to decide- low,medium or high end

strategy

Eg- traditional dept. stores- Walmart discount

retailer-prospered, low end- factory outlets,off

price chains etc.

Discount web retailers

Firms should be wary of strategy conversion- loss

of competitive advantage

High vs low end strategy

Low end Strategy High End strategyLow rental location- side

street No services or at addl

feesSpartan fixtures and

displaysPrice emphasis in

promotionSelf service or reduced

staff Crowded interior Most visible merchandise

Shopping centre or business district-high rental

Elaborate services-credit,decorating,wrapping,alterations etc

Elaborate fixtures and displays

No Price emphasis in promotion

Product demo,more sales staffSpacious interior Most merchandise is in the

back room

Scrambled Merchandising Retailer carries width of assortment- many

product linesRetailer adds goods and services which are

unrelated to each other and to the original business

Increase overall revenues- fast moving,profitable goods are added

One stop shopping,impulse shoppers. Eg Crossword

The Retail Life Cycle

Introduction Growth Maturity Decline

Sales Low/growing Rapid/accelerating

High, levelling off

Dropping

Profitability Negative /break even

High yield High/declining

Low to break even

Positioning Concept innovation

Special need Broad market Niche

Competition None Limited Extensive/saturated

Intensive/consolidated

Innovation

Growth

Maturity Decli

ne

Profit

TIME

SA

LES

Growth of Retail Markets

Characteristics:

• Evolving, diffused formats

• Regional presence

• Conjectural presence in each market• Lower market share per market

• Lack of availability of retail real estate space at reasonable cost

• High degree of competition from unorganised players

• Investment stage with high incremental investments

• Mainly promoter and angel investor financing

• Presence in few merchandise categories

• Lack of scientific merchandise planning process

• High bargaining power of vendors• High logistivs and merchandise

acquisition costs• High degree of resistance from

consumers towards organised formats

Characteristics:

• Evolving, diffused formats

• Regional presence• Conjectural presence in each market• Lower market share per market

• Lack of availability of retail real estate space at reasonable cost

• High degree of competition from unorganised players

• Investment stage with high incremental investments

• Mainly promoter and angel investor financing

• Presence in few merchandise categories

• Lack of scientific merchandise planning process

• High bargaining power of vendors• High logistivs and merchandise

acquisition costs• High degree of resistance from

consumers towards organised formats

Characteristics:

• Established format characteristics

• Development of speciality formats• Movement towards national presence

• Rapid expansion phase• Availability of retail space at reasonable

costs• Growth in internal and external

competition

• Larger penetration into individual markets

• Accelerated investments in new projects with lower incremental investments

• Private equity, venture capital, debt and equity market financing accessible

• High cost of financing

• Increase in breadth and depth of merchandise categories

• Introduction of scientific merchandise planning process

• Focus on private label development• Bargaining power with vendor

increases• Consumers start accepting new formats

Characteristics:

• Established format characteristics

• Development of speciality formats• Movement towards national presence

• Rapid expansion phase• Availability of retail space at reasonable

costs• Growth in internal and external

competition

• Larger penetration into individual markets

• Accelerated investments in new projects with lower incremental investments

• Private equity, venture capital, debt and equity market financing accessible

• High cost of financing• Increase in breadth and depth of

merchandise categories• Introduction of scientific merchandise

planning process• Focus on private label development• Bargaining power with vendor

increases• Consumers start accepting new formats

Characteristics:

• Increasing specialisation in formats

• National and international presence• New store expansion tapers• Oversupply of retail space

• Significant competition from other organised players and overlapping formats

• Increasing focus on differentiation strategies

• Peak penetration into individual markets

• Market share stagnates• Low incremental investments required

• Investments funded through internal accruals

• Cost of financing declines

• Customer acquisition costs increase• Substantially large breadth and depth

of merchandise categories

• Private labels assume strategic significance for improving profitability

• Vendors enjoy low bargaining power

• Increasing collaboration with vendors to drive supply chain efficiencies

• Consumers demand higher service levels as awareness increases

Characteristics:

• Increasing specialisation in formats

• National and international presence• New store expansion tapers

• Oversupply of retail space• Significant competition from other

organised players and overlapping formats

• Increasing focus on differentiation strategies

• Peak penetration into individual markets

• Market share stagnates• Low incremental investments required

• Investments funded through internal accruals

• Cost of financing declines

• Customer acquisition costs increase• Substantially large breadth and depth

of merchandise categories

• Private labels assume strategic significance for improving profitability

• Vendors enjoy low bargaining power

• Increasing collaboration with vendors to drive supply chain efficiencies

• Consumers demand higher service levels as awareness increases

Characteristics:

• Consolidation of formats

• National and international presence• New store expansion stagnates or falls• Retail space supply tapers, leading to

higher acquisition costs/lease rentals

• Significant competition from other organised players and alternative formats

• Over penetration into individual markets• Growth decelerates

• Market shares of individual players decline

• Dependence on external finance to fund investments increases

• High cost of financing• Customer retention costs increase

• Consolidation of merchandise categories

• Revamp in private label strategy

• Low bargaining power of vendors –vendors start losing out as competitive pressures lead to squeezing of vendors

• Consumers demand higher service levels as awareness increases

• Consumers shift to alternative formats

Characteristics:

• Consolidation of formats

• National and international presence• New store expansion stagnates or falls• Retail space supply tapers, leading to

higher acquisition costs/lease rentals• Significant competition from other

organised players and alternative formats

• Over penetration into individual markets• Growth decelerates

• Market shares of individual players decline

• Dependence on external finance to fund investments increases

• High cost of financing• Customer retention costs increase

• Consolidation of merchandise categories

• Revamp in private label strategy

• Low bargaining power of vendors –vendors start losing out as competitive pressures lead to squeezing of vendors

• Consumers demand higher service levels as awareness increases

• Consumers shift to alternative formats

• Risks:• Availability of finance• Low fixed cost coverage leading to

high operating leverage• High individual property risk

• Format risk due to lack of stability

• Market risk in terms of acceptability of format by customers

• Risks:

• Availability of finance• Low fixed cost coverage leading to

high operating leverage• High individual property risk• Format risk due to lack of stability

• Market risk in terms of acceptability of format by customers

• Risks:

• Finance availability• Highly geared financial structure

• Private label establishment• IT integration

• Risks:• Finance availability

• Highly geared financial structure

• Private label establishment• IT integration

• Risks:• Market risk due to increase in

competition• Consumer retention risks

• Risks:

• Market risk due to increase in competition

• Consumer retention risks

• Risks:• Business risk increases and payback

periods from new projects increase• Increasing finance risk• New project risks in international

markets• Competition from alternative formats• Consumer retention risks

• Risks:• Business risk increases and payback

periods from new projects increase• Increasing finance risk• New project risks in international

markets• Competition from alternative formats• Consumer retention risks

African markets Indian markets South Asian markets Developed markets

INCEPTION (10 years)

GROWTH (15- 25 years)MATURITY (5 - 10 years)

STAGNATION (5 - 10 years)

TIME

SALES

Characteristics:

• Evolving, diffused formats

• Regional presence

• Conjectural presence in each market• Lower market share per market

• Lack of availability of retail real estate space at reasonable cost

• High degree of competition from unorganised players

• Investment stage with high incremental investments

• Mainly promoter and angel investor financing

• Presence in few merchandise categories

• Lack of scientific merchandise planning process

• High bargaining power of vendors• High logistivs and merchandise

acquisition costs• High degree of resistance from

consumers towards organised formats

Characteristics:

• Evolving, diffused formats

• Regional presence• Conjectural presence in each market• Lower market share per market

• Lack of availability of retail real estate space at reasonable cost

• High degree of competition from unorganised players

• Investment stage with high incremental investments

• Mainly promoter and angel investor financing

• Presence in few merchandise categories

• Lack of scientific merchandise planning process

• High bargaining power of vendors• High logistivs and merchandise

acquisition costs• High degree of resistance from

consumers towards organised formats

Characteristics:

• Established format characteristics

• Development of speciality formats• Movement towards national presence

• Rapid expansion phase• Availability of retail space at reasonable

costs• Growth in internal and external

competition

• Larger penetration into individual markets

• Accelerated investments in new projects with lower incremental investments

• Private equity, venture capital, debt and equity market financing accessible

• High cost of financing

• Increase in breadth and depth of merchandise categories

• Introduction of scientific merchandise planning process

• Focus on private label development• Bargaining power with vendor

increases• Consumers start accepting new formats

Characteristics:

• Established format characteristics

• Development of speciality formats• Movement towards national presence

• Rapid expansion phase• Availability of retail space at reasonable

costs• Growth in internal and external

competition

• Larger penetration into individual markets

• Accelerated investments in new projects with lower incremental investments

• Private equity, venture capital, debt and equity market financing accessible

• High cost of financing• Increase in breadth and depth of

merchandise categories• Introduction of scientific merchandise

planning process• Focus on private label development• Bargaining power with vendor

increases• Consumers start accepting new formats

Characteristics:

• Increasing specialisation in formats

• National and international presence• New store expansion tapers• Oversupply of retail space

• Significant competition from other organised players and overlapping formats

• Increasing focus on differentiation strategies

• Peak penetration into individual markets

• Market share stagnates• Low incremental investments required

• Investments funded through internal accruals

• Cost of financing declines

• Customer acquisition costs increase• Substantially large breadth and depth

of merchandise categories

• Private labels assume strategic significance for improving profitability

• Vendors enjoy low bargaining power

• Increasing collaboration with vendors to drive supply chain efficiencies

• Consumers demand higher service levels as awareness increases

Characteristics:

• Increasing specialisation in formats

• National and international presence• New store expansion tapers

• Oversupply of retail space• Significant competition from other

organised players and overlapping formats

• Increasing focus on differentiation strategies

• Peak penetration into individual markets

• Market share stagnates• Low incremental investments required

• Investments funded through internal accruals

• Cost of financing declines

• Customer acquisition costs increase• Substantially large breadth and depth

of merchandise categories

• Private labels assume strategic significance for improving profitability

• Vendors enjoy low bargaining power

• Increasing collaboration with vendors to drive supply chain efficiencies

• Consumers demand higher service levels as awareness increases

Characteristics:

• Consolidation of formats

• National and international presence• New store expansion stagnates or falls• Retail space supply tapers, leading to

higher acquisition costs/lease rentals

• Significant competition from other organised players and alternative formats

• Over penetration into individual markets• Growth decelerates

• Market shares of individual players decline

• Dependence on external finance to fund investments increases

• High cost of financing• Customer retention costs increase

• Consolidation of merchandise categories

• Revamp in private label strategy

• Low bargaining power of vendors –vendors start losing out as competitive pressures lead to squeezing of vendors

• Consumers demand higher service levels as awareness increases

• Consumers shift to alternative formats

Characteristics:

• Consolidation of formats

• National and international presence• New store expansion stagnates or falls• Retail space supply tapers, leading to

higher acquisition costs/lease rentals• Significant competition from other

organised players and alternative formats

• Over penetration into individual markets• Growth decelerates

• Market shares of individual players decline

• Dependence on external finance to fund investments increases

• High cost of financing• Customer retention costs increase

• Consolidation of merchandise categories

• Revamp in private label strategy

• Low bargaining power of vendors –vendors start losing out as competitive pressures lead to squeezing of vendors

• Consumers demand higher service levels as awareness increases

• Consumers shift to alternative formats

• Risks:• Availability of finance• Low fixed cost coverage leading to

high operating leverage• High individual property risk

• Format risk due to lack of stability

• Market risk in terms of acceptability of format by customers

• Risks:

• Availability of finance• Low fixed cost coverage leading to

high operating leverage• High individual property risk• Format risk due to lack of stability

• Market risk in terms of acceptability of format by customers

• Risks:

• Finance availability• Highly geared financial structure

• Private label establishment• IT integration

• Risks:• Finance availability

• Highly geared financial structure

• Private label establishment• IT integration

• Risks:• Market risk due to increase in

competition• Consumer retention risks

• Risks:

• Market risk due to increase in competition

• Consumer retention risks

• Risks:• Business risk increases and payback

periods from new projects increase• Increasing finance risk• New project risks in international

markets• Competition from alternative formats• Consumer retention risks

• Risks:• Business risk increases and payback

periods from new projects increase• Increasing finance risk• New project risks in international

markets• Competition from alternative formats• Consumer retention risks

African markets Indian markets South Asian markets Developed markets

INCEPTION (10 years)

GROWTH (15- 25 years)MATURITY (5 - 10 years)

STAGNATION (5 - 10 years)

TIME

SALES

RETAIL FORMATS

Conventional Retail formatsProducts available in shantiesSmall mobile retailers: products available

on handcarts, bicycles etcSmall shops which got converted to

bazaars

Contemporary Retail Formats by Customer MediationActivity Elements

In store Catalogue

Cable tV www Telephone

Means of Mediation

Humans in brick and mortar environment

Paper and telephonic

Broadcast and telephonic

Computer and Voip

Telephonic

Customer interface

Face to face sales service

Remote, print ,response voice only

Remote,voice only

Remote, IVR

Remote, voice only

Product Presentation

3 D displays

Photo and text

Tv image and demo

Image and text

Telephonic product and service description

Store formatsCreate a distinct image of store amongst

customers.- By location- By ownership- By layout- By design- By merchandise- By service experience

Store formats by location

Chain Store format

•Multi locational•Owned &operated by single org with signature store design, merchandising plan , cohesive promotional and service strategy. Eg Lifestyle

High Street format

•Busy shopping areas•Less than 2000 sq ft, no parking ,and focused merchandise•Eg Amarsons,Premsons

Destination Format

•Only shopping•Large in size,ample parking,wide merchandise•Phoenix

Convenience store format

•Area of target customers•Quick access and wide range•<5000 sqft,parking,extended hours of operation•D Mart

Store formats by merchandise

Family store

• Apparel for whole family

• Eg Shoppers Stop

Specialty Store

• Narrow product line with good depth

• Attentive customer service

• Eg Park Avenues by Raymonds

Department store

• More than 10000 sq ft,more than 100000 SKU, Several departments,apparel,electronics,cosmetics etc

• Each section functions as a separate SBU

• Eg Shoppers Stop

Super Market

• Food,grocery

• Limited non food items

• >3000 sq ft and 30000 SKUs

• D Mart

Store formats by size

Super store• Large, food

and non food items. Twice the size of supermkt ,offers non traditional goods and services such as pharmacy,florist,bakery under one roof

• Eg Shoprite

Shopping mall• Retail and

leisure• More than

200000 sq ft and runs as an integrated business by a single owner

• Eg Park Avenues by Raymonds

Shopping centre

• More than 5 shops each approx 1000 sq ft

Hyper Market • Food,grocer

y• Pharmacy,fl

orist,photo shop cds etc

• >200000 sq ft ,large qtys in each category at low margins

• Shoprite

Store formats by price

Discount/bazaar format• Discounts at 25% below or prices below MRP.

• MFGS overruns,irregulars,unsold from last season

• Eg Parel

EDLP

• Every day low pricing

• Found more in Western countries

Category killer

• Large specialty store with an enormous selection of its product category at low prices

Warehouse

• large sale of discounted merchandise by an individual or orgnaization in free access ambience of an warehouse

• Both width and depth of retailed merchandise

Single price denomination format

• Scrambled merchandise at a single low price point

• Dollar shops, Rs49/99 shops

Store format by ownershipFranchisee format: owned and operated by

individuals on behalf of and licensed by a large organization

Independent store: owned by a single person or a partner

Store format by concessionsStopover format: piggybacks on other retail

outlet eg crosswords at petrol pumps, In and out at BPCL

Kiosks: placed in mall, airports, etc. used for information, sales and promotion. Eg HT at airports free copies

Impact of scalabilityAchieves profitabilityEnsures an efficient rolloutGreatest shopping opportunity & highest

customer satisfactionStrategic mix of all formats to cater to all

target customersAchieves its positioningCore USP/value proposition for its

customers