Concept of Retailing

Retailing is the set of business activities that adds value to the products and services sold to consumers for their personal or family use. Retailing also involves the sale of services such as overnight lodging in a motel, a doctor’s exam, a haircut, a DVD rental or a home delivered book. No all retailing is done in stores. Examples of non-store retailing include internet sales of mobile phones, the direct sales of cosmetics by Avon, catalog sales by L.L. Bean and Patagonia and DVD rentals through Redbox’s kiosks. Value adding activities of Retailing are as follows: Retailers create value through the following activities:

(i) Provide an assortment of products and services(ii) Breaking bulk(iii) Holding inventory(iv) Providing services

The Evolution of retailing is as follows:Historical /Rural Reach: Village Fairs/ MelasTraditional/ Pervasive Reach: Mom and Pop Stores / Convenience Stores/ Kirana StoresGovernment Supported: Public Distribution System Outlets/ Cooperative Stores/ Khadi StoresModern Formats/International: Exclusive Brand Outlets, Hyper Markets Supermarkets, Department Stores/Shopping Malls

Customer Relationship Management

CRM is a business philosophy and set of strategies, programs and systems that focuses on identifying and building loyalty with a retailer’s most valued customers. The retailer’s goal of CRM is to develop a base of loyal customers and increase its share of valet

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i.e. percentage of the customers’ purchases made from the retailer. CRM is an iterative process that turns customer data into customer loyalty through four activities, which are as follows:

I. Collecting customer data II. Analyzing the customer data and identify target

customersIII. Develop CRM programsIV. Implement programs

RFM Analysis is a scheme for identifying the retailer’s best prospects on the basis of how recently they have made a purchase, how frequently they make purchases, and how much they have bought. RFM analysis helps to determine which customer groups should receive catalogs. For each of the RFM groups, retailers determine the percentage of customers in a group who made a purchase from the last catalog sent to them. RFM analysis is basically a method of estimating Customer Life Time Value using the recency, frequency and monetary value of past purchases.Customer Loyalty means that customers are committed to purchasing merchandise and services from the retailers and will resist the activities of competitors attempt to attract their patronage. Loyal customers have a bond with the retailer and the bond is based on more than a positive feeling about the retailer. All the elements in the retail mix contribute to the development of customer loyalty and repeat purchase behavior. Customer loyalty can be enhanced by creating an appealing brand image and providing convenient locations, attractive merchandise at compelling prices and an engaging shopping experience. However, personal attention is one of the most effective methods for developing loyalty.Marketing Calendar: A marketing calendar is a tool used by retailers to show what marketing events, media campaigns and

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merchandising efforts are happening when and where, as well as the results.

Variety, Assortment and SKU

Variety is the number of merchandise categories that a retailer offers. Assortment is the number of different items offered in a merchandise category. Variety is often referred to as the breadth of merchandise and assortment is referred to as the depth of merchandise. Each different item of merchandise is called a stock keeping unit (SKU). Variety and assortment can also be applied to a specific merchandise category rather than an entire store.

Breadth and Depth

Product Depth: Product Depth is the number of each item or particular style of a product on the shelves. Product depth is also known as product assortment or merchandise depth.Product Breadth: The product breadth is the variety of product lines offered by a retailer.Softlines is a retailing term referring to a store department or product line primarily consisting of merchandise such as clothing, footwear, jewelery, linens and towels.Hardlines is a retailing term referring to a store department or product line primarily consisting of merchandise such as hardware, housewares, automotive, electronics, sporting goods, health and beauty aids or toys.Inventory is the merchandise a retail store has on-hand. The term also refers to the act of counting, itemizing and recording in-stock merchandise or supplies.Inventory Turnover: How many times during a period that a business sells its inventory and replaces it.

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Layaway is the act of taking a deposit to store merchandise for a customer to purchase at a later date.Loss Leader Strategy: Merchandise sold below cost by a retailer in an effort to attract new customers or stimulate other profitable sales.Loss prevention is the act of reducing the amount of theft and shrinkage within a business.

Merchandise Mix

A merchandise mix is the breadth and depth of the products carried by retailers. Also known as product assortment.Visual merchandising is the art of implementing effective design ideas to increase store traffic and sales volume.Wholesale is the sale of goods, generally in large quantity, to a retailer for resale purposes.

Difference between Stocking and Merchandising

In the broadest sense, merchandising is any practice which contributes to the sale of products to a retail consumer. At a retail in-store level, merchandising refers to the variety of products available for sale and the display of those products in such a way that it stimulates interest and entices customers to make a purchase. Stocking is the process of filling the store's shelves and displays with merchandise for sale, commonly referred to as "stock." Stocking can also refer to the process of replenishing and storing goods in the store's backroom or warehouse.

Pricing strategies in Retailing

The two basic pricing strategies used by retailers are as follows:(I) High/Low Pricing

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Retailers using a high/low pricing strategy frequently - often weekly - discount the initial prices for merchandise through sales promotions.(II) Everyday Low Pricing

The Every Day Low Prices strategy emphasizes the continuity of retail prices at a level somewhere between the regular non-sale price and the deep –discount sale price of high/low retailers

Advantages of pricing strategies: Increases profits Creates excitement Sells merchandise Assures customers of low prices Reduces advertising and operating expenses Reduces stock out and improves inventory management

Broad Categories of Retailers

(1) Food Retailers(2) General Merchandise Retailers

Comparison of Food RetailersS.No.

Conventional Super Market

Limited Assortment Super Market

Super Center Warehouse Club

Convenience store

1. Percentage Food

70-80 80-90 30-40 60 90

2. Size (000 Square Feet)

35-40 7-10 160-200 100-150 3-5

3. SKUs (000) 30-40 1-1.5 100-150 20 2-34. Variety Average Narrow Broad Broad Narrow5. Assortment Average Shallow Deep Shallow Shallow6. Ambience Pleasant Minimal Average Minimal Average7. Service Modest Limited Limited Limited Limited8. Prices Average Lowest Low Low High9. Gross Margin 20-22 15-18% 15-18 12-15 25-30

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(%)

Comparison of General Merchandise RetailersS.No.

Type of Retail Store

Variety Assortment Service Prices Size (000 Square Feet)

SKUs (000)

Location

1. Department Stores Broad Deep to Average

Average to High

Average to high

100-200 100 Regional Malls

2.Discount Store

Broad Average toShallow

Low Low 60-80 30 Stand alone power strip centers

3.Specialty Store

Narrow Deep High High 4-12 5 Regional malls

4.Category Specialist

Narrow Very Deep Low to High

Low 50-100 20-40 Stand alone power strip retailer

5.Home Improvement Store

Narrow Very Deep Low to High

Low 80-120 20-40 Stand alone power strip centers

6. Drugstore Narrow Very Deep Low to High

Low 80-120 20-40 Stand alone power strip centers

7. Off Price Store Average Deep but varying

Low Low 20-30 50 Outlet Malls

Anchor Store: An anchor store is a major retail store used to drive business to smaller retailers. These larger department stores or grocery stores are generally part of a retail chain and are the prominent business in a shopping mall.Atmosphere: Atmosphere is the physical characteristics and surrounding influence of a retail store that is used to create an image in order to attract customers.Big Box Stores: A large stand-alone store with varying market niches. Category Killer: Category Killer is a large retail chain store that is dominant in its product category. This type of store generally offers an extensive selection of merchandise at prices so low smaller stores cannot compete.

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Chain Store: A chain store is one of a number of retail stores under the same ownership and dealing in the same merchandise.Kiosk: The term kiosk, as related to retailing, refers to a small stand-alone structure used as a point of purchase. This can be either a computer or display screen used to disseminate information to customers or may be a free-standing, full-service retail location. Kiosk are often found in malls and other high-traffic locations. Power Perimeter: The areas around the outer walls of a super market. (dairy, bakery, meat, florist, produce, deli and coffee bar).

Retail Channels

Retail Channels: A retail channel is the way a retailer sells and delivers merchandise and services to its customers. The most common channel used by retailer is a store. Retailers also use a variety of channels including the Internet, catalogs and direct mail, direct selling, television home shopping and automated retailing. Internet Channel: Internet retailing also called online retailing, electronic retailing, and e-tailing is a retail channel in which the offering of products or services for sale is communicated to customers over the internet.Catalog Channel: The catalog channel is a non store retail channel in which the retail offering is communicated to customers through a catalog mailed to customers. The merchandise categories with the greatest catalog sales are medicines and beauty aids, computers and softwares, clothing and accessories, furniture and house ware and books, music and magazines.Direct Selling: Direct Selling is a retail channel in which salespeople interact with customers face-to-face in a convenient location, either at customer’s home or at work. Direct sales people demonstrate merchandise benefits and/or explain a 7

service, take an order, and deliver the merchandise. Direct selling is a highly interactive retail channel in which considerable information is conveyed to customers through face-to-face discussions. However, providing the high level of information, including extensive demonstrations, is costly. Two special types of direct selling are the party plan and multi level system. Television Home Shopping: television home shopping is a retail channel in which customers watch a television program that demonstrates merchandise and then place orders for that merchandise usually by telephone or via the Internet. The three forms of TV home shopping retailing are (a) cable channels dedicated to television shopping (b) infomercials and (c) direct response advertisingInfomercials are programs typically 30 to 60 minutes long that mix entertainment with product demonstrations and then solicit orders placed by telephone. Direct response advertising consists of one to two minute advertisement on television and radio that describe products and provide an opportunity for consumers to order them. The major advantage of TV home shopping is that customers can see the merchandise demonstrated either on their television screens or through streaming videos on internet. In response to the increase in cooking, decorating, do-it-yourself, and other lifestyle programming, home shopping retailers have incorporated more demonstrations into their programming in an attempt to educate their potential customers and create more drama.Automated Retailing: Automated Retailing is a retail channel in which merchandise or services are stored in a machine and dispensed to customer when they deposit cash or use a credit card. Automated retailing machine, also known as vending machines, are typically placed at convenient and high-traffic locations such as in work places or on university campuses. The vast majority of automated retailing sales are from cold 8

beverages, candy and snacks. Automated retailing isn’t just for soda and candy bars anymore. Zoomshops, for instance, are automated self-service stores that offer customers the convenience of purchasing merchandise using touch screen technology. At the stores, located in more than 800 airports, malls and retail stores, customers can purchase i-pods, Sony products.Benefits provided by different channelsS.No.

Stores Catalogs Internet

1. Touching and feeling Safety Safety2. Personal Service Convenience Convenience3. Risk Reduction Ease of use Broad and Deep

assortment4. Immediate gratification Extensive and

timely information

5. Entertainment and social interaction

Personalisation

6. Browsing7. Cash payment

Benefits of Multi Channel Retailing

(i) Overcoming the limitations of an existing format(ii) Increasing customer satisfaction and loyalty(iii) Gaining insights into consumer shopping

behavior(iv) Expanding market presence(v) Building a strategic advantage

Important issues relating to Multi Channel Retailing

(i) Which channel has the lowest costs?(ii) Will manufacturers bypass retailers and sell

directly to consumers?Challenges of Multi Channel Retailing

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(i) Providing an integrated shopping experience(ii) Supporting M-commerceOrganizing for Multi Channel Retailing

(i) Organising for databases(ii) Brand Image(iii) Merchandise Assortment (iv) Pricing(v) Reduction of Channel Migration

Evaluation of a Site for a Retail StoreThe estimated potential sales that can be generated by a store at the site

I. Characteristics of the Site: The characteristics of the site are judged by the following:

a. Traffic flow past the site and accessibility to the siteb. Characteristics of the location namely parking space,

visibility, adjacent retailers c. Costs associated with locating at the site

II. Characteristics of the trading area for a store at the site

a. Nature of merchandise soldb. Assortment offeredc. Location of alternative sources for the merchandise

III. The estimated potential sales that can be

generated by a store at the site

Three methods are used to estimate potential sales that can be generated by a store at the siteHuff Gravity Model, Regression Analysis, Analog Method

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Branding Options for a Retailer

a. National Brandsb. Private Label Brandsc. Premium Private Labelsd. Copycat Brandse. Exclusive Brandsf. Generic brands

Categorization of Retailers

There are two major ways of categorizing retailers namely food retailers and general merchandise retailers. Food Retailers:

I. Conventional Super MarketsII. Limited Assortment SupermarketIII. Super CentersIV. Warehouse clubsV. Convenience StoresGeneral Merchandise Retailers

i. Department Storeii. Discount Storeiii. Specialty Storeiv. Category Specialistv. Home Improvement Centersvi. Drug Storesvii. Off-price retailersviii. Extreme Value Retailers

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Retail Layouts

The different layouts that are commonly used by retailers as follows:

a. Grid layout: The grid layout has parallel aisles with merchandise on shelves on both sides of the aisles. Cash registers are located at the entrances/exits of the stores

b. Race Track: The racetrack layout also known as a loop, is a store layout that provides a major aisle that loops around the store to guide customer traffic around different departments within the store. Cash register stations are typically located in each departure bordering the race track.

c. Free Form: A free-form layout also known as boutique layout, arranged fixtures and aisles in an asymmetric pattern. It provides an intimate, relaxing environment that facilitates shopping and browsing.

Grid Layout Race Track Free FormAdvantages

i. Easy location of products for customers

ii. Enables customers to purchase as quickly as possible

iii. Cost effectiveiv. Less wastage of

space

Disadvantages:

Advantages

i. Facilitates the goal of getting customer to see the

ii. merchandise available in multiple departments and encourages unplanned purchasing.

iii. Enables modification for better results

Disadvantages

Advantages

i. Intimate and relaxing environment that facilitates shopping and browsing

ii. No well-defined traffic pattern

Disadvantages

i. Need for personal

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i. Customer has limited exposure to the merchandise

ii. Not visually exciting design

(i) Customers forced to take different viewing angles

selling to enhance customers to explore merchandise.

ii. Limits the amount of merchandise that can be displayed.

Retail Pricing

The two basic pricing strategies used by retailers are as follows:(III) High/Low Pricing Retailers using a high/low pricing strategy frequently – often weekly – discount the initial prices for merchandise through sales promotions.(IV) Everyday Low Pricing

The Every Day Low Prices strategy emphasizes the continuity of retail prices at a level somewhere between the regular non-sale price and the deep –discount sale price of high/low retailers

Advantages of pricing strategies: Increases profits Creates excitement Sells merchandise Assures customers of low prices Reduces advertising and operating expenses

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Reduces stock out and improves inventory management

Human Resources Management in Retailing

Human Resources (HRM) Management in Retailing

In any retail organization, the people who deal with the customers at a one to one level are considered the face of the organization. Thus, people who work at the store level are important. Hiring the persons with right attitude is important as in the case of most retail stores, the employees need to work long hours, and also need to work when the rest of the people may be on a holiday e.g. on Sundays or on occasions like Diwali, Christmas etc. Secondly the retailer needs to have the persons with the right skill sets taking care of functions like buying and merchandising, as the product is the key in a retail set up.

The Human Resources function in retail involves:

1. Identifying various roles in the organization.2. Recruiting the persons with right attitude to fit the jobs.3. Training14

4. Motivation of employees5. Evaluation of employee performance.

1. Identifying the various roles in the organization:The first step starts with the identification of the various tasks or jobs that need to be performed in the organization. This helps in determining the number of people required from various jobs, the skill sets and educational background needed and the location, where they are doing to be based depending on the organization structure defined and the size of the retail operation.

Key tasks in a typical retail organization involve:

1) Buying and merchandising2) Store management and operations, and3) Technology support.

It is necessary that persons with the right attitude and skill sets are recruited for the above mentioned functions as they are the key in any retail organization. While professional qualifications for the various tasks are important, it is also necessary to hire persons who understand consumer trends and technology and what it can provide. This is extremely important, as traditionally retail has been one of the oldest users of information technology.

2. Recruitment and Selection

After determining the tasks to be performed within the organization, the jobs need to be categorized on the basis of the functional or geographic needs. The aim of the recruitment process is to make available job applicants for a specified job/s. Common ways of recruitment include newspaper advertisements, visits to colleges, existing employees, references, recruitment agencies and even websites.

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Many organizations create an application blank, which has to be filled in by the applicant and gives the details of education, work, hobbies and family background. It helps the organization obtain information about the applicant in standard and structured manner. Once the applications are received, they are screened on the basis of parameters that are important to the retailer. This serves as the primary basis for acceptance or rejection of the candidate.

In case of most of the organizations, the candidates who are short listed on the basis of the bio data or application blank are called for a personal interview. A personal interview enables the interviewer gauge the attitude of the person and his suitability for the desired job. Depending on the position applied for, the selection procedure may comprise of one or more interviews. When the candidate passes the interviews stage, reference checks may be done and the final decision is taken.

3. TrainingTraining is an important aspect of human resource management in retail. Typically, in retail training needs arise at the following points:

1) Induction new persons / staff into the organization2) Training of sales staff, as they are the persons who are in direct contact with the customers.3) Training of staff / personnel for skill enhancements.

When new persons join any organization, an induction program is conducted. The purpose of such an induction program is to familiarize the new entrants about the organization’s policies and methods of doing business.

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In retail special importance is given to the training of sales staff as they are commonly termed as the face of the organization.4. Motivation of Employees

Motivation doesn't have to be strictly monetary. (i) Be generous with discounts.

Store savings of 25 percent to 30 percent are the norm at many retail companies

(ii) Consider benefits for part-timers. (iii) Support for continuing education of the employees (iv) Send staff to industry events. (v) Host contests and raffles. (vi) Support volunteer time. (vii) Sponsor local events. (viii) Distribute free samples. (ix) Give presents. (x) Develop a family culture. (Example: Celebrate birthdays.)5. Evaluation of Employee Performance

(i) Accountability is a two-way street. If you want employees to be responsible for their performance, you must also be responsible in how you quantify their performance. You must have a process.

(ii) Optimize the return on your time by sticking to the facts.Talk about performance examples, both recently and in past months.

(iii) Have data to back up everything you say.Having specific examples assumes you already conduct regular retail sales audits and property inspections. If there’s an ongoing problem at one of your retail locations, it should already be on record.   

(iv) Use visual examples.Words can be poignant but photos can be powerful.

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Imagine if you had the capability to call up a photo that proves your point about store cleanliness or retail execution.

(v) Capture data from your employee reviews. You won’t be the only person conducting employee reviews. By using a mobile solution, you can easily create new forms that employees can fill out via their smartphone or tablets. Store managers can evaluate store employees, regional managers can evaluate store managers, and so on, right up the chain.

(vi) When everyone uses the same form, data is collected accurately for analysis.

(vii) Stay Positive. Remember to stay positive throughout the employee evaluation and be sure to point out what your employees did right along with areas in need of improvement. Don’t argue! If you need to criticize, do it constructively with factual support.

Category ManagementCategory Management is a retailing and purchasing concept in which the range of products purchased by a business organization or sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories (examples of grocery categories might be: tinned fish, washing detergent, toothpastes). It is a systematic, disciplined approach to managing a product category as a strategic business unit. The phrase "category management" was coined by Brian F.Harris.

One key reason for the introduction of category management was the retailers' desire for suppliers to add value to their (i.e. the retailer's) business rather than just the supplier's own. For example, in a category containing brands A and B, the situation could arise such that every time brand A promoted its products, the sales of brand B would go down by the amount that brand A would increase, resulting in no net gain for the retailer. A second 18

reason was the realization that only a finite amount of profit could be milked from price negotiations and that there was more profit to be made in increasing the total level of sales.A third reason was that the collaboration with the supplier meant that supplier's expertise about the market could be drawn upon, and also that a considerable amount of workload in developing the category could be delegated to the supplier.

Category Management is a collaborative continuous process between manufacturers and retailers to manage a shopper need state which we refer to as a ‘category’. The purpose of this process is to optimize shopper satisfaction and fulfill the role chosen by the retailer for that category within the overall portfolio of categories in the retail format. The end state of the category management process is that combination of assortment, price, shelf presentation and promotion which optimizes the category role over time. Some of the key aspects that contribute to the success of category management are as follows:

(i) Analytics

Analytics, both basic and advanced, are at the heart of category management. As a road map to achieving your goals, they encompass all aspects of trade management, business planning, assortment analysis and consumer awareness. When applied correctly, they provide invaluable business insights and actionable recommendations.

(ii) Trade Marketing Support

Trade marketing encompasses all aspects of promotion, pricing, product placement, assortment, merchandising and brand development. It includes analysis of historical events as well as projections for future sales trends.  

(iii) Consumer Insights

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Consumer insights include all consumer-related information including consumer buying and shopping habits. From reducing long checkout lines to providing the best selection of merchandise at the best possible price, the ultimate goal is to improve customer satisfaction.

(iv) Database Management

Database management, also known as business intelligence, encompasses several different data sources such as internal and external data sources, syndicated data, retailer point-of-sale data, consumer data and marketing data. Talented category managers can help you bring together all the different data sources in a useful way. This will maximize efficiencies within the organization while building a strong sales story to help you win at shelf.

(v) Shelf Management

Shelf management includes product placement and merchandising on retailer shelves. Specifically it helps the retailer maximize sales per linear foot, drive foot traffic to stores, increase customer shopping basket size and have a competitive advantage in their marketplace.

(vi) Category Reviews

Category reviews serve as a review of category performance. They provide the framework for retailers and manufacturers to work together in setting goals, expectations and strategic plans for future category growth.  Scorecards can be used to help obtain and measure category growth objectives.  

(vii) Retail Sales Support

Category managers can and should support sales at retail, such as by providing fact-based selling to support traditional sales efforts. Category management should offer a somewhat unbiased objective with the purpose of increasing a retailer's sales. 

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The industry standard model for category management in retail is the 8-step process, or 8-step cycle developed by the Partnering Group. The eight steps are shown in the diagram on the right; they are :

i. Define the category (i.e. what products are included/excluded).

ii. Define the role of the category within the retailer.iii. Assess the current performance.iv. Set objectives and targets for the category.v. Devise an overall Strategy.vi. Devise specific tactics.vii. Implementation.viii. The eighth step is one of review which takes us back to Step

1

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