Lecture Notes 1

RETAIL MANAGEMENT A1MBT202

UNIT-I
Basic Concepts of Retailing

World of Retailing:

Retailing is a global, high-tech industry that plays a major role in the global economy. About
one in five U.S. workers is employed by retailers. Increasingly, retailers are selling their
products and services through more than one channelsuch as stores, Internet, and catalogs.
Firms selling services to consumers, such as dry cleaning and automobile repairs, are also
retailers.

Retail management:

The various processes which help the customers to procure the desired merchandise from the
retail stores for their end use refer to retail management. Retail management includes all the
steps required to bring the customers into the store and fulfil their buying needs.

Retail management makes shopping a pleasurable experience and ensures the customers
leave the store with a smile. In simpler words, retail management helps customers shop
without any difficulty.

What is Retailing?

Most common form of doing business

a permanent location (a retail store) in small
It consists of selling merchandise from
quantities directly to the consumers.

These consumers may be individual buyers or corporate.

Retailer purchases goods or merchandise in bulk from manufacturers directly and then
sells in small quantities

areas, colony streets, community centers or in
Shops may be located in residential
modern shopping arcades/ malls.

Meaning of Retailing:

in selling goods or
According to Kotler: Retailing includes all the activities involved
services to the final consumers for personal, non business uses.
Lecture Notes 2

RETAIL MANAGEMENT A1MBT202

A process of promoting greater sales and customer satisfaction by gaining a better

understanding of the consumers of goods and services produced by a company.

Characteristics of Retailing:

1. Direct interaction with customers/end customers.

2. Sale volume large in quantities but less in monetary value

3. Customer service plays a vital role

4. Sales promotions are offered at this point only

5. Retail outlets are more than any other form of business

6. Location and layout are critical factors in retail business.

7. It offers employment opportunity to all age

Types of Retailers:

Store Retailing by Store based Strategy

Food Retailers

1. Departmental stores.
2. Convenience Store.
3. Full Line Discount.
4. Conventional Supermarket.
5. Specialty Stores
6. Food Based Superstore
7. Off Price Retailer.
8. Combination Store.
9. Variety Store.
10. Super Centres
11. Flea Market.
12. Hypermarket.
13. Factory Outlet.
14. Limited Line Stores.
15. Membership Club.

1. Department Store

Department stores are large retailers that carry wide breadth and depth of products. They
offer more customer service than their general merchandise competitors. Department stores
Lecture Notes 3

RETAIL MANAGEMENT A1MBT202

are named because they are organized by departments such as juniors, mens wear, female
wear etc. Each department is act as ministore. Means the each department is allocated the
sales space, manager and sales personnel that they pay an attention to the department. IMC
programme for each department is different and particular. Department store utilizes various
sources for marketing communication. Due to overstoring most of the budget are spending on
advertising, couponing and discounts. Unfortunately the use of coupons diminishes profits
and creates a situation where consumer does not buy unless they receive some type of
discount.

2) Convenience stores:

Convenience stores are located in areas that are easily accessible to customers. Convenience
store carry limited assortment of products and are housed in small facilities. The major seller
in convenience stores is convenience goods and non alcoholic beverages. The strategy of
convenience stores employ is fast shopping, consumer can go into a convenience stores pick
out what they want, and check out relatively short time. Due to the high sales, convenience
store receives products almost daily. Because convenience store dont have the luxury of high
volume purchase.

3) Full line Discount Stores

It conveys the image of a high volume, low cost, fast turnover outlet selling a broad
merchandise assortment for less than conventional prices. It is more to carry the range of
products line expected at department stores, including consumer electronics, furniture and
appliances. There is also greater emphasis on such items as auto accessories, gardening
equipment, and house wares. Customer services are not provided within stores but at
centralized area. Products are sold via self service. Less fashion sensitive merchandise is
carried.

4) Specialty Store:

Specialty store carry a limited number of product within one or few lines of goods and
services. They are named because they specialize in one type of product. Such as apparel and
complementary merchandise. Specialty store utilizes a market segmentation strategy rather
than typical mass marketing strategy when trying to attract customers. Specialty retailers tend
to specialize in apparel, shoes, toys, books, auto supplies, jewellery and sporting goods. In
recent years, specialty stores have seen the emergence of the category killer. Category killers
(sometimes called power retailer or category specialty) are generally discount specialty stores
that offer a deep assortment of merchandise in a particular category.

5) Off-price Retailers

Off price retailers resemble discount retailers in that they sell brand name merchandise at
everyday low prices. Off price retailers rarely offer many services to customers. The key
strategy of off price retailers is to carry the same type of merchandise as traditional
department stores but offer prices that can be 40 to 60 percent lower. To able to offer the low
prices, off price retailers develop special relationship with their suppliers for large quantity of
Lecture Notes 4

RETAIL MANAGEMENT A1MBT202

merchandise. Inventory turnover is the key factor of successful off price retailing business. In
addition to purchasing close outs and cancel orders, off price retailers negotiate with
manufacturer to discount order off merchandise that is out of seasons or to prepay for items
to be manufactured thus reducing the price of buying items.

E.g. there are many types of off price retailers, including outlet store, Manufacturers
department store or even specialty store chains can be an off-price retailer.

6) Variety Store

Variety store offer deep assortment of inexpensive and popular goods like stationary, gift
items, womens accessories, house wares etc.They are also called 5 to 10 percent store
because the merchandise in such stores, used to cost much.

7) Flea Market

Flea market is a literal transaction of the French aux puces, in outdoor bazaars in Paris. A flea
market is the outdoor or indoor facility that rent out space to vendors who offer merchandise,
services and other goods that satisfy the legitimate needs of customers. Flea market provides
opportunity for entrepreneur to start business at low price. A flea market consist of many
retail vendors offering a variety of products at discount price at places where there is high
concentration of people. On specific market days they assemble for exchange of goods and
services.

8. Factory Outlets

Factory outlets are manufacturer owned stores selling manufacturers closeouts, discontinued
merchandise, irregulars, cancelled orders, and sometimes in seasons, first quality
merchandise.

9) Membership Clubs

A membership club appeals to price conscious consumers, who must be a member of shop
there. It breaks the line between wholesale ling and retailing. Some members of typical club
are small business owners and employee who pay a nominal annual fee and buy merchandise
at wholesale prices; these customers make purchase for use in operating their firm or for
personal use. They yield 60% of total club sale. The bulk members are final consumers who
buy exclusively for their own use; they represent 40 %of overall sales.

10. Conventional supermarket.

Conventional supermarket is essentially large departmental stores that specialize in food.

According to the food marketing institute, a conventional supermarket is a self service food
store that generates an annual sales volume of $2 million or more. These stores generally
carry groceries, meat and produce products. A conventional food store carries very little
general merchandise.
Lecture Notes 5

RETAIL MANAGEMENT A1MBT202

11. Food Based Superstore

One of the biggest trends over the past twenty years in food retailing has been the
development of superstore. Superstores are food based retaliates that are larger than the
traditional supermarket and carry expanded service daily, bakery, seafood and non food
sections. Supermarket varies in size but can be as large as 150000 sq ft. Like combination
stores food based superstore are efficient, offer people a degree of one stop shopping
stimulate impulse purchase and feature high profit general merchandise.

12. Combination Store

Because shoppers have been demanding more convenience in their shopping experience, a
new type of food retailers has been emerging. This type of retailer combines food items and
non food items to create one stop experience for the customer. Combination stores are
popular for the following reasons. They are very large from the 30000 to 100000 or more sq
ft. this leads to operating efficiencies and cost savings. Consumer like one stop shopping and
will travel further to get to the store. Impulse sales are high.

13. Super Centres and Hypermarkets

Super centre is a combination of a superstore and discount store. Supercenter developed

based on the European Hypermarkets, an extremely large retailing facility that offers many
types of product in addition to foods. In supercentre more than 40 percent of sales come from
non food items. Super Centre is fastest growing retail category and encompasses as much as
sales. Wal-Mart is category leader with 74 percent share of super centre retail share.

14. Warehouse Clubs and Stores.

Warehouse clubs and stores were developed to satisfy customers who want to low prices
every day and are willing to give up services needs. These retailers offer a limited assortment
of goods and services, both food and general merchandise, to both end users and midsize
businesses. The stores are very large and are located in the lower rent areas of cities to keep
their overhead low cost low. Generally, warehouse clubs offer varying types of merchandise
because they purchase product that manufactures have discounted for variety of reasons.
Warehouse clubs rely on fast moving, high turnover merchandise. One benefits of this
arrangement is that the stores purchase the merchandise from the manufacture and sell it prior
to actually having to pay the manufacturer.

15. Limited Line Stores

Limited line store also known as box stores or limited assortment stores, represent a relatively
small number of food retail stores in the United States. Limited line store are food
discounters that offer a small selections of products at lows prices. They are no frills stores
that sell products out of boxes or shippers. Limited line stores rarely carry any refrigerated
items and are often cash and carry, accepting no checks or purchase bags from the retailers.
In limited line store, the strategy is to price products at least 20 percent below similar
products at conventional supermarkets.
Lecture Notes 6

RETAIL MANAGEMENT A1MBT202

Non Store Retailing.

1. Direct Marketing.
2. Electronic/Internet/E- Direct Selling.
3. Vending Machines
4. Catalog Marketing
5. Franchising

Direct Marketing

Direct marketing is defined as an interactive system of marketing, which uses non personal
media of communication to make a sale at any location or to secure measurable response.
Direct marketing is a method wherein the manufacturer or producer sells directly to retailer,
user or ultimate consumers without intervening intermediaries. This offers flexibility with
maximum controls of sales efforts and marketing information feedback. Various forms of
Direct Marketing-telemarketing, Direct mail marketing, television, marketing,

Direct Selling.

In contrast to direct marketing, which involves no personal contact with consumers, direct
selling entails some type of personal contact. This contact can be at the consumer home or at
an out of home location such as the consumer office.

Vending Machines.

Vending machines represents an additional class of retail institutions. Essentially, vending is

non store retailing in which the consumer purchase a product through a machine. The
machine itself takes care of the entire transaction, from taking the money to providing the
product. Vending machine offerings range from typical products such as soft drinks and
candy to insurance, cameras, phone calls, phone cards, books, paper and pens.

Catalog Marketing.

Mail Orders marketing/Catalog Marketing, also called as mail order business, is one of the
established methods of direct marketing. Since mail orders marketers use catalogues for
communication with the consumer, this form of marketing is often referred to as catalogue
marketing. In these methods the consumer become aware of product through information
furnished to them by the marketer through catalogues dispatched by mail.

Franchising

Franchise in French means privilege or freedom. Franchising refers to the methods of

practicing and using another persons philosophy of business. The franchisor grants the
independent operators the right to distribute its products, techniques and trademarks for a
percentage of gross monthly sales and royalty fee. Various tangibles and intangibles such as
national or international advertising, training and other support services are commonly made
available by the franchisor. Agreements typically last five to twenty years, with premature
cancelation or termination of most contracts bearing serious consequences for franchisees.
Lecture Notes 7

RETAIL MANAGEMENT A1MBT202

Advantage of Franchising.

Advantage to the Franchiser.

Low Capital & Low Risk.

Speeder Expansion.

Extended Market Penetration.

Disadvantages of Franchising

Business Control.

Expenses Involved

Lower profit Potential.

Multichannel Retailing:

Multi channel retailers are defined as those who browse or purchase through more than one
channel (retail store, catalog, Internet)
The emergence of multiple channels, especially the internet as a strong channel for shopping,
has been a real empowerment for the customer today. The customer is option rich, time and
attention poor and fully aware of the choices that he or she has access to in the market.
Multichannel retailing helps deliver a superior shopping experience by synchronizing
customer touch points and leveraging channel capabilities. The broad trends that we have
been seeing in the industry that will have a positive impact on Multi channel retail are:

Customers that use the online channel in addition to traditional store based retailing has
grown by 20-30% year over year
Internet influenced offline spending has grown significantly over the past few years
Cross-channel customers are younger and wealthier
Customers spend more at the store (about $150) when buying a product after performing
their research online; increasing the retailers share of the customer wallet

a) Store channel:
Store-Based Sellers By far the predominant method consumers use to obtain products is to
acquire these by physically visiting retail outlets (a.k.a. brick-and-mortar). Store outlets can
Lecture Notes 8

RETAIL MANAGEMENT A1MBT202

be further divided into several categories. One key characteristic that distinguishes categories
is whether retail outlets are physically connected to one or more others stores:
Stand-Alone These are retail outlets that do not have other retail outlets connected.
Strip-Shopping Centre A retail arrangement with two or more outlets physically
connected or that share physical resources (e.g., share parking lot)
Shopping Area A local centre of retail operations containing many retail outlets that may
or may not be physically connected but are in close proximity to each other such as a city
shopping district. Regional Shopping Mall Consists of a large self-contained shopping area
With many connected outlets
b) Catalog channel:
The consumer selects the goods he/she wants to purchase from an online catalog. This
catalog may be hosted either on the SAP Marketplace or on the retailer's Web site. Once the
order is complete, the customer confirms it and notes the order number. The order is then
transferred to the retailer's SAP System, the necessary materials are reserved, the internal
order is triggered, and the goods are sent off and delivered by a service partner. Using the
confirmed order number, the customer can check the status of the shipment at any time on the
Internet. Once the goods have been shipped and the customer has received them, the goods
receipt is confirmed and based on this, billing then takes place
c) Internet channel

When a firm uses its website to offer products for sale and then individuals or organisations
use their computers to make purchases from this company, the parties have engaged in
electronic transactions (also called on line selling or internet marketing). Many electronic
transactions involve two businesses which focus on sales by firms to ultimate consumers.
Thus online retailing is one which consists of electronic transactions in which the purchasers
an ultimate consumer.

Customer buying behaviour:

The buying Process:

1. Need recognition / Problem recognition:

The need recognition is the first and most important step in the buying process. If there is no
need, there is no purchase. This recognition happens when there is a lag between the
consumers actual situation and the ideal and desired one.
Lecture Notes 9

RETAIL MANAGEMENT A1MBT202

However, not all the needs end up as a buying behaviour. It requires that the lag between the
two situations is quite important. But the way (product price, ease of acquisition, etc.) to
obtain this ideal situation has to be perceived as acceptable by the consumer based on the
level of importance he attributes to the need.

2. Information search

Once the need is identified, its time for the consumer to seek information about possible
solutions to the problem. He will search more or less information depending on the
complexity of the choices to be made but also his level of involvement. (Buying pasta
requires little information and involves fewer consumers than buying a car.)

Then the consumer will seek to make his opinion to guide his choice and his decision-making
process with:

Internal information: this information is already present in the consumers memory. It comes
from previous experiences he had with a product or brand and the opinion he may have of the
brand.

Internal information is sufficient for the purchasing of everyday products that the consumer
knows including Fast-Moving Consumer Goods (FMCG) or Consumer Packaged Goods
(CPG). But when it comes to a major purchase with a level of uncertainty or stronger
involvement and the consumer does not have enough information, he must turns to another
source:

External information: This is information on a product or brand received from and obtained
by friends or family, by reviews from other consumers or from the press. Not to mention, of
course, official business sources such as an advertising or a sellers speech.

3. Alternative evaluation

Once the information collected, the consumer will be able to evaluate the different
alternatives that offer to him, evaluate the most suitable to his needs and choose the one he
think its best for him.

In order to do so, he will evaluate their attributes on two aspects. The objective characteristics
(such as the features and functionality of the product) but also subjective (perception and
perceived value of the brand by the consumer or its reputation).

Each consumer does not attribute the same importance to each attribute for his decision and
his Consumer Buying Decision Process. And it varies from one shopper to another. Mr.
Smith may prefer a product for the reputation of the brand X rather than a little more
powerful but less known product. While Mrs. Johnson has a very bad perception of that same
brand. The consumer will then use the information previously collected and his perception or
image of a brand to establish a set of evaluation criteria, desirable or wanted features, classify
the different products available and evaluate which alternative has the most chance to satisfy
him.
Lecture Notes 10

RETAIL MANAGEMENT A1MBT202

4. Purchase decision

Now that the consumer has evaluated the different solutions and products available for
respond to his need, he will be able to choose the product or brand that seems most
appropriate to his needs. Then proceed to the actual purchase itself.

His decision will depend on the information and the selection made in the previous step based
on the perceived value, products features and capabilities that are important to him.

5. Post-purchase behaviour

Once the product is purchased and used, the consumer will evaluate the adequacy with his
original needs (those who caused the buying behaviour). And whether he has made the right
choice in buying this product or not. He will feel either a sense of satisfaction for the product
(and the choice). Or, on the contrary, a disappointment if the product has fallen far short of
expectations.

An opinion that will influence his future decisions and buying behaviour. If the product has
brought satisfaction to the consumer, he will then minimize stages of information search and
alternative evaluation for his next purchases in order to buy the same brand. This will
produce customer loyalty.

Types of buying decisions:

1. Extended problem solving:

Is a purchase decision process in which customers devote considerable time and efforts to
analyse the alternatives. Customers typically engage in extended problem solving when
purchase decision involves a lot of risk and uncertainty. Financial risk arises when a customer
purchases an expensive product or service. Physical risks are important when customers feel
that a product or service may affect their health or safety. Social risks arise when customers
believe a product will affect how others view them. Consumers engage in extended problem
solving when they are making buying decision to satisfy an important need or when they
have little knowledge about the product or service.

2. Limited problem solving:

Is a purchase decision process involving a moderate amount of time and effort. Customers
engage in this type of buying process when they have had some prior experience with the
product or service and their risk is moderate. In these situations, customers tend to rely more
on personal knowledge than on external information. They usually choose a retailer they have
shopped at before and select merchandise they bought in the past. The majority of decisions
involve limited problem solving.
Lecture Notes 11

RETAIL MANAGEMENT A1MBT202

One common type of limited problem solving is impulse buying, which is a buying decision
made by customers on the spot after seeing the merchandise.

3. Habitual decision making:

Is a purchase decision process involving little or no conscious effort. Todays customers have
many demands on their time. One way they cope with these time pressures is by simplifying
their decision making process. When a need arises, customers may automatically respond
with, Ill buy the same thing i bought last time from the same store. typically, this habitual
decision making process is used when decisions arent very important to customers and
involve familiar merchandise they have bought in the past. When customers are loyal to a
brand or a store, they are involved in habitual decision making.

Factors influencing the buying process:

1. Cultural factors

Cultural factors are coming from the different components related to culture or cultural
environment from which the consumer belongs.

Culture and societal environment:

Culture is crucial when it comes to understanding the needs and behaviours of an individual.

Throughout his existence, an individual will be influenced by his family, his friends, his
cultural environment or society that will teach him values, preferences as well as common
behaviours to their own culture.

For a brand, it is important to understand and take into account the cultural factors inherent to
each market or to each situation in order to adapt its product and its marketing strategy. As
these will play a role in the perception, habits, behavior or expectations of consumers.

2. Social factors

Social factors are among the factors influencing consumer behavior significantly. They fall
into three categories: reference groups, family and social roles and status.

Reference groups and membership groups:

Lecture Notes 12

RETAIL MANAGEMENT A1MBT202

The membership groups of an individual are social groups to which he belongs and which
will influence him. The membership groups are usually related to its social origin, age, place
of residence, work, hobbies, leisure, etc..

The influence level may vary depending on individuals and groups. But is generally observed
common consumption trends among the members of a same group.

The understanding of the specific features (mindset, values, lifestyle, etc..) of each group
allows brands to better target their advertising message.

More generally, reference groups are defined as those that provide to the individual some
points of comparison more or less direct about his behavior, lifestyle, desires or consumer
habits. They influence the image that the individual has of himself as well as his behavior.
Whether it is a membership group or a non-membership group.

Because the individual can also be influenced by a group to which he doesnt belong yet but
wishes to be part of. This is called an aspirational group. This group will have a direct
influence on the consumer who, wishing to belong to this group and look like its members,
will try to buy the same products.

Family:

The family is maybe the most influencing factor for an individual. It forms an environment of
socialization in which an individual will evolve, shape his personality, and acquire values.
But also develop attitudes and opinions on various subjects such as politics, society, social
relations or himself and his desires.

But also on his consumer habits, his perception of brands and the products he buys.

We all kept, for many of us and for some products and brands, the same buying habits and
consumption patterns that the ones we had known in our family.

Perceptions and family habits generally have a strong influence on the consumer buying
behavior. People will tend to keep the same as those acquired with their families.

Historical perspective

The retail industry emerged in the US in the eighteenth century, restricted to general stores.
Specialty stores were developed only in those areas that had a population of above 5,000.
Lecture Notes 13

RETAIL MANAGEMENT A1MBT202

Supermarkets flourished in the US and Canada with the growth of suburbs after World War
II. The modern retail industry is booming across the world. Revenues from retail sales in the
US alone stood at $4.48 trillion in 2007, according to a report by the US Census Bureau.

Role of retailing:

1. Destination

The retailer uses the destination category to take a leadership role in the market. The
destination category communicates the retailers commitment to meet the specific needs of
consumers. It delivers consistent superior value to target shoppers and is used to define the
target consumer image of the retailer for the market. For example, a store might want to be
known as the preferred destination for ready-to-eat meal solutions. Their deli would then be
well stocked with a wide variety of prepared meals and side dishes. The destination category
draws shoppers to the store where they can do the rest of their shopping when they come in
for dinner.

2. Routine

The routine category is designed to assist in building the target consumers' image of the
retailer. A routine category serves as a link between the retailer and the consumer. This
would include most of the "routine" items consumers typically put on their shopping list.

3. Preferred routine

The preferred routine role for a category is used to help define the retailer as the preferred
choice by delivering consistent superior value to the target consumer. This is the trusted
retailer that consumers go to when they try to fill specific needsfor instance, one that's
committed to having best-quality produce in the market. Produce is a routine purchase for
consumers, but produce selection can vary greatly by retailer. Natural stores can differentiate
themselves by offering the best local and regional produce in the market.

4. Seasonal/occasional

A seasonal/occasional role for a category is focused on specific eventsthe floral department

for Mothers Day. Retailers typically place a great deal of emphasis on the floral department
on Mother's Day by increasing their selection, inventory and gift ideas.

5. Convenience

The convenience role is geared toward filling impulse needs. This category strategy typically
plays an important role delivering profit and margin enhancement through items like the
ready-to-eat meals in the deli and the chilled single serve beverages at the checkout lines.
Lecture Notes 14

RETAIL MANAGEMENT A1MBT202

Trends in Retailing:

The Retail Industry is changing rapidly due to various reasons

1. Spatial convenience: Number of working women has fuelled an intense demand for
convenience. The quest for convenience on the part of consumers is shown by
o frantic growth of convenience store fuelled by the entry of Petroleum
marketers AM/PM store
o Exploding Popularity of online shopping operators
o Diversification of vending machine into food /clothing and videotapes.
2. Increased power of retailer: At one time, Colgate dominated retailers. Now the
retailers tend to dominate them. The reasons for this reversal are many. Retailers have
many new products from which to choose when deciding what to stock on their
shelves. Further the IT has diffused throughout retailing to such an extent that
virtually all major retailer can capture item-by-item data via scanning devices at that
electronic point of sale terminal. This knowledge of information has permitted
retailers to calculate the (DPP) Direct Portfolio of Individual Items, track what moves
and what does not move well in their stores. So the Manufacturers struggled to get
space in the shelves of retailers. They offer Pricing concession, slotting allowance
etc., to promote products.
3. Growing Diversity of Retail formats:

Consumers can now purchase same merchandise from wide variety of retailers. They are
Dept. store, speciality store, convenience store, category killer, Mass merchandiser,
Hypermarket.

o Mom and Pop Stores and Traditional Kirana stores: A small independent store
across product categories is very common retail format in India. Particularly in
small townships
o E- commerce: The amount of retail business conducted on the Internet is
growing every year. Companies like Amazon. Com and First and second.com
which helped pioneer the retail e-commerce. Fabmart.com
o Department store with varied merchandising operations.
Lecture Notes 15

RETAIL MANAGEMENT A1MBT202

o Franchise: Territory rights are also sold to franchisees. Various distribution

and other services are provided by contract to franchisees for fee. Ex.
McDonalds, Blockbuster Video
o Warehouse club- wholesale club: Appeal is to price conscious shopper. Size is
60000 sq. ft. or more. Product selection is limited and products are usually
sold in bulk size.
o Mail order catalog: Non-store selling through the use of literature sent to
potential customer. Usually has a central distribution centre for receiving
and shipping direct to the customer.
o Speciality Discounter Category killer:

Offers merchandise in one line ( e.g. sporting goods, office supplies; children merchandise )
with great depth of product selection at discounted prices. Stores usually range in size from
50,000 to 75000 square feet.

Emergence of region specific formats: In deptl store format, while most A class cites and
metros have larger stores of 50000 sq ft sizes, stores in B Class towns have stabilized in the
25000- 35,000 sq. feet range. Most players have started operating these 2 formats across
various cities, which has helped them to standardise the merchandise offering across the
chain.

Entry of International Players: A large no. of international players has evinced interest in
India despite the absence of favourable government policies.

Mall Development: Modern malls made their entry into India in the late 1990s with the
establishment of cross roads in Mumbai and Ansal Plaza in Delhi. According to a market
estimates, close to 10mn sq. feet of mall space is being developed across several cities in the
country.

FDI in Retail:

FDI in retail industry means that foreign companies in certain categories can sell products
through their own retail shop in the country. At present, foreign direct investment (FDI) in
pure retailing is not permitted under Indian law.
Lecture Notes 16

RETAIL MANAGEMENT A1MBT202

Government of India has allowed FDI in retail of specific brand of products. Following this,
foreign companies in certain categories can sell products through their own retail shops in the
country. Indias retail industry is estimated to be worth approximately US$411.28 billion and
is still growing, expected to reach US$804.06 billion in 2015.

As part of the economic liberalization process set in place by the Industrial Policy of 1991,
the Indian government has opened the retail sector to FDI slowly through a series of steps:
1995: World Trade Organizations General Agreement on Trade in Services, which includes
both wholesale and retailing services, came into effect.

1997: FDI in cash and carry (wholesale) with 100% rights allowed under the government
approval route.

2006: FDI in cash and carry (wholesale) brought under the automatic route. Up to 51 percent
investment in a single-brand retail outlet permitted.

2011: 100% FDI in single brand retail permitted. The Indian government removed the 51
percent cap on FDI into single-brand retail outlets in December 2011,and opened the market
fully to foreign investors by permitting 100 percent foreign investment in this area.
Government has also made some, albeit limited, progress in allowing multi-brand retailing,
which has so far been prohibited in India. At present, this is restricted to 49 percent foreign
equity participation. The spectre of large supermarket brands displacing traditional Indian
mom-and-pop stores is a hot political issue in India, and the progress and development of the
newly liberalized single-brand retail industry will be watched with some keen eyes as
concerns further possible liberalization in the multi-brand sector.

FDI IN SINGLE-BRAND RETAIL

While the precise meaning of single-brand retail has not been clearly defined in any Indian
government circular or notification, single-brand retail generally refers to the selling of goods
under a single brand name.

Up to 100 percent FDI is permissible in single-brand retail, subject to the Foreign Investment
Promotion Board (FIPB) sanctions and conditions mentioned in press Note. These conditions
stipulate that: Only single-brand products are sold (i.e. sale of multi-brand goods is not
allowed, even if produced by the same manufacturer).Products are sold under the same brand
internationally.
Lecture Notes 17

RETAIL MANAGEMENT A1MBT202

Single-brand products include only those identified during manufacturing. Any additional
product categories to be sold under single-brand retail must first receive additional
government approval FDI in single-brand retail implies that a retail store with foreign
investment can only sell one brand.

For example, if Adidas were to obtain permission to retail its flagship brand in India, those
retail outlets could only sell products under the Adidas brand. For Adidas to sell products
under the Reebok brand, which it owns, separate government permission is required and (if
permission is granted) Reebok products must then be sold in separate retail outlet.

FDI IN MULTI-BRAND RETAIL

While the government of India has also not clearly defined the term multi-brand retail,
FDI in multi-brand retail generally refers to selling multiple brands under one roof. Currently,
this sector is limited to a maximum of 49 percent foreign equity participation. These are
positive steps and it will encourage international brands to set up shop in India. On the other
hand, this will also lead to competition among Indian players. It will be the consumers who
stand to gain,'' This would not change the market dynamics immediately as it will take some
time for these plans to fructify

Problems of Indian retailing:

1. Global economic slowdown impacting consumer demand

The current contraction in overall growth has not been so severe ever since the one
witnessed during World War II. The sub prime-triggered crisis in the US during end of 2007
gradually spread across other parts of the world; as a the fallout of this crisis, credit
availability dropped sharply in advanced economies and their GDP growth contracted
incessantly during the last quarter of 2008. the financial crisis continued to trouble advanced
and developing economies in spite of policymakers attempts to replenish liquidity in these
markets. Many financial institutions collapsed and filed for bankruptcy, as the situation got
from bad to worse. Many banks/institutions made massive write-downs following this turn
of events. During 2007-10, the write-downs on global exposures are expected to be worth
US$ 4 trillion while the write downs on the US-originated assets alone are likely to be worth
US$ 2.7 trillion11. Such massive write-down will affect the financial system to a grave
extent, as it is likely to further strain banks funding capabilities. Already these write-downs
Lecture Notes 18

RETAIL MANAGEMENT A1MBT202

are turning into a major challenge for banks/financial institutions because of solvency issues,
and deepening risk of failure of banks/ financial institutions. Failure of the US investment
bank Lehman Brothers, for instance, has had an enormous impact on the overall global
financial system, and has consequently shaken the confidence of banks, investors,
households etc.

2. Consumption declines in the advanced economies

Private consumption expenditure is an important indicator of overall economic growth. In

the last couple of quarters, the decline in consumption has further affected the global
economic downturn. Moreover, widespread financial crisis severely hit credit availability
and household disposable income. For instance, US households lost 20% (US$ 13 trillion)14
of their net worth as a percentage of disposable income from the second quarter of 2007 to
the fourth quarter of 2008. The stock prices across the world started falling during the
second quarter of 2007 and continued its losses throughout 2008; the global stock market
lost between 40-60% in dollar terms that translated to a huge loss of global wealth in 2008.
The personal disposable income (at current prices) in the US registered negative growth
(3.9% and 2.1%) during the last two quarters of 2008, respectively. The consumer demand
situation was aggravated further by reduced capital availability and consequent fall in
investments.

3. Competition from the unorganised sector

Organised retailers face immense competition from the unorganised retailers or kirana stores
(mom-and-pop stores) that generally cater to the customers within their neighbourhood. The
unorganised retail sector constitutes over 94% of Indias total retail sector and thus, poses a
serious hurdle for organised retailers. If put numerically, the organised retailers are facing
stiff competition from over 13 million kirana stores that offer personalised services such as
direct credit to customers, free home delivery services, APART from the loyalty benefits.
During the current economic slowdown, the traditional kirana stores adopted various
measures to retain their customers, which directly affected organised retailers. Generally, it
has been observed that customers shop impulsively and end up spending more than what
they need at organised retail outlets; however, in kirana stores, they stick to their needs
because of the limited variety. During a downturn, many customers may not like to spend
Lecture Notes 19

RETAIL MANAGEMENT A1MBT202

more as is evident from the past few months trend that shoppers are increasingly switching
from organised retail stores to kiranas.

4. Retail sector yet to be recognised as an industry

The retail sector is not recognised as an industry by the government even though it is the
second-largest employer after agriculture. Lack of recognition as an industry affects the
retail sector in the following ways:

Due to the lack of established lending norms and consequent delay in financing
activity, the existing and new players have lesser access to credit, which affects their
growth and expansion plans

The absence of a single nodal agency leads to chaos, as retailers have to oblige to
multiple authorities to get clearances and for regular operations

5. High real-estate costs

Even though the real estate prices have subsided recently due to the slowdown in economies
and the financial crises, these prices are expected to go up again in the near future. Presently
the sector faces high stamp duties, pro-tenancy acts, the rigid Urban Land Ceiling Act and
the Rent Control Act and time-consuming legal processes, which causes delays in opening
stores.

Earlier on the lease or rents on properties were very high (among the highest in the world) at
some prominent locations in major cities. The profitability of retail companies were affected
severely because real costs constituted a major part of their operating expenses. Now
companies are moving out from prominent malls of tier I cities and are re-negotiating the
rental agreements with landlords to reduce costs. Some are even focussing on setting up
shops in tier II and tier III cities.

6. Lack of basic infrastructure

Poor roads and lack of cold chain infrastructure hampers the development of food retail in
India. The existing players have to invest substantial amounts of money and time in building
a cold-chain network.
Lecture Notes 20

RETAIL MANAGEMENT A1MBT202

7. Supply-chain inefficiencies

Supply chain needs to be efficiently-managed because it has a direct impact on the

companys bottom lines. Presently the Indian organised retail has an efficient supply chain
but it appears efficient only when compared with the unorganised sector. On an international
level the Indian organised retailers fall short of international retailers like Wal-Mart and
Carrefour in terms of efficiencies in supply chain. In the following paragraphs some key
challenges that the retailers face during procuring goods from suppliers to delivering the
same to end-customers are discussed.

8. Challenges with respect to human resources

The Indian organised retail players shell out more than 7% of sales towards personnel costs.
The high HR costs are essentially the costs incurred on training employees as there is a
severe scarcity for skilled labour in India. The retail industry faces attrition rates as high as
50%, which is high when compared to other sectors also. Changes in career path, employee
benefits offered by competitors of similar industries, flexible and better working hours and
conditions contribute to the high attrition.

9. Shrinkage

Retail shrinkage is the difference between the book value of stock and the actual stock or the
unaccounted loss of retail goods. These losses include theft by employees, administrative
errors, shoplifting by customers or vendor fraud. According to industry estimates, nearly 3-
4% of the Indian chains turnover is lost on account of shrinkage. The organised industry
players have invested IT, CCTV and antennas to overcome the problem of shrinkage.
Lecture Notes 21

RETAIL MANAGEMENT A1MBT202

Theories of Retailing

1. THEORY OF WHEEL OF RETAILING

The theory was given by Malcolm P. McNair.One of the well accepted theories regarding
institutional changes in retailing. This theory states that in a retail institution changes
takes place in a cyclical manner.

The cycle is: the new retailer often enters the market with a low status, low profit margin,
and low price store formats. Later they move to up market locations and stock premium
products to differentiate themselves from imitators. Eventually they mature as high cost,
high price retailers, vulnerable to new retailers who come up with some other novel
retailing format/concept. This same retailer will in turn go through the same cycle of
retail development.

The cycle can be broadly classified into three phases:

Entry Phase

Trading up phase

Vulnerability Phase

ENTRY PHASE

The new, innovative retailer enters the market with a low status and low price store
format. Starts with a small store that offers goods at low prices or goods of high demand.
This would attract the customers from more established competitors. Tries to keep the
costs at minimum by offering only minimal service to customers, maintaining a modest
shopping atmosphere, locating the store in a low rent area and offering a limited product
mix. Success and market acceptance of the new retailer will force the established to
imitate the changes in retailing made by the new entrant. This would force the new
entrant to differentiate its products through the process of trading up.

TRADING UP PHASE

New retailer tries to make elaborate changes in the external structure of the store through
up gradation. Retailer will now reposition itself by offering maximum customer service ,a
posh shopping atmosphere , and relocating to high cost area( as per the convenience of
the customers ).Thus in this process the new entrant will mature to a higher status and
higher price operation . This will increase the cost of the retailer. The innovative
institution will metamorphose into a traditional retail institution. This will lead to
vulnerability phase.
Lecture Notes 22

RETAIL MANAGEMENT A1MBT202

VULNERABILITY PHASE

The innovative store will have to deal with high costs, conservatism and a fall on ROI.
Thus, the innovative store matures into an established firm and becomes vulnerable to the
new innovator who enters the market. Entry of the new innovator marks the end of the
cycle and beginning of the new cycle into the industry.

Example Of this theory kirana stores were replaced by the chain stores like Apna Bazar
and Food World (new entrant) which in turn faced severe competition from supermarkets
and hypermarkets like Big Bazaar and Giant.

2. THE RETAIL ACCORDION THEORY:

Hollander (1966) proposed the Retail Accordion theory, which explained retail evolution as a
cyclical trend in terms of the number of merchandise categories (i.e., product assortment). In
this theory, at the beginning of operation, a retail institution carries a broad assortment of but
does not carry a deep assortment (i.e., various styles within one product classification).
Lecture Notes 23

RETAIL MANAGEMENT A1MBT202

At this early stage, the retail institution is a general store. As time passes, the retail institution
becomes specialized by carrying a limited line of merchandise with a deep assortment. At this
point, the retail institution is a specialty store.
The theory suggests that retail institutions go from outlets with wide assortments to
specialized narrow line store merchants and then back again to the more general wide
assortment institution. It is also referred to as the general-specific-general theory.

3. THE MELTING POT THEORY:

Also called Dialectic Process. A new value proposition by one retailer gives rise to two
new retailers with the same proposition. Retail firms adapt mutually to the emerging
competition and tend to adopt the plans and strategies of the opposition.
The theory was proposed by Thomas J. Maronick and Bruce J. Walker. Two institutional
forms with different advantages modify their formats with different advantages modify their
formats till they develop a format that combines the advantages of both formats. This model
implies that retailers mutually adapt in the face of competition from opposites. Thus when
challenged by a competitor with a differential advantage, an established institution will adopt
strategies and tactics in the direction of that advantage, thereby negating some of the
innovators attraction the innovator over time tends to upgrade or otherwise modify products
and institutions. In doing so he moves towards the negated institution. As a result of mutual
adaptation the two retailers gradually move together in terms of offerings, facilities,
supplementary devices and prices. Thus they become indistinguishable or at least quite
similar and constitute a new retail institution termed the synthesis. The new institution is
vulnerable to negation by new competitors as the dialectic process begins anew.
Lecture Notes 24

RETAIL MANAGEMENT A1MBT202

4. POLARIZATION THEORY

This theory suggests that, in a longer term, the industry consists of mostly large and small
size retailers. The medium size becomes unviable. This is called polarization. Large stores
offer one stop shopping. The smaller ones tend to offer limited range of products, but add
value to their offers with other services. It is found that firms tend to be more profitable when
they are either small in size or big. The medium ones fall into the Bermuda Triangle
Lecture Notes 25

RETAIL MANAGEMENT A1MBT202

UNIT-II
Retailing strategy for setting up Retail organisation and planning

Retail market strategy:

Retailing strategy outlines the mission & vision

It is a systematic plan which provides the retailers overall framework for dealing with
its competitors, technological and international movements.

Strategic management actually is of recent origin as far as retailing is concerned.

sustainable competitive advantage through
Retailing strategy sets the tone for creating
the optimization of available resources.

Strategic retail planning process:

Step 1: Define the business mission

Mission statement-broad description of a retailers objectives and the scope of activities it

plans to undertake.

1. What business are we in?

2. What should our business be in the future?

3. Who are our customers?

4. What are our capabilities?

5. What do we want to accomplish?

Step 2: Conduct a Situation Audit

Situation Audit-and analysis of the opportunities and threats in the retail environment and
the strengths and weaknesses of the retail business relative to its competitors

Market Factors

Market size large markets attractive to large retail firms

Growing markets typically more attractive than mature or declining

Lecture Notes 26

RETAIL MANAGEMENT A1MBT202

Business cycles retail markets can be affected by economic conditions military base
towns

Seasonality can be an issue as resources are necessary during peak season only

Competitive Factors Barriers to Entry Bargaining Power of Competitive Large Vendors

Rivalry Customers Threat of Substitution

Environmental Factors

Questions for analyzing

New developments or changes -- technologies, regulations, social factors, economic

conditions

Likelihood changes will occur

Key factors determining change

Impact of change on retail market and competitors

Strength and Weakness Analysis

Indicates how well that business can seize opportunities and avoid harm from threats in the
environment

Management Capability:

Capabilities and experience of top management Depth of Management--capabilities of

middle management Managements commitment to firm financial Resources: Cash flow from
existing business Ability to raise debt or equity financing Operations: Store Management
Capabilities Overhead cost structure Management capabilities Quality of operating systems
Quality of sales associates Distribution capabilities Commitment of sales associates to firm
Management information systems Loss prevention systems Locations Inventory control
system Merchandising Capabilities: Knowledge and skills of buyers Customers Relationships
with vendors Loyalty of customers Capabilities in developing private capabilities

Step 3: Identify Strategic Opportunities

After completing the situation audit, the next step is to identify opportunities for increasing
retail sales.
Lecture Notes 27

RETAIL MANAGEMENT A1MBT202

Step 4: Evaluate Strategic Opportunities

Evaluate opportunities that have been identifies in the situation audit the evaluation
determines the retailers potential to establish a sustainable competitive advantage and reap
long-term profits from the opportunities being evaluated.

Step 5: Establish Specific Objectives and Allocate Resources

Establish a specific objective for each opportunity

Three components:

1. Performance sought Included a numerical index which progress may be measured

2. Time frame within which the goal is to be achieved

3. Level of investment needed to achieve the objective

Step 6: Develop a Retail Mix to Implement Strategy

Develop a retail mix for each opportunity in which an Investment will be made and control
and evaluate performance

Step 7: Evaluate Performance and Make Adjustments

Evaluate the results of the strategy and implementation program

If the retailer is meeting or exceeding its objective changes arent needed but if the retailer
fails to meet its objective, reanalysis is required

The conclusion would result in starting a new planning process, including a new situation
audit

Financial strategy:

Finance is the backbone of any successful business, retiling is not an exception

whole selling or even retailing, without finance no business can
Be it manufacturing,
survive for long.

Retail firm requires finance to run their business and meet day to day requirements.
Lecture Notes 28

RETAIL MANAGEMENT A1MBT202

For the success ofa business, there should be continuous movements of funds in and
outside the firm.

Retail Cash Flow Management

analyzing, and adjusting the cash flow that comes
It is the procedure of monitoring,
through selling merchandise.

For retail business managing cash is to avoid shortage of cash

The larger the gap, chances are of failure

Optimum balance is required

Thus, effective cash flow management is imperative at all stages

A retail firm may be profitable one as per financial statements but in actual it is unable to
pay the bills on time

Budget and Budgetary Control

Retail Budget: A retail budget is a financial plan or blue print of overall financial
transactions
that shows how the resource will be acquired and used over a period of
time.

Budgetary Control: It is the use of budgets as a means of controlling financial

activities.

Budgeting: Budgeting refers to the managements action of formulating budgets to
facilitate various departments to operate efficiently and economically.

Income Statement

It is the statement of the profit earned
or loss incurred during an accounting year,
usually a month, a quarter, or a year.

This represents a summary of a retailers revenues and expenses
over a particular
period of time such as April1, 2010 to March 31, 2011.

A profit or loss account or an income statement has the following components:

Net Sales
Lecture Notes 29

RETAIL MANAGEMENT A1MBT202

Cost of Goods Sold

Gross Margin

Operating Expenses

Net Profit

Asset Management

Each retailer has assets to manage and liabilities to control.

It is the
retailers ability and efficiency how effectively he manages the inputs and
outputs.

Balance sheet is a statement that reports the values owned bythe retail firm and the
claims of the creditors and owners against these properties.

In an organization, balance sheet is known by different titles (name). These are:

Statement of assets and liabilities

Statement of resources and liabilities

Statement of financial position

Statement of financial soundness

Statement of assets, liabilities and owners fund etc

Balance sheet/ General balance sheet

Statement of stocks/position
Lecture Notes 30

RETAIL MANAGEMENT A1MBT202

UNIT-III

Retail Location:

Location is the most important ingredient for any business that relies on customers. It is also
one of the most difficult to plan for completely. Location decisions can be complex, costs can
be quite high, there is often little flexibility once a location has been chosen and the attribute
of location have a strong importance on retailers overall strategy.
Lecture Notes 31

RETAIL MANAGEMENT A1MBT202

Importance of Location Decision:

Location is a major cost factor because it:

Involves large capital investment

Affects transportation cost
Affects human resources

Location is major revenue factor because it

Affects the amount of customer traffic

Affect the volume of business

A location decision is influenced by the flow of pedestrian and vehicular traffic, which
determine the footfalls in a retail store. Footfalls refer to the no. of customers who visit a
store in a defined time period.

Levels of Location Decision and its Determining Factors:

1. Selection of a city:

Factors to be considered for selection of a city:

o Size of the citys trading area: A citys trading are is the geographic region
from which customers come to the city for shopping. A citys trading area
would comprise it suburbs as well as neighbouring cities and towns. Cities like
Mumbai and Delhi have a large trading are as they draw customers from far
off cities and towns.
o Population or population growth in the trading area: A high growth in
population in the trading area can also increase the retail potential.
o Total purchasing power and its distribution: Cities with a large population of
affluent and upper middle class customers can be a attractive location for
stores selling high priced purchasing power and its distribution among a large
base of middle class is contribution to a retailing boom around major cities in
India.
o Total retail trade potential for different lines of trade: A city may become
specialize in certain lines of trade. Moradabad has become important location
for brassware products, Mysore-silks.
o The retailer also consider, number, size, quality of competition before
selecting a city.
o Development cost

Margin Free Market, the Kerala based retail chain (grocery and toiletry product
targeted middle and lower class) located 250 stores in small towns in Kerala.

II. Selection of an Area or Type of Location within a

city. Evaluation of the following factors required:

Lecture Notes 32

RETAIL MANAGEMENT A1MBT202

o Customer attraction power of a shopping district or a particular

store(commercial street-Bangalore, Chandni Chowk in Delhi)
o Product lines carried by other stores, number of stores in the area.
o Availability of access routes- There should not be traffic jam and congestion o
Nature of zoning regulations: Retailers should examine the plans of zoning
commissions and municipal corporations regarding the development of
shopping centres, residential areas, flyovers.
o Direction of the spread of the city. For ex. Mumbais subarbs and Navi
Mumbai are growing at a fast rate

III. Selection of a specific Site:

1. Adequacy and potential of traffic passing the site: The volume of vehicular traffic and
pedestrian shoppers who pass by the specific site shoud be assessed since they
represent the potential customers.
2. Ability of the site to intercept the traffic following past the site. The vehicular or
pedestrian traffic moving past the site would be attracted only if it represents the
segment the store is targeting.
3. Complementary nature of adjacent stores: a store selling school uniforms would have
greater potential if adjacent stores sell school books, stationary etc.

Type of Retail Location:

1. Free standing location:

Where there is no other retail outlets in the vicinity of the store and therefore depend
on its own pulling power and promotion. Dhabas on highways.

2. Neighbourhood stores:

Located in residential neighbourhoods and serve a small locality. They sell

convenience products like groceries.

3. Highway stores:

Located along highways or at the intersections of two highways and attract customers
passing through these highways. Fast food restaurants, Dhabas with good parking
facilities.

4. Business associated location:

These are locations where a group of retail outlets offering a variety of merchandise
work together to attract customers to their retail area but also compete against each
other for the same customers.
Lecture Notes 33

RETAIL MANAGEMENT A1MBT202

This can further be classified into two:

a) Unplanned business districts

An unplanned business district is a type of retail location where two or more retail
stores locate together on individual consideration rather than on the basis on any long-
rang collective planning. We may find 4-5 shoe stores, 3-4 medical stores in a cluster,
but no grocery store. Connaught place in New Delhi

i) Downtown or central Business District: A CBD usually has a trade area that varies
according to the size of the city or town. CBD s in major metro like Delhi, Mumbai
even draw customers from far off places. In major metros like Delhi and Mumbai we
find two or more CBDs each serving different segments. Commercial street-
Bangalore, Chikpet in Bangalore Chandni chowk Delhi.

ii) Secondary Business District: They are composed of an unplanned cluster of stores
often located on a major intersection of a city. Koramangala in Bangalore.

iii) Neighbourhood Business District: Stores located in Neighbourhood business

district form a small cluster and serve neighbourhood trading area. (Cities and towns)

iv) Suburban business District: Stores located on the towns periphery have lower
rents, often rely on traffic generated by the downtown and may sometimes offer
parking facilities. The malls in Gurgaon near Delhi are good examples.

b) Planned Shopping Centers

A planned shopping centre consists of a group of architecturally owned or managed stores,

designed and operated as a unit, based on balanced tendency and surrounded by parking
facilities.

Regional shopping centre malls:

Regional shopping centres or malls are the largest planned shopping cantered; often they are
anchored by two or more major department stores, have enclosed malls, serve a large trading
area and have high rents.( cross roads in Mumbai, Ansal Plaza in Delhi, Spencer Plaza in
Chennai, Metropolitan Mall in Gurgaon.

Neighbourhood/community Shopping centre:

Usually have a balanced mix of stores including a few grocery stores a chemist, a variety
store, and a few other stores.

Specialized Markets: In India most of the cities have specialized market famous for a
particular product category. For ex: Chennai- Go down street is famous for clothes, Usman
street for jewellery, T. Nagar for readymade garments.

Periodic Markets: Another peculiar type of market found in India is the periodic market,
which is established at particular places on a particular day in a week. Most of these markets
Lecture Notes 34

RETAIL MANAGEMENT A1MBT202

operate in evening hours. These markets are mostly associated with the name of the day it is
held on.

Type of consumer Goods and location Decision:

1. Convenience Goods low price, purchased frequently- convenience stores located in

central business districts, such as low priced, ready to wear have a limited mobility to
generate their own traffic. eg. Subhiksha has an expansion strategy of setting up one
outlet within every 3-4 km.
2. Shopping Goods- involve more intensive selling effort suits, automobiles and
furniture- shoppers stop and Westside prefers to locate in Central business districts or
major secondary business districts.
3. Speciality Goods- imply products with high unit price, brought infrequently, require
special effort may use isolated locations because they generate consumer traffic.

Trading Area:

A trade area is a contiguous geographic area from which a retailer draws customers that
account for the majority of a stores sales. A trade area may a part of a city, or it can extend
beyond the citys boundaries. A trade area can be divided into 2 or 3 zones.

Trade Area Analysis: It is necessary to estimate market potential, understand consumer profile,
competition etc. GIS (Geographical Information System combine digitized mapping with key
location data) used for this purpose. A saturated trade area offers customers a wide variety of
merchandise, which also ensures impressive profits for retailers in the market.

Site Selection Analysis: A retailer has to consider the following factors while selecting a site.

1. kind of products sold:

*convenience goods quality of traffic most important large window display area is
usually a better site.

* Shopping Goods quality of traffic most important-The emergence of several

apparel factory outlet within a short stretch on the on the Delhi Jaipur highway is
driven by this factor

* Speciality Goods- may desire to locate close to the shopping goods store.

2. Cost Factor in Location Decision: Traditionally retail community own the place. Space
cost (combination of rent, utilities, leasehold improvements, general decoration, security,
insurance, and all the related cost of having a place to conduct business operation) is
important factor.

3. Competitor location: Intense competition in the area shows that new businesses will have
to divide the market with existing business.

4. Ease of traffic flow and accessibility (studying flow of traffic, nothing one way street,
street widths, and parking lots)
Lecture Notes 35

RETAIL MANAGEMENT A1MBT202

5. Parking and Major Thoroughfares: The way parking lot is laid out, the direction of the
travel lanes and spaces, landscaping. The ideal ratio for food stores is in the magnitude of 7-8
cars per 1000 square feet of food store.

6. Market Trends: Discussions with the business owners and officials are a good source of
information. Make use of information available through the chamber of commerce.

7. Visibility: It is important when a shopper is trying to find the store for the first or second
time. The question relevant to this factor is: who will be the stores neighbour, what will be
their effect on store sales, how much space is needed.

Selection of a particular shopping centre or Market Area:

The following consideration influence the selection of a particular shopping centre:

1. Merchants Association: can strengthen business and save money through group
advertising, insurance plans and collective security measures.

2. Responsiveness of the landlord: Prospective retailers expect landlords acknowledgement

on the following issues: placement and size of signs, maintenance and repairs, and the
adjacent retail space.

3. Zoning and planning: The zoning commission will provide the latest mapping of the
retail location and surrounding area under consideration. Are there restrictions that will limit
operation; - will construction or changes in city traffic or new highways present barriers.

4. Leases: Before entering into any lease agreement, retailers should collect information on
future zoning plans and decide how long it will be viable to run business at a particular
location.

5. Building Layout: Age and condition of the building, adequacy of all mechanical system,
remodelling needs, storage availability, security needs, restrictions on alterations and
improvements to the property.

Location Assessment Procedures:

To determine the best possible retail location for the prospective retail outlet.

1. Checklist Analysis: simple framework regarding geo-demographics, shopping

behaviour, competition, cost and accessibility to the particular site.
2. Analogue Analysis: It attempts to predict the economic performance of a
particular site by assessing its potential against the already running stores.
3. Financial analysis: regarding development and operation of an outlet,
comparing the development cost, capital investment on site, building and
variable cost against expected returns.
4. Regression Modelling: developed around a no. of determinants such as
demographics, accessibility, competitive environment, trade area
characteristics, to estimate the potential turnover of the prospective outlet.
5. Retail Area Development: There are 4 important interest groups that can work
individually and in partnership to overcome challenges and obstacles in the
Lecture Notes 36

RETAIL MANAGEMENT A1MBT202

development of new retail markets. 1. Public 2.Developers 3. The Government

4. Retailers.

Objectives of good store design:

1. Implement the retailers strategy

Primary objective: to implement retailers strategy Design- consistent and reinforce the
retailers strategy by meeting the needs of the target market and building a competitive
advantage.

E.g. Sam`s-price sensitive- floor design and racks metal and concrete to reinforce the
brand image Flooring and shelving also affect retailers image: glass-elegance

2. Influence the customer buying behavior

Store design- should attract customers, enable them to locate merchandise, keep them in the
store for as long time, motivate them to make unplanned, impulse purchase and provide them
with a satisfied customer experience. Buying behavior-influences store design: rise in
nuclear families-limited time

E.g. P&G: first moment of truth- first 3-7 seconds, customer notices an item on the store
shelf. Mkt research customers do not walk down one aisle and up the next. Park at the end
of aisle-walk partway to pick the product and return to the cart. Hence puts its best selling
brands at the middle of the aisle

3. Provide flexibility

Dynamic business- what may work today may not be applicable tomorrow- need to change
the merchandise mix- need to change layout, attempt to design stores with max flexibility.
Two forms: ability to physically move and store the components, and the ease with which
components can be modified ex. Book stores

4. Control design and maintenance costs

Cost of implementing the store design and maintain the store appearance, Free form design
can encourage the customers to explore and increase sales More lighting- expensive
jewellery and other merchandise Good lighting- can make the merchandise look better and
increase sales Store design affect labour costs- traditional dept stores with diff depts.
comfortable shopping, but require one person constantly to provide service

5. Meet legal requirements

The store design should fully comply with the standards set by civic authorities.
Lecture Notes 37

RETAIL MANAGEMENT A1MBT202

Human Resource Management:

HRM includes recruitment and selection of appropriate employees at various levels.

The main objective of HRM is to help an organization to meet its strategic goals
by attracting, maintaining and managing them.

HRM basically is the organizational function that deals with issues related to people
such as compensation, hiring, performance management, organization development,
safety, wellness,
benefits, employee motivation, communication, administration, and
training.

Objectives of HRM in Retailing

To serve as standards against which performance is evaluated.

To promote harmony among human efforts & voluntary co-operation.

To fulfill the demand of retail industry.

To boost up survival-integrated activities such as employees recruitment, selection,

induction, training and development, supervision and compensation in the
organization.

Right person at right position

HR Functions in Retailing

1. Job analysis and job design

2. Recruitment and selection of retail employees

3. Employees training and development

4. Performance management

5. Compensation and benefits

6. Labor relations

7. Managerial relations

Supply chain management and logistics

It is a network of retailers, distributors, transporters, storage facilities, and suppliers
sale of a product that convert and move
that take part in the production, delivery, and
the goods from raw materials to end users.


It describes the processes and people involved in converting and conveying the goods
from raw materials to end consumers.
Lecture Notes 38

RETAIL MANAGEMENT A1MBT202

The activities close to the raw material stage are known as upstream activities and
activities between the manufacturer and end consumer are downstream activities.

Parts of a Supply Chain

1. Supply: It focuses on the raw materials supplied to manufacturing, including how,

when, and from what location.

2. Manufacturing: It focuses on converting these raw materials into finished products.

3. Distribution: It focuses on ensuring these products reach the consumers through an

organized network of distributors, warehouses, and retailers.

Objectives of SCM

To provide an uninterrupted flow of goods and services.

To meet quality criteria.

To reduce the inventory investment to the extent possible.

To offer high customer service, low inventory management and low unit cost.

To ensure quick responsiveness to the customer changes.

To select and maintain competent suppliers.

Components of Retail Supply Chain Management

Planning

Source

Procurement

Sell

Return/Exchange

Information systems in retailing:

Radio frequency identification or RFID

Is a new tracking technology that involves small tags that emit distinct signals. Retail
business owners can use remote scanners to read RFID tags placed on individual products,
enabling them to record a variety of information, including quantities of various stock items
and their precise locations.

Benefits of RFID:

1. Inventory Shrinkage (Shrink) Reduction

Lecture Notes 39

RETAIL MANAGEMENT A1MBT202

Track retail items between point of manufacture or purchase from supplier and point of
sale.

Real-time notification of security when RFID tagged items leave area without payment

Competitive advantage saving money on theft allows to offer product at lower prices

2. RFID Smart Labelling

Monitor unattended inventory

Automatic item identification on mixed pallets

"Smart Shelf" systems designed to provide real time tracking and locating of tagged items
on shelves

Shipping and Receiving applications

3. Shelf Stocking

Real-time notification of out -of stock items

Improvement of product replenishment

Retention of consumers who may turn t o competitors if inventory item is out -of-stock

Automated charting and tracking for improved product forecasting

4. Check-out Process

Reduce time spent in line

Reduce labour/time cost of employees

Streamline check-out process with ability to scan multiple items and pay for them all
at once

5. Overhead Reduction

Track product shipping and receiving from point -to-point automatically versus manual
tracking to save time and labour cost

Know how many units of inventory or on -site via automated RFID system versus manual
process, saving labour and time cost

Efficiency in error reduction reduces manual labour cost

Lecture Notes 40

RETAIL MANAGEMENT A1MBT202

UNIT-IV

Store management and Visual Merchandising

Store management:

Duties and Responsibilities of store manager :

Management of employees

Maintaining the sales environment

Cost minimization

Recruitment, Training and Development

Budgeting and Forecasting

Implementing Marketing plans

Team Leadership

Maintaining Leave and Salary Record

Holding Inventory

Extending Customer Services

Store security:

Appointment of uniformed security

Thorough check at entry and exit points

Without uniformed security guards can be located in the store

Use of TV cameras can be beneficial to catch the stealers

Cash deposits in banks must be made freque ntly

Brighter lighting should be arranged

Coordination between all security personnel

Access to storage areas and ware houses should be restricted

Store record and accounting system:

1. Store functions
2. Pricing of purchased material.
3. Pricing of store returned material.
4. Material received account.
5. Issue of material from store.
Lecture Notes 41

RETAIL MANAGEMENT A1MBT202

6. Physical verification of store stock.

1. Store functions:

Store functions will be supervised by different persons and will have separate sphere duties.

Store Procurement

Store Keeping

Store Accounting

2. Pricing of purchased material.

Local Purchases through Tender / Quotation.

Purchase through Purchase Committee or through Petty advances.

Material Transferred in/from other WAPDA formations.

Foreign Material Purchase.

3. Pricing of store returned material.

Un-used Material

(Not needed now to be used in future).

Defective / Damaged Material

(To be used after repair).

Scrape for disposal.

Material at site will be kept only for immediate use for the ongoing s pecific jobs. Otherwise,
material returns to Store at month end through Store Return Warrant (SRW).

4. Material Received Account.

1st copy of SMB page attach with
commercial invoice and process for making
payment by the Accounts Section.
Lecture Notes 42

RETAIL MANAGEMENT A1MBT202

2nd copy of SMB page sent to Accounts Section along -with GST invoice for posting
in the Stock Value Ledger and compiling GST input claim of the formation.

of receipt of material in the
3rd copy of SMB page sent to Store Section for posting
Stock Register along -with following documents.

Purchase order

Invoice

Bill of entry.

Inspection Certificate.

4th copy of SMB retain for office record. Based upon the office copy procurement
Section will prepare list of all the SMBs
recorded during the month and sent it to the
Accounts Section and Store Section.

5. Issue of material from Store.

A. Issue of consumable material.

B. Issue of Spare Parts.

C. Issue of T&P

D. Issue of Store to other Formations.

E. Issue of Scrape for disposal.

6. Physical verification of Store Stock.

The Procurement Section and Accounts Section will jointly carry out physical
verification of the store stock items by classifying the material as follow: -

The stock item having unit price of Rs.50,001 and above will be physically verified
100% in the month of June of each financial year as first preference,

The stock items having unit price of Rs.5 000 to Rs.50,000 will be physically verified
100% in 2nd preference in June of each financial year,
Lecture Notes 43

RETAIL MANAGEMENT A1MBT202

In 3rd preference the store items having unit price les s than Rs. 5,000 will be
physically verified at random basis during January to May of each financial year.

The difference identified by the physical verification committee must be investigated

by the authorized officer and adjustment (recovery or write-off) must be made at the
end of financial year with the approval of competent authority as per Rules and
Procedure.

Coding system:

A code system should have the following characteristics to be scientific and easily adoptable:

Simple to use: easy to understand with minimum and /or no need for training,

Flexible: ease to expand and accommodate more codes,

Good formulation: adopted system should be able to be used in all functional

areas in the entire organization.

Common Codification Systems

i. Alphabetical the use of the letter of the alphabet as the basis e.g. Iron ore rep. I-O etc

ii. Numerical the use of the numbers as the basis of the codes e.g. simple number 01, 02, or
complex systems which combines / strokes or dashes e.g. 1-100, 2-200 etc

iii. Alpha-numeric the combination of alphabets and numbers. This is the mixing of
numbers and letters of the alphabets e.g. SP -11 etc 1

iv. Decimal the use dash or stroke in the coding e.g. Main, Sub I, sub II an sub III e.g.
47.1.1 etc

v. Brisch this is the use of numeric system. It combines numbers and decimals. E.g.
47.002
Lecture Notes 44

RETAIL MANAGEMENT A1MBT202

vi. Kodak this originated by Eastman Kodak Co. of the USA. This system borrows all the
good points from all other systems. It is much based on the numerical codification system
and in the place of decimals hyphens are used in the Kodak System.

Marking of stores / materials:

This is another method of codification. There are two t ypes of marking of stores:

i. Color marking this is used to supplement the other codification systems e.g. use of paint
such as blue, red, aluminium etc

ii. Secret Marking expensive stores items are highly susceptible to theft and pilferage.
These are discreetly marked to help detect / identify from where they have been sold out. The
secret marks are not easily visible.

Material handling in stores:

Material handling is an integral part of all retail stores and accounts for 10-20% of the total
cost of the selling price. It is the way by which the goods of greater efficiency can be attained
not only in stores but wherever materials can be moved either manually or with the help of
slings, or other handling instruments. Material can also be moved by people using machines
such as forklift trucks, and other lifting fixtures (mechanical lifting). It does not directly add
value to the product but adds to the final cost.

Thus material handling function includes all types of movements within the retail stores.
These materials are of various types, shapes and size. At each stage of selling materials are
loaded and unloaded are travel widely inside the store moved. It is method for moving
material.

Each handling task poses unique demands on the floor staff. However, workplaces can help
store staff to perform these tasks safely and easily by implementing and upholding proper
policies and procedures for minimum and automatic materials handling resulting in reduction
in handling costs.
Lecture Notes 45

RETAIL MANAGEMENT A1MBT202

Manual material handling operations are carried out in most retail stores because the goods
comparatively belong to FMCG sector and these are light in weight. But in case of
electronics furniture/luxury retailing, manual lifting can spoil the goods/items meant for sale.
As when these items collide with each other, they can create hazards that result in injuries.

Management of modern retail:

The more merchandise customers are exposed to that is presented in an orderly manner, the
more they tend to buy. Retailers focusing more attention on in-store marketing marketing
dollars spent in the store, in the form of store design, merchandise presentation, visual
displays, and in-store promotions, should lead to greater sales and profits (bottom line: it is
easier to get a consumer in your store to buy more merchandise than planned than to get a
new consumer to come into your store)

Types of store layout:

1. Grid (Straight) Design

Best used in retail environments in which majority of customers shop the entire store
Can be confusing and frustrating because it is difficult to see over the fixtures to
other merchandise
Should be employed carefully; forcing customers to back of large store may frustrate
and cause them to look elsewhere
Most familiar examples for supermarkets and drugstores
Lecture Notes 46

RETAIL MANAGEMENT A1MBT202

2. Curving/Loop (Racetrack) Design

Major customer aisle(s) begins at entrance, loops through the store (usually in shape
of circle, square or rectangle) and returns customer to front of store
Exposes shoppers to the greatest possible amount of merchandise by encouraging
browsing and cross-shopping

3. Free-Flow Layout

Fixtures and merchandise grouped into free-flowing patterns on the sales floor no
defined traffic pattern
Works best in small stores (under 5,000 square feet) in which customers wish to
browse
Works best when merchandise is of the same type, such as fashion apparel
If there is a great variety of merchandise, fails to provide cues as to where one
department stops and another starts

4. Spine Layout

Variation of grid, loop and free-form layouts

Based on single main aisle running from the front to the back of the store
(transporting customers in both directions)
On either side of spine, merchandise departments branch off toward the back or side
walls
Heavily used by medium-sized specialty stores ranging from 2,000 10,000 square
feet
Lecture Notes 47

RETAIL MANAGEMENT A1MBT202

In fashion stores the spine is often subtly offset by a change in floor coloring or
surface and is not perceived as an aisle

Layout: external factors

Size must be adequate to accommodate business needs.

Appearance must create the proper image or personality for the business in the
customers eyes.

Entrances must invite customers to come in.

Create effective window displays and change them often; they can be powerful sales
tools.

Must comply with Americans with Disabilities Act (ADA).

Pay attention to the business sign, the most direct method of reaching potential customers.

Building interiors

Ergonomics is an integral part of any design.

Proper layout and design pays off in higher productivity, efficiency, or sales.

Proper lighting is measured by what is ideal for the job being done.

Careful selection of colours can create the desired impressions among customers and
employees.

Appealing to all of the customers senses can boost sales.

Visual merchandising:

The use and manipulation of attractive sales displays and retail floor plans to
engage customers and boost sales activity. In visual merchandising, the products being sold
are typically displayed in such as way as to attract consumers from the
intended market by drawing attention to the product's best features and benefits.

Feature Areas

The areas within a store designed to get the customers attention which include:

End caps displays located at the end of the aisles

Promotional aisle/area
Lecture Notes 48

RETAIL MANAGEMENT A1MBT202

Freestanding fixtures

Windows

Walls

Point-of-sale (POS) displays/areas

Fixture Types

Straight Rack long pipe suspended with supports to the floor or attached to a wall

Gondola large base with a vertical spine or wall fitted with sockets or notches into
which a variety of shelves, peg hooks, bins, baskets and other hardware can be
inserted.

Four-way Fixture two crossbars that sit perpendicular to each other on a pedestal

Round Rack round fixture that sits on pedestal

Other common fixtures: tables, large bins, flat-based decks

Fixture Types

Wall Fixtures: To make stores wall merchandisable, wall usually covered with a skin
that is fitted with vertical columns of notches similar to those on a gondola, into
which a variety of hardware can be inserted. Can be merchandised much higher than

floor fixtures (max of 42 on floor for round racks on wall can be as high as 72.

Merchandise Display Planning

Shelving flexible, easy to maintain

Hanging

Pegging small rods inserted into gondolas or wall systems can be labor intensive
to display/maintain but gives neat/orderly appearance

Folding for soft lines can be folded and stacked on shelves or tables - creates high
fashion image

Stacking for large hardlines can be stacked on shelves, base decks of gondolas or
flats easy to maintain and gives image of high volume and low price

Dumping large quantities of small merchandise can be dumped into baskets or bins

highly effective for soft lines (socks, wash cloths) or hardlines (batteries, candy,
grocery products) creates high volume, low cost image
Lecture Notes 49

RETAIL MANAGEMENT A1MBT202

POS Displays

Assortment display open and closed assortment

Theme-setting display

Ensemble display

Rack display

Case display

Cut case

Dump bin

Store front Design

Storefronts must:
o Clearly identify the name and general nature of the store
o Give some hint as to the merchandise inside
o Includes all exterior signage
o In many cases includes store windows an advertising medium for the store
window displays should be changed often, be fun/exciting, and reflect
merchandise offered inside

Atmospherics

The design of an environment via:

o visual communications
o lighting

o color
o sound
o scent

Visual Communications

Name, logo and retail identity

Institutional signage

Directional, departmental and category signage

Point-of-Sale (POS) Signage

Lecture Notes 50

RETAIL MANAGEMENT A1MBT202

Lifestyle Graphics

Coordinate signs and graphics with stores image

Inform the customer

Use signs and graphics as props

Keep signs and graphics fresh

Limit sign copy

Use appropriate typefaces on signs

Create theatrical effects

Lighting

Important but often overlooked element in successful store design

o Highlight merchandise

o Capture a mood

o Level of light can make a difference

Blockbuster

Fashion Departments

Colour:

Can influence behavior

o Warm colors increase blood pressure, respiratory rate and other physiological
responses attract customers and gain attention but can also be distracting
o Cool colors are relaxing, peaceful, calm and pleasant effective for retailers
selling anxiety-causing products

Sound & Scent

Sound
o Music viewed as valuable marketing tool
o Often customized to customer demographics - AIE
o Can use volume and tempo for crowd control
Scent

o Smell has a large impact on our emotions

Lecture Notes 51

RETAIL MANAGEMENT A1MBT202

o Victoria Secret, The Magic Kingdom, The Knot Shop

o Can be administered through time release atomizers or via fragrance-soaked
pellets placed on light fixtures

Controlling cost and reducing inventory loss:

Inventory management simply means the methods you use to organize, store and replace
inventory, to keep an adequate supply of goods while minimizing costs.

Each location where goods are kept will require different methods of inventory
management.

Keeping an inventory, or stock of goods, is a necessity in retail.

Customers often prefer to physically touch what they are considering purchasing, so
you must have items on hand. In addition, most customers prefer to have it now,
rather than wait for something to be ordered from a distributor.

Every minute that is spent down because the supply of raw materials was interrupted
costs the company unplanned expenses

Inventory control is the technique of maintaining the size of the inventory at some
desired level keeping in view the best economic interest of an organization.

An Effective Inventory Management Should

Ensure a continuous supply of raw materials to facilitate uninterrupted production

Maintain sufficient stocks of raw materials in periods of short supply and

anticipate price changes

Maintain sufficient finished goods inventory for smooth sales operation, and
efficient customer service

Minimize the carrying cost and time.

Control investment in inventories and keep it at an optimum level

Customer service:

Integral part of the retail industry.

Customer service acts as lifeblood
Lecture Notes 52

RETAIL MANAGEMENT A1MBT202

It is to bring customer back to the store

Sending customers happily

Satisfy customers recommend others to visit that store

It is the word of mouth that multiplies your customer base within a short span of time.

of good customer service is to develop a long lasting rapport with
The strength
customers.

Customers Contact Points

1. Financial Assistance
2. Physical Assistance
3. In-Person Product Support
4. Internet
5. Kiosks
6. Telephone/Help line/Toll free Numbers

Essentials of Good Customer Service

Answer customers phone

Doesnt make fake promises

Listen to customers.

Handle the complaints

Be helpful without considering earning profit always

Go one step ahead

Manage Customers Creatively

Significance of Customer Service

Builds brand loyalty

Complaints are less

Customers are always happy and satisfied

Drives profitable growth

Helps retailers create differentiation and value through their experiences

Increase the image of a store

Increases client base
Lecture Notes 53

RETAIL MANAGEMENT A1MBT202

It is a source of mouth advertisement

Strengthens competitive advantage

Visitors become customers and customers become loyal to stores

Planning Merchandise Assortment

It is a technique of developing, securing, pricing, supporting and communicating the
retailers offerings.


This task is done by a retailer who ensures that right product should reach to the
customers at right time, right place and at right price.

Therefore he devotes mostof his time to understand consumers needs and selling
merchandise accordingly.

What to sell and how much to purchase is an important task for every retailer.

Category management:

Category management is the process of managing a retail business with the objective of
maximising the sales and profits of a category rather than the performance of individual
brands or models.

A category is an assortment of items that the customer sees as reasonable substitutes for each
other. For example, retailers in ready to wear segment consider female and male clothing as
one category.

It systemizes grouping of products into strategic units or category so as to better meet

consumer needs and achieve sales and profit goals. Today, the relevance of category
management is driven by the emergence of multiple numbers of brands in each product
category. For the success of any category management, retail business requires changes in the
merchandising system and organizational commitment.

The Essential Elements of Effective Category Management:

1. Category should be arranged as if consumers could stock the shelf themselves

2. Category composition should be on the basis of time, space and product benefit
3. Category management should drive multiple item purchase
4. Category management is a dynamic, proprietary set of decision, not a standard,
universal practice.
5. It is directed to create value for the consumer rather than facilitating relations
between supplier and retailer.
Lecture Notes 54

RETAIL MANAGEMENT A1MBT202

6. Category management plan should be based on the overall competitive environment

in a specific trading area.

Stock Keeping Unit (SKU)

It is a unique number (identifier) assigned to an item that describes its features
in terms of size, color, style and quantity.

Each organization according to its size, levelof operations and product
categories, develops its own SKU numbers.

These numbers are unique and allotted/assigned to a single item. No two items in
an outlet will have identical
SKU number and are usually assigned and serialized at
an outlet/merchant level.

This system allows retailers to track records of merchandise.

Merchandise Buying system:

Retailers throughout the globe usually employ two types of buying systems:
I. Staple merchandise buying system II.
Fashion merchandise buying system

Buying System for Staple Merchandise

Staple merchandise consists of the items that are regularly purchased, displayed and
sold by the retailers.

staple merchandise will be bread, butter, milk, salt, eggs, and
For a grocery store,
tissues and so on.

most of the merchandise at sports store and home improvement centers are
Similarly,
staple.

rolls, stapler pins, pens,
For a departmental store, staple merchandise is camera
notebooks, briefcase, gift items and house wares.
Lecture Notes 55

RETAIL MANAGEMENT A1MBT202

Buying System for Fashion Merchandise

Fashion merchandise consists of the items those usually have unpredictable demand
and limited sales record. Demand forecasting as discussed earlier,
in the absence of
any sales history for specific fashion SKU becomes difficult.

For instance, Yoga and meditation that was part and parcel of Indians lives before
seventies, was replaced by gym, spa and health centers, has again entered in
Indians lives and becoming popular among youths too.

Merchandise Budget Plan (MBP)

activities designed for a particular
It is a forecast of particular merchandise related
period of time, say, one year or six months.

than physical control of items, stress is given towards their
Under this plan, rather
financial planning.

MBPs usually are made for one season and then broken down into shorter periods
like monthly & weekly plans.

In an effective merchandise Budget Plan, a retailer forecasts and plans about five
fundamental variables, namely, sales level, stock levels, purchases, reductions
(markdowns) and gross margin.

of having a MBP is that a retailer would like to have a proper balance
The objective
between:-

to suppliers for purchase of merchandise and making it available
(a) what will be paid
to customers; and

(b) The cash inflow that will come in the business from sales to customers.

Though in practice, there are several accounting practices that allow some flexibility
(for example extended credit terms or easy payment options), this balance is vital to
maintain the firms liquidity.

For the effective accomplishment, the firms internal records, past yearsexperience
must be carefully considered instead of relying on historical data alone.

UNIT-V

Retail communication mix:

Communication is the foundation of all business relationships.

Communication gap can hamper the business relationships
Lecture Notes 56

RETAIL MANAGEMENT A1MBT202

the customers about the presence of a store
The communication program intimates
and its merchandise uniqueness.

Communication program attracts the customers

Attract them and lure customers to visit the store

Retailers adopt both paid & unpaid modes of communication

Role of Communication in Retailing

To increasing brand awareness

To develop associations with brands

o Merchandise Uniqueness
o Price policy

o Unique Lifestyle
o Unique properties

Continuous Recall

Methods of Communication

1. Paid Impersonal Communication

Sales Promotion

Advertising

Store Atmosphere and Visual Merchandising

Websites

2. Paid personal Communication

Personal Selling

E-mail

3. Unpaid Impersonal Communication

Publicity

4. Unpaid Personal Communication

Word of Mouth Communication
Lecture Notes 57

RETAIL MANAGEMENT A1MBT202

Retail Communication Process

1. Planning the Retail Communication Programme

2. To Device the Communication Strategy
3. Preparing the Communication Budget
4. Implementation of Communication Programme
5. Evaluating the Communication Programme
Lecture Notes 58

RETAIL MANAGEMENT A1MBT202

Retail Pricing

Setting the right price will result in increased revenue to the retail firm. The prime objective
of retail pricing is to achieve profitability which is influenced by two factors. They are Profit
margin of the offering and cost of merchandising.

Factors Influencing Pricing:

The porters model can help to understand the influences of retail pricing.

1. Customer: Customers price sensitivity is influenced by many factors. For ex: Caf
coffee day offer the coffee at the same price of Rs.35 (minimum) in all its branches of
urban and semi urban areas, though it is a general assumption that semi urban
customers wont go for highest prices. But in order to maintain, its positioning
strategy, coffee day maintained the same price and attracting its target customers
through its ambience. Segmentation of the customers can also be useful for fixing the
appropriate price. There is some customers look for the benefit of owning the brand
rather than the price. Situations also affect the pricing policy of the firm. A store
located in hill station may fix high price and the same may be accepted by customers.

2. Suppliers: In order to maintain image of the brand and to achieve the goal of the firm,
sometimes the manufactures direct the pricing policy of the retail firm. The conflict
between the retailer and manufacturer may arise when the manufactures decides to
introduce a new model and that hampers the movement of retailers old stock.
Reputed Retailers have more bargaining power when they buy bulk items from the
manufacturer. Also sometimes retailers seek, for price guaranteed ie if the prices of
sold items to retailer go down.

3. Competitor: It affects the freedom to fix price. The range varies from being perfect to
monopoly. Retailers generally avoid price based strategy because it may end up in
price war.
4. Government: There are legal issues relating to price discrimination. The retailer can
charge different price to different customer only when the distance is the justifying
factor.
Lecture Notes 59

RETAIL MANAGEMENT A1MBT202

Vertical Price Fixing: The retailer to set price at manufacturer suggested price.

Horizontal agreement: - agreement between retailer competitors

Predatory pricing- This pricing is considered as illegal as it intends to drive away the
competition.

Retail pricing strategies:

1. EDLP- Every Day Low Pricing: It is popularized by Wal Mart, Home Depot. In India,
this strategy is followed by Big Bazar. But the bulk volume is necessary to negotiate with the
manufacturer for price concession so that it can be offered at reduced price to the customer.
Low prices are stable and not subject to one time sale. The strategy is that it continues to
offer products below MRP.

Advantages: Less reliance on price reduction to change, Reduced Advertisement, Informed

customer service, Better Inventory management.

2. High Low Pricing: Prices that are sometimes above their Competitors EDLP. It uses
Advertisement to promote frequent sales. Also use sale to respond increased competition.

Advantages: some merchandise can be used to target different segments; Enthusiasm is

created among customers (impulse Purchase), Image of quality is created (high price- no
compromise on quality); EDLP is difficult to implement, so it has advantage over that.

3. Loss Leader Pricing: Fast moving products offered at low price as to attract buyers and to
persuade them to buy other products also

4. Skimming: sets relatively high price for a product or service at first and then lower price
over time. Effective only when the firm is facing inelastic demand.

5. Penetration Pricing: setting a relatively low initial entry price so as to increase market
share. The retailer has to be very careful with this strategy as it may establish long term price
expectation and that makes it difficult to eventually raise prices. The solution is to set the
initial price at the long term price but include an initial discount coupon
Lecture Notes 60

RETAIL MANAGEMENT A1MBT202

6. Price lining: refers to the offering of merchandise at a no. of specific but pre-determined
prices. Prices may be held constant over a period of time eg. 79.50, 109.50, 149.50

7. Psychological pricing: intended to have special appeal to customers.

Prestige pricing: high prices to convey distinct and exclusive image for the product.
Charging high price for a product where it is judged this in itself give it prestige. For
e.g.: TAJ

Reference Pricing: uses consumers frame of reference that is established through

previous experience of purchasing eg: sports items.

Traditional Pricing: uses historical /long standing prices ( sports products)

Odd-Even pricing: eg: $ 9.95 to denote lower price or a good deal $ 10.00 imply
high quality.

Multiple Unit pricing encourage additional sales and increase profits. Gross margin
that is sacrificed in a multiple unit sales is more than offset by the savings that occur
from reduced selling and handling expenses.

Bundle Pricing: Practice of offering two or more different products at one price. Used
to increase both unit and rupee sales by brining traffic in to the shop.

Pre-emptive Pricing: setting low prices in order to discourage or deter potential new
entrants

Extinction pricing: Has overall objective of eliminating competition and involves

setting very low prices in the short term in order to undercut competition.

RETAIL PROMOTION:

Retail promotion is broadly defined as all communication that informs persuades and or
reminds the target market or other prospective segment about marketing mix of the retail
firm. The retailer seeks to communicate with customers to achieve a number of objectives.

a) Increasing store traffic by encouraging new shoppers to visit store

b) Increasing the share of wallet for all shoppers

c) Increasing the sale of a given product category

Lecture Notes 61

RETAIL MANAGEMENT A1MBT202

The promotional elements include:

Advertising, sales promotion, Publicity, personal selling, Direct marketing, Public relations.

Selection of Promotion Mix:

Retailers usually employ a combination of the above. The degree and nature of usage of each
promotion method depends on the objectives of the retail firm. For ex. McDonalds
extensively relies on advertising in national and local newspaper. Haldiram, the Delhi centric
food chain, primarily relies on point of purchase (POP) material. Retail banking Industry
makes extensive use of all promotional methods including television, print media. Various
retail promotion methods can be compared on the basis of the degree of control, flexibility,
credibility and cost associated with them.

Retail Advertising:

The American Marketing Association defines Advertising as any paid form of, non personal
presentation of ideas, goods, services by an identified sponsor Advertising is recognized as
an indispensable tool of promotion. Based on the conceptualization, advertising can be
understood as follows:

1. paid form of communication

2. Non personal presentation of message (face to face direct contact with customer)
3. Issued by an identified sponsor.

OBJECTIVES OF ADVERTISING:

o To promote new product, to support personal selling programme

o To reach out to people not accessible to salesperson
o To enter new market, to manage competition
o To enhance goodwill of the retail firm and to improve dealer relation
o To warn the public against imitation of the retailers products.
Lecture Notes 62

RETAIL MANAGEMENT A1MBT202

SIGNIFICANCE OF ADVERTISING IN RETAIL SECTOR:

Its imperativeness has increased in this era of globalization and liberalization around the
worlds. Raymonds the apparel retail chain, primarily used television and print ad to promote
experiential aspect associated with shopping at its stores.

TYPES OF ADVERTISING:

a. Consumer oriented or persuasive Advertising: The major objective of consumer

oriented advertising is to inform consumers about the new products, holding
consumer patronage against intensified campaign by rivals, promoting a contest or a
premium offer. It helps in maintaining a regular demand and attracts a lot of attention
and preferences of the customers. eg: Wills Lifestyle, the ITC owned apparel retail
chain
b. Informative Advertising: Purchase of durable products is often too expensive to buy,
so the buyer requires elaborate information about them. Hence the retailer and
manufacturer spend a huge amount of informative advertising.
c. Institutional or corporate Advertising: Its main motive is to build corporate image. An
attempt is made to highlight the achievements and objectives of retail organization.
E.g. HDFC bank has tied up with Business Today the leading business magazine to
sponsor 10000 copies of the Magazine in each metro. The cover of the sponsored
copies of December 2003 rated HDFC bank as the best bank in the country.
d. Financial Advertising: advertisement by various financial institutions like standard
chartered Bank, ICICI etc. Recently HDFC bank has evolved a mix of sales
promotion and advertising to attract new customers.
e. Classified Ad: which are placed under specific headings and columns in various
magazines.

SALES PROMOTION:

Sales promotion refers to communication strategies designed to act as a direct

inducement, an added value or incentive for the product to customers. Sales promotion
provides extensive tactical measures to marketers to manage internal or external impediments
to sales or profits. Internal impediment (unsold stock); External impediment (competition)
Lecture Notes 63

RETAIL MANAGEMENT A1MBT202

Objective of Sales Promotion:

o Assist the other communication activities undertaken by the store.

o to encourage new tiers by offering free trial
o to encourage repeat purchase

Supplier originated sales promotions:

Sales promotion can originate from two sources suppliers or retail store itself.

In-store Activities:

Price off Pack: The product is sold at reduced price form its normal selling price. This is in
the form of a discount.

Premiums: These are in the form of small gifts that a customer gets on purchasing a product.
Its attached to the pack or inside the pack.

Self-liquidating Premiums: Customer has to write to the supplier for the gift, enclosing
empty packets, bottle crowns etc. of the product plus some money. Basically the customer
provides some proof of the purchase. For eg: Rin gift hunt, Rs. 5 lack worth of educational
gift to children (requires customer has to fill the form and submit to the nearby store)

Personality promotions: Many companies use show business personalities to endorse their
products. The suppliers tend to associate the charisma associated with these personalities. For
ex: T.N Shesan the former election commissioner was used by Safal Vegetables since he did
not appear for any other product and he had an honest and upright image.

Co-operative promotions: two or more products share and fund in joint store promotion.
Shaving foam and after shave lotion.

Sampling: Free sample, and sometimes the demonstrator may also be present to explain the
product. The product may be entirely new and customers may have little knowledge about the
product
Lecture Notes 64

RETAIL MANAGEMENT A1MBT202

Multipack: two or more packs are attached and sold for a better and attractive price than the
price of the items singly. Maggie noodles packet free with the purchase of four or one gets
three soaps at the price of two.

Buy one Get one free: The customer can get two units of the product at the price of one.

Point of purchase (POP) Display Material:

Leaflets, special fittings: Products are kept in the special racks row stands provided by the
suppliers. For ex: racks provided by the toothbrush suppliers, dry battery stands, glass case
for watches.

Demonstrators: sometimes demonstrators used in this context. For ex: a childrens product
may use a person dressed as their logo (e.g.: teddy bear)

PUBLICITY:

Publicity entails any communication that fosters a favourable image for the retailer among its
public. It can be personal or non personal, paid or non-paid and sponsor controlled or non-
sponsor controlled. Publicity is a non personal form of promotion where messages are
transmitted through mass media, the time or space provided by the media is not paid for, and
there is no identified commercial sponsor.

TYPES OF PUBLICITY:

PLANNED PUBLICITY: A retailer outlines its activities in advance, strives to have media
report on them, and anticipated that certain events will result in media coverage. Community
services like donations, and social sales, and introduction of new goods or services of the
activities which lead to media coverage.

UNEXPECTED PUBLICITY: It takes place when the media reports on a firm without any
advance notice about the media coverage. TV and newspaper reporter may anonymously visit
stores and rate their performance for their coverage.

COMPLEMENTARY PUBLICITY: Sometimes media reports about a firm in a

complimentary manner with regard to the excellence of its retailing practices. eg: HDFC
Lecture Notes 65

RETAIL MANAGEMENT A1MBT202

Retail promotion needs to be organised with due understanding of the retail business and its
positioning.

Demonstrators: sometimes demonstrators used in this context. For ex: a childrens product
may use a person dressed as their logo ( e.g.: teddy bear)

DIRECT MARKETING:

Direct marketing is a channel-agnostic form of advertising which allows businesses and

non-profit organizations to communicate straight to the customer, with advertising techniques
that can include cell phone text messaging, email, interactive consumer websites, online
display ads, database marketing, fliers, catalog distribution, promotional letters, targeted
television commercials, response-generating newspaper/magazine advertisements, and
outdoor advertising. Amongst its practitioners, it is also referred to as direct response.

Direct marketing is one of the forms of communications which seeks to cause action; forms
databases about clients; influences separate layers of consumers; gives the chance to learn
and analyze their action of the consumers to various offers.

Direct marketing is directly reaching market (customers and potential customers) on a

personal (phone calls, private mailings) basis, or mass-media basis (infomercials, magazine
ads, etc.).

PROBLEMS AND PROSPECTS

PROBLEMS

Cannot see and examine

Operating costs

Low response rates

Intense competition

Image problems

Lack of comfort with interactive technology

Privacy and ethical issues

Lecture Notes 66

RETAIL MANAGEMENT A1MBT202

PROSPECTS

Segmentation and targeting

Geographical range

Shopping convenience

Technological advances

Lower prices to customer is possible

Lower operating costs are possible

Tools of Direct marketing:

Personal relations with clients

Public statements

Use of recommendations

Personal SALE

Catalog marketing

Mobile marketing

TV marketing

Web marketing

Door to door contacts

PERSONAL SELLING:

Personal selling is a promotional method in which one party (e.g., salesperson) uses skills and
techniques for building personal relationships with another party (e.g., those involved in a
purchase decision) that results in both parties obtaining value.

In most cases the "value" for the salesperson is realized through the financial rewards of the
sale while the customers "value" is realized from the benefits obtained by consuming the
product. However, getting a customer to purchase a product is not always the objective of
Lecture Notes 67

RETAIL MANAGEMENT A1MBT202

personal selling. For instance, selling may be used for the purpose of simply delivering
information.

Because selling involves personal contact, this promotional method often occurs through
face-to-face meetings or via a telephone conversation, though newer technologies allow
contact to take place over the Internet including using video conferencing or text messaging
(e.g., online chat).

PUBLIC RELATIONS:

Public relations (PR) are the practice of managing the spread of information between an
individual or an organization (such as a business, government agency, or a non-profit
organization) and the public.

Public relations may include an organization or individual gaining exposure to their

audiences using topics of public interest and news items that do not require direct payment.

This differentiates it from advertising as a form of marketing communications. The aim of public
relations is to inform the public, prospective customers, investors, partners, employees, and other
stakeholders and ultimately persuade them to maintain a certain view about the organization, its
leadership, products, or of political decisions. Public relations professionals typicallyworkfor PR
and marketing firms, businesses and companies, government and public officials as PIOs, and
nongovernmental organizations and non-profit organisations.