Introduction to Retailing 1

Unit 1: Introduction to Retailing

Notes
Structure
1.1 Introduction
1.2 Evolution of Retailing
1.2.1 A Historical Overview of the Retail Industry
1.3 Global Retailing Scenario
1.3.1 Importance of Retailing in the World Economy
1.3.2 Impact of Global Economic Crisis
1.4 Growth of Retailing in India
1.5 Organized Retailing in India: Key Drivers for Growth and Future Prospects
1.5.1 Suggestions for retail Sector in India
1.6 Summary
1.7 Check Your Progress
1.8 Questions and Exercises
1.9 Key Terms
1.10 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept of evolution of retailing
z Discuss the global retailing scenario
z Explain the growth of retailing in India

1.1 Introduction
Retailing covers those business activities which are involved in selling goods and
services to consumers for their personal, family, or household use. While retailing can
be defined as including every sale to the final consumer which could range from cars to
apparel to meals at restaurants, we normally concentrate on those businesses that sell
“merchandise generally without transformation, while rendering services incidental to
the sale of merchandise.
Today, retailing is at an interesting crossroads. As we know retail sales are at their
highest point in history such as Wal-Mart is now the leading company in the world in
terms of sales— ahead of ExxonMobil, General Motors, and other manufacturing giants.
New technologies are improving retail productivity. There are lots of opportunities to
start a new retail business—or work for an existing one—and to become a franchisee.
Global retailing possibilities abound. But at the same time, retailers face numerous
challenges. Many consumers are tired of shopping or do not have much time for it.
Some locales have too many stores, and retailers often spur one another into frequent
price cutting and ultimately, low profit margins. Customer service expectations are high
at a time when more retailers offer self-service and automated systems.
In this unit, we shall be discussing about the concepts and philosophy behind
retailing. We will also learn about its evolution and growth of retailing in India.

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2 Fundamentals of Retailing

Retail is the final stage of any economic activity. Any organization selling to final
consumers whether it is a manufacturer; wholesaler or retailer, is doing retailing.
Notes
The retailing concept is fairly easy to adopt. It means communicating with shoppers
and viewing their desires as critical to the firm’s success, having a consistent strategy
like offering designer brands, plentiful sales personnel, attractive displays, and above-
average prices in an upscale store, offering prices perceived as “fair” by customers, and
working to achieve meaningful, specific, and reachable goals. However, the retailing
concept is only a strategic guide. It does not deal with a firm’s internal capabilities or
competitive advantages but offers a broad planning framework.

Meaning
Retailing is a convenient, convincing and comfortable method of selling goods and
services. Retailing, though as old as business, trade and commerce has now taken new
forms and shapes due to use of advanced technology, management and marketing
techniques and also due to ever changing and dynamic consumer psychology.
Retailing is one area of the broader term, e-commerce. With more number of
educated and literate consumers entering the economy and market, the need for
reading the pulse of the consumers has become very essential.
The word “retailing” is derived from the French word ‘refaillier’, meaning ‘to cut a
piece off or ‘to break bulk’. In simple terms, it implies a first-hand transaction with the
customer.
Definition: Retailing can be defined as the buying and selling of goods and services. It
can also be defined as the timely delivery of goods and services demanded by
consumers at prices that are competitive and affordable.
Retailing comprises of a direct interface with the customer and the coordination of
business activities from end to end right from the concept or design stage of a product
or offering, to its delivery and post-delivery service to the customer.
There are four basic principles that form the retailing concept as shown in Figure
1.1, which should be understood and applied by all retailers:

Figure 1.1 Four Principles of Retailing

z Customer orientation: The retailer finds out the attributes and needs of its
customers and tries to satisfy these needs to the fullest.
z Coordinated effort: The retailer integrates all plans and activities to maximize
efficiency.

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z Value-driven: The retailer offers good value to customers, whether it is upscale or
discount that is having prices appropriate for the level of products and customer
service. Notes
z Goal orientation: The retailer sets goals and then uses its strategy to attain them.
A multi-channel retailer is a company that sells directly to the public via more than
one venue. Most multi-channel retailers sell through mail order catalogues and brick
& mortar retail stores. Some multi-channel retailers, such as Walmart, sell online as
well, allowing them to attract new customers using their seasonal mail order
catalogues. You can check their website www.walmart.com.

Nature and Scope

There are three factors which describes the nature of retailing. Each factor imposes
unique requirements on retail firms.
Final consumers make many unplanned or impulse purchases. Research
shows that a great percentage of consumers do not look at commercials or
advertisement before shopping do not prepare shopping lists and make fully unplanned
purchases. This behaviour shows the value of in-store displays, attractive store layouts,
and well-organized stores, catalogues, and Web sites. Candy, cosmetics, snack foods,
magazines, and other items are sold as impulse goods when placed in visible, high-
traffic areas in a store, catalogue, or Web site. Because many times purchases are
done unplanned, the retailer’s ability to forecast, budget, order merchandise, and have
sufficient personnel on the selling floor is compromised.
The average amount of a sales transaction for retailers is much less than for
manufacturers. This low amount creates a need to tightly control the costs related to
each transaction such as credit verification, sales personnel, and bagging; to maximize
the number of customers drawn to the retailer, more emphasis may be placed on
advertisements and special promotions; and impulse sales may be invoked by more
aggressive selling. However, still cost control can be tough.
For example: Inventory management is often expensive due to the many small
transactions with a large number of customers. A typical supermarket has several
thousand customer transactions per week, which makes it harder to find the proper in-
stock level and product selection. Thus, retailers are expanding their use of
computerized inventory systems.
Retail customers usually visit a store, even though mail, phone, and Web
sales have increased. Despite the inroads made by non-store retailers, most retail
transactions are still conducted in stores—and will continue to be in the future. Many
people prefer shopping personally because they want to touch, smell, and/or try on
products; like to browse for unplanned purchases; feel more comfortable taking a
purchase home with them than waiting for a delivery; and desire privacy while at home.
This store-based shopping orientation has implications for retailers; they must work to
attract shoppers to their stores and consider such factors as store location,
transportation, and store hours, proximity of competitors, product selection, parking, and
advertisements.

Scope of Retailing
Retailing is the activity of selling goods and services to last level consumers for their
use. It is concerned with getting goods in their finished state into the hands of
customers who are prepared to pay for the pleasure of eating, wearing or experiencing
particular product items. Retailing is all about the distribution of goods and services
because retailers play a key role in the route that products take after originating from a
manufacturer, grower or service-provider to reach the person who consumes. Retailing
is also one of the key elements of a marketing strategy facilitating the targeting process,
making sure that a product reaches particular groups of consumers. It is important in a
marketing strategy to match the arena in which a product is purchased to the benefits

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and characteristics of the product itself and its price. Retailers provide a collection of
service benefits to their customers such as being located in convenient places, editing
Notes product ranges according to shopping tasks, and selling goods in quantities that match
personal consumption levels. Ensuring that this process runs smoothly presents a host
of managerial challenges. Retailing is therefore a deceptively simple management
process – yet fascinatingly complex in its detail.
The term retailing applies not only to the selling of tangible products like loaves of
bread or pairs of shoes, but also to the selling of service products. Companies who
provide meals out, haircuts and aromatherapy sessions are all essentially retailers, as
they sell to the final consumer, and yet customers do not take goods away from these
retailers in a carrier bag. The consumption of the service product coincides with the
retailing activity itself.
From a traditional marketing viewpoint, the retailer is one of a number possible
organization through which goods produced by manufacture flow on their way to their
consumer destiny. These organizations perform various roles by being a member of a
distribution channel. For example, chocolate producer like Cadbury’s will use a number
of distribution channels for its confectionery, which involve members such as agents,
wholesalers, supermarkets, convenience stores, petrol stations, vending machine
operators and so on. Channel members, or marketing intermediaries as they are
sometimes referred to, take on activities that a manufacturer does n have the resources
to perform, such as displaying the product alongside related or alternative items in a
location that is convenient for consumer to access for shopping.
Retailing consists of the sale of goods or merchandise from a fixed location, such
as a department store or kiosk, or by post, in small or individual lots for direct
consumption by the purchaser. Retailing may include subordinated services, such as
delivery. Purchasers may be individuals or businesses. In commerce, a retailer buys
goods or products in large quantities from manufacturers or importers, either directly or
through a wholesaler, and then sells smaller quantities to the end-user. Retail
establishments are often called shops or stores.

Importance of Retailing
Retailing is highly important to everyone because without retailers we would not have
access to everyday products that we need. Our lives would be very different if we could
not 'pop to the shop' and buy virtually anything we would want.
Retail has changed our lives and changed the way we live. The clever advertising
and marketing done by retailers has created a world of people who feel as though they
need to have everything and buy goods to lead a happy and fulfilling life. The fact that
we can have virtually anything within minutes also emphasizes and encourages
materialism.
Retailing also supports the considerable investment by the public and private
sectors in urban renewal, by providing shopping facilities to residents and by adding to
the vitality and attractiveness of inner areas of cities and towns which is important also
in the context of the tourism sector. Smaller towns and villages serve their surrounding
rural areas by providing a range of facilities and services.

Functions of Retailing
The functions of retailing include:
z Sorting: The items are arranged in an order by the retailers so that the customers
are able to locate and pick up their needed goods easily.
z Storage: The retailer holds stocks of goods and thereby meets the day to day
needs of the consumer.
z Channels of Communication: The retailer spreads by word of mouth
communication, valuable information to the customers about the product.

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z Transportation: Nowadays, small grocery stores are undertaking the work of door to
door deliveries in the case of durable goods.
Notes
1.2 Evolution of Retailing
As consumers change so must the industry. The retail sector that emerges over the
next five to ten years will likely be far different than at the beginning of the century—
marked by greater innovation, integration, and responsiveness. Yet getting there is no
easy task. Signs of recent fallout include high-profile bankruptcies such as Circuit City,
Linens 'N Things, and Mervyns; consolidation in the chain store footprint; and extreme
pricing pressures.
The result of such upheaval is a sharp reappraisal of the traditional retail industry
business model. With disruptive innovation comes systemic shifts.
Those taking place in the retail sector reach deep into the industry's structural
foundations, rocking everything from how the industry sources its products, to how it
markets, to an increasingly fragmented demographic. While the dust has not fully
settled, the outlines of the 21st century retail model are beginning to take shape.
Produced by the Retail practice of KPMG LLP, this paper examines the key trends
that are actively shaping the industry landscape, discusses their implications, and offers
perspectives on how companies across the sector can make the necessary transition.
Newspaper accounts bring daily banner headlines about an industry in the throes of
change. For some, business models and financial practices that have stood the test of
time for many decades are now under siege. Even the most resilient retailers have felt
the strain of rapidly deteriorating market conditions, and have worked to find new ways
of satisfying an ever more fragmented and value conscious consumer base. Among the
most pivotal economic challenges affecting the industry today are:
Weakened consumer spending and cautious consumer attitudes The recessionary
environment that gripped the world's economy for most of the last 24 months has
stripped away jobs, eroded home values, frozen credit " and dealt a blow to personal
investment portfolios. This, not surprisingly, has constricted consumer spending in
major markets across the globe. In 2008, the rate of private consumption expenditure
growth declined in France, Germany, United Kingdom, Italy, Russia, Canada, and the
United States. Within the United States, the Federal Reserve has suggested that the
world's largest economy is not yet out of the woods. In October 2009, U.S
unemployment rates rose to 10.2 percent the highest rate since April 1983.The gross
domestic product the broadest measure of the nation's economic activity, recorded a
negative growth of 0.7 percent in 02 2009.
Retail sales suffer as consumers pull back on spending. For retailers, the sharp
decline in consumer spending has had severe consequences. According to researchers
at Northern Trust Global Economic Research, retail sales increased at an annual rate of
1.6 percent in the third quarter of 2009 after plummeting 1.4 percent in the second
quarter of 2009.5 Luxury retailers have felt the effects most keenly as consumers pulled
back from discretionary and big ticket items. Bain & Company reports that worldwide
sales of luxury goods are expected to fall by 10 percent to about $201 billion in 2009.6
Non-discretionary retail shopping has fared better. Yet wary, budget-conscious
consumers are making more deliberate choices over where to shop and what to buy,
trading down to outlets that offer higher value for money and favoring private and store
labels over many national brands.
A volatile, illiquid economic environment Nearly 7,000 stores shuttered in 2008,
according to the International Council of Shopping Centers.' Bankruptcies in the retail
industry will likely continue to be a near-term reality. Rising competition and the current
business climate could spur consolidation among niche, regional, and specialty
retailers, whose business models may make their cash position more vulnerable.
Analysts predict that as many as 10 percent of the retail businesses, both national and

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global players as well as smaller, regional outfits, may face significant restructuring,
bankruptcy, or liquidation into 2009.
Notes
For the sector at large, liquidity constraints create a vicious cycle, squeezing those
retailers reliant on debt to fuel their business. With consumer spending stagnant,
retailers are caught between the need to pay for ongoing operations and finance
seasonal inventories but lack the liquidity to make these purchases. Such cash
constraints can have a crippling effect. A vendor may halt merchandise delivery if it
fears the retailer will not be in a position to pay.
To improve their credit standing, retailers can lower costs by trimming overhead,
closing stores, or reducing staff, but these actions may hinder future growth.
Alternatively, they can increase revenue; however, this option depends heavily on
consumer spending. Even those with solid credit find themselves facing higher
borrowing costs as banks raise interest rates and tighten payment terms. Given these
factors, ratings agency Moody's anticipates that the number of defaults in the retail
industry will grow over the next 12 months, well into 2010.

1.2.1 A Historical Overview of the Retail Industry

The Evolution of American Retail

Imagine the typical townscape of independent specialty or single-product stores that
governed the late 1800s and early 1900s. That scene gradually changed with the
introduction of department stores. For the first time, shoppers had a range of services,
brands, and products available in one location. Similarly, customers in rural locations
heralded the advent of catalog retailing as pioneers Sears, Roebuck & Company and
Montgomery Ward put an abundance of choice in reach of those who might otherwise
be denied access.
For consumers, the appeal was immediate. In addition to convenience, department
stores and other retailers offered something new, a customer experience, an intangible,
but appealing environment where shopping was more than just a transaction, such as
buying a yard of fabric, but an occasion.
Taking their cue from these developments, grocers transformed their models as
well, moving from the small general store format to a bigger, broader form of hyper- or
super-market. Within the space of a few decades, the shopping landscape changed
from one dominated by category-specific outlets to one that featured integrated "one-
stop" shops.
At the century's midpoint, innovations in food processing and synthetic material
fabrication led to a wave of new products, from TV dinners to Tupperware. After World
War II, practicality and efficiency became driving trends. Aided by rapid advances in
mass distribution, many retailers turned to warehousing, and interest in discount stores
flourished. As discounters found ways to undercut traditional store pricing—by stripping
overhead costs and operating on a high-volume, low-cost basis—a new retail category
was born.
Developments in direct marketing and technology combined to make it easier for
retailers in the latter part of the 20th century to experiment with different ways of
reaching the customer. Catalog shopping experienced a resurgence, especially among
boutique retailers such as Pottery Barn, Williams Sonoma, and Victoria's Secret. Others
pioneered such things as television infomercials, and in the process, created whole new
business models and another extension in the channel environment.
These methods paved the way for online retailing. With the advent of the Internet, e-
Commerce took the industry by storm beginning in the 1990s. The dot-com boom led to
a host of pure play online retailers and an era of fast-moving technological innovation
that touched virtually every aspect of the retail value chain, from product development
and sales to operations. As these technologies entered the wider populace, a host of
new channels emerged, many at the hands of the end consumer. Social networking

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sites, online product reviews, viral marketing and other forms of interactivity launched
what is a still unfolding phase in the industry’s development.
Notes
1.3 Global Retailing Scenario
In recent decades, the retail sector has undergone significant transformation. Due to
deregulation of foreign investment, competition/monopoly policy, and land use policy,
alongside broader neoliberal reforms affecting consumer markets and trade, large
retailers have managed to consolidate their power and expand globally. While small
retailers still dominate in many parts of the world, transnational corporations are taking
over larger shares of the market. As large companies seek to increase profits, they
have reduced the risks of investment by subcontracting and franchising. These trends
have impacted smaller firms, as well as suppliers, consumers and employees.
The changes in the retail sector have developed alongside larger labour market
trends, where employers are attempting to shift the risks of employment onto workers
by adopting “flexible” work practices. This includes decreasing the number of full-time
jobs, and increasing part-time, temporary, and on-call work.
More retail workers have become “precarious workers” with little job security, low
wages and not enough hours of work. The global economic crisis allowed employers
space to intensify their move toward flexible and low-road employment practices. The
rise of precarious work was not born of the crisis, but accelerated an existing trend.
Unions must find ways to address these trends in the retail industry and organize
precarious workers.
While union density has fallen in many countries, there are small spots of hope
among unions who are adapting to the current environment.

1.3.1 Importance of Retail in the World Economy

Retail is one of the largest sectors in many national economies. Countries differ in how
they define the industry, but according to the ILO, “retail is universally understood as the
final step in the distribution process, in which retailers are organized to sell merchandise
in small quantities to the public.” This differs from wholesale trade, where firms sell to
other firms.
The retail industry accounts for over US$15 trillion in global revenue, and is
expected to maintain strong growth. The industry is very diverse, with small retailers still
prevalent in developing countries, but increasingly, large firms are dominating. The
consultant firm Deloitte estimates that the world’s largest 250 retailers had a sales-
weighted, currency-adjusted retail revenue of US $4.3 trillion in 2011, up 5.1 percent
from 2010. This means that the top 250 firms accounted for approximately 40 percent of
retail revenue in 2011. The average top retailer had revenue of $17 billion in 2011.
The industry is highly globalized, with large retailers operating in almost every
country. The top 250 retailers are based in all regions (though dominated by European
and U.S. firms). While the industry has seen the largest growth in the least developed
economies, the bulk of goods are still sold in Europe and North America. According to
the ILO, 60 percent of goods are sold in these two regions although they account for
only one-fifth of the global population.
While small stores are still prominent in some regions, the industry is increasingly
concentrated, as large corporations have bought smaller companies and retail chains
have replaced small independent stores.
Walmart continues to dominate the industry, with 2011 revenue almost four times
greater than the second largest firm, Carrefour. Industry analysts state that the industry
will continue to experience growth and concentration. Mergers and acquisitions
continue to be an important trend, particularly in Latin America, and the largest firms are
increasingly offering multiple formats (hypermarkets, supercenters and smaller stores).

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The companies new to the Top 250 list in 2011 were primarily spin-offs from parent
companies, including Dia (a spin-off from Carrefour), and E-MART (a South Korean
Notes spin off).
Increasing industry concentration has resulted in a few companies controlling large
market share in many countries. For example, the top five retailers dominate 88 percent
of food sales in Sweden, 85 percent in Denmark, and 84 percent in Finland; the top four
supermarket chains control two-thirds of grocery retail in the UK; and the four largest
discount stores control just over 86 percent of the market in Korea.
Retail employment often accounts for about 10 to 15 percent of total country
employment, on average, though this is difficult to measure in countries with large
informal sectors. Approximately 142 million people were employed in the retail sector in
82 countries, including China and India, based on data for the most recent year
available.
Retail also accounts for a significant share of GDP in many countries, from 8
percent in the U.S., to 14 percent in India. Retail and wholesale trade is the third largest
economic sector in Germany, accounting for 9.4 percent of total gross value added.10
Some countries have seen growth in the importance of retail in relation to the economy,
but that trend does not hold everywhere. For example, in Australia, the total volume of
sales revenue has increased, but the industry comprised 5 percent of GDP in 1996-97,
and only 4.1 percent of GDP by 2009-2010.
The industry has grown and changed in part because large retailers based in
wealthy countries have reached some level of domestic market saturation, and industry
consolidation provides greater capacity for global expansion. But equally important are
policy changes that have allowed this transformation to occur – in particular,
liberalization policies in emerging markets, often enacted in concert with IMF
assistance. There are a variety of regulations that impact retail - from competition and
zoning laws, to restrictions on foreign direct investment. For example, south-east Asia
was dominated by local retailers for much of the 20th century, but as a result of the
Asian financial crisis, Indonesia agreed to liberalize their retail and consumer policies in
1998 as a condition for IMF assistance. Around the same time, Malaysia and Thailand
both loosened regulations regarding mergers and acquisitions and joint ventures. Some
of these countries have since taken steps to reregulate retail in defense of small local
business, but other countries, such as India, are still in the process of deregulation,
making it easier for foreign-owned retailers to enter the country.

1.3.2 Impact of Global Economic Crisis

The industry faced a serious decline in the midst of the global economic crisis, but
began to rebound in 2010 – although this has happened unevenly across and within
countries. Retail has recovered at a modest pace in the U.S., but is limited to some
degree by shaky investor confidence, persistent unemployment and underemployment,
and slow growth in Europe. The EU has been experiencing a euro crisis and austerity
measures for several years, alongside high unemployment and underemployment in
some countries. However, most measures for 2011 showed modest overall growth for
the industry globally and the Top 250 firms had a composite 3.8 percent net profit
margin.
Still, retailers are focused on growth, and “emerging markets” are the source of the
fastest revenue growth. The average top 250 retailer has operations in nine countries,
and almost a quarter of their 2011 revenue came from foreign operations. Global
expansion is particularly important in retail, as the large established domestic markets
have less room for growth and consumers are highly price sensitive. Therefore, retailers
are eager to capture a growing middle class and young population of shoppers in Latin
America, Asia, Africa/Middle East, and Central Europe. In 2011 retail revenue growth
was only 3.4 percent in the EU and 6.3 percent in the U.S., but 29 percent in
Africa/Middle East, and 21.3 percent in Latin America. Deloitte states that there is
“somewhat greater pricing flexibility” in these regions, allowing for above-average

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profitability. Because retailers believe they cannot raise prices in many markets, they
have sought other ways to cut costs. Although there is high concentration in the
industry, the firms are highly competitive, paying close attention to prices offered in Notes
other stores but also on-line and in emerging markets. Retailers look to maintain profit
margins over their competitors through innovative tactics and close supervision of
supply chains, inventory and employees. While manufacturers used to play the
dominant role in many supply chains, this relationship has changed as individual
retailers gained market share and power. This has allowed a large retailer to dictate the
terms of a supplier contract, in a “buyer-driven” supply chain. The transformation has
also changed the relations between different firms, and in some countries, reduced the
role of wholesalers. For example, Walmart now buys many of its products directly from
small producers, including farmers. This may seem to come with advantages, such as
potentially higher profits, but in reality, the relationship brings many problems for
suppliers. One study noted, “Direct procurement… exposes small-scale producers to
the exigencies of domestic and international supermarket chains, such as requirements
to refrigerate shipments to minimize spoilage and commercial accounting practices
which pay suppliers seven to 45 days after delivery.”15 Large retailers might purchase a
major share of the supplier’s products, and therefore have the power to unilaterally
lower the prices paid, as well as pass on packaging and shipping costs onto the
producers. Walmart, for example, holds suppliers financially responsible for the costs of
any unsold or spoiled inventory.

Key Industry Trends

Alongside global expansion and firm concentration, there are at least three other key
industry trends impacting the retail industry: e-tailing, declining union density, and the
adoption of the U.S. “low road” employment model.

E-Tailing
One of the major trends in the industry is the growth of “e-tail”: commerce done via
computer or smartphone. This includes some exclusively on-line retailers like
Amazon.com, but increasingly traditional retailers are expanding their own on-line sales.
Industry consultant Deloitte states that just over 5 percent of total retail sales are now
done via mobile, but that this is expected to reach 17-21 percent (or $628 to $752
billion) by 2016. Many customers still shop in the physical store but then make their
purchase on-line. Therefore, Deloitte advises retailers to train employees to be “brand
ambassadors” that can assist customers with shopping in the store and using
technologies to shop on-line. This trend may suggest that retailers begin to shift some
of their employment from the shop floor to call centers, increasing the power of retailers
to move jobs.
Initial research suggests that the impact of expanding e-commerce has marginal
and uneven impacts on the financial performance of retailers.19 On-line sales depend on
brand strength and strong supplier relations for quick and accurate delivery, which
suggests that retailers looking to expand their ecommerce operations may be
vulnerable in these areas.

Lower Union Density

Another trend in global retail relates to the declining power of unions. In most – though
not all - countries, unions have seen a steady decline in members over the past few
decades. This is true for union membership overall, and while data on retail unions is
not collected for many countries, the data that is available suggests a drop here as well.
As for retail unions in particular, in the U.S., membership went from 1.2 million in
1983 to 700,000 by 2012, even as employment in the sector grew – leading to a decline
in union density from 8.6 to 4.7 percent in the same period. The percent of wholesale
and retail workers covered by collective agreements in Germany went from 70.9
percent in 1998 to 59.7 percent in 2004. In Korea, union density of the total workforce is
11 percent, but density in retail is only 3.6 percent.

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On the other hand, it appears that retail union density increased slightly in a few
countries – although the data is not available for the same years. For example, in the
Notes UK, while retail density is lower in this sector than many others, there was a slight
increase in density from 11 percent in 1995 to 11.8 percent in 2010. Canada has also
experienced some increase in overall union density, and the rate for the retail industry
went from 13.6 percent in 1997 to 14.2 percent in 2003. Sweden remains an outlier
case, where union density is high overall, and in retail – at about 70 percent as of non-
temporary workers. The Swedish retail unions cover most managers in the industry as
well.

The low-road employment mode

Another key trend in the industry is the growing dominance of the “low-road”
employment model. “Lowroad” employers tend to pay low wages, provide few or no
benefits, and treat employees as a cost rather than an asset. Low-road employers tend
to deskill work and operate with high labor turnover.
Low-road employers are not a new phenomenon. The original discounter,
Woolworth’s, deskilled sales work and hired very young women. They required
employees to work long hours, standing on their feet the whole time for relatively low-
wages. But there were also many “high road” employers in the industry – often
unionized, paying higher wages, and providing long-term employment.
With the consolidation of the industry and the emergence of large global players,
the low-road model now plays a much more prominent role – to the point of pushing out
high-road firms. Researcher Chris Tilly argues that there are two major trends that
fostered the development of the low-road model: “supermarketization” and the growth of
discounters. “Supermarketization” – large supermarkets displacing many traditional
markets and small shops – began first in the U.S., spread in Western Europe and Japan
as part of the post-WWII boom, and has occurred in much of the rest of the world more
recently. This trend set the stage for large multi-national firms to dominate parts of the
retail market and it weakened the power of small shopkeepers.
The spread of discounters is more recent, although the discounter model goes back
to the 19th century U.S. and the founding of Woolworth’s. The discounter model rests on
large volume, allowing for the store to sell at lower prices. But as more and more
countries began to adopt neoliberal reform and deregulation, weakening labor laws and
enforcement, conditions were more favorable for large discounters like Walmart. Over
the past 30 years, Walmart has grown to a massive power in the U.S. and global retail
market. But other large discounters – such as the U.S. based Target, and German-
based Lidl and Aldi have also grown enormously. Furthermore, discounters have begun
to encroach on the territory of supermarkets in the form of hypermarkets, blurring the
line between these forms of retail.
Many of the discounters and hypermarkets are low-road employers. Walmart grew
successful initially in a relatively non-union region, and then did best in places with
weaker labor law or labor law enforcement.
Walmart is well-known for its low wages and poor working conditions, and has been
the subject of a number of lawsuits – from wage theft to wage discrimination. However,
Walmart is far from the only lowroad employer. Discounters and hypermarkets do not
need to be low-road employers: there are some exceptions. However, the increasing
trend is a high turnover low-road model.
In general, turnover is highest among hourly workers and newer workers. For
example, a study of the U.K. Livingston’s drugstore found that turnover rates were
strongly correlated with seniority, with the highest turnover among those who worked 16
hours or less at the store. Retail expert Susan Lambert reports that turnover could be
“as much as 200 percent higher among workers with less than a year of seniority when
compared to the turnover of those with more seniority.” Turnover rates vary widely by
store, as different employment practices can heavily influence turnover rates. For
example, in one survey of Australian retail stores, turnover rates ranged from 13
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Introduction to Retailing 11
percent up to 95 percent. The spread of the low-road, high turnover model set the stage
for the rise of precarious employment, which we will now discuss in greater detail.
Notes
Precarity of Retail Employment
Changes in global retailing have developed alongside an increase in precarious work
overall. This is due in part to corporate practices and restructuring, deregulation of labor
standards, attacks on unions, and a large increase in the global labor force. The
problem of precarious work is widespread, impacting most parts of the world. While
there are national differences and even some exceptions within countries, the general
pattern has been deskilling and casualization.
In retail, precarious work takes many forms, including underemployment and
involuntary part-time work, low wages, and “flexibility” practices such as “on call” work
and automated scheduling. One report noted, “the pressure for hyper flexibility has
resulted in a personnel strategy – based upon zero competence, zero qualifications,
zero training and zero career – which explains why retail work is dominated by poorly
paid part-time positions.” Precarious work has also grown as a result of increased
outsourcing, contracting and franchising. This practice allows large multinational firms to
shift work onto subcontractors and suppliers, and thereby blur lines of legal
responsibility. We now provide some detail on these trends.

Underemployment
A large piece of precarious work is part-time work. The ILO reported in 2012 that part-
time employment increased in two-thirds of wealthy countries. While this general trend
holds for OECD countries, the trend seems particularly strong in retail. In part this has
occurred as a number of countries have loosened hours for shopping beyond an eight-
hour day. This allows retailers to expand their hours of operation, including big box
stores that stay open 24-hours a day.
Retailers also moved full-time jobs to part-time as a way to cut costs in the face of
increased competition from discounters and online retail. Despite some evidence that
shows it can hurt retailers in the long-run, store managers are often evaluated on their
payroll costs. If they can keep payroll down in the short-run, it looks good for the
manager and the store.
A third relevant factor is the increase in workers who want part-time work. This
includes students and women with children. The industry now employs more young
students who work part-time than it once did. This is partly because more young people
are going to college and need part-time work, but also because as college becomes
more expensive, more students have to work to cover their costs. Retailers are able to
take advantage of students’ need for part-time jobs and have increasingly relied on this
pool of workers.
While there is not consistent data across countries, surveys and government data
suggests a large, and growing, part-time workforce in retail. In a survey of New York
City retail workers, almost 60 percent of workers reported that they were hired as part-
time, temporary, holiday, or “full-time flex.” A study of 11 EU countries found that just
over one-third of all sales and shop workers worked part-time – the highest of all
occupations. Approximately 70 percent of all new jobs created in Japan between 1987
and 1997 were part-time jobs, and this was particularly the case in the wholesale and
retail industry. In Canada, retail accounts for the largest share of part-time and casual
work.
Precarious work has risen rapidly in recent years in central and eastern European
countries. For example, one report shows that the share of retail workers hired as
temporary employees rose from 7 percent in 2000 to 34 percent in 2008 in Poland, and
from 12.5 percent to 20 percent in the same years in Slovenia. The share of retail
employees employed as part-time also increased dramatically in those years in Estonia
and Slovenia.

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Furthermore, there is evidence that retailers are decreasing the predictability of

work hours. A study of 17 major U.S. corporations found that none of the companies
Notes guaranteed a minimum number of hours per week for part-time workers. Therefore, a
part-time worker might not even be a regular or standardized part-time worker with
predictable hours. In fact, a recent Guardian article reported that a UK company, Sports
Direct, has 20,000 part-time employees – 90 percent to the company’s labor force - on
“zero-hour contracts.” This means that workers have no guarantee of minimum work
hours from week to week. Even when workers have a shift scheduled, it can be cut with
less than a day’s notice. A survey of major British employers found that the practice has
increased significantly, with 11 percent using zero-hours contracts in 2005, jumping to
23 percent by 2011. Some reports suggest that at least 200,000 workers are impacted –
primarily in retail, catering and health care.
One study found that on average, women in EU countries were more likely to prefer
part-time work than their counterparts in the U.S., suggesting that involuntary part-time
is not as much of a problem in the EU.
However, this is mediated in part by the range of social policies that support
women, and some scholars find variation between countries and among different
groups of women. For example, one study found that women in the UK have little
institutional support for childcare, making it harder for them to move from part-time to
full time work. Another study found that in Finland, middle-age women and those with
fewer skills were more likely to be in involuntary part-time work than other women.
Part-time workers also face barriers moving into permanent jobs, or up a career
ladder. A study of the Australian labor force found that working conditions are possibly
worse than expected in retail, as many workers are in “casualized” part-time jobs – non-
standard and insecure. There was little evidence to suggest that casualized retail
workers were moving into permanent part-time work – and in fact, little evidence that
permanent part-time jobs have better wages and working conditions compared to
casualized part-time jobs. A study of 11 European countries found that part-time work
was used as a step to full-time work for fewer than 5 percent of individuals.

Low Wages
As full-time work is converted to part-time work, average wages have dropped. In the
U.S., the largest retail occupations – cashier, salesperson and stock clerk are among
those with the lowest median hourly wage of all occupations.
Researchers studied five countries – the U.S., U.K., France, Germany and the
Netherlands – and found that working in retail results in substantially lower wages in all
five. The median retail worker in each country earned somewhere between 24 percent
and 56 percent less than the average worker in each economy. This suggests that even
in countries with stronger labor market regulation, the industry itself pays lower wages
than other industries. Interestingly, the wage penalty seemed greatest for U.S. retail
workers higher up the ladder than entry-level workers, suggesting that mid-level
managers in U.S. retail may experience the greatest wage penalty compared to peers.

Flexibility
Another major trend in retail parallels a broader policy and corporate strategy: the move
towards labor “flexibility.” For the past several decades, policymakers and employers
have pushed for reforms that allow employers more freedom to hire and fire workers at
will, to hire temporary workers, and to transfer the risks of employment from company to
employee. Termed “flexibility,” these measures have been advocated as a way for
employers to lower costs and stay competitive in a global marketplace. With a “flexible”
workforce, employers have the ability to keep labor costs to a minimum: reducing
employment in slow periods, and increasing in high periods. This can mean changing
employment levels day-to-day or week-to-week; shifting the number of hours worked
from week to week; varying the shifts that employees work each week; and more. Much
of this has been made possible by labor market deregulation – such as reforms in

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England, France, Germany, and Spain in the 1980s, to allow temporary labor contracts,
or labor reforms in South Korea and Japan in the 1990s that created “non-standard” or
“irregular” workers. Notes
Central and eastern European countries reformed their labor codes in the 2000s, in
ways that made it easier for employers to utilize temporary or short-term contracts, such
as reforms in Poland in 2002-2003, Slovenia in 2006, and Estonia in 2009.
Along with policy changes, corporations adopted new practices to enhance their
own flexibility. Two such measures are the growth of “on call” work and automated
scheduling. Some researchers have referred to this as “just-in-time staffing,” as it is
similar to “just-in-time production” practices that are aimed at reducing costs by cutting
excess inventory.
Scheduling technology allows a firm to track customer demand. For example, the
firm Apex Optimization GmbH designed a scheduling tool for Swiss retailers, which
“seeks to match expected customer demand to the number of sales staff by optimizing
the shifts of the work force.” However, it is not easy to completely automate scheduling,
as it requires accurate predictions of customer flow – but factors such as poor weather
or traffic conditions can impact daily retail. Still, researchers are working to perfect the
technology. Susan Lambert reports that most managers she studied were required to
review customer flow numbers daily and rebalance work hours accordingly for the next
day.

Outsourcing/Out-Contracting & Franchising

Another factor leading to precarious work is the growth of outsourcing and franchising.
As retailers grew larger and consolidated in the 1980s and 1990s, they sought
strategies to cut costs and reduce investment risk. One method retailers pursued to cut
costs and shift investment risk and legal responsibility was to take parts of the work
normally done in-house and outsource them to other firms, domestic or internationally.
For example, in retail, firms began to outsource the production of goods, advertising,
warehousing, human resources, packaging and display and more. In theory, the
practice would allow the firm to take advantage of niche producers and economies of
scale. But it also allowed the firm to convert its fixed costs to variable costs, and search
for lower-cost production – such as by taking work once done by in-house unionized
employees and shifting to non-union subcontracted workers; or shifting work from
higher-wage domestic employees to lower-wage workers in other countries. One study
found that short-term cost savings is the most common reason retailers had for
outsourcing work.
Another method was franchising, which allowed companies to open more stores
with little risk. While the franchise concept goes back to the 1800s, its popularity grew in
recent decades, particularly as a method to expand internationally.
These practices – outsourcing and franchises – have some similar outcomes for
workers. Both lead to more complex relationships between worker and employer, as the
practices were designed in part to shift legal responsibility for the corporation. For
example, an employee may work for a franchised firm that relies on a low-wage, high
turnover model. The owner of the franchise may engage in employment practices that
squeeze the worker, such as irregular shifts, or even non-payment of wages. The
employee may attempt to take legal recourse against the company, but the corporation
has limited liability. And, in terms of seeking higher wages or back pay, the bulk of profit
generally resides with the headquarters and not within the franchise – meaning
corporations are somewhat able to protect their assets against employees’ claims.

1.4 Growth of Retailing in India

The Indian retail industry has experienced high growth over the last decade with a
noticeable shift towards organised retailing formats. The industry is moving towards a
modern concept of retailing. The size of India's retail market was estimated at US$ 435

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billion in 2010. Of this, US$ 414 billion (95% of the market) was traditional retail and
US$ 21 billion (5% of the market) was organized retail. India's retail market is expected
Notes to grow at 7% over the next 10 years, reaching a size of US$ 850 billion by 2020.
Traditional retail is expected to grow at 5% and reach a size of US$ 650 billion (76%),
while organized retail is expected to grow at 25% and reach a size of US$ 200 billion by
2020.
The US-based global management consulting firm, A T Kearney, in its Global Retail
Development Index (GRDI) 2011, has ranked India as the fourth most attractive nation
for retail investment, among 30 emerging markets.
As India’s retail industry is aggressively expanding itself, great demand for real
estate is being created. The cumulative retail demand for real estate across India is
expected to reach 43 million square feet by 2013.
Around 46 per cent of the total estimated demand between 2009 and 2013 will be
come from Tier-1 cities. For instance, Pantaloon Retail added 2.26 million square feet
(sq. ft.) of retail space during the fiscal 2011 and booked over 9 million sq. ft of retail
space to fructify its expansion plans in future.
Some of the key players in the Indian retail market, with a dominant share are:
z Pantaloon Retail Ltd, a Future group venture: Over 12 mn sq. ft. of retail space
spread over 1,000 stores, across 71 cities in India.
z Shoppers Stop Ltd: Over 1.82 mn sq. ft. of retail space spread over 35 stores, in 15
cities.
z Spencer’s Retail, RPG Enterprises: Retail footage of over 1.1 mn sq. ft. with approx
250 stores, across 66 cities.
z Lifestyle Retail, Landmark group venture: Has approximately 15 lifestyle stores and
8 Home centres.
Other major domestic players in India are Bharti Retail, Tata Trent, Globus, Aditya
Birla ‘More’, and Reliance retail. Some of the major foreign players who have
entered the segment in India are:
™ Carrefour which opened its first cash-and-carry store in India in New Delhi.
™ Germany-based Metro Cash & Carry which opened six wholesale centres in the
country.
™ Walmart in a JV with Bharti Retail, owner of Easy Day store—plans to invest
about US$ 2.5 billion over the next five years to add about 10 million sq. ft. of
retail space in the country.
™ British retailer Tesco Plc (TSCO) in 2008, signed an agreement with Trent Ltd.
(TRENT), the retail arm of India’s Tata Group, to set up cash-and-carry stores.
™ Marks & Spencers have a JV with Reliance retail.
An increasing number of people in India are turning to the services sector for
employment due to the relative low compensation offered by the traditional agriculture
and manufacturing sectors. The organized retail market is growing at 3.5 percent
annually while growth of unorganized retail sector is pegged at 6 percent. The Retail
Business in India is currently at the point of inflection. Rapid change with investments to
the tune of US $ 25 billion is being planned by several Indian and multinational
companies in the next 5 years. It is a huge industry in terms of size and according to
management consulting firm Techno Park Advisors Pvt. Ltd., it is valued at about US $
350 billion. Organized retail is expected to garner about 16-18 percent of the total retail
market (US $ 65-75 billion) in the next 5 years.
According to the tenth report of GRDI of AT Kearney, India is having a very
favorable retail environment and it is placed at 4th spot in the GRDI. The main reasons
behind that is the 9% real GDP growth in 2010, forecasted yearly growth of 8.7%
through 2016, high saving and investment rate and increased consumer spending.

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Introduction to Retailing 15
According to report, organized retail accounts for 7% of India’s roughly $435 billion retail
market and is expected to reach 20% by 2020. Food accounts for 70% of Indian retail,
but it remains under penetrated by organized retail. Organized retail has a 31% share in Notes
clothing and apparel and continues to see growth in this sector. A report by Boston
Consulting Group has revealed that the country’s organized retail is estimated at US $
28 billion with around 7% penetration. It is projected to become a US $ 260 billion
business over the next decade with around 21% penetration. The analysts believe that
the sector is likely to show significant growth of over 9% over the next ten years and
also see rapid development in organized retail format with proportion likely to reach
more respectable 25% by 2018. The BMI India Report for the first quarter of 2012
released forecasts that total retail sales with growth from US $ 422.09 billion in 2011 to
US $ 825.46 billion by 2015.The report highlights strongly underlying economic growth,
population expansion, increasing disposable income and rapid emergence of organized
retail infrastructure as major factors behind the forecast growth.
According to department of Industry Policy and Promotion Cumulative, FDI inflows
in single brand retail trading stood at US$ 44.45 million during April 2000 to September
2011.
Indian retail sector is wearing new clothes and with a three year compounded
annual growth rate of 46-64%, retail is the fastest growing sector in the Indian economy.
The sector is the second largest employer after agriculture, employing more than 35
million people with wholesale trade generating an additional employment to 5.5 million
crore. The enormous growth of retail industry has created a huge demand for real
estate. Property developers are creating retail real estate at an aggressive pace.
According to report titled “India Organized Retail Market 2010”, published by Knight
Frank, during 2010- 12, around 55 million square feet of retail space will be ready in
Mumbai, NCR, Bangalore, Kolkata, Chennai, Hyderabad and Pune. Besides between
2010 and 2012 the organized retail real estate will be grown from existing 41 million
square feet to 95 million square feet. The total no. of shopping mall is expected to
expand at CAGR of 18.9% by 2015. Hypermarket, currently accounting for 14% of mall
space is expected to witness high growth. Industry experts predict that the next phase
of growth in the retail sector will emerge from the rural market. By 2012, the rural retail
market is projected to have a total of more than 50% market share.
India's retail market is expected to be worth about US$ 410 billion, with 5 per cent
of sales through organised retail, meaning that the opportunity in India remains
immense. Retail should continue to grow rapidly—up to US$ 535 billion in 2013, with 10
per cent coming from organised retail, reflecting a fast-growing middle class,
demanding higher quality shopping environments and stronger brands, according to the
report ‘Expanding Opportunities for Global Retailers’, released by A T Kearney.

1.5 Organized Retailing in India: Key Drivers for Growth and Future
Prospects
India has been ranked as the third most attractive nation for retail investment among 30
emerging markets by the US-based global management consulting firm.
AT Kearney’s study on Global Retailing Trends Found that India is the least
competitive as well as least saturated of all major Global markets. This implies that
there are significantly low entry barriers for players trying to setup base in India, in
terms of competitive landscape. The report further stated that Global Retailer such as
Wal-Mart, Carrefour, Tesco and Casino would take advantage of more favorable FDI
rules that are likely to be introduced in India. A good talent pool, unlimited opportunities,
huge markets and availability of quality raw material at cheaper cost is expected to
make India overtake the world best retail economies by 2042.
The sector is expected to see an investment of over $30billion within next 5 years
and putting modern retail in the country to $175-200 billion, according to Techno Park
estimates.

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International retailers see India as the last retailing frontier left as the China’s retail
sector is becoming as saturated. Domestic players are selectively growing in India-
Notes postponing aggressive expansion plans, adding stores judiciously and shifting gears to
tier 2 and 3 cities. While India is a difficult market to enter, the potential payoff is huge.
India’s population of nearly 1.2 billion – forecast eventually to overtake China’s –also is
an attractive target.
Carrefour, the world’s second-largest retailer, has opened its first cash-and-carry
store in India in New Delhi. Germany-based wholesale company Metro Cash & Carry
(MCC) opened its second wholesale centre at Uppal in Hyderabad, taking to its number
to six in the country.
Jewellery retail store chain Tanishq plans to open 15 new retail stores in various
parts of the country in the 2011-12 fiscal. V Mart Retail Ltd, a medium-sized
hypermarket format retail chain, is set to open 40 outlets over the next three years,
starting with 13 stores in 2011, in Tier-II and Tier-III cities.
Reliance Retail, the wholly owned subsidiary of Mukesh Ambani's Reliance
Industries, is set to open 150 stores by the end of Dec. 2011 and double the number of
stores across the country in all formats within five years.
Future Value Retail, a Future Group venture, will take its hypermarket chain Big
Bazaar to smaller cities of Andhra Pradesh, with an investment of around US$ 1.54
million to US$ 4.41 million depending on the size and format.
RPG-owned Spencer's Retail plans to set up 25 Hyper Markets Through 2012 in
the country. Spar Hypermarkets, the global food retailing chain of the Dubai-based
Landmark Group, expects to start funding its India expansion beyond 2013 out of its
local cash flow in the country. So far, the Landmark Group has invested US$ 51.31
million in setting up five hypermarkets and plans to pump in another US$ 51.31 million
into the next phase of expansion.
Leading watchmaker Titan Industries Limited plans to invest about US$ 21.83
million for opening 50 premiums watch outlets Helios in next five years to attain a sales
target of US$ 87.31 million.
British high street retailer, Marks and Spencer (M&S) plans to significantly increase
its retail presence in India, targeting 50 stores in the next three years.
Spain's Inditex, Europe's largest clothing retailer opened the first store of its flagship
Zara brand in India in June 2010. It further plans to open a total of five Zara outlets in
India.
Bharti Retail, owner of Easy Day store—supermarkets and hyper marts—plans to
invest about US$ 2.5 billion over the next five years to add about 10 million sq ft of retail
space in the country by then, according to a company spokesperson. India's retail
industry is the second largest sector, after agriculture, which provides employment
opportunities. According to Associated Chambers of Commerce and Industry of India
(ASSOCHAM), the retail sector will create 50,000 jobs in next few years.
Retail companies are starting retail management courses in partnership with
management institutes, roping in talent from other sectors and developing
comprehensive career growth and loyalty plans for existing employees.
Top players like Pantaloon Retail India Limited, Trent, Shopper's Stop, RPG Group
and ebony are virtually on their toes. Consider the plans of largest player, The
Pantaloon Retail India Ltd; the company has developed a comprehensive strategy,
where in it expects that in 2 years, it will not recruit any new managers from outside.

1.5.1 Suggestions for Retail Sector in India

Many agencies have estimated differently about the size of organized retail market in
2011. The one thing that is common amongst these estimates is that Indian organized

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Introduction to Retailing 17
retail market will be very big in 2011. The status of the retail industry will depend mostly
on external factors like Government regulations and policies and real estate prices,
besides the activities of retailers and demands of the customers also show impact on Notes
retail industry. As the retail market place changes shape and competition increases, the
potential for improving retail productivity and cutting costs is likely to decrease.
Therefore it is important for retailers to secure a distinctive position in the market place
based on values relationships or experience.
Finally, it is important to note that these strategies are not strictly independent of
each other; value is function of not just price quality and service but can also be
enhanced by personalization and offering a memorable experience.
Organized retail is a new phenomenon in India and despite the downturns, the
market is growing exponentially, as economic growth brings more of India’s people into
the consuming classes and organized retail lures more and more existing shoppers into
its open doors. By 2015, more than 300 million shoppers are likely to patronize
organized retail chains.
The growing middle class is an important factor contributing to the growth of retail in
India. By 2030, it is estimated that 91 million households will be ‘middle class’, up from
21 million today. Also by 2030, 570 million people are expected to live in cities, nearly
twice the population of the United States today.
Consumer markets in emerging market economies like India are growing rapidly
owing to robust economic growth. India's modern consumption level is set to double
within five years to US$ 1.5 trillion from the present level of US$ 750 billion. Thus, with
tremendous potential and huge population, India is set for high growth in consumer
expenditure. With India's large ‘young’ population and high domestic consumption, the
macro trends for the sector look favorable.
Online retail business is another format which has high potential for growth in the
near future. The online retail segment in India is growing at an annual rate of 35 per
cent, which would take its value from Rs 2,000 crore (US$ 429.5 million) in 2011 to Rs
7,000 crore (US$ 1.5 billion) by 2015. For instance the Tata Group firm Infiniti Retail,
that operates its consumer durables and electronics chain of stores under the 'Croma'
brand, is in the process of tapping net savvy consumers. Similarly, the Future Group,
that operates a dedicated portal ‘futurebazaar.com’ for online sales, has revealed that it
is targeting at least 10 per cent of the company's total retail sales through the digital
medium.

1.6 Summary
Retail is the final stage of any economic activity. Any organization selling to final
consumers whether it is a manufacturer; wholesaler or retailer, is doing retailing.
The retailing concept is fairly easy to adopt. It means communicating with shoppers
and viewing their desires as critical to the firm’s success, having a consistent strategy
like offering designer brands, plentiful sales personnel, attractive displays, and above-
average prices in an upscale store, offering prices perceived as “fair” by customers, and
working to achieve meaningful, specific, and reachable goals.
Retailing is the activity of selling goods and services to last level consumers for their
use. It is concerned with getting goods in their finished state into the hands of
customers who are prepared to pay for the pleasure of eating, wearing or experiencing
particular product items. Retailing is all about the distribution of goods and services
because retailers play a key role in the route that products take after originating from a
manufacturer, grower or service-provider to reach the person who consumes.
The changes in the retail sector have developed alongside larger labor market
trends, where employers are attempting to shift the risks of employment onto workers
by adopting “flexible” work practices.

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Organized retail is a new phenomenon in India and despite the downturns, the
market is growing exponentially, as economic growth brings more of India’s people into
Notes the consuming classes and organized retail lures more and more existing shoppers into
its open doors.

1.7 Check Your Progress

Multiple Choice Questions
1. What is retailing?
(a) Buying and selling of goods and services
(b) Buying and selling of values
(c) Buying and selling of beliefs
(d) Buying and selling of opinions`
2. Organized retail consists of ………..
(a) Super markets
(b) Kirana stores
(c) Franchisees
(d) Chain stores
3. Functions of retail include ……
(a) Delivery
(b) Storage
(c) Manufacturing
(d) Production
4. Retail is one of the largest sectors in many …… economies.
(a) National
(b) International
(c) Domestic
(d) Transnational
5. The top 5 retailers dominate 88 per cent of the ….. market in Sweden.
(a) Clothing
(b) Electronics
(c) Food
(d) Insurance
6. Walmart buys most of its products directly from …...
(a) Middlemen
(b) Manufacturers
(c) Farmers
(d) Wholesalers
7. According to tenth report of GRDI of AT Kearney, India is placed at ……….
(a) 2nd
(b) 5th
(c) 7th
(d) 4th

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Introduction to Retailing 19
8. India’s growing at an annual rate of 35 per cent in the ……. retail segment.
(a) Organized
Notes
(b) Unorganized
(c) Online
(d) None of the above
9. Scope of retailing is the activity of selling goods and services to …….
(a) Last level consumers
(b) Zero level consumers
(c) First level consumers
(d) Second level consumers
10. A ………… job was to act as a link between stores and the buyer.
(a) Customer’s
(b) Mediator’s
(c) Expert’s
(d) Planner’s

1.8 Questions and Exercises

1. What are the four basic principles of retailing?
2. Define retailing.
3. Discuss the scope of retailing.
4. Describe the functions of retailing.
5. Describe the evolution of retailing in a comprehensive manner.
6. Write about the importance of retail in the global retailing scenario. What has been
the impact of the global economic crisis on the retail industry?
7. Discuss about the growth of retailing in India.
8. What are the key indicators for the growth of future prospects of organized retailing
in India?

1.9 Key Terms

z Organized Retail: Organized retail or modern retail is usually chain stores, all
owned or franchised by a central entity, or a single store that is larger than some
cut-off point.
z Retail: Retail is the sale of goods and services from individuals or businesses to the
end –user
z Franchisee: Franchising is a long-term cooperative relationship between two
entities—a franchisor and one or more franchisees—that is based on an agreement
in which the franchisor provides a licensed privilege to the franchisee to do
business.
z Break Bulk: It denotes a system of transporting cargo as separate pieces rather
than in containers.
z Kiosk: A small, temporary, standalone booth used in high-foot-traffic areas for
marketing purposes.

Check Your Progress: Answers

1. (a) Buying and selling of goods
2. (c) Franchisees
3. (b) Storage

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20 Fundamentals of Retailing

4. (a) National
5. (c) Food
Notes
6. (c) Farmers
7. (d) 4th
8. (c) Online
9. (a) Last level consumers
10. (d) Planner’s

1.10 Further Readings

z Patrick M. Dunne, Robert F. Lusch &James R. Carver, Retailing 8th Edition, South-
Western, 2014
z Roger Cox & Paul Brittain, Retailing: An Introduction 5th Edition, Pearson Education,
2004
z K V S Madaan, Fundamentals of Retailing, Tata McGraw Hill, 2009
z Manfred Krafft & Murali K. Mantrala, Retailing in the 21st Century: Current and
Future Trends 2nd Edition, Springer, 2010
z Nicholas Alexander & Anne Marie Doherty, International Retailing, Oxford, 2009

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CASE STUDY: EMERGENCE OF ORGANISED RETAILING Notes

I
t was Calcutta (now known as Kolkata) that saw the emergence of organized retailing in
India way back in the 19th century itself. The Hogg Market, popularly and better known
as New Market is one of Kolkata’s earliest shopping centers. Designed by an East
Indian Railway Company architect, R.R, Bayne, it was opened in 1874 and named after
the then municipal commissioner of Calcutta, Sir Stuart Hogg. Earlier the Hogg Market
even had a garden with a beautiful fountain adding to its ambience and benches too for
tired shoppers. Today, the New Market continues to be a premier shopping area in Kolkata
despite a part of it being incinerated in late 1985. Its red-brick Gothic clock-tower today
bears testimony to the past grandeur of this first shopping centre of India. Today from linen
to cakes and fruits to fishes everything is available at the New Market at a reasonable
price and this has made the New Market sustain its popularity among the metro customers
of Kolkata. The tenant mix of this first shopping centre is unique as it has a large number
of 2000 stalls, which are organized in an order of merchandize. There are rows of stalls
dealing with one particular line of goods.
A retail researcher by name Christine Furedy in the 70s has observed in her article in the
Capital on 24th December 1979 tracing the emergence of the New Market, thus: “Until the
late 19th century New Market sold only produce. Its primary purpose was to supply
wholesome food under clean conditions at reasonable prices. It is true, too, that it was
designed for the Europeans but the municipality strove to have it accepted as a market for
all Calcuttans. Changes began to occur: fancy goods dealers and cloth merchants could
afford to pay higher rents for their shops than the food vendors and more and more they
appeared in the market proper. Eventually the market was reorganized and food vendors
were placed in the section they still occupy. Another difference in the 19th century was
that no ads or encroachments were allowed. The facade of the market was
unencumbered, showing its fine lines and good brickwork. Within the market stallholders
had to keep their produce within their stalls and were not allowed to obstruct the corridors
and paths. There was a garden and a fountain where shoppers gathered to chat. Begging
and pestering were forbidden. On the other hand, it was strictly “caveat emptor”. Two
English women who were sold inferior cloth and complained to the Markets Committee in
1894 found they had no redress. The system of licensing coolies was introduced in 1885
after customers had complained of being disturbed by ‘importunate coolies’. Only
registered coolies were permitted inside: the registration fee was five annas and each
coolie had to wear a simple uniform and a number badge, a requirement which is still in
force today. Next time you go to New Market take a few minutes off from your shopping to
look around. Compare the facade and clock tower today with its original unencumbered
lines; look for the old original shops made of fine mahogany and teak. It is a great pity, in
my opinion, that this historic building is under threat of revamping. At the very least its
facade and some of the original shops should be preserved to remind us that the New
Market became an example for the whole of Asia of an efficient and fascinating municipal
market.”
Furedy also mentions about the opposition that came up for building this municipal market.
She says, “It is hard to imagine now how controversial the concept was. There was strong
opposition from influential citizens, both European and Indian. Some Europeans were
opposed to the idea of ‘municipal trading* seeing this as the thin edge of a wedge which
would dislodge the principles of private property and free enterprise. Others argued that
the undertaking was not within the purposes of the Municipal Act and would be too great a
burden upon the municipal coffcrs. This, indecd, was part of the objections of the Indian
municipal commissioners who pointed out also that it was only the Europeans who were
dissatisfied with the conditions of the markets and that they proposed to use municipal
funds, derived largely from taxes upon Indian householders, to finance a market designed
for the patronage of the European population only. Indian rate payers argued that already
the better part of the municipal funds were put to improving the European sections of the
town to the neglect of the areas inhabited by Indians. If once one municipal market was
approved, there would he no end to the number of public markets which might be built at
great municipal extravagance.” Against all these odds the then Hogg Market evolved and it
soon became a popular destination for shopping in Calcutta.
Furedy goes on to speak about the emergence of modern retailing in India. She mentions,
‘The most complex retail business of late nineteenth-century Calcutta, establishments

Contd…

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22 Fundamentals of Retailing
which were to dominate the modern retail sector, were the department stores. Although
every one has closed its doors, many Calcuttans still remember the names or recognize
Notes their converted, subdivided buildings: Francis, Harrison and Hathaway; Hall and Anderson;
the Army and Navy Stores; Whiteaway, Laidilaw and Co. In their scope and outreach
these shops rivaled those to be found in cities of the same size in Britain, Europe or the
United States. The city’s leading hotels, while they provided many services and housed a
number of businesses, did not always own and run all of these. Their retail areas were
perhaps more like arcades than department stores. The shops from which department
stores rather literally evolved were the drapers’ and mercers’ shops. We know from trade
directories that shops like Francis, Harrison, Hathaway and Co., which was described as
“first class drapers” in 1864, had a large staff of 11 European assistants in 1880. (By the
end of the century there were at least 40), This was the first shop to adopt a ‘departmental’
organization, which was formalized in the 1890s and repeated at the branch shops in
Simla, Lahore, Darjeeling and Allahabad. Incidcntally, in 1880 one of the leading
assistants in Hathaway’s was Mr. E. Whiteaway who ten years later was the partner of
Whiteaway, Laidlaw, occupying numbers 5 and 6 Chowringhee and employing 38
assistants. Two other employees of Hathaway’s were to become equally famous in
Calcutta’s retail trade. In the early 1890s P.N. Hall and William Anderson set up together
in a modest partnership selling suitings at bargain prices from a small shop on the
Esplanade.”
It is indeed amazing to know about the first phase of the evolution of modern retailing in
India from Furedy’s research. India is now witnessing its second phase of organized
retailing!
Questions
1. What are the lessons of retail evolution do we learn from the New Market in Kolkata?
2. Comment on researcher Christine Furedy’s observations on the emergence of the
New Market as an organized shopping centre in India.

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Unit 2: Retailing Formats

Notes
Structure
2.1 Introduction
2.2 Retail Formats
2.2.1 Classification of Formats
2.3 Store Formats
2.4 Non-Store Formats
2.5 Television Home Shopping
2.6 Vending Machines
2.7 Summary
2.8 Check Your Progress
2.9 Questions and Exercises
2.10 Key Terms
2.11 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept of retail formats
z Discuss the components of store and non-store formats.
z Explain television home shopping and vending machines

2.1 Introduction
Retailing is the set of activities related to the sale of products and services to the
ultimate customer. Companies carry out market research to know customer attitude
towards their products but the customers’ real intents are displayed only during the
process of buying in retail stores. A company can develop insights into the behaviour of
its customers as they shop in the retail store.
But most retail stores are not owned by the companies whose items are sold in
them. Retailers have a huge amount of information about customer behaviour but all
this information is not passed on faithfully to the companies.
A retailer’s prime affinity and loyalty is towards the customers of his store, and not
to the companies whose goods he sells. Companies either need to have more leverage
with the retailers or own some retail stores themselves to be able to know their
customers better.
It is a huge managerial challenge to run a retail operation. A retailer is required to
have both marketing and operational skills. He needs empathy to understand
customers’ requirements but he also has to be indifferent enough not to let customers’
anguish about the products in his store bother him.
He has to remember that he sells the manufacturer’s products and it is the
manufacturer’s duty to make the right products for the customers. The retailer’s focus
has to be on getting the operation of his store right, which is itself a stupendous task.
The retailer has to get the right assortment of products in the store in an efficient
way, arrange the products in a way that stimulates purchase and minimizes
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inconvenience for customers, and manage a group of friendly and effective

salespersons.
Notes
Consumer decision making involves the choice of brands, and also the choice of
retail outlets from where the customer will buy his chosen brands. It may also happen
that a customer decides to buy from a particular retail format, and then buys from
among the brands that the retail format stocks.
Most customers buy in physical retail stores of various types having various product
assortments and levels of service, but non-store retail formats such as mail order,
automatic vending and Internet sales account for large amount of sales, especially in
developed countries.
In developing countries, these formats are slowly finding acceptance now. Retailing
makes products available when and where customers want to buy them. Retailing is
becoming international in nature and is slowly emerging as an important service.

2.2 Retail Formats

The retail format is the store ‘package’ that the retailer presents to the shopper. A
format is defined as a type of retail mix, used by a set of retailers. Store Formats are
formats based on the physical store where the vendor interacts with the customer. It is
the mix of variables that retailers use to develop their business strategies and constitute
the mix as assortment, price, transactional convenience and experience.
Therefore each retailer needs to evaluate the enablers and deterrents in the retail
marketplace. This primarily involves identifying the key drivers of growth, the shoppers’
profile and shopper expectations. It also means evaluating the nature of competition
and challenges in the market place. Then the retailer decides the elements of the retail
mix to satisfy the target markets’ needs more effectively than its competitors. The
choice of retail mix elements will enable it to decide the type of format or structure of
business.

2.2.1 Classification of Formats

The term retail institution refers to the basic format or structure of a business.
Classification for Retail institutions is necessary to enable firms to better understand
and enact their own strategies: selecting an organizational mission, choosing an
ownership alternative, defining the goods/ service category and setting objectives.
Ownership Based Retailing is one of the few sectors in our economy where
entrepreneurial activity is extensive. Although retailers are primarily small (80% of all
stores are operated by firms with one outlet and over one-half of all firms have two or
fewer paid employees), there are also very large retailers. Retail firms may be
independently owned, chain owned, franchisee operated, leased departments, owned
by manufacturers or wholesalers, consumer owned5. From a positioning and operating
perspective, each ownership format delivers unique value. Retail executives must work
on the strengths and weaknesses inherent in each of these formats to be successful.

Independents
An Independent retailer owns a single retail unit. In the United States, they account for
nearly 80 percent of total retail establishments and firms generate just 3 percent of total
U.S. store sales. One half of all independents are run entirely by the owners and/or their
families and have no paid workers. The high number of independent retailers is
associated with the ease of entry into the marketplace, owing to low capital
requirement, no or relatively simple, licensing procedures. The ease of entry into
retailing is reflected in the low market shares of the leading firms in many goods
/service categories as a percentage of total category sales. For example, in the grocery
store category where large chains are quite strong, the five largest grocery retailers
account for only about 22 percent of sales. A similar large format in India contributed to
less than 3% of total retail sales. The Indian retail market has around 12 million outlets

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and has the largest retail outlet density in the world. However, most of these outlets are
basic mom-and-pop stores with very basic offerings, fixed prices, and no ambience.
These are highly competitive stores due to cheap land prices and labour. Also, most of Notes
the time these stores save tax as they belong to the small industry sector.
Due to relative ease of entry into retailing, there is a great deal of competition
resulting in the high rate of retail business failures among new firms. According to Small
Business Administration estimates one-third of new U.S. retailers do not survive their
first year and two –thirds do not continue beyond their third year. Most of the failures
involve independents. These stores have a great deal of flexibility in choosing retail
formats and locations. They target smaller consumer segments rather than mass
markets. Since only one store location is involved, detailed specifications can be set for
determining best location, product assortments, prices, store hours, and other factors
consistent with their target segment. They have low investments in terms of lease,
fixtures, workers and merchandise. Thirdly, independents often act as specialists and
acquire skills in a niche for a particular goods/service category. Decision-making in
these stores is usually centralised as the owner operator is typically on the premises,
who have a strong entrepreneurial drive as they have personal investment in the
business, success or failure has huge implications, and there is a lot of ego
involvement. They are consistent in their efforts as they generally adopt just one
strategy.
There are some disadvantages of independent retailing. They have limited
bargaining power with suppliers as they often buy in small quantities. Reordering may
also be tough if minimum order requirements are too high for them to qualify. To
overcome this problem, a number of independents form buying groups. Due to low
economies in buying and maintaining inventory, the transportation, ordering, and
handling costs are higher. These stores often have operations that are labour intensive,
sometimes with little computerisation. Ordering, taking inventory, marking items, ringing
up sales and bookkeeping may be done manually as most independents tend to find
investment in technology and training not worthy. Compared to other formats,
Independents incur high costs of advertising due to limited access to advertising media
and may pay higher fees compared to regular users. There is often disruption when the
owner is ill, on vacation, or retires. They also allocate limited amount of time and
resources to long term planning. To offset the disadvantage of economies, these
retailers offer complementary merchandise and services. Often while all stores in the
chain offer the same merchandise, independents can provide merchandise compatible
with local market needs.

Chains
A chain retailer operates multiple outlets (store units) at any given time. In developed
economies, they account for nearly a quarter of retail outlets and over 50 percent of
retail sales. Retail chains can range from two stores to retailers with over 1,000 stores.
Some retail chains are divisions of larger corporations or holding companies.
Chain Retailers have several advantages. They enjoy strong bargaining power with
suppliers due to the volumes of purchases. They generally bypass wholesalers. Many
of them buy directly from the manufacturers. Suppliers service the orders from chains
promptly and extend a higher level of proper service and selling support. New brands
reach these stores faster. Most of these chains sell private. Chains achieve efficiency
due to the centralisation of purchasing and warehousing and computerisation. Wider
geographic coverage of markets allows chains to utilize all forms of media. Most of the
chains invest considerable time and resources in long term planning, monitoring
opportunities and threats.
Chain retailers suffer from limited flexibility, as they need to be consistent
throughout in terms of prices, promotions, and product assortments. Chain retailers
have high investments in multiple leases, fixtures, product assortments and employees.
Due to their spread, these retailers have reduced control, lack of communication and
time delays. Thus, such retailers focus on managing a specific retail format for a better

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strategic advantage and increased profitability. Some chain retailers capitalise on their
widely known image and adopt flexibility to market changes.
Notes
Franchising
Franchising is a contractual agreement between a franchiser and a franchisee that
allows the franchisee to operate a retail outlet using a name and format developed and
supported by the franchiser. Approximately one –third of all U.S. retail sales are made
by franchisees. In a franchise contract the franchisee pays a lump sum plus a royalty on
all sales for the right to operate a store in a specific location. The franchisee also agrees
to operate the outlet in accordance with procedures prescribed by the franchisers. The
franchiser provides assistance in locating and building the store, developing the
products and/or services sold, management training and advertising. There are two
types of franchising: product/ trademark and business format.
In product/ trademark franchising, franchisees acquire the identities of the
franchiser by agreeing to sell the latter’s product and/or operate under the latter’s
names. But there are independent in their operation. They may draw certain operating
rules in consultation with the franchiser. In a business format franchising arrangement,
the two parties have a synergetic relationship. The franchiser provides assistance in
strategic and operation issues besides the right to sell goods and services. The
franchisees can take advantage of prototype stores, standardised product lines and
cooperative advertising.
Three structural arrangements are found in retail franchising.
z Manufacturer- Retailer; where a manufacturer the right to sell goods and related
services through a licensing agreement as in the case of automotive dealers and
petroleum products dealers.
z Wholesaler- Retailer; which may take the form of a voluntary franchise system as
in consumer electronic stores or co-operative where a group of retailers set up a
franchise system and share the ownership and operations of a wholesaling
organisation.
z Service sponsor- Retailer, where a service firm licenses individual retailers to let
them offer specific service package to consumers, such as auto rental, hotels and
fast food restaurants.
This arrangement has several advantages. Individual franchisees can own retail
enterprises with relatively small capital investments. Franchisers gain a national or
global presence quickly and with less investment. It improves cash flow as money is
obtained when goods are delivered rather than when they are sold. Since franchisees
are owners and not employees, they have a greater incentive to work hard.
Franchisees may also have to face certain disadvantages. Over saturation could
occur adversely affecting the sales and profits of each unit. They may enter into
contract provisions that give the franchisers undue advantage. The can exclude
franchisees from, or limit their involvement in, the strategic planning process.
Franchisers also face a lot of potential problems. Franchisees can harm a firm’s overall
reputation and/ or customer loyalty if they do not adhere to company standards. Intra-
franchise competition is not desirable. Ineffective franchised units directly impact
franchiser profitability from selling services, materials, or products to the franchisees
and from royalty fees. Franchisees, in greater numbers, are seeking independence from
franchiser rules and regulations.

Leased Department
A Leased Department is a department in a retail store rented generally by a
manufacturer. The lessee is responsible for all aspects of business and pays the store a
rent. The store may impose operating restrictions for the leased department to ensure
the overall consistency. The leased departments choose to operate in categories that
are generally on the fringe of the store’s major product lines, such as in-store beauty
salons, banks, photographic studios and food courts. Leased departments help the

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stores in generating greater traffic and providing one stop shopping. They benefit from
expertise of lessees in personal management, merchandise displays, the recording of
items, as store personnel might lack the merchandising ability to handle and sell certain Notes
goods and services. This is also a regular source of revenue and reduces costs as
leased departments pay for inventory and personal expenses. This may also be a
source of conflict with lessees as leased departments may use operating procedures
which conflict with those of the stores. The lessees may adversely affect stores’ images
and customers may blame problems on the host stores rather than on the lessees.
The leased department operators benefit as the main store generates immediate
sales for leased departments. This arrangement reduces expenses through economics
of scale (like pooled advertising) and shared facilities (like security equipment and
display windows). Also lessees’ images are aided by there relationships with popular
stores. However, there may be inflexibility due to the restrictions imposed by the
operations of the main store. There is always the fear that the stores may raise the rent
or may not renew leases when they expire even if lessees are successful.

2.3 Store Formats

Supermarket
A conventional supermarket is a self-service food store offering groceries, meat,
produce with limited sales of non-food items, such as health and beauty aids and
general merchandise at low prices. They are large in size and carry 9,000 to 11,000
items. They are chosen due to volume sales, self-service, low prices and easy parking.
The self-service nature allows supermarkets to cut costs, as well as increase
volume. The conventional supermarket was once the most common format.
Conventional supermarkets have to deal with intense competition from other types of
food stores. Convenience stores offer greater customer convenience; food based
superstores and combination stores have more product lines and greater variety, as
well as better gross margins; and box and warehouse stores have lower operating costs
and prices. Membership clubs, with their discount prices, also provide competition –
especially now that they have expanded food lines. Discount store chains are able to
undercut supermarket prices because their efficient distribution systems focus on
reducing inventory investments by selling fast moving items.

Department Store
A department store is a large retail unit with an extensive assortment (width and depth)
of goods and services that are organised into separate departments for purposes of
buying, promotion, customer service and control. It has the greatest selection of any
general merchandise retailer and often serves as the anchor store in a shopping centre
or district. Department Stores are unique in terms of the shopping experience they offer,
the services they provide and the atmosphere of the store. They offer a full range of
services from altering clothing to home delivery. Over its history, the department store
has been responsible for many innovations, including advertising prices, enacting a
one-price policy (whereby all shoppers pay the same price for the same good or
service.), developing computerised checkouts, offering money back guarantees, adding
branch stores and decentralised management.
However, during the past few years, industry wide sales growth of traditional
department stores has lagged behind the full line discount stores. They no longer have
brand exclusivity for a lot of items they sell; manufacturer brands are also available at
specialty and discount outlets. Many firms, instead of creating their own brands, have
signed exclusive licensing agreements with fashion designers. This perpetuates
customer loyalty to the designer and not the store. There are more price conscious
consumers than before, and they are attracted to discount retailers. The popularity of
shopping malls has aided specialty stores since consumers can accomplish one-stop
shopping through several specialty stores in the same mall or shopping centre. Some

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department stores are too big and have too much unproductive selling space and low
turnover of merchandise.
Notes
Hypermarkets
Hypermarkets were created in France after World War II. A hypermarket is a very large
retail store offering low prices. It combines a discount store and superstore food retailer
in one warehouse like building. Hypermarkets can be up to 300,000 square feet and
stock over 50,000 different items. Hypermarkets are unique in terms of store size; low
operating margins, low prices and the size of general merchandise assortment. The
store sells a broad variety of basic merchandise ranging from food to consumer
electronics. All hypermarkets are based on three concepts of: one stop shopping, ample
free parking and a discount pricing strategy. The main limitation of hypermarkets is that
many consumers find that shopping in stores over 200,000 square feet is too time
consuming. It is hard to find merchandise and checkout lines can be very long.

Shopping Mall
Shopping mall, a late 20th century development, was created to provide for the
customer’s need in a single, self-contained shopping area. Although they were first
created for the convenience of suburban populations, they are now found in many main
city thoroughfares. A large Brand of a well-known retail chain usually serves as mall’s
retail flagship, which is the primary attraction for customer.

Discount Store
A discount store targets the middle -class and lower- middle class shoppers who
looking for good value. It conveys the image of a high-volume, low cost and fast
turnover outlet. It sells a broad merchandise assortment for less than conventional
prices. It is likely to carry the range of product lines expected at department stores.
Products are normally sold via self-service with minimal assistance in any single
department. Centralised checkout service is provided. Buildings, equipment and fixtures
are less expensive; and operating costs are lower than for traditional department stores.
To respond to category specialists, full –line discount retailers are creating more
attractive shopping environments, placing more emphasis on apparel, developing
private label merchandise, and increasing store visits by offering easily accessible
convenience store merchandise.

Category Killers
The category killer concept originated in the U.S. due to abundance of cheap land and
the dominant car culture. A category specialist is a discount store that offers a narrow
variety but deep assortment of merchandise. These retailers are basically discount
specialty stores. By offering a complete assortment in a category at low prices, category
specialists can “kill” a category of merchandise for other retailers. Most category
specialists use a self-service approach. They use their buying power to negotiate low
prices, excellent terms and assured supply when items are scarce.
The category killers are facing reduced profits as the competition is focusing on
prices. They have difficulty differentiating themselves on other elements of retail mix. All
competitors in a category provide similar assortments and the same level of service.
According to a report in the European Retail Digest, there are some that believe that the
category killer format will burn out, leaving only a few hardened experts, as happened
with the warehouse club sector. In response to this increasing competitive intensity, the
category killers continue to concentrate on reducing costs by increasing operational
efficiency, acquiring smaller chains to gain economies of scale and expanding into less
competitive international markets. France, Germany, Spain and the UK provide
attractive markets for expanding category killers. Interestingly, with the clampdown on
out-of-town developments in the UK, homegrown category killers that are typically
located in town centres will benefit from legislative changes in this area. Some out of
town category killers are choosing to downsize their format to make it fit small towns.

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Kiosks
Kiosks are that category of low lost small time retailers like tea stalls, snack centres, Notes
barber shops, pushcart and mobile vendors.

Convenience Stores
A convenience store is a well-located store. The ease of shopping and personalised
services are the major reasons for its patronage, even when it charges average to
above average prices, and carries a moderate number of items.. It stays open for long
hours and provides an average atmosphere and customer services. It is often also
called the "mom–and-pop" stores. It is useful for fill-in merchandise and emergency
purchases. Many customers shop at least two to three times a week at these stores.
The convenience stores face most competition from supermarkets that have started
providing longer hours and better stocks of non-food items.

Speciality Stores
A traditional specialty store concentrates on a limited number of complementary
merchandise categories and provides a high level of service. They are smaller in size.

Drugstores
Drugstores are specialty stores that concentrate on health and personal grooming
merchandise. Pharmaceuticals often represent over 50 percent of drugstore sales and
an even greater percentage of their profits. Drugstores are facing considerable
competition from discount stores and supermarkets adding pharmacies. In response,
the major drugstore chains are building larger stand-alone stores offering a wider
assortment of merchandise, more frequently purchased consumer products and drive
through windows for picking up prescriptions. To build customer loyalty, the chains are
also changing the role of their pharmacists from dispensing pills to providing health care
assistance and personalised service. For example; Planet Health, Subhiksha.

DIY Stores
A home improvement centre is a category specialist offering equipment and material
used by do-it–yourselfers and contractors to make home improvements. It focuses on
providing material and information that enables consumers to maintain and improve
their homes. While merchandise in these stores is displayed in a warehouse
atmosphere, salespeople are available to assist customers in selecting merchandise
through demonstrations and workshops. They are not facing the same level of
competitive intensity as other category specialists, because the merchandise varies
considerably across the country and there are opportunities for differentiation on
customer service.

2.4 Non-Store Formats

Non-store retailing is a form of retailing in which sales are made to consumers without
using physical stores. The non-store retailers are known by medium they use to
communicate with their customers, such as direct marketing, direct selling and vending
machines or e-tailing. Non store retailing is patronised to time conscious consumers
and consumers who can’t easily go to stores, or compulsive buyers. Most non-store
retailers offer consumers the convenience of buying 24 hours a day seven days a week
and delivery at location and time of their choice. Non-store sales are now growing at a
higher rate than sales in retail stores. The high growth rate is primarily due to the growth
of electronic retailing. The growth of catalogue retail sales and sales in other non-store
retailing formats such as TV home shopping, direct selling, and vending machines are
slower.

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E-Retailing

Notes Electronic retailing (also called e-tailing and Internet retailing) is a retail format in which
the retailer and customer communicate which each other through an interactive
electronic network. After an electronic dialogue between the retailer and customer, the
customer can order merchandise directly through the interactive network or by
telephone. The merchandise is then delivered to the customer’s address. The World
Wide Web can serve one or more of these roles for a retailer:
z Project a retail presence.
z Generate sales as the major source of revenue for an online retailer or as a
complementary source of revenue for a store-based retailer.
z Enhance the retailer’s image.
z Reach geographically dispersed consumers including foreign ones.
z Provide information to consumers about the products carried, store locations, usage
information, answers to common questions, customer loyalty programmes and so
on.
z Promote new products and fully explain and demonstrate their features.
z Furnish customer service in the form of E-mail, “hot links”, and other
communications.
z Be more personal with consumers by letting them point and click on topics they
choose.
z Conduct a retail business in a cost efficient manner.
z Obtain customer feedback.
z Give special offers and send coupons to web customers.
z Describe employment opportunities.
Present information to potential investors, potential franchisees and the media. The role
assigned to the web by a given retailer depends on whether it is predominantly a
traditional retailer that wants to have a web presence or a newer firm that wants to
derive most or all its revenues from web transactions.
Strong growth of Internet users and electronic retail sales is evident Figure - 4. In
addition, Forrester Research has forecast that 13% of U.S. retailing will be conducted
via the Internet by 2004.17 Non U.S. markets account for about 30 percent of the
ecommerce industry. In India Non-Store retailing represented by direct selling and e-
tailing is estimated at ` 1,100 crores. Only 19 percent of all retailers have an e-retailing
initiative. The number of retailers with plans to e-tail within one year and those with no
plans are almost equal. Significantly, 10 percent of the retailers have discontinued their
e-retail initiatives. The main reasons for retailers to stay away from e-retailing are
predominantly non-viability of business and resource constraints. It is estimated that 5
percent or more of retail sales of goods and services such as apparel, banking, books,
computer hardware and software, consumer electronics, gifts, greeting cards,
insurance, music, newspapers/magazines, sporting goods, toys, travel and videos will
be made online.
In the case of products where it is difficult to provide ‘touch and feel’ information
electronically, such as clothing, perfumes, flowers and food electronic retailers may not
be successful. Branding may help overcome many of the uncertainties in purchasing
merchandise without touching and feeling it. For example, if customers purchase a size
30–inch waist / 32-inch inseam pair of jeans, they knows they will fit when bought from
an electronic retailer. In some products and services, such as travelling or hotels,
electronic retailers might even be able to provide superior information compared to
store retailers. The critical issue related to selling successfully for electronic retailers is
whether they can provide enough information prior to the purchase and make sure the
customers will be satisfied with the merchandise once they get it. There are many

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buying situations in which electronic retailers can provide sufficient information, even
though the merchandise has important ‘touch and feel’ attributes.
Notes
Direct Selling
Direct selling refers to the selling of goods and services to consumers who are away
from a fixed retail outlet, generally at their homes, workplace, etc., through an
explanation, and demonstration of the product by sellers. It is one of the oldest modes
of sales, and is similar to the traditional consumer goods retail model.

History and Evolution of Direct Selling

The modern direct selling industry can be considered to have pioneered in the USA,
with the establishment of Avon in 1886. With the success of this model, involving lower
sales, and distributions costs and greater direct interaction with the consumer, the
portfolio of products swelled to include cosmetics, personal care, household goods,
accessories and other products, over time. The movement was supported by the
engagement of women as direct sellers, who considered this opportunity as a means of
empowerment and self-reliance. The introduction of the multi-level marketing
compensation plans (MLM plans) opened another chapter in the evolution of direct
selling. Introduced in the mid-twentieth century, the plan for the first time enabled
consumers to benefit from the success by providing them the option to become a direct
selling partner of the business. MLM plans became widely accepted and a large number
of companies adopted the same including global majors like; Avon, Tupperware and
Amway.
The success of MLM compensation plans however, led to a number of fraudulent
money circulation schemes globally. The scammers posed as direct selling enterprises
to gain from the popularity of the direct selling MLM plans. It has taken significant time
in different economies to distinguish between the two, and recognise direct selling as a
legitimate business model. Acknowledging the importance of direct selling as a sales
and distribution model and its potential for promoting self-employment, governments
across the globe have taken firm steps to distinguish it from artificial money circulation
and Ponzi schemes. This has primarily been done either (a) by introducing specific
legislations to govern the direct selling industry, or (b) by recognising direct selling as a
rightful business model within existing consumer laws. The industry also self-regulates
by creation of specific and stringent guidelines for its members, which are governed by
local associations accredited by a global association. Today, direct selling is a US167
billion (2012) industry globally, engaging over 89 million direct sellers. Asia-Pacific
forms the largest direct selling market with a share of 44 per cent followed by North
America, Central and South America (20 per cent share, each) and Europe (15 per
cent).

Direct Selling in India

Modern direct selling can be considered to have been kick-started in India in 1980s.
The industry witnessed major growth post-liberalisation with many global players
entering the Indian market. Amway was one of the first major global direct selling
companies to enter India in the year 1995, which was followed by companies like; Avon,
Oriflame and Tupperware in 1996. Around the same time Modicare was one the first
few Indian companies to adopt this channel of distribution.1 Today, the direct selling
market in India is estimated to be around INR72 billion.1 Our interactions with industry
stakeholders suggest that the industry has also created a positive impact on several
other social and economic parameters:
z Additional income opportunities: Direct selling provides additional income
opportunities to a large number of people and promotes micro-entrepreneurship.
Currently, over 5 million direct sellers are estimated to be engaged with the
industry, and are projected to grow further with the growth of the industry. In
addition to providing income opportunities, direct selling also imparts transferable

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skills in sales and management, which can be used outside the direct selling
industry, as well.
Notes z Women empowerment: Direct selling offers self-employment opportunities to a
large number of people, especially women. Direct selling gives women the flexibility
to manage their time and balance their work and personal lives. The industry in
FY13 is estimated to have provided self-employment to 3.4 million female
distributors. Many companies work towards the empowerment of women.
z Development of the SME sector: Many direct selling companies rely on SMEs for
manufacturing their products. In a lot of cases, the direct selling companies impart
the manufacturing know-how, technology and processes to enable the SMEs to
produce excellent products. Many direct selling companies also invest in providing
the right equipment and machines to the SMEs for production. Driven by these
initiatives, several SMEs have now developed capabilities to cater to the needs of
other MNCs and have commenced supplying to them, in the process promoting
India as a manufacturing destination.
z Employment generation: Besides providing additional income opportunities to
direct sellers, the industry also generates a large number of jobs. Majority of the
direct selling companies outsource production, packaging and distribution of their
products, thus generating direct employment across the value chain.
z CSR initiatives: In terms of responsibilities towards society, direct selling
companies have been in the forefront. Many of the companies involved in direct
selling actively contribute towards social activities. Avon’s Breast Cancer Crusade
and Amway’s Sunrise project for education are well known for their social impact.
z Contribution to the government exchequer: The operating model for direct
selling generates tax contributions to the government across its value chain. Total
tax contribution by the direct selling industry to the government in FY13 alone is
estimated to be INR10 billion. This includes direct and indirect tax contributions
through corporate income taxes, import duties and VAT. Going forward, the industry
has the potential to create a significant social and economic impact in India. Our
estimates suggest that the industry has the potential to reach a size of INR645
billion by 2025, driven by growth in consumer markets and increase in the
penetration of direct selling to globally comparable levels. This could however be
contingent on creating an enabling environment for the industry, and mitigation of
some of the challenges it is facing today.

2.5 Television Home Shopping

Adaptation of In-Store Retailers to Television Home Shopping
Interactive Home Shopping Defined
In defining IHS, we conceptualize interactivity as a continuous construct capturing the
quality of two-way communication between two parties. In the case of IHS, the parties
are the buyer and seller. The two dimensions of interactivity are response time and
response contingency. Because IHS involves electronic communication, the response
can be immediate-similar to the response time in face-to-face communications.
Response contingency is the degree to which the response by one party is a function of
the response made by the other party. We use the term home merely to indicate that
the customer can engage in this interaction in a location other than a store.
The Defender model suggests that in-store retailers should react to emerging IHS
retailers by emphasizing attributes of their offering for which they have a comparative
advantage. Therefore, store-based retailers should (1) focus on merchandise that has
important experiential attributes that are search attributes in a store but experience
attributes in IHS, (2) capitalize on their relative advantage in providing information
tailored to the needs of specific customers, (3) emphasize the non-informational
benefits of shopping, (4) complement IHS with their in-store business, and (5) place
more emphasis on unique merchandise.

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Because it is more difficult to provide some experience information through IHS, in-
store retailers must focus on merchandise that possesses characteristics consumers
can assess veridically only through contact with the merchandise. For example, bedding Notes
and linens come in standard sizes and are amenable to IHS; consequently, department
stores might need to decrease space allocated to this merchandise and increase floor
space devoted to tailored clothing. They also might need to increase resources devoted
to personalized service associated with those items (e.g., alterations). Similarly,
department stores should shift their merchandise mix to emphasize items for which
immediate, low-cost access to the merchandise is important.
To offset the ability of Interactive Home Shopping (HIS) retailers to provide
personalized information at home, in-store retailers should improve the personalized
information they offer using their sales associates or in-store kiosks. For example, Best
Buy uses kiosks extensively to alleviate physical store constraints and provide detailed
product information. Media Play uses in-store listening stations to enable acoustic
sampling of com-pact discs prior to purchase. Used-car superstore CarMax provides
kiosks that allow flexible screening criteria, side-by-side viewing of screened options,
and the printing of car lot location maps for candidate cars-all of which greatly reduce
search costs inherent in navigating a huge and heterogeneous on-site inventory.
Because IHS retailers can provide greater informational benefits, in-store retailers
must emphasize ancillary benefits such as entertainment and opportunities to socialize.
For many consumers, shopping is an experience that transcends product purchase.
One method of differentiating a retail out-let is to provide benefits that enhance the
experience. Traditionally, this has involved improvements in ambiance. Increasingly, the
entertainment value of shopping is being emphasized. Incredible Universe, Niketown,
and the Mall of America are possible harbingers of the future.
In-store retailers with an IHS presence can use IHS as a source of advertising to
presell merchandise and to check its availability in local stores. This would enable the
customer to pick it up or have it delivered from the local store. In-store retailers and IHS
retailers will need to reduce their reliance on nationally branded merchandise to lure
people into their sites and will need to redouble their efforts to develop private label
brands. Therefore, the trend seen in store-based retailers such as JCPenney-which
increasingly promotes private-label brands such as Arizona jeans-could accelerate.

2.6 Vending Machines

Vending machine is a retailing format involving the coin or card operated dispensing of
goods (such as beverages) and services (such as life insurance sales at airports). It
eliminates the use of sales personnel and allows for round the clock sales. Machines
can be placed wherever they are most convenient to the consumers –inside or outside
a store, in a hotel corridor, at a station, airport or a street corner.
Although many attempts have been made to ‘vend’ other products, beverages and
food items remain the largest category. Hotels, restaurants and at train stations are
highly visible spots for vending but they account for a small proportion of sales. Higher
priced items have not sold well in vending machines because too many coins are
required for each transaction and many vending machines are not equipped with
currency note changers. Many consumers are reluctant to purchase more expensive
items - they cannot see them displayed or have them explained and there is the
difficulty of returning unsatisfactory merchandise. In evolved markets, vending machine
sales have experienced little growth over the past five years largely due to the changes
in the workplace. Employment growth has been limited and the largest growth in the
work-force is white and pink collar employees rather than the blue – collar workers who
buy most heavily from vending machines.
To improve productivity and customer relations, vending machine retailers use
microprocessors to track consumer preferences, trace malfunctions and record receipts.
The devices transmit data back to the host computer. This data is analysed and
communications are sent to route drivers informing them of stock outs and

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malfunctions. Some machines even have voice synthesisers. Video kiosks enable
consumers to assess the merchandise and also use their credit cards to make a
Notes purchase. In India vending machines are at a very nascent stage. Almost all of them are
operated by an attendant. Even coffee machines are operated with assistance.
Companies like Cadbury’s and Malayalam Manorma (newspaper publishing house)
have installed them at places that attract a lot of traffic, such as the airport. But the
sales from these are limited.

2.7 Summary
Retailing is the set of activities related to the sale of products and services to the
ultimate customer. Companies carry out market research to know customer attitude
towards their products but the customers’ real intents are displayed only during the
process of buying in retail stores. A company can develop insights into the behaviour of
its customers as they shop in the retail store.
The retail format is the store ‘package’ that the retailer presents to the shopper. A
format is defined as a type of retail mix, used by a set of retailers. Store Formats are
formats based on the physical store where the vendor interacts with the customer. It is
the mix of variables that retailers use to develop their business strategies and constitute
the mix as assortment, price, transactional convenience and experience.
Classification for Retail institutions is necessary to enable firms to better understand
and enact their own strategies: selecting an organizational mission, choosing an
ownership alternative, defining the goods/ service category and setting objectives.
A conventional supermarket is a self-service food store offering groceries, meat,
produce with limited sales of non-food items, such as health and beauty aids and
general merchandise at low prices.
Electronic retailing (also called e-tailing and Internet retailing) is a retail format in
which the retailer and customer communicate which each other through an interactive
electronic network.
A hypermarket is a very large retail store offering low prices. It combines a discount
store and superstore food retailer in one warehouse like building.
The category killer concept originated in the U.S. due to abundance of cheap land
and the dominant car culture. A category specialist is a discount store that offers a
narrow variety but deep assortment of merchandise.
Direct selling refers to the selling of goods and services to consumers who are
away from a fixed retail outlet, generally at their homes, workplace, etc., through an
explanation, and demonstration of the product by sellers.
Non-store retailing is a form of retailing in which sales are made to consumers
without using physical stores. The non-store retailers are known by medium they use to
communicate with their customers, such as direct marketing, direct selling and vending
machines or e-tailing.

2.8 Check Your Progress

Multiple Choice Questions
1. A retailer’s prime affinity and loyalty is towards the …………. of his store.
(a) Customers
(b) Wholesalers
(c) Employees
(d) Suppliers

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2. In the ………………., an independent retailer accounts for nearly 80 per cent of total
retail establishments.
Notes
(a) United Kingdom
(b) Japan
(c) United States
(d) India
3. A …………….. retailer operates multiple outlets.
(a) Speciality
(b) Chain
(c) Convenience
(d) Discount
4. ………………… is a contractual agreement between a franchiser and a franchisee.
(a) Franchising
(b) Retailing
(c) Discounting
(d) Warehousing
5. A ……………. is a middleman who operates between the producers and the
retailers.
(a) Agent
(b) Manufacturer
(c) Wholesaler
(d) Retailer
6. A ……………… is a person who produces goods and services on a large scale.
(a) Wholesaler
(b) Retailer
(c) Manufacturer
(d) Consumer
7. A leased department is a department in a ……………. store rented generally by a
manufacturer.
(a) Convenience
(b) Speciality
(c) Retail
(d) Discount
8. Hypermarkets were created in …….. after World War II.
(a) Germany
(b) Italy
(c) France
(d) Spain
9. The category killer concept originated in the ……………… due to abundance of
cheap land and the dominant car culture.
(a) United States
(b) Russia

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(c) Germany
(d) China
Notes
10. A ……………. store is a well located store.
(a) Hypermarket
(b) Speciality
(c) Discount
(d) Convenience

2.9 Questions and Exercises

1. Define retail format.
2. Why is it necessary to classify retail institutions? Describe the various
classifications briefly.
3. Describe the different store formats of retail.
4. Describe the various non-store formats of retail.
5. How does a vending machine form a part of the retailing format?

2.10 Key Terms

z Direct Selling: Direct selling refers to the selling of goods and services to
consumers who are away from a fixed retail outlet, generally at their homes,
workplace, etc., through an explanation, and demonstration of the product by
sellers.
z Non-Store Retailing: Non-store retailing is a form of retailing in which sales are
made to consumers without using physical stores.
z Hypermarket: A hypermarket is a very large retail store offering low prices. It
combines a discount store and superstore food retailer in one warehouse like
building.
z Electronic Retailing: Electronic retailing (also called e-tailing and Internet retailing)
is a retail format in which the retailer and customer communicate which each other
through an interactive electronic network..
z Vending Machine: Vending machine is a retailing format involving the coin or card
operated dispensing of goods (such as beverages) and services (such as life
insurance sales at airports).

Check Your Progress: Answers

1. (a) Customers
2. (c) United States
3. (b) Chain
4. (a) Franchising
5. (c) Wholesaler
6. (c) Manufacturer
7. (d) Retail
8. (c) France
9. (a) United States
10. (d) Convenience

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2.11 Further Readings
z Patrick M. Dunne, Robert F. Lusch &James R. Carver, Retailing 8th Edition, South- Notes
Western, 2014
z Roger Cox & Paul Brittain, Retailing: An Introduction 5th Edition, Pearson Education,
2004
z K V S Madaan, Fundamentals of Retailing, Tata McGraw Hill, 2009
z Manfred Krafft & Murali K. Mantrala, Retailing in the 21st Century: Current and
Future Trends 2nd Edition, Springer, 2010
z Nicholas Alexander & Anne Marie Doherty, International Retailing, Oxford, 2009

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Notes CASE STUDY: HOME SHOP 18

The Company
HomeShop18 is online and on-air retail marketing and distribution venture, India’s first 24-
hour home shopping TV channel. HomeShop18 operates in a multimedia environment
including, television, web, catalogue and print, to reach high-quality products and services
directly to customers across the country. The company uses a 24-hour sales and
customer service centre allowing customers to call in and book orders as per their
convenience with free home delivery across India. Today, HomeShop18 has close to 833
executives with an efficient IT infrastructure that manages nearly 62,000 inbound calls,
5,000 outbound calls & 300 short messenger service (SMS) interactions.
Motivation for Change
The company was using a third-party outsourced sales and customer service centre to
manage incoming calls from prospective and existing customers for sales booking and
service queries. There were also a growing number of outbound calls both to restart
conversations with those customers who were disconnected while exploring the voice
portal menu or for new sales orders and promotional campaigns. New channels were set
up, driven by market and customer needs, such as SMS-based channels for customer
interaction. On average, the centre managed a significant number of outbound calls and
inbound calls per day along with a plethora of SMS interactions. Managing these disparate
processes efficiently was turning into a major task for the organization.
In addition, business was growing, both in terms of scale of operations, as well as volume
of business driven by the increasing popularity of the HomeShop18 brand. Moreover,
while the company was also looking to minimize lost sales (through abandoned calls) by
keeping track of incoming calls, database and information management, as well as
analysis of that information was becoming complex and burdensome. Existing
infrastructure was already up to capacity and could not cope with this demand. The
company needed a larger contact centre set up, one that would deliver the efficiencies and
the scalability it needed.
Why Aspect
The company chose to set up an in-house contact centre instead of continuing to use its
outsourced contact centre. The new contact centre at Noida in the National Capital Region
of India has the capability to scale more than 200 percent of the original capacity to
accommodate the growing call traffic.
After a review of a number of vendors, HomeShop18 chose to implement Blended
Interaction, a unified communication application for the contact centre from Aspect. The
company found Aspect rated better than other solutions on the following major features:
unified solution, quality management and voice logging capabilities.
Specifically, the reason for choosing Blended Interaction was to eliminate the need to
integrate multiple point products for managing different contact channels. Blended
Interaction unites inbound, outbound and blended multichannel contact with workforce
management in a single, scalable technology platform. In addition the application also
delivers the voice portal, recording and quality management functionality that
HomeShop18 required to improve agent performance and deliver an enhanced customer
experience through speech enabled self-service.
HomeShop18 also selected Blended Interaction™ because of its open platform, enabling
them to seamlessly integrate their existing technology investments and back-end customer
relationship management (CRM) systems with the new solution. Additionally, the company
saw the value and expertise that Aspect® Professional Services could bring to bear during
the implementation process. HomeShop18 worked with Aspect partner, Wipro
Technologies for the implementation of the solution. The implementation was completed in
eight weeks with complete involvement of Aspect specialists who made the deployment
and integration very smooth.
Results
HomeShop18 also selected Blended Interaction™ because of its open platform, enabling
them to seamlessly integrate their existing technology investments and back-end customer
relationship Following the implementation, HomeShop18 immediately improved
productivity using the Blended Interaction application. The voice portal capability of the
Contd…

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application enabled HomeShop18 to offer product selling, promotional offers, billing
related issues, and refunds via an automated menu. Customers could book their order
through the portal and also through the contact centre. As most of these types of Notes
transactions are now automated, agents have time to address more complex customer
issues.
The universal queue feature within the application organizes incoming contacts across all
communication channels in a single queue and routes them to the most appropriate agent,
taking wait times, incoming traffic volumes and service levels into consideration. This
enables HomeShop18 to make changes to the provisioning rules without stopping and
starting systems, campaigns or services. Through direct routing of data to the sales agent,
SMS call response time has reduced from 12 hours to only in some minutes. The call
routing features and automated voice portal menus also helped increase the company’s
call handling rate from 9 to 10 calls per hour to 13 to 14 calls per hour.
In addition to voice channels, HomeShop18’s contact centre sales agents can continue to
take calls or interact with customers via text chat/messaging. Plus, the automatic outbound
dialing capability of Blended Interaction enables HomeShop18 to use multiple dialing
options, such as predictive, preview, timed preview and manual to deliver a message
involving order status when a customer answers his or her phone, to respond
automatically to a number of follow-up questions and to route the answering customer to a
live agent, if necessary. The solution also has the fully integrated email management
capabilities for sending, receiving, routing and auto-responding to emails. And, by using
multichannel recording and quality monitoring, HomeShop18 is able to review interactions
between its sales agents and customers, and provide offline or real-time coaching to the
sales agents. This ensures that customers are receiving a quality experience, which is
very important to HomeShop18.
Overall, Blended Interaction has helped improve operational efficiency, for the company,
helping HomeShop18 leverage a universal agent pool for inbound and outbound contacts,
increasing agent productivity from 60-66 percent to 85 percent. The company is also
seeing a higher sales conversion rate, of 35 to 40 percent against 20 percent in the earlier
outsourcing model.
The company’s success stems from its highly efficient operations and the value that it
places on its in-house contact centers and the employees who help the company manage
call traffic and ensure a positive customer experience.
Questions
1. What was the motivation behind Home Shop 18 to change its customer service
center?
2. What was the change in results after the implementation of Blended Interaction on its
business? Discuss in detail.

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Unit 3: Store Location

Notes
Structure
3.1 Introduction
3.2 Levels of Location Decisions
3.3 Location Options
3.4 Factors Affecting City, Location and Site Location Decisions
3.5 Steps Involved in Store Location Decision Process
3.6 Summary
3.7 Check Your Progress
3.8 Questions and Exercises
3.9 Key Terms
3.10 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept of location decisions
z Discuss the components of location options
z Explain the factors affecting city, location and site location decisions

3.1 Introduction
Retail store location is considered to be one of the most important elements in retail
marketing strategy, because it is a long-term decision, associated with long-term capital
commitment. Site selection is therefore associated with distinct planning processes to
solve the complex location decisions. In this Chapter, the focus is on bricks-and mortar
retail outlets. The different types of retail store locations, the main elements of store
design and important considerations for store selection and design will be discussed.
Retail locations provide retailers with physic al access points to their markets, and
can generate operating advantages that can prove difficult for competitors to assail or
neutralise. The importance of location decision-making to retail organisations is further
heightened when set against the trend of the average retailer operating from larger
outlets, across a wider variety of locations, increasingly experimenting with new retail
formats, and investing substantially larger amounts of capital on location decisions than
they did in the past.

3.2 Levels of Location Decisions

The selection of retail store locations is one of the most significant decisions in retail
marketing, because in store based retailing, good locations are key elements for
attracting customers to the outlets and sometimes can even compensate for a
mediocre retail strategy mix. A good location therefore can lead to strong competitive
advantages, because location is considered one of the elements of the retail marketing
mix that is “unique” and thus cannot be imitated by competitors. Location decisions are
very complex, due to the large number of factors that have to be considered, and costs
associated with, for example, the opening of new stores, can be very high. Site
selection is therefore a long term decision that implies long term capital commitment.

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Once a retail site has been chosen, there is only little flexibility, because this
decision usually cannot be changed easily without high losses.
Notes
Because of its fixed nature, location cannot be changed in the short term,
contrary to other elements of the retail marketing mix such as prices, customer
service, the product assortment or advertising. These latter factors can be altered if the
environments like consumer behaviour or competition changes. The main attention in
the context of retail location strategies usually focuses on the opening of new stores.
However, location decisions relate to the entire physical structure of retail outlets and
are thus more comprehensive. The main types of decisions are as follows:
1. The opening of new stores,
2. The extension of floor space of existing stores,
3. The relocation or movement of a store from one place to another within a particular
town or area where a better site is available,
4. Rationalization decisions, e.g. the closure of individual stores,
5. Repositioning of locations, e.g. altering of store image by changing the name or
appearance,
6. Refurbishment such as improving or updating the physical Environment of an
existing outlet or
7. Altering the product range and assortment “remerchandising” to tailor the offer more
closely to local customers. The opening of new stores comprises the most
complex type of decision, because it is usually the starting point of activities in a
specific geographic area. This section therefore focuses mainly on retail location
decisions of this type.

City Selection

Population and Your Customer

If you are choosing a city or state to locate your retail store, research the area
thoroughly before making a final decision. Read local papers and speak to other small
businesses in the area. Obtain location demographics from the local library, chamber of
commerce or the Census Bureau. Any of these sources should have information on the
area's population, income and age. You know who your customers are, so make sure
you find a location where your customers live, work and shop.

Accessibility, Visibility and Traffic

Don't confuse a lot of traffic for a lot of customers. Retailers want to be located where
there are many shoppers but only if that shopper meets the definition of their target
market. Small retail stores may benefit from the traffic of nearby larger stores.
z How many people walk or drive past the location?
z Is the area served by public transportation?
z Can customers and delivery trucks easily get in and out of the parking lot?
z Is there adequate parking?
Depending on the type of business, it would be wise to have somewhere between 5 to 8
parking spaces per 1,000 square feet of retail space.
When considering visibility, look at the location from the customer's view point. Can
the store be seen from the main flow of traffic? Will your sign be easily seen? In many
cases, the better visibility your retail store has, the less advertising needed. A specialty
retail store located six miles out of town in a free standing building will need more
marketing than a shopping store located in a mall.

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3.3 Location Options

Notes There are three basic types of locations available for retail stores: high street location,
free standing location and planned shopping centers. Each of the basic location types is
associated with specific advantages and disadvantages according to, for example,
the size of the catchments area, occupancy costs, pedestrian or vehicle
customer traffic, restrictions placed on store operations or convenience of the
location.

High Street Location

This type of store location may be another premium choice, just like malls. However,
there may be fewer rules and more freedom for the business owner. Many communities
are hard at work to revitalize their downtown areas and retailers can greatly benefit from
this effort. However, the lack of parking is generally a big issue for downtown retailers.

Free Standing Location

This type of location relates to single, free standing outlets that are isolated from
other retailers. They can, for example, be positioned on roads or near other
retailers or shopping centers. Such sites are used, for instance, by large store
formats in food and non-food retailing or for convenience shops.

Shopping Centre/Mall Location

Planned shopping areas are retail locations that have been architecturally planned to
provide a unified theme for a number of outlets. These sites are developed
deliberately and usually have some large, key retail brand stores (“anchor stores”) and
a number of smaller retailers to add diversity and special interest. The basic types of
shopping centers are retail parks that consist of a purpose built cluster of free standing
retail outlets. There are (large) parking facilities and shopping centers that consist of
single buildings which are marketed as a unified shopping destination, usually with one
name and logo. The retail mix is different from retail parks, as the range of stores is
wider and often includes luxury and leisure items as well as clothing, footwear and
other typical central location merchandise or specialty stores.
The choice of a location should be directed by predetermined objectives. These
objectives call for evaluation that combines facts with good judgment. Location
objectives maybe: to provide for the potential of adequate sales and, therefore, profit; to
offset gains made by a competitors’ choice of location; to minimize the cost of preparing
an outlet for operation; and to respond to specific market or community needs
Companies devote significant time and resources to analyzing each prospective site to
avoid the failure of the business. The main criteria are customer traffic levels and
convenience. Proximity to sites that draw large crowds, such as retail centers, office
complexes, and hotel and entertainment centers, is desirable. Accessibility concerns,
such as the availability of parking and ease of entry, are also important. In addition, a
company will review potential competition in a trade area, local market demographics,
and site visibility.

3.4 Factors Affecting City, Location and Site Location Decisions

Signage, Zoning and Planning
Before signing a lease, be sure you understand all the rules, policies and procedures
related to your retail store location. Contact the local city hall and zoning commission for
information on regulations regarding signage. Ask about any restrictions that may affect
your retail operation and any future planning that could change traffic, such as highway
construction.

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Competition and Neighbors
Other area businesses in your prospective location can actually help or hurt your retail Notes
shop. Determine if the types of businesses nearby are compatible you're your store. For
example, a high-end fashion boutique may not be successful next door to a discount
variety store. Place it next to a nail or hair salon and it may do much more business.

Location Costs
Besides the base rent, consider all costs involved when choosing a retail store location.
z Who pays for lawn care, building maintenance, utilities and security?
z Who pays for the upkeep and repair of the heating/air units?
z If the location is remote, how much additional marketing will it take for customers to
find you?
z How much is the average utility bill?
z Will you need to make any repairs, do any painting or remodeling to have the
location fit your needs?
z Will the retailer be responsible for property taxes?
The location you can afford now and what you can afford in the future should vary.
It is difficult to create sales projects on a new business, but one way to get help in
determining how much rent you can pay is to find out what sales similar retail
businesses are making and how much rent they're paying.

Personal Factors
If you plan to work in your store, think about your personality, the distance from the
shop to home and other personal considerations. If you spend much of your time
traveling to and from work, the commute may overshadow the exhilaration of being your
own boss. Also, many restrictions placed on a tenant by a landlord, management
company or community can hamper a retailer's independence.

Special Considerations
Your retail shop may require special considerations. Make a list of any unique
characteristic of your business that may need to be addressed.
z Will the store require special lighting, fixtures or other hardware installed?
z Are restrooms for staff and customers available?
z Is there adequate fire and police protection for the area?
z Is there sanitation service available?
z Does the parking lot and building exterior have adequate lighting?
z Does the building have a canopy that provides shelter if raining?
z What is the crime rate in the area?
z Are there (blue laws) restrictions on Sunday sales?
Don't feel rushed into making a decision on where to put your retail store. Take your
time, research the area and have patience. If you have to change your schedule and
push back the date of the store's opening, than do so. Waiting to find the perfect store
location is better than just settling for the first place that comes along. The wrong
location choice could be devastating to your retail business.

3.5 Steps Involved in Store Location Decision Process

Retail location decisions typically follow a systematic process that starts with a general
assessment of geographic areas and leads to a detailed assessment of specific site

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characteristics. This process can broadly be described as a three step selection

process:
Notes z Market selection: The first step is the consideration of a region that has
potential for a new retail outlet.
z Area analysis: Within the chosen region, a potentially optimal area for the store is
selected. Site evaluation: In the chosen geographical area, the best available
site(s) are examined in terms of all features that are relevant to potential store
performance. This step concludes with a final decision as to the specific site.
z Catchments Area: The analysis of the catchment area (trading area, market
area) of a specific region or a specific site is of high importance in each
phase of this retail location decision process. The catchment area is the
geographic area that contains the customers of a particular site or region for a
company or a group of companies for specific goods or services. Thus, it
determines the potential demand at a particular site and, among other factors,
influences potential sales and profitability. Usually, the catchment area is divided
into three parts. The primary trading area is the zone in which the majority of
customers are based. It encompasses 50 % to 80 % of the customers. The
secondary trading area contains about 15 % to 25 % and the fringe or tertiary
trading area includes the remaining customers that shop occasionally at a
location as an alternative to local shopping. These catchment area segments
are often described in terms of the distance between customers’ homes or work
places and the area or site. Usually, either the linear distance (e.g. concentric
circles drawn around a site), the travel distance (by car or public transport) or
time distance measures (by car or public transport) are used to delineate
trading area segments.
Mapping techniques are used to forecast or survey and map such store
trading areas. Geographical information systems (GIS) are important support systems
for location research and trading area analysis. These are software systems that
combine digitalized mapping with key locational data in order to depict trading area
characteristics such as population demographics, customer purchase data, and
competitor locations.

3.6 Summary
Retail store location is considered to be one of the most important elements in retail
marketing strategy, because it is a long-term decision, associated with long-term capital
commitment.
Retail locations provide retailers with physic al access points to their markets, and
can generate operating advantages that can prove difficult for competitors to assail or
neutralise.
The selection of retail store locations is one of the most significant decisions in retail
marketing, because in store based retailing, good locations are key elements for
attracting customers to the outlets and sometimes can even compensate for a
mediocre retail strategy mix.
There are three basic types of locations available for retail stores: high street
location, free standing location and planned shopping centers. Each of the basic
location types is associated with specific advantages and disadvantages according to,
for example, the size of the catchments area, occupancy costs, pedestrian or
vehicle customer traffic, restrictions placed on store operations or convenience of the
location.
Planned shopping areas are retail locations that have been architecturally planned
to provide a unified theme for a number of outlets. These sites are developed
deliberately and usually have some large, key retail brand stores (“anchor stores”) and
a number of smaller retailers to add diversity and special interest.

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3.7 Check Your Progress
Multiple Choice Questions Notes
1. This type of store location may be another premium choice, just like malls.
(a) High street
(b) Shopping mall
(c) Free standing
(d) Kiosk
2. This type of location relates to single, free standing outlets that are isolated
from other retailers.
(a) High street
(b) Shopping centre
(c) Free standing
(d) Malls
3. These sites are developed deliberately and usually have some large, key retail
brand stores (“anchor stores”) and a number of smaller retailers to add diversity and
special interest.
(a) Free standing
(b) Shopping Mall
(c) Kiosk
(d) High street
4. The …………. area is the geographic area that contains the customers of a
particular site or region for a company or a group of companies for specific
goods or services.
(a) Catchment
(b) Populated
(c) Domestic
(d) Transnational
5. ………………… information systems are important support systems for location
research and trading area analysis.
(a) National
(b) Catchment
(c) Geographical
(d) Transnational
6. Retail store ……….. is considered to be one of the most important elements in retail
marketing strategy.
(a) Display
(b) Design
(c) Location
(d) Awning
7. Once a retail site has been chosen, there is only little ……………, because this
decision usually cannot be changed easily without high losses.
(a) Viability
(b) Quality
(c) Chance
(d) Flexibility
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8. It is the process of making as good as new, including essential modernization and

renovations.
Notes (a) Renergise
(b) Renewal
(c) Refurbishment
(d) None of the above
9. It refers to the design or use of signs and symbols to communicate a message to a
specific group, usually for the purpose of marketing or a kind of advocacy.
(a) Signage
(b) Display
(c) Design
(d) Ambience
10. An area of ground on which a town, building, or monument is constructed.
(a) Display
(b) Catchment area
(c) Design
(d) Site

3.8 Questions and Exercises

1. What do you mean by location decisions?
2. What are the main types of location decisions?
3. Describe the factors affecting city selection for a retail store.
4. Discuss about the different location options.
5. Describe and discuss the factors affecting city, location and site location decisions.

3.9 Key Terms

z Location: A position or site occupied or available for occupancy or marked by
some distinguishing feature.
z Site: An area of ground on which a town, building, or monument is constructed.
z Refurbishment: It is the process of making as good as new, including essential
modernization and renovations.
z Signage: It refers to the design or use of signs and symbols to communicate a
message to a specific group, usually for the purpose of marketing or a kind of
advocacy.
z Catchment Area: A group of countries that have few or no price controls in the
form of tariffs or quotas between each other.

Check Your Progress: Answers

1. (a) High street
2. (c) Free standing
3. (b) Shopping mall
4. (a) Catchment
5. (c) Geographical
6. (c) Location
7. (d) Flexibility
8. (c) Refurbishment

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9. (a) Signage
10. (d) Site
Notes
3.10 Further Readings
z Patrick M. Dunne, Robert F. Lusch &James R. Carver, Retailing 8th Edition, South-
Western, 2014
z Roger Cox & Paul Brittain, Retailing: An Introduction 5th Edition, Pearson Education,
2004
z K V S Madaan, Fundamentals of Retailing, Tata McGraw Hill, 2009
z Manfred Krafft & Murali K. Mantrala, Retailing in the 21st Century: Current and
Future Trends 2nd Edition, Springer, 2010
z Nicholas Alexander & Anne Marie Doherty, International Retailing, Oxford, 2009

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CASE STUDY: RENEWING STORE FORMATS FOR A MAJOR GROCERY

Notes RETIALER

A completely new store format provides the consumer proposition strength to enable the
company to profitably grow into new markets for the first time in over a decade.
Challenge
A leading grocery retailer was seeing growth stagnate or decline at most outlets. Growth
from new-store openings was unlikely because of the company’s saturated network, and
its core value proposition was not strong enough for it to profitably enter new geographies.
The grocer was also facing pressure from aggressive new entrants, which threatened
its market position.
Executives at the company asked McKinsey to help establish a clearer consumer value
proposition to help restore performance.
Discovery
To explore potential options, the McKinsey team worked closely with the client on
comprehensive research and insight generation. The work focused on three topics—craft,
art, and science—drawn from McKinsey’s strategic brand-management approach:
Craft
Analysis of potential limiting factors, including the client’s real estate, in-house skills,
overall cost structure, local competitive environment, and the specific strengths and
weaknesses of the client’s key competitors
Art
Qualitative shopper research to grasp the grocer’s true brand image, including consumer
focus groups, employee interviews, and shop-along sessions at both client and competitor
outlets to observe shopper behavior
Science
Cluster analysis to identify promising consumer target segments and shopping occasions,
backed up by an economic evaluation of potential new formats, including capex needs,
gross margins, and operating cost
Building on the opportunities this work uncovered, the team helped the client define new
store formats with clear, targeted customer value propositions. The work included
redesigning the grocer’s commercial offer and adapting relevant outlet features, such as
store design, service levels, network configuration, and space allocation.
Impact
The client successfully piloted the new store concepts. The new formats, created by
converting existing stores, showed sales increases of up to 20 to 40 percent. Thanks to
the commitment of client executives, the organization quickly assumed ownership of the
new concepts and their defining elements.
Questions:
1. What were the challenges in this case study?
2. What was the impact on the organisation?

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Unit 4: Store Design and Layout

Notes
Structure
4.1 Introduction
4.2 Store Design Layout
4.2.1 Importance of a Store Layout
4.2.2 Exterior Design Components and their Significance
4.2.3 Interior Design Atmospherics
4.3 Visual Merchandising
4.3.1 The Components of Visual Merchandising and Facilities Design
4.4 Summary
4.5 Check Your Progress
4.6 Questions and Exercises
4.7 Key Terms
4.8 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept of store design layout
z Discuss the exterior and interior design components of the store
z Explain the visual merchandising aspect of retailing

4.1 Introduction
A store layout is the design in which a store's interior is set up. Store layout is well
thought out to provide the best exposure possible. It is designed to create an attractive
image for consumers. It describes the overall look and feel of the interior of a retail
store, including the placement of fixtures and products within the store. It is an important
part of implementing retail store strategy. Effective layouts are designed to expose
customers to the most products possible given the amount of floor space available.
A well-planned retail store layout allows a retailer to maximize the sales for each
square foot of the allocated selling space within the store. Store layouts generally show
the size and location of each department, any permanent structures, fixture locations
and customer traffic patterns. Each floor plan and store layout will depend on the type of
products sold, the building location and how much the business can afford to put into
the overall store design.

4.2 Store Design and Layout

Layout for retail stores depends on the retailer’s understanding of the customers’ buying
habits. Retailers have three basic layout options from which to choose: grid, free form,
and boutique. Some areas of a retail store generate more sales per square foot and
therefore are more valuable.
There are many factors retailers should consider before choosing a store location.
From traffic analysis to zoning requirements, there is a lot of data to examine before
deciding on the perfect spot. Considering following factors while deciding a Store
Layout can be useful:
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z Effective Use of Space: Space needs to be used effectively, with all the areas
planned properly to break up the store into logical and functional areas such as
Notes POS, Back Office, Changing Rooms, Pantry, Toilets, etc.
z Inviting Customers: Layout is designed to attract the targeted audience. It should
speak on its own and guide customers to all the areas of merchandise.
z Interiors: Interior arrangements - appearance, walls, sections, and areas should be
planned and positioned well. Lighting and Music arrangement needs to be taken
into consideration while planning a layout. It should be placed to suit the kind of
shopper. These arrangements can be changed during different hours in a store.
It is very vital for a business to plan the store layout, atmosphere, and create
irresistible visual merchandising displays. In the process it would be necessary to view
floor plans and other retail store designs, learn how to select and care for store fixtures,
as well as using special lighting techniques to accent products and find store layout
software and vendors selling store fixtures and displays. A well-planned retail store
layout allows a retailer to maximize the sales for each square foot of the allocated
selling space within the store. Store layouts generally show the size and location of
each department, any permanent structures, fixture locations and customer traffic
patterns.
Each floor plan and store layout will depend on the type of products sold, the
building location and how much the business can afford to put into the overall store
design. The straight floor plan is an excellent store layout for most any type of retail
store. It makes use of the walls and fixtures to create small spaces within the retail
store. The straight floor plan is one of the most economical store designs. The diagonal
floor plan is a good store layout for self-service types of retail stores. It offers excellent
visibility for cashiers and customers. The diagonal floor plan invites movement and
traffic flow to the retail store. The angular floor plan is best used for high-end specialty
stores. The curves and angles of fixtures and walls are makes for a more expensive
store design. However, the soft angles create better traffic flow throughout the retail
store. The geometric floor plan is a suitable store design for clothing and apparel shops.
It uses racks and fixtures to create an interesting and out-of-the ordinary type of store
design without a high cost. The mixed floor plan incorporates the straight, diagonal and
angular floor plans to create the most functional store design. The layout moves traffic
towards the walls and back of the store.

4.2.1 Importance of a Store Layout

A store’s layout is one of the key strategies in its success. Therefore, a lot of time, effort
and manpower go into its design. Retailers use layout to influence customer’s behavior
by designing the store’s flow, merchandise placement and ambiance. Layouts also help
retailers understand how much revenue per square foot they are making; using this
information, they can properly assess the strengths and weaknesses in their
merchandising mix.

Types of Layout
z Grid Layout: Grid Layout is a type of store layout in which counters and fixtures are
placed in long rows or “runs,” usually at right angles, throughout the store. Following
are the advantages and disadvantages of Grid layout.
Advantages
™ Low cost
™ Customer familiarity
™ Merchandise exposure
™ Ease of cleaning
™ Simplified security
™ Possibility of self-service

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Disadvantages
™ Plain and uninteresting
Notes
™ Limited browsing
™ Stimulation of rushed shopping behavior
™ Limited creativity in decor
A store organized using a grid layout is very simple. The aisles of the store are
arranged parallel to one another and lead to the checkout lanes located at the front
of the store where customers enter and exit. Most people have seen this type of
layout used in grocery or drug stores.
z Diagonal Layout: Diagonal layouts are very similar to grid layouts. Like a grid
layout, the merchandise in the store is separated into aisles which lead to the
checkout area. However, in a diagonal layout, the aisles are set at an angle to the
front entrance of the store. Doing this helps maximize the space available in a
smaller store.
z Mouse Trap Layout: In a mouse trap layout, when customers enter the store there
is only one direction to go. Customers walk around the perimeter of the store,
stopping to pick up items they need until they reach the checkout aisles located
where they originally entered. Mouse trap layouts are often used in furniture stores
and are considered a more traditional style store layout.
z Mixed Floor Plan: A mixed floor plan layout incorporates different types of layouts
throughout the store. This is often seen in a department store setting where
different floor plans work better depending on the type of merchandise on display in
that particular area. For example, the house wares section of a department store
might use a grid layout while the clothing sections work better with a race track
layout. Having the flexibility to use different layouts for each type of merchandise
ensures that customers find what they are looking for quickly and easily in every
department.
z Free Flow Layout: Free- Flow Layout is a type of store layout in which fixtures and
merchandise are grouped into free-flowing patterns on the sales floor.
Advantages
™ Allowance for browsing and wandering freely
™ Increased impulse purchases
™ Visual appeal Flexibility
Disadvantages
™ Loitering encouraged
™ Possible confusion
™ Waste of floor space
™ Cost
™ Difficulty of cleaning
For a spacious store layout that's flexible and ideal for displaying impulse items, opt
for a free flow store layout. Arrange products throughout the store using racks and
shelves placed so that customers can move around the browse freely and employees
can access customers immediately to assist with buying decisions. A free flow store
layout is ideal for clothing stores, jewelry stores, boutiques and small specialty shops.
Use caution with this type of layout because it can appear cluttered, instead of spacious
and free moving, if product displays and racks aren't situated to maximize space.
z Loop Layout: Loop Layout is also known as Racetrack layout. It is a type of store
layout in which a major customer aisle begins at the entrance, loops through the
store, usually in the shape of a circle, square, or rectangle, and then returns the
customer the front of the store.

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z Spine Layout: Spine Layout is a type of store layout in which a single main aisle
runs from the front to the back of the store, transporting customers in both
Notes directions, and where on either side of this spine, merchandise departments using
either a free-flow or grid pattern branch off toward the back aisle walls. A store's
layout displays the overall image of the store and creates the perception that
customers have about the store's environment. The image of the store not only
attracts customers, but it also causes them to purchase goods while shopping
there.

4.2.2 Exterior Design Components and their Significance

Spine Layout is a type of store layout in which a single main aisle runs from the front to
the back of the store, transporting customers in both directions, and where on either
side of this spine, merchandise departments using either a free-flow or grid pattern
branch off toward the back aisle walls. The quality of a store front is a major
determinant for a customer, particularly a new customer, and should not be
underestimated. The exterior appearance of one store, a block of businesses or a
cluster, silently announces what customers can expect inside. Good exterior visual
merchandising attracts attention, creates interest and invites the customer into the
business. The exterior presentation can offer a conservative, progressive, lavish or
discount image to the customer. How a store visually welcomes customers has a lot to
do with whether or not they enter the store. Although good prices and positive word-of-
mouth advertising is important, it is hard to overcome the negative image of a poor store
exterior.

Exterior Signs
A sign is a silent salesperson, and part of a shopper’s first impression of a store. In less
than 10 seconds the sign must attract attention, tell who the business is and what it has
to sell. An effective sign will communicate what type of business is being conducted.
Off-premise signs provide information and direction, especially for travelers and
new residents. Signs can also help effectively communicate a poor location. The
lettering should be large enough to read from 200 feet, which is the distance required to
stop a car traveling 40 miles per hour. Signs with 8-inch letters can be read from a
distance up to 250 feet. A car traveling 55 miles per hour needs about 400 feet to stop.
A sign requires 12-inch lettering to be read at that distance.
A sign’s design conveys a great deal about the business inside. A stark design and
limited materials may suggest discount prices and no frills. Elegant and expensive sign
materials may suggest luxury goods and services. Signs may also be used to target a
specific market segment such as youth, women, senior citizens, singles, etc.
Where many signs compete for customers attention, design and logo become even
more important. They should be unique, noticeable and readable. When preparing a
sign to draw the customer’s attention, consider size, shape, materials, lettering, height,
placement and structure. For example, among several rectangular signs in close
proximity to one another, construct an oval or circular sign that will stand out. Also
consider a sign’s relationship with its surroundings. A sign may look good on an
individual store front, but very unattractive when viewed in conjunction with other
buildings on the street. Simple, brief, well-designed, well-lettered and easy-to-read
signs will convey a feeling of welcome. Design graphics appropriate for the nature of the
business, and create a message that is clear and simple. Focus on one or two key
words to describe the business. A clean, clear message will have more impact.
Signs with unlit or missing light bulbs, flaking or faded paint, or cracked and peeling
backgrounds can hurt the overall store image. A shabby or dilapidated sign implies a
lack of concern with the business image, and a sloppy, poorly managed business. Signs
should be well maintained, and painted every three years or sooner if they weather or
fade.

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A store’s sign is its signature. It is personal, original and continuously recognizable
to the public. It should create an image that is consistently carried throughout the
remainder of the store and its business actions. Notes
Marquees
This special type of sign is used to display the name of a store. An effective marquee
must stand out from the other businesses to attract attention. A marquee on some older
buildings is a permanent canopy projecting over an entrance that provides protection
from the elements. It can be used to announce a change in seasons, a special event or
a promotion. The top of the permanent canopy (marquee) provides an opportunity to
showcase seasonal displays or special promotional banners.

Banners
Banners are used increasingly as an inexpensive but colorful, eye-catching means of
promotion. A new and interesting appearance can be offered by changing the banners
frequently. Consumers will think exciting changes are taking place, and be drawn into
the store. Banners can be hung from flagpoles, projected from the building or hung flat
against the exterior. To provide continuity, the same banner design, reduced in size and
scale, can be hung from the marquee and displayed inside the store. However, do not
overuse banners because shoppers will stop noticing them. With each new banner,
select a different size, shape and color from those previously used.
Consistency is an important aspect of retailing used to maintain a businesses’
image and identification. The design concept used on the banners will be more effective
if an attempt is made to carry the colors and graphics throughout the store, and on
promotional materials and newspaper ads.

Awnings
Color and appeal can be added to a store’s exterior with the use of awnings. They
provide the customer with protection from weather and makes viewing the window
display more pleasant as it reduces heat, cuts down on glare and reflection, and
prevents fading of the merchandise from exposure to the sun. However, an awning in
poor condition may do harm by distracting from the total store image.
Many businesses are updating their storefronts with new back-lit awning systems.
Other names for these may include electric awnings, interior lit canopy signs, and back-
lit conventional awnings. These modern-looking awnings are used on new as well as
older buildings and are usually bright and attractive, especially at night. A variety of
styles exist such as concave, convex, long dome, square and coop style. Most are
interior lit with an egg crate type bottom that allows light to shine through and yet will not
allow birds, etc. to enter into it. The illuminated awning fabric is a translucent vinyl that
comes in a wide variety of colors. The store name is incorporated into it with a
translucent (vinyl) film. Sign and awning companies can assist you in selecting and
installing the right style, color and design of awning that would be appropriate for your
building.

Walks and Entries

Approximately 75 percent of first time customers remember a store’s entrance, which
provides the first and last view of the store’s interior. Picture walking up to an expanse
of wall whose flat surface is pierced only by a plain glass door, as opposed to the
protective feeling offered by walking under a porch or canopy.
A properly designed canopy or porch not only protects the customer in bad weather,
but can add to the aesthetics of the building. When adding an entryway, be sure it is
designed to blend or be consistent with the architecture of the building.
A cluttered entryway causes shoppers to indefinitely postpone entering a store,
while an attractive, well-designed entrance is inviting to the customer. Entrances that

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allow shoppers to come into a store without being aware of their entering, is also
becoming more popular. An example is a v-shaped window display that funnels window
Notes shopping traffic into the store.

Landscaping
Landscaping should lead the customer’s eye to the focal point using color and texture to
provide contrast and harmony. The focal point is the business sign and/or the building
itself. Landscaping can also screen undesirable sights such as garbage receptacles,
power transformers and refrigeration equipment.
The essence of good landscaping is simplicity; simple landscape designs that are
easy to maintain. For example, uninterrupted expanses of grass are easier to maintain
than areas cut up by several small beds of flowers or shrubs. Planters, flower boxes
and plants used in front of a store add to the general appearance, regardless of what
type of merchandise is being sold. Plants (especially flowering bedding plants) enhance
the overall look of the store, and also add to the store’s positive reputation in terms of
beautifying the community. Planters placed below and in front of a display window
actually strengthen the display by adding greater depth to the setting. Real flowers and
plants are recommended over artificial ones; high quality silk flowers may be used in
some cases. During the winter, artificial flowers should be removed from stores located
in parts of the country where flowers do not grow in the winter. Because of location and
other factors, many businesses may be limited in the amount of landscaping that can be
done. The following guidelines are suggested for stores that have flexibility:
z Concentrate hardy native tree species in groups at ends of buildings. This breaks
long building lines and gives shade to the building and customers who have time to
linger. Plant low-branched trees along back lot lines to reduce noise and give
privacy to buildings.
z Most shrubs should be planted as individual specimens or in small groups. Do not
plant too close to buildings, and allow ample space along walks to permit normal
growth without crowding.
z Landscape fabric (black plastic, etc.) covered with rock, bark or other mulches
under shrubs and small trees eliminates the tedium of mowing or weeding these
areas.
z Hedges may be used at strategic points, such as street corners, where they must
be kept low. Preference should be given to species that have an acceptable
appearance and height without continuous trimming or pruning.
z Vines and other ground covers may be useful in shady spots and to protect banks
against erosion.
Well-chosen plants, properly placed and maintained, will go a long way toward
welcoming customers. A landscape architect or horticulturist can assist in the layout and
design of a landscaping program. Well designed and sturdy benches for resting and
relaxing can be a part of the landscape and may encourage customers to stay longer.
Aesthetically designed and strategically located garbage receptacles for customer use
will help keep the grounds free from litter.

Window Displays
Special emphasis should be placed on a store’s window displays because they are the
information link to the potential customer. Window displays can be as important, if not
more important, than advertising. As many as one in every four sales could be the result
of a good window display.
Window displays should attract attention, create interest and invite people into the store
to purchase goods. There is less than 11 seconds to accomplish this, as that is the
average amount of time an individual will spend looking at a window display. Be careful
not to crowd too much merchandise into a window, as customers find it difficult to
determine the message and what items are being promoted.

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Shoppers also lose interest when the same window display is left up too long. It is
especially important to frequently change window displays in small towns where
customers pass by several times a week. New displays indicate that new, up-to-date Notes
merchandise is available. In malls and larger towns, customers pass by less frequently.
Properly lighted window displays can help sell specific products or ideas that promote a
store’s image. Window lights should be strong enough to overcome the reflections from
outside objects, such as parked cars and buildings. At night, additional lights on
overhead marquees and projecting cornices can make the window area look larger.
Closed-back windows require a high level of general illumination. Massed window
displays are often lighted with overhead fluorescents which are supplemented by
closely spaced clear incandescent lamps. Use miniature portable spotlights to accent
small display areas, price cards and specific items in a massed display. Compact
footlights help relieve shadows near the bottom of vertical displays.
Window displays are more successful when a dominate theme is carried throughout
the display, regardless of whether the featured products are fashion-oriented,
institutional or promotional in nature. Suggested window treatments that have proven
successful include:
z A single object against seamless paper.
z Merchandise displayed as it would be utilized in a realistic setting.
z A theatrical setting using fantasy and drama.
z Straight merchandise glamorized with props.
z Animation, such as in holiday windows, that draws crowds of shoppers.
z The use of sculpture, paintings or art objects for a touch of class.
z Media tie-ins, with current area activities, films, stars or best-selling books.
Window displays should be in harmony with the entire surroundings; a whole is
being created rather than a fragment. When planning a window display consider the
building facade, street, people and their perceptions, color harmony, lighting and
viewing angle.

4.2.3 Interior Atmospherics

Selling space is the most important part of a store and therefore, efforts to utilize each
square foot will help to maximize sales. One proven way to do this is through interior
displays that effectively show merchandise to the customer. When planning interior
displays, remember that the theme and image presented on the exterior must be carried
throughout the interior of the store to provide consistency for the customer.
The purpose of interior display is to develop desire for the merchandise, show what
is available, and encourage both impulse and planned buying. Three major goals of a
store should be to: motivate the customer to spend money, project the image of the
store and keep expenses to a minimum.
Promotion and advertising dollars are less effective or even wasted when efforts are
not made within the store to effectively merchandise the products. Well-designed
displays and in-store promotions are essential for a consistent theme and to help the
customer find advertised items.
Although the percentage of in-store purchase decisions may vary by type of store
and product, this is a critical selling point. Information provided by the Point of Purchase
Advertising Institute (POPAI) indicates that nothing influences the consumer’s purchase
decisions more than advertising used where the sale is actually made—the point of
purchase.
As an illustration, researchers found that 64.8 percent of all purchase decisions
were made inside a supermarket. This included impulse purchases along with
substitutions and generally planned buys where the shopper had an item in mind, but
no brand. Most people indicated they purchased the item because they saw it

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displayed. A National Retail Hardware Association survey indicated that 48 percent of

all hardware customers purchased one or more items on impulse. Sixty-seven percent
Notes of items purchased in liquor stores are impulse items. Displays or advertising alone may
not increase product sales substantially; however, combining advertising and display
into an integrated promotional campaign will usually be more effective.
Some effective displays are created by suppliers or brand-name manufacturers,
while others are developed from scratch. The main principles of design used in display
are balance, emphasis, proportion, rhythm, color, lighting and harmony. These
principles apply to all displays—window and interior.

Display Design
An effective way of attracting customers to a store is by having good displays, both
exterior and interior. A customer will be attracted to a display within three to eight
seconds; that is the time a customer spends to determine interest in a product. This is
why it is critical to have a properly designed display. Every display should be planned
and have a theme. Good design makes a visual presentation come together. This
means the design attracts attention in a way that strengthens the store image, as well
as introducing merchandise to the customer.
Before designing good displays, answer the following questions:
z What is the store’s image? Select an image to present to the public. The customer
will identify a certain look with a store and expect that look to be carried throughout
the business, be it trendy, elegant, off-price or discount. Do not mix images within
one store, it will only confuse the customers.
z What type of customer is being attracted? Use a display that reflects the targeted
consumer. A display that works well in one community may be ineffective in another
community.
z What is the concept of the merchandise to be presented in the display? Display and
highlight the merchandise, do not merchandise an attractive display. Items should
be displayed as they are meant to be used or worn. If formal wear is combined with
day wear and kitchen accessories, the consumer is confused and sales are lost.
z Where is the display going to be set up and how will the location determine the
design? There are many types of locations for display in every store: windows,
walls, cases, gondolas or islands. The principles of display should help make the
location work for the display.
z Why is this merchandise being put on display as opposed to other merchandise?
This reason will determine the visual presentation and design. For example, if the
merchandise is on sale, it will be displayed differently than regular price
merchandise.
Keep in mind there should be enough backup stock to warrant a display. If not, do
not display it. Place sale or promotional goods in the front of the store for short periods
of time only. If the sale or promotion lasts for several weeks, move the merchandise to
the rear of the store. Interested customers will search out a bargain. Introduce the
customer to new, exciting and creative merchandise with a display at the front of the
store.

Principles of Design Used in Display

To execute a display that will sell merchandise, it is necessary to have a working
knowledge of the principles of design. The primary principles of design used in display
include balance, proportion, rhythm, emphasis, color, lighting and harmony. When
applied appropriately, all parts of the display are pulled together to create a purposeful,
effective and aesthetically pleasing presentation. An understanding of these principles
will make it easier to design a display for all types of merchandise. The principles are
discussed separately to provide a clearer understanding of how each works.

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Balance
Balance involves the equilibrium and weight of elements between two sides of a Notes
display. Balance is based on a theory of equals. Two types of balance include:
z Traditional or symmetrical balance is large on one side and large on the other. This
can be effective where expensive and quality merchandise is being presented.
z Informal or asymmetrical balance creates flow or rhythm and a feeling of
excitement. The two sides of the display appear to be of equal weight, but they are
not replicas of each other. Something large can be balanced by several small items
or an expanse of empty space, a bright color or a shot of lights. Several soft colors
in a large space can be balanced by one bright color because the intensity of the
bright color will compensate for its small size.
When planning a display, consider the following points concerning balance:
™ If colors are too bright, they will overwhelm pastels.
™ If several small objects are more exciting than the large object, they will
overpower the large item.
™ A large expanse of empty space will call attention to a single object placed
within it.
™ If an item is placed at an angle or to one side (off-center), the space on either
side of that piece becomes important.
™ If an object is centered, the empty space loses importance because its shape is
predictable and therefore has less recognition as its own element.

Emphasis
Emphasis is the point of initial eye contact. From this spot all other eye movements
flow. Emphasis is therefore the formulation of a focal point, with all else in the display
subordinate. There should be emphasis in all displays. This can be by virtue of the focal
point’s size, color or position. The merchandise is the focal point in a majority of
displays.
When planning a display, consider the following points concerning emphasis:
z A display needs to emphasize a theme or mood, such as the use of sports
equipment, work equipment or leisure equipment set up in a lifelike situation.
Themes may also depict seasons, anniversaries, celebrations, holidays and other
special store events. All elements in a display must then reinforce one other and
emphasize the mood created.

Proportion
Proportion is the ratio of the parts to the whole display. It is a comparative relationship
of distances, sizes, amounts, degrees or parts. Each item may look normal when
isolated, but if it is inconsistent in area or dimension with neighboring items, it seems
out of proportion. Each piece of merchandise must be considered in relationship to all
the other merchandise.

Rhythm
Rhythm or flow involves the measurement of organized movement; a self-contained
movement from object to object, background to foreground, and/or side to side. The
rhythm in a display should lead the viewer’s eye from the dominant object to the
subordinated object(s) or from the primary presentation of the grouping down to the
arrangement of accessories or alternate parts of the display.
Rhythm may be broken-up or continuous; clearly stated or subtly suggested;
repeated or vaguely similar. The initial pattern or design when repeated makes more of
an impression on the viewer because it provides a continuous beat and completion,

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which is satisfying to the viewer. Rhythm entails an arrangement of organized motion

and does not necessarily need repetition. However, it does gain impact from repetition.
Notes
A flow exists if the eye travels from one area of a display to another, covering the
entire display. The eye should travel easily through the entire design. For example, if a
very tall object, such as a mannequin, is placed next to several short baskets, there
may be proportion but no flow. If dried or silk flowers or reeds are placed in the baskets
(one and one-half times the height of the baskets), the height of the smaller objects is
raised so the eye flows easily from the head and neckline of the mannequin to the
baskets. A display can lead the eye with color, repetition, shadows created by light
placement, lettering or texture.
When planning a display, consider the following points concerning rhythm:
z English-reading people read from left to right. A left to right reading should be
created in the display.
z Use elements that mean something together and relate to the merchandise.
z Create a pattern through the use of light and dark, either with color or light.

Harmony
Harmony is a coordinating umbrella principle that can cover and incorporate every other
principle. Harmony is agreement in feeling and consistency in mood; i.e., the feeling
that all parts of a display relate to each other and to the whole display. Without
harmony, the observer is uncomfortable and will not be enticed to purchase
merchandise. Three forms of harmony (functional, structural and decorative) must be in
agreement in a display.
Functional harmony deals with how something works physically, which means it
must be realistic and must work. An example is a kitchen counter used in a display that
is the appropriate height and depth for working.
Structural harmony is correctly fitting together all the pieces; merchandise should
not be out of place in the display. For example, an electrical appliance is not structurally
consistent in an outdoor or camping display. A good window display may have pots and
pans, fishing gear and outdoor furniture all mixed together because these items truly
would be used on a camping trip; hence a camping theme is carried out. All the
merchandise is brought together as part of the trip and harmony would be created or a
mood would be set.
Decorative harmony includes the parts of a display that are included only for
decorative purposes. If an atmosphere of spring is being developed, butterflies and/or
flowers may be used as props. These items are attractive and add to the theme.

Interior Signage
Signage is a critical part of interior display and point-of- purchase promotion. Store
signage that communicates a sales message to the customer can make up for lack of
sales personnel. A good point-of-purchase sign, properly placed, acts as a salesperson
without wages. Signs were originally used to identify a store, name various departments
and announce sales and sale merchandise. Although this is their primary purpose,
signs also commonly advertise vendors, colors, styles, quality and prices. They can be
used to explain customer benefits and describe merchandise features. Benefit signs or
a combination of benefit and price, are one of the most effective merchandising tools. A
good sign provides the most information in the fewest possible words.
z Point-of-purchase signs or shelf talkers should:
z Draw the customer’s attention to the product.
z Identify the merchandise item being sold.
z State a customer benefit.

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z Tell something about the product that they do not know or understand.
z State the price of the item.
Notes
Point-of-purchase signs can be obtained from suppliers or wholesalers,
manufacturers and trade associations. Many retailers make their own signs. When done
properly, hand-lettered signs can be very effective. Other retailers may use a sign-
making machine.

4.3 Visual Merchandising

Visual merchandising, briefly defined, is the presentation of a store and its merchandise
in ways that will attract the attention of potential customers and motivate them to make
purchases. The role of the visual merchandiser in this effort is to carry out the
merchandising concepts as formulated by management. These merchandising plans
include what items are to be featured and in which locations they should be housed.
The visual merchandiser, guided by these decisions and using all of his or her creative
talents, sets out to present the best possible visual effects. A position as visual
merchandiser involves a combination of skills, including creativity; a sense of order;
dedication to design principles; and the discipline to follow directions, stay within
budgets, and complete paperwork. It involves artistic talent and training and also
knowledge of tools, lighting, construction of backgrounds and props, and a complete
understanding of store design. Other important skills include the ability to create signs
(both hand-lettered and computerized), write copy, and create and choose appropriate
graphics. On any day, the demands of the job could involve many other abilities.
The specific duties depend on the arena in which the visual merchandiser works
and at what level he or she is involved. Some positions require expertise in only one
aspect of visual merchandising, such as sign preparation or window installations,
whereas others require a broader base so that all of the functions can be satisfactorily
accomplished by one person. In major stores, visual merchandising roles tend to be
specialized because there is often a large staff that carries out each project. When
Macy’s Herald Square or Marshall Field’s in Chicago, for example, plan and install their
famous annual Flower Shows, scores of individuals with different talents undertake the
task. On the other hand, a freelancer who creates backgrounds and props, installs the
displays, and prepares copy must be a jack-of-all-trades. Somewhere in between is the
person who works for a small chain and, along with an assistant, is responsible for more
than one aspect of visual merchandising. Whatever the level of participation, each
individual should understand the job and what his or her role is in developing the entire
visual merchandising picture. Basically, there are three areas in which people in the
field are employed: department stores, specialty chains, and freelancing.

Department Stores
The major full-line department stores such as Macy’s and Bloomingdale’s and the
specialized department stores such as Saks Fifth Avenue employ in-house staffs to
visually merchandise their premises. Key individuals generally operate from the
company’s flagship stores and are responsible for the direction of the visual
merchandising philosophy and the creation of the concepts for the entire company.
Since the role of visual merchandise director has become so complex, the position has
been elevated in most stores to vice president and in some cases, senior vice
president. In addition to being the central figure in planning window and interior
presentations, the visual merchandise manager has assumed numerous other
responsibilities, such as store design, layout, fixture design and selection, graphics
development and procurement, signage direction, and lighting usage. Other members
of the visual merchandising team may specialize in one or more areas. They include
sign-making, graphics, prop and background construction, and trimming. Generally,
each member of the team has a narrow responsibility and contributes some particular
expertise to the overall challenges conceived by the head of visual merchandising.
Although visual merchandising is typically a subdivision of the promotional division in
most large department stores, each company uses a structure that best suits its needs.

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Specialty Chains

Notes Unlike the department store that generally locates management in the company’s
flagship store, the visual merchandising manager in chain organizations usually
operates from central headquarters where all other top managers are based. The
responsibility at this level is to conceive a visual concept with what is generally a small
staff of designers, who disseminate the ideas to those responsible for the individual
stores’ installations. The plans are carried out either by trimmers who travel within a
particular region of the stores or by the individual store managers who faithfully install
the preplanned displays from photographs and corporate directives. In more and more
companies, specific plans are set out in mock windows and interior settings in the
company’s headquarters and are photographed for copying by the stores.

Freelancers
Individuals who operate their own visual merchandising businesses and provide their
services to clients for a fee are called freelancers. Generally, they concentrate on
window presentations for independent retailers and sometimes involve themselves in
interior presentation if the store requests it.

Creating Effective Visual Presentations

The visual merchandiser is largely concerned with the creative presentation of the
store’s merchandise in settings that will maximize sales. The job involves the
coordination of all the components needed to produce window and interior displays that
will enhance the store’s image and set it apart from the competition. To achieve this
goal of creating an inviting environment for shoppers, a number of tasks must be
performed, such as selecting the appropriate props and mannequins to enhance the
merchandise. Once these ingredients have been determined, the visual merchandiser
must consider design, color, lighting that both illuminates and creates dramatic effects,
and signage. The finished product should be one that attracts shoppers’ attention and
transforms them into customers.

4.3.1 The Components of Visual Merchandising and Facilities Design

In order to effectively differentiate one retail facility from another, and bring the retail
premises to its highest level of visual appeal, a variety of different components must be
successfully coordinated. Visual merchandisers must be constantly aware of what’s
taking place in each of these visual segments and must be prepared to make any
necessary changes.

Store Design
There is no longer a typical store design. Merchants employ the services of architects
and designers who, along with visual merchandisers, create environments that are both
unique and functional. The space that was once allocated to store windows has been
minimized and replaced with more selling floor space. In place of the traditional
windows, large panes of glass are used to allow shoppers to see a large portion of the
store. The interiors range from natural settings using stone and hand-hewn woods to
elegant environments with atriums, majestic staircases, marble flooring, and other
touches of grandeur. Many of the major department stores are reducing the appearance
of vast selling floors with the construction of individual shops or boutiques to house their
special designer collections. This approach gives the customer the feeling of shopping
in smaller stores rather than the cold feeling of the large department store. Food stores
are abandoning the sterile looks long associated with them in favor of surroundings that
feature espresso and juice bars, preparation areas that allow shoppers to see how the
products are prepared, areas that offer “prepared meals,” and a host of kiosk fixtures
scattered throughout the store. Chains like Whole Foods, Fresh Market, and Harris
Teeter are leaders in innovative visual merchandising that transforms their stores into
exciting food shopping venues.

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Mannequins
While traditional mannequins are still often featured, many stores have replaced them Notes
with, to name a few, wire mannequins, soft sculptured types, stylized forms, and
motorized models. With the increasing cost of traditional mannequins, many merchants
have opted for forms that represent mannequins and are created by visual
merchandisers.

Props and Materials

The list of materials and props used by today’s visual merchandisers seems to be
endless. Although conventional store bought props are available at various resource
centers, more and more retailers are making use of things found in nature (such as tree
branches, rocks, and sand) and found objects once reserved for the junk pile (such as
old chairs, worn picture frames, and rusty farm tools. With fresh coats of paint and new
finishes, found display objects can be used dramatically in displays. Not only do they
provide for effective visual presentations, they also enable budgets to go further.
Antiques and antique reproductions are also being used extensively, a trend started by
Ralph Lauren. Of course, at Christmastime, animated displays and glittery props are still
of paramount importance. Shoppers line up along the major department store windows
to enjoy the creative offerings of companies like Spaeth Design that specialize in
unique, animated presentations.

Lighting
Although fluorescents are still used by retailers like supermarkets and warehouse clubs
for general illumination, this form of lighting is no longer in great prominence in most
retail stores. Today, halogen and quartz lighting and high-intensity discharge lamps are
the products of choice. They not only serve the functional needs of illumination but can
be used to achieve dramatic effects. Numerous types of cans or holders are being used
to house these light bulbs, supplying a variety of looks to augment the many types of
store fixtures.

Graphics and Signage

Although traditional two-dimensional signs are still used abundantly, signage and
graphics have taken on new looks. Airbrushed murals celebrating local landmarks,
multilevel murals featuring a variety of montages, animated cartoon characters that
move throughout the signage, backlit transparencies, light walls, prismatic displays, and
digitally produced huge photographic blowups that rival outdoor billboards are just a few
of the exciting approaches now used in retail environments. Electronics continue to
pervade retailers’ premises. Fashion designer Norma Kamali began featuring each
season’s collections on numerous television screens in her New York City store
windows. Today, the trend continues with major retailers all over the country—such as
Carson Pirie Scott, Dayton-Hudson, Bloomingdale’s, and Macy’s—using television
monitors throughout their stores to show vendor collections. In addition to in-store
video, retailers are using other electronic formats to capture shoppers’ attention. For
example, Voila!, a system by Advanced Interactive Video, Inc. of Columbus, Ohio, is an
interactive directory used in shopping malls. The system highlights store sales and
promotions and gives previews of upcoming events. It also automatically dispenses
individual retailer coupons. Instant Imagery by R. D. Button Associates, Inc. of
Randolph, New Jersey, is a computerized system that enables customers to see how
they look in clothing without trying it on. The customer inputs his or her size and selects
an outfit, which is then displayed on the person’s image on a computerized screen.

Point of Purchase
In addition to the signage that abounds in retail establishments, there are point-of-
purchase programs developed by manufacturers for retailer use. The Point of Purchase
Advertising International (POPAI) reports that it now represents a $12 billion industry!
Its president defines point-of-purchase merchandising as “displays, signs, structures
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and devices that are used to identify, advertise and/or merchandise an outlet, service or
product and which serve as an aid to retail selling”. Industry reports revealed that
Notes whenever these programs were in evidence for specific brands, sales increased
significantly.

Sound Usage
Sound is not a visual element, but it is being used to enhance visual presentation.
Professionals in the field agree that shoppers can turn away from visual elements, but
sound is inescapable. The first early venture into sound for visual enhancement was
made by Disney. In its Main Street environment in Disneyland, Disney determined that
the attractions alone were not sufficiently stimulating. The incorporation of sound made
them come to life. Sound is being used abundantly by retailers today to set moods and
give shoppers news. At Warner Bros. stores, for example, Bugs Bunny’s voice is used
for the store directory. More and more retailers are using music to put shoppers in a
buying frame of mind. Walk through many junior departments, for example, and you can
hear a rock beat permeating the selling floor. In order to keep up-to-date with the
comings and goings of the visual industry and store design, it is imperative that those
responsible for such endeavors read all of the periodicals that touch upon these
subjects and attend the trade expositions that feature the latest in the field. One of the
ways in which to learn about new trends, product offerings, and other pertinent news is
by reading the pages of the trade periodical Visual Merchandising and Store Design,
whose Profile follows.

4.4 Summary
A store layout is the design in which a store's interior is set up. Store layout is well
thought out to provide the best exposure possible. It is designed to create an attractive
image for consumers. It describes the overall look and feel of the interior of a retail
store, including the placement of fixtures and products within the store.
Layout for retail stores depends on the retailer’s understanding of the customers’
buying habits. Retailers have three basic layout options from which to choose: grid, free
form, and boutique.
A store’s layout is one of the key strategies in its success. Therefore, a lot of time,
effort and manpower go into its design. Retailers use layout to influence customer’s
behavior by designing the store’s flow, merchandise placement and ambiance.
Selling space is the most important part of a store and therefore, efforts to utilize
each square foot will help to maximize sales. One proven way to do this is through
interior displays that effectively show merchandise to the customer.
Signage is a critical part of interior display and point-of- purchase promotion. Store
signage that communicates a sales message to the customer can make up for lack of
sales personnel.
Visual merchandising, briefly defined, is the presentation of a store and its
merchandise in ways that will attract the attention of potential customers and motivate
them to make purchases.

4.5 Check Your Progress

Multiple Choice Questions
1. A ………. plan layout incorporates different types of layouts throughout the store.
(a) Mixed floor
(b) Spine
(c) Diagonal
(d) Mouse trap

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2. …………………… layout is a type of store layout in which a single main aisle runs
from the front to the back of the store, transporting customers in both directions,
and where on either side of this spine, merchandise departments using either a Notes
free-flow or grid pattern branch off toward the back aisle walls.
(a) Mouse trap
(b) Mixed Floor
(c) Spine
(d) Diagonal
3. In a ………………. layout, when customers enter the store there is only one
direction to go.
(a) Spine
(b) Mouse trap
(c) Diagonal
(d) Mixed floor
4. ………………….. is a special type of sign is used to display the name of a store.
(a) Marquee
(b) Banner
(c) Awning
(d) Landscaping
5. …………………. are used increasingly as an inexpensive but colorful, eye-catching
means of promotion.
(a) Awnings
(b) Landscaping
(c) Banners
(d) Hoardings
6. …………………… involves the equilibrium and weight of elements between two
sides of a display.
(a) Rhythm
(b) Harmony
(c) Balance
(d) Proportion
7. ……………… space is the most important part of a store and therefore, efforts to
utilize each square foot will help to maximize sales.
(a) Window
(b) Floor
(c) Display
(d) Selling
8. …………. layouts are very similar to grid layouts.
(a) Spine
(b) Mouse trap
(c) Diagonal
(d) None of the above
9. The essence of good landscaping is ………..
(a) Simplicity
(b) Complexity

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64 Fundamentals of Retailing

(c) Availability
(d) Saleability
Notes
10. Color and appeal can be added to a store’s exterior with the use of ……….
(a) Banner
(b) Marquee
(c) Hoarding
(d) Awning

4.6 Questions and Exercises

1. What factors should be kept in mind while deciding a store layout?
2. Discuss the exterior design components and their significance.
3. Discuss the interior design atmospherics.
4. Explain visual merchandising in detail.
5. Describe the components of visual merchandising and facilities design.

4.7 Key Terms

z Balance: Balance involves the equilibrium and weight of elements between two
sides of a display.
z Freelancer: Individuals who operate their own visual merchandising businesses
and provide their services to clients for a fee are called freelancers.
z Awning: They provide the customer with protection from weather and makes
viewing the window display more pleasant as it reduces heat, cuts down on glare
and reflection, and prevents fading of the merchandise from exposure to the sun.
z Marquee: This special type of sign is used to display the name of a store.
z Visual Merchandising: Visual merchandising, briefly defined, is the presentation of
a store and its merchandise in ways that will attract the attention of potential
customers and motivate them to make purchases.

Check Your Progress: Answers

1. (a) Mixed Floor
2. (c) Spine
3. (b) Mixed trap
4. (a) Marquee
5. (c) Banner
6. (c) Balance
7. (d) Selling
8. (c) Diagonal
9. (a) Simplicity
10. (d) Awning

4.8 Further Readings

z Patrick M. Dunne, Robert F. Lusch &James R. Carver, Retailing 8th Edition, South-
Western, 2014
z Roger Cox & Paul Brittain, Retailing: An Introduction 5th Edition, Pearson Education,
2004

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z K V S Madaan, Fundamentals of Retailing, Tata McGraw Hill, 2009
z Manfred Krafft & Murali K. Mantrala, Retailing in the 21st Century: Current and
Future Trends 2nd Edition, Springer, 2010
Notes
z Nicholas Alexander & Anne Marie Doherty, International Retailing, Oxford, 2009

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CASE STUDY: VISUAL MERCHANDISER: STEPHANIE

Notes
Building up her visual merchandising skills on the shop floor, Stephanie's experience has
taken her career in new directions
During summer and Christmas breaks from my printed textiles and surface pattern design
degree course at Leeds College of Art, I worked in a high street fashion store as a sales
assistant. I wanted to get involved with the visual merchandising, so I asked if I could start
helping out with the in-store displays.
The creative flair, fashion and colour knowledge needed for this was really enhanced by
my degree. I was offered the opportunity to help with the regional visual display team who
install all of the store window displays across the area. I did this for six months, and after I
had graduated in 2010, I applied for a creative and visual merchandising assistant role at a
flagship store on Oxford Street, London.
As a visual merchandiser, the start of my day would involve looking at the previous day's
'bestsellers' and what stock hadn't performed well. Also, I would look at what other factors
could be involved to help increase or decrease sales, for example the weather or if it was
school holidays, as this would help me to decide which products to display and where.
Based on these factors, I would then create new and innovative window and mannequin
concepts daily. This constantly kept the store looking fresh and drew the customers in.
After one year I had built up enough skills, contacts and reputation to transfer my abilities
to my current role as photo stylist/creative assistant for Biglight, an ecommerce company
specialising in retail. This has allowed me to take my interest in working with fashion to a
different level, while still employing the techniques I learned in visual merchandising. Now
I'm dressing models, not mannequins.
I think that every company would encourage development in visual merchandising
differently, but that progression is definitely possible if you work hard, have determination
and a willingness to 'go the extra mile' for the company.
What I loved about visual merchandising was the creative challenge of the role: making a
visual impact that caused customers to walk into a store and be 'wowed'. It was a lot of
physical and fast-paced hard work, but the satisfaction of dismantling a window or a
display and replacing it with a whole new concept based on fashion's 'next big thing' was a
real thrill. I got immense satisfaction by seeing products come to life within a display and
had a great sense of achievement when underperforming products started to sell as a
result.
I would advise anyone thinking about visual merchandising as a career to be prepared to
work long hours. And you don't start on a brilliant salary, but stick with it. It's a job with
great rewards if you're interested in fashion or design, but looking for a creative outlet too.
Questions:
1. What are the responsibilities to be performed as a visual merchandiser?
2. What kind of challenges a visual merchandiser need to face?

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Unit 5: Merchandising Management

Notes
Structure
5.1 Introduction
5.2 Deciding the Merchandise Mix
5.3 Factors Affecting Merchandise Mix
5.4 Summary
5.5 Check Your Progress
5.6 Questions and Exercises
5.7 Key Terms
5.8 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept and philosophy of merchandise management
z Discuss the components of merchandise management
z Explain the merchandise management process

5.1 Introduction
Every retail organization, regardless of its size, will have a merchandise reporting
hierarchy. It is important for the organizational structure of the buying office of the
company. It guides about the customers that whom to call on and how. At its middle to
lower levels it enables in categorizing and grouping of products for effective store
display of merchandise and comprehensive analysis of sales data. A typical customer
will locate the type of retailer they wish to shop at based on their specific social, cultural,
economic and demographic characteristics

Meaning
Retail Merchandising is the process of developing, securing, pricing, supporting and
communicating the retailer’s merchandise offering. It means offering the right product at
the right time at the right price with the right appeal. The steps in the retail
merchandising process are as under:
z Develop the merchandise mix and establish the merchandise budget.
z Build the logistic system for procuring the merchandise mix.
z Price the merchandise offering.
z Organize the customer support service and manage the personal selling effort.
z Create the retailer’s advertising, sales incentive and publicity programs.

Kinds of Merchandise
There are various types of Merchandise which can be purchase by the ultimate users
for their daily needs.
It includes following types of products:
z Consumer products:
™ Staple: used for daily needs e.g. bread, milk, grocery etc.

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68 Fundamentals of Retailing

™ Impulse: instant Purchasing e.g. chocolates

™ Emergency: purchase on the needs e.g. Medicine
Notes
™ Convenient: conveniently purchase e.g. vegetables
™ Luxury: costly products e.g. Car, jewelry
™ Comforts: purchase for comforts e.g. sofa-set
Industrial: used by the industry e.g. Raw material, machines
z Department: At the entry point in the store, the customer will locate the specific
department of merchandise desired. Men's, Women's, Junior Fashions, Food Court,
Games Zone, Spa etc.
z Class: Within the specific area the customer looks for the class of merchandise
desired. Blouses or Shirts, Pants, Dresses, etc.
z Subclass: The next lower level that further segments merchandise types is
subclass. This level will likely separate like kinds of merchandise based on the
differing features each type has. E.g. Sports Designer shirts have a printed or
appliqué logo on them, whereas Basic shirts have nothing.
z Price: Within the subclass the customer will look further to find the price according
to their economy class or that fits into their budget.
z Style: Once the appropriate price point has been chosen, the customer will find the
style within that price point that will satisfy their need. For e.g. fashionable cloths,
style of hair etc. This style will have been assigned a specific number by the retailer.
z Color and Size: The lowest levels in the hierarchy are where this customer will
ultimately find what they are looking for. These levels are defined at the color,
shape and finally, the size of the products, the customer requires.
There are six types of rights of merchandising:
z Type
z Quality
z Price
z Quantity
z Time
z Place

5.2 Deciding the Merchandise Mix

Retail merchandising requires management of the merchandise mix including the
planning merchandise variety controlling, merchandise variety planning, merchandise
assortment/support, controlling merchandise, assortment/support merchandise mix
strategies, developing the merchandise mix allows the retailer to segment the market
and appeal to a select group of consumers.
Retail merchandising requires management of the merchandise budget which
including the planning and controlling retail sales, planning and controlling inventory
levels, planning and controlling retail reductions, planning and controlling purchases
and the planning and controlling profit margins.

Variety
Consumer choice models often assume that customers are perfectly knowledgeable
about their preferences and the product offerings. Therefore, consumers are always
better o¤ when they choose from a broader set of products. However, empirical studies
show that consumer choice is affected by their perception of the variety level rather than
the real variety level. This perception can be influenced by the space devoted to a
category, the presence or absence of a favorite item or the arrangement of the
assortment.
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Merchandising Management 69
A measure of the dissimilarity between product pairs as the count of attributes on
which a product pair differs. They show that this measure is critical to the perception of
variety of an assortment and that consumers are more satisfied with stores carrying Notes
those assortments perceived as offering high variety and the impact of two attribute-
based measures that significantly impact the perception of variety. These measures are
entropy (whether all products have the same color or different colours) and dissociation
between attributes (whether color and fabric choice across products are uncorrelated).
The perception of variety at a store is especially important for variety-seeking
consumers. Variety seeking consumers tend to switch away from the product consumed
on the last occasion. Variety-seeking literature demonstrated that consumers adopt this
behavior when purchasing food or choosing among hedonic products such as
restaurants and music. Intrapersonal factors (e.g., satiation and the need for
stimulation), external factors (e.g., price change, new product introduction), and
uncertainty about future preferences promote variety-seeking behavior. On another
note, variety can even negatively affect consumers experience: confusion or complexity
due to higher variety may cause dissatisfaction of consumers and decrease sales.

Assortment
Merchandise mix, also known as product assortment, refers to the total number of
product lines that a company offers to its customers. For example, a small company
may sell multiple lines of products. Sometimes, these product lines are fairly similar,
such as dish washing liquid and bar soap, which are used for cleaning and use similar
technologies. Other times, the product lines are vastly different, such as diapers and
razors. The four dimensions to a company's product mix include width, length, depth
and consistency.

Width
The width of a company's product mix pertains to the number of product lines that a
company sells. For example, if a company has two product lines, its product mix width
is two. Small and upstart businesses will usually not have a wide product mix. It is more
practical to start with some basic products and build market share. Later on, a
company's technology may allow the company to diversify into other industries and
build the width of the product mix.

Length
Product mix length pertains to the number of total products or items in a company's
product mix, according to Philip Kotler's textbook "Marketing Management: Analysis,
Planning, Implementation and Control." For example, ABC company may have two
product lines, and five brands within each product line. Thus, ABC's product mix length
would be 10. Companies that have multiple product lines will sometimes keep track of
their average length per product line. In the above case, the average length of an ABC
Company's product line is five.

Depth
Depth of a product mix pertains to the total number of variations for each product.
Variations can include size, flavor and any other distinguishing characteristic. For
example, if a company sells three sizes and two flavors of toothpaste, that particular
brand of toothpaste has a depth of six. Just like length, companies sometimes report
the average depth of their product lines; or the depth of a specific product line.

Consistency
Product mix consistency pertains to how closely related product lines are to one
another--in terms of use, production and distribution. A company's product mix may be
consistent in distribution but vastly different in use. For example, a small company may
sell its health bars and health magazine in retail stores. However, one product is edible
and the other is not. The production consistency of these products would vary as well.

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Planning merchandise assortment and support goal is to ensure that product choice
meets targeted consumer. Needs must carefully plan the number of units to have on
Notes hand to meet the expected sales for the brand, size, color combinations must develop
merchandise lists.
Controlling merchandise assortment and support involves monitoring and adjusting
the types of product lines that are added and dropped from the merchandise mix. Two
widely used methods to control assortment and support, inventory turnover rate at
which the retailer depletes and replenishes stock open-to-buy amount of new
merchandise. A retailer can buy during a specific time period without exceeding planned
purchases for the period.

Product Mix Decision

Product mix decision refers to the decisions regarding adding a new or eliminating any
existing product from the product mix, adding a new product line, lengthening any
existing line, or bringing new variants of a brand to expand the business and to increase
the profitability.
Product Line Decision: Product line managers takes product line decisions
considering the sales and profit of each items in the line and comparing their product
line with the competitors' product lines in the same markets. Marketing managers have
to decide the optimal length of the product line by adding new items or dropping existing
items from the line.
Line Stretching Decision: Line stretching means lengthening a product line
beyond its current range. An organisation can stretch its product line downward,
upward, or both ways.
Downward Stretching means adding low-end items in the product line, for example
in Indian car market, watching the success of Maruti-Suzuki in small car segment,
Toyota and Honda also entered the segment.
Upward Stretching means adding high-end items in the product line, for example
Maruti-Suzuki initially entered small car segment, but later entered higher end segment.
Two-way Stretching means stretching the line in both directions if an organisation is
in the middle range of the market.
Line Filling Decision - It means adding more items within the present range of the
product line. Line filling can be done to reach for incremental profits, or to utilise excess
capacity.

5.3 Factors Affecting Merchandise Mix

Budget Constraint
When setting a budget for your online business plan consider both the establishment
costs and the ongoing costs of your web solution.
Establishment costs to design and deliver your project may include: developing your
requirements or a functional specification document content development costs website
building costs marketing costs the services of legal professionals. Operating costs
include all on-going expenses such as:
z Hosting—this is either a fixed or flexible cost, depending on factors such as
bandwidth usage. For more information, see ‘Hosting your website‘
z Licensing—make sure that you fully understand the fees for any licensed images or
licensed software that you are using
z Online service fees—these might include fees and charges related to e-commerce
services or search engine optimisation services

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z Ongoing content management—it is important that your content is kept up-to-date.
Any social media element of your project is likely to require effort to moderate
and/or respond to user contributions Notes
z Ongoing technical maintenance—it will be important to make sure that the software
you use for your project is up-to-date and reflects improvements and developments
in technology
z Marketing—investing in marketing for your online presence can help you get the
most out of your investments.

Space Limitation
In some product segments such as grocery and pharmaceuticals, how much shelf
space is allocated to a given product category is an important component of the
assortment planning process. This view seems especially relevant for fast moving
products whose demand is sufficiently high that a significant amount of inventory is
carried on the shelf. This contrasts with other categories e.g., shoes, music, books
where only one or two units are carried for most SKUs, hence amount of inventory and
shelf space are not critical decisions at product level. As one example, Transworld
Entertainment carries 50,000 SKUs in an average store but stock more than one of only
the 300 best sellers.
The problem of profit maximization with a shelf space constraint is solved within a
geometric programming framework. Their results are significantly better than
commercial algorithms that allocate space proportional to sales or to gross pro.t by
ignoring interdependencies between product groups. The estimation and optimization
procedures cannot be applied to large problems, hence they elect to work with product
groups rather than SKUs. An interesting paper by Borin and Farris reports the sensitivity
of the shelf space allocation models to forecast accuracy.
They compare the solution with correct parameters to that with incorrect parameter
estimates. Even when the error in parameter estimates are 24%, the net loss in
category return on inventory is just over 5% compared to the optimal allocation based
on true estimates. This proves the robustness of these models to estimation errors.
Similar to these shelf space allocation papers, but using an inventory theoretic
perspective, Urban (1998) models the own and cross product effects of displayed
inventory on demand rate in a mathematical program and solves for shelf space
allocation and optimal order-up-to quantities. He reports that on average a greedy
heuristic yields solutions that are within 1% of a solution obtained by genetic
programming.

5.4 Summary
Retail merchandising requires management of the merchandise mix including the
planning merchandise variety controlling, merchandise variety planning, merchandise
assortment/support, controlling merchandise, assortment/support merchandise mix
strategies, developing the merchandise mix allows the retailer to segment the market
and appeal to a select group of consumers.
Retail merchandising requires management of the merchandise budget which
including the planning and controlling retail sales, planning and controlling inventory
levels, planning and controlling retail reductions, planning and controlling purchases
and the planning and controlling profit margins.
Retail Merchandising is the process of developing, securing, pricing, supporting and
communicating the retailer’s merchandise offering. It means offering the right product at
the right time at the right price with the right appeal.
Consumer choice models often assume that customers are perfectly knowledgeable
about their preferences and the product offerings. Therefore, consumers are always
better o¤ when they choose from a broader set of products. However, empirical studies

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72 Fundamentals of Retailing

show that consumer choice is affected by their perception of the variety level rather than
the real variety level.
Notes
Merchandise mix, also known as product assortment, refers to the total number of
product lines that a company offers to its customers. For example, a small company
may sell multiple lines of products. Sometimes, these product lines are fairly similar,
such as dish washing liquid and bar soap, which are used for cleaning and use similar
technologies. Other times, the product lines are vastly different, such as diapers and
razors.

5.5 Check Your Progress

Multiple Choice Questions
1. What is retailing?
(a) Buying and selling of goods and services
(b) Buying and selling of values
(c) Buying and selling of beliefs
(d) Buying and selling of opinions`
2. Organized retail consists of ………..
(a) Super markets
(b) Kirana stores
(c) Franchisees
(d) Chain stores
3. Functions of retail include ……
(a) Delivery
(b) Storage
(c) Manufacturing
(d) Production
4. Retail is one of the largest sectors in many …… economies.
(a) National
(b) International
(c) Domestic
(d) Transnational
5. The top 5 retailers dominate 88 per cent of the ….. market in Sweden.
(a) Clothing
(b) Electronics
(c) Food
(d) Insurance
6. Walmart buys most of its products directly from …...
(a) Middlemen
(b) Manufacturers
(c) Farmers
(d) Wholesalers
7. According to tenth report of GRDI of AT Kearney, India is placed at ……….
(a) 2nd
(b) 5th

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Merchandising Management 73
(c) 7th
(d) 4th
Notes
8. India’s growing at an annual rate of 35 per cent in the ……. retail segment.
(a) Organized
(b) Unorganized
(c) Online
(d) None of the above
9. Scope of retailing is the activity of selling goods and services to …….
(a) Last level consumers
(b) Zero level consumers
(c) First level consumers
(d) Second level consumers
10. A ………… job was to act as a link between stores and the buyer.
(a) Customer’s
(b) Mediator’s
(c) Expert’s
(d) Planner’s

5.6 Questions and Exercises

1. What are the essential elements of deciding merchandise mix?
2. Discuss the factors affecting merchandise mix.
3. Write briefly about budget constraints.
4. What do you mean by space allocation?
5. Write about the product mix decision.

5.7 Key Terms

z Organized Retail: Organized retail or modern retail is usually chain stores, all
owned or franchised by a central entity, or a single store that is larger than some
cut-off point.
z Retail: Retail is the sale of goods and services from individuals or businesses to the
end –user
z Franchisee: Franchising is a long-term cooperative relationship between two
entities—a franchisor and one or more franchisees—that is based on an agreement
in which the franchisor provides a licensed privilege to the franchisee to do
business.
z Break Bulk: It denotes a system of transporting cargo as separate pieces rather
than in containers.
z Kiosk: A small, temporary, standalone booth used in high-foot-traffic areas for
marketing purposes.

Check Your Progress: Answers

1. (a) Buying and selling of goods
2. (c) Franchisees
3. (b) Storage
4. (a) National
5. (c) Food

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74 Fundamentals of Retailing

6. (c) Farmers
7. (d) 4th
Notes
8. (c) Online
9. (a) Last level consumers
10. (d) Planner’s

5.8 Further Readings

z Patrick M. Dunne, Robert F. Lusch &James R. Carver, Retailing 8th Edition, South-
Western, 2014
z Roger Cox & Paul Brittain, Retailing: An Introduction 5th Edition, Pearson Education,
2004
z K V S Madaan, Fundamentals of Retailing, Tata McGraw Hill, 2009
z Manfred Krafft & Murali K. Mantrala, Retailing in the 21st Century: Current and
Future Trends 2nd Edition, Springer, 2010
z Nicholas Alexander & Anne Marie Doherty, International Retailing, Oxford, 2009

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Merchandising Management 75

CASE STUDY: EMERGENCE OF ORGANISED RETAILING

Notes

I
t was Calcutta (now known as Kolkata) that saw the emergence of organized retailing in
India way back in the 19th century itself. The Hogg Market, popularly and better known
as New Market is one of Kolkata’s earliest shopping centers. Designed by an East
Indian Railway Company architect, R.R, Bayne, it was opened in 1874 and named after
the then municipal commissioner of Calcutta, Sir Stuart Hogg. Earlier the Hogg Market
even had a garden with a beautiful fountain adding to its ambience and benches too for
tired shoppers. Today, the New Market continues to be a premier shopping area in Kolkata
despite a part of it being incinerated in late 1985. Its red-brick Gothic clock-tower today
bears testimony to the past grandeur of this first shopping centre of India. Today from linen
to cakes and fruits to fishes everything is available at the New Market at a reasonable
price and this has made the New Market sustain its popularity among the metro customers
of Kolkata. The tenant mix of this first shopping centre is unique as it has a large number
of 2000 stalls, which are organized in an order of merchandize. There are rows of stalls
dealing with one particular line of goods.
A retail researcher by name Christine Furedy in the 70s has observed in her article in the
Capital on 24th December 1979 tracing the emergence of the New Market, thus: “Until the
late 19th century New Market sold only produce. Its primary purpose was to supply
wholesome food under clean conditions at reasonable prices. It is true, too, that it was
designed for the Europeans but the municipality strove to have it accepted as a market for
all Calcuttans. Changes began to occur: fancy goods dealers and cloth merchants could
afford to pay higher rents for their shops than the food vendors and more and more they
appeared in the market proper. Eventually the market was reorganized and food vendors
were placed in the section they still occupy. Another difference in the 19th century was
that no ads or encroachments were allowed. The facade of the market was
unencumbered, showing its fine lines and good brickwork. Within the market stallholders
had to keep their produce within their stalls and were not allowed to obstruct the corridors
and paths. There was a garden and a fountain where shoppers gathered to chat. Begging
and pestering were forbidden. On the other hand, it was strictly “caveat emptor”. Two
English women who were sold inferior cloth and complained to the Markets Committee in
1894 found they had no redress. The system of licensing coolies was introduced in 1885
after customers had complained of being disturbed by ‘importunate coolies’. Only
registered coolies were permitted inside: the registration fee was five annas and each
coolie had to wear a simple uniform and a number badge, a requirement which is still in
force today. Next time you go to New Market take a few minutes off from your shopping to
look around. Compare the facade and clock tower today with its original unencumbered
lines; look for the old original shops made of fine mahogany and teak. It is a great pity, in
my opinion, that this historic building is under threat of revamping. At the very least its
facade and some of the original shops should be preserved to remind us that the New
Market became an example for the whole of Asia of an efficient and fascinating municipal
market.”
Furedy also mentions about the opposition that came up for building this municipal market.
She says, “It is hard to imagine now how controversial the concept was. There was strong
opposition from influential citizens, both European and Indian. Some Europeans were
opposed to the idea of ‘municipal trading* seeing this as the thin edge of a wedge which
would dislodge the principles of private property and free enterprise. Others argued that
the undertaking was not within the purposes of the Municipal Act and would be too great a
burden upon the municipal coffcrs. This, indecd, was part of the objections of the Indian
municipal commissioners who pointed out also that it was only the Europeans who were
dissatisfied with the conditions of the markets and that they proposed to use municipal
funds, derived largely from taxes upon Indian householders, to finance a market designed
for the patronage of the European population only. Indian rate payers argued that already
the better part of the municipal funds were put to improving the European sections of the
town to the neglect of the areas inhabited by Indians. If once one municipal market was
approved, there would he no end to the number of public markets which might be built at
great municipal extravagance.” Against all these odds the then Hogg Market evolved and it
soon became a popular destination for shopping in Calcutta.
Furedy goes on to speak about the emergence of modern retailing in India. She mentions,
‘The most complex retail business of late nineteenth-century Calcutta, establishments
which were to dominate the modern retail sector, were the department stores. Although
every one has closed its doors, many Calcuttans still remember the names or recognize
Contd…
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76 Fundamentals of Retailing
their converted, subdivided buildings: Francis, Harrison and Hathaway; Hall and Anderson;
the Army and Navy Stores; Whiteaway, Laidilaw and Co. In their scope and outreach
Notes these shops rivaled those to be found in cities of the same size in Britain, Europe or the
United States. The city’s leading hotels, while they provided many services and housed a
number of businesses, did not always own and run all of these. Their retail areas were
perhaps more like arcades than department stores. The shops from which department
stores rather literally evolved were the drapers’ and mercers’ shops. We know from trade
directories that shops like Francis, Harrison, Hathaway and Co., which was described as
“first class drapers” in 1864, had a large staff of 11 European assistants in 1880. (By the
end of the century there were at least 40), This was the first shop to adopt a ‘departmental’
organization, which was formalized in the 1890s and repeated at the branch shops in
Simla, Lahore, Darjeeling and Allahabad. Incidcntally, in 1880 one of the leading
assistants in Hathaway’s was Mr. E. Whiteaway who ten years later was the partner of
Whiteaway, Laidlaw, occupying numbers 5 and 6 Chowringhee and employing 38
assistants. Two other employees of Hathaway’s were to become equally famous in
Calcutta’s retail trade. In the early 1890s P.N. Hall and William Anderson set up together
in a modest partnership selling suitings at bargain prices from a small shop on the
Esplanade.”
It is indeed amazing to know about the first phase of the evolution of modern retailing in
India from Furedy’s research. India is now witnessing its second phase of organized
retailing!
Questions
1. What are the lessons of retail evolution do we learn from the New Market in Kolkata?
2. Comment on researcher Christine Furedy’s observations on the emergence of the
New Market as an organized shopping centre in India.

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Vendor Management 77

Unit 6: Vendor Management

Notes
Structure
6.1 Introduction
6.2 Vendor Identification and Selection Criteria
6.2.1 Vendor Viability
6.3 Negotiating with Vendors
6.4 Category Management
6.5 Summary
6.6 Check Your Progress
6.7 Questions and Exercises
6.8 Key Terms
6.9 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept and philosophy of merchandise management
z Discuss the components of merchandise management
z Explain the merchandise management process

6.1 Introduction
There are numerous factors to consider when evaluating and selecting a vendor. Each
option contains its own set of considerations and limitations based on elements
including industry, product and, most prominently, the proposed solution’s ability to
address the client’s challenges. In doing so, a common set of strategic drivers applied
during the process will be examined. Included is a range of functions decision teams
are expected to undergo as they research, deploy and manage services and products
that support their firm’s business objectives.
Before delving into the available tools, let’s consider the most commonly cited
reasons for not undergoing a formalized selection process. The prescribed best
practices advocated in this research may not be appropriate for all circumstances.
Nevertheless, the five most common reasons cited by businesses for not using a more
formal approach include:
z The economic consequences of a sub-optimal decision are too low to justify such a
decision
z The number of criteria choices examined is too low to justify the approach
z Insufficient IT skills of committed resources are available to make a difference
z Political, technical biases, cultural or organizational issues preclude decision
makers from committing to a demanding, formalized approach.

6.2 Vendor Identification and Selection Criteria

Preparatory Steps
The data in this study strongly suggests the following determination be made prior to
embarking on a vendor relationship. Decision teams must establish what they hope to

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78 Fundamentals of Retailing

achieve by embarking in such relationships, and should strive to reach consensus on

the following actionable items:
Notes z The expected business outcome of the service, i.e. cost reduction, or improved
processes.
z The best model for delivering the service, whether it is customizable, standard, or
out of the box issue.
z As participants of a global economy, decisions must be made in-terms-of business
model selection, i.e. domestic or offshore model.
Once these factors are determined, it is expected that decision makers be better
prepared to review their options. One suggested approach is to evaluate your
organization’s internal competence, compare the results to industry benchmarks, and
assess the solution’s ability to deliver strategic value or competitive differentiation in the
respective service space.
z If internal competence and service differentiation is low, then it’s often best to
outsource these services
z If internal competence is low, but service differentiation is high, then outsourcing is
the preferred method. The firm should select service leaders and structure the deal
so that their core service is improved and knowledge is transferred back to the
company
z If internal competence is high, but service differentiation is low, then a company
faces several options. You may want to sell or spin off this service capability, as it
may be of greater value to a 3rd party
z If your internal competence and service differentiation are high, the study advises
against outsourcing. The recommendation here is that the organization continues to
invest in the internal competency, although the continuous use of external service
providers can be used to enhance or improve service.
Once the need is ascertained and the decision to move forward conclusive, it is
recommended you embark on a strategy known as due diligence. As will follow, this is
the process by which a firm requests, collects and reviews information to test and
validate assumptions, refine technical and pricing proposals, and confirm or update
initial findings. Unembellished, due diligence can simplify the overall process and
increase the chances of having successful relationships with your providers.

Due Diligence and Vendor Viability

While covering the vast array of portals or their various classifications lies outside the
scope of this paper, it remains worthwhile to emphasize several vendors’ approaches to
platform engineering. Enterprise portal design is influenced in part by the need to
provide customers, employees, and vendors with consolidated access to its information
and applications. A recent interview with Gene Pfifer, Vice President and research
analyst at Gartner yielded interesting insight on current portal engineering platforms.
Portal vendors come in a variety of flavors. Along the continuum, there are traditional,
user-centric based portals, application providers, infrastructure providers, contact
manager providers, and search engine vendors. Since portals are merely a framework
for assembly and organizing applications and services for different customers, vendors
have begun to provide as much pre-built functionality out-of-the-box. A variety of
application models, referred to as portlets, allow companies to build functionality
including calendars and e-Mail integration. Certain versions embed portlets that
integrate specific web-based content in a personalized format.

6.2.1 Vendor Viability

Due diligence often is confused with discovery, but in reality, it is two different
processes that should be completed at separate times during the selection process.
Discovery is completed during the Request for Proposal (RFP) process, whereas due
diligence is completed just before an outsourcing contract is signed. Some
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Vendor Management 79
organizations use the discovery process completed during the RFP evaluation in lieu of
due diligence.
Notes
Financial viability includes an assessment of the vendor’s overall financial health,
the fiscal and practical success of the business unit, and the likelihood that the business
unit in question will continue to invest in and offer the product within the vendor’s
portfolio of offerings. Let’s take a look at an IT related industry example. As the software
industry continues to consolidate, more and more application vendors are under
pressure to demonstrate market viability. Clients who intend on purchasing new
software and reassessing their existing application portfolios should make a concerted
effort to understand the viability of their application vendors. Doing so will help to
mitigate or avoid risks such as loss of support and, in some cases, having to replace the
application. Vendor viability assessments should be based on financial, product,
technical, and customer dimensions. Further, tolerance for risk should be balanced
against whether or not the application supports a mission-critical business need and if a
close substitute can be quickly deployed.
When evaluating a vendor, you should think about whether the proposed candidate
will remain a viable business entity. Only the largest vendors — such as Computer
Associates International, Hewlett-Packard (HP), IBM, Tivoli, and Veritas — would be
difficult or impossible to acquire suddenly. Ergo, one pressing question to consider
before proceeding is this: what are the chances that the proposed candidate is acquired
either during the evaluative process or after contract signing? In a worst case scenario,
a vendor who is acquired in the midst of an active contract may not be able to fulfill their
service agreement.
In the sake of equity, not all buyouts have negative consequences. Acquisitions, as
with most predicaments are paradoxical, i.e. they can extend and enhance product life
of an investment or facilitate its demise. Gartner recommends a Vendor Ratings System
(VRS) to assist with the qualifying process. The VSR, like any tool, is not intended to be
used in isolation. Rather, it should be used it in conjunction with the review of financial
reports and agreed upon metrics. For instance, Gartner suggests not choosing a vendor
on the sole criteria of sheer size or that they are more established.
Innovative vendors may best address your problems. Similarly, smaller vendors
often understand the specifics of your client’s problem much better and, therefore, may
create a more effective, scaleable solution that is easier to implement and sustain.
These vendors often create quicker time to value and better return on investment.
Conversely, smaller vendors are known to have more questionable viability. Lastly,
when you use Gartner’s VRS, even a “positive” or “promising” rating does not imply the
vendor will not be acquired. The system is designed to provide an overall vendor
snapshot, and specific product areas may rate higher or lower than the overall rating. In
short, Vendor Ratings provide a starting point for gauging a vendor’s ability to execute.

Reference Validation
Reference validation is also a viable option to the decision team. Historically, firms may
have requested that vendors supply a list of references, although they were rarely
pursued aggressively, if at all. Over the years, buyers have discovered the importance
of telephoning and visiting vendor sites for benchmarking. A great deal of information
about the strengths and weaknesses of your prospect can be gleaned at every level.
Reference checking is an opportunity to discuss Critical Success Factors (CSFs)
regarding implementation, managing the vendor relationship, and other division or
industry-specific topics.
Attending the favored vendor’s “User Conference” is another evaluation input. It
gives prospective buyers a chance to query a large number of users about problems
they are experiencing with the vendor and its package. Additionally, the conferences
provide a sense of the vendor’s future, financial stability, product R & D, corporate
culture and service delivery.

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Moreover, the likelihood of making a sound business decision is greatly enhanced if

a multi-step evaluation process is followed. With this, a Request for Information (RFI)
Notes can be used to obtain market information, which, in turn, helps inform the decision
makers about the next phase of the procurement cycle, the Request for Proposal, or
RFP. In the interest of time, the RFP process will not be examined as closely as the
RFI’s. However, the differences among them and value each offers will be clearly
delineated.

Request for Information

Many organizations omit the RFI process when selecting a service provider. Instead,
they move directly from defining their requirements to issuing RFP’s. This is a detailed
document that includes the questions included in the RFI, and ones covering
contractual details. However, the RFI process can yield numerous benefits. Among
them, an RFI provides a relatively quick, inexpensive way to collate information in a less
formal manner than an RFP. The former should be used to solicit a large body of
potential respondents and the latter sent to the vendor shortlist – or final top choice
candidates.
The RFI plays a particularly important role in-terms-of information access such that
your selection team can canvass a wide mix of suppliers -- from product companies with
vast experience in this market space to niche players who speed time to market. In
addition, the RFI responses can provide the team with the opportunity to compare
approaches while objectively narrowing the list to those that best demonstrate their
ability to overcome the firm’s challenges.
Several recommended variables for RFi inclusion are:
z Service and maintenance issues, i.e. fees, duration, service levels, etc.
z Cost of service implementation
z Determination of which party will provide the services and along what scale, i.e.
what level of service will be provided
z In what manner will the vendor provide training and in what fashion, i.e. how will
skill transfer occur?
z The degree of manpower allocated to administer vendor’s system
z Hours of service coverage: this should clearly dictate the hours of coverage and the
manner of issue resolution, i.e. phone, e-Mail, etc

Common Errors
Though RFI’s can benefit the selection process, it is reported that the first impulse and
largest mistake involves the excessive focus on product or service functionality. While
essential, this should not overshadow the chief benefits. To the point, having an
excessively detailed RFI can make it difficult for the vendors to demonstrate once they
have reached the final stages.
Finally, it is advisable to document the rationale for determining the shortlist of
providers receiving the RFP. It is not atypical for competing business units within the
same company or business unit to contest the rationale for vendor selection.
Maintaining logs of conversations, meetings and e-Mails can aid in clarifying
disagreements as they arise.
As evidenced, a great deal of research, scrutiny and examination occurs during this
process. Too many choices coupled with a flawed qualifying methodology can result in
an unsatisfactory selection or, at best, a protracted selling cycle owing to a firm’s
inability to identify which vendors are appropriate for their needs. Various business aids
are commonly employed to assist with this effort. Two such decision support tools will
now be examined.

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Analysis of Evaluative Criteria
When evaluating options, companies encounter three significant challenges that Notes
frequently create inefficiencies in their selection process. One principle obstacle
involves the difficulty associated with identifying key decision criteria. This includes
selecting potential criterion and allocating the time and effort to transform them into a
comprehensive decision set. A second challenge is that many companies lack a
structured approach to decision making even if criterion are identified. In other words,
teams rarely follow through in terms of objectively weighing these criteria relative to
each other. The third challenge is the lack of objective data on true vendor capability.
Simply stated, decision makers are subjected to a reasonable degree of risk as vendors
may embellish their solution’s capabilities.
These analytical tools are commonly used to limit the conscious and unconscious
biases that tend to track a decision away from its primary objectives. Among those
considered are Kepner-Tragoe, an industry recognized vendor selection aid.
Additionally, we will cover Analytical Hierarchy Process (AHP), a viable decision support
technique that has gained even deeper support in the academic as well business
communities. These methodologies are equally applicable in all circumstances where
selective processes are warranted -- from product marketing to vendor selection.

Kepner-Tragoe
Provided here is a summary explanation of the Kepner-Tragoe approach as applied to
the selection process. The Kepner-Tragoe Analysis provides a methodology designed
to assist with decision-making. This structured approach is commonly used for the
identification and ranking of all known factors critical to the decision making process.
In so using Kepner-Tragoe, a user is expected evaluate alternative courses of
action to optimize the ultimate results based on explicit objectives. Equally important --
and this applies to all methodologies listed in this document -- is that the goal is not to
select a single outcome, in-terms-of product, location, or service. Rather, one could
expect to select all feasibly viable options.
The Kepner-Tragoe process divides the decision making process into six logically
oriented steps. While demonstrated in full in Appendix E, they are:
z State the Purpose
z Establish Objectives
z Classify Objectives
z Weight he Wants
z Compare Alternatives
z Choose the Best Course of Action

Analytical Hierarchy Process

AHP is an acceptable decision support technique that has gained more support in the
academic as well as business communities in recent years. As a comparative tool, it is
recognized as being a consistent, structured, and repeatable methodology that is critical
to choosing external service providers. An important component of this approach is a
formalized decision support tool, such as a vendor evaluation model.
AHP is a powerful and flexible decision making process to help people set priorities
and make the best decision when you must consider both qualitative and quantitative
aspects. By reducing complex decisions to a series of one-on-one comparisons, then
synthesizing the results, AHP not only helps decision makers arrive at the best decision,
but also provides a clear rationale that it is the best. Designed to reflect the way people
actually think, AHP continues to be the most highly regarded and widely used decision-
making theory.

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The AHP and Expert Choice software engage decision makers in structuring a
decision into smaller parts, proceeding from the goal to objectives to sub-objectives
Notes down to the alternative courses of action. Decision makers then make simple pairwise
comparison judgments throughout the hierarchy to arrive at overall priorities for the
alternatives. The problem may involve social, political, technical, and economic factors.
The AHP helps people cope with the intuitive, the rational and the irrational, and with
risk and uncertainty in complex settings. It can be used to predict likely outcomes, plan
projected and desired futures, facilitate group decision making, exercise control over
changes in the decision making system, and do cost/benefit comparisons, to name a
few.

BPMS – A Case in Point

A well-managed approach in business is to present what other companies have done.
Before closing, I have elected to explore this business strategy in the context of an IT
environment and will include drivers and considerations unique to this end. Specifically,
a select aspect of the process undertaken while evaluating a BPM suite will be
exposed.
More and more organizations are recognizing the value of Business Process
Management Technology (BPM). Some of the realized benefits include increased
process efficiency, the ability to gain visibility into the organization’s financial structure
and achieving a greater level of flexibility and responsiveness with respect to core
competency management. The recognition of these needs have fueled the BPM and
related BPMS suite markets and, along with it, an increase in vendors who have made
themselves available.
Metastorm, a leading provider of BPM software, suggests your decision team focus
on five topical areas when considering a BPM suite. The five suggested activities that
follow are:
z Consider the vendor’s core competence
z Consider the vendor’s reputation
z Validate the essentials
z Evaluate implementation and maintenance requirements
z Ensure the solution can support your companies unique process needs.

Compendium
When considering a vendor selection initiative, it is apparent that too many choices –
coupled with flawed qualifying methodology – often results in an unsatisfactory outcome
defined in terms of a protracted, costly selling cycle. Many decision teams find it difficult
to identify which vendors are appropriate for their needs. As well, the sheer proliferation
of vendors provides yet another layer of choices, further adding confusion to the overall
selective process.
To address these deficiencies, this paper outlined a variety of approaches
commonly employed to facilitate decision-making. Firstly, several factors that motivate
firms to outsource or collaborate with a vendor were reviewed. Ranging from strategic
and tactical drivers that influence decision makers to internal assessments designed to
benchmark competence, the data defined in this research represents a broad array of
the most common set of guidelines for companies contemplating this methodology.
Firms are subjected to a reasonable degree of risk as vendors may embellish their
solution’s capabilities. As such, a select set of business tools designed to compare
provider approaches while objectively narrowing the list of prospective providers was
submitted. These include concepts and processes such as due diligence and vendor
viability. Additionally, we outlined evaluative methods such as reference validation,
RFI’s, and RFP’s. Lastly, a brief glimpse into the various analytical and empirical
methodologies applied in business and industry was submitted.

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This foundation, coupled with an example of an actual application, is included in a
final attempt to illustrate the varied tactics available to your company. Similarly, it also
provides you with a diverse option set to choose from to ensure your decision team Notes
selects the best solution for both your immediate and long-term needs.

6.3 Negotiating with Vendors

A negotiation takes place any time between two or more parties want to settle an issue
or a deal through discussions. We witness negotiations in our everyday life - whether its
children are negotiating with parents about pocket money or a house wife haggling over
price of groceries or vegetables. In essence negotiations are 'as basic to human nature
as eating or sleeping.
Business negotiations occur almost daily. Employees/ trade unions negotiate for
salary hike or perks. Firms negotiate with each other for better terms or a deal. In each
of these negotiations, the underlying principle is trying to get a best deal as possible for
each negotiating side. A win-win negotiation is the best possible deal.
Negotiations are crucial in buyer's dealings with vendors. The more the buyer's
knows about the vendor, the better the buyer's negotiating strategy will be. In turn, the
vendor tries to analyze buyers' situation. Following factors must be kept in mind while
negotiating with a vendor.

New and Increased Challenges for Contract Managers

New challenges abound in the management of service provider relationships. Due to
internal and external influences, the manner in which enterprise contracts are created,
enforced and renegotiated is evolving. In this new environment, many contract
relationships fail because of difficulties encountered when interpreting terms and
conditions.
Adding to this challenge is the increase in the use of external providers to meet IT
needs. By 2004, 75percent of IS organizations will refocus their role on brokering
resources and facilitating business-driven demands, rather than on being direct
suppliers of IT services (0.8 probability). Increasingly, IT managers will be working
through external organizations to fulfill the IS organization’s responsibilities. Many of
those same IT managers, however, are ill-equipped to take on contract management
responsibilities.

Improving Communications and Performance

Many contracts prove ineffective because of confusion surrounding terminology,
performance expectations and service content. It’s never too late to address poor
communications, although much of the leverage is lost after the contract has been
signed.
Efforts should be made to achieve clear communications with the service provider.
Areas in which difficulties typically arise include service-level definitions and common
phrases that are somewhat ambiguous, such as “good performance,” “industry
standards” and “reasonable effort.” Tighten up those terms and many potential
problems will be avoided.
Enterprises should review contracts against actual practices and ensure that
service levels, quality, schedule and content components are clear. The following are
important:
z Ensure that all parties understand terms, conditions and processes.
z Gain uniformity of understanding
z Consider phasing in changes if significant impacts are identified
z Note terminology issues for future contracts
z Consider developing a glossary for high-impact terms.

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Performance reporting is an area fraught with communications problems.

Contractors can be very selective regarding what is reported unless the contract is very
Notes specific about what must be reported. Also, it is common for charges to be added for
collecting and reporting metrics that were not identified in the contract. This “extra cost”
is often just an excuse by the vendor to avoid having to report such information.

Negotiating Customized Terms and Conditions

Enterprises that are successful in negotiating effective customized terms and conditions
will achieve total-cost-of-ownership savings that far exceed any savings achieved
through reducing the per-desktop fee.
For many enterprises, ongoing communications with their suppliers is minimal and
often occurs only when problems arise with the delivery of the product or service
defined in the contract. Such poor communication processes can cause disagreements
over contract terms and conditions, and can make managing a contract extremely
difficult and frustrating.
The cure? Nothing stimulates dialogue and facilitates communications with a
supplier more than negotiating a new contract or a renewal. Every new contract
negotiation or renewal should be viewed as an opportunity to improve communications,
clarify the terms and conditions contained within the contract, and amend those that are
unfavorable.
Remember that price is only one of many negotiating points — and may not be the
most important one. Many enterprises spend an inordinate amount of time negotiating
the price of the product or service being acquired, and very little on seeking favorable
changes to the terms and conditions. In many instances, customers sign the vendor’s
“boilerplate” contract with no modification. All standard contracts favor the author of
those contracts. Although price is important, customers often give up more value in
terms and conditions than they gain in price concessions.
Enterprises should not accept a vendor’s standard contract “as is.” They should
carefully scrutinize all terms and conditions and request amendments to make the
contract more equitable to both parties. Focus on the more troublesome terms and
conditions, such as provisions governing definitions, entitlements,
merger/acquisition/divestiture events, pricing, end of term, outsourcing and transfer
rights.

Contract Performance Metrics

Strategic Planning Assumption: By 2006, contract performance metrics (whether for
goods or services) will become uniform, and industrial standards will be established and
commonplace in contract language).
When performance slips, consider comparisons to industry standards as a way to
get the attention of your contractor or vendor. Standards can bolster the following
performance management steps:
z Review service levels in light of published standards
z Question performance slips and request a corrective plan
z Establish a time frame for performance improvement
z Escalate continued performance problems.
Comparisons of performance to industry peer groups are often useful to better
understand the value proposition put forth by the vendor. For major outsourcing or
procurement activities, Gartner recommends the inclusion of contract language to
address price calibration points, to ensure opportunities for price adjustment based on
market conditions.
Action Item: Calibrate service performance by using benchmark data to ensure that
industry-standard service levels are being met.
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Improving Financial Terms
Every contract manager wants to obtain the best possible pricing, but beware of locking Notes
in long-term rates for technologies that could experience rapid price declines. One
smart way to protect your enterprise is by calibrating current pricing with industry market
pricing for similar services.
Long-term contracts often end up with high comparative costs after 18 to 36
months. Volatile technologies present particularly high risks in setting price levels. What
are your options after the contract is in place?
z Your No. 1 weapon is comparative pricing
z Threaten to cut back all add-on work or additional acquisitions
z Look for anticipated productivity gains
z Expect add-ons to be priced at market value.
If the contract does not contain an annual or biannual price calibration clause, don’t
give up hope. Favorable price adjustment may still be attainable by discussing the
“facts” of the price decline with your vendor. In some cases, it may make economic
sense to terminate the contract, pay the termination penalty and establish a new
contract with more-aggressive rates. Don’t forget to include a price calibration clause in
the new contract. Usually, your current vendor will not pass up a chance to renegotiate
to avoid losing your business.

Preparing for Contract Negotiations

Enterprises that do their “homework” before negotiation will typically obtain pricing that
is 15 percent to 25 percent better than those that do not.
The challenge of obtaining favorable pricing can best be addressed when entering
into a new contractor renewing an old one, and should be addressed on several fronts.
Enterprises must do their homework and should seek several competitive bids, using
the request for quote (RFQ) or request for proposal (RFP) process to bid on the
acquisition for products or services that are in competition with one another. For
example, for PCs, compare Dell against IBM against Compaq against Hewlett-Packard.
That should be done even if it is clear that one product is the best technological choice.
In addition, if the product or service can be acquired through value-added resellers,
large-account resellers or similar third-party channels, competitively bid several
resellers to gain further savings.
Before the negotiation process, gather as much price information as you can from
the vendor or supplier, channel partners, business contacts, research analysts and so
on. The more you know about the suppliers’ “list prices,” discount schedules and
maintenance-pricing models, the better prepared you will be to leverage the information
to obtain better pricing. Use outside resources, such as business contacts and research
organizations, to obtain comparative prices. Moreover, it is important to research the
suppliers’ financial positions to determine if they are under significant pressure to
generate revenue. When is the end of their fiscal quarter or year? Have they already
made their revenue numbers for those periods? Would they be willing to offer an
additional discount to close a deal and book the revenue?

Managing a Financially Troubled Vendor

When the situation dictates placing a vital contract with a small firm, monitoring the
vendor’s financial health is an ongoing task that may require lending additional
management expertise to address a difficult problem. Most seasoned contract
managers can relate to the horrors of managing a vendor that is in financial trouble.
Often, the option of quickly finding another vendor is not simple. If the contract
addresses application development, a half-way finished project may be of little or not
value to the new contractor taking over.

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If the deliverable is not a commercial off-the-shelf software package, contract

managers sometimes have to lend assistance to small providers to keep them healthy
Notes enough to finish the project. Small companies are particularly vulnerable to being
undercapitalized, and thus generally at risk when faced with any significant business
problems. It may be in your best interest to help rather than threaten. When your
supplier faces financial difficulties, its problem may become your problem before
terminating a contract due to default, consider how you might work through the problem.
A win-win opportunity may exist. Consider lending management and technical expertise
when warranted.

Investigating a Vendor’s Financial Health

Enterprises that take the time to investigate the financial health and viability of the
vendors with which they expect to do business will minimize their own financial risks.
When using the RFP or RFQ processes, sometimes choosing the least-expensive
alternative is not the prudent thing to do. That is especially true if the company receiving
the award is in financial trouble or if serious concerns exist about its viability as an
ongoing entity.
Before awarding a contract, taking time to research the vendor’s financial health
can help to mitigate financial risks (see Figure 1). You should also investigate whether
any significant litigation is pending that could be decided against the vendor and thus
have an adverse impact.
However, in this time of economic uncertainty, no guarantees exist of continued
financial health and viability. Therefore, it is important that enterprises build protections
into their contracts in case the vendor is unable to perform as specified in the contract,
divests the business unit providing the service or product, is acquired by another entity,
or goes out of business. Such protections may include:
z The right to withhold future scheduled payments for nonperformance
z The right to a refund of payments already made (questionable in the case of
bankruptcy)
z Guarantees of contract fulfillment if divestiture or acquisition occurs
z Contractually stated preferential treatment if the vendor ceases operations

6.4 Category Management

Category Management is a collaborative continuous process between manufacturers
and retailers to manage a shopper need state which we refer to as a ‘category’. The
purpose of this process is to optimize shopper satisfaction and fulfill the role chosen by
the retailer for that category within the overall portfolio of categories in the retail format.
The end state of the category management process is that combination of assortment,
price, shelf presentation and promotion which optimizes the category role over time.
Category management is data intensive and analytical in character. Category
management is about understanding data. By contrast, shopper marketing is more
about understanding emotions or motivations.
Most importantly the category serves as the platform from which shopper
marketing initiatives can be collaboratively launched because the retailer and the
manufacturers ideally are aligned around a common solution to a need state of the
shopper. Large complex consumer need states such as a ‘family dining‘ solution or a
‘birthday party‘ solution often involve a multi-category solution which necessitates the
collaboration of multiple manufacturers and the retailer.
Leading retailers are already planning for the changes and tools needed to integrate
these capabilities and define new ways of planning and managing categories, and these
efforts are paying dividends. Retailers such as Target, Kroger and Walmart have seen
impressive results from revamping category management, including a 2% to 4%

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increase in sales, a 2% to 3% increase in margin and a 10% to 15% increase in
inventory productivity.
Notes
But despite these positive efforts, most retailers remain stuck in the past, partially
due to fatigue from traditional category management. And even those who have
addressed parts of the issue would benefit from a more sophisticated approach.
Leading retailers will invest in holistic changes to their processes, tools, organization
and culture to enable a necessary shift in the way they plan and manage categories.
Tackling these historical inefficiencies and problems requires addressing seven key
facets.
1. Real customer centricity—walk a mile in your customer’s shoes: Today, many
retail organizations are far less customer-centric than they claim to be. But in the
modern retailer-customer relationship, the customer holds all the cards, and the
retailer can’t afford to be anything but hyper-attentive to her expectations. As a
result, everyone throughout the organization—including everyone involved in the
category management process—needs to have a laser focus on the consumer and
her needs and wants at all times. Creating truly compelling products and customer
experiences should be the common thread linking all parts of the organization and
category management process.
Leading organizations are going about this in several ways. Some, like Hy-Vee and
Lowe’s, are creating the position of chief customer officer to drive customer-focused
improvements across channels and functional groups. Others are taking a closer
look at loyalty and social media data to understand how their core customers shop
their stores and identify opportunities to capture share by satisfying unmet needs.
For example, consider a retailer who found that a key customer segment shopped
only 20% of their basket with that retailer across four categories. By taking a
customer-centric approach, the retailer was able to identify categories in which the
needs of that customer were going unmet and exploit that gap to increase basket
ownership to 40% across 10 categories.
2. True integration—you’re probably not as integrated as you think: Highly siloed
organizations—within functional groups and across channels—have led to
processes choked by a series of handoffs and put category management, and
ultimately the customer experience, at risk of falling victim to a game of telephone.
Given the breadth of processes that need to be successfully orchestrated to
improve category management, handoffs must be effective and efficient. In other
words, integration is key. This means removing handoffs wherever possible, and
when not possible, ensuring everything is done to make them as smooth as
possible. Process and organizational design can provide some relief here by
carefully considering what can be lost in translation.
However, integrated systems are providing the biggest benefits in tackling these
challenges. Software platforms have made significant gains in the past 10 years to
expand the functionality required to span the gaps between planning, execution and
functional areas. Traditional supply chain solutions now offer tools to plan space,
assortments and financials, and conversely, planning suites are expanding into
supply management. These tools have fundamentally changed how processes are
executed and have made syncing data, timing and weighing tradeoffs much
simpler. But they’re big, expensive and can stress organizations ill-equipped to
manage this magnitude of change. Adoption is picking up, but slowly.
3. Strong category strategies—if it’s not strategic, it’s not a strategy: Today,
many category strategies are lacking necessary consumer insights and are
ultimately not linked back into the category management process in an efficient
way. Developing a strong category strategy takes a well-crafted process in which a
wide array of data inputs drive unique insights, which narrow in on a set of
opportunities and thereby define required initiatives and potential benefits. The
process should culminate in a game plan for the category that defines the steps,
required investments, and expected financial or operational benefits. As category
management has grown in breadth and sophistication, it has driven up the need for

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a robust go-to-market strategy the team can rally around and cascade across
support teams. Successfully cascading category strategies starts with defining each
Notes category’s role within the portfolio. It’s also important to coordinate strategies and
tactics related to assortment, pricing, promotions and placement across channels,
and categories and functions and financial plans should be tied to category-level
targets, providing a means for measuring success.
Throughout this wide array of processes—from financial budgeting to
planogramming, in-store execution and marketing—it’s critical that the consumer
can identify the strategy as it was intended. For example, the value presented in a
pricing strategy—competitiveness, brand consistency and value—needs to be
aligned with the products that make up that product line—good, better, best. If these
are disjointed, the value proposition is muddled, the customer will be confused, and
the experience falls flat.
4. Clean, accurate data—it’s true what they say about garbage in: Retailers are
awash in an ever-growing flood of data and information, but many are not
positioned to use it to its fullest. For example, while most organizations have a data
quality strategy in place, 94% suspect the data is inaccurate in some way,
according to Experian. Accuracy is clearly a significant hurdle to many
organizations’ abilities to harness analytics to drive decision making and improve
the customer experience.
Getting the most out of all this data also means integrating it across the business,
providing one version of the truth across integrated planning processes and
connecting the dots across channels, categories and competitors to develop a true
picture of the consumer’s needs and behavior. This includes a better understanding
of past performance and consumer needs than currently exists for most retailers.
Retailers who can achieve this soon will hold a tremendous competitive advantage,
as only 37% of retailers currently have a contact data quality strategy in place that
supports a single view of the customer, according to Experian.
5. Actionable insights—in the end, you have to do something: Ensuring the data
is accurate and integrated is only half the battle—retailers are also challenged to
derive actionable insights from that data and use it to drive smart decision making.
Many organizations don’t devote enough time to this important exercise. As a rule
of thumb, category management teams spend 80% of their time gathering and
organizing data and only 20% of their time using it to develop actionable insights.
Plus, insights are often supplier focused—as they provide much of the data—at the
expense of the retailer’s customer experience and loyalty.
To really unlock value from their data, retailers first need to create a centralized
analytics team that can identify and develop core insights for category teams.
Secondly, these insights should be organized into three key categories—customers,
clusters and channel; we call these lenses. The first lens, customers, prioritizes
using data to figure out how to influence key customer segments. The second lens,
clusters, focuses on harnessing demographic and consumer data to develop store
clusters that require similar go-to-market strategies. Finally, the channel lens helps
address the growing omnichannel challenge as click-and-collect and delivery
models expand.
The key is to derive insights with an eye toward decision making and action.
Organizing, funneling and interpreting data requires the correct structure and
people to make it work efficiently.
6. Localization and personalization—how will you manage expanding
complexity? One of the industry’s biggest mandates is developing personalized
and pervasive relationships with customers across channels—one-to-one retailing.
Consumers expect to be recognized and treated as individuals, and those
expectations are spurring significant changes to all aspects of retail operations.
Modern category management is tasked with “assorting to the individual,” whether
that’s an individual consumer or an individual store. Localized and customized
pricing is the first push for many retailers, including Target, Kroger and Staples,

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which recently made news with its sophisticated pricing system that changes online
pricing based on a customer’s proximity to competitors’ stores.
But this focus on granularity will also drive other changes. In assortment planning it
Notes
will mean a continued evolution from national to regional to store-level, and finally,
to individually curated assortments and experiences across channels. In space
management, retailers will need to switch from a “one-size-fits-all” standardized
approach to a store-level approach that’s flexible enough to allow localized
adjacencies and shelf and product arrangements. And of course, marketing, promo-
tions and pricing will change as well, as all move from a market-based approach to
one that’s highly dynamic and individualized. These shifts will mean an exponential
increase in complexity as increasingly granular decisions need to be made across
more and more stores, customers, channels, functional areas and processes. While
tools and systems will relieve the burden of computational work and coordinating
decisions, this increasing granularity will require a significant redesign of key
processes and organizations.
7. Clear roadmap—manage and measure progress: Of course, fixing so many
problems won’t be a cinch, and benefits require investment. The necessary
changes span many processes and organizational silos—and we’ve seen that one
cannot be optimized without making improvements to another. Additionally, modern
category management can add operational complexity that will need to be
supported by enablers such as new process, tools and organizational structures.
Organizations that are able to successfully transform their category management
processes will start with a clear vision, multiyear roadmap, and consensus and
commitment among key leaders across functions. The new approach to category
management will also require new tools—with considerable data needs—and new
processes and organizational change, both of which come with significant cultural
implications. Starting small will help prove out the value opportunities, while a focus
on change management will ensure that new ways of thinking take root. Finally,
focusing on setting and measuring key metrics helps demonstrate benefits and
build accountability and ownership.
Although it’s not easy, transforming category management is quickly becoming
necessary. As more and more retailers start to address bits and pieces of the
issue—78% of retailers plan to revamp their category management processes,
according to RSR— those who pull it off now will be well positioned for what the
future holds. Meanwhile, those who stand still run the risk of watching their
customers jump ship for retailers who are proactively improving their category
management capabilities to be more customer-focused, integrated and analytically
driven.

Category Captainship
Many retailers and manufacturers in the consumer goods industry practice category
captainship and report positive benefits. Retailers such as Wal-Mart, Metro, Safeway,
and Kroger practice category captainship in some of their product categories and
usually assign manufacturers such as Kraft Foods, P&G, Kellogg and Danone to serve
as category captains because of their established brands in the market and their
resource availability. Below are some specific examples of category captainship
implementations from practice. Carrefour, the second largest retailer in the world,
recently asked Colgate to serve as category captain in the oral care category. Based on
a number of consumer studies, Colgate suggested that Carrefour restructure the display
in the oral care category so as to merchandise toothbrush products above toothpaste
products, as opposed to merchandising them next to each other. As a result of the
restructuring, Carrefour reported 6-16% sales increase in the oral care categories in its
retail markets. Colgate also benefited from this sales increase (ECR Conference 2004).
The sales increase in the oral care category came at a little cost to the entire channel
because Colgate mostly utilized its already existing consumer studies and its expertise
in the oral care category. If Carrefour was to conduct the research necessary for such a
restructuring, it would have been much more expensive.

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Similarly, Ross Products serves as category captain for Safeway in the infant
formula category (Progressive Grocer 2004). Safeway asked Ross Products to examine
Notes the category and prescribe solutions to improve the profitability of the category. Ross’
assessment of the category revealed that the category was under-merchandised: the
infant formula subcategory was contributing 34% of the baby care category’s dollar
volume, but was receiving only 11% of the shelf-space. Ross recommended some
changes in shelf-space positioning, and also reviewed and revised the pricing to boost
profitability. After implementing the recommendations, the category boasted 9.2% sales
growth benefiting both Safeway and Ross Products.
One could argue that Safeway could have developed a similar prescription to
improve the performance in the infant formula category without using Ross Products as
a category captain, however, the cost of doing so would have been much higher as
Safeway does not have the expertise that Ross Products does. General Mills serves as
category captain for some of its retail partners in the Baking Ingredients and Mixes
category (Progressive Grocer 2004). General Mills’ recommendations are focused
around SKU rationalization and variety-vs-duplication analysis. SKU rationalization is
aimed at reducing the number of SKUs to reduce consumer confusion at the shelf and
thus create growth. Similarly, excessive duplication does not add much in incremental
volume. Removing duplications allows for expanded product variety, which in turn can
generate more sales in the category and help it grow. One of the retailers for which
General Mills serves as category captain has seen a 10.2% increase in base dollar
volume since General Mills’ SKU rationalization efforts
Although category captains are common in the grocery and consumer products
industries, category captainship practices are making an appearance in apparel retailing
as well. VF Corp., NC based manufacturer of brands such as Lee and Wrangler, serves
as category captain for a number of its retail partners in the jeans category (Apparel
Magazine 2005). VF Corp works with its retail partners to determine the product mix to
be offered in each region, how products will be displayed on the sales floor, and how
inventory levels will be managed in the category. Inspired by the success in the jeans
category, VF Corp is looking forward to take on category captainship responsibility in
other categories such as sports licensing and outdoor performance apparel categories.
These examples, and many other successful category captainship implementations,
demonstrate that by working together, retailers can considerably benefit from their
manufacturers’ expertise in managing their categories and deliver consumer value
through supply chain collaboration. However, conflict of interest between the retailer
and the category captain or between competing manufacturers could be an issue. First,
what is in the best interest of the category captain may not be the best for the retailer.
Second, the category captain may take advantage of its position and disadvantage
competitor manufacturers. It is not surprising that there is an emerging debate on
whether or not category captainship poses some antitrust challenges.
While there are many cases under investigation due to claims of antitrust practices,
one publicly known and well-documented example where some antitrust issues have
been important is the United States Tobacco Co. vs. Conwood Co. case. United States
Tobacco Co. (UST), the biggest company in the smokeless-tobacco category, was
recently condemned to pay a $1.05 billion antitrust award to Conwood, the second
biggest competitor in the category. Conwood had sued UST, the category captain, and
had claimed that UST used its position as category captain to exclude competition and
provide an advantage to its own brands. The court ruled that UST’s practices resulted in
unlawful monopolization, harming competition, and consequently, the consumers. This
example clearly illustrates that category captainship practices might have negative
impact on both the non-captain manufacturers and end consumers. Monopolization in
the category may result in lower variety and higher prices, which in turn may harm the
consumers. Similarly, many other category captainship arrangements in the tortillas,
cranberries, and carbonated soft drinks categories are before the court regarding
category captainship misconduct

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To summarize, while many retailer-manufacturer dyads claim positive benefits from
their category captainship implementations, there is also evidence concerning negative
impacts of using category captains. Retailers planning to implement category Notes
captainship should develop an understanding of the pros and cons of such practices
and should weigh potential advantages and disadvantages of using category captains
for category management. The goal of this chapter is to provide an overview of the
existing research on category captainship, and identify research directions that would
improve our understanding of its impact.

6.5 Summary
There are numerous factors to consider when evaluating and selecting a vendor. Each
option contains its own set of considerations and limitations based on elements
including industry, product and, most prominently, the proposed solution’s ability to
address the client’s challenges.
Due diligence often is confused with discovery, but in reality, it is two different
processes that should be completed at separate times during the selection process.
Discovery is completed during the Request for Proposal (RFP) process, whereas due
diligence is completed just before an outsourcing contract is signed. Some
organizations use the discovery process completed during the RFP evaluation in lieu of
due diligence.
Reference validation is also a viable option to the decision team. Historically, firms
may have requested that vendors supply a list of references, although they were rarely
pursued aggressively, if at all. Over the years, buyers have discovered the importance
of telephoning and visiting vendor sites for benchmarking. A great deal of information
about the strengths and weaknesses of your prospect can be gleaned at every level.
Many organizations omit the RFI process when selecting a service provider.
Instead, they move directly from defining their requirements to issuing RFP’s. This is a
detailed document that includes the questions included in the RFI, and ones covering
contractual details. However, the RFI process can yield numerous benefits. Among
them, an RFI provides a relatively quick, inexpensive way to collate information in a less
formal manner than an RFP. The former should be used to solicit a large body of
potential respondents and the latter sent to the vendor shortlist – or final top choice
candidates.

6.6 Check Your Progress

Multiple Choice Questions
1. What is retailing?
(a) Buying and selling of goods and services
(b) Buying and selling of values
(c) Buying and selling of beliefs
(d) Buying and selling of opinions`
2. Organized retail consists of ………..
(a) Super markets
(b) Kirana stores
(c) Franchisees
(d) Chain stores
3. Functions of retail include ……
(a) Delivery
(b) Storage

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(c) Manufacturing
(d) Production
Notes
4. Retail is one of the largest sectors in many …… economies.
(a) National
(b) International
(c) Domestic
(d) Transnational
5. The top 5 retailers dominate 88 per cent of the ….. market in Sweden.
(a) Clothing
(b) Electronics
(c) Food
(d) Insurance
6. Walmart buys most of its products directly from …...
(a) Middlemen
(b) Manufacturers
(c) Farmers
(d) Wholesalers
7. According to tenth report of GRDI of AT Kearney, India is placed at ……….
(a) 2nd
(b) 5th
(c) 7th
(d) 4th
8. India’s growing at an annual rate of 35 per cent in the ……. retail segment.
(a) Organized
(b) Unorganized
(c) Online
(d) None of the above
9. Scope of retailing is the activity of selling goods and services to …….
(a) Last level consumers
(b) Zero level consumers
(c) First level consumers
(d) Second level consumers
10. A ………… job was to act as a link between stores and the buyer.
(a) Customer’s
(b) Mediator’s
(c) Expert’s
(d) Planner’s

6.7 Questions and Exercises

1. What do you mean by vendor identification?
2. Write a short note on vendor viability.
3. Describe the process of negotiating with vendors.

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Vendor Management 93
4. What is meant by category management?
5. Describe briefly about category captainship.
Notes
6.8 Key Terms
z Organized Retail: Organized retail or modern retail is usually chain stores, all
owned or franchised by a central entity, or a single store that is larger than some
cut-off point.
z Retail: Retail is the sale of goods and services from individuals or businesses to the
end –user
z Franchisee: Franchising is a long-term cooperative relationship between two
entities—a franchisor and one or more franchisees—that is based on an agreement
in which the franchisor provides a licensed privilege to the franchisee to do
business.
z Break Bulk: It denotes a system of transporting cargo as separate pieces rather
than in containers.
z Kiosk: A small, temporary, standalone booth used in high-foot-traffic areas for
marketing purposes.

Check Your Progress: Answers

1. (a) Buying and selling of goods
2. (c) Franchisees
3. (b) Storage
4. (a) National
5. (c) Food
6. (c) Farmers
7. (d) 4th
8. (c) Online
9. (a) Last level consumers
10. (d) Planner’s

6.9 Further Readings

z Patrick M. Dunne, Robert F. Lusch &James R. Carver, Retailing 8th Edition, South-
Western, 2014
z Roger Cox & Paul Brittain, Retailing: An Introduction 5th Edition, Pearson Education,
2004
z K V S Madaan, Fundamentals of Retailing, Tata McGraw Hill, 2009
z Manfred Krafft & Murali K. Mantrala, Retailing in the 21st Century: Current and
Future Trends 2nd Edition, Springer, 2010
z Nicholas Alexander & Anne Marie Doherty, International Retailing, Oxford, 2009

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CASE STUDY: HOW CISCO IT IMPROVED STRATEGIC VENDOR

Notes MANAGEMENT

W
ith more than 35,000 employees and hundreds of locations, Cisco Systems® has
an enormous IT infrastructure budget. Each Cisco® office has many complex IT
requirements, including: high-speed connections; voice, data, and video
networking equipment; computers, servers, and storage; and, security and support. Cisco
uses its own products and services wherever possible, but still spends US$500M a year
globally on other IT products and services.
Challenge
The Cisco global network is one of the most innovative enterprise environments in the
world, and is an important contributor to the company's high productivity ratings. This can
increase pressure to introduce new services or equip new offices quickly. In the past,
Cisco had no consistent process for new products and services. Every time Cisco opened
a new location or an implemented a new service in an existing location, one of several
scenarios ensued:
The fastest path involved local managers calling up local suppliers and ordering whatever
was needed. This represented the most expensive solution for Cisco. A lack of formal
contracts often led to disagreements over prices, warranties, and support.
Another approach involved regional IT offices negotiating contracts with local suppliers.
Each contract was negotiated individually, so past lessons and economies of scale were
not referenced.
Sometimes, the IT group would call for requests for proposals or quotes (RFPs or RFQs),
and award the business based on responses. While this resulted in better prices, the
proposal process was not consistent, resulting in little or no emphasis on establishing
strategic vendors or planning for the future.
This lack of consistent process meant that Cisco could receive 20 different agreements for
the same service with the same vendor. Agreements in different countries would have
different prices, lengths, terms, and service levels. This was an inefficient and complex
process for both the vendor and Cisco to manage. In addition, the number of vendors
calling on Cisco was dramatically increasing in the last few years; without a standard and
consistent method for dealing with these contacts, more Cisco employees were required to
spend more time responding to these contacts.
In addition to the complexity of these agreements, the lack of strategic planning began to
cost Cisco significant amounts of money. Cisco discovered that it had signed multiyear
contracts for products or circuits that became obsolete as they moved to larger offices or
new technologies. Furthermore, with so many small agreements, Cisco missed the
opportunity to negotiate for better terms or prices based on its total sales volume. This
resulted in Cisco paying more than necessary for products or services. A benchmarking
survey in EMEA showed that Cisco typically paid more than other enterprises for similar
services.
This lack of consistency was negatively affecting the relationships between Cisco and its
vendors. Informal contracts do not properly set expectations for either the seller or the
buyer. It was also not always clear to vendors what Cisco deemed its criteria for awarding
business. There was no standard process for weighting bids, vendor communication, and
oversight. Disagreements escalated to both Cisco and vendor senior management. This
was particularly serious because many Cisco vendors are also significant Cisco
customers. Sales teams began to complain that the situation was affecting their customer
relationships.
Solution
The impetus for change began in Europe, where the vast number of service providers
made choosing suppliers for WAN infrastructure particularly complex. In 2001, the Europe,
Middle East and Africa (EMEA) theater of Cisco IT Infrastructure formed a vendor
management office (VMO). Its primary goal was to develop a strategic, consistent
approach to selecting WAN infrastructure vendors in EMEA that would reduce both cost
and risk for Cisco. It chose to work only with vendors strategic to the needs, marketplace,
and business of Cisco. Within a short period of time they had successfully renegotiated
contracts and repaired relationships, which attracted attention within Cisco.
Contd….

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The VMO became a global IT group in May 2002. Its mandate has expanded to include
managing strategic vendors that supply hardware infrastructure, software, storage,
telecom services, and outsourced infrastructure services. In addition, the VMO provides Notes
value and expertise in process and business development, asset management, and
vendor engagement.
Results
Two years after its formation, the VMO's success can be measured in many ways:
Increased Flexibility and Simplicity: With standard contracts in place worldwide, Cisco
can manage existing contracts and negotiate new ones more easily. Also, with standard,
simplified contracts and a consistent vendor engagement process, legal and procurement
organizations and internal client groups within Cisco spend less time managing vendor
relationships. The VMO measures its success through process consistency, contract
simplification, consistent contract terms and conditions, and contracts with lower cost
commitments,
Lower Costs to Cisco: Cisco now enjoys better pricing based on the higher volume of
goods and services it purchases from strategic vendors. The small VMO has more than
paid for itself during its short time in operation. Thanks to VMO efforts, IT cost avoidance,
cost savings, and cost recovery totaled $33M through the first three quarters of FY04, and
$64M over the life of the contracts. This achievement was recognized in August 2004,
when the VMO received a quarterly IT team award for excellent business partnership.
Brad Boston, CIO and senior vice president, of Cisco Systems, presented the award.
Cisco views the VMO's success as providing vendor services at lower costs.
Lower Costs to the Vendor: While vendors are providing the same services at lower
costs, their own costs are also reduced. Cisco has reduced its number of vendors, and
has consolidating contracts with a smaller number of strategic vendors, so these strategic
vendors receive more business and less paperwork. Instead of having dozens of contracts
with Cisco, with different billing approaches and terms and conditions, each vendor has a
single contract, reducing contract management costs. Because Cisco is now spending
significantly less on its contracts, it has more to spend with its strategic vendors.
Better Communication with Vendors: Well-communicated, and consistent fair terms and
conditions and SLAs reduce risk from both sides, and the creation of a global bidding
process provides consistent criteria and communication with all vendors. "In the bidding
process, we have created an environment where we communicate with one voice to all
vendors," says Chan. "At the end of the bidding process, we offer to sit down with each
vendor and show them their 'score'-where they did well and where they didn't." This
consistent feedback helps all vendors understand their strengths and weaknesses with
respect to Cisco needs and expectations.
For strategic vendors that have contractual relationships with Cisco, the VMO has
introduced a quarterly "vendor scorecard" that monitors the vendor's performance, against
written expectations. If a problem arises, all parties are alerted in a timely fashion using
clear escalation paths, opening up further lines of communication between Cisco and its
vendors. "Previously, we'd get into situations where there would be no well-defined exit
strategy," says Abdul Mumin, IT program manager, VMO. "For example, Cisco outsourced
an activity based on a minimum 12-month commitment, and a vendor assumed the
contract based on a cost-benefit analysis of 3 to 5 years. After 2 years, Cisco found
another way of accomplishing this activity, and the vendor imposed penalties that were left
indeterminate in the original contract." These situations can result in embittered and
negative relationships. Now, Cisco and strategic vendors set all terms and conditions at
the beginning of their relationship, including details on successor or cancellation costs,
technology migration, acquisition clauses, and mutual account team expectations. This
close communication helps ensure a flexible and open relationship between Cisco and its
vendors, allowing both to learn from mistakes and to adapt to changing vendor and Cisco
circumstances. The VMO and the vendor measure their success through quarterly reviews
and scorecards based on the meeting of contract SLAs.
More Productive Partnerships with Vendors-For any business relationship to be
successful, it must be mutually advantageous. Cisco and its strategic vendors have
evolved their relationships. "We are making contracts more fair," says Chan. "Some
contracts have business downturn clauses, so if a vendor's business slumps, Cisco will
renegotiate the contract. We also conduct annual industry benchmarking, so if the price for
this product or service is going down, Cisco pays a price reflecting current market
conditions. By sharing the risk, we are trying to create 'win-win' scenarios."
Contd….

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96 Fundamentals of Retailing
Cisco and its strategic vendors are using their improved relationships to lead industry
discourse on new technologies and services. In the service provider market, Cisco is both
Notes a significant customer and vendor, as well as a leader in adopting new technology.
"Service providers perceive us to be 18 to 24 months ahead of other enterprises," says
Chan. "Service Providers showcase Cisco as the way of the future to other enterprises,
and we try to take advantage of this position as buyers to advise and help business. We
are members of service provider advisory boards and councils across the globe."
Cisco customers see the VMO as an attractive model. Since many Cisco customers are
large, multinational enterprises, they share Cisco's interest in establishing and maintaining
strategic vendor relationships. VMO managers are often invited to participate in executive
briefing center (EBC) meetings with customers to share their experiences, performance,
and decision-making processes. The VMO measures its success by improved vendor
performance during the contract, and improved vendor capabilities.
Industry Recognition: The Infrastructure Executive Council (IEC) is a community of senior
executives with a shared commitment to improving performance through the provision of
technology infrastructure and services across the enterprise. IEC provides best-practices
research and executive education to IT infrastructure executives at leading global
corporations. In June 2004, the VMO was named by the IEC as "best in class" for strategic
sourcing. According to the IEC, "We believe Cisco's vendor management processes
represent an exemplar practice that other companies can learn from-the Cisco practice
effectively addresses questions regarding how to remain responsive to changes in the
vendor landscape and how to collaborate with internal constituencies for effective vendor
management." The IEC is now using the Cisco VMO as a model for how other companies
should build their strategic sourcing strategy.
Questions
1. Describe the challenge that Cisco faced in detail.
2. Write a note on the solution and result achieved by them in a comprehensive manner.

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Unit 7: Retail Pricing

Notes
Structure
7.1 Introduction
7.2 Factors Affecting Pricing
7.2.1 Internal Factors
7.2.2 Pricing Strategies
7.2.3 External Factors
7.3 Developing a Retail Price Strategy
7.3.1 Retail Objectives
7.3.2 Deciding a Pricing Policy
7.3.3 Price Adjustments
7.4 Summary
7.5 Check Your Progress
7.6 Questions and Exercises
7.7 Key Terms
7.8 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept of factors affecting pricing
z Discuss the development of a retail price strategy
z Explain the reasons behind deciding a pricing policy

7.1 Introduction
Pricing strategies affect both the margins and the positioning of a retailer. Various
pricing strategies can be followed by the retailer depending on his business objectives,
the influence of other external factors, and the impact of the pricing strategy on other
aspects of the marketing mix.
Broadly, retailers adopt one of the three approaches in terms of pricing-discount
orientation, at-the-market orientation, and upscale orientation. These approaches may
be implemented using various pricing strategies. Discount orientation may take the form
of everyday low-pricing strategy or high-low strategy.
Upscale orientation is reflected in premium pricing strategies. At times it takes the
form of skimming prices for certain product categories to be followed by penetration
prices later on. At-the-market orientation is reflected in strategies that offer average
prices for most products. While a store is likely to adopt a long-term approach in terms
of pricing, most retailers also adopt short-term tactical pricing tools like coupons,
rebates, etc.
Hence, while stores like Lifestyle and Arcus reflect an upscale pricing orientation
they do offer rebates and discounts at various intervals. Similarly, many retailers tend to
effect price reductions to pre-empt competition or achieve greater penetration. Some
stores may adopt loss leader pricing as a tactical move to stimulate additional store
traffic while retaining their basic orientation towards at-the-market pricing.

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7.2 Factors Affecting Pricing

Notes 7.2.1 Internal Factors
There are three retail pricing approaches based on the long-term objectives of the
pricing decision. They are discount orientation, upscale orientation, and at – the –
market orientation.

Discount Orientation
Here low prices are used as the major tool for competitive advantage. The store
portrays a low status image and offers fewer shopping frills. Profit margins are kept low
to target price-based customers. The model works on high inventory turnover and lower
operating costs. This is arguably the most common model in India because of the low
per capita income and price consciousness. It is not uncommon to see affluent people
buying from these low-price shops as Indians largely look for value for money. Frills can
be sacrificed for some satisfactory price cuts. Roadside discount shops thrive in India
where everything from clothes to perfumes is sold and the clientele is not necessarily
the lower middle class. One such market is the Janpath market in New Delhi. However,
with the advent of globalization, Indians are opening up and this seems to be changing.

Up-scale Orientation
In Up-scale Orientation competitive advantage is derived from the prestigious image of
the store. The profit margins per unit are high, coupled with higher operating costs and
lower inventory turnover. These stores usually stock distinctive product offerings and
provide, high quality service, building up customer loyalty. The products stored
generally go with the image of the store. It may be appropriate in situations of inelastic
demand in which an organization decides to keep its prices high. The reason for such
strategy might also include a growing super – premium segment of the market,
overcrowding at the bottom – end of the market, or the desire to create a prestige image
for the product.

At – the – market Orientation

A store with at – the – market orientation normally sets average prices. It offers solid
service and a nice atmosphere to middle – class shoppers. Margins are average to
good and it stocks moderate to above quality products. Since this model caters to the
middle class, it has a huge target market. Moreover, as income increases, the price –
based customers shift to these stores. Therefore, some discounts retailers also own
such a store to capture customers who would shift to a higher priced store as their
income rises.

7.2.2 Pricing Strategies

Following are the various pricing strategies followed by the retailer to meet his short-
and long-term objectives. The adoption of these strategies is guided by the basic pricing
approach of the retailer.

Every Day Low Pricing (EDLP)

EDLP has been popularized by large retailers like Wal-Mart, Home Depot, and Staples
among others. This strategy entails continuity of retail prices below the MRP mentioned
on the goods-in other words, at a level somewhere between the regular price at which
the goods are sold and the deep discount price offered when a sale is held. So, low
does not necessarily mean lowest. The price at a competing store where goods are on
sale may be selling at lower prices.
However, in case of EDLP, these low prices are stable and not subject to a one-
time sale. In India, many co-operative stores have adopted this strategy. One store that
uses EDLP is Big Bazaar.

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Here, goods are either sold below their normal prices, or some sales promotion
scheme is available. For EDLP to work, volumes are necessary so that the store can
negotiate with the manufacturers for bargain prices. The benefits of adopting an EDLP Notes
pricing strategy are given in Fig 7.1

Figure 7.1 Benefits of EDLP

Benefits of EDLP: The following are the benefits of the EDLP strategy.
Less Reliance on Price Reduction to Compete:
In high-low pricing, the goods that were selling for a particular retail price are sold at
reduced prices during sale. This makes the customers conditioned to postpone their
purchases and they buy only during sale. This is a vicious cycle as fewer items sold at
normal prices means more piled up stock, which necessitates a sale to be organized.
The sale keeps on getting bigger and better, reducing the average price at which goods
are sold, thus hitting the bottom line.
Moreover, in high-low pricing the customers can have post-purchase dissonance
once they come to know that the product they purchased at 20% discount a week back
is being sold at 50% discount in the current week's sale. EDLP provides the customers
with the satisfaction that they are paying a fair price for the product, and they tend to
buy more frequently instead of waiting for the most beneficial sale to take place.
Reduced Advertising: Since prices are stable in EDLP, the retailer need not
advertise frequently. In case of sale, which is held for a limited period, the retailer has to
necessarily advertise so that more and more people visit the store to take advantage of
the temporary low prices. Also, catalogues do not become obsolete since prices do not
change so often.
Improved Customer Service: Stable prices also mean stable flow of customers in
the store. In high-low pricing, the sales people generally fall short during sale time
unless additional workforce is hired. In EDLP, the sales people are sufficient and,
hence, are able to attend to customers properly.
Better Inventory Management: EDLP reduces the large fluctuations in demand
that one experiences hi high-low pricing. So, retailers can manage their inventory with
more certainty. It must be noted here that even though EDLP may provide stability in
demand and easy forecasting of inventory, it does not make a large difference in many
cases of stock-outs. Goods on sale are meant to be cleared as far as possible or
reduced to zero. So, essentially, a storeowner 'wants' to achieve the situation of a
stock-out. Moreover, as these goods are sold at low profit margins, stock-outs are not of
much concern as not much profit is lost. Fluctuations are also experienced in EDLP due
to other factors such as festivals. In fact, demand for a majority of products is seasonal
in India due to the festive season.

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High-Low Pricing

Notes In high-low pricing, retailers offer prices that are sometimes above their competitor's
ELDP, but they use advertisements to promote frequent sales. In the past, retailers
would mark down merchandise at the end of a season to clear the stock. Grocery stores
would only have sales when they were overstocked. Sale is very common in garment
retailing.
A sale is organized at the end of a season to serve basically two purposes. One,
goods that have not managed to get sold is disposed off. Otherwise, extra handling and
storage expenses have to incurred in respect of these goods. Moreover, there is no
surety that they will get sold in the next season. Second, the sale provides an
opportunity for a different target segment to visit the store. This segment is very product
conscious and would compromise on design, color, etc., to buy cheaper. They also look
for bargains where they are able to get a good quality product at sale prices. Nowadays,
retailers also use sales to respond to increased competition and a more value
conscious customer.
High-low pricing is used by stores like Lifestyle. Each of these strategies has its
own benefits. The benefits of high – low pricing are:

Benefits of High-low Pricing

The following are the benefits of high-low pricing:
z Same Merchandise can he Used to Target Different Segments: The retailers
use price skimming to target customers of various segments. When the
merchandise is first put on display, it is sold at the maximum price. Fashion leaders
and hard-to-fit customers buy at this price because they are less price-conscious or
they fear that they would be unable to buy the same staff later on. Slowly, as sales
in this segment are saturated, prices are lowered. More people enter the market,
who are slightly more price conscious. Finally, at the end of the season, extremely
price conscious customers visit the store during deep discount sales. They are not
much concerned about the design or sizes and look for value buys from whatever is
left over. So, the store owner is able to use the same set of goods to target various
segments of the market.
z Enthusiasm is Created Among Customers: A sale draws people to the store.
This crowd helps in creating an atmosphere of excitement. The environment is such
that people tend to purchase impulsively. During a sale, many retailers also use
other supporting activities to create excitement. For example, product
demonstrations or very short-term special prices. Many shoe retailers give free
socks or shoe polish along with every pair of shoes purchased. This segment of
customers also helps in improving the visibility of the store.
z Image of Quality is Created: In an EDLP policy, the customer may assume that
since prices are low throughout the year, the store must be compromising on quality
or service somewhere. However, in high low pricing, even during a sale, the
customer uses the original highest price as the reference. So, he or she tends to
think that the merchandise stored is of high quality.
z Difficult to Implement EDLP: EDLP can be used primarily for known branded
products so that the customer can compare the prices in the market, or, frequently
purchased commodities whose prices the customers are aware of. So, EDLP
cannot be implemented in every store. Moreover, implementation of EDLP requires
large volumes so that the store can bargain with the suppliers for prices. The pricing
strategy of a retailer would lie along a continuum from EDLP to high-low pricing.
However, retailers use other pricing practices also along with their basic strategy. In
fact, very few retailers have a clear cut, simple to understand pricing strategy. It
differs from time to time, product to product, and location to location. Nothing wrong
about it as there are some products that are suited to EDLP and some are not.

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7.2.3 External Factors
Several factors have an impact on a retail pricing strategy, as shown in Fig 7.3. Notes
Sometimes the factors have a minor effect. In other cases, they severely restrict a firm's
pricing options.

The Customer and Retail Pricing

Retailers should understand the price elasticity of demand – the sensitivity of customers
to price changes in terms of the quantities they will buy – because there is often a
relationship between price and consumer purchases and perceptions. If small
percentage changes in price lead to substantial percentage changes in the number of
units bought, demand is price elastic. This occurs when the urgency to purchase is low
or there are acceptable substitutes. If large percentage changes in price lead to small
percentage changes in the number of units bought, demand is price inelastic. Then
purchase urgency is high or there are no acceptable substitutes (as takes place with
brand or retailer loyalty). Unitary elasticity occurs when percentage changes in price are
directly offset by percentage changes in quantity.
In retailing, computing price elasticity is difficult. First, as with the movie theater,
demand for individual events or items may be hard to predict. One week, the theater
may attract 1,000 patrons to a movie, and the next week it may attract 400 patrons to a
different movie. Second, many retailers carry thousands of items and cannot possibly
compute elasticities for everyone. As a result, they usually rely on average markup
pricing, competition, tradition, and industry wide data to indicate price elasticity.
Price sensitivity varies by market segment, based on shopping orientation. After
identifying potential segments, retailers determine which of them form target market:
z Economic consumers: They perceive competing retailers as similar and shop
around for the lowest possible prices. This segment has grown dramatically in
recent years.
z Status-oriented consumers: They perceive competing retailers as quite different.
They are more interested in prestige brands and strong customer service than in
price.
z Assortment-oriented consumers: They seek retailers with a strong selection in
the product categories being considered. They want fair prices.
z Personalizing consumers: They shop where they are known and feel a bond with
employees and the firm itself. These shoppers will pay slightly above average
prices.
z Convenience-oriented consumers: They shop because they must, want near
stores with long hours, and may use catalogs or the Web. These people will pay
higher prices for convenience.

The Government and Retail Pricing

Three levels of government may affect retail pricing decisions: federal, state, and local.
When laws are federal, they apply to interstate commerce. A retailer operation only
within the boundaries of one state may not be restricted by some federal legislation.
Major government rules relate to horizontal price fixing, vertical price fixing, price
discrimination, minimum price levels, unit pricing, item price removal, and price
advertising.

Horizontal Price Fixing

An agreement among manufacturers, among wholesalers, or among retailers to set
prices is known as horizontal price fixing. Such agreements are illegal under the
Sherman Antitrust Act and the Federal Trade Commission Act, regardless of how
“reasonable” prices may be. It is also illegal for retailers to get together regarding the
use of coupons, rebate, or other price – oriented tactics.

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Vertical Price Fixing

Notes When manufacturers and wholesalers seek to control the retail prices of their goods and
services, Vertical price fixing occurs. According to Consumer Goods Pricing Act,
retailers in the United States cannot be forced to adhere to minimum retail price set by
manufacturers and wholesalers. However, as a result of Supreme Court ruling,
manufacturers and wholesalers are allowed to set maximum retail prices. This ruling
“opened the door for manufacturers and wholesalers to cap the prices retailers charge
for their products. It reversed a decision that barred such limits and left retailers and
franchisees free to raise prices above suppliers' suggested prices. Now, manufacturers
can set a maximum price as long as they show they aren't stifling competition. There
have been various legal actions in this area.

Price Discrimination
The Robinson-Patman Act bars manufacturers and wholesalers from discriminating in
price or purchase terms in selling to individual retailers if these retailers are purchasing
products of "like 'quality" and the effect of such discrimination is to injure competition.
The intent of this act is to stop large retailers from using their power to gain discounts
not justified by the cost savings achieved by suppliers due to big orders. There are
exceptions that allow justifiable price discrimination when:
z Products are physically different.
z The retailers paying different prices are not competitors.
z Competition is not injured.
z Price differences are due to differences in supplier costs.
z Market conditions change-costs rise or fall, or competing suppliers shift their prices.
Discounts are not illegal, as long as suppliers follow the preceding rules, make
discounts available to competing retailers on an equitable basis, and offer discounts
sufficiently graduated so small retailers can also qualify. Discounts for cumulative
purchases (total yearly orders) and for multi store purchases by chains may be hard to
justify.
Although the Robinson-Patman Act restricts sellers more than buyers, retailers are
covered under Section 2(F): "It shall be unlawful for any person engaged in commerce,
in the course of such commerce, knowingly to induce or receive discrimination in price
which is prohibited in this section." Thus, a retail buyer must try to get the lowest prices
charged to any competitor, yet not bargain so hard that discounts cannot be justified by
acceptable exceptions.

Minimum-Price Laws
About half the states have minimum-price laws that prevent retailers from selling certain
items for less than their cost plus a fixed percentage to cover overhead. Besides
general laws, some state rules set minimum prices for specific products. For instance,
in New Jersey and Connecticut, the retail price of liquor cannot be less than the
wholesale cost (including taxes and delivery charges).
Minimum-price laws protect small retailers from predatory pricing, in which large
retailers seek to reduce competition by selling goods and services, at very low prices,
thus causing small retailers to go out of business. In one widely watched case, three
pharmacies in Arkansas filed a suit claiming Wal- Mart had sold selected items below
cost in an attempt to reduce competition. Wal – Mart agreed it had priced some items
below cost to meet or beat rivals' prices but not to harm competitors. The Arkansas
Supreme Court ruled that Wal-Mart did not use predatory pricing since the three
pharmacies were still profitable.
With loss leaders, retailers’ price selected items below cost to lure more customer
traffic for those retailers. Supermarkets and other retailers use loss leaders to increase
overall sales and profits because people buy more than one item once in a store.

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However, consider this: The loss leader strategy is used primarily to attract customers
to your business by introducing a bargain.
Notes
Such bargain themselves are not profitable, but hopefully this will be made up
through the, other goods/services that major may not be related to the loss leader
product. Implementing the loss leader strategy can be risky and therefore needs to be
considered that it is the right approach to penetrating the market.

Unit Pricing
In some states, the proliferation of package sizes has led to unit pricing whereby some-
retailers must express both the total price of an item and its price per unit of measure.
Food stores are most affected by unit price rules because grocery items are more
regulated than non-grocery items. There are exemptions for firms with low sales. The
aim of unit pricing is to enable consumers to better compare the prices of products
available in many sizes. Retailer costs include computing per- unit prices, printing
product and shelf labels, and keeping computer records. These costs are influenced by
the way prices are attached to goods (by the supplier or the retailer), the number of
items subject to unit pricing, the frequency of price changes, sales volume, and the
number of stores in a chain.

Item Price Removal

The boom in computerized checkout systems has led many firms, especially
supermarkets, to advocate item price removal - whereby prices are marked on shelves
or signs and not on individual items. Scanning equipment reads pre-marked product
codes and enters price data at the checkout counter.

Price Advertising
The FTC has guidelines pertaining to advertising price reductions, advertising prices in
relation to competitors' prices, and bait-and-switch advertising.
A retailer cannot claim or imply that a price has been reduced from some former
level (a suggested list price) unless the former price was one that the retailer had
actually offered for a good or service on a regular basis during a reasonably substantial,
recent period of time.
When a retailer says its prices are lower than competitors', it must make certain that
its comparisons pertain to firms selling large quantities in the same trading area. A
somewhat controversial, but legal, practice is price matching. For the most part, a
retailer makes three assumptions when it "guarantees to match the lowest price of any
competing retailer": (1) this guarantee gives shoppers the impression that the firm
always offers low prices or else it would not make such a commitment. (2) Most
shoppers will not return to a store after a purchase if they see a lower price advertised
elsewhere. (3) The guarantee may exclude most deep discounters by stating they are
not really competitors.
Bait-and-switch advertising is an illegal practice in which a retailer lures a
customer by advertising goods and services at exceptionally low prices; once the
customer contacts the retailer (by entering a .store, calling a toll-free number, or going
to a Web site), he or she is told the good/service of interest is out of stock or of inferior
quality. A salesperson (or Web script) tries to convince the person to buy a more costly
substitute. The retailer does not intend to sell the advertised item. In deciding if a
promotion uses bait-and-switch advertising, the FTC considers how many sales are
made at the advertised price, whether a sales commission is paid on sale items, and
total sales relative to advertising costs.

7.3 Developing a Retail Price Strategy

Figure 7.2 shows, a retail price strategy have five steps: objectives, policy, strategy,
implementation, and adjustments. Pricing policies must be integrated with the total retail

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mix, which occurs in the second step. The process can be complex due to the often
erratic nature of demand, the number of items carried, and the impact of the external
Notes factors already noted.

7.3.1 Retail Objectives

A retailer's pricing strategy has to reflect its overall goals and be related to sales and
profits. There must also be specific pricing goals to avoid such potential problems as
confusing people by having too many prices, spending too much time bargaining with
customers, offering frequent discounts to stimulate customer traffic, having inadequate
profit margins, and placing too much emphasis on price.

Overall Objectives and Pricing

Sales goals may be stated in terms of revenues and/ or unit volume. An aggressive
strategy, known as market penetration pricing, is used when a retailer seeks large
revenues by setting low prices and selling many units. Profit per unit is low, but total
profit is high if sales projections are reached. This approach is proper if customers are
price sensitive, low prices discourage actual and potential competition, and retail costs
do not raise much with volume.
With a market skimming pricing strategy, a firm sets premium prices and attracts
customers less concerned with price than service, assortment, and prestige. It usually
does not maximize sales but does achieve high profit per unit. It is proper if the targeted
segment is price insensitive, new competitors are unlikely to enter the market, and
added sales will greatly increase retail costs.
Return on investment and early recovery of cash are other possible profit based
goals for retailers using a market skimming strategy. Return on investment is sought if a
retailer wants profit to be a certain percentage of its investment, such as 20 percent of
inventory investment. Early recovery of cash is used by retailers that may be short on
funds, wish to expand, or be uncertain about the future.

Figure 7.2: Framework for Developing a Retail Price Strategy

7.3.2 Deciding a Pricing Policy

Each retailer must determine their relative importance given its situation-and plan
accordingly. Some goals maybe incompatible, such as "to not encourage shoppers to
be overly price-conscious" and a “we-will-not- be-undersold' philosophy."

Broad Price Policy

Through a broad price policy, a retailer generates an integrated price plan with short-
and long-run perspectives (balancing immediate and future goals) and a consistent
image (vital for chains and franchises). The retailer interrelates its price policy with the
target market, the retail image, and the other elements of the retail mix. These are some
of the price policies from which a firm could choose:
z No competitors will have lower prices; no competitors will have higher prices (for
prestige purposes); or prices will be consistent with competitors'.

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z All items will be priced independently, depending on the demand for each or the
prices for all items will be interrelated to maintain an image and ensure proper
markups. Notes
z Price leadership will be exerted; competitors will be price leaders and set prices
first; or prices will be set independently of competitors.
z Prices will be constant over a year or season; or prices will change if costs change.

7.3.3 Price Adjustments

In Demand- oriented pricing, a retailer sets prices based on consumer desires. It
determines the range of prices acceptable to the target market. The Top of this range is
called demand ceiling, the most people will pay for a good or service. With cost-
oriented pricing, a retailer sets a price floor, the minimum price acceptable to the firm so
that it can reach a specified profit goal. For Competition-oriented pricing, a retailer sets
its prices in accordance with competitors. The price levels of key competitors are
studied and applied:

Demand- Oriented Pricing

Retailers use Demand- oriented pricing to estimate the quantities that customers would
buy at various prices. This approach studies customer interests and the psychological
implications of pricing. Two aspects of psychological pricing are the price – quality
association and prestige pricing.
According to the price – quality association, many consumers feel high prices
connote high quality and low prices connote low quality. This association is especially
important if competing firms or products are hard to judge on bases other than price,
consumers have little experience or confidence in judging quality (as with a n w retailer),
shoppers perceive large differences in quality among retailers or products, and brand
names are insignificant in product choice. Though various studies have documented a
price-quality relationship, research also indicates that if other quality cues, such as
retailer atmospherics, customer service, and popular brands, are involved, these cues
may be more important than price in a person's judgment of overall retailer or product
quality.
Prestige pricing-which assumes that consumers will not buy goods and services at
prices deemed too low-is based on the price-quality association. Its premise is that
consumers may feel too Iowa price means poor quality and status. Some people look
for prestige pricing when selecting retailers and do not patronize those with prices
viewed as too low.

Cost-Oriented Pricing
One form of cost-oriented pricing, markup pricing, is the most widely used pricing
technique. In markup pricing, a retailer sets prices by adding per-unit merchandise
costs, retail operating expenses, and desired profit. The difference between
merchandise costs and selling price is the markup. If a retailer buys a desk for $200 and
sells it for $300, the extra $100 covers operating costs and profit. The markup is 33-1/3
percent at retail or 50 percent at cost. The level of the markup depends on a product's
traditional markup, the supplier's suggested list price, inventory turnover, competition,
rent and other overhead costs, the extent to which the product must be serviced, and
the selling effort.
Markup can be computed on the basis of retail selling price or cost but are typically
calculated using the retail price. Why? (1) Retail expenses, markdowns, and profit are
always stated as a percentage of sales. Thus, markups expressed as a percentage of
sales are more meaningful. (2) Manufacturers quote selling prices and discounts to
retailers as percentage reductions from retail list prices. (3) Retail price data are more
readily available than cost data. (4) Profitability seems smaller if expressed on the basis
of price. This can be useful in communicating with the government, employees, and
consumers.
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106 Fundamentals of Retailing

A retailer can use competitors' prices as a guide. That firm might not alter prices in
reaction to changes in demand or costs unless competitors alter theirs. Similarly, it
Notes might change prices when competitors do, even if demand or costs remain the same.
A competition-oriented retailer can price below, at/or above the market. A firm with
a strong location, superior service, good assortments, a favorable image, and exclusive
brands can set prices above competitors.
However, above-market pricing is not suitable for a retailer that has an inconvenient
location, relies on self-service, is not innovative, and offers no real product
distinctiveness.
Competition-oriented pricing does not require calculations of demand curves or
price elasticity. The average market price is assumed to be fair for both the consumer
and the retailer. Pricing at the market level does not disrupt competition and therefore
does not usually lead to retaliation.

Integration of Approaches to Price Strategy

To properly integrate the three approaches, questions such as these should be
addressed:
z If prices are reduced, will revenues increase greatly? (Demand orientation).
z Should different prices be charged for a product based on negotiations with
customers, seasonality, and so on? (Demand orientation)
z Will a given price level allow a traditional markup to be attained? (Cost orientation)
z What price level is necessary for a product requiring special costs in purchasing,
selling, or delivery? (Cost orientation)
z What price levels are competitors setting? (Competitive orientation)
z Can above-market prices be set due to a superior image? (Competitive orientation)

7.4 Summary
Pricing strategies affect both the margins and the positioning of a retailer. Various
pricing strategies can be followed by the retailer depending on his business objectives,
the influence of other external factors, and the impact of the pricing strategy on other
aspects of the marketing mix.
In Up-scale Orientation competitive advantage is derived from the prestigious image
of the store. The profit margins per unit are high, coupled with higher operating costs
and lower inventory turnover.
A store with at – the – market orientation normally sets average prices. It offers
solid service and a nice atmosphere to middle – class shoppers. Margins are average to
good and it stocks moderate to above quality products.
In high-low pricing, retailers offer prices that are sometimes above their competitor's
ELDP, but they use advertisements to promote frequent sales.
Retailers should understand the price elasticity of demand – the sensitivity of
customers to price changes in terms of the quantities they will buy – because there is
often a relationship between price and consumer purchases and perceptions.
Bait-and-switch advertising is an illegal practice in which a retailer lures a customer
by advertising goods and services at exceptionally low prices; once the customer
contacts the retailer (by entering a .store, calling a toll-free number, or going to a Web
site), he or she is told the good/service of interest is out of stock or of inferior quality.

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7.5 Check Your Progress
Multiple Choice Questions Notes
1. Pricing ……….. affect both the margins and the positioning of a retailer.
(a) Values
(b) Beliefs
(c) Strategies
(d) Decisions
2. …………….. orientation is reflected in premium pricing strategies.
(a) Upscale
(b) At the Market
(c) Discount
(d) Chain
3. …………… orientation is reflected in strategies that offer average prices for most
products.
(a) Discount
(b) At the market
(c) Upscale
(d) Consumer
4. In …………. orientation low prices are used as the major tool for competitive
advantage.
. (a) Discount
(b) Upscale
(c) At the market
(d) Domesticl
5. Every Day Low Pricing is a strategy which entails continuity of ……….. prices
below the MRP mentioned on the goods.
(a) Discount
(b) Wholesale
(c) Retail
(d) Low
6. ……………… consumers perceive competing retailers as similar and shop around
for the lowest possible prices. This segment has grown dramatically in recent years.
(a) Status
(b) Assortment
(c) Economic
(d) Personalizing
7. ………….oriented consumers perceive competing retailers as quite different. They
are more interested in prestige brands and strong customer service than in price.
(a) Convenience
(b) Economic
(c) Personalizing
(d) Status

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108 Fundamentals of Retailing

8. …………….. consumers shop where they are known and feel a bond with
employees and the firm itself. These shoppers will pay slightly above average
Notes prices.
(a) Organized
(b) Unorganized
(c) Online
(d) None of the above
9. …………… oriented consumers seek retailers with a strong selection in the product
categories being considered. They want fair prices.
(a) Assortment
(b) Personalizing
(c) Economic
(d) Status
10. ………………..oriented consumers shop because they must, want near stores with
long hours, and may use catalogs or the Web. These people will pay higher prices
for convenience.
(a) Assortment
(b) Economic
(c) Status
(d) Convenience

7.6 Questions and Exercises

1. Explain discount orientation.
2. Write a short note about everyday low pricing (EDLP).
3. What are the benefits of EDLP?
4. Discuss the external factors that affect pricing.
5. Describe the process of developing a retail price strategy.

7.7 Key Terms

z Discount Orientation: In this orientation low prices are used as the major tool for
competitive advantage.
z Upscale Orientation: In Up-scale Orientation competitive advantage is derived
from the prestigious image of the store.
z At the Market Orientation: A store with at – the – market orientation normally sets
average prices. It offers solid service and a nice atmosphere to middle – class
shoppers.
z Bait and Switch Advertising: It denotes a system of transporting cargo as
separate pieces rather than in containers.
z Prestige Pricing: It assumes that consumers will not buy goods and services at
prices deemed too low-is based on the price-quality association.

Check Your Progress: Answers

1. (c) Strategies
2. (a) Upscale
3. (b) At the market
4. (a) Discount
5. (c) Food

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Retail Pricing 109
6. (c) Economic
7. (d) Status
Notes
8. (c) Personalizing
9. (a) Assortment
10. (d) Planner’s

7.8 Further Readings

z Patrick M. Dunne, Robert F. Lusch &James R. Carver, Retailing 8th Edition, South-
Western, 2014
z Roger Cox & Paul Brittain, Retailing: An Introduction 5th Edition, Pearson Education,
2004
z K V S Madaan, Fundamentals of Retailing, Tata McGraw Hill, 2009
z Manfred Krafft & Murali K. Mantrala, Retailing in the 21st Century: Current and
Future Trends 2nd Edition, Springer, 2010
z Nicholas Alexander & Anne Marie Doherty, International Retailing, Oxford, 2009

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110 Fundamentals of Retailing

CASE STUDY: OPTIMISING FUEL PRICING

Notes
The Company:
A leading US convenience retailer with over 1,000 locations.
The Challenge:
This retailer felt money was being left on their table with their current fuel pricing approach.
The company wanted to maximize the total site profit including fuel margin and
merchandise profit. They wanted to price fuel high enough to have strong margins but not
drive away traffic. But the noisy and rapidly changing environment of convenience retail
made it difficult to quantify those factors. The retailer turned to APT’s Test & Learn™
Management System to cut through the noise and created dynamic store-level fuel pricing
strategy focused on maximizing total site profitability.
The company’s existing strategy consisted of store-by-store protocols aimed at
maintaining high margin per gallon and a price position informed by nearby competition.
The protocol for each store had been based on anecdotal evidence – not hard data – of
market dynamics, and the company wanted to embrace a more informed, data-driven
pricing strategy.
The Solution:
Using APT’s Test & Learn™ solution, the client implemented a price decrease in high
potential stores, analyzed the results to understand why some sites performed better than
others, and refined the pricing protocol going forward. This was executed as a series of
tests. Each test refines the store-by-store strategy and provides hypotheses for future
tests. For example, the company hypothesized that a certain segment would benefit from
lowering the price by one cent versus nearby competition. Quantifying the impact is simple
in concept but is difficult to execute because of the “signal vs. noise” challenge. In this
example, the retailer wanted to isolate a small percentage change while fuel volume and
merchandise sales fluctuated by up to 70% each day. APT applied sophisticated analytic
techniques to mitigate the fuel volume and merchandise sales volatility. Cutting through
the noise, APT found that a one-cent decrease in fuel price drove a significant increase in
fuel volume and a modest increase in merchandise sales. This result translated into
$7,000 of incremental annual profit per store. The test was a success.
The test results also provided hypotheses for future fuel price testing. APT’s analyses
identified specific site characteristics linked to outsized fuel and merchandise lifts. For
example, fuel volume and merchandise sales in type A stores increase 3x faster than all
other stores.
This observation helped to confirm the long-held belief that customers visiting Type A
stores were less brand loyal and more aware of competitive pricing than average
customers. More importantly, the incremental profit from Type A stores was $20,000 on
average. Future price decreases were therefore focused more on Type A stores.
The Results:
Through this ongoing testing and monitoring, the company can continuously refine its fuel
pricing strategy over the long-term. This approach generates about $4 million in
incremental annual profit for the company.
Questions:
1. What is the challenge that the retailer faces while deciding the fuel pricing strategy?
2. Comment on the solution presented by APT’s Test and Learn and share your views
on it in a comprehensive manner.

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Retail Communication 111

Unit 8: Retail Communication

Notes
Structure
8.1 Introduction
8.2 Concept of Retail Image
8.3 Classification of the Elements of Retail Communication Mix
8.4 Retail Advertising
8.4.1 Types of Advertising
8.4.2 Media Decisions
8.4.3 Retail Sales Promotion Tools
8.5 Summary
8.6 Check Your Progress
8.7 Questions and Exercises
8.8 Key Terms
8.9 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept of retail image
z Discuss the classification of the elements of communication mix
z Explain the reasons behind retail advertising

8.1 Introduction
A communication program can be designed to achieve a variety of objectives for the
retailer, such as building a brand image of the retailer in the customer’s mind,
increasing sales and store traffic, providing information about the retailer’s location and
offering, and announcing special activities.
Retailers communicate with customers both online and offline and interactively and
passively. Direct marketing has received the greatest increase in attention by retailers
and can occur using telemarketing (offline/ interactive), mobile marketing (online/
interactive), direct mail and catalogs (offline/passive), and e-mail (online/passive).
These elements in the communication mix must be coordinated so that customers have
a clear, distinct image of the retailer and are not confused by conflicting information.
Retailers go through four steps to develop and implement their communication
program: Establish objectives, determine a budget, allocate the budget, and implement
and evaluate the program. Marginal analysis is the most appropriate method for
determining how much should be spent to accomplish the retailer’s objectives because
it maximizes the profits that could be generated by the communication mix. Since
marginal analysis is difficult to implement, however, many retailers use rule-of-thumb
methods to determine the size of the promotion budget.

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8.2 Concept of Retail Image

Notes Retail businesses exist to make people happy. To the extent that you satisfy customers,
you fulfill your company goal. After that’s said and done, retailers are in the business of
customer satisfaction. This is the key to growth and profits.
The industry continually strives to shift its image from one that profits from others to
one that serves people’s interests. Image has many sides to it: friendliness of
personnel, quality of merchandise, level of service, and ease of access. You must be
ever conscious of the perceived risk the consumer has of doing business with you. One
is social risk: What someone buys affects how others view that person—fashionable
and smart, or behind the times and ignorant. The second risk is economic. This is the
possibility that a purchase decision will greatly reduce the consumer’s budget and not
yield substantial satisfaction or value.

Conceptualisation of Retail Image

Numerous attempts have been made to categorise the elements which contribute to
store image. It is usually recognised as one of the first to consider store image as a
source of competitive differentiation in retailing, identified four core attributes: layout and
architecture; symbols and colour; advertising; and sales personnel. It is often taken as
the starting point in image research. Lindquist identified nine categories (merchandise;
service; clientele; physical facilities; convenience; promotion; store atmosphere;
institutional factors; and post-transactional satisfaction), which were themselves made
up from a range of attributes.
Within these studies a distinction is often made between tangible and intangible
factors. It refers to the store “personality” as “the way in which the store is defined in the
shoppers mind partly by the functional qualities and partly by an aura of psychological
attributes”. Similarly, it has been distinguished between “functional qualities” and
“psychological attributes” which included both physical (factual, functional, and tangible)
and psychological dimensions, (formed as a result of the experience consumers have
when exposed to a store). However, owing to the interpretative nature of image, this
distinction is often seen as artificial and misleading. Oxenfeld argues that store image is
a concept, which is:
“more than the sum of its parts…, it represents interaction among characteristics
and includes extraneous elements…, it has some emotional content… a combination of
factual and emotional material”.

8.3 Classification of the Elements of Retail Communication Mix

Communication Mix is the range of approaches and expressions of a marketing idea
developed with the hope that it be effective in conveying the ideas to the diverse
population of people who receive it.
It is designed to achieve a variety of objectives for the retailer, such as building a
brand image of the retailer in the customer's mind, increasing sales and store traffic,
providing information about the retailer's location and offering, and announcing special
activities.

Retailers communicate with customers through various means. These elements in the
communication mix must be coordinated so customers have a clear, distinct image of
the retailer and not be confused by conflicting information.
Many retailers use rules of thumb to determine the size of the promotion budget.
Marginal analysis, the most appropriate method for determining how much must be
spent to accomplish the retailer's objectives, should be used to determine whether the
level of spending maximizes the profits that could be generated by the communication
mix.

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The main elements that make up the communications mix are:

Notes

Figure 8.1 Communication Mix

Retailers should consider the range of communication tools that they can mix to
communicate their marketing and branding messages. Advertising, sales promotion,
public relations, digital marketing, direct marketing and personal selling are examples of
important marketing communication tools widely used in the retail industry and other
industry sectors. Retailers should consider the range of communication tools that they
can mix to communicate their marketing and branding messages. Advertising, sales
promotion, public relations, digital marketing, direct marketing and personal selling are
examples of important marketing communication tools widely used in the retail industry
and other industry sectors.
The four important characteristics can help guide your choice of which
communication tool to use for delivering particular marketing communication messages.
The four characteristics are:
z Communication potential: Focuses on the ability of the communication tool to
deliver a personal message, its audience reach and the level of interaction offered.
z Credibility: Refers to how the communication tool is perceived by the target
audience.
z Cost: Includes considerations about how much of the communication budget is
required to use a particular tool, ratios of cost per contact and the size of investment
required to use the particular communication tool.
z Control: Rhe ability to reach specific target audiences and flexibility to adapt to
changes in the communication setting.
The characteristics of each of the communication tools affect how and where they
are used, based on the level of:
z Communication potential, e.g. television advertising is good at visually informing
target consumers of key features and benefits, whereas sales promotions are a call
to action, to encourage consumers to make a purchase for example.
z Credibility required (tools are perceived and valued differently by the target
audience, e.g. public relations score high whereas advertising scores low).
z Cost which is a major consideration and the communication budget will influence
the choice of communication tools.
z Control which is required. (In other words is the message that the target audience
receives the same as the one the transmitter intended to send?).

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8.4 Retail Advertising

Notes Role of Advertising in Retail
The retailer through various ways of advertising strives hard to promote his brand
amongst the masses for them to visit the store more often.
Advertisements attract the customers into the store. They act as a catalyst in
bringing the customers to the stores.
The advertisement must effectively communicate the right message and click on the
customers. It should be a visual treat and appeal the end-users.
Advertisements have taglines to create awareness of a product or service in the
most effective way.
z The tagline has to be crisp and impressive to create the desired impact.
z The tagline should not be lengthy else the effect gets nullified.
z It has to be catchy.
z It should be simple to memorize.
The moment an individual hears “Just Do it”, he knows he has to visit a “Nike
Store”. That’s the importance of a tagline.

8.4.1 Types of Advertising

Nothing works better than promoting a brand through signboards, billboards,
hoardings and banners intelligently placed at strategic locations like railway stations,
crowded areas, heavy traffic crossings, bus stands, near cinema halls, residential areas
and so on. Such advertising is also called as out of home advertising.
z Out of home advertising is a way to influence the individuals when they are out of
their homes. The hoarding must be installed at a height visible to all even from a
distance.
z Make sure it catches the attention of the passing individuals and influences them to
visit the store.
z Keep it simple and make sure it doesn’t confuse the customers; instead it should
convey the information in its desired form.
Print media is also one of the most effective ways to promote a brand.
Newspapers, magazines, catalogues, journals make the brand popular amongst the
individuals. Retailers can buy a small space in any of the leading newspapers or
magazines; give their ads for the individuals to read and get influenced.
Television also helps the brand reach a wider audience. Now a days retailers also
use celebrities to endorse their products for that extra zing. Celebrities are shown using
the particular brand and thus making it a hit amongst the masses.
Sachin Tendulkar - the famous Indian cricketer endorses Castrol India, MRF tyres,
Adidas, Boost etc. A child gets influenced to drink Boost because his favourite cricketer
drinks the same.
Radio Advertisements also help in creating brand awareness.
Social networking sites have also emerged as one of the easiest and economical
ways to promote a product or brand.

8.4.2 Media Decisions

Habits of consuming content have changed dramatically. US consumers doubled their
spending on digital newspapers in the past seven years, for example, while halving their
spending on print newspapers. As more consumers abandon print media for digital

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media, marketers follow: 44 percent of them now allocate at least half of their marketing
budgets to digital media, up from only 31 percent in 2009.
Notes
We’re already seeing that direct mail and newspaper circulars are playing a
diminished role in retail marketing. Mass advertising will not disappear overnight, but its
influence is certainly waning. Ads are shifting toward not just digitization but also
personalization, powered by increasingly sophisticated algorithms and predictive
models that analyze transaction data and digital-media trends (for example, what topics
are hot on social networks). Already, 35 percent of what consumers purchase on
Amazon and 75 percent of what they watch on Netflix come from product
recommendations based on such algorithms.
Company-directed marketing is also competing for attention with peer
recommendations through social networks, user reviews, and the like. Our research
shows that for the average consumer, peer recommendations carry ten times more
weight than recommendations from salespeople. Indeed, social media could well make
up 22 percent of marketing budgets in five years as retailers increase their spending to
facilitate and influence peer connections about brands through paid ads and branded
pages on social-media platforms such as Facebook, Ibotta, and Pinterest.

A Distribution Revolution
Amazon already offers same-day delivery in ten cities and guarantees one- to two-day
ground delivery in the continental United States. It is not unreasonable to think that
consumers will expect comparable shipping speeds from all retailers—we expect same-
day delivery to become available soon in at least the top 150 metropolitan statistical
areas, which hold nearly 75 percent of the population. Furthermore, we believe retailers
will offer shipping free of charge to their most loyal and profitable customers, as
opposed to providing it only for those who make minimum purchases. We also expect to
see third-party distribution services evolve and expand. Some companies may make big
investments in distribution infrastructure and sell it as a service to other retailers, as
Amazon and eBay do now. Others are beginning to invest in infrastructure to provide
convenient and secure package-delivery locations: lockers and pickup boxes are
appearing in groceries, convenience stores, and drugstores nationwide, and new
services are sprouting up to let retailers ship packages for pickup at other retail
locations or self-storage facilities.
Consumers have come to expect simple and seamless processes not only for
receiving the products they’ve purchased but also for returning unwanted products.
Free and easy returns—including the ability to return or exchange online purchases in
stores—are becoming table stakes.

New Retail Business Models

No doubt, retail competition just keeps getting tougher. Consider the ongoing blurring of
lines between formats and sectors as retailers try to steal shopping trips and share from
one another (for instance, fresh food is no longer the dominion of supermarkets alone
but is also increasingly found in warehouse clubs, convenience stores, pharmacies, and
even dollar stores). Furthermore, players across the value chain are encroaching on
what used to be the exclusive turf of retailers. More manufacturers are selling directly to
consumers; examples include Apple, Nike, and—via Vitacost.com—several consumer-
product manufacturers. Tech players are also fighting for consumer retail dollars:
Google offers more than one billion products for sale on Google Shopping and may
soon open retail stores. Additionally, companies such as craigslist, eBay, and Etsy
(home to almost a million small businesses) are creating marketplaces where
individuals and entrepreneurs can sell their wares to the masses. Finally, rental and
aftermarket-circulation models, such as Chegg for textbooks or Rent the Runway for
designer fashion, are eating into traditional demand for retail goods.
Competition is coming from near and far as technology makes retailing much more
global than it has ever been. UK online retailer ASOS.com, for example, offers free two-

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day shipping worldwide for a relatively small membership fee, and at times as a
promotional offer to all customers. Until recently, retailers didn’t have to worry much
Notes about global competition until stores started sprouting down the street—nor did they
have an opportunity to access global consumers from North America—but that is
changing as technology helps break down barriers and generates new retail business
models.

8.4.3 Retail Sales Promotion Tools

Retail sales promotion aims to provide a short-term boost to sales. While a
straightforward price cut is one option, sales promotion looks for alternatives that are
more cost-effective - costing less to implement but providing a bigger increase in sales.
The most straightforward forms of sales promotions are different variations on price
reductions. A new magazine launch can be promoted with a low-cost first issue. Money-
off coupons in the press or online can be used to encourage purchases. Sales
promotions such as buy-one-get-one-free (BOGOF) or 20% extra free give the
customer more for their money. Sales promotion can also use more subtle forms of
price discounting, such as offering free financing.
More creative kinds of sales promotion are limited only by your imagination. For
example, you might run some form of competition to draw attention to your product.
Free gifts can work well: the trick is to find a gift that is inexpensive but at the same time
attracts customers. A related form of sales promotion is based on a tie-in with another
product (such as a new movie) or a good cause. Longer-term, loyalty programmes (for
example buy five and get the sixth free) can help retain customers and boost sales.

Personal Selling
Personal selling is the second major promotional strategy and usually involves a face-
to-face communication between the seller and the buyer to “close the sale”. Under the
“push” promotional strategy, the role of the sales force is to encourage intermediaries to
buy the product. Under the “pull” strategy their role is to provide support and after-sales
service to retailers.
The key advantages of personal selling include: a high level of persuasiveness,
opportunities to customize the promotional message, getting immediate feedback, the
possibility of selecting the audience while delivering complex information. The main
disadvantages are relatively high cost per contact (in the form of salaries and sales
incentives paid to sales representatives) as well as the variability of the message
delivered by the sales representatives.

Publicity
Publicity relates to the planned and sustained efforts of a firm to establish and maintain
a favorable public image and generate publicity aimed at a broad public audience
(employees, past and present customers, shareholders, financial institutions, the media,
politicians, the general public, etc.). Publicity is basically a non-personal, unpaid
presentation of a firm, product or service.
Strategies you can use to develop the desired publicity include writing press
releases. Press releases can inform the public about your firm, your products and/or
services, new products, a milestone in your firm’s history, an award you have won or a
special event. Production of promotional brochures and videos, holding consumer
exhibitions, celebrity endorsements and websites are other options to developing
publicity. Other activities that firms typically engage in to generate publicity include: co-
sponsoring local sports, community and charity events, donating prizes or time to local
fund-raisers, offering internships to students in the community, and joining and giving
lectures to local trade organizations or chambers of commerce
The main advantage of publicity is that being an unpaid way of communication it is
one of the most credible information sources, of particular importance for small

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businesses. The downside of publicity is that firms incur expenses and have little or no
control over the outcome.
Notes
Word of Mouth
Word of mouth advertising (WOM) is the unpaid spread of a positive marketing
message from person to person. It can take place directly using the human voice, or
can be transmitted via any communicative means such as through the internet or via
text message. WOM is a powerful promotional tool and should be considered as part of
almost every business marketing strategy.
The least powerful WOM message is neutral – these tend not to travel very far and
are not strong influencing factors.
"Did you know there is a new restaurant in town?"
Positive WOM usually results for a good brand experience and is spread by 'brand
ambassadors'.
"Did you know there's a new restaurant in town? The food and service are great!"
Negative messages are spread by 'saboteurs' or 'detractors'.
"Don't go to that new restaurant – I got food poisoning and had to take two days off
work."

Types of worth of mouth advertising media

The major methods of human to human communication can be summarised as
follows:

Personal
Personal communication is conversation based. It is difficult to ignore and a
powerful influencing tool.

Face to Face personal conversations

Face to face communications remain the most powerful way of transmitting a

message from one person to another. Human conversations involve much more than
simply words – cues such as voice tone and body language also convey information
such as enthusiasm, sadness, emotion and truthfulness.

Voice only conversations

Voice only conversations are a close second. Live voice-based communication

holds the attention of the listener and allows for the transmission of important tonal
cues.

Digital
Digital communication can involve conversations or one way electronic communication.
Although less powerful than personal communications, they allow a message to travel
quickly over long distances.

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Multimedia based digital messages and conversations

Notes

or

Image and audio based messages come third in terms of message strength. If text-
based digital conversation can be supported by images and audio it adds power to the
message. Examples include Facebook, Email, MMS and YouTube.

Text based digital messages and conversations

or

Text only messages are the least powerful, but the easiest to transmit via digital
means. There are countless methods of transmitting a text based messages from one
person to another, including SMS messages, Twitter, text only emails, RSS feeds and
instant messaging services

Viral Advertising

Viral advertising is a method of advertising which relies on digital transmission, but

doesn't necessarily require any first hand brand experience for it to be passed on. The
reason viral advertising is important is because of the potentially massive exposure a
successful viral can provide. Viral ads generally take the form of some impressive video
footage or something 'chat-worthy' which is designed to be passed through the
population via email or a similar tool. Many people tend to send viral ads to a large
group of friends which is why virals can spread quickly and effectively across the world

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8.5 Summary
Retailers communicate with customers both online and offline and interactively and Notes
passively. Direct marketing has received the greatest increase in attention by retailers
and can occur using telemarketing (offline/ interactive), mobile marketing (online/
interactive), direct mail and catalogs (offline/passive), and e-mail (online/passive).
These elements in the communication mix must be coordinated so that customers have
a clear, distinct image of the retailer and are not confused by conflicting information.
Numerous attempts have been made to categorise the elements which contribute to
store image. It is usually recognised as one of the first to consider store image as a
source of competitive differentiation in retailing, identified four core attributes: layout and
architecture; symbols and colour; advertising; and sales personnel. It is often taken as
the starting point in image research. Lindquist identified nine categories (merchandise;
service; clientele; physical facilities; convenience; promotion; store atmosphere;
institutional factors; and post-transactional satisfaction), which were themselves made
up from a range of attributes.
The retailer through various ways of advertising strives hard to promote his brand
amongst the masses for them to visit the store more often.
Advertisements attract the customers into the store. They act as a catalyst in
bringing the customers to the stores.
The advertisement must effectively communicate the right message and click on the
customers. It should be a visual treat and appeal the end-users.
Retail sales promotion aims to provide a short-term boost to sales. While a
straightforward price cut is one option, sales promotion looks for alternatives that are
more cost-effective - costing less to implement but providing a bigger increase in sales.
Personal selling is the second major promotional strategy and usually involves a
face-to-face communication between the seller and the buyer to “close the sale”.
Word of mouth advertising (WOM) is the unpaid spread of a positive marketing
message from person to person.

8.6 Check Your Progress

Multiple Choice Questions
1. ……… advertising is a method of advertising which relies on digital transmission,
but doesn't necessarily require any first hand brand experience for it to be passed
on.
(a) Viral
(b) Personal
(c) Outdoor
(d) Radio
2. ………….. communication is conversation based.
(a) Formal
(b) Informal

(c) Personal
(d) Grapevine
3. The main advantage of publicity is that being an ……… way of communication it is
one of the most credible information sources, of particular importance for small
businesses.
(a) Informal
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(b) Unpaid
(c) Personal
Notes
(d) Formal
4. ……… relates to the planned and sustained efforts of a firm to establish and
maintain a favorable public image
(a) Publicity
(b) Advertising
(c) Word of Mouth
(d) Negotiating
5. Personal selling is the second major ……………. strategy and usually involves a
face-to-face communication between the seller and the buyer to “close the sale”.
(a) Communication
(b) Advertising
(c) Promotional
(d) Selling
6. ………….. is the ability to reach specific target audiences and flexibility to adapt to
changes in the communication setting.
(a) Credibility
(b) Communication
(c) Control
(d) Cost
7. ………. includes considerations about how much of the communication budget is
required to use a particular tool, ratios of cost per contact and the size of investment
required to use the particular communication tool.
(a) Control
(b) Credibility
(c) Communication
(d) Cost
8. …………refers to how the communication tool is perceived by the target audience.
(a) Communication
(b) Cost
(c) Credibility
(d) Control
9. …………….. potential focuses on the ability of the communication tool to deliver a
personal message, its audience reach and the level of interaction offered.
(a) Communication
(b) Cost
(c) Credibility
(d) Control
10. Communication Mix is the range of approaches and expressions of a …………….
idea developed with the hope that it be effective in conveying the ideas to the
diverse population of people who receive it.
(a) Information Technology
(b) Human resource
(c) Financial

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(d) Marketing

8.7 Questions and Exercises Notes

1. Discuss the concept of retail image.
2. Write a short note on classification of the elements of retail communication mix.
3. Describe the role of advertising in retail.
4. What are the different kinds of advertising?
5. Describe the different retail sales promotion tools.

8.8 Key Terms

z Billboard: A large outdoor board for displaying advertisements.
z Hoarding: A large board which is situated in the public place for displaying
advertisements.
z Personal Selling: Personal selling is the second major promotional strategy and
usually involves a face-to-face communication between the seller and the buyer to
“close the sale”.
z Publicity: Publicity relates to the planned and sustained efforts of a firm to
establish and maintain a favorable public image and generate publicity aimed at a
broad public audience (employees, past and present customers, shareholders,
financial institutions, the media, politicians, the general public, etc.).
z Word of Mouth: Word of mouth advertising (WOM) is the unpaid spread of a
positive marketing message from person to person.

Check Your Progress: Answers

1. (a) Viral
2. (c) Personal
3. (b) Unpaid
4. (a) Publicity
5. (c) Promotional
6. (c) Control
7. (d) Cost
8. (c) Credibility
9. (a) Communication
10. (d) Marketing

8.9 Further Readings

z Patrick M. Dunne, Robert F. Lusch &James R. Carver, Retailing 8th Edition, South-
Western, 2014
z Roger Cox & Paul Brittain, Retailing: An Introduction 5th Edition, Pearson Education,
2004
z K V S Madaan, Fundamentals of Retailing, Tata McGraw Hill, 2009
z Manfred Krafft & Murali K. Mantrala, Retailing in the 21st Century: Current and
Future Trends 2nd Edition, Springer, 2010
z Nicholas Alexander & Anne Marie Doherty, International Retailing, Oxford, 2009

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CASE STUDY: WAITROSE

Notes
The Challenge
Waitrose’ communication strategy was to position their stores as the “only place to be this
Christmas”. The idea needed to communicate this and give reasons to shop in Waitrose,
not just during December for the “big Christmas shop”, but right from the start of
November and ultimately increase sales in the run up to Christmas.
The Idea
GNM came up with an idea that would harness the strength of our upmarket, urban
‘foodie’ audience whilst also creating maximum impact and standout. The idea was very
simple; a standalone OFM Christmas issue in association with Waitrose. This provided a
source of reference for our ‘foodie’ audience with tips and ideas that they could use
throughout the festive season and keep Waitrose front of mind.
The Solution
This was a print only campaign that consisted of the standalone OFM Christmas issue in
association with Waitrose. In addition, we ran prepromotional ads in G1 and G2 the week
leading to publication on the 22nd November. These were in the form of fractional ads and
helped to raise awareness and heighten interest of the forthcoming OFM Christmas issue.
The OFM Christmas issue was written and designed by the OFM editorial team; this
added to the weight and influence of the content and enabled us to leverage their
expertise and contacts. It gave Waitrose true association with our leading food brand and
we were able to gain access to high profile chefs like Gordon Ramsey and Giorgio
Locatelli which would add to consumer appeal and talk-ability. Furthermore, a bespoke
advertorial was created to run inside the OFM Christmas issue. This created a platform
through which to showcase a selection of Waitrose’s hero products and enabled us to
promote the Waitrose Christmas recipe book that was available to buy in store. Editorial
also worked closely with Waitrose to create a competition element to the campaign. The
competition appeared on a ¼ page strip as a sign off to the OFM Christmas issue with a
prize to win one of five £100 Waitrose vouchers.
The Results
OFM is positioned as the ‘food lovers’ bible’ and delivered Waitrose the strong upmarket,
urban ‘foodie’ audience they wanted for this campaign. The Christmas issue provided
readers with a ‘keep-able’ magazine that they could refer to throughout the festive season
adding to campaign longevity. Furthermore, the competition received a phenomenal 9,292
entries; this is impressive for a print only campaign and really demonstrates the strength of
the OFM product at delivering the right audience for Waitrose.
Questions
1. What was the idea behind the challenge of harnessing the strength of Waitrose’s
“foodie” market?
2. Comment on the solution implemented by Waitros e and the results that they
achieved. Give your insight as to how Waitrose resolved their dilemma.

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Unit 9: Retail Information System

Notes
Structure
9.1 Introduction
9.2 Data Warehousing and Mining
9.2.1 Types of Data Mining
9.2.2 Electronic Data Interchange
9.3 Improved Supply Chain Management
9.3.1 Quick Response Delivery System
9.3.2 Universal Product Code (UPC)
9.4 Summary
9.5 Check Your Progress
9.6 Questions and Exercises
9.7 Key Terms
9.8 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept of data warehouse and data mining
z Discuss improved supply chain management
z Explain the quick response delivery system and UPC.

9.1 Introduction
Technology in the retailing industry has provided a new dimension. Electronic
transactions have increased the volume of sales in the country. Flexibility in the mode of
payment and cashless transactions has helped in driving sales. Communication assists
in maintaining a competitive advantage in retaining and attracting customers. The
introduction of new technology may be intricate for retailers, but the convenience and
cost effectiveness create the need for new advancements. Large stores need to monitor
inventories and expenses of establishments. With automated machines and high-end
computers making the task simpler, the focus of retailers can stay on retaining
customers with new strategies. Security systems also do help for a safer shopping, for
retailers as well as customers, providing immense mental relief.

Meaning
Retailing in India, however, is still in its infancy and though is no immediate need for
very advanced technological tools in the country, the success of a retailer would
definitely depend, to a large extent, on the adoption of a viable integrated retail-specific
solution. The retail environment in India is changing rapidly and many analysts are
predicting an absolute repeat of performances that have actually taken place in most of
the south eastern Asian countries in recent years. Organized retailing is fast becoming
a reality in India and it is being made possible only with the adoption of the latest
retailing technologies borrowed from the west. Today, organized retailer are working
very closely with their vendors to shorten lead times and thereby reducing inventory
costs. They have established highly elaborate online networks within their stores and
warehouses, which enables them to obtain up-to-the-minute information. Such retailers

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are able to dominate the markets in which they operate primarily because of the large
volumes of sales that they are able to generate. Various Information Systems:
Notes z Merchandising system
z Sales and Marketing system
z Point of Sale system
z Financial Accounting system
z Attendance and Payroll
z Administrative systems
For retailers seeking to expand operations into different channels, one of the most
critical factors in growing and enhancing business operations is establishing a
comprehensive technology framework that supports these developments. According to
industry research, merchants are increasingly turning to retail information systems to
develop multi-channel operations through data consolidation and a unified technological
infrastructure.

9.2 Data Warehousing and Mining

Data Mining
Data mining involves database and data management aspects, data pre-processing,
model and inference considerations, interestingness metrics, complexity considerations,
post-processing of discovered structures, visualisation, and online updating.
In recent years data mining has attracted a great deal of attention in information
industry due to the wide availability of huge amounts of data and the imminent need for
turning such data into useful information and knowledge. The information and
knowledge gained can be used for applications ranging from business management,
production control, and market analysis, to engineering design and science exploration.
Data mining can be viewed as a result of the natural evolution of information
technology. An evolutionary path has been witnessed in the database industry in the
development of the following functionalities:
z Data collection and database creation,
z Data management (including data storage and retrieval, and database transaction
processing), and
z Data analysis and understanding (involving data warehousing and data mining)
For instance, the early development of data collection and database creation
mechanisms served as a prerequisite for later development of effective mechanisms for
data storage and retrieval, and query and transaction processing. With numerous
database systems offering query and transaction processing as common practice, data
analysis and understanding has naturally become the next target.
By performing data mining, interesting knowledge, regularities, or high-level
information can be extracted from databases and viewed or browsed from different
angles. The discovered knowledge can be applied to decision-making, process control,
information management, and query processing. Therefore, data mining is considered
one of the most important frontiers in database and information systems and one of the
most promising interdisciplinary developments in the information technology.
Some people view data mining as simply an essential step in the process of
knowledge discovery. Knowledge discovery as a process and consists of an iterative
sequence of the following steps:
z Data cleaning (to remove noise and inconsistent data)
z Data integration (where multiple data sources may be combined)

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z Data selection (where data relevant to the analysis task are retrieved from the
database)
z Data transformation (where data are transformed or consolidated into forms
Notes
appropriate for mining by performing summary or aggregation operations, for
instance)
z Data mining (an essential process where intelligent methods are applied in order to
extract data patterns)
z Pattern evaluation (to identify the truly interesting patterns representing knowledge
based on some interestingness measures)
z Knowledge presentation (where visualisation and knowledge representation
techniques are used to present the mined knowledge to the user)
The first four steps are different forms of data pre-processing, which are used for
data preparation for mining. After this the data-mining step may interact with the user or
a knowledge base. The interesting patterns are presented to the user and may be
stored as new knowledge in the knowledge base.

9.2.1 Types of Data Mining

On mining over the databases two kinds of patterns can be discovered depending upon
the data mining tasks employed:
z Descriptive data mining tasks that describes the general properties of the existing
data
z Predictive data mining tasks that attempt to do predictions based on inference on
available data.
Various types of data mining are described below:
z Classes
z Stored data is used to locate data in predetermined groups.
z Clusters
z Data items are grouped according to logical relationships or consumer preferences.
z Associations
Data can be mined to identify associations. The beer-diaper example is an example
of associative mining.

Data Warehousing
Data warehouse provides architectures and tools for business executives to
systematically organise, understand and use their data to make strategic decisions. In
the last several years, many firms have spent millions of dollars in building enterprise-
wide data warehouses.
In simple terms, a data warehouse refers to a database that is maintained
separately from an organisation's operational databases. Data warehouse systems
allow for the integration of a variety of application systems. They support information
processing by providing a solid platform of consolidated, historical data for analysis.
According to W.H. Inmon, a leading architect in the construction of data warehouse
systems, "a data warehouse is a subject-oriented, integrated, time-variant, and non-
volatile collection of data in support of management's decision-making process." The
four keywords, subject-oriented, integrated, time-variant, and non-volatile, distinguish
data warehouses from other data repository systems, such as relational database
systems, transaction-processing systems, and file systems. Let us understand the four
key words in detail.
Subject-oriented: A data warehouse focuses on the modelling and analysis of data
for decision makers. Therefore, data warehouses typically provide a simple and concise
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view around particular subject issues by excluding data that are not useful in the
decision support process.
Notes
Integrated: As the data warehouse is usually constructed by integrating multiple
heterogeneous sources, such as relational databases, flat files, and on-line transaction
records, the data cleaning and data integration techniques need to be applied to ensure
consistency in naming conventions, encoding structures, attribute measures, and so on.
Time-variant: Data are stored to provide information from a historical perspective
(e.g., the past 5-10 years). Every key structure in the data warehouse contains, either
implicitly or explicitly, an element of time.
Non-volatile: A data warehouse is always a physically separate store of data
transformed from the application data found in the operational environment. Due to this
separation, a data warehouse does not require transaction processing, recovery and
concurrency control mechanisms. It usually requires only two operations in data
accessing: initial loading of data and access of data.
Many organisations are creating data warehouse for:
z Increasing customer focus, which includes the analysis of customer buying patterns
(such as buying preference, buying time, budget cycles, and appetites for spending)
z Reposition products and managing product portfolios by comparing the
performance of sales by quarter, by year, and by geographic regions, in order to
fine-tune production strategies
z Analysing operations and looking for sources of profit
z Managing the customer relationships, making environmental corrections, and
managing the cost of corporate assets
Data warehousing is very useful from the point of view of heterogeneous database
integration. Many organisations typically collect diverse kinds of data and maintain large
databases from multiple, heterogeneous, autonomous and distributed information
sources.

9.2.2 Electronic Data Interchange (EDI)

For several hundred years, commerce has been based upon the movement of written
documents. These documents contained the information that one company needed to
convey to another company in order to do business. Over a period of time the
documents started to take on standard names such as Invoice, Credit Note and Order.
However, the documents were certainly not of any standard layout. They did not need
to be because the recipient was always a human being and humans have the ability to
read, interpret and rationalise. About all that could be said of an invoice document, for
example, was that it would contain header information about the parties involved, detail
lines about the products, quantities and prices, and finally some totaling information.
In the early 1950s, computers started to be used by large companies for their
accounting and payroll needs. Throughout the following decades, computers rapidly
took over task after task until they were involved not only in accounting, but in
production, administration and all other areas of commerce. But one thing did not
change. The computers still produced printed documents in various non-standard
formats. This situation was not too bad for those sending a document but was much
worse for the receiver. Many documents must be sent from one company’s computer to
their trading partner’s computer. Computers cannot easily read written documents, and
getting them to understand what they have just read is an almost impossible task, so
the receiving company would have to employ personnel to re-key the information from
the received documents into the company’s computer system.

Urgency Issues
The time factor was also a problem. The company sending the document had printed it
in a few seconds. It was placed in an envelope and then posted. The document would
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probably take several days to reach the final destination (always with the possibility of
accidental loss) where the envelope would be removed and the document presented for
keying in to another computer. Notes
For a long time, managers had been thinking how good it would be to have “Just in
Time” production techniques, where a supply lorry would be able to arrive at the
production line gates just in time to be unloaded and its contents taken directly to where
they were needed on the production line. They dreamed of an end to costly
warehousing and stock control. But these methods were impossible while the trading
partners were still using the post. Lorries would be arriving at the wrong times, or not at
all, causing the production lines to stop and chaos to reign, all because of the delay in
the information flow.

Communications
Part of the answer to these problems was computer communications and the need to
make one trading partner’s computer “talk” to another. Communications have been in
existence since the early days of computers. A file can be transmitted from one
computer to another, either over a normal telephone line or over a “Leased Line” that is
continuously in use and dedicated to computer communications. Many commercial
products exist that can move files in this way. Communications did not solve the whole
problem though. Once a file is received it needs to be understood by the receiving
computer. Items of information must be in the exact place that the computer is
expecting them. If just a single character is out of place, the whole file will become
uninterpretable by the computer.
In the early days of communications, trading partners had to spend a great deal of
time agreeing exactly where each item of information would be stored in the files that
were transmitted. These agreements were only active for one trading partner. Start
trading with another partner and the requirements would change slightly, a larger
product code would perhaps be needed, or a different method of pricing, but the whole
negotiation and agreement process had to take place all over again. It kept the
programmers busy but did little for the company profits.

The Move To Standardised EDI

The solution was EDI, Electronic Data Interchange, a standard method of transferring
commercial information between computers.
The Message
EDI (Electronic Data Interchange) files contain information, in one of many possible
formats, pertaining to commercial documents. For example, a paper invoice will always
contain certain information whatever the company or country of origin. It will contain the
originating and receiving company’s information such as addresses, telephone
numbers, contacts, etc. It will then have a section where the items to be invoiced are
laid out in a formatted manner, with prices and quantities, and finally it will have a totals
section. All this information may be contained within an EDI file of a pre-defined format,
so that whoever receives the file will be able to understand it and automatically pass
this information into their own in-house systems, irrespective of the type of computer or
the systems that they are running.
The Standards Bodies
A number of different standards bodies were created to define both methods of
communications and the layout of standard trading documents, so that simple and cost
effective electronic trading could take place. The main document standards with which
we will be concerned are EDIFACT, Tradacoms and ANSI X12, but before going into
detail about the standards themselves, here is a short background to the development
of the UK documents standards bodies.
The earliest development of standards, usually for particular sectors of industry,
was carried out in the late 1970’s under the auspices of the EAN. EAN is the
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International Article Numbering Organisation dealing with EDI standards. It acts as an

umbrella group for the various national Numbering Organisations.
Notes
In 1998, as a result of the merger of the Article Number Association UK (ANA) and
the Electronic Commerce Association, the e-centre was launched as the EAN
Numbering Organisation for the UK.
More recently, in February 2005, the e-centre has become GS1 UK. This is in line
with the global re-launch of EAN International as GS1. The first UK message standards
were published by the ANA in 1982, having been tested and developed since 1979.
Over 90% of all UK trade EDI takes place using standards from the ANA, whose
members include representatives from manufacturing, distribution, wholesaling, service
and retail organisations.

9.3 Improved Supply Chain Management

The last several years have been challenging for companies across the manufacturing,
retail and consumer goods industries. But despite relentless and continuing cost
pressures, companies in these sectors are now shifting focus to innovations that fuel
revenue growth and maintain, if not extend, hard-earned productivity gains. To do this,
these companies need to revisit and reformulate their supply chain strategies. This
starts with understanding various technological developments and market trends,
including:
z The challenges of meeting the instant gratification needs of digital natives and those
with millennial-generation mindsets.
z The rise of mobile and social technologies, and their effect on everything from
demand planning to research and development practices.
z Shrinking product lifecycles, which are placing more pressure on supply chains to
deliver next-generation products more quickly.
z The need to address the risks inherent in supply chain globalization, such as
compliance exposure and variable logistics costs.
z Shifting supply chains and organizational effects of multi-channel commerce.
z The move from traditional on-premises computer systems to those that reside in the
cloud, enabling cost savings and operational flexibility improvements.
Technology is fundamentally changing the supply chain equation. Virtual platforms are
enabling real-time collaboration between team members, regardless of time or place.
The emerging SMAC stack, consisting of social, mobile, analytic and cloud capabilities,
is reshaping the organizational computing model and transforming marketplaces and
supply sources.
Adoption of this new technology model is enabling manufacturers and retailers to
create more adaptive supply chains that rapidly adjust to changing requirements based
on real-time demand signals generated by conventional systems of record, as well as
non-traditional sources, such as social media. To begin with, companies are infusing
their new product development and field service processes with near real-time
information collected from customers and prospects.
A truly adaptive supply chain requires a shift in approach. For most organizations,
this means:
Rethinking supply chain strategies to accommodate new and varied market
forces to grow revenues.
Reinventing supply chain operations to achieve or retain optimal cost efficiency
and create new business capabilities.
Rewiring supply chain systems to leverage technological advancements that help
organizations deal with ever-changing market dynamics — reflected by spikes in
volume and information variety — while boosting productivity.

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Forces Driving Change
As is true in virtually every industry the world over, companies in the manufacturing and Notes
retail industries are at a crossroads: They need to simultaneously grow revenues,
reduce costs and boost productivity to be competitive. These imperatives have
seesawed over the past decade due to ever-changing market and technology forces,
forcing companies to adjust their supply chain strategies on the fly. For example, cost-
cutting was the order of the day amid the global recession, whereas today, as the
economy slowly rebounds, growth and productivity are paramount.
Our clients in these sectors tell us their supply chain strategies are changing — and
need further refinement — given the technological and market developments detailed
above.
Several related technological developments and demographic shifts are now
playing out that will directly affect supply chain strategies for the foreseeable future:
The preferences of the millennial generation are affecting supply chain speed,
as most consumers seek instant gratification. Today’s connected shoppers routinely
access more product information than ever prior to purchasing, including product and
price comparisons. Millennials (and older consumers who have adopted this mindset)
demand that their chosen products meet a high level of design, along with ease of use,
reliability and timely fulfillment.
The nexus of mobile and social technologies — the heart of the SMAC stack —
enables consumers to make educated purchase decisions and compare almost
anything immediately, while studying peers’ purchases. Manufacturers are working hard
to leverage these technologies to optimize consumer interaction — often for the first
time — while retailers often use these tools to deepen customer relationships.
Meanwhile, the other two components of the SMAC stack, analytics and
cloud, are fundamentally changing the organizational computing model. The explosion
in information increases the potential to mine transactional and interactional data with
emerging analytics tools and services to create actionable insights and foresights. And
the slow but steady embrace of cloud computing is enabling much greater operational
flexibility and cost savings. The ubiquitous availability of remote connectivity is
dramatically transforming supply chain delivery mechanisms and enabling suppliers to
utilize persistent connectivity to discern more visible demand signals and make
collaborative decisions. This can result in accelerated service levels, improved
productivity and reduced cycle time, and therefore costs, across the value chain. But
the loss of direct control over IT assets required by cloud creates new risks, which must
be addressed.
Social and mobile networking have affected consumer expectations, helping
to shrink product lifecycles, especially in areas like high tech. This places enormous
demand on supply chains, which already operate at maximum speed and efficiency.
Being first to market with a ground-breaking product yields untold advantage (though it
may be fleeting). The challenge is to identify where the next speed and innovation
breakthroughs will lie, and to create a supply chain strategy that facilitates their
discovery.
The globalization and componentization of the supply chain — rapidly accel-
erating through the last decade — is a maturing essential practice in manufacturing and
retail. But while globalization is accelerating, sourcing from disparate locations overseas
introduces an array of implications, such as greater need for visibility, the need to align
and synchronize supply lines, the potential for quality issues, issues associated with
regulatory compliance and managing the risk of variable logistics costs.
New consumers, the proliferation of tailored products to micro-market
segments and the ensuing complexity of managing so many SKUs simul-
taneously has led to significant pressure on the supply chain. Even the process for
bringing new products to market is undergoing significant change as companies of all

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types seek to use social feedback and trending data to more closely match customer
preferences with the next generation of products.
Notes
Manufacturers are feeding R&D processes with real-time launch, delivery,
service, repair and quality data from the field, reducing the chance of flaws propagating
forward.
Manufacturers are leveraging online sentiment analysis tools to generate
early warnings, potentially preventing human injury and loss of brand reputation while
ensuring greater quality. For example, a car manufacturer might use analytics based on
social media data for scoring or detecting early warning issues associated with
dissatisfaction with a particular car model or model year. By now, everyone is familiar
with the sticky accelerator pedal that cost a manufacturer as much as $1 billion in
recalls, as well as lawsuits. To head off a future problem of this magnitude, a carmaker
could use social media analytics and sentiment analysis to surface the potential issue,
check it against defects that have generated warranty claims for the affected model and
use social media to send warnings to affected customers in advance of a formal recall.
Demand-planning processes are changing as companies gain insights from
analyzing social and Web data and pull forward more precise demand signals related to
trending patterns in near real time.

Creating an Adaptive Supply Chain

New technologies promise to transform marketplaces and supply sources while
enabling an adaptive supply chain, one that is flexible and resilient enough to recognize
and assimilate new forms of unstructured data.

Rethinking Supply Chain Strategy to Grow Revenues

Revenue growth is a top priority on corporate agendas today. Companies are grappling
with challenges such as learning how to enter new markets and attract new customers,
identifying which new channels to tap in each segment and geography, and determining
how to penetrate deeper and wider into the existing customer bases. Retailers are
experimenting with novel store formats and fostering new, more intimate relationships
with consumers.
Additionally, manufacturers — in particular, consumer packaged goods companies
— are interacting with consumers and discovering new prospects via mobile apps and
social media. Identifying the most profitable approach and determining the most
loyal/productive customers and the most advantageous products are important supply
chain-related tasks.
For example, one of the most visible and successful retailers in recent years,
Amazon, has captured and now owns the relationship with an enormous portion of the
global online consumer market. Amazon, an early adopter of SMAC tools and
techniques, has achieved dominance by virtue of its versatile and super-efficient supply
chain, which combines features such as breadth of offering, quick fulfillment and
immediate feedback on order status. All three are fundamental elements of a modern
integrated retail supply chain.
Amazon announced last August that it now ships more orders via its two-day
Amazon Prime service than with its free Super Saver shipping.1 This offering would not
be possible without a virtuoso supply chain. Most companies will not be able to replicate
Amazon’s staggering success, but the giant e-tailer is a role model to emulate in its
advanced distribution capabilities and warehouse management practices, as well as its
innovative delivery models.
Retailers such as Amazon are raising the bar when it comes to speed of delivery,
and other companies must take advantage of the opportunities here. We are helping
our clients develop similar programs, including two-day delivery anywhere in the country
for a drug retailer, flexible fulfillment for a home improvement retailer and “ship from

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Retail Information System 131
store” and/or “pick up today from store” capabilities for a large retailer. Enabling these
programs involves creating a single centralized view of inventory, establishing global
available-to-promise capabilities, creating shipping capabilities from the store and Notes
constructing an efficient distributed order management capability.
In our experience, retailers that want to achieve breakthrough improvements have
had to redesign some of their core warehouse processes, optimize store backroom
processes and modernize their IT infrastructures in order management, warehouse
management and transportation management. Most importantly, along with these
process and IT changes, retailers need strong change management initiatives to ensure
a successful transformation for these new approaches to fulfillment.
Beyond new fulfillment and retail models, many manufacturers are leveraging social
media to pioneer a new relationship — and revenue source — with their end customers.
(See sidebar, next page, illustrating our partnership with a tile manufacturer to engage
with consumers by leveraging social media.)

Reinventing Operations to Reduce Costs

Retailers are among the most skillful cost-cutters in business today and the most adept
at making quick changes to their operations to save money. Unlike many other types of
companies, retailers have not had the recent luxury of operating “fat and happy.”
Competition is always fierce, and in recent times, “everyday low price” has been the
message to consumers, an expectation that has grown in global proportions.
Maintaining maximum cost efficiency is now a strategic imperative, as failure to keep
prices at rock-bottom levels can threaten a retailer’s longevity.
Manufacturers, meanwhile, are equally adept at cost-cutting, although they tra-
ditionally have not been as flexible as retailers and have not had as many levers to pull.
A retailer may close a store or lay off employees to weather a temporary financial pinch,
but manufacturers must dig deeper to squeeze ever more waste (and, therefore, cost)
out of production lines and prices from suppliers that are already supremely efficient.
The struggle for both types of companies is to continue to maintain the lowest possible
cost structures, while simultaneously finding ways to innovate and grow revenue.
Companies that survived the global recession are now concentrating on novel ways
to expand cost-reduction initiatives, using methods such as continuously revisiting
sourcing strategies for new, lower cost supply sources.

Rewire Supply Chain Systems to Improve Productivity

Automation of any supply chain task is likely to produce a faster process and enhanced
productivity, along with the ability to scale. This is another area in which manufacturers
and their suppliers shine. Years of continuous process optimization have paid off. U.S.
manufacturing output in 2010 was 16% higher than a decade earlier, despite the impact
of the recession.
To take this to the next level, supply chain systems across industries are going
through some fundamental changes. They need to accommodate the “3Vs”: volume,
velocity and variety. Specifically, they need to:
z Manage significantly higher amounts of market/consumer information (volume).
z Adapt to an increased pace of business (velocity).
z Manage a greater breadth of information sources (variety).
Here are a few examples of how companies use modern supply chain systems:
z Leveraging consumption, point-of-sale and demand signal data repositories to
improve planning.
z Leveraging multi-echelon inventory solutions to set inventory targets more
dynamically.
z Leveraging new automation technology to reduce handling costs.

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132 Fundamentals of Retailing

z Utilizing new track-and-trace technology to reduce transportation costs.

z Replacing costly legacy technology applications with more efficient systems.
Notes
z Adopting cloud-based applications to reduce operating costs by shifting spend from
Cap-Ex to Op-Ex budgets.

9.3.1 Quick Response Delivery System

On a rack in the ladies' lingerie department at Strawbridge & Clothier's Center City
department store hangs 0-83621-09998-1.The store's computers know those numbers
translate to: "Pink ladies nightgown, size extra large, manufactured by Vanity Fair." But
those digits also form the foundation of a new, computer-driven business strategy that
retailers and manufacturers say will transform the delivery of consumer goods.

"There's no question that what we are doing is not just evolutionary, it's
revolutionary," said Lynn Hazlett, vice president business systems for VF Corp., the
Wyomissing, Pa., apparel manufacturer and parent of Vanity Fair.
The system, known as Quick Response, is modeled after the Japanese "just-in-
time" inventory-management systems that have increased productivity in other
American industries, particularly auto-making.
For consumers, the new retail technology aims to keep stores fully stocked so a
shopper can find not only the most popular styles or models of an item, but also the
right size and color.
For retailers, the system potentially could boost sales by keeping shelves fully
stocked, while cutting the cost of carrying excess inventory.
For U.S. manufacturers, and the suppliers who feed them, the system would speed
delivery of goods to retailers. With the new technology, manufacturers could hasten the
shipment of fast-selling merchandise to stores before they run out. And, domestic
manufacturers might gain an edge against overseas manufacturers that often outbid
them with lower labor rates but still face months-long delays in shipping to the United
States.
In the future, instant computer data about what styles or colors are selling could
help manufacturers break into production lines and custom-tailor merchandise to
consumer demand.
"Quick Response allows retailers and manufacturers to highly target the real needs
of consumers instead of just guessing, the way they have for millenniums. Right now is
the first time that humankind has ventured to look at that process and make it a
quantum leap better," said Mark Frantz, a spokesman for Kurt Salmon Associates, an
Atlanta accounting firm that has studied Quick Response systems.
For generations, much of the retail delivery system centered on seasonal purchases
in which store buyers would select merchandise as much as a year or 18 months before
it was to be sold. If they guessed right, manufacturers often were not prepared to
produce as much as consumers wanted, and stores lost potential sales. If the buyer
made the wrong choice, the store could be stuck with out-of-date merchandise that it
would try to sell at deep markdowns.
With the new computer systems, stores and manufacturers hope to remove a lot of
the guesswork.
In short, Quick Response works like this:
If a customer buys that pink nightgown at Strawbridge & Clothier, a computer bar
code on the tag is read by a scanner at the cash register indicating what exactly was
sold. That information then flows into a database at the store, where buyers have preset
with the manufacturer how much of that item they will buy.

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From there, the computers at Vanity Fair can monitor how sales -- down to color
and size — are going. The manufacturer can then VTC speed shipments, or hold off,
depending on how the nightgown is selling. Notes
That can speed the replenishment of store shelves by days or weeks, saving
retailers inventory-handling costs and allowing manufacturers to plan more efficient use
of their factories. The manufacturer and the store can also adjust the preset inventory
levels for customer demand.
Studies indicate that about 30 percent of the time that shoppers set out to buy an
item, they leave a store empty-handed because the store did not have the right item, or
the right color and size in stock, Mr. Frantz said.
For 100 large retailers and manufacturers using Quick Response systems, overall
sales increased 15 percent last year, compared with general retail sales, which were
flat, he said.

9.3.2 Universal Product Code (UPC)

An American format, used for article numbering, is that of the universal product code
(UPC). One version of the UPC is:
Sxxxxx xxxxxC
| | | +----------- (check digit)
| | +---------------- (product number)
| +------------------------ (manufacturer number)
+---------------------------- (number-system character).
The manufacturer and product numbers occupy respectively the left and right
halves of the symbol. The numbers are also printed underneath the symbol.
The number-system character identifies the symbol version and also the type of
article. The check digit is used to detect errors. The check digit and number-system
character are not printed underneath the symbol.
The Universal Product Code (UPC) has been successfully employed in the
supermarket industry since 1973. UPC is a coding system as well as a symbology; it is
designed to uniquely identify a product and its manufacturer.
UPC is a fixed length, numeric, continuous symbology employing four element
widths. Two common types of UPC are Version A, which encodes 12 digits, and
Version E, which encodes 6 digits. Figure: UPC Version A Symbol Encoding The Data
"012345678905" illustrates the data arrangement in a Version A symbol.

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134 Fundamentals of Retailing

UPC Version A

Notes A typical UPC Version A symbol consists of two halves representing a total of 12
numeric digits. The two six-digit halves are surrounded by left, centre and right guard
patterns. The various guard bars can be thought of as start/stop patterns. The left half
uses the odd parity encodations of digits, and the right half uses the even parity
encodations of digits. The first numeric digit identifies the UPC number system digit
being used:
z 0: regular UPC codes
z 1: reserved
z 2: random weight items marked at the store
z 3: National Drug Code and National Health Related Items code
z 4: no format restrictions, for in-store use on non-food items
z 5: for use on coupons
z 6: reserved
z 7: regular UPC codes
z 8: reserved
z 9: reserved
The next group of 5 digits identifies the manufacturer (the manufacturer’s code).
This number is assigned by the Uniform Code Council (UCC). The first five digits of the
right half of the pattern are the product code digits and are assigned by the
manufacturer, and the final digit is a Modulo 10 checksum check digit used for error
detection. The check digit whose value is evaluated mathematically based on all of the
other numbers encoded in the symbol. A weighting scheme is used in its calculation, so
that the check digit also protects against transposition errors if the data is manually
entered. Although UPC is a continuous symbology the left and right halves of the
pattern can be independently decoded.

9.4 Summary
Retailing in India, however, is still in its infancy and though is no immediate need for
very advanced technological tools in the country, the success of a retailer would
definitely depend, to a large extent, on the adoption of a viable integrated retail-specific
solution. The retail environment in India is changing rapidly and many analysts are
predicting an absolute repeat of performances that have actually taken place in most of
the south eastern Asian countries in recent years. Organized retailing is fast becoming
a reality in India and it is being made possible only with the adoption of the latest
retailing technologies borrowed from the west.
Data mining involves database and data management aspects, data pre-
processing, model and inference considerations, interestingness metrics, complexity
considerations, post-processing of discovered structures, visualisation, and online
updating.
Data warehouse provides architectures and tools for business executives to
systematically organise, understand and use their data to make strategic decisions. In
the last several years, many firms have spent millions of dollars in building enterprise-
wide data warehouses.
In simple terms, a data warehouse refers to a database that is maintained
separately from an organisation's operational databases. Data warehouse systems
allow for the integration of a variety of application systems. They support information
processing by providing a solid platform of consolidated, historical data for analysis.
Technology is fundamentally changing the supply chain equation. Virtual platforms are
enabling real-time collaboration between team members, regardless of time or place.
The emerging SMAC stack, consisting of social, mobile, analytic and cloud capabilities,
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Retail Information System 135
is reshaping the organizational computing model and transforming marketplaces and
supply sources.
Notes
The Universal Product Code (UPC) has been successfully employed in the
supermarket industry since 1973. UPC is a coding system as well as a symbology; it is
designed to uniquely identify a product and its manufacturer.

9.5 Check Your Progress

Multiple Choice Questions
1. Data ……. involves database and data management aspects, data pre-processing,
model and inference considerations, interestingness metrics, complexity
considerations, post-processing of discovered structures, visualisation, and online
updating.
(a) Mining
(b) Warehousing
(c) Integration
(d) Support
2. Data mining can be viewed as a result of the natural evolution of ……………….
technology.
(a) Progressive
(b) Transformative
(c) Information
(d) Space
3. Data ………….. provides architectures and tools for business executives to
systematically organise, understand and use their data to make strategic decisions.
(a) System
(b) Warehouse
(c) Storage
(d) Production
4. EDI (Electronic Data Interchange) files contain information, in one of many possible
formats, pertaining to …………….. documents.
(a) Commercial
(b) Legal
(c) Domestic
(d) Personal
5. ……………. has captured and now owns an enormous portion of the global online
consumer market.
(a) Fed Ex
(b) Flipkart
(c) Amazon
(d) Alibaba
6. ……………… are among the most skillful cost-cutters in business today and the
most adept at making quick changes to their operations to save money.
(a) Middlemen
(b) Manufacturers
(c) Retailers
(d) Wholesalers

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7. U.S. manufacturing output in ……… was 16% higher than a decade earlier, despite
the impact of the recession.
Notes (a) 2014
(b) 2012
(c) 2008
(d) 2010
8. The Universal Product Code (UPC) has been successfully employed in the
supermarket industry since …....
(a) 1970
(b) 1975
(c) 1973
(d) None of the above
9. ………….. of any supply chain task is likely to produce a faster process and
enhanced productivity, along with the ability to scale.
(a) Automation
(b) Manual
(c) Computerisation
(d) Delegation
10. ……….-planning processes are changing as companies gain insights from
analyzing social and Web data and pull forward more precise demand signals
related to trending patterns in near real time.
(a) Future
(b) Price
(c) Supply
(d) Demand

9.6 Questions and Exercises

1. What is data mining? Describe the knowledge delivery process.
2. What are the different types of data mining?
3. What is data warehousing?
4. Write a short note about electronic data interchange.
5. Describe the effect of supply chain management in improving the retail industry.

9.7 Key Terms

z Data Mining: Data Mining is an analytic process designed to explore data (usually
large amounts of data - typically business or market related - also known as "big
data") in search of consistent patterns and/or systematic relationships between
variables, and then to validate the findings by applying the detected patterns
z Data Warehousing: Data warehouse provides architectures and tools for business
executives to systematically organise, understand and use their data to make
strategic decisions. In the last several years, many firms have spent millions of
dollars in building enterprise-wide data warehouses.
z Electronic Data Interchange (EDI): Electronic Data Interchange (EDI) is the
computer-to-computer exchange of business documents in a standard electronic
format between business partners.
z Quick Response Delivery System: It is a companywide strategy to cut lead times
in all phases of manufacturing and office operations.

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z Universal Product Code: The Universal Product Code (UPC) is a barcode
symbology (i.e., a specific type of barcode) that is widely used in the United States,
Canada, the United Kingdom, Australia, New Zealand, and in other countries for Notes
tracking trade items in stores.

Check Your Progress: Answers

1. (a) Mining
2. (c) Information
3. (b) Warehouse
4. (a) Commercial
5. (c) Amazon
6. (c) Retailers
7. (d) 2010
8. (c) 1973
9. (a) Automation
10. (d) Demand

9.8 Further Readings

z Patrick M. Dunne, Robert F. Lusch &James R. Carver, Retailing 8th Edition, South-
Western, 2014
z Roger Cox & Paul Brittain, Retailing: An Introduction 5th Edition, Pearson Education,
2004
z K V S Madaan, Fundamentals of Retailing, Tata McGraw Hill, 2009
z Manfred Krafft & Murali K. Mantrala, Retailing in the 21st Century: Current and
Future Trends 2nd Edition, Springer, 2010
z Nicholas Alexander & Anne Marie Doherty, International Retailing, Oxford, 2009

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CASE STUDY: DATA MINING APPLICATION FOR A FASHION RETAILER

Notes
The Client
A Central London fashion retailer has three locations within 3 miles of each other. They
sell high end fashion goods to wealthy, discerning clients.
The Challenges
Their point of sale (POS) system gave them a lot of information but they were unable to
easily consolidate the information and get a companywide picture of their business. So
they turned to BIRetail to help them consolidate information to facilitate effective decision
making.
The Solution
BIRetail solution was deployed with a robust Extract-Transform-Load (ETL) interface,
scheduled to auto-run post-midnight every day, which uploads the MS Access databases
containing POS transactional data from each store. Subsequently, the data was loaded
into a centralized data warehouse. Stock valuation calculation and profit per transaction
calculation algorithms were implemented. A demand-supply based Pricing Control
mechanism was devised to prompt for dynamic price changes. An end-to-end solution
provided for Price Change, including update of new prices to each store level
electronically. An inter-store Stock Leveling algorithm was implemented, to evenly
distribute stocks across stores, based on historic sales patterns. Incisive Information
reports were designed to provide executive level decision making, relating to Inventory
management, Store performances, Sales and Purchase Patterns.
Benefit
After a successful implementation of BIRetail, they were able to get a 360 degree view of
all their branches on demand.
With ZERO human intervention, the End-of-Day routine enabled assimilation of all Store
Data into a centralized data warehouse.
Within a year of implementing BIRetail, they had opened another branch. They then
switched POS suppliers (as their old supplier could not provide chip-and-pin functionality)
but retained BIRetail.
The head office staff and management hardly realised that the POS system had been
changed as the transition from the old to the new POS was handled flawlessly by BIRetail.
There was no new learning involved and all their historic data was retained.
Questions
1. What were the challenges faced by the fashioner retailer BIRetailer?
2. Explain the solution implemented by BIRetail and the benefits accrued by them in
comprehensive detail.

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Unit 10: Contemporary Issues: FDI in Retail

Notes
Structure
10.1 Introduction
10.2 Point of Sale
10.3 Radio Frequency Identification
10.4 Self-Checkout Systems
10.5 Contemporary Issues: FDI in Retailing
10.6 Impact of Organised Retailing on Small Grocery Stores
10.7 Summary
10.8 Check Your Progress
10.9 Questions and Exercises
10.10 Key Terms
10.11 Further Readings

Objectives
After studying this unit, you should be able to:
z Understand the concept and point of sale and RFID.
z Discuss the contemporary issues of FDI in retailing.
z Explain the impact of organised retailing on small grocery stores.

9.1 Introduction
A store layout is the design in which a store's interior is set up. Store layout is well
thought out to provide the best exposure possible. It is designed to create an attractive
image for consumers. It describes the overall look and feel of the interior of a retail
store, including the placement of fixtures and products within the store. It is an important
part of implementing retail store strategy. Effective layouts are designed to expose
customers to the most products possible given the amount of floor space available.
A well-planned retail store layout allows a retailer to maximize the sales for each
square foot of the allocated selling space within the store. Store layouts generally show
the size and location of each department, any permanent structures, fixture locations
and customer traffic patterns. Each floor plan and store layout will depend on the type of
products sold, the building location and how much the business can afford to put into
the overall store design.

10.2 Point of Sale

Not too long ago, many theorized that the Internet would eclipse brick-and-mortar
stores. Yet while the Internet has certainly had a tremendous impact on retail, fifteen
years after the dot.com craze the brick-and-mortar stores are still in place. In fact, the
Internet has proved to be a great extension to brick-and-mortar stores. Most large
retailers have embraced the Internet with multichannel sales strategies, including e-
commerce, online advertising and online product information, specifications and
comparisons.
Meanwhile, brick-and-mortar retailing has continued to evolve with customer-centric
promotions at the point of sale (POS), digital signage, loyalty- and registry-based

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kiosks, self-checkout and “save-the-sale” inventory look-up at the POS. Despite the
huge growth of Internet retailing, today’s brick-and-mortar stores process 95 percent of
Notes retail sales transactions, and almost all of those transactions are conducted through a
traditional POS terminal.
While we expect mobile POS to bring value in many circumstances, there are
important aspects to a traditional POS at a wrap stand or checkout that cannot be
matched by mobile POS.

Speed and Efficiency

The issue of speed at checkout manifests itself differently in the various retail segments,
but the need for speed and efficiency is universal. In the case of a department store or
specialty apparel store, the principal efficiency may come from the wrap stand, having
an area to hang and fold clothes or for the customer to set down her purse and find her
wallet. Imagine the poor associate in the middle of the sales floor, trying to fold and
®
organize clothes, accept tender, and hold onto and use an iPad mobile digital device!
When the store associate and the customer finalize the transaction while standing
in the middle of the store, there would be no place for bagging merchandise or
removing security tags (like Check Point or Sensormatic). In industry segments with a
large number of items per transaction, such as a grocery or mass merchandise, there
would be no place for consumers to put items during the checkout process.
For stores with high-throughput, front-end checkout, there is no substitute for a full-
size terminal, with a full-size keyboard, full-size display, and a high-performance
scanner.

Human Factors
For employees who ring transactions for a large portion of their workday, the mobile
device cannot be the principal POS device. A full-size POS is designed to optimize
usability in a retail environment; a mobile device is not.

Limited Functionality
Mobile POS devices cannot handle all tender types— there are obvious problems with
cash and checks and, with most mobile devices, Electronic Benefits Transfer (EBT)
tenders are not possible. There is no printed receipt with a mobile POS, unless the
customer walks to the traditional POS or requests an email receipt. Hardened portable
retail devices do have provision for a printer worn on the associate’s belt; however, this
is usually a heavy item, which could be problematic for some associates.
If signature capture technology is offered, it tends to be awkward, as the sales
associate has to hold the device while the customer holds her purse, shopping bags,
and children, while signing her name on a small device resting in a complete stranger’s
hand.

Reliability
While mobile devices and wireless networks have come a long way, the mobile POS
device will never match the reliability of the traditional POS. Constantly keeping the
batteries charged in mobile devices is a big reliability issue. The batteries in wireless
devices last from four to eight hours and must be charged daily. With most devices this
is not difficult in theory, but in practice, store associates tend to not keep the devices
charged.
In certain environments, wireless networks introduce additional reliability
challenges. Older buildings with thick walls tend to have dead zones, as do retail
environments with strong electrical fields or a high density of radio frequency noise. At
the very least, the POS software provider must have software designed to recover from
network fluctuations in the middle of a transaction.

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Physical damage is a significant issue with mobile devices. While most retail-
hardened mobile devices are quite rugged, consumer-grade devices are not. Mobile
tablets are not retail hardened (even with a case), and when they are dropped, they are Notes
likely to break. Even the retail-hardened devices will be challenged to perform reliably
after the greatly increased number of drops that will inevitably occur when they are used
for POS.
Features to consider in a POS system include the following:
z Ease of use: Look for software with a user-friendly graphical interface.
z Entry of sales information: Most systems allow you to enter inventory codes
either manually or automatically via a bar-code scanner. Once the inventory code is
entered, the systems call up the standard or sales price, compute the price at
multiple quantities and provide a running total. Many systems make it easy to enter
sales manually when needed by letting you search for inventory codes based on a
partial merchandise number, description, manufacturing code or vendor.
z Pricing: POS systems generally offer a variety of ways to keep track of pricing,
including add-on amounts, percentage of cost, margin percentage and custom
formulas. For example, if you provide volume discounts, you can set up multiple
prices for each item.
z Updating product information: Once a sale is entered, these systems
automatically update inventory and accounts receivable records.
z Sales tracking options: Different businesses get paid in different ways. For
example, repair or service shops often keep invoices open until the work is
completed, so they need a system that allows them to put sales on hold. If you sell
expensive goods and allow installment purchases, you might appreciate a loan
calculator that tabulates monthly payments. And if you offer rent-to-own items, you'll
want a system that can handle rentals as well as sales.
z Security: In retail, it's important to keep tight control over cash receipts to prevent
theft. Most of these systems provide audit trails so you can trace any problems.
z Taxes: Many POS systems can support numerous tax rates-useful if you run a mail
order business and need to deal with taxes for more than one state.
Perhaps the most valuable way POS systems help you gain better control of your
business is through their reporting features. You can slice and dice sales data in a
variety of ways to determine what products are selling best at what time, and to figure
out everything from the optimal ways to arrange shelves and displays to what
promotions are working best and when to change seasonal promotions.
Reporting capabilities available in POS programs include sales, costs, and profits
by individual inventory items, by salesperson, or by category for the day, month and
year to date. Special reports can include sales for each hour of the day for any time
period. You can also create multiple formats for invoices, accounting statements and
price tags. Additional reports include day-end cash reconciliation work sheets and
inventory management. Examine a variety of POS packages to see which comes
closest to meeting your needs.
Every business is unique; you may find that none of the off-the-shelf systems meets
your requirements. Industry-specific POS packages are available--for auto repair shops,
beauty and nail salons, video rental stores, dry cleaners and more. In addition, some
POS system manufacturers will tailor their software to your needs.

10.3 Radio Frequency Identification (RFID)

One technology that will increase a firm’ supply chain visibility is radio-frequency
identification (RFID). RFID is a wireless technology that identifies objects without having
either contact or sight of them. RFID is basically a chip bearing a unique serial number
affixed to, for example, a container, a pallet. The reader receives a signal from RFID tag
carrying the item’s serial number, which logs the item’s location and time in an online

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database, creating a detailed history of each item’s movement. The data obtained from
RFID could be fed directly into ERP system, allowing company to track and operate on
Notes a real time basis. The tag of RFID can be active, passive, or semi-passive. Active tag
broadcasts information and require a power source, while passive tag just responds to
queries without power source. SAP and PeopleSoft (now Oracle) had made a
significant investment to modify their existing system software for RFID to prepare
applications for collecting more data more frequently.
Firms are expecting RFID to bring improvements on inventory status, tracking and
management of assets, and responsiveness and customer service. The technology is
deemed to be so important that some large retailers require their vendors to employ
RFID. In 2003, chain store giant, Wal-Mart, decreed that its 100 leading suppliers
should all be RFID equipped by January 2005. It was reported that United Parcel
Service (UPS) is under the gun to begin tagging cases and pallets with RFID labels to
comply with mandates from Wal-Mart, Target, Albertsons, Best Buy, and other retailers.
The number of firms that are using the technology is also increasing. Aberdeen survey
revealed that 5% of the companies – primarily in the consumer goods sector – planned
to deploy RFID by June, 11% within 6 months, 34% within 12 months, and 39% within 2
years (Violino 2004). RFID has also been adopted in the apparel industry. Jones
Apparel Group is pioneering a program to assess the benefits of applying passive RFID
technology. It was also said that an integrated logistics information management system
case study among supply chain players. They found that by integrating RFID and IT
companies can significantly improve their logistics functions performance. They showed
that companies can reduce their average inventory by 27%, out-of-stock frequency by
68%, and average delivery time by 32%.
The impacts of RFID implementation are felt even more in the situations where the
inventory is sensitive to shrinkage. They found that break even prices of the RFID
implementation are highly related to item’s value, shrinkage percentage, and remaining
shrinkage. With the implementation of RFID technology, the visibility and velocity of a
supply chain can be dramatically improved; furthermore, with the combination of RFID
and POS data, the true demand information can be determined since the retailer can
estimate the lost sale.

10.4 Self-Checkout System

In the middle of the 20th century, a quantum shift took place in the way consumers
bought a certain item. Prior to that time, if you wanted gasoline for your car, you pulled
up to a service station and waited while an attendant came out and filled the tank for
you. Self-service at the gas station changed all that, and today the full-service gasoline
lane is almost an anachronism. Something similar happened in retail a little over ten
years ago, when self-checkout units started popping up in grocery stores. At first, they
were greeted with suspicion; people thought, “They want me to do that? I thought they
were supposed to do the scanning and bagging.” But today, self-checkout is a beloved
facet of retail, and is the first choice for a growing number of users. For the most part,
adoption has been the highest at supermarkets and big-box retail stores, but an
evolving number of technologies and innovative designs means that in the next few
years, it will be possible for self-checkout’s benefits to be applied at virtually every type
of customer facing business.

How it Works
On the surface, the self-checkout concept is simple: Take the final portion of the
shopping experience (the transaction) and have the customer perform those steps
rather than an employee. Beyond that basic concept, there are a significant number of
ways to approach the idea both strategically and tactically Paul Denimarck, who
handles strategic marketing for the self-checkout division at Honeywell Scanning and
Mobility, a data collection and wireless communications solutions company, says all
self-checkout platforms can be divided into one of two types: stationary and portable.
“Stationary self-checkout platforms are located at the front of a store,” he said. “A

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customer using a stationary self-checkout platform brings their merchandise to the lane,
identifies the items they are purchasing with the scanner and tenders payment at the
same location. Portable self-checkout platforms disperse the transaction process at Notes
different points — the customer identifies individual items using a bar code scanner at
the point of selection, and then the customer takes the items to a separate location to
tender payment.”
Beyond the theoretical differences, there also are practical distinctions between
self-checkout platforms, and those distinctions will vary from one manufacturer to
another. The Utopia self-checkout solution from Pan-Oston, the Bowling Green, Ky.-
based company that has supplied the grocery industry with checkout lanes and other
fixtures for more than 40 years, is built upon an open architecture platform. Utopia is a
plug-and-go self-checkout terminal that operates with either Microsoft.NET or Linux,
and integrates seamlessly with 98 percent of POS software currently on the market. In
addition to a variety of operating platform options, there are several different models,
based on the space available and the ultimate goal of the retailer:

Modular
This is the self-checkout lane most frequently seen in supermarkets today. These are
stand-alone units, usually clustered in groups of two, four, six or eight, utilizing a fixed or
mobile attendant station.

Carousel units
These offer a lay-aside area for scanned items and a larger bagging area, usually on a
rotating carousel, to ease the bagging process for customers doing large orders and
who want to control their bagging options.

Cashier-optional
This option enables retailers to quickly and simply change a check lane from manned to
self-scan to meet daily operational and staffing needs.

Countertop/in-counter
These are perfect for retailers with a single cash counter, convenience stores or for the
deli, self-serve beverage/food areas and in-store pharmacy counters in supermarkets.

Kiosks
These are flexible units that can be placed anywhere in the store. These are usually
considerably smaller than traditional self-checkout terminals, and are usually aimed at
“grab-and-go” segments like convenience foods.

Self-checkout comes in a variety of options, but all of them allow the customer to control
the final part of the shopping experience.
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Who it works for, and who it doesn’t

Notes As mentioned earlier, self-checkout so far has been chiefly adopted by supermarket and
big-box retail segments. Which begs the question: Are there some types of retail that
either are particularly well-suited, or ill-suited, to self-checkout?

Self-checkout units are already popular in grocery stores, where they have been made
simple enough to let the whole family help with the task.
Carrie Smola, solution marketing manager for NCR, a global technology company
offering assisted and self-service solutions, doesn’t think so. “In years past,
supermarkets or hypermarkets were the typical users of self-checkout because of their
high-volume and high-traffic front ends,” she said. “This is no longer the case. All types
of retailers are looking to self-checkout to satisfy their customers’ demands for a fast
and independent shopping experience and to maximize their operational efficiencies.”

10.5 Contemporary Issues: FDI in retailing- Pros and Cons

Foreign Direct Investment (FDI) refers to the net inflows of investment to acquire a
lasting management interest (10 per cent or more of voting stock) in an enterprise
operating in an economy other than that of the investor. It is the sum of equity capital,
other long-term capital, and short-term capital as shown in the balance of payments. It
usually involves participation in management, joint ventures, transfer of technology and
expertise. There are two types of FDI: inward foreign direct investment and outward
foreign direct investment, resulting in a net FDI inflow (positive or negative) and “stock
of foreign direct investment,” which is the cumulative number for a given period. Direct
investment excludes investment through purchase of shares. FDI is one example of
international factor movement.
Foreign direct investment refers to investment in a foreign country where the
investor retains control over the investment. It typically takes the form of starting a
subsidiary, acquiring a stake in an existing firm, or starting a joint venture in the foreign
country. In India, as per the rules of liberalisation, FDI comes through five routes. These
are: the government (SIA/FIPB), RBI (automatic route), investment by NRIs, acquisition
of shares, and equity shares of unincorporated bodies. To bridge the gap in the flow of
funds in the public sector, more participation of the private sector is necessary. For
developing countries, foreign capital can be a good source of funds. It may involve
equity participation by foreigners as: (i) direct investment, and (ii) portfolio investment.

Definition
Foreign direct investment (FDI) plays an extraordinary and growing role in global
business. It can provide an organisation new markets and marketing channels, cheaper
production facilities, access to new technology, product skills and financing. For a host
country or the foreign firm that receives the investment, it can provide a source of new
technologies, capital, processes, products, organisational technologies and

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management skills, and as such can provide a strong impetus to economic
development.
Notes
Foreign direct investment, in its classic definition, is defined as a company in one
country making a physical investment into building a factory in another country. The
direct investment in buildings, machinery and equipment is in contrast with making a
portfolio investment, which is considered an indirect investment. In recent years, given
the rapid growth and change in global investment patterns, the definition has been
broadened to include the acquisition of a lasting management interest in a company or
enterprise outside the investing firm’s home country. As such, it may take many forms,
such as a direct acquisition of a foreign firm, construction of a facility, or investment in a
joint venture or strategic alliance with a local firm with attendant input of technology and
licensing of intellectual property.
In the past decade, FDI has come to play a major role in the internationalisation of
business. Reacting to changes in technology, growing liberalisation of the national
regulatory framework governing investment in enterprises and changes in capital
markets, profound changes have occurred in the size, scope and methods of FDI. New
information technology systems and a decline in global communication costs have
made management of foreign investments far easier than in the past. The sea change
in trade and investment policies and the regulatory environment globally in the past
decade, including trade policy and tariff liberalisation, easing of restrictions on foreign
investment and acquisition in many nations, and the deregulation and privatisation of
many industries, have probably been the most significant catalysts for FDI’s expanded
role today.

The Importance of FDI

In the past decade, FDI has come to play a major role in the internationalisation of
business. Reacting to changes in technology, growing liberalisation of the national
regulatory framework governing investment, FDI plays a very important role in the
development of an economy due to a number of reasons, some of which are listed
below:
z Helps to avoid foreign government pressure for local production.
z Aids in circumventing trade barriers, hidden and otherwise.
z Enables making the move from domestic export sales to a locally- based national
sales office.
z Helps in increasing the total production capacity.
z Presents greater opportunities for co-production, joint ventures with local partners,
joint marketing arrangements, licensing, etc.

Arguments in Favour of FDI in Retailing

FDI in retailing is favored on following grounds:
z The global retailers have advanced management know how in merchandising and
inventory management and have adopted new technologies which can significantly
improve productivity and efficiency in retailing.
z Entry of large low-cost retailers and adoption of integrated supply chain
management by them is likely to lower down the prices
z FDI in retailing can easily assure the quality of product, better shopping experience
and customer services.
z They promote the linkage of local suppliers, farmers and manufacturers, no doubt
only those who can meet the quality and safety standards, to global market and this
will ensure a reliable and profitable market to these local players.
z As multinational players are spreading their operation, regional players are also
developing their supply chain differentiating their strategies and improving their

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operations to counter the size of international players. This all will encourage the
investment and employment in supply chain management.
Notes z Joint ventures would ease capital constraints of existing organized retailers.
z FDI would lead to expansion of opposite sell formats as good as modernization of a
sector.
z Industry trends for retail sector indicate that organized retailing has major important.
z FDI in retail trade would not attract large inflows of foreign investment since very
little investment is required to conduct retail business. Goods are bought on credit
and sales are made on cash basis.
Hence, the working capital requirement is negligible. On the contrary; after making
initial investment on basic infrastructure, the multinational retailers may remit the higher
amount of profits earned in India to their own country.

Cons of FDI
One of the measurements of economic development in a low income economy is the
increase in the nation’s level of capital stock. A developing nation may increase the
amount of capital stock by incentivising and encouraging capital inflows, and this is
generally done through the attraction of FDI. It has been widely discussed and upheld
that amongst various forms and modes of capital inflows, FDIs are favoured, because of
their long-term durability and commitment to a host country’s economy. FDIs are less
susceptible to short-term changes in market conditions, which ensures a certain level of
continuity and stability in the money flow.
However, many developing economies have tried to restrict, and even resist,
foreign investments because of nationalist sentiments and concerns over foreign
economic and political influence. One pertinent reason for this sentiment is that many
developing countries, or at least countries with a history of colonialism, fear that foreign
direct investment may result in a form of modern day economic colonialism, exposing
host countries and leaving them and their resources vulnerable to the exploitations of
the foreign company. While FDIs may increase the aggregate demand of the host
economy in the short run, via productivity improvements and technology transfers,
critics have also raised concerns over their supposed benefits. This theory follows the
rationale that the long run balance of payments position of the host economy is
jeopardised with the investor outlay. Once the initial investment starts to turn profitable,
it is inevitable that capital will return to the country it originated from.
To sum up, FDIs have created tremendous opportunities for India’s development
and helped to boost the performance of local firms as well as the globalisation of some
of them. This has undeniably raised India’s stature among developing countries. India
needs massive investments to sustain high-quality economic growth, particularly in the
energy and infrastructure sectors. Policymakers are looking at FDI as the primary
source of funds. It is important to keep in mind that FDI on its own is not a panacea for
rapid growth and development. What India needs is to put in place a comprehensive
development strategy, which includes being open to trade and FDI. This should go a
long way in fulfilling the ultimate goal of permanently eradicating poverty.

10.6 Impact of Organized Retailing on Small Grocery Stores

The most important debate concerning the implications for the expansion of the
organized retailing in India revolves around whether it is going to have positive impacts
on the economy as a whole as compared to the traditional unorganized form of retailing.
According to one camp, it has overall positive impacts in terms of generating more
number of employments, new diversified forms of employments, and improving the
nature of retail employment (higher salary, more job benefits, security of job,
employability etc). This form of retail sector is also looked upon as a huge sector having
immense business opportunities for entrepreneurs and capital investors. Moreover,

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organized retailing is considered to be efficient and apt to cater to the diversified and
changing nature of the consumer demands in growing economies like India.
Notes
The general benefits of organized retail also include improved supply-chain,
improved marketability of farmer’s produce and it is also expected that it will contribute
to heightened economic activity. The extensive research brought me to conclude that
departmental stores are soon emerging on the top priority lists, amongst the shopping
spree in Delhi, as they seem to derive immense pleasure as shopping is considered as
a experience now rather than a task and exposure to variety under one roof in their
extremely busy lives, when they don’t have time for things. The organized retail food
and grocery stores make constant efforts to induce customers to visit the store by
discount offers. Most of these stores believe in creating not just a marketing activity with
its customers, but rather favor relationship building with him so as to convert first time
customers into a client. They provide better parking facilities to customers and the
facility to examine the product. They also offer a wide range of payment options to
customers.

Organized vs. Unorganized Sector

Future of retail sector in India is swerving- on one side organized retail is marching into
life of urban consumers, while on the other our own neighborhood ‘Grocery stores’ are
resisting fiercely with their existing strong foothold. India today is at the crossroads with
regard to the retail sector. A shift between organized and unorganized retail sector is
evident, which has led to a number of speculations on the fate of Indian retail
unorganized sector cannot ignore.

Changing Landscape of Indian Consumerism

The face of Indian consumerism is changing: not Indian consumerism is evolving from
Bajaj Scooter family man to Bajaj Pulsar trendy youngster. This changing consumer’s
taste and lifestyle, somewhere automatically give some advantage to organized sector.
This makes imperative for unorganized retail sector to restructure itself in order to
withstand the increasing competition and to meet consumer expectations by moving
with trends. What they can do and what they are doing, some of these issues will be
discussed in future parts of article.

Role of Government
As in other countries, government policy can and should play an important role in
modernizing the unorganized sector and improve its competitiveness. But question is
what should be exact role of government. Should it go for policies for protection of
traditional retailers by restricting organized retail or encourage organized retail to reap
benefits that are generated by it? What should be mechanism to promote or protect one
or other? Can government act only as a facilitator or enablers or both? In the said
context, it is imperative to develop a strategic roadmap for unorganized retail form to be
able to survive, compete and keep the economy growing.

Impact of Organised retailing on Unorganised sector

Unorganized retailers in the vicinity of organized retailers experienced a decline in their
volume of business and profit in the initial years after the entry of large organized
retailers. According to the Indian Council for Research in Impact of Organised Retailing
on Unorganised sector International Economic Relations (ICRIER), there would be no
long term impact due to the entry of organised retail chains on the neighbourhood
kirana shops in the country. In clear terms the impact of organised retailing on
unorganised sector is as follows:
z The adverse impact on sales and profit weakens over time,
z There is some decline in employment in the North and West regions which,
however, also weakens over time.

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148 Fundamentals of Retailing

z The rate of closure of unorganized retail shops in gross terms is found to be 4.2%
per annum which is much lower than the international rate of closure of small
Notes businesses.
z The rate of closure on account of competition from organized retail is lower still at
1.7% per annum.
The Grocery stores and pan shops are seen as part of community life and hence
unorganised retail will stay but ICRIER observes that if organised retail does not grow,
the unorganised sector will not be able to handle the surging demand. Hence the share
of organised retail will grow at a rate between 45 and 50% per annum. The observation
rings true as well, this is being witnessed in some urban centres already.
It has come out with certain valuable recommendations. It suggests a nationwide
uniform licensing policy to aid modern retailing which will help carry the countries retail
sector to the USD (US Dollar) 590 billion mark in 2011-12. It suggests better access to
cheaper institutional credit so the Grocery stores can take on competition from
organised retail. Presently, only 12% of unorganised retail enjoys access to institutional
credit. Another recommendation by ICRIER is worth a serious try. It suggests cash and
carry outlets which will sell to unorganised retail and procure from farmers.
This can help unorganised retail to buy at wholesale prices for eventual retailing,
thereby generating a handsome margin. Farmers too can benefit since they can sell at
lucrative prices and realise the sale proceeds in a swift and transparent manner. Once
this cushion is provided, unorganised retail can have no grouse against the government
and even if it has, the government can ignore it. Being unorganised retailing is at
serious step; there are still challenges for organised retailing in India.
Traditional retailing has been established in India for some centuries. It has a low
cost structure, mostly owner operated, has negligible real estate and labour costs and
little or no taxes to pay. Consumer’s familiarity that runs from generation to generation
is one big advantage for the traditional retailing sector. In contrast, players in the
organised sector have big expenses to meet, and yet have to keep prices low enough to
be able to compete with the traditional sector. Moreover, organised retailing also has to
cope with the middle class psychology that the bigger and brighter sales outlet is, the
more expensive it will be.

10.7 Summary
Brick-and-mortar retailing has continued to evolve with customer-centric promotions at
the point of sale (POS), digital signage, loyalty- and registry-based kiosks, self-checkout
and “save-the-sale” inventory look-up at the POS. Despite the huge growth of Internet
retailing, today’s brick-and-mortar stores process 95 percent of retail sales transactions,
and almost all of those transactions are conducted through a traditional POS terminal.
Mobile POS devices cannot handle all tender types— there are obvious problems
with cash and checks and, with most mobile devices, Electronic Benefits Transfer (EBT)
tenders are not possible. There is no printed receipt with a mobile POS, unless the
customer walks to the traditional POS or requests an email receipt. Hardened portable
retail devices do have provision for a printer worn on the associate’s belt; however, this
is usually a heavy item, which could be problematic for some associates.
One technology that will increase a firm’ supply chain visibility is radio-frequency
identification (RFID). RFID is a wireless technology that identifies objects without having
either contact or sight of them. RFID is basically a chip bearing a unique serial number
affixed to, for example, a container, a pallet. The reader receives a signal from RFID tag
carrying the item’s serial number, which logs the item’s location and time in an online
database, creating a detailed history of each item’s movement.
Foreign direct investment refers to investment in a foreign country where the
investor retains control over the investment. It typically takes the form of starting a

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Contemporary Issues: FDI in Retail 149
subsidiary, acquiring a stake in an existing firm, or starting a joint venture in the foreign
country.
Notes
The general benefits of organized retail also include improved supply-chain,
improved marketability of farmer’s produce and it is also expected that it will contribute
to heightened economic activity.
Unorganized retailers in the vicinity of organized retailers experienced a decline in
their volume of business and profit in the initial years after the entry of large organized
retailers. According to the Indian Council for Research in Impact of Organised Retailing
on Unorganised sector International Economic Relations (ICRIER), there would be no
long term impact due to the entry of organised retail chains on the neighbourhood
kirana shops in the country.

10.8 Check Your Progress

Multiple Choice Questions
1. …….. is a wireless technology that identifies objects without having either contact or
sight of them.
(a) RFID
(b) Radar
(c) Echolocation
(d) None of the above
2. The data obtained from RFID could be fed directly into …….. system, allowing
company to track and operate on a real time basis.
(a) EDI
(b) EMT
(c) ERP
(d) ENT
3. The impacts of RFID implementation are felt even more in the situations where the
inventory is sensitive to …………..
(a) Damage
(b) Shrinkage
(c) Perishable
(d) Fragility
4. This is the self-checkout lane most frequently seen in supermarkets today.
(a) Modular
(b) Carousal
(c) Countertop
(d) Cashier
5. This option enables retailers to quickly and simply change a check lane from
manned to self-scan to meet daily operational and staffing needs.
(a) Carousel
(b) Modular
(c) Cashier
(d) Countertop

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150 Fundamentals of Retailing

6. These are perfect for retailers with a single cash counter, convenience stores or for
the deli, self-serve beverage/food areas and in-store pharmacy counters in
Notes supermarkets.
(a) Modular
(b) Carousal
(c) Countertop
(d) Cashier
7. Joint ventures would ease ……… constraints of existing organized retailers.
(a) Financial
(b) Technological know how
(c) Cash
(d) Capital
8. FDI in …………. can easily assure the quality of product, better shopping
experience and customer services.
(a) SEZs
(b) Wholesale
(c) Retailing
(d) Manufacturing
9. A foreign direct investment (FDI) is a ………….. ownership in a business enterprise
in one country by an entity based in another country.
(a) Controlling
(b) Silent
(c) Private
(d) Public
10. A computerized network operated by a main computer and linked to several
checkout terminals.
(a) Wireless
(b) EDI
(c) RFID
(d) Point of Sale

10.9 Questions and Exercises

1. What do you mean by point of sale?
2. Describe how radio frequency identification works.
3. Discuss how self-checkout systems function.
4. Describe the contemporary issues affecting FDI in retailing.
5. Discuss the impact of organized retailing on small grocery stores.

10.10 Key Terms

z Point of Sale: A computerized network operated by a main computer and linked to
several checkout terminals.
z Radio Frequency Identification (RFID): Radio-frequency identification (RFID) is
the wireless use of electromagnetic fields to transfer data, for the purposes of
automatically identifying and tracking tags attached to objects.

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Contemporary Issues: FDI in Retail 151
z Foreign Direct Investment: A foreign direct investment (FDI) is a controlling
ownership in a business enterprise in one country by an entity based in another
country. Notes
z Privatisation: The transfer of ownership of property or businesses from a
government to a privately owned entity.
z Kiosk: A small, temporary, standalone booth used in high-foot-traffic areas for
marketing purposes.

Check Your Progress: Answers

1. (a) RFID
2. (c) ERP
3. (b) Shrinkage
4. (a) Modular
5. (c) Cahier
6. (c) Countertop
7. (d) Capital
8. (c) Retailing
9. (a) Controlling
10. (d) Point of Sale

10.11 Further Readings

z Patrick M. Dunne, Robert F. Lusch &James R. Carver, Retailing 8th Edition, South-
Western, 2014
z Roger Cox & Paul Brittain, Retailing: An Introduction 5th Edition, Pearson Education,
2004
z K V S Madaan, Fundamentals of Retailing, Tata McGraw Hill, 2009
z Manfred Krafft & Murali K. Mantrala, Retailing in the 21st Century: Current and
Future Trends 2nd Edition, Springer, 2010
z Nicholas Alexander & Anne Marie Doherty, International Retailing, Oxford, 2009

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152 Fundamentals of Retailing

CASE STUDY: A TALE OF TWO INDUSTRIES: RETAIL IN INDIA

Notes

T
he Indian retail market is estimated to be worth approximately $450 billion and
accounts for 14 percent to 15 percent of India's GDP. It is one of the top five retail
markets in the world by economic value and also one of the fastest growing global
retail markets.
Yet despite its size and power, India's retailing industry remains dominated by owner-
manned small shops. Indeed, Indian retail is in fact two separate industries — the
"organized" retail of large chains, international brands and foreign investment and a more
domestic "unorganized" or "shadow" retail that exerts huge economic and political
influence. The tension between these two spheres is one of the most pressing issues
facing international retailers, fashion manufacturers and textile-based businesses looking
to capitalize on the Indian market.
The Weight of History
To fully understand the Indian retail environment, it is necessary to revisit the history of
fashion manufacturing and retail. India is undergoing a "compressed evolution" of this
history. Fashion began as a bespoke tailored and low-volume industry supplied by the
textile manufacturers; then, power shifted to the manufacturers, who would make
products, place them on display or promote them, and customers would then be attracted
to purchase the more standard product.
However, with the progress from the industrial revolution and the advent of mass scale
production, this all changed dramatically. Manufacturers were no longer focused on
making really small volumes of product for the window, but 10 or more for the shelf.
Standardization drove economies of scale; however the retail of these products remained
fragmented.
This is similar to the history of UK or U.S. retailers — the likes of Woolworths, Selfridges
and Marks & Spencer. It is also the story of retail evolution within a confined urban
development. Standardized products drive consistency and need, growing demand and an
economic backdrop that favors mass production.
By comparison, within India you have pronounced diversity and regional differences. The
huge variation in climate across the country and the federation of regional states, deep
regional pride and poor infrastructure have led to a business climate that favors smaller,
independent retailers and manufacturers that focus on and address local needs. Instead
of a rapid evolution to an organized, consolidated retail sector, India has remained a two-
tier market.
Lessons from a Global Perspective
Though not exclusive to India, this large "shadow" retail industry of smaller, independent
retailers has such a strong identity of its own that it is hard to find similar examples
elsewhere in the world. Perhaps the closest would be Brazil, where the government made
a concerted political decision to protect itself, creating the ideal environment for domestic
producers and retailers to work in concert — and deliver to the local demand without
dependence on external production.
Where Brazil imposed a closed domestic focus, India is keen to open itself up as a market,
as both producer and consumer. This has led to retail becoming a real battleground as big,
foreign retail giants look to enter the market but find themselves in the midst of a system
that is based around a far more fragmented retail ecosystem than they are accustomed to.
Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand
retail, forbidding foreign groups from any ownership in supermarkets, convenience stores
or any retail outlets.
On 14 September 2012, the government of India announced liberalization allowing the
opening for FDI in multi-brand retail, subject to approvals by individual states. This
decision was welcomed by economists, but caused protests and an upheaval in India's
central government's political coalition. On Sep.r 20, 2012, the government of India
formally notified the FDI reforms for single- and multi-brand retail, making it effective under
Indian law. These changes have brought the gap between "organized" and "unorganized"
retail to the fore.
The main concern is how this split affects consumer spending behavior and shopping
patterns. In many cases, the organized retailers cannot get access to goods that are freely
Contd….
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Contemporary Issues: FDI in Retail 153
available via unorganized retailers. A classic example is that you cannot get a Pepsi Max
in a 7-Eleven in India but can easily get one from a vendor just over the road.
Elsewhere there is concern that the unstructured, independent retail market damages the Notes
productivity of retail overall. A McKinsey study claimed retail productivity in India is very
low. For example, the labor productivity in Indian retail in 2012 was just 6 percent of the
productivity in the United States in 2010. This hinders a lot of investment and is often
viewed as supporting an inflated retail employment market in India (currently about 6
percent of the Indian workforce). Training and development of labor and the development
of management skills for higher retail productivity are expected to be challenges.
Neighbors of Necessity
So, can organized and unorganized retail ever co-exist across such differences and
tensions? The simple truth is they may have to learn to get along; many commentators
point to the size and breadth of the evolving organized retail and say that it's inevitable
that it will eclipse its unorganized counterpart. However, the fact is that this should have
been well underway by now and realistically, given the political pressures, social
demographics and culture within India, this "death of unorganized retail" is very unlikely at
least in the short to medium term.
There is, however, good reason for organized retail to enjoy the presence of the
"unorganized" alternative. The smaller shops are often very creative and assess local
requirements with unerring accuracy: a sari shop in Chennai will carry different cuts and
fabrics than one in Jaipur, but they will both be keenly targeted to the local market. There
clearly are lessons to be learned. Indeed, the unorganized retail market may well be the
best market testing facility many organized retailers and upcoming fashion designers could
wish for.
Collaboration may well be rare. There is a profound lack of trust on both sides and no
obvious third party to fill the gap. Some smaller, more collaborative brands such as Zara
may be able to explore the unorganized outlets but these occasions will be few and far
between. It is likely that for those fashion brands that can contain the organized/
unorganized tension and find favor with both, the are huge rewards. Interestingly, Walmart
has a strong track record of local adaptation.
Indian retail is a huge potential opportunity for fashion brands and there undoubtedly will
be huge change over the coming months and years as the new, more investment-friendly
regime takes effect. But those international brands will enter a market that is not only
unique, but fraught with regional differences, unique product requirements and customer
expectations. It will not just be a case of caveat emptor (let the buyer beware) but also,
manufacturers and retailers beware.
Questions:
1. Explain the lessons learnt from the global perspective.
2. What are the reasons for organized retail to enjoy the presence of the "unorganized"
alternative?

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