MKTG MGT 8 - RETAIL MANAGEMENT

Course Introduction:

This module deals with the basic concepts of retailing to the participants. The key
take away would be understanding how a retail business works; the core issues
and challenges involved; the key terms and terminologies associated and an
appreciation of retail industry.

Course Description:

In this course, students will be introduced to the key concepts and issues
pertaining to the retail environment of firms and their retail marketing strategies
including store composition, location, image, target customers, pricing, human
resource and logistical needs.

Course Objectives

In this module, you will examine the above questions when you take the following
lessons:

Lesson 3 – Examining Retail Opportunities

At the end of the session, the students are expected:
Lesson 3  To study retailers on the basis of ownership type and
examine the characteristics of each.

Holy Cross College Sta. Rosa, N.E., Inc. 3101

 Lesson 2 – Examining Retail Opportunities

RETAIL ENVIRONMENT

Analysis of environment for retailing is very important for a business. This analysis includes
determining the different challenges and theories that may help the business.

Threat of New Competitors

The easier it is for a new company to enter the industry, fiercer is the competition. Any new
entrant poses a threat to the existing players as it can decrease the profit share of existing players.

The factors that limit new entrants are:

 How loyal are end consumers in the industry?
 How difficult it is for the consumer to switch to the new product?
 How large is the amount of capital required to enter into the industry?
 How difficult it is to access distribution channel?
 How hard it is to acquire new skills for the staff?

Threat is high when… Threat is low when…

Products of the retail company are not Products of the retail company are
differentiated. differentiated.
Consumer perception is not good for existing Consumer perception is healthy for existing
product and switching cost is low. product and switching cost is high.
Retail brand is not well-known. Retail brand is well-known
Accessing distribution channels is easy. Accessing distribution channels is remote.
Proprietary technology and material, Proprietary technology and material,
government policies, and location are not government policies, and location are
troublesome issues. troublesome issues.
The number of buyers of existing product are The number of buyers for existing product are
low. high.

Threat of Substitutes

Substitutes are the products or services that provide the same functionality. A successful
product leads to creating other similar products. While entering into retail, one should think of:

 How many near substitutes are available in the market?

 What is the price of the substitute?
 What is the consumer perception about those substitutes?

By advertising, marketing, and investing in R&D for the product or service, a retail business
can elevate its position in the industry.

Holy Cross College Sta. Rosa, N.E., Inc. 3101

 Substitute threat is high when… Substitute threat is low when…
Products of the retail company are not Products of the retail company are
differentiated. differentiated.
Products are costly. Products are inexpensive.
Consumer’s brand loyalty is low. Consumer’s loyalty is high
Cheaper parallel products of the same No cheaper parallel products are available.
category are available.

Bargaining Power of Buyers

It is the position of buyers and likelihood of their ability to gain benefit while buying. If there are
many suppliers and few buyers, the buyers are at advantageous position while pricing and they
generally have the last word. The retail managers need to think of the following:

 How large market share the retail company has?

 What size of consumers is the company depending upon for its sales?
 Are buyers buying in large volumes?
 How many other retail competitors are in the same product line?

Bargaining Power of Suppliers

It is the ability of the supplier to control the cost and supply of the products in the market. If the
suppliers are at a dominating position over the company while product pricing, threatening to raise
price or reduce supply, then that retail industry is said to be less attractive. The retail managers
need to find out answers for the following:

 What are the substitute products other than what the supplier provides?
 Is the supplier providing goods to multiple industries?
 Is the supplier-switching cost high?
 If the supplier and the company are capable of entering into one another’s business?

Intensity of Rivalry among Existing Competitors

The rivalry is intense when there are more or less equal sized competitors in the market and
there is no unparalleled market leader.

Intensity of Rivalry is high when… Intensity of Rivalry is low when…

There is no or very less product or service The product or service is in differentiation.
differentiation.
There are less competitors. There are more competitors
Availability of product in a particular area is less. The product is widely available in a particular
area.

Holy Cross College Sta. Rosa, N.E., Inc. 3101

Theories of Development

In retail management, theories can be broadly classified as follows:

Environmental Theory (Natural Selection)

It is based on Darwin’s theory of survival: “The fittest would survive the longest”. The retail
sector comprises consumers, manufacturers, marketers, suppliers, and changing technology.
Those retailers that adapt to changes in demography, technology, consumer preferences, and legal
changes are more likely to survive for long and prosper.

Cyclical Theory

McNair represents this theory by Wheel of Retailing that explains the changes taking place in
retailing.
According to him, the new entrant retailers are often into low cost, low profit margin, low structure
retail business, which offers some unique, real benefit to the consumers. Over some time they
establish themselves well, prosper, and expand their products with more expensive facilities,
without losing focus on their core values.

This creates a place for yet new entrants in the market thereby creating threat of
competition, substitution, and rivalry.

Holy Cross College Sta. Rosa, N.E., Inc. 3101

 Conflict Theories (Evolution through Dialectic Process)

Within a broad retail category, there is always a conflict between the retailing of similar
formats, which leads to the development of new formats. Thus, the new retail formats are evolved
through dialectic process of blending two formats.

RETAIL INSTITUTIONS BY OWNERSHIP

 Independent Retailers: They own and run a single shop, and determine their policies
independently. Their family members can help in business and the ownership of the
unit can be passed from one generation to next. The biggest advantage is they can
build personal rapport with consumers very easily.

 Chain Stores: When multiple outlets are under common ownership it is called a chain of
stores. Chain stores offer and keep similar merchandise. They are spread over cities and
regions. The advantage is, the stores can keep selected merchandise according to the
consumers’ preferences in a particular area.

 Franchises: These are stores that run business under an established brand name or a
particular format by an agreement between franchiser and a franchisee. They can be of two
types:
 Business format
 Product format

 Consumers Co-Operative Stores: These are businesses owned and run by

consumers with the aim of providing essentials at reasonable cost as compared to market
rates. They have to be contemporary with the current business and political policies to keep
the business healthy

Prepared by: Reviewed by: Recommended by: Approve by:

JERICK P. MARIANO, MBA RANILO S. CASTILLO II, MBA Ken Gie Anthony Cruel, CPA, MBA ALMARIO B. GARCIA, Ph. D.
Subject Professor Program Chair, BSBA Chair, Curriculum and Instruction Dean, College Department
Date: Date: Date: Date:
Holy Cross College Sta. Rosa, N.E., Inc. 3101