M.Com.

IV SEMESTER COURSE- MC404 MKT (b)

401

RETAIL MANAGEMENT
-
DSE

Lesson 1-15
Rajesh Kumar
 Contents

Sr. No. Topic Page No.

An Overview Of Retail Sector

Chapter-1 3-15

Concepts Of Retailing
Chapter-2 16-28

Retail Environment
Chapter-3 29-40

Strategic Retail Planning Process

Chapter-4 41-60

Model Of Retailing
Chapter-5 61-72

Based On Ownership
Chapter-6 73-89

Store And Non-Store Based Retail Formats

Chapter-7 90-108

Retail Location Strategy

Chapter-8 109-120

Retail Product Mix And Merchandise Strategy

Chapter-9 121-131

Human Resource Management

Chapter-10 132-146

Retail Communication Mix Strategy

Chapter-11 147-160

Physical Evidence
Chapter-12 161-171

Managing Store Operations

Chapter-13 172-187

Sourcing And Inventory Management

Chapter-14 188-204

Managing People And Processes

Chapter-15 205-217

Use Of Technology In Retailing

Chapter-16 218-227

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 MC404 MKT (b): RETAIL MANAGEMENT (DSE)
Max. Marks 80
Internal Assessment 20
Note: There will be Ten (10) questions in all spreading into Five Units consisting of two questions
from each unit. The candidate will require to attempt one question from each unit. Each
questionwill carry Sixteen (16) marks
Learning Objective: The course develops practical understanding of the retail sector covering
areas like retail buying, category management, retail store operations and customer marketing ,
FDI. Course Contents:
Unit I
Retailing: Concept, Characteristics, importance and functions; Theories of retailing: Retailing in
India. Strategic Planning in retailing; Planning for global retailing. Retailing Formats: Classifying
retail institutions according to ownership, store based and non-store based retail organizations.
Planning location of retail institution; Trading area analysis, deciding the most desirable type of
location, choice of a general location, choosing and evaluating a particular site.
Unit II
Human Resource Management in retailing: Objectives and function; setting up a retail
organization, organizational patterns in retailing. Managing store employees.
Unit III
Store Operations Management: blueprinting operations; deciding stores layout; store design and
displays; energy management; loss prevention and security issues. Customer Service: Concept
and importance, developing service strategy; service quality dimensions and GAPS model;
Retailing customers.
Unit IV
Financial management in retailing: Sources of finance, FDI in retail; analysis of financial and
operational performance, retail audit.
Unit V
Applications of information technology in retailing: Social, ethical and legal aspects in retailing.

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 Chapter-1
AN OVERVIEW OF RETAIL SECTOR

Structure
1.0 Leaning Objectives
1.1 An Introduction to Retailing
1.2 An Overview of Indian Retail Business
1.3 Rural Retailing Scenario in India
1.4 Modern Retail
1.5 Category Wise Retail Penetration in The Indian Market
1.6 Emerging Rural Retail Formats
1.7 Key Growth Drivers for Indian Retail: A Snapshot
1.8 Online Retailers
1.9 FDI In Indian Retail
1.10 Challenges Faced by Indian Retailers
1.11 Factors Essential for Successful Retailing
1.12 Outlook Of Indian Retail
1.13 Global Retailing: A Glimpse
1.14 Career Prospects in Retailing
1.15 Summary
1.16 Self-Check Exercise
1.17 Answers to Self-Check Exercise
1.18 Glossary
1.19 Terminal Questions

1.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 An Overview of Indian Retail Business
 Rural Retailing Scenario in India
 Modern Retail
 Category Wise Retail Penetration in The Indian Market
 Emerging Rural Retail Formats
 Key Growth Drivers for Indian Retail: A Snapshot
 Online Retailers

1.1 AN INTRODUCTION TO RETAILING

Retailing encompasses sale of goods or services to the end customer for personal
consumption or household usage. Retailing can also be viewed as the last leg of the
distribution system for consumer goods or services. It includes range of products from
small stitching needle to a luxury car. Retailers collect assortment in bulk from various
manufacturers or marketers and break down into small quantities as per the demand from
end customers.

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Retailers interface with the end customer provides them with an opportunity to offer the exact
quantity and quality of products / services at a price acceptable to the end customer.
Thus retailers convey the demand pattern of the customers in their geographical area of
operation to the marketer or manufacturer who can accordingly plan their production and
marketing strategy. The characteristics which differentiates a retailer from a marketer is their
low average sales per customer, impulse purchasing by the customer and customers’
inclination for satisfying experience during their shopping trip to the store. Therefore the
stores’ capability to provide an enhanced experience is the key factor for their success.
Retail business has been traditionally carried out by Kirana stores (also called “Mom and Pop
“stores ) in FMCG sector and Multi brand dealers or Exclusive Brand franchisee / company
owned outlets in the case of consumer durables.
It is evident that over the years some retailers expanded their business by opening their
own chain of outlets and gradually retailing became an independent business moving away
from the influence and control of marketers. This category of retail businesses are referred
to as “organized retailers ‘compared to traditional retailers or any private enterprise who
are known as being part of “unorganized retailing” business. Thus they are known as
organized retailers as their business processes and systems are well defined and operate
under the various legislations related to business establishments. These new retail
businesses require huge capital investment, therefore large business houses or large
investors entered this domain.
Historically, the organized retailing concept started in 1980s in the western economy and is
now being implementing in India since the last two decades. Walmart, Amazon and Best
Buy of USA, Carefour of France, Aldi and Lidl from Germany, Tesco and Spencer from U.K.
are some of the famous retailing firms spread across many countries. This does not
mean that unorganized retail had disappeared, but their numbers have reduced with advent
of the above mentioned large retailers.
It is to be noted that the classification for retail business was carved over the years is referred
to as offline or “Brick and Mortar” retail model, “Click only” or online model and “Brick and
Click” model which is a mix of both. The online retail has grown drastically in post pandemic
era and it is expected to capture 7% market share of the modern retail business (statistica
2022)

1.2 AN OVERVIEW OF INDIAN RETAIL BUSINESS

India, being a vast country with large population, has a huge retail sector. Its contribution to
the GDP is staggering 8-10% and it is the second largest employment generation activity after
agriculture in India and employs about 8% of the country's workforce. The retail market's
anticipated size was 1.2 trillion dollars in 2022, with the majority of sales coming from the food
and grocery segments. India's retail sector is growing exponentially, with retail growth
extending to tier II and III cities.
The uorganized sector in India is accounting for the 88% of retail business is constituted by
an estimated 12 million small retailers and kirana stores (mom and pop stores) and numerous

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vendors and hawkers. Though, no literature has been able to convincingly claim these
figures due to their sheer enormity and lack of systematic survey by any credible agency.
Predominantly, there are two types of traditional retail formats, namely

1. Kirana and Independent stores.

2. Cooperative and Government owned stores.

Kirana Stores

Kirana stores are the Indian counterpart of Mom- a n d - P o p stores selling all household
and personal goods and general merchandise to Indian masses. The Kirana’s and the
general stores are spread all over the rural and the urban places in India and they reflect
a good amount of retail business albeit (in spite of) being unorganized and poorly maintained.
These shops have small areas with limited stock of daily commodities according to the
demands of the clientele. It also varies from region to region according to the functioning style
of the owners. The general stores have only packaged FMCG products and branded products
which are high in demand, but the scenario may be different in small towns and villages
where loose or unbranded items are sold in large numbers. People find these types of stores
prominently in their neighbourhood and residential areas. The chemists selling the
pharmaceuticals products in the residential areas are
dispensing the branded FMCG products, especially the health foods and the personal care
products.

Most retail stores are family owned business in which the household efforts are being
used to run the stores. They are also a reflection of unemployment in disguise or additional
source of family income in small towns and villages. In various traditional retail outlets
branding is not the criteria as sometimes these traditional store keepers sell the products on
the basis of their relationship with their clients, particularly in Small Township and the rural
areas. These retailers influence the brand perception and products of the clients. At present
these traditional retailers are facing the new wave of competition from modern retailers.
Hence, they are providing value based services to the customer such as free home delivery
of the products, even the telephone based delivery, and self service formats and so on.
They are trying to improvise the shopping experience as well as competing with their rivals
by providing such services. This has been termed as the new wave in retailing by industry. In
the entire chain of the value based developments, the small independent retailers play a
crucial role in India. The importance of these small retailers has been acknowledged by the
sellers and the customers. The increase in stock keeping units over the years has been
the key factor for the rising trust on the small retailers in India. The increasing trend of the
stock keeping units has pressurized the shelf space. The demand in width of distribution
instead of depth has been sought by the marketers over the years. Hence a significant role
is being played by the small retailers as the circulation channel for the FMCG products in
existing as well as new settlements in the urban areas.

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Co-operative and Government Bodies:

The cooperative bodies and the Government are running a number of retail stores in
India dealing with various commodities. These initiatives were conceived for the purpose of
creating employment opportunity by boosting up the creeping industries keeping the socio
economic development and welfare of the state in mind. The stores which are the examples
of the government sponsored organized retailing are Super Baazar, Kendriya Bhandars,
(KVIC) Khadi and Village Industries Commission along with the controlled price Public
Distribution System(PDS). These outlets were created as user friendly units, as its price suited
the pocket of the customers. They were stocking large variety of products and trustworthy
materials, yet it couldn’t receive the desired footfall of the customers as they were
characterized by average customer service, poor upkeep of the stores and lacking sincerity.
Some of the successful retail institutions managed by the cooperatives and government
institutions are as follows:
 Mother Dairy and Safal
 Public Distribution System
 Central Cottage Industries Emporium

1.3 RURAL RETAILING SCENARIO IN INDIA

Rural areas having a population of more than 1500 enjoy a strong parallel retail format set up
such as Periodic markets (Shanties, Haats, Jatras) and the allied.

Periodic markets are traditional places where rural customers congregate for their weekly
or daily purchases. They are called by different names i.e. Shanties/ Haats/ Jatras by people
in different parts of the country. While shanties/Haats/ Jatras are held on a particular day
of a week, periodic markets are normally tied with religious festivals. These places attract a
large number of itinerant merchants and temporary shops are set up to sell variety of
merchandise. The popularity of Haats can be gauged by the footfalls and turnover which
suggests that more than 80% of the buyers are regular visitors. 58% visit Haats to buy specific
products, although more than half of the shops have similar products in their villages.

1.4 MODERN RETAIL

Indian retailing has been witnessing the emergence of organized retailing quite late and it is
still at nascent stage as organized brick and mortar retail only constitutes a meager 12% of
the total retail business amounting to $ 836 billion. A crisil report of 2020 claims organized
retail to be generating a business worth 4.7 lakh crores. Apart from the kirana stores, Indian
retail market boasts of various versions like, road side dhabas, street hawkers, and flea
markets in various parts of cities operating on a specific day of the week and village mandis
operation on daily or may be weekly basis.
A report by BCG claims that Indian organized retail is expected to grow by 9% from 2019 to
2030, whereas “statistica” claims that unorganized sector has fallen by 10% in the last

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three years from 2001 to 2021. Further, the online retailing is estimated to grow by 25-30%
p.a. over the next 5 years till 2026 (A report by Bain & company).There is a sharp variation
among the four regions of India, with North India having 32.8 % and East India having just
9 % market share in the organised retail (IRIS primary research). The major players in the
modern retail are
Reliance Retail, Aditya Birla Retail, Spencers’ (from Goenka group), Shpppers Stop from
Raheja Group and Tata group. It is evident that the large and established business houses
are the major investors in this sector, the reason being it a capital intensive sector with long
gestation period. This apart there are other foreign brands like Ikea, H&M, Allen Solly, Van
Heusen, Zara and Sarwosky which have set up their chain either independently or in
collaboration with local Indian players.

1.5 CATEGORY WISE RETAIL PENETRATION IN THE INDIAN MARKET

The highest share of organized retail is accounted by Food & Grocery (68%), followed by
Electronics and then lifestyle products, but if the data for category penetration is observed,
food and grocery has the last penetration(2.7 % ) followed by pharmacy (5.4 %), whereas
Consumer durables and IT have been able to penetrate nearly 30.8% of the Indian market.
This reflects the realities of the Indian economy where a large percentage of population still
spends a sizable portion of their disposable income on Food and Groceries.
Major players in India retail business

Company Revenue Sales Stores

Stores (crore) Growth (Y-
o-Y)

Reliance 1,62 37 10,901

Retail
Future Group 2021 48 1511
DMart 21137 32 176
Aditya Birla 8787 15
Fashion Retail
Shoppers 19,487 - 3000 +
Stop
Trent ( Tata 2708 - 86 +
Group)
Infiniti Retail 5208 - 264
V Mart 1674 - 170
Source: Crisil rating, 2020

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It is to be noted here that the second largest retailer in India ‘Future group” was sold initially
to Amazon by Mr. Biyani, the owner, but subsequently the deal was cancelled mid way and
then it was sold to Reliance Group due to which a lawsuit has been filed by Amazon and the
case is pending before law tribunal.

Some other players which forayed in this market resorted to early exit due to non-
sustainability of their business, such as the likes of Subhiksha in South India. Some retailers
like ABRL’s apparel stores ‘Pantaloons’ and online retailer like “Big basket” sold out their
business to large business houses of India like Reliance and Tata group respectively.
Once the retail industry moves towards maturity stage very few, but retail outlets owned by
large business houses like Ambani, Adani, Raheja, Goenka, Tata and Birla would be
operating in this industry.

1.6 EMERGING RURAL RETAIL FORMATS

Currently, large players like ITC (Indian Tobacco Company), Godrej, DCM Shri Ram
Consolidated Limited are expanding their presence in rural areas. They have not restricted
themselves to agricultural products, but have added various consumer household products
and telecommunication services. The reason being the realization that 25 percent of rural
consumers are not dependent on agriculture business, but account for over 50% of the
income in rural areas.
Another important consideration is the increased expectations and awareness among the rural
customers about the large choice set available in urban areas. ITC has diversified its portfolio
in the rural market by adding cookies, garments, incense sticks and matches. This initiative
now comprises about 6100 installations covering over 35000 villages and serving over 4
million farmers. Currently, the 'e-Choupal' website provides information to farmers across
the Ten Indian States of Madhya Pradesh, Haryana, Uttarakhand, Uttar Pradesh, Rajasthan,
Karnataka, Kerala, Maharashtra, Andhra Pradesh, and Tamil Nadu. It had set up around 80
retail outlets called Choupal Fresh and plans to expand its rural supermarket ChoupalSagar
to 23 by 2020. Godrej Aadhar, the rural initiative of Godrej Group (later purchased by Future
Group) has 133 stores across rural India. DSCL’s HariyaliKisan Bazaar was doing quite
well till 2009 having 160 outlets, and plans to scale it up to 300 in the next two years. They
were selling the same merchandise as being available with their urban counterparts. All these
stores are facing the problem of sustainability as the footfall is not enough to recover the
infrastructure cost. Availability of trained manpower is a major problem, but still these rural
initiatives are trying to become self reliant by shedding the image of parent companies in agri
businessThese understandings are necessary for the organized retailers to plan out their
strategy for Indian hinterland.

1.7 KEY GROWTH DRIVERS FOR INDIAN RETAIL: A SNAPSHOT

Modern retail has entered India through sprawling shopping centers, multi-storied malls

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and huge complexes offering shopping, entertainment and food courts under one roof.
The increasing numbers of nuclear families, easy financing options, increase in the number
of working women and emerging opportunities in the service sector during the past few years
have been the key growth drivers for the organized retail sector in India. The following factors
additionally contribute to the growth of modern retail:

 Change in demographics towards more young customers, with an average of 27 years

in 2015 (Wordl.bymap.org).
 Increased credit friendliness by financial institutions

 Consumer Pull

 Influence of western culture

 Increase in double income no kid’s household.
 Hectic lifestyle encourages customers to seek ready made products/ services

 Low penetration of organised retail

 Increase in demand for ‘non-essential’ products

 Advent of packaged food products requiring adequate shelf space and

refrigeration in the retail outlet

 Increased disposable income changing consumer preferences, seeking everything

under one roof

 Organized retail is able to provide a unique shopping experience through its

ambience

 Increased awareness by the consumers leads to a desire for empowerment in taking

purchase decision.

 Entry of Corporates: With the entry of large conglomerates, such as Bharti, Reliance,
Tatas, Aditya Birla and ITC, in retailing – along with the existing small and regional
players- the Indian consumer today is in a position to avail and enjoy the shopping
experience and satisfaction, entertainment, quality products aided by polite
salespersons
providing product information and discounts. The competitive environment will throw
open new innovations, improvements and niche markets.

 New Entrepreneurs: The growing attractiveness of the retail trade has begun to
attract new entrepreneurs with ideas.

 Foreign Retailers: The increasing attractiveness of the sector had drawn the interest of
a number of global retailers like Zara, Sarwosky etc. With the opening up of the
economy, more and more MNCs have entered the Indian business arena through joint
ventures, franchisees or even self-owned stores.

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  Technology: Introduction of RFID, interactive kiosks at the store, Augmented Reality
and Virtual Reality (AR &VR ) have revolutionized the retail operations and enhanced
shopping experience.

 Trained manpower: The last decade has witnessed many professional institutes and
private colleges sprung up offering retail courses and training modules. The industry’s
need of qualified and trained manpower is being met by these professional institutes.

1.8 ONLINE RETAILERS

Increased usage of smart phones and availability of internet services at peanuts has
contributed to the growth of online retail in many developing countries across the globe.
There are few other factors impacting online retailing are listed below:
 Changing lifestyle

 Time constraints

 Vast availability of options to choose from

 Convenience of time and place of purchase

 Easy payment options though UPI (Unified payment interface)

 Promotion on social media due to their popularity

 Availability of door delivery of products / services

Amazon and Flipkart have been two successful players in e-marketplace offering
merchandise in all categories. This apart, there are category specific retailers like, Nykaa,
Myntra, snapdeal, Ebay, clovia, Meesho, Mamaearth and shopify operating in Indian e-
space with different business models. The online businesses received a boost during
pandemic, but the experience availed by Indian consumers, even in Tier 2 and 3 cities have
encouraged consumers to explore online sites for options and deals before taking their
purchase decision. Therefore, they have evolved as new competition for brick and mortar
retailers who are lobbying with the government for implementing strong policies for
operating in e-marketplace. The offline retailers are additionally ensuring their presence
through their own portal or microsite for better brand visibility and direct access to the
customers.

1.9 FDI IN INDIAN RETAIL

FDI in single brand retail was allowed by the Government of India with foreign stakeholders
having 51% share and 100% FDI in wholesale cash and carry format through automatic route
in the year 2006. After many deliberations among various stakeholders and no consensus

11
emerging across the country, Indian government has cleared the proposal for 51% FDI in
multibrand retail in the year 2012. This move is expected to attract many famous retailers like
Tesco, Wal-Mart and Carrefour to India thus bringing in the much required capital to boost this
sector. Yet, given the complexity of the India market due to fragmentation, supply chains
functioning on very low margins, a weak back end; it is difficult to present a rosy picture of
Indian retail in near future.

1.10 CHALLENGES FACED BY INDIAN RETAILERS

• Customer’s empowerment has increased the expectation of Indian customers. Retailers

are putting every effort to capture the consumer’s wallet share and are on an
experimental spree, thereby creating a situation where compromising with image and
quality, heavy discounts, venturing into new business models and vying new markets are
becoming rampant. This is not letting them consolidate the business in a competitive
market. The industry needs to evolve in a way where every player has a room to sustain
and grow.
• Due to the high rental cost, a major component of the operating expenditure, the operating
cost of retail is still very high. The industry tried to counter this problem during the
downturn by renegotiating with the developers, but this was confined to mall retailing.
• The other issues related to real estate are the time consuming process in title clearance,
requirements of numerous lease deeds in the case of multiple ownership and difficulties
in conversion of normal land into commercial use are some of the basic difficulties
encountered by the retail community. To open a store with all facilities, the retailer has to
seek as many as ten to fifteen clearances from several government agencies that
are plagued with red tape, inefficiency and corruption.

• The changing consumption pattern in a developing economy like India is also one of the
biggest challenges for the retailer. The days of brand loyalty are few and the demand for
exclusivity and consistent service provider is gaining momentum. To meet these
demands, the industry needs to react in time.

• Challenges on the labor front include limited supply of trained workforce and laws, which
hinders smooth operations as per the standard operating procedure (SOP) of the
organization. The existing labor laws prohibit extended working hours, therefore the only
way out is to engage employees in shift, which increases the cost of labor drastically. In
situations of seasonal demand cycle, the stores would prefer to employ part timers, which
is again contrary to the existing laws.
• Consumer goods marketers require a drastic change in their mindset and hence their
strategy while dealing with modern retailers as against the traditional kiranas. Indian
marketers are still low on the learning curve and have not been able to participate
in category management of various retailers as modern retailers are supposed to sell
assortment of products and not just a brand. Moreover shopping habit differs with formats;
hence different category management strategy has to be pursued in different formats.
Post covid, customers are frequently resorting to online space for comparing the offer in offline

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 space and this has further put pressure on the margins of retailers as well as marketers.

1.11 FACTORS ESSENTIAL FOR SUCCESSFUL RETAILING

 Identifying the most important factors of success and prioritizing them accordingly.
This may vary with the business model and the dynamics of the local market.
 Good understanding of competition, as competitive scenario is specific to location
and business model.
 Regular updates about changing taste and preferences of customers in the
catchment area. This may be the consequence of changing demographics in the
catchment area or evolution of the broader consumer ecosystem
 Updating inventory on regular basis based on changing market dynamics and customer
preferences.
 Conduct third party audit once a year for an unbiased identification of the lacunae in
the function of the store

Examples of Successful retailers : Lifestyle, Dubai based fashion retailer, McDonald’s an

American fast food retail chain, Ikea, self-assembling modular furniture retailer are some
examples of foreign retailers who understood the Indian retail ecosystem and are viewed as
success stories.

1.12 OUTLOOK OF INDIAN RETAIL

The Government’s aim to make India a 5 trillion economy and push for “Make in India” and
“Vocal for Local” campaign is bound to increase the demand for consumer products. On the
supply side, “ease of doing Business” would encourage small entrepreneurs to invest in this
sector. This would lead to opening of new stores in different formats for different categories of
products and services. This explains the success stories of smaller players like, Vishal
Mega Mart Vmart and DMart whose growth in urban and rural areas over the years have been
phenomenal.
Similarly, much smaller players like ‘Chayos’, “cafe coffee day”,”Haldiram”, “Bikaji” have
established their dine-out stores across India. The new ecosystem would witness the major
players listed above having their presence in new categories with different formats and many
small players competing with them in each category in online as well as offline space. Like
Blinkit competing with Reliance jio Mart.

1.13 GLOBAL RETAILING: A GLIMPSE

As mentioned in the introductory section, some retailers have not only established a strong
foothold in their country of origin, but have also expanded their footprints across many other
countries and global markets as well.
The top ten retailers (as per their financial performance during FY 2020) across nations are:
 Walmart Inc.

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  Amazon Inc.
 Costco wholesale corp.
 Schwarz group
 Home Depot inc.
 The Kroger Co.
 Walgreen Boots
 Aldi GmbH
 JD.com
 Target Corporation

A major shift among the global retailers’ offerings has been the focus on sustainable products
or services since 2020 (Deloitte Global report). Africa, Middle East and Latin America
regions, in that sequence, were worst hit during the pandemic in terms of profitability.
(Deloitte global report of 2022) FMCG segment followed by Hardlines and Leisure goods
were the focus of major categories for retailers across the globe in FY 2020. The new entrants
in the top 250 list for FY 2020 included retailers from other countries like Russia, Ukraine,
Israel, Japan, and Greece apart from U.S. as well, but the current infighting between
Russia and Ukraine and a stagnant economy in Europe would result in drastic change in
the above list for 2022.

Concerns for Global Retailers:

 Inflationary trend across the globe

 Disrupted supply chain due to war and pandemic

 Tough monetary policy of leading economies to control inflation

 Short supply, but increased expectations from the labor market in many countries.

Therefore, the global retailers are increasingly shifting their focus to emerging economies
due to their better growth prospects when compared to mature economies in Europe as
well as U.S.A.

1.14 CAREER PROSPECTS IN RETAILING

There are ample prospects of employment opportunities and jobs in retail industry across
formats and locations. But one should be aware of the fact that the kind of education,
experience and exposure that one possesses should be in line with thepositions available
and match to the requirements of the retail organization. Just to make a mention that one
can build a career and grow with the industry in different sections/ departments etc. For the
benefit we below mention a couple of positions that one can look into and pursue.

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 Profiles in Back-end Operations:

 Vendor management executive: Are responsible for handling vendors who supply
merchandise to the outlet(s). They maintain a list of vendors who can be
approached to supply quality merchandise at the right time to the store so that the
store is not only able to meet the demands of the customers but also avoid any stock
outs.
 Warehousing executive: Is one who works closely with vendor management team to
ensure that right type of merchandise in right quantity is maintained in the store
warehouse or at redistribution centre (RDC). This merchandise can be delivered
to the store in the least possible time so that the store is neither overstocked or is out
of stock at any given point of time.
 Category management executive: is responsible for generating profitability of one or
more categories in the store, depending on the store size as well as the category in
question. The profile suggests in ensuring the placement of the right mix of
products, brands and SKUs in the assigned category. They also coordinate with the
backend teams for timely availability of the required SKU (stock keeping unit)

Operation Profile: -
 Department Executive /Manager: A department manager is responsible for one
department, floor or maybe even a category, if that category is too big, in the store
and reports to the store manager. A department executive would be reporting the
department manager in very large stores (hypermarket format) as the departments is
too huge to be managed by one DM.

 Manager- Retail operations: The role is to plan and coordinate the functioning of the
store as per the SOP (standard operating procedure) laid down by the
Head office. It includes store opening and closing activities, inventory audit,
supervising visual merchandising scheme and handling store level human resources
issues.

 Visual Merchandiser: As the name suggest they are responsible for giving the desired
‘look’ to the store’s brand by coordinating with retail communication team, back-end
operations team and brand management team.

 Business Development roles include setting up new stores in the chain or may be
closing/ relocation of the poor performing stores.

 Business Development (BD) Executive/ Business Development Manager: In order to set

up new stores, BD teams conduct locational analysis, negotiate land owner for lease
of space, work out the plan of the store, its merchandise, positioning in the local market
and stocking the relevant merchandise. Once the store is operational, they hand over
the charge to the concerned store manager and proceed to set up another store.

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 1.15 SUMMARY

Retailing encompasses sale of goods or services to the end customer for personal
consumption or household usage. Retailing can also be viewed as the last leg of the distribution
system for consumer goods or services. It includes range of products from small stitching
needle to a luxury car. Retailers collect assortment in bulk from various manufacturers or
marketers and break down into small quantities as per the demand from end customers.

1.16 SELF-CHECK EXERCISE

1. Write a short note online Retailers.

2. What are the challenges faced by Indian Retailers.

1.17 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 1.8

2. For answer refer to section 1.10

1.18 GLOSSARY
 Kirana Stores: Kirana stores are the Indian counterpart of Mom- a n d - P o p stores
selling all household and personal goods and general merchandise to Indian masses.

 Department Executive /Manager: A department manager is responsible for one

department, floor or maybe even a category, if that category is too big, in the store
and reports to the store manager.

1.19 TERMINAL QUESTIONS

1. What do you understand by Retailing. Explain in brief Category wise retail penetration
in the Indian Market.

2. Explain career prospects in Retailing.

3. What are the key growth drivers for Indian Retail.

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 Chapter-2
CONCEPTS OF RETAILING

Structure

2.0 Learning Objectives

2.1 New/Emerging Customer and Their Behavior: A Snapshot

2.2 The Wheel of Retailing

2.3 Classification Of Retailers

2.4 Brick And Click Model of Retailing

2.5 Evolution Of Malls Vs. Standalone Stores

2.6 Identifying Retail Store Location

2.7 Store Layout and Design

2.8 Supply Chain Management (SCM)

2.9 Merchandising

2.10 Private Labels

2.11 Retail Store Operations

2.12 Summary

2.13 Self-Check Exercise

2.14 Answers to Self-Check Exercise

2.15 Glossary

2.16 Terminal Questions

2.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 The Wheel of Retailing
 Classification Of Retailers
 Brick And Click Model of Retailing
 Evolution Of Malls Vs. Standalone Stores
 Identifying Retail Store Location
 Store Layout and Design
 Supply Chain Management (SCM)

2.1 NEW/EMERGING CUSTOMER AND THEIR BEHAVIOR: A SNAPSHOT

17
Indian consumers behavior is changing at a very fast pace with the advent of broad band
connectivity, infrastructural improvements, more disposable incomes, offer of personal loans and
EMI’s on purchases, door delivery of goods and services. The complexities arising out of these
changes are further catalyzed by the experiences of lockdown during COVID and visiting the
store after the end of pandemic.
Indian society is largely depicted as a trapezium with a burgeoning middle class. The middle
class can itself be characterized as upper, middle and lower middle class who vary in terms of
their disposable income and expectations. The attitude and lifestyle of an average Indian has
changed considerably in the last two decades impacting their purchase behavior. The
phenomena of sharing accommodation in metros and large urban cities, during college days
and initial career phase, hectic lifestyle focused on building career with new acquired skills in
unconventional domains, increased social engagements on social media and less personal
interactions, warding of many social taboos and embracing new social engagements, late
marriages and working actively till 70 years of age, aged parents living away from their children,
increased longevity of average Indian have all contributed to change in the demand pattern of
Indians. Indians have become more aspirational in a world connected through digital networks.
The earlier generations including people born till 1990s had been exposed to shopping at
traditional kirana stores, but the generations born post 90s have been gradually exposed to
shopping in modern retail outlets.
The traditional shoppers, still prefer shopping at kiranas which was characterized by offering few
but relevant options related to product, brand and SKUs, were present in proximity, offering credit
as per their level of comfort, providing options of buying in loose and being friendly and
trustworthy due to familiarity over generations. They are attracted by their acquaintance and
personalized behavior of the kiranawala, expect easy credit facility, are comfortable with close
proximity of the retail outlet and have a tendency to buy loose/unpacked products and
commodities as per their immediate requirements.
On the contrary the modern shoppers have different priorities. They view shopping as leisure and
entertaining activity, but also may settle for convenience if that seems to be more desirable in
a specific situation. They are attracted by ‘brands’, expect fresh and quality
stock, that too in huge variety. They prefer to indulge in credit/ debit card payment Therefore
the modern retailers are characterized by offering fun and leisure, providing all avenues of online
transactions as well as credit facility, providing large number of merchandise options with
attractive promotional offers and discounts on multiple issues and occasions.
The starting point for crafting retail strategy is an in depth understanding of the new and modern
customer. Thus the pressing need of the hour is a detailed understanding of the consumer
behavior in every region, be it city, state or region or country, helps the retailer in customizing
their services. Accordingly, retailers can plan their positioning in the concerned market which
leads to designing their merchandise, communication and add-on services.
McDonalds offering soup, potato or paneer burger or salads and other vegetarian dishes as

18
part of its menu in Asian countries, whereas McDonalds selling beer and meat pies in European
countries are a classic example of the same.

Emerging pattern of consumer behavior in era of Omni channel retailing:

Shoppers are involved in the utilitarian shopping for any high involvement category like Air
Conditioner or experimenting with a new category or product as they have easy access to all
relevant information online which they may supplement by store visit, but may end up buying
online due to better price-based offers.

While customers purchasing offline prioritize hedonic benefits over utilitarian or may be both
benefits. They value the services being offered in the store and the overall experience of relaxed
and satisfied shopping. Yet, the cultural, psychological and demographic diversity impacts the
purchase behavior and therefore retail chains have to be sensitive to these issues while operating
across different cities or countries. A classic example would be that of famous designer jewelry
retailer ‘Sarwosky’. The retailer had introduced special earrings for Indian women which could be
worn on pierced ears as per the tradition in India. This was entirely different from the earrings
being sold by them in western world where earrings are worn with clips, as ladies do not pierce
their ears.
The ability to ‘try out’ or experience the product at modern retail has in turn impacted consumer
behavior. The ‘situation’ created by the retailers in store provides an overwhelming environment
for availing that experience. This is relevant to categories like apparels, shoes and jewelry
where hedonic benefits are the more important. The ambience of the store further acts as an
influencer in swaying customers’ decision. Some retailers provide an additional
space for children in store to play, thus providing a stress free shopping to young parents.
This turns out to be an outing for the whole family. The trial room with full size mirror for trying
out apparels, footwear, jewelry, spectacles frames and personal care products like cosmetics are
examples of ‘experiences’.
The shop floor salesperson’s role cannot be underestimated as they are able to get full attention
of the customers without any distractions from any competitor’s message. The experience is not
limited to brick and mortar stores but are being attempted by online retailers through augmented
reality / virtual reality (AR/VR). Once these technologies mature it will be easy for online
retailers to imitate offline retailers to a great extent. The future trend would be more customers
only buying online, that too across more number of categories. For instance, a customer can
gauge at a virtual magic mirror at the retailer’s site and decide on the type of facial care product
to be used, based upon the feedback of this magical mirror on the skin texture of the individual.
Similarly a customer looking to buy a matching pair of trousers for his upperwear which may be
most appealing for his personality may use the services of virtual mirror which would offer the
best match through artificial intelligence (AI) based programme.
It is to be appreciated that retailing is inherently a service. Therefore the retailer offering the best
level of service in all forms i.e. touch and feel, social interaction, personal attention, no wastage
of time while shopping, convenience of looking for the right product, support for making fast
purchase decision, ease of payment, fast resolution of customer complaints and sundry services

19
like parking space, availability of children’s playing arena and shopping trolley or escorts till
vehicle parking would be the key success factors for any retailer in the offline format. Similar
factors would be applicable in the case of online retailing excluding barring some of the services
mentioned above.

2.2 THE WHEEL OF RETAILING

Wheel of retailing is a concept which proposes that a retail business by and large will go through
four phases of transformation starting from being a small and micro player based on price
discounts to a big well-known and prominent store. These four phases - Entry, Growth,
Stabilization, and Compete happen in a circular fashion for a retail player. Most of the retail
Businesses start on low cost, low price and low margins but as their sales start increasing they
quickly shift to a high cost, high revenue model.
It is to be noted that that, wheel of retailing is more of a business trend/development which
happens usually but it is not a rule. It may not happen to many players but it is more of a concept
which is observed in the market.

Retail business evolution at any place starts with a retailer offering value to customers through
low price, low margins limited facilities and few merchandise. As the area develops with
increasing population having higher expectation due to increased trading, upmarket retailers,
offering elite products are attracted to set up their business. Gradually that area becomes too
crowded due to large number of retailers targeting fixed number of buyers, leading to lower ROI
for the retailers. Thus the retailers further move on to set up their business in upcoming new
market / location where competition is less at the moment, so that they can avail first mover
advantage. Therefore, the wheel of retailing has completed one circle and the repeat evolution
of retail structure is witnessed afresh in this new market/ location. This is the basic and foremost
theory of retailing. Famous home grown retailers, like Haldiram restaurants, SarvanaBhavan,
Agarwal sweets, Café coffee day and foreign retailers like Walmart, McDonalds, Best Buy, Zara,
Lara etc. started their outlet in one city and then gradually entered new cities eventually crossing
domestic borders. At present their footprints are present across the globe in countries providing

20
enough opportunities for setting up their retail business.

2.3 CLASSIFICATION OF RETAILERS

Based on Ownership:

1. Independent store having one single outlet. In India 98% of the stores belong to this
category.
2. Chain of stores across cities and towns. This category account for 25% in advanced
economies but are very less in number in India.

3. Leased departmental stores where a department in the store is rented by the manufacturer
in lieu of rent for utilizing that space.
4. Franchising, the franchisor lays down norms for the franchisee to operate the outlet in lieu
of royalty to be paid to the franchisor for utilizing their business model.
5. Vertical marketing system, where the manufactures has a stake in the business of all
channel members till the retailing stage.

Store Formats

They are generally classified in two segments; Food oriented or General merchandise oriented
stores
Food oriented

1. Convenience stores: As their name suggests they are located in every possible nook and
corner of the city and carry over 1000 SKUs. They are generally over the counter service
outlets, known as kiranas in India.
2. Supermarket: large food store of 4K -5K square feet, but sells other daily needs
consumables as well. E.g.; Delhi’s super bazaar (closed now), Reliance Fresh outlets in some
cities.
3. Box Stores: They are essentially discount stores but also sell lower priced private labels
(own brand of the retailer) e.g.: D-Mart
4. Hypermarket: Very large sized stores with an area of 50K -100K sq. feet like Pantaloons,
Hyper city and Trent. They offer huge range of merchandise from,grocery, household items,
apparels, footwear etc.

General Merchandise:

Department stores: They are huge stores of over 10K sq. feet largely dominated by apparels.

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Brand Oriented: Stores can be classified on the basis of vaiety of ‘brands’ stocked by them. They
can be exclusive brand outlets known as “EBOs”. Merchandising decision of stocking exclusively
store brands can be a key differentiator in itself. Ikea, with its own brand of furniture, Zara the
garment retailer of Spain and Gap are popular examples of this strategy. This strategy gives
a lot of flexibility to the retailer regarding its positioning. This subsequently translates into the
breadth and depth of assortment on offer, as well as the promotions surrounding them.
Customers, who are brand conscious, prefer to visit these stores.
EBOs of some known marketers which were largely franchisee owned and operated had been
in existence in past as well, but their significance increased with the advent of modern retail. Now
the modern and large players prefer to have their own outlet so as to have better control on the
services being rendered to the end customers.
Multi Brand Outlets or “MBOs” stock multiple brands, may be, including their own brandslike
Reliance Retail, Croma, Vijay Sales. The objective is to provide more variety to the customers in
terms of brands. This apart, the traditional retailing i.e “General Trade” mostly are MBOs. Their
overheads are low, which translates in their offering lower selling price, their locational
convenience and familiarity of local population with these retailers have been the main stay of
the traditional MBOs.
Store Based Retailing: Retailing was largely store based till 2010. Apart form the various formats
mentioned above some other offline formats have evolved over the years.
Offline Formats:

Cash and Carry

Cash and Carry is primarily a wholesaler specifically catering to small retailers who buy on cash.
Thus this is a B2B business offering merchandise in bulk. It is convenient for the mom and pop
retailers as large set of merchandise are available under one roof and operational hours are
long without any weekly off. They pose a new threat to the traditional wholesalers and
distributors. As 100% foreign direct investment (FDI) is allowed in this format, Metro
AG of Germany is one such format operating in India. Tata’s have their outlet known as ‘Khet-se’
to provide fresh farm produce. Other players planning to enter in this business are India Bulls
and Videocon group.
Non- Store Based Retailing: The fast paced advancement in IT, AI and related emerging
technologies paved way and contributed to the robustness of transacting online business
resulting in fast development of non-store retailing on online platform. It is to be noted here that
non store retailing existed prior to the emergence of online retailing.
Catalogue Retailing: is a format where merchandise is sold by offering product catalogues
through salesman. The customers can go through the catalogue as per their convenience and
place orders with the salesman. Most popular examples have been Amway, Tupperware,
Modicare, Avin, Herbalife and Oriflame. With the emergence of online even they have now

22
switched to hybrid marketing strategy involving their online as well as offline channels.
Automated Vending Machines

Very similar to Bank ATM’s these automated vending machines are impersonal form of retailing
meant to sell lesser priced routine products like cigarettes, Tea, Coffee, cold drinks, mineral
water, etc. They are very common and popular in western countries, but in India they generally
found in airports, metro stations and some big stations or malls but the most popular services
provided by them in India is related to dispensing cash to retail customers of banks.

Video Kiosks

These are interactive video terminals connected to retailer’s server. A customer can surf through
the merchandise offered by the retailer and place orders and even make payments for the same
instantaneously. The ordered merchandise is delivered at the customer’s doorstep. They are
generally found in lobby of premium hotels and high traffic areas like railway stations.

2.4 BRICK AND CLICK MODEL OF RETAILING

Advent of internet technologies and services resulted in the emergence of ‘Brick and Click ‘model
which could be visualized as retailers resorting to multi-channel activities. Customers feel more
empowered to decide their purchase and are increasingly resorting to online purchases,
however, a large section of the population find it convenient to purchase through the traditional
Brick and Mortar stores (offline stores) either due to their lack of comfort with online activities or
transactional security or being comfortable with the “touch and feel’ before deciding their
purchase.
With passage of time the current generation and Generation Z which is more accustomed to
online activities would lead to extensive utilization of Virtual reality (VR) and augmented reality
(AR) by the retailers to add value to the purchase experience of the customers. The power
equation has been gradually shifting towards customers who have ample choice available and
can do detailed comparative analysis before making the purchase, thus putting the retailers
under strict profit margins. The situation in prevalent in emerging economies like India is
further compounded by the erratic availability of internet connections, low band width or may be
affordability of gadgets like smart phones or iPods, though the government is trying to remove
these bottlenecks and with the advent of 5G online business will witness a major boost.
With the introduction of Web 3.0 whose strength is on utilizing Block chain Technology, retailers
are in a better position to understand their customers throughout their journey. This will further
revolutionize the retail business model where the retailers would have to be more transparent
across their value chain. Online space has led to the emergence of different genres of e-
marketplace like Amazon, Flipkart. Myntra, Nykaa, Meesho etc. Apart from this third party
market place, retailers are also setting up their own portals for gaining better margins as well as
increasing the emotional attachment of their customers. The brick and click channel

23
has resulted in emergence of new shopping behavior: “showrooming “where customers visit
offline stores and end up buying online and “webrooming” which is vice versa. Therefore, what
started as multi channel activities has now evolved into omnichannel retailing, because the
sustainability of the retailer depends on how efficiently it is being managed the various offline and
online channels so as to enhance the customer shopping experience.

2.5 EVOLUTION OF MALLS VS. STANDALONE STORES

Structure and constituents of Malls:

Retail FDI in real estate had doubled during the year 2021 and Malls have been a significant
chunk of this retail. Most of the famous real estate players have invested in this sector which
includes the following:
Godrej Properties, DLF, Tata Housing, Raheja Group, L&T realty Ltd. India Bulls Real Estate,
Omaxe Group, Mahindra Life Space Developers, Hiranandani Communities, AnsalAPI and
Unitechgroup .

The latest one to join this elite club is the famous LULU group which set up one of the Asia’s
biggest mall in Lucknow (U.P.) in 2022.

Malls constitute the new shopping destinations for shoppers in Tier I and Tier II cities as they
provide whole sum experience to visitors due to variety of offerings. A typical mall comprises
of:
 Anchor stores, which are the large departmental stores of hypermarkets, located at the prime
position of the mall. They are also referred to as signature store specific to a mall.

 Smaller departmental/ apparel stores: These may be multi brand outlets (e.g. Pantaloons,
Globus etc.) or exclusive brand outlets (e.g. Zara, Van Heusen, Louis Philips etc.)

 Food court, showcasing varied type of eateries including national, regional and hyper local
brands.
 Common Maintenance area, meant for usage of all tenants of that mall as well as for
showcasing specific promotional events of the tenants on payment of a nominal fees.
Laws/Acts governing the Malls:

As malls are huge structure hosting many stores and shoppers at any time under one
roof, various laws are applicable to them. Some of the important laws are:

 National forest policy, 1988

 National conservation strategy and policy statement on environment and development,

1992
 Policy statement on abatement of pollution, 1992

 National environment policy, 2004

24
 The environment protection act 1986,

 The Water (prevention and control of pollution) Act 1974

 The water cess act, 1977: for sourcing domestic water,

 The Central/State groundwater regulations, 1981

 The Air (Prevention and control of pollution) Act 1981

 The Noise Pollution Rules, 2000

 The Municipal Solid waste rules, 2000

 The minimum wages act, of 1948

 The payment of wages act, 1936
 The workman compensation act, 1923

 The industrial employment (standing order) act, 1946

 The maternity benefit act, of 1961

 The child labor (prohibition and regulation) act, 1986

All acts related to manpower /labor presently being clubbed in four broad codes to be adhered
by all business establishments including retailing units.
Stand Alone Stores, refer to those stores which are present on high streets but are not a part of
any mall. The choice of being present in a mall or standing alone depends on various factors like
the strategic location, amount of visibility available to the store, its size, rental issues or the
store’s intended positioning. The whole issue boils down to the profitability of the store.

2.6 IDENTIFYING RETAIL STORE LOCATION

Setting up retail store at the most appropriate location is the most critical component of retail
strategy. It starts with identifying the target markets the retailer wishes to serve. The next step
involves segmenting the residents on the basis of various demographic, behavioral and
psychographic variables in a particular geographical area. The span of the geographical area
to be served by the retail store, known as “catchment area’ of the concerned store is based on
various factors like the number of potential customers having the targeted profile, the present and
future demand and supply scenario, the intended communication of the brand’s positioning, the
nature of competition and locational characteristics which influences the accessibility to the store,
the rentals and its presence, either on high streets or back lanes etc.
There are some retail gravitational theories which have been suggested by researchers, the
details are not being discussed as it inappropriate at this juncture. Yet, the decision to locate
the store does not depend only on the distance to be covered by a customer. The actual location
of the store requires deeper analysis. The location decision further involves meticulous planning

25
regarding its presence either in Shopping centre or Business district or maybe totally isolated
from these centers. If the store is to be located in a mall or shopping centre, then which floor
would be most suitable, considering the various factors stated above. Even the size and format
of the store may differ across locations, based on the expected business from a concerned store.

2.7 STORE LAYOUT AND DESIGN

The purpose of shopping in a modern retail store is to shop in a relaxed environment which can
also be construed to be a leisure trip. The shopping experience at any store itself acts askey
differentiator for that store. Therefore the store layout and design should aim at enhancing the
customer experience (CX). In the digital age this CX becomes all the more crucial to attract the
customers away from indulging in online shopping.The layout and design impact all sensory
organs of the customer and therefore should incorporate elements which can stimulate
customers’ senses in a positive manner.
The visual communication includes the name, logo, lighting, exterior of the store and fixtures
design inside the store. The background music should be soothing enough to evoke olfactory
senses. The store layout or planogram should ensure comfortable movement and location of
required product / brand on the shelfs while shopping. The merchandising element includes
selecting the right type of fixtures so that the relevant merchandise is presented in a visually
appealing manner. The merchandise mix, which incorporates the categories present in the
store, products varieties in each category, availability of different brands in different SKUs (stock
keeping units) should be in tandem with the preference of target customers residing in the
catchment area of a store.
Even the POS signage announcing any promotional offer on the merchandise should be visually
appealing and communicative so that customers can avail maximum advantage of the same
during their shopping trip. Overall the store ambience should be such that it should lead to an
enjoyable trip worth investing the time and money by the customers during their store visit.
Architects are hired to come up with innovative designs based on the available retail space,
the best possible entrance and exit pathways and the amount and type of merchandise to be
displayed.

2.8 SUPPLY CHAIN MANAGEMENT (SCM)

SCM refers to the effective movement and tracking of the materials from the stage of raw material
to semi finished and subsequently finished goods and finally ensuring that it reaches the right
customers at the right time and place at a cost affordable by them.
In the context of retailing business the vendors are referred as the companies the company’s
marketing their brand or vendors supplying the private labels to the retailers. Retailers while
operating in offline mode, the focus of SCM is to ensure the procurement of the right merchandise
for the customers residing in the catchment area so that they meet the expectations of the
customers during their shopping trip following Just-in-Time (JIT) inventory system. This
ensures optimal logistics and inventory carrying cost, thus impacting the profitability of the

26
store. With the retailers catering to online as well as offline customers in the digital age, SCM
has taken a primal role. Procurement of merchandise from different vendors and its distribution
to customers across vast geographical span demands a very lean and efficient SCM system in
the organisation.
For instance Reliance Jio mart, Shoppers Stop, Aditya Birla Retail follow the above model of
business thus having a robust system in place. Retailers have the option of either maintaining
their own redistribution centres (RDCs) where they temporarily stock their merchandise in
different localities after procurement from different vendors and till the time they receive any
order from a customer in that region or nearby areas. The transportation activities could be
handled by the retailer or outsourced to the third parties, popularly known as 3PLs.

Some small retailers prefer to totally outsource the warehousing and physical distribution to third
parties. Walmart, a known retailer from U.S.A. with stores spread across all over the world
follows the concept of Vendor managed inventory (VMI), wherein the vendors are given the
responsibility of managing their inventory at Walmart outlets. The advantage of this system is that
the vendors stock and supply only those inventory which have a high turnover. This ensures not
only their profitability, but that of Walmart as well. This system is nowbeing followed by many
retailers.

2.9 MERCHANDISING

Merchandising refers to planning the procurement and selling of merchandise or goods. As retail
is the last stage of any organisation’s supply chain, merchandising can also be perceived as
the SCM system applicable to retailers. As in the case of any production company, if the raw
materials procured are of standard quality, they will translate into quality output. Similarly, if
quality products are procured by the retailer, it will translate into good sales, thus impacting the
brand image of the retailer in the long run.
It is not just restricted to procuring quality product, but also planning the categories under
which variety of products would be stocked. The merchandise to be stocked would depend on
the target segments’ preferences and the positioning of the store in a particular market for e.g.
a well-known retailer like Bata operates two branded chain of stores, one by the traditional name
of ‘Bata’, other by the name of ‘HushPuppies’. Bata caters to value for money segment and hence
stocks mid priced and lower priced multi branded merchandise, whereas HushPuppies cater to
premium segment and hence stocks high priced Hush Puppies brand exclusively.
Another retailer “W” caters only to women’s clothing and hence stocks variety of women’s clothing
for all seasons, occasions, age and size. Once the products are decided upon, vendors are
involved in working out the set of “national brands” and “store brands” also known as ‘private
labels’ of the retailer as well as SKUs of each brand. The SCM system in collaboration with the
concerned vendors and the merchandising team calculates the inventory to be displayed in
the store as well as stocked in warehouse or RDCs for fast and
continuous replenishment. The merchandising team may add or drop a product, brand or SKU

27
 from the store’s portfolio depending on the emerging demand or their turnover at the store. They
may change the position of the category or the placing of the categories or products if the
current planogram is not achieving the store’s objective.

2.10 PRIVATE LABELS

Private labels or store brands are unique to retailing business. They refer to those brands which
are owned by the retailer and are exclusively sold at their outlets. These brands are manufactured
and marketed or only marketed by the retailer with their own brand name. Some popular
examples could be “croma’ brand of small appliances marketed by Tata Croma store or ‘Tasty
treat’ brand of processed and packaged foods marketed by Future Group or ‘Spencers True
Value’ brand of packaged grocery and food items marketed by Spencers.
The advantages of marketing private labels are many. The squeezed supply chain, because of
direct procurement from the vendor or manufacturer results in generating more profit margins.
Moreover, if a retailer has a strong private label portfolio it can dictate terms to large marketers,
selling their ‘national brands’ Private labels are the crux of modern retailing as this is where the
retailers earn maximum profitability.

2.11 RETAIL STORE OPERATIONS

Modern retail refers to big size stores compared to traditional retail and stocks much larger
inventory. Accordingly, they require huge amount of resources, capital as well as manpower.
In order to ensure smooth 24 X 7 operations of the store, retailers draft a standard operating
procedure for all the stores across the chain. There may be minor variations in the operational
procedure for each store based on its specific situation which is decided by the concerned
store manager only after prior approval of head office. It starts with laying down the procedure
for opening the store every morning, conducting inventory audit and following up with specified
process of billing, replacement, replenishment, after sale service, till the closing of the store at
the end of the day.

A standardised operating procedure ensures that there is consistency in the functioning and
clarity among all employees of the retailer. Various policies related to business hours of the stores
throughout the year, placing of products on the basis of Last in- First out (LIFO) or First in First
out (FIFO) on the shelves, returning / replacement of goods by the customers, visual
merchandising, floor personnel’s responsibilities during business hours are drafted and
communicated to the personnel for smooth functioning of daily operations at the stores.

2.12 Summary
Indian consumers behavior is changing at a very fast pace with the advent of broad band
connectivity, infrastructural improvements, more disposable incomes, offer of personal loans and
EMI’s on purchases, door delivery of goods and services. The complexities arising out of these
changes are further catalyzed by the experiences of lockdown during COVID and visiting the
store after the end of pandemic.

28
 SCM refers to the effective movement and tracking of the materials from the stage of raw material
to semi-finished and subsequently finished goods and finally ensuring that it reaches the right
customers at the right time and place at a cost affordable by them.

2.13 Self-Check Exercise

1. Write a short note on:
a. Supply Chain Management (SCM)
b. Merchandising
c. Private Labels
d. Brick And Click Model of Retailing

2.14 Answers to Self-Check Exercise

a. For answer refer to section 2.8
b. For answer refer to section 2.9
c. For answer refer to section 2.10
d. For answer refer to section 2.4

2.15 Glossary
 Cash and Carry is primarily a wholesaler specifically catering to small retailers who buy
on cash. Thus, this is a B2B business offering merchandise in bulk.
 Catalogue Retailing: is a format where merchandise is sold by offering product
catalogues through salesman.

2.16 Terminal Questions

1. Explain in Details New/Emerging Customer and Their Behavior.
2. Write a note on classification of Retailers.
3. What is the difference between Malls and standalone stores.

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 Chapter-3
RETAIL ENVIRONMENT

Structure
3.0 Learning Objectives
3.1 Retail Environment: An Overview
3.2 Retail Store as A Social Entity: An Introduction
3.3 Regulatory Framework for Retailers
3.4 Legal Framework of Retail Business
3.5 Legal Issues Related to Employees Include
3.6 Ethical Considerations and Responsibilities In Retailing
3.7 Security Considerations in Retailing
3.8 Sustainability Of Retail Organisation
3.9 Summary
3.10 Self-Check Exercise
3.11 Answers to Self-Check Exercise
3.12 Glossary
3.13 Terminal Question

3.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Retail Environment: An Overview
 Retail Store as A Social Entity: An Introduction
 Regulatory Framework for Retailers
 Legal Framework of Retail Business
 Legal Issues Related to Employees Include
 Ethical Considerations and Responsibilities In Retailing

3.1 RETAIL ENVIRONMENT: AN OVERVIEW

Worldwide, the retail environment is exposed and influenced by the external factors and
forces that affect the retailer’s ability to build and sustain meaningful transactions and
relationships with its target customers.
The environment in which retailers operate can be conveniently categorized as micro and
macro environment. While the micro environment confines itself to the main actors who help
enable to drive and achieve their goals and objectives of the business. These actors
include the suppliers, intermediaries, customers, competitors and publics at large. All these
actors have been touched upon and discussed in other the units of this course where ever
they are deem fit and relevant.

As the macro environment constitutes the legal, social, economic and technological forces.
The major focus of this unit is only on all these constituents of macro environment which are
inter connected in different situations and their strategic importance in every retail business

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3.2 RETAIL STORE AS A SOCIAL ENTITY: AN INTRODUCTION

Customers residing in a catchment area tend to shop in stores which fit well in the realm of
their social environment. This implies that different customers may shop in different stores
even if the product is same. It can also happen that customers may shop in different stores at
different times depending on their acquaintances during their different shopping trips. Even
their interaction with shopkeeper or store personnel would depend upon the sociocultural
milieu of the city as well as their own social network.
Thus customers shopping in a modern format would be more formal in their approach than
when dealing with kirana walas. Even the shoppers visiting a high end store would behave
differently as compared to those visiting mass merchandisers. These phenomena are mere
reflections of the social framework in a particular area.

Every store is an element of larger social system in a given geography, known as markets.
These markets are places of high traffic commercial transactions. Yet, the nature of
transactions differs in the form of emotional and behavioural reactions of different customers
or may same set of customers in different retail environment. A crowded or heavy traffic
environment generally encourages lower prices. The shopping objective is largely driven
by tendency to spend less time in shopping but buying lower priced products. Asian shopper
has been found to be more comfortable with shopping in crowded markets than majority of
their European counterparts.
This phenomenon is reflective of the fact that Asian countries are more populated than
European countries and therefore, the tolerance to “crowded life ‘is high. The concept of
crowding is also observed in the formats and the stocking of merchandise, especially in
traditional stores. The stores are extended beyond the permissible limits as sanctioned by the
city’s municipal corporation. These issues are not observed in modern stores in the same
locality as one section of the society which prefers avoiding the crowd in everyday life,
popularise these stores. These customers are more attuned towards the “shopping
experience” and therefore, are provided that opportunity to spend quality shopping time by
getting more involved in their shopping exercise and thus derive satisfaction. These set of
customers are additionally looking forward to better store ambience and more personalised
attention fromthe retailers.
As a result the POPs, visual merchandising (VM) and salesperson’s interactions are stressed
upon to enhance the customers’ level of involvement. Even the processes are to be kept very
customer friendly and minimal so as not to offend the customers. The modern retail also
provides an opportunity for group shopping, which has been observed to be an added
attraction for customers in Asian countries which are collectivist in nature as opposed to the
western societies which are individualistic in nature. Therefore, the quantity and variety of
stores operating geography is highly dependent of the socio cultural milieu of the concerned
catchment area.

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3.3 REGULATORY FRAMEWORK FOR RETAILERS

The Department of Promotion for Industry and Internal Trade (DPIIT), which falls under the
aegis of Ministry of Commerce and Industry, Govt. Of India is primarily responsible for drafting
the regulatory framework of retailing business in India. This department has been instrumental
with proposing foreign direct investment (FDI) in retail business in India over the years. Later
as e-commerce picked up, it has drafted policies related to e-commerce business as well, so
as to ensure common playing field for all stakeholders in this industry.
3.3.1 FDI in Retail

This policy envisages up to 100% FDI in cash and carry/ wholesale trade business as well e-
commerce (B2B) business. The policy also allows 100% FDI in single brand retailing. All the
above investment could be made through direct route. In the case of multi brand retailing a
cap of 51% FDI is in place with the condition that it could be achieved only through
Government approval.

The other important and strict conditions for attracting FDI in multi brand retailing are as
follows:

1. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh
poultry, fishery and meat products, may be unbranded.
2. Minimum amount to be brought in, as FDI, by the foreign investor, would be US $
100million.
3. At least 50% of total FDI brought in the first tranche of US $ 100 million, shall be
invested in 'back-end infrastructure' within three years, where ‘back-end
infrastructure’ will include capital expenditure on all activities, excluding that on front-
end units; for instance, back-end infrastructure will include investment made towards
processing, manufacturing, distribution, design improvement, quality control,
packaging, logistics, storage, ware-house, agriculture market produce infrastructure
etc.
4. At least 30% of the value of procurement of manufactured/processed products
purchased shall be sourced from Indian micro, small and medium industries, which
have a total investment in plant and machinery not exceeding US $ 2.00 million.
5. Retail sales outlets may be set up only in cities with a population of more than 10 lakh
as per 2011 Census or any other cities as per the decision of the respective State
Governments, and may also cover an area of 10 kms around the municipal/urban
agglomeration limits of such cities.

Likewise, DPIIT has circulated draft national e-commerce policy for wider discussion among
all stakeholders. The proposed policy is being drafted considering the efficient use of
cyberspace in facilitating all types of e-commerce activities as well as protecting the interests

32
of offline players.

The FDI policy in this case invites interests from ‘marketplace mod el” alone. This ensures
that foreign investors investing in e-commerce platforms cannot exercise ownership to stocks
being sold on the platform. This clause protects the small offline retailers of multi-branded
products. It additionally considers the case of local manufacturers/MSMEs, stockists and
traders so as to create a level playing field.

3.3.2 Regulatory framework for E-commerce

The proposed E-commerce policy is looking into many facets of e-commerce business. The
uniqueness of e-commerce business is the fact that apart from the customers who
benefitfrom lower prices, the actual owners, who may be operating from foreign land, are the
other beneficiaries in terms of their access to the vast set of customers’ confidential data and
low accountability of their services to the end customers. The return to the hosting country is
also limited. Given the interdisciplinary nature of e-commerce business, statutes related to
Information act and rules, the consumer protection acts, the competition acts have to be
considered while formulating the e-commerce policy. Since it falls under the interstate trade
and commerce, e-commerce policy formulation is the responsibility of the centre under
schedule VII of the constitution.
The foremost issue to be addressed here relates to data. Internet facilitates creation and
circulation of data. Greater access to data ensures faster growth of business. This creates a
monopolistic situation for first movers and these are generally IT giants who already have
infrastructure i.e. networks in place to capture and utilise the data for their benefits. Therefore
the Govt. is formulating policy to control the source of data to prevent its manipulation for
the benefit of few big players. Data privacy and its misuse have ramifications for law and
order problem as well. Integration of MSMEs and start-ups to e-commerce network for
achieving ‘Atmanirbhar Bharat’ is another essential component for policy framework. As the
returns to the hosting country are not commensurate with earnings of the owners, taxation
issue needs a thorough revision. Rules related to protection of consumer rights need to be
strengthened by incorporating electronic redressal mechanism and regulating unsolicited
commercial messages. The responsibility of commercial content on these platforms would lie
with the owners of the platform. The Govt. also plans to rope in the services of promoting
an ecologically sustainable environment through these platforms by promoting the concept of
‘reduce, reuse and recycle”.

3.3.3 Role of ONDC

Open network for Digital Commerce (ONDC) envisages creating an open network where
buyers and sellers can interact across platforms as against the present platform centric model
where only buyers and sellers present on any one platform can interact with each other. It
is an open network similar to internet as compared to intranet. Once it is fully operational, the
amount of e-commerce would increase manifold just as introduction of Unified payment
interface (UPI) by Government resulted in increase the number of digital wallet transactions
in India. Launch a robust ONDC is another step towards creating an enabling ecosystem by

33
Govt. of India.

3.4 LEGAL FRAMEWORK OF RETAIL BUSINESS

The laws related to functioning of corporate body, IPR, trade, tax and employment are also
applicable to retail industry. The legal framework is formulated under the overarching FDI
policy (discussed earlier) and FEMA (Foreign Exchange Maintenance Act 1999). The FDI
policy lays out two means of investment: The automatic routes and Government route. Under
the latter, prior approval of Foreign Investment promotion Board (FIPB) is essential.
Competition in India is governed by the Competition Act. 2002, amended further in 2007.
This act seeks to promote fair competition as well protect the rights of consumers under the
watchful supervision of Competition Commission of India (CCI).

CCI may review any agreement between business which may have adverse impact on the
players in the market and/or the consumers.
The Competition Act seeks to:

 Prohibit any abuse of dominant position by any player in the industry.

 Prevent any anti- competitive pact entered into, by two or more players.

 Regulate any type of conglomeration (mergers, acquisitions and amalgamations)

that may have an adverse effect on fair competition.
 Provide a redressal forum to adjudicate over claims and disputes
The amendment bill, 2007 ensures that parties entering into any combination of their
respective entities would have to seek prior approval from the CCI. In 2012 prior approval of
CCI was sought before the takeover of Future Group’s Pantaloon business by Aditya Birla
Retail Fashion Ltd. (ABFRL). In 2020, when Future Retail ltd. wanted to sell their whole
business to Reliance Retail, they sought the permission for the same from CCI.
The other significant acts to be considered are:

 The Trademark act

 The Indian Contracts act

 The Sale of Goods Act

 Acts pertaining to Central Sales Tax and Central excise duties

If we look at the various elements of any retail business, then any law related to: -

 Procurement of merchandise
 Store operations

 Sale of merchandise

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  Employee

 Consumers

are to be considered in detail. The existence of several enforcement and regulatory

authorities, at central, state and locals levels, governing a business entity requires a
number of licensing and approvals to be obtained before commencing operations.
List of Licenses required for starting a retail business in India include:

 Shops and Establishment licenses

 Trade License

 Cold Storage licenses

 Contract labour Registration

 Signboard license
 Forecourt License (for out of store sales, if any)

 Health and Sanitary License

Depending on the specific categories being retailed there may be other licenses to
be availed like:-

 Food License
 APMC license
 Eating House license

 Essential commodities Act –Storage control order

 License under Drug and commodities act.

 Approval from the concerned authorities include:-

 Fire Department NOC
 License for ground water usage

 State wise Service Tax registration

 DG set approval from Local electricity board

 Registration of manufacturers, packers and importers under Rule 35 of Standard

of weights and measures (Packaged commodities) rules

The above licenses and permits are required besides other basic registrations such as
registration for PAN, VAT, GST, TAN, ESI, PF etc.

3.5 LEGAL ISSUES RELATED TO EMPLOYEES INCLUDE

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a) Employee state insurance act (ESIC) 1948, seeks adequate social security for
employees during sickness, health related issues and mortality due to work related
injury. These benefits are meant for employees drawing a salary of less than INR
3000/- per month. This scheme is financed by contributions raised from employers as
well as the employees, in the ratio of 4.75: 1.75 of the wages earned.
b) Payment of Bonus act, 1985 as a section of Factories act is applicable to
establishment employing 1o to 20 workers and covers all employees earning less than
INR 2500/- per month.
c) Employee Provident Fund Act is meant to secure the future of the employee once
he/she retires or for his dependents in case their demise. It is applicable to
establishment employing 20 or more persons.
d) The Minimum Wages Act. 1948 determines the minimum wages in industry and trade
where labour organisations are non- existent or ineffective.
e) The trade union Act. 1926 aims to confer a legal status to registered trade unions in
the organisation and defines their rights and obligations.
f) The employment of women is a significant issue as half of the working force is women
in retail industry therefore the below mentioned laws/acts are applicable for women.
 The Contract labour Act, 1970,
 The Interstate Migrant workmen Act, 1979,
 The maternity Benefit act (upon completion of 80 working days),
 Equal Remuneration Act, 1976

g) The payment of wages Act, 1936 ensures that employees are paid regularly and
prohibiting employers from imposing arbitrary fines.
3.5.1 Legal issues in Store Operations

a) The Shop and Establishment license is issued by local Municipal Corporation only
when the store operation commences and is renewed every year. It provides rights and
obligations of the retail establishments. The shop has to get it registered within 30
days of commencement of operations and apply for closure of the establishment
within 15 days of its closure. It also states business hours per day and guidelines for
holidays, leaves, rules for employing children and women and termination of the
services of the employees.
b) The Prevention of Food adulteration (PFA) license has to obtain for selling food
products. If required, obtaining a machinery license for freezer/ chiller permit is
mandatory. These licenses are issued by Regional Food & Drug Administration and
Health officers in the name of the directors of the company, generally for a period of
five years. This act also specifies the manner of labelling food or non food products.
c) The Industrial Disputes Act, 1947 provides machinery for peaceful resolution of
disputes between employers and workers. It is applicable to all industrial and

36
 commercial establishments and covers employees earning INR 1600/- per month. It
excludes managerial staff. The act also serves as a reference of dispute for
adjudication and award of labour courts.
d) The Consumer Protection Act, 1986 is meant to protect the interests of the
consumers. It makes provisions for establishment of consumer council for settling
consumers’ disputes. It has been enacted to facilitate fast and low cost remedy to the
consumers and protect them from any intended exploitation by traders or service
providers. Complaints can be filed by aggrieved consumers in writing with District
Forum for compensation up to 20 lakhs, scale it to State commission for
compensation of 1 crore and National Commission for amount exceeding 1 crore.
e) Essential Commodities Act. 1955 administered by the Union ministry of Food
processing to regulate quality manufacturing, commerce and distribution of essential
commodities like food.
f) The standards of weights and measures Act. 1976 and the standard of weights
and Measures (Packaged Commodities rules) 1977, governed by ministry of law
and justice and department of company affairs is applicable to any packaged
commodity. It defines a pre packaged commodity as any commodity whose value is
fixed in the absence of the purchaser which cannot be altered without opening the
package. It requires detailing complete list of ingredients, their month of manufacture,
packaging and expiry. It should also list details of the person to be contacted in case of
any complaints. In case of vegetarian food products, the packaging should indicate a
green colour filled circle and a non-veg food should exhibit brown colour filled circle.
3.5.2 Other product specific certifications

The Bureau of Indian Standards (BIS), a national standards body of India working under the
Ministry of Consumer Affairs, Government of India provides certification on consideration of
health and safety like LPG cylinders, electrical and electronic instruments, milk powder,
packaged drinking water etc., but it is voluntary for other categories. It has provided nearly
35000 licenses to manufacturers covering all industrial discipline from agriculture to
electronics.
Hallmarking of Gold was introduced by BIS to prevent adulteration in sale of gold items as
gold is a most sought after metal in India. This benchmarking ensures that manufacturers and
retailers of gold jewellery maintain legal standard of fineness.

3.6 ETHICAL CONSIDERATIONS AND RESPONSIBILITIES IN RETAILING

1. Ethical practice of any business is driven by the value system of the

organisation. Retailer’s prime motive is profitability, yet these are very closely linked
with the social responsibility of their business venture. Therefore the retailer must
develop a set of values which acts as a guide to their appropriate behaviour.

2. Their core responsibility is towards recognising the rights of their customers. Retailers
should provide them ample freedom of choice during their shopping trips, be

37
 transparent in their dealings, deliver as per their promises and be supportive of their
customers’ grievances. Protecting the privacy of the customers’ have become critical
in this age of online transactions and in the absence of stringent laws some retailers
tend to flout the norms, but ethical retailers would always strive to follow some unwritten
norms for protecting their customers’ privacy.
3. The other significant stakeholders are the general public. Legislations to prohibit
hoardings and black marketing exist in the system, yet socially responsible retailers
strive to achieve the expectations of the society. Actions like providing recycled
packaging and baggage, donating to a cause, not participating in endorsing products
like tobacco or discriminating activities and taking a stand against any illegal activities
are reflection of their ethical behaviour.
4. As retailing is essentially about providing a good service to the customers, the onus
lies on its employees for satisfying the customers. Therefore, fair treatment of the
employees by implementing appropriate employee policies as enacted by the law of
land. A trustworthy relationship between employers and employees based on ethical
policies and related reward for good behaviour prevents pilferage by employees.
5. Retailers have to deal with multiple vendors, logistics partners, bankers, chartered
accountants, legal advisors and lenders. Their interaction with each in a transparent
manner results in delivering value to all these business partners.
6. Shareholders look forward to steady earnings from the retailer. Hence maintaining
high standard of governance is a strong protection from any regulatory or prosecuting
agency, whose penalising action can disrupt the smooth functioning of the retailer.
7. Apart from the above actions, retailers should be ethical in selling, pricing, storing
and distributing quality products /services. The top management’s actions should be
seen as ethical in every aspect. In case of any genuine lapses on their part or
grievances by the customer, retailer should be ready to recall their product and
replace it with equally good product. Ethical retailers have a robust “goods return
policy” in place to handle this issue.

3.6.1 Green tailing: As an Ethical Practice

With the danger of global warming and related destruction to the environment looming large,
every business entity, including retailers are expected to conduct business in an “environment
friendly” manner.
“Greentailing” refers to the business of selling environmentally friendly products and practice
environment friendly processes to run their business. JC Penny was the first retailer to earn
Energy star for their processes by reducing the carbon footprints of its operations. Many
retailers are encouraging their customers to return items not being used or empty packaging
of used products for recycling. Even the stores are being redesigned and customers being
educated about the significance of ‘mindful consumption’ by encouraging them to bring their

38
own bags for shopping, charging the customers for shopping bag in case they are not carrying
one. These shopping bags are themselves produced through recycled materials.
Timberland, a retailer launched eco-friendly footwear made of recycled rubber, which could
also be dissembled easily after its life and recycled again for future manufacturing of shoes.
The Bureau of Energy Efficiency in India has termed retailing as energy intensive industry.
Therefore the onus to reduce the carbon footprints lies on the retailers by implementing new
‘green practices’.

Food retailers are encouraged to adopt organic produce under Agmark with organic
certification as per the new clause in section 3 of Agricultural Produce (grading and marking)
Act 1937. The insignia for green produce under Agmark ensures credibility to the claims
of the retailer and assures the customer about the retailer and its offerings.

3.7 SECURITY CONSIDERATIONS IN RETAILING

Security of the store includes protection from external causes as well as internal
weaknesses or lacunae. The external reasons could be damages due to natural calamities or
due to law-and-order problem in the area. Government institutions like GIC, OIC or private
insurance companies like Bajaj Allianz, HDFC Ergo, Tata AIA and others provide commercial
insurance against the above-mentioned external factors. They are largely of four types of
insurance policies:
1. general liability insurance,

2. property insurance,

3. business Interruption insurance

4. cyber liability insurance.

Depending on the nature of business and retailer’s risk averseness, they can opt for all or
some of the above insurance policies.

The other security considerations are related to internal store operations. They refer to
shrinkages in inventory on account of employee theft or shoplifting. According to a survey,
India had the greatest shrinkage rate in 2016, costing INR 3470 crores (2.38 percent of total
sales of the organised retail industry). Inventory reduction as a result of theft in any form is
referred to as "shrinkage." The above percentage was made up of 25.5 percent staff theft
and
47.6 percent shoplifting.

Shoplifting are part of organised retail crime (ORC) This is a significant drain on the store’s
profitability and hence adequate measures are required to minimize it through fool proof
measures in place. The various measures should be such that pilferage should be contained
without either hindering the shopping experience of the customers or offending them in any

39
manner.
Preventive measures for internal security could be:

 Store layout should be designed in such a manner that it prevents chances of theft.
 Technological support in terms of installing detectors at exit, tagging all the products
with RFID (radio frequency identification device), installing security cameras and
mirrors at crucial points in the store. The Electronic Article Surveillance (EAS) System
is a combination of some of the above tools. It has given good results during the last
few years. Facial recognition technology is useful for check-out free stores which are
largely unmanned.
 Staffs are the key to any successful retailing as retailing is essentially a service. They
must be sensitized to be alert during the duty hours and maintain vigil throughout
business hours. Staff should be more approachable to the customer. A customer
friendly approach has to be adopted.
 Staff retention and welfare must be taken care by the store management. A continuous
interaction with staff and encouragement must be adopted by stores. A motivated
workforce would refrain from indulging in unethical and illegal activities. A good mix of
staff from diverse background contributes to building a cosmopolitan work culture,
which fosters diverting one’s energy in constructive ideas rather than indulging in
unethical activities.
 A standard operating procedure (SOP) based on proper and systematic inventory
management system acts as a deterrent for any errant employee or customer.
 Regular in house audit of one department by another ensures timely identification of
losses and formulating better checking mechanism in the system. These audits are
supplemented by annual external audits.
 All the above measures are significant as every retailer cannot afford high end
technological support to prevent various types of pilferage.

3.8 SUSTAINABILITY OF RETAIL ORGANISATION

The regulatory, legal, ethical and security framework defines the macro business environment
for retailing business in India. The sustainability of the retail organisations depends upon
them ensuring a proper fit between their business environment, their customers,
competitors and their business objectives. The purpose of creating a robust framework by
various arm of the society is to provide an enabling environment for the retailing industry
to flourish in India.

Retailing is not about just generating profit for the owners but being a socially responsible
business organisation, caring for the ecology, public at large and business partners, apart from
their customers. It started with government updating its FDI policy over the years considering
the changing business landscape in India.

Another issue at this point is the Government’s initiative to frame a robust e-commerce

40
policy in India under pressure from the offline retailers [represented through Retailers
Association of India (RAI)]. The huge discounts being offered by the big e-marketplace
players were endangering the livelihood of traditional as well as modern offline retailers;
therefore government intervened to come up with an e-commerce policy in place to safeguard
the interest of the offline retailers after consultation with all stakeholders which are being
revised as new developments take place in the marketplace.

Similarly, government has issued detailed guidelines regarding online transactions and
created online transactions platform known as UPI (unified payment interface) to ease the
digital transactions.

Growth of retailing will contribute to providing new employment avenues to a large section
of the population, more options for customers to fulfil their needs, increased business for
manufacturers, traders, logistics partners and IT system developers. All of the above
developments would contribute to increase GDP of the country.
3.9 Summary
The environment in which retailers operate can be conveniently categorized as micro and
macro environment. While the micro environment confines itself to the main actors who help
enable to drive and achieve their goals and objectives of the business. These actors
include the suppliers, intermediaries, customers, competitors and publics at large. All these
actors have been touched upon and discussed in other the units of this course where ever
they are deeming fit and relevant

3.10 Self-Check Exercise

1. What do you understand by Retail environment.
2. Explain ethical considerations and responsibilities in retailing.
3. Define security considerations in retailing.

3.11 Answers to Self-Check Exercise

1. For answer refer to section 3.1
2. For answer refer to section 3.6
3. For answer refer to section 3.7

3.12 Glossary
 Employee Provident Fund Act is meant to secure the future of the employee once
he/she retires or for his dependents in case their demise. It is applicable to
establishment employing 20 or more persons.
 The Minimum Wages Act. 1948 determines the minimum wages in industry and trade
where labour organisations are non- existent or ineffective.

3.13 Terminal Questions

1. Explain in detail regulatory framework for retailers.
2. Define legal framework of retail business.
3. What are the legal issues related to employees.

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 Chapter - 4
STRATEGIC RETAIL PLANNING PROCESS
Structure
4.0 Learning Objectives
4.1 Introduction
4.2 Steps Of the Strategic Planning Process
4.3 Importance Of Cost-Effective Delivery Planning
4.4 Role Of Values on Organizational Work Culture
4.5 Areas Of Influence Determining Strategic Planning
4.6 Situation Analysis - Identifying Current Issues
4.7 Strategy Development
4.8 Strategic Problem-Solving Diagnostic Model
4.9 Performance Audit
4.10 Indian Retail Sector
4.11 Summary
4.12 Self-Check Exercise
4.13 Glossary
4.14 Terminal Questions

4.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Importance Of Cost-Effective Delivery Planning
 Role Of Values on Organizational Work Culture
 Areas Of Influence Determining Strategic Planning
 Situation Analysis - Identifying Current Issues
 Strategy Development

4.1 INTRODUCTION

Strategic planning is the process by which an organization foresees its future and
develops thenecessary procedures and operations to achieve its objectives.

The planning process can be viewed as an iterative flow of topics and action points,
wherein the results from one step serve as input to the next step. However, the process is
not necessarily always flow in one direction.

Issues that arise in a particular step may cause the planning team to go back to an earlier
step to do some additional work. If desired, the order of the steps may be altered to suit
the particular needs of the planning team. The implementation step also does not
culminate in the planning process.
Analysis of results could lead to additional analysis or a change in strategic direction.

42
 Also, it is recommended that the plan be reviewed on a periodic basis to verify that all the
underlying assumptions are valid and that the implementation is progressing as per plan.

4.2 STEPS OF THE STRATEGIC PLANNING PROCESS

It is important to understand that the process of strategic planning is time consuming.

The following are some of the issues that need to be addressed before starting a
strategic planning exercise:
1) Determining who are in the planning team?
2) What is the planning time schedule?
3) Where and how often will the planning team meet?
4) Who will do the research and business analysis?
5) How will information be given to other stakeholders
6) Is the CEO committed?
Further, in all organizational plans, the only difference is the approach. Prior to starting a
newstrategic planning process, it is necessary to identify the earlier planning approach/es
that havebeen used in the organization and determine how the organization's culture may
have been affected. Addressing these cultural issues is critical to the success of the
incumbent planning process.
The following are the four possible approaches to planning:

Reactive: This approach is past oriented; an active attempt to turn back the clock to the
past. There is often a desire to return to the "good old days." People seek to undo the
change that has created the present, and they fear the future, which they attempt to avoid.

Inactive: This approach is present oriented, an attempt to preserve the present, which is
preferable to both the past and the future. While the present may have problems it is better
thanthe past. The expectation is that things are as good as they are likely to get and the
future will only be worse. Any additional change is likely to be for the worse and should
therefore be avoided.

Pre-active: This approach is about envisioning the future, an attempt to envision the future
and then to plan for the same. Technological change is seen as the driving force bringing
about the future, which will be better than the present or the past. The planning process
seeks to position the organization to take advantage of the change that is happening
around them.

43
 Pro-active: This approach is about creating the future, designing a desired future and
then looking for ways to create the future state. Not only is the future a preferred state,
but the organization can actively control the outcome. Planners actively shape the future,
rather than just trying to get ahead of events outside of their control.

The predicted changes of the pre-active planner are seen not as absolute constraints,
but as obstacles that can be addressed and overcome.

4.3 IMPORTANCE OF COST-EFFECTIVE DELIVERY PLANNING

As one would agree that all organizations big or small need some form of planning
processes. Often, the need for planning is even greater in a smaller company, where the
risk of being able to effectively respond to an ever-changing marketplace is limited by
internal capabilities.
The problem comes down to undertaking the planning in a cost-effective manner
especially incase of a company facing financial and human resource constraints.

To evaluate the level of resources needed to move the planning process forward, a self-
evaluation exercise needs to be undertaken to determine what the level of internal
awareness is
About the planning process and whether it exists.

If an organization is serious about developing its ability to envision its future, there must
be away to develop a critical mass of competent people in the required domain areas.
This requires an organizational awareness about its level of learning and the development
of alearning plan to move forward. Part of the learning plan is the identification of available
internal training resources and acquiring outside resources whenever needed.

4.4 ROLE OF VALUES ON ORGANIZATIONAL WORK CULTURE

The importance of values is integral to the organizational work culture. The personal
values of the members of planning team should be to empathize with each other.
Further, the values of Organization should be developed by answering the following:
 What is important to us; profit or growth?

 To what extent is the organization aspires to be a value-driven one

 Importance of being a good "corporate citizen"

 Importance of being a "good" place to work

This has to be aligned with the company's operating philosophy with respect to:

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  How work is done

 How conflict is managed

 What accounting procedures are in place?

Thus, the company's philosophy has an impact on other stakeholders who may start
questioning the underlying validity and relevance of assumptions for the future.
Internal Organizational Work Culture
Numerous internal, cultural factors determine the approach an organization takes to
the planning process and how the resulting plan will be implemented across the
organization.
Some of the questions that may come up are as follows:
a. Is the organization willing to seriously engage itself in the strategic planning process?
b. Is the organization ready to confront itself in the performance audit and gap
analysis phases?
c. What are the assumptions about the corporate mission?
d. What are the assumptions about communicating the strategic plan?

The Two Models of Work Culture

Two models of organizational work culture that can be adapted by retailers are described
below. One business operating style is not necessarily better than the other. Each style
has its advantages and disadvantages and can only be judged within the particular
circumstances faced by the organization.
The models are:
 Interpersonal Interaction Model of Work Culture
 Risk and feedback Model of Work Culture

Interpersonal, Interaction Model or Work Culture

This model is based on the following:
Power Culture: Strong leaders are required to allocate resources. Leaders are firm, but
fair and generous to loyal followers. If badly managed there is rule by fear, abuse of power
for personal gain, and political intrigue.
Achievement Culture: Rewards results, not unproductive efforts. Work teams are self-
directed. Rules and structure serve the system, not an end by themselves. A possible
downside is sustaining energy and enthusiasm over time.
Support Culture: Employee is valued as individual, as well as a worker. Employee
harmony is important. Weakness is a possible internal commitment without an external
task focus.
Role Culture: Rule of the law with clear responsibility and reward system. Provides

45
stability, justice, and efficiency. Weakness is impersonal operating procedures and a stifling
of creativity and innovation.
Risk & Feedback Model of Work Culture
This model is based on the following:
Macho, T o u g h -guy Culture: High risks, quick feedback of results. (Advertising,
entertainment)

Work-hard & Play-hard Culture: Few risks, quick feedback. (Sales driven)

Bet-the-Company Culture: High risk, slow feedback. (Aerospace)

Process Culture: Little to no feedback. Concentration is on "how" work is done.

(Highly regulated, government)
Understanding Culture: Interactive questions to ask
 Who sets the style and pace?

 What kinds of Role Model are there?

 "Do as we do" or "Do as we say?"

 What behavior is rewarded, condemned or ignored?

 Is feedback constant, intermittent, at job completion, or never?

 Are improper or unethical practices condoned through silence?

 What information is shared? (Needed vs. desired information)

 Is upward information flow constrained? (Do you really know?)

 How is superior performance encouraged?

 What type of performance appraisal system is used?

 How are the best qualified people recruited?

 Is training and development offered to everyone'?

 Are values backed up by time and money?

What is the relative importance of

 Bottom line results?
 Saving face?

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  Power building?

4.5 AREAS OF INFLUENCE DETERMINING STRATEGIC PLANNING

The strategic plan impacts, both external and internal stakeholders of the organization in
varying degrees. These must be recognized during various planning phases.
Some of the possible stakeholders are:
 End Consumers, Key Customer groups, if not direct to end consumer

 Distributors

 Product transporters, Intermediaries, storage service providers

 Employees
 Internal sale force

 Other support personnel for outside relationships

 Contractors (not really employees, but still impacted)

 Board of Directors

 Financial community
 lenders (long & short term)

 Interest groups

 Community (local residents)

 Environmentalists, social advocates
 Industry trade groups

 Public organizations

 Governmental (specify)
 Media, non-profit (local, regional, national, world)

4.6 SITUATION ANALYSIS - IDENTIFYING CURRENT ISSUES

Situation analysis is the process of determining the state of an organization’s

business for identifying gaps and taking corrective actions.
Some of the business tools that can be used for situational analysis are as follows:

47
 Environmental Modeling - External

 Competition Analysis

 Knowledge Analysis
 Environmental Modeling - External
Environmental Modeling- External
The tools help us to perform a Macro analysis of the following factors that may affect
theretailer’s business dynamics.
1. Raising prices, consumerism, employee attitudes toward work, national & world
economy, technological developments.
2. Industry - Structure, marketing strategies, financing, governmental regulation,
products.

Competitive Analysis - market segmentation, competitor profiles.

This tool helps us to answer the following questions about competitors.

1 Does anyone provide substitute goods or services to the same market?
2 Do we have an early warning system to detect competitor's strategies?
3 Can we create a sustainable differentiation through building internal capabilities
across the following?
 cost efficiencies
 maximizing return on capital employed

 reducing product sourcing cost.

 reduce expenses in marketing, administration.

This tool helps us to understand competition and search for opportunities. But it tells us
that do not let them dictate your actions as by reacting to the actions of others; you are
moving away from the ability to create your own future.

Example: Wal-Mart managed to become a retailing behemoth that is able to bargain the
price of products sourced from established manufacturing brands like P&G, Coke, and
Heinz etc. It has in turn passed on the cost efficiencies attained in sourcing to the end
consumer.

Knowledge Analysis
The tool is used determine the level of knowledge currently existing in the organizational
process. There are two types of knowledge, namely explicit knowledge and tacit
knowledge. Explicit knowledge can be defined by any of the following terms:

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 Descriptions Contribution to efficiency

Tacit Knowledge is hidden and not easily seen or recognized as being important. It drives
Competitive advantage.
Personal Knowledge Hard to articulate
Experience Hard to transfer
Know How Hard to copy elsewhere
Know Why High competitive advantage

Example: Wal-Mart runs one of the largest knowledge management systems that make
available sales patterns across its 200mm SKUs which it uses to decide its every day
merchandising mix and obtain competitive bargains from its numerous suppliers.

4.7 STRATEGY DEVELOPMENT

Before we proceed to describe the strategy development phase of planning, we

need toformulate the mission statement which should include the following:
 Why do we exist?
 What goods and services are we offering?
 For Whom - market segmentation (geographic, social, financial, ethnic) are we
cateringto?
 How do we achieve the market strategy?

 What are the present and future possibilities?

 What are our distinctive competencies/critical success factors?

Strategy development task is essentially a two-step process: Firstly, identifying strategic
thrustsand secondly determining what culture is required to support the chosen strategy
(s).
The basic strategy will fall into one of three focuses:

 Operational excellence - low price, efficient customer service

 Product leadership - product excellence and innovation

 Customer intimacy - emphasis on customer relationships within a specific segment.

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This trickles down to defining the organizational strategy. Further, most strategies are a
result of deliberate planning process or they may emerge as the result of a set of
incremental decisions.
Most realized strategies are the result of a combination of purely deliberate and purely
emergent strategies.
A brief description of these two types of strategies follows:

Deliberate Strategy: This process starts with an analysis of a company's current mission
and strategies. The most popular tool used in this process is the SWOT (Strengths,
weaknesses, opportunities, threats) model. The external environment in terms of
opportunities and threats is analyzed by examining threats to the company's current
position and new opportunities (new customers, new applications, unfulfilled customer’s
needs, etc.).
The analysis proceeds by examining the company's internal environment in terms of its
strengths and weakness. A mission and competitive strategy is formulated that matches
opportunities with strengths and plans are made to strengthen areas of weakness.

The next step is to develop functional strategies that support the overall business level
competitive strategy. Marketing, Human Resource, Financial, Operations, Information
Systems, and R & D strategies are developed that support the business unit strategy.

Finally, a control system (organizational structure) is designed to ensure that operational

decisions are made consistent with the business and functional strategies. When every
day decisions do not conform to the business and functional strategies, the Intended
strategy becomes an unrealized strategy.

Emergent Strategy: Emergent Strategies are the result of incremental decision making
that achieve some degree of consistency over time and launch the organization towards a
direction. When decisions are taken or problems are solved, they have potential strategic
impact.

As per the political model of decision-making, decision-making is, by nature, a political

process with various claimants attempting to influence each decision. When there is a
strong control system (powerful hierarchy) that ensures that decision makers satisfy
managerial constraints, intended strategies tend to become realized.

However, when other influences are stronger, or there is no clear direction, decisions are
made without regard to intended strategy and the organization takes on direction that is a
result of thecombined effect of these incremental decisions.

The execution of strategy happens across the corporate-level, business-level and

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functional- level.

Corporate Level Strategy: This involves answering questions like: In which particular
retail segment businesses should we be operating? What is the purpose of each of these
businesses? The following are some strategies that can be considered by the corporate
level team:

Integration
Forward Integration: Gaining ownership or control over distributors or retailers.

Backward Integration: Seeking ownership or control of suppliers.

Horizontal Integration: Seeking ownership or control over competitors.

Diversification
Concentric: Adding new or related product lines

Conglomerate: Adding new, but unrelated product lines

Joint Venture: Two or more sponsoring firms forming a separate organization for
cooperative purposes

Some of the other strategies that can be considered are as follows:

Market Penetration: Seeking increased market share for present products through
enhanced marketing efforts.

Market Development: Introducing present products in new markets.

Product Development: Seeking increased sales by improving present products.

Retrenchment: Regrouping businesses through cost and asset reduction to reverse

declining sales and profits.

Divestiture: Selling a division or part of business.

Liquidation: Selling off tangible assets, in parts for their tangible worth.

The following are the generic strategies that can be evaluated by the Business-level team:

Business Level Strategy: This involves answering questions like: How should we

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 compete in our chosen categories/formats? Business strategies involve determining the
basis of customer or client decision making. Generally, they are based on some
combination of quality, service, cost, time, and quality of the experience.

Cost Leadership Strategies: With this strategy a firm competes on price. Various
functional strategies all emphasize cost reduction. This is an effective strategy when the
market is comprised of many price-sensitive buyers, when there are few ways to achieve
product differentiation, when buyers do not care much about differences from brand-to-
brand example: (Coke vs. Pepsi), or when there are a large number of buyers with
significant bargaining power.
Some risks (potential threats) of pursuing this strategy are that competitors may imitate the
strategy, thus driving overall industry profits down, technological breakthrough in the industry
by other firms, or buyer interest may swing to other differentiating feature besides price.

Example: Firms know for this strategy is Wal-Mart, McDonald's which they have deployed
inall the major markets where they operate.

Differentiation Strategies: Differentiation strategies rely on some basis of product

differentiation such as flexibility, specific features, service, time and availability, low
maintenance, etc. as the basis for competition. Product development and market
research are generally necessary components of a differentiation strategy.

Generally, a successful differentiation strategy allows a firm to charge premium price for
its product. Organizations need strong R & D departments with strong coordination
between R & D and marketing departments.

Also, Human Resource strategies must place emphasis maintaining a competitive skill base
and motivating employees towards the basis for differentiation. Common risks (potential
threats) include; there may not exist the necessary price/feature trade-off among
customers to justify higher prices, development of a copy of the differentiating features
with cost-effective R & D.

Focus or Niche Strategies: A successful focus strategy depends upon an industry segment
that is of sufficient size, has good growth potential, and it not crucial to the success of
other major competitors.

Focus strategies are pursued in limited markets in conjunction with cost leadership and
or differentiation strategies. Focus strategies are the most effective when consumers
have distinctive preferences or requirements and when rivals are not attempting to
specialize in the same target segment. Risks of pursuing a focus strategy include the
possibility that numerous competitors recognize the successful focus strategy and copy
the strategy, or that consumer preferences drift towards those of the market as a whole.

Customer groups, geographic areas, and specific product lines are some bases of

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focus
strategies. Multiple strategies and combinations of the above competitive strategies.

Functional Strategies: These strategies help in addressing questions like how do

organizational functional units contribute to the business level strategies? How can
functional strategies be integrated to achieve competitive advantage? They constitute the
following strategies:

Marketing Strategies: How do we communicate our strengths to the customer? How do

we identify customer requirements and changes in customer requirements?

Human Resource Strategies: How do we recruit, train, develop, motivate, compensate,

and place employees so that behavior is directed toward the competitive strategy and
works to build competitive advantage?

Financial Strategies: How do we secure financial resources necessary to carry our

competitive strategy?

Operations Strategies: How do we design our processes to produce products and/or

service that meet customer requirements as specified in our strategy?

Information System Strategies: How do we provide decision makers, at all levels, with
information necessary to make decisions consistent with strategy?

Technological (R & D) Strategies: How do we develop products consistent with

customer requirements as specified in strategy?

Further, in addition to supporting competitive strategy through the development of the

functional strategies, functional specialists also provide tools and information used in the
development of strategy.

Changes in the Strategic Planning Process

Over the years, approaches to the planning paradigm have changed significantly. Listed
below are two of these trends; planning as an event versus continuous process.
Traditional models of planning consisted of a specific planning cycle with data every
couple of years.

The intervening years were periods of strategy implementation. Current thinking views
strategy development as a continuous process where systems are put in place to
continually monitor the environment and make changes and improvements on an ongoing
basis.

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 A move from transactional approaches to strategy implementation to transformational
approaches often referred to as empowerment or employee participation, a process of
employee involvement in the planning process which attempt to build commitment to the
mission and strategy is replacing transactional processes.

Transactional processes are typified by planning departments and top management (or
consultant) developed plans which are implemented through a reward-based control
system.

Further, transactional processes tap instrumental sources of employee, while

transformational processes are based on internal and external self-concept, and goal
identification bases of employee motivation.

4.8 STRATEGIC PROBLEM-SOLVING DIAGNOSTIC MODEL

Strategic Diagnostic Model

This is a simple diagnostic approach to diagnose the level at which the problem’s causes
exist. For example; a declining sales revenue, market share and stymied growth can be
caused by fundamental issues with the target domain of the company (markets and
products) down to a firm's inability to implement operational plans.
The model is a basic description of the levels of organizational analysis need to be done
which has been illustrated using the following flow chart:

54
55
Mission (Domain): Who are customers and what function(s) do we perform
Opportunities Core Competencies SWOT Analysis Market Research Techniques
Demographic Trends, Economic Forecasts Political Analysis.

Competitive (Business Level) Strategy: On What basis do we compete? Price Quality

Service Time/Availability Basis of customer product decision making Competitive
Advantage

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 Market Research Techniques.

Functional Strategies: Comprising of Marketing Strategy, Human Resource Strategy,

Financial Strategy, Operations Strategy Information Strategy, and Technology (R&D)
Strategy
– as described earlier.

Operations Strategy: How do we design our processes to produce products and/or

service that meet customer requirements as specified in our strategy?

Information Strategy: How do we provide decision makers, at all levels, with information
necessary to make decisions consistent with strategy?

Technology (R&D) Strategy: How do we develop products and services consistent

withcustomer requirements as specified in strategy?

4.9 PERFORMANCE AUDIT

It is essential for one to understand the role of performance audit. It is critical to reviewing
andcorrecting the strategic plan course.
Performance management is the process of determining the health of the organization in
terms of gauging the "soft" systems and "hard" systems put in place.

A performance audit may start of asking the following generic questions like:

 Which lines of business are most successful? Which are doing poorly? Are our
tackingsystems adequate?
 What are my organization's - strengths & weaknesses
 What are the key factors that influence my company's performance

 What are the outside - Opportunities & Threats

Some of the key factors that Influence a company's performance are as follows:
 The ability of management (all levels) to cope with change.

 The nature and effectiveness of the processes used to arrive at major decisions
to bring about change.
 The efficiency of the mechanisms utilized to implement management decisions.

 The internal methods employed to determine and track valid objectives.

 The effectiveness of the way information is communicated within the company.

 The quality of the personnel and attention to recruiting and selecting the proper
57
 quality and adding to their abilities with further training.
 Is risk management system in place to assess/uncover hidden business dangers?

Some other aspects that are likely to affect the performance of a business are as follows:
Historical Financial Statements
Financial statements show past results. They reflect the momentum of previous decisions
andcannot be viewed in isolation without consideration of inter-period changes and why
the change is taking place. Financial reports also do not reflect information that may not
have beenknown when the earlier decisions were made.

To what extent have past assumptions changed?

What are the potential impacts in the future?
What adjustments should be made when making decisions today?

Remember: Financial accounting is different from managerial accounting. Financial

accounting's objective is to record past actions within GAAP (Generally Accepted
Accounting Procedures). Managerial accounting converts company data to a form needed
for current decision making. If you use outside accounting or auditing services you will
likely be getting only "financial" accounting when you need both.

Reorganizations
Changing assignments will not correct the problems unless the underlying issues are
adequately identified and fully addressed.
Further, not knowing about a problem does not mean it doesn't exist. Ignoring issues until
they become obvious in the financial statements will mean that the problem has grown to
full maturity and will likely be reproducing additional "little problems" as the organization
tries tocope.
Let us remember: when everything is looking the best that is the time to pause and search
for hidden problems.

Personnel Orientation
Being "people oriented" does not mean that you can't look beyond the person and
concentrate on the situation. Concentrating on personnel is often a problem in small
companies where employees are relatives that may be handling business functions based
on their availability, not because of knowledge or experience. But this personnel
orientation is not limited to family businesses.
A retailer needs to answer the following questions:
 What criteria are used when choosing individuals for assignments?
 Are there differences between the ways different people are evaluated?
 To what extent is the "personal relations" contribute to the situation?
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 What approach is taken toward problem identification and
resolution? Some of the commonly used performance management
frameworks are:
 Gap Analysis
 Balanced Score Card
 Value-Chain Analysis

Gap Analysis: This is basically a reality test which may lead to compromise on both
ends, scaling of vision back or work to bridge the gap. Further, it may be impossible to
close all gaps simultaneously which calls for prioritizing efforts for implementation
provided the entire organization agrees to the full plan. It demands tracking and course
correction.

Balanced Scorecard: The balanced scorecard concept has gained popularity as a

method of implementing and tracking business strategy, with built-in measurements to
track progress.
Balanced scorecard is the analysis of the cause and effect of business processes needed
to successfully implement business strategy.

Perhaps, where the balanced scorecard has gone beyond past implementation
processes is the emphasis on factors other than the financial, hence the term "balanced."
As such there is more emphasis on leading indicators of future performance along with
the tracking of past performance, which are often stated in financial terms.

The framework lays stress on the following drivers of business success:

1. Financial objectives and measurements
2. Customer orientation
3. Internal processes
4. Learning and capability growth

Value-Chain Analysis: This framework lays stress on the following drivers of business
success:

1) Understand the customer

2) Define the offering
3) Manage the offering
4) Channel management
5) Identify & obtain locations
6) Develop marketing facility
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 7) Operate
8) Decide the exit Strategy
Thus value-chain analysis uses a drill-down process in establishing cause & effect
linkages that drive performance by focusing on the following three variables:
1. Objective
2. Strategy
3. Measures 4.
4.10 INDIAN RETAIL SECTOR
As one looks at the retail landscape of the most cities in India, one notices a rapid pace of
change which in turn is a reflection of the changes of choices, preferences, tastes and
lifestyle of Indian consumer. New retail formats have emerged in the Indian marketplace
overtime. Undoubtedly, Indian retail sector is poised for exciting times ahead.

The genesis of retail can be traced to barter trade. Many formats have evolved in previous
millennium that has been influenced by socio-economic development of the era. Indian retail
sector has evolved to cater to unique needs of our country since independence. Changes
in lifestyles, family structures, living spaces, aspirations and rising income levels have given
rise to emergence of a large number of formats at a rapid pace. The growth of malls and
launching of specialized malls like DLF Emporia saw advent of global luxury brands like
Cartier, Gucci, Louis Vuitton and Dio etc. in India.
Retail in India is highly fragmented and the Retail sector is in its nascent stage and mostly
unorganized. However, the sector has seen number of mergers and acquisitions leading to
market consolidation.
A key element of Indian retail is the models that are termed as traditional retail. These
include mandis, haats, melas and local kirana stores. The growth of smart phones and
increased internet penetration has played a key role in growth of e-commerce and the e-
retail. The key factor driving the growth in the retail sector is policy reforms ushered in by
the government.
The growth of urbanization and rising middle class has also significantly contributed to the
growth. Technology has also been a key driver. Other factors responsible for growth in the
sector include occupational changes, rise of social media and spending patterns of the
consumers.

4.11 SUMMARY
Strategic planning is the process by which an organization foresees its future and develops
thenecessary procedures and operations to achieve its objectives.

The planning process can be viewed as an iterative flow of topics and action points, wherein
the results from one step serve as input to the next step. However, the process is not
necessarily always flow in one direction.
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4.12 SELF-CHECK EXERCISE
1. What do you mean by strategic planning.
2. Write down the importance of cost-effective delivery planning.
3. Write a note on Indian retail sector.

4.13 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 4.1
2. For answer refer to section 4.3
3. For answer refer to section 4.10

4.14 GLOSSARY
 Forward Integration:Gaining ownership or control over distributors or retailers.
 Backward Integration: Seeking ownership or control of suppliers.
 Horizontal Integration: Seeking ownership or control over competitors.

4.15 TERMINAL QUESTIONS

1. What do you understand by strategic planning process. explain various steps of it.
2. What is the role of values on organizational work culture.
3. Explain in detail situation analysis.
4. Explain in detail strategic problem-solving diagnostic model.

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 Chapter- 5
MODEL OF RETAILING
Structure
5.0 Learning Objectives
5.1 Introduction: An Overview
5.2 Wheel of Retailing Theory
5.3 Scrambled Merchandising
5.4 Stages in Retail Life Cycle
5.5 Dialectic Process Theory
5.6 Theory of Natural Selection
5.7 Summary
5.8 Self-Check Exercise
5.9 Answers to Self-Check Exercise
5.10 Glossary
5.11 Terminal Questions

5.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Wheel of Retailing Theory
 Scrambled Merchandising
 Stages in Retail Life Cycle
 Dialectic Process Theory
 Theory of Natural Selection

5.1 INTRODUCTION: AN OVERVIEW

The retail industry has undergone a significant transformation due to changes in consumer
buying behaviours. Customers view their purchases from high-end retailers as a reflection of
their personal identity. Retailers can be grouped based on factors such as store locations,
operations, products and services, pricing, and marketing strategies. Consumers now have
diverse purchasing methods, so retailers must adapt their strategies accordingly. The retail
industry has become highly competitive, making it challenging for retailers to survive and grow.
To succeed, retailers must strive to create a unique and competitive edge in the market.
A retailer nowadays must aim to be dominating or position uniquely in some way if they are
to succeed. Once the business has achieved destination retailer status, customers may become
devoted to it and go out of their way to shop there because they perceive the business as unique.
We often equate "dominant" with "having a significant geographic footprint." However, both
small and large shops have the potential to have a significant impact on consumers' decisions
by controlling those made based on the amount of time, money, or status invested. There
are a variety of ways to be a destination retailer, as discussed in this unit, and fusing two or
more of these strategies can increase a retailer's appeal even further:

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 Attract price-conscious customers by being budget-friendly and emphasizing
affordability.
 Appeal to status-conscious, full-service customers by offering upscale products and
services.
 Target customers who value convenience by offering practical shopping options, such as
local locations or extended hours.
 Attract customers by offering a wide variety of products and an exceptional shopping
experience.
 Address customers' dissatisfaction with poor retail service by providing outstanding
customer service.
 Stand out from competitors by implementing innovative and unique business
strategies and identifying market opportunities for new products and services.

Numerous theories exist to explain the current organization of the retail sector and foretell the
future growth of both existing and new retail forms. This unit discusses the wheel of retailing
theory, scrambled merchandise theory, retail lifecycle theory, dialectic process theory, and
the theory of natural selection. However, the retail lifecycle and the wheel of retailing are two
significant theories in this arena.

5.2 WHEEL OF RETAILING THEORY

A well-known concept for analyzing changes in retail institutions is the wheel of retailing. McNair
first proposed this theory in 1931, and Hollander later made changes to it.McNair focused on
how retailing has changed, explaining that a retail business begins by offering low prices, basic
product characteristics, and minimum services at a small profit margin. Then it gradually
develops into a brand that provides a broad choice of goods, high-priced, superior
services, and several other amenities at a huge profit margin. It is predicted on the idea that
consumers who are price-sensitive are not store-loyal, and therefore new shops will be better
able to implement lower operating expenses than existing ones.
This theory suggests that retail establishments have cycles as they grow (refer to Fig. 1).
When low-end merchants improve their tactics to boost sales and profit margins, new types
of low-price (discount) retailers begin to emerge in the market.

The wheel of retailing theory also states that retail innovators frequently start out as low-cost
operators with minimal profit margin requirements. Prices increase when entrepreneurs add
higher-quality items, move into more expensive locations, offer credit and delivery services, and
make other improvements to their facilities and customer service over time. The retailing wheel
is brought on by the fact that as innovators get older, they are more open to competition
from new discounters offering lower prices. Retail innovators frequently pose as low-cost
vendors.
When new competitors enter the market, institutional changes take place, as described by the
retailing wheel. As the retail establishments start the cycle by offering low pricing and subpar
services, the upgrade happens next. Retailers who want to grow their business and draw in
more clients can increase the volume and quality of the goods they handle, offer more
63
services, and open stores in more accessible areas. A new competitor could enter the market
using low-priced techniques as a result of the rise in operating costs and pricing.
The wheel is based on the following four ideas:

(1) Many consumers who are price conscious may sacrifice good customer service, a large
assortment, and convenient locations in favor of reduced costs.

(2) Customers who are price-sensitive are often disloyal and will try to switch stores that offer
lower prices. Customers who value prestige, on the other hand, prefer to shop at establishments
that employ upscale practices.
(3) Operating costs for new institutions are often lower than for established ones.

(4) Retailers often move up the wheel to boost sales, expand their target market, and enhance
their reputation.
For instance, the full-line discount store (headed by Walmart) grew because typical
department store prices became too exorbitant for many customers. Due to cost-cutting
measures such as a tiny sales team, low-rent store sites, the use of cheap fixtures, an emphasis
on high stock turnover, and only accepting cash or checks as payment for items, the full-line
discount store placed a premium on low prices. After that, as full-line discount retailers
gained success, they frequently tried to advance a little further down the wheel. This required
expanding the sales team, renovating sites and furnishings, stocking a wider variety of goods,
and taking credit. Higher expenses as a result of these enhancements resulted in marginally
higher prices. Newer discounters, like off-price chains, flea markets, and factory outlets,
expanded to meet the demands of the most price-conscious consumer, putting the wheel of
retailing back into motion. Discount online retailers have emerged more recently, some of which
offer extremely low prices due to the lack of "brick-and-mortar" infrastructure.

The wheel of retailing offers three fundamental strategic positions: low end, medium end, and
high end (refer to Figure 5.1).Retailers who adopts a medium strategy may face challenges if
they are not perceived as unique or differentiated from their competitors. This can be particularly
problematic in mature formats such as department stores. Competitors at the higher and
lower ends can take market share away from a middle-of-the-road retailer. It’s merchandising
strategy of offering a wide range of mid-priced goods and services, and failure to adapt to
changes in the department store market (such as the emergence of low-end and high-end
stores) is putting its survival as a retailer at risk. Figure 1 illustrates the contrasting options to
take into account when developing a strategy mix.

According to the retailing wheel, established businesses should proceed with caution when
introducing new services or shifting from a low-end to a high-end approach. Price-conscious
customers are not often loyal; therefore, they are more likely to switch to companies with
lower prices. The competitive advantages that previously drove profitability may also be
eliminated by retailers at that point. The retailing process initially consists of a three-part
cycle. Each stage is outlined and explained in the following section.
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65
First Phase: Entry

This stage demonstrates how new types of shops enter the market as operators offering basic
commodities in low-status, low-rent sites with minimal margins.

Second Phase: Trade-up

As shops experience success, they upgrade their locations, increase their service
offerings, and infuse ambiance into their product lines.

Third Phase: Vulnerability

Low adaptability and a high-cost structure characterize this phase. The same pattern is
followed by new sorts of low-cost, low-margin retail competitors, making existing businesses
susceptible.

This idea considers environmental changes that are taking place. Management becomes
unable to respond to risks to the company if it diverges from market realities. At first, McDonald's
only provided a limited menu and services. However, as time went on, it began to offer
sporting facilities as well. It paved the way for other new, inexpensive fast-food businesses to
launch in order to close the gap left by McDonald's upward progress.
Similar to this, full-line discount stores (like Wal-Mart) emerged as a solution when traditional
department stores were inaccessible due to high pricing for a sizable portion of the population
wanting more value. As a result of a similar atmosphere, Big Bazaar in India developed as a
bargain retailer to serve price-sensitive Indian customers.

5.3 SCRAMBLED MERCHANDISING

While the wheel of retailing concentrates on product value, ultimate price, and customer
satisfaction, scrambled merchandising entails a merchant broadening its product and service
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offerings (the number of different product lines carried). When a merchant adds products and
services that are not related to the company's core competencies, this is known as scrambled
merchandising.
Retailers frequently add highly profitable goods and services in an effort to boost overall
sales and make them fast-selling. Additionally, consumers buy more on impulse, prefer one- stop
shopping, can reach numerous target audiences, and are less affected by seasonality and rivalry.
In addition, a retailer may find it difficult to maintain and expand its consumer base as its
original product line(s) lose popularity. Starbucks, for instance, now faces stiffer competition in
the coffee market from restaurants like McDonald's, Dunkin' Donuts, and others that have
upgraded their offerings, despite the fact that its in-store coffee sales are still strong. In addition
to coffee, Starbucks also sells a wide range of items, including pastries, salads, breakfast items,
sandwiches, shakes, and more.

Scrambled merchandising leads to increased competition among various types of retailers,

and as sales are spread out over more stores, distribution costs are impacted. Other drawbacks
to scrambled merchandising include the potential lack of retailer expertise in purchasing,
Reselling, and providing services for unrelated items; the costs of a wider selection; and the
potential damage to a retailer's reputation if scrambled merchandising is unsuccessful.

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 For example (refer fig. 2), a shoe store may sell shoes, socks, shoe polish, sandals, and
slippers under original merchandising, but when it enters scrambled merchandising, it
may
Objective of a shoe store deviates to unrelated products, this leads to competition for those
original retailers selling handbags, belts, gloves, sweaters, hats, umbrellas, scarves, etc.

5.4 STAGES IN RETAIL LIFE CYCLE

A retail format goes through a series of recognizable stages known as the retail lifecycle
throughout its time. Figure 3 displays the retail life cycle and their stages.
According to the retail life cycle theory, retail establishment go through four distinct stages of
development: introduction (early growth), growth (rapid development), maturity, and decline. This
idea can be used to determine the direction and rate of institutional changes.

Development stage

The new format is released to the market while it is still in the development stage. As at least
one component of the marketing mix is transformed in the new format, it differs from the
strategies of existing retail institutions.

Introduction Stage

During the introduction phase, sales and profitability are initially low but gradually rising. As long-
term success is not yet secured, costs and risks are high. In the launch stage of the cycle, there
is a marked shift away from the strategy combinations of established retailers. The strategy mix
of a company in this stage is significantly different from that of traditional competitors in at least
one aspect. For the first companies in new industry, sales and earnings often experience a
significant increase.Long-term success is still uncertain at this point. There is a possibility that
new businesses may not be well-received by consumers and early investments could result in
significant financial losses.
For example, a new retail concept, such as Amazon entering a new market, such as India.
Growth Stage

The rapid growth of sales and revenues is a characteristic of the growth period. Markets for
existing businesses are expanded, while new competitors using the same retail model enter
the market. By the end of this phase, growth has slowed, and costs have begun to rise.

Both sales and profits expand quickly during the growth stage. Existing businesses grow
geographically, and new businesses of the same kind enter the market. Cost pressures (to pay
for a larger staff, a more complicated inventory system, and stringent controls) may start to have
an impact on profits at the conclusion of accelerated development.
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For example, A rapidly expanding retail chain, like the Chinese e-commerce giant Alibaba, as it
expands its reach, customer base shows an accelerated growth. Similarly, Japanese casual
wear designer and fast fashion retailer Uniqlo becoming more popular is an example for its
growth phase.

Maturity Stage

The maturity stage of the retail life cycle is characterized by slow sales growth. While overall
sales may still increase, they are rising at a significantly slower rate than in earlier phases. To
boost purchases, it may be necessary to lower profit margins. The maturity stage is often caused
by market saturation due to multiple businesses in an institutional setting, competition from newer
businesses, changing societal priorities, and a lack of management skills to lead established or
larger companies.When maturity is attained, the objective is to maintain it for as long as
possible without declining.
For example, a well-established brand such as Walmart in US has a stable customer base,
market share and revenue. This brand is in its maturity phase of its retail lifecycle.

Decline Stage

In the final stage, there is a decline; characterized by decreasing prices, profitability, and
sales volumes. Businesses may try to reposition their retail structure to avoid decline, but
many do so to retain existing customers or attract new ones.
During this phase, many businesses abandon their format, and create a new format to attract
customers who were previously loyal to that type of retailer. In certain situations; a decline
may be difficult or nearly impossible to turn around. In other cases, it may be prevented or
delayed by repositioning the business.

The life-cycle concept highlights the need for retailers to adapt as formats evolve. The initial
objective should be growth, followed by the building of management and operational capabilities
as the business matures and finally, flexibility at the end of the cycle.
An example of a decline stage in retail can be seen with the decrease in popularity of
specialty stores due to competition from online retailers. Another instance is traditional

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bookstores, which are experiencing a decline as electronic books become more prevalent and
meet consumers' needs.

Source: (Berman et al., 2017)

Figure 5.3: The lifecycle of Retail

5.5 DIALECTIC PROCESS THEORY

According to this theory, retail establishments change with time and take on novel forms.
This theory is also called the "melting pot" theory. Additionally, it implies that new retail formats
develop by incorporating traits of different types of merchants. Similar to how a child's DNA
comes from two separate parents and may not perfectly match either of them, this also
occurs. The introduction of new retail formats maintains consistency with those already in use.
It provides a clear and logical framework for comprehending the evolution of current retail forms.
The evolution of the new retail establishment is comparable to that of synthesis, which results
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from the fusion of a thesis (a notion or idea) and an anti-thesis (the opposite concept or idea).

One such instance is the birth of a new retail format called "electronic direct marketing" as a
result of the convergence of "traditional" (store-based) and "direct marketing" (home-based).

The Dialectic Process Theory can also be demonstrated by the emergence of multi-channel
retail (refer fig. 4), which combines physical and online retail to offer a brick-and-click business
model. This is a result of the convergence of physical retail, which has limited reach, and online
retail, which has a wide reach.

Figure 5.4: Dielectric Process in Retail

5.6 THEORY OF NATURAL SELECTION

The progression of retail businesses from traditional stores to various types of retail outlets
was first examined by Dreesman using the Darwin Theory of Natural Selection. It suggests
that natural selection also occurs in the retail industry. Adapting to changes in the
environment is crucial for the survival of retail formats. Some recent developments include,
 Specialty retail formats for specific product categories such as baby clothing and toy stores
have decreased as discount stores and category killers gained more market share.
 Traditional food retailers in India are facing competition from fast food chains as lifestyles
change.
 Traditional bookstores are facing competition from online booksellers such as amazon.com in
the USA.

Traditional book merchants may feel challenged by organized retailing in India, which is
expanding at a rate of more than 30%. In order to lessen the danger posed by internet-based
merchants, several brick-and-mortar retailers are actually pursuing numerous channels.
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The retailing industry is always changing as a result of these changes in demand. Future
developments will further integrate the retail value chain. Now, retailers want to be in charge of
the supply chain, which is nothing but backward integration. Retailers of clothing like Pantaloon
and Koutons have established their own production facilities or have signed exclusive
agreements with their suppliers. Manufacturers and suppliers, on the other hand, desire direct
consumer contact in order to strengthen their brands and boost profitability. This is called
"forward integration." Arvind Mills and Mudra Coats, for instance, have established their own
retail chains and brands. In general, we can state that businesses that provide the most value
have the best prospects of surviving in the retail industry.

Home renovation and home furnishings retailers are doing well with the boom in housing sector
in India, as a result of demographic shifts like the migration of people from urban centers to
suburban areas, which led to the establishment of new shopping centers to satisfy the
demands of the new inhabitants.

Change is constant in the retail industry. Retailers need to understand the nature and causes of
the shifts in order to create effective solutions. A few changes include altered shopping
habits, shortened product life cycles, and others.

The retail industry is in a constant state of change, and one of the major factors driving this
change is consumer behaviour. In recent years, consumer purchasing habits have shifted, and
retailers must adapt to these changes in order to survive and thrive in the industry.
One of the biggest changes in consumer behaviour is the shift towards online shopping. With
the rise of e-commerce, consumers are now able to purchase products and services from the
comfort of their own homes. As a result, retailers must now have a strong online presence in
order to remain competitive. This means not only having a website but also utilizing social media
and other digital marketing strategies to reach and engage with customers.

Another change in consumer behaviour is the shift towards experience-based purchasing.

Consumers are now looking for more than just a product or service; they want an experience.
Retailers must now focus on creating an immersive and engaging shopping experience for
customers. This can include interactive displays, personalized customer service, and events
and activities in-store.

Consumers are also becoming increasingly conscious of sustainability and ethical issues.
They are looking for retailers that align with their values and are taking steps to minimize
their environmental impact. Retailers must now take into account their own sustainability
practices and communicate these to customers in order to appeal to this growing market.

Additionally, consumers are also looking for convenience and flexibility in their shopping
experience. Retailers must now offer options such as click and collect, home delivery, and
extended hours to meet these demands.

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 In conclusion, the retail industry is constantly evolving with the changes in consumer behaviour.
Retailers must now focus on creating an immersive and engaging shopping experience, having
a strong online presence, being conscious of sustainability and ethical issues, and offering
convenience and flexibility in order to stay competitive in the market. Those who fail to adapt to
these changes may struggle to survive in the industry.

Due to the complexity of the retail sector, multiple theories can be used in the same scenario
at once. For instance, there may be more than one theory that applies to a particular retailer

5.7 SUMMARY
A retailer nowadays must aim to be dominating or position uniquely in some way if they are
to succeed. Once the business has achieved destination retailer status, customers may
become devoted to it and go out of their way to shop there because they perceive the business
as unique. We often equate "dominant" with "having a significant geographic footprint."
However, both small and large shops have the potential to have a significant impact on
consumers' decisions by controlling those made based on the amount of time, money, or
status invested.

5.8 SELF-CHECK EXERCISE

1. What do you understand by Scrambled Merchandising.
2. Explain theory of natural selection.
3. Explain dialectic process theory.

5.9 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 5.3
2. For answer refer to section 5.6
3. For answer refer to section 5.5

5.10 GLOSSARY
 SCRAMBLED MERCHANDISING: While the wheel of retailing concentrates on product
value, ultimate price, and customer satisfaction, scrambled merchandising entails a
merchant broadening its product and service offerings (the number of different product
lines carried). When a merchant adds products and services that are not related to the
company's core competencies, this is known as scrambled merchandising.

5.11 TERMINAL QUESTIONS

1. Explain in detail stages in retail life cycle.
2. Explain wheel of retailing theory.

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 Chapter-6

BASED ON OWNERSHIP

Structure
6.0 Learning Objectives
6.1 Introduction
6.2 Independent, Single Store Ownership Structure
6.3 Corporate Chain Stores
6.4 Franchising
6.5 Leased Stores/Departments
6.6 Cooperatives for Consumers
6.7 Vertical Marketing System
6.8 Dealership
6.9 Network Marketing
6.10 Summary
6.11 Self-Check Exercise
6.12 Answers to Self-Check Exercise
6.13 Glossary
6.14 Terminal Questions

7.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Independent, Single Store Ownership Structure
 Corporate Chain Stores
 Franchising
 Leased Stores/Departments
 Cooperatives for Consumers
 Vertical Marketing System

6.1 INTRODUCTION AND OVERVIEW

A retailer's value creation for consumers and market appropriation are described in detail
in its retail business model. In the retail industry, a business model would determine the goods
and/or services that the retailer would sell, as well as the pricing strategy he would use. There
are many distinct sorts of retail shops, and the lines dividing the large range of retail firms
have become noticeably blurred across the board.

Like any other sort of business, a retail store can be owned by various kinds of companies. It
could take the form of a sole proprietorship, a partnership business, a corporate chain, a
cooperative organization, a joint venture, or any other legally permissible format.

Every business has its own way of planning the various tasks required to provide its products
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or services to customers. The basic structure of a business is known as a retail institution.
When choosing an ownership model, defining the product or service category, setting goals,
and establishing a company mission, institutional analysis plays a crucial role in strategic
planning. These analyses show the extent and diversity of different types of retailing and
emphasize the impact of the external environment on various merchants. Retail companies
can be owned independently, as part of a chain, run by franchisees, located in leased spaces,
owned by manufacturers or wholesalers, or publicly owned.

This unit deals with the different forms retail businesses and the basics of their ownership
structures. The retail industry has developed a wide variety of ownership arrangements over
time. Depending on how well the approach is implemented, each ownership format fills a
specific market niche. The following structures are most widely used:

 Independent, single-store ownership structure: Independent stores take

advantage of a niche market of customers and treat them with friendliness and
informality. It's crucial to communicate by word-of-mouth. These merchants shouldn't
try to service an excessive number of consumers or engage in price competition.
 Corporate chain stores: Chain stores profit from their well-known brands,
economies of scale, and opportunities for mass advertising. They should uphold their
reputation everywhere they do business and be willing to adjust as the market requires.
 Franchising: Due to franchisee investments and the encouragement of franchisees to
become owner-operators, franchisors have a wide geographic reach. They shouldn't
become hindered in policy disagreements with franchisees or impose disproportionate
royalty payments.
 Leased Stores and Departments: Leased departments give store owners and outside
parties the chance to collaborate and improve the shopping experience while splitting
costs and resources. They shouldn't damage the store's reputation or put the lessee
under undue pressure to increase foot traffic.
 Vertical Marketing System: A vertically integrated channel allows a company more
control over the sources of supply, but it shouldn't offer customers too few options or
retail locations.
 Consumer cooperatives: Due to shared ownership of a warehouse and pooled
purchasing, cooperatives provide members with cost savings. They shouldn't set
unrealistic expectations for member participation or build facilities that significantly
increase prices.
 Dealership: The system functions as a hybrid of a franchise and an independent store,
and the licensor is not entitled to any royalties or fees.
 Network marketing: This is a retail business concept where a person makes a
commission by selling the company's goods to friends, family members, and other
customers.
 Each of the types of ownership structures above is discussed in detail in the
subsequent sections.

6.2 INDEPENDENT, SINGLE STORE OWNERSHIP STRUCTURE

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Under this ownership arrangement, an individual or corporate entity owns and runs a single
retail location (refer Fig 1.).

The management of these shops are independent. There may be a few small, locally managed
branches. They might also hire specific personnel to help. Most of the time, single ownership
of retail establishments involves limited retail businesses, although there are exceptions,
such as in the furniture or automobile industries, where single ownership involves relatively big
establishments.
Features

1. Huge amounts

There are many of these outlets across the nation. Independent retailers are much more
numerous than chain stores, although their share of overall retail sales is small.

Convenience stores, department stores, Kirana stores, and mom-and-pop shops all fall under
this type of ownership.
2. Small Capitalization

The entry barrier is relatively low for independent stores because they require very little
capital to get started and have fewer licensing requirements and other legal requirements.
As a result, there are a lot of people starting out as independent retailers, and the rivalry is
fierce. Thus, one of the factors contributing to the high failure rate of independent single-
store owners is ease of entrance.

3. More Versatility

In terms of retail mix, including location, products, services, and pricing strategies,
independents have more options. The management structure has a minimum number of layers
and is centralized in decision-making. Since only one unit will be operated, these
organizations may maintain greater uniformity in their pricing and retail processes. Their
target market segment finds them personally appealing. Over time, they can develop into
experts in their target market. They are therefore more appropriate for specialized retailing.
4. Low Volume Enterprise

Due to their tendency to buy in small amounts, independent retailers typically do not have
a lot of negotiating power with their suppliers. Due to their small customer base, they cannot
benefit from economies of scale. At the same time, because micro-shops typically have fewer
stocks and less shelf space, they might not benefit from economies of scale. With a few
notable exceptions, these shops are less efficient than other types of retailers because they
cannot afford to use cutting-edge technology. These independent retailers are excessively
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reliant on the owner. The owner manager is typically preoccupied with mundane tasks, which
prevents him from making long-term plans.

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 Figure 6.1: Independent Single Store

Benefits of Independent Retailing

1. When deciding on store formats, locations, and strategies, there is flexibility for
independent store ownership.
2. These stores do not require uniform location requirements like chains do.
3. Investment expenditures for rent, furnishings, personnel, and goods can be kept to a
minimum. Within a store, responsibilities are quite well defined.
4. Independents frequently take on the role of experts in a specific segment of the
goods and services industry.
5. They become more effective and can persuade customers to shop at specialty stores.
6. The owner-operator is frequently on site, and independents have great influence
over their strategy.
7. Since only one store is run, independents may simply maintain consistency in their
efforts.
8. Owner-operators frequently possess a high sense of entrepreneurial zeal. Due to
their high level of operational management independence
Limitations of Independent Retailing

Because they frequently make smaller volume purchases, independents may not have
much negotiating power with suppliers.
Independents are typically unable to benefit from scale economies while purchasing and
keeping goods.
Operations can involve a lot of manual labour and little computerization. Manual ordering,
inventory taking, item marking, cash register use, and bookkeeping are all possible.
Independents are restricted in their access to media because of the comparatively high
expenses of TV advertisements, magazines, and newspapers.
Overdependence on the owner, which can lead to delays in decision-making and problem-

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solving, is a major issue for independent retailing.

6.3 CORPORATE CHAIN STORES

Essentially, it is the "corporatization of retail," although there are a few instances of a single
store operating as a firm. Retail businesses typically run several stores. Retail chains
are made up of numerous stores that are all owned and run by the same people.

Store operations and retail methods are standardized throughout stores; they typically
offer the same selection of goods and have centralized purchasing, so at least purchase
regulations will be consistent.
Despite the lower number of retail chains, the relative strength of the industry is
stronger. This is because every chain store has at least a few outlets, and often, each
chain store outlet is larger in size as well. The average amount spent by a customer
is similarly high. Chain stores can draw proportionately more customers and produce
significant amounts of revenue.Numerous chain stores employ the same store
organization. The overall control of the store is centralized.

Numerous retail chains in India are supported by big organizations such as Future Group,
Reliance, Aditya Birla Group, etc. Many of them have released their initial public offerings
(IPOs) in the stock market, including Future Group.

Independent single stores are not eligible for this kind of leverage. Store chains can
compete better as a result. When new products are introduced and manufacturers provide
promotional support, chain retailers typically receive preference. Due to their centralized
operations and ability to afford technology for customer databases, merchandise, category
management, and inventory management, these chain stores are more efficient than single
stores.Bargaining power, operational efficiency, multi-store operations, computerization,
media access, clearly defined management, and planning are benefits of chains of stores.
They frequently have issues with rigidity, large investments, diminished control, and
limited staff independence.

One such instance is the chain of corporate stores operated by Louis Vuitton, a huge
international brand with high-end stores in numerous nations (refer Fig.6. 2).

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 Figure 6.2.: Louis Vuitton Store

Benefits of Chain retailers

1. Due to their large buying volume, many chains have negotiating strength. They get new
products as soon as they are released, orders are filled quickly, they get assistance
with sales, and they enjoy quantity discounts.
2. Chains save money when they make bulk purchases from producers directly.
3. Sharing warehouse space, having uniform store fixtures, and centralizing purchasing
and decision-making all increase efficiency.
4. Computers are used by chains for ordering goods, inventory management, forecasting,
ringing up sales, and book keeping. This boosts effectiveness while cutting expenses
overall.
5. Chains can benefit from a range of media, including TV, magazines, newspapers,
and web blogs.
6. Many chain businesses have clearly defined management approaches, complete with
detailed plans and specific job responsibilities for personnel.
7. Many chains devote significant time and resources to long-term planning and employ
specialized personnel to do so on a permanent basis. Threats and opportunities are
closely watched.

Disadvantages to Chain retailers

1) Flexibility might be constrained once chains have been created.

2) It could be difficult to find new, non-overlapping store locations. To maintain
consistent tactics throughout all units, it could be challenging to adjust to the varied
local markets.
3) Because there are more leases and fixtures, investments are higher.
4) Because there are more retail branches that need to be filled, there is a bigger
investment in inventory.
5) Chain stores require uniform standards of store organization and management,
and the distance between outlets should be carefully chosen.
6) Management control is challenging, particularly for chains with branches spread out
geographically.
7) The level of control that independents have over each branch of their single outlet
cannot be maintained by top management.
8) In large chains with multiple management levels and unionized workers, employees
often have limited autonomy.

6.4 FRANCHISING

In a business arrangement recognized as franchising, a franchisor—who is the owner of a

company's brand name, product, or system—permits a franchisee to use such assets in
exchange for a predefined value of returns. The firm is not wholly owned by the retail shop.

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Because the franchisees receive the remaining profit after paying the franchisor's fees,
they have an incentive to make the business venture successful.

At a more fundamental level, franchising is a way of marketing and distribution, and

franchisors' organizations use it as a method of quick growth and expansion at a minimal
capital cost.In addition, franchising enables the franchisor to have greater access to capital,
reduce operating costs, and capitalize on the abilities of independent entrepreneurs. A
franchisor's goal is to replicate a consistent product offering and shopping experience
across different locations through franchisees.
When a franchisee agrees to sell a franchisor's goods and/or conduct business using
the latter's name, this is known as product/trademark franchising. The franchisee
conducts business mostly on their own. Although there are basic operational guidelines,
the franchisee decides on the location, the hours, and the facilities and displays. 60% of
retail franchising sales are in the product/trademark sector. Auto stores and gas stations
are some examples.

In business format franchising, the relationship between a franchisor and a franchisee is

more collaborative. The franchisee not only gets to offer goods and services, but also
receives assistance with site selection, quality control, accounting, start-up procedures,
management training, and troubleshooting. Prototype storefronts, consistent product
offerings, and joint advertising, previously only seen in chains, foster collaboration. This
type of franchising is commonly used in the restaurant and food service, real estate, and
service retail industries.

For example, Barista Lavazza (Italian coffee chain), Baskin-Robbins (chain of ice cream
shops) has its significant presence in India through franchising. 7-Eleven (chain of
convenience stores) has its franchises all over the world. Similarly, McDonald's (fast food
chain) is one of the largest franchising businesses in the world.

More employment is created under this ownership arrangement than under any other.
For those with an entrepreneurial drive, starting and running this franchise is a great place
to start. This method is easier to set up and run, and it generates profits more quickly.
Many Indian retail companies are using this approach as a substitute to address the talent
shortage and strengthen their capabilities.

Numerous forms of franchising are possible, some of which are discussed below.

COCO (Company Owned and Company Operated): This method involves a

businessthat is owned and run by the company or brand, with no involvement from the
franchisee. The company owns the store and finances its operations. The store is
managed by the store manager and employees.

FOCO (Franchise Owned Company Operated): The franchisee bears the initial set-
up costs, and the company takes over all aspects of the business operations. The
operating costs are born by the company, and in return, the franchisee gets a small
percentage.

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 FICO (Franchise Invested and Company Operated): This is like FOCO; however,
the difference here is that the franchise (investor) only invests in the business and is
not involved in the business operations.

COFO (Company Owned and Franchisee Operated): In this method, the company
owns and invests in the business, and all management operations are handled by the
franchisee as directed by the company. This type of model is very rare.

FOFO (Franchise Owned and Franchisee Operated): This is the most practiced
franchising option. Here, the company gives the brand name and a predetermined sum
for an agreed-upon term to manage the business. The company also decides upon
the prices and merchandise for the operations of the outlet. The franchisee pays a
certain percentage of profits as royalties to the company. The franchisee invests in,
owns, and manages all the store's operations.

Benefits to the Franchisee

The franchisee benefits from the following, since a franchise is a business that permits the
franchisee to market and sell a franchisor's goods in a particular area:

1. Learn from other people's experience

In franchising, the franchisee gains access to the expertise and labor of others who have
spent countless hours building a profitable firm. When starting a firm from scratch, an
entrepreneur can anticipate the challenges that lie ahead, but with a franchise opportunity,
many of the usual obstacles are routinely overcome. A franchise is a company that you
run "for yourself, not by yourself." The franchisee's learning curve can be shortened, and
costs associated with experimentation can be avoided.

2. Attendance at training programs

Participation in the business category masters' training program is voluntary, and it will
continue until the franchisee is comfortable and skilled with business practices such as
bookkeeping, inventory management, people management, product or service
distribution, and many other activities. Because they see their own success in the
franchisee's success, the
franchisor's organization wants the franchisee to succeed. Support for the franchisee's
workforce can also come in the form of development and training.

3. Marketing Assistance

Another significant benefit received by the franchisee is the marketing and promotional
help. One does not have to be an expert in marketing to become a franchisee. The
franchisor receives fees, and a portion of those funds is used for marketing. The
franchisee's marketing strategy helps the franchisors.

The well-known brands of the franchisors, like McDonald's, really work to the franchisee's

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advantage. A franchisee benefits from affiliation with a well-known brand. However, a lot
of minor franchisors may eventually turn out to be reliable brand names. Success is based
on the franchisor's business strategy.

4. Ownership of a Business Venture Satisfaction

The joy of running your own business might occasionally outweigh the benefits of working
in the retail industry. The connection between the franchisee and the franchisor is seen by
the franchisees as one between two business partners, and they perceive themselves as
independent entrepreneurs. The franchising ownership structure aims to blend the benefits
of owner-managed enterprises with the effectiveness of chain store operations' centralized
decision-making.

Limitations for the Franchisee

 Oversaturation may happen if there are too many franchisees in a single location.

 Franchisees' earning potential, required managerial skills, and investment

requirements may be misrepresented because of some franchisors' excessive sales
tactics.
 They might be bound by contracts that demand purchases from specific
franchisors or vendors.
 Franchisers may have the ability to nullify contracts if cancellation conditions are
notfollowed.
 Franchise agreements are only in place for a brief time in several industries.
 Regardless of franchisee profits, royalties are frequently calculated as a proportion
of gross sales.
Benefits to the Franchisor
1. A national or international presence can be built more quickly and with less outlay
from the franchisor.
2. The requirements for franchisee ownership are established and upheld.
3. Franchisees must adhere to strict operating guidelines established by franchisors
in accordance with their agreements.
4. Instead of when products are sold, money is earned when they are delivered.
5. Franchisees have more motivation to put in a lot of effort because they are
businessowners rather than employees.
6. Franchise owners continue to get royalties and have the option to sell goods to
individualbusiness owners even after franchisees have paid for their stores.
Limitations to the Franchisor
If franchisees disregard corporate standards, it hurts the brand's reputation.
The absence of consistency among stores has a negative impact on customer loyalty.
Competition inside a franchise is undesirable.
If franchisees do poorly, the individual unit resale value will suffer.

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 Ineffective franchised units have a direct negative impact on the franchisors'
profitability, which comes from royalties and sales of goods, services, and resources
to the franchisees.
More and more franchisees are attempting to restrict the rules and restrictions of
franchisors.

6.5 LEASED STORES/DEPARTMENTS

Large department stores occasionally rent out space to other merchants who offer
complementary products. As part of their plan to control the tenant mix, the mall developers
also lease space to other retailers. Like a store, there may be many departments, such as
those for clothing, toys, beauty salons, jewellery, footwear, etc. The food courts are typically
made available to outside parties.

The store-based retailer uses leased departments as one tactic to diversify their product
offering. These are also referred to as "stores within stores." They are frequently found in
shopping centre food courts, beauty salons, banks, photographic studios, jewellery,
cosmetics, and other such departments.To have greater control over how their products
are marketed, many high-end companies, including Gucci and Dior, are renting out
departments.

The store-within-a-store model provides extra opportunities for lessees and host retailers
to cross-promote their brands and attract a larger audience. Leasing spaces can enhance
the shopping experience for customers, add variety to the retailer's product offerings, and
encourage them to stay longer and make impulsive purchases. The success or failure of
this strategy for the retailer depends on selecting the right retail partners who complement
the host store and can attract new customers for the host retailer. The strategy must also
be supported by adequate advertising from both the host retailer and retail partners to raise
awareness of the leased department store locations.

To increase traffic to a mall or business site, the idea of an anchor store is currently gaining
a lot of popularity. It also relates to the "shop in shop" idea because the main store and
the leased store form a mutually beneficial connection. Retailers can provide the leased
stores or departments with a fixed rental, a percentage of sales, or a combination of the
two.

Benefits of using a regular or main store retailer

1. Customers may be given the option of one-stop shopping.

2. The lessee is responsible for most store operations for the leased product category.

3. Because some expenses are shared, the regular retailer model is more cost-effective.
Benefits to the Lessee

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 I. The lessee retailer receives some of the regular retailer's traffic, ensuring their
livelihood.
II. It can be economical due to shared overhead expenses.

III. The connection to a reputable shop brand is advantageous.

Benefits of Leased structure

1. The market is expanded by allowing customers to shop in one location.

2. Lessees are responsible for managing the staff, setting up the merchandise, and
placing new orders.
3. Regular retail employees are not required to participate.
4. Leased department operators cover some costs, which lowers the cost of the shop.
5. Regularly, a portion of the revenue is paid.
6. Additionally, from the standpoint of the retailers, there are a few possible pitfalls:
7. Operating procedures for leased departments could contradict those of the store.
8. Lessees could damage a store's reputation.
9. Customers may blame the stores for problems rather than the lessors.
10. These benefits apply to leased department operators.
11. Stores have loyal customers, are well-known, and provide rapid sales for leased
departments.
12. Some costs, including security, are minimized by using shared resources.

Limitations to the Lessees

 There may be rigidity regarding the operational hours they must be open and the
manner of operation.
 The product and service offerings are typically constrained.

 If they are prosperous, businesses might increase rent or decide not to extend
leases.
The predicted level of sales might not be achieved by in-store locations.

6.6 COOPERATIVES FOR CONSUMERS

Consumer cooperatives are managed by cooperative societies, which have played a

crucial role in providing goods to customers at affordable prices. However, the lack of a
profit motive affects the growth and development of these societies. Examples of consumer
cooperatives include Kendriya Bhandar established by the Central Government Employee
Consumer Cooperative Society, Apna Bazaar, and Super Bazaar. Despite the importance
of consumer involvement and drive, consumers are often not knowledgeable about retail
functions, which can result in lower cost savings and less favourable selling prices than

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expected. Additionally, consumer disinterest in running a cooperative can arise, leading to
a small share of the retail industry for cooperatives.

In India SahakarBhandar (Mumbai), State Co-operative consumer stores and Co-operative

wholesale societies, KendriyaBhandarare are a few examples of consumer cooperatives
in the retail sector. Globally, the Co-op food stores (UK), Equal Exchange (US) and PCC
Community Markets are some examples.

Benefits of Consumer Cooperatives

1. They offer products at reasonable costs, and their quality is respectable.

2. They offer customers a personally satisfying purchasing experience.
3. Participants may also benefit from special occasion gifts and sales promotion
programs.
4. They lower the involvement of middlemen, which lowers the cost of the offering.
5. The goods are sold without being tampered and the irregularities in the
measurement are also avoided.

Limitations of Consumer Cooperatives

 Reduced customer foot traffic is caused by insufficient marketing or publicity.

 Limited skilled workers resulting in a lack of resources and inventory.
 Insufficient cooperation between other cooperatives

6.7 VERTICAL MARKETING SYSTEM

In a conventional marketing system, manufacturers, wholesalers, and retailers each

operate independently at their respective levels of the distribution chain, focusing solely
on maximizing their product and their own businesses. In contrast, a Vertical Marketing
System (VMS) unifies these separate entities and brings them together to achieve shared
goals. The VMS aligns each level of the distribution chain and provides a clear
understanding of market trends, competitors, and consumer demands, leading to a
smoother flow of goods and services. These results in reduced costs, increased
efficiency, and improved product quality. Figure 6.3 shows the conventional marketing
channel and vertical marketing channel.

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All levels of individually owned firms along a distribution chain make up a vertical
marketing system. One of these systems is typically used to distribute goods and services:
independently operating, partially integrated, and fully integrated (refer to Table 6.1).

Table 6.1: Vertical Marketing System with Function and Ownership

Channel Type Function Ownership

Independent Manufacturin Independent manufacturer

system g

Wholesaling Independent wholesaler

Retailing Independent retailer

Partially Manufacturin All facilities are owned by two

IntegratedSystem g channel members, who also carry
out all operations.
Wholesaling

Retailing

Fully Integrated Manufacturin One channel member handles

System g all production and distribution
duties.
Wholesaling

Retailing
Source: (Berman et al., 2017)

Some businesses engage in many types of distribution arrangements and dual marketing,
a type of multichannel retailing. As a result, businesses improve sales, share some costs,
and have extensive strategic control while appealing to a variety of consumers. In addition
to partially or totally integrating a vertical marketing system, a company can control a

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distribution channel due to its strength in the economy, law, or politics; its better knowledge
and skills; its devoted clientele; or other criteria. When a distribution channel is under
one member's control, that member's authority determines how choices are made in that
channel. Manufacturers, wholesalers, and retailers all have a variety of instruments at their
disposal to strengthen their competitive positions.

Independent Vertical Marketing System: Independent businesses can be categorized

into three groups: manufacturers, wholesalers, and retailers. This system is commonly
used when producers or retailers are small, distribution is concentrated, customers are
spread over a large geographic region, unit sales are high, resources are limited, channel
members want to share costs and risks, and specialization of tasks is desired. This type of
vertical marketing system is used by a wide range of businesses, including stationary
stores, gift shops, hardware stores, food stores, drugstores, and many others. It is the
most widely used form of vertical marketing system.

Partially Integrated System: In this type of system, two separate companies handle all
production and distribution tasks along a channel. It typically occurs when a
manufacturer and a retailer handle transaction, shipping, warehousing, and other
distribution activities, without the involvement of a wholesaler. This approach is most
suitable when wholesalers are either too costly or unavailable, unit sales are moderate,
resources are abundant, selective or exclusive distribution is required, and both the
manufacturer and retailer are substantial in size. Partially integrated systems are often
used by furniture stores, appliance stores, restaurants, computer merchants, and mail-
order companies.

Fully Integrated System: A single company handles all production and distribution tasks
using a fully integrated system. The business maintains complete strategic control, direct
client contact, the exclusivity of its offering, and all earnings. This system can be expensive
and complex to use.

Some businesses engage in many types of distribution arrangements and dual marketing,
a type of multichannel retailing. As a result, businesses improve sales, share some costs,
and have extensive strategic control while appealing to a variety of consumers.

In franchising, manufacturers retain control by building strong brand loyalty, setting prices
in advance, and making exclusive distribution agreements with retailers who comply with
specific standards in exchange for exclusive distribution rights in a specific area.
Wholesalers wield power when they are big, introduce their own brands, support
franchises, and are the most efficient players in the channel for tasks such as processing
reorders. Retailers have influence when they make up a significant portion of a supplier's
sales and when they establish their own brands. With private brands, retailers can switch
suppliers without affecting customer loyalty as long as the product features remain
unchanged. Strong and long-lasting channel relationships often benefit all parties involved.
They result in improved scheduling, cost savings, and streamline tasks such as advertising,
financing, billing, and others.

In India, Hindustan Unilever Limited (HUL) which is a subsidiary of Unilever, operates on

vertical marketing system which includes from sourcing of raw material to production,

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 marketing and distribution. Other such examples include ITC limited and Reliance
industries.

Globally, Walmart and its suppliers work together to reduce cost, improve quality, maximise
sales and profits. The suppliers benefit from the national reach of Walmart's retail network,
while Walmart benefits from having a steady supply of high-quality products at competitive
prices.

6.8 DEALERSHIP

The dealership business model is a third type of retail form. In this case, the licensee
obtains the right—which is occasionally exclusive—to market the goods of the licensing
party. Since the dealer can sell a variety of goods in his store, the system is more adaptable
than a franchise. The system functions as a hybrid of a franchise and an independent
store, and the licensor is not entitled to any royalties or fees. Deals between buyers and
sellers are negotiated by dealers. They serve as an intermediary between the
manufacturer and the final consumer.

The benefit is that the dealer receives a guaranteed supply of items from the business; in
exchange, the business gives some brand recognition or product name recognition, and a
predictable flow of customers can be anticipated. The dealership model may be profitable
for already established shops because it grows their customer base.

In the Indian context, the relationship between a multinational automaker, such as Maruti
Suzuki, and its authorized dealerships is a classic example. In this dealership model,
both Maruti Suzuki and its dealerships work together to achieve common goals, such as
increasing sales, expanding market share, and improving customer satisfaction. The
dealerships benefit from the brand recognition and reputation of Maruti Suzuki, while
Maruti Suzuki benefitsfrom having a local sales and service presence in multiple markets.
This type of dealership model allows both parties to leverage their strengths and optimize
their operations, leading to increased efficiency and profitability for both.

In the global context, the example of dealership retailing is the relationship between car
manufacturers, such as General Motors (GM), and their authorized dealerships. GM sets
the standards for its vehicles, provides marketing and sales support, and sets the prices,
while the dealerships are responsible for selling GM vehicles and providing after-sales
service to customers.

6.9 NETWORK MARKETING

This is a retail business concept where a person makes a commission by selling the
company's goods to friends, family members, and other customers. In addition, the agent
hires others to market things for him or her in exchange for compensation. It is a business
that people can operate either part-time or full-time. The fundamental benefit of network
marketing is that it allows anyone to launch a business with comparatively less investment.

People who use network marketing have the freedom to sell in their spare time. However,

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one could end up with unsold product, and dishonest multi-level firms often sold after
hiring many representatives. In contrast to shop selling, network marketing places more
emphasis on personal selling.

6.10 SUMMARY
A retailer's value creation for consumers and market appropriation are described in detail
in its retail business model. In the retail industry, a business model would determine the
goods and/or services that the retailer would sell, as well as the pricing strategy he would
use. There are many distinct sorts of retail shops, and the lines dividing the large range of
retail firms have become noticeably blurred across the board.

Like any other sort of business, a retail store can be owned by various kinds of companies.
It could take the form of a sole proprietorship, a partnership business, a corporate chain, a
cooperative organization, a joint venture, or any other legally permissible format.

6.11 SELF-CHECK EXERCISE

Write a short note on
1. Dealership
2. Network marketing

6.12 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 6.8
2. For answer refer to section 6.9

6.13 GLOSSARY
 Franchising: Due to franchisee investments and the encouragement of franchisees
to become owner-operators, franchisors have a wide geographic reach. They
shouldn't become hindered in policy disagreements with franchisees or impose
disproportionate royalty payments.
 Leased Stores and Departments: Leased departments give store owners and
outside parties the chance to collaborate and improve the shopping experience while
splitting costs and resources. They shouldn't damage the store's reputation or put
the lessee under undue pressure to increase foot traffic.
 Vertical Marketing System: A vertically integrated channel allows a company more
control over the sources of supply, but it shouldn't offer customers too few options or
retail locations.

6.14 TERMINAL QUESTIONS

1. What do you understand by Independent Retailing. Also write down benefits and
limitations of Independent Retailing.
2. Explain corporate chain stores. Also explain benefits and disadvantages to chain
retailers.
3. Explain in detail Franchising. Also explain benefits to the Franchisee and Franchisor.
4. Write a detail note on vertical marketing system.

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 Chapter- 7
STORE AND NON-STORE BASED RETAIL FORMATS

Structure
7.0 Learning Objectives
7.1 Introduction
7.2 Characteristics 0f Retailers
7.3 Types of Retail Formats
7.4 Store Retailing
7.5 Non-Store Retailing
7.6 Future Trends in Retailing
7.7 Summary
7.8 Self-Check Exercise
7.9 Answers to Self-Check Exercise
7.10 Glossary
7.11 Terminal Questions

7.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Characteristics of Retailers
 Types of Retail Formats
 Store Retailing
 Non-Store Retailing
 Future Trends in Retailing

7.1 INTRODUCTION

The retail industry has grown increasingly difficult and competitive over time. The market
has already developed because of growing demographic and cultural variations as well as
evolving lifestyles over time. Every market has a unique set of requirements. Like any
marketer, a store must choose the type of market it will successfully serve. The retailer must
therefore consider a wide range of possibilities to stand out in the market and entice its target
audience.
Retailers now place a higher priority on their consumers' interests, make interaction with
them, and gather data on their behavior to better understand their preferences, rather than
just concentrating on the distribution of goods or services.

Companies that focus on retail involve buying goods from other businesses to sell directly to
consumers and may also provide services related to product sales. The act of selling goods
or services directly to end customers for personal use is referred to as retailing and it
represents the final stage in the distribution of products.

Retailers are closer to consumers than producers are from a marketing standpoint. Retailers
serve as both the consumer's point of contact with manufactured goods and the last link in
the marketing chain.

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 Retail mix primarily involves making decisions regarding the goods, prices, promotional mix,
locations, additional services, etc. to satisfactorily meet the needs of the target market. The
common name for retail mix is retail format. It is quite like the marketing mix. The various
types of retail formats and their characteristics are covered in this unit.

7.2 CHARACTERISTICS OF RETAILERS

The formulation and execution of a retail mix or strategy affect the retailer's performance.
Each retailer offers the market distinctive services based on their characteristics and business
strategy. Based on the retail mix elements, the retailer's characteristics are discussed below.
1. Based on market needs: Retail concentrates and tries to satisfy the needs of that specific
market. The target market may be mass, exclusive, or specialty, depending on the size of the
market.Based on the size of the market, the market is classified into the following:
 Mass-market retailers: are the broadest market segments, which cater to almost all
consumers' needs and wants for certain basic products. As there are many merchants in this
segment, there is intense competition in this group of businesses.
 Exclusive market retailers: distinguish themselves through their product offerings, which
may persuade some customers to spend more. The target market is typically at the upper
end of the market and is not particularly big.
 Specialty markets: in the middle of the exclusive and mass markets, where there are more
possibilities for a product line or lines, but the market is still sizable.

2. Based on assortment and variety: The most fundamental aspect that reflects the
characteristics of a retailer is its merchandising. Retailers compete based on selection and
variety. Variety, often known as the "width of products," is the quantity of several product lines
or merchandise categories. In contrast, assortment refers to the variety of options available
within a specific product category. Another name for assortment is "depth of merchandise."
Retailers can be general merchandisers or specialty merchandisers, depending on their
selection and diversity.
 General merchandisers: They carry a broad range of product categories. Retailers take use
of volumes to increase sales in what is referred to as"shallow depth".
 Specialty merchandisers: They may only carry a single product category, yet the selection
is vast.

3. Retailer based on pricing strategy: Retailers must determine whether to utilize price as a
means of competitive advantage or an alternative means. Different methods are employed
for pricing.

 Discount Rates: Retailers sell products with low profit margins. These shops want to sell a
lot of products and have low overhead costs to turn a profit.
 Competitive Pricing: Retailers want to appeal to as many market segments as possible. The
stores don't appear to be charging premium prices, but they also don't appear to be
competing on low costs. Retailers increase customer value by providing reasonable quality
products and ambiance.
 Premium Pricing: The top end of the market, which is less price-sensitive, is what retailers

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 seek. Various services and customized solutions increase the
value. Although it is unlikely that these retailers will sell in extremely large volumes, the
profit margins are quite significant.

4. Retailer based on their promotional mix: Retailers use several promotional tactics and
media platforms to stimulate customers' interest in their establishment and their items. The
following are the key tools,
 Advertising: The best way to attract customers is still through traditional mass media
advertising, such as that found in newspapers or on television. Online marketing and outdoor
advertising are also becoming more significant for retail advertising.
 Direct mail: It includes a variety of promotional materials such as sales letters, postcards,
newsletters, and brochures.
 Promotion of sales: The most significant sales promotion strategies include discounts,
rebates, and other price promotions.
 Personal selling: Retailers must use their interpersonal abilities extensively, particularly
when selling high-end products. This can be done by convincing customers to buy higher-
value products than they had initially planned to, as well as by suggesting that they buy
related goods. Additionally, it is called the buyers-sellers dyad.

5. Retailer based on the method of distribution: Based on the method of distribution used by
the retailers, they can be classified as store based and non-store based.

Store-based retailer: The traditional and popular way for people to purchase goodsand
services is in-person. Customers must physically visit the retail location to do this. Based
on location and the physical connectedness of retail stores with one or more other stores,
store outlets can be further categorized into the following categories:
 Independent Location: Stores that are not connected to other retail establishments are
known as "standalone locations".
 Strip-shopping mall: This involves the physical connection of two or more outlets and
the sharing of resources like parking.
 Mall retail: Outlets that can be found in malls or other shopping areas.
 Downtown Central Business District: It is known as the "downtown regions" and "traditional
markets". The store's location is sometimes considered as the most crucial strategic
component of the retail mix.

Non-Store Retailer: Customers can make purchases from their handy places without having
to physically visit a retail site. Vending machines, direct marketing, and online sales are
effective strategies. Multi-channeling is the practice of a retailer trying to reach customers
through more than one channel of distribution.

6. Retailer based on amount of service offered: Retailers draw customers not only by offering
appealing goods at affordable costs but also by providing services that improve the shopping
experience. Retail service often comes in three forms of services.
 Self-service: It is seen as advantageous by some customers since the extra work they put
in may result in lower prices.
 Assorted Services: Consumers receive some level of service from retailers. It involves
managing point-of-purchase transactions, helping customers choose products, etc.

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 Full-Service: Retailers want to handle almost every step of the purchase. Premium-priced
retailers frequently provide full services to maximize consumer value and the shopping
experience for customers.

7.3 TYPES OF RETAIL FORMATS

The type of retail format used today plays an important role in consumer decisions and how
it meets their expectations. A retail format consists of a simple marketplace or a location where
sales happen.

The retail format, commonly referred to as the retail formula, influences the customer's
choice of store and fulfils their demands. A retail format is essentially a simple marketplace,
or a place where products and services are offered. In some parts of the world, small family-
run businesses still dominate the retail sector, but large retail chains are increasingly
dislodging them due to their capacity to exercise enormous purchasing power and transfer
the savings on to customers in the form of lower prices. These massive retail chains
compete
with manufacturer brands in addition to producing a significant portion of their own private
labels. The retail climate has changed because of significant store consolidation, with major
retailers now having more influence on wholesalers.

Retail activities are carried out by a variety of organizations, including manufacturers,

wholesalers, and retailers, with the majority of retail sales handled by retailers. Although the
majority of purchases still occur in physical stores, online and non-store retail channels
such as e-commerce, mail orders, door-to-door sales, phone orders, vending machines, and
other online purchasing methods have seen significant growth in recent years and are
collectively referred to as "non-store retailing."

The different types of retail formats (refer Table 7.1) are discussed
below.
STORE RETAILING

Amount of Service
Product Line Sold
Relative Price Emphasis
Control of Outlets

NON-STORE RETAILING

Direct Marketing
 Automatic Vending

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  Online retailing

7.4 STORE RETAILING

Retail establishments come in a variety of sizes and shapes. New varieties of retail
establishments are also emerging. A variety of characteristics can be used to categorize retail
establishments. Service volume, product range, relative prices, outlet control, and retail
cluster type are a few examples.
These categorizations are shown, along with the related store types, in the accompanying
table 7.1.

Table 7.1: Types of Retail Outlets

Based on Based on Based on Based on Control Based on type of Store

type of Product Line Price Cluster
service

1. Specialty store
2. Department store 1. Corporate chain 1. Central business district
3. Supermarket 1.
1. Self- Service Discount store 2. Regional shopping center
2. Voluntary chain and
2. Limited 2.
4. Convenience store Off-price 3. Community shopping
retailer cooperative
retailers center
Service 5. Combination store 3. Franchise
6. Superstore 3. Catalogue 4. Neighbourhood shopping
organization
3. Full Service showroom center
4. Merchandising
7. Hypermarket
conglomerate

Amount of Service Retailing

Service levels in retailing vary based on the type of product and customer preferences. There
are three types of service levels in retailing: self-service, limited-service, and full-service.

1. Self-service retailing

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 Self-service demands that the customer completes all required tasks while buying the
product. A supermarket is a good example of a customer performing self-service. The
customer must either choose the items they want or compare pricing. However, the retailer
can guide the buyer through the checkout process and help them find where the item is kept.
Self-service today offers all discount services and is mostly used by retailers of quick-
moving, nationally branded items like supermarkets and catalog showrooms.

2. Limited-service retailing

Because they stock a larger selection of goods, limited-service businesses provide more sales
assistance. Consumers require information on these products. These retailers have
significant operating expenses, which leads to higher prices.

Limited-service restaurants make up most quick service restaurants (QSRs), which also
include coffee shops, cafés, pizza shops, bakeries, and fast casual and fast-food restaurants.

3. Full-service retailing

Retailers like specialty shops and high-end department stores employ sales associates to
help customers through the entire purchasing process. These types of stores tend to attract
customers who are willing to take their time while shopping and they typically have a wide
selection of specialty items.To enhance the shopping experience, full-service retailers may
also provide additional amenities like lounges and dining options, as well as services such as
lenient return policies, multiple credit options, complimentary delivery, and in-home
maintenance. However, the cost of these services leads to higher prices at full-service
stores.

The goal of a full-service store is to provide all the elements required for the purchasing
process, such as a variety of payment choices, delivery alternatives, and follow-ups, to
ensure a great shopping experience. For instance, Apple stores make sure consumers receive
their orders on time and offer any details they might require prior to making a purchase.

 Product Line Retailing

Retailers can be classified based on the breadth and depth of their product offerings,
including specialty stores, department stores, supermarkets, convenience stores,
superstores, combination stores, and hypermarkets. Each type of retailer has unique
features.
1. Specialty store

A specialty store is a type of retail business that focuses on offering a broad range of products
within a narrow product category. Examples of specialty stores include furniture stores,
bookstores, electronics stores, flower shops, and others. They can also be classified based
on the extent of their product specialization.

A women's clothing store is a limited-line store, a clothes store is a single-line store, and a

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store selling "Kalamkari" saris for women is a super-specialty store, for instance. Specialty
retailers have seen recent growth for several reasons.

Specialty stores that concentrate on a limited product range but provide a broad variety of
those items are growing in significance because of the use of market segmentation, market
targeting, and product differentiation. They draw customers with their high-quality products,
accessible locations, favorable operating hours, outstanding customer service, and speedy
in- and-out shopping experience.

Some examples of this category are Zara, a major speciality retailer in fashion apparel. ITC’s
Wills Lifestyle is an example of exclusive or lifestyle speciality stores. In India Kolkata-
based Nik-Nish is a lifestyle gift speciality store chain.

2. Department store

A department store is a retail establishment that features a wide range of products, including
clothing, household items, and furniture. These products are managed by specialized
buyers or merchandisers as separate departments.

India is home to all the major brands and shopping malls like Lifestyle, Shopper Stop, and
Pantaloons, and it has one of the fastest expanding retail markets.

These retail businesses offer a wide variety of goods, and most Indian department stores offer
both domestic and foreign goods. Some companies offer a wide range of products, while
others focus on specific product categories, like apparel.

Today, most department stores are in suburban malls. To combat discount threats, many of
them have added negotiation options.To compete with other specialty retailers, others
have
renovated their stores. Even telephone and mail-order sales are being used by many. Service
continues to be a key differentiator between department stores and other kinds of retail
establishments. To retain current customers and attract new ones, several department
storesare reinforcing their focus on customer service.

Besides, a lot of major department store chains have merged rather than battling the
opposition by diversifying into discount and specialized stores.

Global example for department stores is Lord & Taylor and Saks Fifth Avenue, Sears, JC
Penney, Federated Department Stores. In India, department store chains include Trent (Tata
Group) Westside, Landmark Group Lifestyle, Future Group Pantaloons etc.

3. Supermarket

A supermarket is a self-service retail establishment with a broad selection of food and

household goods. Supermarkets usually belong to corporate chains. Most supermarket
chains today operate fewer, larger stores and sell a wide variety of non-food items, including
sporting goods, appliances, toys, and housewares. Supermarkets anticipate that by

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introducing high-margin products, they will be able to increase their earnings.

Supermarkets are expanding their consumer base while also enhancing their offerings. Nicer
locations, better décor, extended business hours, check cashing, delivery, and even childcare
facilities are a few examples of these enhancements. Finally, to attract many customers,
several grocery chain stores are beginning to arrange their facilities in ways that best
serve the communities in which they operate. To meet the racial and economic needs of the
surrounding markets, they modify store layout, product selection, pricing, and advertising.

Spencer, Food Bazar, Reliance, Reliance Fresh, Reliance Super, and More stores are some
examples of supermarkets in India. In USA, Stop & Shop, Food Lion, Giant Food, Hannaford
are some examples.

4. Convenience store

A neighborhood convenience store is a small retail outlet that operates 7 days a week with
extended hours. A convenience store offers a limited range of necessities and plays a
crucial
role in serving the community, but it must charge higher prices due to higher operating
expenses and lower sales volume.

Convenience stores (shown in fig.7.2) are frequented by customers for purchases at off-peak
times or when they are pressed for time. Convenience businesses rebuild their
establishments and customize their marketing strategies to fit the needs of their consumers
because of shifting consumer behavior and an increase in the engagement of women in
retail.

Convenience stores hope that by making these changes, they will continue to stand apart
from rival grocery stores while adjusting to the hectic lifestyles of today's consumers.

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 7-Eleven is a chain of convenience stores in the USA, owned by Seven & I Holdings of Japan.
In India, Spencer’s Daily, Express and Future Group’s Easyday are some of the convenience
retail formats in organised sector.

7.2: Convenience Store

5. Superstore

Superstores are significantly larger than regular supermarkets, offering a broad selection of
frequently bought items such as food and various services like lunch counters, post
offices, dry cleaning, and photo finishing. However, due to their wider range of products and
services, the cost of goods is usually 5 to 6 percent higher compared to traditional
supermarkets. Some examples of super stores in India include Reliance Fresh, More
Megastore, Big Bazaar, Spencer's Retail and DMart.

6. Combination store

A combination store is a type of retail establishment that brings together a grocery store and
a pharmacy under one roof. It is usually larger than superstores. Wal-Mart Supercenters and
Kmart Supercenters are some of the well-known combination stores in the United States.

7. Hypermarkets

Hypermarkets are vast retail outlets that bring together the offerings of supermarkets,
discount stores, and warehouses. They offer a broad selection of goods, including food,
clothing, home furnishings, and electronics. Similar to warehouses, they have multiple
checkouts and a large floor space. In India, notable hypermarkets include Spencer's Hyper,
Reliance Mart, Big Bazaar, and Star Bazaar. On a global scale, big hypermarket chains
include Walmart, Target, and Kaufland.

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 Relative Price Emphasis Retailing

Retailers can be classified based on the prices they charge for their products and services.
The majority of retailers offer regular products at typical prices and average customer service.
Others charge more for high-quality goods and services. Discount stores, off-price merchants,
and catalogue showrooms are examples of retailers that are known for their low prices.

Relative price emphasis in retailing can be categorized into three types: discount stores, off-
price retailers, and catalogue showrooms, each of this type of store is discussed below.

1. Discount store

Discount stores are a type of retail outlet that offers common goods at lower prices by
operating on smaller profit margins and conducting high volumes of sales. They are distinct
from stores that occasionally provide discounts.

Typical bargain shops routinely offer things for less money. The first bargain retailers
operated in warehouse-like spaces in low-rent, busy areas to cut costs. They offer price
reductions, make extensive use of advertising, and stock a decent range of goods. In recent
years, department stores and other cheap retailers have become more and more competitive
with numerous discount retailers. To keep costs down; discount stores rely on bulk purchasing
and effective distribution. Some examples of this category are Wal-Mart, Target, Kmart are
major discount stores in USA. In India, S Mart, Super Sab ka Bazaar is popular discount store
chains
2. Off-price retailers

Off-price retailers purchase goods at a lower wholesale cost and sell them at a reduced retail
price. Their inventory is often inconsistent and frequently changes, often consisting of higher
quality surplus, overstocked, and irregular goods obtained from manufacturers or other
sellers. The most profitable categories for discount merchants are apparel, accessories, and
footwear. But they are active in a range of industries, including electronics and grocery
stores.

There are three primary categories of off-price stores. They are warehouse clubs,
independent off-price enterprise, and factory outlets.

Factory outlets: Manufacturers own and operate factory outlets, and they typically stock
their leftover, out-of-production, or unusual products. For example, Fig.7.3 shows the Nike
factory outlet which sells its good at a lesser price as compared to its own store at malls and
showrooms.

Independent off-price: Enterprises are either owned or run by entrepreneurs or are a part of
larger retail chains. Off-price retailing boomed during the 1980s, but as more of them
entered the market, competition became fiercer. Recent effective counter strategies by
department stores and normal discounters have slowed the rise of off- price retailing. Off-
price selling will however remain a strong and expanding influence in contemporary retailing.

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Warehouse clubs: They are off-price retailers that offer discounts to members who pay
annual membership fees on a range of brands, groceries, appliances, clothing, and other
goods. Costco Wholesale Club and Sam Club are the examples of wholesale clubs. In India
an extension of Big Bazaar, the Big Bazaar Wholesale Club falls into this category.

Fig 7.3: Nike Factory Outlet

3. Catalogue showroom

Catalogue showrooms are retail spaces that are located near a warehouse. These
showrooms focus on selling hard goods such as household items, jewellery, and
consumer electronics. They provide customers with a display of products and catalogs,
allowing them to view and order items without having the physical products on hand.
These showrooms specialize in direct marketing, offering customers the convenience of
seeing and selecting products before ordering. They offer a large assortment of high-
margin, in-demand brand-name products at deeply discounted costs.

Sporting goods, power tools, home appliances, jewelry, and baggage are among them.
Such shops operate under the tenet that by lowering costs and profit margins, they may
offer lower prices that will boost sales.

Department stores, discount retailers, and off-price merchants have been fiercely
competing with catalogue showrooms on pricing in recent years. To combat this
competition, many catalogue showroom chains increase their product offerings, market
widely, modernize their locations, and add services to increase sales.
Some examples of them in India are Urban Ladder (furniture and home decor), FabIndia
(traditional handcrafted goods) Reliance Digital (Consumer electronics), and Titan Eye
Plus (optical stores)

In USA Pottery Barn (furniture and home decor), Brookstone (electronics), The Container
Store (Storage and organization products), Sur La Table (kitchen and cookware) are
some of the catalogue showrooms.

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 Control of Outlets Retailing

Independent retail establishments predominate. There are also other types of

ownership.

1. Corporate chain.
2. Voluntary chain and Retailer cooperative.
3. Franchise organization.
4. Merchandising conglomerate.

Each one of them is discussed below in detail.

1. Corporate chain

Chain stores refer to a group of retail establishments that are jointly owned and managed,
use a centralized system for purchasing and merchandise, and carry similar product lines.
Department stores, variety stores, food stores, drug stores, shoe stores, and women's clothing
stores are some of the types of retail businesses that primarily adopt this model. Compared
to standalone retail stores, chain stores have several advantages.

They may purchase in bulk at reduced prices because they are enormous, and they can pay
corporate-level professionals to manage tasks like sales forecasting, promotions, pricing,
warehousing, merchandiseinventory control, and marketing activities.

Because corporate chains have many locations and a high volume of sales, they can also
benefit from economies of scale when it comes to marketing.
Some of the examples for corporate chains include Wal-Mart, Carrefour, Costco, JC Penney.
In India, retail chains promoted by Future Group, Reliance, and Aditya Birla are some
examples of corporate chains.

2. Voluntary chain and Retailer cooperative

Many independent retailers made the decision to create one of the two types of contractual
associations after being motivated by the astounding success of corporate chains.

A voluntary chain is a collection of independent stores supported by wholesalers that

engages in common merchandising and group purchasing. It is the first of these two
contractual agreements. The second is the retailer cooperative, which brings together several
independent stores to create a single wholesale operation that is owned by everyone and
conducts shared marketing and merchandising initiatives.

Some examples in India are Future Group (Big Bazaar and Easy day), Aditya Birla Retail
(More Supermarket and Fashion Retail), Reliance Retail (Reliance Fresh and Reliance
Digital), The South India Merchants' Association (Represents interest for South Indian

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Retailers) and The Confederation of All India Traders (represents the interests of traders and
retailers across India)

3. Franchise organization

The business arrangement known as franchising is one in which a franchisor, who is the
owner of a brand name, product, or system of a business, allows a franchisee to utilize that
brand, product, or business procedure in exchange for a certain return. Independent business
people must obtain the right to do so from a manufacturer, distributor, or service provider to
own and manage one or more franchise system units (the franchisor).

Fast food chains, makers of soft drinks, gas stations, businesses that rent cars, real estate,
travel agencies, and many more industries have all seen a rise in franchising. Franchisor
may get a return that includes an upfront amount, leasing charges for the equipment, and a
share of the revenue.
In India, the profitable franchise business chain includes Subway, Domino’s Pizza, KFC,
McDonald’s, Pizza Hut etc. In USA 7-Eleven, Dunkin' Donuts, Subway, Taco Bell are some
examples for franchise organisations.

4. Merchandising conglomerate

Merchandising conglomerates refer to companies that bring together various retail formats
under a single ownership and management, with some shared distribution responsibilities.

 Type of Store Cluster Retailing

Most retailers today gather in clusters to increase their ability to attract customers and
offer the convenience of one-stop shopping. There are two main types of store clusters:
shopping centres and central business districts with are discussed below:

1. Central Business District

In North America and Western Europe, central business districts were the predominant
formof retail clusters until the 1950s. A central commercial center featuring department stores,
specialty shops, banks, and theaters was a feature of every major city and town. When people
started moving to the suburbs, these major business districts started to erode.
Building malls and offering underground parking are two strategies used by several cities to
revitalize their central commercial districts.

2. Regional Shopping Center

These are the shopping centers that have been developed, acquired, and managed
collaboratively with a collection of other retail businesses.The three primary types of retail
centers are neighbourhood shopping centers, community shopping centers, and regional
shopping centers.

A regional retail area, which normally has between 40 and 100 stores, is like a miniature

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downtown. Customers come from all over to shop there.

Shopping malls are a type of retail cluster that often includes multiple department stores and
specialty shops. Neighborhood shopping centers, which are smaller in scale, typically
consist of a mix of retail establishments, including a department store, specialty shops,
professional offices, banks, and a grocery store. These centers are usually more accessible
and offer a variety of services such as a grocery store, discount shop, and other businesses
like salons, laundries, dry cleaners, and drug stores.
Strip malls, a smaller form of neighborhood shopping centers, usually consist of 5 to 15 retail
stores.

7.5 NON-STORE RETAILING

Even though storefronts account for a large portion of product and service sales, non-
store
retailing is rapidly expanding. Sellers who operate traditional stores must contend with
rising
competition from online retailers.
Non-store retailing sells goods using the telephone, direct mail, e-commerce, websites,
social
media, direct selling, catalogs, and other conventional retailing techniques.
There are four types of non-store
retailing
Direct marketing,
Direct selling,
Automatic vending,
and
E-tailing
1. Direct marketing

Direct marketing engages consumers directly through a variety of advertising mediums and
typically requests a direct response from the consumer. Mail-order catalogs and direct mail
were the main forms of direct marketing at first.

Other types, such as telemarketing through mobile phones, direct radio services, television-
based marketing, and online marketing have however, recently emerged. Consumers can
gain from direct marketing in a variety of ways. Customers can use their phones or computers
to shop instead of going through the trouble of going to busy shopping places. Modern,
sophisticated communications technology has made it easy to connect buyers and vendors
seamlessly.
People think that ordering by phone or direct mail will save them time and allow them to
choose from a wider selection of goods. Interacting with salespeople allows industrial

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customers to understand and place orders for goods and services efficiently.

Sellers might gain a lot from direct marketing as well. It provides the sellers with the chance
to be more selective. Direct marketing enables a marketer to tailor and adapt his message.
The marketer can search through its database, pick out customers who fit certain criteria, and
send them highly personalized communications. Direct marketing helps companies establish
and maintain relationships with their customers. By targeting the right audience at the
appropriate moment, direct marketing can increase the likelihood of higher engagement and
responses.

Additionally, testing media and content is made simple for marketers using this strategy.
Another unique feature of direct marketing is privacy. The offer and strategy employed by
direct marketers are still unknown to competitors.

2. Direct selling

Retailing from door to door began centuries ago with traveling salespeople. The two main
benefits of door-to-door sales are convenience for the customer and personalized service.

Direct selling increases customer loyalty despite the expensive nature of the salesforce
management process. Interactive direct marketing is one of the future trends in non-store
retailing because of technological advancements.

3. Automatic vending

Egyptians were able to purchase coin-operated sacrificial water dispensers as early as

215
B.C. In wealthy nations, automatic vending machines are widely used. However,
developing nations have not yet made significant progress in introducing them.

A wide range of convenience and impulse goods are now sold via automatic vending
machines, including beverages, snacks, novels, video cassettes, water bottles, and
cigarettes.

In developed countries, vending machines are present everywhere, including in workplaces,

airports, train and bus stations, retail stores, lobbies, and filling stations. Automatic teller
machines are being installed by banks to offer verification, savings withdrawal, and money
transfer services to bank customers.

Vending machines, as opposed to physical storefronts, provide customers with more

convenience (self-service and 24/7 accessibility) and less damaged items. Figure 7.4
shows the image of automatic vending machine.

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 Fig 7.4: Automatic Vending Machine

However, the high cost of the labor and equipment needed for automatic vending drives up
the price of goods. In addition, the cost of items sold on the street is frequently higher than
it is in shops.

2. E-tailing

E-tailing, also known as electronic retailing refers to the sale of goods and services through
the internet. It encompasses two main types of businesses: B2B (business-to-business) and
B2C (business-to-consumer).
Companies are shifting their distribution channels to the online mode in response to the
expanding internet revolution to reach large customer bases without regard to
location.The two main types of e-tailing are discussed below.

Business-to-Consumer (B2C)

B2C companies are more prevalent in the e-commerce sector. Retailers in this sector accept
orders from customers through a variety of online channels, including websites, online
marketplaces, social media platforms, and mobile applications, and then ship the final goods
directly to the customer's address.

Business-to-Business (B2B)

Selling takes place between businesses in this scenario. The transfer from suppliers to
manufacturers, wholesalers to retailers, contractors to another company, software

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developers to businesses, etc. are a few examples. The volume of this B2B transaction is
substantial.
In this business of e-tailing, one business's output is given as input to another business. Some
examples of B2B retailing are software developers, freelancers, consultants, and
wholesalers.

7.6 FUTURE TRENDS IN RETAILING

With the growth of online and offline channels, streamlining these processes through
innovation is much needed for the future. As customer experiences get better with
personalization, retailing is expected to create more delightful shopping experiences for the
customer.
Fluctuating trends that are currently being seen will eventually have a long-term impact on
the retail industry. If retailers want to grow, they must meet more of the market's demands.
Given the heightened competition and the emergence of new shops, this appears to be
challenging.
The retail sector in developed economies experiences considerable overcapacity. Rapid
changes in consumer demographics, way of life, and purchasing habits also present new
problems for the retail industry.
To be successful in retail, it is critical to target an appropriate segment and carefully position
them. Additionally, increasing expenses will make successful purchasing dependent on more
efficient planning and operations. Consequently, technology is advancing as a tool for battling
competition.
Smart retailing is all about using technology and artificial intelligence to make better demand
forecasts and predictive analytics to monitor the different costs incurred in the process up
until the final sale is made to the customer. Adapting to every new change that occurs in the
industry, as well as how quickly the business responds to it profitably, is the key driver in the
long run.

7.7 SUMMARY
The retail industry has grown increasingly difficult and competitive over time. The market
has already developed because of growing demographic and cultural variations as well as
evolving lifestyles over time. Every market has a unique set of requirements. Like any
marketer, a store must choose the type of market it will successfully serve. The retailer must
therefore consider a wide range of possibilities to stand out in the market and entice its target
audience.
Retailers now place a higher priority on their consumers' interests, make interaction with
them, and gather data on their behavior to better understand their preferences, rather than
just concentrating on the distribution of goods or services.

7.8 SELF-CHECK EXERCISE

1. Explain future trends in retailing.
2. Explain briefly non-store retailing.

7.9 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 7.6

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 2. For answer refer to section 7.5

7.10 GLOSSARY
 E-tailing: E-tailing, also known as electronic retailing refers to the sale of goods
and services through the internet. It encompasses two main types of businesses:
B2B (business-to-business) and B2C (business-to-consumer).
 Business-to-Consumer (B2C): B2C companies are more prevalent in the e-commerce
sector. Retailers in this sector accept orders from customers through a variety of online
channels, including websites, online marketplaces, social media platforms, and mobile
applications, and then ship the final goods directly to the customer's address.
 Business-to-Business (B2B): Selling takes place between businesses in this scenario.
The transfer from suppliers to manufacturers, wholesalers to retailers, contractors to
another company, software developers to businesses, etc. are a few examples.

7.11 TERMINAL QUESTIONS

1. Write down the characteristics of retailers.
2. Explain in detail store retailing.
3. What are the various types of retail formats.

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 Chapter-8

RETAIL LOCATION STRATEGY

Structure
8.0 Learning Objectives
8.1 Introduction
8.2 Importance Of Locational Decisions in Retailing
8.3 Aspects Of Locational Decisions and Influencing Factors
8.4 Nature Of Retail Locations
8.5 Nature Of Consumer Goods and Location Decision Area
8.6 Techniques Of Locational Assessment and Retail Location Theories
8.7 Summary
8.8 Self-Check Exercise
8.9 Answers to Self-Check Exercise
8.10 Glossary
8.11 Terminal Questions

8.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Importance Of Locational Decisions in Retailing
 Aspects Of Locational Decisions and Influencing Factors
 Nature Of Retail Locations
 Nature Of Consumer Goods and Location Decision Area
 Techniques Of Locational Assessment and Retail Location Theories

8.1 INTRODUCTION

The choice of location is the most important aspect for any retail business that relies on
customers. Deciding on location is the most complex of the decisions to be taken by a
retailer. Firstly, the costs are very high, and secondly once a location has been selected
thereis very little flexibility.As one would agree that choosing a wrong location can lead
to losses and even closure of the store. This makes the selection of the appropriate
location the most critical aspect of retailing. Location of a store in an area depends on its
type of business and the type of customers it wants to attract.

8.2 IMPORTANCE OF LOCATIONAL DECISIONS IN RETAILING

The importance of locational decisions as is due to the following factors:

1. Locational choice is a major cost factor.
2. It involves large capital investment (the high cost of land or building if it is being
purchased, of recurring cost of rent if it is leased).
3. It affects the transportation cost structure (Distance from the manufacturer,
distributor etc. affects the total cost of transportation).
4. It has a significant bearing on human resources cost (if the retail store is located

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 away from central locations i.e. areas where public transport is weak, the cost of
employees will be higher as employees will have to be provided with transportation
or paid for transport).
5. It depends on the quantum of customer traffic (depending on the number of
consumers who frequent the area).
6. It affects the volume of business (if the number of customers visiting the store are
low then the volume of business done by the retail store is obviously affected)

Thus, a locational decision is influenced by the flow of vehicular and pedestrian traffic,
which determines the footfalls in a retail store. It is very important to take pedestrian and
vehicular traffic count of the location before choosing the location.

For determining the pedestrian traffic, the following aspects are to be considered:

1. Age and gender of the pedestrians passing through the area (very young children
areexcluded).
2. Count by time of day i.e., number of pedestrians passing through the area
duringdifferent times of the day.
3. Pedestrian interviews i.e., ask random pedestrians their shopping habits etc.
4. Spot analysis of shopping trips.
5. Further, determining the vehicular traffic count is very important for convenience
stores, stand-alone stores and areas with limited pedestrian traffic.

As one would appreciate that it is possible for a store to have good locational
characteristics and poor site characteristics and to have good site characteristics and not
have good location characteristics. For instance, the store may have a good locational
mileage i.e., in a prime area with good vehicular and pedestrian traffic, but may have poor
site characteristics such as not having parking space or the site may have all the facilities
required but the pedestrian and vehicular traffic could be low and not generate enough
volume of business.

Therefore, one needs to appreciate that the location and site should interact in a positive
way with a stores merchandise, operations and customer service. For instance, if a
convenience store is setup in a residential area with ample on-site facilities and the
location is a high traffic area then the store location can be described as a perfect location.

Example 1: Departmental stores like Lifestyle, Shoppers Stop, and Pantaloon choose
locations having right mix of location and site characteristics.
Example 2: Wal-Mart, world's largest retailer realized the issue of finding distributors for
its scattered network of stores when it started moving into rural communities. To overcome
this, it setup regional distribution centers supported by a huge truck fleet to reap
advantages of scale.
Example 3: Home-depot, the largest home center chain is seeking markets with
significant aging suburban houses and apartments as it sees them as prime target for its
“do-it-yourself” proposition.

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8.3 ASPECTS OF LOCATIONAL DECISIONS AND INFLUENCING FACTORS

The following factors play a significant role in the locational choice of a particular city:

Size of the City's Trading Area: A city's trading area is the area from which customers
come to the city for shopping. A city's trading area could include its suburbs as well as its
neighboring cities and towns.
Example: Mumbai, which attracts customers from all over India with its large numbers of
trading centers.

The Population of the Trading Area: High growth in the population of an area can also
increase the retail potential.

The Purchasing Power of the Customers: Cities with a large population having affluent
and upper middle class customers can be an attractive location for stores selling premium
products such as designer clothes or even expensive cars which have limited retail outlets.
The fast growth in the purchasing power and its distribution among a large base of middle
class is contributing to retail boom.

Distribution Networks: A city may become specialized in certain lines of trade and attract
customers from other cities.

Number, Size and Quality of Competition: It is important to undertake a detailed study

about the number of retail players across segments, their sales and quality of services
beforeselecting a city.

Cost of Land, Rent and Other Retail Development Costs: This is one of the key factors
affecting the attractiveness of a city as a prospective retail location. If the cost of rental or
the cost of land is very high it would be difficult for a retailer to break even especially if he
is dealing in products with lower margins.

8.3.1 Evaluation of Factors for Location of the Store

Some of the factors that need to be evaluated for identifying the appropriate location of
astore are as follows:

 Qualitative and quantitative dynamics of competitive stores.

 Prospective retailers should evaluate the product lines carried by other

stores,
number of stores in that area etc. before selecting a specific area.

 Whether the area or shopping center provides easy access routes.

 Whether there are any traffic jams or congestion on the routes to the selected
location.

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  Whether there are any zoning regulations in the city as per plans of zoning
commission and municipal corporations regarding the development of shopping
centers, residential areas, flyovers etc.

Locational Decisions
For instance, if a flyover is being developed in front of the location selected the retailer will
not be able to attract the vehicular traffic. The retailer should consider the direction in which
the city is developing while selecting its location.
Additionally, the retailer needs to consider the following aspects too:

 If there is adequate traffic and if so the potential of the traffic passing the site is
good.
 Whether the volume of vehicular and pedestrian shoppers who pass by the
specific sites represent potential customers.
 Does the site have the ability to intercept the traffic flowing past the site?

 Whether the vehicular or pedestrian traffic moving past the site could be
attracted.

Further, the presence of other shopping centers or stores in the vicinity can also influence
the ability of the site to attract traffic.
 Complementary aspects of adjacent stores
 Sufficient parking space

 Vulnerability of the site to unfriendly location

Thus, before deciding on the chosen site it should be ensured that there are adequate
parking facilities available in the vicinity, especially if the store expects vehicular traffic.
The quantum of parking facility required for different types of stores varies as per size of
retail store or mall.

For instance, shopping centers require 4 to 5 spaces for every 100 square meter of gross
floor space, Supermarkets require 10-15 spaces for every 100 square meter of gross floor
space similarly Furniture Stores require ,2 to 3 spaces for every 100 square meter of
gross floor space.

Finally, the retailer also needs to consider if unfriendly competition could emerge in the
shape of a large discount store, which resorts to aggressive pricing strategies, which can
threaten its viability.

Example: In USA many retailers had to close or relocate when Wal-Mart set up its stores in
the neighborhood. The same was repeated in India when Margin Free Markets set up
its stores, in the wake of which the kirana stores and the supermarkets in the vicinity had
to close.

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8.4 NATURE OF RETAIL LOCATIONS

The types of retail locations can be classified as follows:

Isolated Stores
These stores have typically no other retail store in the close vicinity. Their location
dependson their pulling power of customers. The advantages of isolated stores are that
there is no
Competition, the rentals are low as it is not a commercial area, further they have better
visibility than other stores; constantly upgrade their facilities as per requirements. The
imminent disadvantages of this type of stores are:
 It is difficult to attract customers as the travel distance may be high,
 The lack of variety for the customers that has limited choice of merchandise
to select from,
 High cost of advertising as initially a high budget will have to be allocated
to attract customers to the store,
 Further, there is no sharing of costs like in a shopping center. The isolated
stores arethe stores you usually find inside housing colonies, which is the
local Kirana store, or on highways as a shopping destination.

Example: These stores are typically what we call "mom-n-pop" stores/ convenience
surrounded by other non-competitive stores.
These can also be specialist stores like "gift stores" located in a densely populated area
withno competition,

Unplanned Markets

Unplanned markets are basically the markets that come up with no systematic planning,
for example, the markets in the older part of the cities or where planned markets over the
timehave become unplanned markets due to poor municipal lanes and unplanned growth
of themarkets. Here one also finds that there are multiple stores selling the same products.

The advantages of unplanned markets for the retailer are that the rentals are very low,

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havegood access to public transport and availability of a variety of goods for the consumer.
The disadvantages are difficulty in attracting customers, lack of proper parking facilities,
nosharing of costs and lack of space for the setting up larger outlets or for the expansion
of theexisting outlets.

Example: Chandni Chowk market in Delhi one of the largest and oldest whole-sale
markets attracts retailers, home buyers in spite of its poor approach, lack of parking facilities
because of the range and price points it offers for all. However, recently, it has witnessed
major makeover.

Planned Markets
The planned markets, on the other hand are the shopping complexes and Malls etc.
The
advantages of planned markets are that there is a well-rounded assortment of stores
makingit a one stop shopping experience for the entire family. The malls have very large
anchor stores which are either departmental stores or stores which have the crowd pulling
capacity.

Further, in these malls you have a variety of stores, restaurants and services offered. There
is high pedestrian traffic in these markets; all the retailers in the market share the costs
like lighting up of the market for festivals or undertaking joint promotions to promote the
market, which in malls is also supported by mall management.

The disadvantages of such a market are limited flexibility, the rents are higher compared
to the earlier described markets, and it creates a highly competitive environment and
domination of the market by the anchor stores.

Example: The Sahara Mall, Metropolitan Mall in Gurgaon and the upcoming malls across
major cities and towns offering shopping, hospitality, entertainment and other
personalized services.

8.5 NATURE OF CONSUMER GOODS AND LOCATION DECISION AREA

Shopping goods usually imply products with a high unit price, which are
purchased infrequently and involve more intensive selling effort on part of the store
owner.
Shopping products are often sold in selected franchise outlets, Further it is the
character of the retail store rather than the type of goods it sells that governs the
selection of the site.
The following are some of the characteristics of buyers of consumer goods:

 They compare price, quality and features of such products across stores.

 While convenience goods are purchased by almost everyone, certain kinds

of shopping goods are purchased by only certain segments of shoppers

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  The consumers buy goods infrequently and plan their purchase

8.5.1 Locational Decision in Retailing –Issues

It is important for you to understand the role of retail location in the context of business
practice. To do this it is important for you to start with the broadest possible view on
strategic planning. The assumption being that the organization can control its assets, the
environment(s) it operates, but cannot control the environment.
The following factors affect the choice of a retail location:

Corporate Strategy
Here the retailer should ask himself the following:

 What business (s) should we operate in? In what business environments are our
coreassets most valuable?
 What should we be doing internally, versus outsourcing or not being involved at all?
This is implemented through decisions to enter and exit industries, acquire firms/
closure of non-complementing businesses/vertical or horizontal integration or
disintegration so on.

Business Strategy
Here the retailer needs to answer as to how he will compete in this line of business which
leads to explore the following drivers:

 Product breadth,

 Target market, and

 Quality/price etc.

Functional Strategies (finance, production, marketing)

Here the retailer needs to evaluate the best ways to serve the target markets with desired
products.
Further, geography enters all three levels of strategy wherein the incumbent retailer needs
to ask himself the following questions:
1. Are we an Indian company or a global company?
2. Do we have the assets to compete on the basis of worldwide low costs?
3. Where should we obtain financing, source inputs, locate production, and locate
distribution or outlets? Given a production location, what technology and human
resource policies can work best here? Given a retail location, what product mix
and price points work best for us here?
4. Do we have the logistics to service the chosen markets?
5. How many retail outlets do we need to cater to our chosen or desired market?

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 6. Where do we locate each retail outlet?
7. What is the product mix and level of product adaptation that is required for a -
givenretail outlet?
However, though location decisions are most often made explicitly at the level of
functional strategy, they must be in tune to the overall competitive strategy.

In addition, the choice of a location should signify a basic economic-geographic trade-off

between economies of scale and friction of distance; relative concern for cannibalization
versus eliminating competition.

More ambitious retailers might change not just the product mix but the entire concept and
even the brand name of the stores to serve their chosen market (without weakening brand
image/positioning).

For this they need to introspect by asking themselves the following questions:
 Where our current or desired markets are in general located (assuming
monopolistic market areas)?
 How should we go about dividing our market among our various outlets
(assumingmonopolistic market areas)?
 How and where should we locate ourselves, what will our market distribution
look like, in the context of our competitors?
For instance, an excellent site for a shopping goods store is next to a departmental store
or between two departmental stores where there is a flow of traffic between them. Another
good site is between a major parking area and a departmental store.

Example: The recent phenomenon that departmental stores like Shoppers Stop and
Pantaloon have started being one of the anchor tenants for malls coming up in proximity is
a case in point. A case observed in Mumbai, Gurgaon, Kolkata on account of small
catchment
areas and range of complementary products and services offered in the vicinity.

8.6 TECHNIQUES OF LOCATIONAL ASSESSMENT AND RETAIL LOCATION

THEORIES

There are a lot of techniques used in choosing of a store location. Some of the techniques
used in locational choice assessment are as follows:

Judgmental technique: Where there is a heavy reliance on one's gut feeling through
environmental scanning leading to one of the following possibilities of locational imitation
of competitors.

Systematic screening technique: Where the incumbent/existing retailer assumes the size
of the market area using general rules of thumb survey of current customers like:
1. What radius or drive time would encompass a certain percentage of all

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 customers? (But would this be the same in a dense, less-dense, or less
auto- prone region?)
2. How to identify (and perhaps rank) preferred market areas of the given size?
3. What patterns or indicators to look at in published data on the household
income, consumer expenditures, business growth, or population growth by
metropolitan areaor broadcast media market?

Analog technique: Where the incumbent/existing retailer can look for market-area
characteristics that are similar to the market areas of successful, analogous stores using
thefollowing techniques:
1. Differential analysis: This involves analyzing characteristics like-market areas and
nature of stores, their product mix, management strengths, size etc. Thus, they go on
to differentiate between the most-successful and least-successful locational choices.
2. Regression Analysis: This involves in determining the level of profitability (or
revenues) across all sites (perhaps sales per square foot) as a function of a set of
characteristics, and the use of location-specific variables that are most significant.

Further, if the analysis also includes non-geographic variables (age or training or

experience of managers, age of the store, years since last renovation, etc.), then one can
assume that one has reasonable level of control on some of the things that make stores
dissimilar to each other.
Note: Regression coefficients can be used to predict the level of profitability or revenues
from each alternative format and location proposed for a new store.
In case of an incumbent retailer with no existing outlets to benchmark against with the
following techniques can be used:

Market-area analysis: Where one can seek market areas that have generally desirable
characteristics and then gradually build up data from a small-area data. Depending on
what one sees is desirable for organization’s product and marketing strategy.

This requires: Geo-demographic data (data on the median or average economic and
demographic characteristics of inhabitants within small geographic areas), or
 Lifestyle data (data on the location and buying habits of individuals), or

 Geo-lifestyle data (data that draws inference about the buying habits of the
inhabitants of small geographic areas).
Note: These techniques/approaches ignore two important aspects. Firstly, the actual
market areas are not "yes/no" delineations. (in real terms, they are not space oriented
monopolies) as there are always some customers from outside the primary market area,
and customers near the "edge" of the market area who are less likely to use your location
than your more proximate customers.

Secondly, the actual market areas depend not only on store/proposed store
characteristics but also on competitors locational dynamics and characteristics.

Retail Saturation Coefficient

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This coefficient measures the potential sales per square foot of store space for a given
product line within a particular market area. As a market area evaluation tool, it
incorporates both consumer demand and competitor presence.
The coefficient of retail saturation depends on the size of the population, per capita
expenditure on consumer goods, amount of retail space available for sales, and the
maximum value each of these variables can be in a particular market area. This
coefficient can take a value of between 0 and 1, but the key question to be asked is
whether the retailer would be inclined towards a 0 or 1 value.
The formulation of the index of retail saturation is expresses as follows:

Retail saturation index (RSI) for market area i.

where P is a measure of population, E is a measure of per capita expenditure (on

consumer items in general, or on a particular product category), and .R is a measure of
the amount of retail space (or space devoted to a particular product category), each within
the market area where max [R / (P E)] is the maximum value of R / (P E,), that can be
achieved in any market area.

Example 1: In India, for instance, many consumer goods conglomerates and

merchandisers are moving towards down town areas for merchandising their goods with
several specialistcategories such as linen and items relevant to the area for consumption
by the local populace.

Example 2: McDonalds in India is moving their retail outlets to suburban areas dependent
upon the consuming population and the number of footfalls it envisages in the area. The
evaluation of this coefficient is therefore important for the retailer to determine the market
potential of selling its wares in the area and also McDonalds for setting up a food outlet.

8.6.1 Retail Locational Theories

Quality and Distance Theory: This theory suggests that the footfalls in a retail space
have a direct correlation to the quality of the retailed item and inversely proportional to the
distance of the retailer from the consuming populace. The most common measure of
"quality" is the size, in square feet of retail space. Distance, of course, can use any
number of metrics.
Land Value Theory: This is used for determining and explaining the arrangement of urban
land usage and location of economic activity zones in each area. It goes on to state that
the competition for a given land area will determine the price of the urban land and
therefore will have bearing on the nature, quality of the goods merchandised thereby

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ensuring that the best use of the retail space is affected.

8.6.2 Retail Market Identification

Retail market identification is the process of understanding the profile of likely customers
ina chosen area through the following techniques:

Customer Spotting: This involves observing and mapping the actual customer footfalls
through the following data sources:
 In-store surveys

 Point-of-sale query (telephone nos.)

 Bank account information

 Redeemed coupons that had been mailed to the customer's address

 Family size

 Car/vehicle ownership

The mapping is done by dividing the entire region into zones (Census studies etc.).Then,
themarket penetration is computed as the ratio of the number of observed customers to
the number of potential customers (population? number of households?) in each zone.

For Example: The identified and mapped zones with market penetrations that meet
particular thresholds (60%, 25%, 10%, for example) across criteria’s like distance from
the store, per capita income, etc. could be used for decision making using multiple
regression.

Spatial Interaction Model:

This theoretical model explains the relationship between metrics observed on the amount
of demand a product has at the source and its destination, the distance between them
and the impact of transport cost on the demand of the product at the retail store.
This model helps us to systematically estimate as to how much demand a given outlet
will likely to draw from each market area.
This may help us in estimating whether the sales can be expected to increase with any of
thefollowing factors and variables:
1. Attractiveness (e.g., square footage)
2. Demand
3. Distance (or cost of distance) between them
4. Nearby destinations etc.

Geo-demographic Marketing Approach: This approach to marketing recognizes that

some part of the retailer's market may be highly fragmented geographically.

Further, customers respond strongly, across various distances, to some specialized

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attribute of the retailer.
While the location of the retailer may not be affected, geographically targeted promotions
(e.g., direct mail) may be arranged on the basis of geo-demographic data, targeting
individuals by targeting neighborhoods.

One can use geographic analog reasoning with the following possible scenarios:
1. Customer spotting to determine the sources of current customers.
2. Identifying the generalized characteristics of the neighborhoods or zones having
concentrations of current customers.
3. Identifying other neighborhoods or zones, with similar generalized characteristics, to
target.

8.7 SUMMARY
The choice of location is the most important aspect for any retail business that relies
on customers. Deciding on location is the most complex of the decisions to be taken
by a retailer. Firstly, the costs are very high, and secondly once a location has been
selected there is very little flexibility. As one would agree that choosing a wrong
location can lead to losses and even closure of the store. This makes the selection of
the appropriate location the most critical aspect of retailing. Location of a store in an
area depends on its type of business and the type of customers it wants to attract.

8.8 SELF-CHECK EXERCISE

1. Write down the importance of locational decisions in retailing.
2. Explain aspects of locational decisions and influencing factors.

8.9 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 8.2
2. For answer refer to section 8.3

8.10 GLOSSARY
 Differential analysis: This involves analyzing characteristics like-market areas
and nature of stores, their product mix, management strengths, size etc. Thus, they
go on to differentiate between the most-successful and least-successful locational
choices.
 Regression Analysis: This involves in determining the level of profitability (or
revenues) across all sites (perhaps sales per square foot) as a function of a set of
characteristics, and the use of location-specific variables that are most significant.

8.11 TERMINAL QUESTIONS

1. Explain in detail nature of retail locations.
2. Explain the nature of consumer goods and location decision area.
3. What are the techniques of locational assessment and retail location theoires.

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 Chapter -9

RETAIL PRODUCT MIX AND MERCHANDISE STRATEGY

Structure
9.0 Learning Objectives
9.1 Introduction
9.2 Merchandising
9.3 Objectives of Merchandising
9.4 Merchandise Planning
9.5 Category
9.6 Category Captains
9.7 Private Vs. National Brands
9.8 Quality As a Parameter of Merchandising
9.9 Merchandise Mix
9.10 Factors Affecting Merchandise Mix Decisions
9.11 Merchandise Logistics
9.12 Supply Chain Management
9.13 Summary
9.14 Self-Check Exercise
9.15 Answers to Self-Check Exercise
9.16 Glossary
9.17 Terminal Questions

9.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Merchandising
 Merchandise Planning
 Category
 Category Captains
 Private Vs. National Brands
 Quality As a Parameter of Merchandising
 Merchandise Mix
 Factors Affecting Merchandise Mix Decisions
 Merchandise Logistics
 Supply Chain Management

9.1 INTRODUCTION

A Retailer is into the primary function of buying from some sources and making it available
to the customer at convenient sizes at a proper price. This process is known as
merchandising. Whenever one goes to a retail store, one is on the lookout for products
which fulfill one’s needs. Customers generally do not have a preplanned list of products
to be brought. Majority of the buying done by customers in a store is impulse buying.
Interestingly, none of the retail stores cansurvive if they count on customers who have
planned what to purchase from the store. It is the merchandise which is displayed in the
store catch the attention of the customers. This in turn develops an urge amongst the

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customers to buy. Therefore, we can say that merchandise is at thecore of retailing, and
buying and selling of merchandise is the central retail function.

9.2 MERCHANDISING

Merchandising comprises of planning as to what to purchase for the outlet (to resell), how
muchto purchase and at what price to purchase thus, maintaining proper stocks and finally
pricing them for selling purpose.

Merchandising is a critical function. The neighborhood grocery shop has to keep an eye
on hundreds of items from a large number of suppliers, both small and large. The owner
has not only to order what is going to be out of stock but also products whose prices are
likely to rise in the near future due to seasonal effects. He has not only to make payments
but also claim various purchase discounts which ultimately will ensure the bottom line of
his Profit and Loss account. Similarly, when one goes to a cloth shop what does one do?
For the same print of cloth, one may ask many colors. While purchasing a shirt customer
would like to look at all the designs and colors available for a given size before taking the
final purchase decision. A retailer should therefore maintain a proper depth in his
merchandise which in the present example would mean that he should be stocking
maximum possible range of colors and prints in different sizes of shirts.

9.2.1 Cross Merchandising

Each retailer wants to boost his sales. The increase in sales can be either through the
main line of products which he is stocking or complimentary goods which may arouse
interest in the customer. Maintaining stocks of complimentary goods along the main line
is known as Cross Merchandising.
In today's era where every retailer is trying to increase the footfalls in his outlet it is very
essential that he adopts the cross merchandising in a strategic manner. It makes it
relatively easy for the retailer to convince the customer with a wider range of same utility
products for the ultimate purchase.

9.3 OBJECTIVES OF MERCHANDISING

Like in any other business activity, in merchandising one must first set objectives. All
further activities can flow from the objectives. Some authors have also termed this as
merchandising philosophy. The core of merchandising activity is to make whatever is
demanded by the target market. While setting up merchandising objectives a retailer must
keep in mind the following factors:

1. Diversity in requirements of the customers

2. Fashions/Market trends
3. Supplier’s capacity to supply

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 4. Competitors merchandising strategy
5. Warehousing capacity and warehousing costs

Customers have various requirements. Thus, a chain of store catering to the same type
of target segment has a different set of assortments of products kept in its separate stores
depending upon the geographic location and demographics of the place.

Fashions and Market trends are big time indicators of sales trends in the present as well
as near future. Especially in the apparels a retailer can, on the basis of last couple of years
and the current trend, can predict the type of demand which expected during the year and
in the future to come.

Each retailer is depending on a set of suppliers for the supply of finished products to be
resold tothe customers. Suppliers are critical participants of the total supply chain of the
retailer. It is very essential that the retailer has complete information about the ability and
limitations of each of his supplier. This would help him to plan his purchase of merchandise
better from each of them.

Major players in the market have their individual strategies regarding merchandise
management. It is worth knowing their strategies (although difficult to do so but not
impossible). Merchandising strategy of any top player can throw ample light on the strategic
use of merchandising. It can also help you to know the economies of scale which the
retailer must be enjoying. Finally it helps you to know as to what is the calculation on the
part of the particular retailer regarding latest fashion trends and consumer requirements.

Storage is an important aspect of merchandising. All the merchandise procured should

be adequately stored in a proper manner before the sale. Some retailers prefer to
showcase the total material in the store itself. Their intention is to impress the customer
with the range of the products which they have. However, if not displayed properly it may
add to the clutter in the outlet and give a very confused look. This may adversely affect
the store atmosphere and ultimately the sales. Again, even if some part of the stocks is
kept in the warehouse it should be the endeavor of the retailer to put it in the outlet at the
opportune time. This is besides the general precautions against pilferage, loss due to
various hazards etc.

9.4 MERCHANDISE PLANNING

Once objectives are set, the stage is set for planning. Plan for merchandise is based
mainly on the sales projections or forecasts. These forecasts carry projections for the
overall company, product category, item wise and in case it is a retail chain then individual
store wise projection. Following considerations be kept in mind
 Types of Merchandise

 Merchandising Objectives
 Category/Unit Forecasts

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  Budget

 Strategic Considerations

 Timing

 Strategic Assortment Planning

Types of Merchandise

Essentially merchandising is of two types: staple/basic merchandise comprises of daily

need products as well as those commodities which the customers buy frequently
throughout the year. Fashion merchandise comprises of luxury items as well as products,
related to fashion, style, andstatus. Depending upon the type of merchandise the planning
may differ. A retailer selling staplemerchandise will have lesser maneuverability regarding
pricing as compared to say a premium brand of fashion merchandise retailer. However,
fashion merchandise retailer will have a greater risk of changing than the staple
merchandise retailer who may not have such risks at all.

Merchandising objectives

We have discussed about merchandising objectives earlier. It is most essential that one
looks into the fashion trends and the category and unit forecasts before planning out
merchandise.
Category/Unit Forecasts

Forecasts put logic behind acquiring a particular assortment of goods as well as quantity
to be ordered. It is worth mentioning here that authenticity of the forecasting procedure
makes it dependable.
Budget

Every retailer would like to keep the right quantity of merchandise in the right place at the
most suitable time/month/season. Moreover, this needs to be achieved this within the
limited budget.
Strategic Considerations

Each store starts its plan with setting its financial objectives. Once they are set, the next
stage is to decide what to purchase for sale in the store. Here, the retailer is cautious
about his financial as well as space limitations. Thus, with this ground reality clearly
known retailer now has many merchandise related decisions to take -- for example, if the
store is a men's clothing store, then the retailer has to decide whether to carry a large
variety of different types of clothing technically known as categories like shirts, trousers,
jeans, T-shirts, suits, jackets or maintain fewer categories but a larger assortment of more
styles and colors within each category. The problem does not end here. A retailer has to
now decide as to how much stock to carry in each unit, each category and so on.
However, from a business perspective it is very important to note that more the retailer

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invests in back up stocks the less he would be able to invest in variety or say deeper
assortments. A retailer makes a tradeoff between variety, assortment and back up stock
on the basis of his experience and market forecasts. This is known is assortment
planning.
Timing

In merchandise planning, timing and the strategic considerations are the key
determinants. Procuring grains by a big grocery shop can become very strategic
proposition if proper time is kept in mind. This can be the harvest period.
Strategic Assortment Planning
Each retail store is looking for best return on investment. For having the best returns, it is
essential that the store keeps stock of what the customer needs especially what are the
size requirements, and other preferences like color, shade, design fragrance etc.
Therefore, on the part of the retailer
to make customer purchase from that particular store, it will be necessary to have
those combinations which customer requires. This makes it indispensable on the
part of the retailer to have a strategic assortment planning. This indeed feels a lot
of research into the consumer psyche as well as planning well in advance. It would
include the following three steps:

9.5 CATEGORY

Determining Product Categories: While looking into assortment planning the first
step is to determine the product categories. Now a question which can come to mind is
what is a category? Each retailer groups various items stocked in his store. We can
say that a category is an assortment of items with a reasonable degree of
substitutability. For instance, when we go to areadymade garment shop, we expect that
it would have readymade garments for men, women, and
Children. These three can he termed as distinct categories.
However, one should note that there is no fixed rule for defining a category. Categories
can be defined in terms of brands, nature of products, or specific consumer preference.
Unless the retailer groups various items under distinct categories it will be very difficult to
procure items.

9.6 CATEGORY CAPTAINS

There are circumstances where in for a particular item one supplier becomes the favorite
of all theretailers or at least majority of retailers. This may be due to the quality offered,
prices or even some services. In such a case the supplier is known as category captain.

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Each retailer has to take supplies from numerous suppliers or vendors. Both the retailer
as well as the supplier has mutual interest in ensuring that the customer purchasing their
products get in theshortest possible lead time after the goods have been stocked in the
store. Thus, there lies a merit in maintaining a harmonious relationship amongst the
suppliers and retailers.

Organize Buying Process Category Wise

Once the categories have been determined, the next step is to plan the buying process.
Each product category may have a distinct feature or buying requirements. Buying
requirements can be different in the sense that specific expertise may be needed for
buying a particular category of products. For instance, men's wear will be distinctly
different from women's wear from buying point of view. Similarly, there can be other
similar differences in procurement of different category products. Thus, it is in the interest
of the retailer that procurement of different categories of merchandise is looked into in their
own unique ways.

Key Issues in Merchandise Assortment Planning

While initiating assortment planning one should always remember the key issues
Decisions are made optimally balancing amongst variety, assortment, and product
availability. It is easy to understand once one visits a retail store. Firstly one expects that
first of all, the product one desires is available and that, one will be shown reasonable
range of variety. Having achieved that, one will expect access to decent level of
assortment. Now from the retailer's perspective, in case you want to become a one-stop
shopper in ready-made shirts then, you would give product availability more emphasis.
Therefore, you cannot carry large assortments. Similarly if you desire to have wide
assortments in the stock in a given product category, you as a retailer has to sacrifice
variety.
Set Merchandise Budget Stipulations
In any commercial activity financial discipline is what leads to profits and success. A
retailer cannot earn profits unless he is able to forecast the financial implications of his
merchandising activities. Financial planning is done at the top level. This financial plan is
broken into various categories which percolate to the lowermost level of the store. Based
on the financial plan given by the top management the merchandise managers as well as
the buyers develop their own individual financial plans, It is here that decision regarding
the cost profit margins, sales to stock ratio, expected return on assets, and inventory
turnover have to be decided. Some relevant formulae in this regard can be as follows:

This equation looks into the productivity of inventory. This means if I invest Rs. 1, 00,000
in our specific product than harmony of these can be generated from that investment. This
means greater the preference of the customers, greater is the off take of that product, thus
greater is the cycle frequency.

Methods of Inventory Planning

Any merchandising planning can never be successful without proper inventory planning.
Proper inventory planning can be done through various methods.

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 In case the retailer has a strong belief that all times specific level of inventory should be
on hand. Then he should go for the basic stock method. In the basic stock method, we
simply deduct the average monthly sales for a particular season from the average stock
being kept for the particular season. Here the beginning of month stock or BOM will be a
total of the basic stock as well as theamount which the retailer intends to sell in the month.
In case retailers need to plan on a weekly basis then they should go for the week's supply
method. Here the retailer can calculate the average weekly sales and based on his
method of announcing capacity as well as affordability, an economic order quantity can
be derived.

In case the retailer wants to directly link his inventory with sales only then he can go for
sales tostock ratio. This is one of the elementary methods whereby the retailer based on
his sales decides upon what should be the size of his inventory. However, here the retailer
has to decide as to what should be his beginning of the month inventory size.

Develop an Assortment Plan

Once the categories are finalized, and fixed the budget limitations then the important task
remains is of assortment planning. As mentioned earlier in assortment planning, one has
to get down to the details of color, size, brand, material, etc. One should keep in our mind
that it is not always possible to have an optimum assortment which can satisfy all the
cross sections of the customers and at same time suit our budget. However, the
merchandise manager with his field experience can take a judicious decision in this
regard. In assortment planning key terminologies to be kept in mind are assortment
breadth and assortment depth.

Assortment breadth: when you go to a bicycle shop you ask for how many brands of
bicycles that he has. This is the breadth of his assortment
Assortment depth: before you select any brand, which size, color and style of bike you
require. This is the depth of assortment.

9.7 PRIVATE VS. NATIONAL BRANDS

Generally, retailer faces the dilemma of achieving a suitable balance between old brands
and private labels and national assortments of products. Here, one must know that
national brands generally have smaller profit margins and maybe have more stringent
terms of payment. Also, a conservative goods return policy is adopted by national brands.
However, it is noteworthy that these brands have national advertising backup and better
customer reception. Such brands have national, regional and local promotional
programmes running throughout the year. Such brands strengthen store image and help
boost traffic flow into the store. Moreover, since the loyal customers have been using the
brand for a long time they are very comfortable using them. Brands like Colgate, Rin and
Ariel are all manufacturers' brands.

Of late, private labels have become prominent and popular among the Indian
consumers. Some
big retailers like Shopper's Stop have developed their own brand labels. One can find such

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private labels at supermarkets and prominent grocery shops for a long time now. These
shops have been acquiring the food grains, getting it cleaned, packing in polythene bags
and branding them. They have been pricing them a shade higher than the market rates.

9.8 QUALITY AS A PARAMETER OF MERCHANDISING

Retailer need to keep in mind that, a range of quality exists for each product. Therefore,
retailers must decide what levels of quality they want when purchasing inventory and
planning the merchandise assortments. When we visit electronic consumer goods store, we
come across a range of televisions with different price range. However, while taking a
decision a customer decides about the specific brand based on his judgment, experience,
as well as various terms and conditions. Therefore, they are used to making judgments
about the product as well as the brand in a way which is most beneficial to them. Here it
becomes very critical for the retailer to decide what sort of quality range to stock. This in
turn sets the brand image for the store. In this regard aretailer must have a fair idea about
his clientele.

For instance, a retailer located in a posh area uses premium modes of communication,
makes efforts to provide elegant store atmosphere as well as offer best of the customer
services possible. In such a case it becomes essential that he also carries the best quality
merchandise. On the other hand, if we have a daily needs shop located in one of the
downtown areas, the store need not stress on providing best of the store atmosphere more
importantly his customers will not be in a positionto pay for the best quality products. It is
noteworthy that the merchandise mix for any retail storeshould reflect the clientele of that
store.

Price points
Pricing is another important issue. India is a very price sensitive market. At any given
point of time what should be the price range of the merchandise? For the same product
prices vary depending upon the type of quality as well as brand name. There can be
situations where despite being a price sensitive market high-priced products are in high
demand. There are many up- market stores which stock brands which are status symbols
for the higher echelons of the society. Depending upon the location of the shop as well as
nature of commodities dealt with, a retailer should decide what price points to deal in.
9.9 MERCHANDISE MIX

Before deciding upon the sourcing of merchandise a retailer has to decide about the
merchandise mix. He has to look into the variety, assortments and quality of merchandise,
decide the most important merchandise price points. This combination is known as the
merchandise mix. The key to effective merchandise planning lies in exceeding the needs
and wants of the market. While planning merchandise mix, a retailer must have complete
information about the target audience through market situation analysis.

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9.10 FACTORS AFFECTING MERCHANDISE MIX DECISIONS

Budget constraints

In merchandising, budget is the biggest constraint. The range and variety of merchandise
has become so large that it is impossible for the retailer to stock all varieties of any
product. The retailer has to decide with his limited resources what sort of depth in each
product line should bemaintained.

Space limitations
Every day new brands are hitting the market. With the limited space and resources the
retailer has to take a decision regarding number of products or brands to stock. Nowadays
reputed retailers with strong customer loyalty are charging slotting allowances from the
manufacturers and dealers to display their products. This has led to a battle of slots
amongst the multinational corporations and prominent manufacturers. However, this
constraint does not exist in case of e-tailing.

The rate of product off take

As explained earlier, a retailer makes efforts to keep the depth in his .merchandise
assortment to satisfy the maximum number of customers. However, this leads to another
problem in case the off take of the total product line is not sufficient. The more variety of
merchandise a retailer keeps; he himself is in the danger of having unsold stock. Thus,
the retailer must decide whether he would like to go for a small product line with a great
depth or limited product lines with large variety. This decision however would save him of
investing in dead stock.

Stock replenishment schedule

It is essential for the retailer to know the replenishment schedule for his stock. He should
be well aware about his present level of inventory, reordering level, danger level, as well
as the lead timetaken by the supplier or vendor to supply the goods ordered for. The retailer
must discount various factors like festivals, strikes, seasons etc. which may affect the
supply of merchandise by the vendor. Moreover, it is advisable that the retailer has the
required quantity and quality of merchandise available in sufficient number in the store at
the onset of any specific season. For instance, in a ready-made garment shop it will be
wise to order for sufficient quantities of specific garments much before the onset of the
season. This enables the retailer to not only stock the goods but also charge a premium in
case of high demand and scarcity of the product.

9.11 MERCHANDISE LOGISTICS

Each retailer would like to receive his merchandise as early as possible. For this, he
needs to do logistics planning, select modes of transportation. Not only does the retailer
plan to receive the goods in time but also strategically plan the reverse logistics to send
goods to other stores of the chain. Similar reverse logistics can also be planned for

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returning any below standard goods back to the vendor.

9.12 SUPPLY CHAIN MANAGEMENT

An efficient coordination within the supply chain of an organization is known as supply
chain management. A typical supply chain would include producer, agents as brokers,
wholesalers, retailers, and consumers. A retailer must know all the key parties in the
supply chain from producers to the end-user. By understanding each party's objectives
the retailer can strategically devise supply chain plan keeping in mind the constraints,
environmental issues and factors related to product availability.
Duties of a Merchandise Manager
Generally merchandising is looked after by the retailer personally as far as small size
stores are concerned. However, in large retail stores like shoppers stop, pantaloons,
Chennai Central, there are professionals to deal with this vital function of the retailing. It
is very much possible that one retail store has got multiple merchandise managers
depending upon specific categories. Merchandise managers need look into buying the
best product at the reasonable price. This in turn, makes it necessary for them to perform
the basic functions like planning, organizing, directing, coordinating, and controlling the
merchandising process.
Planning: This is the first basic step for merchandise manager to be successful in his
endeavor. Since, once the season starts, the retail store may not have the time to fine
tune their merchandise plan. Based on the previous sales data a sales forecasting chart
is prepared. Further, based on the available resources of the store, the budgeting has to
be done. The budget as well as the sales data helps the buyers plan what to buy? and,
identify other financial limitations for the current year's purchase.
Organizing: Merchandise manager has to organize the merchandising process which
starts with collecting the sales forecasting data and then proceeding onto the budget.
Further, all the activities related to merchandising planning are to be initiated and seen
that they work to achieve organizational goals. Merchandising being the most important
function of the organization, organizing the process is an essential function.
Directing: It is the responsibilities of a merchandise manager to not only guide the buyers
regarding what and how to purchase but also to train them to work efficiently. It is essential
on the part of the buyers to be vigilant about the quality and price aspects. Merchandise
manager has to direct from time to time as per the market situation.
Coordinating: The essence of merchandising lies in coordination. The merchandising
manager needs to coordinate with various people to achieve the required results. A retail
store requires many products at a given point of time. This in turn is handled by many
buyers. An efficient merchandising manager needs to coordinate with all the buyers as
well as the seller parties. All these activities run parallel to each other.
Controlling: Since multiple factors influence the business of a retailer, therefore, it is
possible that a retail store is unable to achieve its targets in merchandise performance
due to such factors.
It is the duty of a merchandise manager to look into the reasons and apply control.
Corrective measures taken in time can minimize losses to the store at the same time may
be instrumental in maintaining goodwill of the firm.

9.13 SUMMARY

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A Retailer is into the primary function of buying from some sources and making it
available to thecustomer at convenient sizes at a proper price. This process is known as
merchandising. Whenever one goes to a retail store, one is on the lookout for products
which fulfill one’s needs. Customers generally do not have a preplanned list of products
to be brought. Majority of the buying done by customers in a store is impulse buying.
Interestingly, none of the retail stores cansurvive if they count on customers who have
planned what to purchase from the store. It is the merchandise which is displayed in the
store catch the attention of the customers.

9.14 SELF-CHECK EXERCISE

1. Define Merchandise mix.

2. Define category captains.
3. What is the difference between private and national brands.

9.15 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 9.9
2. For answer refer to section 9.6
3. For answer refer to section 9.7

9.16 GLOSSARY
 Cross Merchandising: Each retailer wants to boost his sales. The increase in
sales can be either through the main line of products which he is stocking or
complimentary goods which may arouse interest in the customer. Maintaining
stocks of complimentary goods along the main line is known as Cross
Merchandising.
 Assortment breadth: when you go to a bicycle shop you ask for how many brands
of bicycles that he has. This is the breadth of his assortment
 Assortment depth: before you select any brand, which size, color and style of bike
you require. This is the depth of assortment.

9.17 TERMINAL QUESTIONS

1. What do you understand by merchandising. Write down the various objectives of
Merchandising.
2. What do you understand by Merchandising Planning.
3. What factors affect merchandise mix decisions.
4. Explain supply chain management. Also explain duties of Merchandise manager.

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 Chapter-10

Human Resource Management

Structure

10.0 Learning Objectives

10.1 Introduction

10.2 Objectives of Human Resource Management

10.3 Issues in Retail Human Resource

10.4 Designing the Organization Structure for a Retail Firm

10.5 Managing Diversity

10.6 Legal Issues in Human Resource

10.7 Ethical Issues Facing HR

10.8 Summary

10.9 Self-Check Exercise

10.10 Answers to Self-Check Exercise

10.11 Glossary

10.12 Terminal Questions

10.0 Learning Objectives

After reading the lesson, you should be able to understand: -

 Objectives of Human Resource Management

 Issues in Retail Human Resource

 Designing the Organization Structure for a Retail Firm

 Managing Diversity

 Legal Issues in Human Resource

 Ethical Issues Facing HR

10.1 Introduction

Human resource management (HRM or simply HR) is the management of an

organization’s workforce, or human resources. It is responsible for the attraction, selection,
training, assessment, and rewarding of employees, while also overseeing organizational
leadership and culture, and ensuring compliance with employment and labor laws. In

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circumstances where employees desire and are legally authorized to hold a collective
bargaining agreement, HR will typically also serve as the company’s primary liaison with
the employees’ representatives (usually a labor union).
HR is a product of the human relations movement of the early 20th century, when
researchers began documenting ways of creating business value through the strategic
management of the workforce. The function was initially dominated by transactional work
such as payroll and benefits administration, but due to globalization, company
consolidation, technological advancement, and further research, HR now focuses on
strategic initiatives like mergers and acquisitions, talent management, succession
planning, industrial and labor relations, and diversity and inclusion.

In startup companies, HR’s duties may be performed by a handful of trained professionals

or even by non-HR personnel. In larger companies, an entire functional group is typically
dedicated to the discipline, with staff specializing in various HR tasks and functional
leadership engaging in strategic decision making across the business. To train
practitioners for the profession, institutions of higher education, professional associations,
and companies themselves have created programs of study dedicated explicitly to the
duties of the function. Academic and practitioner organizations likewise seek to engage
and further the field of HR, as evidenced by several field-specific publications.

10.2 Objectives of Human Resource Management

Objectives are predetermined goals to which individual or group activity in an organization

is directed. Objectives of personnel management are influenced by organizational
objectives and individual and social goals. Institutions are instituted to attain certain
specific objectives. The objectives of the economic institutions are mostly to earn profits, and
of the educational institutions are mostly to impart education and/or conduct research so
on and so forth. However, the fundamental objective of any organization is survival.
Organizations are not just satisfied with this goal. Further the goal of most of the
organizations is growth and/or profits.
Institutions procure and manage various resources including human to attain the specified
objectives. Thus, human resources are managed to divert and utilize their resources towards
and for the accomplishment of organizational objectives. Therefore, basically the
objectives of HRM are drawn from and to contribute to the accomplishment of the
organizational objectives. The other objectives of HRM are to meet the needs, aspirations,
values and dignity of individual employees and having due concern for the socio-
economic problems of the community and the country.
The objectives of HRM may be as follows:

1. To create and utilize an able and motivated workforce, to accomplish the basic
organizational goals.
2. To establish and maintain sound organizational structure and desirable working
relationships among all the members of the organization.
3. To secure the integration of individual or groups within the organization by
coordination of the individual and group goals with those of the organization.
4. To create facilities and opportunities for individual or group development so as to

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 match it with the growth of the organization.
5. To attain an effective utilization of human resources in the achievement of
organizational goals.
6. To identify and satisfy individual and group needs by providing adequate and
equitable wages, incentives, employee benefits and social security and measures
for challenging work, prestige, recognition, security, status.
7. To maintain high employee’s morale and sound human relations by sustaining and
improving the various conditions and facilities.
8. To strengthen and appreciate the human assets continuously by providing training
and development programs.
9. To consider and contribute to the minimization of socio-economic evils such as
unemployment, under-employment, inequalities in the distribution of income and
wealth and to improve the welfare of the society by providing employment
opportunities to women and disadvantaged sections of the society.

10. To provide an opportunity for expression and voice management.

11. To provide fair, acceptable and efficient leadership.
12. To provide facilities and conditions of work and creation of favorable atmosphere
for maintaining stability of employment.
13. Management has to create conductive environment and provide necessary
prerequisites for the attainment of the personnel management objectives after
formulating them.

10.3 Issues in Retail Human Resource

The retail industry is a driving force in the American economy, so much so that news
reports often base at least part of their perception of the economy on how the retail industry
is performing. Aside from the major economic ebb and flow of the buying seasons and
how they affect retail sales, the retail industry as a whole has a number of other major
problems that it must often deal with.
1. Employee Turnover

Lack of worker continuity, or employee turnover, is one of the major problems faced
by the retail industry. Columbus IT notes that the typical turnover rate in North
American retail is much higher than in European countries and often ranges between
200 and 300 percent. Employees coming in and out of your business as if it were a
revolving door only creates problems for human resource professionals who must
constantly find and train new staff, which can eat up valuable time and resources.
2. Auditing

Auditing is another problem that the retail industry faces on a regular basis. Retail
businesses are regularly engaged in competition with one another, and this
competition can create price wars, forcing a need to keep tight control over inventory

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 and other important data. Metric Stream, Inc. notes that the retail industry is often
faced with inefficient and poor auditing plans that make competing with other
companies difficult. The company notes that existing auditing systems may be
outdated and provide inadequate audits needed to stay competitive.
3. Economic Challenges

Another area of challenge for the retail industry is the economic uncertainty it faces
moving forward. The retail industry as a whole is largely dependent upon the economic
well-being of the nation. As the nation prospers and people have more money to
spend, the retail industry generally flourishes. However, in more difficult economic
times, the retail industry is often faced with potential shrinkage. Columbus IT also
indicates that the future uncertainty of global economic markets makes economic
planning difficult in the retail world.
4. Technology

Keeping up with the pace of modern technology is another problem the retail industry
faces. For instance, retail point of sale technology often uses computer systems that
are several years behind the computer industry as a whole. An article in Mobile
Commerce Daily by Peter Finocchiaro points out that the inability of retail industry
technology to keep up with initiatives such as mobile digital coupons is a problem that
the industry regularly faces. Given the rate of turnover and the constantly changing
economic environment, constantly upgrading and keeping their equipment and
networks running on the newest technologies can be difficult for retail leaders.

10.4 Designing the Organization Structure for a Retail Firm

Organization structure described as a formal system by which various activities to be

performed by employees are identified and determined, indicating the line of authority and
responsibility in the firm. It is the formal system of task and reporting relationships that
controls, coordinates and motivate employees so that they cooperate to achieve an
organization’s goal. A retailer can’t survive unless its organization structure satisfies the
need of the target market.
The considerations for Organization Structure are as follows:

1. It
should encourage employees to work and develop cooperation among employees
in work.
2. Allow people and groups to cooperate and work effectively.

Organization design is a process where in managers select and manage various

dimension and components of organizational structure and culture to achieve
organization’s goals.
The considerations for Organization Design are as follows:

1. Should focus of specialization

2. Matching authority and responsibility

3. Determining the reporting relationship

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4. Focus of retail strategy

The organizational structure of a retail store will vary by the size and type of the business.
Most tasks involved with operating a retail business will be the same. However, small or
independent retail stores may combine many sectors together under one division, while
larger stores create various divisions for each particular function along with many layers
of management.
Example: The small specialty shop may have all of its employees under one category
called Store Operations. A large department store may have a complete staff consisting
of a manager, assistant manager and sales associates for its Sporting Goods department,
Home and Garden, Bed and Bath, and each additional department.
To define the store’s organization, start by specifying all tasks that need to be performed. Then
divide those responsibilities among various individuals or channels. Group and classify each
task into a job with a title and description. The final step is to develop an organizational chart.

Retailing Structure
The following is a brief outline of some of the divisions in a retail organization.

Owner/CEO or President
Store Operations: Management, Cashier, Sales, Receiving, Loss Prevention

Marketing: Visual Displays, Public Relations, Promotions

Merchandising: Planning, Buying, Inventory Control

Human Relations: Personnel, Training

Finance: Accounting, Credit

Technology: Information Technology

As the store grows and the retail business evolves, the dynamics of the organization’s
structure will change too. Therefore, it is paramount to redesign the store’s organizational
chart to support the decision-making, collaboration and leadership capabilities that are
essential during and after a growth period.
An organizational structure is a principally hierarchical perception of subordination of
entities that work together and add to serve one universal aim. Organizations are a variation
of clustered entities. An organization can be prearranged in numerous diverse ways and
styles, depending on their objectives and aim. The Organizational structure identifies the
activities to be performed by specific employees and determined the line of authority and
responsibility in the firm. An efficient organizational structure shall smooth the progress of
working relationships between a variety of entities in the organization and may progress
the working competence within the organizational units.
In the present scenario organizational structure had a paradigm shift from Vertical
structure to horizontal one. There are certain steps which can facilitate an organizational
structure. We will take into consideration gradually.

10.4.1 Steps in Developing Organizational Structure

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The first step in developing organizational structure is to establish the task that must be
performed in a retail firm.
These tasks performed at the retail firm are divided into four broad categories:

Tasks performed under strategic management are:

1. Develop a retail strategy

2. Identify the target market

3. Determine the retail format

4. Design organizational structure

5. Select store location
Tasks performed under Merchandising Management are:

1. Buy merchandise
2. Locate vendors, Evaluate Vendors

3. Negotiate with Vendors

4. Control merchandise inventory

5. Develop merchandise budget plans
6. Review open-to-buy stock positions
7. Price Merchandise

8. Discounts
The tasks performed by Store Management are:

1. Recruit, hire, train store personnel

2. Plan work schedule

3. Evaluate performance
4. Maintain store facility

5. Locate and display merchandise

6. Provide services like gift wrapping
7. Handle customer complaints

8. Prevent inventory shrinkage

The tasks performed by Operations Management are:
1. Promote the firm, its merchandise and services

2. Plan communication programs and budget

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3. Select media

4. Manage public relations

(a) Manage human resource
(i) Develop policies

(ii) Plan career paths

(b) Distribute merchandise

(i) Locate warehouses

(ii) Receive merchandise
(iii) Mark n label merchandise,
(iv) Store merchandise, Sending merchandise to store
(v) Return merchandise to vendor
(c) Establish financial control

(i) Provide timely information on financial performance

(ii) Forecast sales, cash flow, profits.

Once the tasks have been identified, the retailer groups them into jobs to be assigned to
specific individuals and determines the reporting relationships. Rather than performing the
entire task mentioned above, individual employees are typically responsible for only one
or two tasks. Care should be taken that employee is not burdened by too many tasks, at
the same time to few tasks will lead to boredom.
Productivity increases when employees have the proper amount of authority to effectively
undertake the responsibility assigned to them. E.g. buyers who are responsible for the
profitability of a merchandise category need to have the authority to make decision that
will enable them to fulfil this responsibility. They should have the authority to select and
price the merchandise for their category and determine how the merchandise is displayed
and sold.
After assigning tasks to employees, the final step is to determine the reporting
relationship. Productivity can decrease when too few or too many employee report to a
supervisor. The number of subordinates is greater when they perform simple standardize
tasks, when they’re well trained and competent, and they perform tasks at the same
location as the supervisor.

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 Figure 7.1: Retail Enterprise Organisational Chart

Retail Organizational Structure

Retail organizational structure differs according to the type of retailer and the size of the firm.
A retailer with a single store will have a completely different structure that a national chain.
Owner-manager of a single store may be the entire organization. As sales grow, the owner-
manager hires employees. Coordinating and controlling employees in a small store is easier.
The owner-manager simply assigns task to each employee and watches to see that these
tasks are performed properly. Each employee must perform a wide range of activities, and
the owner manager is responsible for all management tasks.
As sales increases, specialization in management may occur when the owner manager hires
additional management employees. The owner manager continues to perform strategic
management tasks. The store manager may be responsible for administrative task
associated with receiving and shipping merchandise and managing employees.
In contract to the management of a single store, retail chain management is very complex.
Managers must supervise units that are geographically distant from each other. In most large
retail firms the two senior executives, typically called the CEO and COO, work closely
together in managing the firm. One is primarily responsible for the merchandise and marketing
activities of the firm and the other is responsible for the stores, human resource, distribution,
information systems and finance divisions.
Key activities like Merchandise, planning, marketing, finance, visual merchandising and
human resources are managed from the corporate headquarters.

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 10.5 Managing Diversity

Diversity in the workplace means bringing together people of different ethnic backgrounds,
religions and age groups into a cohesive and productive unit. Advances in communication
technology, such as the Internet and cellular phones, have made the marketplace a more
global concept. In order to survive, a company needs to be able to manage and utilize its
diverse workplace effectively. Managing diversity in the workplace should be a part of the
culture of the entire organization.

Step 1
Confirm that all of your personnel policies from hiring to promotions and raises are based on
employee performance. Avoid allowing tenure, ethnic background or any other kind of
category into your human resources policies. Managing a diverse workplace begins with
strong policies of equality from the company. Once these policies are in place, the company
can begin implementing diversity measures throughout the entire organization.

Step 2
Rate the qualifications of the candidate based on the quality of his experience, not age or
any other category, when hiring. When you hire a diverse but qualified workforce, you are on
the right track towards being able to manage the diversity in your company.

Step 3
Encourage diversity when creating teams and special work groups within the company. If a
manager creates a work group that does not utilize the skills of the most qualified employees,
then insist that the group be changed to include all qualified staff members.

Step 4
Treat complaints of favoritism or discrimination seriously. Encourage employees to report all
instances of discriminatory behavior, and have a definitive process in place for investigating
and dealing with these issues.

Step 5
Hold quarterly trainings for the entire staff on the benefits of diversity in the workplace. Encourage
discussions at these meetings on how the company can better manage workplace diversity.
To address diversity issues, consider these questions: what policies, practices, and ways of
thinking and within our organizational culture have differential impact on different groups?
What organizational changes should be made to meet the needs of a diverse workforce as
well as to maximize the potential of all workers, so that San Francisco can be well positioned
for the demands of the 21st century?
Most people believe in the golden rule: treat others as you want to be treated. The implicit
assumption is that how you want to be treated is how others want to be treated. But when
you look at this proverb through a diversity perspective, you begin to ask the question: what

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does respect look like; does it look the same for everyone? Does it mean saying hello in the
morning, or leaving someone alone, or making eye contact when you speak?
It depends on the individual. We may share similar values, such as respect or need for recognition,
but how we show those values through behavior may be different for different groups or
individuals. How do we know what different groups or individuals need? Perhaps instead of
using the golden rule, we could use the platinum rule which states: “treat others as they want
to be treated.” Moving our frame of reference from what may be our default view (“our way is
the best way”) to a diversity-sensitive perspective (“let’s take the best of a variety of ways”)
will help us to manage more effectively in a diverse work environment.

Caution There can be possible lawsuits and legal tangles from disaffected employees who
feel aggrieved because of instances of discrimination and harassment based on their
ethnicity or gender.
Your Role
You have a key role in transforming the organizational culture so that it more closely reflects
the values of our diverse workforce. Some of the skills needed are:
1. an understanding and acceptance of managing diversity concepts

2. recognition that diversity is threaded through every aspect of management

3. self-awareness, in terms of understanding your own culture, identity, biases,
prejudices, and stereotypes
4. willingness to challenge and change institutional practices that present barriers to different
groups
It’s natural to want a cookbook approach to diversity issues so that one knows exactly what
to do. Unfortunately, given the many dimensions of diversity, there is no easy recipe to follow.
Advice and strategies given for one situation may not work given the same situation in another
context.
Managing diversity means acknowledging people’s differences and recognizing these
differences as valuable; it enhances good management practices by preventing discrimination
and promoting inclusiveness. Good management alone will not necessarily help you work
effectively with a diverse workforce. It is often difficult to see what part diversity plays in a
specific area of management.
To illustrate, the following two examples show how diversity is an integral part of management.
The first example focuses on the area of selection, the second example looks at
communication:
Issues

1. How do you make the job sound appealing to different types of workers?

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2. How can recruitment be effectively targeted to diverse groups?
3. How do you overcome bias in the interviewing process, questions, and your response?
Strategies

1. Specify
the need for skills to work effectively in a diverse environment in the job, for
example: “demonstrated ability to work effectively in a diverse work environment.”
2. Make sure that good faith efforts are made to recruit a diverse applicant pool.

3. Focus on the job requirements in the interview, and assess experience but also consider
transferable skills and demonstrated competencies, such as analytical, organizational,
communication, coordination. Prior experience has not necessarily mean effectiveness or
success on the job.
4. Use a panel interview format. Ensure that the committee is diverse, unit affiliation, job
classification, length of service, variety of life experiences, etc. to represent different
perspectives and to eliminate bias from the selection process. Run questions and process by
them to ensure there is no unintentional bias.
5. Ensure that appropriate accommodations are made for disabled applicants.

6. Know your own biases. What stereotypes do you have of people from different groups and
how well they may perform on the job? What communication styles do you prefer?
Sometimes what we consider to be appropriate or desirable qualities in a candidate may
reflect more about our personal preferences than about the skills needed to perform the job.

10.6 Legal Issues in Human Resource

Board members must be aware of the obligations and responsibilities that are provided under
both the Federal and State statutory framework, as well as under contracts, statutory agreements
and awards.

Employment Law

There are several types of legal obligations related to employment law:

Statutes: Federal, State and Territory Governments have laws that prescribe the minimum
conditions of employment that apply to paid staff.
Awards: These are legally enforceable terms and conditions of employment in an industry
or employment sector. The Social and Community Services Employees (State) Award is the
main award that applies to staff in non-government community services employment. Some
community organisations also employ staff whose job roles are covered as part of other industry
sector awards (such as bus drivers, cooks and cleaners).

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Contracts: An employment contract will exist between the employer and the employee in all
types of employment relationships. The contract must be well drafted and meet minimum
legal and award requirements, clearly describe the specifics of the job and the organization’s
requirements of the employee.
Statutory agreements: Statutory agreements are the product of negotiations between an
organisation and a group of employees or a union(s) that are subsequently registered by an
industrial tribunal. Negotiating an agreement has the advantage of considering the inclusion
of provision(s) that are specific to the needs of an organisation. Specific provisions may be
included as a result of the negotiations but these cannot disadvantage employees, that is,
they must provide the minimum requirements provided for under an award or relevant statute.
In the Federal jurisdiction these agreements are called Certified Agreements and at State level
they are called Enterprise Agreements.
Common law: This is case law that is developed in the court system. Previous judgments
guide how laws are interpreted. The general duties of the parties in an employment
relationship are prescribed by common law.

10.7 Ethical Issues Facing HR

Organizational ethics are rules and standards that guide workplace behavior and moral principles.
Many organizations establish a “code of ethics” that sets company expectations regarding ethical
issues such as privacy, conflict of interest, discrimination and harassment and workplace
diversity. Human resources personnel are charged with setting standards that promote ethical
behavior in the workplace.
1. Discrimination and Harassment

Human resources professionals must ensure the organization remains compliant with
anti- discrimination and harassment laws. Employee discrimination and harassment on
the basis of race, gender or religion is an ethical issue human resources personnel face
daily. Laws that prohibit discriminatory behavior such as the Civil Rights Act and
Americans With Disabilities Act help HR representatives develop training and awareness
programs to prevent discrimination and harassment in the workplace. These laws also
establish procedures human resources may use to report and discipline workers who
display inappropriate discriminatory behavior.
2. Privacy

Human resources are involved in most aspects of employee relations including hiring,
firing, compensation, benefits and leaves. Human resources representatives have
access to extremely sensitive information. Keeping this information private is an ethical
matter facing HR. Human resources personnel have an obligation to maintain the
confidentiality of an employee’s personal data.
3. Diversity

Workplace diversity encompasses the various qualities, characteristics and experiences that
distinguish one worker from another. These characteristics can be differences in race,

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 gender, age, social status or other traits that make an individual unique. Treating a person
differently because of these differences poses an ethical issue that faces human resources.
HR personnel implement policies that promote diversity in the workplace and welcome the
differences of the entire workforce.
4. Safety

Employee safety is an issue facing human resources personnel. The department must
prevent and correct potentially dangerous situations. Human resources must promptly act
on hazardous conditions that present safety concerns in the workplace. The department is
also responsible for identifying potentially dangerous employees and ensuring they do
not harm themselves or others within the organization.

cost-effective and relevant. However, off-the-job training is usually carried out by

professional trainers. It also occurs away from the distractions of work. Training tends to
have very specific and measurable goals, such as operating an IT system or till,
understanding a process, or performing certain procedures (for example, cashing up).
Development is more about the individual – making him or her more efficient at a job or
capable of facing different responsibilities and challenges. Development concentrates
on the broader skills that are applicable to a wider variety of situations, such as thinking
creatively, decision-making and managing people. In short, training is typically linked to
a particular subject matter and is applicable to that subject only, while development is
based on growing broader skills which can be used in many situations.
5. Diverse backgrounds
Harrods employees come from diverse backgrounds and different nationalities. They
have differing levels of competency, education and experience. Harrods offers
comprehensive Learning & Development opportunities. These opportunities are offered
at a variety of levels to suit the needs of all Harrods employees. These range from workshops
for Sales Associates and Warehouse Operatives to developmental programmes for
senior managers.
Amber is a Harrods Retail Manager who started as a Sales Associate at Harrods through
an online application. However, Harrods Learning and Development ensured Amber
acquired the skills she needed to carry out her role. Development at Harrods is linked
to the company’s Business Competencies which fall under four headings: Working at
Harrods, Your Impact on Others, Making Things Happen, Focus on Improvements.
Each Business Competency is supported by workshops so that every skill can be improved.
Learning is offered off-the-job in ‘bite-size’ sessions. These sessions give employees
the chance to learn more effectively over a much shorter period, reducing time away
from work and bringing a tightly focused approach to skills development. They have
been described as concise and punchy and a workshop typically lasts 90 minutes. All the
Business Competencies are supported by self-help guides which are run either on-or
off-the-job and include activities such as observation and review, reading, and ‘one

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 minute guides’ offering top tips and tactics.
Identifying key competencies also helps Harrods to design its recruitment process to
ensure that it attracts the best candidates. They must have the right approach to sales,
customer service and decision-making and support the ‘theatre of retail’ that underpins
Harrods’ reputation. This is about flair, showmanship and expertise. Harrods Learning
and Development department must be proactive in responding to changing customer
needs. For example, Harrods has introduced cultural awareness training for employees
better to serve the increasing number of customers from the Middle East, China, Brazil
and Russia.
6. Developing a career path
Harrods stands out from its competitors by providing a wide variety of development
opportunities for all employees. This means the business can recruit and retain good
managers and maintain improvements in sales and business performance. Individuals’
self-esteem and motivation is raised. Once a year, managers talk to employees about
their progress and ambitions during appraisals. Employees then identify their personal
development targets.

10.8 SUMMARY
Human resource management (HRM or simply HR) is the management of an organization’s
workforce, or human resources. It is responsible for the attraction, selection, training, assessment,
and rewarding of employees, while also overseeing organizational leadership and culture,
and ensuring compliance with employment and labor laws. In circumstances where
employees desire and are legally authorized to hold a collective bargaining agreement, HR
will typically also serve as the company’s primary liaison with the employees’ representatives
(usually a labor union).

10.9 SELF-CHECK EXERCISE

1. What are the legal issues in Human Resource.
2. What are the issues in retail human resource.

10.10 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 10.6
2. For answer refer to section 10.3

10.11 GLOSSARY
 Auditing: Auditing is another problem that the retail industry faces on a regular basis.
Retail businesses are regularly engaged in competition with one another, and this
competition can create price wars, forcing a need to keep tight control over inventory
and other important data.
 Diversity in the workplace means bringing together people of different ethnic
backgrounds, religions and age groups into a cohesive and productive unit.
Advances in communication technology, such as the Internet and cellular phones,
have made the marketplace a more global concept.

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10.12 TERMINAL QUESTIONS
1. What do you understand by Human Resource Management. Write down the objectives
of Human Resource Management.
2. Write down various steps in developing Organizational Structure.
3. What are the ethical issues Human resources are facing.

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 Chapter-11
RETAIL COMMUNICATION MIX STRATEGY

Structure
11.0 Learning Objectives
11.1 Introduction To Communication Mix in Retail Management
11.2 Traditional Elements of Communication Mix in Retail Management
11.3 Modern Elements of Communication Mix in Retail Innovative Steps In Retail
Communication Mix
11.4 Innovative Steps in Retail Communication Mix
11.5 Summary
11.6 Self-Check Exercise
11.7 Answers to Self-Check Exercise
11.8 Glossary
11.9 Terminal Questions

11.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Introduction To Communication Mix in Retail Management
 Traditional Elements of Communication Mix in Retail Management
 Modern Elements of Communication Mix in Retail Innovative Steps In Retail
Communication Mix
 Innovative Steps in Retail Communication Mix

11.1 INTRODUCTION TO COMMUNICATION MIX IN RETAIL MANAGEMENT

In the previous units of this course, we have studied the concept of retail management and its
types, strategies for location, product, and price mix etc. In this unit, wewill study the concept of
communication mix, its traditional elements and then would explore the impact of modern
information technology on communication mix. In the last section we would also explore the
integration of these elements along with the future of communication in retail.

Retail management can be defined as the processes which help the customers to procure the
desired products/ services from the retail stores for their consumption/use. Retail management
is one of the oldest as well as newest branch of sales management due to e- commerce making
strides in business ecosystem.
11.1.1 Definition of Communication Mix/ Promotion Mix

Marketing is based on the four pillar of marketing mix, popularly called as 4Ps of marketing. Since
retail marketing is more towards the services on the product-service continuum, it also uses the
extended three Ps of marketing mix. Therefore before moving ahead, let’s recap of the basic

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concepts of Communication Mix and Integrated Marketing Communication (IMC):
Communication mix is combination of not just the mix and match of communication platforms
but also the communication methods.
Communication mix is a combination of all the tools, techniques, channels and platforms. These
involve advertising, sales promotion, public relations, publicity, direct marketing, social media,
events, exhibitions, websites and weblinks etc.

Communication methods are broadly classified into four categories on basis of the sender and
receiver of the message:
1. One-to-One i.e., the communication that is personalised and targeting individual customers.
The SMS that we receive, WhatsApp messages, emails, Facebook messages etc. are examples
of one-to-one communication.
2. One-to-Many Promotional campaigns with mass messaging; pamphlets distributed, mass
emails etc. are some of the examples of this type of communication.
3. Many-to-One type of communication involves one receiver with multiple senders. The
common examples are customer feedback being received by the marketing executive to further
refine the services.
4. Many-to-Many are also called as bi-directional flow of communication. Advertisements by
marketer (including both manufacturer as well as intermediaries), online chat rooms and other
such public messaging platforms are best examples of this type of communication.
This basic differentiation of communication arises due to the nature of information, urgency and
longevity of communication, and the marketing objectives of the organisation. Prof. Neil Borden1is
considered the pioneer of marketing mix, and illustrated how organisations successfully use
different advertising method to engage the customers.

Communication/promotion as an important element of marketing mix, it is used for achieving the

various marketing objectives and strategically ensuring the success of the business.
Today promotion mix in marketing literature is commonly replaced by the term integrated
marketing communication (IMC). Although in this unit we would use the term communication
mix and IMC interchangeably.
Integrated Marketing Communication (IMC) is defined as, “process of unifying all the elements
(advertising, sales promotions, personal selling, public relations, publicity, digital
marketing and experiential/ Guerrilla) of marketing communications.”

IMC - the process of unifying a product/brand’s message to make it consistent across all the media
and touch points used to reach the target audience in retail management. It is part of the
organisation’s strategic decision and guides communication strategy used across all marketing
channels. With the changing times IMC has become more complex and challenging, moving
from five basic elements to more than twenty elements, and still evolving to be integrated and
managed.

According to American Marketing Association (AMA)2, IMC is defined as, ‘a planning process

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designed to assure that all brand contacts received by a customer or prospect for a product,
service, or organization are relevant to that person and consistent overtime. ‘Marketing Guru
Philip Kotler3has done extensive research on the need, role, and importance of communication
mix. Accordingly, communication mix is described as, ‘the concept under which a company
carefully integrates and coordinates its many communications channels to deliver a clear,
consistent message about the organisation and its products.’ The whole retail industry is
dependent on the timings and placement of the communication mix.

11.1.2 Elements of Communication Mix

Communication mix consists of both the traditional as well as the modern information technology
based elements, closely integrated into the communication strategy. The traditional five
elements of communication mix are:
I. Advertising
II. Sales Promotion
III. Personal Selling
IV. Public Relations, and
V. Publicity

You must have studied some of these elements and their characteristics in some previous
units. The current communication mix involves following modern elements as well:
I. Email Marketing
II. Online /blogs/ Websites /Forums etc. advertising
III. Content marketing
IV. Social Media Marketing
V. Mobile marketing (SMS, WhatsApp, telegram etc)
VI. Search Engine Optimisation
VII. Paid Search, AdWords
VIII. Reputation Marketing
IX. Virtual Communities etc.

The list is not exhaustive, as the elements in today’s digital era are constantly evolving. The shelf
life of various elements is getting shorter, and hence they are quickly replaced by new elements.
For example, in early 2000 SMS marketing was new and diffused very quickly, today it is
not the leading elements for reaching potential customers, and social media marketing is more
prominently used.
11.2 TRADITIONAL ELEMENTS OF COMMUNICATION MIX IN RETAIL MANAGEMENT

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We all regularly see different communications from the retail outlets around us. Retail outlets of
different types are the most visible and common contact points with the customers, and also
the effective point of communication. A walk into a mall near you (ref figure 11.1) can give an
exposure to many elements ofcommunication mix, advertisements at the entrance, outer walls,
sales person trying to sell you credit cards, discounts and deals representing sales promotion
and customer care executives involved in public relations etc. The characteristic of retails sector,
their different types and models and other distinctive features have been covered in the
previous units. In this section, we explore the various traditional elements of communication mix
specifically relevant to retail sector.

Figure 11.1: Retail Sector- Typical Mall in India

11.2.1 Advertising

Advertising is the most common, diverse channels and commonly used mode of communication.
Advertisement is ubiquitous, we see advertisements all around us, as we are exposed to
advertisements throughout the day; starting with the morning newspaper, radio jingles in the car,
billboards outside, television commercials, advertisements and scrolls when browsing internet
etc. It is so common that in layman’s terms marketing and advertising are sometimes used as
synonymous terms.

Before moving into details of retail advertising, we look into the definition of advertising. According
to American Marketing Association (AMA), “advertisement is defined as -any paid form of non-
personal presentation and promotion of ideas, goods and services by an identified sponsor.”This
is most popular definition in marketing literature, as it highlights the key characteristics of
advertising –
 Paid Form: Advertisement is always paid for, and hence it becomes a burden on the

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organisation. The money spent on advertisement is evaluated in terms of increased demand
or sales.
 Non-Personal: Advertisements are designed for mass audience and not for individuals.
Therefore, we see use of mass media for advertisements, and hence the omnipresence.
 Presentation and Promotion of product4: Advertisement involves presentation and
promotion of product (i.e., goods, services, ideas, places, events etc.) through mass media like
television, radio, publications (newspapers, magazines etc.
 Identified Sponsor: Advertisements are paid for by an identified sponsor. Hence,
advertisements are not without origin (like grapevine) and there is always a responsible party
(person/ organisation) who would bear the cost.

This definition although very comprehensive, ignores and miss an important characteristic of
advertisement i.e., persuasion. The definition focuses on presentation of idea, goods, or
services, like an announcement as in publicity or other elements of IMC, and do not include
the strategic or creative considerations. This missing element is given due stress in the retail
advertising.

Advertising is the placement of any message/announcement through any suitable media, by

business firms, government agencies, NGOs or even individuals, with a purpose to inform,
persuade the target audience regarding their products, services, organisations, or ideas. Retail
advertising is the process of using advertising by retailers in their store (online and offline) to
spread awareness about their products or services, and generate interest, and convince them
to buy the product /service in comparison to the competitors. The specific aim of retail advertising
is to influence the audience to take the specific action of buying the product atthat time in
as large a
quantity as possible.

Retail advertising is
generally divided into two
parts i.e. National advertising
and local advertising. As the
retail stores are of many
types- outlets of MNCs,
national

Figure 11. 2: National /MNC Retail Advertising

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manufacturers and local producers, single brand and multi brand outlets. Products presented in
the retail advertisements are intended to be sold at the earliest.
National /International Retail Advertising: The big organisations and MNCs follow their
centralised communication policies in alignment with the corporate objectives. The overall
promotion policy would involve a judicious
mix of different elements. The advertisements for the products by such organisations would be
similar at all levelsand throughout the country. These retail advertisements depend on the brand
recognition by the customers. Hence the same theme, colour style and content are used in
advertisement at all levels.

Local Advertising: This form of advertising is mainly used by regional store owners who have
shops in a local market or deal with particular products. This can be used by the retail chains as
well as by standalone local shops. The focus of these types of advertisements would be on
reaching the local audience and attract them to the store. Hence, there would be two types
of local advertisements one for the store as a whole and inside the store smaller product specific
advertisements informing about the schemes and sale offers. Retail advertising is at times a
combination of both local advertising (focused on regional audiences residing in nearby areas)
and national advertising universally used by popular brands.

The main objective of retail advertising is to attract the customers to the stores and sell the product
very quickly, and ensure the customer get information on the various sales offers. Products which
are advertised in retail ads are intended to be sold out as early as possible. Some of the important
retail sectors are automotive, grocery, general merchandise, restaurants etc.

11.2.2 Sales Promotion

The second element of communication mix is the sales promotion, which uses advertisements
as the tool to reach the audience. Sales promotion is defined as, ‘An element of promotion
mix in which businesses use temporary /time bound campaigns, offers, schemes and
incentives in order to generate interest, create demand and boost sales.’ The main characteristics
of sales promotion are: i) time -bounded i.e. every sales promotion must have a fixed duration
and validity period; ii) incentive to buy i.e. persuasion to buy the product/service within that
period is the basic objective. The commonly used sales promotion tools are coupons,
scratch cards, product samples, loyalty programs, discount, bundle buying and many other point-
of-purchase plans.

On basis of the target audience, there are two types of sales promotions in retail management:
1. Intermediary oriented: When the sales promotion schemes are designed for motivating the
dealers, retailers, and other intermediaries to boost the sales. The commonly used promotion
schemes are discounts and monetary incentives, sponsored holidays, travel and club
memberships, trade shows, sales contests, trade allowances, training opportunities, product
demonstrations etc.

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2. Customer Oriented: The sales promotions commonly used in retail stores and the point of
purchase are customer oriented. Buy one get one free, clearance sale, flat 30% off, now 15%
extra, etc. that you see around you during your visit to the retail stores. The internet or mobile
-application based e-stores / e-tailers also use similar types of schemes and offers. Along with
the monetary and quantitative discounts, the platforms also provide limited time schemes for cash
on delivery, EMI-plans, free home delivery and bundle purchase (for e.g., Rs. 100 discount on
purchase of sugar if 5kg rice is purchased).

The common advantages of using sales promotions are:

1. The biggest advantage of such successful schemes is the instant increase in sales. The
immediate rise in numbers is measurable and can clearly show us, what it works and
what is not appreciated by the audience.
2. The incentive-based time bounded offers play a key role in preventing competitors’ entry into
the local markets. This led to ensuring stable position of the organisation and ensuring
customer loyalty.
3. A successful sales promotion would ensure the support of the intermediaries in reaching
the customers, and the strengthening of this symbiotic relationship ensures profits in the
long run.Another advantage of sales promotion is unlimited creativity scope, and flexible
designing. Unlike advertising, which is a costly option, sales promotion is relatively easy
to design, execute and measure.
4. Some people use the term well-choreographed dance to describe sales promotion
strategies. Organisations use affiliate marketing strategies for designing bundling of
complementary products. For example, induction Cooktop Company can bundle an offer
with utensils and Cookware Company.
5. Sales promotion also results in building traffic, and generating demand. In store excitement,
loyalty programs etc. ensure a long-term relationship with the customers.

11.2.3 Personal Selling

Personal selling is defined as the face-to-face selling in which a person known as salesperson
uses his communication skills and sales abilities to convince the customer to buy the products.
It is an integral part of promotional mix, and is commonly used in retail management. As the
salesperson’s aim is to boost sales, answer queries and give demonstration of the product, so
that the customer can make a rational decision. The common tools and techniques used in
personal selling are field selling, door-to-door selling, store selling, reference selling and
demonstrations in malls and sale-points. The whole domain of sales management involves
understanding the characteristics of good salesperson, selling situation, sales planning and
budgeting, types of sales etc. The selling process is the interaction between a seller and a
potential buyer or client, generally a business uses for to replicate for consistent performance
among salespersons.
There are several common steps involved in the selling process, the first few steps involve
research into the need identification, understanding wants and insights into prospects, whereas

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the final steps include addressing the queries, answering the doubts, and closing the deals and
maintaining long term connections. Businesses use the common seven steps of the selling
process to complete sales and ensure continued profits.

1. Prospecting: This involves identification and research regarding the ideal potential
customer. This screening process is based on preparation of qualifying questions, determining
buyer’s needs and attempt in understanding the product -need alignment.

2. Preparation and Pre-approach: Thiscrucial stepwhich involves preparation of information

regarding product description, prices, payment schemes and options, competitor rates and other
terms and condition of sales. This is like the ground work before approaching the potential
customers with the product proposal. This step decides the success of the sales person in
handling the potential customers in terms of queries, concerns and persuasion. It ends with a well
drafted initial presentation. It involves practicing what is to be said, how it is to be said and also
preparing for potential questions and queries.

3. Approach: This is the stage which involves actual process of approaching the prospect
and initiating the first personal connection with them. The timingof the first meeting, state of
readiness of the buyer and creating the right set of circumstances for the presentation of
theproduct/service. This step is crucial for the first impression.

4. Presentation: This step in the selling process establishes an understanding of the

prospect’s individual needs and wants. The presentation prepared previously is now tailor-
made according to the circumstances, and demonstration of the product is given in such a way
that the prospects consider it as the best solution for their needs or wants. This step involves
focus on personalizing the presentation/ demonstration and creating a value proposition and a
solution to the problem. Presentation can use the multimedia and information technology along
with visual and hands on experience.

5. Handling objections: After the presentation, the prospect is given the opportunity to raise
concerns, questions, and objections related to the product, proposal or price. This stage

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Figure 11.6: Personal Selling Process

involves patiently handling the objections, queries, comparisons with the competitors etc.If the
previous steps are completed properly, the salesperson would be well prepared for this stage.
This stage ensures that the prospect moves from the interest to desire stage of buyer readiness.
In order to be successful, this step involve listening to the prospect's concerns and asking
additional questions to better identify and understand theobjections and help them in decision-
making.

6. Closing: Depending on the convincing or persuasive power of the salesperson, this stage
marks the sale deal as a success of the process. Once the prospect is convinced that the product
or service is the better option in comparison to the competitors, salesperson must help them to
take the purchase decision and ensure that they fully understand all the terms of the sale. Closing
the sale would also involve drafting the final proposal, negotiation of the terms and conditions,
pricing, signing the contract, completing the transaction etc.

At this stage the salesperson ensures that the additional conditions related to refunds,
guarantee/warranty, delivery, installation/maintenance etc. are clearly understood by the
customer. Salesperson must ensure guaranteed customer satisfaction, and can also attempt to
up sell, by offering additional products, complement their original purchase, upgradation etc., to
take advantage of the customer engagement and readiness.

7. Follow-up: This step is the continuation of the relationship built due to successful sale
between the buyer and the seller. Follow up is to express the commitment of the seller to
ensure buyer satisfaction, retain customer loyalty and also help in identifying new prospects. The
aim is not to continue selling at this stage, but instead to nurture the existing relationship. From
a simple thank you, a call to take feedback, to sending a token gift can cheer up the customer and
convince them to share their experience of the new product or service. A satisfied customer is the
best advertisement and often leads to multiple referrals or reviews which can ensure boost in
sales and profits.

11.2.4 Publicity

Publicity is defined as use of various communication channels, public and media outlets to
showcase the products, services, mostly in the form of company news, events, and updates.
The basic goal is to attract the attention of the target audience, and make them aware of the
company’s CSR commitment, new product launches, social interactions, or any message that
would ensure the awareness and visibility of the organization. It also improves the credibility of
the organisation, ensures people have positive perceptionregarding business, products, or
services. There are many advantages to publicity in comparison to other elements of
communication mix:

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1. It is less expensive than other marketing efforts. Specially when good public relations
are maintained with the media, it ensures space in news items and regular media coverage.
2. The credibility of publicity in form of news items is much higher than the sponsored
advertisements which are very costly and yet not trusted by audiences.
3. Publicity opens new opportunities for collaborations and partnering and shows the
organic way of showcasing the products.
4. The more exposure the brand gets, the stronger and more recognisable is the brand
value.
5. With social media and advancements in the information technology, the publicity strategy
has improved in terms reach and scope and is even more effective and efficient today.

Some of the common types of publicity strategies are:

a) Press Release: A statement shared by the organisation with the media on regular basis,
which includes information about the company that need to be shared with the general public on
regular basis. For eg. AGM notice and other financial reports.
b) News Outlets: When newspapers, and media houses cover the organisation during
seminars, events, new product release or public relation events, the organisation gains
publicity. This publicity is much appreciated and valued by the target audience, and helps in
creating a favourable brand image.
c) Events: Sponsoring of public relations events like health camps, child welfare, or
participation in trade fairs, competitions and shows result in media coverage and publicity.
d) Experts and Influencers: Organisation use subject experts and influencers to speak about
their products / services at various platforms. Their views within news items, on social media
platforms and other social gathering like seminars and conferences, results in effective publicity
for the organization.
e) Social Media: Creation of organic content on social media is also very cost-effective
publicity strategy. When an organisation engages the audience through informative, thoughtful,
and creative content.

11.2.5 Public Relations

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 Figure 11.7: Differentiation between Publicity and Public Relations

The last element in the traditional communication mix is public relations defined as, “a strategic
communication process that builds mutually beneficial relationships between organisation and
public.”Public relations strategy aims at sending the right message to the right people at the
right place and right time, with the objective to create a strong brand reputation. Public relations
are planned and executed with the help of PR agencies along with their clients. It would involve
the following steps to plan an effective PR campaign:
 Objectives: Setting the PR and communication mix objectives in line with the corporate
objectives.
 Goal: The objectives need to be broken down into SMART goals with measurable
outcomes.
 Target Audience: The target audience are identified, and the PR campaign is
designed according to their characteristics and receptivity.
 Create a timeline: The blueprint in the previous steps is now modified into timeline and
concrete steps to be taken.
 Action Plan: The perfect sequence or action plan is verified reshaped according to
the inputs in the environment and moved to the next stage.
 Execution of the campaign: Finally, the planning takes a concrete shape in terms of
execution of the public relation campaign.

There are various types of PR communications; the commonly used are strategic, media relations,
community relations, crisis communications, and public affairs. A successful public relations
campaign would result in 4Cs of cooperation, containment, control and cauterize. Public relations
need to focus on the personal relationships, patience and persistence in order to ensure that the
campaign is successful.

11.3 MODERN ELEMENTS OF COMMUNICATION MIX IN RETAIL

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MANAGEMENT

Along with the traditional elements of communication mix explained in the previous section, there
are some modern elements too, possible due to the advancements in information technology.
Digital marketing communication mix is the broad discipline that brings together all forms of
communication through various elements of communication mix. The common modern elements
are:
1. Email marketing: It is earliest form of digital marketing communication, and involves
database management, segmentation of customer data, delivering personalised, targeted
messages at appropriate time. Bulk emails are cost effective and an effective tool for CRM.
2. Online Advertising: Advertisements presented on virtual space, like banner, scrolls and
links on specific websites, by buying the virtual space is such type of advertisement. The skills
involved in this type of advertising are design, creativity, negotiation, data analysis, and also
decisions related to placement and timings.
3. SEO (Search Engine Optimisation): SEO is the art and science of increasing the visibility
of the online content and websites in the searches. Through use of keywords, appropriate content
can increase the ranking of a websiteduring search. There are variety of SEO techniques, on site
technical analysis and improvement, to content creation, outreach, blogging and link-building.
4. PPC (Pay per Click): This type of search is called paid search and involves the
management of paid advertisements, typically above or to the right of the organic search results.
The cost varies and depends on the competitiveness of the keyword bidding.
5. SMS and Text message/ Mobile advertising/ WhatsApp and other platforms
message: Mobile based communication is very popular element of communication mix in
retail management. These are used both by MNCs, big retail chains and also by the local
stores.
6. Social Media/ Virtual Communities and Blogging: Platforms like tweeter, Facebook,
Instagram etc. are regularly used by organisations to communicate with the targetcustomers.

11.4 INNOVATIVE STEPS IN RETAIL COMMUNICATION MIX

Some of the specific and innovative steps taken by the retailers are as follows:
1. Omnichannel distribution and experience: Today retail management has become a mix
of brick-and-mortar stores, online websites and mobile applications. A customer can make the
purchase at any real or virtual store and hence the retailer has to ensure that there is collateral
message conveyed to the customer through all possible media.
2. Product Customisation: With advancement in the technology, today every product and
service can be customized according to the individual customer needs. This uniqueness in the
offer and the ease of reaching the customer opens huge opportunities for creativity and growth.
3. Virtual-Visual presence: Through a combination of various viral advertising and
communication techniques, organisations must ensure regular visual presence on virtual

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platforms. Through use of various algorithms, customer tracking and neuro-marketing techniques,
the customers can be offered the product of their choice on multiple platforms and can be
convinced to purchase it online just like personal selling face-to-face in traditional marketing.
4. Social Shopping: WhatsApp live streaming is another innovative way through which small
retailers and even big players have started attracting customers, do presentations and
demonstrations online and persuade the customers to buy instantly. Similar streaming is taking
place on other social media platforms as well.
5. Store events and Competitions: Customer engagement through some events,
competitors or other experiential marketing techniques is another communication element
extensively used by retailers. Creativity is limitless in designing of such events which can be
small micro engagement to big planned campaigns.
6. Loyalty and word-of Mouth: The use of reviews, comments and social blogging regarding
customer experience of a product and retail store along with traditional loyalty points programs
are becoming very creative today.

11.5 SUMMARY
Marketing is based on the four pillar of marketing mix, popularly called as 4Ps of marketing. Since
retail marketing is more towards the services on the product-service continuum, it also uses the
extended three Ps of marketing mix. Therefore, before moving ahead, let’s recap of the basic
concepts of Communication Mix and Integrated Marketing Communication (IMC):

Communication mix is combination of not just the mix and match of communication platforms
but also the communication methods.
Communication mix is a combination of all the tools, techniques, channels and platforms. These
involve advertising, sales promotion, public relations, publicity, direct marketing, social media,
events, exhibitions, websites and weblinks etc.

11.6 SELF-CHECK EXERCISE

Write a note on
1. Personal Selling
2. Sales Promotion
3. What are the steps in innovative retail communication mix.

11.7 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 11.2.3
2. For answer refer to section 11.2.2
11.8 GLOSSARY
 Email marketing: It is earliest form of digital marketing communication, and involves
database management, segmentation of customer data, delivering personalised, targeted
messages at appropriate time. Bulk emails are cost effective and an effective tool for
CRM.
 Online Advertising: Advertisements presented on virtual space, like banner, scrolls and
links on specific websites, by buying the virtual space is such type of advertisement. The
skills involved in this type of advertising are design, creativity, negotiation, data analysis,

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 and also decisions related to placement and timings.

11.9 TERMINAL QUESTIONS

1. What do you understand by Personal Selling. Write down the steps involved in selling process.
2. What do you mean by communication mix. What are the elements of communication mix.

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 Chapter-12
PHYSICAL EVIDENCE
Structure
12.0 Learning Objectives
12.1 Introduction
12.2 Importance of Atmospherics Planning
12.3 Key Components of Retail Atmospherics
12.4 Visual Merchandising in India
12.5 Store Space Management
12.6 Retail Performance Measures
12.7 Atmospherics In the Context of E-Tailing
12.8 Summary
12.9 Self-Check Exercise
12.10 Answers to Self-Check Exercise
12.11 Glossary
12.12 Terminal Questions

12.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Importance of Atmospherics Planning
 Key Components of Retail Atmospherics
 Visual Merchandising in India
 Store Space Management
 Retail Performance Measures
 Atmospherics In the Context of E-Tailing

12.1 INTRODUCTION

As a regular shopper we visit a number of shopping malls and shopping complexes and
understand the strategic importance of atmospherics and Retail Space Management which is
vital to any form of retail business. Its significance emerges from the link between shopping
behavior and physical environmental factors. These physical environmental factors influence
the perception of shopping time spent and the evaluation of merchandise and hence it
becomes important for the retailer to effectively plan and organize all aspects related to
atmospherics and retail space to be able to optimize scarce resources and improve profitability.
Atmospherics refers to the physical characteristics associated with the store that includes interior
and exterior elements, as well as layout planning and display. Atmospherics play a major role in
attracting customers to the store, improving the quality of service, experience, creating a brand
positioning for the outlet, and improving customer retention rates.
An equally important and related concept is retail space management. Effective space
management attempts to ensure optimum utilization of retail space and convenience to
customers and employees. There are also emerging critical issues related to atmospherics in the
context of internet retailing. The effective use of technology and design element is the key to
higher clicks, browsing time and sales.

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12.2 IMPORTANCE OF ATMOSPHERICS PLANNING

Atmospherics planning is increasingly gaining importance for all kinds of retail setups like planned
shopping centers and life style stores. The exterior atmospherics refers to the aspects like
store front, display windows, surrounding businesses, look of the shopping center etc., while
interior atmospherics refer to aspects like lighting, color and dressing room facilities that
enhance the display and provides customer with relevant information. Therefore, Atmospherics
plays an important role in creating a brand positioning for the outlet, attracting new customers,
facilitating better organization of the store and its merchandise and enriching the shopping
experience. The role of atmospherics in Retail Strategy is mainly to:

 Enhances the image of the retail outlet and attract new customers,

 Creates a definite Unique Selling Proposition (USP),

 Facilitates easy store movement and access to merchandise,
 Ensures optimum utilization of retail space,
 Reduces product search time for the customer,

 Reinforces the marketing communication of the outlet and influence the service
quality experience.

The physical surroundings, in service settings such as retail outlets, are vital signs to service
quality expectations. Some of these are:

a. The choice of fixtures, decor and signage can greatly alter consumer perceptions of
a store.
b. Signs indicate services offered and often hang above or behind the service counters.
Effectively placed signs can help to reinforce customers in their role in service
encounters.
c. Uniforms, or similar attires for employees, help alleviate customer anxiety as they feel
embarrassed to ask if somebody works there. It also reassures customers that the service
employee is a professional.
d. Inexpensive and cheap fixtures may indicate that the retailer cuts corners, while overly
expensive fixtures may indicate that the retailer is making large profits and over-pricing
products. Hence, quality of fixtures is a symbolic cue to the consumers.
e. In-store elements such as color, lighting, and music may have a bigger effect on
purchase decisions than other marketing stimuli such as advertising or point- of-purchase
displays.
f. Background music enhances customer perception of the store's atmosphere and
influences the amount of time a customer spends in a store. An added benefit is that
employees perform better when there is background music, which increases job

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 satisfaction.
g. All these settings contribute to an integral part of the service quality experience for the
customer.

Environment should be such so as to encourage or discourage approach behaviors. In

this regard, following three effects of retail unit environment stimuli merit attention:
 Pleasure Displeasure, which entails whether shoppers have perceived the
environment as enjoyable or not enjoyable. For example, playing classical music in Hindi
should enhance shoppers' enjoyment in specific kind of service settings in north India, whereas
same music might diminish shopping experience in retail units in Punjab.
 Arousal assesses the extent to which environment stimulates the shoppers in particular
environment. Playing slow instrumental music may result in subdued activity level from
customers in service settings such as restaurant relative to no music or fast music. Therefore,
nature of music in specific retail environment can decrease or increase in arousal.
 Dominance concerns whether customer feels dominant (in control) or submissive (under
control) in the service environment. This is a feeling that could be related to environmental
aspects like the height of the ceiling that makes one feel small (in control). Individuals associate
the color red with active, assertive, and rebellious moods whereas they associate blue with
sedate tranquility and a suppression of feelings. The nature of mood that needs to be portrayed
therefore depends on the right choice of color.

12.3 KEY COMPONENTS OF RETAIL ATMOSPHERICS

The essential inputs of atmospheric design like the use of lighting, color, and signage play a
valuable role in both internal and external atmospherics and in visual merchandising.
Likewise, the nature of physical materials used and wall painting etc. also play an important role
in the following key four components of retail atmospherics i.e.:
 External atmospherics
 Internal atmospherics
 Store layout
 Visual merchandising

External Atmospherics
Exterior atmospherics refers to all aspects of physical environment outside the store which
includes store entrance, main board, marquee, windows and lighting etc. Store-front of every
retail store exhibits a specific image such as traditional, up market or discount store to the
shopper. In competitive markets, retailers can use the store-front as a strong differentiating
factor and attract and target new customers. The major influencing aspects of external

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atmospherics are as follows:
 Retail Store Entrance: In India, most of the traditional retail stores enjoy open entrance
with no provision for entrance doors and. security guards while in some leading markets retailers
or owners of the stores even stand outside and invite passing by shoppers to visit their store and
communicate the availability of specific merchandise. New age planned shopping centers and
retail stores ensure accessibility to all customers, including those using wheel chairs and also
provide for security of the store when it is closed. Most of the independent retailers prefer
open entrances even in central district markets which are open market areas, in order to place
a part of their merchandise outside the store. The most common store entrance alternatives used
these days are: shutter-covered, modular fabrication, prefabricated structure and in prototype
store-front.
 Display Windows: Display windows are very common features among retailers dealing in
garments and gifts items. This feature is also very prevalent among small town retailers. For
example, Titan watches provides valuable inputs to Time Zone (First organized chain of retail
stores in India) franchisers to install impressive moveable windows to display their merchandise,
which not only communicate with prospective shoppers but attracts all new customers to the
store.
 Marquee or Sign Board: A marquee includes painted or neon light, printed or script, and
store name alone or mixed with trademark and other important information. Pizza Hut, McDonald,
Barista, and Bombay selection owns widely acknowledged marquee. In India, most of the
independent retailers use tin board and get it painted and place it
outside the store-front. The quality of marquee influences the image of the store perceived by
the customers.
 Parking Facilities: Parking facilities play an important role in the success of a retail firm.
The importance of parking facility is of great significance in urban shopping centers where
number of car owners is increasing by the day.

Internal Atmospherics
Interior atmospherics refers to all aspects of physical environment found inside the store. Point-
of-purchase interaction and retail unit decoration influences the customer and in turn sales of the
retail unit. Store physical environments have influence on shopping behavior through mediating
emotional states. The retail unit environment contains various stimuli that might be perceived by
the customer's senses and each stimulus offers many options with regard to shopping behavior.
For example, store music varies by volume, tempo, pitch and texture and by the specific songs
played. In addition, various individual stimuli can be combined to create unique atmospheres.
To project an upscale image, a retail owner/manager choose folk music, modest colors,
elegant perfumes, cool temperatures, inadequately displayed merchandise, and low lighting.

Two key aspects of internal atmospherics are:

a) Retail Store Image is one of the most powerful components of retail positioning strategy
and powerful tool in attracting, influencing, and, satisfying consumers. Retailer or manager is
expected to design or redesign a store, with an objective of influencing customer's buying

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decisions and shopping behaviors.
 For example McDonald uses bright lights in their stores as it keeps customers in high spirits
and ensures a high activity level. On the other hand, Ruby Tuesday maintains a more dull
lighting, which ensures a subdued customer activity level and makes sure that most of them
remain confined to their table.

b) Music: Music is one of the key environmental variables that can impact shoppers.
Environmental factors like music affect the time spent in the store, propensity to shop and
satisfaction with the shopping experience.
Store Layout
Store layout refers to the interior retail store arrangement of departments or groupings of
merchandise. It involves decision about allocation of floor space, product groupings and nature
of traffic flow. Nature of traffic flow can take the form of straight or Grid traffic flow, free-
form flow (curving) or racetrack flow. Some retailers also operate a storied layout to meet their
specific requirements.

Grid: It is commonly used by conventional grocery stores as it facilitates planned shopping

behavior since customers can easily locate products on their shopping list. Kirana and drugs
stores owners or managers commonly employ the grid layout. Grid design is considered cost
effective by retailers in terms of space utilization, besides aisles of same width and design permit
easy movement of shoppers and carts.

Free-form: It is mainly used by large department stores (for e.g., duty free shops).Also,
commonly used in small specialty stores and departments of large retail stores. In free-form
layout places fixtures and aisles asymmetrically. This provides informal setting to shoppers,
which facilitates shopping and browsing. It is also referred to as boutique layout. Role of
sales people on retail floor becomes more important in this layout in comparison to grid or
racetrack layout since customers are not drawn easily to stores in free form layout.

Racetrack: It offers an unusual, interesting, and entertaining shopping experience while it

increases impulse and promotional purchases. Customers visiting shops with this particular
layout are required to navigate through specific paths and therefore, visit as many store sections
or departments as possible. They are therefore, exposed to a great number of products and
promotional material.

Storied Layout
This is very common variant of store layout design among Indian independent and leading retail
chains in organized sector. This layout not only provides the best utilization of floor area but
also permits the retailer to set separate section for particular product category. Storied layout
is very popular among the leading fashion departmental stores and supermarket in India such
as Lifestyle, Shoppers' Stop, Sarvanas and pantaloon. Storied layout save a substantial amount

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of initial investment of the retailer or developer with increased real estate prices in the emerging
retail market in India.
Visual Merchandising
Visual merchandising is defined as presentation of products in order to sell them. Good displays
shout out to the world that the retailer cares about his image and merchandise and, most
importantly, about entertaining, informing and educating his customers. Frequent changes
encourage the customer visiting his normal section to also wander about and discover
additional novelties.
Visual merchandising includes various aspects like: store floor plan, store windows, signs,
merchandise display, space design, fixtures and hardware, and the elements that come with
it. Visual merchandising has been around since humans started selling merchandise to a
customer. Visual Merchandising has become more sophisticated and more encompassing
than arranging merchandise for easy access to customers. Visual Merchandising elements
are put into practice from designing the floor plan of the store to the beautiful mannequins that
grace the store floor.

When buying store fixtures and display merchandise for a retail store, a number of factors
must be considered to be able to make the best possible choice. Some of the key factors are:

Product Line: Characteristics of merchandise need to be considered while deciding the fixtures
to be used for display. Wooden racks or shelves can be effectively used for apparel or
packaged FMCG products. However, mirrored showcases are preferred for jewelry or gift items
since they ensure better safety and presentation.

Customer Profile: Retailers must take into consideration the profile and expectations of its target
segment. Stores, which primarily cater to functional rather than hedonic needs, do not require
very fancy fixtures. Hence, they can reduce large investments in fixtures and pass on the benefits
to the customer. Examples of such stores are kirana shops, chemist store, and other
neighborhood stores.
Many smaller eating joints and Dhaba use inferior quality or low cost furniture and fixtures. This
is done keeping in mind the socio-economic profile of its customers and also the fact that
customers do not expect Dhaba to provide fancy and expensive decor. Stores targeting the
high-end customers invest a lot in fancy and unique fixture design and arrangement to generate
an exciting and inviting store environment, thereby attracting customers and building its store
image.
Level of Competition: Level of competition is a significant factor in determining the kind of
fixtures to be used by a retailer since it provides him with a unique selling proposition. For
instance, most of the eating outlets and garment stores in urban centers of India were using very
limited display options. However, the advent of international players such as McDonald's,
KFC, Marks and Spencer, Benetton, Levy etc. the more up-market retailers are pushed to
refurbish their display and interiors to keep pace with competition and continue to attract
customers.

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With a theme of the display determined and the location for it planned, the retailer needs to
examine the components of the display. The various components of the display are as
follows:
Wall Displays: refers to slatwall panels and fixtures, gridwall panels and displays, slotted
wall standards, face-outs, handrails, and shelving.

Floor Fixtures: gridwall panels and accessories, garment racks, display cases and counters,
metal shelving gondolas, floor, and cube merchandisers. A dump display is merchandise
displayed by being dumped or heaped in a pile, usually in a bin or on a table. Dump display
can be used as Bulk Dump Display and Dump Table Display.

Display Products: like mannequins and body forms, clear acrylic displays, counter-top and
jewelry displays.

Supplies and Equipment: include hangers and steamers, tagging supplies and labelers,
packaging, and shopping bags.

Promotional Items: like window signs and banners, sign holders and sign cards, sale tags
and tickets. These items should be used to enhance the product for sale or help in furthering
the story or theme

Lighting Fixtures: include track lighting and accessories including rope lights. It is important
to use proper lighting to make the product "pop" in the display. Incandescent (glowing) spots are
very effective here. Lighting needs to come from more than one direction for a balanced
presentation.
Signage: should be professional, never handwritten, and regardless of the size. Bin tags, bin
labels, peg tags, shelf labels, planogram tags. Shelf tags aid in the proper placement of
product and frequently include price information for customers in lieu of price marking the
individual items.

12.4 VISUAL MERCHANDISING IN INDIA

Unlike the western countries, where visual merchandise receives highest priority in commercial
planning of a product, the Indian retail industry understands and practice of the concept of visual
merchandise is primitive. With the advent of foreign players and chain stores, independent
retailers have to compete purely on the competitive edge of the merchandise and visual
merchandise will be a helpful tool in projecting the uniqueness of the products and thereby
increasing the market access and sales. It is high time that the Indian retailers are opting for
new age visual merchandise management in place of the traditional practices of display of
merchandise. Still majority of the retailers in unorganized sector accord limited importance to

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visual merchandise in the retail marketing mix.

Two interesting examples can be discussed in this regard - Raymonds and Parade, a retail
store in Mumbai. Raymonds, the first men's garment retail chain in India, has always taken visual
merchandising seriously. Their management hired a professional agency for consistent and
picture-perfect window display. They prefer a theme-based merchandise display that does not
involve the use of expensive raw materials. They feel that a theme- based display provides
management with required flexibility and incorporating new ideas.
Some time back, they did a window display with a construction theme. However, it had to be
scrapped because "it failed to target the right clientele". They have appointed a professional
agency to train the sales staff of Raymond's branches all over India by conducting workshops
and slide shows. Management penalizes branch personnel who skip such training programmes.
Most Raymond's stores ensure' one huge deep window, which provides sufficient and attractive
scope to display merchandise.

12.5 STORE SPACE MANAGEMENT

Space and inventory are the two most important resources of the retail firm. The best possible
allocation of the store space to departments, product categories, storage space and customer
space is a major challenge for the owners and managers of the store. Retailers acknowledge
the importance of space management for the success of business. It has two-way bearing on
retail business - it not only attracts business by ensuring convenience to customers but also
places the merchandise in accordance with the salespersons' work allocation. The key objectives
of retail space management are:
1) To obtain a high return on investment by increasing the productivity of retail space. This
requires effective utilization of space for merchandise display and customer movement.
2) To ensure compatible, exciting, and rational interface between customer; merchandise and
sales people.

The space management decision also has an important influence on following decisions:

a) Location of various departments

b) Arrangements between departments within the shop floor
c) Selecting the layout with customer behavior in mind
d) Planned traffic flow of customers

12.6 RETAIL PERFORMANCE MEASURES

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Sales and profitability are considered established measures of retail unit success. Similarly,
they can be used to measure the performance of retail space management. The measures
of
retail space performance indicate the productivity of retail space. The three commonly used retail
space performance measures are sales per square meter or profit per square per meter, sales
per linear meter or profit per linear meter and sales per cubic meter or profit per cubic meter.

a) Sales per Square Meter or Profit per Square per Meter

It measures retail space performance on the basis of sales/profits according the area of floor
space covered. This measure is conducive to use when only single layer of merchandise is
displayed and various type fixtures are placed. This is a common measure for the fashion
retailing. Take a look at following figure for a better idea.

b) Sales per Linear Meter or Profit per Linear Meter

It measures retail space productivity on the basis of income generated by footage of shelf
space allocated. This measure is more suitable for the stores using multi-shelved fixtures
such as a gondola or racks. It takes into consideration linear meter value of shelf rather than the
area of space exposed in terms of the height value of shelf.
Figure given below will help you understand this better.

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c) Sales per Cubic Meter or Profit per Cubic Meter

It measures retail space performance on the basis of length, width, and depth of the fixtures
placed in the store. This measure is necessarily used by retailers in the frozen food
business
or those who place dump bins on the retail floor. Take a look at figure given below:

Space-to-sales ratio, turn rate and gross margin R01 analyses can help create the
most
profitable planogram for the retailer. In effect the performance of retail space depends on the
levels of sales and the profitability of the merchandise place within the space and the value
of the retail space. Retail space allocation decisions are conceived and implemented at
department level, category level and SKU level in respect of big departmental super market
stores. Whereas, small retailers' major concern is to ensure the placement of all kinds of
merchandise in the limited shop floor area and to have smooth access to merchandise for
themselves rather than customers, as no provisions for customers to enter store. Space
allocation is the process of distributing the right amount of space to the right merchandise at the
right time according to a detailed analysis of customer demand. It is loaded with tremendous
complexity, spanning systems for data warehouses, distribution centers, transportation

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networks and product planning.

 Sales as basis of space allocation

Retailers must decide about the sales data to be used for the allocation of space among
merchandise. Three options available with retailers are historical sales data, market share and
projected sales.

 Profitability as basis of space allocation

Profits are taken into consideration for determining the optimum allocation of retail space
amongst the product categories. Product profitability is measured by gross margins, and gross
margin return on investment etc. Profitability measures help the retailers to allocate quality and
quantity of retail space to the profitable product categories and departments at priority. It also
keeps check on the retailers' unnecessary allocation of large space for the merchandise that
would sell just as well in a limited place.

12.7 ATMOSPHERICS IN THE CONTEXRT OF E-TAILING

The development of the web as a retailing medium requires one to understand the
implications of web atmospherics. In context of e-tailing factors like web site organization, server
performance, product data, a search option, and shopping carts all contribute to a positive web
shopping experience. The easy navigability in the web site for a shopper who wishes to buy
through the net is one of the first facilitating factors. Server performance directly affects the
waiting time that is required for the obtaining results of searches. The easy access to product
data and a click & browser friendly search option add to the convenience of the consumer.
There is a negative correlation between waiting time and the evaluation of service satisfaction
in brick-and-mortar retail stores. Though this can be mitigated through store atmospheric
variables, the association is strong. Similarly, system response time is inversely related to
computer user satisfaction (i.e., the longer the wait, the greater the dissatisfaction).

12.8 SUMMARY
As a regular shopper we visit a number of shopping malls and shopping complexes and
understand the strategic importance of atmospherics and Retail Space Management which is
vital to any form of retail business. Its significance emerges from the link between shopping
behavior and physical environmental factors. These physical environmental factors influence
the perception of shopping time spent and the evaluation of merchandise and hence it
becomes important for the retailer to effectively plan and organize all aspects related to
atmospherics and retail space to be able to optimize scarce resources and improve profitability.
Atmospherics refers to the physical characteristics associated with the store that includes interior
and exterior elements, as well as layout planning and display. Atmospherics play a major role in
attracting customers to the store, improving the quality of service, experience, creating a brand
positioning for the outlet, and improving customer retention rates.

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12.9 SELF-CHECK EXERCISE
1. What do you understand by Store space management.
2. Write down a note on visual merchandising in India.
12.10 ANSWERS TO SELF-CHECK EXERCISE
1. For answer refer to section 12.5
2. For answer refer to section 12.4
12.11 GLOSSARY
 Storied Layout: This is very common variant of store layout design among Indian
independent and leading retail chains in organized sector. This layout not only provides
the best utilization of floor area but also permits the retailer to set separate section
for particular product category. Visual Merchandising
 Visual merchandising is defined as presentation of products in order to sell them. Good
displays shout out to the world that the retailer cares about his image and merchandise
and, most importantly, about entertaining, informing and educating his customers.
12.12 TERMINAL QUESTIONS
1. What is the importance of atmospherics planning.
2. Write down the key components of retail atmospherics.

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 Chapter -13
MANAGING STORE OPERATIONS
Structure
13.0 Learning Objectives
13.1 Introduction
13.2 Importance Of Store Operations Planning
13.3 Store Operations: Overview
13.4 The Consumers’ Angle
13.5 Store Design
13.6 Store Atmospherics
13.7 Store Space Management
13.8 Retail Space Performance Measures
13.9 Atmospherics And Internet Retailing
13.10 Summary
13.11 Self-Check Exercise
13.12 Answers to Self-Check Exercise
13.13 Glossary
13.14 Terminal Questions

15.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Importance Of Store Operations Planning
 Store Operations: Overview
 The Consumers’ Angle
 Store Design
 Store Atmospherics
 Store Space Management
 Retail Space Performance Measures

13. 1 INTRODUCTION

As a shopper, you might have visited a number of small or big retail stores, shopping malls,
shopping complexes, departmental stores, exclusive company outlets and many such premises
in and around your location and had a chance to see and understand how retailers manage their
store space. Creating an appropriate retail store environment (for optimum shopper experience
has a strategic importance for a retailer. Its significance emerges from the link between shopping
behavior and physical environmental factors. These physical environmental factors influence the
perception of shopping duration spent and the evaluation of merchandise and hence it becomes
important for the retailer. On this basis, retailers can effectively plan and organize all the aspects
related to store operations (includes atmospherics and retail space management) so as to
optimizescarce resources and improve profitability.

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From an operations perspective, the field of retail store operations (Rsop in short) concerns all
of the activities that keep a store functioning well each day. In the best-run stores, everything is
carefully considered, planned, and executed. Operations includes many aspects, such as store
design, display placement, customer service, money and credit handling, shoplifting prevention,
premises maintenance, staff management, inventory optimization, and dealing with the entire
supply chain in a way to mutually fulfill stakeholders’ objectives.

13.2 IMPORTANCE OF STORE OPERATIONS PLANNING

Two major components of Rsop are – atmospherics and retail space management. Both of them
relate to improving customer experience and strengthening store’s profitability. A brief on what
these include and how they impact retailer’s objectives are given below.

Atmospherics refers to the physical characteristics associated with the store that includes interior
and exterior elements, as well as layout planning and display. Atmospherics plays a major role
in attracting customers to the store, improving the quality of service experience, creating a brand
positioning for the outlet, and improving customer retention rates.

On the contrary, store space management has to do with how retail area is allocated across
departments and retailer’s processes (like billing, storage, display) so that the productivity based
on performance could be optimized. Effective space management attempts to benefit both
customers and employees. There are also emerging critical issues related to atmospherics in
the context of Internet retailing. The effective use of technology and design element is the key to
higher clicks, browsing time and sales.

The retail sector is divided into two broad categories: organized and unorganized – an important
characteristic that makes this division is the way supply chain is managed for optimum solutions.
This in turn is expected to have an important bearing on how the store’s operations are managed.
While there is normally a lot of commonality in the structure of a store’s offline and online
organization of operations, their backend fulfillment processes might differ. However, in both
cases the end objective is to optimize both process operations and customer satisfaction.

This unit aims to provide a brief overview of what, how and why of store operations. The aim is
to enable the understanding of the importance and implementation of this concept in retail
business.

13.3 STORE OPERATIONS: OVERVIEW

Rsop covers most store services and jobs within a given store. What Rsop will indeed include
would depend on the type of store and the company’s product planning, ordering and category

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management practices. In general, these tasks would envelop domains like – displaying and
pricing items, store ambience (which includes aspects like store lighting, music, layout & signs,
cash and credit related tasks, arrangement for refunds and returns, store security, staffing inside
store, store maintenance and basic supplies like electricity and tagging, handling point of sale
(PoS) data.

Sometimes when the scope of work is complex or large, like in large retail set-ups, few of these
functions may fall beyond the store operations department to other departments like
finance/accounting, marketing, HR, and IT departments. It must be noted that retail store’s
operations will mostly have similar conceptual components irrespective of the whether retail is a
goods or service retail (for example, grocery is goods retails while ‘dry-cleaning’ is a service
retail).
Put this as a footnote:

A category is essentially any group of similar items that a company wants to buy under the
umbrella of a single deal.
Category management practices: is the process of pooling similar products into a single category
and then addressing all business initiatives for that category as a whole. These initiatives can
include the procurement process, merchandising, sales, product lifecycle management, and
other retail efforts.

The rest of the unit is organized around five sections that give a detailed overview of important
Rsop components listed below:

1. Customer’s Angle

2. Store Design Overview

3. Store Atmospherics

4. Store Space Management

5. Internet Retailing Atmospherics

While the unit divides the entire gamut of Rsop activities based on their similarity of characteristic
and overarching purpose into the above-mentioned broad categories, on ground level, the
activities are intricately interwoven with each other and therefore need to be handled in tandem
for effective results.

13. 4 THE CONSUMERS’ ANGLE

One of the purposes of designing the retail environment is to encourage or discourage approach

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behaviors. Three immediate effects of retail unit environment could be in the form of stimuli given
below:
I. Pleasure-Displeasure: Which entails whether shoppers have perceived the
environment as enjoyable or not enjoyable? For example, playing classical music in Hindi should
enhance shoppers' enjoyment in specific kind of service settings in North India, whereas same
music might diminish shopping experience in Punjab retail units.

II. Arousal: Assesses the extent to which environment stimulates the shoppers in particular
environment. Playing slow instrumental music may result in subdued activity level from
customers in service settings such as restaurant relative to no music or fast music. Therefore,
nature of music in specific retail environment can decrease or increase in arousal.

III. Dominance: Concerns whether customer feels dominant (in control) or submissive feels
(under control) in the service environment. This is a feeling that could be related to environmental
aspects like the height of the ceiling that makes one feel small (in control). Individuals associate
the color red with active, assertive, and rebellious moods whereas they associate blue with
sedate tranquility and a suppression of feelings. The nature of mood that needs to be portrayed
therefore lies in the right choice of color.

13.5 STORE DESIGN

Store design is the architectural setting of a store, which includes its layout and decorative style.
It refers to how both the store exterior and interior look and feel for potential shoppers. Briefly, it
is aimed at creating a specific store image and conveys to the potential customer “what the store
is all about.” While the range of design elements is large and depends on factors like store’s
kind, size and geographical location (refer unit 8), design is about two components like: store’s
atmospherics and store space management. A brief overview of the important aspects of each
of these components is given in next section. Figure below shows sample arrangements for two
store designs in

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13.6 STORE ATMOSPHERICS

Store atmospherics is about stores physical characteristics that are used to develop the retail
stores image and draw potential customers by appealing to them. While it includes all the
physical elements in the store that have been designed to enable and appeal to customers, it
also has implicit connotations for the perceptions drawn from these elements. Store
atmospherics play a very important role in a store’s brand positioning and subsequent image
creation. A few words on what ‘brand positioning’ means here it would be helpful.

The term ‘positioning’ in marketing is used to mean where in the minds of the audience (here
consumers) is the brand placed. This would depend on the brand attributes that consumers
perceive and how they look at benefits (values), the brand provides for the consumer. Gradually,
over few or more interactions with the brand, customers slowly and steadily associate with the
values or ideas portrayed by the brand (via a large number of touch points) and an image is
consistently formed in the consumer’s mind. A positive image in due course of time drives repeat
purchase and brand loyalty.
In a nutshell, store atmospherics is expected to deliver on the following benefits:

 Attract consumers

 Create a unique selling proposition

 Facilitate movement across the store

 Make access to merchandise easy

 Make effective display of merchandise possible
 Reduces store search time from consumers
 Reinforces the communication element

 Enhances retail service quality experience

The two main components of store atmospherics are the exterior atmospherics and the interior
atmospherics (which includes store layout and visual merchandising). How each of these
elements is planned and executed can have a considerable impact on shopper’s satisfaction and
behavior. These in turn strengthen store’s image and drive repeat purchase behavior and long-
term customer loyalty as mentioned above.

A. Exterior Atmospherics:

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This includes all aspects of physical environment found just outside the store. For new
customers it creates the first impression and drives a lot of store traffic and sales, exterior
includes store entrance, doors, windows, name boards, marquee, window displays, outer
colouring and any other decorations. Additionally, aspects like, building height, shape,
surrounding stores and area, parking facilities also make up for the exterior of any store.

Retail store entrance:

Retail store entrance serves only purpose- aesthetic and functional. aesthetic refers to the store
front matching up to the perception intended to be created by the retailer: for example, an every
day low price (EDLP) store will usually have simple looking, big sized and bigger number of
entrance points. Similarly, up-scale store entrance may have more ornate and classic
look.
Functional aspects of store entrance enables automatic security systems, temperature control
and auto-open and close to let customers in. Doors meant for employees to enter could have
some sort of bio-metric identification facilities. Space near main entrance could also display
week- specific or occasion specific promotional materials like ‘sale promotion’ information.

Store’s doors and windows

These structures, serve functional needs like ventilation, movement of traffic, displays, special
decorations and providing a view to passing by shoppers. Glass windows are also used for
displaying items for attracting shoppers’ attention and creating the right image for the store in
terms of its product categories and type. In several instances, the space on the glass windows
is specially designed and managed by brand manufacturers and could be available to
manufacturerson a paid basis. They also serve as extra protection from weather and let sunlight
come in selectively into the store for a better ambience. This could be critical for food retailers or
salons. In today’s settings, where many stores are also present in online platform as e-commerce
or m- commerce formats, the concept of omnichannel shopping is becoming popular, where
consumerscould decide what products to buy by visiting a local physical store but order online
or vice- versa.

Marquee or name boards

A marquee or a name board is usually a painted, flex printed for neon lighted large board
displaying the name of the store, its logo and few other important information ( like open and
close time) and is placed above the store entrance. While the main purpose is identification of
the store, it also helpful in creating the right image, make a Unique Identification and create
branding and trademarks of the store’s ownership. Importantly, it provides the store with more
visibility and generates familiarity over repeated visits.

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Parking facilities

The use of personal transportation for shopping chore, especially in urban settings, makes a
goodparking facility very desirable for store visits. Old areas of the city, where markets were
built
several years ago, when urban traffic was not very high, typically see lack of organised parking
space thereby forcing the shoppers to far and what the rest distance to and fro. However, in
most shopping areas and malls, a structured and preplanned parking facility is designed and
developed either as basement parking or as a separate building dedicated for parking.

B. Interior Atmospherics:

This includes the entire area inside the store from point-of-purchase to exit of customer. It has
four important components are: the store layout, visual merchandising (design elements of
internal architecture, floors and walls fixtures, displays, labeling, aisle) and store ambience
(music, lightning, temperature control, store cleanliness and use of different colors), store
personnel. These not only create easy access to consumers and employees but also make the
consumer’s stay comfortable for a pleasant experience and better branding of store.

I. Store layout

Internal arrangement of store in terms of display areas, walking spaces, and modifying spaces
so on for s free movement within the store for customers so that they can reach to the desired
part of the store easily and hassle-free a key concern of a good store layout. Important factors
that determine it are - customer flow patterns, type of retail store (a grocery store is more packed
and staked while in a furniture store items are spread out more for better display and trials), and
the cost of creating layouts. The store layout not only helps to create the departments and
functions across the store like billing, trail rooms, packing facilities or child play area, but also
ensure safety, good display of products and overall enable a positive shopping experience.
While layouts could be of several types, the three important and commonly found ones are - grid,
race track and mixed or free flow layout.

1. Grid layout is observed in supermarkets, drug shops, and many big box retail stores
whencarrying a large variety of goods or when a retail site wants to make the most of its available
space. This layout makes categorizing products and displaying them easy and shoppers are able
to locate their desired items more easily. However, this layout could also obstruct the line of sight,
make short-cuts difficult and breaks might be required.
2. Race track layout is the choice of retailers when they are dealing with such products
that have to be seen closely, touched and sometimes trialed before making a purchase decision.

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Examples of such products include - jewellery, furniture, apparel, handicraft and electronics.
While this format enables a retailer to enhance the shopping experience, put promotional
materials more effectively and flexibility encourages more browsing my customers, It makes the
shopping process more time consuming (so a disadvantage for rushes shoppers). This format is
not appropriate where the store turnover is high but ideal only for high value items.

3. Mixed or free flow layouts used to take care of customer movements, which are more
random with respect to their choice and sequence attending to different product categories.
While this enables more customer choice and flexibility in browsing routes (such as in duty-free
shops and large department stores), it could also increase confusion and chances of theft.

Storied Layout

This is very common variant of store layout design among Indian independent and leading retail
chains in organized sector. This layout not only provides the best utilizationof floor area but also
permits the retailer to set separate section for particular product category. Storied layout is very
popular among the leading fashion departmental stores and supermarket in India such as
Lifestyle, Shoppers' Stop, Sarvanas and Pantaloons. Storied layout saves a substantial amount
of initial investment of the retailer or developer with increased real estate prices in the emerging
retail market in India.
Figure below provides model representations of popular store layouts.

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II. Visual Merchandising

In order to draw customers' to the products inside a retail shop area, a marketing technique
known as "visual merchandising" is used which makes use of floor designs, colour, lighting,
displays, technology, and other aspects. It covers the elements like design elements of internal
architecture, floors and walls fixtures, displays, labeling, aisle styles and placements. The
ultimate goal is to increase sales by utilizing the shop area. Its physical manifestation elements
include window installations, in-store displays, interactive displays, shelving and tagging, point-
of-sale displays, posters for information displays, awareness generation and those having
promotional deals’ information, and things like mannequin styling.

The purpose of visual merchandising is threefold:

1. To engage the shoppers and get their attention

2. To push them to make the final purchase

3. To create an image for retailer compatible with store’s positioning and also
ensuresconsistent image across outlets

When buying store fixtures and display merchandise for a retail store, factors like – ‘product

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line’ and ‘customer profile’ become important. For example, while wooden racks or shelves can
be effectively used for apparel or packaged FMCG products, mirrored showcases are preferred
for jewelry or gift items since they ensure better safety and presentation. When it comes to
customer profile, such demographic variables like age, occupation, household income would
become important in determining for example, the level and sophistication of fixtures.

Similarly, the level of competition could be an important determinant for decisions relating to
visual merchandising efforts and investments. Several studies show that a very high number of
buyers’ impressions are based on sight – meaning, what they see inside the store. Many studies
from Indian context too conclude similarly1. This in turn means that if retailers are able to manage
inside the store impressions they make on potential buyers, they can gain a competitive edge.

It must also be noted that whether one is using racks and shelving from a functional or aesthetics
or for a combined impact, retailers today have a wide variety to choose from. The fixtures and
racks could vary in terms of shapes, product displays they can support, the material of which
they are made, features they come with like tagging and flipping or how they can be flexibly
arranged and altered as per new needs. Even the manufacturers of these fittings provide a
whole lot of customization and improved features for easy installment, transport and
maintenance these not only maximize store space usage, but also enable retailers to house
many related products at the same location for easy pick-up by shoppers.
Visual Merchandising in India

Unlike the western countries, where visual merchandise receives high priority in commercial
planning of a product, while the Indian retail industry’s understanding and practice of the concept
of visual merchandise is still developing. With the advent of foreign players and chain stores,
independent retailers have to compete purely on the competitive edge of the merchandise and
visual merchandise will be a helpful tool in projecting the uniqueness of the products and thereby
increasing the market access and sales. It is high time that the Indian retailers are opting for new
age visual merchandise management in place of the traditional practices of display of
merchandise. Still majority of the retailers in unorganized sector extends limited importance to
visual merchandise in the retail marketing mix.

It is relevant and interesting to discuss Raymond’s in this context- in Mumbai. Raymond’s, the
first men's garment retail chain in India, has always taken visual merchandising seriously. The
management has hired a professional agency for consistent and picture-perfect window display.
They prefer a theme based merchandise display that does not involve the use of expensive raw
materials. They feel that a theme-based display provides management with required flexibility
and incorporating new ideas. Sometime back they did a window display with a construction
theme. However it had to be scrapped because "it failed to target the right clientele". They have
appointed a professional agency to train the sales staff of Raymond's branches all over India by
conducting workshops and slideshows .Management penalizes branch personnel who skip such
training programmes. Most Raymond's stores ensure' one huge deep window, which provides
sufficient and attractive scope to display merchandise.

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13.7 STORE SPACE MANAGEMENT

Retailers ought to manage and establish a trade-off between two most important resources
namely retail space and inventory. Given that retailers have limited space they want to optimally
allow it across product category, important processes like customer service and space for
movement of people. Good space allocation benefits retailers by attracting more consumers and
by enabling better display of an optimum number of products for shoppers.

Accordingly the key objectives are:

1. To obtain high return on the investment made by increasing the productivity of

space - This requires effective utilization of space for merchandise display and customer
movement.
2. To implement a comfortable and rich experience for shoppers

On a more detailed level, we can see that the space management decision also has an
important influence on sub-decisions like:
 Location of various departments
 Arrangements between departments within the shop-floor
 Selecting the layout with customer behavior in mind
 Planned traffic flow of customers

How much weight should be allocated to different product categories, and brand would
dependnormally on the following factors:
 Profitability of the merchandise
 Display requirements of the specific item
 Contextual demand depending on seasons or festivals

How much space and where it is allotted would then in turn determine the placement of various
departments, the relative location of the departments, the selection of layout of the store and
how the store traffic could be directed to move. Many times retailers would like to order stack up
their items like in grocery stores or spread out the items for or ideal view and selection as in
furniture stores. Accordingly retailer’s pickup different racking arrangements and layout formats,
a lot of which could be inspired by the industry practices.

From the operational point of view, retailers would aim to go for space management that

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facilitates shipping of items from the back storage area to different locations across the store. At
the same time, retailers want to accommodate the customer need for being able to browse
seamlessly throughout the store and be able to see a fairly large portion of the store at the same
time. While both these objectives may be to represent tradeoffs, an optimum solution usually
takes care of both the requirements, with customer needs playing the veto if needed.

Given that retailers undertake implementation of several processes on their space, they often
facethe decision, which involves trade-offs of allotting space – meaning, allotting more space to
one process or activity and less to another or even re-organizing space allocations from time to
time. To take these decisions, they would use both quantitative measurements of performance
and judgmental inputs.

While sales and profitability are considered established quantitative measures of retail unit’s
success and these are used to measure the performance of retail spaces across processes,
qualitative inputs like identifying which activities or processes have a positive impact on long
term or strategic issues like relationship management with suppliers or customers would play an
important role too. For example, in a bank, although only few customers could ask for session
with managers for a more detailed discussion regarding how to manage their portfolio of
investments, this activity would be a critical activity requiring a dedicated comfortable corner as
this would decide if those seeking such discussions would continue with the bank’s services.
A brief understanding of selected quantitative measures of retail space performance which
indicate the productivity of retail –space are given in the next section.

13.8 RETAIL SPACE PERFORMANCE MEASURES

Retail space performance measures enable the retailer to measure the productivity of different
retail spaces. Such measures include “sales per square meter” or “profit per meter square”.
Sometimes using running length measures like “sales per linear meter” or “profit per linear meter”
makes more sense from quick measurement perspective, which can avoid the complexity of
measuring width of racks. Where the retail space is actually maintained by volume of storage,
like refrigerated areas or areas that have to be kept humidified, the more appropriate measure
is “sales per cubic meter” or “profit per cubic meter”. Thus, area, running length and volume are
the three most commonly used denominators for measures of retail space productivity. Each of
these measures is briefly outlined below.

A. Sales per Square Meter or Profit per Square per Meter

It measures retail space performance on the basis of sales/profits according to the area of floor
space covered. This measure is conducive to use when only single layer of merchandise is
displayed and various type fixtures are placed. This is a common measure for the fashion
retailing. Take a look at figure at the end of this section for a better idea.

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B. Sales per Linear Meter or Profit per Linear Meter
It measures retail space productivity on the basis of income generated by footage of shelf space
allocated. This measure is more suitable for the stores using multi-shelved fixtures such as a
gondola or racks. It takes into consideration linear meter value of shelf rather than the area of
space exposed in terms of the height value of shelf.

C. Sales per Cubic Meter or Profit per Cubic Meter

It measures retail space performance on the basis of length, width, and depth of the fixtures
placed in the store. This measure is necessarily used by retailers in the frozen food business or
those who place dump bins on the retail floor.

Space-to-sales ratio, turn rate and gross margin analysis can help create the most profitable
planogram (schema for arranging items across the retail space) for the retailer. In effect the
performance of retail space depends on the levels of sales and the profitability of the
merchandise place within the space and the value of the retail space.

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Figure: Different measures of retail space performance: A- Sales/profits per meter square;
B-

Sales/profits per running/linear meter; C - Sales/profits per meter cube

Often, how much space should be allocated across product categories, brands and SKUs is
determined using past sales and profitability data like stated above. Other factors like seasonality
and festival demands are accommodated from time to time. Retailers also try to maintain a good
balance between fast-moving items (example, everyday consumables like milk and bread) on
one hand with slow moving yet profitable ones on the other (like refrigerators, televisions,
laptops).The proportion of items which come from different product categories is aligned with
the image retailers want to establish and maintain in the consumers’ minds.
From the perspective of retailer’s own size, usually these decisions become more complex and
involving for larger retailer. While both small and large retailers would conceive and implement
retail space allocation decisions are conceived and implemented at department level (example,
household appliances) followed by category level (example, small equipments like toasters, grill
machine) and SKU level (like Kent 16025 Sandwich Grill 700W), the sheer volume of items to
be handled is manifold for big departmental super market stores.

Additionally, small retailers' major concern is to ensure the placement of all kinds of merchandise
in the limited shop floor area and to have smooth access to merchandise for themselves rather
than customers, as there might be hardly any provision for customers to enter store. One of the
primary objectives for large-scale retailers will be to make it operationally manageable and make
consumer movements across the store easier and more conducive to locating items easily.
Overall, Space allocation is the process of distributing the right amount of space to the right
merchandise at the right time according to a detailed analysis of customer demand. Sales and
profitability are by far the most used measures for taking space allocation across departments
and product categories.

 Sales as basis of space allocation

Retailers have to decide about the sales data to be used for the allocation of space among
merchandise. Three options available with retailers are historical sales data, market share and
projected sales. Sales could be considered in terms of number of units sold across a specific
span of time or value of the units sold (in the product category or department being considered)
over a specific period (like a day, week, month or quarter). Usually, determining the value of
items sold (measured in currency units) is easier when there is heterogeneity across SKUs in
the range considered.

 Profitability as basis of space allocation

Profits are taken into consideration for determining the optimum allocation of retail space amongst

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the product categories. Product profitability is measured by
1. Gross margins (equals ‘sales revenue’ – ‘cost of goods sold’) and

2. Gross margin return on investment or similar measures.

Profitability measures help the retailers to allocate quality and quantity of retail space to the profit
able product categories and departments at priority .It also keeps check on the retailers
'unnecessaryallocation of large space for the merchandise that would sell just as well in a limited
place.

13.9 ATMOSPHERICS AND INTERNET RETAILING

The development of the web as a retailing medium needs us to understand the implications of
web atmospherics. In context of e-tailing factors like web site organisation, server performance,
product data, a search option, and shopping carts all contribute to a positive web shopping
experience. The easy navigability in the web site for a shopper who wishes to buy through
thenet is one of the first facilitating factors. Server performance directly affects the waiting time
thatis required for the obtaining results of searches. The easy access to product data and a click
& browser friendly search option add to the convenience of the consumer.
There is a negative correlation between waiting time and the evaluation of service satisfaction in
brick-and-mortar retail stores. Though this can be mitigated through store atmospheric variables,
the association is strong. Similarly, system response time is inversely related to computer user
satisfaction (i.e., the longer the wait, the greater the dissatisfaction).

13.10 SUMMARY
As a shopper, you might have visited a number of small or big retail stores, shopping malls,
shopping complexes, departmental stores, exclusive company outlets and many such premises
in and around your location and had a chance to see and understand how retailers manage their
store space. Creating an appropriate retail store environment (for optimum shopper experience
has a strategic importance for a retailer. Its significance emerges from the link between shopping
behavior and physical environmental factors. These physical environmental factors influence the
perception of shopping duration spent and the evaluation of merchandise and hence it becomes
important for the retailer. On this basis, retailers can effectively plan and organize all the aspects
related to store operations (includes atmospherics and retail space management) so as to
optimizescarce resources and improve profitability.

13.11 SELF-CHECK EXERCISE

1. Write down the importance of store operations planning.
2. What do you understand by consumer’s Angle.
3. What do you mean by store space management. Also write down its objectives.

13.12 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 13.2

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 2. For answer refer to section 13.4
3. For answer refer to section 13.7
13.13 GLOSSARY
 Race track layout is the choice of retailers when they are dealing with such products
that have to be seen closely, touched and sometimes trialed before making a purchase
decision.
 Grid layout is observed in supermarkets, drug shops, and many big box retail stores
whencarrying a large variety of goods or when a retail site wants to make the most of its
available space.
13.14 TERMINAL QUESTIONS
1. What do you understand by store atmospherics. Write down its various benefits.
2. Write down a note on retail space performance measures.

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 Chapter-14
SOURCING AND INVENTORY MANAGEMENT
Structure
14.0 Learning Objectives
14.1 Introduction
14.2 The Sourcing Process
14.3 Factors Influencing Vendor Negotiations
14.4 Vendor Relationship Management (VRM)
14.5 Warehousing And Stocking
14.6 Inventory Management
14.7 How Much to Order and When?
14.8 Shrinkage
14.9 Merchandise Performance
14.10 Summary
14.11 Self-Check Exercise
14.12 Answers to Self-Check Exercise
14.13 Glossary
14.14 Terminal Questions

14.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 The Sourcing Process
 Factors Influencing Vendor Negotiations
 Vendor Relationship Management (VRM)
 Warehousing And Stocking
 Inventory Management
 How Much to Order and When?

14. 1 INTRODUCTION

In a retail store, one finds dozens of product categories, hundreds of brands and thousands of
stock keeping units (SKUs) placed on the shelf. These come from several suppliers/vendors and
the number could be in thousands for truly big hypermarket format stores like Walmart. A retailer
buys from suppliers/vendors of products after a lot of deliberation about quantity, quality and
pricing considerations. This means a lot of the retailer’s time and effort goes into negotiations
for purchase with many vendors. Thus, merchandise sourcing is a complex and tedious process.

The golden rule of sourcing is to buy quality merchandise at the most competitive price and then
sell it to the customers at a reasonable profit. Without thorough planning and strategy, a retailer
cannot be successful in this critical function of retailing. Therefore, it is essential to understand
the significance of sourcing of goods and its method. Today, the procurement function deals with
more than regular set of annual negotiations with large manufacturers of selected brands. Rather,
the attention of retailers is focused on procurement from medium and small manufacturers

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(primarily in the category of SMEs) and buying raw materials for their own in-house production of
private labels. These and other trends have important impacts on procurement processes within
retailer’s organization. Even new team, procurement structures, skills, new approachesand tools
are becoming relevant and essential.

14.2 THE SOURCING PROCESS

Sourcing is a process involving several steps which are discussed below:

A.Determining the Categories:

The retailer must first determine the categories in his store. Each category may have
distinctfeatures and therefore different points of attention from buying point of view.
Categories in a bicycle store can be men's bicycles, ladies bicycle, sports and health bicycles
and kids bicycle. However, you must realize that different categories of bicycles may not need
so many vendors as is needed for grocery stores. Diverse categories of a supermarket or
departmental store need many vendors to supply the required products. .

B.Estimating future demand

Once the retailers have established the product categories for its store, they will estimate the
future demand for these categories for their geographical area. In case the retailer has past data
from his own store or industry data, they can use this data to extrapolate the expected future sale
quantities. Sometimes they must substantiate this data with data available from other sources
like consulting reports, expert interviews published on internet or data about the future
performance of the economy obtained from authentic sources like university, government,
industry or consulting research reports. Retailers could also post information about the
prospective products/ categories on the various search engines like Yahoo, Google, e-
commerce websites and gauge the number of inquiries by the web surfers. They could use other
web services like chat sites, social media platforms or consumer forums. Based on the feedback
gathered a retailer can take decision in this regard.

C.Identifying the Vendors or Sources of Supply

Very often, we find retailer sourcing certain categories from the authorized dealers. For instance
in a supermarket, products like detergent bars, cigarettes, and similar products may be procured
from authorized dealers of the respective brands. As a retailer depending upon your turnover,
you may also like to procure it directly from the manufacturer. On the other hand, products like
food grains and other edibles may be sourced either from the whole seller or directly from the
food grain mandi (local wholesale stores).

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 D.Develop Evaluation Criteria

In this step, the procurement team would use an evaluation framework (this may be self-
constructed or following industry practice) that would have a set of evaluation criteria and a
corresponding weight for the criteria according to criteria priority. Examples of criteria would be–
product quality, product price, transport time, transport cost, product packaging. Further, if the
vendor meets a requirement – say, product quality, with a score of 7 (on a scale of 1 to 10 – 10
being best) and the priority of this requirement is 3 (on a scale of 1 to 5 – 5 meaning most
required), then the final score for the vendor on given criteria would be 7*3= 21. This helps to
amplify and assess the differences among vendors on more granular levels.

E. Interaction with selected Vendors

The retail procurement team would then normally conduct a bunch of interactions with selected
vendors (this is especially important when the vendors, products or retailer settings are new or
changed). These interactions include vendor briefings to discuss stated retailer’s requirements,
vendor’s capabilities (example, for supply) to ensure a common understanding and some level
of assurances. Retailers could also ask the selected vendors to give a solution overview to the
organization’s current business and technological requirements. Additionally, each vendor would
provide an overview of benefits to retailer from his services. Sometimes, vendors are asked to
provide a “demo” to display the functioning and capabilities of their solution.

F. Complete Vendor Selection

At the conclusion of the evaluation process, the team will identify one or few vendors as primary
option (the winner) and few others as secondary alternative. This is important in the case where
individual vendor capacities to supply are much lower than the retailer’s total requirement. Such
an arrangement would also help to mitigate the risk where a specific vendor is not able to supply
as promised due to unexpected breakdown of infrastructure, contractual terms or other external
exigencies. This step gets concluded with drawing up of formal contact statements, duly signed
by both parties, which acts as an important reference document for either party at all stages of
implementation. A contract would clearly give all the important prerequisites, terms and
conditions of the contract and to provide precise information on what goods and/or services the
vendor should provide, at what cost and transport terms.
In case of sourcing from international destinations a retailer must be cautious about the country
of origin, foreign currency fluctuations and taxes.

Example: Apparels retailer’s sources of supply

Retailers like Wal-Mart are going for global sourcing of their products. International sourcing is
an area still new for India although some players have been doing it for quite a number of years.

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While going for International sourcing the retailer has to be very sure about the rules and
regulations of foreign trade, issues related to foreign currency and transport. As a retailer once
you decide to source merchandise internationally you should be confident about the credibility of
the supplier and the expected return on investment.

It is worthwhile for the retailer to go through the financial statements of the various vendors. This
will help in ascertaining the financial worth of the vendors. It also helps the retailer study and
visualise the financial position of all the individual vendors.

14.3 FACTORS INFLUENCING VENDOR NEGOTIATIONS

Negotiating with vendors for sourcing merchandise is a comprehensive and an in depth process,
which involves time, effort and meticulous documentation. It is useful to know the broad factors,
which must be considered in this process. Selected important factors are discussed below:

1. Complete Information: A retailer or merchandise buyer should have complete information

about the vendor – location, size, years of existence, track record of supplying products
etc. These could become strong bargaining and supportive basis in immediate as well as
strategic decisions.

2. Situation analysis of a Product: It is desirable to do a real, ground level assessment for

understanding the ground realities of the vendor-supplied product in the market. Each
vendorhas an image in the market, formed over hundreds of transactions with his/her
buyers, which makes his products sell to the customer – knowing this can be very valuable
to retail buyers.

3. Target setting of contact items: While negotiating retailer has to keep in mind various
aspects of the contract such as terms and conditions of payment, freight, transportation,
delivery, terms for goods return etc. Based on his experience, retailer will have a list of
negotiation points to be competed with the vendor. Making sure the checklist is well
4. addressed will help retailer to make the best deal as well as have assurance regarding
qualityof the goods, on-time delivery and surety about the redress of grievances (if
needed).

5. Deadlines for Delivery: In retail business, not to be out of stock is important and therefore
meeting deadlines for product deliveries and payments should be clarified and confirmed
at the time of negotiation. A clear deadline confirmed and acknowledged by both the
parties removes any chances of misunderstanding and conflict between the two parties.
This is more in the interest of the retailer since any misunderstanding on such issues
definitely will be loss incurring for the retailer due to out-of-stocks and lost consumers.

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A brief list of vendor selection criteria are mentioned below:

 Quality of good/service
 Cost of items
 Transportation costs
 Service features
 Discounts for volume and early payments
 On-time delivery of items
 Financial strength of vendor
 Strength of customer references
 Vendor’s communication systems
 Trustworthiness of vendor
 Regulatory compliance by vendor
 Achievement of sustainability targets of retailer
 Readiness to participate in product development
 Vendor’s production capacity

Making assumptions by the retailer regarding any terms and conditions of sourcing at the time of
negotiation could prove counter-productive. Rather, each aspect of the contract ought to be
discussed, clarified, confirmed, written down and duly signed by both the parties for safety. This
removes any doubt or misconception in the minds of any of the parties.

Retailers must take care not to spoil relationships with vendors as they are the supply chain
partners. Good relationship with vendors during the course of business based transactions or
otherwise is a long-term strategic asset for retailers. Vendors can support retailers in not only
supplying products but also in product development and lending credit when needed.

14.4 VENDOR RELATIONSHIP MANAGEMENT (VRM)

Vendor relationship management (VRM) is strengthening of “buyer-vendor relationships” to

achieve mutually beneficial goals, establish trust to enable a longtime connect. An efficient VRM
can provide several strategic and operational benefits – like, quality increments, improved

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total cost of ownership of goods, innovations, smooth flow of data and mitigation of supply chain
risks.

VRM is more than managing an up-to-date database of vendors and communicating with them
regularly. In fact, via VRM, retailers can know their vendors better, making them an active partner
in your business operations. In addition to keeping basic vendor information, VRM involves things
like efficient vendor on boarding, transparent vendor performance reviews and robust risk
mitigation. While several of these processes are handled offline by retailers (especially small
ones in developing nations like India), the processes are shifting from offline records and
standalone computer systems to cloud based software. Latter gives high number of new features
(like real time collaboration, automated vendor enrollment and payments), which can be
implemented faster, and error free thereby bringing agility, higher effectiveness in transactions
and lowering costs.

One of the emerging aspects of retailer-vendor relationship is vendor-managed inventory or VMI.

VMI is an inventory management technique in which a supplier of goods, usually the
manufacturer or the vendor, is responsible for optimizing the inventory held by a distributor
(retailer in our case). VMI requires a communication link—typically electronic data interchange
(EDI), or an Internet based platform, that provides the supplier with the retailer’s sales and
inventory data (usually in real-time) based on which supplier plans inventory movements. In a
related arrangement called vendor-owned inventory management (VOIM), the vendor retains
replenishment and maintenance responsibilities for the inventory items residing on the retail
store shelves, until the item is sold to the end consumer.

Few of the best practices to manage a good and lasting relationship with vendors are:

1) To have frequent and open communication,

2) Establish feedback channels, have dedicate team
3) To address vendors’ concerns related to operational and payments,
4) Conducting annual vendor scorecards that include key performance index or kpis,
5) Plan and share demand forecasts and concerns as early as possible,
6) Include vendors in product development
7) Have a systematic plan for vendor business strengthening (when retailers are more
powerful and financially stronger).

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The figure below provides a brief idea on cloud capabilities when it comes to VRM

practices.

Impact of Life Cycle on Sourcing

While sourcing merchandise the buyer needs to be sure about his decision regarding the
quantumof purchase. This confidence of the decision comes from the experience the buyer has.
This is because most of the product categories generally follow the typical life cycle of a category.
However, variations in the life cycle stages can take place due to seasonal changes fad or
fashion. While seasonal changes may be easier to assess or forecast, those that are driven by
fashion or fad are typically trickier. Between fashion and fad – fashions exist for a much longer
duration and are more predictable than fads.

Therefore, whenever a retailer is planning for sourcing his merchandise he must take into
consideration the prospect of changes in the preferences, lifestyle of the target customers and
upcoming seasonal or festive changes before deciding on specific categories as well as
assortment and quantities to be purchased.

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It is worth understanding that the demand of staple merchandise is more consistent and usually
follows a smooth trend. Stable/basic merchandise shows a continuous and consistent demand.
While, it is possible that demand of some of the staple brands of merchandise declined over a
period due to new brands and substitutes; the demand for product category remains stable. The
demand in such cases is affected by other factors like population, income or mega-trends in
lifestyle changes and the consequent changes in favor for certain products.

An example for vendor management:

Walmart, was one of the first big retailers to have innovated in the vendor management area.
They partnered with manufacturers like P&G to lay out a vendor managed inventory system. It
allowed vendors access to sales data so they could better forecast product needs, sync this with
their production and delivery accordingly. Walmart’s extensive manufacturer relationships,
network of distribution hubs, and fleet of trucks helped it to keep its cost low, enabling it to become
a consistent discount retailer. What we can see is that, even if retailers are nowhere near
Walmart’s size, they can still gain from managing vendor networks and resulting seamless
product flow for improved productivity and large savings.

14.5 WAREHOUSING AND STOCKING

This is the last step in the sourcing of merchandise process. Receiving the merchandise and then
stocking is perhaps one of the critical functions of sourcing. This involves various tasks such a
receiving the goods, checking the invoice, matching the goods received with goods ordered list,
adding the goods received to stocks. Finally making payment and planning for its entry in the
store .At this point, it is the duty of the retailer to check for damaged goods, unordered goods and
any deficient goods (ordered but not delivered). Since generally payments' are not made in
advance, the retailer has a better chance of getting his fresh grievance redressed early. In case
the retailer has a chain of stores, stocking becomes much more critical as it precedes distribution
to various stores in different quantities and may by at different times too.
In store merchandise handling is an important issue, which needs to be dealt with a lot of care.
Retailer has to be cautious about the quality and quantity of merchandise delivered vis-à-vis the
order. At this stage, risks includes less than agreed quantity is delivered, embezzlement of
existing stocks by collusion between vendor and store staff, theft by other parties, damaged
goods or damaged packaging etc.

Few suggestive practices for optimum merchandise handling include:

1) Product shipments be received in a set procedure to ensure everything arrives in

good condition and in the proper quantity (checking activity to be jointly carried

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 out by a teamof retailer and vendor staff)
2) Products be routed in an efficient manner to right store location (may be shelves,
storage, or holding area)
3) Product details be recorded in inventory system for tracking (viewable by both
parties)
4) Damaged goods be returned according to standard operating procedures.

Allocating Merchandise to Stores:

After the merchandise is received, the next important task is to allocate the products to different
stores belonging to the same chain (assuming a chain store) or to different departments in a
single store. While allocating merchandise to different stores retailer generally uses the historical
sales information. However it is very important to pay due attention to the current supply and
demand situation so as to maintain proper inventory situation. The retailer also has to keep in
mind the geographic and, demographic factors influencing each of the stores. It means that due
to the concentration of specific community or people of specific region in a particular area demand
for the specific category type of products rises in a specific season or month due to some festival
or custom. Therefore, demand for that specific category of products will be more in that particular
store than other stores in the chain.

Another factor, which plays an important role while allocating merchandise, is the generation of
percentage of total sales. It works like this- in case a retail chain has ten stores in a particular
area/location and demand for a product has suddenly risen across in all the areas. In such a
case, the demand for a particular product will dramatically rise however, with the limited supplies
the retailer has to take a decision regarding allocation of merchandise. Decision will then be taken
based on percentage of sales generated by individual stores. The store generating maximum
amount of sales will have the authority to demand more percentage of the product.

Each store has to keep adequate stocks to generate confidence in the customers. It has been
generally felt that under stocked stores attract lesser number of customers. Under any
circumstances, customers must not feel that just because the store is relatively small or is not
doing well, therefore it is not well stocked. In case the retailer wants to generate sales through a
push strategy, then he has to keep large quantities of the stock. On the other hand, if the strategy
is to generate sales through pull strategy then larger display of merchandise is desirable.

14.6 INVENTORY MANAGEMENT

Inventory management is the process of ordering, handling, storing, and using a company’s stock
of assets like raw materials and components, semi-finished goods or stock items ready for sale.

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For a retailer, inventory primarily means the stock of items received from vendors and kept
either in back-of-the-store warehouse or on the retail store’s shelves. When a retailer is dealing
with private label items, the inventory will also include items at semi-finished stage. The chief
essence of inventory management boils down to having the right amount of stock, in the right
place, at the right time.

Importance of inventory management for retail business has important financial and market
related benefits. Few of them are mentioned below:

1) Enhancing customer experience: Retail is a promise to consumers of finding the

products they are looking for from the store. Thus, not having enough stock to fulfill orders
already taken by retailer for which payments are made can lead to negative experience for
consumers.
2) Improving cash flow: Locking too much cash into inventory at once means it’s not
availablefor other expenses - like payroll or marketing. Thus while inventory is necessary,
it must be optimally decided as per the need so as to save finances for other critical
activities.
3) Avoiding shrinkage: If inventory requirements are correctly made, this will help in avoiding
over-purchasing of wrong inventory items (which are selling slowly). This can also protect
from these items becoming expired, spoiled, or stolen.
4) Optimizing fulfillment tasks: When inventory is available, it can be picked, packed and
shipped off to customers more quickly, easily and lead to satisfied customers.
5) Saving on warehousing space and staff: When inventory quantities are kept in the right
amounts, they are optimized for fulfilling customer requirements on time and take only the
minimum space from warehouse. In the same context, staff requirements for taking care of
inventory could be optimized.

Today a lot of IT intervention and support in supply chain tracking and monitoring inventory with
different stakeholders is available which help in streamlining the process and making information
about stocks at different locations known to all relevant parties involved. One such technology is
radio frequency identification or RFID.

14.7 HOW MUCH TO ORDER AND WHEN?

The primary questions faced by retailer for managing inventory are:

1. How much to order (category wise)

2. When to place orders.

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A retailer should always develop a mechanism in this regard, since this is a critical
issue.Broadly, retailer needs to focus on the following:

a. Average current demand for individual items. Also called SKU (stock keeping unit) –
forexample, retailer can find demand/day by using a weekly average measure.
b. Future SKU demand obtained by using forecasting techniques like linear or non-linear
trendforecasting methods
c. For items affected by seasonality or other fluctuations, retailer can use special
forecasting methods, which use seasonality index
d. For optimum restocking what sort of ordering policy or rules would suffice – For
example, this involves setting parameter values for economic order quantity method.

In order to take these three decisions we need to get some vital information for which we need
to have the following critical info:

1) Inventory Report:
This describes each SKU and summarizes the inventory position.
An inventory report gives vital information from the retailer's point of view. A retailer based on'
this information can calculate how much of specific merchandise should be purchased to meet
customer demands for a relevant period. It also gives vital indication regarding shrinkage 1if any
as well as the movement in the market demand conditions – example, demanding going up or
down. Based on the inventory report a retailer can always take necessary steps to add stocks
before they reach alarmingly low levels. Moreover, it also gives a clear picture as to what sort of
assortment should the retailer order, how much of each constituent of the assortment of the
ordered, so as to meet the demand.

Product Availability Report: This indicates that in a month on an average how much the product
was available when required by the customer.

This report enables the retailer to understand the vital statistics regarding availability of products
in the store. One of the most critical factors for the success of any store is the availability of a
product as and when demanded by the customer. However, at times it is just possible that a
specific product is not available in the specific size or denomination as required by the customer.
Going through this report a retailer can very well apprised himself/herself about the trends in the
market and consumer preferences. For instance, if a supermarket owner finds that 100 grams
pack of Parle G biscuits were not available for a considerable number of times, an indication is
given by this data. In this data is code related with the inventory report data regarding the same
brand of biscuits, a vital clue can be derived as to which pack size is not moving vis-à-vis the
hundred grams pack.

2) Reordering level: It is the amount of inventory below which the availability should not
godown. At this point order is placed with the supplier.
Each supplier/vendor needs x number of days or weeks from the order received by

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supplier/vendor to reach the retailer’s warehouse or store. This is called lead time. On the other
hand, every retailer has his limitation of space and money.
Based on these two considerations retailer can fix the level of stock which, once reached at the
retailer’s end, an order, of that merchandise will automatically be placed with the supplier. This
is known as the reordering level. For example, a grocery retailer want to keep 500 units of an
SKU in the detergent category, but at any point he does not want to have lower than 50 units on
the shelf. He would know the rate at which sales happen (say 15 units per day) and the lead-time
(say a week). So in this case, the stock reaches 50+ (15*7) = 155 units, an order will be
automatically triggered.

One more consideration here can be the inventory turnover 2 of the retailer. Therefore, reordering
level for the same merchandise can be different for different retailers even if they are based in
the same city or maybe in the same area.

3) Order quantity: This is very subjective and varies from one retailer to another, even when
they look similar in operations. It's based on the frequency of consumption and delivery lead time.

Once again, order quantity is based on the four factors namely

i. Frequency of sale and inventory turnover level

ii. Storage capacity

iii. Capacity of the retailer to block funds in the specific merchandise

iv. Anticipation if any, for shortage of the specific merchandise

14.8 SHRINKAGE

It is the reduction in inventory caused by shoplifting, misplacement or damaging of merchandise.

Such shrinkages can be measured by comparing purchase records with available inventory
physically in the store. Amount of shrinkage would affect the ‘quantity decision ‘of sourcing
merchandise.

In places where shrinkage through customer and employee theft becomes problematic, retailers
would adopt steps to minimize such happenings. Nowadays, a visual surveillance is in place
which is helpful and is found in majority of the stores. Retailer has realized that the cost of
shoplifting could reduce their profit and worsen their business’s bottom line. This can be very
detrimental to those retailers who already operate on thin margins. Tracking systems using RFID
has been successfully adopted in the stores commonly in the western nations. However, in India
while its use is picking up (it has still not become a common phenomenon due to the exorbitant
costs involved3

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While discussing the issue of shrinkage, it is important and one should not forget the scope of
shrinkage in transit. There have been instances that goods have disappeared while the goods
where in transit in small quantities to avoid recognition in the first instance by the retailer.
According to ‘The Global Retail Theft Barometer 2009’, India ranks No. 1 in retail shrinkage
among nine countries surveyed in Asia Pacific. Here the pilferage can be between the vendor
and the transporter as well as any third party and the transporter. Further support to this is
available in the above-mentioned report, which says, that nearly 10 per cent of shrinkage occurs
at the supply-vendor level, most of which can be combated with effective tracking and inventory
management tools (like RFID).

To avoid such thefts the retailer must go for only credible transport agencies. Moreover, it is
important that the vendors also share responsibility. This however has to be communicated to
thevendor at the time of executing the contract of purchase

14.9 MERCHANDISE PERFORMANCE

Merchandise planning process is an ongoing process. Retailers usually have several

departments and carry tens of categories in each department. They must constantly examine
performance not only across departments and categories but also across SKUs and vendors.
This will help in establishing its profitability across these divisions and take decisions regarding
future investments. Those departments, categories or SKUs, which are not profitable, may be
dropped, making place for ones which are more profitable.

For this, a retailer can go for the following:

1. Sales analysis: by which retailer can

 compare their actual sales and targeted sales
 compute average inventory investment
 finding inventory turnover ratio
 finding what portion of inventory is sold using ‘sell through rate’;

2. Profit analysis using gross margin return on investments or GMROI

3. ABC analysis.

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 4. Alternatively, retailers can also use a complex method of weighing the vendors on a
multiattribute basis to assess which ones provide enough business and margins – for
details of this refer to an earlier section no. 14.3 & 14.4 in this unit.

A brief overview is discussed below:

I. Sales Analysis Tools:

A. Comparing actual to targeted sales: Generally the retailer compares the actual sales
over a pre-determined period with the targeted sales for the same period. If retailer has a
chain of outlets, he may aggregate this over all the stores for a particular category as
well
as do the exercise store-wise. For example, if the targeted sales (based on past
experience and forecasted values) was to sell 1500 units in a week, and the actual sales
was 1200 for store 1 and 1600 for store 2, then actual by target (actual as a
percentage of targeted)would be 80% and 106% respectively for stores 1 and 2.

B. Average inventory investment: This measure, average inventory estimates the mean
financial value (investment) or units of an SKU or items in a category during two or more
specified periods. It tells the retailer about how much he has invested in the said goods
on an every-day (or week or month) basis. Thus, average inventory measures the
average volume (or invested value) of inventory kept on-hand throughout a given period.
Average inventory is the mean value of inventory within a certain period, and is computed
by averaging the starting or beginning inventory (BI) value and ending inventory (EI)
values over a specified period. Thus, it is computed as: {(BI) + (EI)}/2. For example, if
beginning of week inventory value= 1000 units and end of week inventory value = 1500
(meaning, that over the week sales as well as purchases have happened), then the
average inventory = 2500/2 = 1250 units. This means, on an average, the store carried
1250 units per day in that week.

C. Inventory turnover ratio: Inventory turnover measures how many times your inventory
is sold over a given time period. The metric shows how effectively inventory is managed
on two counts – the purchases and sales made. It is calculated by dividing cost of goods
sold by average inventory value or units of goods sold by average inventory in units.

For example, if the sales in the above mentioned example is 5000 units then the inventory
turnover ratio will be = 5000/1250 = 4.0, which means the inventory is sold 4 times in this
period. Compared with this, if the sales was only 1250, then, ratio will be = 1250/1250
=
1.0 which means the average inventory is sold only once. Higher this ratio better is the
sales performance and the purchase decisions.

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 D. Sell through rate: This method takes the amount of inventory a retailer receives, and
compares it against what is actually sold over a given period. It’s usually expressed as
a percentage. For example, if for an inventory of 1000 units, sales for a period are 700
units,then the sell through rate is 70%. What this figure immediately shows is how quickly
the inventory is paying off. While it is important to note that retailers always want to keep
substantially more inventory then the expected sales, so that any consumer can find
enough choice and doesn’t feel left with small number of unsold SKUs. This measure is
also useful when comparing one product or variant against another or when comparing
the sell-through of a specific product from one month to another or across different store
locations. Low sell through rates mean that either items were overbought (in quantity) or
priced too high, while high sell through rates indicate you may have under bought or priced
too low.

2) Profit analysis using Gross Margin Return on Investment (GMROI)

This ratio is to measure the profitability of retailer’s inventory over a given period. It gives the
gross profit a retailer makes for every units of investment in inventory that has been purchased.
Gross margin itself is the market price – cost of the good (also called cost of goods sold or
COGS). Gross margin from each unit multiplied over the total number of units sold will give the
retailer total gross margin from sales. For example, if the retailer sold 1000 units over a week, for
which he paid Rs. 50 per unit to the vendor and the market price was Rs. 75, then the gross
margin per unit will be Rs. 75 – Rs. 50 = Rs. 25 and the total gross margin will be Rs. 25,000.
During this period, if the average inventory was worth Rs. 8,000, then GMROI will be = 25,000/
8,000 = 3.125 meaning that for every unit of rupee invested in this period, a return of 3.125 is
earned.

3) ABC analysis

This method helps to identify your most valuable inventory. It works on the Pareto principle – that
is, the 80/20 rule. In the context of a retailer, this would mean that around 80% of sales would
typically come from 20% of a company’s total inventory.ABC analysis uses this theory to sort
inventory into three types:
1. inventory. Where inventory shows the highest value –where, typically, 20% stocks
bring in 80% of sales/profits. These are items with highest profit margins and/or most
sales revenue.
2. inventory. Is where, inventory sells regularly, but doesn’t provide as much value as A
in profit margins–this could also be due to higher carrying or servicing costs.
3. inventory. C type is that category of inventory that does not sell as much as A or B,
therefore generates the least revenue and is generally least valuable (also this one is
mostly low on margins), so that the overall profits are low and slow to achieve.

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ABC analysis helps identify the key players in a retail business’s inventory. A inventory, for
example should rarely (if ever) be out-of-stock and be given the highest priority and focus. While
C inventory may not warrant quite so much attention and items in this category may even be
discontinued. If C inventory items are not selling in the bigger market, it may mean that they are
obsolete items and candidates for discontinuation. However, if C items are selling elsewhere
well but show dismal performance with the current retailer, some other reason may be causing
low sales, and they need to be checked by retailer before taking a ‘drop item’ decision.

14.10 SUMMARY
In a retail store, one finds dozens of product categories, hundreds of brands and thousands of
stock keeping units (SKUs) placed on the shelf. These come from several suppliers/vendors and
the number could be in thousands for truly big hypermarket format stores like Walmart. A retailer
buys from suppliers/vendors of products after a lot of deliberation about quantity, quality and
pricing considerations. This means a lot of the retailer’s time and effort goes into negotiations
for purchase with many vendors. Thus, merchandise sourcing is a complex and tedious process.

14.11 SELF-CHECK EXERCISE

1. Write down the sourcing Process.
2. What are the factors influencing vendor negotiations.
3. Write down a note on inventory management.
14.12 ANSWERS TO SELF-CHECK EXERCISE
1. For answer refer to section 14.2
2. For answer refer to section 14.3
3. For answer refer to section 14.6
14.13 GLOSSARY
 Average inventory investment: This measure, average inventory estimates the mean
financial value (investment) or units of an SKU or items in a category during two or
more specified periods.
 Inventory turnover ratio: Inventory turnover measures how many times your inventory
is sold over a given time period.
14.14 TERMINAL QUESTIONS
1. Write down a detail note no vendor Relationship Management.
2. Write down a note on Merchandise Performance.

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 Chapter-15
MANAGING PEOPLE AND PROCESSES

Structure
15.0 Leaning Objectives
15.1 Introduction To Important Essential Element in Retail Mix
15.2 People: An Important Element of Retail -Mix
15.3 People Management: A Key to Success in Retail Management
15.4 Essential Skills for People Management
15.5 Process Management: Essential Element in Retail Mix
15.6 Importance Of Process Management in Retail Management

15.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Introduction To Important Essential Element in Retail Mix
 People: An Important Element of Retail -Mix
 People Management: A Key to Success in Retail Management
 Essential Skills for People Management
 Process Management: Essential Element in Retail Mix

15.1 INTRODUCTION TO IMPORTANT ESSENTIAL ELEMENT IN RETAIL MIX

Indian retail sector is fifth largest in the world, projected to grow at 9% over 2019-2030, and is
expected to reach US $ 1.8 trillion by 20301. Despite covid’19 pandemic and other challenges,
the Indian consumption story is robust, driven by affluence, accessibility, awareness, attitudes
and behaviour, the household consumption has multiplied to US $ 1.63-1.75 (Rs. 130-140
trillion) trillion in 2022. Indian retail sector alsoinclude third- highest number of e-tail shoppers,
following the giants China and the US. Retail sector is one of the pillars of India’s economy
and accounts for approximately 10% of its GDP. The spectacular growth of Indian economy in
last few decades is on the backbone of the retail sector – its employees and people working in
retail sector. Today Indian retail sector employees over 43 million people making it second largest
employer.
Since retail is more of a service sector, the concept of marketing mix involves the combination
of 4Ps (Product, Price, Place and Promotion) along with the extended 3Ps (People, Process
and Physical Evidence). The primary 4Ps are covered in the block 1 and 2 of this course.
Among the extended Ps,physical evidence is already covered in Unit 12 of block 3, and some
parts of process management are covered in Unit 13 and 14 of block 4. In this unit we would
focus on the people management and also throw some light on process management in
successful retail business.
Figure 15.1: Elements of Retail Mix

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15.1.1 Retail Mix – Elements of Service Mix
Retail marketing mix is defined as the mix of various elements and methods required to identify,
formulate, and execute retail marketing strategy. Retail managers, target to create an
optimum mix of retail-mix and coordinate all the Ps to create a distinct image of the store,
variousproducts, and services in the consumer’s mind. The mix may vary on basis of the types
of market, target customers, nature of retailer, and the type of product/ service along with
product line- length and width. It can also be considered as the mix of retailing activities and
coordination of all plans and actions, in order to boost sales and earn optimum profits. As we can
see in figure 15.1, with multiple elements for each P, it is called the mix of mixes. All these sub-
elements are the various marketing decisions and act as the guiding force for business
processes. All the retail mix decisions if performed and executed properly, must add up to the
firm’s marketing mix and led to attainment of marketing objectives.

The retail mix must be guided by three basic principles:

a. The mix must be consistent with the expectations of target customers. The market
research to identify the target market, study of its characteristics, proper segmentation, targeting
and positioning must be the foundation for the retail mix decisions.
b. Synergistic effect of the elements must be ensured through a judicious mix of the elements
and sub-elements. For e.g.,when planning a sales promotion the advertising decisions must
include the message in it, and this must reach the audience before the launch of the sales
promotion.
c. The retail mix must give the organization’s a competitive advantage over its competitors,
along with boosting strengths and taking care of the weaknesses. A good retail mix must help in
identifying and exploiting the opportunities and protect the organisation from threats in the
business environment.

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Retail marketing mix is a mix of mixes, the variables of product (merchandise and assortment)
along with the services, offered at different prices, communication through promotion mix like
advertising, personal selling etc., store location, design, layout, visual presentations etc. adjusted
as per the dynamism of the environment.

15.2 PEOPLE : AN IMPORTANT ELEMENT OF RETAIL -MIX

People intensiveness is the biggest trait of the retail industry, both on service provider side as
well as service receiver side. As mentioned earlier, currently retail industry in India employees
over 43 million people (in the organised sector), making it second biggest employer. When we
talk about people management in retail sector, we need to focus on both types of people
categories (provider and customers), but for the sake of better understanding, we only consider
‘employees and employers’ in organisations as PEOPLE in retail mix. Managing people inretail
environment is not an easy task, employers always look for well- trained, hardworking teams,
they work towards maintaining a healthy and safe environment in the organisation. The
challenge is to manage differing personalities, maintain work schedules as complex as 24x7,
along with smooth maintenance of various business processes. To ensure the success, on top
of such a demanding array of responsibilities, retail managers must be organized, patient,
empathetic, and determined.

The following five best practices are recommended for the successful people management in
retail sector.Getting started on the right foot enhances the possibility of finding the right fitfor
the job, attract best talent and create the right perception about successful retail business.

1) Sourcing and finding the right employees:The first step towards people management is
finding the right people, people with the desired skillset, attitude, and experience. Liaison with
recruiters, colleges and universities, placement agencies and other relevant sources, would
ensure that the right people become part of the recruitment and selection process. The job
descriptions, position specific pay, qualifications, terms and conditions of employment, along with
scope for future growth must be well drafted and clearly presented to the prospects. The
interview and selection procedure must be organised, transparent, consistent, and unbiased, not
just allowing the best to come towards the organisation, but also to create the right brand image.

2) Create a healthy retail environment and cohesive team: The organization culture plays
a huge role in deciding the well-being of the employees and cohesiveness in the teams. The
policies and procedures, organisationalstructure, communication between various levels of
management, conflict resolutions, compensation policies etc. are important in ensuring the
individual’s growth as well as growth of the organisation.

3) Right set of goals, targets: With determination and competency, the senior management

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must set the right set of goals for individuals as well as the teams. These goals must result in
motivating the employees and keeping their morale high. Since retail jobs involves a lot of
customers dealing, therefore the behaviour and people management skills of employees are
critical. Training of the staff in cross roles, so that there is seamlesstransition during long hours
and 24x7 functioning of the organisation. Retail environment is normally hectic and unpredictable,
hence the employees need to be treated well, so that they can take care of customers efficiently.

4) Effective and Calm Communication: Retail is all about communication with the
customers, both in terms of identifying their needs and also suggesting the solution.Hence,
for successful retail businesspeople must be trained in effective communication, providing the
relevant information at the right time, handling queries and objections, and persuading the
customers to buy the best solutions for their problems. Similarly, the employees must be
communicating with their seniors and juniors in such a way there is positive and constructive
feedback given, and performance appraised. The retail sector with its dynamism is very
stressful place from time to time, making rational and calm communication, avoiding over-
reaction in difficult situations is important skill.

5) Provide Support and Benefits: Oftenretail managementenvironment is difficult; it is

important that we provide the right benefits to the staff. There should be honesty in organisation’s
/stores performance, team, and individual’s performance, and ensure that the people in the
organizationknows the management have their back. It’s important to provide the right benefits
to make sure the staff is well taken care of. The common benefits include providing insurance,
extra paid time off, schedule flexibility, adding store discounts, supporting employee mental
health, or paying performance-based bonuses etc. Modernretail software/automation has helped
management of retail stores, including people and process management. This conjunction of
information technology saves the time, improves efficiency and productivity among the
employees, and enhance the efficiency of service delivery. During upgradation of the operations,
we can improve the operationsdigitally. E-Commerce, inventory management, payroll, pricing,
and so much more can be more effectively managed with the help of the right technology.

15.3 PEOPLE MANAGEMENT: A KEY TO SUCCESS IN RETAIL

MANAGEMENT

People management is the most important aspect and element of retail marketing mix. We know
people management refers to the practice of recruiting, training, engaging, and retaining people
and placing them at the right place in the organisation. It is a sub-category of Human resource
management (HRM), and it includes all the processes in the HRM. It is also the process of hiring,
leading, and developing team members to support the organization's overall mission. People
managers handle all people-related tasks involving new talent, employee engagement, and
career development.It also includes the capacity of the staff and the efficiency and
availability.The staff should be capable and efficient to carry out the functions of the store
smoothly. The interaction of the staff with customers should be profession, well behaved and

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helpful.If a particular product needs internal marketing, it is the people who make sure that the
internal marketing is done in accordance with the marketing rules and also ensures that the
message reaches the right people/ customers. The following 5Cs are essential to successful
people management:

1. Creation: Creation, i.e., genesis of the organisation, its vision and mission, including the
company culture. The culture starts with the very first step into business plan and takes a concrete
shape withthe firsthire. Meritocracy must be overtly visible, talent acquisition processes must be
thorough and backed by a strong employer brand. With engaging candidate experience,
informative onboarding and clear road mapping techniques utilized to build loyalty, people
manager can ensure that employees are ready to grow with the company, and face challenges
in business environment. Creating their own workforce, with the desired attitude and
commitment towards the organisation’s vision.

Figure 15.2: VUCA of Retail Industry

2. Comprehension: The culture in retail sector must appreciate the differences innate to
each person in a workplace, this is necessary for designing the right set of motivation,
compensation and training plans and policies. The comprehensivenessin understanding,
appreciating the people, skills, culture, and society, helps the retail ecosystem to flourish. People
as customers must be handled by the people in humanistic way and not in mechanised manner.

3. Communication: Communication is the key to successin any retail organisation. The

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organisation culture must ensure that the employees have the confidence that their voice
would be heard, and they can speak up in all situations. When people have the confidence in
culture and leadership, there is open communication, the conflict resolution is effective. The
perception of the workplace and company is positive, which automatically attracts better talent
and reduce the turnover. Communication is often considered only speaking or writing, ignoring
the fact that listening is an important and critical part in its effectiveness.
4. Collaboration: Collaborative, positive internal environment, and work culture, is visible
in the team cohesiveness, mutual trust, and shared vision for the organisation.The people when
valued as the most important asset, transforms all other assets as the contributors towardsoverall
success of the organisation. People management team must work towards fostering a spirit of
collaboration between, various team members, and among all stakeholders of the business.
This must be done in such a way, that the employees value their role and contribution in the
successof the organisation, much beyond their daily roles. The collaboration must make them
understand their importance in shaping the future of the organisation, and value their contribution.

5. Confront: Organisations regularly face opportunities and challenges/ threats in the ever-
dynamic VUCA (Volatile, Uncertain, Complex and Ambiguity) business environment. People
management involves the power of confrontation or facing the ups-and -down in the business
environment. Overcoming challenges is an integral and important component of building a
successful organisational culture. Effective people management strategy must be prepared to
find resolutions for all types of challenges (interpersonal-intrapersonal, environmental, or
competitive) regardlessof the internal composition/ nature of the organisation. People
management team must be proactive in taking necessary and appropriate disciplinary action as
per the need. People in an organisation decides the resilience of the organisation.

15.4 ESSENTIAL SKILLS FOR PEOPLE MANAGEMENT

The success of any retail organisation whether traditional brick-and-mortar, modern e- commerce
based or hybrid, depends on the right set of people at the right places. The other element of
marketing mix- product, price, promotion, place, process and physical evidence, depends on the
right people for their success. Following are the skills essential for successful people
management in any retail organisation:

1. Cohesiveness and Trust-Building:Teamwork works- is the biggest indicator of the

productive work environments. The success of the organisation depends on the sense of
camaraderie, and the organisational culture, which percolates from top management to
lower management. Gaining the trust of individuals and employees is big challenge for the
people management task force. Active listening, empathy, and conducive culture to speak, are
some of the basic requirements for building trust. Understanding the aspirations, goals, skills,
and talent, before forming the teams, would result in internally cohesive teams, which can work
towards attainment of the organisational success. Patience and flexibility during conflicts,
handling progress blockers, and empowering people with the skills and motivation, needed

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during hardship, people managers can build engaged and dedicated teams.
2. Active listening2 and Mediations part of Organizational culture: When people are the
centre of function, communication strategy is the most important lubricant for smooth
functioning. Conflicts arising due to miscommunication, difference of opinion, difference in
temperament and lifestyles, are common at retail organisations/ and complex workplaces like
hybrid retail chains. However, when managed properly, these conflicts can result in an
environment where all employees feel that their opinions are valued, and their contribution
is critical in the success of organisation. Successful people management involves taking an
active role in mediating conflicts before these reach a point where it becomes insurmountable.
Through active listening and mediation, people manager must incorporate every employee’s
point-of-view and create a path forward for everyone associated with the organisation. This
results in creating a culture of understanding, omni-representation and accountability for
all,leading the teams towards success. Active listening, along with genuine empathy, and
appreciation,tied with actionable steps during communications and conflict handling would
ensure that allemployees feel validated and respected in the workplace.

3. Knowledge-Setting and Organization: Workplaces are constantly evolving, and so

should the entire teams — including managers. Having access to high-quality data about
projects, company, and employee performance over periods of time is crucial to streamline the
success in an organization. Demonstrating the ability to stay upto date isalso important for
proving self-awareness to team members, and by consistently learning new skills and capabilities
that can be applied to the workplace, managers can foster a spirit of quality career
development.Preparation is the key to people management.

4. Visionary/ Dynamic Leadership:Staying on top of routine tasks and related emerging

challenges, or alternatively constantly needing to catch-up and letting ongoing responsibilities
slide to tackle emerging tasks, is something that is recognized and resonate throughout the
team in retail ecosystem. Great people managers actively look for ways to streamline
processes, reduce clutter and accomplish tasks before they pile up, while paying attention to
employee workloads and adjustingas per the needs. Employees should have access to the
resources, they need to stay organized from the moment theyare onboarded. Figure 15.3
gives a comprehensive list of skills necessary for good people management.

15.5 PROCESS MANAGEMENT: ESSENTIAL ELEMENT IN RETAIL MIX

Another element of the retail marketing-mix is the process defined as, “a series of steps and
decisions involved in the way a work is completed.” Processes are an integral part of our daily
life both professionally as well as personally. The way things are done is called a process, as
it is a series or set of activities that interact with each other to produce the desired result. The
process may occur once or can be recurrent or periodic. When we talk about retail management,
we are more concerned with the regular, routine processes, involved in the business
management.

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Processes are important because they describe how things are done, and also provide
monitoring and evaluation benchmarks for making the functioning better. These also provide
inputs on degree of success, efficiency, and effectivity of the tasks. Hence, if we focus on the
right processes, in the right way, we can design and execute the way towards success. Without
well-defined processes, it is not possible to do the task with equal efficiency twice or repetitively,
whereas with properly defined processes the service provided to the customer can remain
consistent, not affected by the person performing it. The success of retail is dependent on
consistency of quality in products and services, which is the output of existing processes at
different stages of production, inventory management and marketing.

Retail management is a combination of many internal and external processes such as market
research, inventory management, transportation and warehousing, offline and online
presentation of products and services, store operations, packaging, financial and accounting
etc. along with the human resource processes like training, compensation, motivation, and
relationship management with customers to name a few. All these processes in the retail
management processes feed each other through the inputs and outputs of data and information
and their symbiotic synergies work towards improving the customer experience and ensure
customer satisfaction.

As presented in figure 15.4, a typical retail manangment process in an organisaiton, regulates

who carries out which activities, at what time, and with what resouces. Process management
looks at every business process individually and also looks at the complex network of processes
combined into bigger complex processes, and then the organisation as a whole. The process
must result in clearly defined roles, responsibilities and accountabilities. It analyzes currently
existing systems, issues and challenges, and identified the bottlenecks, barriers and threats.
Each stage in the retail process is combinations of various small processes, which require
different skills for successful completion. Bigger the retail organisation, more complex the
business process management systems.

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Figure 15.3: A Typical Retail Management Process

This simplified model helps us to understand that the ‘retail process’ is a network of smaller
multiple processes at each stage of the retail management process. The basic aim of the retail
process is to take care of the 7Rs i.e., right product, in the right quantity, of the right condition,
at the right time and right place, to the right customer and at the right price, so that the customer
need is satisfactorily fulfilled. The chances of satisfied and happy customer repeating a purchase
are much higher and also acts as the most cost-effective advertisements for the business. The
planning of processes, their execution, reframing and redesigning must be on the basis of the
understanding of the customers’ needs and wants, along with collaborations between the
manufacturers and wholesalers. This would also involve listing of the capabilities inherent in the
organisation, and analysing the organisation’s position with respect to the competitiors, based on
the business environment conditions. Processes at each stage of management must converge
towards attainment of the organisational goal and contribute towards the success of the
organisation.

Process management encompasses all aspects of the business, as seen in the above figure.
Large multinational organisations use process management software to automate their
systems, update the processes real time and efficiently handle businesses around the globe;
whilesmaller organisations with limited product lines and market coverage, still use traditional
methods of flowcharts and process manuals. Usually, good business plans include some inputs
on business process managements. Here we look at some examples of process management in
retail ecosystem:

1. In Human Resource Department the process of Onboarding of New Employees: After

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the recruitment and selection process (which at times can be easily outsourced) the selected
candidates need to be onboarded, and this process can be very haphazard, chaotic and time
consuming if not streamlined and properly defined. When process management is in place the
forms, documents, and other needed information can be submitted electronically and smoothly.
Automation of the HR process can also include filtering the data, matching the skills to the
position, sending messages and scheduling interviews. And later facilitating employee’s
onboarding.
2. Customer Service in retail stores: When there is need for specialised customer services,
retail stores have systems in place which consists of many processes. Verification of purchase
information, updated terms and conditions of sales, possible solutions in case of conflicts, and
handling of refunds and credit notes. Customer service is an integral part of the retail business
and hence seamless CRM, and customer service processes can play a key role in its success.
3. Logistics and Warehousing Management:With the increased product line the complexity
in warehousing also increases. It is important to maintain the right quantity of various products
and their assortments, at the right places in retail network. Inventory management, order
processing both for buy and sell, warehousing, transportation and delivery and logistics
management, each of these would have multiple processes in order to function smoothly.
Also, these processes would be interlinked, interconnected and interdependent on each other
to complete the business system.

15.6 IMPORTANCE OF PROCESS MANAGEMENT IN RETAIL MANAGEMENT

Retail management, the process of running and managing retail store’s day-to-day activities
involved the selling of goods and services to customers. The overarching goal is to ensure
that the process results in customer satisfaction and built long term relationships with the
customers. A good retail process enables a company-wide understanding of the organisational
vision, mission, the internal process landscape. The overall retail process looks at every stage
in overall business process, and individually as a whole, to create a more efficient
organisation, and satisfied customers. Process management, a systematic approach to ensure
effective and efficient sales, a methodology to align different departmental goals and objectives
with the overall objectives. Process management is not just useful for the organisation, but also
for the customers, it must result in easing the process of finding the right product, at right price
conveniently.

15.6.1 Simplified Model of Process

Process management is an integral part of the overall organisational strategy called as process
management strategy. In long-term this strategy constantly monitors business processes and
try to maintain optimal efficiency for the organisation. The typical simplifiedretail process consists
of the following stages:
1. Plan:The first stage in any process iscalled the planning. In retail management we need to
plan and decide many initiatives. Let’s take a small example: Imagine Person A want to open a
small retail shop in the neighbourhood. The first step would be to identify the demand for various

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products and decide what product assortment would be beneficial to begin with. The decisions
related to what, when and how much is taken in this stage.
2. Buy:The next step in the retail process is to buy the inventory and setup a shop. The
merchandise planning, the price negotiation, credit facility etc are decided during this stage of
the process.
3. Move:This stage consists of supply chain management and inventory management
system systems. Move can be as simple as buying some products from the wholesaler and selling
at the shop, or it can be a complex software-based program with multiple products, multiple
categories, multiple locations etc. Depending on the nature and size of the organisation, it can
be simple as well as complex.
4. Market: This stage in the process is all about brand and product management. Decisions
related to qualityand quantity, along with the terms and conditions of delivery, credit facility and
other activities required for smooth conduct of the business.

Figure 11.4: Stages in Retail Management Process

5. Sell:The last stage in the process is called the sales and tender management stage. This
stage involves both the after sales services and relationship management. The process of
installation, activation, maintenance and after sales services play a key role in customer
relationship management.
The key roles of process management in retailing are, to improve the business through internal
co-ordination, store operations, human resource optimum utilization, planning of logistics and
inventory and financial and administrative management.

15.6.2 Interlink between People and Process Management

There exist a strong relationship between people and processes. The success of people and
process mangagement is strongly related to the each other. Processes are designed by people
for the people and aim at efficient use of all resources including human resource. The
competency, skills and motivation level of the people involved in the process of business process
designing would decide the quality of processes and the hence the quality of the system.
As with any managerial practice, consistency in implemetnation of the various procedures and
processes result in consistency in service delivery. The processes designed by well trained
and skilled people using the state- of- art technology and automation softwares gives the
organisation an edge over its competitors. Hence we can say that the quality, designing and
implementation of business processes is dependent on the people involved.

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Similarly, existence of right systems and processes, can attract the best talent towards the
organisation. If an organisation have well defined processes and procedures for employee
onboadring, placements, training, performance measurement, compensation and motivation,
the people are likely to more engaged, dedicated and committed to the organisation. Whereas
in contrast existence of cumbersome, confusing and subjective processes can lead to
confusion and conflicts, which in turn leads to disagreements, low motivation and high turnover.
Processes helps in getting everyone on the same page, which leaves less room for
disagreements in routine business dealings. There are plenty of other areas in which retailers
can implement processes like cleaning schedules, cash handling policies, dress codes,
inventory receiving, stocking, and dealing with unhappy customers etc. Modern software has
reduced the subjectivity in the processes to a very large extent.

Figure 11. 5: Process Management in retail

Organisational culture is made of many elements, but people and processes are the most
important and critical elements, which must be handled with care to ensure the success of an
organisation. Some of the commonly found benefits to well management people and processes
are:
5. Smooth and streamlined business decisions: With the right business processes being
handled by the right people, through systematic implementation, an organisation can reduce
the order processing time, streamline the processes and achieve efficiency. People do not waste
energy on repetitive tasks and minimize errors due to human inefficiency, and there is inherent
cost-effectiveness in smooth and streamlined actions.
6. Enhanced productivity: Just like a well oiled machine, a retail organization too functions
efficiently when the system is properly defined through processes. Automated processes also
prevents loss of data, reduce time and fatigue, and hence leads to optimum utilisation of
resources. This results in enhanced productivity and competitive advantage both for the
customers as well as the people associated with the organisation like employees, owners and
other stakeholders.

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7. Reduced costs and risks: People play a key role in the success of any organisation.
Reduced turnover, high morale and motivation levels, good organisational culture and visionary
leadership, also conveys existence of good quality processes. The synergy created by the
combination of right people and processes, reduces the cost, and also mitigates the risk involved
at various stages of business process management. This cost effectiveness is important
contributor towards the enhanced efficiency of the management systems and improved profits
for the organisation.

15.7 SUMMARY
Indian retail sector is fifth largest in the world, projected to grow at 9% over 2019-2030, and is
expected to reach US $ 1.8 trillion by 20301. Despite covid’19 pandemic and other challenges,
the Indian consumption story is robust, driven by affluence, accessibility, awareness, attitudes
and behaviour, the household consumption has multiplied to US $ 1.63-1.75 (Rs. 130-140
trillion) trillion in 2022. Indian retail sector alsoinclude third- highest number of e-tail shoppers,
following the giants China and the US. Retail sector is one of the pillars of India’s economy
and accounts for approximately 10% of its GDP. The spectacular growth of Indian economy in
last few decades is on the backbone of the retail sector – its employees and people working in
retail sector. Today Indian retail sector employees over 43 million people making it second largest
employer.

15.8 SELF-CHECK EXERCISE

1. What do you mean by process Management.
2. Write down the importance of Process management in retail management.

15.9 ANSWERS TO SELF-CHECK EXERCISE

1. For answer refer to section 15.5
2. For answer refer to section 15.6

15.10 GLOSSARY
 Buy:The next step in the retail process is to buy the inventory and setup a shop. The
merchandise planning, the price negotiation, credit facility etc are decided during this
stage of the process.
 Move:This stage consists of supply chain management and inventory management
system systems. Move can be as simple as buying some products from the wholesaler
and selling at the shop, or it can be a complex software-based program with multiple
products, multiple categories, multiple locations etc. Depending on the nature and size of
the organisation, it can be simple as well as complex.

15.11 TERMINAL QUESTIONS

1. What is the important essential element in retail mix.

2. What do you understand by people management. What essential skills required for people
management.

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 Chapter -16
USE OF TECHNOLOGY INRETAILING
Structure
16.0 Learning Objectives
16.1 Introduction
16.2 Use Of Technologies in Retailing
16.3 E-Retailing
16.4 Summary
16.5 Self-Check Exercise
16.6 Answers to Self-Check Exercise
16.7 Glossary
16.8 Terminal Questions

16.0 Learning Objectives

After reading the lesson, you should be able to understand: -
 Introduction
 Use Of Technologies in Retailing
 E-Retailing

16.1. INTRODUCTION

Technology is transforming the way business is being undertaken. Retail sector is not an
exception for the same. The technology assist retailer to enhance their operations in terms of
increasing sales as well as increasing reach of the business to global market. The retail sector
is moving away from old techniques and embracing modern technology for the majority of their
business needs. It has enabled retailer to keep up with fast-paced society.

Technology has added a new dimension to the retail industry. The development of point-of-sale
devices, bar codes for invoicing, andpayment databases has made large setups much easier to
operate. Digital devices have made consumer buying journey very easy. It has made consumers
in making better buying decisions. It also allows retailers to assist customers and obtain relevant
data for buying products.

16.2 USE OF TECHNOLOGIES IN RETAILING

16.2.1 ELECTRONIC DATA INTERCHANGE (EDI) :

Electronic Data Interchange (EDI) is the computer-to-computer exchange of business

documents (purchase orders, invoices and advance ship notices) in a standard electronic format
between businesspartners. EDI is simply termed as paperless exchange of data / document.

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 EDI has replaced paper-based exchange of documents such as purchase orders or invoices.
These documents now can be exchanged via computer. Here the information moves directly from
a computer application in one organization to a computer application in another organization. With
EDI data / documents can be shared rapidly.

Fig. 1 Traditional exchanging of documents v/sElectronic Data Interchange

Source:www.edibasics.com

Above chart shows that in traditional way of data / document exchanging, the buyer generates
purchase order and sends to the supplier via fax or mail. Thereafter, supplier enters details in the
system and then generate and print the sales invoice.

On the other hand in Electronic Data Interchange (EDI), the buyer enters data into system and
invoice is generated.

16.2.2 BENEFITS OF EDI TO RETAILERS :

1) Reduces errors and saves costs:

Traditional way of exchanging of data involves a lot of manualprocesses. There is a

potential for expensive errors with every instance of human intervention. EDI eliminates
manual work andautomates the process. It reduces cost involved in paper handling, filing,
storage and mailing by manipulating data electronically without the cost of manual entry.
Retailers and suppliers can save costs and reduce errors with EDI integration. They can save
up to 90 percent of invoicing costs with EDI.

2) Saves time of transaction:

EDI documents / data can be exchanged in minutes whereas paper-based documents / data
which can take days to be delivered. Therefore, EDI fasters invoice processing and improved
cash flow (receive payment faster). Retailers receive EDI invoices directly into their software
so they can process them quickly and efficiently.

3) Staff can focuses on more valuable tasks:

EDI in the retail industry helps to automate processes and lets employees focus more on
higher value tasks. Instead of spending time on data entry, employees can spend time on

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 more strategic work to help the business to grow.

4) Improved communication:

EDI improves the overall quality of communications through better record keeping; fewer
errors in inputting orders, order receipt, and Advanced Shipment Notice (ASNs). Therefore
there is less human error in the interpretation of data.

5) Saves time in communicating with suppliers:

The retailer can set up automatic reorders if inventory levels drop below a certain point. They
can check the status of orders to see when it will arrive and order everything to arrive “just in
time”.

6) Measure performance of supplier:

The retailer can see which of their suppliers respond quickly,fulfill their orders completely
and deliver on time. It helps them decide whether they need to find new suppliers or continue
with the existing suppliers.

7) Stock Management:

Maintaining an unnecessarily large inventory in a warehouse is not cost-effective, as it

increases expenditure due to higher storage costs. By using EDI, companies can better
predict how much stock they need to store in order to meet customer demand, helping them
to cut storage costs and save money.
8) Increased customer satisfaction:

EDI means faster deliveries – benefitting businesses and end consumers alike. With the help
of track-and-trace features, customers are updated in real time on the status of their order,
giving them peace of mind as to exactly when their order will arrive. This increases customer
satisfaction, which in turn improves customer retention.

16.2.3 RADIO FREQUENCY IDENTIFICATION (RFID) :

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

The development of the social economy has changed the way people shop. Consumers not
only have high requirements for quality, but alsoexpect a better shopping experience. With
the rise of smart retail and high competition among companies, RFID technology plays an
increasingly important role in improving the competitiveness of modern retail enterprises.

RFID has come a long way since the early 2000s. At that time, Wal- Mart was the first big
retailer to experiment with the new technology, which cost $1.50 per tag. It was a sparkling
new concept, used primarily for inventory accuracy.

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 RFID in retail involves the placement of RFID tags on products that emit signals to RFID
readers which are then processed by software, generating real-time results for stock taking,
transactions, inventory levels, or individual customer purchase order history. RFID in retail
simplifies the typical retail inventory process which is very manual, time-consuming, and only
done at predetermined intervals. Products tracking is one of the major ways that retailers use
RFID. RFID in retail can be used to prevent theft and track products that are frequently moved
and often misplaced. RFID technology allows retailers to track their inventory throughout the
retail supply chain, from the warehouse shelves all the way to the sales floor.

USES OF RFID IN RETAIL MARKETING :

1) Consumer Research :

RFID tags carry unique product numbers. If consumers pay forgoods with a credit, debit
or shopper’s discount card, retailers can link the purchases to the recorded RFID data and
use thatmarketing information tmap out individual consumers’
movements through a store. This sort of data can help a retailstore make improvements.
Example – In case of footwear and clothing retailers, RFID can be added to shoe
cabinets, clothespanels, fitting rooms, fitting mirrors, shelves and warehouse entrances
and exits to record customer shopping behaviors. up and trying on products, so that
products can be optimized with thedesired configuration, resulting in higher sales.

2) Inventory Tracking :

Manual inventory tracking requires lot of physical work by the workers. On the other hand
RFID scanner can read tags as far away as 20 feet and record hundreds of tags per second,
meaning employees can quickly scan shelves to record quantities and locations. Some
stores find it cost-effective to install permanent RFID scanners to provide real-time
monitoring of stock. The greater efficiency helps marketers ensure that products are always
in sufficient supply to meet consumer demand.

3) Security :

Shoplifting is a serious concern for retail store owners. One option is to direct staff to watch
customers closely, but this approach has two major disadvantages: the extra work distracts
staff from other responsibilities, and customers hate being watched. RFID technology offers
an elegant solution: a remote scan of shoppers as they leave your store can reveal if they
are leaving with stolen merchandise. As the cost of RFID technology decreases, this security
solution becomes an increasingly cost- effective way of decreasing theft.

4) Smart Shelving :

To find out certain products in a store is difficult task. RFID can help to trace the location of
the product in the store where it is stored. Example - Retail shoe stores are often filled with
all kinds of shoes with different specifications, models and colors. However, due to a limited
display area, there is only one sample for each shoe. Staff often needs to search manually

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 in storefront warehouses, and it is often difficult to find a specific product in a short time. As
a result, many customers are unwilling to wait and leave without purchasing anything. RFID
assists in fast and accurate product searches. Using an RFID terminal, staff candetect goods
quickly in the warehouse and lock targeted goods accurately, which greatly shortens search
time and helps workers responds to customer requirements with high efficiency.

5) Reduces checkout (billing) wait time :

RFID can also help reduce wait times at the checkout i.e. during billing of the products
purchased. While traditional barcodes require line of sight for scanning, and each item has
to be scannedindividually, an entire shopping cart can be scanned all at once, instantly, with
no items being removed from the basket. This is the time-saving advantage of RFID, where
entire areas can be scanned in seconds.

6) Provides Real-Time Data :

RFID has helped to get analytics and data in real-time. The retailers without RFID don’t really
know what’s happening with their stores and customers in any specific detail. The data
collected by retailers about their stock and customers is often historical and at risk of being
outdated. However, with RFID all this can be changed. RFID produces far more detailed
insights about stock and customers. This includes how well individual items are doing in
specific stores (such as which sizes of items are selling better). Accordingly retailers can take
steps to move or reinforce stock at specific stores.

7) Incase process efficiency :

An RFID reader can read hundreds of individual items at once. Each item has a unique ID,
they can never be read more than once. The signals also do not require line of sight to be
read. Naturally, this makes RFID inventory counts and inbound/outbound checks incredibly
fast and reliable. In the case of store inventories, RFID has been found to reduce cycle
count times by 96%. This therefore means they are far more convenientto perform and can
be done multiple times in a week rather than a year.

16.2.4 DATA BASE MANAGEMENT SYSTEM :

A Database Management System (or DBMS) is essentially nothing more than a

computerized data-keeping system. DBMS is a software package designed to store,
retrieve, query and manage data. Userinterfaces (UIs) allows data to be created, read,
updated and deletedby authorized entities.

DBMS helps retail sector to store, manage, and retrieve data of the retail store. This enables
to get data whenever required and helps to make timely decisions.

IMPORTANCE OF DATABASE MANAGEMENT SYSTEM (DBMS) :

1) Generates accurate reports : DBMS does the job of humans by doing the same task or

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 many tasks without any errors. These programs can generate accurate reports at scale
since they do not need to take breaks or go on vacations like humans do. Automated
software is being used by retailers to generate reports in real-time. It generates accurate
reports and statistical data. This saves time and resources for the organizations.

2) Improves customer retention rates : Database management software can help data
owners to manage their data in an efficient way. It gives out clear insights about what
customers need and want. These software tools can be used to tailor marketing messages
to specific customers, make better predictions about the customer’s future behavior, and
tailor offers that are more relevant. The software can help businesses improve their
customerretention rates by identifying the most valuable customers and investing in those
who are more likely to purchase from the company again.

3) Saves time on data entry : Data entry has been one of the most time-consuming tasks
in the workplace. From its earliest days, data entry required humans to type in
information by hand on a keyboard. This process was tedious and used up all of the
time employees spent at work. Fortunately for employers, there is hope for reducing or
eliminating data entry errors. This can be accomplished through ‘Database Management
Software’ that runs on computers and mobile devices. The software provides a user
interface that workers use when entering information into a database without having to type
it all by hand, which saves them the trouble of having to correct mistakes later on in data
processing stages before analysis can take place.
4) Helps to get information in real-time : DBMS is a system that collects information about
stock and customers and then provides the ability to store that information. It helps get access
to information about stock and customers in real-time. With the help of these technologies, it’s
possible for retailers to spend less time collecting data on the contrary they can get information
in real- time.

5) Inventory Management : Controlling your inventory is essential to the efficiency and

profitability of the retail business. An inventory database provides you with an accurate, up-
to-date picture of stock levels for each product so that you have sufficient stock to meet
customer demand without overstocking. Overstocking incurs unnecessary costs and reduces
profits, while inadequate stocks could result in lost sales, again reducing profitability.

6) Customer Research : DBMS is essentially storage of information on computer. Retailers can

store all sorts of information that can help them better figure out who to market the product to.
For example, DBMS can provide accurate information on which type of people are buying
certain products, such as their age, gender, ethnicity, etc. If the retailer uses the DBMS
technology and finds that 80 percent of people who buy their products are female, it would be
immensely beneficial for the retailer to come up with a marketing strategy to try and target
females. Being able to access this information is a huge game changer in the retail industry,
and makes it that much easier for you to market your product efficiently and effectively.

7) Increases Business Revenue : The inevitable result of using DBMS is the immediate
increase in revenue for the business. By storing business information using DBMS, retailer

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 can easily figure out which products are selling well, and which aren't. Retailer can then use
that information to allocate your business's resources accordingly.

16.3 E-RETAILING

E-Retailing refers to Electronic-Retailing. Penetration of computers and spread of the

Internet has given rise to E-Retailing. The e-retailing is the subset of E-Commerce that
means, E-commerce is the principle domain that includes the E-retailing operations
The e-retailing includes selling of goods using electronic media, in particular, the internet. It
is the direct sale of products, information and services through virtual stores on the web.
There are thousands of e-retailing sites on the internet that are extension of existing retailers
or start-ups. The online retailing requires lots of displays and specification of products to
make the viewers have a personal feel of the product and its quality.Strong branding is
needed for successful e-tailing as the website mightbe easily navigable and updated regularly
to satisfy consumers’ needs and add value to the consumer’s life. A strong distribution network
is also needed for e-retailing, which should be prompt and efficient as the consumers can not
wait for the delivery of goods and services for a long time.
16.3.1 FORMATS OF E-RETAILING
1) Business to Business (B2B) :
In this form the buyer and seller both are business entities. It is a transaction or business
conducted between two businessmen, such as a wholesaler and retailer. B2B
transactions tend to happen in the supply chain, where one company will purchase raw
materials/spare parts from another to be used in the manufacturing process. E.g. An
automobile company purchases tire or seats or glass from another business entity via
internet. The websites are India Mart and Ali Baba.
2) Business to Consumer (B2C) :
B2C refers to the process of businesses selling products and services directly to
consumers. Firms use their websites for a range of marketing activities. These include
promotion, product information, reviews about the product/ service and delivery of the
product at the doorstep. The cost of products and services is kept low through this method
and the speed of transaction is faster. The websites are Flipkart and Amazon
16.3.2 CHALLENGES OF E-RETAILING :
1) Security Issue :
E- business sites record crucial and sensitive details of customers such as name, phone
number, address and bank details. Though many e- business firms try to make transactions
over their websites secure through SSL (https) that encrypts the transferred information,
still many cases of online password hacking has occurred. It has adversely affected the
trust and confidence ofcustomers about online shopping.

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 2) Lack of personal touch :
Indian customers prefer to see, touch, smell or taste productsbefore making purchase
decisions. However, e- business does not facilitate this arrangement due to which its
advantages are missing in this shopping option. Customers also have the impression that
the products shown in pictures on website can be different from what they actually turn out
to be after delivery. However, these days, many firms are adding real images and videos
of models using these products on their websites, and also adding all possible information
about products such as size, quantity, colours etc. for the convenience of customers.
3) Uncertainty about Quality :

One of the biggest problems of online buying is that customers may have no guarantee of a
product’s quality. Reviews provided by other customers are not always helpful. Return policy
of e- business firm is also not properly implemented, so customers face problems in returning
products and getting refund or replacement for it.

4) Delay in Delivery :

E- business firms can face the problem of shortage of manpower. This may result in delay in
delivery of product to customers. In many cases, customers do not get delivery of products
on promised date or time, which results in customer dissatisfaction.

5) Need for Internet Access :

Online shopping requires Internet facility to work. Nowadays, availability of internet

connection is not a problem in metro cities. However, internet connectivity is very poor in
many villages. Hence, these villages can be targeted only if they get better internet
connectivity.

6) Technical Problems :

E- business functions through the Internet due to which technical problems such as slow
speed of Internet can occur. Sometimes, transactions are denied due to slow internet
connectivity. There may also be chances of double payment due to repetitive clicks by users
on the payment button.

7) Competitors :

Due to a variety of benefits offered by e- business such as global reach, high profitability, less
initial costs, etc. many firms are encouraged to undertake e- business. This has led to
increase in competition among the e-businessmen, and in order to attract customers, they
have to reduce price of their products.

8) Unproven Business Models :

In the initial years of dot-com era, most of the businesses on the internet were experiments
in new areas and did not provide stable sources of profit. This was the primary reason behind
closing down of 90 per cent of the purely e-commerce companies in the beginning of this

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 century. Today, dot-com businesses (E-Business) have matured a little. Still some of the
businesses are at experimental level and do not guarantee regular revenue.
16.4 SUMMARY
Technology is transforming the way business is being undertaken. Retail sector is not an
exception for the same. The technology assist retailer to enhance their operations in terms of
increasing sales as well as increasing reach of the business to global market. The retail sector
is moving away from old techniques and embracing modern technology for the majority of their
business needs. It has enabled retailer to keep up with fast-paced society.

Technology has added a new dimension to the retail industry. The development of point-of-sale
devices, bar codes for invoicing, and payment databases has made large setups much easier to
operate. Digital devices have made consumer buying journey very easy. It has made consumers
in making better buying decisions. It also allows retailers to assist customers and obtain relevant
data for buying products.

16.5 SELF-CHECK EXERCISE

1. Write down a note on E- Retailing.
2. What are the used of RFID in Retail Management.

16.6 ANSWERS TO SELF-CHECK EXERCISE1

1. For answer refer to section 16.3
2. For answer refer to section 16.2

16.7 GLOSSARY
 E-Retailing refers to Electronic-Retailing. Penetration of computers and spread of the
Internet has given rise to E-Retailing. The e-retailing is the subset of E-Commerce that
means, E-commerce is the principle domain that includes the E-retailing operations

 Radio frequency identification (RFID) is a new tracking technology that involves small
tags that emit distinct signals. Retail businessowners can use remote scanners to read
RFID tags placed on individual products, enabling them to record a variety of
information, including quantities of various stock items and their precise locations.

16.8 TERMINAL QUESTIONS

1. What are the uses of Technologies in Retailing
2. Write down the uses of RFID in Retail Marketing.
3. What do you mean by E-Retailing. Write down the formats and challenges of E-Retailing.

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