St.

Mary’s University Department of Marketing Management

CHAPTER ONE

THE NATURE OF RETAILING

Learning Objectives

After going through this unit, the students will learn:

➢ What and why of retailing in the modern business.

➢ Different types of retail format helping the retailer to carry out its business.
➢ Provide an understanding of the retail environment that helps in formulating appropriate
retail strategy in achieving competitive advantage, and
➢ Also, will highlight the issues and trends in the Indian Retail Industry
1.1. Concepts and definition

Retail is the sale of goods and services from individuals or businesses to the end-user called
the customer. Retailers are the integral part of a system called the supply chain which carries
goods from the producer to the target market. A retailer purchases goods or products in large
quantities from manufacturers directly or through a wholesale, and then sells smaller quantities
to the consumer for a profit. Retailing can be done in either fixed locations like stores or
markets, door-to-door or by delivery. Retailing is the process that the retailer adopts in selling
the products including subordinated services, such as delivery and installation. The term
“retailer” is also applied where a service provider services the needs of a large number of
individuals, such as a public. Shops may be in residential streets or in a shopping mall.
Sometimes a shopping street has a partial or full roof to protect customers from precipitation.
Online retailing, a type of electronic commerce used for business-to-consumer (B2C)
transactions and mail order, are forms of non-shop retailing.

Shopping generally refers to the act of buying products by a consumer. Sometimes this is done
to obtain necessities such as food, clothing and other daily necessities; sometimes it is done as
a recreational/ social activity. Recreational shopping often involves window shopping (just
looking, not buying) and browsing and does not always result in a purchase.

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Retail comes from the Old French word tailler, which means “to cut off, clip, pare, divide”
in terms of tailoring (1365) and prefix with re and the verb tailor meaning “to cut again”. It
was first recorded as a noun with the meaning of a “sale in small quantities” in 1433 (from the
Middle French retail, “piece cut off, shred, scrap, paring”). Like in French, the word retail in
both Dutch and German also refers to the sale of small quantities of items. Evidently, retail trade
is one that cuts off smaller portions from large lumps of goods. It is also a process through
which goods are transported to final consumers. In other words, retailing consists of the activities
involved in selling directly to the ultimate consumer for personal, non-business use. It embraces
the direct-to-customer sales activities of the producer, whether through his own stores by house-
to- house canvassing or by mail-order business.

Manufacturers engage in retailing when they make direct-to- consumer sales of their products
through their own stores by door-to-door canvass, or mail order or even on telephone. Even a
wholesaler engages in retailing when sells directly to an ultimate consumer, although his main
business may still be wholesaling.

A retailer is a merchant or occasionally an agent or a business enterprise, whose main business

is selling directly to ultimate consumers for non-business use. He performs many marketing
activities such as buying, selling, grading, risk-trading, and developing information about
customer’s wants. A retailer may sell infrequently to industrial users, but these are wholesale
transactions, not retail sales. If over one half of the amount of volume of business comes from
sales to ultimate consumers, i.e. sales at retail, he is classified as a retailer. Retailing occurs in all
marketing channels for consumer products.

1.2. Functions of Retailing

1.2.1. General Services

a. The store anticipates the needs of the customers and then provides them with the
appropriate items at a fair price. Retailers role is to make the customers purchase as easy
and comfortable as possible i.e. works as a consumers' agent.
b. It provides the service of bulk-breaking, which is the division of huge amounts into small
units such as individual cans, bottles, cartons, wrappers, and packaging suitable for
consumer usage.

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c. It sells a wide range of things in various sizes, colors, designs, styles, and seasons, ranging
from household utensils to specialized items.
d. The retailer provides time and place utility by storing products during the off season and
transferring them to locations where they may be easily accessible as and when needed by
the consumer.
e. It also takes risks by insuring the products it offers to consumers.
f. Retailer offers free delivery of goods, credit on open accounts, free alteration, liberal
exchange facilities, instructions in the use of goods, revolving credit plans, and long-term
installment programs.
g. It increases the convenience and simplicity of customer purchasing by providing
convenient shopping locations, market knowledge, and other services such as free parking
privileges, product usage tutorials, and a variety of other amenities that are sufficiently
wanted to result in greater patronage.
h. It assists producers in the distribution of their products through marketing display and
personal selling.
i. The level of retail sales is one of the most useful barometers of the nation’s economic
health. For example, when sales of cycles pickup, sales of steel and components also
increase, as does employment and thus increasing purchasing power. But when sales go
down, manufacturers cut back production, unemployment increases and retail sales also
goes down.
1.2.2. Facilitating Services

To efficiently carry out duties requiring transfer of ownership and physical supply, merchants
execute a range of supporting services, such as standardization and grading, finance, risk-taking,
and market intelligence.

The customer in the store does not buy a product alone. Rather he is gaining experience in
buying it, where customer services make a difference. The Customer service is the “sum of acts
and elements that allow consumers to receive what they need or desire from your retail
establishment.” It is important for a sales associate to greet the customer and make himself
available to help the customer find whatever he needs. When a customer enters the store, it is
important that the sales associate does everything in his power to make the customer feel

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welcomed, important, and make sure he leaves the store satisfied. Giving the customer full,
undivided attention and helping him find what he is looking for will contribute to the customer’s
satisfaction.

1.3. Retailers Vs Wholesalers

A marketing channel is a collection of trade interactions that provide client value in the purchase,
consumption, and disposal of goods and services. This notion argues that trade connections evolve
as a result of market demands in order to serve market needs. Channel members must enter the
market well-prepared to answer shifting market demands and desires. Nonetheless, it is critical to
understand the many sorts of marketing channels in order to choose the best plan for meeting your
clients' demands.

Variable Wholesalers Retailers

Links They are connecting links between They are connecting links between
the manufacturers and the retailers. the wholesalers and the customers.
Purchase They purchase goods in large They purchase goods in small
quantity quantities from the manufacturers. quantities from the wholesalers.
Number of They deal in limited number of They deal in variety of products for
products products. meeting the varied needs of
consumers
Capital They need more capital to start their They can start business with
Requirement business. limited capital.
Design The display of goods and They lay more emphasis on
decoration of premises is not window display and proper
necessary for them. decoration of business premises in
order to attract the customers.
Business Their business operations extend to They usually localize at a particular
Locations different cities and places. place, area or city
Service They do not directly deal with the They have a direct link with the
customers. customers.
Aftersales They do not extend free home They provide free home delivery
Service delivery and after sales services. and after sales services to the
consumers.
Financial They provide more credit facilities They provide lesser credit facilities
Facilities to retailers. to the consumers and usually sell
goods on cash basis.

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Skills They may not possess expert They must possess expert
knowledge regarding selling knowledge in the art of selling.
techniques.
Advantage They enjoy the economies of bulk They do not avail such economies.
buying, freights and price etc.
Table 1.1. Differences of wholesalers and retailers
1.4. Types of Retailers

In addition to other variables that we'll address shortly in the next chapters, categorizing retailers
is an important topic to consider when choosing among retailers that suit with the business that
you operate.

Retailers are broadly divided into two types: store-based and non-store-based. even the store-based
merchants are categorized further by form of ownership and merchandise offered.

1.4.1. Store-based retailers

1.4.1.1. Form of Ownership
a. Independent (Mom-and-Pop) Stores

There are often family-owned firms that cater to specific segments of society. These are tiny,
independently established and managed retail establishments. The "shop" might be any form of
business, such as an auto shop, bookshop, or restaurant. Several shops are located in the
neighborhood. As a result, they are in close proximity to a certain location.

b. Chain Stores

A chain shop, also known as a retail chain, is a retail outlet with several locations that share a
brand, central management, and established business processes. In many regions of the world, they
have grown to dominate the retail and dining markets, as well as many service categories.

c. Franchise stores

A franchise shop is a transaction in which one entrepreneur purchases a license to utilize the
products, brand, intellectual information, and trade secrets of another company.

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d. Leased Departments

Leased departments are operations of one firm done within the premises of another company.
Jewelry shops and optical departments within department stores are common examples.

e. Consumer Co-operative

A consumer cooperative is a firm owned and operated by its consumers for their mutual benefit. It
is a type of free enterprise that prioritizes service over monetary profit.

1.4.1.2. Merchandise offered

a. Convenience stores

A convenience store is a small shop that sells everyday products including groceries, snack foods,
sweets, milk, eggs, toiletries, soft beverages, and newspapers.

These are modest stores that are positioned near residential areas. They are open for extended
hours for the convenience of consumers and offer a limited selection of goods and convenience
items.

Prices are slightly higher as a result of the convenience provided to clients. These stores are open
seven days a week and provide a limited selection of convenience items.

b. Super Market

The super market is a large-scale retail establishment that specializes in necessities and
convenience items. They have large facilities and often deal in food and non-food items.

Supermarkets are big, low-cost, low-margin, high-volume self-service enterprises that cater to the
demands for food consumables as well as non-food items such as health and beauty care products.

As a result, supermarkets are sometimes known as self-service stores since consumers are expected
to conduct all of their own shopping without the assistance of salespeople or selling assistants.

Advantages includes:

➢ Because of the wide range of items available to clients, there is a high turnover.
➢ Because of the rapid turnover, the procedure is simple and the earnings are significant.

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➢ Located at handy locations and within buyers' reach.

➢ The customer has complete discretion over what he purchases.
c. Hypermarket

A hypermarket is a huge store that sells items found in supermarkets as well as those seen in
department stores.

A hypermarket is a combination of a supermarket and a department shop. As a result, a costly retail

center with a wide range of items under one roof, including full grocery lines and general
merchandise, has been created. Hypermarkets, in principle, allow shoppers to fulfill all of their
usual shopping needs in a one trip.

Advantages includes;

➢ Consumers may acquire all they need at one location. As a result, searching takes less time,
energy, and money.
➢ Cost savings from bulk purchases at the supermarket are passed on to customers.
d. Specialty stores

A specialty store is a small retail business that specializes in selling a certain product line and
related goods. Most specialty store company operators will retain great depth in the sort of goods
that they specialize in selling, generally at premium rates, in addition to giving superior service
quality and professional counsel to consumers.

Specialty stores concentrate in a certain area or sub-category of items, such as footwear, sarees,
dress material, and jewelry. They are smaller in size than larger formats and focus on the quality
and variety of the chosen category.

e. Category killers

A category killer is a product, service, brand, or company that has such a distinct long-term
competitive advantage that other enterprises find it difficult to operate financially in that industry
(or in the same local area).

Having a category killer removes nearly all market entities. For example, Google, being one of the
most well-known search engines, has no true competition.

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f. Departmental stores

A departmental store is a big retail trade enterprise. It is divided into many departments that are
classed and structured properly. Departments are created based on the many sorts of commodities
to be offered.

Individual departments, for example, are built to offer packaged food items, groceries, clothing,
stationery, cutlery, cosmetics, medications, computers, sports, furniture, and so on, so that
consumers can get all fundamental home necessities under one roof. It affords them maximal
shopping convenience and consequently, also dubbed as "Universal Providers" or "One Spot
Shopping".

Characteristics includes;

➢ Department stores are large-scale retail operations.

➢ They have several departments housed under one roof.
➢ Each section specializes in a certain type of commerce.
➢ They are situated in the significant center areas of major cities.
➢ A large sum of money is necessary to open a department store.
➢ Their management and control are centralized.
g. Off price retailer

Off-price shops are those who sell high-quality items at low costs. They often sell used products,
off-season things, and so on. These merchants provide an uneven choice of brand name and
fashion-oriented soft goods at low prices. Manufacturer irregulars, seconds, closeouts, canceled
orders, overruns, products returned by other shops, and end-of-season closeout inventory are all
purchased by them.

h. Factory outlet

A factory outlet is a shop operated by a manufacturer that sells its products directly to the public.
Stock can be either high-quality items or discontinued, irregular, or canceled orders for a low price.

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i. Catalogue showrooms

Hard products such as housewares, jewelry, and consumer electronics are often specialized by
catalog vendors. There are some merchants with showrooms near the warehouse. These
showrooms have a cheap pricing, as they limit the expense of exhibiting items, focus on a restricted
selection of goods and are located in low cost locations.

j. Full line discount stores

A discount shop is a retail establishment that offers goods at prices lower than the average market
value. A "full-line discount retailer" or "mass merchandiser" may sell a broad variety of items with
a price focus rather than service, presentation, or variety. To keep costs low, discount stores may
specialize in certain items such as jewelry, electronic equipment, or electrical appliances, relying
on bulk purchases and efficient delivery.

k. Warehouse store

It is the mass retailing of goods such as groceries, hardware, home furnishings, over-the-counter
pharmaceuticals, toiletries, and so on through a superstore that offers extremely low pricing and
little or no customer service.

l. Variety store

A variety shop is a retail establishment that sells a wide selection of low-cost domestic items.
Variety stores generally include product lines covering food and drink, personal hygiene goods,
small home and garden equipment, office supplies, decorations, electronics, garden plants, toys,
pet supplies, remaindered books, recorded media and motor and cycle consumables.

m. Membership club

This format, often known as cash and carry, is solely available to members and not to the general
public. A warehouse club is now defined as a no-frills, no-thrills, large-format retailer that sells
solely to its members at wholesale prices.

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n. Flea market

A flea market is a form of street market where sellers sell previously owned products. This market
is frequently seasonal.

1.4.2. Non-store-based retailers

a. Direct selling

The promotion and sale of items directly to consumers away from a permanent retail location is
known as direct selling. Pedding is the most traditional type of direct selling.

Contemporary direct selling includes party plan sales, one-on-one demos, and other personal
contract agreements, as well as internet sales. Direct selling is a dynamic, active, and continuously
developing method of distribution for marketing products and services to customers directly.

b. Mail order

Mail order is the purchase of products or services through the mail. The buyer contacts the
merchant using a remote technique such as a phone call or a web site to make a purchase for the
desired items.

The items are then delivered to the clients. The items are delivered using the P.O.D. (payment on
delivery) or V.P.P. method (i.e., value payable through the post).

c. Telemarketing

Telemarketing is a type of direct marketing. In this case, the marketer uses telecom/IT facilities to
reach out directly to the client.

d. The call centers

The call center is the real operation theatre in telemarketing. A manager, a few supervisors, and
the required number of tele-callers are usually in charge of the call center.

The telemarketer starts the call by greeting the prospect nicely. She then politely requests
permission from the customer to have a brief conversation. She piques the consumer's interest in
the items and strives to get an order.

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e. Automated vending

When a consumer pays a sufficient quantity of money into a money slot, a vending machine
delivers merchandise. A current validator accepts the money. It is a machine that sells food, drinks,
and other items to clients. The purpose of a vending machine is to sell goods without the need for
a cashier.

f. World Wide Web

Internet marketing, often known as online marketing, refers to advertising and marketing
operations that use the web and e-mail to promote direct sales through electronic commerce, as
well as sales leads from web sites or e-mails.

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