UNIT - 1

Retailing, retail format and

growth & challenges

Retailing
Retailing is the set of business activities that add value
to the products and services sold to the consumers for
their personal and family use.
It involves
Sale of products in stores
Sale of services like overnight lodging in a motel, a haircut or a
home delivery pizza

All retailing is not done in stores. Example of non- store

retailing includes internet sales of accessories, clothes, etc.

Retailers create value (Functions)

Providing assortments
Breaking bulk
Holding inventory
Providing services
Increasing the value of products and services

Importance
Customer convenience
Accessibility
Supply chain
Value chain
Associated services
Convenience of size
Research and information
Employment
Social responsibility
Economic development

http://www.technofunc.com/index.php/domain-knowledge2/retail-industry/item/importance-of-retail-industry

RETAIL FORMAT
can be added more from
class 11 th

Retail formats
Retail format is a store package that a retailer presents
to the shopper.
The format of a retailer is the overall appearance and
feel that it presents to customers, primarily its look and
layout, the sort of range it stocks and the approach
taken to pricing.
The format, together with range, pricing and marketing,
is one of the key determinants of a retailer's success.
Factors in deciding formatso Shoppers profile and expectations
o Competitions and challenge in the market place

Types of retail format

In- store retailing

Non- store
retailing

Mom and Pop

Department stores

Direct selling

Category killers

Telemarketing

Super markets

Online retailing

Mass discounters

Automatic vending

Chain stores

Direct marketing

Multiple shops

Franchising

In-store retail format

Mom-and-Pop
Represent the small, individually owned and operated retail outlet. In
many cases these are family-run businesses catering to the local
community often with a high level of service but relatively small product
selection.

Department Stores
These retailers are general merchandisers offering mid-to-high quality
products and strong level of services, though in most cases these
retailers would not fall into the full-service category. While department
stores are classified as general merchandisers some carry a more
selective product line. For instance, while Sears carries a wide range of
products from hardware to cosmetics, Nordstrom focuses their products
on clothing and personal care products.

Super markets
These are large, self service stores that carry a broad and complete line
of food and non-food products. They have central check out facilities.

 Mass Discounters
These retailers can be either general or specialty merchandisers but either
way their main focus is on offering discount pricing. Compared to
department stores, mass discounters offer fewer services and lower quality
products.

Chain stores or multiple shops

Chain stores are network of retail stores that are owned and operated by
manufacturers or intermediaries. These different shops are normally deal in
standardised and branded products which have rapid sales turnover. These
shops are run by same organization and have identical merchandising
strategies.

Category killers
Category killer is a large retail chain store that dominates its product
category so completely that it eliminates a large chunk of competition. Also
known as big box store, a category killer is a discount speciality store that
offers an extensive selection of merchandise at prices so low that smaller
stores cannot compete.

Non- store retail format

Online retailing
When a firm uses its website to offer products for sale and then
individuals or organizations use their computers to make purchases
from this company, the parties have engaged in electronic
transactions (also called on line selling or internet marketing).

Vending machine
The sale of products through a machine with no personal contact
between buyer and seller is called automatic vending. The appeal of
automatic vending is convenient purchase. Products sold by
automatic vending are usually well-known presold brands with a high
rate of turnover. The large majority of automatic vending sales comes
from the "4 C's: cold drinks, coffee, candy and cigarettes. Vending
machines can expand a firm's market by reaching customers where
and when they cannot come to a store.

 Direct selling
In the context of retailing, direct selling is defined as personal contact
between a sales person and a consumer away from a retail store. This
type of retailing has also been called in home selling. In this
arrangement, independent distributor, contacts a consumer,
demonstrates product use and benefits, takes orders and delivers the
merchandise. There are many well known direct selling companies
including Amway, Creative memories and Excel communications.

Telemarketing
Sometimes called telephone selling, telemarketing refers to a sales
person initiating contact with a shopper and closing a sale over the
telephone. Telemarketing many entail cold canvassing from the
phone directory. Many products that can be bought without being
seen are sold over the telephone. Examples are pest control
devices, magazine subscriptions, credit cards and cub memberships

 Direct marketing
There are no consumers on the exact nature of direct marketing. In effect, it
comprises all types of non-store retailing other than direct selling, telemarketing,
automatic vending and online retailing.
In the context of retailing, it has been defined as direct marketing as using print or
broadcast advertising to contact consumers who in turn, buy products without
visiting a retail store.
Direct marketers contact consumers through one or more of the following media:
radio, TV, newspapers, magazines, catalogs and mailing (direct mail). Consumer
order by telephone or mail.
Direct marketers can be classified as either general - merchandise firms, which offer
a variety of product lines, or specialty firms which carry - only one or two lines such
as books or fresh fruit. Under the broad definition, the many forms of direct
marketing include:
Direct mail - in which firms mail letters, brochures and even product samples to
consumers, and ask them to purchase by mail or telephone.
Catalog retailing - in which companies mail catalogs to consumers or make them
available at retail stores.
Televised shopping - in which various categories of products are promoted on dedicated
TV channels and through infomercials, which are TV commercials that run for 30
minutes or even longer on an entertainment channel.

 Franchising
A franchising operation is legal contractual relationship between a
franchiser (the company offering the franchise) and the franchisee
(the individual who will own the business).
The terms and conditions of the contract vary widely but usually the
franchiser offers to maintain a continuing interest in the business of
the franchisee in such areas as the site selection, location,
management, training, financing, marketing, record-keeping and
promotion.
He also offers the use of a trade name; store motif standardized
operating procedure and a prescribed territory.
In return the franchisee agrees to operate under conditions set forth
by the franchiser

 For the manufacturers, the franchising is beneficial in

these directions:
It allows them to conserve capital.
The distribution system is established in the shortest possible
time,
Marketing costs are lowest and
Expenses of fixed overhead such as administrative expenses
of the personnel of the company owned units are cut down
substantially.
Franchising exists in such products as soft drinks, automobiles
and parts, business services, dry cleaning etc.

 The franchisee should also:

Make reference check from the financial institutions.
Make inquiries about the product, its quality, appeal,
exclusiveness, competitiveness and effectiveness in bringing in
repeat customers.
Have enough capital to buy the franchise,
Be capable of taking supervision work.
Consult the professionals and seek their guidance in legal matters,
Take risks and invest sufficient time.

GROWTH IN RETAIL
SECTOR
http://www.ibef.org/industry/r
etail-india.aspx

Introduction
The Indian retail industry is one of the most vibrant
industries in the country. It is currently ranked at 20th
position among the top 30 developing countries
identified by management consulting firm AT Kearney in
its 2014 Global Retail Development Index (GRDI).
India remains an appealing, long-term retail destination
for several reasons
starting with its demography half of Indias population is less
than 30 years of age
roughly one-third of the population lives in cities.
The disposable income of Indians is increasing - allowing them
to spend more and try new products, brands, and categories.

 With the growth in the retail industry, the corresponding

demand for real estate is also being created. Further,
with the online medium of retail gaining more and more
acceptance, there is a tremendous growth opportunity
for retail companies, both domestic and international.

Market size
Indias retail market is likely to touch a whopping Rs 47
trillion (US$ 738.71 billion) by 2016-17, expanding at a
compounded annual growth rate of 15 per cent, a Yes
Bank-Assocham study says.
Favourable demographics, increasing urbanisation,
nuclearisation of families, rising affluence amid
consumers, growing preference for branded products
and higher aspirations are other factors which will drive
retail consumption in India
The retail market, which comprises both organised and
unorganised segments, stood at Rs. 23 lakh crore in
2011-12
Further, Indian online retail market is estimated to grow
over 4-fold to touch USD 14.5 billion by 2018 on account
of rapid expansion of e-commerce in the country.

Investments
Japanese firm SoftBank has invested around US$ 627 million
in Snapdeal, which has made it the largest shareholder in
the e-commerce company. Snapdeal will use the investments
in expanding its chain of fulfilment centres and make
acquisitions in the coming few months, specifically in the
area of mobile technology.
American fast food chain Burger King opened 12 outlets in
India over the next three months, six each in Delhi and
Mumbai in 2014..
Four Indian companies have entered a list of the 73 mostvalued billion dollar club of start-ups across the world, based
on a survey by The Wall Street Journal and Dow Jones
VentureSource. Powa and Shazam from the UK, valued at
$2.7 billion and $1 billion, respectively, made it to the list.
The list includes Flipkart, Snapdeal, Ola Cabs and InMobi.

Government initiative
Ms Nirmala Sitharaman, Union Minister of Commerce and Industry,
Government of India has stressed on India building a culture of branding and
marketing its products to the rest of the world. The ministry is also willing to
take steps to start a Free Trade Agreement (FTA) with the European Union
(EU).
The Government of India has taken various initiatives to improve the
retail industry in India. Some of these initiatives are:
The Foreign Investment Promotion Board (FIPB) has cleared five retail
proposals worth around Rs 420 crore (US$ 66.01 million) from companies
such as Bestseller, Puma SA and Flemingo. Additionally, the board cleared
three 100 per cent single-brand retail proposals worth Rs 222.5 crore (US$
34.97 million), suggesting renewed interest in Indias growing retail market.
IKEA has entered into a memorandum of understanding (MoU) with the
Government of Telangana to set up its first store in India at Hyderabad. IKEA
retail outlets have a standard design and each location entails an
investment of around Rs 500-600 crore (US$ 78.59-94.31 million).
The Government of India is also in the final phase of talks with the states for
the Goods and Services Tax Bill to be implemented. This Bill is seen as a key
to facilitating industrial growth and improving the business climate in the
country.

Road ahead
The organised retail sector in India, although dominated
by those players who have been in this space for almost
a decade, is expected to observe some notable changes
in the times to come. Some of the factors which are
expected to affect this trend are higher incomes, young
shoppers, urbanisation and the increased use of credit
cards.
Furthermore, e-commerce and online delivery modes are
expected to be some of the most popular trends in the
retail industry in India in the near future.

Challenges
The biggest challenge facing the Indian organized retail
sector is the lack of retail space. With real estate prices
escalating due to increase in demand from the Indian
organized retail sector, it is posing a challenge to its
growth. With Indian retailers having to shell out more for
retail space it is effecting there overall profitability in retail.
Trained manpower shortage is a challenge facing the
organized retail sector in India. The Indian retailers have
difficultly in finding trained person and also have to pay
more in order to retain them. This again brings down the
Indian retailers profit levels
See more at: http://business.mapsofindia.com/india-retailindustry/challenges-facing-the-indian-organized-retailsector.html#sthash.K0ZSgQHp.dpuf

 Trained manpower shortage is a challenge facing the organized

retail sector in India. The Indian retailers have difficultly in finding
trained person and also have to pay more in order to retain them.
This again brings down the Indian retailers profit levels.
Lack of basic infrastructure- Poor roads and lack of cold chain
infrastructure hampers the development of food retail in India. The
existing players have to invest substantial amounts of money and
time in building a cold-chain network.
Retail sector yet to be recognised as an industryThe retail sector is not recognised as an industry by the government even
though it is the second-largest employer after agriculture. Lack of recognition
as an industry affects the retail sector in the following ways:
Due to the lack of established lending norms and consequent delay in financing
activity, the existing and new players have lesser access to credit, which affects
their growth and expansion plans
The absence of a single nodal agency leads to chaos, as retailers have to oblige to
multiple authorities to get clearances and for regular operations

 Competition from unorganised sector

Organised retailers face immense competition from the
unorganised retailers or kirana stores (mom-and-pop stores)
that generally cater to the customers within their
neighbourhood. The unorganised retail sector constitutes over
94% of Indias total retail sector and thus, poses a serious
hurdle for organised retailers. If put numerically, the organised
retailers are facing stiff competition from over 13 million kirana
stores that offer personalised services such as direct credit to
customers, free home delivery services, apart from the loyalty
benefits.

THEORIES OF
RETAIL
DEVELOPMENT

 Retail development can also be looked at from the theoretical

perspective. No single theory can be universally applicable or acceptable.
The application of each theory varies from market to market, depending
on
o the level of maturity and
o the socio-economic conditions in that market.

The theories developed to explain the process of retail development

revolve around the importance of
o competitive pressures,
o the investments in organizational capabilities and
o the creation of a sustainable competitive advantage, which requires the
implementation of strategic planning by retail organizations.

Growth in retail is a result of understand in market signals and

responding, to the opportunities that arise in a dynamic manner.

 Theories of retail development can broadly be classified

as:
o Environmental- where a change in retail is attributed to the
change in the environment in which the retailers operate.
o Cyclical- where change follows a pattern and phases can have
definite identifiable attributes associated with them.
o Conflictual- where the competition or conflict between two
opposite types of retailers, leads to a new format being
developed

Environmental theory
Darwin's theory of natural selection has been popularized by the phrase
"survival the fittest".
Retail institutions are economic entities and retailers confront an
environment which is made up of customers, competitors and changing
technology.
This environment can alter the profitability of a single retail state as well
as-of clusters and centres. The environment that a retailer competes in
is sufficiently robust to squash any retail form that does not adjust.
Thus, the birth, success or decline of different forms of retail enterprises
is many a times attributed to the business environment. For example,
the decline of department stores in the western markets is attributed to
the general inability of those retailers to react quickly and positively to
environmental change.

Cyclical theory
Cyclical theory basically explains the different phases in
a company.
According to this theory, change follows a pattern and
all phases have identifiable attributes associated with
them
Components
associated
with the
theory
Wheel of
Retailing

Retail Life
Cycle

Retail
accordian

1. Wheel of retailing: refers to a company entering

the market with low prices and affordable service
in order to challenge competitors
2. Retail life cycle: addresses the four stages that a
company goes through when entering the buyer's
market
3. Retail accordion: some businesses go from
outlets that offer an array of products to
establishments providing a narrow selection of
goods and services. These establishments later
return to a generalized outlet store.

Phases
Retail innovators often first appear as low price operators
with a low cost structure and low profit margin
requirements, offering some real advantages such as
specific merchandise which enables them to take
customers away from more established competitors.
As they prosper, they develop their business, offering a
greater range or acquiring more expensive facilities, but
this can mean that they lose the focus that was so
important when they entered the market. Such trading up
occurs as the retailer becomes established in his own right.
This in turn, leaves room for others to enter and repeat the
process. They then become vulnerable to new discounters
and lower cost structures that take their place along the
wheel.

Phases
Entry phase: Low status & price, minimum
services, limited product offers, poor services.
Trading up phase: Expensive facilities, higher
rents, more locations, higher prices, more
products.
Vulnerability phase: Declining ROI, scrambled
merchandising.

Wheel of Retailing
A better known theory of retailing wheel of retailing
proposed by Maclcomb McNair says,
1.

New retailers often enter the market place with

low prices, margins, and status. The low prices
are usually the result of some innovative costcutting procedures and soon attract competitors.

2.

With the passage of time, these businesses strive

to broaden their customer base and increase
sales. Their operations and facilities increase and
become more expensive.

3.

They may move to better up market locations, start

carrying higher quality products or add services and
ultimately emerge as a high cost price service retailer.

4.

By this time newer competitors as low price, low margin,

low status emerge and these competitors too follow the
same evolutionary process.

5.

The wheel keeps on turning and department stores,

supermarkets, and mass merchandise went through this
cycles.

. The theory of the wheel of retailing can be understood by

taking the example of department stores, which started as
low cost competitors to the small retailers; they developed
and prospered; then they were severely undercut by
supermarkets and discount warehouses.

Retail Life Cycle

Innovation
Few competitors
Rate of growth is fairly rapid
Management fine tunes its strategy
through experimentation
Moderate Profitability
Last up to five years

Retail life cycle

Innovation
Innovation
Few competitors
Rate of growth is
fairly rapid
Management fine
tunes its strategies
with
experimentation
Moderate
Profitability
Last up to five
years

Accelerate
Accelerate
d
d growth
growth
Rapid increases in
sales
Stage of
development
Few competitors
emerge
High Investment
level
Last from five to
eight years

Maturity
Maturity
Competitive
pressures are felt
acutely
Growth rate tends
to decrease
Direct competition
increases
Profits also start
declining

Decline
Decline
Looses its
competitive edge
Rate of growth is
negative
Profitability
declines
Overheads are
high

Accordion effect
Hollander was a key observer of retail evolution
and he used the analogy of an orchestra comprised
exclusively of accordion players to describe the
dynamically shifting retail structure.
This so called accordion effect describes how
general stores moved to specialize, but the
widened their range of merchandise again as new
classes of products were added.

 Hollander suggested that the players either have

open accordions representing general retailers
with broad product ranges or closed accordions
thus indicating a narrowing of the range, focusing
on specific merchandise.
He suggested that at any point in time, one type of
retailer would outnumber the other, but that the
situation would continually change through the
arrival and departure of different stores.
This analogy illustrates the complexity of the retail
scene, and the way different attitudes to
successful retailing will come in and go out of
fashion at different times

Conflict Theory
Conflict always exists between operators of similar
formats or within braid retail categories.
Conflict between two opposite types of retailers
leads to a new format being developed.
It is believed that retail innovation does not
necessarily reduce the number of formats available
to the consumer; instead, it leads to the
development of more formats.

Developments in retailing as
follows:
Thesis: Departmental stores comes up to serve
the requirements of the customers.
Antithesis: Opposed to Thesis. Discounted
stores comes up as competitors to challenge the
Departmental store.
Synthesis: Blending of Thesis & Antithesis.
Supermarkets & hypermarkets have come up.
Synthesis becomes Thesis for another round of
revolution.