RETAIL FORMATS AND

THEORIES
EVOLUTION OF RETAIL FORMATS

SOME FACTS
The first department stores Bon Marche
was set up in 1852 in Paris
Bon Marche revolutionized retail at time
by relying on volume rather than on high
mark up.
Success of Bon Marche led to other
department stores coming up
in Europe and America
EVOLUTION OF RETAIL FORMATS

Some Facts..

The first chain store was

A&P (Atlantic & Pacific)-a grocery
store founded in 1859 by George F
Gilman
The world witnessed the new form of
retail when Montgomery Ward
launched the first mail order
catalogue in 1870
Another important chain store was F
W Woolworth, set up in 1879
EVOLUTION OF RETAIL FORMATS

Emergence of Self service

Retail evolved in many ways over the twentieth

century
Self service as a concept started in 1916 when
Clarence Saunders started their first self-service store
Piggly Wiggly in Memphis, Tennessee
The concept of self-service helped the retailer reduce
costs, as fewer workers were required to service the
customers
EVOLUTION OF RETAIL FORMATS

Supermarkets

1930s saw the emergence of supermarkets

The first hypermarket that as developed was Carrefour in France, in

1963
New formats gave an opportunity to pick up products, compare with
others and then taking a decision of buying
Providing all information regarding price, weight, date of manufacture
and expiry on the product itself became necessary to aid decision
making
EVOLUTION OF RETAIL FORMATS

Supermarkets and Hypermarkets

The mass merchandisers worked on three

principles, which have now become the fundamental
principles of modern selling
1. They fixed product prices before sale, and
customers bought at the set prices
2. Prices were determined on the basis of stock turns
and the amount of profit that would be generated
from the product
3. They departmentalized the products. Accounting
systems were devised to determine the contribution
of various departments. This enabled them to drop
unprofitable goods
 EVOLUTION OF RETAIL FORMATS

Specialty Stores, Malls and Other Formats

The needs of the customers grew and changed

This ensured the emergence of commodity
specialized mass merchandisers in 1970s
Seventies also saw the use of technology by way
of introduction of the barcode
Specialty chains developed I the 1980s as did the
large shopping malls
Shopping malls were created o provide for all of
he consumers needs in a single self contained
shopping area
EVOLUTION OF RETAIL FORMATS

Rise of the Web

The world of retail changed yet again when in 1995, Amazon. Com
opened its doors to a world wide market on the web
Evolution of retail formats worldwide has been largely influenced by a
constantly changing social and economic landscape
One of the main reasons for new formats emerging is the consumer
himself
Today's consumer is more demanding and is focused on what he wants
Retailer on the other hand has been influenced by availability of real
estate and its increasing prices
He is faced with the challenge of adding on new services and the need
for differentiation
This has led to specialization and the emergence of specialists
Supply chain complexities and increasing pressure on margins has also
forced the retailers to look at new formats
THEORIES OF RETAIL
DEVELOPMENT
These theories revolve around:
Importance of competitive pressures
The investments in organizational capabilities and
Creation of a sustainable competitive advantage.
These are developed to explain the process of retail development:
1. Environmental Theory
2. Cyclical Theory
3. Conflictual Theory
ENVIORNMENTAL THEORY

Retail Environment:
a. Customers
b. Competitors
c. Changing Technology

Based on Darwin theory of survival of the fittest.

CYCLICAL THEORY

Mature retailer Innovative retailer

Top Heavy Low status and price
Conservative Minimum service
Declining ROI Poor facilities
Limited product offering

Traditional retailer
Elaborate facilities
Higher rent
More locations
Higher prices
Extended product offerings

Trading up Phase

A. Wheel of Retailing- described by McNair

CYCLICAL THEORY..

B. ACCORDIAN THEORY: Hollander used analogy of an

orchestra.
Open accordions
Closed Accordions.
CONFLICTUAL THEORY

Anti-thesis Thesis
Department Stores Individual retailers

Synthesis
Hypermarkets and
Supermarkets
Retailing evolves through blending of two opposites to create
a new format.
CLASSIFICATION OF RETAIL
STORES
 Classification of retail stores Based on Location

High Street
Destination
Store-Based Retailing Non-Store Retailing Convenience
Merchandise Offered
Convenience Store
Supermarkets
Hypermarkets
Form of Ownership Specialty Stores Direct Selling
Independent retailer Department Stores Direct Marketing
Chain Retailer Off Price Retailers Automated Vending
Franchise Full line discount store World Wide Web
Leased Departments Warehouse store Other Emerging Retail
Vertical Marketing System Variety Store formats
Consumer Cooperatives Factory Outlets
Catalogue Showrooms
Membership Club
Flea Market
STORE FORMAT BY LOCATION
1. High Street Format
It is Located in busy shopping area.

Area is less than 2000 square feet.

No parking facility

Focused Merchandised Category

Example: M. G. Road in Bangalore

 2.DESTINATION FORMAT

Huge Parking space

Wide merchandise category

They are Independent retail store with

alluring proposition for the customer to
visit the store with the primary intention
of shopping there
 3. CONVENIENCE STORE

Located in the catchment area of target

customers
Extended hours of operation
Less than 5000 square feet
24X7 convenience stores situated close to
homes to generate high footprints
snacks, grocery type items & confectionary
Merchandise include: beverages, ready to eat
These store carry a limited stock of daily use
goods with a special focus on food products
eg. In & Out petrol pump outlets.
CLASSIFICATION BASED ON
OWNERSHIP
INDEPENDENT RETAILER
ADVANTAGES:
Flexibility in choosing retail formats and locations
Decision making is centralized
Low investment cost
Independents have independence
Easily sustain consistency

DISADVANTAGES:
Less bargain power with suppliers
Cannot gain economies of scale
Very little computerization
Relatively high cost of advertising
Over dependence on owner
Limited amount of time and resources allotted to long-run planning
CHAIN RETAILER

ADVANTAGES:
Bargaining power with suppliers
Achieve cost efficiencies by being wholesales themselves
Computerized
Can take advantage of variety of media options
Defined management philosophies
Long term planning, opportunities and threats are carefully monitored

DISADVANTAGES
Lesser flexibility
Investments may be high
Managerial control can be hard
Limited independence in jobs
FRANCHISING

Franchising is a retail organization form in which small businesses

can benefit by being a part of a large, multiunit chain-type retail
institution .
Two types of franchising:
Product/Trademark and Business format franchising.
Archie's/Gasoline stations McDonalds
Three structural arrangements dominate franchising:
Manufacturer-retailer Gasoline stations/Exxon, Mobil, Ford
Wholesaler-retailer
1.Voluntary Auto accessory store
2.Cooperatives
Service sponsor retailer KFC, McDonalds, Holiday Inn
 LEASED DEPARTMENT

From the stores perspective

ADVANTAGES:
Skilled manpower to handle merchandise
Market can be enlarged by providing one stop customer shopping
% of revenues is received regularly
Stock servicing, display etc is the responsibility of the licensee

DISADVANTAGES:
Operating procedures may be conflicting
Stores image may get adversely affected
Customers tend to blame the store for any pitfall
 LEASED DEPARTMENT..CONT

For leased operators

ADVANTAGES:
Immediate sales because of stores established image
Some costs are reduced through shared facility.
Volume saving in print/ media ads

DISADVANTAGES:
Inflexibility since working style may differ
Goods/services line are restricted
Store may raise the rent or may not renew lease
In-store location may not generate expected sales.
 VERTICAL MARKETING
SYSTEM
CHANNEL TYPE CANNEL FUNCTIONS OWNERSHIPS
1. Independent Manufacturing Independent
Systems Partners

2. Partially
Integrated Two channel members
Systems Wholesaling own all facilities and
perform all functions

3. Fully All functions are

Integrated performed by a single
Systems Retailing channel member
 CONSUMER CO-OPERATIVES
Consumer co-operatives exist for three basic reasons:
They feel that they can operate a store as well or may be better than
any other retailer
They believe that existing retailers are inadequately fulfilling
customers need for healthful, environmentally safe products
They assume that existing retailers make excessive profits and they
can sell merchandise for lower prices
 CLASSIFIACATION BASED ON
MERCHANDISE OFFERED
FOOD ORIENTED RETAILERS

CONVENIENCE STORES:
It is usually a food-oriented retailer that is well located, is open for
long hours and carries a moderate number of items. This type of
retailer is small, has average to above average prices and average
services and average atmosphere.
Milk, eggs, bread, newspaper, tobacco products, soft drinks,
magazines, video rentals, etc are the major category occupants.
Store size ranges from 3000 to 8000 sq. ft.
Ex. Mom n Pop stores.
 CONVENTIONAL SUPERMARKET
These are large, low cost, low margin, high volume, self service
retailers designed to meet the needs for food, groceries and other non-
food items.
They rely on high inventory turnover. Their profit margins are low.
The size of the store ranges from 8000 to 20000 sq. ft.
Ex. Kroger, Safeway, Foodworld, Adani supermarket, Subhiska,
Nilgiris, Reliance Fresh.
FOOD BASED SUPERSTORE

A food based superstore is a larger and more diversified

than a conventional supermarket but usually less diversified
and smaller than a combination store.
Some supermarkets merged with general merchandise store
or drug store.
They are typically 25000 to 50000 sq feet of total space.
20-25 % revenues comes from garden supplies, small
household appliances, flowers, etc.
They stimulate impulse purchases.
COMBINATON STORE

A combination store combines supermarket and general

merchandise sales in one facility.
25-40% revenues from general merchandise.
They are from 30000 to 100000 sq feet.
the combination of economy supermarket with discount
department store is called super center.
Examples: Wal-mart, K-mart.
 HYPERMARKET

Also called as supercentre, this format is a blend of economy

supermarket with discount department store.
They offer both food and non-food items like grocery, clothes,
jewellery, cycles, sports items, books, CDs, furniture, etc.
This format was pioneered by Carrefour in France.
This ranges from 80,000 to 2,20,000 sq. ft.
The cheapest price will normally be found in these stores.
Across the world hypermarkets are a part of retail park with other
shops, cafeteria and restaurants.
Other facilities include photo processing shop, pharmacy shops.
They are usually located in the outskirts of major towns and cities.
Ex. SIB, Big Bazaar, Adani Hypermarket.
BOX STORE

This is a food based discounter that focuses on a a small

section of items, moderate working hours, few services and
limited manufacturers brands.
They have less than 1500 SKUs.
Items are displayed in cut cases.
Customers do their own bagging.
They aim to price at 20-30% below supermarkets.
Example: Aldi.
WAREHOUSE STORE
A warehouse store is a food-based discounter offering a moderate number
of food items in a no frill setting.
They appeal to one stop shoppers.
These stores concentrate on special discount purchases from manufacturer
brands. They use cut-case displays, provide little service, post prices on
shelves and are located in industrial districts.
Potential problem is lack of brand continuity.
They temporarily or permanently run out of brands.
Here customers pack their own goods.
They work on volumes and their gross margins are far lower than
supermarkets or hypermarkets.
Largest stores are called super warehouse.
Their sizes can be 15000 to 50000 square feet.
Ex. Cub Foods
 GENERAL MERCHANDISE
RETAILERS
SPECIALITY STORE
A specialty store concentrates on selling one product/ service line
such as apparel and accessories, toys, furniture. They have a deep
assortment in their chosen category and tailor their strategy to
selective market segment.
Personal attention, store ambience and customer service are the
prime importance to the retailer.
They operate in an area which is under 8000 sq. ft.
Ex. The Gap, Mango, Levis, Wills Lifestyle, Big & Tall, Adidas,
Nike, Style Spa, Proline fitness station.
 CATEGORY KILLERS

Also called as Power Retailer.

This is a new type of specialty retailer which offers a very large
selection of chosen category .
They stock deep and dominate the chosen category.
Ex. Planet Sports, Crossword, Nalli Sarees, Sales India, Croma, E-
planet.
 DEPARTMENT STORE
TRADITIONAL DEPARTMENT STORE:
A traditional department store is a large retail unit with an extensive
assortment of goods and services that is organized into separate
departments for buying, promotion, customer service and control.
They generally serve as anchor stores in malls and is usually part of
a chain.
Apparel and home furnishing are the two most common product
categories.
Size varies from 20,000 to 40,000 sq. ft.
DEPARTMENT STORE

Merchandise quality is moderate to quite good. Pricing is

moderate to above average. Customer service is medium to high
level.
Ex. Marks & Spencer, Sears, J.C. Penny, Westside, Globus,
Pyramid, Pantaloons, Shoppers Stop, Lifestyle.
FULL-LINE DISCOUNT STORE

It conveys the image of high volume, low cost, fast turnover outlet
selling a broad merchandise for less than conventional prices.
Products are sold via self service.
Non durable goods feature from private brands and durable goods
are from well known national brands.
Less fashion sensitive merchandise are carried.
Ex. Wal-Mart.
DOLLAR STORE/ VARIETY
STORE
US based My Dollar Store started operation in
Mumbai through franchise arrangement with
Sankalp Retail Value.
Floor Space: 4000 Sq. Feet
Merchandise: Cleaning, Health & Beauty,
Hardware,
Plastic ware, Kitchen ware & confectionary etc.
OFF-PRICE CHAIN

An off-price chain features brand name, sometime designer labels

of women wear, cosmetics, accessories, footwear,etc and sell them
at every day low prices in an efficient, limited service environment.
They have centralized check-outs, no gift wrapping and charge
separately for alterations.
Ex. T.J. Maxx
 FACTORY OUTLET
A factory outlet is a manufacturer-owned store selling manufacturer
closeouts, discontinued merchandise, irregulars, cancelled orders and
sometime in season fresh merchandise at at lower rate.
They sell merchandise at up to 60% less than MRP due to low
operating cost, low rent, limited display and cheap fixtures.
Also sell in cartons.
Ex. Levis factory outlet, Pantaloon factory outlet, etc.
 MEMBERSHIP CLUB

A membership club is a retail format where consumers have to be

members to be able to buy merchandise at a wholesale price.
Here the members pay a certain amount of annual fee.
Their operating strategy includes inexpensive isolated locations,
opportunistic buying, little or no advertising, plain fixtures, wide
aisles, very low prices.
Ex. Sams and Costco
 FLEA MARKET

A flea market has many retail vendors offering a range of products

at discount prices in plain surroundings.
They are located in non-traditional sites like stadiums,
racetracks,etc.
Here, individual retailers rent space on a daily or weekly basis.
At any flea market, price haggling are encouraged.
Ex. Rose Bowl
 CATALOGUE SHOWROOMS

A catalogue retailer specializes in hard goods such as houseware,

jewellery, consumer electronics.
The customer walks into this retail showroom and goes through the
catalogue of the product that would like to purchase.
The product is then arranged to be bought from the warehouse for
inspection and purchase.
Ex. Argos, Service Merchandise and Best Products.
NON-STORE RETAILING

DIRECT MARKETING:
Is a form of retailing in which a customer is first exposed to goods
or service through a non personal medium such as direct mail,
newspaper, broadcast or television and then orders are placed by
mail, phone or computer.
There are three forms:
1. Mail order retailing/ catalogue retailing.
2. Television retailing.
3. E- tailing
 DIRECT SELLING
Direct selling includes both personal contact with consumers in their
homes and offices and phone solicitations initiated by a retailer.
1500 crore market in India growing @ 28% p.a.
Profile of products purchased from Direct Selling: (IN %)
HOUSEHOLD GOODS 68.9
PERSONAL CARE PRODUCTS 12.4
FAMILY PRODUCTS 14.4
BUSINESS AIDS 3.59
FOOD PRODUCTS 0.71

Ex. Oriflame, Amway, Avon, Herbalife, Tupperware, Eureka Forbes

Controlled by IDSA.
AUTOMATED VENDING

Ex. Tata Coffee, Jiffy, ATMs.

AIRPORT RETAILING
Ex. Travel Requisition Shop
E-Retailers
 VIDEO KIOSKS

The video kiosk is a free standing, interactive, electronic computer

That displays products and related information on a video screen.
It often uses a touch screen for consumers to make selection.
Example: McDonald, Wills Lifestyle.