Unit-I: An Introduction to the Retailing System, Retailing - Concept, Nature,

Scope, Functions of Retailing, formats of Retailing, Retail Organizations structures

- Retailing mix - Retail Management Process –Retail Business environment-
Theories of Retailing. Indian Retail Sector, Impact of FDI on Retail Sector, future
concept of retailng.

• Retailing – a set of business activities that adds value to the products and services sold to
consumers for their personal or family use.
• A retailer is a business that sells products and/or services to consumers for personal or
family use.

Retailing is defined as the process of selling merchandise to the consumers for their end use in
small quantities. The retailer sells products to the end-users either in single units or in small
quantities as per their need and capability.

Retail involves the sale of goods from a single point (malls, markets, department stores etc)
directly to the consumer in small quantities for his end use. In a layman’s language, retailing
is nothing but transaction of goods between the seller and the end user as a single unit (piece) or
in small quantities to satisfy the needs of the individual and for his direct consumption.

Let us understand the concept with the help of an example.

[Link] wanted to purchase a mobile handset. He went to the nearby store and purchased one for
himself. In the above case, Rao is the buyer who went to a fixed location (in this case the nearby
store). He purchased a mobile handset (Quantity - One) to be used by him. An example of retail.

The store from where Rao purchased the handset must have shown him several options for him
to select one according to his budget and need From where do you think the store owner (also
called the retailer) purchased all the handsets?
Here the manufacturers and the wholesalers come into the picture. The retailers purchase goods
in bulk quantities (huge numbers) to be sold to the end-users either directly from the
manufacturers or through a wholesaler.

FUNCTIONS OF RETAILERS : How Retailers Add Value

• Breaking Bulk
-Buy it in quantities customers want
• Holding Inventory
-Buy it at a convenient place when you want it
• Providing Assortment
-Buy other products at the same time
• Offering Services
-See it before you buy, get credit, layaway

The nature of retail marketing

 The key aspects of retail marketing is an attitude of mind.
 In making retail marketing decisions, retailers must consider the needs of the customers.
 Retail marketing decisions are driven by what the shoppers need and want.
 Retail marketing is therefore a philosophy and is all about satisfying the customers
 What the customers regard as value and what they buy is decisive.
 What the customers buy determines the nature of the retailer’s business.
 The essence of retail marketing is developing merchandise and services that satisfy
specific needs of customers, and supplying them at prices that will yield profits.
 Retailers must take the customers’ needs into consideration in retail operation.
 Retail marketing is stimulating, quick-paced, and influential.
 It encompasses a wide range of activities including:
Environmental analysis
Market research
Consumer analysis
Product planning etc
Importance of marketing in retailing
 Marketing is a vital tool for every retailer, as it identifies current, unfulfilled needs and
wants, which it defines and quantifies.
 Marketing determines which target groups the retailer should serve.
 Marketing could be seen as delivering an acceptable standard of living.
 Marketing can ensure complete satisfaction and sustained customer loyalty.
 Marketing depends on the efficient co-ordination of consumer prediction, product
development, packaging design and influencing demand through appropriate
communication medium.
 From these, a suitable mix is achieved.

Decision Variables for Retailers

Department Store
A department store offers an extensive assortment (width and depth) of goods and services that are
organized into separate departments for the purpose of efficient buying, assortment, promotion and
above all ease of shopping for the consumer. Such a format provides the greatest selection of any
general merchandize and very often serves as the anchor store in shopping mall or shopping centre.
In India, the number of department stores is less compared to other retail formats such as
supermarkets and discount stores. Shoppers' Stop is the first one to open a department store in the
early 1990s and currently operates 19 stores in 10 different cities in India.
The store strongly focuses on lifestyle retailing and mainly divides into five departments such as
apparel, accessories, home décor, gift ideas and other services.
Another operator Lifestyle India began operations in 1998 with its first store in Chennai in 1999 and
in March 2006 it opened one of the largest department stores in the same city. The store spreads over
75,000 sq. ft and store provides customers a great shopping experience with three floors of apparel,
footwear, products for children, household furniture and decor, health and beauty products.
W.

Hypermarket
Hypermarkets have emerged as the biggest crowd pullers due to the fact that regular repeat purchases
are a norm at such outlets. Hypermarkets not only offer consumers the most extensive merchandise
mix, product and brand choices under one roof, but also create superior value for money advantages
of hypermarket shopping. With product categories on offer ranging from fresh produce and FMCG
products to electronics, value apparels, house ware, do it yourself (DIY) and outdoor products, the
hypermarkets are becoming popular formats in India.. Number of players operating hypermarket
format are increasing day by day.
One of the leading players in this format is Pantaloon Retail India Limited (Exhibit 4) which
operates 32 Big Bazaars in twenty cities.
 In early 2006, the K. Raheja Corp (C.L. Raheja Group) has introduced it’s value retail concept
Hypercity which is the country’s largest hypermarket at 118000 sq ft. Hypercity carries product
range varies from Foods, Homeware, Home Entertainment, Hi-Tech, Appliances, Furniture, Sports,
Toys & Clothing. Hypercity Retail plans to open 55 hypermarkets by 2015. Reports in media indicate
that Reliance is set to open its hyper market format called ‘Reliance Mart’ in Ahmedabad in
December 2006 in 1.5 lakh sq ft of space 13. As the market is expanding and consumers are in a mood
to accept changes, hypermarkets are getting overwhelming response from consumer. Currently there
are about 40 odd hypermarkets in India but this format holds a great potential for growth.
Hypermarkets can offer whole lot of benefits to consumer. As all hypermarkets use food and grocery
as crowd puller, the price plays major role. Apart from price, other things retailers need to worry
about are offering right product mix at right price and right place. Ideally, a 40:60 mix of food to
non-food should yield a blended gross margin of around 18-19 per cent.
Hypermarkets will be successful if the retailers understand the shopper better and design product
offering tailor made for specific segment of consumer. Retailers have to use efficient sourcing and
merchandising process to bring down cost of operation. The most important one is to phase out
inefficiencies from the supply chain and pass on a part of that benefit to consumer. Another way of
improving margin is to increase percentage of private label or store brand.

Supermarket
Unlike western countries where supermarkets are prominently visible, in our country this is lacking.
The supermarkets largely concentrate on selling food related products and are considerably smaller in
size compared to hypermarkets. Their value proposition is also different from the hypermarkets. The
supermarkets offer relatively less assortments but focus on specific product categories. They do not
play the game on price rather use convenience and affordability as their salient features. In India this
role is played by the provision stores and sweet shops. Interestingly the fresh vegetables and fruits
are sold on the foot path and in open markets. Traditionally consumers feel conservative to buy fruits
and vegetables from air conditioned supermarkets. They prefer to buy either from the local mobile
vegetable sellers or from the nearest sabji market. Probably that works as deterrent factor for the
growth of supermarkets in India. But the situation is changing and slowly supermarket operators are
coming to their own. A super market normally sells grocery, fresh, cut vegetables, fruits, frozen
foods, toiletries, cosmetics, small utensils, cutlery, stationery and Gift items.
In India Food World, Food Bazaar, Nilgiri (30 plus stores), and Adani are the leading super market
operators (Exhibit 5). One of the biggest super market operators in the western India is Adani Retail
Limited which operates Adani super market plans to continue its journey to reach total 19 cities with
the store strength of 60 plus in the state of Gujarat. ARL also plans to expand its operation in the
neighbouring states of Rajasthan, Madhya Pradesh, Maharashtra and Chhattisgarh.

Subhiksha is one of the leading super market operators, who largely operates in the southern part of
India is expanding to western India.

One more retailer Reliance Retail is on the move and this retailer opened its Reliance Fresh-a super
market chain with 11 stores in Hyderabad in November 2006 and is planning to enter 70 more cities
within 2 years.

Fabmall a part of Trinetra Super Retail Limited is also expanding. By June 2006 Fabmall had 28
super markets in some cities and the retailer is planning to open 25 outlets in Kerala by March 2007.
Food Bazaar operates in major cities in India with a floor space ranging from 6,000 sq ft to 16,000
square feet and the format sells both food and non-food items. The non-food items contribute about
22 per cent of total sales and rest is contributed by the food related items. A Food Store stocks an
average of 7,000 stock keeping units (SKUs) and over 50,000 articles. The SKU's are divided into
the broad categories - staples, fresh produce and branded foods, home & personal care products.
Staples include groceries like rice, wheat, dal, spices and oils. Fresh produce comprise of fruits and
vegetables, which are sold loose through the concessionaire arrangement. Along with national brands
and local brands the store keeps private labels in some product categories such as utensil cleaners,
preservatives and bakery products. For example in utensil cleaner category private label gives the
highest margin about 25 per cent and commands a share of 50 per cent in the store. The private labels
offer flexibility to both the retailer and the consumer on price front. The objective of the store is to
offer variety at affordable price in each category. Food Bazaar is made the transition from a just
grocery retailer to developing emotional bonding with shoppers by providing some value added
services to the shoppers. Some of these initiatives include:

Live chakki: which allows customers to buy fresh wheat and have it grinded there at the store
Fresh Juice counter: This provides customer to have fresh juices.
Live dairy: This provides customers with fresh milk and milk products.
Live kitchen: Customers have the option of buying vegetables, getting them chopped, cooked fully or
partly. Soups, salads and sandwiches are also available

Convenience Stores
A Convenience store offers location advantage for the shoppers and provides ease of shopping and
customized service to the shoppers. It charges average to above average prices, depending on the
product category and carries a moderate number of stock keeping units (SKUs). Normally it remains
open for long hours and shoppers use it for buying fill-in merchandize and emergency purchases. In
India, Convenience stores occupied 23 thousand sq. meter of retail space with sales of about Rs 1347
million in 2005 and are expected occupy 85 thousand square meter of selling space by 2010 (Exhibit
6). During the same period, sales is expected to touch Rs 5271 million and number of outlets are
likely to grow from 510 to 2434 (Exhibit 7). Twenty Four Seven a new format of convenience store
is operational in Delhi from June 2005. Twenty Four Seven's portfolio comprises 3,500 stock
keeping units (SKUs) of branded fast-moving consumer goods and another 3,500 SKUs of
prescription and over-the-counter drugs besides 300 private labels products across food, focusing on
staples such as pulses and rice. The promoter of this format, the Modi group, plans to set up 500
convenience stores in Delhi and Mumbai by 2007.

Discounters
Wal-Mart, the largest retailer in the world is a discounter. Practically the discounters offer several
advantages such as lower price, wider assortment and quality assurance. The discounters like Wal-
Mart and Aldi were able to quickly build scale and pass on benefits to the consumer. However, in the
long run success depends on the operational efficiency and consistent value delivery to the consumer.
The same retailer Wal-Mart struggles in Asian countries like China but extremely successful in USA.
It is believed that the average Indian consumer is highly price-sensitive and looks for savings in term
of money in her grocery purchase. So price-value equation is a critical component in most of the
grocery purchases. Despite this, there is hardly any national level discount chain operating in India.
But retailers such as Aldi and Lidl are extremely successful in Europe. Due to regulatory issues no
such retailers are allowed to sale their products directly to consumer. But they can sell in a cash and
carry format which is exclusively B2B context. If these retailers are allowed to operate in India
through their retailer stores they may find it extremely difficult in the early stages because of lack of
experience in the grocery retailing in this market. Unlike the western markets where retailers largely
depend on private labels to offer price advantage, here the concept of private label is very early stage.
Some of the food retailers like Foodworld and Adani sell private labels but they are not discounters.
Soft discounters are present in India, although their influence on grocery retailing in 2005 was very
minimal with a value share at less than half a percentage point. The absence of strong discounters
and the lack of local retailer’s initiatives in discounters have several reasons. Unlike most Western
countries, Indian retailers are mainly small stores and do not have much bargaining power with
manufacturers in order to negotiate terms. Due to low economies of scale, retailers are unable to offer
significant discounts on their own. Consequently, the presence of discounters is much smaller than
that of supermarkets. According to Euromonitor (2006) report, in India there are 410 discount stores
with 63 thousand sq, meter selling space and by 2010 that figure is going to be 555 discount retail
outlets with 85 thousand selling space (Exhibit 8). Subhiksha, the Chennai based discount retail
chain is going national. By July 2006 the retail chain had around 150 stores and planning to open 350
more by March 2007. The National Capital Region (NCR) is going to get a fair share of 145 stores 14.
Apart from the NCR the retail chain is actively looking at markets in Maharastra, Gujarat, Andhra
Pradesh and Karnataka. The retail chain already started operation in Ahmedabad but the stores are
largely selling fruits and vegetables at this point of time. They claim that they sell at a lower price
compared to other places in the local market.

Branded Store
The major apparel brands in India are Madura Garments, Zodiac, Raymonds, Colour Plus and Arvind
Mills. Some of branded apparel stores prominent in India are Madura Garments (140 stores),
Weekender (75 stores), Benetton (100 stores), Grasim (110 exclusive showrooms), Madura Garments
(40 stores), Wills Life style (40 stores), Lee (59 stores), Newport (500 stores), Wrangler (37 stores),
John Players (80 stores) and Raymond. Raymond a nation wide retail chain has 260 Raymond shops
deals in fabrics, apparels and accessories. In addition to that its distribution network includes 20
exclusive Park Avenue Parx stores, and 1,000 multi-brand outlets. These specialty stores sell the well
known brands like Park Avenue, Parx, Manzoni and Be. Park Avenue is an up-market brand, while
Parx and Manzoni are targeted at the casual wear and the premium ranges respectively. 'Be:' is
especially a brand for women’s wear. Similarly BK Birla’s Century Textile plans to increase its
number of outlets from 60 currently to 100 by next year.
International brands like Tommy Hilfinger are also present in India through franchise arrangements
with Arvind Murjani Brand Private Limited (AMBPL) and its first store was opened at Banjara Hills,
Hyderabad. The 3,840 sq ft store retails wide variety of products such as men’s denim wear & sports
wear, women’s sportswear, junior jeans and accessories like handbags, belts and watches. Apart from
the new store in Hyderabad, Tommy Hilfinger is also available in its exclusive stores in New Delhi,
Gurgaon, Chandigarh, Bangalore and Mumbai.15
There is no major Indian retailer in the sports and foot wear category. Reebok (85 stores) is the
market leader here in India and there is no clear-cut winner in the second place. In fact, this segment
is dominated mainly by foreign labels – Levis, Lee Cooper, United Colors of Benetton, Lacoste,
Adidas (76 stores), Nike (62 stores), and Woodland (58 stores), etc. Indian labels are few and far
between – Proline is the best-known Indian brand and the other brands are more local in nature. The
other Indian retailer which is making some sort of impact is Wills Sports with 29 stores across
different cities in India.
Category Killer
The category killer concept originated in the U.S. due to abundance of cheap land and the dominant
car culture. Category Killer is a kind of discount specialty store that offers less variety but deep
assortment of merchandise. By offering a deep assortment in a category at comparative low prices,
category specialist can be able to “kill’ that specific category of merchandize for other retailers.
Generally such kind of retailers uses a self service approach. They use their buying power to
negotiate low prices, excellent terms and assured supply when items are scarce. In India this kind of
retail stores are not prevalent at this point of time. But there is scope for such kind of format. In
India, Mega-Mart is one sort of category killer which sells apparel products.

Dollar Stores
Dollar stores have their roots in America's homey five-and- dimes, the general stores that offered a
range of products at low prices. But modern dollar-store retailers are having more sophisticated
operations; leveraging their growing buying power to strike special deals with vendors and
continuously striving for unique advantage of both convenience and price. Some chains sell all their
goods at $1 or less. Others offer selected items at higher prices. Most sell a combination of paper
products, health and beauty supplies, cleaning products, paper and stationery, household goods, toys,
food and sometimes clothing. Both private-label and brand-name goods fill the shelves. They are
looking for employing technology to manage large distribution networks. US based My Dollar Store
started operation in Mumbai through master franchise arrangements with Sankalp Retail Value. The
store opened with a floor space of about 4,000 sq ft of space in Nirmal Lifestyle and offers wide
range of products ranging from shampoos-to-juice-toys16. In September 2005, Mallz99 chain of
dollar stores has also started operation in Malviya Nagar, South Delhi and the retailer has a plan to
open 200 stores (both franchised & company owned) in India by 2009. The store offers over 1000
imported products that are priced at INR 99. Major product categories sold at the store are cleaning,
health & beauty, hardware, plastic ware, kitchenware, candles, flowers, household items, home-
décor, automobile, stationary, disposables, party supplies, fashion jewelry, glassware, chocolate &
confectionary, gifts, toys, products for pets, melamine ware, novelties, socks and fashion accessories.
For keeping the store attractive for shoppers the store adds new products on a weekly basis. Mulund
boasts of three dollar shops on SL Road, and one in Mulund (E) near the station. Royal Shoppe on
SL Road offers everything from crockery to towels, shoes, curios, lamps, etc. Royal Shoppe now
offers goods ranging from Rs 29 to over Rs 1,699.17

Retail Development in Rural India

Chennai based market research firm Francis Kanoi estimated the size of the rural market to be INR 1,
08,000 crore annually. During the survey in 2002 the firm took into account four categories - FMCG,
durables, agri-inputs, and two- and four-wheelers for their estimation. Rural incomes are growing
steadily as well. NCAER shows while the number of middle-class households (with annual income
between Rs 45,000 and Rs 2.15 lakh) is at 16.4 million in urban India, the figure stands at 15.6
million18 in the rural areas, data from. Largely this rural market is untapped and there is huge
opportunity for retailers. Therefore, in recent times rural retailing is witnessing explorations by both
corporate houses and entrepreneurs – ITC's Choupal Sagar, HLL's project Shakthi and Mahamaza are
some of the models being tried out. At this juncture there is no conclusive evidence of winning rural
retail formats available. However, corporate forays into rural retail are expected to bring more
experimentation and innovation in term of retail format. The Godrej Adhaar, the rural retail initiative
of Godrej Agrovet Ltd operates a chain of 18 stores providing a host of services to farmers and their
families and is planning to set up at least 1,000 stores 19 across rural India in the next five years. Apart
from Godrej Adhar and Choupal Sagar other formats operating successfully in the rural area are, M
& M Shubh Labh stores, Escorts rural stores, Tata Kisan Sansar, and Warnabazaar, Maharashtra
(annual sale Rs 40 crore).
DSCL Haryali Kisan Bazaar
Hariyali stores keep wide range of product assortments such as fertilizers, pesticides, farm
implements, seeds, animal feed and irrigation equipment among other agriculture-related products.
They also have officers who offer free advices to farmers regarding best agriculture practices.
Offering insurance and financial services to farmers is part of the business. So far, 22 "Hariyali"
Stores have been operational in different states across North India. Farmer response has been
extremely encouraging. A centre is attracting 150 - 200 farmers a day. Hariyali Kisaan Bazaar has
plans to rapidly scale up the operations & create a national footprint covering all the major
agricultural markets of the country.
Mahindra & Mahindra Shubh Labh
This is the rural initiative taken by Mahindra & Mahindra group to provide complete package of
products and services related to firm productivity. One of the basic objectives is to establish market
linkage and optimize farm produce supply chain. There are about 36 franchised Shub Labh store
established in ten states in India.

Retail marketing mix

 Retail marketing mix is the term used to describe the various elements and methods
required to formulate and execute retail marketing strategy.

 Retail managers must determine the optimum mix of retailing activities and co-ordinate
the elements of the mix.

 The aim of such coordination is for each store to have a distinct retail image in
consumers’ mind.

 The mix may vary greatly according to the type of market the retailer is in, and the type
of product/services

Retail Marketing Mix

While many elements may make up a firm’s retail marketing mix, the essential elements may
include:

 Store location,

 merchandise assortments

 Store ambience,

 customer service,

 price,

 Communication with customers

A well planned and integrated retail mix will provide a focused position in the
marketplace and differentiate your retail establishment from that of your defined
competition. The key element(s) of your proposed competitive advantage should
guide you in the design of your retail mix.

Store Location
Explain your location strategy. Do you propose locating in a free-standing building, a downtown
business setting, or a planned shopping environment and why? What specific site have you
selected and what is its "fit" relative to the trading area you intend to serve? Follow this up with a
trading area analysis showing the number of target customers residing within the "draw" of your
facility.
Store Operations
What are your expected hours of operations? How many employees do you anticipate needing to
serve you customers adequately? An outline of your proposed organizational structure and a
general description of the duties and responsibilities of employees will be helpful. Be sure to
include a typical weekly work schedule. Planned credit policies and amenities or service
dimensions should likewise be discussed in this subsection.
Merchandising
What goods and/or services do you propose to offer? Discuss the general level of quality of the
goods you will carry, the depth and breadth of your offering (number of SKUs) as well as the
stock levels, expected inventory turnover, re-order policy, and anticipated vendor relationships.
Pricing
What basic pricing strategy do you propose to implement? Based on your investigation, what is
your anticipated cost-of-goods sold, on average? Explain your markup strategy and its impact on
retail price. Here, be sure to calculate your markup percentage based on retail price rather that
costs to be consistent with the data provided in your upcoming pro forma statements.
Store Image
Develop a schematic of your proposed store layout and describe, generally, the atmospherics you
plan to employ. Also, remember that the name and graphics associated with the store help set the
tone for the image you intend to convey.
Retail Promotion
In developing your promotional strategy, be sure to consider what "role" you expect each of the
promotional tools you employ to play in the consumer buying process. Plan to include examples
of the tools (advertising, personal selling, publicity, and/or sales promotional devices) you expect
to utilize and their scheduling. A promotional budget with time schedule should be developed
reflecting the allocation of dollars across the various elements.

RETAIL MANAGEMENT PROCESS

 VISION

MISSION

ENVIRONMENTAL SCANNING

OBJECTIVES
F

E
PREPARING STRATEGY
 MARKETING STRATEGY
E
 FINANCIAL STRATEGY
 OPERATIONS STRATEGY
D
 HUMAN RESOURCES AND ADMINISTRATION STRATEGY
 INFORMATION SYSTEM AND RESEARCH STRATEGY
B

C PREPARING RULES, METHODS, PROCEEDURES, BUDGET AND

PROGRAMS
K
ORGANISING

STAFFING

IMPLEMENTING AND CONTROLLING

IMPLEMENTING

CONTROLLING