By Aashish

Gupta

Course Code: MGT 523

Retail Management
Introduction to Retailing
Concept of Retailing

Retail is the final stage of any economic activity. By virtue of this fact Retail occupies
an important place in the world economy. In an attempt to understand the scope of
the term retail, various definitions of the term have been examined.

According to P. Kotler:
"Retailing includes all the activities involved in selling goods or services to the final
consumers for personal, non-business use. A retailer or retail store is any business
enterprise whose sale volume comes primarily from retailing. Any organization selling
to final consumers whether it is a manufacturer, wholesaler or retailer is doing
retailing. It does not matter how the goods services are sold (by person, mail,
telephone, vending machine or internet or where they are sold - in a store, on the
street or in the consumer's home)" .
The North American Industry Classification System (NAICS) specifies that the retail
trade sector comprises establishments primarily engaged in retailing merchandise,
generally without transformation, and rendering services incidental to the sale of
merchandise.

The word retail is derived from the French word ‘retaillier’, which means “a piece of”
or ‘to cut up’ bulk. A retailer may be defined, as a 'dealer or trader who sells goods in
small quantities' or 'one who repeats or relates'.

Retailing thus may be understood as the final step in the distribution of merchandise,
for consumption by the end consumers. Put simply, an firm that sells products to the
final consumer is performing the function of retailing. It thus consists of all activities
involved in the marketing of goods and services directly to the consumers for their
personal, family or household use.
It is necessary to understand that in the complex world of trade today, retail would
include not only goods but also services, which may be provided to the end consumer.
In an age where the customer is the king and marketers are focusing on customer
delight, retail may be redefined as the first point of customer contact.

“Any business that directs its marketing efforts towards satisfying the final consumer
based upon the organization of selling goods and services as a means of distribution.”
 
OBJECTIVES OF RETAIL

1.      Customer Satisfaction: Retailers know that satisfied customers are loyal

customers. Consequently, retailers must develop strategies intended to build
relationships that result in customers returning to make more purchases.

2.      Acquiring the Right Products: A customer will only be satisfied if they can
purchase the right products to satisfy their needs. Since a large Percentage of retailers
do not manufacture their own products, they must seek suppliers who will supply
products demanded by customers. Thus, an important objective for retailers is to
identify the products customers will demand, and negotiate with suppliers to obtain
these products.
3.  Product Presentation: Once obtained, products must be presented or
merchandised to customers in a way that generates interest. Retail
merchandising often requires hiring creative people who understand and can
relate to the market.

4.      Traffic Building: Like any marketer, retailers must- use promotional methods
to build customer interest. For retailers a key measure of interest is the
number of people visiting a retail location or website. Building “traffic” is
accomplished with a variety of promotional techniques such as advertising,
including local newspapers or Internet, specialized promotional activities, such
as coupons.
5.      Layout: For store-based retailers, a store’s physical layout is an important
component in creating a retail experience that will attract customers. The physical
layout is more than just deciding in what part of store to locate products. For many
retailers designing the right shopping atmosphere (e.g., objects, light, and sound) can
add to the appeal of a store. Layout is also important in the online world where site
navigation and usability may be deciding factors in whether a retail website is
successful.

6.      Location: Where to physically locate a retail store may help or hinder tore traffic.
Well placed stores with high visibility and easy access, while possibly commanding
higher land usage fees, may hold significantly more value than lower cost sites that
yield less traffic. Understanding the trade-off between costs and benefits of locations
is an important retail decision.
7.      Keeping Pace With Technology: Technology has invaded all areas of retailing
including customer knowledge (e.g., customer relationship management software),
product movement (e.g., use of RFID tags for tacking), point-of-purchase (e.g.,
scanners, kiosks, self-serve checkout), web technologies (e.g., online shopping carts,
purchase recommendations) and many more.
Importance of Retailing

1. Retailing shapes the lifestyle of the people: Retailing is an integral part of the
modern society. It shapes the way of life. In the past, trading of goods was a part of a
traditional society. But in recent times, buying & selling of goods have become a
brand dominated activity.

2. Retailing contributes to the economy: The importance of retail sector is reflected

in its contribution to the growth of an economy. Its contribution is much more visible
in the modern era than it was in the past. As the retail sector is linked to the
significant portion of the economy, its contribution to GDP is substantial. Retailing is
the driving force of the economy. It aims at promoting its sustained growth.
3. Retailing dominates the supply chain: Goods & service flow from manufacturers
to consumers. Where consumers are large in number & are widely distributed, the
role of retailers becomes crucial. Retailers serve as a connecting link between the
wholesalers & consumers. Due to its dominant position in the supply chain, the retail
structure has steadily developed over the years.

4. Retailing is interdisciplinary: The pace of growth within retailing is accelerating.

Retailing has emerged from a number of interrelated disciplines such as geography,
economics, management and marketing.
5. Retailing is acknowledged as a subject area in its own right: Potter has described
the academic study of retailing as the “Cinderella of the social sciences“. Retailing is
an accepted area of academic debate, such as marketing and management,
developed fully as an area of study.

6. Retailers enjoy status as major employers: In today’s society, retailers are the
major employers. It is estimated in developed countries that retail industry employs
one in nine of the workforce. Retailers employ a significant proportion of the overall
workforce.
7. Retailers are gatekeepers within the channel of distribution: Retailers are
becoming increasingly important in their role as gatekeepers within the channel of
distribution. In the past, suppliers were dominant. Retailers supplied the merchandise
that was on offer and consumers selected from them. As retailers have become
significantly powerful, they are able to influence suppliers and stock only the brands
they wish to sell. So, consumers are able to buy only what is stocked and offered to
them by the retailers. Retailers are thus considered as shaping consumer demand.

8. Retailing has scope for expanding internationally: Retailing offers scope for shifting
retail operations outside the home market. Retailers who focus on luxury goods
markets are expanding their business internationally. Retailers are moving into more
geographically and culturally distant markets. E.g. Walmart
Retail Strategy

Retail strategy is a holistic marketing plan for a product or a service to reach and
influence the consumers. This strategy covers everything from what retail channels a
product or service will be available in to what should be the price or sales incentive to
be given and how to display the product in the shelf.

Retail strategy is developed for product to be distributed through retail outlets. When
a product is sold through a retail outlet, a number of factors affect the sale of the
product. Some of the factors as already mentioned above are:

• Pricing/discounting of the product

• Incentive structure followed
• Promotions planned
• Placing of the product
• Display attractiveness
• Incentive structure for the retailers
These are some of the major factors & is not inclusive of all. Strategizing on how to
proceed in all to finally influence the consumer to buy your product is the
development of retail strategy.
The above mentioned factors are the controllable variables of a retail strategy. Apart
from planning for these a retail strategy should also take into account the
uncontrollable factors like seasonality, legal restrictions, economic conditions etc. in
order for the strategy to be effective.

A retailer, regardless of size or type, should utilize these 6 steps in strategic planning:

1. Define the type of business in terms of the goods or service category and the
company’s specific orientation (such as full service or “no frills”).

2. Set long-run & short-run objectives for sales & profit, market share, image, etc.

3. Determine the customer market to target on the basis of its characteristics (as
gender & income level) & needs (as product & brand preferences).
4. Devise an overall, long-run plan that gives general direction to the firm and its
employees.

5. Implement an integrated strategy that combines such factors as store location,

product assortment, pricing, and advertising and displays to achieve objectives.

6. Regularly evaluate performance and correct weaknesses or problems when

observed.
The Framework of Retailing

To better appreciate retelling’s role & the range of retailing activities, let us view it
from three different perspectives:

 Suppose we manage a manufacturing firm that makes vacuum cleaners. How

should we sell these items? We could distribute via big chains such as Best Buy or
small neighborhood appliance stores, have our own sales force visit people in their
homes (as Aerus-formerly Electrolux-does), or set up our own stores (if we have
the ability and resources to do so). We could sponsor TV infomercials or magazine
ads, complete with a toll-free phone number.
 Suppose we have an idea for a new way to teach first graders how to use
computer software for spelling & vocabulary. How should we implement this idea?
We could lease a store shopping center & run ads in a local paper, rent space &
rely on teacher referrals, or do mailings to parents & visit children in their homes.
In each case, the service is offered "live." But there is another option: we could
use an animated Web site to teach children online.

 Suppose that we, as consumers, want to buy apparel. What choices do we have?
We could go to a department store or an apparel store. We could shop with a full-
service retailer or a discounter. We could go to a shopping center or order from a
catalog. We could look to retailers that carry a wide range of clothing or look to
firms that specialize in one clothing category (such as leather coats). We could surf
around the Web and visit retailers around the globe.
There is a tendency to think of retailing as primarily involving the sale of tangible

(physical) goods. However, retailing also includes the sale of services. And this is a big
part of retailing. A service may be the shopper's primary purchase (such as a haircut)

or it may be part of the shopper's purchase of a good (such as furniture delivery).

Retailing does not have to involve a store. Mail and phone orders, direct selling
transactions, and vending machine sales all fall within the scope of retailing.

Retailing does not even have to include a "retailer." Manufacturers, importers,

nonprofit firms, and wholesalers act as retailers when they sell to final consumers in

their homes and offices, Web transactions, and vending machine sales all fall within
the scope of retailing.
The Impact of Retailing on the Economy

Retailing is a major part of U.S. and world commerce. Retail sales & employment are
vital economic contributors, & retail trends often mirror trends in a nation's overall

economy. According to the Department of Commerce, annual U.S. retail store sales
exceed $4 trillion representing one-third of the total economy. Telephone & mail-

order sales by non-store retailers, vending machines, direct selling, and the Web
generate hundreds of billions of dollars.
Personal consumption expenditures on financial, medical, legal, educational, & other

services account for another several hundred billion dollars in annual retail revenues.
Outside the US, retail sales are several trillions of dollars per year. Durable goods

stores-including motor vehicles & parts dealers; furniture, home furnishings,

electronics, & appliances stores; & building materials & hardware stores-make up 38

% of U.S. retail store sales. Nondurable goods & services stores-including general
merchandise stores; food & beverage stores; health & personal care stores; gasoline

stations; clothing & accessories stores; sporting goods, hobby, book, & music stores;

eating & drinking places; & miscellaneous retailers-together account for 62 % of U.S.
retail store sales.
A Retailer’s Role in a Distribution Channel

A retailer is a business that sells products and /or services to consumers for their
personal or family use. Retailers are the final business in a distribution that links
manufacturers to consumers.

A distribution channel is a set of firms that facilitate the movement of products from
the point of production to the point of sale to the ultimate consumer.

Manufacturers typically make products & sell them to retailers or wholesalers. When
manufacturers like Ralph Lauren & Dell sell directly to consumers, they’re performing
both production & retailing business activities. Wholesalers buy product from
manufacturers & resell these products to retailers, & retailers resell products to
consumers. Wholesalers satisfy retailers’ needs, whereas retailers direct their effort
to satisfying the needs of ultimate consumers. Some retail chains like Home Depot
and Office Depot, functions as both retailers & wholesalers. They’re performing
retailing activities when they sell to consumers but wholesaling activities when they
sell to other business, like building contractors or small business owners.
Vertical Integration means that a firm performs more than one set of activities in the
channel, such as investments by retailers in wholesaling or manufacturing.

Backward Integration arises when a retailer performs some distribution and

manufacturing activities, such as operating warehouses or designing private label

merchandise.

Forward Integration is when a manufacturer undertakes retailing activities, such as

Ralph Lauren operating its own retail stores.

Most large retailers – such as Safeway, Wal- Mart, Lowe’s – engage in both
wholesaling and retailing activities. They buy directly from manufacturers, have

merchandise shipped to their warehouses for storage, and then distribute the
merchandise to their stores.
The Retailer’s Role in the Sorting Process

Retailers often act as the contact between manufacturers, wholesalers, and the
consumer. Many manufacturers would like to make one basic type of item and sell
their entire inventory to as few buyers as possible, but consumers usually want to
choose from a variety of goods and services and purchase a limited quantity.

Retailers collect an assortment from various sources, buy in large quantity, and sell in
small amounts. This is the sorting process. Another job for retailers is communicating
both with customers and with manufacturers and wholesalers. Shoppers learn about
the availability and characteristics of goods and services, store hours, sales, and so on
from retailer ads, sales people, and displays.

Many firms now engage in multi channel retailing, whereby a retailer sells to
consumers through multiple retail formats (points of contact). Most large retailers
operate both physical stores and Web sites to make shopping easier and to
accommodate consumer desires.
Relationship Management among Retailers and Suppliers

Relationship among retailers and suppliers can be complex. Because retailers are part
of a distribution channel, manufacturers & wholesalers must be concerned about the
caliber of displays, customer service, store hours, & retailers’ reliability as business
partners. Retailers are also major customers of goods and services for resale, store
fixtures, computers, management consulting, & insurance. These are some issues
over which retailers & suppliers have different priorities control over the distribution
channel, profit allocation, the number of competing retailers handling suppliers’
products, products displays, promotion support, payment terms, & operating
flexibility. Due to the growth of chains, retailers have more power than ever. Unless
suppliers know retailers’ needs, they cannot have good rapport with them; and as
long as retailers have a choice of suppliers, they will pick those that offer more.
Distribution types

• Exclusive: suppliers make agreements with one or few retailers that designate the
latter as the only ones in a specified geographic area to carry certain brands or
products.

• Intensive: suppliers sell through as many retailers as possible.

• Selective: suppliers sell through a moderate number of retailers