Introduction To Retailing by Sumit Changes

ACCMAN Introduction to Retailing
POST GRADUATE PROGRAM
INTRODUCTION TO RETAILING
CONTENTS
1. Introduction to Retail
a. Introduction
b. Definition & Scope of Retailing
c. Functions of Retailing
d. Concept of Retailing
e. Evolution of Retailing in India
f. Factors behind the Change of Indian Retailing Industry
2. The Retail Management decision process
3. Retail Mix
4. Types of Retailers
5. Retail Marketing Environment
6. Retail Planning
a. Retail Strategic Planning Process
b. Global Strategic Planning Process
c. Human Resource Planning In Retailing
7. Retail Strategy
a. Retail Market Strategy
b. Retail Financial Strategy
8. Retail Organization
9. Organization of Retailing in the Indian Economy
10. Multi Channel Retailing
11. Challenges Ahead of Retailers
12. Merchandise Management
a. Merchandise Assortment Planning
b. Category Management
c. Assortment Planning Process
d. Merchandise Purchasing
e. Merchandise Handling
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13. Store Location & Site Evaluation

a. Introduction
b. Market Area Analysis
c. Trade Area Analysis
d. Site Evaluation & Selection
14. Customer Service
15. Consumer Behavior Model for Retailing
16. Consumer Shopping Behavior
17. Customer Relationship Management
18. Logistic
19. Rural Retailing in India
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INTRODUCTION TO RETAILING
Retailing is one of the largest industries in India and one of the biggest sources of employment in the
country. In the recent past the organized retailing has witnessed a tremendous growth. This has become
possible due to the entry of corporate like - the Piramals (Cross Roads), the Tatas (Westside chain of
stores), the Rahejas (Globus and Shoppers Stop), ITC (Wills Lifestyle), S Kumar's, RPG enterprises (Food
World, Giant, Music World and Health n Glow). According to a study by CII the present value of the
Indian retail market is US$ 180 billion with the organized sector representing a mere 2% share of this
market. If the growth rate is kept around 6-7%, the market is expected to be worth around US$ 300 billion
by 2010. But AT Kearney's estimate of the value of the Indian retail market is much more conservative.
According to this management consultancy, the Indian retail industry is currently worth Rs 400,000 crore,
and will increase to Rs 8, 00,000 crore by the year 2010. That is, it will experience an increase of 20 %
every year. KSA Technopak feels that by 2005, the organized retail sector would be employing more than
250,000 individuals directly and about 2.5 million indirectly.
RETAILING: DEFINITION AND SCOPE
Retailing is derived from the French word retailier which means, "to cut a piece off". Thus, retailing can
be defined as a set of business activities that adds value to the products and services sold to the final
consumers for their personal, family or household use. A retailer is the key player in the marketing
process as he regularly interacts with the end consumer. From a marketer’s point of view, retailing can be
defined as a set of marketing activities designed to provide satisfaction to the end consumer and profitably
maintain the customer base by continuous quality improvements across all areas concerned with selling
goods and services.
RETAILING INVOLVES:
 Understanding the needs of consumers
 Developing good assortment of merchandise
 Displaying the merchandise in an effective manner so that consumers find it easy and attractive to
buy.
A retailer is any business establishment that directs its marketing efforts towards the end users for the
purpose of selling goods and services. Retailers comprise street vendors, local kirana stores, supermarkets,
food joints, saloons, airlines, automobile showrooms, video kiosks, direct marketers, vending machine
operator An organization qualifies to be a retailer only when it derives a major chunk of its revenues from
its transactions with end users. Thus, a seller is said to have conducted a retail transaction when he sells
goods to the end customer while a wholesale transaction is conducted when the seller sells goods to a
business concern.
FUNCTIONS OF RETAILING
Retailers play a major role in the transfer of goods and services from the manufacturer to the
end consumer. In this process retailers deliver many benefits to customers, manufactures,
wholesalers and the economy.
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FUNCTIONS TO CUSTOMERS
Retailers act as buying agents for consumers. They perform various business activities that increase the
value of the goods and services they sell to the end consumer. If there were no retailers in the distribution
system, consumers would have to personally visit the manufacturers to procure the goods and services
required by them. As a buying agent, a retailer performs various activities to satisfy the end consumer.
These activities include:
1. Breaking bulk
2. Providing assortment
3. Holding inventory
4. Providing after sales services
5. Providing information
BREAKING BULK
Retailers buy goods in bulk from manufactures and divide them into smaller sellable units according to
consumption patterns of the end consumer. By buying in bulk, the retailers gain two benefits - quantity
discounts from manufactures and lower freight rates for large shipment of goods. Availability of products
in smaller units enables customers to buy products in quantities, which suit their consumption patterns
PROVIDING ASSORTMENT
Retailers evaluate the products of various manufactures and offer the best collection of products from
which the customer can select the product of his/her choice. Retailers select the product assortment
depending on the tastes and needs of their target customers. The variety in assortment offered makes the
buying process easier
HOLDING INVENTORY
Retailers carry inventory and make the products available to consumers at a convenient place and time.
Retailers make it possible for consumers to make instant purchases. This reduces the cost of storage and
enables the consumer to invest his money profitably.
For example, a customer can walk into an electronic goods showroom and buy a music system whenever
he wants, or pick up a music album from any music retail outlet. Such spontaneous shopping would not be
possible if retailers do not stock the goods.
PROVIDING SERVICES
Apart from selling goods, retailers also provide a variety of value added services, which make it easier for
customers to buy and use products. These services include providing free home delivery, accepting credit
cards, accepting payments on installment basis, arranging loans, etc.
PROVIDING INFORMATION
Retailer’s plays major role in providing product related information to their consumers. Retailers use
advertising and in-store salespersons to provide product information, which helps the consumer to
simplify his purchasing process.
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FUNCTIONS TO MANUFACTURES AND WHOLESALERS
Manufacturers and wholesalers consider retailing as a channel for delivering their products/services to the
end customer. By selling products and services (of a manufacturer on a much larger scale), retailers
provide the manufacturer with greater revenues, which could be reinvested in production. Thus, retailer’s
play a major role in smoothing out the variation between the production and sales of the manufacturer's
products.
Retailers function as the sensory organs of manufacturers. While designing new products or upgrading an
existing product, manufacturers depend on retailers to gather information regarding the tastes and
preferences of customers. Retailers provide feedback on the goods and services offered by them. This
helps them to make modifications to the existing products or launch new products to satisfy the needs of
customers.
Retailers also share some of the risks of the manufacturer by paying for the goods before they are actually
sold to the fina1 customer. A retailer is exposed to three types of obsolescence risks:
 Physical obsolescence
 Technological obsolescence
 Fashion obsolescence
Physical obsolescence risk arises from the damage or wears out caused to the products while they are
stored in the retail outlet. This type of risk is common for stores dealing in handicrafts, books, greeting
cards, gift items etc. Retailers dealing in high technology products that are upgraded very frequently face
the risk of technological obsolescence. Retailers dealing in products like garments face the risk of fashion
obsolescence.
FUNCTIONS TO THE ECONOMY

The retailing business is the largest private industry in the world with a turnover of US $6.6 trillion.
Retailing plays a crucial role in the management of world economy and retailers constitute a tenth of the
Fortune 500 companies. In India, retailing accounts for over 10 per cent of the country's GDP and around
eight per cent of the employment, only next to the agricultural industry. The value of the total retail trade
in India was at Rs. 400,000 crore in 1999 and analysts feel that this will increase at the rate of 20 percent
every year and touch Rs. 800,000 crore by the year 2005. In the year 2000 India's per capita GDP was $
468 and per capita retail sales amounted to $220.
THE RETAILING CONCEPT

The four principles together constitute retailing concept are given below
1. Customer orientation- The retailer determines the attributes and needs of its customers and
endeavors to satisfy these needs to the fullest.
2. Coordinated effort- The retailer integrates all plans and activities to maximize efficiencies.
3. Value-driven.- The retailer offers good value to customers, whether it be upscale or discount
This means having prices appropriate for the level of products.
4. Goal orientation- The retailers goals and then uses its strategy to attain them.
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EVOLUTION OF RETAILING
In the early eighties 'retailing' in India was synonymous with peddlers, vegetable vendors, neighborhood
kirana stores (small grocery stores) or sole clothing and consumer durable stores in a nearby town. These
retailers operated in a highly unstructured and fragmented market. Very few retailers operated in more
than one city. Before 1990, organized retailing in India was led by few manufacturer owned retail outlets,
mainly from the textile industry, for example, Bombay Dyeing, Raymonds, S Kumar's, and Grasim. But,
the Indian retail scenario started changing in the nineties. Liberalization of the Indian economy led to the
dilution of stringent restrictions. This stores in a nearby town. These retailers operated in a highly
unstructured and fragmented market. Very few retailers operated in more than one city. Before 1990,
organized retailing in India was led by few manufacturer owned retail outlets, mainly from the textile
industry, for example, Bombay Dyeing, Raymonds, S Kumar's, and Grasim. But, the Indian retail scenario
started changing in the nineties. Liberalization of the Indian economy led to the dilution of stringent
restrictions. This paved the way for the entry of few multi-national players like Nanz into the Indian
market. This was further augmented by the changing profile of the Indian consumers, who were being
greatly influenced by western lifestyles. Increasing wages of the employees working in Greenfield sectors
gave rise to a completely new group of buyers with higher purchasing power. Moreover, the entry of
multinational brands also generated considerable enthusiasm and interest among domestic retailers. This
encouraged setting up of retail chains by domestic retailers like Cotton World (Mumbai), Nirula's (Delhi)
and the Viveks'and Nilgiris in the South.
FACTORS BEHIND THE CHANGE OF INDIAN RETAILING INDUSTRY
1. ECONOMIC GROWTH
India is one of the largest economies in the world. The gradual increase in Gross Domestic Product (GDP)
and the purchasing power of Indians provided an excellent opportunity for organized retailing. According
to a International Monetary Fund Report (1998), private consumption in India accounts for 61.4% of the
GDP. India was ranked as the fourth largest economy in the world in terms of its Purchasing Power Parity
(PPP).
2. URBANIZATION
Twentieth century witnessed a rapid growth of urban population in India. While the total population of
India grew by 3.5 times from 1901 to 1991, its urban population increased nine fold from 25 million to
217 million in the same period. The share of urban population in Class I cities (with population100,000
and above) in the tota1 urban population has increased from 26 percent to 65 percent during this period.
The number of cities with, 'million plus' population has increased from I (190 I) to 23 (1991). These 23
cities accounted for 32.5 percent of India's total urban population. These cities contribute nearly 55
percent of the GDP of India and this share is expected to rise further in the coming years. This rising
concentration of urban population with higher purchasing power has attracted big players to venture into
organized retailing in these cities. Time constraints and traffic congestion in the cities has led to the
increased popularity of one stop shopping among urban customers.
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3. CONSUMERISM
The increasing influence of the western media has led to a considerable change in the lifestyle of the
Indian consumer. The economic well being of the Indian middle class and their growing aspirations for
material comforts has also been responsible for consumerism slowly gaining momentum in India. Today,
the Indian consumer is more inclined towards buying goods like cars, washing machines, audio systems,
designer dresses, cosmetics and other personal care products.
4. BRAND PROFUSION
Consumerism and increased brand consciousness of Indian consumers has led to increased number of
brands. Today every product is branded. Even products like salt, oil, flour etc., which were sold as
commodities a decade ago are now branded. Although there are no international retail stores in India,
almost every international brand is available to the Indian consumer. India also has its share of strong
domestic products like Titan watches Asian paints, McDowell's whisky, Kingfisher beer etc. Thus, the
launch of more and more brands into" the market increased the demand for shelf space and. hence the
demand for more retail outlets.
5. AVAILABILITY OF REAL ESTATE
The cost of real estate forms a major part of the fixed investment for a retailer. In the last few years, real
estate prices have hit the lowest and encouraged many entrepreneurs to set up retail stores in different
parts of the country. Apart from the decrease in real estate costs, availability of ample retail space also has
led to the proliferation of retail stores in India.
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THE RETAIL MANAGEMENT DECISLON-PROCESS
The over all retail management decision process consists of four steps:
STEP 1: UNDERSTANDING THE RETAIL ORGANIZATION
The first step in the retail management decision process is getting an understanding of the world of
retailing. Retail managers need to understand their environment, especially their customers and
competition, before they can develop and implement effective strategies.
The critical environmental factors in the world of retailing are:
The Macro Environment

The Micro Environment
Macro Environment- Its includes Technological, Social, Ethical, Legal and Political factors .
Micro Environment – Its includes the retailer's competitors and customers.
Figure for Retail Management Decision Process
Step 2:DEVELOPING A RETAIL STRATEGY
The next stages in the retail management decision-making process is formulating and
implementing a retail strategy based on an understanding of the macro and microenvironments
and focuses on decisions related to developing a retail strategy. The retail strategy indicates
how the firm plans to focus its resources to accomplish its objectives. It identifies
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1. The target market, or markets, toward which the retailer will direct its efforts.
2. The nature of the merchandise and services the retailer will offer to satisfy needs of the target .market.
3. .How the retailer will build a long-term advantage over competitors.
STEP 3. IMPLEMENTING THE RETAIL STRATEGY
To implement a retail strategy, management develops a retail mix that satisfies the needs of its target
market better than its competitors. The retail mix is the combination of factors retailers use to satisfy
customer needs and influence their purchase decisions. Elements in retail mix include the types of
merchandise and services offered, merchandise pricing, advertising and promotional programs, store
design, merchandise display, assistance to customers provided by salespeople, and convenience of the
store's location.
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RETAIL MIX
The retail mix is the combination of factors retailers use to satisfy customer needs and influence their
purchase decisions. Elements in retail mix include the types of merchandise and services offered,
merchandise pricing, advertising and promotional programs, store design, merchandise. .display,
assistance to customers provided by salespeople, and convenience of the store's location which we will
discuss later..
Figure for Elements In The 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 it 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 width of your offering (number of SKUs) as well as the stock
levels, expected inventory turnover, re-order policy, and anticipated vendor relationships.
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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
CUSTOMER SERVICE
Retailers also build a sustainable competitive advantage by offering excellent customer service.
In developing customer service retailer must understand customer needs , nature of service etc.
A good service is a valuable strategic asset.
Figure below shows the Retail Marketing Mix of The Impact Distribution Group
THE RETAIL MARKETING MIX
The Impact Distribution Group covers a comprehensive range of greeting cards, seasonal
lines, stationery, Post Office supplies and toy products to meet the requirements of the
retail environment. Competitive pricing and quality products, attractively displayed and
presented, help to maximize retail sales.
GREETING
QUALITY
CARDS
COMPREHENSIVE LEADING ONE STOP
PRODUCT SEASONAL OWN BRAND
RANGE (BAR BRANDS SHOP
STATIONERY
CODING)
AND TOYS
BULK BUYING 35
COMPETITIVE PROFESSIONAL ATTRACTIVE
PRICE BUSINESS
PRICING BUYERS PROMOTIONS
BUYING POWER
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44 OUTLETS
DELIVERED
PLACE UK AND CASH & CARRY VAN SALES
SALES
IRELAND
PROMOTIONS
ATTRACTIVE
POINT OF MERCHANDISING STOCK AND
PROMOTION RETAIL
SALE UNITS CONTROL SEASONAL
PACKAGING
OFFERS
http://www.impact-group.co.uk/pages/jointhegroup/retailmix.html
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TYPES OF RETAILING
One criteria of classify retailing is
STORE BASED RETAILING:

Retailers who are using strategy mixes that are store based to reach consumers and complete transactions.
NON STORE BASED RETAILING:
Retailers who are using strategy mixes that are non store based to reach consumers and complete
transactions
Another criteria of classify retailing is
SINGLE CHANNEL RETAILING
MULTI CHANNEL RETAILING
In single channel retailing a retailer often relies on one retail format. That one format may store based (a
corner shoe store) or non store-based (catalog retailing, direct selling, or Web retailing). As the firm
grows, it may turn to multi-channel retailing, whereby a retailer sells to consumers through multiple retail
formats.
Multi-channel retailing enables a firm to reach different customer groups, share costs among various
formats, and diversify its supplier base. Retail leader Wal-Mart sells through stores (including Wal-Mart
stores, Sam's Club, and Neighborhood Market) and a Web site (www.walmart.com).
TYPES OF RETAILING
Retail firms may be independently owned, chain-owned, franchisee-operated, leased departments, owned
by manufacturers or wholesalers, or consumer owned. Each ownership format serves a marketplace niche,
if the strategy is executed well. .
Independent retailers capitalize on a much targeted customer base and please shoppers in a friendly, folksy
way. Word-of-mouth communication is important. These retailers should not try to serve too many
customers or enter into price wars.
Chain retailers benefit from their widely known image and from economies of scales and mass promotion
possibilities. They should maintain their image.
Franchisers have strong geographic coverage due to franchisee investments and the motivation of
franchisees as owner-operators. They should not get bogged down in policy disputes with franchisees or
charge excessive royalty fees.
Leased departments enable store 0perators and outside parties to join forces and enhance the shopping
experience, while sharing expertise and expenses. They should not hurt the image of the store or place too
much pressure op the lessee to bring in store traffic.
A vertically integrated channel gives a firm greater control over sources of supply, but it should not
provide consumers with too little choice of products or too few outlets.
INDEPENDENT RETAILER
An independent retailer owns one retail Unit. Seventy percent of independents are run by the owners and
their families. The high number of independents is associated with the ease of entry in the marketplace,
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due to low capital requirements and no, or relatively simple, licensing provisions for many small retail
firms. The investment per worker in retailing is usually much lower than for manufacturers, and licensing
is pretty routine.. Each year, tens of thousands of new retailers, mostly independents, open in the United
States
The ease of entry which leads to intense competition-is a big factor in the high rate of failures among
newer firms.
ADVANTAGES OF INDEPENDENT STORES
There is flexibility in choosing retail formats and locations, and in devising strategy. Because only one
location is involved, detailed specifications can be set for the best site and a thorough search undertaken.
Uniform location standards are not needed, as they are for chains, and independents do not have to worry
about company stores being too close.
Investment costs for leases, fixtures, workers, and merchandise can be held down; and there is no
duplication of stock or personnel functions. Responsibilities are clearly delineated within a store.
Independents frequently act as specialists in a niche of a particular goods/ service category ·
Independents exert strong control over their strategies, and the owner-operator is typically on the
premises.
There is a certain image attached to independents, particularly small ones that chains cannot readily
capture. This is the image of a personable retailer with a comfortable atmosphere in which to shop
Independents can easily sustain consistency in their efforts because only one store is operated.
Independents have "independence." They do' not have to fret about stock holders, board of directors
meetings, and labor unrest. They are often free from unions and seniority rules. Owner-operators typically
have a strong entrepreneurial drive.
DISADVANTAGES OF INDEPENDENT STORES
In bargaining with suppliers, independents may not have much power because they often buy in small
quantities. Suppliers may even bypass them. Independents generally cannot gain economies of scale in
buying and maintaining inventory Due to financial constraints, small assortments are bought several times
a year.
Transportation, ordering, and handling costs per unit are high.

Operations are labor intensive, sometimes with little computerization. Ordering, managing inventory,
marking items, ringing up sales, and book keeping may be done manually. This is less efficient than
computerization.
CHAIN STORES:
A chain retailer operates multiple outlets under common ownership. It usually engages in some level of
centralized purchasing and decision making.
ADVANTAGES OF CHAIN STORE :
There are abundant competitive advantages for chain retailers:
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Many chains have bargaining power due to their purchase volume. They receive new items when
introduced, have orders promptly filled, get sales support, and obtain volume discounts. Large chains may
also gain exclusive rights to certain items and have goods produced under the chains' brands.
Chains achieve cost efficiencies when they buy directly from manufacturers and in large volume, ship and
store goods, and attend trade shows sponsored by suppliers to learn about new offerings. They can
sometimes bypass whole sellers, the result being lower supplier prices Efficiency is gained by sharing
warehouse facilities; purchasing standardized store fixtures; centralized buying and decision making; and
other practices.
Chains typically give headquarters executive’s broad authority for personnel policies and for buying,
pricing, and advertising decisions.
Chains use computers in ordering merchandise, taking inventory, forecasting, and book keeping. This
increases efficiency and reduces over all costs.
Chains, particularly national or regional ones, can take advantage of a variety of media from TV to
magazines to newspapers.
Most chains have defined management philosophies, with detailed strategies and clear employee
responsibilities. There is continuity when managerial personnel are absent or retire because there are
qualified people to fill in and succession plans in place.
Many chains expend considerable time on long-run planning and assign specific staff to planning on a
permanent basis. Opportunities and threats are carefully monitored.
DISADVANTAGES OF CHAIN STORE
Once chains are established, flexibility may be limited.

Investments are high.
Managerial control is complex
FRANCHISE
Franchising involves a contractual arrangement between a franchisor (a manufacturer, wholesaler, or

service sponsor) and a retail franchisee, which allows the franchisee to conduct business under an
established name and according to a given pattern of business. The franchisee typically pays an initial fee
and a monthly percentage of gross sales in exchange for the exclusive rights to sell goods and services in
an area benefit by being part of a large chain.
THREE STRUCTURAL ARRANGEMENTS DOMINATE RETAILFRANCHISING.
1. Manufacturer-retailer. A manufacturer gives independent franchisees the right to sell goods and
related services through a licensing agreement
2. Wholesaler-retailer.
1. Voluntary. A wholesaler sets up a franchise system and grants franchises to Individual
retailers.
2. Cooperative. A group of retailers sets up a franchise system
3. Service sponsor-retailer.
A service firm licenses individual retailers so that they offer specific service packages to consumers
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ADVANTAGES:
They own a retail enterprise with a relatively small capital investment.

They acquire well-known names and goods/service lines.
Standard operating procedures and management skills may be taught to them.
Cooperative Marketing efforts (such as national advertising) are facilitated
Drawbacks:
In some industries franchise agreements are of short duration.

Royalties are often a percentage of gross sales, regardless of franchisee profits.
Franchisees harm the overall reputation if they do not adhere to company standards.
A lack of uniformity among outlets adversely affects customer loyalty
The resale value of individual units is injured if franchisees perform poorly.
LEASED DEPARTMENT
Is a department in a retail store usually a department, discount, or specialty store-that is rented to an

outside party. The leased department proprietor is responsible for all aspects of its business and normally
pays a percentage of sales as rent. The store sets operating restrictions for the leased department to ensure
overall consistency and coordination.
Leased departments are used by store-based retailers to broaden their offerings into product categories that
often are on the fringe of the store's. major product lines. They are most common for in-store beauty
salons, banks, photographic studios, and shoe, jewelry, cosmetics, watch repair, and shoe repair
departments. Leased departments are also popular in shopping center food Courts
ADVANTAGES OF LEASED DEPARTMENTS .
From the stores' perspective, leased departments offer a number of benefits:

The market is enlarged by providing one-'stop customer shopping.
Personnel management, merchandise displays, and reordering items are undertaken by lessees
Regular store personnel do not have to be involved.
Leased department operators pay for some expenses, thus reducing store costs.
A percentage of revenues is received regularly
THERE ARE ALSO SOME POTENTIAL PITFALLS, FROM THE STORES' PERSPECTIVE:
1. Leased department operating procedures may conflict with store procedures
2. Lessees may adversely affect stores' images
3. Customers may blame problems on the stores rather than On the lessees.
VERTICLE MARKETING SYSTEM
A vertical marketing system consists of all the levels of independently owned businesses along a channel
of distribution. Goods and services are normally distributed through one of these systems: independent,
partially integrated; and fully integrated.
In an independent vertical marketing system, there are three levels of independently

owned firms: manufacturers, .wholesalers and retailers. Such a system is most often used if manufacturer
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or retailers are small, intensive distribution is sought, customers are widely dispersed, unit sales are high,
company resources are low, channel members seek to share costs and risks, and task specialization is
desirable. Independent vertical marketing systems are used by many stationery stores, gift shops, hardware
stores.
Through a fully integrated system, one firm performs all production and distribution functions. The firm
has total control over its strategy, direct customer contact, and exclusivity over its offering; and it keeps
all profits. This system can be costly and requires a lot of expertise. Some firm use dual (a form of multi-
channel retailing) and engage in more than one type of distribution arrangement. In this way, firms appeal
to different consumers, increase sales, share some costs, and retain a good degree of strategic control
With a partially integrated system, two independently owned businesses along a channel perform all
production and distribution functions. It is most common when a manufacturer and a retailer complete
transactions and shipping, storing and other distribution functions in the absence of a wholesaler. This
system is. Most appropriate if manufacturers and retailers are large, selective or exclusive distribution is
sought, unit sales are moderate, company resources are high; greater channel control is desired, and
existing wholesalers are too expensive or unavailable .Partially integrated systems are often used by
furniture stores, appliance stores, restaurants, computer retailers, and mail-order firms.
RETAIL INSTITUTIONS CATEGORIZED BY STORE BASED STRATEGY MIX
FOOD-ORIENTED RETAILERS
The following food-oriented strategic retail formats are described next: convenience store, conventional
supermarket, food based superstore, combination store, box (limited-line) store, warehouse store.
CONVENIENCE STORE
A convenience store is typically a well-located, food-oriented retailer that is open long hours and carries a
moderate number of items. The store facility is small (only a fraction of the size of a conventional
supermarket), has a average to above average prices, and average atmosphere and customer services. The
ease of shopping at convenience stores and the impersonal nature of many large supermarkets make
convenience stores particularly appealing to their customers, many of whom are male.
Items such as milk, eggs, and bread once represented the major portion of sales; now
sandwiches, tobacco products, snack foods, soft drinks, newspapers and magazines, beer and
wine, video rentals, ATMs, and lottery tickets are also key items. And gasoline generates 30
percent or more of total sales at most of the convenience stores that carry it.
The convenience store's advantages are its usefulness when a consumer does not want to travel to or shop
at a supermarket, the availability of both fill-in items and gas, long hours, and drive-through windows.
Many customers shop there multiple times a week, and the average transaction is small. Due to limited
shelf space, stores receive frequent deliveries and there are high handling costs. Customers are less price-
sensitive than those at other food-oriented retailers.
The industry does have problems: Some areas are saturated with stores supermarkets have longer hours
and more nonfood items; some stores are too big making shopping less convenient.
CONVENTIONAL SUPER MARKET
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A conventional supermarket is a departmentalized food store with wide range of food and related
products; sales of general merchandise are rather limited. This institution started 75 years ago when it was
recognized that large-scale operations would let a retailer combine volume sales, self-service, and low
prices. Self-service enabled supermarkets to both cut costs and increase volume. Personnel costs were
reduced and impulse buying increased For several decades, overall supermarket sales have been about 70
to 75 percent of U.S. grocery sales, with conventional supermarkets now yielding 26 percent of total
supermarket sales. Conventional supermarkets generally rely on high inventory turnover (volume sa1es).
Their profit margins are low. In general, average gross margins (selling price less merchandise cost) are
20 to 22 percent of sales and net profits are 1 to3 percent of sales.
These stores face intense competition from other food stores: Convenience stores offer greater customer
convenience; food-based superstores and combination stores have more product lines and greater variety
within them, as well as better margins; and box and warehouse stores have lower operating costs and
prices
FOOD-BASED SUPERSTORE
A food-based superstore is larger and more diversified than a conventional supermarket but usually
smaller and less diversified than a combination store
This format originated in the 1970s as supermarkets sought to stem sales declines by expanding store size
and the number of nonfood items carried. Some supermarkets merged with drugstores or general
merchandise stores but more grew into food-based superstores. There are 9,500 food-based U.s.
superstores, with sales of $200 billion.12.
The typical food-based superstore occupies at least 30,000 to 50,000 square feet of space and 20 to 25
percent of sales are from general merchandise, including garden supplies, flowers, small appliances, and
film developing. It caters to consumers' complete grocery needs, along with fill-in general merchandise.
Like combination Stores, food-based superstores are efficient, offer a degree of one stop shopping,
stimulate impulse purchases, and feature high-profit general merchandise,
COMBINATION STORE
A combination store unites supermarket and general merchandise in one facility, with general
merchandise accounting for 25 to 40 percent of sales. The format began in the late 1960s and early 1970s,
as common checkout areas were set up for separately owned supermarkets and drugstores or supermarkets
and general merchandise stores. The natural offshoot was integrating operations under one management.
There are 3,500 U.S. combination stores and annual sales are $100 billion
Combination stores are large from 30,000 up to 100,000 or more square feet. This leads to operating
efficiencies and cost savings. Consumers like one-stop shopping and will travel to get there. Impulse sales
are high. Many general merchandise items have better margins than food item. Supermarkets and
drugstores have commonalities in the customers served and the low-price, high-turnover items sold.
Drugs store and general merchandise customers are drawn to the store mere often.
BOX (LIMITED-LINE) STORE
The box (limited-line) store is a food-based discounter that focuses on a small selection .of items,
moderate hours of operation, few services, and limited manufacturer brands. It carries fewer than 2,000
items, few refrigerated perishables, and few sizes and brands per item. Prices are on shelves or overhead
signs. Items are displayed in cut cases. Box stores rely on low-priced private-label brands. Their prices are
20 to 30 percent below supermarkets. The box store originated in Europe and was exported to the United
States in the mid-1970s. The growth .of these stores have net been as anticipated, as sales rose modestly
over the last decade.
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WAREHOUSE STORE
A warehouse store is a food-based discounter offering a moderate number of food items. It appeals to one-
stop food shoppers, concentrates on special purchases of popular brands, uses cut-case displays, offers
little service posts prices en shelves; and locates in secondary sites. Warehouse began in the late 1970s.
There are now 1,400 warehouse stores in U.S. with $35 billion in annual sales.
SPECIALTY STORE
A specialty store concentrates on selling one goods or service line, such as young women's apparel. It
usually carries a narrow, but deep assortment in the chosen category and tailors the strategy to a given
market segment. This enables the store to maintain a better selection and sales expertise than competitors,
which are often department stores. Investments are controlled, and there is a certain amount of flexibility.
Among the most popular categories of specialty store are personal care, auto supply, home furnishings,
electronics, books, toys, home improvement, pet supplies, jewelry, and sporting goods.
Consumers often shop at specialty stores because of the knowledgeable sales personnel, the variety of
choices within the given category, customer service policies, intimate store size and atmosphere, the lack
of crowds and the absence of aisles of unrelated merchandise that they must pass through. Some specialty
stores have elaborate fixtures and upscale merchandise for affluent customer whereas others are discount
oriented and aim at price-conscious consumers.
one type of specialty store-the category killer-has gained particular strength. A category killer (also known
as a power retailer) is an especially large specialty store. It features an enormous selection in its category
and relatively low prices. Consumers are drawn from wide geographic areas.
TRADITIONAL DEPARTMENT STORE

A department store is a large retail unit with an extensive assortment (width and depth) of goods and
services that is organized into separate departments for purposes of buying, promotion, customer service,
and control. It has the most selection of any general merchandise retailer, often serves as the anchor store
in a shopping center or district, has strong credit card penetration, and is usually part, of a chain. To be
classified as a departmental store, a retailer must .sell a wide range of products-such as apparel, furniture,
appliances, and home furnishings. and selected other items, such as paint, hardware, toiletries, cosmetics,
photo equipment, jewelry, toys, and sporting goods-with no one merchandise line predominating. '
Two basic types of retailers meet the preceding criteria: the traditional department store and the full-line
discount store.
At a traditional departmental store; merchandise quality ranges from average to quite good. Pricing is ,
moderate to above average. Customer service ranges from medium levels of sales help, credit, delivery,
and so forth to high levels of each.
Over its history; the traditiona1 department store has contributed many innovations, such as advertising
prices, enacting a one-price policy developing computerized checkouts, offering money back guarantees,
adding branch stores, decentralizing management and moving into suburban shopping centers.
Reasons for traditional department stores' difficulties:
They no longer have brand exclusivity for a lot of the popular items they sell.
Instead of creating more of their own brands, they have signed exclusive.
Licensing agreements with fashion designers to use the designer’s name. This generates loyalty to the
designer, not the retailer.
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Price-conscious consumers are more attracted to discounters than' to traditional department stores.
The popularity of shopping centers has aided specialty stores since consumers can engage in one-stop
shopping at several specialty stores same shopping center. Department stores do not dominate
the smaller stores around them as they once did.
Specialty stores often have better assortments in the lines they carry.
Customer service has deteriorated. Often, store personnel are not as loyal, helpful,
or knowledgeable.
Some stores are too big and have too much unproductive selling space and low-
turnover merchandise.
Many department stores have had a weak focus on market segments and a fuzzy
image.
Such chains have repeatedly changed strategic orientation, confusing consumers as

to their image as traditional department store chain or a full-line discount store
chain
Some companies are not as innovative in their merchandise decisions as they once
were.
FULL-LINE DISCOUNT STORE

A full-line discount store is a type of department store with these features:
High-volume, low-cost outlet selling a broad product assortment for less than
conventional prices.
The range of product lines once expected at department stores, including
electronics, furniture, and appliances-as well as auto accessories, gardening tools,
and house wares. Shopping carts and centralized checkout service are provided.
Customer service is not usually provided within store departments..Products are normally sold via self-
service with minima:
Nondurable (soft) goods feature private, brands, whereas durable (hard) goods emphasize well-known
manufacturer brands.
Less fashion-sensitive merchandise is carried.
Buildings, equipment, and fixtures are less expensive; and operating costs are lower than for traditional
department stores and specialty stores.
THE SUCCESS OF FULL-LINE DISCOUNT STORES IS DUE TO MANY FACTORS.
The have a clear customer focus: middle -class and lower-middle-class shoppers looking for good value.
The stores feature popular brands of average- to good-quality merchandise at competitive prices.
They have expanded their goods and service categories and often have their own private brands.
Firms have worked hard to improve their image and provide more customer services.
- 20 -
Some full-line discount stores are located in small towns where competition is less intense.
Facilities may be newer than those of many traditional department stores.
THE GREATEST CHALLENGES FACING FULL-LINE DISCOUNT STORES ARE:
The competition from other retailers (especially lower-priced discounters and category killers)
Too rapid expansion of some firms saturation of prime locations. The industry has undergone a number of
consolidations, bankruptcies, and liquidations
VARIETY STORE
A variety store handles an assortment of inexpensive and popularly priced goods and services, such as
apparel and accessories, costume jewelry, notions and small wares, candy, toys, and other items in the
price range. There are open displays and few salespeople. The stores do not carry full product lines, may
not be departmentalized, and do not deliver products. Although the conventional variety store format has
faded away there are two successful spin-Offs from it: dollar discount stores and closeout chains. . '.
Dollar discount stores sell similar items to those in conventional variety stores but in plainer
surroundings and at much lower prices.
Closeout chain sells similar items to those in conventional variety stores but feature closeouts and
overruns.
OFF-PRICE CHAIN
An off-price chain features brand-name (sometimes designer) apparel and accessories, footwear (primarily
women's and family), linens, fabrics cosmetics, and/ or house wares and sells them at everyday low prices
in an efficient, limited service environment. It frequently has community dressing rooms, centralized
checkout counters, no gift wrapping, and extra charges for alterations. The chains buy merchandise
opportunistically, as special deals occur, other retailers' canceled orders, manufacturer’s irregulars and
overruns, and end-of-season items are often purchased for a fraction of their original wholesale prices.
Off-price chains usually aim at the same shoppers as traditional department but with prices reduced by 40
to 50 percent. The most crucial strategic element for off-price chains involves buying merchandise and
establishing long-term relationships with suppliers. To succeed, the chains must secure large quantities-of
merchandise at reduced wholesale prices and have a regular flow of goods into the stores. Sometimes
manufacturers use off-price chains to sell samples, products that are not doing well when they are
introduced, and merchandise remaining near the end of a season. At other times, off-price chains employ a
more active buying strategy. Instead of waiting for closeouts and canceled orders, they convince
manufacturers to make merchandise during off-seasons and pay cash for items early. Off-price chains are
less demanding in terms of the support requested from suppliers, they do not return products, and they pay
promptly.
Off-price chains face some market pressure because of competition from other institutional formats that
run frequent sales throughout the year, the discontinuity of merchandise, poor management at some firms,
insufficient customer service for some shoppers, and the shakeout of under financed companies.
FACTORY OUTLET
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A factory outlet is a manufacturer-owned store selling closeouts, discontinued merchandise, irregulars,

canceled orders and sometimes, in season, first quality .merchandise. Manufacturers' interest in outlet
stores has risen for four reasons
(1) Manufacturers can control where their discounted merchandise is sold. By placing outlets in out-
of- the-way spots with low sales penetration of the firm's brands, outlet revenues do not affect
sales at key specialty and department store accounts.
(2) Outlets are profitable despite prices up to 60 percent less than customary retail prices due to low
Operating costs-few services, low rent, limited displays, and plain store fixtures.
(3) The manufacturer decides on store visibility sets promotion policies, removes labels, and ensures
that discontinued items and irregulars are disposed of properly. 4) Because many specialty and
department stores are increasing private label sales, manufacturers need revenue from outlets
stores to sustain their own growth.
MEMBERSHIP CLUB
. .
A membership (warehouse) club appeals to price-conscious consumers, who must be members to shop
there. It straddles the line between wholesaling and retailing. Some members are small business owners
and employees who pay a membership fee to buy merchandise at wholesale prices. They make purchases
for use in operating their firms or for personal use and yield 60 percent of club sales. Most members are
final consumers who buy for their own use; they represent 40 percent of club sales. They also pay a fee
and must belong to a union, be municipal employees, work for educational institutions. Prices may be
slightly more than for business customers.
The operating strategy of the modern membership club centers on large stores (up to 100,000 or more
square feet), inexpensive isolated or industrial locations, opportunistic buying (with some merchandise
discontinuity), a fraction of the items stocked by full-line discount stores, little advertising, plain fixtures,
wide aisles to give forklift trucks access to shelves, concrete floors, limited delivery, fewer credit options,
and very low prices. A typical club carries general merchandise, such as consumer electronics, appliances,
computers, house wares and apparel (35 to 60 percent of sales); food (20 to 35 percent of sales); and
sundries, such as health and beauty aids, tobacco, liquor and candy (15% to 30% of sales).
DIRECT MARKETING
In direct marketing, a customer is first exposed to a good or service through a non personal medium
(direct mail, radio, magazine, newspaper, or computer) and then orders by mail, phone, or fax-and
increasingly by computer. Annual U.S. sales are more than $300 billion (including the Web), and more
than half of adults make at least one such purchase a year. Japan Germany, Great Britain, France, and Italy
are the among the direct marketing leaders outside the United States.4 Popular products are gift items,
apparel, magazines, books and music, sports equipment, home accessories, food, and insurance.
In the United States, direct marketing customers are more apt to be married, upper middle class, and 35 to
50 years of age. Mail shoppers are more likely to live in areas away from malls. Phone shoppers are
more likely to live in Upscale metropolitan areas, and they want to avoid traffic and save time. The
share of direct marketing purchases made by men has grown.
DIRECT MARKETING HAS A NUMBER OF STRATEGIC BUSINESS ADVANTAGES
Many costs are reduced-low startup costs are possible; inventories are reduced; no displays are needed; a
prime location is unnecessary; regularly staffed store hours are not important; a sales force may not be
needed; and business may be run out of a garage or basement.
It is possible for direct marketers to have lower prices (due to reduced costs) than store-based retailers .
- 22 -
Customers shop conveniently-without crowds, parking congestion, or checkout lines. And they do not
have safety concerns about shopping early in the morning or late at night.
'
Specific consumer segments are pinpointed through targeted mailings.
Consumers may sometimes legally avoid sales tax by buying from direct marketers not having retail
facilities in their state.
A non store-based firm can supplement its regular business and expand its trading area (even becoming
national or global) without adding outlets.
DIRECT MARKETING ALSO HAS ITS LIMITS
Products cannot be examined before purchase. Thus, the range of items purchased is more limited than in
stores, and firms need liberal return policies to attract and keep customers
Prospective firms may underestimate costs. Catalogs can be expensive. A computer system is required to
track shipments, monitor purchases and returns, and keep mailing lists current. A 24-hour phone staff may
be needed.
Even successful catalogs often draw purchases from less than 10 percent of recipients. Each year,
billions of catalogs are mailed in the United States alone.
Printed catalogs are prepared well in advance, causing difficulties in price and style planning.
Some firms have given the industry a bad name due to delivery delays and shoddy goods.
Direct selling includes both personal contact with consumers in their homes (and other non store locations
such as offices) Cosmetics, jewelry, vitamins, household goods and services (such as carpet cleaning)
.vacuum cleaners, and magazines and newspapers are among the items some times sold in: this way. The
industry has $31 billion in annual U.S. sales and employs 14 million people (more than 80 percent part-
time).
The direct selling strategy mix emphasizes convenient shopping and a personal touch, and detailed
demonstrations can be made. Costumers often relax more in their homes than in stores. They are also
likely to be attentive and are not exposed to competing brands (as they are in stores). For some shoppers,
such as older consumers and those with young children, in-store shopping is hard due to limited mobility.
For the retailer direct selling has lower overhead costs because stores and fixtures are not necessary. . .
Despite its advantages, direct selling is growing slowly:
More women work, and they may not be interested in or available for in-home selling.
Improved job opportunities in other fields and the interest in full-time careers have reduced the pool of
people interested in direct selling jobs.
A firm's market coverage is limited by the size of its sales force.
Sales productivity is low since the average transaction is small and most consumers are unreceptive-many
will not open their doors to salespeople or talk to telemarketers.
Sales force turnover is high because employees are often poorly supervised part timers.
OTHER NONTRADITIONAL FORMS OF RETAILING
- 23 -
VENDING MACHINES
A vending machine is a cash- or card-operated retailing format that dispenses goods (such as beverages)
and services (such as electronic arcade games). It eliminates the use of sales personnel and allows 24-hour
sales. Machines can be placed wherever convenient for consumers-inside or outside stores, in motel
corridors, at train stations, or on street comers.
.
To improve productivity and customer relations, vending operators are applying several innovations.
Popular products such as French fries are being made fresh in vending machines. Machine malfunctions
are reduced by applying electronic mechanisms to cash-handling controls. Microprocessors track con-
sumer preferences, trace malfunctions, and record receipts. Some machines have voice synthesizers that
are programmed to say "Thank you, come again or "Your charge is 25 rupees"
Operators must still deal with theft, vandalism, stock outs, above-average prices, and the perception that
vending machines should be patronized only when a fill-in convenience item is needed.
ELECTRONIC RETAILING: THE EMERGENCE OF THE' WORLD WIDE WEB
The World Wide Web (Web) is one way to access information on the Internet, where by people work with
easy-to use Web addresses (sites) and pages. Web users 'see words, charts, pictures, and video, and hear
audio-which turn their computers into interactive multimedia centers. People can easily move from site to
site by pointing at the proper spot on the monitor and clicking a mouse button almost all online retailing is
done by the World wide Web.
THE ROLE OF THE WEB
1. From the point of the retailer, the World Wide Web can serve one or more roles:
2. Project a retail presence and enhance the retailer's image
3. Generate sales as the major source of revenue for an online retailer or as a complementary source
of revenue for a store-based retailer.
4. Reach geographically dispersed consumers, including foreign ones
5. Provide information to consumers about products carried, store locations, usage information,
answers to common questions, customer loyalty programs, and so on.
6. Promote new products and fully explain and demonstrate their features.
7. Furnish customer service in the form of E-mail, "hot links," and other communications. .
8. Obtain customer feedback.
9. Promote special offers and send coupons to Web customers.
10. Describe employment opportunities.
11. Present information to potential investors, potential franchisees, and the media.
VIDEO KIOSKS
The video Kiosks is a free standing, interactive, electronic computer terminal that displays product and
related information on video screen; it, often touch screen for consumers to make selections some Kiosks
are located in store to enhance customer service; others let consumer place orders, complete transactions
(typically with a credit card) and arrange for shipping. Kiosks can be linked to retailers' computer
networks or to the Web. There are2 million video kiosks use through out the world.
- 24 -
ADVANTAGES OF VIDEO KIOSKS
They can be placed almost any where.

Require few employees.
They are the entertaining and easy way of shopping.
AIRPORT RETAILING
In the past, the leading airport retailers were fast-food outlets, tiny gift stores, and newspaper/magazine
stands. Today, airports are a major market of retailing. At virtually every large airport, as well as at many
medium ones, there are full-blown shopping areas. And most small airports have at least a fast food
retailer and vending machines for newspapers, candy, and so forth.
The potential retail market is huge. U.S. airports alone fly up to 3 million passengers a day and employ
nearly 2 million people (who often buy something for their personal use at the airport). There are almost
420 primary commercial U.S. airports, 31 of which are large hubs, 35 of which are medium hubs, 71of
which are small hubs, and 282 of which are non hubs. Overall U.S. airport generates $6 billion in sales
annually
THESE ARE SOME OF THE DISTINCTIVE FEATURES OF AIRPORT RETAILING
There is a large group of prospective shoppers. In an average year, a big air port may have 20 million
people passing through its concourses. In contrast, a typical regional shopping mall attracts 5 million to 6
million annual visits.
Air travelers are a temporarily captive audience at the airport and looking to fill their waiting time, which
could be Up to several hours.
They tend to have above-average incomes.
Sales per square foot of retail space are much higher than at regional malls.
Replenishing merchandise and stocking shelves may be difficult at airport stores because they are
physically removed from delivery areas and space is limited
The sales of gift items and forgotten travel items, from travelers not having the time to shop elsewhere, are
excellent.
Passengers are at airports at all times of the day. Thus, longer store hours are possible.
International travelers are often interested in duty-free shopping.
- 25 -
RETAIL MARKETING ENVIRONMENT

It consists of two types of Environment:
1. Macro Environment
2. Micro Environment
Micro Environment is internal to the retail organization and is also known as controllable environment.
Macro environment are external to the control of any retail organization and are also known as
uncontrollable Environment
CONTROLLABLE ENVIRONMENT
STORE
" LOCATION
A retailer has several store location decisions to make. The initial one is whether to use a store or non
store format. Then for store-based retailers, a general location and a specific site are determined.
Competitors, transportation access, population density, the type of neighborhood, nearness to suppliers,
pedestrian traffic and store composition are consider in picking a location.
Store location is in the control of an organization hence it is a part of internal environment of an
organization.
MANAGING A BUSINESS
Three major elements are involved in managing a business: the retail organization, human resource
management, and operations management. Tasks, policies, resources, authority, responsibilities and
rewards are outlined via a retail organization structure. Practices regarding employee hiring, training,
compensation and supervision are instituted through human resource management. Job description and
functions are communicated, along with the responsibility of all personnel and the chain of command.
Operations management oversees the tasks that satisfy customer, employee and management goals. The
financial aspects of operations involve asset management, budgeting, and resource allocation. Other
elements include store format & size, store maintenance, energy management, store security, insurance
and crisis management. These all are in the control of an organization hence it is a part of internal
environment of an organization.
MERCHANDISE MANAGEMENT AND PRICING

In merchandise management, the general quality of the goods and services offering is set. Decisions are
made as to the width of assortment (the number of product categories carried) and the depth of assortment
(the variety of products carried in any category). Policies are set with respect to introducing new items.
Criteria for buying decision (how often, what terms, and which suppliers) are established. Forecasting,
budgeting, and accounting procedures are outlined, as is the level of inventory for each type of
merchandise. Finally, the retailer devises procedures to assess the success or failure of each item sold. .
With regard to pricing, a retailer chooses from among several techniques; and it decides what range of
prices to set, consistent with the firm's image and the quality of goods and services offered. The number of
prices within each product category is determined, such as how many prices of luggage to carry. And the
use of markdowns is planned in advance. These all are in the control of an organization hence it is a part
of internal environment of an organization.
COMMUNICATING WITH THE CUSTOMER

An image can be created and sustained by applying various techniques. The physical attributes, or
atmosphere, of a store and its surrounding area greatly influence consumer perceptions. The impact of the
storefront (the building's exterior or the home page for a Web retailer) should not be undervalued, as it is
the first physical element seen by customers. Once inside, layouts and displays, floor colors, lighting,
scents, music, and the kind of sales personnel also contribute to a retailer's image. Customer services and
- 26 -
community relations generate a favorable image for the retailer. The right use of promotional tools
enhances sales performance. These tools range from inexpensive flyers for a take-out restaurant to an
expensive national ad campaign for a franchise chain. Three forms of paid promotion are available:
advertising, personal selling, and sales promotion. In addition, a retailer can obtain free publicity when
stories about it are written, televised, or broadcast.
These all constitutes the internal environment of the retail organization
MACRO ENVIRONMENT
Like any other industry, the retail industry is also affected by the external environment. Some of the
constituents of the external environment, which have an impact on a retail organization, are
. Economic environment
. Legal environment
· Technological environment
. Competitive environment
ECONOMIC ENVIRONMENT
Economic conditions are beyond any retailer's control, no matter how large it is. Unemployment, interest
rates, inflation, tax levels, and the annual gross domestic product (GDP) are just some economic factors
with which a retailer copes. In outlining the controllable parts of its strategy; a retailer needs to consider
forecasts about international, national, state, and local economies.
The nature of the economic system (capitalism, socialism) in a country has a direct impact on the retailer's
business. Therefore, a retailer should have a thorough understanding of the various economic factors of a
country that would influence their operations and profitability. Some of the economic factors that affect
the retailer are - Gross domestic product, rate of inflation, purchasing power, interest rates, tax levels,
employment growth etc. Higher growth rate of GDP (in real terms) implies that consumers have more
income and hence, they spend more, resulting in higher sales and more profits for retailers. On the other
hand, increase in inflation leads to a decrease in the purchasing power of consumers. The economic
reforms of the 1990's have resulted in a higher economic growth than that observed in the previous decade
LEGAL ENVIRONMENT
Retailers that operate in more than one state are subject to federal laws and agencies.
The Federal Trade Commission deals with unfair trade practices and consumer complaints. The
Telemarketing Sales Rule protects consumers. At the state and local levels, retailers have to deal with
many restrictions. Zoning laws prohibit firms from operating at certain sites and demand that bul1ding
specification be met. So a retail firm has to be operated under certain rules and regulations imposed to
them by the government. Governments use various laws and regulations to ensure that retailers do not
indulge in unfair trade practices. But most of the times, these regulations hamper the growth of the retail
industry. Some of the legal and regulatory problems that retailers face in India is: Restriction on Foreign
Direct Investment (FDI), property regulations, and complex taxation system. Each of these have been
explained below:
Foreign direct investment (FDI) restrictions
FDI in retailing had been permitted in India for a short period prior to 1997 and approvals were granted to
a few MNCs like Nanz to set up retail chains. The government later retracted its decision and banned
- 27 -
further FDI in the retailing sector. It felt that huge foreign direct investment in this sector would be a
threat to existing kirana stores. In that short period when FDI was permitted in the retail sector, many
multinational companies have entered India through joint ventures or franchisee agreements. For example,
FoodWorld is a 51:49 joint venture between the RPG Group and the Hong Kong based Dairy Farm
International (a $10 bn company).
The ban on foreign direct investment and the lack of industry status for
retailing made it difficult for foreign players to fund huge retail ventures in India. But, the Government of
India has permitted foreign players to forge franchising and technical alliances with Indian retailers.
Marks & Spencer used this opportunity to enter India through the licensee route.
CONSUMERS
A skillful retailer knows it cannot alter demographic trends or lifestyle patterns, impose tastes, or "force"
goods and services on people The firm learns about its target market and forms a strategy consistent with
consumer trends and desires. It cannot sell goods or services that are beyond the price range of customers,
that are not wanted, or that are not displayed or advertised in the proper manner
COMPETITION
There is often little that retailers can do to limit the entry of competitors. In fact, a retailer's success may
encourage the entry of new firms or cause established competitors to modify their strategies to capitalize
on the popularity of a successful retailer. A major increase in competition should lead a company to re-
examine its strategy, including its target market and merchandising focus, to ensure that it sustains a
competitive edge. A continued willingness to satisfy customers better than any competitor is fundamental
Though the retailing industry is in its nascent stage in India, there is severe competition among the
existing players. Moreover, the huge untapped potential is encouraging many players to venture into
retailing. The growth of retail stores was in the categories of the specialty stores, the category killers and
one-stop super stores. Apart from the existing competition in the organized retail sector, organized
retailers are also being affected by the stiff competition posed by traditional stores in the unorganized
sector. The competition among retailers varies depending on the way the retail operations are carried out
and which entity of the distribution channel carries out these retail operations.
TECHNOLOGY
Computer systems are available for inventory control and checkout operations. There are more high-tech
ways to warehouse and transport merchandise. Toll-free 800 numbers are popular for consumer ordering.
And, of course, there is the Web Nonetheless, some advancements are expensive and may be beyond the
reach of small retailers. For example, although small firms might have computerized checkouts, they will
probably be unable to use fully automated inventory systems. As a result, their efficiency may be less than
that of larger competitors. They must adapt by providing more personalized service Technology is one of
the most important drivers of change in the retail industry. The computerization of various retail store
operations like inventory management, billing, data base management and the wide spread use of bar code
scanners, computers, point-of-sale terminals, management information systems etc. have bought a sea
change in the way retailing is conducted in India. Retailers are also using technology to improve the
shopping environment and to provide a pleasant shopping experience to the customer. Quick-response
computer links with suppliers are increasingly being used to reduce lead-time and overcome stock-out
problems.
SEASONABILITY
A constraint on certain retailers is their seasonality and the possibility that unpredictable weather will play
havoc with sales forecasts. Retailers selling sports equipment, fresh food, travel services, and car rentals
- 28 -
cannot control the seasonality of demand or bad weather. They can diversify offerings to carry a
goods/service mix with items that are popular in different seasons. Thus, a sporting goods retailer can
emphasize ski equipment and snowmobiles in the winter, baseball and golf equipment in the spring, scuba
equipment and fishing gear in the summer, and basketball and football supplies in the fall
- 29 -
RETAIL STRATEGIC PLANNING PROCESS
The success of a retail strategy depends as much on its actual implementation as it does on how well it is
designed to meet the needs of the customers. In order to sustain and grow in the highly competitive
market, retailers should plan their retailing strategies carefully.
A detailed study of these stages has been provided below:
1 Developing the Mission

The mission of a retail firm reflects the basic purpose of its existence. A carefully developed mission
statement includes such details as the products and services to be offered, scope of business, target
customers, growth Plans, the kind of customer service to be provided, and. the attributes for competitive
advantage. There is often a more detailed mission statement provided to the employees of the retail firm
than the one that is publicized outside the firm. The mission statement distinguishes the retail firm from
others, reflects the values that the firm believes in and provides a sense of direction to the retail
personnel/The mission statement reflects the philosophy of the top management and also guides the
corporate culture. The stakeholders can gain an understanding of the firm's philosophy by looking at its
mission statement. The mission statement of a firm is the basic foundation of the whole planning process
and hence, should be precise and reflective of the firm's attitudes and philosophy. Moreover, the plans in
the subsequent planning stages should be consistent with the mission statement
2. Establishing Objectives
After the basic purpose of existence of the retail firm is known, retailers decide the objectives of the firm.
The objectives are the formal statements of what the firms seek to achieve in terms of sales volume,
profitability, market share, quality levels, etc. Although profit is the prime objective for the existence of
the firms, some firms incorporate social objectives as well. This helps them establish a good image in the
community
Objectives are set for the short-term as well as the long-term. Short-term objectives are generally set for
short periods (one to two years) while the long term objectives are set for longer periods of time. The
long-term objectives are not as specific as the short-term ones, but they include the strategic dimensions of
the retail firm. In retailing, the long-term objectives do not stretch beyond five years owing to the highly
fluid market dynamics
Objectives should be time-specific, measurable, attainable and indicative of the business priorities. If the
objectives are specific and measurable, they motivate the employees to perform better. Similarly,
objectives that are not attainable discourage the employees. However, objectives would not serve their
purpose unless they are reviewed and evaluated periodically
3. Situational Analysis
Before implementing a strategy, a retailer should have a clear understanding of the internal and external
environments. So, the retailer should conduct a thorough analysis of the strengths and weaknesses of the
firm and also assess the opportunities and threats in the environment.
The assessment of the internal and external environments is known as 'situational analysis' or 'SWOT
analysis'. It helps the firm make maximum use of the existing assets of the firm and take adequate
measures to correct the weaknesses.
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The supply of timely and accurate information has enabled the retail firms to take more efficient and
appropriate decisions. The information about the external environment and the analysis of upcoming
trends by experts round the globe are very useful for the retailer strengths and weaknesses .
Strengths and weaknesses are internal to the firm and can be largely controlled by the management. The
financial resources, physical assets, management skills, sales force, merchandise, employees' attitude
toward the company, etc. are examined to identify the strengths and weaknesses of the firm. While
strengths can be optimally utilized to achieve the firm's objectives, strategies can be developed to
overcome weaknesses by employing an external consultant with an expertise in a weak area by training
the store personnel or by studying similar cases in other firms. The retailer can also make use of the
information collected from employee' surveys, customer complaints, accounting reports, focus groups,
customer surveys, supplier surveys, etc. to assess the strengths and weaknesses of the firm more
thoroughly. It also offers a critical analysis of the various practices ' followed by the retailer like
maintaining vendor relations, designing ad campaigns, kind of merchandise being offered and the HR
practices being followed
While assessing the strengths, the retailer pays maximum' attention to the financial performance of the
firm. The financial aspects of the firm like the costs incurred, profits, sales, assets, liabilities and net worth
are regularly and completely monitored by the retail' managers. Most firms limit their internal assessment
to the analysis of the financial statements and reports and do not pay heed to other functional areas of
marketing, purchasing & logistics, human resources. However, this should be avoided.
One major strength to retailers could be the operational efficiency it has achieved over time. Operational
efficiency is the ability of the firm to cut costs as the volume increases. The efficiency achieved due to
high volumes that a firm chums is referred to as 'scale economies'. As the retailer gains experience in
retailing, it becomes more efficient in all its operations - be it purchasing, handling or selling. Efficiency is
certainly a factor that gives the retailer an advantage over its competitors due to the lower operating
expenses it incurs. Such retailers (like Wal-Mart) often pass on a part of these savings in operating
expenses to their customers, thereby attracting more Operational customers
The relationship with suppliers is a factor that should be given due consideration while assessing the firm's
strengths and weaknesses. Due to the improvements in technology, suppliers today have greater access to
information regarding the retailers. Hence, while assessing the strengths and weaknesses of the firm, their
opinions should be given due consideration. Similarly, it is important to consider the customers'
perceptions of the firm's strengths and weaknesses
OPPORTUNITIES AND THREATS
Opportunities and threats are the factors external to the firm over which the retailer has little or no control.
A firm is a part of a much bigger sphere i.e., the business environment, the social environment, the natural
environment, economic environment and the political environment. Hence, the firm needs to keep track of
the external environmental constraints and. responsibilities before taking any internal business decisions.
The knowledge of existing rules and regulations and upcoming trends in the legal, economic, social, and
technological areas can help the retailer determine favorable changes that could be grabbed as
opportunities as well as unfavorable changes that could pose a threat and need to be kept under check
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ECONOMIC CONDITIONS
The economic situation prevailing in the country determines the purchases that consumers make and the
amount of money they are ready to spend. In times of economic downturn, it becomes difficult for a
retailer to register any year on year sales growth. In such times, rather than attempting to induce the
customers to spend more, the retailers should make efforts to gain a larger share of the market using
innovative strategies. It.can also do so by venturing into new markets. Weak and uncompetitive retailers
are pushed out of business when the economic conditions are challenging. When economic conditions
leave little or no chance for sales growth, it is referred to as 'stagnant economy'
However, some retailers not only manage to sustain their operations under economic pressure but also
manage to grow. As customers tend to cut their purchases and the amounts spent during tough times,
discount retailers take advantage of the situation and attract customers from specialty and high priced
retail stores, registering sales growth. Thus, even hard times provide opportunity for some retailers,
though sometimes at the cost of other retailers.
TECHNOLOGICAL DEVLOPMENTS
Technological innovations have had a tremendous impact on the way businesses are run. Tele marketing
and e-marketing have made it possible for retailers to sell their merchandise to customers without even
meeting them face to face. Technology has made transactions more simple and convenient. Credit cards
have efficiently replaced cash transactions. Customers can transfer money from their account directly into
the retailer's through 'Electronic Funds Transfer'.
Technology has enabled vendors and retailers to keep a track of their own as well as each other's inventory
levels and schedule the selling/ manufacturing/distribution activities accordingly. By holding minimum
inventory, both vendors and retailers can save on the cost incurred in maintaining a huge inventory and
can utilize the funds for other purposes. Moreover, retailers can place their orders instantly and vendors
can deliver them in a few days. Thus, the order fulfillment which once took weeks now takes only a few
days
Technological change's can also be observed in the way shopping is done. Using kiosks, customers can
learn about the product features and the benefits that-it offers. The advent of Smart Carts has made
shopping a pleasant experience. Smart carts are shopping carts equipped with technology which helps
them track the contents added to the cart and total the amount of the purchases automatically with every
element being added to the cart
COMPETETIVE ENVIRONMENT
With globalization, there "has been considerable increase in competition. The number of stores is
constantly increasing while the sale per store is decreasing. Although retailers are trying to woo customers
using all means, the sales have continued to decline. The retailer should be widely aware of the
competitive environment and assess its competitors' moves on a regular basis.
STRATEGIC ALTERNATIVES
The result of situational analysis forms the basis on which the retailer evaluates the strategic -alternatives.
The four. strategic alternatives that a retailer considers are: market penetration, market development, retail
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format development and diversification .The retailer may also refine its existing strategies for productivity
improvements
MARKET PENETRATION
Market penetration helps the firm compete in the existing market segments with existing form by a strong
market presence. Market penetration defers the firm's saturation point and builds on the existing strengths
of the firm like thorough knowledge of the merchandise, huge databases about customers and their
preferences. This strategy is adopted by retailers who intend to concentrate on the existing market segment
and helps the retail firm increase number of customers, quantity purchased, and purchase frequency
INCREASING THE NUMBER OF CUSTOMERS

An increase in the number of customers results in more sales and increased profitability. The number of
customers can be increased by opening new' stores, making the existing stores more attractive, modifying
the offerings of the existing stores by reviewing the merchandise, adding more brands, allocating more
Space to certain merchandise like apparel, etc. To increase the market penetration and maintain market
share, retailers add more stores. The retailing mix variables can be used to attract the customers by
Offering the lowest prices in the existing market area

Offering a wide variety of consumer goods from groceries to decorative items
Providing better service arid facilities to customers like parking facilities, convenient shopping hours and
location, wide variety, systematic arrangement of merchandise, shopping carts, single-floor stores or
direction signs for the different sections pf merchandise at frequent locations. Retailers try to create a
retail atmosphere that lures consumers to buy more. They spend substantial amounts to create such an
atmosphere. This is generally done by improving the layout of the stores. Some retailers have set up fast
food joints and coffee parlors to increase the customers visiting the stores, thereby resulting in increased
purchases
INCREASING THE QUANTITY PURCHASED
Retailers try to create a retail atmosphere that lures consumers to buy more. They spend substantial
amounts to create such an atmosphere. This is generally done by improving the layout of the stores. Some
retailers have set up fast food joints and coffee parlors to increase the customers visiting the stores,
thereby resulting in increased purchases
Another approach to increase the quantity purchased is to adopt cross selling. In cross selling,
salespersons from one department try to sell complementary products from the same or other departments,
thus increasing the overall purchases in the store. For example, a customer who purchases a lipstick can be
persuaded to buy the matching lip-liner
INCREASING PURCHASE FREQUENCY
Stocking a wide variety of merchandise in the stores all through the year creates an impression among the
customers that they would easily get what they are looking for. For example, the wide variety of toys
offered by Toys 'R' Us all through the year assures the customers that they would have a good choice of
toys even when they come to exchange the toys later. Toys 'R' Us registers round the year sales for video
games and toys in the low to medium price range. Furthermore, high impulse buys like hobby kits and die-
cast toys ensure high customer traffic at the stores.
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MARKET DEVELOPMENT
Market development is a bold strategic shift that involves more capital and is more risky than market
penetration. Market development strategy can be executed by reaching new market segments or by
expanding the existing markets.
REACHING NEW MARKET SEGMENTS
Adding soups Retailers, especially food retailers try to tap new segments in existing markets by offering
'something more' to the existing merchandise/items. For instance, by adding low calorie, non-fried items
to its menu, the food-chain retailer, McDonald's has attracted the nutrition conscious customers to its
outlets. Coffee chains offering sandwiches and other food items, fast food restaurants and doughnuts to
their menu are good examples of strategies retailers adopt to broaden the existing product lines and attract
new customer segments
MARKET EXPANSION
Market expansion based on geographic spread is a strategy that has been successfully adopted by retailers
for a long time. A store concept that succeeded at one place is generally expected to work at other places.
Such a strategy is most often followed by franchise retailers. Retailers even go in for cross-border
expansion when their home market gets saturated. For example, the Spanish retailer Zara, which, a decade
ago had its operations only in Spain and a few stores in Portugal, now has stores all over the world.
Retailers can also go for market expansion by catering to new markets. For example, a retailer could
expand by introducing a low-priced merchandise in the same store. The market expansion can extend to
establishing an online store. Many grocery retailers have realized the importance of an online 'presence for
penetrating deeper into the existing markets, developing individual customer relationships and increasing
the return on investment
RETAIL FORMAT DEVELOPMENT
Retail format development is done either by introducing a new retail format or by polishing/developing
the retail format that is in existence presently. The retail format may be developed either to adapt to a
particular geographic dynamics or because it is convenient to adopt. For instance, the limited menu
offered by food retailers like McDonald's outlets in big stores is a form of retail format development.
Another form of retail format development is to introduce new forms of selling like electronic or catalog
retailing to improve the convenience to the customers or to attract new customers
DIVERSIFICATION
Diversification is an overall shift in focus. A retailer can enter into new markets with an entirely new retail
format. The diversified retailer serves new customer groups by offering products or services that it bad
never offered before. For instance, Toys-R-Us' "entered the kids' apparel market with its Kids-R-Us chain.
This is an example of diversification into a related area
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PRODUCTIVITY IMPROVEMENT
By adopting this strategy, retailers aim to improve productivity. Firms generally go for productivity
improvement strategy when they are in the mature or decline stages of the lifecycle. The objective of firms
in mature or decline stages will be to extract as much profits as possible from the existing formats and
markets by refining their existing strategies (without making any further investments). For example, in
areas where Wal-Mart reaches saturation, it closes down its smaller stores in surrounding towns and opens
regional "Superstores" that offer groceries, auto repair, and other services.
COST REDUCTIONS
When trying to achieve improvements in productivity through cost reduction a retailers try to implement
self-service schemes so as to reduce the labor requirements. Some other ways for reducing costs are:
reducing the store hours, making better use of the part -time helpers and cutting. on customer services.
The emergence of sophisticated technologies help retailers in cost reduction planning by providing
information on individual contributions at each of the items in the merchandise towards the total
profitability of the firm.
The merchandise can thus, be planned according to the merchandise movements. This helps cut down
inventory costs without compromising on the availability. Technological innovations also help cut costs.
For example, using electronic data interchange with suppliers saves costs by eliminating need for paper-
based transactions
INCREASING MERCHANDISE TURNOVER
Better merchandise mix results in increased merchandise turnover and increased turnover, in turn, results
in improved productivity. The merchandise mix can best be improved by having access to real-time
information from the point-of-sales terminals. The retailer can thus ensure the right merchandise mix that
not only helps in protecting its desired/established image but also Improves the productivity through
increased customer satisfaction
INCREASING THE PRICES AND MARGINS
While formulating productivity-based strategies, retailers need to pay specific attention to the aspects of
prices and margins of the merchandise. The retailers cannot afford to raise the prices of all products it
offers because doing so would compel the loyal customers to withdraw. But the retailer can select a few
low-visibility items which are not purchased often and retain higher margins on those items. Or the
retailer can simply add high-margin items to its merchandise like superstores do. Retailers can also charge
certain sums for installations or deliveries on the basis of the total purchase amount
SELECTING THE TARGET MARKETS
After evaluating all the strategic alternatives, the retailer selects the one that promises maximum profit and
offers the best scope for growth. Once this is done, the retailer would need to select the target market that
it wants to cater to. The retailer should first segment the population and identify the target markets
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SEGMENTING THE MARKET
A market segment refers to a group of customers whose needs will be satisfied by the same retail offering
because they have similar needs and go through similar buying processes. Retailers define and determine
each group of people who have some common attributes. These attributes could be demographic in nature
i.e., based on age, income, occupation, etc. or based on psychographics i.e. the activities, interests,
opinions, etc. Retailers basically use demographics for segmentation while they use psychographics to
supplement the demographic segmentation.
While segmenting- the markets, the retailer should ensure that the market segments are:
Measurable: The segments should be identifiable and quantifiable
Accessible: The marketing efforts should be directed towards the selected segment and the marketing
efforts should have a positive impact and produce the desired outcome.
Economically Viable: The chosen market segment should be big enough to be economically viable for the
retail firm to focus its marketing efforts on them.
Stable: The selected attributes of segmentation should be reliable indicators of market potential.
While developing the market strategy, depending on the products offered, the retailers can perceive
customers in one of the following ways:
Similarity: The retailers perceive that the consumers are all similar and that a standard product will
satisfy the needs of most of the customers. Though age, needs, income, preferences etc. differ among
various customers, the basic premise is that these attributes do not influence the purchases they make. For
example, all the convenience stores primarily focus on providing convenience to the customers by
offering a good merchandise mix, wide variety and good assortments. They assume that all customers
look for convenience while shopping. They do not look into the differences in thinking that may exist in a
few customers, for whom convenience may not be the primary concern.
Differences-similarities: The market demand is influenced by the differences and similarities in consumer
preferences. Customers are grouped on the basis of these differences (or similarities) and then the
aggregate of these groupings is used as the base by the retailers to focus on their target customers. For
instance, young fashion-conscious women in mid-income group could be segmentation for an apparel
retailer. Uniqueness: Every customer is different from the other and this difference is what makes a
customer unique as an individual. Hence a standard product cannot appeal to all the customers alike.
However, customers with somewhat similar preferences can be included in one segment and retailers can
make tailor-made offers for such groups.
TARGET MARKETS
Target markets are the market segments that the retailer wishes to serve. Market positioning of a retailer
reflects the kind of image the retailer wants to establish among its target group and the group of retail
firms with which it wishes to compete and coexist
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TARGET MARKET SELECTION

To finalize the target market, the retailer first takes the entire market into consideration. The size of the
market as a whole and the different customer segments that it could serve or who would be interested in
the retailer's offerings are short-listed. Then, the segments that the retailer could best appeal to and serve
most effectively are chosen as the possible target markets.
These possible target markets are evaluated further to finalize the target markets. Evaluation is done on the
basis of attributes like future growth potential.. Final target markets are thus selected based on the best
match of these attributes with retailer's interests.
Each of the attributes is given certain weight age and each possible target market is rated against it. The
product of these weights and ranks gives the total score for each possible target market. This score enables
the retailer to evaluate the attractiveness of each target market objectively and select the final target
market(s}.
After finalizing the target market, the retailer focuses on developing strategies to draw customers by in-
depth study of their behaviors, values, motives and expectations. The retailer also tries to understand the
decision making process of the customers.
OBTAINING RESOURCES NEEDED TO COMPETE

The retailer can choose to enter the retail business either by starting a new firm, by acquiring an existing
business, by entering into partnership with an operating firm, through a joint venture with a successful
retail chain abroad or through franchising. The decisions regarding obtaining the resources depend on the
way the retailer chooses to enter the retail business. If the retailer chooses to acquire an existing firm, it
may not need to arrange physical resources, as they are already available. The retailer can thus focus his
entire attention on acquiring financial and human resources. Financial and human resource planning
should be in line with the firm's overall strategy.
Once the necessary resources have been obtained, the firm needs to position itself in the market. Through
positioning, the retailer tries to create a strong image of the firm in the minds of the target customers and
thus invoke the kind of response that the retailer desires. Positioning should be such that consumers
should be able to clearly distinguish the retailer's stores from that of the competitors'
DEVELOPING A POSITIONING STRATEGY
In these days of intense competition and diminishing differentiation among various retail firms, the
importance of positioning has increased. Retailers use 'Positioning Map' to understand the position of
other firms in the market place. A positioning map is a two-variable map drawn on the basis of some
selected attributes. For example, for apparel retailers the two attributes would be fashion vs. assortment,
for departmental store they would be quality vs. price. The positioning map gives the retailer a clear
picture of the relative positioning of the firm with regard to its competitors. Thus, retailer can decide
whether to reformulate its positioning strategy or to improve the existing strategy. Repositioning can be
done by broadening the assortments, re-pricing. etc.
There are two types of variables: core variables and retail mix variables. Both sets of variables together
form the positioning strategy for the retail firm. The retailer takes certain decisions with regard to the
retail mix variables, some of which are:
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Product: Decisions relating to the width, depth and assortments, brands (company brands or store brands
or generic brands), selection of suppliers, choice of inventory levels
Price: Decisions regarding the store's pricing policy in relation to market prices, price adjustments, price
levels
Merchandising: Decisions regarding the store design and layout, presentation of the merchandise
Promotion: Decisions concerned with the allotment of budget for advertising, sales promotions, public
relations
Personal Selling: Decisions on the number of salespersons employed, training, compensation

Customer Service: Decisions of the services to be offered, return and exchange policy, credit policy
STRATEGY IMPLEMENTATION
The efforts undertaken by the retailer in thinking, researching and planning can be futile if the strategy is
not implemented properly. The implementation process involves developing action plans and assigning
the ownership, establishing critical paths and linking the action plans to operating plans. The" main
objective of all these strategies is to create value for customers.
The practices of the firm should be customer-oriented. The merchandise sold should be attractive and
advertising and promotions should appeal to them. Salespersons and other stores personnel should be
knowledgeable and friendly
EVALUATING RESULTS AND CONTROLLING OPERATIONS

The effectiveness of a strategy can be known only by measuring the performance of the implemented
strategy. Once the plan is implemented, it is essential to monitor the various activities to determine how
effective the plan has been. If the objectives are not achieved as targeted a re-analysis need to be done
either by revamping the strategy (if the problem is found to be with improper planning) or by re-
implementing the plan (if the implementation was not carried out properly).
Periodic evaluation of the strategies implemented will help the retailer in understanding their suitability in
the changing market situations so that it can revamp its strategies at an early phase. The overall aspects of
the plan i.e., the merchandising plan, financial plan, pricing plan, distribution and sales support plan,
human resources plan should all be considered while evaluating the firm's strategy. The merchandising
plan, financial plan, pricing plan, advertising and promotional plan, information systems plan, distribution
plan, human resources plan should all be reviewed. Such an overall evaluation guarantees that the changes
in individual plan that are made periodically do not disrupt the overall strategy of the retail firm. It also
helps the retailer plan the individual variables in a way that would strengthen the overall competitive
strategy
GLOBAL STRATEGIC PLANNING PROCESS
Retailers looking to operate globally should follow these four steps in conjunction with the strategic
planning process described below:
1. Assess Your International Potential: You must first focus on assessing your international
potential to get a picture of the trends in your industry, your domestic position in that industry, the
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effects that international activity may have on current operations, the status of your resources, and
an estimate of your sales potential. Find out about candidate countries by using research. It's easy
to ruin a good plan by making fundamental cultural, partnering, or resource allocation mistakes.
2. Get Expert Advice and Counseling: Many groups in the private sector and government provide
guidance to those planning to go international. Trade associations are also useful, as are consulting
firms and the business departments of universities. If you are entirely new to international
retailing, contact the U.S. Trade Information Center (www.ita.doc.gov/tic) at (800) USA-TRADE
(800-872-8723). If you are further along, contact a district office of the Commerce Department's
International Trade Administration (www.ita.doc.gov). State governments are another source of
assistance."
3. Select Your Countries: You need to prioritize information about each country's economic
strength, political stability, regulatory environment, tax policy, infrastructure development,
population size, and cultural factors. For example, the economy of a country is generally
considered critical to most businesses. Equally critical are political factors, particularly
government regulations. Others are more dependent on which product you market. The
technological stage of a country has a more influential role for computers than for cosmetics.
4.Develop, Implement, and Review the International Retailing Strategy: In general, a successful
strategy identifies and manages your objectives, both, immediate and long range; specifies tactics you will
use; schedules activities and deadlines; and allocates resources among those activities. The plan should
cover a two- to five-year period, depending on what you are selling, competitors strength, conditions in
target countries, and other factors. Keep your strategy flexible because often it is only after entering a
country that you realize that your way of doing business needs modification. The best strategies can be
changed to exploit unique local conditions and circumstances. Don't underestimate the local competition,
but don't overestimate it either. The figure below shows the factors to be consider when engaging in
Global Retailing
CHART FOR PREPARING FOR DIFFERENT GLOBAL MARKETS
DEVELOPED MATURE MARKETS

Issues
 Increasing competition, deteriorating margins, and saturation
 Consolidation and rationalization (cost cutting), forcing poor performers out of the market · New
enabling technologies
 Demanding customers
 Limited growth
Implications
 Retailers must focus on maximizing operational efficiencies, vendor relationships,
infrastructure, and technology
 For growth, large retailers are expanding regionally and then globally,into developed or
developing markets
DEVELOPING, IMMATURE PHASE
Issues
Minimal purchasing power per capita, yet strong economic growth and pent-up demand · Huge customer
base, representing up to 70 percent of the world's population
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 Infrastructure issues-transportation, communication, etc.-may pose problems

 Disorganized, fragmented retail structures that are vulnerable to new entrants
 exist The number of indigenous large retailers is small to none
 Strong protectionist measures may
Implications
 Tremendous opportunity for large retailers, limited competition, huge growth potential
 Initial entry may need to be through intermediary; joint venture, etc.
OPPORTUNITIES AND THREATS IN GLOBAL RETAILING
Opportunities
 Foreign markets may be used to supplement domestic sales.

 Foreign markets may represent growth opportunities if domestic markets are saturated or stagnant.
 A retailer may be able to offer goods, services, or technology not yet available in foreign markets.
 Competition may be less in foreign markets.
 There may be tax or investment advantages in foreign markets.
 Due to government and economic shifts, many countries are more open to the entry of foreign
firms.
 Communications are easier than before. The Internet enables retailers to reach customers and
suppliers well outside their domestic markets.
Threats
 There may be cultural differences between domestic and foreign markets.

 Management styles may not be easily adaptable.
 Foreign governments may place restrictions on some operations.
 Personal income may be poorly distributed among consumers in foreign markets.
 Distribution systems and technology may be inadequate (for example, poor roads and lack of
refrigeration). This may minimize the effectiveness of the Web as a .selling tool.
 Institutional formats vary greatly among countries.
 Currencies are different. The countries in the European Union have sought to alleviate this
problem by introducing the euro, a common currency, in most of their member nations.
- 40 -
HUMAN RESOURCE MANAGEMENT IN RETAILING
Human resource management involves recruiting, selecting, training, compensating, and supervising
personnel in a manner consistent with the retailer's organization structure and strategy mix. Personnel
practices are dependent on the line of business, the number of employees, the location of outlets, and other
factors. Since good personnel are needed to develop and carry out retail strategies, and labor costs can
amount to 50 percent or more of expenses, the value of human resource management is clear.
THE SPECIAL HUMAN RESOURCE ENVIRONMENT OF RETAILING
Retailers face a human resource environment characterized by a large number of inexperienced workers,
long hours, highly visible employees, a diverse work force, many part-time workers, and. variable
customer demand. These factors complicate employee hiring, staffing, and supervision
The need for a large retail labor force often means hiring those with little or no prior experience.
Sometimes a position in retailing represents a person's first "real job." People are attracted to retailing
because they find jobs near to home; and retail positions (such as cashiers, stock clerks, and some types of
sales personnel) may require limited education, training, and skill. Also, the low wages paid for some
positions result in the hiring of inexperienced people. Thus, high employee turnover and cases of poor
performance, lateness, and absenteeism may result.
The long working hours in retailing, which may include weekends, turn off certain prospective employees;
and many retailers now have longer hours since more shoppers want to shop during evenings and
weekends. Accordingly, some retailers require at least two shifts of full-time employees
Retailing employees are highly visible to the customer. Therefore, when personnel are selected and
trained, special care must be taken with regard to their manners and appearance. Some small retailers do
not place enough emphasis on employee appearance (neat grooming and appropriate attire).
It is common for retailers to have a diverse labor force, with regard to age, work experience, gender, race,
and other factors. This means that firms must train and supervise their workers so that they interact well
with one another-and are sensitive to the perspectives and needs of one another.
Due to their long hours, retailers regularly hire part-time workers. In many supermarkets, over half the
workers are part-time, and problems can arise. Some part-time employees are more lackadaisical, late,
absent, or likely to quit than fulltime employees. They must be closely monitored.
Variations in customer demand by day, time period, or season may cause difficulties.
AS A RULE, RETAILERS SHOULD CONSIDER THESE POINTS:
Recruitment and selection procedures must efficiently generate sufficient applicants.

 Some training must be short because workers are inexperienced and temporary.
 Compensation must be perceived as fair by employees.
 3. Advancement opportunities must be available to employees who view retailing as a career.
 4. Employee appearance and work habits must be explained and reviewed. . Diverse workers must
be taught to work together well and amicably.
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THE HUMAN RESOURCE MANAGEMENT PROCESS IN RETAILING

'.
The human resource management process consists of these interrelated personnel activities recruitment,
selection, training, compensation & supervision The goals are to obtain, develop, and retain employees.
When applying the process diversity, labor laws, & Privacy should be considered.
RECRUITING RETAIL PERSONNEL
Recruitment is the activity whereby a retailer generates a list of job applicants. For entry-level sales jobs,
retailers rely on educational institutions, ads, walk-ins (or write-ins), Web sites, and employee
recommendations. For middle-management positions, retailers rely on employment agencies, competitors,
ads, and current employee referrals. The retailer's typical goal is to generate a list of potential employees,
which is reduced during selection. However, retailers that only accept applications from those who meet
minimum background standards can save a lot of time and money.
SELECTING RETAIL PERSONNEL
The firm next selects new employees by matching the traits of potential employees with specific job
requirements. Job analysis and description, the application blank, interviewing, testing (optional),
references, and a physical exam {optional) are tools in the process; they should be integrated.
In job analysis, information amassed on each job's functions and requirements: duties, responsibilities,
aptitude, interest, education, experience, and physical tasks. It is used to select personnel, set performance
standards, and assign salaries.
Job analysis should lead to written job descriptions. A traditional job description contains a position's title,
relationships (superior and subordinate), and specific roles and tasks.. Yet, using a traditional description
alone has been criticized. This may limit a job's scope, .as well as its authority and responsibility; not let a
person grow; limit activities to those listed; and not describe how positions are coordinated. To com-
plement a traditional description, a goal-oriented job description can enumerate basic functions, the
relationship of each job to overall goals, the interdependence, of positions, and information flows.
An application blank is usually the first tool used to screen applicants; providing data on education,
experience, health, reasons for leaving prior jobs, outside activities, hobbies, and references. It is usually
short, requires little interpretation, and can be used as the basis for probing in an interview.
The interview seeks information that can be amassed only by personal questioning and observation. It lets
an employer determine a candidate's verbal ability, note his or her appearance, ask questions keyed to the
application, and probe career goals. Interviewing decisions must be made about the level of formality, the
number and length of interviews, the location, the person(s) to do the interviewing, and the interview
structure. These decisions often depend on the interviewer's ability and the job's requirements. Small firms
tend to hire an applicant who has a good interview. Large firms may add testing. In this case, a candidate
who does well in an interview then takes a psychological test (to measure personality, intelligence,
interest, and leadership) and/or achievement tests (to measure learned knowledge).
Many retailers get references from applicants that can be checked either before or after an interview.
References are contacted to see how enthusiastically they recommend an applicant, check the applicant's
honesty, and ask why an applicant left a prior job. Mail and phone checks are inexpensive, fast, and easy.
Some firms require a physical exam because of the physical activity, long hours, and tensions involved in
many retailing positions. A clean bill of health means the 'candidate is offered a job. Again, federal, state,
and local laws must be followed.
- 42 -
Each-step in the selection process complements the others; together they give the retailer a good
information package for choosing personnel. As a rule, retailers should use job descriptions, application
blanks, interviews, and reference checks. Follow-up interviews, psychological and achievement tests, and
physical exams depend on the retailer and the position. Inexpensive tools (such as application blanks) are
used in the early screening stages; more costly, in-depth tools (such as, interviews) are used after reducing
the applicant pool. Equal opportunity, nondiscriminatory practices must be followed.
TRAINING RETAIL PERSONNEL
Every new employee should receive pre-training, indoctrination on the firm's history and policies, as well
as a job orientation on hours, compensation, the chain of command, and job duties. New employees
should also be introduced to co-workers. Effective orientation inspires recruits and provides information
that they do not know about their jobs and the retailer. Training should be an ongoing activity. New
equipment, legal changes, new
Product lines, job promotions, low employee morale, and employee turnover necessitate not only training
but also retraining.
There are several training decisions. They can be divided into three categories: IDENTIFYING NEEDS,
DEVISING APPROPRIATE TRAINING METHODS, AND EVALUATION.
Short-term training needs can be identified by measuring the gap between the skills that workers already
have and the skills desired by the firm (for each job). This training should prepare employees for possible
job rotation, promotions, and changes in the company. A longer training plan lets a firm identify future
needs and train workers appropriately.
There are many training methods for retailers: lectures, demonstrations, films, programmed instruction,
conferences, sensitivity training, case studies, role playing, behavior modeling, and competency-based
instruction. Some techniques may be computerized-as more firms are doing. Retailers often use more
than one technique to reduce employee boredom and cover the material better.
For training to succeed, a conductive environment is needed, based on several principles:
 All people can learn if taught well; there should be a sense of achievement.
 A person learns better when motivated; intelligence alone is not sufficient.
 Learning should be goal-oriented.
 A trainee learns more when he or she participates and is not a passive listener.
 The teacher must provide guidance, as well as adapt to the learner and to the situation.
 Learning should be approached as a series of steps rather than a one-time occurrence.
 Learning should be spread out over a reasonable period of time rather than be compressed.
 The learner should be encouraged to do homework or otherwise practice.
 Different methods of learning should be combined.
 Performance standards should be set and good performance recognized.
A training program must be regularly evaluated. Comparisons can be made between the performance of
those who receive training and those who do not, as well as among employees receiving different types of
training for the same job. Evaluations should always be made in relation to stated training goals. In
addition, training effects should be measured over different time intervals (such as immediately, 30 days
later, and six months later), and proper records maintained.
COMPENSATING RETAIL PERSONNEL

Total compensation-direct monetary payments (salaries, commissions, and bonuses) and indirect
payments (paid vacations, health and life insurance, and Retirement plans) should be fair to both the
- 43 -
retailer and its employees. To better motivate employees, some firms also have profit- sharing. Smaller
retailers often pay salaries, commissions, and/ or bonuses and have fewer fringe benefits. Bigger ones
generally pay salaries, commissions, and/or bonuses and offer more fringe benefits.
With straight salary, a worker is paid a fixed amount per hour, week, month, or year. Advantages are
retailer control, employee security and known expenses. Disadvantages are retailer inflexibility, the
limited productivity incentive, and fixed costs. Clerks and cashiers are usually paid salaries. With a
straight commission; earnings are directly tied to productivity (such as sales volume). Advantages are
retailer flexibility, the link to worker productivity, no fixed costs, and employee incentive. Disadvantages
are the retailer's potential lack of control over the tasks performed, the risk of low earnings to employees,
cost variability, and the lack of limits on worker earnings. Sales personnel for autos, real- estate, furniture,
jewelry, and other expensive items are often paid a straight commission-as are direct-selling personnel.
To combine the attributes of salary and commission plans, some retailers pay their employees a salary
plus commission. Shoe salespeople, major appliance salespeople, and some management personnel are
among those paid in this manner. Some bonuses supplement salary and/ or commission, normally for
outstanding performance. At Finish Line footwear and apparel stores, regional, district, and store
managers receive fixed salaries and earn bonuses based on sales, the size of the payroll, and theft rate
goals. In certain cases, retail executives are paid via a II compensation cafeteria and choose their own
combination of salary, bonus, deferred bonus, fringe benefits, life insurance, stock options, and retirement
benefits.
SUPERVISING RETAIL PERSONNEL
Supervision is the manner of providing a job environment that encourages employees accomplishment.
The goal is to oversee personnel, attain good performance, maintain morale, motivate people, control
costs, communicate, and resolve problems. Supervision is provided by personal contact, meetings, and
reports.
Every firm wants to continually motivate employees so as to harness their energy on behalf of the retailer
and achieve its goals. Job motivation is the drive within people to attain work-related goals. It may be
positive or negative
There are three basic styles of supervising retail employees:
Management assumes employees must be closely supervised and controlled and that only economic
inducements really motivate. Management further believes that the average worker lacks ambition,
dislikes responsibility, and prefers to be led. This is the traditional view of motivation and has been
applied to lower-level retail positions
Management assumes employees can be self-managers and assigned authority, motivation is social and
psychological, and supervision can be decentralized and participatory. Management also thinks that
motivation, the capacity for' assuming responsibility, and a readiness to achieve company goals exist in
people. The critical supervisory task is to create an environment so people achieve their goals by attaining
company objectives. This is a more modem view and applies to all levels of personnel
Management applies a self-management approach and also advocates more employee involvement in
defining jobs and sharing overall decision making. There is mutual loyalty between the firm and its
workers, and both parties enthusiastically cooperate for the long-term benefit of each. This is also a
modem view and applies to all levels of personnel.
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It is imperative to motivate employees in a manner that yields job satisfaction, Low turnover, low
absenteeism, and high productivity:
- 45 -
RETAIL MARKET STRATEGY
INTRODUCTION
In this era of globalization and increasing competition, retailers are showing a keen interest in formulating
well-designed strategic plans that could attract and retain customers by understanding and catering to their
needs and changing interests. An effective strategy enables the retailer not only to stay in the market but
also to grow and prosper.
The strategic plan of a firm should-be-formulated by assessing the external environment affecting the
working of the firm and capitalizing on the opportunities available after assessing its own strengths and
weaknesses. However, no strategy can be effective, if it is not implemented properly. Thus, retailers
should take steps to implement the strategy effectively and monitor it from time to time.
DEFINITION OF RETAIL MARKET STRATEGY
A retail market strategy is a statement, which defines the orientation of the firm in terms of the target
market that it wishes to cater to, the retail format that it proposes to build, and the retail mix variables that
it chooses to gain decisive competitive advantage and sustain its position in the retail market. The retail
format takes into consideration factors like the nature of the merchandise, assortments, the services
offered, objectives of the promotional campaigns, pricing, store design and visual merchandising, location
and number of stores, etc. To formulate a good market strategy, the retailer should first understand its
target market and its retail format.
TARGET MARKET AND RETAIL FORMAT
A retail strategy cannot be formulated in isolation or by considering the aspirations and resources of the
organization alone. Customers and competitors are also considered. Retailers should not only satisfy the
needs of the target market but also perform better than the competition. The retail format should be so
chosen that the retailer is in a position to provide the retail mix that its target customers look for.
Traditionally a 'market' was a place where buyers and sellers met to bargain and exchange products and
services. However, in the modem market place, the sellers and buyers do not need to meet one another.
Customer can directly place orders with the retailer through the retailer's web site using the Internet and
make payments online.
The retail format is thus chosen on the basis of target group (any customer segment based on the
demographics, lifestyle, buying situation, benefits, etc.) that the retailer wishes to cater to. Departmental
stores, specialty stores, discount stores and hypermarkets are some of the retail formats. Within each
product segment like apparel, groceries, toys, etc., a retailer can choose a different target market. For
instance, the same retailer can target high-income customers for its apparel section while it may target
middle-income customers for its grocery section. Thus, each retailer can choose a different retail mix.
BUILDING SUSTAINABLE COMPETITIVE ADVANTAGE
After establishing the retail format and defining the target market, the retailer should formulate a retail
strategy that would help it differentiate its store from its competitors. For example, the success of WaI-
Mart is attributed to its strong competitive strategy The retail strategy is chiefly guided by the five
dimensions of price, location, merchandise, service and communications. Customers form an image of the
store on the basis of these core dimensions. The core dimensions are supported by the everyday store
functions of operations, purchasing logistics, market research, financing and technology.
- 46 -
The effect of each of the dimensions can be understood by a careful examination and analysis of the
retailer's position with regard to that of its competitors. Thus, the dimensions that influence the business
most and win over the competition should be given utmost importance.
LOCATION
Many customers and retailers have realized the benefits of competition. Healthy competition encourages
them to perform better and provide better bargains for the customers. However, some retail markets and
locations are so appealing that they lure too many operators, thus resulting in too many competitors
competing for a limited market. With so many players aspiring for a small market share, each retailer
would eat into the sales volume of another. As a result, none of them would enjoy the benefits
Very few retailers have the drawing power that would make the customer travel an extra mile only to visit
the store. Generally, unless a retailer has high drawing power, it is the location that determines the
customer traffic for a store and the customer traffic for an area broadly remains the same irrespective of
the existence of a particular store. Hence, location strategy of stores with low drawing power is aimed at
attracting the customer traffic that is directed to a particular location.
The presence of a number of stores in a particular locality can prove beneficial due to the increase in
customer traffic. By taking competition in good spirit and making efforts to address the unfulfilled needs
of customers, all retailers can make considerable profits. Retailers can sell complementary products in
their stores so that the location is viewed as a complete shopping area and attracts more customer traffic
MERCHANDISE
Merchandise mix refers to the total range of products that a store offers to its customers. The merchandise
being offered by a store determines the perception of the customers with regard to the store. It is not
necessary for retailers to follow low-price and bargaining patterns if they maintain merchandise that is
unique..
The identity of the stores is often linked to the merchandise they offer. Retailers can cater to the needs of
their target customers and retain their identity by formulating a detailed merchandise plan.
Retailers also differentiate themselves from others on the basis of the merchandise they offer by creating
in-house brands of merchandise. This concept is highly popular in UK and to an extent in the US. In India,
this type of store branding is limited to apparels and groceries. Retailers like Shoppers' Stop stock other
brands along with their own while Westside sells entirely its own brands. Other than national brands and
store brands, proprietary brands are on the rise in the US. Proprietary brands help the retailers establish a
strong store image, create loyalty and realize more profits.
The merchandising strategy adopted by a store can be examined by mapping the store's assortment with
the offered variety'. Some retailers like Wal-Mart and Kmart prefer to offer their target customers a large
variety of products though with shallow assortments while some other retailers like Toys 'R' Us prefer to
keep deep assortments with less variety. Retailers have to make a choice between maintaining a wide
variety or deep assortment because opting for both would increase the inventory costs undesirably,
making the firm uncompetitive. However, some big retailers like Sears and JCPenney manage to equip
their stores with both wide variety and deep assortments
PRICE
The relative strategic positioning of a retailer can be determined by its margin turnover proportion. It is
very difficult for a retailer to achieve high turnover and high margins simultaneously because if it
increases the price, its customers will drift away to other retailers. Similarly, it is not possible for a retailer
to sustain in the market place (in spite of low margins) if it has a low turnover. This leaves the retailers
with only two choices -- either to maintain high turnover by keeping low margins or to keep higher
- 47 -
margins-in spite of the low turnover. Wal-Mart is a good example for the former while JCPenney adopts
the latter practice.
Generally, retail stores, which, by the nature of their merchandise experience low turnover try to maintain
profits by keeping high margins on the products they sell. Specialty stores like Hallmark and high-end
fashion stores like Nordstrom in USA come under this category. On the other hand, discount retailers try
to attract customers by keeping low margins, and making profits through high turnover. However, these
pricing strategies have their disadvantages. Some retailers, who choose to maintain high margins
sometimes do not realize any profit due to low turnover. At the same time, retailers who aim at high
turnover through low margins may sometimes need to sell the merchandise at lower margins as their
customers get used to discounts and sales and tend to postpone the purchase till another sale.
SERVICE
The kind and extent of service appropriate and feasible for each store would be different and should be
determined by the managers in a particular store. The quality of both the basic and associate services (gift
wrapping, mailing, etc.) being offered by the retailer are important.
Retailers need to spend considerable amounts of money to offer good customer service. These amounts
are justifiable only if the high service being offered results in some kind of payoff for the retailer. The
payoff could be in the form of retained customers or in the form of increased sales. However, retailers
should always ensure that their service strategy is aligned with their market strategy. Retailers should
identify specific service areas according to their market strategy. This will provide a differential advantage
to the retailer.
COMMUNICATIONS
The retailer should determine well in advance, the level of service he wishes to provide for particular
merchandise. If a retailer chooses to provide service which involves high costs for a low-priced
merchandise, it would not provide any advantage to the retailer. Likewise, if a retailer does not provide
good service for high-priced items, customers would not be satisfied and this would work in favor of the
-competitors. However, if a retailer selling high-end merchandise provides good/superior service,
customers would be delighted and would become loyal customers for the retailer. Thus, the retailer can
gain strategic advantage over its competitors by offering good customer service. However, retailers selling
low-priced merchandise need not necessarily provide additional or a wide variety of services. Such
retailers can minimize service costs by providing just basic services and keeping the customers happy both
price wise and service wise. The market strategy of a retailer would be incomplete and ineffective if no
effort is made to reach out to the potential customers. While designing the communication policy, a
retailer must take care of four strategic dimensions: reach, frequency, content and personalization. Reach
refers to the number of people who see an advertisement at least once. Frequency is the average number of
times that a customer sees the advertisement. Content refers to the image the retailer wishes to project.
Personalization is the ability to provide customized communication to customer.
OUTLINE FOR A STRATEGIC PLANNING TEMPLATE FOR RETAIL

MANAGEMENT
1. Situation Analysis
 Current organizational mission
 Current ownership and management alternatives
 Current goods/service category
2. SWOT Analysis
 Strengths: Current and long term
 Weaknesses: Current and long term
 Opportunities: Current and long term
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 Threats: Current and long term

3. Objectives
 Sales
 Profit
 Positioning
 Satisfaction of publics
4. Identification of Consumers
 Choice of target market
 Mass marketing
 Concentrated marketing
 Differentiated marketing
5. Overall Strategy
Controllable variables
 Goods/services strategy
 Location strategy
 Pricing strategy
 Promotion strategy
Uncontrollable variables
Consumer environment
Competitive environment
Legal environment
Economic environment
Technological environment
6.Specefic Activities
 Daily and short-term operations
 Responses to environment
7. Control
 Evaluation
 Adjustment
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FINANCIAL STRATEGY
INTRODUCTION
The income statements and balance sheets of all retailers contain information regarding the performance
of their stores. However, only a few retailers take the time to understand and analyze these financial
figures to measure the performance of their retail stores. Retailers who do take the time to study these
figures are able to deveI.9JL1msiness models and generate more profits than other retailers who operate in
similar environment. This is because these retailers focus their resources on areas which are most
important for profit generation. By so doing, they earn a higher return on investment
Retailers use various financial ratios like gross margin, net profit margin, asset turnover, and financial
leverage to measure the performance of their stores. The strategic profit model, a comprehensive
framework based on all these ratios, can be used to understand the ability of various financial strategies to
achieve a retailer's profit objectives.
STRATEGIC PROFIT MODEL - AN OVERVIEW
Generally, most businesses operate on the premise that they need to get a good return on investment. The
retailing business is no exception. Though retailers adopt different strategies, they pursue same financial
goal, i.e., earning a good return on investment. The strategic profit model (SPM) is a tool for planning and
evaluating the financial performance of retailers. It combines information from the income statement and
balance sheet into a single, comprehensive frame work. The strategic profit model establishes a
mathematical relationship among net profit margin, asset turnover, and financial leverage. By so doing, it
arrives at two important performance measures for return on investment return on assets and return on net
worth. This model regards return on net worth as an important indicator of the performance of a firm.
Return on net worth measures how much income was generated on the investment made by the owners of
a firm. It thus shows how much value a company has created for its shareholders
The performance ratios required to calculate the return on net worth are net profit margin, asset turnover,
return on assets, and financial leverage.
Return on Net worth (RONW) can be calculated as follows: RONW = Net Profit margin x Asset Turnover
x Financial Leverage= Return on Assets x Financial Leverage
(Return on Assets = Net Profit Margin x Asset Turnover)
THE STRATEGIC PROFIT MODEL
The strategic profit model gives two important returns on investment measures, return on assets and return
on net worth.
Return on Assets = Profit Margin x Asset Turnover
Return on Net Worth = Return on Assets x Financial Leverage
RETURN ON ASSETS
Return on assets is the combination of profit management and asset management. It is given by
Return on Assets (ROA) = Net Profit Margin x Asset Turnover
Net Profit / Net Sales * Net Sales/Total Assets = Net Profit/Total Assets
RETURN ON NET WORTH

This is the ratio the owners of a business are more concerned about. . Return on Net Worth = Return on
Assets x Financial Leverage
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Or
Return on Net Worth = Profit Margin x Asset Turnover x Financial Leverage

= Net Profit/ Net Sales* Net Sales/ Total Assets* Total Assets/ Net Worth= Net Profit/Net Worth
SETTING PERFORMANCE OBJECTIVES

Setting performance objectives is the first and most important part of any strategy planning process. A
clear set of objectives will help the organization focus on the changes that need to be made to achieve
those objectives. Some guidelines for setting objectives are given below:
Objectives should be clear and specific.
Objectives should be measurable
Objectives should be realistic and attainable
Objectives should be time bound
Setting objectives for a retail firm requires a combination of top-down and bottom-up approaches to
planning
The top-down approach involves setting of overall goals by top management. These goals are then
narrowed down to store levels.
In top-down planning, top managers set the overall strategy on the basis of their analysis of changes in
external environmental factors like economy, competition and consumer trends. On the basis of the overall
strategy the overall organizational objectives are established. Then these objectives are broken down into
specific objectives at various merchandise category levels and store levels.
- 51 -
The objectives set for the merchandise category level determine the width of category, depth of the
assortment, the product availability, the level of customer service, the floor area, and the location within
the store. Once the broad objectives are set for a merchandise category, the merchandise manager makes
decisions regarding each item of merchandise within a category. These objectives are further broken down
to set goals for category managers and buyers down the hierarchy
The store level objectives are used to set the performance objectives of the regional store managers. The
regional store managers in consultation with the store managers set performance goals for each individual
store
Thus, in the top-down approach, organizational objectives are broken down until performance goals are
set for the department level.
The bottom- up approach complements the top-down approach. In the bottom up planning approach,
lower level managers propose the objectives. These estimates are passed onto higher level. They flow up
to the top management. Based on these estimates the overall objectives are set by the top management.
But-frequently there are differences between the objectives that are set by top management and those set
by lower level employees. To iron out such differences top management should negotiate with managers
at the operational level and arrive at a solution that is acceptable to both parties.
However good a strategy may be, the organization will not get the desired results if the employees who
have to implement those strategies are not motivated and are not accountable for their actions
Accountability measures the progress and the results of the strategy that has been implemented. It involves
the setting of guidelines, regular monitoring and periodic review of the progress. Monitoring and review
enables retailers to compare the progress with the objectives and identify the reasons for the differences
between the actual and proposed results
Every manager at each level of the hierarchy should be made accountable for the objectives that are set for
that level. Managers should not be made accountable for factors that are beyond their control. Suppose the
profit target for a certain department is 20%. If top management decides to cut prices in response to
competitive pressures, the profit margins may decrease. The concerned department may not achieve the
profit target due to this change in policy. Thus, when assessing the performance of each operational level,
top management should consider all aspects that affect the performance to ensure a fair assessment of
performance
SETTING UP A RETAIL ORGANIZATION
Through a retail organization, a firm structures and assign task (functions) policies, resources, authority,
responsibilities, and, rewards to efficiently and effectively satisfy the needs of its target market,
employees, and management As a rule, a firm cannot survive unless its organization structure satisfies the
target market, regardless of how well employee and management needs are met .A structure that' reduces,
cost through centralized buying but that results in the firm's being insensitive to geographic differences in
customer preferences would be improper.
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THE PROCESS OF ORGANIZING A RETAIL FIRM
Step 1---- Outlining the specific task to be performed in a retail distribution channel
Step 2---- Dividing the task among channel members and customer
Step 3---- Grouping the retailer’s task into jobs
Step 4---- Classifying Jobs
Step 5---- Integrating position through an organization chart
SPECIFYING TASKS TO BE PERFORMED

'
The tasks in a distribution channel must be enumerated, and then keyed to the
chosen
' strategy mix, for effective retailing to occur:
Buying merchandise for the retailer.
Shipping merchandise to the retailer.
Receiving merchandise and checking incoming shipments
Setting prices.
Customer research and exchanging information
Marking merchandise.
.Inventory storage and control.
Preparing merchandise and window displays.
Facilities maintenance (e.g., keeping the store clean).
Handling receipts and financial records.
Customer contact (e.g:, advertising, personal selling).
Facilitating shopping (e.g., convenient site, short checkout lines).
Customer follow-up and complaint handling.

Personnel management.
Repairs and alteration of merchandise.
Billing customers.
Credit operation
Gift wrapping.
Delivery to customers.
Returning unsold or damaged merchandise to vendors.
Sales forecasting and budgeting.
Coordination
DIVIDING TASKS AMONG CHANNEL MEMBERS AND CUSTOMER
Although the preceding tasks are typically performed in a distribution channel they do no have to be done
by a retailer. Some can be completed by the manufacturer, wholesalers, Consumer .A task should be
carried out only if desired by the target market. For some' retailers, liberal credit policies may provide
significant advantages over competitors. For, others, a cash-only policy may reduce their overhead and
lead to lower prices. A task should be done by the party with the best competence. Credit collection may
require a legal staff and computerized records-most affordable by medium or large retailers. Smaller
retailers are likely to rely on, bank credit cards. There is a loss of control when an activity is delegated to
another party. A credit collection agency, pressing for past-due payments, may antagonize customers. ', .
- 53 -
The retailer's institutional framework can have an impact on task allocation. Franchisees are readily able
to get together to have their own private-label brands. Independents cannot do this as easily.
. Task allocation depends on the savings gained by sharing or shifting task.
GROUPING TASKS INTO JOBS

. .. .
After the retailer decides which tasks to perform they are grouped into jobs. The jobs must be clearly
structured.
While grouping tasks into jobs, specialization should be considered, so each employee is responsible for a
limited range of functions (as opposed to performing many diverse functions). Specialization has the
advantages of clearly defined tasks, greater expertise, reduced training, and hiring people with narrow
education and experience. Problems can result due to extreme specialization: poor morale, people not
being aware of their jobs importance, and the need for more employees. Specialization means assigning
explicit duties to individuals .so a job position encompasses a homogeneous cluster of tasks.
Once tasks are grouped, job descriptions are constructed. These outline the job titles, objectives, duties,
and responsibilities for every position. They are used as a hiring, supervision, and evaluation tool.
CLASSIFYING JOBS
' \
Jobs are then broadly grouped into functional, product, geographic, or combination classifications.
Functional classification divides jobs by task-such as sales Promotion, buying, and store operations.
Expert knowledge is utilized.
Product classification divides jobs "On a goods or service basis. A department stores hires different
personnel for clothing, furniture, appliances and so forth. This classification organizes the differences in
personnel requirement for different products.
Geographical classification is useful for chains operating in different areas

Some Firms especially larger ones, use a combination classification.
DEVELOPING AN ORGANIZATION CHART

..
The format of a retail organization must be designed in an integrated and coordinated way. Jobs must be
defined and distinct; yet, interrelationships among positions must be clear.
The hierarchy of authority outlines the job interactions within a company by describing the reporting
relationships among employees (from the lowest level to the highest level). Coordination and control are
provided by this hierarchy. A firm with many workers reporting to one manager has a flat organization.
Its benefits are good communication, quicker handling of problems, and better employee identification
with a job. The major problem tends to be the number of people reporting to one manager. A tall
organization has several management levels, resulting in close supervision and fewer workers reporting to
each manager. Problems include a long channel of communication, the impersonal impression given to
workers regarding access to upper-level personnel, and inflexible rules. With these factors in mind, a
retailer devises an organization chart, which graphically displays its hierarchical relationships.
ORGANISATIONAL PATTERNS IN RETAILING
ORGANIZATIONAL ARRANGEMENTS USED BY SMALL INDEPENDENT RETAILERS
- 54 -
small independent use uncomplicated arrangements with only two or three levels of personnel (owner-
manager and employees) and the owner manager personally runs the firm and oversees workers. There are
few employee, little specialization, and no branch unit. This does not mean fewer activities must be
performed but many tasks are performed relative to the number of workers.
Each employee must allot parts of his or her time to several duties.
ORGANIZATIONAL ARRANGEMENTS USED BY DEPARTMENT STORES
Many department stores continue to use organizational arrangements that divides all retail activities into
four functional areas--- Merchandising, publicity, store management and accounting and control.
These are organized by Line (direct authority and responsibility) and staff (advisory and support)
components.
ORGANIZATIONAL ARRANGEMENTS USED BY CHAIN RETAILERS
Various chain retailers use a version of the equal store organization by which buying is centralized and
branches become sales units with equal operational status.
They generally have following attributes:

 There are many functional divisions, such as sales promotion, merchandise management,
distribution, operations, real estates, personnel and information system.
 Overall authority is centralized.
 Many operations are standardized.
 An elaborate control system keeps management informed.
 Some decentralization lets branches adapt to localities and increases store manager responsibilities
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ORGANISATION OF RETAILING IN THE INDIAN ECONOMY
OPPORTUNITIES FOR ORGANISED RETAILING IN INDIA
INTRODUCTION
Standing on the threshold of a retail revolution and witnessing a fast changing retail landscape, India is
all set to experience the phenomenon of a global village. India presents a grand opportunity to the world at
large, to use it as a business hub. A 'Vibrant Economy', India tops A T Kearney's list of emerging markets
for Global retailers. The 2nd fastest growing economy in the world, the 3rd largest economy in terms of
GDP in the next 5 years and the 4th largest economy in PPP terms after USA, China & Japan, India is
rated among the top 10 FDI destinations. A stable Government with 2nd stage reforms in place, India can
be reasonably proud of having put in place some of the most widely accepted Corporate Ethics (Labor
Laws, Child Labor Regulations, Environmental Protection Lobby, Intellectual Property Rights, and Social
Responsibility) and major tax reforms including implementation of VAT, all of which make India a
perfect destination for business expansion. India is the fastest-growing market in Asia Pacific for
international tourist spending, according to latest Visa Asia Pacific release. The economy is growing by
over 8 per cent a year and India's growth rate can actually exceed that of China by 2015. The Indian
economy is expected to grow larger than Britain's by 2022 and Japan's by 2032 to become the third-
largest economy in the world after China and US and finally become the second largest economy after
China by 2050.
DRIVERS OF RETAIL CHANGE IN INDIA
INVESTMENT
A report by investment banker Goldman Sachs, credits India with the potential to deliver the fastest
growth over the next 50 years. According to Standard & Poor's, foreign direct investment (FDI) to India is
likely to grow the fastest in next few years. As targeted FDI is to hit $13 billion in the 12 months ending
March 2007, more than double India's previous best of $5.5 billion hit in the previous year.
India is investing over US $130 billion in infrastructure by the end of this decade. Indian retail industry
itself has attracted investment of over INR 200 billion (over $4 billion) in creating infrastructure, systems
& shop-fit. The additional retail space is expected to add INR 300 billion ($ 6.67 billion) of business to
organized retail.
India's stock market continues to rise at unprecedented levels and foreign investors are flooding in. The
quantum of investments is likely to skyrocket as the inherent attractiveness of the segment lures more and
more investors to earn large profits.
THE INDIAN CONSUMER
With the largest young population in the world - over 890 million people below 45 years of age! India is
indeed a resplendent market.
India has more English speaking people than in the whole of Europe taken together. Its 300 million odd
middle class, the "Real" consumers, is catching the attention of the world. As the economy grows so does
India's middle class. It is estimated that 70 million Indians earn a salary of over INR 800,000 ($18,000) a
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year, a figure that is set to rise to 140 million by 2011. The number of effective consumers is expected to
swell to over 600 million by 2010 - sufficient to establish India as one of the largest consumer markets of
the world.
PRIVATE CONSUMPTION & RETAIL
With the changing face of retail, the Indian consumer is in for a rapid transformation. While the consumer
spending continues to grow at double digit figures, leading retailers have recorded an increase in sales
between 50 to 100 percent in the calendar year 2006 over the previous year.
According to India Retail Report 2007, the total private consumption touched INR 20,000 billion (US $
445 billion) at current prices in the calendar year 2006 with organized sector accounting for INR55,000
crore ($12.4 billion) business increasing its share to 4.6 per cent of the total Indian Retail Value that
stood at INR12,000 billion ($270 billion). Moving forward, organized retailing is projected to grow at the
rate of about 37 per cent in 2007 and 42 per cent in 2008. Organized retail in India has the potential to
add over INR 2,000 billion ($45 billion) business by the Year 2010.
The consumer spending is ultimately pushing the economy into a growth-and-liberalization mode. The
Indian market is becoming bolder by the day, with the economy now expected to grow at over 8 per cent
and average salaries being hiked by about 15 per cent, there will be lot more consumption
OPPORTUNITY FOR GLOBAL PLAYERS
Favorable demographic and psychographic changes relating to India's consumer class, international
exposure, availability of quality retail space, wider availability of products and brand communication are
some of the factors that are driving the retail in India. Over the last few years, many international retailers
have entered the Indian market on the strength of rising affluence levels of the young Indian population
along with the heightened awareness of global brands, international shopping experiences and the
increased availability of retail real estate space.
Development of India as a sourcing hub shall further make India as an attractive retail opportunity for the
global retailers. Retailers like Wal-Mart, GAP, Tesco, JC Penney, H&M, Karstadt-Quelle, Sears (Kmart),
etc stepping up their sourcing requirements from India and moving from third-party buying offices to
establishing their own wholly owned / wholly managed sourcing & buying offices shall further make
India an attractive retail opportunity for the global players.
Manufacturers in industries such as FMCG, consumer durables, paints etc are waking up to the growing
clout of the retailers as a shift in bargaining power from the former to the latter becomes more
discernible. Already, a number of manufacturers in India, in line with trends in developed markets, have
set up dedicated units to service the retail channel. Also, instead of viewing retailers with suspicion, or as
a 'necessary evil' as was the case earlier, manufacturers are beginning to acknowledge them as channel
members to be partnered with for providing solutions to the end-consumer more effectively.
Though lucrative opportunities exist across product categories, food and grocery, nevertheless, presents
the most significant potential in the Indian context as consumer spending is highest on food.
Further, 'wet groceries' i.e. fresh fruits and vegetables is the most promising segment within food and
grocery as very few organized retailers have tapped this opportunity in spite of wet groceries being the
preferred choice of most Indian households.
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The next level of opportunities in terms of product retail expansion lies in categories such as apparel
jewellery and accessories, consumer durables, catering services and home improvement.
As nations become richer, their people start appreciating luxury goods and fine dining. India has over one
million such people and this number is expected to triple by 2010. A recent report divides consumers for
luxury goods into four categories – luxuriated source sectors have already witnessed the emergence of
organized formats though more players are expected to join the bandwagon. Some of the niche categories
like Books, Music and Gifts offer interesting opportunities for the retail players.
Currently the fashion sector in India commands a lion's share in the organized retail pie. This is in line
with the retail evolution in other parts of the world, where fashion led the retail development in the early
stages of evolution and was followed by other categories like Food & Grocery, Durables etc. Fashion
across lifestyle categories makes up for over 50 per cent of organized retail and with the kind of retail
space growth that India is witnessing we can certainly foresee a very healthy prospect for the fashion
industry. Of affluence is largely traditional and inherited; New rich: adequate spending power and are
acquiring orientation to luxury; Getting there: acquiring spending power and spend mainly on education,
housing and large automobiles; Mid-affluent: are also acquiring orientation to luxury but unlikely to
indulge beyond a limit.
The most important categories for luxury goods consumers are housing, travel, education, higher end
automobiles, electronics and other home improvement products besides fashion, lifestyle and fine dining.
The most important reason for luxury retail not taking off in India so far has been the lack of luxury retail
environment. The presence has been primarily confined to luxury hotels' with shopping plazas.
RIGHT TIME TO THINK INDIA
India is beginning to make news worldwide. It's just the right time to think India. There's a new sense of
confidence in Indian business. This confidence arises from the growing success of Indian enterprise in the
face of competition in an increasing number of sectors. There is today more steel in the resolve of Indian
enterprise.
The India growth story is going stronger than ever. More than a third of India Inc., or almost 34 per cent,
have achieved a 'super growth' status in the past year, says a Grant Thornton survey.
India's merchandise exports grew by 23 per cent to touch record levels of $102.7 billion during the
financial year 2005-06 and it is estimated to cross $120 billion by FY 2006-07, according to the ministry
of Commerce and Industry.
The upsurge in exports despite high oil prices, points to the intrinsic strength of the Indian export sector.
On the employment front, it is expected that an additional 25 million jobs will be created by the end of
this decade as a result of export growth. The India Story has been having an effect at home too. Being part
of the Story has become a much-sought-after career option. Candidates in the top business and
engineering schools in the country are refusing job offers abroad, since jobs in India are now offering
global compensation.
The world is now looking at India as the nation of the future. More significantly, India is well on its way
to emerging as a first-world economy in the fields of information technology (IT), biotechnology,
pharmaceuticals and the automotive sector, pushing the thrust now on to the retail sector to facilitate the
creation of a new surging modern India.
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The real estate boom in India will not only propel the economy to sustainable heights, but will also
generate employment for several millions. It is strongly expected that the growing Indian economy and
growing opportunities will ensure that the foundation is laid for India's tryst with destiny and for it to be
fully integrated into the world economy.
FDI OR NO FDI, INDIA NEEDS MORE RETAILERS
Government's favorable talks on Foreign Direct Investment (FDI) has ignited ambitions in many of the
global players to be among the first movers into a virgin retail territory i.e. India. So far India allows 51
per cent foreign investment in single-brand retail with prior government permission. FDI is also allowed
in the wholesale business. Single-brand retailers such as Louis Vuitton, Fendi, LLadro, Nike and Toyota
can operate now on their own. Metro is already operating through the cash-and-carry wholesale mode. In
the new scheme of things there could be various entry options for foreign players of different size, formats
and offerings tying up with Indian companies.
The issue of FDI has been debated time and again as the Indian Government has been under pressure to
open up further. The policy makers continue to explore areas where FDI can be invited without hurting
the interest of local retail community. Some of the sectors where he the Government is considering FDI
allowance are retailing of electronic goods, Office equipments/stationery, sports goods, and building
material.
Large Indian retailers have announced launching of separate companies to facilitate entries of global
brands through franchise and license arrangements. FDI or No FDI, India's growing retail space sure
wants more retailers. Considering the cost of building a brand or a retail concept, it will be wise of Indian
companies to tie up with more and more global brands and for retailers to expand the Indian market and
give more variety of products to Indian consumers. Identifying growth areas, crossing barriers, creating
new markets - satisfying classes as well as reaching the masses we need to expand the horizon of Indian
retail.
RETAIL SPACE GROWTH
100 mn sq ft of quality shopping centre space by 2007-08 To generate retail sales of over Rs. 50,000 cr ($
11 bn) Rs. 20,000+ cr ($ 4 bn+) investment in pipeline for retail infrastructure, systems & shop-fit space
for 15,000+ new outlets, 100 hypermarkets, 500 department stores and 2000 supermarkets Over 10,000
small and big existing outlets to undergo complete facelift
THE RETAIL EVOLUTION
With escalating consumerism, unprecedented awareness, and a youth-heavy customer base, India is the
'Promised Land' for the Global brands and retailers. Faced with fast saturating Western markets they are
beginning to recognize the Indian consumer mass as the world's most probable unexplored gold mine.
A T Kearney's Global Retail Development Index' gives a clear message to global retailers on India: Move
now or forego prime locations and market positions that will become saturated quickly. Global retailers
that missed out on capturing first-mover advantage in China can make up for it in India. The organized
retail market is changing fast, along with the lifestyles and buying habits of India's burgeoning population.
As people look for ways to spend their money, global retailers should be looking for prime locations.
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India tops the annual list of most attractive countries for international retail expansion, according to AT
Kearney's Global Retail Development Index 2006. The USD 270-billion Indian retail market is growing at
the rate of 13 per cent and the organized segment grew nearly 48 per cent in 2006 at prevailing prices.
Projected growth rate for the organized segment is about 40 percent for year 2007 and with major global
players and Indian corporate houses entering the fray this growth is likely to touch 45 per cent per annum
over the next three years.
At 2003-04 constant prices the size of the organized retail market is thus expected to be in excess of
Rs.200,000 crore by year 2010, which will make its contribution to total retail sales at about 15
per cent. Currently only 4.6 per cent of the market is organized.
Food and grocery retail is by far the single largest block, estimated to be worth Rs 743,900 crore -- at the
moment, more than 99 per cent of this segment is claimed by kirana stores For organized players, the
gaps of unused opportunities are glaring.
PROBLEM AREAS:
High real estate prices, loosely-knit distribution networks in the country's hinterland, underdeveloped
supply chain logistics, shortage of skilled personnel.
The significance of rural retailing as a formidable segment cannot be lost on any player looking for
organic growth. The urban-rural split in consumer spending is 9:11. Of the estimated $270-billion Indian
retail market, almost half lies in rural India According to recent studies conducted by National Council of
Applied Economic Research (NCAER), rural India is home to 720 million consumers spread across
627,000 villages Of course, India will have to arrive at its unique formats of retailing in order to tap the
market optimally, but successful global models and time-tested practices can be studied to assimilate and
adapt indigenously.
Reliance is hiring overseas talent to build up its management capabilities -- it has appointed Peter
Bracher from Asda Wal-Mart as special adviser for Reliance Fresh stores, and Kevin Pleass from Tesco,
UK, to coordinate store design and construction Space -- and the freedom to grow greater availability of
quality retail space with increase in organized retail An estimated 100 million square feet of quality
shopping centre space by 2007-08; to generate retail sales of over Rs 50,000 crore ($11 billion)
Concurrent with the growth in organized retail, the present two square feet-per-capita retailing space will
rise 15-20 per cent by 2010 . By 2010 about 300 million square feet of additional retail space likely to be
generated.
Mall development has been steady -- currently there are about 200 operational malls (including some on
the verge of completion), and this number is expected to rise to almost 600 by the year 2010. Of the new
malls coming up, 40 per cent are concentrated in the smaller cities.
According to an ICICI study, malls are estimated to become a Rs 38,447-crore ($8.3 billion) sector by
2010 Space for 15,000+ new outlets, 100 hypermarkets, 500 department stores and 2,000 supermarkets.
Organized retailing in small-town India is growing at 50-60 percent a year compared to 35-40 per cent in
the large cities
About 200 tier-III cities with population of less than 2 million and another 500 rural towns have the
potential to be the hub for rural markets, where organized retailing can effectively set base - each of these
700 centers will on an average be catering to about 1000 villages.
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Pantaloon plans nearly 30 million square feet by 2010; RPG plans four million square feet by 2010;
Piramyd plans 1.75 million square feet of retail space in next five years; Trent to add one million square
feet of space in the next 12 DLF malls; Vishal Group to take its cumulative retail space to five million
square feet by 2010
Reliance means to go to 784 cities and towns in India by 2010, involving 100 million square feet of retail
space .
Bharti - Wal-Mart too have announced grandiose plans with Metro targeting more centers for its Cash-n-
Carry format
MANAGING THE GROWTH
Retail opportunity in India is expected to grow manifold by 2010 with investments in the sector slated to
go up nearly 12 times to $30 billion over the next five years -- and this is likely a conservative estimate.
With the development of organized retail, the penetration of modern retail formats will cut deeper
National and regional players are expanding across formats and categories .
Among the fastest growing organized retail categories are: Health & Beauty care services (59% per num),
Food & Grocery (43%), Entertainment, Catering Services (42% each), Footwear, Mobile Phones (36%
each), and Apparel & Fashion Accessories and Jewellery (32% each). Sales through modern formats are
increasing; among the fastest-growing formats are specialty and supermarket (45 per cent),
hypermarket (36 per cent), discount store (27 per cent), department store (18 per cent), convenience store
and e-retailing (9 per cent)
At the same time, indigenous formats addressed at the rural market are turning out to be lucrative;
prominent examples include ITC's Choupal Sagar, DSCL's Hariyali Kisaan Bazaar and Godrej Group's ,
Godrej Aadhar . Organized retail is a function of strong supply chain and robust physical infrastructure.
Basic supply chain framework takes care of operational performance at each nodal point -- from order to
delivery Expanding retail players have to continuously upgrade back-end, front-end and supply chain
dynamics in order to provide a standard of value and services to customers
Between them, corporate bigwigs such as Reliance, AV Birla Group, Tata Group, Godrej, Bharti,
Mahindra, ITC Group and Wadia Group will be investing close to Rs one trillion in the business of retail
over the next five years
Reliance Retail is investing Rs 30,000 crore ($6.67 billion) in setting up multiple retail formats backed by
a 68-strong distribution network, with expected sales of over Rs 100,000 crore by 2009-10
Even as multinational retailers are firming up their India entry strategies, franchising is emerging as the
preferred option.
Franchisee activity is expected to pick up in tier-II cities According to a Frost & Sullivan research, the
overall Indian third-party logistics (3PL) market, estimated at about US$890.3 billion in 2005, is expected
to grow at a compound annual growth rate of 21.9 per cent to reach US$3,556.7 million in 2012
TECHNOLOGY INTERFACE
Foreign retailers have shown that managing operations innovatively can provide a significant competitive
advantage to retailers. Thus, Wal-Mart leverages IT to track supply chain processes like cross-docking.
Similarly, Tesco has high-reliability delivery systems in place
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A leading retail chain could be managing as many as 400,000 products. It is not possible to manage such
volume and magnitude without a sound and detailed IT policy.
Existing and imminent competition from global stalwarts will have to be met squarely, and for this the
technology and systems infrastructure is an imperative. Key benefits of IT implementation include:
operations integration; timely flow of information and faster decision making; reduction in design-to-
delivery time; reduction in processing costs; real-time monitoring and control; security of operations.
A streamlined supply chain can cut down cost on warehousing and saves cost by more than 20 per cent
In addition to collecting sales data (POS) and ordering and tracking inventory (merchandise systems),
companies can also add customer profiling to the roster of IT-enabled functions
In the context of a Rs 55,000-crore organized retail sector - projected to grow at over 40 per cent
annually for the next four years -- the scope for logistics support is tremendous, to state the very obvious
Reliance Retail is investing Rs 8,000 crore in backward integration, market development and location
sourcing; a vital link in the chain is its rural business hubs (RBH)
Bangalore-based Jubilant Group is investing substantially on in-house supply chain so they are enabled to
deliver fresh produce from their captive farms to the Jumbo hypermarket shelves within 24 hours.
Indian retail is attracting some of the leading global logistics support providers that promise to deliver an
assortment of catalogued foreign products to the retail store within seven days
Currently, logistics support to the retail sector is largely being outsourced to specialist service providers
and only a few of the large players have focused on developing in-house supply chain and logistics
systems
SHOP-FIT AND SUPPORT
At least 300 million square feet of quality retail space by year 2011; will need new and progressive ideas
in design, shop-fit and retail support systems Rs 20,000 crore+ ($4 billion+) investment in pipeline for
retail infrastructure, systems and shop-fit
Indian retail offers $17 billion plus business for design, shop-fit and support systems
At the moment, design/shop-fit business shopping centre developers, brands and retailers do not have
many choices .Participation from the Indian subcontinent in Global Shop and Euro Shop is minimal.
Just the beginning, yet. In AT Kearney's 2006 Global Retail Development Index (GRDI), for the second
consecutive year India remains the top retail investment destination among the 30 emerging markets
across the world. In the next five years, India should have retail entities strong enough to compete with the
best in the world.
Investments in retail slated to go up nearly 12 times to $30 billion over the next five years
SCOPE FOR ORGANIZED RETAIL:

Over Rs 200,000 crore ($45 billion) by 2010 .Leading retailers' sales growth: 50-100 per cent in 2005-06 .
Existing players like Pantaloon Retail, RPG Retail, Shoppers' Stop, Lifestyle, and Trent are expanding
rapidly with multiple formats; corporate major Reliance has entered the retail fray.
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Among others, corporate majors like ITC, Reliance, Raheja and Tata, as well as large retailers like
Jubilant Group and Pantaloon Retail are infusing prolific capital into the organized retail sector
Single-brand retailers such as Louis Vuitton, Fendi, LLadro, Nike and Toyota can operate on their own
now; Metro is expanding its cash-and-carry wholesale format while Wal-Mart is getting set to power the
back-end of Bharti's Retail venture .
Full-fledged foreign direct investment expected to be allowed in multi-brand specialty formats like
consumer electronics, sports goods, building and construction equipment, and stationery
Ever-new retailing concepts are emerging, especially in the food retail sector where both urban and rural
areas stand to benefit
Formats such as department stores, hypermarkets, supermarkets and specialty stores are finding
increasingly more acceptance in the Indian consumer's psyche; malls , the grand bastion of modern
shopping, have also broken through to the second-rung cities.
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MULTI CHANNEL RETAILING
A multi channel retailer is a retailer that sells merchandise or services through more than one channel.
REASONS FOR BECOMING A MULTI CHANNEL RETAILER
Traditional store-based and catalog retailers are placing more emphasis on their electronic channels and
evolving into multi channel retailers for five reasons.
The electronic channel gives them an opportunity to reach new markets.
They can leverage their skills and assets to grow revenues and profits.
An electronic channel overcomes some limitations of their traditional formats.
4. An electronic channel enables retailers to gain valuable insights into their
customer shopping behavior.
5. Finally, providing a multi channel builds "share of wallet." Share of wallet is
the percentage of total purchases made by a customer in your store.
ISSUES IN MULTI CHANNEL RETAILING
Customers want to be recognized by a retailer whether they interact with a sales associate or kiosk in a
store, log on to the retailer's website, or contact the retailer's call center by telephone. JCPenney is
providing this type of customer interface through its "threetailing" strategy: "Come in, call in, log on." In
Penney's new flagship store in Frisco, Texas, shoppers can walk the aisles or browse and buy through a
web kiosk, which gives them access to all the merchandise in Penney's catalog. Catalog items can be
purchased in the store as well, and merchandise received at home can be returned to the store.
However, to provide this same face to a customer across multiple channels, retailers need to integrate their
customer databases and systems used to support each channel In addition to the information technology
issues, other critical issues facing retailers that desire to provide an integrated, customer-centric offering
involve (1) brand image, (2) merchandise assortment, and (3) pricing.
BRAND IMAGE
Multi channel retailers need to project the same image to their customers through all channels.
MERCHANDISE ASSORTMENT
Typically, customers expect that everything they see in a retailer's store will also be available on its
website. A significant product overlap across channels reinforces the one-brand image in the customer's
mind. However, the product overlap across channels varies dramatically across retailers. Some retailers,
like Wal-Mart, Kmart, Macy's, and Barnes & Noble, operated their electronic and catalog channels as
separate businesses or independent divisions during the dot-com boom. This situation resulted in
uncoordinated merchandise offerings. The trend now is to integrate the merchandise offerings across
channels. Issues related to the organization of multi channel retail firms.
Other multi channel retailers use their Internet channel to increase revenues by expanding the assortment
they can offer to customers.
Finally, many multi channel retailers have tailored the assortments sold on their website to only include
products their customers are likely to buy over the Internet. For example, Walmart.com discontinued
offering low-price cosmetics and apparel items because the shipping costs were greater than the value of
the merchandise
PRICING
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Pricing is another difficult decision for a multi channel retailer. Customers expect pricing consistency
across channels (excluding shipping charges and sales tax). However, in some cases, retailers need to
adjust their pricing strategy because of the competition they face in different channels. For example
Barnes & Noble.com offers lower prices over its electronic channel to compete effectively against
Amazon.com. Retailers with stores in multiple markets often set different prices for the same merchandise
to deal with differences in local competition. Typical customers do not realize these price differences
because they are only exposed to the prices in their local markets. Multi channel retailers may have
difficulties sustaining these regional price differences, when customers can easily check prices on the
Internet
Multi channel retailers are beginning to offer new types of pricing, like auctions, that take advantage of
the unique properties of the Internet.
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CHALLENGES AHEAD FOR RETAILING
Organized retailing is not a bed of roses for the big players also. In addition to the advent of Internet,
various issues glare at retailing. Some of them are
HUMAN RESOURCE:
Big retail shops do not confine their target segments for employees to undergraduates. Shoppers Stop
broke the myth of MBAs not wanting to go into the retailing career. Cross Roads and Spencer also hire
MBAs to manage their chains. However there still exists a gap between the supply and demand of
professionals. Mr. Goenka, chairman RPG Group, hopes that one of the greatest challenges facing modern
retailing in India is the availability of trained personnel. In order to address the problem RPG Group has
set up a national retail Institute in Chennai, which, offers a variety of courses in retail management for
frontline, supervisory and managerial post. Retaining the human resources is also a major challenge for
these big retailers. The bigwigs like Crossroads offer high compensation and create a cohesive
environment that makes an employee proud to be a part of such big retail chains.
SPACE AND INFRASTRUCTURE:
To establish a retail shop/ Mall, the real estate and the infrastructure are very vital. The expenditure and
availability on both the accounts do hinder the growth of the retail chain. The land ceiling restrictions and
other state restrictions on land use have prevented the growth of efficient retailing in the cities. An average
investment of about Rs. 5 crore is required to establish a mall and that explains the rush of big companies
into this business. Small and individual retailers find it difficult to pour in that much of investment. In
addition to the initial investment, to combat e-tailing, expenditure has to be incurred on technological side.
This makes the retail projects less attractive for the individual players.
CONSUMER MINDSET TOWARDS DISCOUNT STORES:
In India the concept of discount stores like Wall-Mart, at which genuine, defect free international brands
are available at 50% discount, is yet to catch on. Still, the major section of customers is conservative and
choosy and prefers to go to a known retail shop than opt for a discount store. Very few discount stores like
SM2, Mumbai are at present operational. Its reach is confined to major cities. Breaking the conventional
mindset of the Indian consumers that discount stores do not sell inferior goods will take sometime
RURAL MARKET- HOW TO PENETRATE?
Penetration into the rural market is what big retailers have to concentrate on for growth. Attracting rural
markets will be different from that of the urban market. For example detergent cakes are preferred to
powder and coconut oil in bottle to sachets in the rural areas. The rural consumer are different from the
urban consumers as they are more price sensitive and their quantity of consumption would be less as their
share of wallet for shopping along with entertainment is delineated. Food and agricultural inputs dominate
the rural consumers list and whatever is left would be used to fulfill inspirational needs. Customers in the
rural area are not urbanites without money. He has a distinct identity and value system. One more
challenge in the rural market is that shopping habits vary according to seasons. During harvest time, the
spending of a rural consumer increases compares to other times. However, penetration of television,
increasing literacy levels, mobility between rural and urban areas and telecommunication (STD Services)
have increased their awareness towards branded products and entertainment. Customized retail shops
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would be a big success in the rural areas too if the right strategies are adopted.
E-TAILING
The retailing community has accepted and realized the fact that the consumers want to choose between the
variety of brand and value for money is their topmost priority. The big retailers have to deliver a
consistent branded experience. Crossroads in Mumbai is an endeavor to achieve the same, though its
target segments the upper and upper middle class. Technology has made a difference in retailing also. E-
tailing (through internet) is considered to be eroding the store retailing slowly. Is it the real picture? With
the concept of B2C (Business to Consumer Transactions over internet) coming up at a fast pace, an
intimate two-way access is emerging between the retailer and the customers. Customized products are
offered to the customers. For instance while one buys a book through Amazon.com, a synopsis of the
book, its reviews, its prominent readers and other books of the same author are some of the information
provided to the customers. Within minutes of placing an order, one gets a confirmation thus saving time
and satisfying the customer. The penetration level of the internet is increasing at a pace that the reach
would be equivalent to what television took about 40 years and that cable about15years.
In online services and the web, the retailers seek out the customers unlike the traditional model where the
customer goes to the store and locates the product. The busy life-style of the consumers in this hectic era,
tilts the preference needle towards the online retail model. However, B2C success depends on the
behavioral and attitudinal changes in customers. First, the customers have to be familiar with Internet and
have to be informed about buying on the net. Then, the customers have to build the mentality to trust the
e-sellers and be convinced on the products quality. The KSA customer 2000 study showed that only 1%
have ever used net shopping though 40% are aware of it. But 10% of the representatives do not trust the
quality in net shopping. This shows e-tailing (stand alone) has a long way to go in India. The major
advantage of the retailers in India is that, most of the products operate on the push factor than pull factor.
In order to popularize their products the manufacturers have to attract the customers to feel the products,
physical existence and this is enabled by the retailers. Instead of viewing e-commerce as a threat for
retailing the big retailers can embrace technology and provide value added and personalized services to
the customers. In the recent times, companies like ARCHIES have used technology to their advertisement
and increased their sales. By promoting, Fathers day, mothers, sisters, friendship, valentines, and even egg
and Love at first sight days, Archie’s has been successful in pulling crowd in their galleries all over India.
The big retailers can learn the lesson from Archies. A recent KSA Techno park survey finding showed
that Apparels and Consumer durables occupy the top slot in priority for shopping in India. Apparels and
Consumer durables and for that matter even footwear are those products which gives satisfaction when
you feel it. How can the big retailers use technology in this? Technology is so flexible that it can coexist
with business anywhere. The big retailers have to have their websites to combat the competition from e-
tailing. For instance for clothing, the big retailers can show the variety and design offered by them through
the net. A virtual experience can be provided and the customer can have n option whether to visit the shop
or shop from home. If the virtual round through the shop is irresistible, the customer will definitely come
to the shop for an experience at least. Thus, in this era of Information Technology store and retailers have
to become technology savvy to satisfy customer preferences. The consumer mercantile activities grouped
into three phases, pre-purchase preparation, purchase consummation and post-purchase interaction have to
be properly incorporated with technology.
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MERCHANDISE ASSORTMENT PLANNING
INTRODUCTION
The variety and assortment of merchandise offered by a store playa major role in attracting customers.
The retailer must make decisions regarding the merchandise offered depending on the sales targets and
financial objectives of the store. Merchandise comes in a variety of sizes, colors, makes and models.
Retailers should be very careful while deciding on the amount of stock to be maintained in each category;
if large stocks are maintained in a particular category, there may not be sufficient resources left for
providing a deeper assortment of goods. Hence, the retailer should establish a trade-off between the types
of categories or assortment and the inventories being maintained.
For a judicious mix of merchandise and its arrival in the store for sale at the right time, several individuals
and functional departments such as purchase, warehouse, finance, store operations, etc. have to coordinate
their activities. Managing merchandise properly is of great significance for any retail firm.
ORGANIZING THE BUYING PROCESS BY CATEGORIES
A category is a retailer's fundamental unit of analysis for making decisions pertaining to merchandising. A
category is a distinct, manageable group of products or services, which are perceived by customers to be
interrelated and\or substitutable. For example, men's jeans and girls' jeans are two categories, which have
similar characteristics
CATEGORY MANAGEMENT
Category management is a process of managing all stock keeping units (SKUs) within a product category.
It involves the simultaneous management of price, shelf-space, merchandise strategy, promotional efforts
and other elements of the retail mix within the category, based on the firm's goals, the changing
environment and the consumer behavior. Thus category management has two main objectives - satisfying
the customer and increasing sales in each category.
In a majority of retail organizations, the responsibility for purchasing merchandise is shared by a category
manager and a merchandise planner. Merchandise planning is an evolving concept in retailing and hence,
this process is handled differently by different retailers. Typically, it is the category manager who looks
after all the functions of merchandise management. The responsibilities of a category manager include
interacting with the vendors, merchandise selection, merchandise pricing and working with the advertising
department for developing various promotion schemes: The responsibilities of a merchandise planner in a
typical retail organization are more analytical and involve purchasing the right quantities of each
merchandise category, assigning the merchandise to stores, looking after the sales activities and
suggesting markdowns.
THE CATEGORY MANAGEMENT PROCESS
Category management helps the retailer answer questions like: What type of merchandise should be
offered to the customer? What quantities of merchandise should be made available? What pricing strategy
should be adopted? In which stores should the merchandise be made available? Which part of the store
should be assigned to particular types of merchandise? How .much shelf space should be assigned to a
particular merchandise category? What type of advertising strategy should be adopted?
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A typical category management process is split into the following steps:
CATEGORY DEFINITION
Defining a category is the first step in the category management process, in which .the retailer classifies
the products into different categories depending on the usage of the product by the consumer and its
packaging.
ROLE OF CATEGORY
Deciding on the role of a category is the second step in the category management process, in which the
retailer decides the role of each category and determines its position in the category mix. In general, there
are four category roles:
Destination categories are used by the retailers to position themselves as the preferred stores of customers
through their superior service and better value offerings. For instance, the fresh foods (fruits, vegetables,
bread, butter, etc)made available at RPG's Giant Hypermarket make it 'a choice location for customers for
food products.
Routine categories are products that are used by customers on a regular day to-day basis. Products placed
under routine categories include hair oils, detergent powders and cakes, shampoos, soaps, toothpastes and
services like banking,
Convenience categories include products that are more conveniently purchased by customers from
neighborhood retail outlets Rather than from an outlet at a greater distance, carrying a wide range or
products and lower price.
Seasonal categories include products that are bought occasionally. Some retailers, who specialize in
offering items classified under the seasonal categories, can change those particular products into
destination categories in order to attract more number of customer offerings that season. For instance,
certain departmental stores offer crackers during Diwali season at low prices, thus making them preferred
place to shop for crackers.
CATEGORY ASSESSMENT
Category assessment is the third step in the category management process, in which the retailer conducts a
detailed analysis of the sales, profits and return on assets and investments depending on the stock keeping
units, subcategories, brands, etc. The retailer also assesses the categories with the help of data on the
consumers, vendors or competitors.
CATEGORY SCORECARD
It is the fourth step in the category management process. This step involves developing bottom-line and
setting targets to measure the performance of the categories. Retailers use a tool known as a category role
matrix together with parameters like the sales volume and the Gross Margin Return on Investment
(commonly referred to as GMROI) for measuring the performance of a category.
CATEGORY STRATEGIES
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In the fifth step of the category Management process, the retailer develops marketing strategies for the
category. There are two types of strategies: demand-chain strategies and supply chain strategies. While
demand-chain strategies emphasize store traffic, profit margins, store image, cash and excitement, supply-
chain strategies emphasize the flow of merchandise and the cost of transactions.
CATEGORY TACTICS
This step in the category management process involves determining various tactics that ensure the smooth
implementation of strategies. These tactics relate to assortments, pricing, promotion and supply chain.
IMPLEMENTATION
Implementation is the last stage of the category management process where the action really takes place.
In filet, implementing the category management process in the store is the most crucial element. Retailers
monitor and control the category management process regularly in order to ensure the maximum
contribution to profits from every category,
THE BUYING ORGANIZATION
All retailers, including those haying a single category manager who may be the proprietor of the store,
should split their merchandise purchasing activities into categories so as to establish a systematic
purchasing process.
The merchandise group is the highest level of the buying organization, and consists of the vice-presidents
of merchandise for different sections, like vice president- merchandise for men's toiletries, shoes and
accessories. The vice president is responsible for different departments. Departments form the second
level of the retail buying organization and a divisional merchandise manager, working under the guidance
of the vice-president-merchandise, heads each department. Classification is, the third level of the retail
buying organization. Purchaser, who reports to the divisional merchandise manager, manages the buying
activities at this level. Category is the next level in a retail organization where each purchaser (from the
previous level) buys merchandise for a number of categories. For example, purchaser for boys apparel
(aged 7 to 14) purchases different categories of merchandise such as outerwear, sportswear, Casual wear
and swimwear. Moreover, each one of these categories can comprise merchandise from one or many
manufacturers (for each SKU). And this makes the fifth level of buying organization. But, defining levels
is not as simple as it appears. It requires thorough market research, without which the retailer will not have
a clear idea of how the consumer will perceive the merchandise. For instance, a manufacturer might
perceive fairness creams and moisturizing creams as two different product categories, whereas a consumer
might consider purchasing a fairness cream as an alternative to a moisturizer. Though fairness creams and
moisturizers are products that cannot be substituted for each other, the consumer may use them in a
similar manner. Hence, in order to improve sales of a particular category, retailers should understand how
consumers perceive products and buy them.
An SKU (Stock Keeping Unit) is the smallest classification available for controlling the inventory. For
example at a Flying Machine jeans outlet, men's jeans of size 30 x 34, in classic fit, in the colors of dark
blue, light blue and black, can be placed in one stock keeping unit.
Once the retailers understand the need for managing the merchandise through categories, they should
analyze the various financial implications of merchandise management
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MAKING A SALES FORECAST
SETTING FINANCIAL OBJECTIVES
The success of a retailer depends on how each of the merchandise categories contributes sales revenues to
the store. Hence, stores should set financial objectives for each of the merchandise categories to measure
their performance. Usually, the top management of the retail organization undertakes financial planning.
The top management of a retail organization sets the financial objectives taking into consideration the
overall performance of the organization and the strategic areas of thrust. These objectives are conveyed to
the middle level managers (category mangers and merchandise planners) for them to work out further
details. Category mangers and the merchandise planners take a still more detailed approach, by analyzing
the previous performance of the categories, and market trends, and then projecting the merchandise needs
for the coming seasons. The final merchandise plan is prepared by the merchandise planner and the
category manager, in consultation with the top management about the changes made, if any.
The process of financial planning for a retailer, whether large or small is the same, even if the retail
organization does not have many levels of management. The planning process typically starts with the
overall financial objectives of the retailer, which are then divided into objectives for various categories.
The merchandise plan developed as a result of the intensive planning of the top management and the
category managers, acts as a financial blueprint for purchases in each category. A merchandise plan helps
the category manager and the merchandise planner determine how much money should be spent on a
specific merchandise category every month so as to meet the sales forecasts and other financial goals.
After the merchandise plan has been developed, the category managers develop an assortment plan. The
category managers work closely with vendors to select the merchandise, negotiate the prices and design
promotional schemes. The merchandise planners split the merchandise financial plan based on category
wise requirements and the needs of each store. Once the financial objectives of the merchandise have been
set properly, the retailer will have to examine and measure the performance of the merchandise.
SALES FORECASTING
Sales forecasting is an integral part of any merchandise assortment plan. There are many internal and
external factors that affect the sales of a retailer, which he should be aware of. The external factors
affecting sales are seasons, holidays, special events, competition, external labor movements, productivity
fluctuations, births and deaths, changes in fashions, population changes, consumer earnings, political
environment and weather conditions. The internal factors that affect sales are product changes,
adaptability to prevailing fashions, product quality, service changes, shortages, production capacity,
changes in promotional efforts, price fluctuations, inventory shortages, working capital shortage,
distribution methods, changes in the credit policy and labor problems. Thus, without a proper sales
forecast or sales forecasting technique on hand, retailers cannot determine how much merchandise to buy.
The retailer should have detailed knowledge and understanding of category lifecycles in order to make
realistic sales forecasts.
CATEGORY LIFECYCLES
A sales forecast should be able to predict the effective salability of different product categories over a
certain period of time. Typically, every product category follows a specific pattern of sales spread over its
life cycle introduction, growth, maturity and decline. The stages of the lifecycle arc distinguished on the
basis of their differing sales volumes- low sales in the introduction stage, steep increases in the growth
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stage, and stagnant sales in the maturity stage, followed by a fall in the sales volume in the decline stage.
Though every category follows the above pattern, the shape of the pattern varies significantly from
category to category. Category-wise sales information helps the category manager understand customer
preferences. It helps him understand the type of customers who are likely to buy the products, their
expectations in terms of the variety of the products, the nature of competition, and the types of promotion
and pricing decisions that will be suitable. When making a sales forecast, it is important for the retailer to
know the type of merchandise on offer, i.e., whether it is a fashion, a staple or seasonal merchandise.
It is important for a retailer working on a sales forecast and merchandise strategy, to know at what point in
its life cycle a product. Category lies, as this has a significant impact on the target market, the variety of
products to be offered, distribution, pricing and promotional strategies.
Retailers make sales forecasts by using previous sales records of the category and studying its lifecycle
trends.. Category managers, when making sales forecasts, usually consider several sources for collecting
data. The sources of information are past sales records, published sources, and information, from
customers. The forecasts derived from such past data may have many errors when examined at the micro
level and this is where the real problem lies. For instance, it is easier to forecast the sales of the trousers
rather than the sales of casual Khakis. Category managers should be realistic while estimating future sales.
Retailers should follow the guidelines given below in order to enhance the accuracy of their sales forecast.
The products should be categorized into basics and fashionables. Sales of basic products or merchandise
can usually be forecasted fairly accurately and the retailer need not check the sales forecasts a number of
times.
Retailers should develop top-down and bottom-up sales forecasts, and then derive a mean by clubbing
these two figures,
 They should allow different individuals to develop sales forecasts.

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 They should use feedback from consumer panels and research on the styles and colors of the
merchandise being considered.
Once the retailer has all the financial and sales forecasts for a particular category of merchandise, the next
step is to determine what type of merchandise to purchase
ASSORTMENT PLANNING PROCESS
Every retailer, in order to attain a sustainable competitive advantage, has to answer a basic strategic
question - what type of a retail format should be adopted? Deciding the type of merchandise assortment
that will be offered by the store forms a critical component of the choice of a retail format. Decisions on
merchandise assortment are generally constrained by the availability of space in the store and the
availability of finances to spend on merchandise. Decisions pertaining to the variety and assortment of
products and the product availability are based on the retailer's financial goals. It is essential for the
retailer to understand the importance of variety, assortment and product availability and analyze the need
for strategic trade-offs among them. Variety refers to the number of different categories of merchandise
within a store or department. Stores offering a large variety of merchandise are said to offer a good
breadth, as the terms breadth and variety are used interchangeably. The assortment is the number of stock
keeping units within a merchandise category. Generally, stores offering a large assortment of merchandise
are said to offer .a good depth, as the terms depth and assortment are used interchangeably. And finally,
product availability indicates the percentage of demand that has been satisfied by a specific stock-keeping
unit. Product availability is sometimes referred to as service level or level of support. For instance, if 100
people come into a Wrangler store to purchase broken twill blue jeans in the size 30-32 and the store is
able to sell that item to only 75 customers, on account of limited stock, the product availability in this case
is 75%.
ASSORTMENT PLAN
An assortment plan depicts what should be carried in a specific category of merchandise. An assortment
plan for a merchandise category based on fashion will not identify particular stock keeping units, because
fashions vary from year to year and sometimes, from season to season. The more fashion-oriented the
merchandise category is, the more necessary it is for the merchandise planner to accommodate changes in
fashion, and hence, the lower the level of detail in the assortment plans. The starting point for developing
an assortment plan for a given season is the historical data of a particular merchandise category. Apart
from the assortment plan for a merchandise category in the previous season, sales, inventory turnover and
GMROI figures are used to develop an assortment plan for the current season. The merchandise planner
then makes the required changes according to his expectations of what products or fashions will be really
significant for the coming season. This plan describes general styles, price levels, fabric composition and
colors. The process of developing an assortment plan can be quite complex, especially in multi-store
chains like Shoppers' Stop, Pantaloons or Food World. An effective assortment plan requires equal or
more effective sales, inventory turnover and GMROI forecasts, to complement the experienced judgment
of the merchandise planner
MERCHANDISE PURCHASING
INTRODUCTION
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Retailers should have a thorough knowledge of the merchandise purchasing process. In order to purchase
merchandise, the category manager should have knowledge of the hundreds of products carried by the
store, and should also be competent to test and evaluate the products being purchased. The sources of
supply for the merchandise can be spread across the globe. The category manager should evaluate these
sources in order to determine their ability to satisfy the retailer's needs. Before getting involved in the
actual process of merchandise purchasing, the retailer should take one of the most important
merchandising decisions - Branding. Customers generally evaluate a retail store on the basis of the brands
it carries. Brands have a significant impact on the loyalty of customers towards a store and the image of
the store. The brands carried by a retailer also have an influence on the retailer's margins and the retailer's
dealings with suppliers. Often, decisions regarding brands go hand to-hand with decisions regarding
global sourcing, especially for retailers considering private labels. The country of origin of a product,
apart from representing its quality, also has a bearing on the cost and time for procuring the merchandise.
MERCHANDISE PURCHASING
The process of purchasing merchandise, either from domestic or from global markets, involves all the
activities that are required for establishing a successful relationship with various vendors. Once the
merchandise has been purchased, it should be brought safely into the store and placed on the shelves for
sale. This process of getting the merchandise physically into the store and taking care of it till it is sold is
referred to as merchandise handling. As the same vendor may supply the merchandise to a retailer over a
period of time a relationship is bound to develop between the vendor and the retailer. The retailer must
strengthen this relationship to gain a competitive advantage. However, simply purchasing from a
particular vendor will not give a retailer competitive advantage. Both the retailer and the vendor should
establish a strategic partnership that is based on trust, common goals and financial commitment, to gain a
competitive advantage.
BRANDING STRATEGIES
The type of merchandise brands a store carries plays a major role in improving the image of the store and
in attracting customers. Retailers should determine an optimum mix of manufacturers' brands and private
brands to be offered at the store. Manufacturers' brands are those products that arc designed, produced and
marketed by a manufacturer such as Hindustan Lever Limited, Amul, Britannia and so on; private brands
arc those products that are designed, developed and-marketed by a retailer, such as Food world's jams and
honey, Shoppers' Stop's .
MANUFACTURERS' BRANDS
These brands are produced and controlled by the manufacturer. They are generally well known, backed by
the manufacturers' advertising, and require minimum investment by the retailer. Manufacturers' brands
have maximum sales in many categories. In the case of manufacturers' brands, it is the responsibility of
the concerned manufacturer to develop the merchandise and build its brand image. Manufacturers promote
their brands either by associating their name with the brand (like Nestle KitKat, Cadbury's Dairy Milk) or
by developing an individual brand (like Surf, Tide).
As manufacturers usually spend a significant amount of money (and their resources) to generate demand
for their brands, retailers do not have to spend much on selling and promoting manufacturers' brands.
Some retailers even build some of their categories around some key national brands as it helps them
purchase merchandise in a coordinated fashion based on a central theme.
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For example, purchasers in departmental stores take up the responsibility of the entire brand, like Nike
rather than individual products like shoes. Purchasing manufacturers' brands helps enhance the image of
the store, increase the foot falls and reduce the selling and promotional expenditure of the retailer.
Retailers stock manufacturers' brands as they pull customers to their stores. But manufacturer’s brands
offer smaller margins than private labels, because there is heavy competition among retailers to carry
manufacturers' brands and because the promotional costs for .these brands are borne by manufacturers. As
most retailers offer same manufacturers brands, customers tend to compare the prices of these brands in
different stores. Hence, to attract customers, some retailers provide considerable discounts on
manufacturers' brands.
A retailer offering national brands can transform a customer's brand loyalty into store loyalty when these
national brands are available in only a few stores.
But when manufacturers’ brands are made available through a large number of retailers, then the loyalty
of customers towards a particular store will decline and retailers will find it difficult to stand out in the
competition.
Licensed brands are another form of manufacturers' brands. In this type of brands, the owner (the licenser)
of a popular brand name establishes a contract with another party (referred to as the licensee) to
manufacture and sell the licenser's branded products. The licensee can be either a retailer or a third party
that entered into a contract with the licenser to produce the merchandise and sell it to a retailer.
PRIVATE LABEL BRANDS
Private label brands also referred to as in-store brands are products that are produced and marketed by
retailers. Category managers generally develop the specifications for the merchandise to be offered as a
private label and enter into a tie-up with a third-party to manufacture it. It is the responsibility of retailers
to market their private brands. Moreover, the following factors are perceived to have enabled major
manufacturers' brands to dominate the market and keep other new entrants at bay.
 The major manufacturers have developed high entry barriers through their strong distribution
channels.
 Older brand names have better brand recall than the newer ones. It is difficult for new entrants to
build such strong brands because of the fragmented media and cost involved.
 The removal of high import duties made Indian consumers aware of the quality of imported goods.
As a result, they expect higher value from Indian retailers.
The popularity of private labels is significantly low for the following reasons:
Retailers are not able to advertise as aggressively as manufacturers.
Retailers are not able to achieve economies of scale in designing and manufacturing (unlike
manufacturers).
Retailers lack technical sophistication.
Consumers regard private label brands as inferior to manufacturers' brands.
Private label products should ideally have the following characteristics:

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A private label should be a unit package: Assigning a specific character to a private label is a complex
process. However, any commodity that is sold loose out of a big bag does not qualify to be a private label.
For example, a retailer may sell 4 kilograms of onions from a 100 Kg bag; however, the 4Kg pack of
onions does not qualify as a private label.
The product should be relabeled: The unit package should carry the brand name of a specific retailer or the
name of the other party which is authorized by the retailer to supply private label products.
Private labels are expected to increase the profitability of the categories being carried, enhance the
retailer's negotiation power, and increase consumer loyalty. In developed markets, private labels are used
as key differentiators. This trend is just catching on in India.
REASONS FOR LAUNCHING PRIVATE LABELS
The increasing emphasis given by major manufacturers to shareholder value over consumer loyalty has
compelled retailers to launch private label brands.
Almost all the major retailers in the organized retail sector in India carry their own private labels. There
are three main reasons for introducing private labels:
 The consumer does not see any tangible value in some of the manufacturers' brands offered by the
store in such a situation, the retailer should offer a value that can be felt and experienced by the
consumer. To do so the retailer must offer store brands..
 The retailer does not earn good margins through the sale of national brand,. Organized retailers
like Food World get only a 6-10% margin from manufacturers or vendors, but they require a 20
percent margin to support their operations.
 Of all the purchase orders placed the vendors fulfill only 60 to 65 percent of the orders. The
customers of a store expect the retailer to carry a substantial number of products on its stock
keeping units. This means that the retailer should maintain a large inventory. With the available
credit period of 7 to 10 days, storing large inventories has a negative effect on the return on
interests on account of the paid inventory and a lower inventory turnover rate.
Because of these reasons, the retailer may have no option to introduce private labels.
Once a retailer decides on a suitable branding strategy (whether to carry manufacturer's brands or private.
labels) and determines an appropriate brand mix, he must identify the different sources for purchasing the
merchandise. The retailer should then choose between global sources of supply and domestic sources of
supply. If the retailer decides to use global sources, he must consider factors like fluctuations in foreign
exchange, GATT and WTO regulations, free trade zones, and local and international laws.
GLOBAL SOURCING DECISIONS
The decision to source merchandise from international sources is associated closely with branding
decisions. A retailer should be careful while taking global sourcing decisions as the customers judge the
quality of an imported product on the basis of the country of origin. For instance, like Japan is known for
producing electronic goods, certain countries are well known for manufacturing certain products. Brazil is
known for coffee, and France is known for wines. However retailer's decision to source the merchandise
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from international sources would have many implications in terms of cost. Though sourcing merchandise
from international regions might look cheaper, there could be many hidden costs. Hence, when making
sourcing decisions, retailers should examine various costs related factors like
1. Country-of-origin effect
2. Foreign exchange fluctuations.
3. Tariffs
4. Free Trading Zones
5. Inventory carrying costs.
6. Transportation costs
7. County-of-origin Effect
When making global sourcing decisions, retailers should compare the savings derived from sourcing
merchandise from a low cost region with the prestige derived from sourcing merchandise from a country
that is known for a particular product. Some countries are technically superior in manufacturing certain
products and can hence offer those products in global markets at a lower price than other countries.
Though such products may be offered at a higher price initially, the prices come down with the increasing
efficiency of the manufacturers.
FOREIGN EXCHANGE FLUCTUATIONS
Fluctuations in the value of foreign currencies must be considered by retailers when deciding on a global
sourcing strategy. Changes in the foreign exchange rate will have a significant impact on the cost of
merchandise being sourced. For example" frequent changes in the exchange rate of Indian and US
currencies would increase or decrease the cost of merchandise for an Indian retailer sourcing products
from the US.
TARIFFS/DUTY
A tariff refers to a list of taxes charged by the government on imports. Governments generally use import
taxes to protect domestic industries against foreign competition. These taxes also serve as a source of
income for the government. As tariffs usually increase the cost of the merchandise being imported,
retailers' participation in channels like WTO, NAFT A and free trading zones, reduce these tariffs.
General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)
The General Agreement on Tariffs and Trade (GAIT) was first signed in1947. GAIT was an international
forum that encouraged free trade between member countries by regulating and lowering tariffs on traded
goods. It also served as a mechanism for resolving trade disputes. In January 1995, GAIT evolved into the
World Trade Organization. The WTO monitors and arbitrates GAIT agreements and supports all
negotiations.
FREE TRADE ZONES
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A free trade zone is a specially established zone in a country for warehousing, packing, inspecting,
labeling, exhibiting, assembling, and fabricating goods or for shipping of imports without coming under
the purview of that particular country's tariff rules. Retailers sourcing merchandise from international
sources can reduce tariff rates with the help of free trade zones.
INVENTORY CARRYING COSTS
Inventory carrying costs tend to be higher for products being sourced from foreign countries than for those
sourced from within the country of operation. Inventory carrying costs are arrived at by calculating the
average value of the inventory at cost and multiplying it by the opportunity cost of capital. The
opportunity cost of capital is the rate (return) derived from the next best investment opportunity. There
can be many possible reasons for higher inventory costs. For instance, longer lead times would require
retailer to maintain high levels of inventory, thus increasing inventory carrying costs. Determining the
exact lead times in global sourcing decisions is a difficult task. Inconsistent lead times also force the
retailer to carry higher levels of buffer stock.
TRANSPORTATION COSTS
In general, the cost of transportation is directly proportional to the distance the merchandise has to travel,
irrespective of the mode of transportation. For instance, the cost of shipping a container from Japan to
Chennai will certainly be higher than shipping the container from Mumbai to Chennai.
MANAGERIAL ISSUES IN GLOBAL SOURCING DECISIONS
Managerial issues like quality control and strategic alliances must be considered when making global
sourcing decisions. While sourcing merchandise from different parts of the world, the retailer faces the
challenge of maintaining quality standards. Quality problems are likely to occur if the sourcing
destinations are located in under-developed countries. The poor quality detected at the source may lead to
rework, and this, in turn may lead to delayed shipping of merchandise to the retailer. This may force the
retailer to stock more merchandise as buffer. Thus, quality problems may- have an impact on other store
activities.
Establishing a strategic alliance with vendors is the most crucial part of retail supply chain management It
would be difficult to establish an alliance with vendors in foreign regions, especially if they are located in
distant underdeveloped nations. Establishing a proper communication channel is a difficult job in a global
setting. Language and culture are the most prominent barriers in such a setting. Building and maintaining
vendor's trust is also difficult when dealing with vendors in foreign countries.
THE MERCHANDISE PURCHASING AND HANDLING PROCESS
Purchasing merchandise in a retail environment involves the process of identifying, evaluating and
selecting merchandise for resale to end consumers. The process of merchandise purchasing involves all
the activities that are required to establish a successful relationship with the different sources of supply
and source the retailer's merchandise in an efficient manner. The process of merchandise handling
involves all the activities pertaining to the procurement of merchandise. In other words, it involves getting
the merchandise physically into the store and onto the shelves.
THE MERCHANDISE PURCHASING PROCESS
Purchasing the merchandise is the retailer's first 'step in bringing the merchandise to the store. To purchase
merchandise, the retailer must:
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1. Identify the available sources of supply
2. Contact and evaluate the different sources of supply
3. Negotiate and purchase from the best sources of supply
4. Identifying the sources of supply
This is the first step in the merchandise purchasing process. The retailer should find out the available
sources of supply, and then identify the channel through which each merchandise line would be obtained.
In some cases, retailers prefer to use a direct channel to the manufacturer or the actual producer (in case of
agricultural products). Retailers also use indirect channels with one or more intermediaries, depending on
the situation and the type of product. A retailer can use any of the following four sources of supply, or a
combination of these sources of supply:
I. Raw resource producers

II. Manufacturers
III. Intermediaries
IV. Resident purchasing offices
Retailers, especially food retailers, may choose to obtain merchandise directly from raw resource
producers. Big retailers selling food or food based products like McDonald's, Domino's, Food World etc,
would like to avoid intermediaries and instead obtain fresh vegetables and fruits and other raw~ materials
for their private labels. Selecting a direct channel to the raw-resource producer increases the speed of
delivery, and minimizes handling. As a result, perishable goods like vegetables reach the store with
minimum damage. Retailers may also adopt this direct channel to obtain non-perishable goods like
construction goods and heavy equipment to reduce costs.
MANUFACTURERS
Big multinational retailers like Wal-Mart and domestic players like Giant or Food World prefer to
purchase directly from the manufacturer, as they deal in huge volumes. Purchasing directly from
manufacturers offers many benefits to retailers, such as delivery of fresh products, faster delivery and
quicker processing of initial orders, and lower prices (due to elimination of intermediaries). In addition,
the manufacturer can provide more reliable information on product lines than intermediaries. Apart from
the above mentioned benefits, the relationship between the manufacturer and retailer can also result in
flexible adjustment policies and faster adjustment responses to products that are returned by the retailer's
customers. Further, purchasing merchandise -directly from manufacturers allows the retailer to order and
obtain goods as per his specifications. .
WHOLESALE INTERMEDIARIES
Wholesale intermediaries are those who act as intermediaries between the manufacturers and retailers.
They facilitate the transfer of goods from the manufacturer to the retailer. Their role in the chain varies
according to the nature of their operations and the services provided by them. Most wholesale
intermediaries do not offer all wholesaling services such as purchasing, selling, breaking bulk, developing
assortment, storing, and delivering, extending credit providing information, consultation and title
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transferring. Generally, intermediaries specialize in offering one or few services. Wholesale intermediaries
can be classified into different groups, depending on the number and nature of services being offered.
RESIDENT PURCHASING OFFICES
These offices are owned by the retail store or by an independent organization. They specialize in
providing purchasing services to retailers. Providing information and assisting purchasers are two key
services. They provide information on:
a. product availability
b. supplier reliability
c. market and supply trends
d. special offers, services, prices and promotion offered by various suppliers
Services aimed at assisting purchasers include identifying the sources of supply, contacting the suppliers,
helping with sales negotiations by acting as the representatives of several retailers, providing delivery
services, and scheduling payments and ensuring quick and timely delivery of the merchandise to the
retailers.
CONTACTING THE SOURCES OF SUPPLY

This is the second step in the merchandise purchasing process. Though most retailers have their own
sources of supply, they should have as many contacts as possible with different sources of supply. This
process of contacting can be categorized into supplier-initiated contacts and retailer initiated contacts,
depending on the party that initiated the contact.
Visits by vendors' sales representatives and solicitations through telephone and mail orders arc all types of
supplier-initiated contacts. Making sales call at a retailer's store is the most commonly. used way. This
method helps the retailer in the following ways
a. It saves time and money.

b. It simplifies the market search process.
c. It facilitates easy access to inventory and sales records.
d. It allows consultation with other personnel in the. store prior to placing an order.
Some suppliers use the telephone or the mail to fix appointments with prospective retailers to visit their
store, to follow-up orders, and to find out the needs of present customers. .
Visits to central markets, resident buying offices, and merchandise exhibitions and inquiries through
telephone and mail, represent retailer-initiated contacts. Many suppliers locate their selling offices and
merchandise showrooms in a central market, so that a retailer can visit them and analyze and compare the
merchandise being offered by different vendors. Vendors usually help retailers evaluate the merchandise
by displaying it permanently at the central markets. A group of vendors may come together to host a trade
fair for a certain period, in which they display their merchandise for the retailers to evaluate.
EVALUATION OF SOURCE OF SUPPLY
Once a retailer has identified and contacted various sources of supply; he must evaluate the vendors on the
basis of their operational consistency. To evaluate vendors, the retailer should ideally have an evaluation
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criteria and a procedure for ranking the abilities of each and every supplier in satisfying the retailer's
requirements.
Evaluation Criteria: The various criteria on which potential vendors are evaluated are related to
merchandise, distribution, pricing, promotion and service.
Merchandise is the primary consideration in the evaluation of potential vendors. The most common
factors on which merchandise is evaluated are the availability, suitability and adaptability of the
merchandise carried by the vendor. The suitability of merchandise refers to how well the vendor's
merchandise suits the requirements of the retailer's customers and the retailer's image in the market.
Suitability is evaluated on the basis of a variety of factors like brands; style and pricing, and other factors
such as uniqueness, originality, durability and quality.
Distribution is another significant criteria for evaluating the vendor. Retailers usually analyze a vendor's
past performance to determine his future performance. The degree of exclusiveness offered by a vendor
can be a deciding factor for many retailers. Offering a product exclusively for a particular retailer, or for
selected retailers or for many retailers, would be a deciding factor for selecting a particular vendor. Apart
from the above criteria, there are some distribution policies that should be considered by retailers when
evaluating a vendor - terms and conditions of delivery, constraints on size of the order and assortments,
time taken for processing initial orders and reorders, and the ease and flexibility of placing an order.
When evaluating a vendor on the basis of pricing, the retailer considers the price offered to the end
consumer as well as the price offered to the retailer. When evaluating on the basis of the price offered to
the consumer, the vendor should be evaluated on the basis of the appropriateness and maintenance of
price. The selling price of the merchandise should suit the concerned retailers' target market.
The type and amount of promotional assistance given by a vendor is also a key criteria for evaluating the
vendor. The vendor can provide promotional assistance to the retailer in many forms: providing
allowances in advertising, offering cooperative advertising, making in-store demonstrations, allowing free
display of equipment and making other offers like coupons, contests and samples that attract consumers.
The degree of support extended by vendor for selling merchandise, with the help of national or local
advertising, is a key factor when evaluating and selecting a vendor. The following additional services are
provided (fully or partially) by some vendors:
 Warranty and repairs

 Exchange facilities
 Finance and credit services
 Training of sales person
 Accounting services
 Planning and controlling inventory
 Designing store facilities
 Providing display units, fixtures and signs
Though these services can help a retailer lower its operational costs or capital investments they can also
increase the dependence of the retailer on its vendors.
METHODS OF EVALUATION
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To evaluate alternative sources of supply retailers should evaluate each vendor using the weighted rating
method. In the weighted rating method weights are assigned to each evaluation criteria, According to
lohn .s. Barens's decision matrix approach to vendor selection, a retailer should ideally go through five
steps when selecting an appropriate vendor. These five steps are given below:
Selecting the criteria: In this step the retailer selects the appropriate criteria for evaluating the sources of
supply. Retailers can consider different criteria for evaluating vendors, as discussed above.
Weighing the criteria: The retailer assigns predetermined weights to each evaluation criteria. Then these
criteria are ranked in descending order, depending on their importance to the retailer.
Selecting the vendor: In this step the retailer uses a set procedure to identify the potential vendor for
evaluation.
Rating the vendor: In this step, the retailer ranks each vendor being considered on the basis of each
evaluation criteria. The retailer can assign appropriate weight age to each vendor, by comparing each
vendor with every other vendor in the list on each evaluation criterion.
Weighted rating: The retailer multiplies the weights of each vendor by the weight assigned to the criteria
in step two to obtain the weighted rating for each vendor and to determine the overall weighted rating for
each vendor. The retailer should just add the weighted rating of each evaluation criteria.
The evaluation procedure starts with the retailer selecting the vendor who was assigned the maximum
weighted rating. Then the retailer tries to obtain the necessary commitments from the vendor. And if the
retailer requires more than one vendor or if there is no vendor with maximum weight age, then the retailer
should repeat the process until all the required sources of supply are found.
NEGOTIATING WITH THE SOURCES OF SUPPLY
Negotiating with the sources of supply is the fourth step in the process of purchasing merchandise. It
involves active negotiation with potential vendors (who were identified through evaluation). Through
negotiation, retailers can get the best merchandise for the least possible price, and with the best services.
There are five important terms that a retailer must be familiar with when purchasing merchandise:
Net: This refers to the net number of days from the date of invoice within which the retailer has to make
the payment. For instance, Net 30 implies that the payment must be made within a period of 30 days from
the date of invoice.
Free on Board (FOB): FOB implies that the goods are placed on board a truck, ship or an aircraft. The
ownership of the goods is transferred from the vendor to the retailer at the point of FOB. And till the
ownership is transferred from the vendor to the retailer, the merchandise on board is the responsibility of
the vendor.
Free Alongside Ship (FAS): FAS at a recognized port implies that the vendor specifies a price for the
merchandise, including the delivery costs, alongside a vessel. The vendor/seller bears the loading costs,
while the buyer (retailer or the wholesaler) bears the costs of unloading, sea transportation and insurance.
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Cost, Insurance and Freight (CIF): CIF to a particular place implies that the vendor specifics a
particular price that includes transportation, insurance and other miscellaneous costs.
Cash on Delivery (COD): The vendor might insist on COD when the retailer is unfamiliar or when he
has a poor credit record.
PURCHASING FROM THE SOURCES OF SUPPLY
This is the final step in the process of purchasing merchandise. In this step, the actual purchasing takes
place. The retailer should consider two major issues when purchasing merchandise: purchasing strategies
and purchasing methods.
PURCHASING STRATEGIES
The retailer can adopt a concentrated strategy or a dispersed strategy when deciding on the number of
different vendors to use for obtaining merchandise.
In concentrated strategy, the retailer uses a limited number of vendors, thinking that it reduces the total
costs and allows him to get a preferential treatment. Through concentrated buying, the retailer can reduce
the cost of goods with the help of quantitative discounts and reduced transportation costs. The retailer can
also reduce operational costs because of the increased efficiency in merchandise ordering, delivering, and
processing by few vendors.
Retailers adopting a dispersed strategy believe in using a large number of vendors, as it helps them:
 Secure a greater variety of goods or merchandise.

 Develop a buffer for the sources of supply.
 Develop a competitive spirit among the various sources of supply (to improve service).
Generally, retailers handling fashion merchandise adopt a dispersed purchasing strategy, while retailers
handling staple merchandise adopt a concentrated purchasing strategy.
PURCHASING METHODS
The use of various purchasing methods by retailers depends purely on the situation. The various
purchasing methods considered by retailers are regular, consignment, memorandum, approval and
specification purchasing.
Regular purchasing involves the organized issuing of purchase orders and reorders. The total purchasing
process is dependent on the type of merchandise. Regular purchasing is usually used to purchase most
staple merchandise and many fashion merchandise items.
In consignment purchasing, the vendor remains the owner of the merchandise even after shipping it to the
retailer. The retailer then offers the merchandise for sale, sells the merchandise to the final consumer,
retains the predetermined percentage commission, and transfers the remaining money to the vendor. This
type of purchasing is generally adopted, when the merchandise being sold is new or expensive, or when
the risk involved is so high that it is relatively difficult to determine the degree and duration of the
demand.
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Memorandum purchasing is quite similar to consignment purchasing, except that the ownership is
transferred to the retailer when the merchandise is shipped. The retailer can return any unsold merchandise
to the vendor and is allowed to pay for the merchandise only after it is sold.
In approval purchasing, the merchandise purchased is subject to the retailer's approval. The merchandise is
shipped to the retailer even before the retailer makes the final decision to buy. But the retailer should
obtain the ownership before selling the goods to the final consumer. This type of purchasing allows the
retailer to examine the merchandise prior to making the purchasing decision. This method also allows the
retailer to alter his purchasing decisions till he takes physical possession of the merchandise.
In specification purchasing, the retailer can purchase merchandise according to his specifications. The
extent of specifications can vary from minute changes in the present merchandise lines to complete
changes in raw material, design, quality, labels and packaging.
MERCHANDISE HANDLING
Merchandise handling refers to the physical handling of the merchandise by the retailer. The merchandise
handling process consists of different activities like receiving and stocking merchandise, pricing and
marking inventory, setting up displays, determining on-floor quantities and assortments, completing
customer transactions, providing delivery and pickup of goods (for customers), processing goods that are
damaged, processing returns and exchanges and merchandise control. The effective management of
distribution is crucial during this stage, whether distribution is done through retail centers or through
direct store delivery. According to a recent study conducted in the US on many retail formats (such as
grocery stores, department stores, category killer stores, the specialty stores and mass merchant) over 80%
of them had at least one distribution center. But, over 25% of the retailers had received at least some of the
merchandise directly from the vendor. It was found that around 10% of merchandise in specialty stores
and around 80% of merchandise in category killer retail outlets come directly from the vendor. The
following is the merchandise handling process adopted by many retailers:
 The vendors ship the merchandise either to the warehouses for storing and distributing or to the
retailer's store directly.
 Retailers mark the prices and inventory information on the merchandise being received. There are
several ways in which retailers mark prices and place inventory information on the merchandise.
Small retailers may maintain inventory records manually and mark the prices by pasting them
manually. Some retailers might use computer-generated price tags to mark prices on the
merchandise. They maintain inventory records with the help of the barcodes provided on each
product being sold. Retailers may even purchase tags containing price and inventory data from the
vendors, which can be read both by machines and humans.
The process of merchandise handling cannot be regarded as complete unless the customer purchases the
merchandise from the store and receives it from the store. Purchasing and receiving the merchandise from
the store is usually a process represented by taking an order, receiving cash or credit payment packing, and
delivery or receipt of goods. The performance of retailers in each of these areas has improved significantly
because of computerization and automation.
Once customer purchasing systems are established, the merchandise handling process should develop a
procedure for handling returns and damaged merchandise. Specifically, the retailer should identify the
entity responsible for the goods returned by the customers (the vendor or the retailer) and the terms and
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conditions under which the damaged merchandise would be taken back for a refund or exchange. For
example, many products come with a warranty, which will be honored only for a limited period
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STORE LOCATION AND SITE EVALUATION

INTRODUCTION
Location is a top priority for all businesses. For the retailer, location means being at the right place at the
right time. Whether it is the first store or the hundredth store, retailers must spend time and money on the
process of store location and site evaluation. This is because location decisions cannot be changed easily
once a store has been established. Moreover, the choice of store location has a profound affect on the
entire business life cycle of a retail operation. Location helps retailers gain a competitive advantage, as it
is a unique asset. Once a site has been selected and occupied by a retailer, it cannot be used by any other
store. Thus location is the only strategic advantage that competitors cannot copy or imitate easily. To be
precise, location and site selection comprise the most strategic and crucial decisions made by retailers.
In the last five years, organized retailers in India have had a lot to cheer about. The prices of real estate
have come down significantly in many Indian metros, because of which supply of property is expected to
go up. However, the complexity of selecting a location increases when there is a dearth of prime
properties available at reasonable prices. Selecting a store location involves evaluating a series of trade-
offs concerning the cost and value of the site for a specific retailing format. The selection of a store
location depends on the type of retailer, the kind of store being set up, the type of merchandise that would
be sold, the price at which it would be sold, the type of customers being targeted, the expectations of
customers in terms of price, service, and convenience, and the financial strength of the retailer. The
retailer's image and constraints will help limit the number of store locations being considered. Once the
store concept has been determined, the retailer can shortlist and consider those locations that are in tune
with the image of the store.
SELECTING THE STORE LOCATION
When selecting a location, the retailer must analyze regional and local markets to determine the area that
seems to offer the highest market potential. Such an assessment is called market area analysis.
Demographics, business climate, and the level of competition are considered during market area analysis.
Then the retailer must examine specific areas within those market areas called trade areas. Trade areas
refer to the areas from which most of the customers are drawn. The process of selecting trade areas is
known as trade area analysis. Finally, the retailer must select the most suitable site within the preferred
trade area, i.e., the one that satisfies the firm's objectives and meets customer needs. The process of
choosing the best site is known as the site selection process.
MARKET AREA ANALYSIS
Many retailers like Shopper's Stop, Raymond's, Pantaloons, Titan, and FoodWorid have successfully
established stores at key locations in different states of India. The international fast food giant,
McDonald's, has successfully identified suitable locations in many countries. The best regions are those
that generate the highest demand or sales for a retailer.
A market area analysis consists of regional area analysis and local area analysis. The retailer must analyze
regional differences across domestic or international markets. After selecting a particular region, the
retailer has to analyze one or more local markets within that region. After identifying some promising
market areas, the retailer should estimate their sales potential so as to choose the market area with the
highest sales potential.
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FACTORS AFFECTING THE ATTRACTIVENESS OF MARKET AREAS AND TRADE AREAS

When analyzing market areas, a retailer must assess various environmental and market conditions, to
identify the market area that matches the firm's objectives and strategy. Although market area analysis is
distinct from trade area analysis, the factors that make market areas and trade areas attractive are the same.
Let us examine some of the important factors for selecting the market area.
DEMOGRAPHICS:
Demography refers to the study of population characteristic’s the various demographic factors are the
consumer age, gender, income, education, family background, and occupation. These demographic
variables can be used to identify target markets for retailers. The analysis of demographic changes will
help retailers to track consumer trends. Demographics studies thus provide retailers with information that
help them locate and define the required customer base.
ECONOMIC:
All businesses operate in an economic environment and many of their decisions are based on economic
factors. Retailers must examine the following factors in great detail:
 Per capita income
 Interest rate
 Employment rate
 Business cycles
The higher the per capita income the higher the spending power of the consumers. And the lower the
interest rates the easier it is to set up stores (due to the availability of cheaper funds, at low interest rates).
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In India the IT boom during the 1990's led to an increase in the population of the upper middle class and
the upper class, especially in South India where many IT companies are based. This encouraged retailers
to set up stores in cities like Bangalore and Hyderabad.
CULTURAL:
Culture has a significant impact on the way consumers shop and the goods they purchase. Different people
hold different values and lead different lifestyles. These differences affect their shopping preferences.
Moreover, consumers like to be comfortable in the environment in which they buy goods. To provide a
comfortable shopping environment to consumers, retailers should understand the culture and language of
their customers. multiple Since Indian culture is made up of several distinct subcultures, retailers should
understand the various aspects of culture that would influence their location decision
DEMAND
The demand for’ a retailer's goods and services has a significant impact on the retailer's store location. Not
only should customers want to buy the goods, they should also have the purchasing power. Demand is a
Junction of the population and the purchasing power of the consumers living in a particular location,
which the retailer is targeting. Population and income statistics can be obtained from the published sources
of information like census data. These statistics help retailers compare populations and determine the one,
which would be able to purchase the merchandise carried in their stores. The characteristics of demand
determine whether a retailer should sell high-priced goods - like durables, furniture, jewelry and
electronics or low-priced goods like apparel, toys, and groceries. During the early 1990's when the Indian
economy was liberalized, many multinationals overestimated the demand and entered the Indian market
with high expectations. Many of these firms later retreated from the Indian market because of poor sales.
INFRASTRUCTURE
The nature of the infrastructure required depends on the basic framework of the business. Different types
of retailers require different types of channels to deliver goods and services to customers. The distribution
of goods is highly dependent on existing infrastructure such as highways, roads, railways, and airways
(depending on the transportation used). Legal infrastructure like laws and regulations, and technical
infrastructure like computerization, communication and power distribution, also influence store location.
The quantity and quality of infrastructure varies significantly across countries and regions. Retailers
whose operations depend heavily on computerization and telecommunications, should not consider those
areas that do not meet their minimum specifications of these criteria.
TRADE AREA ANALYSIS
Trade area analysis provides retailers with vital information such as store support, local market
opportunities, competing businesses, and barriers that would discourage consumers from visiting the site.
A trade area is a geographical area containing the customers of a particular firm or group of firms for
specific goods or services. A trade area can also be defined as a district whose size is generally determined
by the boundaries within which it is economical, in terms of volume and cost, for a retailer to sell and/or
deliver a good or service.
The first step in trade area analysis consists of describing and analyzing alternate trade areas and deciding
on the most promising one. Once a trade area has been selected, it should be examined on a regular basis
to keep track of changes occurring in the area.
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SIZE AND SHAPE OF TRADE AREAS
Every trade area consists of three parts: primary, secondary and fringe. The primary trade area contributes
fifty to eighty percent of the store's customers. This area is nearest to the store, has a higher percentage of
customers, and contributes the highest per capita sales. The secondary trade area provides another 15 to 25
percent of the store's customers. This trade area is situated beyond the primary trade area and the
customers in the area are dispersed more widely than in the primary trade area. A fringe trade area consists
of all the other remaining customers. These customers are the most widely dispersed. Fringe trade areas
usually contain out shoppers, who travel great distances to shop at a particular store.
A retail store could have a primary trade area of three kilometers, a secondary trade area of seven
kilometers, and a fringe trade area of nine kilometers.
A number of different factors

determine the size and shape of
trade areas. Some of them are:
Store type
Store Type
Two types of stores in the same
shopping mall can have trade
areas-of different sizes. One store
might offer a better product
assortment; have heavy
promotions, and a stronger
image. Such a store, referred to
as a destination store, has a much larger trading area than a competitor with a less unique appeal. to the
shopping mall or hotel. Such a store is referred to as a parasite store. Some outlets do not have a trading
area of their own and even do not have their own traffic. Such outlets are dependent on customers who are
pulled towards the area for some other reasons. For example, restaurant at a shopping mall or a florist in
the lobby of a hotel depend on the customers pulled
Store Size
The size of the trade area of a store is influenced by the size of the store itself. The trade area tends to
increase with the increasing size of the store, but this increase may not be in proportion to the increase in
the size of the store. This relationship between the size of the store and the size of the trade area can be
attributed to the assortment of goods and services offered to the customer. For example a hypermarket like
Giant, which provide a large assortment and variety of products under one roof, have larger trade area,
whereas supermarket like Food World which have a smaller store size and carry less merchandise have
smaller trading areas.
Merchandise Type
The type of merchandise offered by a retail store also affects the size of the trade area. Merchandise can
be classified as convenience goods, specialty goods, and shopping goods.
Convenience goods refer to products that customers buy frequently, such as fruits, vegetables, groceries.
These are purchased from neighborhood kirana stores and roadside stalls. Thus, in such cases, the trading
Specialty goods possess unique characteristics, but require a considerably high area is small. Other types
of convenience goods, such as staple foods like rice and daI and groceries like soaps and detergents,
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require little pre purchase planning. These goods are generally bought on a monthly basis. Super markets
like Food World are main locations for such purchases. The trading area for supermarkets is larger than
the trading area for kirana stores.
Shopping goods are bought less frequently than convenience goods. These goods include clothing, and
electronic goods. Since the investment in such goods is high, customers are willing to spend time
comparing products in a number of different stores before purchasing. Stores selling such shopping' goods
have a relatively large trade area.
Specialty goods possess unique characteristics, but require a considerably high investment and time, for
example, cars, two wheelers, and luxury goods. Customers buy such goods only after a lot of pre-purchase
searching and planning. Stores carrying such type of goods have a greater trading area than shopping
goods stores.
Location of competition
The number of competing stores in an area and the distance between the stores also influence the trading
area. Two types of competition take place: inter store competition and intra-store competition. Intra-store
competition refers to competition between two retailers selling similar merchandise. In such cases trading
area is often reduce for each.. Suppose Food World and Subiksha were located in the same area,
customers could choose to go to either one of the stores. As a result, the trade area of each store would
shrink. Inter-store competition or competition among retailers selling dissimilar merchandise increases the
range of goods and services offered at a particular location. If Shopper's Stop, Titan, Archie's and Barista
were located in the same area consumers would benefit from the availability of a wider range of goods and
prices. Consequently, customers from greater distances would be pulled to these areas thus expanding the
size of their trade area. Also, a new store's entry into a particular location can affect the size and shape of
the trade area of the established stores at that location.
Housing patterns
The trade area of a retail store is influenced by the housing patterns of the people in a region. People in
urban areas generally reside in multiunit housing structures close to prime commercial areas. In suburban
areas, people live in individual houses that are spread out geographically. In such areas, the retailer has to
pull consumers from greater distances to generate a sufficiently high sales volume.
Travel time
This refers to the time taken by the customers to travel to retail stores. The greater the distance between
their point of origin to the store (destination point) the greater the travel time and the greater the trade
area.
SITE EVALUATION AND SITE SELECTION
What might have made Shopper's Stop situate its store at Andheri, M.G.RoadChembur and Bandra West
in Mumbai, Begumpet in Hyderabad, Ashok Nagar - Magrath Road in Bangalore, Indira palace- Malvia
Nagar-Jaipur, AnsaI Plaza - Khelgaon Marg in Delhi or Harrington Road - Chetput in Chennai?
After identifying a particular trade area, the retailer must select a site for the store. To do so, the retailer
must carry out a site evaluation and selection process.
TYPES OF LOCATIONS
The retailer can choose from three types-of locations: the isolated store, the unplanned business district,
and the planned shopping center. The number of customers visiting a store and the business generated by
that store depends on the location of the store.
ISOLATED STORE
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The isolated store is a freestanding retail outlet situated either on a street or a highway. Stores of this kind
do not have any retailers in their vicinity with whom they have to share consumers.
Usually, consumers are more aware of unplanned business districts and planned shopping centers than
isolated stores. As a result stores at unplanned business districts and planned shopping centers generate a
major chunk of retail sales.
The isolated store location is not suitable for small retailers as customers would not be willing to travel to
small stores, which do not offer much variety and have a shallow assortment of merchandise. But large
retail stores like Wal-Mart and Giant can afford to select an isolated location, as they are capable of
pulling and retaining consumers
THE UNPLANNED BUSINESS DISTRICT

Unplanned business districts are retail locations in which two or more-stores are either situated together or
closely in a manner that the total arrangement in that particular district was not planned in the initial long
range planning. The stores are situated depending on what suits them best, but not on the basis of the
district. Consequently, in a particular area all the stores may sell similar or related products. Unplanned
business districts can be categorized into four types
1. Central Business District
2. Secondary Business District
3. Neighborhood Business District
4. String
THE CENTRAL BUSINESS DISTRICT
A central business district (CBD) is the traditional center for retailing in a city. It is the largest area for
shopping in a city. A CBD has a high concentration of department stores and large offices; railway and
bus stations; entertainment facilities like pubs, clubs, and cinemas; and a town hall. Generally, main roads
converge into a CBD resulting in a high level of pedestrian and vehicular traffic. Real estate is very
expensive in a CBD.
CBDs usually pull in consumers of all classes and ethnic groups from the whole city. A CBD contains at
least one major department store and a group of specialty and convenience stores. The arrangement of
stores in a CBD does not follow any specific format. Usually, early entrants occupy the central part.
SECONDARY BUSINESS DISTRICT (SBD)

An SBD is an unplanned shopping center in a city, which is generally, bounded by the junction of two
major streets. Big cities like New York in the US, London in the UK or Mumbai in India usually have
many SBDs, each containing at least a mini department store, a variety store, and some big specialty
stores apart from many small stores. The significance of this type of shopping location has been increasing
because of the expansion of cities over large geographic areas. Stores located in an SBD are small outlets,
which offer a limited variety of products with a shallow assortment. In addition they have a smaller trade
area than that of the stores in CBDs. However they offer greater proportion of convenience goods than
stores in CBDs.
NEIGHBORHOOD BUSINESS DISTRICT (NBD)
An NBD is an unplanned shopping center that caters to the convenience shopping and service needs of a
particular residential area. An NBD typically consists of a small grocery store, stationery store, a bakery, a
restaurant, a vegetable store etc. NBDs are usually situated on the main streets of residential areas.
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STRING
A string is an unplanned shopping center, consisting of a group of retail outlets, generally offering similar
or related products, situated along a street. Car accessory stores and jewellery stores are often found in a
string.
THE PLANNED SHOPPING CENTER
A planned shopping center consists of a set of architecturally similar commercial establishments
constructed on a site which is owned and managed centrally, operated and designed as a single unit, has a
balanced tenancy, and has access to good parking facilities. Generally a planned shopping center contains
one or more anchor stores along with a variety of smaller stores. Balanced tenancy helps the stores in a
planned shopping center complement each other in the quality and the range of products offered and thus
also help them cater to the overall needs of the population in the trade area. To ensure balanced tenancy,
the management of a planned shopping center stipulates the proportion of total space that each type of
retailer may occupy, specifies the product lines that each of the different retailers may sell, and specifies
the type of retailers who can obtain unexpired leases for stores in that shopping center. There are three
types of planned shopping centers: regional shopping center, community shopping center and
neighborhood shopping center.
REGIONAL SHOPPING CENTER

A regional shopping center is a planned shopping center catering to a geographically dispersed market. It
usually consists of at least one big department store and 50 or more small retailers. Regional shopping
centers offer a very broad and deep assortment of products and services that are aimed at enhancing the
shopping experience of consumers. A typical regional shopping center's target market consists of around
1020,000 people, residing or working at a half hour's driving distance from the shopping center.
Crossroads is one of India's largest shopping malls. It offers customers what the mall management terms
'shopper entertainment', a blend of shopping and entertainment.
NEIGHBORHOOD SHOPPING CENTER
A neighborhood shopping center is a planned shopping center, which aims at providing convenience
products that meet the daily needs of customers in a particular neighborhood. Such a center has a
supermarket or a drugstore, which would be the largest store in the neighborhood. The other stores in the
neighborhood shopping center are a bakery, a dry cleaner, a stationery store, a barber store, a beauty
salon., a grocery store, a hardware store, and a restaurant. A neighborhood shopping center offers
convenience goods and services to customers residing or working in the immediate vicinity. It typically
serves 3000 to 50000 people who are located within a 15 minute driving distance. A neighborhood
shopping center is planned carefully with balanced tenancy when developed initially. But with the passage
of time, the planned aspects of this shopping center may disappear and the prospective new occupants of
the store may face very few restrictions.
CHOOSING A GENERAL LOCATION
The general location type could be like a "site on a highway in an isolated location" or a "neighborhood
shopping center." Once the general location has been defined, the retailer has to identify the specific site
in a city/region that matches the predefined site location, like a site on MG road in Bangalore
ASSESSING SITE EVALUATION CRITERIA
Retailers should conduct extensive analysis to assess every general location and the specific sites present
within them. Selecting the site for a retail store is as critical .as the selection of a retail area, particularly
for stores that depend on the traffic patterns of customers for generating business. In any area, the best site
'for a specific store is referred to as the 'one hundred percent' location. As different types of retailers
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require different types of locations a location that is ‘one hundred percent' for a particular retailer may not
be the best location for another type of retailer.
Generally, a retail site is evaluated on the basis of the sales potential and the cost of doing business at that
site
when selecting a site:
1. The sales potential of a site is determined by demographic, economic and competitive factors and the
strategies through which the retailing firm wishes to create a competitive advantage. When evaluating the
sales potential, a retailer should also consider the growth potential for a store in that prospective location.
2. Accessibility to the site refers to the ease with which a customer can approach or leave a store located
on a specific site. This depends on road patterns, their condition, the number of traffic signals on the way
to the site in the primary trade area, parking facilities etc.
3. Pedestrian accessibility refers to the ease with which pedestrians can navigate their way towards the
store or walk through the mall. This depends on the congestion on the roads, the congestion within the
mall where the store is located, and visibility of the store.
4. The synergies that a store can derive from being located next to other stores also playa crucial role in
site selection. Complementary retail stores at a particular shopping center help each other. When all the
stores in a shopping center have similar strategies for retailing in terms of merchandise assortment,
quality, prices, services and the shopping environment, they derive a cross shopping benefit
5. The legal and political environment also has an influence on site selection. In India, the setting and
development of retail outlets is governed by a set of regulations. These regulations can vary from state to
state and city to city. Every state has its own development control regulations that determine the location
of retail stores, space needed to be left, the height of the building, the permissible floor space, the
availability of parking space in relation to the floor space, the presence of fire protection and the standards
of structural safety.
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CUSTOMER SERVICE
INTRODUCTION
With increasing competition in the marketplace, the importance of customer service has been growing
rapidly. Customer service is now becoming a key differentiation strategy for retailers
In a retailing environment, customer service can be referred to as a set of activities and programs taken up
by a retail organization to offer its customers a rewarding shopping experience. Customer service involves
all activities that determine - i) the ease of shopping for potential customers or information provided about
the store's offerings, ii) the ease of completing a transaction and the satisfaction of customers after the
shopping activities comprise the different stages of customer service - pre transaction, and post
transaction. According to a research conducted by Cap Gemini Ernst & Young in the UK, consumers no
longer expect best quality products at the lowest prices, but they certainly expect a deal that is fair and
suits their respect and dignity. Such activities and programs taken up by the retailer add great value to the
goods and services bought by the customers. Some of the most common services offered by the retailers
are: accepting credit cards, making alterations, assembling products, offering credit facilities, providing
home delivery, making product demonstrations, providing trial rooms, dressing rooms, extending business
hours to help customers locate merchandise and gift wrapping, parking facilities, etc.
GAINING STRA TEGIC ADVANTAGE THROUGH CUSTOMER SERVICE
In order to gain a differential competitive advantage, retailers should develop their customer service
programs after considering the pre transaction, transaction and post transaction activities of sale. Because
of mass distribution of the merchandise, it becomes highly difficult for the retailer to differentiate itself
from its competitors solely on the basis of the merchandise offered. Though the same rule applies to
location and design of the stores, innovative customer service programs can certainly provide retailers
with a high level of differential advantage. The most successful retailers in the US attribute their success
to their excellent customer service programs. Excellent customer service leads to improved customer
loyalty and protects retailers from competition on various factors, like price, merchandise, location and
store design. A loyal customer is less vulnerable to the temporary price discounts offered by competitors.
The experience of shopping at a retail store is much more than moving into the store, selecting and
purchasing the merchandise. It begins much before the customer has entered the store and ends much after
he has left the store. Thus, it is necessary to emphasize on customer service during pre transaction,
transaction and post transaction stages of a sale, to attract new customers and strengthen the loyalty of
existing customers. While providing excellent customer service during the pre transaction and post
transaction stages, it is essential to ensure that the transaction actually takes place. Good customer service
in the post transaction stage is essential to build customer loyalty and retain them.
TYPES OF CUSTOMER SERVICES
PRE TRANSACTION SERVICES

These help the potential customers to find out the store's merchandise offering easily. Convenient store
hours are the most basic and most important service that any retailer can offer to its customer. Convenient
store hours make it easier for the customers to visit the store. Retailers must determine what their
customers are expecting from their stores and then measure the cost of fulfilling those expectations against
the additional income that would be generated once the expectations are met The retailers should
extend their business hours if it suits the convenience of its target customers. However, they should do so
only if operating for extended hours are profitable to store. Some retailers like petrol stations and
restaurants may offer round-the clock service. Competition is a major factor that determines the operating
hours of a store. It will not be wise to shut the store by 7pm when every other retailer in the vicinity
operates till l0pm until and unless there is a legal compulsion to do so .These days, a majority of retailers
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provide their customers with many informational tools that facilitate wise decision making while
purchasing goods and services. Many of the large retailers provide their target customers with all the
information pertaining to exchange policies, credit policies, merchandise offered and also the prices of
merchandise, through various sources like online catalogs. Most large retailers today have their own
websites. Retailers often give demonstrations on the usage, operation and maintenance of products. Most
customers are averse to buying products without having proper knowledge of their application. If the store
demonstrates the usage of the product, customers will certainly be less reluctant to try and buy new
products. Some retailers even provide users guides that provide useful information about a product or
service
TRANSACTION SERVICES
Transaction services are those services that are delivered to customers while they are shopping in the store
and carrying out business transactions. The most commonly offered transaction services include providing
credit facilities, gift wrapping and packing, personal shopping and personal selling. These services help
customers to make a business transaction conveniently and quickly.
Providing credit facilities is one of the most popular transaction service offered by the retailer. Retailer
help customer purchase the goods with out the need to carry cash. Apart from this, it provides a 'buy now
pay later' facility. Offering credit services helps retailers increase their sales as it encourages the impulsive
buying behavior of customers and makes the purchase of expensive goods much easier. However, offering
in-house credit facility with easy credit policies can sometimes have a negative effect on the profits.
Retailers can serve their customers better by offering excellent packaging. The packing service of a
retailer should be well coordinated with the overall image of the store and the type of merchandise it sells.
Though a nominal fee is generally charged for merchandise wrapping, some large retailers offer this
service for free as a goodwill gesture.
Merchandise availability is a type of transaction service that helps customers locate the merchandise they
wish to buy. There can be many reasons due to which the customers might not find the merchandise they
are looking for. However, the most common ones are: merchandise might have been stocked out,
merchandise might not have been displayed in the place where customers expect it to be, or the customer
might not know what he wants to buy. Though stock-outs cannot be avoided completely, the retailer can
minimize stock-out situations through effective merchandise management practices. By having a well-
designed layout along with various point of purchase displays and helpful sales personnel, retailers can
make it relatively easier for customers to locate the merchandise they are looking for. Retailers should not
overlook transaction services, because, if the customers fail to find the merchandise they require,
irrespective of the reasons, it can lead to negative word-of-mouth communication.
Having strong, customer-friendly sales personnel is the most important transaction service that a retailer
can provide. Personal selling can have a significant effect on customer satisfaction by providing a .good
shopping experience to the customer
Customers usually evaluate a sales transaction by the time taken to check out of the store after the
merchandise has been selected, the friendly nature of employees at the billing counter, and honoring credit
cards. The final sales transaction services offered by a retailer should ensure that customers do not leave
the store with any bad experiences
POST TRANSACTION SERVICES

Post transaction services are those services that are provided by the retailer to the customers after the
merchandise of' the services have been purchased. Retaining a customer is the most complex task for a
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retailer because of the increasing competition. Hence, most of the large retailers are now developing
customer loyalty programs.
Handling customer complaints effectively can have a very positive impact even on the most dissatisfied
customers. While dealing with dissatisfied customers, there is a greater probability of misunderstanding.
Such misunderstandings between the employees and customers can tarnish the retailer's image. There are
several ways in which a retailer can handle and resolve the problems of its customers. Some large retailers
may have a centralized customer grievances cell, which handles all the grievances of customers and makes
attempts to resolve them. The employees of this cell are specialized in handling and resolving the
customer problems. Some retailers assign the job of handling complaints and resolving problems to a
single individual who is friendly and sympathetic by nature. However, an individual salesperson might not
always have the complete authority to resolve the problem. There are three fundamental rules that the
retailers should follow, irrespective of the complaint handling mechanism they adopt. Customers expect
and deserve respectful treatment, fair problem solving and proper attention. The retailer should ensure that
the customer should not be lost even if the sale is lost.
Handling merchandise returns and exchanges is the most important post transaction service. It can
sometimes be a differential between profit and loss. A moderate exchange policy can build customer
goodwill effectively. Because of the return and exchange facility, retailers' money would be locked up for
that period. Further, the item would be stocked out. In order to control these losses, retailers usually set the
validity of their return policy.
Offering service and repair facilities for the merchandise being carried can be a key factor for attracting
new customers. Many customers are cautious to find out about these services while purchasing goods,
especially electronic goods. The quality of repair and service facilities can also generate repeat purchases
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CUSTOMER BUYING BEHAVIOUR
BUYING PROCESS
The buying process begins when customers recognize an unsatisfied need. Then they seek information
about how to satisfy the need: what products might be useful and how they can be bought. Customers
evaluate the various alternative sources of merchandise such as stores, catalogs, and the Internet and
choose a store or an Internet site to visit or a catalog to review. This encounter with a retailer provides
more information and may alert customers to additional needs. After evaluating the retailer's merchandise
offering, customers may make a purchase or go to another retailer to collect more information. Eventually,
customers make a purchase, use the product, and then decide whether the product satisfies their needs.
In some situations, customers spend considerable time and effort selecting a retailer and evaluating the
merchandise. In other situations, buying decisions are made automatically with little thought. Three types
of customer decision-making processes are extended problem solving, limited problem solving, and
habitual decision making.
EXTENDED PROBLEM SOLVING
Extended problem solving is a purchase decision process in which customers devote considerable time
and effort to analyzing alternatives. Customers typically engage in extended problem solving when the
purchase decision involves a lot of risk and uncertainty. There are many types of risks. Financial risks
arise when customers purchase an expensive product. Physical risks are important when customers feel a
product may affect their health or safety. Social risks arise when customers believe a product will affect
how others view them
LIMITED PROBLEM SOLVING
Limited problem solving is a purchase decision process involving a moderate amount of effort and time.
Customers engage in this type of buying process when they have had some prior experience with the
product or service and their risk is moderate. In these situations, customers tend to rely more on personal
knowledge than on external information. They usually choose a retailer they have shopped at before and
select merchandise they have bought in the past. The majority of customer decision making involves
limited problem solving
HABITUAL DECISION MAKING
Habitual decision making is a purchase decision process involving little or no conscious effort. habitual
decision-making process is used when decisions aren't very important to customers and involve familiar
merchandise they have bought in the past.
Brand loyalty and store loyalty are examples of habitual decision making. Brand loyalty means that
customers like and consistently buy a specific brand in a product category. They are reluctant to switch to
other brands if their favorite brand isn't available. Thus, retailers can only satisfy these customers' needs if
they offer the specific brands desired
Store loyalty means that customers like and habitually visit the same store to purchase a type of
merchandise. All retailers would like to increase their customers' store loyalty Some approaches for
increasing store loyalty are selecting a convenient location, offering complete assortments and reducing
the number of stock outs, rewarding customers for frequent purchases and providing good customer
service.
THE BUYLNG PROCESS
DIFFERENT STAGES IN BUYING PROCESS
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NEED RECOGNITION
The buying process is triggered when people recognize they have an unsatisfied need. An unsatisfied need
arises when a customer's desired level of satisfaction differs from his or her present level of satisfaction.
For example, Rohit Rai recognized that he had a need when he was faced with interviewing for jobs in her
blue suit. he needed a suit that would make a good impression and realized his worn, outdated blue suit
wouldn't satisfy this need.
Need recognition can be as Straight forward as discovering there's no milk in the refrigerator, or it can be
as ambiguous as feeling the need for an uplifting experience after a final exam. Visiting stores, surfing the
Internet, and purchasing products are approaches to satisfying different types of needs
TYPES OF NEEDS
The needs motivating customers to go shopping and purchase merchandise can be classified as functional
or psychological needs.
FUNCTIONAL NEEDS
These needs are directly related to the performance of the product. For example, people who need to style
their hair might be motivated to purchase a hair dryer. This purchase is based on the expectation that the
hair dryer will assist the customer in styling hair
PSYCHOLOGICAL NEEDS
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Psychological needs are associated with the personal gratification customers getting from shopping or
from purchasing and owing a product.
CONFLICTING NEEDS
Most customers have multiple needs. Moreover, these needs often conflict. For example,Rohit Rai would
like to wear a formal suit. Such a suit would enhance his self-image and earn his the admiration of his
college friends. But this need conflicts with his budget.
A grocery shopper might buy an inexpensive store brand of paper towels and a premium national brand of
orange juice. The pattern of buying both premium and low-priced merchandise or patronizing expensive,
status-oriented retailers and price-oriented retailers is called cross-shopping.
STIMULATING NEED RECOGNITION
As we have said, customers must recognize unsatisfied needs before they are motivated to visit a store and
buy merchandise. Sometimes these needs are stimulated by an event in a person's life. For example, Rohit
Rai visit department store to buy a suit was stimulated by his impending interview and his examination of
his blue suit. An ad motivated him to look for the formal suit. Retailers use a variety of approaches to
stimulate problem recognition and motivate customers to visit their stores and buy merchandise. Advertis-
ing, direct mail, publicity, and special events communicate the availability of merchandise or special
prices. Within the store, visual merchandising and salespeople can stimulate need recognition.
INFORMATION SEARCH
Once customers identify a need, they may seek information about retailers 'or products to help them
satisfy the need. Buying processes may involve collecting a lot of information, visiting several retailers,
and deliberating a long time before making a purchase.
AMOUNT OF INFORMATION SEARCHED
In general, the amount of information search depends on the value customers feel they'll gain from
searching versus the cost of searching. The value of the search improves the customer's purchase decision.
FACTORS INFLUENCING THE AMOUNT OF INFORMATION SEARCHED INCLUDE
(1) The nature and use of the product being purchased,

(2) Characteristics of the individual customer,
(3) Aspects of the market and buying situation in which the purchase is made.
Some people search more than others For example, customers who enjoy shopping search more than those
who don't like to shop. Also, customers who are self-confident or have prior experience purchasing and
using the product tend to search less.
MARKETPLACE AND SITUATIONAL FACTORS AFFECTING INFORMATION SEARCH

INCLUDE
(1) The number of competing brands and retail outlets

(2) The time pressure under which the purchase must be made.
When competition is greater and there are more alternatives to consider, the amount of information
searched increases. The amount decreases as time pressure increases.
SOURCES OF INFORMATION
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Customers have two sources of information: internal and external. Internal sources are information in a
customer's memory such as names, images, and past experiences with different stores. For example, Rohit
Rai relied on an internal source (his memory of an ad) when choosing to visit store. External sources are
information provided by ads and other people. Customers see hundreds of ads in print and the electronic
media; they notice signs for many retail outlets each day. In addition, customers get information about
products and retailers from friends and family members
The major source of internal information is the customer's past shopping experience. Even if they
remember only a small fraction of the information they are exposed to, customers have an extensive
internal information bank to draw upon when deciding where to shop and what to buy
When customers feel that their internal information is inadequate, they turn to external information
sources
REDUCING THE INFORMATION SEARCH
The retailer's objective at the information search stage of the buying process is to limit the customer's
search to its store or website. Each element of the retailing mix can be used to achieve this objective
First, retailers must provide a good selection of merchandise so customers can find something to satisfy
their needs within the store. Providing a wide variety of products and a broad assortment of brands, colors,
and sizes increases the chances that customers will find what they want. For example, Circuit City uses in-
store kiosks to increase the selection of merchandise available to customers by giving them the
opportunity to purchase merchandise not available in the store such as custom-designed computers
Services provided by retailers can also limit search to the retailer's location. The availability of credit and
delivery may be important for consumers who want to purchase large durable goods such as furniture and
appliances. And salespeople can provide enough information to customers so they won't feel the need to
collect additional information by visiting other stores
Everyday low pricing is another way retailers increase the chance that customers will buy in their store
and not search for a better price elsewhere.
EXHIBIT 1
EVALUATION OF ALTERNATIVES:THE MULTIATTRIBUTE MODEL
The multi attribute attitude model provides a useful way for summarizing how customers use the
information they have about alternative products, evaluate the alternatives, and select one that best
satisfies their needs. We will discuss it in details since it offers a framework for developing a retailing
strategy.
The multi attribute attitude model is based on the notion that customers see a retailer or a product as a
collection of attributes or characteristics. The model is designed to predict a customer's evaluation of a
product or retailer based on its
(1) Performance on relevant attributes and (2) the importance of those attributes to the customer.
Retail buyers can also use the multi attribute model to evaluate merchandise and vendors
BELIEFS ABOUT PERFORMANCE
To illustrate this model, consider the store choice decision confronting a young single professional man
who needs groceries He considers three retailers: a super center in the next suburb, the loca1 supermarket,
and an Internet grocery retailer such as Peapod. They are compared in Exhibit 1
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The degree to which each retailer provides the benefit is represented on a IO-point scale: 10 means the
retailer performs well in providing the benefit; 1 means it performs poorly. Here no retailer has superior
performance on all benefits. The super center performs well on economy and assortment, but is low on
convenience. The Internet grocer offers the best convenience. but is weak on economy and assortment
IMPORTANCE WEIGHTS
The young man in the preceding example forms an overall evaluation of each store based on the
importance he places on each benefit the stores provide. The importance he places on a benefit can also be
represented using a 10-point rating scale, with 10 indicating the benefit is very important and 1 indicating
it's very unimportant. Using this rating scale, the importance of the store benefits for the young man and a
parent with four children are shown in Exhibit 2, along with the performance beliefs previously discussed.
Notice that the single man values convenience and the availability of product information much more than
economy and assortment. But the parent places a lot of importance on economy, assortment is
Exhibit 2
Moderately important; and convenience and product information aren't very important
The importance of a store's benefits differs for each customer and may also differ for each shopping trip.
For example, the parent with four children may stress economy for major shopping trips, but place more
importance on convenience for a fill in trips.
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In the above Exhibit 2, the single man and parent have the same beliefs about each store's performance,
but they differ in the importance they place on benefits the stores offer. In general, customers can differ on
their beliefs about the stores' performance as well as on their importance weights
Evaluating Stores Research has shown that a customer's overall evaluation ofan alternative (in this
situation, a store) is closely related to the sum of the performance beliefs multiplied by the importance
weights. Thus, we calculate the young single man's overall evaluation or score for the super center as
follows:
4x 10= 40
10 x 3 = 30
5 x 9 = 45
9x 4= 36
TOTAL= 151
Exhibit 2 shows the overall evaluations for the three retailers using the importance weights of the single
man and the parent. For the single man, the Internet grocer has the highest score, 221, and thus the most
favorable evaluation. He
would probably select this
retailer for most of his
grocery shopping. On the
other hand, the super center
has the highest score, 192,
for the parent, who'd
probably buy the family's
weekly groceries there.
When customers are about
to select a store, they don't
actually go through the process of listing store characteristics, evaluating stores' performance on these
characteristics, determining each characteristic's importance, calculating each store's overall score, and
then visiting a store with the highest score! The multi attribute attitude model doesn't reflect customers'
actual decision process, but it does predict their evaluation of alternatives and their choice. In addition, the
Exhibit 3 Information Rohit Rai used in buying a suit
model provides use full information for designing a retail offering. For example, if the supermarket here
could increase its performance rating on assortment from 7 to 10 (perhaps by adding a bakery and a wide
selection of prepared meals), customers like the parent might shop at the supermarket more often than at
the super center.
The application of the multi attribute attitude model in Exhibit 2 deals with a customer who's evaluating
and selecting a retail store. The same model can also be used to describe how a customer evaluates and
selects merchandise in a store. For example, Exhibit 3 shows Rohit Rai beliefs and importance weights
about the three suits shown to him by the salesperson. Rohit didn't evaluate suits A and B on fit because
he didn't try them on. He bought suit C because it was good enough. Its overall evaluation passed some
minimum threshold (which in terms of this multi attribute attitude model might be a score of 320).
IMPLICATIONS FOR RETAILERS
How can a retailer use the multi attribute attitude model to encourage customers to shop at its store more
frequently? First, the model indicates what information customers use to decide which store to visit. Thus,
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to develop a program for attracting customers, the retailer must do market research to collect the following
information:
 Alternative stores that customers consider

 Characteristics or benefits that customer considered when evaluating and choosing a retailer
 Customers' ratings of each store's performance on the characteristics
 The importance weights that customers attach to the characteristics.
Armed with this information the retailer can use several approaches to influence customers to select its
store.
GETTING INTO THE CONSIDERATION SET

The retailer must make sure that it is included in the customer's consideration set. The consideration set is
the set of alternatives the customer evaluates when making a selection.
After ensuring that its store is in the consideration set, the retailer can use four methods to increase the
chances that customers will select the store for a visit:
1. Increase the belief about the store's performance
2. Decrease the performance belief for competing stores in the consideration set
3. Increase customers' importance weights.
4. Add a new benefit
CHANGING PERFORMANCE BELIEFS
The first approach involves altering customers' beliefs about the retailer's performance--increasing the
retailer's performance rating on a characteristic. For example, the supermarket in Exhibit 2 would want to
increase its overall rating by improving its rating on all four benefits. The supermarket could improve its
rating on economy by lowering prices and could improve its rating on assortment by stocking more
epicure and ethnic foods.
It's costly for a retailer to improve its performance on all benefits. Thus, a retailer should focus efforts on
improving performance on benefits that are important to customers in its target market.
CHANGING IMPORTANCE WEIGHT
Altering customer importance weight is an another approach to influencing store choice.For example, if
the super market in Exhibit 2 tried to attract families who shop at super centers, it could increase the
importance of convenience.
ADDING A NEW BENEFIT
Finally, retailers might try to add a new benefit to the set of benefits customers consider when selecting a
store. Since Shoppers Stop is a national department store, a customer can purchase a gift at a local
Shoppers Stop store or from its website and send it to a person in another part of the country knowing that,
if necessary, the recipient can exchange it at her local Shoppers Stop store. Normally, customers wouldn't
consider this when selecting a retailer. This approach of adding a new benefit is often effective because it's
easier to change customer evaluation of new benefits than old benefits.
PURCHASING THE MERCHANDISE
Customers don't always purchase a brand or item of merchandise with the highest overall evaluation. The
item offering the greatest benefits (having the highest evaluation) may not be available in the store, or the
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customer may feel that the risks outweigh the potential benefits. Some of the steps that retailers take to in-
crease the chances that customers can easily convert their positive merchandise evaluations into purchases
are
 Don't stock out of popular merchandise. Have a complete assortment of sizes and colors for
customer to buy.
 Reduce the risk of purchasing merchandise by offering liberal return policies and refunds if the
same merchandise is available at a lower price from another retailer
 Offer credit
 Make it easy to purchase merchandise by having convenient checkout terminals.
 Reduce the actual and perceived waiting time in lines at checkout terminals
POSTPURCHASE EVALUATION
The buying process doesn't end when a customer purchases a product. After making a purchase, the
customer uses the product and then evaluates the experience to determine whether it was satisfactory or
unsatisfactory. Satisfaction is a post consumption evaluation of how well a store or product meets or
exceeds customer expectations. This post purchase evaluation then becomes pan of the customer's internal
information that affects future store and product decisions. Unsatisfactory experiences can motivate
customers to complain to the retailer and to patronize other stores. Consistently high levels of satisfaction
build store loyalty and important source of competitive advantage for retailers. There are several means to
increase customer satisfaction, such as offering quality merchandise, providing accurate information about
merchandise, and contacting customers after a sale.
FACTORS INFLUENCING BUYING DECISION
FAMILY
Many purchase decisions are made for products that the entire family will consume or use. Thus, retailers
must understand how families make purchase decisions and how various family members influence these
decisions.
FAMILY DECISION MAKING
The previous discussion of the buying decision process focused on how one person makes a decision-how
Rohit purchases a suit for himself. When families make purchase decisions, they often consider the needs
of all family members. In a situation such as choosing a vacation site, all family members may participate
in the decision making. In, other situations, one member of the family may assume the role of making the
purchase decision. For example, the husband might buy the groceries, the wife uses them to prepare their
child's lunch, and the child consumes the lunch in school. In this situation, the store choice decision might
be made by the husband, but the brand choice decision might be made by the mother, though greatly
influenced by the child
REFERENCE GROUPS
A reference group is one or more people whom a person uses as a basis of comparison for beliefs,
feelings, and behaviors. A consumer might have a number of different reference groups, although the most
important reference group is the family, as we discussed in the previous section. These reference groups
affect buying decisions by (I) offering information, (2) providing rewards for specific purchasing
behaviors, and (3) enhancing a consumer's self-image
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Reference groups provide information to consumers directly through conversation or in directly through
observation.
Some reference groups influence purchase behaviors by rewarding behavior that meets with their
approval. For example, the reference group of employees in a company might define the appropriate dress
style and criticize fellow workers who violate this standard.
By identifying and affiliating with reference groups, consumers create, enhance, and "maintain their
self-image. Customers who want to be seen as members of an elite social class may shop at prestige
retailers, while others who want to create an image of an outdoors person might buy merchandise from the
L.L. Bean website.
CULTURE
Culture is the meaning and values shared by most of the members of a society. For Example, core values
shared by most Americans include individualism, freedom, mastery and control, self-improvement,
achievement and success, material comfort, and health and fitness.
Subculture is distinctive groups of people within a culture. Members of subculture share some customs
and norms with the over all society but also have some unique characteristics.
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SHOPPING ATTITUDES AND BEHAVIOR
ATTITUDES TOWARD SHOPPING
Considerable research has been done on people's attitudes toward shopping. Such attitudes have a big
impact on the ways in which people act in a retail setting. Let us highlight some research findings:
Shopping Enjoyment: In general, people do not enjoy shopping as much as in the past. So, what does
foster a pleasurable shopping experience-a challenge that retailers must address? Many shoppers enjoy
bargain hunting ("I get a thrill out of finding a real bargain"), recreational browsing ("window shopping"),
being pampered by salespeople (difficult for retailers to accomplish in this era of self-service and cost
cutting), and the opportunity to get out of the house or office.
Attitudes Toward Shopping Time: Retail shopping is often viewed as a chore: "Consumers now attempt
to limit the time they spend shopping. Time-pressed by family and work responsibilities, they spend fewer
hours cruising the mall in search of the perfect item, and look to get what they need as quickly as possible.
This trend has been dubbed 'precision shopping.' The upside of precision shopping is that consumers
spend more money each time they visit a store.
Shifting Feelings About Retailing: There has been a major change in attitudes toward spending, value,
and shopping with established retailers: "The same shopper who buys commodity goods at a Wholesale
store may also buy expensive apparel at some big store. This shift does not appear to be transitory, but
rather seems to define a more enduring pattern of behavior." In addition, people are also tired of the
sameness of malls, with their closed-in, windowless feel and identical cast of retailers and food court
vendors."
Why People Buy or Do Not Buy on a Shopping Trip: It is critical for retailers to
determine why shoppers leave without making a purchase. Is it prices? A rude salesperson? Not accepting
the consumer's credit card? Not having an item in stock? Or some other factor? According to Kurt Salmon
Associates, here are the top 10 reasons why shoppers leave an apparel store without buying
1. Cannot find an appealing style.

2. Cannot find the right size or the item is out of stock.
3. Nothing fits.
4. No sales help is available
5. Cannot get in and out of the store easily
6. Prices are too high.
7. In-store experience is stressful
8. Cannot find a good value
9. Store is not merchandised conveniently.
10. Seasonality is off.
Attitudes by Market Segment: According to Adjoined Consulting, shoppers can be broken into four
types. "Thrifties" are most interested in price and convenience. They are apt to shop at Wal-Mart.
"Allures" want a "fun, social shopping experience."
"Speedsters" want to shop quickly.
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"Elites" want quality merchandise, an unhurried shopping experience, and the ability to be educated
about products.
Attitudes Toward Private Brands: Many consumers believe private (retailer) brands are as good as or
better than manufacturer brands: "For American consumers, private brands are brands like any other
brands. In a landmark nationwide study, 75 percent of consumers defined store brands as 'brands' and
ascribed to them the same degree of positive product qualities and characteristics-such as guarantee of
satisfaction, packaging, value, taste, and performance-that they attribute to manufacturer brands.
Moreover, more than 90 percent of all consumers polled were familiar with private brands, and 83 percent
said that they purchase these products on a regular basis
WHERE PEOPLE SHOP
Consumer patronage differs sharply by type of retailer. Thus, it is vital for firms to recognize the venues
where consumers are most likely to shop and plan accordingly.
Many consumers do cross-shopping, whereby they'
 shop for a product category at more than one retail format during the year or
 visit multiple retailers on one shopping trip.
The first scenario occurs because these consumers feel comfortable shopping at different formats during
the year, their goals vary by occasion(they may want bargains on everyday clothes and fashionable items
for weekend wear), they shop wherever sales are offered, and they have a favorite format for themselves
and another one for other household members. Visiting multiple outlets on one trip occurs because
consumers want to save travel time and shopping time. Here are cross-shopping examples
Some supermarket customers also regularly buy items carried by the supermarket at convenience stores,
full-line department stores, drugstores, and specialty food stores
Some department store customers also regularly buy items carried by department store at factory outlets
and full-line discount stores
The majority of Web shoppers also buy from catalog retailers, mass merchants, apparel chains, and
department stores. Cross-shopping is high for apparel, home furnishings, shoes, sporting goods and
personnel care items.
- 107 -
CUSTOMER RELATIONSHIP MANAGEMENT(CRM)
CRM is a business philosophy and set of strategies, programs and systems that focuses on identifying and
building loyalty with a retailer most valued customers.
DEVELOPING CRM PROGRAMS
Programs for
1. Retaining best customer
2. Converting good customer into best customer
3. Getting rid of unprofitable customer.
FREQUENT SHOPPER PROGRAMS
Frequent shopper programs are used both to build a customer database by identifying customers with
transactions and to encourage repeat purchase behavior and retailer loyalty. Retailers provide incentives to
encourage customers to enroll in the program and use the card. These incentives are either discount on
purchases made from the retailer or points for every dollar of merchandise purchased. The points are then
redeemable for special rewards.
Four factors limit the effectiveness of frequent shopping programs. First, they can be expensive. For
example, a 1 percent price discount can cost large retailers over $100 million a year. In addition, for a
large retailer, the launch and maintenance investment (store training, marketing, fulfillment support, and
information technology and systems costs) can be as high as $30 million. Annual maintenance costs can
reach $5 million to $10 million when marketing, program support, offer fulfillment, customer service, and
IT infrastructure costs are figured in. Then there is the marketing support costs needed to maintain aware-
ness of the program.
Second, it is difficult to make corrections in programs when problems arise. Programs become part of the
customer's shopping experience. Customers must be informed about even the smallest changes in
programs. They react negatively to any perceived "take away" once a program is in place, even if they are
not actively involved in it. The more successful the program is, the greater the customer reaction to
changes made by the retailer is, and these negative reactions reduce customer trust and loyalty with the
retailer.
Third, it is not clear that these programs increase customer spending behavior and loyalty toward the
retailer, For example, 48 percent of the customers enrolled in frequent shopper programs with
supermarkets indicated they had spent more with the retailer than they would have if the program were not
offered, but only 18 percent of customers enrolled in programs with apparel retailers indicated that the
program increased spending.
Finally, and perhaps most important, is the difficulty of gaining a competitive advantage based on
frequent shopper programs. Since the programs are so visible, they can be easily duplicated by com-
petitors.
To avoid this problem, retailers are offering benefits to their best customers that are more personalized
based on their unique knowledge of the customer and thus more "invisible" to competitors
SPECIAL CUSTOMER SERVICES
Retailers provide unusually high quality customer service to build and maintain the loyalty of platinum
customers. For example, Centura Banks of Raleigh, North Carolina, rates its 2 million customers on a
profitability scale from I to 5. The top-tier customers get calls from service reps several times a year for
what controller Terry Earley calls "a friendly chat" and get an annual call from Centura's CEO to wish
- 108 -
them happy holidays. Due to these special services, the retention rates for top customers has increased 50
percent.
Sometimes these special services are very subtle. For example, at the website for First Bank in Baltimore,
only top-tier customers get the option to click on an icon that connects them to a live service agent for a
phone conversation. Other customers never see this icon. When First Bank service reps bring up a
customer's account, colored squares flash on their computer screens. Green means the caller is a profitable
customer and should be granted waivers and other special treatment. Reds are unprofitable customers who
get no special treatment.
PERSONALIZATION
An important limitation of CRM strategies developed for market segments, such as a platinum segment in
the customer pyramid or early repeat customers, is that each segment is composed of a large number of
customers who are not identical .Thus, any strategy will be most appealing for only the typical customer
in the segment, and not as appealing to the majority of customers in the segment. For example, customers
in the platinum segment might include a 25-year-old single woman that has quite different needs than the
49-year-old working mother with two children
With the availability of customer level data and analysis tools, retailers can now offer unique benefits and
target message to individual customer. They now have the ability to develop programs for small groups of
customers and even specific individuals.
Many small, local retailers have always practiced l-to-l retailing. They know each of their customers, greet
them by name when they walk in the store, and then recommend merchandise they know the customers
will like. These local store-owners do not need customer databases and data mining tools. They have the
information in their heads. But most large retail chains and their employees do not have this intimate
knowledge of their customers. Thus, the CRM process enables larger retailers to efficiently develop
relationships similar to those that many small local retailers have.
The Internet channel provides an opportunity for retailers to automate the practice of I-to-l retailing. When
registered customers log on to Amazon.com, the first page they see is personalized for them. Their name
is displayed in a greeting, and products are displayed based on an analysis of their past purchase behavior.
For example, if a customer has bought mystery novels from Amazon.com in the past, the latest books
from mystery book authors they have bought are presented.
These personalized rewards or benefits that customers receive are based on unique information possessed
by the retailer and its sales associates. This information, in the retailer's customer database, cannot be
accessed or used by competitors. Thus, it provides an opportunity to develop a sustainable competitive
advantage.
COMMUNITY
A fourth approach for building customer retention and loyalty is to develop a sense of community among
customers. The Internet channel offers an opportunity for customers to exchange information using
bulletin boards and develop more personal relationships with each other and the retailer. By participating
in such a community, customers are mote-reluctant to leave the "family" of other people patronizing the
retailer.
For example, in addition to offering merchandise for sale, a sporting goods retailer could provide an
opportunity for organizers of local sporting events to post information about these events on its website.
CONVERTING GOOD CUSTOMERS INTO BEST CUSTOMERS
- 109 -
In the context of the customer pyramid increasing the sales made to good customers is referred to as
customer alchemy--converting iron and gold customers into platinum customers. Customer alchemy
involves offering and selling more products and services to existing customers and increasing the retailer's
share of wallet with these customers.
The retailer's customer database reveals opportunities for cross selling and add-on selling. Cross selling is
selling a complementary product or service in a specific transaction, such as selling a customer a printer
when he or she has decided to buy a computer.
Add-on selling is selling additional new products and services to existing customers, such as a bank
encouraging a customer with a checking account to also apply for a home improvement loan from the
bank.
DEALING WITH UNPROFITABLE CUSTOMERS
customers who repeatedly buy three or four items and return all but one of them. The cost of processing
two or three returned items is much greater than the profits coming from the one item that the customer
kept. The process of no longer selling to these unprofitable customers can be referred to as "getting the
lead out," in terms of the customer pyramid.
Two approaches for getting the lead out are
(1) Offering less costly approaches for satisfying the needs of lead customers, and
(2) Charging the customers for the services they are abusing.
- 110 -
THE PHYSICAL FLOW OF MERCHANDISE—LOGISTIC
Logistics is that pan of the supply chain process that plans, implements, and controls the efficient,
effective flow and storage of goods, services, and related information from the point of origin to the point
of consumption in order to meet customers' requirements.
THE DIFFERENT MERCHANDISE FLOWS:
1. Merchandise flows from vendor to distribution center

2. Merchandise then goes from distribution center to stores
3. Alternatively, merchandise can also go from vendor directly to stores
THE DISTRIBUTION CENTER
To fully understand the logistics function within a retailing organization, consider a shipment of Haggar
pants arriving at a Sears distribution center. The distribution center performs several functions for Sears:
coordinating inbound transportation, receiving, checking, storing and cross docking, getting merchandise
"floor-ready," filling orders, and coordinating outbound transportation.
MANAGEMENT OF INBOUND TRANSPORTATION
Buyers have traditionally worked with vendors to determine merchandise assortments, pricing,
promotions, and the terms of purchase such as discounts to take for early payment. Now, however, buyers
and their staffs get much more involved in coordinating the physical flow of merchandise to the stores The
truck must arrive within the specified time because the distribution center has all of the receiving docks
allocated throughout the day, and much of the merchandise on this particular truck is going to be shipped
to stores that afternoon. Although many manufacturers pay transportation expenses, some retailers
negotiate with their vendors to absorb this expense. These retailers believe they can lower net merchandise
cost and better control merchandise flow if they negotiate directly with truck companies and consolidate
shipments from many vendors.
RECEIVING AND CHECKING
Receiving refers to the process of recording the receipt of merchandise as it arrives at a distribution center.
Checking is the process of going through the goods upon receipt to make sure they arrived undamaged
and that the merchandise ordered was the merchandise received
STORING AND CROSSDOCKING
There are three types of distribution centers (DCs): a traditional, a cross docking, and a combination of the
two. The first, a traditional distribution center is a warehouse in which merchandise is unloaded from
trucks and placed on racks or shelves for storage. When the merchandise is needed in the stores, a person
goes to the rack, picks up the item, and places it in a bin. The merchandise is transported via a conveyor
system or other material handling equipment to a staging area where it is consolidated and made ready for
shipment to stores
The second type of DC, called a cross docking distribution center, is one in which vendors ship
merchandise prepackaged in the quantity required for each store. The merchandise already contains price
tags and theft detection tags, and in the case of some apparel, it is on hangers. Since the merchandise is
ready for sale, it goes to a staging area rather than into storage. When all the merchandise going to a
particular store is in the staging area, it is loaded onto a truck and away it goes. Cross docking distribution
centers are less costly than traditional centers because there is little or no storage required, processing at
the distribution center is minimal, and the centers can be much smaller than traditional centers
- 111 -
GETTING MERCHANDISE FLOOR-READY
Floor-ready merchandise is merchandise that's ready to be placed on the selling floor. Getting
merchandise floor ready entails ticketing, marking, and, in the case of apparel, placing garments on
hangers. Ticketing and marking refers to making price and identification labels and placing them on the
merchandise. It is more efficient for a retailer to perform these activities at a DC than in the stores because
they are time consuming and messy. Getting merchandise floor-ready in stores can clog aisles and divert
sales peoples' attention from their customers
.
SHIPPING MERCHANDISE TO STORES
The following example illustrates how an order is shipped to stores from a traditional DC. Point-of-sale
terminals in a Sears store in East Lansing, Michigan, record each purchase. Data are transmitted to buyers
and their staff so they may formulate replenishment orders for Haggar as well as for all other items in the
store. The order for the East Lansing store is transmitted computer-to-computer to the distribution center.
The computer at the distribution center creates a pick ticket, a document that tells the order filler how
much of each item to get from the storage area. The pick ticket is printed in warehouse location sequence
so the order fillers don't waste time crisscrossing the distribution center looking for merchandise. The
computer "knows which items are out of stock so it doesn't even print them on the pick ticket. Order fillers
put the merchandise on conveyers that take the merchandise to a staging area where an electronic sorter
routes the merchandise to the bay with the truck going to the East Lansing store
We have just described what is known as a pull logistics strategy, in which orders for merchandise are
generated at the store level on the basis of demand data captured by point-of-sale terminals. An alternative
and less sophisticated strategy is known as a push logistics strategy, in which merchandise is allocated to
stores on the bases of historical demand, the inventory position at the distribution center, and the stores'
need.
MANAGEMENT OF OUTBOUND TRANSPORTATION
The management of outbound transportation from distribution center to stores has become increasingly
complex as chain stores expand. The Sears distribution center runs almost 100 truck routes in one day. To
handle its complex transportation problem, the center uses a sophisticated routing and scheduling
computer system. This system considers the rate of sales in the store, road conditions, and transportation
operating constraints to develop the most efficient routes possible. As a result, stores are provided with an
accurate estimated time of arrival and vehicle utilization is maximized
REVERSE LOGISTICS
Reverse logistics is a flow back of merchandise through the channel, from the customer to the store,
distribution center, and vendor, for customer returns. Reverse logistics can be a serious problem. For
instance, returns for apparel bought from catalogs range from 12 to 35 percent, depending on the product's
style and how fashion-forward it is.11 The more fashion-forward the item, the more likely it is to be
returned
Reverse logistics systems have never been simple or inexpensive. The items may be damaged, and
without the original shipping carton, thus causing special handling needs. Transportation costs can be high
because items are shipped back in small quantities. Retailers and their vendors usually wish returns to
vendors would just disappear
- 112 -
QUICK RESPONSE DELIVERY SYSTEMS
Quick response (QR) delivery systems are inventory management systems designed to reduce the retailer's
lead time for receiving merchandise, thereby lower inventory investment, improving customer service
levels, and reducing logistics expenses. QR is the integrating link between the information and the
merchandise flows .
The origins of the present QR systems were derived from just-in-time initiatives under taken by
manufacturers and adapted for retailing. QR is part of the efficient consumer response (ECR) initiatives
undertaken by packaged goods manufacturers and food and drugstore retailers.
Originally, quick response delivery systems seemed better suited to basic items, such as underwear, paper
towels, or toothpaste, than to high fashion. By its nature, fashion dictates being able to quickly adjust to
the changing seasons as well as to new colors and styles. Thus; quick response is as important in manag-
ing fashion inventories as in managing basic-item inventories. Fashion retailers need to determine what's
selling (so it can be reordered quickly) and what isn't
selling (so it can be marked down).
- 113 -
RURAL RETAILING IN INDIA
INTRODUCTION
Indian consumer and household product companies will probably sell more goods in the country's villages
and towns as rural incomes increase, a survey said. Demand for products like toothpaste, instant coffee
and deodorants in Indian villages, towns and small cities is expected to increase by 60 percent by 2012,
"The per capita income of rural and semi-urban populace will increase as the economic activities grow
there due to government focus on their industrialization About 70 percent of the more than 1.1 billion
people in India live in rural areas.
OPPORTUNITIES & GROWTH
There is so much potential for penetration and increased consumption in rural markets Seventy percent of
India is still in rural markets. In the longer term, rural markets will trend upward angle in India.
The government is spending more to build roads to connect villages, expand irrigation networks and
supply electricity to improve productivity and raise incomes.
The consumer and household products market in India should expand to 1.23 trillion rupees, or $27.6
billion, by 2012 from about 700 billion rupees now, About 60 percent of all household products will be
consumed in villages and small towns.
Companies like the local unit of Unilever and ITC, the biggest cigarette maker in India, are expanding
their reach in the 638,000 villages and 3,784 towns and small cities with less than 100,000 people.
The Indian economy has grown at an average of more than 8 percent in the past three years.
Last year, Prime Minister Manmohan Singh of India started the Bharat Nirman, or Building India, project
with a plan to spend 1.76 trillion rupees by 2009 to build roads, provide electricity to 100,000 villages,
extend irrigation to an 10 million hectares, or 24.7 million acres, and build 6 million houses.
The country has 235 million farmers and agriculture accounts for about a fifth of the $775 billion
economy.
ITC, a cigarette maker based in Calcutta, has diversified in the past six years into retail store networks to
sell items like cookies, garments, incense sticks and matches. Its plans to set up 54 retail stores called
Choupal Fresh in the next three years to sell fresh fruits and vegetables. It also plans to expand the number
of its rural supermarkets called Choupal Sagars to 700 by 2013 from 11 currently.
- 114 -
Hindustan Lever, the Mumbai-based local unit of Unilever, sells its products through 6.3 million shops,
reaching eight out of 10 households in India.
RETAIL TIPS FOR RURAL GROWTH
Study shows that better-organized food and grocery retailing can benefit farmers A recent study on the
Indian retail sector by Crisil Research, a Standard and Poor’s company, shows how much both the rural
masses as well as the economy as a whole can benefit from greater organization in the food and grocery
(F&G) retail segment. The study showed that organized retail could double farm incomes in India by
enhancing farmers’ returns on food items from the current low level of 30-35 percent of the retail price to
the international norm of over 50 percent. This enhancement would come from cost savings that would
result from improving the presently underdeveloped supply chain for unprocessed food items.
Higher farm incomes would benefit the vast majority of the population that is dependent on an agricultural
income. Moreover, this additional purchasing power in the hands of farmers could add more than three
percentage points to the nation’s annual gross domestic product (GDP) growth rate.
India’s retail industry accounted for almost a third of the country’s GDP at an estimated Rs 10 lakh crore
in 2006. F&G items account for more than 70 percent of all retail sales. However, the penetration of
organized retail in the F&G segment is negligible at only around 1 percent. The F&G segment consists of
fresh fruits and vegetables, milk and milk products, fast-moving consumer goods and food grains. About
half of the total F&G retail comes from food grains and unprocessed fruits and vegetables. All these are
items that are purchased from farmers. Crisil estimates the retail value of these unprocessed items at
approximately Rs 3.8 lakh crore. Crisil’s study found that supply chain infirmities cause farmers’
realizations to be lower than international norms.
The supply chain for unprocessed food items in India has many layers leading to high wastages and a high
cost of distribution. According to Sudhir Nair, head of Crisil Research, the price paid to farmers for food
grains and fresh grocery is currently about 30-35 percent of retail prices as compared to the international
norm of over 50 percent.
The study also found that increased penetration of organized retail into the F&G segment could improve
the supply chain and boost farm incomes. Crisil believes that increasing the penetration of organized retail
into the F&G segment could bring about improvements to the supply chain for unprocessed food items.
According to Nair, this could result in substantial cost savings which could be passed on to farmers as
better prices paid for produce. The current farm realizations for unprocessed items are estimated at around
Rs 1.2 lakh crore. If this segment shifts entirely to organized retailing and the realizations of farmers are at
levels comparable to developed countries, which happens to be around 60-65 percent, associated farm
incomes could double to Rs 2.5 lakh crore.
Significantly, Crisil’s study found that higher farm incomes boost the purchasing power of 60 percent of
the population, adding to GDP growth. Around 60 percent of the country’s population is employed in
agriculture. If income levels within this group increase, it could add significantly to economic activity. If
farmers spend 80 percent of their incremental income, the economy would witness an incremental
spending of around Rs 1 lakh crore.
The Crisil study provides food for thought regarding how the country’s retail boom could be harnessed to
benefit even rural India, and not just a handful of metros, as is perceived. It is now up to Corporate India
and the government to utilize the segment’s full potential.
- 115 -
Organized food retailing can increase rural income, cut inflation Resultant increase in rural
spending can boost GDP
At an estimated Rs 12.8 trillion in 2006, India's retailing sector makes up close to forty per cent of the
country's GDP. Of this, food and grocery (F&G) items account for a significant 74 per cent of total retail
sales across both, the organized and unorganized sectors. Only 1% of the food items retailed in India flow
through the organized retail channel.
An analysis done by CRISIL Research reveals that a robust, widespread and deeply penetrated organized
food retailing network in India would address some key concerns facing the Indian economy today viz.
limited rural prosperity and high food prices. Reduced supply chain costs arising out of lower wastage and
storage costs can be shared between producers and consumers of food items as higher farm incomes and
lower food prices.
The organized retail sector makes investments to reduce inefficiencies of the traditional multi-level F&G
supply chain. These inefficiencies often arise out of restrictive procurement practices, and multi level
storage and commissions. This pushes up the final retail prices paid by the Indian consumer to 2.6 times
the prices paid to the Indian farmer. Better supply chain management implies disintermediation, an
associated reduction in commissions and a far lower wastage of goods by enhancing transportation and
storage facilities.
CRISIL Research has estimated the total avoidable supply chain costs in the F&G vertical in India at
about Rs.1 trillion. About 57 per cent of this is due to avoidable wastage and about 43 per cent is due to
avoidable costs of storage and commissions. Consequently, the average realization of the farmer is only
35-40 per cent of the retail price. This is very low as compared with farm realizations of 60-65 per cent of
the retail price in countries like the USA, which have an organized retail penetration of about 80%.
Sudhir Nair, Head, CRISIL Research, says "If one-third of the above-mentioned savings (around Rs 335
billion) are passed on to the consumer in the form of lower costs, it amounts to more than 3.5 per cent of
the country's spend on food items (Rs 9,510 billion); this can play a significant role in lowering food
inflation."
Strengthening the case for organized food retailing in the country, Sudhir Nair further emphasis’s,
"Realizations earned by farmers on food grains and fresh grocery, at current levels, are estimated at
around Rs. 1.8 trillion. Assuming this segment shifts entirely to organized retailing, and two thirds of the
savings from reduced supply chain inefficiencies are passed on to the farmer, farm incomes could grow by
more than 37% to Rs. 2.47 trillion. With 60% of India's population employed in agriculture, this is very
significant."
Further, if farmers spend around 80 per cent of this incremental income, an incremental spending of upto
Rs.536 billion would get added to the Indian economy. This is equivalent to nearly 1.7 per cent of India's
GDP
TWO FACES OF RURAL INDIA
In 2004-05, the National Sample Survey (NSS) Organization carried out its survey of consumer
expenditure in India, covering 79,298 rural and 45,346 urban households across the country. Here are
some key findings of this 61st round of the survey.
- 116 -
Among rural households, the average monthly per capita expenditure (MPCE) for India as a whole was Rs
559, or Rs 2,730 per family of 4.88 people. There were, however, considerable differences among the
states. The average rural MPCE for Kerala was 81 per cent higher than the all-India figure; Goa, 76 per
cent higher; Haryana, 54 per cent greater; Punjab, 52 per cent higher; Himachal, 43 per cent more; and
Jammu & Kashmir, 42 per cent greater. These were the better off regions of rural India.
Sadly, many of the eastern states were much worse off. With an average MPCE of Rs 399, people living
in the villages of Orissa were 29 per cent worse than the all-India rural average; Bihar, 25 per cent poorer;
and Jharkhand and Chhattisgarh, 24 per cent worse off. This theme — of a buoyant North, West and
South of India, versus an increasingly marginalised East India — runs through the survey.
The top 10 per cent of the rural population was significantly well off. Their average MPCE in 2004-05
was Rs 1,957 — or an annual expenditure of Rs 85,500 per household of 3.64 people. With there being
some 25.7 million such households in rural India, the consumer market for the top 10 per cent alone in
2004-05 was around Rs 2,20,000 crore. Clearly, there is enormous scope for the major players in rural
retail.
There have been significant shifts in consumption patterns. In 1972-73, almost 73 per cent of the rural
consumption budget was spent on food items. That dropped to 63 per cent in 1993-94. Eleven years later,
in 2004-05, it was down to 55 per cent.
Even within food, there have been major changes. In 1972-73, the share of cereals, cereal substitutes and
pulses accounted for 46 per cent of total rural MPCE. This has steadily fallen over time — to just a bit
over 21 per cent of rural MPCE in 2004-05. Thus, as rural household incomes have risen, the share of
‘food necessities’ has come down. Analogously, the share of ‘better-off food’ has increased. Rural spend
on milk and milk products, egg, fish, meat, vegetables, fruit and beverages has progressively increased
from 17 per cent of total expenditure in 1972-73 to almost 25 per cent of total spend — over a rising base.
In the prosperous states, over four-fifths of rural households have been spending much more on better-off
food than cereals and pulses.
The other change has been the increasing share of non-food consumption, which has risen from 27 per
cent of rural spend in 1973-74 to 45 per cent in 2004-05. More than half of the expenditure on non-food
items was on education, medical care, travel and transport, and the like — which are now some of the
fastest growing elements of rural household consumption.
Rural India, therefore, is rapidly changing. Significant tracts in the North, West and South of India are not
only far better off than before, but also are spending a great deal more on non-food items and better
quality of food. This is the growing rural market that companies will be trying to tap.
Yet, vast tracts remain abysmally poor. Only 4 per cent of the rural population of Punjab lived below the
poverty line (an MPCE of Rs.365), and 7 per cent in Haryana and Kerala. Turn eastward, and you see 57
per cent of those in rural Orissa living in abject poverty; 55 per cent in Chhattisgarh; 47 per cent in
Madhya Pradesh; 46 per cent in both Bihar and Jharkhand; and a third of the rural population of Uttar
Pradesh.
So, there are two rural India’s. One that is growing in income and consumption, and getting more urban-
like in its tastes and needs. And the other, which remains mired in abject poverty. The former lures
businesses. Can the latter shame governments to action?
- 117 -
ORGANISED RETAILING IN RURAL INDIA
Retail is set to see a fair amount of action is rural India. Estimated at $28.6 billion, India's rural retail
market is an attractive one for retailers.
Companies such as Godrej and DCM Shriram Consolidated are launching `one-stop shops' for farmers and
their communities. Godrej Agrovet, for instance, is planning to set up 1,000 Aadhar stores across rural
India by 2010. DCM Shriram plans to set up 35 rural/semi-urban utility marts over 2006-07.
Positioned as a one-stop shop, the Hariyali Kisaan Bazaar Chain will cater to a variety of farmers' needs
by providing access to retail banking, LPG outlets and even a motorcycle showroom.
Speciality retailers are also coming up fast, offering niche products in alternative medicine, books,
clothing, home furnishing, music, jewellery, alcohol and watches.
Tata Sons most recently tied up with Australian retail giant Woolworths to open a chain of consumer
electronics stores across the country. Other players present in the speciality retail segment are Home
Stores, Vivek's, Orra and Crossword.
ITC, a cigarette maker based in Calcutta, has diversified in the past six years into retail store networks to
sell items like cookies, garments, incense sticks and matches. Its plans to set up 54 retail stores called
Choupal Fresh in the next three years to sell fresh fruits and vegetables. It also plans to expand the number
of its rural supermarkets called Choupal Sagars to 700 by 2013 from 11 currently.
Hindustan Lever, the Mumbai-based local unit of Unilever, sells its products through 6.3 million shops,
reaching eight out of 10 households in India.
- 118 -

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ACCMAN Introduction to Retailing

POST GRADUATE PROGRAM

13. Store Location & Site Evaluation

RETAILING: DEFINITION AND SCOPE

FUNCTIONS TO MANUFACTURES AND WHOLESALERS

FUNCTIONS TO THE ECONOMY

THE RETAILING CONCEPT

FACTORS BEHIND THE CHANGE OF INDIAN RETAILING INDUSTRY

5. AVAILABILITY OF REAL ESTATE

THE RETAIL MANAGEMENT DECISLON-PROCESS

STEP 1: UNDERSTANDING THE RETAIL ORGANIZATION

The Macro Environment

Figure for Retail Management Decision Process

Step 2:DEVELOPING A RETAIL STRATEGY

STEP 3. IMPLEMENTING THE RETAIL STRATEGY

Figure for Elements In The Retail Mix

THE RETAIL MARKETING MIX

One criteria of classify retailing is

STORE BASED RETAILING:

NON STORE BASED RETAILING:

Another criteria of classify retailing is

SINGLE CHANNEL RETAILING

MULTI CHANNEL RETAILING

ADVANTAGES OF INDEPENDENT STORES

Independents frequently act as specialists in a niche of a particular goods/ service category ·

DISADVANTAGES OF INDEPENDENT STORES

Transportation, ordering, and handling costs per unit are high.

ADVANTAGES OF CHAIN STORE :

There are abundant competitive advantages for chain retailers:

DISADVANTAGES OF CHAIN STORE

Once chains are established, flexibility may be limited.

Franchising involves a contractual arrangement between a franchisor (a manufacturer, wholesaler, or

THREE STRUCTURAL ARRANGEMENTS DOMINATE RETAILFRANCHISING.

They own a retail enterprise with a relatively small capital investment.

In some industries franchise agreements are of short duration.

Is a department in a retail store usually a department, discount, or specialty store-that is rented to an

ADVANTAGES OF LEASED DEPARTMENTS .

From the stores' perspective, leased departments offer a number of benefits:

VERTICLE MARKETING SYSTEM

In an independent vertical marketing system, there are three levels of independently

RETAIL INSTITUTIONS CATEGORIZED BY STORE BASED STRATEGY MIX

CONVENTIONAL SUPER MARKET

BOX (LIMITED-LINE) STORE

TRADITIONAL DEPARTMENT STORE

Reasons for traditional department stores' difficulties:

Such chains have repeatedly changed strategic orientation, confusing consumers as

FULL-LINE DISCOUNT STORE

THE SUCCESS OF FULL-LINE DISCOUNT STORES IS DUE TO MANY FACTORS.

Facilities may be newer than those of many traditional department stores.

THE GREATEST CHALLENGES FACING FULL-LINE DISCOUNT STORES ARE:

A factory outlet is a manufacturer-owned store selling closeouts, discontinued merchandise, irregulars,

DIRECT MARKETING HAS A NUMBER OF STRATEGIC BUSINESS ADVANTAGES

DIRECT MARKETING ALSO HAS ITS LIMITS

OTHER NONTRADITIONAL FORMS OF RETAILING

ELECTRONIC RETAILING: THE EMERGENCE OF THE' WORLD WIDE WEB

THE ROLE OF THE WEB

ADVANTAGES OF VIDEO KIOSKS

They can be placed almost any where.

THESE ARE SOME OF THE DISTINCTIVE FEATURES OF AIRPORT RETAILING

RETAIL MARKETING ENVIRONMENT

MERCHANDISE MANAGEMENT AND PRICING

COMMUNICATING WITH THE CUSTOMER