chapter 02 - retail institutions

Retail Institutions

Retail Management 2

Objectives of the Chapter

Theories of Institutional Change Wheel of Retailing Dialectic Process Retail Accordion Natural Selection

Classification of Retailers Store-Based Retailer Non Store Retailer

Retail Management 3

Introduction

Varied Retail store formats Reasons for the diversity in store formats Retail format influences the entire retail business

model Retail format plays a key role in the retail strategies

being formulated New retail formats are getting framed around different

pricing and service strategies. This chapter covers the various theories explaining

the reasons for institutional change and also examines the classification of retailers.

Retail Management 4

Theories of Institutional Change

Wheel of Retailing

Dialectic process

Retail accordion

Natural selection

Retail Management 5

Wheel of Retailing

Proposed by Malcolm. P. McNair This theory states that in a retail institution

changes take place in a cyclical manner.

Retail Management 6

Wheel of Retailing

Retail Management 7

Wheel of Retailing

Entry Phase Trading Up phase Vulnerability Phase

Positioning of Store Low status – Low price format

Higher status – Higher price format

Declining ROI

Size of Store Small Bigger

Type of products provided

High Demand Customer convenience not necessarily high demand

Service to customers Minimal Maximum

Shopping Atmosphere Modest Posh

Store Location Low rental area High cost, more accessible to customers

Product Mix Minimal Differentiated

Type of retailer Innovative retailer Traditional retailer Conservatism

Retail Management 8

Dialectic Process

“Melting pot” theory Two institutional forms with different advantages

modify their formats till they develop a format that combines the advantages of both formats.

Thomas. J. Maronick and Bruce J. Walker in "The Dialectic Evolution of Retailing."

Implies that retailers mutually adapt in the face of competition from "opposites." Thus, when challenged by a competitor with a differential advantage, an established institution will adopt strategies and tactics in the direction of that advantage.

Retail Management 9

The Dialectic Process

•High margin •Low turnover •High price •Full service •Downtown location •Plush facilities

•Low margin •High turnover •Low price •Self service •Low Rent location •Spartan (basic) facilities

•Average margin •Average turnover •Modest price •Suburban Location •Model facilities

Retail Management 10

Retail Accordion

The theory of 'retail institutional change' states that institutions evolve over time from outlets offering a wide variety of merchandise to stores offering specialized products, and then eventually these stores begin to offer a wide variety of merchandise.

The merchandise mix strategies of retailers change, while the retail prices and margins remain the same.

Strategies ranging from stores that offer multiple merchandise categories with a shallow assortment of goods and service to others that offer limited merchandise with a deep assortment of goods and services.


The Retail Accordion Theory


Natural Selection

Based on Darwin's theory of evolution. According to this theory, a firm or retail

institution should be flexible enough to adapt to the changing environment and should adapt its behavior.

Success depends on the degree of flexibility enjoyed by the firm.


Classification of Retailers

Store based retailers Ownership Strategy Mix Service Vs Goods retail mix

Non – Store based retailer Traditional Non – traditional


Types of Retailers


Based on Ownership

Independent Stores Chain Stores Franchise Stores Leased Department Stores Vertical Marketing System Consumer Cooperatives


Independent Store

A store, which is owned by a single retailer. This retailer does not own any other store.

The entry barriers are low Licensing procedures are simple Low initial investment.


Independent Store - Advantages

Freedom to select a convenient location and suitable store format.

Can concentrate on a small target market to achieve its business objectives.

Decide on the timing, product assortment and price based on target market.

The cost of setting up an independent store is low. Employ a few people, have modest fixtures and do not

carry much merchandise. No excess stock or duplication of store functions. Reduced time lag in Decision making. Specialization is possible as focus is on a particular

consumer segment.


Independent Store – Disadvantages

Bargaining power is less. Reduced ability of retailers to negotiate with

suppliers Productivity is low Lack exposure to modern tools and

techniques for managing various retail functions

Increased operational costs Cannot promote their product aggressively in

the media.


Chain Stores

Chain stores have two or more retail outlets that are commonly owned and controlled.

Have a centralized buying and merchandising system and sell similar lines of merchandise.

Eg: Musicworld, Titan, Tanishq, etc


Chain Stores – Advantages

Low costs because of bulk purchases High Bargaining power Efficiency is more because of centralized

decision making system and use of latest technology

Can afford aggressive and expensive promotion

Full time experts employed for long term planning


Chain Stores - Disadvantages

Cannot customize strategies for every location

High cost of establishment Requires multiple stores with additional

fixtures, product assortments and a large number of store personnel.

Difficult to control Centralized management is difficult No personal interest in management of stores


Franchise Store

A store based on a contractual arrangement between a franchiser (manufacturer) and a franchisee, which allows the franchisee to conduct a given form of business under an established name and according to a given pattern of business. Eg: McDonalds

Franchising is of two types – Product / Trademark franchising Business format franchising


Franchising Models

Master Franchising System

Area Development Franchising System

Exclusive Showrooms


Product / Trademark Franchising

Franchised dealers acquire the identities of their suppliers by agreeing to sell the latter's products and/or operate under the suppliers name.

In this format, franchisees are relatively independent from their suppliers.


Business format Franchising

The franchiser, gives the right to sell goods and services, and also helps franchisees in various aspects of store management.

Under this type of ownership pattern, the franchiser and its franchisees work together like a chain store.


Franchising - Advantages

Franchiser Can own and operate retail businesses with relatively

small capital investment

Franchisees Get well- known brands and goods / service lines Exposure to standard operating procedures Benefit from the nation-wide promotional activities Enjoy exclusive rights to sell the franchiser's products Better bargain per unit purchase


Franchising – Disadvantages

Over saturation Franchisers projects higher returns on investment Restrictions on purchase of raw materials or goods

only from their franchiser Termination of the franchisee license Royalty payable is linked to gross sales Have to renew their franchisee rights when the

contract expires.


Leased Department

A department in a retail store that is rented to an outside party is called a leased department.

The volume of sale depends on the existing store's customer base and store's reliability.

The lessee is accountable for all the activities of the leased department.

The lessee pays a part of the sales turnover to the store as rent. should ensure that the merchandise of the leased department

does not cannibalize the sales of the store. Operations of the leased department should be in line with the

image and overall strategy. Objective is to add variety to the merchandise offered. Leased departments offer products/services that complement the

primary product/service offering of the store.


Cannibalization

Cannibalization refers to a reduction in the sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer.

For example, if Coca Cola were to introduce a similar product (say, Diet Coke or Cherry Coke), this new product could take some of the sales away from the original Coke.

A second common case of cannibalization is when companies, particularly retail companies, open outlets too close to each other. Much of the market for the new outlet could have come from the old outlet.


Leased Department - Advantages

Advantage to Lessor Reduce their cost by leasing departments. Shortcomings in handling certain goods and

specialized services can be overcome. Regular monthly income in the form of rent.

Advantages to Lessee Increase in customer traffic be of the established

name of lessor. The initial cost of establishing an outlet is reduced

as a result of leasing is less


Leased Department - Disadvantages

Disadvantages to Lessor Disputes may badly affect the image of the established store. Customer will blame the store for any disputes/deficiencies. Leased department may not attract additional customers.

Disadvantages to Lessee Has to function within working hours and operating pattern of

the store. Restriction on the goods and service lines offered by the leased

departments. The store may increase the rent if the leased department is

successful. The in-store location of the leased department may negatively

affect its sales.


Vertical Marketing System

A vertical marketing system is a distribution system in which the producers, wholesalers, and retailers act in a unified manner to facilitate the smooth flow of goods and services from producer to end-user. One channel member owns the others or has contracts with them, or has the power to control them.


Types of Vertical Marketing System

Independent Vertical Marketing System: Consists of independent businesses like

manufacturers, wholesalers and retailers. Required when customers are scattered, Manufacturers and retailers are small, Product sales are high, and Products require extensive distribution. used by stationery stores, gift shops, hardware

stores, food stores, drug stores etc.


Types of VMS

Partially integrated vertical marketing system: Only two independent business units in a

distribution channel work together. These units take care of all the production and

distribution functions, A manufacturer and a retailer alone manage

the shipping, warehousing and distribution functions without the help of a wholesaler.

Generally used in furniture stores, appliance stores, restaurants, computer retailers etc.


Types of VMS

Fully integrated vertical marketing system: Only one player manages all the activities In this system, several channel members at

different levels in the channel are owned by the same company.

The company/store exercises full control over channel operations like production, wholesaling and retailing.

The initial cost of setting up a fully integrated marketing system is very high.

The company owning the entire marketing system may have difficulty handling some specialized channel activities.


Consumer Cooperatives

Consumer cooperatives are retail operations owned and managed by its customer members.

In many cases, consumer cooperatives are started by the residents of an area.

These residents believe that the existing retailers in that area are not serving them well (either charging too much or providing poor-quality goods/services).


Consumer Cooperatives

The consumer cooperative structure in the country has four tiers, with the National Cooperative Consumers Federation of India Limited (NCCF) at the national level. Thirty State Cooperative Consumers Organisations are affiliated to the NCCF. At the Central/Wholesale level, there are 800 Consumer Cooperative Stores. At the primary level, there are 25,759 primary stores. In the rural areas, there are about 44,418-village level Primary Agricultural Credit Societies and Marketing Societies undertaking the distribution of consumer goods along with their normal business. In the urban and semi-urban areas the consumer cooperative societies are operating about 37,226 retail outlets to meet the requirements of the consumers. The NCCF besides undertaking distribution of consumer articles, also has a Consultancy and Promotional Cell for strengthening consumer cooperative societies engaged in retailing activities. The NCCF with its Head Office at New Delhi has 32 branches/sub-branches located in various parts of the country. The sales turnover achieved by the NCCF during the year 2003-04 was Rs 626.11 crore as against the sales turnover of Rs 674.06 crore last year. It has earned a net profit of Rs 8.31 crore as against the profit of Rs 4.19 crore achieved during the previous year. The accumulated losses of the NCCF in 2003-04 were Rs 16.92 crore.

The government with the help of NCCF, launched the scheme called Sarvpriya in July 2000. The scheme envisages distribution of eleven selected commodities of daily use to the consumers through the existing PDS Retail Outlets and the Retail Outlets of the State Consumers' Cooperative Federations, State Civil Supplies Corporations and the Consumer Cooperative Societies in the States. The Scheme is voluntary involving no subsidy.


Retailers based on Strategic Mix -- 1

Food Oriented Retailers Convenience Stores Conventional Supermarket Food-based supermarket Combination Store Box (limited-line) store Warehouse stores


Convenience Store

Relatively small stores located near residential areas. Open long hours, seven days a week and carry a

variety of products with limited assortment of merchandise. They generally carry high-turnover convenience products.

Charge relatively high prices and operate in a 3000 to 8000 square foot area.

Cater to customers who prefer 'convenience of buying or shopping'.

May not carry all the items that are available in supermarkets, but they are very conveniently located for customers.

Customers can get their products billed faster


Conventional Supermarket

Focus on food and household maintenance products.

Earn very limited revenues from the sale of non-food or general merchandise goods.

Self-service operation. Self-service enhances impulse buying.

Every day low price (EDLP) policy may be followed.


Food based supermarket

Larger and more diversified than a conventional supermarket, but smaller and less diversified than a combination store.

The size of the store ranges from 25,000 to 50,000 square feet and the store earns 20 to 25 percent of its revenue from general merchandise goods

It provides the full range of grocery items.


Combination Store

A blend of a super market and a general merchandise store,

Maintains the identity of both a food store and drug store.

Size of a combination store ranges from 30,000 to 100,000 square feet.

Designed to allow customers to have a one-stop shopping experience.

Prices are less than those in a general merchandise store.


Box (limited-line) Store

A food-based discount store that concentrates on a small selection of goods.

Has limited shopping hours, limited services, and limited stocks.

Offers a limited number of national brands. Prices are displayed on the shelf or on overhead

signs. Customers have to serve themselves and are not

allowed to examine products. Sells private label brands, priced 20 to 30 percent

below market prices.


Warehouse Stores

Warehouse stores are discount food retailers with an average size of 100,000 square feet.

They cater to customers who look for low price deals.

Merchandise is often displayed in cut boxes or shipping pallets and services are limited.

Availability of the goods assured as the warehouse retailer's buy only deep price or quantity discount is offered.


Types of Warehouse Stores

Depending on their functioning style Warehouse showroom Catalog showroom Hypermarket Warehouse club


Warehouse Showroom

Owned by a single-line hard-good retailer. Usually sell well-known brands of furniture

and appliances As soon as a customer makes the selection

and places an order, the goods are shipped from the nearest warehouse.

offers different services like credit, delivery and installation for extra charge.

located in freestanding sites that are adjacent to busy roads.


Catalog Showrooms

Discount operations that offer merchandise through a catalog or a showroom.

Catalog showrooms generally offer hard goods like house ware, jewelry, consumer electronics etc.

Customer orders by mentioning the corresponding number of product in the showroom or catalog.

Delivery a few days after the order is placed. Retailers compete on price. Concentrate on high margin merchandise


Hyper Market

A large retail store that offers products at a low price.

A combination of a discount store and a food based supermarket.

Big Bazaar is a large hypermarket format with store size ranging from 30,000-50,000 sq. ft, selling everything from home needs, utensils, luggage, white goods, electronics, cosmetics, jewellery, pharmacy, optician to grocery items at a discount.


Warehouse Club

A general merchandise retailer who offers a limited merchandise assortment with limited service at low prices to consumers as well as small businesses.

Store is located in remote locations in an area of 100,000 sft.

Interiors are simple and services are limited. Warehouse clubs operating on a membership

basis are known as membership clubs.


Retailers based on Strategic Mix -- 2

General Merchandise RetailersClassified based on location, merchandise, price, store atmosphere, service and promotion mix: Specialty Stores Variety Stores Department stores Off price retailer Membership Club Flea Market


Specialty Stores

A type of general merchandise store Sells limited lines of closely related products or

services to a select group of customers. Types - Single line specialty stores and Limited line

specialty stores. Major variable in a specialty store's strategy is the

merchandise assortment. Both high margin and low margin operators can be

found in the specialty store category. The size of the specialty store varies based on the

nature of merchandise and mode of operation. Specialty stores are located in high traffic areas like

shopping centers, downtown malls etc.


"Reliance TimeOut“- Specialty Store

Reliance Retail Limited (RRL) announced the launch of a new specialty store "Reliance TimeOut" on Cunningham Road in Bangalore. This store houses Books, Music, Stationery, Toys and Gifts.


Specialty Store

Category killer: It offers enormous selection in a product category at relatively low prices. A category killer offers not only low price but also variety within a narrow product line.


Variety Stores

Variety stores offer a deep assortment of inexpensive and popular goods like stationery, gift items, women's accessories, house wares etc.

Also called 5 and 10-cent stores


Department Stores

Department stores are large retail units that offer wide variety and a deep assortment of goods and services.

Organized into separate departments

Provide a one-stop shopping experience to customers.


Criterion for classification as Department Storei. A department store should employ a minimum of fifty people.

ii. The store should generate at least 20 percent of its total revenue from the sale of apparel and soft goods.

iii. The store should have the following product lines: furniture and home furnishings; appliances, radio and TV sets; a general line of apparel for the family; household products and dry goods.

iv. The annual sales of the department store should be under $10 million, where no single product line should contribute more than 80 percent of the total sales.

-- U S Bureau of Census


Types of Department Stores

A traditional department store offers merchandise of average quality priced above average, with minimum customer service.

A full-line discount department store offers a broad merchandise assortment at less than prevailing prices. Full-line discount department stores are popular because they offer well-known brands at competitive prices.


Features of a Full – Line Department Store High volume, low cost, fast turnover outlet

with a wide merchandise assortment. Centralized checkout service Self-service store A low cost model Offers private brands for non-durables and

well-known brands for durables.


Off-price Retailer

Offer an inconsistent assortment of branded fashion-oriented soft goods at low prices.

Purchases from manufacturers who have excess inventory

Off-price retailers get special prices from manufactures by agreeing to order goods in the off-season.

Off price retailers sell unsuccessful samples and products.

Off-price chains do not carry out many promotional activities.


Classification of Off-price retailers

Outlet stores

Close outlet stores

Single-price retailers


Membership Club

Cater to price conscious customers.

Customers pay an annual fee to become members

Very large and located in isolated areas.

Characterized by little or no advertising, plain fixtures, wide aisles, concrete floors, limited or no delivery services, little or no credit, and very low prices.

Get merchandise directly from manufacturers.

Also known as wholesale clubs, warehouse clubs and wholesale centers.


Flea Market

The term "flea market" is a literal translation of the French marche aux puces, an outdoor bazaar in Paris, France.

A flea market is an outdoor or indoor facility that rents out space to vendors

Entrepreneurs can start business with low investment.

Consists of many retail vendors offering a variety of products at discount prices.


Service Vs Goods retail mix

Entertainment firms, hospitals and banks initially had no intention of becoming retail institutions. As competition increased, these organizations started operating like retailers to attract customers.

Service retailing consists of the sale or rental of an intangible activity, which usually cannot be stored or transported, but satisfies the need of the user/ customer.


Types of Services

Two types: Services along with goods,

Rental Goods Service Owned Goods Service Non goods Service

Services without any goods (pure service). Services that are provided without any physical

product or good are called pure services.


Non – Store Retailer Differ in the retailing methods from store retailers. Reach customers and market merchandise using

various methods like "infomercials," direct-response advertising, paper and electronic catalogs, door-to-door selling, in-home demonstrations, portable stalls (street vendors), and vending machines.

Non store retailing takes place in two ways: Traditional Non traditional


Traditional non store retailers

Direct Marketing Direct Selling Vending Machines Catalog marketing Telemarketing TV Home shopping


Direct Marketing

"Interactive marketing system that uses one or more advertising media to yield a measurable response and/or transaction at any location".

-- Direct Marketing Association (DMA) Customer is informed about the product through non

personal media and the customer places an order through the mail or phone.

In direct marketing, responses can be measured. Company can concentrate its promotional activities

on potential customers.


Direct Marketing - Advantages

The initial cost or investment for direct marketers is comparatively less

A wide geographic area is covered by the direct marketer's promotional activities.

This form of shopping allows the customer to make purchases without having to look for a parking place or waiting in line at the cash register.


Direct Marketing - Disadvantages

Customers do not have the opportunity to see and feel the goods before purchasing them.

Cost of developing, printing and mailing these catalogs can be very high.


Direct Selling

"Marketing and retailing consumer goods directly to the consumer that relies neither on direct mail, product advertising nor fixed retail outlets".

-- Direct Selling Association

Encourages convenience shopping as well as personal touch or feel of a product.

Can also be called door- to- door selling


Types of Direct Selling

Person to Person Multilevel (network) marketing Party plan Direct selling benefits both consumers and

sellers. From the consumers' point of view goods are

available at their convenience. Direct selling is advantageous for retailers as it

is an effective, low cost channel.


Vending Machines

Involves coin or card-operated dispensing of products.

Eliminates the use of sales personnel and facilitates round-the- clock sales.

Vending machines help customers avoid the inconvenience of shopping in a store.

High Installation costs Also called Automatic Merchandising.


Catalog Marketing

Catalog marketing refers to sales made through catalogs mailed to a select list of customers or made available in a store.

Basic product and pricing information is given along with instructions for placing an order.

The kind of delivery (mail, express service, parcel post) that the customer wants can be mentioned in the order


Telemarketing

Provide more convenience and service satisfaction to customers,

Useful for customers who want to avoid traffic congestion and parking problems.

Allows retailers to provide customers information on new merchandise and upcoming sales events.

Deliver merchandise to the customers' residence or hold it till it is picked up by the customer at a later date.


TV Home Shopping

TV home shopping works in the following manner: The merchandise items are displayed,

described and demonstrated on television. Using the toll-free number provided,

customers can place orders. Payments are done through credit cards. The goods are delivered by courier service

along with a guarantee.


Non-traditional non store based retailers – World Wide Web Retailers' websites allow customers to order

with a click of the mouse. To attract potential customers, retailers also

send details of new products through email to customers.

Use of Internet as a medium for promoting their goods and services all over the globe at minimum cost.

Can conduct research also on customers Internet reduces the costs of retailers


Non-traditional non store based retailers – Video Kiosk The term kiosk is derived from a Turkish word

which means open summer house or pavilion.

Kiosks are often placed near the entrances of shopping malls.

A video kiosk is a freestanding interactive computer terminal that displays product and related information on a video screen


Non-traditional non store based retailers – Video Catalog A video catalog is a retail catalog on a CD-

ROM disk to be viewed on a computer monitor.

After viewing the catalog, the consumer can call up the retailer to order the goods.

The disk allows the customer to quickly gather information about the retailer's products.


Summary

Theories of Institutional Change Wheel of Retailing Dialectic Process Retail Accordion Natural Selection

Classification of Retailers Store-Based Retailer Non Store Retailer

chapter 02 - retail institutions

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