Retailing - Overview

What is Retail?

Retailing includes all activities involved in selling goods or services to the final consumers for personal, non-business use.

− Phillip Kotler

Any organization that sells the products for consumption to the customers for their personal, family, or household use is in the occupation of retailing.

Functions of a Retailor

Retailor provides the goods that customer needs, in a desired form, at a required time and place.

A retailor does not sell raw material. He sells finished goods or services in the form that customer wants.
A retailer buys a wide range of products from different wholesalers and offers the best products under one roof. Thus, the retailor performs the function of both buying and selling.
A retailor keeps the products or services within easy reach of the customer by making them available at appropriate location.

Retail in Marketing Channels

With industrialization and globalization, the distance between the manufacturer and the consumer has increased. Many times a product is manufactured in one country and sold in another. The levels of intermediaries involved in the marketing channel depends upon the level of service the consumer desires.

Type A and B − Retailers. For example, Pantaloons, Walmart.

Type C − Service Providers. For example, Eureka Forbes.

Classification of Retailing Formats

The retailing formats can be classified into following types as shown in the diagram −

Ownership Based Retailing

Let us see these retailers in detail −

Independent Retailers − They own and run a single shop, and determine their policies independently. Their family members can help in business and the ownership of the unit can be passed from one generation to next. The biggest advantage is they can build personal rapport with consumers very easily. For example, stand-alone grocery shops, florists, stationery shops, book shops, etc.
Chain Stores − When multiple outlets are under common ownership it is called a chain of stores. Chain stores offer and keep similar merchandise. They are spread over cities and regions. The advantage is, the stores can keep selected merchandise according to the consumers’ preferences in a particular area. For example, Westside Stores, Shopper’s Stop, etc.
Franchises − These are stores that run business under an established brand name or a particular format by an agreement between franchiser and a franchisee. They can be of two types −
- Business format. For example, Pizza Hut.
- Product format. For example, Ice cream parlors of Amul.
Consumers Co-Operative Stores − These are businesses owned and run by consumers with the aim of providing essentials at reasonable cost as compared to market rates. They have to be contemporary with the current business and political policies to keep the business healthy. For example, Sahakar Bhandar from India, Puget Consumers Food Co-Operative from north US, Dublin Food Co-Operative from Ireland.

Merchandise Based Retailing

Let us see these in detail −

Convenience Stores − They are small stores generally located near residential premises, and are kept open till late night or 24x7. These stores offer basic essentials such as food, eggs, milk, toiletries, and groceries. They target consumers who want to make quick and easy purchases.

For example, mom-and-pop stores, stores located near petrol pumps, 7-Eleven from US, etc.
Supermarkets − These are large stores with high volume and low profit margin. They target mass consumer and their selling area ranges from 8000 sq.ft. to 10,000 sq.ft. They offer fresh as well as preserved food items, toiletries, groceries and basic household items. Here, at least 70% selling space is reserved for food and grocery products.

For example, Food Bazar and Tesco.
Hypermarkets − These are one-stop shopping retail stores with at least 3000 sq.ft. selling space, out of which 35% space is dedicated towards non-grocery products. They target consumers over large area, and often share space with restaurants and coffee shops. The hypermarket can spread over the space of 80,000 sq.ft. to 250,000 sq.ft. They offer exercise equipment, cycles, CD/DVDs, Books, Electronics equipment, etc.

For example, Big Bazar from India, Walmart from US.
Specialty Stores − These retail stores offer a particular kind of merchandise such as home furnishing, domestic electronic appliances, computers and related products, etc. They also offer high level service and product information to consumers. They occupy at least 8000 sq.ft. selling space.

For example, Gautier Furniture and Croma from India, High & Mighty from UK.
Departmental Stores − It is a multi-level, multi-product retail store spread across average size of 20,000 sq.ft. to 50,000 sq.ft. It offers selling space in the range of 10% to 70% for food, clothing, and household items.

For example, The Bombay Store, Ebony, Meena Bazar from India, Marks & Spencer from UK.
Factory Outlets − These are retail stores which sell items that are produced in excess quantity at discounted price. These outlets are located in the close proximity of manufacturing units or in association with other factory outlets.

For example, Nike, Bombay Dyeing factory outlets.
Catalogue Showrooms − These retail outlets keep catalogues of the products for the consumers to refer. The consumer needs to select the product, write its product code and handover it to the clerk who then manages to provide the selected product from the company’s warehouse.

For example, Argos from UK. India’s retail HyperCity has joined hands with Argos to provide a catalogue of over 4000 best quality products in the categories of computers, home furnishing, electronics, cookware, fitness, etc.

Non-Store Based (Direct) Retailing

It is the form of retailing where the retailer is in direct contact with the consumer at the workplace or at home. The consumer becomes aware of the product via email or phone call from the retailer, or through an ad on the television, or Internet. The seller hosts a party for interacting with people. Then introduces and demonstrates the products, their utility, and benefits. Buying and selling happens at the same place. The consumer itself is a distributor.

For example, Amway and Herbalife multi-level marketing.

Non-Store based retailing includes non-personal contact based retailing such as −

Mail Orders/Postal Orders/E-Shopping − The consumer can refer a product catalogue on internet and place order for purchasing the product via email/post.
Telemarketing − The products are advertised on the television. The price, warranty, return policies, buying schemes, contact number etc. are described at the end of the Ad. The consumers can place order by calling the retailer’s number. The retailer then delivers the product at the consumer’s doorstep. For example, Asian Skyshop.
Automated Vending/Kiosks − It is most convenient to the consumers and offers frequently purchased items round the clock, such as drinks, candies, chips, newspapers, etc.

The success of non-store based retailing hugely lies in timely delivery of appropriate product.

Service Based Retailing

These retailers provide various services to the end consumer. The services include banking, car rentals, electricity, and cooking gas container delivery.

The success of service based retailer lies in service quality, customization, differentiation and timeliness of service, technological upgradation, and consumer-oriented pricing.

Product Retailing versus Service Retailing

Product Retailing	Service Retailing
Quality and cost are prime factors in the success of product retailing.	Timeliness and nature of people involved in service retailing are crucial factors in the success.
Product retailer and consumer relationship is established only if the consumer frequently visits the outlet.	Service provider and customer relationship is established right from start.
Products can be stored in outlet while retailing.	Services are intangible hence cannot be stored while retailing.
Product retailing can be standardized.	Service retailing cannot be standardized as it highly depends upon the human entities involved.
In product retailing, the ownership of the purchased product can be transferred from owner to consumer after transaction.	In service retailing, there is no transfer of ownership. The consumer can only access the service.

Retail versus Wholesale

Retail	Wholesale
The products are sold to the customers directly	The products are sold either to retailer for further selling or to the customer directly
Retailer sells the products by adding his own profit margin hence the cost of product increases	The cost of product sold at wholesale is always lesser than retail cost
Retail business generally does not have direct contact with the manufacturer	Wholesale business has a direct contact with the manufacturer
Retail business buys products from wholesaler in small quantities. Hence, there is always an upper hand to question the quality and discard the damaged products	Wholesale businesses have to buy from the manufacturer in bulk. Hence if there is some issue with the quality of the product, they can hardly complain
Retail has to work on attracting customers, managing selling space, employee’s salaries, etc.	Wholesale business is not much engaged into such activities
Retail business earns lesser profit	Wholesale business earns more profit

Retail Terminology

Here are some commonly used terms in Retail Management −

Consumerism	The organized-efforts by individuals, groups, and governments to protect consumers from policies and practices that infringe consumer rights.
Consumption	Using a product or a service for one’s benefit in particular time; not for resale.
Customer Satisfaction	It is the degree at which the customer is pleased after purchasing and using a product or availing a service, and going to the same retailer or service provider.
Distribution	It is movement of products or services from manufacturer to end consumer through a channel.
Empowered Consumers	The consumers with access and knowledge of Internet, exploiting the power of digital technologies, and demanding products and services matching their personal preferences.
Inventory Shrinkage	Reduction of inventory due to theft by employees, customers, or by error from merchandise management at the time of receiving merchandise.
Logistics	It is planning, executing and controlling of the procurement and movement of material and resources on some beneficial purpose.
Markdown	Reduction in price.
Planogram	Predetermined layout of display to promote merchandise sale.
Procurement	It is the process of buying a product or a service. It involves various stages such as planning, researching supplier or service provider, negotiating price, placing order, making payment and availing the product or service.
Retail	Sale of products or services to end customer for consumption rather than resale.
Supply-Chain Management	It is the management of material and information flow in a chain from manufacturer to consumer for providing highest level of customer satisfaction at lowest possible price.
Switching Costs	The costs incurred by a consumer for switching from one supplier or marketplace to another.
Wholesale	The business of selling products of large quantity at lesser price to retailers or consumers.

Evolution of Retail

Though the barter system is considered as the oldest form of retailing, the traditional forms of retailing such as neighborhood stores, main-street stores and fairs still exist in the laid-back towns around the world. During post-war years in the US and Europe, small retailers reformed their shops into large organized stores, markets, and malls.

Retail evolution mainly took place in three stages −

Conventional
Established
Emerging

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