Retail Management

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RETAIL MANAGEMENT
KMCT SCHOOL OF BUSINESS

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Both optimists and the pessimists contribute to the society. The optimist invents the aeroplane, the pessimist the parachute.
George Bernard Shaw
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There is only one boss, the customer and he can fire everybody in the company, from Chairman on down, simply by spending his money somewhere else. - Sam Walton Founder, Walmart
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Beginnings of Retail Trade

Early Trade When man started to cultivate and harvest the land, he would occasionally find himself with a surplus of goods. Once the needs of his family and local community were met, he would attempt to trade his goods for different goods produced elsewhere. Thus markets were formed. These early efforts to swap goods developed into more formal gatherings. When a producer who had a surplus could not find another producer with suitable products to swap, he may have allowed others to owe him goods. Thus early credit terms would have been developed. This would have led to symbolic representations of such debts in the form of valuable items (such as gemstones or beads), and eventually money.
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Beginnings of Retail Trade

Early Markets Over time, producers would have seen value in deliberately over-producing in order to profit from selling these goods. Merchants would also have begun to appear. They would travel from village to village, purchasing these goods and selling them for a profit. Over time, both producers and merchants, would regularly take their goods to one selling place in the centre of the community. Thus, regular markets appeared. The First Shops Eventually, markets would become permanent fixtures i.e. shops. These shops along with the logistics required to get the goods to them were, the start of the Retail Trade.
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Types of Marketing Channels
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BASIC CONCEPT: The Retailer

The entity at the penultimate position in a distribution/marketing channel, that sells to the final consumer Functions:
breaks bulk (distributor of small quantities) provides goods in convenient location finances stock
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What is Retailing
Retailing is the last stage in a distribution channel, which contains the businesses and people involved in physically moving and transferring ownership of goods and services from producer to consumer. In a channel, retailers perform valuable functions as intermediaries for manufacturers, wholesalers, and final consumers. They collect product assortments from various suppliers and offer them to customers. They communicate with both customers and other channel members. They may ship, store, mark, advertise, and pre-pay for items. They complete transactions with customers and often provide customer services.
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What is Retailing?
Retailing is defined as selling products to consumers for their personal use. A retailer is a reseller (i.e., obtains product from one party in order to sell to another) from which a consumer purchases products
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What is Retailing?
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.
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What is Retailing?
Philip Kotler in his book on Marketing Management defines Retailing as all the activities involved in selling goods or services directly to final consumers for personal, nonbusiness use.
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What is Retailing?
Marketers 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.
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Nature & Scope of Retailing?
When retailers were small, manufacturers had the power. The strongest manufacturers could dictate the terms and shelf space they wanted for their products. The advent of giant retailers hypermarkets, superstores, category killers changed the power forever. No longer were the retailers the dumping grounds for the manufacturers products; instead they became the customers representatives. The retailers chose to carry the goods that would most satisfy their customers. And the giant retailers ordered such high volume that they could play off the manufacturers against each other for the best terms.
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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.
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Retailer?
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Any business establishment that directs its marketing efforts towards the end users for the purpose of selling goods and services. Retailers street vendors, local shops, supermarkets, food joints, saloons, airlines, two/three/four wheeler showrooms, video kiosks, direct marketers and so on.
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An organisation or establishment can be considered as retailer only when their major revenue comes from their transactions with end users.
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How Retailers Add Value

The value of the product and service increases as the retailer performs functions.
Bicycle can be bought on credit or cash
Bicycle is featured on floor display Bicycle is offered in convenient locations in quantities of one Bicycle is developed at manufacturer
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The Benefits of Retailing
For consumers:
Break Bulk Assortment Hold inventory Providing services Providing information Discounts
For suppliers & wholesalers:

Last entity in the channel to reach customer. Acts as via media between B&C. Revenue. Risk sharing.
For Economy:
Plays crucial role in the world economy. Accounts significant percentage in GDP. Employment next to agriculture especially in India.
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A Typical Channel of Distribution
Manufacturer Retailer
Wholesaler
Final Consumer
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The Retailers Role in the Sorting Process
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Retail Evolution Theories

Three well-known theories have been proposed as the primary retail evolution theories: (a) Cyclical theory, (b) Conflict theory, and (c) Environmental theory. Based on these three retail evolution theories, multiple retail evolution theories have been developed.
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Cyclical Theory
The common concept of all Cyclical theories is that retail institutions evolve in a rhythmical pattern or cycle (e.g., low-high-low cycle or general-specificgeneral cycle) by adjusting their retail attributes, such as price or assortment. Two of the most well-known Cyclical theories are * the Wheel of Retailing theory and * the Retail Accordion theory. The Wheel of Retailing theory is an example of retail evolution determined through the price aspect, and the Retail Accordion theory is an example of retail institutions evolution in terms of product assortment.
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WHEEL OF RETAILING THEORY
Malcom.P.McNair (1958) proposed the Wheel of Retailing theory to explain a retail evolution pattern, which he had observed in European and U.S. retail operations. He was a pioneer in retail evolution theory, and was one of the first authors who issued and outlined the retail evolution concept with a model. The Wheel of Retailing is the most frequently cited theory of subsequent researchers. The Wheel of Retailing theory states that the evolution process consists of three phases: entry phase, trade-up phase, and vulnerable phase.
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The Wheel of Retailing
A hypothesis holding that new retailers usually enter the market as low-status, low-margin, lowprice operators but eventually evolve into highcost, high price merchants.
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What is the Wheel of Retailing? Retailing :
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What is the Wheel of Retailing?

Definition: The Wheel of Retailing is a theory to explain the institutional changes that take place when innovators enter the retail arena. The Wheel of Retailing concept states that new types of retailers usually begin as low-margin, lowprice, low-status operations, but later evolve into higher-priced, higher-service operations, eventually becoming like the conventional retailers they replaced.
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This theory is diagramed as a large wheel with three spokes dividing the wheel into three segments or phases. The first or entry phase of the Wheel of Retailing starts with the opening of innovative retail institutions, which initially offer limited products with low prices and minimum services. Retail institutions at this phase strategically accept low margins due to lack of services and facilities offered and low market penetration, but these low margins can reduce product prices and help retailers to increase penetration of the market.
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When these retail institutions are successful, other rival retail institutions rapidly imitate and adapt those characteristics. At the end of the entry phase, the number of the same type of retail institutions has increased. As time passes, the innovative retail institutions become traditional retail institutions that offer more services and better store characteristics at higher prices. For example, the maturing or more traditional retail institutions provide facilities, such as rest rooms, food courts and resting areas, and promise services, such as more variety in products, advertisements, delivery, and provision of credit. These retail institutions are simultaneously increasing their margins and prices and appeal to more middle and upper income consumers rather than bargain hunting and lower income consumers.
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These upgrading practices continue to be practiced by the aging retail institution type into the trade-up or second phase; however, the forces that make retail institutions move to the trade-up phase were not clarified by McNair (1958). Information from other theories resulting in combination theories is needed to analyze these changes. At the peak of the trade-up phase, retail institutions achieve increases in sales, volume, profitability, and market share due to improvement of their store retail mix.
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As time passes and the wheel turns, retail institution types mature additionally and move into the third and final phase, the vulnerable phase. These firms are mature retail institutions that should have a strong cash flow and high profits. However, as retailers add higher levels of operational practices, operation costs increase, product prices rise, and profit margins tend to erode. As a result, some mature retailers focus only on product quality and services rather than on prices.
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These changing operational practices make the third phase retailers vulnerable to easy replacement by other retailers. In this vulnerable phase, retail institutions lose market share and profitability. All these conditions allow for the emergence of a new innovative retailer in the next cycle of the Wheel of Retailing. The innovative retailer will enter the wheel with low costs, low margins and low price products. A new innovative retailer in the next Wheel of Retailing cycle often initially coexists, with mature retail institutions, which are at the highest popularity position in the previous wheel of retailing cycle.
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RETAIL ACCORDION THEORY
Hollander (1966) proposed the Retail Accordion theory, which explained retail evolution as a cyclical trend in terms of the number of merchandise categories (i.e., product assortment). In this theory, at the beginning of operation, a retail institution carries a broad assortment of merchandise (i.e., various types of products or product classifications) but does not carry a deep assortment (i.e., various styles within one product classification). At this early stage, the retail institution is a general store. As time passes, the retail institution becomes specialized by carrying a limited line of merchandise with a deep assortment. At this point, the retail institution is a specialty store.
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RETAIL ACCORDION THEORY
At some point, every retail institution returns to the inventory profile of the old operation with a broad assortment of many lines of merchandise. The number of lines (i.e., broad vs. narrow) and the depth of inventory (i.e., shallow vs. deep) expand and contract over time. Hollander used general stores, drug stores, supermarkets, department stores, and discount stores in the United States as samples of analysis for the theory. He explained historical changes of a merchandise assortment in these retail institution types, and noted that each evolved by following the steps of the Retail Accordion theory.
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CONFLICT THEORY
Gist (1968) proposed that an existing retail institution is challenged by its competitor because it has competitive advantages over the existing retail institution. As time passes, the first retail institution imitates the characteristics of competitor to upgrade its existing characteristics and finally creates a new retail institution. In an alternative explanation of the process, while two retail institutions are in conflict, a new retail institution is created, offering better characteristics than the existing retailer and its competitor. A new retail institution will become a traditional retail institution in the next evolution.
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CONFLICT THEORY
As a retail institution type moves along a step into the next step, the institution type passes through the stages of problem recognition, implementation of solutions, and emergence of a new retail institution type. When a competitor or a new retail institution appeared, a traditional retail institutions first reaction was to resist change and to fight against the new competition. However, in time, a retail institution realized a need for change and started imitating or differentiating from the competitors characteristics.
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ENVIRONMENTAL THEORY
Environmental theory is that the retail environment is the key influence to retail changes, and to survive change and competition, retail institutions need to evolve by adapting or adjusting to the environmental changes (Blizzard, 1976; Brown, 1987; Gist, 1968; Oren, 1989). Researchers noted that if a retail institution cannot react quickly to environmental changes, the retail institution would become extinct. The Environmental theory explains how variables in the environment like consumers, economy, technology, social, cultural, legal, competition, etc..affect retail evolution.
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Retail life cycle

Retail life cycle A theory of retail competition that states that retailing institutions, like the products they distribute, pass through an identifiable cycle. This cycle can be partitioned into four distinct stages: (1) innovation, (2) accelerated development, (3) maturity, and (4) decline.
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Retail Lifecycle Looks Like Product Lifecycle
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Retail Life Cycle
Retail institutions pass through identifiable life stages

introduction growth maturity decline
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Retail Life Cycle
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RETAIL LIFE CYCLE
An important and compelling reason for innovation is the overall compression of the retail life cycle. Where a concept once had 30 to 40 years to progress through the retail life cycle, the average life cycle is now greatly compressed. In the present scenario, ideas get into market faster, grow more explosively, and face obsolescence in a shorter period. The average retail life cycle looks like any typical bell curve. There is a period of development for an emerging concept, followed by a period of rapid growth, maturity, and eventual decline. This life cycle is still valid but there are major changes in the time periods involved in each stage. Concepts are growing, maturing, and declining faster than ever.
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RETAIL LIFE CYCLE
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RETAIL LIFE CYCLE
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Scrambled Merchandising by a Shoe Store
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Wal-Mart
Wal-Mart Stores, Inc. founded by Sam Walton in 1962, is the largest retailer and largest company in the world based on revenue. In the fiscal year ending January 31, 2005, Wal-Mart reported net income of US $10.3 billion on US$285.2 billion of sales revenue (3.6% profit margin). If Wal-Mart were its own economy, it would rank 33rd in the world, with a GDP between Ukraine and Colombia. It is the largest private employer in the United States, Mexico and Canada. It holds a 8.9 percent retail store market share $8.90 out of every $100 spent in U.S. retail stores is spent at Wal-Mart.
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10 foot attitude : I want you to promise that whenever you come within 10 feet of a customer, you will look him in the eye, greet him and ask him if you can help him." ..Sam Walton
E D L P
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Retailing :
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Sam Walton's 10 Rules for Success Rule #1 Commit to your business. Believe in it more than anything else. If you love your work, youll be out there every day trying to do the best you can, and pretty soon everybody around will catch the passion from you - like a fever. Rule #2 Share your profits with all your associates, and treat them as partners. In turn, they will treat you as a partner, and together you will all perform beyond your wildest expectations.
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Rule #3 Motivate your partners. Money and ownership arent enough. Set high goals, encourage competition and then keep score. Make bets with outrageous payoffs. Rule #4 Communicate everything you possibly can to your partners. The more they know, the more theyll understand. The more they understand, the more theyll care. Once they care, theres no stopping them. Information is power, and the gain you get from empowering your associates more than offsets the risk of informing your competitors. .
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Rule #5 Appreciate everything your associates do for the business. Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise. Theyre absolutely free and worth a fortune Rule #6 Celebrate your success and find humour in your failures. Dont take yourself so seriously. Loosen up and everyone around you will loosen up. Have fun and always show enthusiasm. When all else fails put on a costume and sing a silly song.
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Rule #7 Listen to everyone in your company, and figure out ways to get them talking. The folks on the front line the ones who actually talk to customers - are the only ones who really know whats going on out there. Youd better find out what they know. Rule #8 Exceed your customers expectations. If you do theyll come back over and over. Give them what they want and a little more. Let them know you appreciate them. Make good on all your mistakes, and don't make excuses - apologize. Stand behind everything you do. Satisfaction guaranteed will make all the difference.
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. Rule #9 Control your expenses better than your competition. This is where you can always find the competitive advantage. You can make a lot of mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if youre too inefficient. Rule #10 Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody is doing it one way, theres a good chance you can find your niche by going exactly in the opposite direction. Sam Walton's 10 Rules For Success - from Sam Walton: Made in America, My Story, co-authored by J. Huey, Doubleday. .
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Q&A
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Retail Management

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Slide 1

KMCT SCHOOL OF BUSINESS

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Beginnings of Retail Trade

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Beginnings of Retail Trade

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Types of Marketing Channels

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BASIC CONCEPT: The Retailer

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Nature & Scope of Retailing?

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Nature & Scope of Retailing?

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Nature & Scope of Retailing?

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Nature & Scope of Retailing?

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How Retailers Add Value

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The Benefits of Retailing

For suppliers & wholesalers:

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A Typical Channel of Distribution

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The Retailers Role in the Sorting Process

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Retail Evolution Theories

WHEEL OF RETAILING THEORY

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The Wheel of Retailing

The Wheel of Retailing

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What is the Wheel of Retailing? Retailing :

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What is the Wheel of Retailing?

The Wheel of Retailing

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WHEEL OF RETAILING THEORY

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WHEEL OF RETAILING THEORY

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WHEEL OF RETAILING THEORY

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WHEEL OF RETAILING THEORY

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WHEEL OF RETAILING THEORY

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RETAIL ACCORDION THEORY

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RETAIL ACCORDION THEORY

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Retail life cycle