FUNDAMENTALS OF RETAIL

What is RETAILING?
Retailing is the summation of all activities that result in the offering for sale of goods and services to individual and or organisation for purpose of ultimate consumption. Lets understand retailing in parts.

Summation of all activities that results in the offering for sale:

Retailing is more than just selling an item. It involves giving the item place utility by making it convenient to the customer. It includes giving credit & personal service by the sales staff.

Summation of all activities that results in the offering for sale

It does not require a store in a traditional sense.
Activities may include selling door to door, by mail or telephone. Vending machine and even the street-corner vender selling food items is retailing.

Offering goods and service

Some retailers do not sell goods in physical sense. The T. V. retailer shop may not sell T.V. sets but only fix those sets. The product here is service. In most situation however, both goods & services are offered. The customer buys a dress that is altered by the store to fit the customer. Here the service offered is alteration.

Offering goods and Services (..2)

Most customers buy some kind of service ex. Sales assistance, credit & home delivery, when buying a product . In many cases, it is the service area that distinguishes one retailer from another or that gives that retailer a differential advantages over his or her competitors.

Customers Individual and Firms

Retailing is not limited to selling to individuals customers. Firms big or small can also be retail customer. A company may buy memo pads or pen from an office supply store for use in the company.

Consumed by End User

Ultimate consumption distinguishes retailing from intermediate marketing ,which includes industrial and institutional markets.

Who is RETAILER?
Retailer, who links the producers and the end consumer(s). A retailer is a person, agent, agency, company or organisation which is instrumental in reaching the goods , merchandise or services to the final consumer.

Importance of Retailing
It contributes 10% of the GDP and with a market size of $210 billion, the Indian retail sector is growing at a 5% ( approx) The share of modern retailing is 3% and expected to reach 9%-10% by 2010. Today 21 million people are employed in the retail sector in India, which is 7% of the total national work force.

Importance of Retailing(2)
The traditional kirana stores in India cater for 97% of the total market and have developed indigenous processes and skills in retaining their customers.

RETAILING CATERS FOR

People Purpose Process

Retailing Caters for

PEOPLE
On the employment sideA- Training and jobs for the Indian population. B- Act as school for social promotion in India. At the consumer endA-Lower price inflation B-Better product quality C- Increased choice D- Greater convenience

Retailing Caters for

PURPOSE
Reach out the smaller towns. Encourage the growth, trust and effectiveness of local brands and their export to other countries. Boost entrepreneurship and business innovation

Retailing caters for

PROCESS
India`s infrastructure which will develop faster to match the sophisticated supply chains needed by bigger stores. Quicker assimilation and implementation of new technologies such as RFID

FUNCTION OF RETAILING
Retailers play a significant role in value chain. In this context, they perform various functions
Sorting Holding stock Breaking bulk Additional services Channel of communication Transport and advertising functions.

ACTIVITIES PERFORMED BY RETAILERS

The four major activities carried out by retailers Arranging an assortment of offerings Breaking bulk Holding stock Extending services

ASSORTMENT
An assortment is a retailers selection of merchandise. It includes both the depth and breadth of products carried. Offering an assortment enables customers to choose from a wide selection of brands, design, sizes, colors and prices in one selection.

BREAKING BULK
It means physical repackaging of the products by retailers in small unit sizes according to customers convenience and stocking requirements.

HOLDING STOCK
A major function of retailers is to keep inventory so that products will be available when consumers want them. By maintaining an inventory, retailers provide a benefit to consumers-they reduce the consumers cost of storing products. Retailers need to maintain equilibrium between the range or variety carried and the sales which it gives rise too.

EXTENDING SERVICES
Retailers provides multiple services to immediate customers and other members of the value chain. Retailers offer credit, home delivery, after sales services and information regarding new products to their customers.

By providing assortments, breaking bulk, holding inventory and providing services retailers increase the value consumers receive from their products and services.

RETAIL AS A CAREER
Entrepreneurial opportunities Retailing provides opportunities for people wishing to start their own business. Many retail entrepreneurs are among the Indias best retailers.

RETAIL AS A CAREER
Managerial opportunities More people work in retailing than in other industry. career opportunities are plentiful because of the number of new retail business that open and the employment intensity of retailing.

RETAILING ROLE IN MARKETING SYSTEM

IDEA --- PRODUCER --- WHOLESALER -----------DISTRIBUTOR ---RETAILERS ---CONSUMERS

MANUFACTURER CUM RETAIL

Manufacturer opens factory outlet inside the manufacturing unit or outside market. Manufacturer opens a factory outlet that sells irregulars and seconds. It also serves as a testing site for new merchandise, helping the manufacturer decide which design, colors, size will be in, in coming year and which will not be accepted by the customer. Manufacturer to consumer is the shortest and the most direct channel.

Producers is Retailer.
It includes: Designers, who create & sell to individual customers as well as to the retailers. Door to Door companies like Amway, Avon Mail order Manufacturers (Catalogue selling) Factory outlet stores

MANUFACTURER TO THE RETAILER

It is long route, in which the retailer is the only middleman from the manufacturer to the consumer.

ROLE OF RETAILING IN THE MARKETING SYSTEM

Retailing brings buyer/ individuals and product/ services together under one roof. Retailing gives the product or services at one place. That is place utility. It provides convenience to the customer.

ROLE OF RETAILING IN THE MARKETING SYSTEM

Retailing gives feedback to the producer. Retailing breaks the bulk.
Retailing needs warehouse.

RETAIL FUNCTION IN DISTRIBUTION

Retailing is the last stage in a distribution channel. A typical distribution channel is shown as following-

M W M-Manufacturer W-Wholesaler R- Retailer C- Consumer

RETAIL FUNCTION IN DISTRIBUTION

Consumers want to choose from a variety of goods and services and purchase a limited quantity. Retailers collect an assortment from various sources, buy in large quantity, and sell in small amounts. This is the sorting process. Another job for retailers is communicating both with customers and with manufacturers and wholesalers.

RETAIL FUNCTION IN DISTRIBUTION

Products are usually sold through retail outlets not owned by manufacturers. This lets the manufacturers reach more customers, reduce costs, improve cash flow , increase sales more rapidly, and focus on their area of expertise.

EVOLUTION OF RETAILING
Retail in India has always been a lucrative business. Traditionally, the Vaishyas were the trader class and their businesses were passed on form father to son. Even now, small family-run stores, also called Kiranas, offer consumers low prices, convenient locations, longer store hours and home delivery at no extra charge. Kiranas, traditionally dominated the Indian retail sector.

EVOLUTION OF RETAILING
These stores have low operating costs as they employ household labor and usually pay no taxes. Contemporary India is breaking this age old norm and basing success only on modern marketing principals. Retail in India is at transient stage at present, somewhere between the traditional and modern.

RETAILING THEORIES
1-CYCLICAL THEORIES Wheel of Retailing Accordion theory 2- EVOLUTIONARY THEORIES Dialectic process Natural selection

CYCLICAL THEORY

Proponents of cyclical theory argue that retail institutions change on the basis of cycles.

EVOLUTIONARY THEORY

Evolutionary theory is based on the premise that retail institutions evolve.

THE WHEEL OF RETAILING

One of the first and most famous frameworks for explaining changes in retailing institutions is the wheel of retailing.
The wheel represents phases through which some types of retailers pass.

THE WHEEL OF RETAILING

Proponents of the wheel of retailing framework contend that retailers penetrate the market on the basis of low price. Over time, they trade up to more expensive merchandise, services, locations, and so forth. This trading-up process opens a nice for new low- price retailers to enter the market.

THE WHEEL OF RETAILING

ACCORDION THEORY
The retail institutions fluctuate from the strategy of offering many merchandise categories with a narrow assortment to that of offering a wide assortment with a limited number of categories. This expansion and contraction resembles an accordian.

THE DIALECTIC PROCESS

THESIS Department store
High margin,& price Low turnover Full service Downtown location Plush facilities

SYNTHESIS Discount department store

Average margins Average turnover Modest prices Limited services Suburban location Modest facilities

ANTITHESIS Discount store

Low margin, price,& rent location High turnover Self-Service Spartan facilities

THE DIALECTIC PROCESS

The first of the two evolutionary theories of change in retail institutions is the dialectic process of thesis, antithesis, and synthesis. This theory implies that new retail institutions result from stores borrowing characteristics from other very different competitors.

NATURAL SELECTION
Natural selection theory follows Charles Darwin's early thesis that organisms evolve and change on the basis of survival of the fittest. In retailing, those institutions best able to adapt to changes in customers, technology, competition, and legal environments have the greatest chance of success.

SCRAMBLED MERCHANDISING
To appeal to a broader group of consumers and provide one stop shopping, many retailers are increasing their variety of merchandise. The offering of merchandise not typically associated with the store type , such as clothing in a drug store ,is called scrambled merchandising. A merchandising practice in which a retailer offers unrelated merchandise categories.

RETAIL LIFE CYCLE

Theory asserting that institutions- like goods & services they sell pass through identifiable life stages; introduction(early growth), growth(accelerated development), maturity, and decline.

LIFE CYCLE STAGE

Introduction SalesLow/GrowingGrowth rapid Maturity - High leveling off Decline - Dropping Niche

Positioning- concept innovation-special need-Broad market -

Competition- None- Limited Extensive/ saturation - Intensive/ consolidated Profitability- Negative to break even-high yield-high declining- low to break even

RETAILING AND MARKETING

TARGET MARKET

The customer group to which a retailer targets its retail mix.

RETAIL MIX
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 THE RETAIL MIX

Location Merchandise assortment Pricing Advertising & promotion Store design and display Services Personal selling

GUIDELINES FOR EFFECTIVE RETAILING

Define target market Understand uncontrollable factor Conduct market research Have sound financial planning Have a good site selection Have a good store design Have a good management organization

GUIDELINES FOR EFFECTIVE RETAILING

Have a successful opening day Make use of merchandise planning Select the proper merchandise resource Know the terms of sale Using pricing as merchandising tool Utilize effective means of merchandise distribution Develop procedures for merchandise distribution

GUIDELINES FOR EFFECTIVE RETAILING

Carefully staff the retail store Develop creative sales personal Use human relation Work for effective retail display Work for effective retail credit Work for effective retail security Develop an effective accounting system

GUIDELINES FOR EFFECTIVE RETAILING

Develop a system of operations control Develop a balance of customer satisfaction and profit Work for effective advertising

RETAILING & ECONOMY

India represents an economic opportunity on a massive scale, both as a global base and as a domestic market. India may very aptly be described as a nation of shopkeepers. With over 12.5 million retail outlets of varying sizes & sophistication, from paanwalla ( who often stocks some daily necessities) to the citycenter super market.

RETAILING & ECONOMY

Retail consolidation promises to be a powerful catalyst in the overall development of the Indian economy. With the retail trade accounting for over 10% of GDP and employing approximately 8% of the workforce, that is about 25 million people. Employment generation, both direct & indirect ,will be an immediate fallout of retail consolidation in India.

RETAILING & ECONOMY

The Indian retail market is estimated to grow from the current US$330 billion to US$535 billion by 2013 & US$ 637 by 2015. Retail which contributes 10% of our GDP is the largest source of employment after agriculture.

RETAILING & ECONOMY

Companies are also increasingly keen to bring modern retailing to unvisited Parts of the economy i.e. Rural markets. Given the attractiveness of the Indian retail sector, foreign retailers like WAL-MART, Carrefour , Europes largest retailers and Tesco , the UKS largest retailers, were keen to enter this growing market, despite the Indian retail sector being closed to FDI.

RETAILING & ECONOMY

In the year 2004, ratio of modern-traditional retail was 3:97 which is expected to be 9:91 by 2010. India is the worlds 4th largest economy in terms of purchasing power parity, after USA, China,& Japan. The annual retail sale is close to USD 6 billion currently and is expected to reach USD 17 billion by 2010.

THE GROWTH DRIVERS

Economic growth This has meant greater disposable incomes for the booming Indian middle class, which comprises 22% of total population. This figure is expected to increase to 32% by 2010. Disposable incomes are expected to rise at an average of 8.5%p.a. till 2015.

THE GROWTH DRIVERS

Demography DynamicsApproximately 60% of Indian population 30 years of age. Double Incomes Increasing instances of double in most families coupled with the rise in spending power. Plastic Revolution Increasing use of credit cards for categories relating to apparel, consumer durable goods, food and grocery etc.

THE GROWTH DRIVERS

Urbanisation The Indian urban population is projected to increase from 28% to 40% of the total population by 2020 and incomes are simultaneously expected to grow in these segment. Increased urbanization has led to higher customer density areas thus enabling retailers to use lesser number of stores to target the same number of customers. Aggregation of demand that occurs due to urbanization helps a retailer in reaping the economies of scale.

THE GROWTH DRIVERS

Covering distance has become easier With increased automobiles penetration and an overall improvement in the transportation infrastructure , covering distance has become easier than before. Now a customer can travel miles to reach a particular shop, if he/she sees value in shopping from a particular location.

PROJECTIONS FOR MODERN RETAIL FOR 2013/2014

Direct investment Revenues . Share of total retail. Space occupied .. Direct employment Reach ..
Source-Technopak

US$30+ Billion (2009-13) US$100+ Billion 14% 500 Million sft 2 Million 600+Towns; 50,000+villages

IMPACT OF RETAILING ON THE ECONOMY

Consumer money drives the economy, and retail is where consumer spend that money. Boutiques, restaurants, discount superstores, mail order companies, and e-tailers these establishments are where consumers spend hard earned money. When goods are put in hands, or shopping bags, of consumers, retailers realize revenue- and so do the wholesalers, distributors, and manufacturers that make up the rest of the consumer- goods distribution chain.

IMPACT OF RETAILING ON THE ECONOMY

Retail industry provides immense opportunities to entrepreneurs and work force as salespeople and clerks.
Retail sales and employment are vital economic contributors, and retail trends often mirror trends in a nations overall economy.

RETAIL ENVIRONMENTS CONSUMER DEMOGRAHIC PATTERNS

Indians are traditionally savers, rather than spenders . This is slowly changing thanks to the hard sell tactics adopted by the leading credit card company. Is discerning and prefers to do a comparative study of products before purchasing. Walks-ins at modern format stores do not convert into sales initially, as the bulk of the people entering will be there to browse and familiarize themselves with the format and compare prices from their regular store.

RETAIL ENVIRONMENTS CONSUMER DEMOGRAHIC PATTERNS

The mindset of middle class Indian that bigger & brighter stores directly correlate with higher prices is slowly changing with volume discount stores like Big Bazaar passing savings to the consumer. Indian consumers are individualistic ,unique & are usually more demanding than others, often decides on purchases based on value rather than a cost.

RETAIL ENVIRONMENTS CONSUMER DEMOGRAHIC PATTERNS

Value for the money is a very strong concept, along with longevity and durability of a product. Indian consumers place a high level of importance and trust on known brands and wary of the quality, value of private label brands, especially for items such as shampoo, baby food or food products.

POPULATION
INDIAS population estimated to be 1,080 million in 2004 and expected to grow by 1.7%. 2006 2007 2008 2009(e)

AGE PROFILE (%) 1998 - 2003 - 2008 0 14 Years 34.4 - 32.2 - 30.0 15 64 Years 61.0 - 63.1 - 64.9 Over 65 Years 4.6 - 4.8 - 5.1

PROJECTED AGE PROFILE (%) 2010 - 2015 0 14 Years 31.5 - 29.6 15 64 Years 63.6 - 65.2 Over 65 Years 4.9 - 5.2

 Urbanization of the populationGrowing urbanization is a key trend in the India, with rural population growth averaging 17.9% and urban growth 30.7% for the period 1991-2001.

Urban / Rural The rural Indian consumer (comprising almost 70% of the population) is economically, socially, and psychologically very different from his/her urban counterpart, which is reflected in the differences in purchasing preferences. Urban / Rural split (%) Urban 31.8 (2008) Rural 68.2 (2008)

 The urban population is projected to increase 468million, constituting 33.4%of the total projected population of 1,004million by2010.
Delhi is the most urbanized city in India, with about 93% of the population concentrated in urban areas.

CONSUMER CLASSIFICATION
The Affluent / Very rich The Well-off The Climbers The Aspirants The Destitute

CONSUMER CLASSIFICATION
THE AFFLUENT/ VERY RICH Households owning personal cars/jeeps with other luxury products. THE WELL-OFF Households owning any/all of the followingair conditioners, bike, scooters, washing machines , refrigerators , color T.V. ,with other durable products but not cars/jeeps.

CONSUMER CLASSIFICATION
THE CLIMBERS Households owning any/all of the followingmoped, VCR/VCP, mixer-grinder , sewing machines , audio b/w t.v., geysers, with other durable products but not mentioned under the first two categories.

CONSUMER CLASSIFICATION
THE ASPIRANTS Households owning any/all of the followingbicycles, electric fans, irons, with other durables but not those mentioned under the first three categories. THE DESTITUTE Households other than those classified under the four categories mentioned above (owning any/all/none of the following- wrist watches, pressure cookers, mono-cassette recorders, transistors/ radios)

THE YOUNG INDIA

The age structure of Indias population is also favorable . 44% of the population in the under 19 age bracket. With their literacy rate pegged at over 75%, going forward the working population(19-60year olds) is expected to increase from 485million to 615million by 2010. With an educational base 21million professionals 90million graduates/ post graduates. India is home to 20% of the global population under 25 years of age. SOURCE- kpmg, ibef, &technopak.

THE YOUNG INDIA

The large proportion of the working-age population translates to a lucrative consumer base vis--vis other economies of the world , placing India on the radar as one of the most promising retail destinations of the world.

THE CHANGING FACE OF INDIAN CONSUMERISM

The Indian consumers lifestyle and profile is also evolving rapidly. The Indian consumer is gradually moving from the local kirana shopping to Mall Hopping. With a number of domestic and international brands available in stores in metros and smaller cities and with a wide range of product offerings from food and grocery to furniture and fixtures, the Indian consumer is fast embracing modern retail.

THE CHANGING FACE OF INDIAN CONSUMERISM

Indias income pyramid changing dramatically, there has been a definite shift from the saving tendency to the spending attitude. Increased consumer exposure to the latest trends and brands driven by the mass media is contributing to the soaring retail revenues. There is an increasing shift from price consideration to design and quality, as there is a greater focus on looking & feeling good.

THE CHANGING FACE OF INDIAN CONSUMERISM

The new Indian consumer is not beguiled by retailed products which are high on price but commensurately low on value or functionality. There is an easier acceptance of luxury and an increased willingness to experiment with mainstream fashion. This tends towards disposability and casting out- from apparel to cars to mobile phones to consumer durables.

KEY ISSUES IN MODERN RETAILING

Indian retailing is poised for growth is known to all. But thats not the whole story. There are infrastructure and policy related challenges.

We can segmented India in to five clusters using economic and demographic indicators.

KEY ISSUES IN MODERN RETAILING

FIVE CLUSTERS Metros Large cities Small cities Towns Rural

KEY ISSUES IN MODERN RETAILING

Key issues that hinder development of the retail sector. Generic infrastructure Generic policy issue Specific infrastructure Specific policy issue

KEY ISSUES IN MODERN RETAILING

Generic infrastructure These are environmental challenges faced by the Indian industry as a whole and some of the issues like underdeveloped supply chain are critical for retail sector. Underdeveloped supply chain Inadequate utilities IT infrastructure

KEY ISSUES IN MODERN RETAILING

Generic policy They are issues affecting the industrial sector that are shaped by government policies. Some of these issues like real estate hurdles can have significant impact on the growth of the retail sector. Real estate Taxation

KEY ISSUES IN MODERN RETAILING

Specific infrastructure issue Issues that are specific to the retail sector and are also controlled by it comprise this category. Supply base Inadequate HR Limited consumer insight

KEY ISSUES IN MODERN RETAILING

Specific policy issue Retail sector specific policies like sector incentives fall in to this category. Insufficient Government incentives Policy related hurdles

ESSENTIALS FOR THE MODERN RETAILING

The Indian retail sector needs to act as a unified body and drive the following initiatives Investing in human resource development Developing mechanisms for understanding consumer behavior and satisfying customer needs Improving supply chain infrastructure.

INDIAN CULTURE
Change is slow in ancient cultures like Indias, and key aspects of Indias cultural and social history played an influential role in shaping the traditional Indian business model. The system of castes and sub-castes, functioned like medieval European guilds. It insured division of labor and provided for training of apprentices.

INDIAN CULTURE
Over time, the caste system become a source of hierarchical differentiation in Indian society. In which traders (VYSYAS) and those engaged in business were placed above only the lowest SUDRA caste, but below the priests and warriors. Furthermore, as the four- caste system fragmented into hundreds of sub castes, it restricted people from changing their occupation or aspiring to a higher caste.

INDIAN CULTURE
The caste system throttled initiative, instilled ritual and restricted the market. It also played two vital roles in shaping the Indian business model. First, respect for higher caste members, this laid the foundation for differences to ones superiors in the work place. Typically , Indian organizations were and many still are, hierarchical and feudalistic.

INDIAN CULTURE
Second, entrepreneurial aspirations were not encouraged. In fact , an acceptance of the natural order of ones position in society meant that, except for those belonging to the trader class, Indians did not aspire to be entrepreneurs.

INDIAN CULTURE & FAMILY

Then there was the cultural influence of the joint family. The joint family pooled their resources and invested in business ventures with the goal of allowing each member to earn a respectable livelihood.

INDIAN CULTURE & FAMILY

In the western world, nepotism holds unflattering connotations because competing on merit is a strongly held virtue. Indian family business held responsibility for and respect of family members as superior norms. The entire family participated in the business.