002 - Retail Institutions

8/3/2019 002 - Retail Institutions

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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 alsoexamines the classification of retailers.



Retail Management 4


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 institutionchanges 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 conveniencenot necessarily high

demand

Service to customers Minimal Maximum

Shopping Atmosphere Modest Posh

Store Location Low rental area High cost, moreaccessible 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 advantagesmodify their formats till they develop a format thatcombines the advantages of both formats.

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

Implies that retailers mutually adapt in the face ofcompetition from "opposites." Thus, when challengedby a competitor with a differential advantage, anestablished institution will adopt strategies and tacticsin 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 facilities

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



Retail Management 10

Retail Accordion

The theory of 'retail institutional change' states thatinstitutions evolve over time from outlets offering awide variety of merchandise to stores offeringspecialized 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 multiplemerchandise categories with a shallow assortment

of goods and service to others that offer limitedmerchandise with a deep assortment of goods andservices.




The Retail Accordion Theory




Natural Selection

Based on Darwin's theory of evolution.

According to this theory, a firm or retailinstitution should be flexible enough toadapt to the changing environment andshould adapt its behavior.

Success depends on the degree offlexibility 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 storeformat.

Can concentrate on a small target market to achieve itsbusiness objectives.

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

The cost of setting up an independent store is low.

Employ a few people, have modest fixtures and do notcarry much merchandise.

No excess stock or duplication of store functions. Reduced time lag in Decision making.

Specialization is possible as focus is on a particularconsumer segment.




Independent Store – Disadvantages

Bargaining power is less.

Reduced ability of retailers to negotiate withsuppliers

Productivity is low Lack exposure to modern tools and

techniques for managing various retailfunctions

Increased operational costs Cannot promote their product aggressively in

the media.




Chain Stores

Chain stores have two or more retail outletsthat 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 latesttechnology

Can afford aggressive and expensive

promotion Full time experts employed for long term

planning




Chain Stores - Disadvantages

Cannot customize strategies for everylocation

High cost of establishment

Requires multiple stores with additionalfixtures, product assortments and a largenumber 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 afranchisee, which allows the franchisee toconduct a given form of business under anestablished name and according to a givenpattern 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 oftheir suppliers by agreeing to sell the latter'sproducts and/or operate under the suppliers

name.

In this format, franchisees are relativelyindependent from their suppliers.




Business format Franchising

The franchiser, gives the right to sell goodsand services, and also helps franchisees invarious aspects of store management.

Under this type of ownership pattern, thefranchiser and its franchisees work togetherlike 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 thecontract expires.




Leased Department

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

The volume of sale depends on the existing store's customer baseand 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 doesnot 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 theprimary product/service offering of the store.




Leased Department - Advantages

Advantage to Lessor

Reduce their cost by leasing departments.

Shortcomings in handling certain goods andspecialized 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 ofthe store.

Restriction on the goods and service lines offered by the leaseddepartments.

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 distributionsystem in which the producers, wholesalers,and retailers act in a unified manner to

facilitate the smooth flow of goods andservices from producer to end-user. Onechannel member owns the others or hascontracts with them, or has the power to

control them.




Types of Vertical Marketing System

Independent Vertical Marketing System:

Consists of independent businesses likemanufacturers, 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, hardwarestores, food stores, drug stores etc.




Types of VMS

Partially integrated vertical marketingsystem:

Only two independent business units in adistribution channel work together.

These units take care of all the production anddistribution functions,

A manufacturer and a retailer alone managethe 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 thesame company.

The company/store exercises full control overchannel operations like production, wholesalingand retailing.

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

The company owning the entire marketing systemmay have difficulty handling some specializedchannel activities.




Consumer Cooperatives

Consumer cooperatives are retail operationsowned and managed by its customermembers.

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

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




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 ofmerchandise. They generally carry high-turnoverconvenience products.

charge relatively high prices and operate in a 3000 to8000 square foot area.

Cater to customers who prefer 'convenience ofbuying or shopping'.

May not carry all the items that are available insupermarkets, but they are very conveniently locatedfor customers.

Customers can get their products billed faster




Conventional Supermarket

Focus on food and household maintenanceproducts.

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 befollowed.




Food based supermarket

Larger and more diversified than aconventional supermarket, but smaller andless diversified than a combination store.

The size of the store ranges from 25,000 to50,000 square feet and the store earns 20 to25 percent of its revenue from generalmerchandise goods

It provides the full range of grocery items.




Combination Store

A blend of a super market and a generalmerchandise store,

Maintains the identity of both a food store anddrug store.

Size of a combination store ranges from30,000 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 asmall selection of goods.

Has limited shopping hours, limited services, andlimited stocks.

Offers a limited number of national brands.

Prices are displayed on the shelf or on overheadsigns.

Customers have to serve themselves and are notallowed to examine products.

Sells private label brands, priced 20 to 30 percentbelow market prices.




Warehouse Stores

Warehouse stores are discount food retailerswith 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 thewarehouse retailer's buy only deep price orquantity 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 furnitureand appliances

As soon as a customer makes the selectionand places an order, the goods are shippedfrom 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 througha catalog or a showroom.

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

Customer orders by mentioning the correspondingnumber 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 alow price.

A combination of a discount store and a food

based supermarket. Spread over 300,000 square feet and offers

over 50,000 different items for sale.




Warehouse Club

A general merchandise retailer who offers alimited merchandise assortment with limitedservice 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 membershipbasis are known as membership clubs.




Retailers based on Strategic Mix -- 2

General Merchandise Retailers

Classified based on location, merchandise,price, store atmosphere, service andpromotion 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 thenature of merchandise and mode of operation. Specialty stores are located in high traffic areas like

shopping centers, downtown malls etc.




Specialty Store -- 2

The promotional activities emphasize theuniqueness of the store and the deepassortment they provide to customers.

Category killer: It offers enormous selectionin 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 ofinexpensive and popular goods likestationery, gift items, women's accessories,

house wares etc.

Also called 5 and 10-cent stores




Department Stores

Department stores are large retail units thatoffer wide variety and a deep assortment ofgoods and services.

Organized into separate departments

Provide a one-stop shopping experience tocustomers.

C i i f l ifi i




Criterion for classification as

Department Store

i. A department store should employ a minimum of fifty people.

ii. The store should generate at least 20 percent of its totalrevenue 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; ageneral line of apparel for the family; household products anddry goods.

iv. The annual sales of the department store should be under $10million, 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 offersmerchandise of average quality priced aboveaverage, with minimum customer service.

A full-line discount department store offers abroad merchandise assortment at less thanprevailing prices. Full-line discount

department stores are popular because theyoffer well-known brands at competitive prices.

F f F ll Li D




Features of a Full – Line Department

Store

High volume, low cost, fast turnover outletwith 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 excessinventory

Off-price retailers get special prices frommanufactures 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 deliveryservices, little or no credit, and very low prices.

Get merchandise directly from manufacturers.

Also known as wholesale clubs, warehouse clubsand wholesale centers.




Flea Market

The term "flea market" is a literal translationof the French marche aux puces, an outdoorbazaar in Paris, France.

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

Entrepreneurs can start business with lowinvestment.

Consists of many retail vendors offering avariety of products at discount prices.




Service Vs Goods retail mix

As competition increased, serviceorganizations started providing services at aconvenient time and location.

Service retailing consists of the sale or rentalof an intangible activity, which usually cannotbe 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 physicalproduct 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 electroniccatalogs, door-to-door selling, in-homedemonstrations, 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 moreadvertising media to yield a measurable responseand/or transaction at any location".

-- Direct Marketing Association (DMA)

Customer is informed about the product through nonpersonal media and the customer places an orderthrough the mail or phone.

In direct marketing, responses can be measured.

Company can concentrate its promotional activitieson potential customers.




Direct Marketing - Advantages

The initial cost or investment for directmarketers 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 aparking place or waiting in line at the cash

register.




Direct Marketing - Disadvantages

Customers do not have the opportunityto see and feel the goods beforepurchasing them.

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




Direct Selling

"Marketing and retailing consumer goodsdirectly to the consumer that relies neither ondirect mail, product advertising nor fixed retail

outlets". -- Direct Selling Association

Encourages convenience shopping as well aspersonal 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 andsellers.

From the consumers' point of view goods areavailable at their convenience.

Direct selling is advantageous for retailers as itis an effective, low cost channel.




Vending Machines

Involves coin or card-operated dispensing ofproducts.

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 madethrough catalogs mailed to a select list ofcustomers or made available in a store.

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

The kind of delivery (mail, express service,

parcel post) that the customer wants can bementioned in the order




Telemarketing

Provide more convenience and servicesatisfaction to customers,

Useful for customers who want to avoid traffic

congestion and parking problems. Allows retailers to provide customers

information on new merchandise andupcoming sales events.

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




TV Home Shopping

TV home shopping works in the followingmanner:

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 servicealong with a guarantee.

Non traditional non store based




Non-traditional non store based

retailers – World Wide Web

Retailers' websites allow customers to orderwith a click of the mouse.

To attract potential customers, retailers alsosend details of new products through email tocustomers.

Use of Internet as a medium for promotingtheir goods and services all over the globe atminimum cost.

Can conduct research also on customers

Internet reduces the costs of retailers






retailers – Video Kiosk

The term kiosk is derived from a Turkish word which means open summer house orpavilion.

Kiosks are often placed near the entrances ofshopping malls.

A video kiosk is a freestanding interactive

computer terminal that displays product andrelated information on a video screen






retailers – Video Catalog

A video catalog is a retail catalog on a CD-ROM disk to be viewed on a computermonitor.

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

The disk allows the customer to quickly

gather information about the retailer'sproducts.



Summary


Wheel of Retailing

Dialectic Process

Retail Accordion Natural Selection

Classification of Retailers

Store-Based Retailer

Non Store Retailer

002 - Retail Institutions

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