Retail formats and theories

RETAIL FORMATS AND THEORIES

EVOLUTION OF RETAIL FORMATS

SOME FACTS

The first department stores “Bon Marche” was set up in 1852 in Paris

Bon Marche revolutionized retail at time by relying on volume rather than on high mark up.

Success of Bon Marche led to other department stores coming up in Europe and America


Some Facts…..

The first chain store was A&P (Atlantic & Pacific)-a grocery

store founded in 1859 by George F Gilman

The world witnessed the new form of retail when Montgomery Ward launched the first mail order catalogue in 1870

Another important chain store was F W Woolworth, set up in 1879


Emergence of Self service

Retail evolved in many ways over the twentieth century

Self service as a concept started in 1916 when Clarence Saunders started their first self-service store “Piggly Wiggly” in Memphis, Tennessee

The concept of self-service helped the retailer reduce costs, as fewer workers were required to service the customers


Supermarkets

1930’s saw the emergence of supermarkets

The first hypermarket that as developed was Carrefour in France, in 1963

New formats gave an opportunity to pick up products, compare with others and then taking a decision of buying

Providing all information regarding price, weight, date of manufacture and expiry on the product itself became necessary to aid decision making


Supermarkets and Hypermarkets…

The mass merchandisers worked on three principles, which have now become the fundamental principles of modern selling

1. They fixed product prices before sale, and customers bought at the set prices

2. Prices were determined on the basis of stock turns and the amount of profit that would be generated from the product

3. They departmentalized the products. Accounting systems were devised to determine the contribution of various departments. This enabled them to drop unprofitable goods


Specialty Stores, Malls and Other Formats

The needs of the customers grew and changed This ensured the emergence of commodity

specialized mass merchandisers in 1970s Seventies also saw the use of technology by way

of introduction of the “barcode” Specialty chains developed I the 1980s as did the

large shopping malls Shopping malls were created o provide for all of

he consumer’s needs in a single self contained shopping area


Rise of the Web The world of retail changed yet again when in 1995, Amazon. Com

opened its doors to a world wide market on the web

Evolution of retail formats worldwide has been largely influenced by a constantly changing social and economic landscape

One of the main reasons for new formats emerging is the consumer himself

Today's consumer is more demanding and is focused on what he wants

Retailer on the other hand has been influenced by availability of real estate and its increasing prices

He is faced with the challenge of adding on new services and the need for differentiation

This has led to specialization and the emergence of specialists

Supply chain complexities and increasing pressure on margins has also forced the retailers to look at new formats

THEORIES OF RETAIL DEVELOPMENT

These theories revolve around:

• Importance of competitive pressures

• The investments in organizational capabilities and

• Creation of a sustainable competitive advantage.

These are developed to explain the process of retail development:

1. Environmental Theory

2. Cyclical Theory

3. Conflictual Theory

ENVIORNMENTAL THEORY

Retail Environment:

a. Customers

b. Competitors

c. Changing Technology

Based on Darwin theory of survival of the fittest.

CYCLICAL THEORY

Mature retailerTop HeavyConservativeDeclining ROI

Innovative retailerLow status and priceMinimum servicePoor facilitiesLimited product offering

Traditional retailerElaborate facilitiesHigher rentMore locationsHigher pricesExtended product offerings

Vul

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bilit

y P

hase

Entry P

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Trading up Phase

A. Wheel of Retailing- described by McNair

CYCLICAL THEORY…..

B. ACCORDIAN THEORY: Hollander used analogy of an orchestra.Open accordionsClosed Accordions.

CONFLICTUAL THEORY

Department Stores Individual retailers

Hypermarkets and

Supermarkets

Anti-thesis Thesis

Synthesis

Retailing evolves through blending of two opposites to create a new format.

CLASSIFICATION OF RETAIL STORES

Classification of retail stores

Store-Based Retailing Non-Store Retailing

Form of Ownership• Independent retailer• Chain Retailer• Franchise• Leased Departments• Vertical Marketing System• Consumer Cooperatives

Merchandise Offered• Convenience Store• Supermarkets• Hypermarkets• Specialty Stores• Department Stores• Off Price Retailers• Full line discount store• Warehouse store• Variety Store• Factory Outlets• Catalogue Showrooms• Membership Club• Flea Market

• Direct Selling• Direct Marketing• Automated Vending• World Wide Web• Other Emerging Retail• formats

Based on Location

•High Street•Destination•Convenience

STORE FORMAT BY LOCATION

1. High Street Format It is Located in busy shopping area. Area is less than 2000 square feet. No parking facility Focused Merchandised Category Example: M. G. Road in Bangalore

2.DESTINATION FORMAT

Huge Parking spaceWide merchandise categoryThey are Independent retail store with

alluring proposition for the customer to visit the store with the primary intention of shopping there

3. CONVENIENCE STORE

Located in the catchment area of target customers

Extended hours of operation Less than 5000 square feet 24X7 convenience stores situated close to

homes to generate high footprints snacks, grocery type items & confectionary

Merchandise include: beverages, ready to eat These store carry a limited stock of daily use

goods with a special focus on food products eg. In & Out petrol pump outlets.

CLASSIFICATION BASED ON OWNERSHIPINDEPENDENT RETAILERADVANTAGES:• Flexibility in choosing retail formats and locations• Decision making is centralized• Low investment cost• Independents have independence• Easily sustain consistency

DISADVANTAGES:• Less bargain power with suppliers• Cannot gain economies of scale• Very little computerization• Relatively high cost of advertising• Over dependence on owner• Limited amount of time and resources allotted to long-run planning

CHAIN RETAILER

ADVANTAGES:• Bargaining power with suppliers• Achieve cost efficiencies by being wholesales themselves• Computerized• Can take advantage of variety of media options• Defined management philosophies• Long term planning, opportunities and threats are carefully monitored

DISADVANTAGES• Lesser flexibility• Investments may be high• Managerial control can be hard• Limited independence in jobs

FRANCHISING

Franchising is a retail organization form in which small businessescan benefit by being a part of a large, multiunit chain-type retail institution .Two types of franchising:•Product/Trademark and Business format franchising.Archie's/Gasoline stations McDonaldsThree structural arrangements dominate franchising:•Manufacturer-retailer Gasoline stations/Exxon, Mobil, Ford•Wholesaler-retailer

1.Voluntary Auto accessory store2.Cooperatives

•Service sponsor retailer KFC, McDonalds, Holiday Inn

LEASED DEPARTMENT

From the stores perspectiveADVANTAGES:•Skilled manpower to handle merchandise•Market can be enlarged by providing one stop customer shopping•% of revenues is received regularly•Stock servicing, display etc is the responsibility of the licensee

DISADVANTAGES:•Operating procedures may be conflicting•Store’s image may get adversely affected•Customers tend to blame the store for any pitfall

LEASED DEPARTMENT..CONT

For leased operator’s ADVANTAGES:•Immediate sales because of store’s established image•Some costs are reduced through shared facility.•Volume saving in print/ media ads

DISADVANTAGES:•Inflexibility since working style may differ•Goods/services line are restricted•Store may raise the rent or may not renew lease•In-store location may not generate expected sales.

VERTICAL MARKETING SYSTEM

CHANNEL TYPE CANNEL FUNCTIONS OWNERSHIPS1. Independent Manufacturing Independent

Systems Partners

2. PartiallyIntegrated Two channel membersSystems Wholesaling own all facilities and

perform all functions

3. Fully All functions areIntegrated performed by a singleSystems Retailing channel member

CONSUMER CO-OPERATIVESConsumer co-operatives exist for three basic reasons:

•They feel that they can operate a store as well or may be better than any other retailer•They believe that existing retailers are inadequately fulfilling customers need for healthful, environmentally safe products•They assume that existing retailers make excessive profits and they can sell merchandise for lower prices

CLASSIFIACATION BASED ON MERCHANDISE OFFEREDFOOD ORIENTED RETAILERS

CONVENIENCE STORES:It is usually a food-oriented retailer that is well located, is open for long hours and carries a moderate number of items. This type of retailer is small, has average to above average prices and average services and average atmosphere.Milk, eggs, bread, newspaper, tobacco products, soft drinks, magazines, video rentals, etc are the major category occupants.Store size ranges from 3000 to 8000 sq. ft.Ex. Mom n Pop stores.

CONVENTIONAL SUPERMARKETThese are large, low cost, low margin, high volume, self service

retailers designed to meet the needs for food, groceries and other non-food items.They rely on high inventory turnover. Their profit margins are low.The size of the store ranges from 8000 to 20000 sq. ft.Ex. Kroger, Safeway, Foodworld, Adani supermarket, Subhiska, Nilgiri’s, Reliance Fresh.

FOOD BASED SUPERSTORE

A food based superstore is a larger and more diversified than a conventional supermarket but usually less diversified and smaller than a combination store.Some supermarkets merged with general merchandise store or drug store.They are typically 25000 to 50000 sq feet of total space.20-25 % revenues comes from garden supplies, small household appliances, flowers, etc.They stimulate impulse purchases.

COMBINATON STORE

A combination store combines supermarket and general merchandise sales in one facility.25-40% revenues from general merchandise.They are from 30000 to 100000 sq feet. the combination of economy supermarket with discount department store is called super center.Examples: Wal-mart, K-mart.

HYPERMARKET

Also called as supercentre, this format is a blend of economy supermarket with discount department store.They offer both food and non-food items like grocery, clothes, jewellery, cycles, sports items, books, CDs, furniture, etc.This format was pioneered by Carrefour in France.This ranges from 80,000 to 2,20,000 sq. ft.The cheapest price will normally be found in these stores.Across the world hypermarkets are a part of retail park with other shops, cafeteria and restaurants.Other facilities include photo processing shop, pharmacy shops.They are usually located in the outskirts of major towns and cities.Ex. SIB, Big Bazaar, Adani Hypermarket.

BOX STORE

This is a food based discounter that focuses on a a small section of items, moderate working hours, few services and limited manufacturer’s brands.They have less than 1500 SKUs.Items are displayed in cut cases.Customers do their own bagging.They aim to price at 20-30% below supermarkets.Example: Aldi.

WAREHOUSE STORE

A warehouse store is a food-based discounter offering a moderate number of food items in a no frill setting.They appeal to one stop shoppers.These stores concentrate on special discount purchases from manufacturer brands. They use cut-case displays, provide little service, post prices on shelves and are located in industrial districts.Potential problem is lack of brand continuity.They temporarily or permanently run out of brands.Here customers pack their own goods.They work on volumes and their gross margins are far lower than supermarkets or hypermarkets.Largest stores are called super warehouse.Their sizes can be 15000 to 50000 square feet.Ex. Cub Foods

GENERAL MERCHANDISE RETAILERSSPECIALITY STOREA specialty store concentrates on selling one product/ service line

such as apparel and accessories, toys, furniture. They have a deep assortment in their chosen category and tailor their strategy to selective market segment.Personal attention, store ambience and customer service are the prime importance to the retailer.They operate in an area which is under 8000 sq. ft.Ex. The Gap, Mango, Levis, Wills Lifestyle, Big & Tall, Adidas, Nike, Style Spa, Proline fitness station.

CATEGORY KILLERS

Also called as Power Retailer.This is a new type of specialty retailer which offers a very large selection of chosen category .They stock deep and dominate the chosen category.Ex. Planet Sports, Crossword, Nalli Sarees, Sales India, Croma, E-planet.

DEPARTMENT STORE

TRADITIONAL DEPARTMENT STORE:A traditional department store is a large retail unit with an extensive assortment of goods and services that is organized into separate departments for buying, promotion, customer service and control.They generally serve as anchor stores in malls and is usually part of a chain.Apparel and home furnishing are the two most common product categories.Size varies from 20,000 to 40,000 sq. ft.

DEPARTMENT STORE…

Merchandise quality is moderate to quite good. Pricing is moderate to above average. Customer service is medium to high level.Ex. Marks & Spencer, Sears, J.C. Penny, Westside, Globus, Pyramid, Pantaloons, Shopper’s Stop, Lifestyle.

FULL-LINE DISCOUNT STORE

It conveys the image of high volume, low cost, fast turnover outlet selling a broad merchandise for less than conventional prices.Products are sold via self service.Non durable goods feature from private brands and durable goods are from well known national brands.Less fashion sensitive merchandise are carried.Ex. Wal-Mart.

DOLLAR STORE/ VARIETY STORE

US based My Dollar Store started operation in Mumbai through franchise arrangement with Sankalp Retail Value.

Floor Space: 4000 Sq. Feet Merchandise: Cleaning, Health & Beauty,

Hardware, Plastic ware, Kitchen ware & confectionary etc.

OFF-PRICE CHAIN

An off-price chain features brand name, sometime designer labels of women wear, cosmetics, accessories, footwear,etc and sell them at every day low prices in an efficient, limited service environment.They have centralized check-outs, no gift wrapping and charge separately for alterations.Ex. T.J. Maxx

FACTORY OUTLET

A factory outlet is a manufacturer-owned store selling manufacturer closeouts, discontinued merchandise, irregulars, cancelled orders and sometime in season fresh merchandise at at lower rate.They sell merchandise at up to 60% less than MRP due to low operating cost, low rent, limited display and cheap fixtures.Also sell in cartons.Ex. Levis factory outlet, Pantaloon factory outlet, etc.

MEMBERSHIP CLUB

A membership club is a retail format where consumers have to be members to be able to buy merchandise at a wholesale price.Here the members pay a certain amount of annual fee.Their operating strategy includes inexpensive isolated locations, opportunistic buying, little or no advertising, plain fixtures, wide aisles, very low prices.Ex. Sam’s and Costco

FLEA MARKET

A flea market has many retail vendors offering a range of products at discount prices in plain surroundings.They are located in non-traditional sites like stadiums, racetracks,etc.Here, individual retailers rent space on a daily or weekly basis.At any flea market, price haggling are encouraged.Ex. Rose Bowl

CATALOGUE SHOWROOMS

A catalogue retailer specializes in hard goods such as houseware, jewellery, consumer electronics.The customer walks into this retail showroom and goes through the catalogue of the product that would like to purchase.The product is then arranged to be bought from the warehouse for inspection and purchase.Ex. Argos, Service Merchandise and Best Products.

NON-STORE RETAILING

DIRECT MARKETING:Is a form of retailing in which a customer is first exposed to goodsor service through a non personal medium such as direct mail, newspaper, broadcast or television and then orders are placed by mail, phone or computer.There are three forms:1. Mail order retailing/ catalogue retailing.2. Television retailing.3. E- tailing

DIRECT SELLING

Direct selling includes both personal contact with consumers in their homes and offices and phone solicitations initiated by a retailer.1500 crore market in India growing @ 28% p.a.Profile of products purchased from Direct Selling: (IN %) HOUSEHOLD GOODS 68.9PERSONAL CARE PRODUCTS 12.4FAMILY PRODUCTS 14.4BUSINESS AIDS 3.59FOOD PRODUCTS 0.71

Ex. Oriflame, Amway, Avon, Herbalife, Tupperware, Eureka ForbesControlled by IDSA.

AUTOMATED VENDING

Ex. Tata Coffee, Jiffy, ATMs.

AIRPORT RETAILINGEx. Travel Requisition Shop

E-Retailers

VIDEO KIOSKS

The video kiosk is a free standing, interactive, electronic computer That displays products and related information on a video screen.It often uses a touch screen for consumers to make selection.Example: McDonald, Wills Lifestyle.

Retail formats and theories

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