Retail Institutions

Theories of Institutional Change: a) b) Wheel of retailing Dialectic process c) d) Retail accordion Natural selection

Wheel of Retailing

 a) b) c) Malcolm McNair’s “Wheel of Retailing” classifies into three phases: Entry phase Trading-up phase Vulnerability phase

Entry Phase

    Low price store format High Demand of Goods Modest Shopping Atmosphere Locating Store in low rent area

Trading up

     Differentiate its products Offering maximum customer service Posh shopping Atmosphere Relocating to high cost area Higher status and higher price of operation

Vulnerability Phase

   High Costs Fierce Competition Fall in return on investment

Dialectic Process/Melting Pot

     Thomas Maronick and Bruce Walker “Dialectic Evolution of Retailing”.

Retailers mutually adapt in the face of opposites Established institution adapts strategies and tactics adopted by competitors in direction of advantage Innovator becomes unchanged Established firm earns profits as economies of scale

Retail Accordion

   Merchandise mix strategies of retailers change while retail prices and margins remain same Strategies-Multiple merchandise with shallow assortment of goods to limited merchandise with deep assortment of goods and services Firms can choose any strategy between two extremes

Natural Selection

  Flexible enough to adapt to changing environment and should adapt to changes in environment Retail institution will survive in competitive market only if it changes product ,price, location and promotion as per social ,economic, political,legal or technological changes

Classification of Retailers

 a) b) c) Store Based Retailers on basis of various parameters: Ownership Strategy mix Service vs Goods retail mix

Ownership patterns

 a) b) c) d) e) f) Ownership patterns can be divided into six categories: Independent stores Chain stores Franchise stores Leased department Vertical marketing system Consumer Cooperatives

Independent store

   Owned by single retailer Entry barriers are low i.e. Licensing procedures are simple and initial investment is low Customer focused

Advantages-Independent Store

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Convenient Location and Suitable Store Format Concentrate on Small Target market to achieve business objectives Retailer can decide on timing, product assortment and price on basis of target market Cost of setting is low, stores employ few people with few modest fixtures No excess stocks or duplication of store functions increasing efficiency and productivity of store Owner takes all decisions regarding store Specialized store with limited merchandise and wide assortment

Disadvantages-Independent Store

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Bargaining power is less compared to supermarkets and chain stores Productivity of independent stores is low because they depend on labor-intensive methods like ordering, stocktaking ,merchandising and accounting Independent stores fail because retailers lack modern tools for retail like finance, merchandising, promotion and operations Order frequently as they operate with less working capital

Chain Stores

  Chain stores have two or more retail stores that are commonly owned and controlled Centralized buying and merchandise system and sell similar lines of merchandize

Advantages-Chain Stores

     Purchase at low price Purchase for all retail units are done together as they have high bargaining power Centralized decision making system and use of latest technology Chain stores are spread over wide area and they can be aggressive through electronic and print media Full time experts employed for long term planning allow chain stores to regularly monitor performance

Disadvantages-Chain Stores

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Chain stores cannot customize strategies for every location in terms of price ,promotional activities and product assortments Initial cost is high since it requires additional fixtures, product assortments and large number of personnel Top management to control activities of every individual store in chain Centralized management is difficult for chain stores as location of each store is widely spread No personal interest as chain store is managed by several layers of management ,employee unions ,stockholders and board of directors

Franchise Store

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a) b) Contractual agreement between franchiser and franchisee which allows franchisee to conduct given form of business under established name Franchising can be of two types: Product/trademark franchising-Franchised dealers can sell goods under suppliers name Business format franchising-Franchisee can sell goods and also handle various aspects of management like store location, personnel training ,quality control and accounting

Advantages-Franchisees

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Retailers can operate retail businesses with small capital investment Franchisees get well known brands Franchisees gain exposure to standard operating procedures and management skills Franchisees get advantage of promotional activities promoted by franchiser Franchisees can sell products at specific locations Better bargain on account of total purchase volumes of all firms

Disadvantages-Franchisees

     Concentration of too may franchisees lead to over saturation affecting volumes and profits Franchisers can hard sell franchisee rights by projecting higher returns Franchisee have to purchase goods only from franchiser Franchiser can terminate license when franchisee fails Contract time is too short in industries when retailers have to renew franchisee rights

Leased Department

   Department in a retail store rented to outside party-Leased department Lessee is accountable to all activities of leased department including furnishing, merchandise assortment Department sees that merchandise sold by leased dept does not cannibalize existing product lines

Advantages-Leased department

     Departments can reduce costs by leasing departments Departments short comings can be overcome by lease departments Regular income-rent Leased dept can increase customer traffic because of established name of lessor store Initial cost is reduced since cost is borne by store operator and leased department

Disadvantages-Leased department

    Disputes between leased department and store will affect brand image Leased department may not attract additional customers Lessor can impose restrictions on goods and services Store may increase rent if leased department is successful

Vertical marketing systems

  a) b) c) Distribution system in which producers, wholesalers and retailers act in unified manner Three types of vertical marketing systems: Independent vertical marketing system Partially integrated vertical marketing system Fully integrated vertical marketing system

Independent vertical marketing systems

  Customers are scattered, manufacturers and retailers are small Vertical marketing systems consist of stationery stores, gift shops, hardware stores

Partially integrated vertical marketing systems

   Only two business units in distribution channel together Manufacturer and retailer manage shipping ,warehousing and distribution Furniture stores, Appliance stores, Restaurants,Computer retailers

Fully integrated vertical marketing system

  One player manages all activities without any help from channel members Full control over production, wholesaling and retailing

Consumer cooperative

  Retail operations owned and managed by customer members Members vote on store policies and select a group to manage operations

Strategic Mix

 a) b) Food Oriented retailers Convenience stores-Small stores located near residential areas Conventional supermarket-Focus on food and household maintenance products They focus on every day low price (EDLP) policy e.g:-Big Bazaar

Strategic Mix

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Food-oriented retailers c) Food-based supermarket-Store ranges from 25,000 to 50,000 square feet and earns around 25 percent of revenue from general merchandise goods e.g:-Foodworld d) Combination store Combination store is blend of super market and general merchandise where general merchandise contributes more than 40 percent sales Combination store ranges from 30,000 to 1,00,000 square feet e.g Shoprite,Giant

Strategic Mix

 Food-oriented retailers e) Box (limited-line ) store: Box store is food-based discount store that concentrates on small selection of goods Shops have limited shopping hours, limited services and limited stocks

Strategic Mix

 Warehouse stores: Warehouse stores are discount food retailers with average size of 100,000 square feet They cater to customers who look for low price deals

Strategic Mix

 a) b) c) d) Depending on functioning style, warehouse retailers can be divided into four categories: Warehouse showroom Catalog showroom Hypermarket Warehouse club

Strategic Mix

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Warehouse showroom:-Single line hard good retailer selling well-known brands of furniture and appliances Catalog showroom-Discount operations that offer merchandise through catalog or showroom e.g houseware, jewellery, consumer electronics

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Hypermarket:-Can be defined as large retail store that offers product at low price Typically spread over 3lakh sq.ft and having more than 50,000 different items of sale

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Warehouse Club: General merchandise retailer who offers limited merchandise assortment with limited service at low prices Store is located in remote locations in 1lac sq.ft area Operated on membership basis known as membership clubs

Strategic Mix

 General merchandise retailers: On the basis of location, merchandise, price,store, service and promotional mix ,Retailers can be classified a) b) Specialty stores Variety stores c) d) Department stores Off price retailer e) f) Membership club Flea market

General merchandise retailers

 a) b) c) Specialty stores-Type of merchandise stores that sells limited lines of closely related products to selected group of customers Single specialty stores Limited line specialty stores Category killer-New type of specialty store that offers enormous selection in product category at low prices e.g Nalli’s sarees, S.Kumar shirts

General merchandise

  a) Variety stores-Deep assortment of inexpensive and popular goods like stationery, gift items, house wares Department stores-Wide variety and deep assortment of goods and services Goods and services are organized into various departments One stop-shopping experience to customers Two types of department stores: Traditional Department stores b) Full-line department stores

General merchandise

 Off-price retailer-Inconsistent assortment of branded, fashion oriented soft goods at low prices Off Price retailers have long term relationship with suppliers Buy goods at bulk at reduced prices and sell at off prices

Off –price retailers

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a) b) c) Off-Price retailers can be classified as follows: Outlet stores-Factory outlets selling irregular merchandise, discontinued merchandise,in-season first quality merchandise Close outlet stores offer inconsistent assortment of general merchandise as well as apparels and soft goods Single-price retailers sell merchandise at single price

General merchandise retailers

 a) b) Membership club/wholesale clubs/warehouse clubs and wholesale centers Members have to pay annual fee to become members of club Membership in club allows them to purchase goods at low price

Flea Market

  Flea market is an outdoor or indoor facility that rents out space to vendors who offer merchandise, services and other goods Flea market consists of retail vendors offering variety of products at discount rates

Service retailing

a) Services along with goods e.g A/cs, computers b) Services without goods (pure service)-hospitals, hair stylists, banks

Non store retailing

 a) Traditional retailing: Direct marketing is an interactive marketing system that uses one or more advertising media b) Direct selling -Person to person -Multilevel (network) marketing -Party plan

Non store retailing

    Vending machines Catalog marketing Telemarketing TV home shopping

Non traditional non store retailers

   World Wide Web Video Kiosks Video catalog-CD-ROM disk