Chapter One: The Nature of Retailing

1. Introduction.

R e t a i l i n g is one of the world’s largest industries. It is in a permanent state of change, and

the pace of this change has been accelerating over the last decade. From the marketing
perspective, retailers are, by definition, closer to the consumer than manufacturing companies
(Reynolds 2004b, p. 3). Retailers represent the culmination of the marketing process and the
contact point between consumers and manufactured products. While retailing has long set buying
decisions as its highest priority and was very focussed on the product assortment, it now follows
a more holistic approach to management and marketing and is seizing the opportunity to be
consumer oriented, engage in the personal contact with customers, gather information on
consumer behaviour and exploit insights into consumer behaviour and preferences. What was
once a simple way of doing business is transforming into a highly sophisticated form of
management and marketing. Retail marketing consistently features more efficient, more
meaningful and more profitable marketing practices (Mulhern 1997, p. 103).
Retailing involves those companies that are engaged primarily in the activity of purchasing
products from other organizations with the intent to resell those goods to the final customer,
generally without transformation, and rendering services incidental to the sale of merchandise.
The retailing process is the final step in the distribution of merchandise; retailers are therefore
organized to sell merchandise in small quantities to the general public. The services added to the
products commonly include transportation and stock keeping to ensure that the products are
available at the point of sale. However, the process also encompasses the selection of products
for a retail assortment, the provision of sales advice, after sales service and many other
functions.

1.2. definition

The word 'Retail' is derived from a French word with the prefix re and the verb tailer meaning
"to cut again". Evidently, retail trade is one that cuts off smaller portions from large lumps of
goods. It is a process through which goods are transported to final consumers.

A retailer is a merchant or occasionally an agent or a business enterprise, whose main business is

selling directly to ultimate consumers for non-business use. He performs many marketing

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activities such as buying, selling, grading, risk-trading, and developing information about
customer’s wants. A retailer may sell infrequently to industrial users, but these are wholesale
transactions, not retail sales. Retailing occurs in all marketing channels for consumer products.

Definition of retailing

Retailing is the set of business activities that adds value to the products and services sold to
consumers for their personal or family use. Often people think of retailing only as the sale of
products in stores, but retailing also involves the sale of services: overnight lodging in a motel, a
doctor’s exam, a haircut, a DVD rental, or a home-delivered pizza.

In other words, retailing consists of the activities involved in selling directly to the ultimate
consumer for personal, non-business use. It embraces the direct-to-customer sales activities of
the producer, whether through his own stores by house-to-house canvassing or by mail-order
business.

1.2. Functions of Retailing

The retailer is an intermediary in the marketing channel because he is both marketer and
customer, who sells to the last man to consume. He is a specialist who maintains contact with the
consumer and the producer; and is an important connecting link in a complex mechanism of
marketing.

Retailers play a significant role as a conduit between manufacturers, wholesalers, suppliers, and
consumers. In this context, they perform various functions like:

1. Sorting: Manufacturers usually make one or a variety of products and would like to sell
their entire inventory to a few buyers to reduce costs. Final consumers, in contrast, prefer
a large variety of goods and services to choose from and usually buy them in small
quantities. Retailers are able to balance the demands of both sides, by collecting an
assortment of goods from different sources, buying them in sufficiently large quantities,
and selling them to consumers in small units. The above process is referred to as the
sorting process. Through this process, retailers undertake activities and perform
functions that add to the value of the products and services sold to the consumer.
Supermarkets in the US offer, on an average, 15,000 different items from 500 companies.

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 Customers are able to choose from a wide range of designs, sizes, and brands from just
one location.
2. Breaking Bulk: The word retailing is derived from the French word retailer, meaning ‘to
cut a piece off. To reduce transportation costs, manufacturers and wholesalers typically
ship large cartons of the product, which are then tailored by the retailers into smaller
quantities to meet individual consumption needs.
3. Holding Stock: Retailers also offer the service of holding stock for the manufacturers.
Retailers maintain an inventory that allows for instant availability of the product to the
consumers. It helps to keep prices stable and enables the manufacturer to regulate
production. Consumers can keep a small stock of products at home as they know that this
can be replenished by the retailer and can save on inventory carrying costs.
4. Additional Services: Retailers ease the change in ownership of merchandise by
providing services mat make it convenient to buy and use products. Providing product
guarantees, after-sales service, and dealing with consumer complaints are some of the
services that add value to the actual product at the retailers’ end. Retailers also offer
credit and hire purchase facilities to the customers to enable them to buy a product now
and pay for it later. Retailers fill orders, promptly process, deliver and install products.
Retail essentially completes transactions with customers.
5. Channel of Communication: Retailers also act as the channel of communication and
information between the wholesalers or suppliers and the consumers. From
advertisements, salespeople, and display, shoppers learn about the characteristics and
features of a product or services offered. Manufacturers, in their turn, learn of sales
forecasts, delivery delays, and customer complaints. The manufacturer can then modify
defective or unsatisfactory merchandise and services.
6. Transport and Advertising: Small manufacturers can use retailers to provide
assistance with transport, storage, advertising, and pre also works the other way round in
case the number of retailers is small. The number of functions performed by particular
retailer has a direct relation to the percentage and volume of sales needed to cover both
their costs and profits.
1.3. Characteristics of retailers
The retailer characteristics are written as follows:

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 A retailer does not sell raw material. He sells finished goods or services in the form that
customer wants.
 Retailer sells the products by adding his own profit margin hence the cost of product
increases
 Retail business generally does not have direct contact with the manufacturer.
 The products are sold to the customers directly
 It is the only point in the value chain to provide a platform for promotions.
 The last link in the chain of distribution.
 Purchases goods in large quantities from the wholesaler and sell in small quantity to the
consumer.
 Deals in general products or a variety of merchandise.
 Develops personal contact with the consumer.
 Aims at providing maximum satisfaction to the consumer. Has a limited sphere in the
market.
1.4 Growing Importance of Retail Sector.
R e t a i l i n g is becoming consistently more important in economic terms. This becomes
evident when looking at the development of many individual countries, in Europe, America
and Asia. In highly developed countries, retailing is assuming more and more of a leadership
role in the distribution channel. The expansion strategies, retail branding strategies,
innovative solutions for supply chain management etc., all reflect this trend. In
transformation countries, such as in Central and Eastern Europe, as well as in emerging
countries, such as China and India, fundamental changes in retailing structures become
apparent and may lead to comparable developments.
In view of internationalization, a further profound change can be noticed. Retailing
companies that were formerly characterized by a local or national orientation are
increasingly developing into global players with worldwide
operations.
THE IMPACT OF RETAILING ON THE ECONOMY
Retailing is a major part of U.S. and world commerce. Retail sales and employment are vital
economic contributors, and retail trends often mirror trends in a nation’s overall economy.
According to the Department of Commerce, annual U.S. retail store sales are nearly $5

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trillion—representing one-third of the total economy. Telephone and mail-order sales by
nonstore retailers, vending machines, direct selling, and the Web generate hundreds of
billions of dollars in additional yearly revenues. And personal consumption expenditures
on financial, medical, legal, educational, and other services account for another several
hundred billion dollars in annual retail revenues. Outside the United States, retail sales
are several trillions of dollars per year.
Particularly retailing important by contributing:
 Large and increasing contribution to GDP
 Economic importance more visible
 Major employer
 Retailers as gatekeepers
 Retailers diversifying their activities
 Organizations growing on an international scale
 Blurring of areas of retail to include wider areas of business activity – store cards/credit
cards, gas/petrol retailing, and bank services.
 Size of operation allowing for supply chain control.

1.5 Effective retail management

 The retailer must keep a record of all the products coming into the store.
 The products must be well arranged on the assigned shelves according to size, color,
gender, patterns etc.
 Plan the store layout well.
 The range of products available at the store must be divided into small groups
comprising of similar products. Such groups are called categories. A customer can
simply walk up to a particular category and look for products without much
assistance.
 Necessary labels must be put on the shelves for the customers to locate the
merchandise on their own.
 Don’t keep the customers waiting.

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 Make sure the sales representatives attend the customers well. Assist them in their
shopping. Greet them with a smile
 The retailer must ensure enough stock is available at the store.
 Make sure the store is kept clean. Don’t stock unnecessary furniture as it gives a
cluttered look to the store. The customers must be able to move freely.
 The store manager, department managers, cashier and all other employees should be
trained from time to time to extract the best out of them. They should be well aware
of their roles and responsibilities and customer oriented. They should be experts in
their respective areas.
 The store manager must make daily sales reports to keep a track of the cash flow. Use
software or maintain registers for the same.
 Remove the unsold merchandise from the shelves. Keep them somewhere else.
 Create an attractive display.
 Plan things well in advance to avoid confusions later on.