Retailing & Wholesaling

Dr. Anurag Tiwari

IIM Rohtak
 Characteristics of Retailing

 The order sizes tend to be small but many.

 The retailers caters to a wide variety of customers and hence has to keep a large assortment
of goods.
 A lot of the buying in the retail outlet could be on impulse, and hence managing inventory
is difficult.
 Retail stores service personnel and the goods displayed are an important elements of the
selling process.
 The retailer strengths are in ensuring “availability” and “visibility” of the product he sells.
 The target customers mix decide the elements of the “marketing mix” which the retailer
has to develop to optimize his investment.
 What is Retailing?

 Any business entity selling to consumers directly is retailing – in a shop, in person, by

mail, on the internet, telephone or a vending machine
 Retail also has a life cycle – newer forms of retail come to replace the older ones – the
corner grocer may change to a supermarket
 Includes all activities involved in selling or renting products or services to consumers for
their home or personal consumption
 Retailing

 Term retail derived from French word ‘retaillier’ meaning ‘to break bulk’
 Characteristics:
 Order sizes tend to be small but many
 Caters to a wide variety of customers. Keeps a large assortment of goods
 Lot of buying in the outlet is ‘impulse’- inventory management is critical
 Selling personnel and displays are important elements of the selling process
 Strengths in ‘availability’ and ‘visibility’
 Targeted customer mix decides the marketing mix of the retailer
 Retailing

 Retail stores are independent of the producers – not attached to any of them
 A survey shows that only 35% of supermarket purchases are pre-planned. The rest are
‘impulse’- greatly influenced by quality of the merchandising efforts
 Retail Structure

 Retailing consists of the activities involved in selling goods and services to ultimate
consumers for their personal consumption.
 A retail sale is one in which the buyer is the ultimate consumer, rather than a business or
institutional purchaser.
 A wholesale sale instead refers to purchases for resale or for business, industrial, or
institutional uses.
 The buying motive for a retail sale is always personal or family satisfaction.
 The globalization trend seems well established as the larger retailers grow faster than
smaller retailers grow, acquire smaller, and expand into new markets.
 Functions of Retailers

 All marketing functions in order to provide consumers a wide variety

 Helps create time, place and possession utilities
 May add form utility (alteration of a trouser bought by a customer)
 Helps create an ‘image’ for the products he sells
 Functions of Retailers

 Add value through:

 Additional services – extended store timings, credit, home delivery
 Personnel to identify and solve customer problems
 Location in a bazaar to facilitate comparison shopping
 How do Customers Decide on a Retailer?

 Price
 Location and right ambience
 Product selection
 Fairness in dealings
 Friendly sales people
 Vehicle parking facilities
 Specialized services provided
 Kinds of Retailers

Type of retailer Characteristics

Specialty store Narrow product lines with deep assortment – apparel,

furniture, books
Department store Several product lines in different departments – Shoppers
Stop, Big Bazaar
Supermarket Large, low-cost, low-margin, high volume, self-service
operation with a wide offering
Convenience Small stores in residential areas, open long hours all days of
store the week – limited variety of fast moving products like
groceries, food
Discount store Standard merchandise sold at lower prices for low margins
 Kinds of Retailers

Type of retailer Characteristics

Corporate chains More outlets owned and controlled by one firm – Globus

Voluntary chain Wholesaler sponsored group of independent retailers

Retailer co-ops Independent retailers with centralized buying operations and

common promotions
Consumer co-ops Co-op societies of groups of consumers operating their own
stores – farmers, industrial workers etc
Franchise Contractual arrangement between the producer and retailers –
organization selling products exclusively
 Retailing Scene - Global

 Well organized in most developing countries

 Global biz worth about $ 6.6 trillion
 Retail market size is $2325 bln in the US and $ 280 bln in India.
 Organized retail is 85% in the US and about 5% in India. China 20% Taiwan 80%
 Retail sector is part of the service sector and if organized, is a major contributor to a
country’s GDP
 Retailing Scene - Global

 High potential for generating employment – 2 mln retail outlets in the US employ about 22
mln people
 Retail sector contributes significantly to the growth of the economy
 Organized retail is becoming powerful over its suppliers (who may also be big corporates)
 Producers of goods taking action to protect their turf
The Indian Retail Scene
 Salient Features

 Estimated over 12 mln retail outlets with most of them in the unorganized sector
 10 outlets per 1000 population
 Average per capita space – 2 sq ft compared to 15 sq ft in the US
 Organized retail is estimated between 4 to 7% but growing fast
 Indian Retail Market

 Growing at 12% pa, Modern 20% and Traditional 10% pa

 Value: 2015: $600 bln and 2020: $ 1 trillion
 Modern Trade: 2015 - $60 bln, 2020: $180 B
 E-commerce: 2015 - $15 bln, 2020: $ 60 bln
 Organized Retail - Features

 Sponsored by companies or corporate groups

 Large formats like supermarkets, department stores and now hypermarkets
 Right ambience to make shopping a pleasure
 Use latest technology for customer care and supply chain management.
 Large employment potential
 Effectively manage operating costs
 Offer consumers value for money
FDI in Retail
Foreign Direct Investment
 FDI in Retail in India

 MNC players showing interest to operate in India

 Resistance from the existing players
 Initially only cash-and-carry permitted
 Franchisees also allowed – KFC, Tag Heuer, Swatch, McDonalds
 Jan 2006, 51% FDI permitted in single brand businesses:
 All products should be under the same brand name
 Same brands should be sold internationally
 Branding at the time of manufacturing itself
 Possible Retail Formats

 General merchandise: departmental stores, full line discounter, specialty stores, variety
stores, factory outlets
 Food retailers: conventional store, food based superstore, hypermarkets
 Non-store retailing: direct selling, vending machines, catalogue marketing, telemarketing
 Non-conventional channels: internet, airport retailing, franchising
 Retail Positioning Strategies

 When a retailer choose its positioning strategy, it must do with a recognition of the
significant potential effects on its competitiveness and performance.
 Based on this it can select specific cost-side and demand side characteristics.
 On the cost side a retailer might focus on its margin and inventory turnover goal
 On the demand side the retailer needs to determine which service outputs to provide its
shoppers.
 Cost side Positioning Strategies

 In a high-service retailing system, margins are higher, but turnover is lower.

 In low price retailing systems, the opposite holds: low margin, high inventory turnover,
and minimal service level.
 Most recent Excitement and attention has focused on the revolution are volume
efficiencies achieved by the advanced practitioners of low-price retailing system.(eg.
Wallmart, home depot)
 The low-margin/high turnover model sought high operational efficiency so that it could
pass any savings on to the customers.
 As our channel perspective has taught us, passing savings on to the customers actually
entails a transfer of cost(Opportunity and Effort Cost)(ex-Carrefour, Costco)
 Cost side Positioning Strategies

 Lowering operational cost does not always require lowering the levels of all services
output.
 Fashion-forward clothing retailers such Zara and H&M offers end-users up-to-data
assortments and quick delivery of the hottest new style but still hold cost down and thus
can also provide competitive prices.
 It is important to determine whether the retail strategy should emphasize the low margin
and high turnover or else seek high margins at low turnover,
 Spatial Convenience

 Products can be classified as convenience, shopping or specially goods.

 To determine its positioning strategy, retailer must recall that convenience goods should
require little effort to obtain, whereas considerable effort may be required to secure highly
regarded, relatively scares specialty goods.
 The retail location decision, and the resulting service output of spatial convenience, thus is
inextricable from the type of goods the retailer choose to offer.
 Waiting and Delivery Time

 Consumers differ in their willingness to tolerate out-of stock situation when they shop
 Intense demand for this channel function translate into a demand that a product be in stock
at all times,.
 It means retailer must take on more of the expensive inventory holding function, by
holding extra safety stock in their stores.
 Product Variety

 Variety describes different class of goods that constitute the product offering, that is the
breadth of the product lines.
 Assortment instead refers to the depth of product brands or models offered within each
generic product category.
 Sometimes a retailer’s variety and assortment choice is purposefully narrow, to appeal to a
particular niche.
 Buyers play a central role in retailing; some retailers even generate more profits through
the trade deals and allowance that their buyers negotiate than they can earn through their
merchandise efforts.
 Customer Service

 Virtually all major retail innovation in the past centaury have relied on manipulating the
customer service variable, to greater or lesser degrees.
 Retailing is one of the few industries that remains highly labor intensive.
 Sales general and administrative expenses for retailers thus must include the cost of
keeping sales people on the floor to help shoppers.
 As a percentage of net sales SG&A tends to be higher for specialty stores and department
stores than for office supply or drug stores.
 The retailer with the lowest SG&A percentage are general merchandise retailer and
hypermarkets.
 Customer Service

 Lower service retailers such as Costco appears to compensate the consumer for the lack of
service provision, with lower cost.
 These variation reflects the cost of consumer service, but also its remarkable benefits.
 Many retailer continue to invest in customer service because it can bring about these
substantial benefits.
Taxonomy of Retail Positioning Strategies

 The cost-side and demand side dimension give retailers a wide variety of possibilities for
the positioning their retail operations.
 The positioning strategy they choose should always be driven primarily by the demand of
the target market for their specific service output.
 Within a certain intensity of demand, variation nearly always influence the important
granted to specific outputs.
 Higher service output levels can be offered only at higher price levels, because of the costs
involved in producing these service outputs.
 Retailers are thus always constrained by the target consumers overall willingness to pay, in
deciding what services to offer and which to drop.
 Multichannel Retail Strategies

 Consumers are increasingly comfortable with buying through multiple channels and types
of outlet.
 Hybrid shopping using online, bricks and mortar. And electronic version of the products to
complete their shopping process.
 This broad array of shopping behaviors means that designing a retail strategy involves
careful consideration of the entire process the consumer undergoes.
 Internet Retail Channel

 The dominant “location ” consideration for many consumers is convenience, defined in

terms of ease and speed of access.
 The critical consideration may still be location , but the placement of physical outlets is
less of an issue for many firms.
 E-commerce sales increased, but they have increased at a rate greater than the rate of total
retail sales growth.
 Direct selling Channels

 Direct selling is defined as “the sale of a consumer products or service in a face to face
manner away from a fixed retail location.
 The most of popular items are consumable products that can be purchased repeatedly, often
by the personal network that an independent distributor develops.
 Direct selling is a very old method of distribution, but it remains viable because of
consumer’s interest in personal interaction.
 Hybrid Retail Channel

 No single retail form is likely sufficient to reach a market or satisfy a particular target
segment’s set of service output demands.
 Some firms are pure online sellers but many others purposely combine bricks and mortar
with online selling strategies.
 The Persistence of mixtures of retail solutions in each product category suggests that on
the demand side consumers value having more than one way to access desired products.
 Hybrid Retail Channel

 In this increasingly common type of situation, there are three routes to market.
 The bricks-and mortar channel(Consumers ignores the online Channel)
 The online channel(Consumers ignores the bricks and mortar channel)
 The hybrid channel (Consumer obtain some services outputs online and other offline)
 Effect of Globalization of retailing

 Retailing has lagged behind other industries in the global race.

 The internationalization of retailing is a key thrust of most top retailers,
 It remain difficult to expand a retail operations across national boundaries, because of the following:
1. The need for quality real state locations on which to build stores
2. The demand for physical logistics operations comparable to those in home country to source and
distribute product
3. The need to develop supplier relationship in new market or to internationalize home market suppliers.
4. Difference in zoning, pricing, taxation, hours of operations, labor, and hiring operational choices that
must reflects other regulations in each market .
5. The need to offer locally attractive products, packaged and positioned in a culturally sensitive manner.
Rural Retail
 Retail in Rural

 Features of rural markets:

 Dispersed population and trade. Large number of small markets. Poor road connectivity
 Low density of shops per village. Poor storage systems. Poor visibility and product
display. Poor reach of media and hence communication.
 Estimated that nearly 50% of rural population prefers buying from the weekly shandies /
haats
 Rural retailers stock mostly local and regional brands with higher margins and longer
credit periods.
 Providing Rural Reach

 Using feeder markets with a hub and spoke model to reach village retailers
 Company vans carry goods on a pre-defined beat plan to cover rural retail – ready stocks,
promotion support. Effective, but expensive
 Unorganized mobile traders – deliver daily need products directly to rural homes
 Exploit weekly markets known as shandies / haats
 Corporate efforts like HUL Shakti
 Some companies set up retail chains
 Companies’ Rural Chains

 Godrej Aadhar – managed by Godrej Agrovet to provide crop advisory services, water
testing, crop finance, products. 24 outlets each outlet covering 20 villages.
 ITC Choupal Sagar - An extension of the e-Choupal system. Rural malls created. Each
mall spread over 5 acres, costing about Rs 4 cr. Proposed in 15 states with about 1000 rural
malls
 DSCL Hariyali Kisan Bazar - 302 outlets in 8 states providing all agri services and most of
the products required in rural. They have qualified agronomists working 24x7 and helping
10 million farmers covering 30 million acres.
Franchising
 Franchising

 Franchisor is the firm which wants to sell its goods or services

 Franchisee is the firm or group that is willing to sell the products or services on behalf of
the franchisor
 The first party gives advice and help to the second to find good locations, blue prints for a store,
financial, marketing and management assistance
 Franchising

 There are 4 types of franchise operations: wholesale sponsored, manufacturer sponsored

 Wholesaler sponsored Voluntary Chains- Like the example of the franchised stores of
Kemp Fort for toys
 Retailer Sponsored Cooperative Chains- Janta Bazaars, Delhi Super Baazar and all
cooperative society stores.
 Manufacturer Sponsored franchising-Soft drink majors sponsor bottles by concentrate,
produce beverages and sell to retailers, auto dealers.
 Service Company Sponsored franchising systems-financial institutions sponsor firms to
sell mutual funds.
 Benefits to Franchisor

 Faster expansion
 Local franchisee pays lower advertising rates than a national firm
 Owners motivated to work more hours than mere employees
 Local taxes and licenses are responsibility of franchisees
 Benefits to Franchisee

 Quick recognition among potential customers

 Management training provided by principal
 Principal may buy ingredients and supplies and sell to franchisee at lower prices
 Financial assistance
 Promotional aids, in-store displays etc