Fundamentals of Retail Management

Faculty : Aastha Garg

Introduction to Retail Management

Retail Management

Retailing
Retailing consists of the final activity and steps needed to place merchandise made elsewhere into the hands of the consumer or to provide services to the consumer.

Introduction to Retail Management

Retail Management

Retailing Marketing perspective A set of marketing activities designed to provide satisfaction to the end consumer and profitably maintain the customer base by continuous improvements concerned with selling goods and services.

Introduction to Retail Management

Retail Management

Retailing
Mass production and Mass consumption Through Mass Value-Added delivery points

Introduction to Retail Management

Retail Management

Retailing
In a large retail industry, there are :
A large number of consumers A large demand with purchasing power A large number of goods and services A set of large retailers A large real estate market A large supporting infrastructure

Introduction to Retail Management

Retail Management

Retailing survives well in a free market

A large supporting infrastructure A large number of goods and services A large demand with purchasing power

Supply
A set of large retailers

Demand
A large number of consumers A large real estate market

Introduction to Retail Management

Retail Management

The largest US Retailers

1. Wal-Mart 2. Kroger 3. Home Depot 4. Sears 5. Kmart 6. Albertsons 7. Target 8. JCPenney 9. Costco 10. Safeway
In 2002, Wal-Mart sales was $219.8 billion

Introduction to Retail Management

Retail Management

Retailing in India

Introduction to Retail Management

Retail Management

Evolution
In 1980s, retailers operated in unstructured and Fragmented market. The Indian economy was not yet liberalized. Before 1990, only textile manufacturers owned retail outlets Raymonds, Bombay Dyeing, Grasim, S Kumars. One of the first chain of grocery stores emerged Nanz. The western culture influenced Indian consumers. Cotton World, Viveks, Nilgiris, Nirulas evolved.

Introduction to Retail Management

Retail Management

Factors which changed Indian Retail

Economic Growth Increase in GDP and purchasing power Private sector consumption is >60% of GDP. Urbanization In urban cities, population increased by 9 times from 1901 to 1991. Consumerism Influence of western media has changed the lifestyle of Indians. Cars, white goods, A/V systems, fashionwear, cosmetics are now in demand. Brand profusion Most commodities are now branded (Atta Pillsbury, cooking oil Saffola, rice Tilda, milk Amul). Availability of real estate large sub-urban areas are now developed and ready for setting up malls.

Introduction to Retail Management

Retail Management

Some aspects of the environment have an impact on retail :

Economic environment GDP, Inflation, Purchasing power, interest, tax, employment.
Legal environment Foreign Direct Investment (FDI), property regulations, complex taxation. Technological environment Barcode, POS, Supply Chain, Inventory Mgmt, Database Mgmt. Competitive environment The untapped potential is attracting many players

Introduction to Retail Management

Retail Management

Getting there ..
The Indian retail industry is picking up.
It needs a large investment which is available with the large global players. There is a move towards opening up the economy through FDI. That will change everything.

Introduction to Retail Management

Retail Management

Benefits of FDI (Foreign Direct Investment)

Large foreign companies invest if they are : Provided with incentives (low infrastructural cost) Allowed to repatriate their earnings / profits Import products without duties / with low duties

The Govt. benefits from allowing global payers to invest.

Introduction to Retail Management

Retail Management

Retailing in India
Negatives :
Ban on FDI, Lack of Govt. support Indian retailers lagging behind in planning and category management Real estate prices too high ( Gurgaon) Stiff competition in apparel market where multiple brands exist Entry barriers are daunting in the food retail sector Biggest problem is an efficient supply chain mechanism from the farm to the store (although ITC doing good work in this area). More footfalls, less purchases

Introduction to Retail Management

Retail Management

Retailing in India
Positives :
Consumer acceptance of modern store formats Chain stores will come up, especially in Apparel Manufacturer retailers role will get reduced Malls and hypermarkets will propel growth of food retailing Sourcing and merchandising - backbone of organised retail Private labels are contributing 20% of sales in apparel IT one of the key success factors (inventory & customer interface)

Recent Trends

Retailing in India is witnessing a huge revamping exercise as can be seen in the graph India is rated the fifth most attractive emerging retail market: a potential goldmine. Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3 percent or US$ 6.4 billion As per a report by KPMG the annual growth of department stores is estimated at 24% Ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney.

Retail Sales in India

Recent Trends contd.

Traditionally three factors have plagued the retail industry: Recent changes:

Unorganized : Vast majority of the twelve million stores are small "father and son" outlets Fragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest. Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and Melas".

Experimentation with formats: Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out. Store design : Biggest challenge for organised retailing to create a customer-pull environment that increases the amount of impulse shopping. Research shows that the chances. Emergence of discount stores: They are expected to spearhead the organised retailing revolution. Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large cineplexes, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR the unorganized sector is getting organized.

Recent Trends contd.

Multiple drivers leading to a consumption boom: Favorable demographics Growth in income Increasing population of women Raising aspirations : Value added goods sales Food and apparel retailing key drivers of growth Organized retailing in India has been largely an urban phenomenon with affluent classes and growing number of double-income households. More successful in cities in the south and west of India. Reasons range from differences in consumer buying behavior to cost of real estate and taxation laws. Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption ITC is experimenting with retailing through its e-Choupal and Choupal Sagar rural hypermarkets. HLL is using its Project Shakti initiative leveraging women self-help groups to explore the rural market. IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change buying behavior across the globe. e-tailing slowly making its presence felt. Companies using their own web portal or tie-sups with horizontal players like Rediff.com and Indiatimes.com to offer products on the web.

Major Retailers
Indias top retailers are largely lifestyle, clothing and apparel stores This is followed by grocery stores Following the past trends and business models in the west retail giants such as Pantaloon, Shoppers Stop and Lifestyle are likely to target metros and small cities almost doubling their current number of stores These Walmart wannabes have the economy of scale to be low medium cost retailers pocketing narrow margin

Introduction to Retail Management

Retail Management

Large Indian Retailers

Shoppers Stop Crossword Globus Pantaloons Westside Piramyd Ebony / Gautier Big Jos Wills Sport Nallis Lifestyle Jainsons FoodWorld Nilgiris Big Bazaar Giant Vishal Mega Mart Reliance Retail

India vs. World

Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to 0.9 million outlets in USA, catering to more than 13 times of the total retail market size as compared to India India has the highest number of outlets per capita in the world - widely spread retail network but with the lowest per capita retail space (@ 2 sq. ft. per person) Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store (Shoppers' Stop, Westside, Lifestyle) can compare. The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in Wal-Mart are about 1.3 million where as the entire Indian retail industry employs about three million people.

 One-day sales record at Wal-Mart (11/23/01) $1.25 billion roughly two third of HLL's annual turnover. Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing (against 7 percent employed in India today). 60% of retailers in India feel that the multiple format approach will be successful here whereas in US 34 of the fastestgrowing 50 retailers have just one format Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail shelves (translating into a stock-out level of less than 5 %).The stock-out levels among Indian retailers surveyed ranged from 5 to 15 percent.

Introduction to Retail Management

Retail Management

Development of Retail Power

Buying is a more fun experience than before

Customers are travelling to more stores

There is more plastic money available

Manufacturers operating in wider geographical regions and now dependent on local retailer
Retailer directly in touch with consumer who gives information and feedback Retailer directly analyzing competition

Introduction to Retail Management

Retail Management

Types of Retailers
Depending of levels of service : a) Self-service b) Self-selection c) Limited service d) Full service

Introduction to Retail Management

Retail Management

Types of Retailers
a) Specialty store Narrow product line, deep assortment (Planet M) b) Department store Several product lines, clothing, home furnishing (Shoppers Stop, Westside) c) Supermarket Relatively large, low-cost, high-volume, self-service (Nilgiris) d) Convenience store Relatively small located near residential area (Kirana) e) Discount store Standard merchandise sold a lower prices and lower margins and higher volumes (Subhiksha) f) Off-price Retailer Merchandise bought at less than regular wholesale prices and sold at less than retail (Factory outlets) g) Warehouse clubs Sell a limited number of brand-name grocery items, appliances, clothing (Metro Cash & Carry) h) Superstore About 35,000 square feet of selling space aimed at meeting needs for food and non-food items (Big Bazaar) i) Hypermarkets Between 80,0000 and 220,000 square feet. Combination of supermarket, discount and warehouse retailing (Carrefour, Walmart)

Introduction to Retail Management

Retail Management

Retail Life Cycle

Introduction Profits are low despite increasing sales levels due to amortization of developmental costs.
Growth Sales & profits explode. Market share and profitability tend to reach their maximum level. Maturity Market share stabilizes. Profit declines.

Decline Loss of market share. Fall in profits.

Introduction to Retail Management

Retail Management

Retail Life Cycle

Introduction
E-tailing Supercentres

Growth
Food Courts

Maturity
Warehouse Clubs Department Stores Supermarkets Convenience Stores Category Killers

Decline
Variety Stores Factory Outlet

Retail Management

Who is a shopper ?

Retail Management

A shopper is a person who has

* Needs * Wants * Demands

Retail Management

Maslows Hierarchy of Needs

Self-development & Realization (Self-actualization needs) (Recognition, Esteem needs)

Sense of Belonging, Love (Social needs)

Security, Protection (Safety needs) Food, Water & Shelter (Physiological needs)

Retail Management

Needs
Needs are the basic human requirements :
Water Quenches thirst. Food Satisfies hunger.

Clothing Covers body.

Education Knowledge acquisition. Health Wellness.

Work Earning.
Communication Keep in touch.

Retail Management

Wants
Needs become wants when they are directed to specific objects that might satisfy the need.
A child needs food but wants a MacDonalds burger, french fries and a soft drink. A teenager needs clothes but wants a pair of Levis jeans, Adidas t-shirt and Rbk sneakers. An adult needs shelter but wants an OMAXE air-conditioned 3-bedroom house with french windows and attached bathroom.

Retail Management

Needs become Wants

Water Quenches thirst. Aquafina vs tapwater.
Food Satisfies hunger. McDonalds vs Thela-wala. Clothing Covers body. Levis vs unbranded jeans from Mohan Singh Place. Education Knowledge acquisition. GIMT vs other business schools. Health Wellness. Fortis vs general hospital. Work Earning. Job at Shoppers Stop vs Sunehri Bazaar. Communication Keep in touch. Convergent media vs telephone.

Retail Management

Demands
Demands are wants for specific products backed by an ability to pay.
Many people want an Omega watch, but only a few are able to and willing to buy one. Many people want Tanishq jewellery, but only a few are able to and willing to buy. Many people want an Ebony Gautier furniture set, but only a few are able to and willing to buy.

Retail Management

A shopper is a person who is looking for

* Product * Offering * Brand

Retail Management

Product
Companies address needs by putting forth a value proposition, a set of benefits through a tangible object which they offer to customers to satisfy their needs

Retail Management

Product
Features and attributes of a Casual Jacket
Complements the shirt and trouser to make a complete dresser Can be worn with different combinations Keeps the body warm and protected Possible to keep it open or buttoned-up / zipped Has pockets both inside and outside Can be made of many types of fabrics and colours Easy to wear Easy to maintain

Retail Management

Offering
The intangible value proposition is made physical by an offering, which can be a combination of products, services, information and experiences.

A product is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need.

A service is any activity or benefit that on party can offer to another that is essentially intangible and does not result in the ownership of anything.

Retail Management

Brand
A brand is a name, term, sign, symbol, or design, or a combination of these, that identifies the maker or seller of a product or service. A brand is an offering from a known source. A brand name such as Levis carries many associations in the minds of people: jeans, carefree, youth, casual lifestyle, westerns.

Retail Management

A shopper is a person who is looking for

* Value * Satisfaction

Retail Management

Value
The offering will be successful if it delivers value and satisfaction to the target buyer. Value can be seen as as combination of : Quality Service

Price
(also called the Customer Value Triad)

Retail Management

Quality
Comfortable and skin-friendly Fabric will not tear or run colour Shrink-proof Uniform in weave / embroidered pattern Size as per international standards

Retail Management

Service
Offering assistance to the shopper Assistance in finding right product / brand Help in understanding the right fit and size Facilitation near the trial room Finding a shopping basket Showing the way to the next aisle / department

Retail Management

Price
Affordable Value for money Not expensive compared to other stores Good bargain / discounts Sale prices Exclusive products / brands

Retail Management

Value
Customer value is the difference between the values the customer gains from owning and using a product and the costs of obtaining the product

Value = Benefits / Costs

Benefits Functional, Emotional Costs Monetary, Time, Energy, Psychic

Customers act on perceived value.

Retail Management

Satisfaction
Customer satisfaction depends on a products perceived performance in delivering value relative to a buyers expectations. If the products performance falls short of the customers expectations, the buyer is dissatisfied.

If performance matches expectations, the buyer is delighted.

Retail Management

Buyer Behaviour Economics Perspective

Price

Quantity

Retail Management

Components of a buying process

Need recognition

Information Search

Evaluation of Alternatives

Selection of Brand and Outlet

Post-purchase Reactions

Retail Management

Socio-economic influences
Working Women vs Housewife

Nuclear family vs Joint family

Changing Indian Homes

Stability vs Mobility

Satisfaction vs Increased Needs and Desires

Retail Management

Indian demographic trends

Nuclear families Working women Smaller families Educated women Delayed marriages Dispersion of population Uneven economic growth rate

Diverging consumer markets Ageing population

Retail Management

Four broad groups for Indian men

Traditional : Conservative, driven by values, cherishes family and avoids ostentation. Spans all age groups, mostly married and belongs to the 2nd tier in the SEC ladder. Accounts for almost 36% of the men. Pleasure-seeker : Self-oriented person, driven by status and status symbols. A risk-taker, pleasure-seeker, young, unmarried and metro city living. Accounts for over 40% of the men. Social chameleon : Wants to project the right image. Tech-savvy and individualistic. Aged between 30 and 40 years. Accounts for 70% of the men. Instrinsic progressive : The futuristic persona. Family values, equality of sexes. Non-traditional, tech-savvy, young, executive class. Account for 7% of the men.

Retail Management

Eight broad groups for Indian women

Contended Conservative : A housewife who is happy with her state of life / society. Archetypical Provider : Believes role is to provide and look after the well-being of the family. Anxious Rebel : A working woman who is not happy with the existing state of affairs. Troubled Homebody : A housewife who is not sure that she is doing the right thing by sitting at home. Tight-fisted Traditionalist : A traditional woman who believes in saving for tomorrow. Affluent Sophisticate : An affluent woman who is comfortable with the finer things in life. Contemporary Housewife : A housewife who plays an active role in the household and sees herself equal to her husband. Gracious Hedonist : A working woman who believes in looking after herself well.

Retail Management

A de-ageing population and a much younger workforce

Between 2003 and 2050, India will add about 250 million people to its labour pool at the rate of 14 million per year As of today, 66% (over 740 million) of Indians are under 35 years, and about 50% (over 550 million) under 25 Years. By 2020, 61% of Indians will be under 35, i.e. about 780 million Indians will be in this age group. Equipped with the essentials to make their presence felt in the world According to the National Sample Survey, the literacy rate recorded an increase of 13.17% points from 1991 to 2001 and literacy in India is likely to touch 75% by 2020.

Retail Management

Women will play a more active role outside the home

The number of female heads of households grew by 16% from 2000 to 2003
In type-A cities, 72% of teenaged girls want to work after marriage Working women form 15% of the total urban female population and this is expected to rise to over 20% by 2020 And will play a more active role in handling money An immediate outcome of this will be a woman's increased motivation to be financially independent. Already in evidence is the fact that almost 78% of the women who work have their own bank accounts.

Retail Management

Retired people
People over 60 constitute 10% of the population seemingly a small percentage, but a market of 100 million + consumers a sizeable one by any account. Retired people are spending more on themselves than ever before, and in fact spend the highest proportion of wallet on apparel (as much as 23%). They spend as much as 21% of their individual spends on financial products and between 11% to 15% on eating out and books.

Retail Management Some indications of the size of the urban children's market: Apparel: Rs.2209 crores, IT Products: Rs.1978 crores, Stationery: Rs.621 crores, Health & Beauty (not including cosmetics or services): Rs.415 crores, Toys: Rs. 389 crores, and many more categories 71 percent of parents agreed that their child influences which brand is chosen while buying TV sets, 70 percent for computers, 67 percent while buying mobile phones and 66 percent on the purchase of a car. In fact, one research study found that 42% of the respondents said their choice of car was solely dictated by their child. Indian kids spend nearly Rs.291 crores as pocket money, as per recent Estimates Promotions for many household items have capitalised on this buying power by tying up with popular cartoon characters and other toys. According to an international survey, brand loyalty starts by 11 years of age

Retail Management

More integrated with the rest of the world 8.3 million Indians travelled overseas in 2006 and the number of Indians travelling abroad is rising by a whopping 25% each year. Over 1300 MNCs have India operations and many MNCs have their R&D based in India The number of expatriates working in India has shot up to over 50,000 over the last 5 years and more multinationals are posting their Indian managers overseas than ever before With more spending power

The 8.3 million Indians who traveled abroad in 2006 spent Rs.1560 crores (USD 3.5 billion) on stay, food and shopping. Indians are the highest spenders from Asia when they travel overseas, beating even the Japanese.

Retail Management

Income India

Retail Management

Urbanisation

Retail Management

Change in spending pattern