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Retail Management

Sandeep Prabhu

Road side Peanut Hawker

Road side Dhaba

Big Bazaar

Wal-Mart

Supply Chain Management

Raw Material Supplier

Manufacturer

C&F Agent

Wholesaler/ Distributor

Retailer

Customer

What is retail?

Retailers are final business in a distribution channel that links manufacturer to consumers Retailer is a business that sells products or services or both to consumers for their personal or family use Retailer attempts to satisfy the consumer needs by having the right merchandise at the right price at the right place when the consumer wants it

What is retail?

Retailing consists of business activities involved in selling goods and services to customers for their personal, family and household use. It includes every sale of goods and services to the final consumer ranging from automobiles to meals at restaurant to movie theater tickets. Retailing is the last stage in the distribution process. In contrast wholesaling is an intermediate stage in the distribution process, during which goods and services are not sold to the final consumers but to business customers such as manufacturers and retailers for their use in running the business or for resale to others

Functions of Retailers

Providing an assortment of products and services

Variety of 20000 to 30000 different items,

made by hundreds of companies are to be

made available.
Manufacturers specialize in a specific type of products. Most of the manufacturer can not sell its products directly to consumers, Why? Retailers offer assortments of products, but they specialize in the assortments they

offer

Functions of Retailers

Breaking Bulk

Manufacturer packs goods in cartons,

retailers breaks and sales in small quantities tailored to individual customers needs. Cartons are cost effective for manufacturers to package and ship merchandise in large rather than smaller

quantities.
It is also easier for consumers to purchase merchandise in smaller more manageable quantities.

Functions of Retailers

Holding Inventory

Consumers can keep a small inventory

of products at home because they know that the retailer will have the products

available when they need more.


Retailers reduce the consumers cost of storing products. Particularly important to consumers with limited storage space and for purchasing perishable merchandise.

Functions of Retailers

Providing Services

Retailers offer credit

Display products so that consumers can see and taste before buying Salespersons can handle questions and doubts of consumers 24X7 or 7 to 11 availability Home delivery

Functions of Retailers

Increasing the Value of Products and Services

Range of products at single point are made available

Complimentary products are made available

Economic Significance

Sales: US retail sales in 2001 was $3 trillion In 1997 there were 28,89,041 retail firms in US Employment: By 2010 there will be 26 million people employed in retailing in US

The Top 100 Global Retailers

Top 25 Global Retailers


Wal-Mart Carrefour Kroger Home Depot Metro Ahold Kmart Albertsons Sears Target (Dayton Hudson) Safeway JCPenney

Tesco Costco Rewe Intermarche Auchan Edeka/ AVA Ito-Yokado J Sainsbury Tengelmann Aeon Eleclerc Walgreen

Facts

Wal-Mart remains the undisputed leader in retail world Its sale is three times as large as those of Carrefour, the second largest retailer Home depot has made significant sales gain in last several years. Its fourth-place ranking is up from 24 in 1996 47% of the 200 largest retailers still operate only one store type. Majority of the largest global retailers are involved in food sector. More than half of the 200 largest retailers have supermarket. Warehouse, hypermarket, or cash and carry formats, or some combination of them US companies dominate the 200 largest retailer list 78 American companies in the top 200 list represent 49% of the sales Wal-Mart alone represents 9.1% of the top 200 sales By country of origin 30 companies in Japan are second-largest group in top 200 78 US firms in the top 200 operates in an average of three countries

Facts

Fastest growing retailers in US sell through large stores with over 20000 sq ft. Combination of Large store and Large firms results in a very efficient distribution system In contrast Indian distribution system is by small stores operated by relatively small firms and large independent wholesale industry This makes merchandise to pass through three independent businesses between manufacturer and retailer European distribution system falls in between.

Opportunities in Retailing

Management Opportunities
How retailer manage his business?

Raise capital from financial institutes Purchase goods and services Develop accounting and MIS to control operations Manage warehouses and distribution system Design and develop new products Undertake marketing activities like
Advertising Promotions Sales force management Market research

Retailers wants people from

Finance and accounting


HR Logistics IT Marketing

After his research uncovered that Internet usage was growing at 2300% annual rate in 1994, Jeffrey Bezos, the 30year old son of a Cuban refugee, quit his job on Wall Street leaving behind a hefty bonus to start as Internet business. While his wife was driving their car across country, Jeffrey pecked out his business plan on a laptop computer. By the time they reached Seattle, he had rounded up the investment plan to launch the first Internet book retailer______________

Retail Management Decision Process

Understanding the world of retailing


Retail managers need to understand their environment, especially their customers and competition, before they develop effective strategies. Critical environmental factors are

Microenvironment: Technological/ Social/ Ethical/ Legal/ Political factors Microenvironment: Competitors/ Customers

Competitors

Primary competitors: Intratype Competitors: Competitors with same format Supermarkets against other supermarkets Departmental store against other departmental stores Intertype Competitors: Competitions between retailers that sell similar merchandise using different formats Discount stores against Department stores Scrambled merchandising: By offering greater variety in one store, retailers can offer one-stop shopping to satisfy more of needs of their target market. Ex.: Clothing and food making available in grocery shops. Scrambled merchandising increases intertype competition.

Competitors

All retailers compete against each other for the dollars consumers spend on goods and services. Intensity of competition is greater among retailers located close together with retail offerings that are viewed as similar.

Customers

Why customers shop? Lifestyle changes Demographic changes

Developing a Retail strategy

Retail strategy indicates how the firm plans to focus its resources to accomplish its objectives It identifies;
The target market The nature of merchandise and services To build long-term advantage over competitor

Strategic Decision areas

Determine
Market strategy Financial strategy Location strategy Organizational structure Human resource strategy Supply chain structure Customer relationship strategies

Implementing a Retail strategy

Retail Mix:
The retail mix is a combination of factors retailers use to satisfy customers needs and influence their purchase decisions. Elements in retail mix:

Price-Cost Trade off Types of merchandise Variety and assortment Customer service Advertising and promotional programs Store design Merchandise display Convenience of stores location

Merchandise

Trends in the Retail Industry

Growing diversity of Retail Formats Increasing Industry Concentration Globalization


New technology has brought expertise in managing information and distribution system Global merchandise purchasing Falling trade barriers

Retailer characteristics
Elements in retail mix:

Price-Cost Trade off Types of merchandise Variety and assortment Customer service Advertising and promotional programs Store design Merchandise display Convenience of stores location

Price-cost Trade Off

Departmental Store:

Discount stores

Fashionable apparel, home furnishing Higher prices Higher costs- due to stocking of lot of fashionable merchandise Need to discount for non-moving merchandise Some personal service Convenient but expensive mall location Lower prices Less service Wide range of merchandise sizes and colours

Type of Merchandise

Motor vehicle and parts dealers Furniture and home furnishing stores Electronics and appliances stores Building materials and garden equipment and supplies dealers Food and beverage stores Health and Personal care stores Gasoline stations Clothing and clothing accessories stores
Clothing stores

Shoe stores Jewellery, Luggage


Mens clothing stores Womens clothing stores Childrens and infants clothing stores Family clothing stores Clothing accessories stores Other clothing stores

Sporting goods, hobby book and music stores General merchandise stores Miscellaneous store retailers Nonstore retailers Food service and drinking places

Jewelry stores Luggage and leather goods

North American Industry Classification System (NAICS)

Variety and Assortment

Variety: (Breadth of merchandise)


The number of merchandise categories a retailer offers

Assortment: (Depth of Merchandise)


The number of different items in a merchandise category

SKU:
Each different item of merchandise

Customer service

Bicycle brought from Bicycle shop Bicycle brought from Toys shop Bicycle bought from Wal-mart

Service
Accepting personal cheques Providing parking Open for long hours Home delivery Gift wrapping

1. Food Retailers
A. Conventional Supermarkets B. Big-Box Food Retailers a. Super centers b. Hypermarkets c. Warehouse clubs C. Convenience Stores

Conventional Supermarket Percentage food Size (000 sq ft) SKUs (000)s Variety Assortment No. of checkout lines Prices 70-90 20-50 20-30 Average Average 6-10 Average

Super center 30-40 150220 100150 Broad Deep 20-30 Low

Hypermarket 60-70 100-300 40-60 Average Deep 40-60 Low

Warehouse Club 60 100-150 20 Broad Shallow 10-15 Low

Convenience Store 90 2-3 2-3 Narrow Shallow 1-2 High

A. Conventional Supermarkets

A self service food store offering


Groceries, meat and produce With limited sales of nonfood items such as health and beauty aids and general merchandise Super stores are larger conventional supermarkets (20000 to 50000 sq ft) with bakery, seafood and non food section

High-low pricing strategy Everyday low pricing strategy

B. Big-Box Food Retailers

a. Super centers
150000 to 220000 sq ft stores 30%-40% food 60%-70% nonfood 100000 to 150000 individual items (SKUs) Wal-Mart, K Mart One stop shopping experience Customer's has to drive further to visit General merchandise items (nonfood items) are often purchased on impulse. General merchandise has higher margins They can price food items more aggressively Long time to find the items

B. Big-Box Food Retailers

b. Hypermarkets
100000 to 300000 sq ft Food 60 to 70% General merchandise (30-40%) Stock less than supercenters (40000 to 60000 items) Groceries, Hardware, Sports equipments, furniture, appliances, computers and electronics Not prevalent in US

a. Hypermarkets
Not prevalent in US Wal-mart, Target

b. Supercenters
Mainly in Europe Auchan (France)

Larger- Fewer items


Specialty: Fresh Food produce, meat, fish

Big- More items


Specialty: Dry grocery (breakfast cereals) canned goods. Less of fresh items Large proportion of nonfood items

Larger proportion of food items Similarities: Large, Carry grocery, and general merchandise, are self-service. Located in warehouse type structure with large parking facilities

B. Big-Box Food Retailers


Warehouse clubs: Limited assortment of food and general merchandise Little service Low prices Serve: Ultimate customers and small businesses Large stores: 100000 sq ft to 150000 sq ft Located at low-rent areas Concrete floors, simple interiors Forklifts are used for moving pallets Ostco club, Sams club (Division of Wal-mart) Half food- Half general merchandise Brands and items may change from time to time as merchandise is brought on special promotions from manufacturers Limited assortments of fast selling items Merchandise is sold before making the payment to manufacturer Members

C. Convenience Stores

2000 to 3000 sq ft Speedy checkouts Modern version of mom-and-pop grocery/ general store Quick purchase Over half of the items bought are consumed within 30 minutes of purchase Receive deliveries daily Limited assortments Charge higher prices Milk, eggs and bread is major item Solution to space constraint for customers Works as distribution centers for e-tailers

Issues in food retailing

Increasing competition from other types of retailers Fighting back: New concept of prepared meals, fresh produce, hot food Customers back in 10 mins Enter drama

2. General Merchandise Retailers


1.Discount Stores 2.Specialty Stores 3.Category specialists 4.Department stores 5.Home improvement centers 6.Off-price retailers 7.Value retailers

Type

Variety

Assortme nt Average to shallow Deep Very deep

Servic e Low

Prices

Size (000 sq ft) 60-80

SKUs (000) 30

Location

Discount stores Specialty stores Category specialists Home improveme nt centers Department stores Drugstores Off-price stores Value retailers

Broad

Low

Stand alone, power strip centers Regional malls Stand alone, power stripcenters Regional malls

Narrow Narrow

High Low to High Low to High Average to high Average Low Low

High Low
Low

4-12 50-120

5 20-40

Narrow

Very deep

80-120

20-40

Broad

Deep to average Very deep Deep but varying Average and varying

Average to High Average to High Low Low

100-200

100

Stand alone, strip centers Outlet malls Urban, strip

Narrow Average Average

3-15 20-30 7-15

10-20 50 3-4

1. Discount Stores

Broad variety Limited service Low prices Private labels and national brands Brands less fashion oriented than brands in departmental store Wal-Mart, Kmart, Target

Issues in Discount store retailing

Wal-Mart led push towards supercenters Competition from specialty stores (Home Depot) Kmart filed for bankruptcy in 2002 Wal-Mart: Everyday low price concept Efficient operations hence low price possible (Low price in every market it competes)

2. Specialty stores

Limited number of complementary merchandise category High level of service Under 8000 sq ft area

Issues in Specialty Store retailing

Need to be updated on trends May face de-growth if market reverses Specialty stores can be in following categories
Apparel Shoes Auto Parts Furniture Music Jewelry Optical Accessories

3. Category Specialist

Discount store Low prices Narrow Variety Deep Assortment Discount specialty stores Self-service approach Some may offer little service Warehouse atmosphere Can Kill a category: Category Killers Dominate the category They have buying power to negotiate Assured supply Others have to reduce their offerings in category Ex: Home Improvement Center, Home Depot

Issues in Category Specialists

Starts and then saturates the market before expanding in other markets Reducing costs by increasing operating efficiency Scale economies

4. Department Stores

Broad Variety Deep assortment Some customer service Organized into separate departments Ex: Sears, JCPenny They are diverse Relatively inexpensive products Specific selling space for each department, POS material Resembles collection of specialty shops Departments: Womens, mens, childrens clothing and accessories, home furnishings, furniture, kitchenware, small appliances Sometimes departments are leased out Leased departments pays the store a percentage of its sale as rent Leased out departments: Beauty salons, pharmacies, shoes, jewelry, photography studios Unique shopping experience and atmosphere Full range of service (Altering cloths to home delivery) Attractive displays, ambience Running demonstrations

Issues in Department Stores

Increased competition from Discount stores Decline in perceived value Offer designer brands which is not available in other formats Difficult to find required merchandise as they are in large malls Higher prices Revamp by adding sound systems, internet access and placing young mens department nearby Started committing large off take but in small installments from their vendors

5. Drugstores

Health and personal grooming merchandise Ex: Apollo pharmacy, Medicine Shoppy

Issues in Drugstore Retailing


Sustained sales growth because of aging population Prescription Drugs: Managed care in entering Margins in pharmaceuticals are higher Government regulations Stand alone stores with wider assortments Adding more frequently purchased food items, drive through windows Providing health care assistant, change from count-pour-lick-stick operations Customers can order refill via phone Automatically customers are called for drugs Computer system to schedule workload Ensuring patient drug compliance

6. Off-price retailers

Inconsistent assortment of brand-name, fashion oriented soft goods at low prices Buy opportunistically from manufacturers or other retailers with excess inventory at end of the season Merchandise may be in odd sizes, unpopular colours and styles or may be irregulars (having minor mistakes in construction) Typically purchased at 1/5th to 1/4th of the original wholesale price No advertising required, no gifts, no price adjustments. Payment in cash Same merchandise may not be available al times Different bargains on each visits Mix up with regular wholesale price merchandise Types of off-price retailers Closeout Retailers Outlet stores

Closeout Retailers:
Broad but inconsistent assortment of general merchandise as well as apparel and soft home goods

Outlet Stores
Owned by manufacturers or departments or specialty store chains Manufacturers: Factory outlet Outlet stores allow manufacturers control on market and and opportunity to sale irregulars, production overruns and market returns Manufacturers maintain at full price

7. Value Retailers

General merchandise discount stores Found in lower-income urban or rural areas Smaller than discount stores Target Low income consumers Ex: 49-99, 99 cents Specialize in giftware, party and craft items and no consumables Rounded off prices Name imply good value

3. Nonstore Retail Formats


1. Electronic Retailing

2. Catalogue and Direct-Mail Retailing 3. Direct Selling 4. Television Home Shopping

Electronic Retailing

E-tailing/ Internet retailing Ex: amazon.com, eBay.com Many Internet retailing companies declared bankruptcy, why? Internet bubble burst in Yr 2000 Products normally sold through Internet: Books, CDs, DVD, video, apparel, computer software, toys, Bills, Banking, Security trading Consumer satisfaction in online is improving Earlier entrants had superior technology skills but lacked retailing experience Traditional retailers have adopted an Internet channel into multi-channel offering

Catalogue and Direct-Mail Retailing

Catalogue retail: Offering is communicated through catalogue Direct-mail retail: Offering is communicated through letters and brochures Most successful with rural consumers Integrating internet has helped catalogue retailers Product normally sold: Clothing, Home furnishing, House ware, Toys and games Direct mail retailers mail brochures and pamphlets to sell specific product or service at one point of time. Making single sale Two types of Catalogue and Direct-mail Retailers:
General merchandise catalogue retailers Specialty catalogue retailers

General merchandise catalogue retailers

Broad variety of merchandise periodically mailed


Specific category of merchandise Ex: Gardening tools

Specialty catalogue retailers:


JCPenny distributes general merchandise catalogue to over 14 million people and 70 specialty catalogue every year

Issues in Catalogue Retailing

Start-up costs are relatively low Difficult to challenge multi-channel retailers only with catalogue Mailing and printing costs are high Difficult to get consumers attention Difficult to respond quickly

Direct Selling

Salesperson contacts the customer Highly interactive form Face-to-face discussion and customers convenience Costly Main category sold through Direct selling: Home/ family care (cooking and kitchenware), personal care (cosmetics, fragrances), services, wellness and leisure/ educational Independent or agents They work part-time Special type of direct selling:
Party plan Multilevel network

Party plan:
Customers are invited for party and explained the products in a partylike atmosphere Customer is given a gift

Multilevel network
People serve as Master distributors recruiting other people to become distributors Master distributors buy from firm and resell it to their distributors or get commission Pyramid scheme: Programme is designed to sell merchandise and services to other distributors rather than to end users. The founder benefits the most

Television Home Shopping

Customer watches a TV programme demonstrating merchandise and then place orders for merchandise by telephone 3 types:
Cable channels dedicated to television shopping Infomercials (TV programmes with entertainment along with demonstration) Direct response advertising: Advertisements that describe products and ask for order

Issues in Television Home Shopping

Relatively few watch television shopping channel on regular basis Purchases are made by relatively small proportion of viewers These companies has started working through internet Further growth will happen with future interactive TV Customers can see the merchandise demonstarted, but they cant examine the product as per their convinience Primerly lower income consumers are attracted Most of the items are inexpensive

Vending machine Retailing

Merchandise is stored in a machine and dispensed to customers when they deposit cash or credit card Convenient, high-traffic locations Primarily contain snacks or drinks Watch out for new technology Video kiosk with video to show use of product Vending machines could be connected through internet

Service Retailing

Service Retailing

Aging of population: Increase in demand for health services Younger people spend more money on health People pay for homes cleaned, cloth washed and pressed Airlines Banks, Hospitals, Spas, Lawyers, Entertainment firms, Universities

Service Retailing

Airlines Automobile maintenance and repair Automobile rental Banks Child care centers Credit cards Education Entertainment parks Express package delivery Financial services Fitness
Health care Home maintenance Hotels and motels

Income Tax preparation


Insurance Internet cafes Long distance telephone

Movie theater
Real Estate Restaurants

Truck Rentals
Weight loss Video rental Vision Centers

Goods-service
Goods Service Surgery, teaching Song writing, software development Computer repair, restaurant meal Automobile Repair, fast food Home remodeling, retail sales Automobile assembly, steel making

Services: Domestic in nature, can not be imported Products: Can be domestic or Imported or partly

Differences between Services and Merchandise Retailers

Intangibility: Service: No Touch and feel Cant be evaluated before purchase Need to have tangible symbols (office etc) Difficult to evaluate after purchase Simultaneous Production and consumption Customers are present when service is delivered Other customers consuming the service can affect the quality of service (Obnoxious passenger in neighborhood) Do not have second chance to satisfy No mass production possible Industrialization of services can be done (Mc-Donald) Perishability Cant be saved, stored or resold (Airline with empty seat) Sales lost is lost forever No inventory possible Capacity constraints (Movie theater) Varying demand over a duration Inconsistency Quality beyond control

Types of ownership

1. Independent, Single-Store Establishments 2. Corporate Retail Chains 3. Franchising

1. Independent, Single-Store Establishments

Owner managed Management has direct contact with customers Respond Quickly Very flexible No bureaucracy Cant negotiate with suppliers Limited management capability Wholesale-sponsored voluntary cooperative groups: Helps them in Buying, warehousing and distribution

2. Corporate Retail Chains

Multiple retail units Centralized decision making 2 stores to 1000+ stores Local retailers can offer complementary merchandise in surrounding area and prosper

3. Franchising

Contractual agreement between franchiser and a franchisee Royalty payment Franchiser provides assistance Combined advantage of ownermanaged businesses with efficiencies of centralized decision making