RETAIL MANAGEMENT

INDUSTRY EVOLUTION
Traditionally retailing in India can be traced to

The emergence of the neighborhood ‘Kirana’ stores catering to

the convenience of the consumers

Era of government support for rural retail:

Indigenous franchise model of store chains run by Khadi &
Village Industries Commission.

Textiles sector with companies like

Bombay Dyeing, Raymond's,

S Kumar's Grasim

First saw the emergence of retail chains

• Titan successfully created an organized retailing concept
and established a series of showrooms for its premium watches.

• The latter half of the 1990s saw a fresh wave of entrants with a
shift from Manufactures to Pure Retailers.

 Food World, Subhiksha and Nilgiris in food and FMCG;

 Planet M and Music World in music;

 Crossword and Fountainhead in books.

• Post 1995 onwards saw an emergence of shopping centers,

mainly in urban areas,
 Emergence of hyper and super markets trying to provide
customer with 3 V’s - Value, Variety and Volume

 Expanding target consumer segment: The Sachet

revolution
 INDIAN RETAIL SCENARIO

• $180-billion Indian retail market , just 2 % of entire

retailing business carried out by organised sector.

• May form 10% of total retailing by 2010 : Crisil.

• During 2006 -2010, organized sector will grow at a

rate of app. 50 % per annum :Indian Retail Sector Analysis 2006-07 conducted by
• Largely fragmented , the retail business in India is one
of the largest in the world.

• Retail is one of the most attractive sectors for foreign

direct investment in India: FDI Confidence Index
Survey conducted by AT Kearney.
 Retail Market in India
Unorganized Fragmented

Experimentation with formats Store design

Emergence of discount stores

Unorganized retailing is getting organized

Consumption Boom:
Favorable Demographics,
Rise in income Level,
Double Income Families,
Rising Aspirations,
Shifting Consumption Patterns
• A successful Indian Retail Format is yet to be developed
to strike a balance between customer expectation and
economy-of-sale.

• Retailers are shifting from manual planning system to

technology enabled solution.

• Striving to identify factors that motivate customers to

visit outlet.

• Attempting to build supply- chain productive and

customer-centric.
 Growth Drivers
• Institutional mechanism of Retailing is devised to harness facts :-

• Sourcing options, within India and

Overseas vendors.
• Increasing number of nuclear families,
• Double income families,
• Enlarging space for working women
• People in small towns grown in satisfying their
physiological, safety and social needs.
• Enhancing commuting time;

Have put pressure on consumers’ decision-making

process.

Consumers seek convenience, quality ,services and

entertainment also.
 Defining Retail

• Business activities involved in selling goods and services to

consumers for their personal, family and household use.

• Sale of goods / services to the final consumers.

• Last Stage in distribution network whereas intermediaries

operate in B 2 B market.

• Smaller Average Sale

• Impulse Purchases; importance of displays

• Popularity of stores

• Unique Inventory Management

Functions of retailing
Characteristics of Organised and Unorganised Retailing

Organised Retailing
Unorganised Retailing
• leveraging technology
• Un- managed inventories
• adherence to corporate
laws • low cost of operations

• effective inventory • individually

management owned/managed
• less focus on technology
• sales forecast usage
• high investment • minor overheads
• skilled manpower • low taxes

• conducive environment • unskilled manpower

 Functions of Retailing

1. Appropriate mix of products and services

2. Converting larger quantities into individual units.

3. Holding inventory

4. Providing display and additional services

 Marketing Concepts Applied to Retailing

Customer
Orientation

Coordinated
Effort
Retail
Marketing Retail Strategy
Concept

Value Driven

Goal
Orientation
 Retail Strategy

Total Retail Customer Relationship

Experience Service Retailing

Identifiable but Hard to lure new

All elements in a
Intangible customers; retain
retail offering that
component old customers
encourage
of retail mix in
customers for
conjunction with Easier to develop
Repeat visits.
the basic a customer data
products or services base
 Classification

Organised Retailing Unorganised Retailing

1. Ownership Based
• Franchisee
• Independent Retailer
• Co-operatives
1. Merchandise on Offer
• Food Retailers
• General Merchandisers
• Combination
1. Store Based Semi organised Retailing
• Department Store
• Hyper Market
• Specialty Stores
• Malls
1. Non Store Based
• Vending Machines
• Web Portals
 Retail Formats
Store based: Brick and Mortar Stores, Physically Present in Market
Place.

• Department Stores; Large retail unit, extensive assortment (width

and depth) of products, organised into separate departments.

• Supermarket; Departmentalised food based stores, wide range of

food and related products, sales of general categories is limited.

Shopper’s Stop – K. Raheja Group

Pantaloons – Future Group
West Side – Tata Trent Group
Apna Bazar – Globus – R. Raheja Group
Subhiksha –
Nilgiri’s –
Food World – Future Group
 • Hyper Markets; Combination store, blending an economy
supermarket with a discount department store.

• Specialty Stores; Concentration on selling one product line,

carry a narrow but deep assortment.

• Convenience Stores; Relatively small, located near residential

areas, carry a limited range of high-turnover convenience
products and are usually open for extended periods.

Big Bazar – Future Group Mom and Pop stores

Giant – RPG Group Reliance Fresh
Spencer’s
Wills Lifestyle – ITC Group
Provogue –
Nike’ –
Tanishq – Tata Group
 Non Store based: use of non store based selling strategy mix,

• Direct Marketing; non-personal mediums, order taking on phone, mail

• DirectSelling; customers are approached personally by sales

executives

• Vending Machines; coins or cards operated dispensing machines

• Web Stores; virtual selling space on world wide web

www.ebay.com
www.amazon.com
www.indiatimes/shopping.com
 Contemporary Models

• Moser Baer cycle carts to hawk blockbusters

now
• Kolkata City paras will now experience home-video
wallas, selling the latest Hindi and Bengali
blockbusters priced between Rs 28 and Rs 34 only.
• Five carts in July, 2007 and around 100 will be
added.
• Operational in Kolkata and expanding to Chennai,
Mumbai, Delhi and Hyderabad
 Project Sukanya (kolkata)

The goods are not sold from

huge showrooms, but from
54 roadside mobile kiosks,
manned by 141 women who
work in shifts.

Spices, gift items, school

Tiffin and office lunches are
offered,

Positioned “strategically” at eye level of a city on the move.

 Wheel of Retailing Theory
Vulnerability

GAP at higher end
Up-market Position
High Price
GAP at higher end
Downturn in Sales
Niche Segments

Trade-Up
Higher level of services
Quality
Entry Catering Masses
Low level services Innovative Formats
Shallow GAP at lower end
Extended Product Line
assortments Intense competition
Low status
position
Low rent locations

Entrants
New

As retailers graduates from entry level to vulnerability

identifying GAP at each stage;

A larger GAP is created at the lower end of the market.

 Accordion Theory

Retailers move from being a general retailer offering

Wider and deeper assortments to specialise in a
specific product category or customer segment;

Reverting back to general diversified approach.

The changes in orientation are related to merchandise mix

strategy adopted by retailers.
 General Retailer •Current Market unsaturated /
•Wider Merchandise
untapped.
Assortment
I
•Competitors’ market share is
•Broader Market Coverage
declining while industry demand is
N rising.

F
Concentration Strategy

Specialty Retailer L
•Specialty Merchandise •Constraints of Store Size
Offer. U •Increased Disposable Income of
customers
•Concentrated Market Coverage E •Demanding Customers
•Competitive Advantage
N •Advantage of Brand Equity

C Diversification Strategy

General Retailer E •Expansion of complementary

•Wider Merchandise Product lines for
Assortment R •Market / Product Line Skimming
•Broader Market Coverage •Growth of large shopping centers
S •Need to increase sales volume
 Retail Lifecycle Theory

The duration of the retail life cycle is indefinite

Each stage in the Retail Lifecycle reflects certain

differentiating characteristics featured in market factors and
Retail Mix Strategy
 Innovation Accelerated Maturity Decline
Development

Merchandise Mix Pre-planned variety &Broader Stable merchandiseRetrenchment of

narrow assortmentsAssortments assortments, certain product
suiting to market introduction ofcategories
demand private labels.

Pricing Strategy /Penetration pricing toPricing isPricing may beLow prices

Discount build market sharemaintained as thelower because of the
rapidly. firm enjoys increasingnew competition
Skim pricing to recoverdemand with little
development costs. competition.

Store Formats Prototype Innovative formatsProfessional Caretaker

Entrepreneurial and inclusion of
services

Promotions /Aimed at innovatorsAimed at a broader Emphasis on Emphasis on Price

Advertising and early adopters. audience. differentiation Points extensive
sales and discounts

Sales Growth Low but increasingRapid Low observingLow

trend downtrend
Store Traffic Increase rapidly Steadily increase Stable amount Steadily decrease
Competition No / Less Moderate Intense wide-ranging
 Conflict Theory

competitors adapt to each other’s tactics resulting in

new retail strategies.

The central premise of the process is

when challenged by a competitive advantage, The retailers

will try to

Negate the strengths of the competitors

 Consumers Behaviour

Need Recognition

Information Search

Evaluation of Alternatives

Purchase Decisions

Post Purchase Behaviour

 Adoption Process

Awareness

Interest

Evaluation

Adoption
 Consumer Behaviour to Institutional Retailing

Purchase Decision Process

Store
Choice

Need Extraneous Evaluation Purchase

Recognition Forces and of Decision
Information Alternative
Gathering s

Brand Repeat purchases Post

Choice purchase

Re-evaluation
Parameters of customer’s choice of different retail formats

Value driven
Customers Low frills

Every day Low pricing

Time Private Labels

starved Convenience
Customers
One Stop Shopping
Technology
Savvy Expanded Categories
E-retailing
customers
Point of Purchase
technology
Lifestyle
focused Smart Carts
Assortments
customers
Concepts

Health Targeted Marketing

driven Product Mix
customers
Information and control
Factors Influencing the Customer’s Decision Making Process

Range of Merchandise

Instrumental in retaining customers

Convenience of Shopping

Expected Facilities / Services

Ambience
 Retailers’ Performance and Post Purchase Behaviour

Customers’ Experience Post Purchase Behaviour

Low satisfaction Switch to other

Retailer

Fairly Satisfied
Retailer’s Switch to other
Performance Retailer
Satisfied Offering better
products and services

Delighted Repurchase and

loyalty towards the
store
 Indian Demography

• Changing Age Profile

Ageing 2001 2006 2011 2016

Population (projected) (projected) (projected) (projected)

0-14 years 35.6 32.5 29.7 27.1

(%)
15-59 years 58.2 60.4 62.5 64.0
(%)
60 and 6.3 7 7.9 8.9
above (%)
Source: Statistical Outline of India 2003-2004

• Favourable demographics are expected to devise the

consumption pattern across the categories
 Indian Income Classes
Households Million (% of Population)
Classification
(Annual household 1994-95 1999-00 2005-06
Income)
Very Rich (Above INR 1 3 6
215,000)
Consuming Class (INR 29 55 75
45,000-2,15,000)
Climbers (INR 22,000- 48 66 78
45,000)
Aspirants (INR 16,000- 48 32 33
22,000)
Destitute (INR less than 35 24 17
INR 16,000)
Source: The Marketing Whitebook 2003-2004

• Middle-income group of consuming class segment is growing.

 Consumer Spending in India
Personal Care
Consumer Spendings

Grocery
3% 9%
11% Savings

Clothing &
13% Lifestyle
Durables
40%
9% Entertainment

10% Eating out

5%
Vacations

Source: The Marketing Whitebook 2003-2004

• A review of urban consumer spending reflects that Grocery

is the single largest expense followed by Entertainment and
Eating out.
 Various Consumer Behaviour Dimensions in Retailing

Does the retail outlet have psychological implications on the

target segment?

When Titan and Timex watches were retailed through exclusive

shops, consumers wanting lower-end watches probably felt
that a typical Titan showroom was too elitist, which could have
had a negative impact.

Does selection of outlets vary in accordance with types of product

categories?

While buying a TV or a washing machine, would consumers visit

an exclusive showroom of BPL, Onida or Sony,

or would they visit a multi-brand outlet?

 What is the impact of the image developed by a retail outlet?

Is FoodWorld different from a neighbourhood grocery shop in the

minds of consumers?

What kind of perception are consumers likely to have with

regard to shopping from an online outlet such as Fabmart
vis-à-vis a brick-and-mortar outlet like Fountainhead or Landmark?

Would there be differences in the psychographic

(and demographic) profiles of consumers choosing outlets?

Customer Loyalty Programs

Loyalty programs are a mechanism for identifying and
rewarding loyal customers.

1. Staying with the company for longest.

2. Purchasing most frequently and

3. Spending on average in most visits.

T based technology and equipments have enabled retailers

o acquire customer retention through database
marketing programs.

Establishing a detailed client database may help retailers

to keep track of personal information and individual
preferences of their customers and to offer better service
Implementation of Customer Loyalty Programs

Identifying Objectives

Offering Value

Offering Value

Research & Analysis

Harnessing Technology

Continuous communication

Organisational Commitment
 Many of the prominent players issue loyalty cards.

A consumer can use it as a form of

• Identification when visiting the retailer to avail the

benefits of a discount on purchases,

• Earn points, that could be redeemed in future.

They are also providing benefits like

• Exclusive hours for shopping,

• Special events organized for members,

• Dedicated counters for billing etc.

Loyalty membership cards are issued on fulfilling criteria
such as,

• Minimum purchase of an amount

• On payment of a fee
Pantaloons Green Card 2500/- of •Exclusive
shopping days
Purchases •Billing Counters

Shopper’s First Citizen 1500/- •Redeemable

Points
Stop 150/- •Out-store offers

Globus Privilage 2000/- •Redeemable

Points
Club •Reserved
Parking

Lifestyle Inner Circle 2500/-

Westside Club West 2000/-

150/-
 Co-branded Cards
Co-branding can be defined as two major brands
converging to enhance the usefulness and image of the
product or services

On account of low proportion of customers redeeming the

points, loyalty program become negligible

The retailers are adopting to co-branded loyalty cards to

move from being single brand centric to more widespread
so that members get concrete benefits

Banks
Retail Strategy and Planning
 Establish Mission

Analyse Environment

Identify Competitive Advantage / Strategic Alternatives

Obtain and Allocate Resources

Develop Implementation Plan

Monitor Progress and Control

 Certain Retail Mission Statements

McDonald’s: (QSCV) Quality, Service, Convenience and Value

Shopper’s Stop: To be a global retailer in India, and to maintain

the no. 1 position in the Indian market in the department store
Category.

Pantaloons: We share the vision and belief that by improving our

Performance through innovative spirit and dedication, we shall
Serve our customers and stakeholders satisfactorily.
 Technology
Environment Analysis Government

Culture

Market Segmentation
Customer Analysis

Customer Motivation

Strategy

Competitor Analysis Target Markets

Vendor Relationships

Location
Competitive Advantage
 Competitive Advantage Selection
Competitive Retailer Competitor Importance of
advantage Improving

Merchandise 7 9 High
Assortment

Affordability 9 7 Medium

Quality 8 8 Medium

Services 9 7 Low

Facilities 6 6 High

Mix of 5 7 High
entertainment &
comfort
 Alternative Strategies

Market Penetration: Focus could be on

Increasing the number of customers

Increasing the quantity purchased by customers

(Basket Size)

Increasing the frequency of purchase

Market Expansion / Development: Focus on

Tapping new geographical market

Adding products to the existing range

Differentiate by New Retail Format Development : Focus on

Catering to newer customer segments

Catering to existing customers

Diversification: in related or unrelated fields

Allocation of Resources

Financial Resources: Rentals, Salaries, Payments for

Merchandise

Human Resource: Recruitment, Selection, Training,

Compensation, Motivation
 Implementation

Reflect the desired positioning through

Store Layout, Design, Display

Merchandise plans, selection

Store Personnel and customer services

 Monitor Progress and Control

Key Performance Indicators

Quality / Range

Footfalls

Loyalty Base

Basket Size

Bill Size

Location
Three most important things in retailing:

Location, Location, Location

Critical Factor in customer’s selection process

Good location gives a retailer sustainable advantage over

His competitors

A poor choice of location for a store would mean

Disastrous results.
 Factors to be considered

1. Type of Region

Overall Size of the market place

Understanding the geographic area

Population Growth

Income Distribution

Competition Level
 Type of Site

Proximity to target market

Match between type of site and store format

Age and Condition of the site

What is the Trade Area

Geographic area that generates the majority of the customers

For the store
Accessibility

Road Patterns and conditions in surrounding areas

Any natural or artificial barriers

Visibility of the site

Parking Place

Traffic flow
 Types of Retail Location Formats

Freestanding / Stand Alone Store

Store located along a major traffic artery

There is no or little competition

Rents are usually low

Advertising costs are high

Part of Business District

A place of commerce in the city, developed historically as

A centre of trade and commerce in the city

It does not have a pre-set format or structure

Characterised by peak rentals, intense developments

cumbersome parking

Good accessibility in terms of transportation from all parts

of the city

Secondary Business District

 Part of Shopping Centre

A group of retail and other commercial establishment that

is planned, developed, owned and managed as a single
property

Retailer has no involvement in maintenance of

Common area like; restrooms, waiting area, parking,
Escalators etc.

Retailer does not have a major say in retailer mix in the mall

Anchor stores play key role in the success of a shopping

center
 Developing overall Strategy

It involves two components: Controllable Variables and

uncontrollable Variables

Controllable Variables: are those aspects of the firm that

directly affect the organisation.

Uncontrollable Variables: are those to which a retailer must

adapt.

A good strategy integrates these areas so that a unified plan

or strategy is developed.
 Controllable Variables

Store Location

Managing the Business

Merchandise Management

Pricing Policies

Communicating with customers

 Managing a Business

Two Major Elements are involved:

Human Resource Management

Recruiting, Training, Compensation, Supervision,

Authority and responsibility and chain command.

Operations Management

Efficiently and effectively performing the tasks to

satisfy customers, employees and management goals

Store Formats, design and size, personnel use,

Store security and maintenance,
 Merchandise Management

Decisions regarding product mix to be offered

Width and depth of the merchandise is considered based

On :

The number of product lines a retailer wants to offer

Service levels provided

Store formats
Criteria for purchase decisions are formulated in terms of :

Frequency of Purchase of Replenishment Cycles

Vendor Selection

Terms and conditions with the vendors

Forecasting and Budgeting

 Pricing Policies

Choosing amongst the several pricing techniques like:

Leading or Following

Cost plus or Demand Oriented

Decisions regarding: what range of price set to offer

Should be Consistent with the retailer’s image and the

quality of products

Number of prices within each price range is determined

 Communication

A distinctive and desirable image must be sought

Image is reflected in:

Store Atmosphere

Store front

Layouts and displays

Colours, Lighting, Music

Sales Persons and customer services

Uncontrollable Variable

Consumers

Competition

Technology

Economic

Seasonality

Legal Restrictions
 Consumers

Demographic trends lifestyle patterns can not be altered

Tastes and Preferences can not be forced upon

Selecting a target market is within the control of a retailer but:

Retailer can not sell goods or services that are beyond the
Range of its customers or…….

Not wanted , displayed or advertised properly

 Competition

A retailer can not control the entry of competitors

In fact, a retailer’s success may instigate new players to enter

Or existing players to modify there strategies or formats

Intense competition calls for re-examining overall strategy

Technology

Technological infusion is advancing rapidly

Checkout operations Inventory Management

Electronic Surveillance Warehousing

Displays
 Economic Conditions

Unemployment

Interest Rates

Inflation

Tax levels

GDP
 Seasonality

Different seasons call for different merchandise on offer.

Retailers offering diversified merchandise need to be more

vigilant
 Legal Restrictions

Some Controllable variables are affected by legal restrictions

Store Location: Lease and mortgage, local ordinances

Managing Business: Labour laws, Business Taxes,

Franchising or Licensing Provisions

Merchandise Management and Pricing: Product Safety Laws

Warranties, guarantees, Merchandise Restrictions;
Price marking laws

Communication :
 Strategic Planning in Global Retailing

Assess your International Potential:

Trends in the industry in Host Country

Domestic Position

Effects that international activity may have on

the current operations

Status of resources
 Know about Existing Channels of Distribution

Know the competition Level of transportation facilities

Level of Technology Availability and caliber of personnel

Expected pilferages rate

Gvt. Restrictions

Retailing Preferences

Level of Technology

Lifestyle Patterns
 Operations Management

• Effectively and efficiently implementing the retail policies.

• To ensure success operational areas need to be maintained as well as possible.

• Aspects of operating a retail business are:

– Operations Blue Print

– Store Format, Size and Space Allocation

– Personnel Allocation
- Store Maintenance

- Energy Management

- Renovations

-Inventory Management

- Store Security

- Computerization

- Outsourcing

- Crisis Management
 Operations Blue print

Systematic List of all the operating functions to be performed

their characteristics and timing.

Start of the Day

Who opens the store?

When the store opens?

What are the steps involved?

End of the Day

Who Closes the Store?

Cash, Alarms, Lights ………..

 Performance of these tasks must not be left at chance

There could be multiple operations blueprints used separately

for separate operational areas.

Whenever there is a modification the operations blue print

must be adjusted accordingly.
 Store Formats and Size

Should be considered in context of productivity and

profitability

Space Allocation

Determine the amount of space and its placement for each

Product category.

Consider space allocation keeping in mind store space and

product sale and profits.

Top-Down Space Management Approach

Bottom-Up Space Management Approach

Top-Down Approach:

1. A retailer starts with its total available Store Space.

2. Divides the space into categories

3. Works on in-store product layout.

Bottom-up Approach:

1. Planning starts at the individual product level

2. Proceeds to product categories

3. Total store space

Some Tactics that are used by retailers:

Vertical Displays

Hanging Displays on Store Walls

Free Space allocated to small point of sale displays

Vending Machines

Scramble Merchandise (high profit and high turnover) is

Allocated more space.

Stay open longer to use space longer

 Personnel Allocation

From Retail operations perspective efficient utilisation of

Personnel is vital:

Manpower Costs are high; they account for a high ratio in

operating costs

High Employee turnover leads to increased recruitment,

training and supervision costs.

Poor Personnel may have bad selling skills, mistreat

customers

Manpower deployment is subject to unanticipated demand

Retailers must avoid being over staffed or under staffed

What a Retailer should do

Hiring process

Workload forecast (Staffing)

Job Standardisation: task of similar positions in different

departments are kept uniform.

Cross Training: train personnel for more than one job.

Retailer can increase personnel flexibility and reduce total

number of employees at any given period of time.

Using Self-service:
Manpower Costs as a percentage of sales can be reduced
significantly is self service is used.

Points that should be taken into account:

It requires better in-store display

Ample assortments should be there on the selling floor

Place goods and services with clear features

Right mix of self-service and use of personnel

Negatives: Shoppers may feel that they are getting

inadequate services

Cross Selling is not possible

 Store Maintenance

Encompasses all the activities in managing physical facilities

Exteriors: Parking lot, points of entry and exit, outside signs

Display windows and common area adjacent to the store

Interiors: Windows, walls, flooring, climate control and

energy use, lighting, displays and signs, fixtures and ceilings

Quality of store maintenance affects:

Customers’ Perception of the store

Life span of facilities

Operating Costs
 Inventory Management

To maintain a proper merchandise assortment while ensuring

Smooth operations.

How merchandise is received from different suppliers

Ratio of merchandise in store, ware house and back store

Replenishments from warehouse to the store

How breakage is acceptable

Support from suppliers in storing merchandise or setting up

displays
 Store Security

Two basic issues:

Personal Security: Security Guards, Limited access to store

Facilities, frequent Bank Deposits, safety vaults.

Merchandise Security: Product tags, CCTV, employee

Surveillance, burglar alarms.

Detailed background check of every employee.

Employee Training programs on ethical behaviour.

Mystery shoppers.
 Insurance

Losses due to fire, major thefts, on premise accidents

Vital Decision regarding Insurance:

Premiums have risen

Insurers have reduced the scope of their coverage

Credit and Payment

Payment modes, Honoring Credit Cards, Store Credit Plans

Eligibility requirements for customers.
Computerization / Technology Infusion

Improve logistics and reduce delivery lead-time resulting in

reduction in inventory holdings;

Obtain information about customer preferences, sales

history and movement of merchandise to formulate
customer centric strategies;

Increase accuracy of sales transactions;

Improve trading partner relationships;

Incorporate faster responses to changing market conditions,

and

Build loyalty schemes and database.

Possible Areas:

Inventory Management / Warehouses

Point of sales
Communication within organisation

Checkouts

Things to Consider:

Hardware and Software solutions

Costs

Training of Employees
Crisis Management

Fire, Broken Water Pipe, Natural Calamities (floods),

Accidents, illness, Power cuts, Excess footfall

There should be Contingency Plans for as many different types

of crisis situations as possible
 Developing Merchandise Plan

It is the key phase in retail strategy

A retailer must have:

Proper assortment of goods and services when

They are in demand

Sell them in a consistent manner with the overall

Strategy.
Merchandising:

All activities involved in acquiring goods / services and making

them available at the place, time and price and in the quantity
That enables a retailer to achieve his goals.

Merchandising Plan / Philosophy

Must reflect:
Expectations of Target group
Retail Format Costs
Market place positioning competitors
Product Trends
Value chain
Suppliers’ capabilities
 Merchandising Plan drives every product decision like:

Product line to carry

Shelf Space to be allotted

Products to inventory turnover

Pricing decisions

Breadth and assortment across the store (narrow / wide)

Depth within each category ( deep / shallow)

Quality
National Brands / Store Brands and its ratio
 Micro Merchandising

Retailer adjusts its shelf-space allocations to respond to customers

And other differences among local markets.

Cross Merchandising

A retailer carries complementary goods and services so that

The shoppers are encouraged to buy more.
 Devising Merchandise Plan

Gathering Information:

Various Information Sources:

Consumers

Sales Associates

Suppliers

Trade Shows

Competitors
 Interacting with Vendors

Short listing the vendors

1. Manufacturer, physically produces goods, may provide
credit and transportation.

2. Wholesaler buys merchandise from the manufacturers

and provides services also to the retailers like shipping,
storing excess inventory and credit.

3. General merchandiser carries a wide assortment of

products.

4. Specialty merchandiser carries a deep assortment of the

same product category.
 5. Rack Jobbers display their own products in the
outlets
and payments are made on sales.

6. Cash & Carry stores sell merchandise on wholesale

price to small retailers.
Forecasts
Projections of expected retail sales for given period

Retail purchases are made on forecasts thus are the

foundation of merchandise plans.

* Overall company projections * Item-by-item projections

* Product Category projections * Store-by store projections

Evaluating Merchandise

Innovativeness: Factors to be kept in mind, Target Market,

Growth Potential, Fashion Trends,
Retailer’s Image, Competition,
Responsiveness, Investment Costs,
Profitability, Risk.

Brands:
A retailer must choose a proper mix of manufacturer’s and
private brands to carry.

It is even more complex in today’s scenario as there is

Proliferation of brands in each group.
 Manufacturer’s Brands
Produced and controlled by manufacturers, well known and
Supported by manufacturers in promotions.

Require no or limited retailer investment in marketing.

Such brands dominate sales in many product categories

Accounting for almost 85 % of total retail sale.

Private Brands
Developed and controlled by retailers themselves

More profitable for retailers

No competition or lesser competition in the category

Lead to customer loyalty

Factors to be considered while launching a private labels

Line up suppliers

Arrange for distribution and warehousing

Marketing: Advertising, Displays, Promotions

Absorb losses from unsold items

Pricing
Timing of Merchandise

Re-order cycles,

Replenishments

Lead Times

Allocations

Budgets and Space

 Category Management

‘Category’ is a group of products or brands that are closely

related to each other. There is a combination of several such
categories in an organised retail outlet.

A set of categories are treated as independent SBUs with

focused attention to deliver enhanced consumer value

Focus is on a product category rather than the performance

of an individual brand
 Category Management in Retail

General Manager
(Merchandise)

Category Manager Category Category Manager

(Jewellery) Manager (Ladies footwear)
(Ladies apparels)

Buyer 1 Buyer 2 Buyer 3

(Gold jewellery) (Silver (Costume
jewellery) jewellery)
It is convenient to take decisions relating to

Inventory,

Promotion,

Display,

Stocking space,

Reorder,

Performance evaluation and

Profit & loss accountability

To analyze the performance of a category, Boston Consulting
Groups Growth Matrix (B C G model) could be followed

Low High

High Stars
Question Marks
Winners
Sleepers

Low Dogs Cash Cows

ati f or Pt c udor P

Under Achievers Traffic Builder

Unit Sales
Stars: These are fast moving products, with high profitability
and high unit sales.

Large amount of investment could be done on these

products in terms of inventory holding and promotions.

They should be displayed effectively.

Question Marks: Such products are high on profitability but

have low unit sales.

Their future may be uncertain, as not many customers buy

these products.

Retailer can track the sales history, inform customers about

such products, new arrivals and incentives being offered and
could be displayed more effectively.
Reversed inventory planning could also be done on the basis
of sales history.

Cash Cows: This category is low on profits but is highest in

sales volume.

There is less investment required for such categories and

profit margins are high.

It is necessary for a retailer to maintain variety and inventory

of such categories.

Such products are bought by the customer on an impulse

and are displayed near cash counters or at the places more
frequented by customers.
Dogs: A weak category with low profitability and their sales
are also low.

They could become a cash trap for a retailer.

He should consider marking down the prices for such

categories to liquidate the funds and later decide not to keep
them.
 Benefits of Category Management

Increased Sales

Improved Decision-making

Efficient Inventory Management

Lower Investment Required

Better Space Management

Improved Service Level

Better Coordination with Vendors

 Logistics

It is total process of planning, implementing and coordinating the

Physical movement of goods from manufacturer to retailer to
Customer, in most timely, effective and cost-efficient manner

Logistics involves:
Order Processing

Transportation

Warehousing

Inventory Management
 Major Logistics Goals to be achieved are

• Economically managing logistics activities

• Place and receive orders smoothly and accurately

• Minimise time between ordering and receiving merchandise

• Coordinate shipments from various suppliers

• Keeping enough buffer stock, without having inventory pile

up

• Replenishments at sales floor

• Handling returns effectively and minimise damages

 Transportation

Important component of logistics and costs

Transportation network is fixing up mode, schedule and

route of transportation

A well-designed transportation network helps in achieving

desired degree of responsiveness of supply chain at a low
cost.

Type of Merchandise plays an important role in selecting the

Transportation mode and network
 Different Types of Transportation Network Designs

Direct Shipping Network: Structured to have all shipments coming

directly from suppliers to retail store

The network eliminates intermediary warehouse and other

related cost

Speedy delivery ensures high product availability.

Direct Shipping with Milk Runs: This is route in which a truck either
delivers products from multiple suppliers to a single retailer or from single
supplier to multiple retailers.

Transportation costs are lowered by consolidating shipment

to multiple stores on a single truck, resulting in better
utilsation of the truck
 Reverse Logistics

Growing emphasis on new products, variety and freshness of

products has made it necessary for retailers to CLEAR their
distribution network in term of revenue and storage space.

The process of planning. Cost-effective flow of excess or

unsold inventories and related information from the point of
consumption to the point of origin

It involves
> Collection of merchandise from the store at warehouse;

> Sorting of the merchandise according to the quality state,

Taking decision regarding price reductions or return to

vendor;
 Inventory Plan

Inventory Plan is affected by the nature of the product; these

Products can be divided into different categories

Seasonal: Products which are in demand over a particular season;

Demand is fluctuating, May be left with unsold inventory;

Frequent replenishments required, Shorter lead times should

be negotiated, smaller buffer stocks are desirable

taples: continue to remain over a long period, though their variety or

rands may only have a short-term demand

Larger buffer stocks are desirable

Derived: Demand for certain products arise because of the
demand of few basic goods.

The demand for a derived product can be forecasted in

consideration with the demand for basic product.

Irregular: These are mainly fad related products which are not
seasonal but are in demand for a very short period of time;
their repeated demand is not confirmed

A retailer needs to maintain a balance of stock to replenish of

merchandise at any given period of time.

It is the minimum amount of inventory a retailer would wish to

maintain even during lean period.
 The basic stock could be calculated as;

Basic Stock = Average Monthly Stock- Average Monthly Sale

Beginning of the Month = Planned Monthly Sales + Basic Stock.

Percentage Variation Method: This method could be used for the

merchandise, which has high stock turnover or relatively stable sale

The inventory level for staple merchandise like shirts or trousers could
be determined by this method.

This method is based on the assertion that at the beginning of the month,
inventory stock could increase or decrease by 50% due to sale variation.
 Week’s Supply Method: Food and Grocery retailers may use this method
of inventory plan

The sale forecast is done on a weekly basis under the assumption that
the inventories are in direct proportion to sales.

Stock-sale ratio method: The inventory levels are maintained at a specific

Sale to stock ratio predetermined by the retailer

Replenishment Cycles would differ with the type of merchandise and their
turnover

Low Turnover ------

High Turnover ---------

 Common Buying Errors
• Buying merchandise that is either priced too high or too low for the
store’s target market.

• Buying the wrong type of merchandise (i.e., too many tops and no
skirts) or buying merchandise that is too trendy.

• Having too much or too little basic stock on hand.

• Buying from too many vendors.

• Failing to identify the season’s popular items early enough in the

season.
•Failing to let the vendor assist the buyer by adding new
items and/or new colors to the mix.

(Quite often, the original order is merely repeated, resulting

in a limited selection.)
 Inventory Planning

• Optimal Merchandise Mix

• Constraining Factors

• Managing the Inventory

• Conflicts in Unit Stock Planning

 Optimal Merchandise Mix
• Merchandise Line group of products that are closely related.

• They are intended for the same end use (all televisions); are
sold to the same customer group

• Category Management management of merchandise

categories, or lines, rather than individual products, as strategic
business unit.
• Variety number of different merchandise lines that the retail stocks in the store.

• Breadth (or assortment) number of merchandise brands that are found in a

merchandise line.

• Battle of the Brands occurs when retailers have their own products competing with
the manufacturer’s products for shelf space and control over display location.

• Depth average number of stock-keeping units within each brand of the

merchandise line.
 Constraining Factors

Dollar Merchandise Constraints

Space Constraints

Merchandise Turnover Constrains

Market Constraints
• Dollar Merchandise Constraints

• Consignment is when the vendor retains the

ownership of the goods, is paid only when the goods
are sold by the retailer.

• Extra Dating is when the vendor allows the retailer

extra time before payment is due for goods.
 Managing the Inventory
• Model Stock Plan is a unit stock plan that shows the precise items and quantities
that should be on hand for each merchandise line.

• Identify attributes of each merchandise

• Identify inventory levels

• Allocate Dollars or Units

Successful retailers, may realize that customers have stopped
Purchasing a certain size, style or design

As a result they may disregard past sales records and offer

large selections of popular size, style or design

Predicting future sales for fashion or fad products is difficult.

Inventory Management for a Retailer Selling a
Basic Stock Item
Inventory Management for a Retailer Selling a
Seasonal Item
 Conflicts in Stock Planning

• Maintain a strong in-stock position on genuinely new items while

trying to avoid the 90 percent of new products that fail in the
introductory stage.

• Maintain an adequate stock of the basic popular items while having

sufficient inventory budget to capitalize on unforeseen opportunities.

• Maintain high merchandise turnover while maintaining high margin

goals.

• Maintain adequate selection for customers while not confusing them.

• Maintain space productivity and utilization while not congesting the

store.
 Vendor Negotiations
• Trade Discount: functional discount it is a form of compensation that
the buyer may receive for performing certain wholesaling or retailing
services for the manufacturer.

• Quantity Discount: price reduction offered as an inducement to

purchase large quantities of merchandise.

• Promotional Discount: discount provided for the retailer performing

an advertising or promotional service for the manufacturer.

• Seasonal Discount: discount provided to retailers if they purchase and

take delivery of merchandise in the off season.
Cash Discount: discount offered to the retailer for the prompt
payment of bills.

In-Store Merchandise Handling

• Shrinkage is the loss of merchandise due to theft, loss, damage, or
bookkeeping errors.

• Vendor collusion occurs when an employee of one of the retailer’s vendors

steals merchandise as it is delivered to the retailer.

• Employee theft occurs when employees of the retailer steal merchandise where
they work.

• Customer theft is also know as shoplifting and occurs when customers or

individuals disguised as customers steal merchandise from the retailer’s store.
PRICING
 What is Price?
• Basis for exchange. What the retailer is
willing to sell product/service for; what the
consumer is willing to pay to obtain
product/service

• The customer should be willing to pay the

price, that is product’s “worth.”
 Pricing Challenges for Retailers

1. All the sales in past decade have

conditioned consumers to never pay full
price

2. Economic recession –makes price more

important – raises the “value” issue

3. Stores with “everyday low prices” are

increasingly important
 Price Elasticity of Demand
Small Percentage change in Price leads to substantial change
in Demand, price is elastic

This occurs when the urgency to purchase is low or

Substitutes are available

Large percentage change in Price leads to small percentage

Change in demand, price is inelastic

This occurs when the urgency to purchase is high or

no substitutes are available
Computing Price Elasticity of Demand is difficult for retailers
as the number of products is large

Retailers rely on average markup pricing, competition,

Tradition and industry wide data.

Price sensitivity varies by market segment based on shopping

orientation

Economic Consumers: shop around for lowest possible prices

Largest Segment in India.

Status Oriented Consumers: Interested in prestigious brands

And strong customer services.
Assortment-Oriented Customers: seek retailers with strong
selection in the product categories.

Personalizing Consumers: shop where they are recognized

and are loyal towards them.

Market Pricing

large choice of retailers, they fix price similar to each other.

Less control over price because consumers may switch to

competitors

Administered Pricing

Retailers have distinctive retail mix, advantage to charge

Premium price
Pricing Strategies are quickly copied, reaction of competitors
are predictable

Price Strategy should be viewed from both short run and long
term perspective.

May lead to Price War and may lead to low profits or losses
 Pricing Strategy
1. Cost oriented: retailer sets a price base,
Minimum Price acceptable to the firm so it can reach a specified
profit goal.

Merchandise Cost + Operating Cost + Profit Margins

2. Demand oriented: what customer will pay?

Determine the range of prices acceptable to the target market.

Top of this range is called demand ceiling

3. Competition Oriented: setting prices in accordance to competitors.

 Demand Oriented Pricing
Retailers estimate the quantities that customers would buy at
various price ranges.

This approach studies psychological implications of pricing

Types of Psychological Pricing:

Price-Quality Association: High Price High Quality

True in cases of brands that are offering similar product

features, quality, design or style

Consumers having little experience in judging the quality

 Prestige Pricing: Customers will not buy goods that are
Priced too low

Cost Oriented Pricing

Mark up Pricing: Most widely used technique

Merchandise Cost + Operating Expenses + Desired Profit = Selling Price

Selling Price – Merchandise Cost = Mark Up

Normally Markups are calculated in percentages on retail pricing

Markup percentage =

{(Retail Selling Price – Merchandise Cost) / Retail Selling Price} X 100

The level of mark up depends upon,

Supplier’s suggested Price,

Inventory turnover,

Competition,

Rent and other Overheads,

Extent to which the product must be serviced and

The selling efforts required.

 Some important definitions
• Initial markup – amount product is initially marked up

• Original selling price = cost + initial markup

• Maintained markup – amount the retailer expects to make on the sale

of a particular item

• Maintained markup=Net sales – COGS

• Maintained markup% = Maintained MU/Net Sales

Ex: $62,000/120,000 = 51.67%

• Maintained Selling Price = Initial Selling Price-Reductions

(you build reductions into original selling price)
 Establishing Marketing Strategy

 Market Segmentation

 Brand Positioning

 Product and Service Mix

 Pricing Strategy

 Location

 Promotion

 Staff
 Concept of Services Marketing

A service is any activity or benefit that one party can offer to

Another that is essentially intangible

It does not result into ownership of anything

Services are separately identifiable intangible activities

which provide want satisfaction and not necessarily tied to
the sale of a product or another service