CRITICAL ELEMENTS OF RETAILING

Definition of Retailing

Retailing consists of the activities involved

in selling goods and services

directly to ultimate consumers

for personal, non business use

Basis of Positioning

Breaking bulk

Spatial convenience

Waiting and delivery time

Product variety

Most retail outlets

Sam’s Clubs

ConvenienceShoppingSpecialty

Large stocksMinimum queuing time

Breadth of product rangeDepth of assortment

Major Retailer Types

• Specialty store• Department store• Supermarket• Convenience store

• Discount store• Off-price retailer• Superstore• Catalog showroom

Elements of Retailing(Customer related)

• Variety and Assortment

breadth of product lines and

depth of product brands or models

• Location and Convenience

• Customer Service

Contrast of Traditional and Modern Retailing

TRADITIONAL

High margin

Low Turnover

Numerous personal services

MODERN

Low margin

High turnover

Minimum Services

In the 21st Century, some retailers are able to combine LOW MARGINS, HIGH MARGINS WITH EXCELLENT PERSONAL SERVICESby using sophisticated information systems for improved asset management

Strategic Profit Model

Net Profit

Net Worth

Net Profit Net Sales Total Assets

Net Sales Total Assets Net WorthX X

Margin Management

Asset Turnover

Financial Leverage

Measures of Performance critical to Retailers

1. Gross margin return on inventory

(GMROI)

2. Gross margin per full time equivalent

employee (GMROL)

3. Gross margin per square foot

(GMROS)

Indicators of Sales Effectiveness

• Number of people passing by location

• Percentage who enter store

• Percentage of those who enter who also buy

• Average amount spent per sale

Trends in Retailing

• New retail forms and combinations

• Growth of intertype competition

• Competition between store-based and non-store-based retailing

• Growth of giant retailers

• Growing investment in technology

• Global presence of major retailers

Strategic Issues in Modern Retailing

Increased Power of RetailersRetailers tend to dominate because :

1. Growth for a manufacturer now translates to market share game

2. In the competitive environment retailers cannot increase prices. Margins can increase only by lowering procurement prices

3. Retailers have many new products to choose when deciding what to stock

4. With information technology the retailer can capture item by item data of sales

Power RetailingCharacterized by :

1. Ability to take risks by forecasting trends

2. Ordering early

3. Selling in large volumes

4. Heavy investments in information technology

5. Commitment to deliver value

6. Emphasis on customer service

Emergence of Global Retailers

Driven by :

1. Slowing of growth in the home

markets

2. Overwhelming attractiveness of new

emerging markets

3. Liberalization of several closed

economies

What spells success for a Retail operation

Merchandise Planning and Control

Merchandise Budgeting :

Planned sales

Planned stock levels

Planned reductions (markdowns)

Planned Gross margins and

Operating Profits

Non Store Retailing

1. Catalogue retailing

2. Direct Selling Organizations

3. Electronic Channels

Catalogue Retailing

Suitable for

Service Outputs

Trade off

Dispersed customers

Time starved customers

Break Bulk

Assortment

Spatial convenience

Delayed deliveries

Catalogue Retailing

Challenges

Procurement of the product

Preparation of the catalogue

Organizing the mailing lists

Order fulfillment and shipping

Out – of – stock situations

Merchandise returns

Direct Selling Organizations(Multilevel selling – Network selling)

‘Distributors’/Consultant primarily perform the promotion flow vigorously

Drawbacks :1. Low entry barriers, hence the danger of

non-serious distributors being inducted

2. Segmenting/targeting/positioning absent

Electronic Channels

Potential constrained by

Service Outputs

Trade off

Penetration of PCsInefficiencies of the ISPFear of fraud

Break BulkAssortmentSpatial convenience

Delayed deliveries

Channels involving use of Internet to reach the end-user. The customer can buy on-line

Electronic Channels

Challenges

Integration of electronic channel with the existing channels

Reduction of conflict

Order fulfillment and shipping

Out – of – stock situations

Merchandise returns

February 29 IKEA calls Indian retail

opportunity a myth

In a scathing attack on misplaced optimism for Indian Retailing, an official of Swedish retail major, IKEA has dismissed the Indian retail market as over-hyped. “India is not ready for big retailers yet. Maybe we can talk about it in 2015-16…I am not impressed by the big investments happening in this market today. I want to see return on investment, which is not happening,” IKEA India Property and Establishment Manager Staf Lenders said at the Technopak Retail Summit. easing of FDI norms was a pre-condition for their entry.

Mr. Lenders further lambasted Indian retailers and those who had already made investment, “I can’t understand how an Indian company can open 200 stores in one year. May be you (India) are just copying the mistakes of others…Also, local companies, including Reliance, do not know how to respect customers.”

FranchisingIs the licensing of an entire business format.

Is a package of industrial or intellectual property rights.

Franchising is characterized by :1. Use of common name or sign, with a uniform presentation

of the premises2. Communication of know how from franchisor to franchisee3. Continuing provision of commercial or technical assistance

by the franchisor to the franchises.

Franchisingfrom a franchisee point of view

1. A good way for the uninitiated to get into business

2. A good system to run a business

3. Renting of brand equity

Franchisingfrom a franchisor point of view

1. A good way to tide over scarcity of capital and managerial talent

2. A justification for national advertising

3. Preempt competition in a fragmented market and build a strong brand

4. Harnessing the motivation of a capable person

5. Cutting down on the monitoring costs by making people into residual elements

The Franchise Contract

Three important sections of the

contract :

1. The payment system

2. The real estate

3. Termination

The Franchise Contract

Three important sections of the

contract :

1. The payment system

2. The real estate

3. Termination

For notes only

Company owned v/s Franchise owned Outlets

When to have company outlets ???

1. Initially the franchisor needs to start out with

some outlets of his/her own to formulate the

business format and develop the brand name.

2. To hold a location in a new market

3. In markets requiring monitoring from the

franchisor a company outlet is preferable

…..2

Company owned v/s Franchise owned Outlets

1. Each form benchmarks for the other

2. Company stores are good laboratories to

test a new product concept. However,

company store managers don’t generate

ideas, they follow rules. Ideas come from

the franchisees.

…..2

That’s all for Today!!!