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Retail Management

ISB&M Retail Management

Retailing encompasses the business activities involved in selling goods &

services to consumers for their personal, family, or household use.

It includes every sale to the final consumer – ranging from cars to apparel to

meals at restaurants to movie tickets.

What is Retail Management?

Key issues that retailer must resolve:

How can we best serve our customer while earning a fair profit?

How can we stand out in a highly competitive environment where customers

have so many choices?

How can we grow our business while retailing a core of loyal customers?


Retail Functions in Distribution

A Typical Channel of Distribution

Manufacturer WholesalerRetailer

Final consumer

Manufacturer Brand A

Manufacturer Brand B

Manufacturer Brand C

Manufacturer Brand D

Wholesaler

Wholesaler

Retailer

Brand A customers

Brand B customers

Brand C customers

Brand D customers

Retailers role in sorting process


Retailers often act as the contact between manufacturers, wholesalers, & customers.

Retailers collect an assortment (variety) from various sources, buy in large quantity, &

sell in small amount. This is sorting process.

Retailers communicate with customers, wholesalers & manufacturers.

Shoppers learn about the availability & characteristics of goods & services, store hours,

sales etc., from retailers advt., sales people & displays.

Manufacturers & wholesalers are informed by their retailers with regard to sales forecast,

delivery delays, customer complaints, defective items, inventory turnover and so on..

Many goods & services have been modified due to retailer feedback.

For small suppliers, retailers provide assistance by transporting, sorting, marketing,

advertising, & pre-paying for the products.

Retailers also complete transactions with customers i.e., having convenient locations,

filling order promptly & accurately, & processing credit purchase.

Some retailers also provide customer services such as gifts wrapping, delivery, &

installation.

To be more appealing, many firms engage in multi-channel retailing i.e., multiple point

of contact like physical stores, websites, mail-order catalogs etc.


contd..


Benefits

Reach more customers

Reduce costs

Improve cash flow

Increase sales more rapidly

Focus on area of expertise


contd..

Manufacturers also do operate retail

facilities (besides selling at

conventional retailers). In running their

stores, these firms compete the full

range of retailing functions & compete

with conventional retailers.


Retailers are part of distribution channel, so manufacturers (wholesalers) are concerned

about:

Caliber of displays

Customer service

Store hours

Retailer‘s reliability as business partners

Retailers are also major customers of goods & services for resale, store fixtures,

computers, management consulting ,& insurance.

Retailer-Supplier Relationship

Retailers and supplier have different priorities on:

Control over distribution channel

Profit allocation

No. of competing retailers handling supplier‘s products

Product display

Promotion support

Payment terms

Operating flexibility


Channel Relations

Exclusive Distribution

Suppliers make agreements with one or a few retailers that designates them the only one

to carry certain brands/products in a specific geographic region.

Both parties work together to maintain an image, assign self space, allot profits & costs,

& advertise.

This is the smoothest channel relationship.

Retailer-Supplier Relationship

contd..

Intensive Distribution

Suppliers sell through as many retailers as possible.

This maximizes suppliers‘ sales & lets retailers offer many brands & product versions.

Retailers may assign little self space to specific brands, set high price on them, & not

advertise them.

This is most volatile channel relationship.

Selective Distribution

Suppliers sell through a moderate no. of retailers carrying some competing brands.

This combines aspects of Exclusive & Intensive Distribution


The average amount of a sales transaction for retailers is much less than

manufacturers.

This low amount creates the need to tightly control the cost associated with each

transaction like sales personnel, credit verification, & bagging.

To maximize the no. of customer the retailer has to emphasize more on ads & special

promotions.

Increase impulse sales by more aggressive selling.

The Special Characteristics of

Retailing

Final consumers make many unplanned or impulse purchases.

Large %age of consumers do not look at ads before shopping.

They do not prepare shopping list.

Make fully unplanned purchases.

This indicates the value of in-store displays, attractive store layouts, & well organized

stores, catalogs, & website.

Retailer‘s ability to forecast, budget, order merchandise, & sufficient personnel on the

selling floor becomes difficult.


Retail customers usually visit a store, even though mail, phone, & web sales has

increased.

Most retail transactions happen in stores & will continue in future.

Many people like to shop in person, want to touch, smell, and/or try on products.

Many people to browse for unplanned purchases.

They feel more comfortable talking a purchase home with them than waiting for a

delivery.

Desire privacy while at home.

Retailers must work to attract shoppers to stores & consider such factors such as store

location, transportation, store hours, proximity (nearness) of competitors, product

selection, parking & ads.

The Special Characteristics of

Retailing


Retail strategy is the overall plan guiding a retail firm. It influences the firm’s business

activities & its response to market forces, such as competition & economy.

Six steps in strategic planning

Define the type of business in terms of the goods or services & company‘s specific

orientation.

Set long-run & short-run objectives for sales & profit, market share, image etc.

Determine the customer market to target on the basis of its characteristics (like gender

& income level) & needs (like product & brand preferences).

Devise an overall, long-run plan that gives general direction to the firms & its employees.

Implement an integrated strategy that combines factors like store location,

transportation, product variety, pricing, and advertising & display to achieve objectives.

Regularly evaluate performance & correct weaknesses or problems when observed.

Importance of Retail Strategy


Growth-oriented objectives

Appeal to prime market

Distinctive company image

Focus

Strong customer service for its retail category

Multiple points of contact

Employee relations

Innovation

Commitment to technology

Community involvement

Constantly monitoring performance

Key to success


Customer orientation - The retailer determines the attributes & needs of its customers

& endeavors (take action) to satisfy these needs.

Coordinated effort - The retailers integrates all plans & activities to maximize

efficiency.

Value-driven - The retailer offers good value to the customers, whether it be upscale

(expensive) or discount i.e., ―appropriate pricing‖ for goods & customer service.

Goal oriented - The retailer sets goal & uses its strategy to attain them.

The Retailing Concept

Customer orientation

Coordinated effort

Value- driven

Goal orientation

Retailing concept Retail Strategy


Classification of Retail Institutions

OwnershipStore-based retail

strategy mix

Nonstore-based retail strategy mix & nontraditional

retailing

• Independent• Chain• Franchise• Leased department• Vertical marketing system• Consumer cooperative

• Convenience store• Conventional supermarket• Food-based supermarket• Combination store• Box (limited line) store• Warehouse store• Specialty store• Variety store• Traditional department store• Full-line department store• Off-price chain• Factory outlet• Membership club• Flea (louse) market

• Direct marketing• Direct selling• Vending machine• World wide web (WWW)


Ownership format serves a marketplace niche.

Independent retailers capitalize on a very small targeted customer base & please

shoppers in a friendly, folksy (simple) way. Word-of mouth communication is important.

These retailers should not try to serve too many customer & enter into price wars.

Chain retailers benefit from widely known image, economies of scales (i.e. cost

advantages that a business obtains due to expansion), & mass promotion possibilities.

They should maintain their image chain wide & not be inflexible in adapting changes in

the marketplace.

Franchisors have strong geographic coverage & motivation of the franchisees as owner-

operators. They should not get bogged down in policy disputes with franchisees or charge

excessive royalty fees.

Leased departments enable store operators & outside parties to join forces & enhance

the shopping experience, while sharing expertise & expenses. They should not hurt the

image of the store or place too much pressure on the lessee to bring in store traffic.

A vertically integrated channel gives a firm greater control over sources of supply, but it

should not provide consumers with too little choice of products or too few outlets.

Cooperatives provide members with price savings. They should not expect too much

involvement by members or add facilities that raise costs too much.

Retail Institution by Ownership


An independent retailer owns one retail unit.

Independent Retailer

Advantages

There is flexibility in choosing retail formats, location, assortment (variety), prices, hours etc.,

& devising strategy based on the target customers.

Investment costs for leases, fixtures, workers, & merchandise can be brought down. There is no

duplication of stock or personnel function. Responsibilities are clearly delineated (defined)

within the store.

Independents frequently act as specialist in a niche of the particular goods/services category.

They are then more efficient & can lure (attract) shoppers interested in specialized retailers.

Independents exert strong control over their strategies, & the owner-operator is typically on

the premises. Decision making is centralized & layers of management personnel are minimized.

There are certain image attached to independents, particularly small ones, that chains cannot

readily capture.

Independents can easily sustain consistency in their efforts because only one store is operated.

Independents have ―Independence‖. No meetings, union, stockholders & labor unrest etc.

Entrepreneurial drive.


Independent Retailer

Disadvantages

Less bargaining power with the suppliers as they buy less quantity.

Cannot gain economies of scale (i.e. cost advantages that a business obtains due to expansion) in

buying & maintaining inventory. Transportation, ordering, & handling costs are high.

Operations are labor intensive.

They are limited to certain media for advt. because of financial constraints.

Family-run independents is overdependence on the owner. It is difficult to keep it up &

running.

Limited time allotted to long-run planning, since owner is intimately involved in day-to day

operations.


Chain retailer operates multiple outlets (store units) under common ownership. It

usually involves in some level of centralized purchasing & decision making.

Chain Retailer

Advantages

Many chains have bargaining power due to their purchase volume. They receive new items

when introduced, have orders promptly filled, get sales support, & obtain volume discounts.

Chains achieve cost efficiencies when they buy directly from the manufacturers & in large

volumes, ship and store goods, & attend trade shows sponsored by the suppliers to learn about

new offerings. They can sometimes bypass wholesalers.

Efficiency is gained by sharing warehouse facilities; purchasing standardized store fixtures;

centralized buying & decision making etc. Headquarters have broad authority for personnel

policies & for buying, pricing, & advt. decisions.

Computerized ordering merchandise, inventory, forecasting, sales, & bookkeeping. This reduces

overall costs.

Take advantage of variety of media from print to electronic.

Detailed & clear responsibility for employees with available substitute incase any employee is

retiring or quitting.

Spend considerable time in strategic planning. Opportunity & threat are closely monitored.


Chain Retailer

Disadvantages

Flexibility may be limited. Consistent strategies on pricing, promotions, & product variety must

be followed throughout all units which may be difficult to adapt to local diverse market.

Investment is high due to infrastructure & store as multiple store has to be stocked.

Managerial control is complex due to geographically dispersed branches.

Limited independence to the personnel.


Franchising involves a contractual arrangement between a franchisor (a

manufacturer, wholesaler, or service sponsor) & a retail franchisee, which allows

the franchisee to conduct business under a established name & according to a given

pattern of business.

The franchisee pays an initial fees & a monthly %age of the gross sales in exchange

for the rights to sell goods & services in an area.

A franchisee operates autonomously in setting store hours, chooses a location, &

determines facilities & displays.

Franchising

Three structural arrangements dominate retail franchising

Manufacturer-retailer – A manufacturer gives independent franchisees the right to sell goods &

related services through licensing agreement. (Eg., Auto/truck dealers like GM, Petroleum

products dealers like IOC).

Wholesaler-retailer

Voluntary - A wholesaler sets up a franchise system & grants franchises to individual

retailer. (Eg., Auto accessories stores, Consumer electronics stores).

Cooperative – A group of retailers sets up a franchise system & shares the ownership &

operations of a wholesaling organization. (Eg., Food stores).

Service sponsor-retailer – A service firm licenses individual retailers so they can offer specific

service packages to customers. (Eg., McDoland‘s).


Advantages of Franchisees

They own a retail enterprise with a relatively small capital.

They acquire well-known names & goods/services lines.

Standard operating procedures & management skills may be taught to them.

Cooperative marketing efforts (like national advt.) are facilitated.

They obtain exclusive selling rights for specified geographical territories.

Their purchases may be less costly per unit due to the volume of the overall franchise.

Franchising contd..

Disadvantages of Franchisees

Oversaturation could occur if too many franchisees are there in one geographical area.

Due to overzealous selling by some franchisors, franchisees‘ income potential, required

managerial ability, & investment may be incorrectly stated.

They may be locked into contracts requiring purchases from franchisors or certain vendors.

Cancellation clauses may give franchisors the right to void agreement if provisions are not

satisfied.

In some industries, franchise agreements are of short duration.

Royalties are often a %age of gross sales, regardless of franchisee profits.


Advantages of Franchisors

A national & global presence is developed more quickly & with less franchisor investment.

Franchisee qualification for ownership are set & enforced.

Agreement require franchisees to abide by stringent operating rules set by franchisors.

Money is obtained when goods are delivered rather than when goods are sold.

Because franchisees are owners & not employees, they have greater initiative to work hard.

Even after franchisees have paid for their outlets, franchisors receive royalties & may sell

products to the individual proprietors.

Franchising contd..

Disadvantages of Franchisors

Franchisees harm the overall reputation if they do not adhere to company standards.

Lack of uniformity among outlets adversely affects customer loyalty.

Intra-franchise competition is not desirable.

The resale value of individual units is injured if franchisees perform poorly.

Ineffective franchised units directly injure franchisors‘ profitability.

Franchisees, in greater number, are seeking to limit franchisors‘ rules & regulations.


A leased department is a department in a retail store – usually a department,

discount, or specialty store – that is rented to outside party.

The leased department proprietor is responsible for all aspects of its business &

normally pays a %age of sales as rent.

The store sets operating restrictions for the leased department to ensure overall

consistency & coordination.

Leased Department

Advantages (from the stores’ prespective)

The market is enlarged by providing one-stop customer shopping.

Personnel management, merchandise displays, & reordering items are undertaken by lessees.

Regular store personnel do not have to be involved.

Leased department operators pay for some expenses, thus reducing store costs.

A %age of revenue is received regularly.

Disadvantages (from the stores’ prespective)

Leased department operating procedures may conflict with store procedures.

Lessees may adversely affect the stores‘ image.

Customers may blame problems on the store rather than on the lessees.


Leased Department

Advantages for Leased department operators

Stores are known, have steady customers, & generate immediate sales for leased departments.

Some costs are reduced through shared facilities like security equipment & display windows.

Their image is enhanced by the relationships with popular stores.

Disadvantages for Leased department operators

There may be inflexibility as to the store hours they must be open & the operating style.

The goods / services lines are usually restricted.

If they are successful, the store may raise rent or not renew leases when they expire.

In-store locations may not generate the sales expected.


A vertical marketing system consists of all the levels of independently owned businesses along a

channel of distribution.

Vertical Marketing System

Type of channel Channel Functions Ownership

Independent system• Manufacturers or retailers are small• Intensive distribution is sought• Customers are widely dispersed• Unit sales are high• Company resources are low• Channel members share costs & risk• Task specialization is desirable

Manufacturing

Wholesaling

Retailing

Independent manufacturer

Independent wholesaler

Independent retailer

Partially integrated system• Manufacturers & retailers are large• Selective or exclusive distribution• Unit sales are moderate• Company resources are high• Greater channel control is desired• Existing wholesalers are too expensive or

unavailable

Manufacturing

Wholesaling

Retailing

Two channel members own all facilities & perform all functions.

Fully integrated system• Firm has total control over its strategy• Direct customer contact• Exclusive offerings• System is costly & requires lot of

expertise

Manufacturing

Wholesaling

Retailing

All production & distribution functions are performed by one channel member.


A consumer cooperative is a retail firm owned by its customer members.

A group of customers invests, elects officers, manages operations & share profits.

They account for tiny piece of retail sales.

Cooperatives are formed because they think they can do retailing function,

traditional retailers are inadequate & prices are high.

They have not grown because consumer initiative is required, expertise may be

lacking, expectations have frequently not been met, & boredom occurs.

Consumer Cooperative


Retail Location Strategies &

Decisions


There are three most important aspects in Retailing – location, location

& location.

Locating the retail store in the right place was considered to be

adequate for success.

It is a important part of the retail strategy as it conveys a fair amount

of image.

It influences the merchandise mix & interior layout of the store.

It is difficult to change the location once the store comes into

existence.

Change of location may result in loss of customer & employees.

Why Location is Important?


The choice of the location of the store depends on the target audience & kind

of merchandise to be sold.

Types of Retail Location

Types:

Freestanding/Isolated store

Store located along major traffic artery

No competitive retailers around

Rents are usually low

Advertising cost are high

Customers may not prefer to travel long distance to visit only one store

Part of a business district

A business district (primary, secondary or neighborhood) is a place of commerce in

the city

Rent is high; parking is cumbersome

It has good accessibility in terms of transport

Customers are more


Types of Retail Location contd..

Types:

Part of a shopping centre

Shopping centre - A group of retail & other commercial establishments that is

planned, developed, owned & managed as single property

Parking is available

Basic configuration – mall or strip centre with walkway

Ideally enclosed & climate control


Steps involved in choosing a retail

location1. Identify the market in which to locate the store

2. Evaluate the demand & supply within that market i.e., determine the market potential

1. Demographic features of the population

2. The characteristics of the households in the area

3. Competition & compatibility

4. Laws & regulations

5. Trade area analysis

3. Identify the most attractive sites

1. Traffic

2. Accessibility of the market

3. The no. & types of stores in the area

4. Amenities available

5. To buy or to lease

6. The product mix offered

4. Select the best site available


The Spread of Organized Retail in

India

Mumbai

Delhi

Kolkata

Pune

Chandigarh

Hyderabad

Indore

Gurgaon

Noida

Jaipur

Bhopal

Bhubaneshwar

Nagpur

Udaipur

BangaloreChennai


Retail Merchandising


What is Merchandising?

Merchandising is planning, buying & selling of merchandise (product).

The American Marketing Association defined merchandising as ―the planning involved in

marketing the right merchandise at the right place at the right time in the right quantity

at the right price‖.

Merchandising can be termed as the analysis, planning, acquisition, handling & control of

the merchandise investments of a retail operation.

Factors affecting the merchandising function

Merchandising function

Size of

organization

Types of stores

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Merchandise Planning

Merchandise planning can be defined as the planning & control of the merchandise

inventory of the retail firm, in a manner which balances between the expectations of the

target customers & the strategy of the firm.

Implication of Merchandise Planning

Merchandise Planning

Finance

Payments to suppliers

Profitability measurements

Store Operations

Space planning

Communication about new

products & their features

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Merchandise Planning Process

Stage I: Developing the Sales Forecast

1. Reviewing past sales

2. Analyzing the changes in the economic conditions

3. Analyzing the changes in the sales potential

4. Analyzing the changes in the marketing strategies & the competition

5. Create the sales forecast

Stage II: Determining the Merchandise Requirements

Planning in merchandising is at two levels:

1. The creation of the Merchandise Budget (5 parts)

2. The Assortment Plan

Merchandise Budget

Sales PlanStock

support planPlanned

reductionPlanned Purchase

Gross Margins



Stage II: Determining the Merchandise Requirements

Planning in merchandising is at two levels:

1. The creation of the Merchandise Budget (5 parts)

2. The Assortment Plan

Company DepartmentMerchandise Classification

Merchandise Category

Merchandise Sub Category

Style Price point

SKU (Stock Keeping Unit)

The Merchandise Hierarchy



Some key merchandising terms

Staple/basic merchandising – products always in demand (basic necessities)

Fashion merchandising – products has high demand for a relatively short period of time

Seasonal merchandising – seasonal products

Fad merchandising – enjoy popularity for a limited period of time; generated high sales for

a short time

Style – unique shape or form of any product (taste in music)

Assortment – variety of merchandise mix

The width/breadth of assortment – refers to the number of brands

The depth of assortment – variety in one goods/services category

Points to be kept in mind while creating a plan -The merchandise budget should be prepared in advance of selling season.The language of the budget should be easy to understand.Merchandise budget must be planned for a short period – 6 months is the normal norm.Budget should be flexible.


Key Components of Merchandise

Planning

Planned sales – Planned sales are projected sales for a period that is planned.

Month %age increase Planned sales (Rs)

Feb 12% 35,000 X 12% + 35,000 = 39,200

April 25% 43,750

June 21% 42,350

Example:

Last year’s sale for the same period = 35,000

Planned purchase – Planned purchases represent the merchandise that is to be purchased

during any given period.

Planned Purchase = Planned Sales + Planned Reductions + Planned EOM – Planned BOM



PlanningPlanned reduction – Markdowns (deductions in prices), employee discounts & inventory

shrinkage due to theft or pilferage come under planned reduction.

Planned markup – After calculating the level of inventory that needs to be purchased, the

retailer needs to determine the initial markup for the products.

Markup in Rs. = Selling Price – Cost Price

Markup % = Markup in Rs.

Retail Price

Gross Margin – Gross margin is the difference between the selling price & the cost of the

product, less reductions from markdowns, shrinkage & employee discounts.

Profit = Gross margin – operating expenses

B.O.M (Beginning-of-month) & E.O.M (End-of-month) planned inventory levels –

Four Methods of Inventory Planning:

a. Stock-to-Sales Method

S/S Ratio = Stock in hand E.O.M (at retail value) = Value of

inventory

Sales for the same month

Actual salesPlanned BOM Inventory = Stock-sales ratio x Planned sales



PlanningThe Basic Stock Method – In this method, the buyer believes that he needs to carry a

certain amount of inventory in the store at all times.

Basic Stock = Average stock for the season – Average monthly sales for the season

Average monthly sales for the season = Total planned sales for the season

No. of

months in the season

Average stock for the season = Total planned sales for the season

Estimated inventory turnover rate for the season

Beginning of the month (BOM) stock = Planned monthly sales + Basic Stock

The Percentage Variation Method – This method of inventory calculation is used in case

the stock turnover typically exceeds six times a year.

BOM Stock = Avg. stock for season * 1/2 * [1 + (Planned sales for the month / Avg.

monthly sales)]

The Week’s Supply Method – Retailers who need to maintain a control over the

inventories on a weekly basis, may use this method.

BOM Stock = Average weekly sales x No. of weeks to be stocked



Stage III: Merchandise Control – The Open to Buy

The concept of Open to buy has two folds:

1. depending on sales of the month & the reduction, the merchandise buying can

be adjusted.

2. the planned relation between the stock & sales can be maintained.

Open to buy ensures that the buyer –

Limits overbuying & under buying

Prevents loss of sales due to unavailability of the required stock

Maintain purchases within the budgeted limits

Reduce markdowns i.e., reduction in price which may arise due to excess

buying

Open-to-Buy = Planned EOM Stock – Projected EOM Stock

Projected EOM Stock = Actual BOM Stock + Actual Additions to stock + Actual on

order – Planned monthly sale – Planned reductions for the

month



Stage IV: Assortment Planning

Assortment Planning involves determining the quantities of each product that will

be purchased to fit into the overall merchandise plan.

Details of color, size, brand, materials etc. have to be specified.

To create a balanced assortment merchandise for the customer.

Depth

Breadth

Product Line

Department Menswear

Shirts

Zodiac

Styles Color ……

Van HeusenLouis

PhilippeArrow

Trousers Accessories




The Range Plan:

The aim of the range plan is to create a balanced range for each category of products that

the retailer choose to offer.

Range planning should take care of -

The no. of items/options available to the customer should be sufficient at all times &

should be such that it helps the customer make a choice.

The overbuying & under buying is limited.

Sufficient quantities of the product are available, so that all the stores can be serviced &

the product is available at all the stores across various locations.

The lower limit of the range width is often called aesthetic minimum




The Model Stock Plan:

After determining the money available for buying, a decision needs to be taken on what to

buy? & in what quantity?

Steps -

1. Identify the attributes that the customer would consider while buying the product.

2. Identify the number of levels under each attribute.

3. Allocate the total units to the respective item category.

The process of merchandise planning may be top down or bottom up.Top down planning occurs when the corporate objectives dictate the company’s financial objectives in terms of sales, profit & working capital.In Bottom up planning, individual department managers work on the estimated sales projections


The Model Stock Plan

Men’s shirt

100% (1000)

Casual

40% (400)

Small

25% (100)

Medium

40% (160)

Full Sleeve

30% (48)

Half Sleeve

70% (112)

Button Down

40% (45)

White

40% (18)

Cotton

25% (4)

Cotton Blend

75% (14)

Blue

30% (14)

Cream

20% (9)

Grey

10% (4)

Other

60% (67)

Large

25% (100)

Extra large

10% (100)

Dress

10% (100)

Formal

20% (200)

Sport

30% (300)


Branding & Private Labels


Branding

BrandThe American Marketing Association defined a brand as “a name, term, design,

symbol or a combination of them, intended to identify the goods or services of

one seller or group of sellers & to differentiate them from those of the

competitors”.

Branding existed from the time man felt the need to differentiate his products from that

being offered by others.

Branding gradually became a guarantee of the source of the product & ultimately its use

as a form of legal protection against copying grew.

With the development of shops, shopkeepers hung pictures above their shops indicating

the types of goods they sold.

With industrial revolution mass production came into existence but the distance between

the manufacturers & customers increased.

This eventually led to the evolution of the role of the brands as tools by which consumers

identified the products.


Building a Retail Brand

Key questions for retail brands –

Can the brand be identified with the lifestyles of its target customers?

Is there a perceptible difference between the brand & the products offering by the

retailer & other retailers?

Can a story be woven around the brand?

A retail brand is a combination of the company‘s heritage, the merchandise mix, the

store environment, the service strategy, the advertising & promotion.

Successful retail branding starts with a clear definition of what retailers stand for – an

identification of what the customers associate it with, leading customers to think: “This

brand is a reflection of me.. This brand is meaningful to me..”

The retailer needs to determine the specific value proposition for the end customers.

Playing on emotional benefits can also be a branding exercise of the retailer.

Retail branding does not sell a specific product. It is about customer service.


The Retail Value Chain

SuppliersThird Party

LogisticsRetail

OperationsCustomer

Mgmt.Customers

Support Functions

Systems


Private Label

When the retailer decides to sell products or a line of merchandise which is owned,

controlled, merchandised & sold by the retailer in his own store/chain of stores, he is said

to be Selling Own Label / Brand or Private Label merchandise.

A private label can be classified as:

Store Brand – which carries the retailer‘s name, such as Westside, Food World, Big Bazaar

etc.

An Umbrella Brand – where a common brand name is used across multiple categories –

example Splash (Lifestyle), Bare (Pantaloon) etc.

Individual Brands – where specific brand names are created for specific market segments

and/or categories.

The Private Label Marketing Association defines store products as “all merchandise sold

under a retail store’s private label. That label can be stores name or a name created

exclusively by that store. In some cases, a store may belong to a wholesale buying group

that owns labels, which are available to the members of the group. These whole-sale

owned labels are referred to as controlled labels”


Private Label - Evolution

Private labels were traditionally defined as generic product offerings that competed with

national brands on the basis of value proposition.

They were often seen as the lower priced alternative to the ―real‖ thing.

Private label carried the stigma of inferior quality & therefore inspired less confidence.

Generics, which were products distinguishable by their plain & basic packaging were the

first type of private labels.

With the increase in retail stores, the need to earn higher profit & the desire to service

the gaps in consumer requirements gave rise to private labels, both in apparel & the food

& grocery sector.

Today, most of the large department stores have their own private labels which cater to a

specific audience.

Private labels rely on in-store advertisements.

In order to compete with national brands, private labels need to focus on quality.

The average quality of one product compared to other

Consistency in quality over a period of time

Private label goods become more successful where the no. of competing products is

lower.


Why Private Label?

Retailer can fill in the need gaps that may exist in the market place.

Private label gives the retailer an advantage of offering the customer another

option.

A private label allows the retailer to offer a unique product in the marketplace.

Private label allows a retailer to earn a higher margin than other brands he

chooses to retail because designing, merchandising, sourcing & distribution is

done by the retailer. Also, advertisement is in-store.

Make or Buy

Placing the order

& Allocating the goods

MarketingIdentification of

the needPerformance

Measurement

Private Label Creation Process


Merchandise Procurement / Sourcing

The term sourcing means finding or seeking out products from different places,

manufacturers or suppliers.

Method of Procuring Merchandise

1. Identifying the sources of supply

Costs associated with global sourcing:

Country of origin effects – Many a times, where the merchandise has been

manufactured makes a difference in the final sale of the product.

Foreign currency fluctuations – Effects the buying price of the products.

Tariffs – Taxes placed by the govt. on imports.

Foreign trade zones – These are special areas within the country that can be

used for warehousing, packaging, inspection, labeling, exhibition, assembly,

fabrication etc., of imports, without becoming subject to the country‘s

tariffs.

Cost of carrying inventory

Transportation cost



2. Contacting & Evaluating the sources of supply

Contacting can be vendor initiated contact or retailer initiated contact

Points to be kept in mind

The target market for whom the merchandise is being purchased.

The image of the retail organization & the fit between the product & the

image of the retail organization.

The merchandise & the prices offered.

Terms & service offered by the vendor.

The vendor‘s reputation & reliability.

3. Negotiating with the sources of supply

The types of discounts that could be made available to the buyer

Trade discounts

Chain discounts

Quantity discounts

Seasonal discounts

Cash discounts



4. Establishing Vendor Relations

To build & maintain strategic partnership with vendors, the buyer needs to build on:

Mutual trust

Open communication

Common goals

Credible commitments

5. Analyzing Vendor Performance

The total orders placed on the vendor in a year

The total returns to the vendor, the quality of the merchandise

The initial markup on the products

The markdowns (if any)

Vendor‘s participation in various schemes & promotions

Transportation expenses if borne by the retailer

Cash discounts offered by the vendor

The sales performance of the merchandise


Category Management - A Method of Merchandise Management


Category Management

Category Management can be defined as “the distributor/supplier process of managing

categories as SBUs, producing enhanced business results by focusing on delivering customer

value”.

A category is an assortment of items that a customer sees as reasonable substitutes

of each other.

A category management concept is a focus on a better understanding of consumer

needs as the basis for retailers‘ & suppliers‘ strategies, goal, & work processes.

The need to reduce costs, control inventory levels & replenish (refill) stock

efficiently led to the concept of Efficient Consumer Response (ECR).

Category management provides renewed opportunities for meeting consumer needs

& at the same time, for achieving competitive advantage as well as lower costs

through greater work process efficiencies.


Category Management contd..

Category Management is now considered as the “new science of retailing”

because -

1. It involves a systematic process.

2. It emphasizes decision-making based on complex analysis of consumer

data & market level syndicate data.

3. It replaces the brand bias that stems from suppliers‘ interest & encourages

objective view based on consumers‘ desires.

Why Category Management?

Consumer changes

Competitive pressures

Economic & efficiency considerations

Advances in IT


Components Category Management

Strategy

Business Process

Performance Measurement

Organizational Capabilities

Information Technology

Trading Partner

Relationships


The Category Management Business

Process


Step 1: Category Definition

A distinct, manageable group of products/services that consumers perceive to be

interrelated/substitutable in meeting a consumer need.

The category definition should be based on how the customer buys, & not on how

the retailer buy.

This step decides the products that represent a category, sub-category & major

segmentation.

At this step, the retailer assigns products to the various categories based on factors

such as consumer usage & packaging.


Process

Step 2: Category Role

It determines the priority & importance of each category in the overall business.

It serves the basis of resource allocation.

Consumer-based category roles:

Destination categories – Why you as a retailer?

Preferred/routine category

Occasional/seasonal category

Convenience category – one-stop shop


Step 3: Category Assessment – Brain Harris’s Quadrant Analysis


Process

Opportunities

- Harmonise product mix with market trends

- Improve price image via low prices for key

products

- Maximise shelf space at category level

- Give promotional support to key items

Questionable

- Limit product mix to core assortment & delist

marginal products

- Look for price raises

- Minimise self space at category level

- Transfer logistical & operational work to third

parties

Winners

- Continue current policies

- Be alert to adaptation of new products

- Minimise operational problems like “out of

stock”

- Optimise margin mix

Sleepers

- Identify key products within category

- Delist slow movers & marginal products

- Give quick movers more self space

- Optimize margin mix

Ma

rke

t S

ha

re

Market Growth


Step 4: Category Performance Measures

Sales

Profits

Market Share

Inventory Turnover

Changes in the Assortment

Consumer Transaction


Process

Step 5: Category Strategies

Typical category marketing strategies are:

Traffic building

Transaction building

Turf defending

Profit generating

Cash generating

Excitement creating

Image enhancing (Areas: Price, Service, Quality & Varity)


Step 6: Category Tactics

Category tactics work towards the determination of optimal category pricing,

promotion, assortment & self management/presentation of the merchandise.


Process

Step 7: Category Plan Implementation

What specific tasks needs to be done?

When each task needs to be completed?

Who will accomplish each task?

Step 8: Category Review


Retail Marketing Mix

Price

Place

Promotion

Presentation

Customer Service

People

Product

The Retail Marketing

Mix


Cu

sto

me

r

Se

rvic

e

People

Bra

nd

Asso

cia

tion

s

Shopping

Experience

Pricing

Promotion

Place /

Location

Product /

Merchandise

features

Presentation

The Retail Image Factors

Retail Store Image

The Adidas Retail Store

CA, USA


The Retail Communication Mix

Retail Communication

Mix

Sales Promotion

Public Relations

Direct Marketing

Personal Selling

Advertising


Retail Selling Process

Acquiring Product/Merchandise Knowledge

Studying the Customer

Approaching the Customer

Presenting the Merchandise

Overcoming Resistance

Suggestive Selling

Closing the Sale


Retail Management Information System


Effect of a Single Customer Transaction

Customer Transaction

Marketing & Promotions

Inventory Management

Sales Analysis

Credit Card Payments

Customer Database

Warehouse

Recording Merchandise


Efficient Stocking of Merchandise

Collection of Data

Efficiency in Operations

Helps Communication

Why IT in Retail?

Factors affecting

the use of IT

Scale & scope of

operations

The financial

resources available

The nature of

business

HR availability


Electronic Data Interchange (EDI)

Database Management, Data Warehousing, Data Mining

Radio Frequency Identification (RFID)

Transaction Processing System (TPS)

Decision Support System (DSS)

Enterprise Resource Planning (ERP)

Intranet & Internet

E-Commerce or E-Trailing

……

Application of IT


SCM in Retail


The Basic Supply Chain

Finance Flow

SupplierRaw material packaging

warehouse Manufacturer

Manufacturer warehouse

Retailer warehouseRetailer

Physic

al F

low


Framework for Analyzing Issues in SCM

Customer Service

Channel Design

Network Strategy

Policies & Procedures

Organization & Change

Management

Information Systems

Facilities & Equipment

Warehouse Design &

Operations

Materials Management

Transportation Management

STRATEGIC

STRUCTURAL

FUNCTIONAL

IMPLEMENTATION


Servicing the Retail Customer


Customer Service

―Customer service is a task, other than proactive selling, that involves

interactions with customers in person or by telecommunication, mail or

automated process. It is designed, performed & communicated with two goals in

mind –

Operational Production

Customer Satisfaction

Kill a Brand, Keep a Customer!

Customer Service focuses on measurement of how

well a firm meets the established performance

standards that are viewed as important for

meeting customer needs.

Customer Satisfaction is how the customers

measure externally the service performance of a

firm.


Customer Service – A USP

Retail mix like Product, Price, Place, Promotion can be duplicated or copied by

competitors – the total experience (image of the store, ambience, music,& level

of service offered) that the customer gets in the store stay unique.

Identify the key customers & listen & respond to them

Define superior service & establish a service strategy

Set standards & measure performance

Select, train & empower employees to work for the customer

Recognize & reward accomplishments


Measuring Gaps in Service


Customer Relationship Management (CRM)


How CRM Benefits Retailer?

Customer needs Retailer traditionally provides

CRM benefits customer by enabling

Product choice Range selection Tailored range

Access Channel choice Consistent experience

Support Information Enhanced service

Individual treatment Customer service 1:1 relationship

Value Scale efficiencies Customer defined “value”


Customer Segmentation in Retail

Lower Value Segment

Grow able Segment

Most Valued Segment

In-store PoS

Advertisement

Merchandising

Targeted Direct

Mail

Added value

servicesTailored, cross-

learning based

relationship

No. of

customers

Value per

customer

Lower value

segmentGrow able

Segment

Most Valuable

Segment


Retail Store Design & Visual

Merchandising


Retail stores needs to be designed to be more competitive, the retailer first needs to

catch the customer‘s eye & then, to draw his attention away from other stores.

The basic principles of store design require that the image being created in tune with

the merchandise, the advertising & the service offered by the store.

Retail design is primarily a specialized practice of architecture and interior design,

however it also incorporates elements of interior decoration, graphic design,

ergonomics, and advertising.

Retail Store Design

StoreImage

Store Atmosphere

Store Theme

Elements of the Store Environment


Why Retail Store Design is Important?

The store design & layout tells a customer what the store is all about.

The creates the image of the retail store in the minds of the customer.

This image is the starting point of all marketing efforts.

It make the store simple to navigate.

It creates the sense to belongingness, responsibility, security, & pleasure in

shopping.


Elements of Retail Design

Store Design

Location

Parking

Access

Building Arch.

LocationFrontage &

Entrance

Safety

Store Theme

Target Customer

Merchandise Mix


Interior Store Design

Space Planning

LayoutAtmosphere & Aesthetics

Space Planning helps determining:The location of various departments.The location of various products within the department i.e., creating planograms.The pros/cons of specific location for impulse products, destination areas, seasonal products, products with specific merchandising needs, adjacent departments etc.The relationship of space to profitability.

Atmosphere & AestheticsFixturesFlooring & CeilingLightingGraphics & Signage

Theme graphicsCampaign graphicsPromotional graphics


Free-flow Layout

Fixtures and merchandise are grouped into free-flowing patterns on the sales floor.


Grid Layout

The counters and fixtures are placed in long rows or ‗‗runs,‘‘ usually at right angles, throughout the store.


Racetrack/Loop Layout

A major customer aisle begins at the entrance, loops through the store—

usually in the shape of a circle, square, or rectangle—and then returns the customer to the front of the store.


Spine Layout

A single main aisle runs from the front to the back of the store,

transporting customers in both directions, and where on either side of this

spine, merchandise departments using either a free-flow or grid pattern

branch off toward the back side walls.


Visual Merchandising

An orderly, systematic, logical, & intelligent way of putting stock on the floor.


It has several aspects & involves SKU planning, store windows & floor displays, signs,

space design, fixtures & hardware, props & mannequins.

Creating the right atmosphere in the store & presenting the merchandise in the right

manner is very important.

Good visual merchandise means a selling space that is neat, easy-to-see, follow & shop.

Visual Merchandising contd..

Methods of

Display

Color dominance

Presentation by price

Coordinated presentation

Thank you

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