Retail Management - Overview
In the complex world of today, the consumer is king and retailers are keener on consumer satisfaction. Considering the busy lifestyles of today’s consumers, the retailers also provide services apart from products. Retailing occupies a very important place in the economics of any country. It is the final stage of distribution of product or service. It not only contributes to country’s GDP but also empowers a large number of people by providing employment. Retail Management starts with understanding the term 'Retail'. What is Retail?
Any organization that sells the products for consumption to the customers for their personal, family, or household use is in the occupation of retailing. Functions of a RetailorRetailor provides the goods that customer needs, in a desired form, at a required time and place.
Retail in Marketing ChannelsWith industrialization and globalization, the distance between the manufacturer and the consumer has increased. Many times a product is manufactured in one country and sold in another. The levels of intermediaries involved in the marketing channel depends upon the level of service the consumer desires. Type A and B − Retailers. For example, Pantaloons, Walmart. Type C − Service Providers. For example, Eureka Forbes. Classification of Retailing FormatsThe retailing formats can be classified into following types as shown in the diagram − Ownership Based RetailingLet us see these retailers in detail −
Merchandise Based RetailingLet us see these in detail −
Non-Store Based (Direct) RetailingIt is the form of retailing where the retailer is in direct contact with the consumer at the workplace or at home. The consumer becomes aware of the product via email or phone call from the retailer, or through an ad on the television, or Internet. The seller hosts a party for interacting with people. Then introduces and demonstrates the products, their utility, and benefits. Buying and selling happens at the same place. The consumer itself is a distributor. For example, Amway and Herbalife multi-level marketing. Non-Store based retailing includes non-personal contact based retailing such as −
The success of non-store based retailing hugely lies in timely delivery of appropriate product. Service Based RetailingThese retailers provide various services to the end consumer. The services include banking, car rentals, electricity, and cooking gas container delivery. The success of service based retailer lies in service quality, customization, differentiation and timeliness of service, technological upgradation, and consumer-oriented pricing. Product Retailing versus Service Retailing
Retail versus Wholesale
Retail TerminologyHere are some commonly used terms in Retail Management −
Evolution of RetailThough the barter system is considered as the oldest form of retailing, the traditional forms of retailing such as neighborhood stores, main-street stores and fairs still exist in the laid-back towns around the world. During post-war years in the US and Europe, small retailers reformed their shops into large organized stores, markets, and malls. Retail evolution mainly took place in three stages −
Retail Management - Sectors
Today’s retail market is satisfying diverse needs of its consumers. The consumer’s needs range from as basic as food & food services to as luxurious as jewelry items. In this chapter, we analyze prominent retail sectors around the world, their structure, and the key players in that sector. The retail sectors are prominently divided into Food, Clothing & Textiles, Consumer Durables, Footwear, Jewelry, Books-Music-Gift Articles, and Fuel. FoodIt comprises of food and grocery, and food services. The consumers buy packaged food, ready-to-eat food, and avail food services at workplaces. Visiting a restaurant is no more a luxury in today’s busy life. The retail food industry is growing rapidly with the pace of lifestyles around the world. Key Players − Food and Grocery retail: Food Bazar by Pantaloons, More by Aditya Birla, Haldiram’s (India), Tesco (UK), Walmart (US), Carrefour (France). In food services retail − KFC, McDonalds, Pizza Hut, Barista, Café Coffee Day. Clothing & TextileSimilar to food, clothing is one of the basic needs of humans. The textile industry includes manufacturing of fabrics such as natural fibers, synthetic fibers, looms, and various blends. Clothing is mainly seen as ready-to-wear apparels such as shirts, T-shirts, trousers, jeans, ladies wear, kids wear, baby clothes and hosiery garments such as socks, gloves, and inner wear. Key Players − Arrow by Arvind Mills, Park Avenue by Raymond, Century Textiles (India), Lee, Wrangler, Nautica, and Kipling, all by VF Corp (US), Bonito Deco Inc. (Taiwan). Consumer DurablesThe consumer durables are expected to have long life after purchase and are not purchased frequently. It comprises retailing cars, motorcycles, and home appliances. Key Players − Vijay Sales, Croma by Tata, Maruti-Suzuki (India), Honda Motors (US), Samsung Electronics (Korea). FootwearFootwear is categorized according to the consumer’s gender, raw material of product, and design as shown in the diagram. Key Players − Bata, Liberty Footwear, Metro Shoes Ltd. (India), Reebok International Ltd.(UK) JewelryTwo major segments in this retail sector are precious metal jewelry and gemstones. Out of the precious metals, Indian jewelry market forms 80% of gold jewelry, 15% of gemstone studded jewelry, and 5% of other metal jewelry. Regional festivals, special days, and customs drive the demand in this retail sector. Key Players − Tanishq by Tata, Gili by Gitanjali Group. Books-Music-Gift ArticlesThis includes assorted books, movie or audio CDs, gift articles, and souvenirs. These retail shops are often found near residential areas, tourist places, and historical monuments. Festivals and celebrations are main driving factors for sale in this sector. These items are not very frequently purchased and consumer’s emotional factor is attached to the products than its benefit. Key players − Landmark bookstore by Tata enterprise (India), Paperchase (UK). FuelThe highest five fuel consuming countries in the world are the US, China, Japan, India, and Russia. This retail involves activities such as production, refining, and distribution. Fuel companies tie up with other retailers such as pharmacies, food & food service, gift article retails to enter into petrol pump convenience business. Key Players − Bharat Petroleum Corporation Ltd., Hindustan Petroleum Corporation Ltd., Oil & Natural Gas Commission Ltd. (India), Siemens Oil & Gas Co. (US), Caltex Australia Petroleum Pty Ltd. (Australia). Retail Challenges & TheoriesMichael Porter, a professor from Harvard Business School, designed a framework named Five Forces Analysis for structured analysis of industries. This framework helps to understand the degree of competition in the industry. Let us see according to his framework, what are the five fundamental forces of competition in the retail industry − Threat of New CompetitorsThe easier it is for a new company to enter the industry, fiercer is the competition. Any new entrant poses a threat to the existing players as it can decrease the profit share of existing players. The factors that limit new entrants are −
For example, Pizza Hut, an old player in food services retail, was founded in 1958 at Kansas, US. The entry of Dominos in 1960 at Michigan posed a threat of competition to it. But following their different marketing policies, they both have acquired prominent places in the market. Threat of SubstitutesSubstitutes are the products or services that provide the same functionality. A successful product leads to creating other similar products. While entering into retail, one should think of −
By advertising, marketing, and investing in R&D for the product or service, a retail business can elevate its position in the industry.
For example, Google+ and Facebook both are social platforms the consumers use for socializing. They provide similar features such as posts, chat, share text, graphics and media content, forming groups, etc. Bargaining Power of BuyersIt is the position of buyers and likelihood of their ability to gain benefit while buying. If there are many suppliers and few buyers, the buyers are at advantageous position while pricing and they generally have the last word. The retail managers need to think of the following −
Bargaining Power of SuppliersIt is the ability of the supplier to control the cost and supply of the products in the market. If the suppliers are at a dominating position over the company while product pricing, threatening to raise price or reduce supply, then that retail industry is said to be less attractive. The retail managers need to find out answers for the following −
Intensity of Rivalry among Existing CompetitorsThe rivalry is intense when there are more or less equal sized competitors in the market and there is no unparalleled market leader.
Theories of DevelopmentIn retail management, theories can be broadly classified as follows − Environmental Theory (Natural Selection)It is based on Darwin’s theory of survival: “The fittest would survive the longest”. The retail sector comprises consumers, manufacturers, marketers, suppliers, and changing technology. Those retailers that adapt to changes in demography, technology, consumer preferences, and legal changes are more likely to survive for long and prosper. Cyclical TheoryMcNair represents this theory by Wheel of Retailing that explains the changes taking place in retailing. According to him, the new entrant retailers are often into low cost, low profit margin, low structure retail business, which offers some unique, real benefit to the consumers. Over some time they establish themselves well, prosper, and expand their products with more expensive facilities, without losing focus on their core values. This creates a place for yet new entrants in the market thereby creating threat of competition, substitution, and rivalry. Conflict Theories (Evolution through Dialectic Process)Within a broad retail category, there is always a conflict between the retailing of similar formats, which leads to the development of new formats. Thus, the new retail formats are evolved through dialectic process of blending two formats. Say, Thesis is a single retailer around the corner of the residential area. Antithesis is a large departmental store nearby the same residential area, which develops over some time in opposition to Thesis. Antithesis poses a challenge to Thesis. When there is conflict between Thesis and Antithesis, a new format of retail is born. Understanding Retail Consumer
Understanding retail consumer deals with understanding their buying behavior in retail stores. Understanding the consumer is important to know who buys what, when, and how. It is also important to know how to evaluate consumer’s response to sales promotion. It is very vital to understand the consumer in the retail sector for the survival and prosperity of the business. Consumer versus CustomerA consumer is a user of a product or a service whereas a customer is a buyer of the product or service. The customer decides what to buy and executes the deal of purchasing by paying and availing the product or service. The consumer uses the product or service for oneself. For example, the customer of a pet food is not the consumer of the same. Also, if a mother in a supermarket is buying Nestlé Milo for her toddler son then she is a customer and her son is a consumer. Identifying a CustomerIt is sometimes difficult to understand who is actually a decision maker while purchasing when a customer enters the shop accompanying someone else. Thus everyone who enters the shop is considered as a customer. Still, it is necessary to identify composition and origin of the customers.
Customer’s Buying Behavior PatternsThe needs, tastes, and preferences of the consumer for whom the products are purchased drives the buying behavior of the customer. The pattern of customer’s buying behavior can be categorized as − Place of PurchaseCustomers divide their place of purchase. Even if all the products they want are available at a shop, they prefer to visit various shops and compare them in terms of prices. When the customers have a choice of which shop to buy from, their loyalty does not remain permanent to a single shop. Study of customer’s place of purchase is important for selection of location, keeping appropriate merchandise, and selecting a distributor in close proximity. Product PurchasedIt pertains to what items and how many units of items the customer purchases. The customer purchases a product depending upon the following −
This category is important for producers, distributors, and retailers. Say, soaps, toothbrushes, potatoes, and apples are purchased by a large group of customers irrespective of their demographics but live lobsters, French grapes, avocadoes, baked beans, or beef are purchased by only a small number of customers with strong regional demarcation. Similarly, the customers rarely purchase a single potato or a banana, like more than two watermelons at a time. Time and Frequency of PurchaseRetailers need to keep their working time tuned with customer’s availability. The time of purchase is influenced by −
The frequency of purchase mainly depends on the following factors −
For example, Indian family man from intermediate income group would purchase a car not more than two times in his lifetime whereas a same-class customer from US may buy it more frequently. A tennis player would buy required stuff more frequently than a student learning tennis at a school. Method of PurchaseIt is the way a customer purchases. It involves factors such as −
Response to Sales Promotion MethodsThe more the customer visits a retail shop, the more (s)he is exposed to the sales promotion methods. The use of sales promotional devices increases the number of shop visitors-turned-impulsive buyers. The promotional methods include −
An urban customer, due to fast paced life would select easy-to-cook or ready-to-eat food over raw food material as compared to rural counterpart who comes from laid-back lifestyle and self-sufficiency in food items grown on farm. It is found that the couples buy more items in a single transaction than a man or a woman shopping alone. Customers devote time for analyzing alternative products or services. Customers purchase required and perishable products quickly but when it comes to investing in consumer durables, (s)he tries to gather more information about the product. Factors Influencing Retail ConsumerUnderstanding consumer behavior is critical for a retail business in order to create and develop effective marketing strategies and employ four Ps of marketing mix (Product, Price, Place, and Promotion) to generate high revenue in the long run. Here are some factors which directly influence consumer buying behavior − Market Conditions/RecessionIn a well-performing market, customers don’t mind spending on comfort and luxuries. In contrast, during an economic crisis they tend to prioritize their requirements from basic needs to luxuries, in that order and focus only on what is absolutely essential to survive. Cultural BackgroundEvery child (a would-be-customer) acquires a personality, thought process, and attitude while growing up by learning, observing, and forming opinions, likes, and dislikes from its surrounding. Buying behavior differs in people depending on the various cultures they are brought up in and different demographics they come from. Social StatusSocial status is nothing but a position of the customer in the society. Generally, people form groups while interacting with each other for the satisfaction of their social needs. These groups have prominent effects on the buying behavior. When customers buy with family members or friends, the chances are more that their choice is altered or biased under peer pressure for the purpose of trying something new. Dominating people in the family can alter the choice or decision making of a submissive customer. Income LevelsConsumers with high income has high self-respect and expects everything best when it comes to buying products or availing services. Consumers of this class don’t generally think twice on cost if he is buying a good quality product. On the other hand, low-income group consumers would prefer a low-cost substitute of the same product. For example, a professional earning handsome pay package would not hesitate to buy an iPhone6 but a taxi driver in India would buy a low-cost mobile. Personal ElementsHere is how the personal elements change buying behavior − Gender − Men and women differ in their perspective, objective, and habits while deciding what to buy and actually buying it. Researchers at Wharton’s Jay H. Baker Retail Initiative and the Verde Group, studied men and women on shopping and found that men buy, while women shop. Women have an emotional attachment to shopping and for men it is a mission. Hence, men shop fast and women stay in the shop for a longer time. Men make faster decisions, women prefer to look for better deals even if they have decided on buying a particular product. Wise retail managers set their marketing policies such that the four Ps are appealing to both the genders.
Psychological ElementsPsychological factors are a major influence in customer’s buying behavior. Some of them are −
Consumer’s Decision Making ProcessA customer goes through a number of stages as shown in the following figure before actually deciding to buy the product. However, customers get to know about a product from each other. Smart retail managers therefore insist on recording customers’ feedback upon using the product. They can use this information while interacting with the manufacturer on how to upgrade the product.
Retail Market Segmentation & Strategies
Market segmentation gives a clear understanding of the retail customers’ requirements. With the clear understanding of market segmentation, the retail managers and marketing personnel can develop strategies to reach out to the customers with specific needs and preferences. What is a Market Segmentation?It is a process by which the customers are divided into identifiable groups based on their product or service requirements. Market segmentation is very useful for the marketing force of the retail organization to create a custom marketing mix for specific groups. For example, Venus is in the business of retailing organic vegetables. She would prefer to invest her money for advertising to reach out to working and health conscious people who have monthly income of more than say, $10,000. Market segmentation can also be conducted based on customer’s gender, age, religion, nationality, culture, profession, and preferences. Types of Retail MarketsThere are two types of retails − Organized Retail and Unorganized Retail. Organized RetailOrganized Retailing is a large retail chain of shops run with up-to-date technology, accounting transparency, supply chain management, and distribution systems. Unorganized RetailUnorganized Retailing is nothing but a small retail business conducted by an owner or a caretaker of the shop with no technological and accounting aids. The following table highlights the points that differentiate organized retail from unorganized retail −
What is Retail Strategy?It is a plan designed by a retail organization on how the business intends to offer its products and services to the customers. There can be various strategies such as merchandise strategy, own-brand strategy, promotion strategy, to name a few. A retail strategy includes identification of the following −
Strategies for Effective Market SegmentationFor effective market segmentation, the following two strategies are used by the marketing force of the organization − Concentration (Niche) StrategyUnder this strategy, an organization focuses going after large share of only one or very few segment(s). This strategy provides a differential advantage over competing organizations which are not solely concentrating on one segment. For example, Toyota employs this strategy by offering various models under hybrid vehicles market. Multi-segment StrategyUnder this strategy, an organization focuses its marketing efforts on two or more distinct market segments. For example, Johnson and Johnson offers healthcare products in the range of baby care, skin care, nutritionals, and vision care products segmented for the customers of all ages. Strategies for Market PenetrationMarket penetration strategies include the following − Price PenetrationIt is setting the price of the product or service lesser than that of the competitor’s product or service. Due to decreased cost, volume may increase which can help to maintain a decent level of profit. Aggressive PromotionIncreasing product or service promotion on TV, print media, radio channels, e-mails, pulls the customers and drives them to view and avail the product or service. By offering discounts, various buying schemes along with the added benefits can be useful in high market penetration. High Product DistributionBy distributing the product or service up to the level of saturation helps penetration of market in a better way. For example, Coca Cola has a very high distribution and is available everywhere from small shops to hypermarkets. Growth StrategiesIf a retail organization conducts SWOT Analysis (Strength, Weakness, Opportunity, Threat) before considering growth strategies, it is helpful for analyzing the organization’s current strategy and planning the growth strategy. Ansoff’s MatrixAn American planning expert named Igor Ansoff developed a strategic planning tool that presents four alternative growth strategies. On one dimension there are products and on the other is markets. This matrix provides strategies for market growth. Here is the sequence of these strategies −
Retail Management - Business Location
Before visiting a mall or a shop, the first question that arises in consumers’ mind is, “How far do I have to walk/drive?” In populous cities such as Mumbai, Delhi, Tokyo, and Shanghai to name a few, consumers face rush-hour traffic jams or jams because of road structure. In such cases, to access a retail outlet to procure day-to-day needs becomes very difficult. It is very important for the consumers to have retail stores near where they stay. Importance of Location in Retail BusinessRetail store location is also an important factor for the marketing team to consider while setting retail marketing strategy. Here are some reasons −
Trade Area: Types of Business LocationsA trade area is an area where the retailer attracts customers. It is also called catchment area. There are three basic types of trade areas − Solitary SitesThese are single, free standing shops/outlets, which are isolated from other retailers. They are positioned on roads or near other retailers or shopping centers. They are mainly used for food and non-food retailing, or as convenience shops. For example, kiosks, mom-andpop stores (similar to kirana stores in India). Advantages − Less occupancy cost, away from competition, less operation restrictions. Disadvantages − No pedestrian traffic, low visibility. Unplanned Shopping AreasThese are retail locations that have evolved over time and have multiple outlets in close proximity. They are further divided as −
Advantages − High pedestrian traffic during business hours, high resident traffic, nearby transport hub. Disadvantages − High security required, threat of shoplifting, Poor parking facilities. Planned Shopping AreasThese are retail locations that are architecturally well-planned to provide a number of outlets preferably under a theme. These sites have large, key retail brand stores (also called “anchor stores”) and a few small stores to add diversity and elevate customers’ interest. There are various types of planned shopping centers such as neighborhood or strip/community centers, malls, lifestyle centers, specialty centers, outlet centers. Advantages − High visibility, high customer traffic, excellent parking facilities. Disadvantages − High security required, high cost of occupancy. Factors Determining Retail LocationsThe marketing team must analyze retail location with respect to the following issues −
Steps to Choose the Right Retail LocationA retail company needs to follow the given steps for choosing the right location − Step 1 - Analyze the market in terms of industry, product, and competitors − How old is the company in this business? How many similar businesses are there in this location? What the new location is supposed to provide: new products or new market? How far is the competitor’s location from the company’s prospective location? Step 2 – Understand the Demographics − Literacy of customers in the prospective location, age groups, profession, income groups, lifestyles, religion. Step 3 – Evaluate the Market Potential − Density of population in the prospective location, anticipation of competition impact, estimation of product demand, knowledge of laws and regulations in operations. Step 4 - Identify Alternative Locations − Is there any other potential location? What is its cost of occupancy? Which factors can be compromised if there is a better location around? Step 5 – Finalize the best and most suitable Location for the retail outlet. Measuring the Success of LocationOnce the retail outlet is opened at the selected location, it is important to keep track of how feasible was the choice of the location. To understand this, the retail company carries out two types of location assessments − Macro Location EvaluationIt is conducted at a national level when the company wants to start a retail business internationally. Under this assessment, the following steps are carried out −
Micro Location EvaluationAt this level of evaluation, the location is assessed against four factors namely −
Merchandise Management
In the fierce competition of retail, it is very crucial to attract new customers and to keep the existing customers happy by offering them excellent service. Merchandising helps in achieving far more than just sales can achieve. Merchandising is critical for a retail business. The retail managers must employ their skills and tools to streamline the merchandising process as smooth as possible. What is Merchandising?Merchandising is the sequence of various activities performed by the retailer such as planning, buying, and selling of products to the customers for their use. It is an integral part of handling store operations and e-commerce of retailing. Merchandising presents the products in retail environment to influence the customer’s buying decision. Types of MerchandiseThere are two basic types of merchandise −
Factors Influencing MerchandisingThe following factors influence retail merchandising: Size of the Retail OperationsThis includes issues such as how large is the retail business? What is the demographic scope of business: local, national, or international? What is the scope of operations: direct, online with multilingual option, television, telephonic? How large is the storage space? What is the daily number of customers the business is required to serve? Shopping OptionsToday’s customers have various shopping channels such as in-store, via electronic media such as Internet, television, or telephone, catalogue reference, to name a few. Every option demands different sets of merchandising tasks and experts. Separation of PortfoliosDepending on the size of retail business, there are workforces for handling each stage of merchandising from planning, buying, and selling the product or service. The small retailers might employ a couple of persons to execute all duties of merchandising. Functions of a Merchandising ManagerA merchandising manager is typically responsible to −
Merchandise PlanningMerchandise planning is a strategic process in order to increase profits. This includes long-term planning of setting sales goals, margin goals, and stocks. Step 1 - Define merchandise policy. Get a bird’s eye view of existing and potential customers, retail store image, merchandise quality and customer service levels, marketing approach, and finally desired sales and profits. Step 2 – Collect historical information. Gather data about any carry-forward inventory, total merchandise purchases and sales figures. Step 3 – Identify Components of Planning.
Step 4 – Create a long-term plan. Analyze historical information, predict forecast of sales, and create a long-term plan, say for six months. Merchandise BuyingThis activity includes the following −
Vendor RelationsCordial relationship with the vendor can be a great asset for the business. A strong rapport with vendors can lead to −
Merchandise PerformanceThe following methods are commonly practiced to analyze merchandise performance − ABC AnalysisIt is a process of inventory classification in which the total inventory is classified into three categories −
This approach of segregation gives importance to each item in the inventory. For example, the telescope retailing company might be having small market share but each telescope is an expensive item in its inventory. This way, a company can decide its investment policy in particular items. Sell-Through AnalysisIn this method, the actual sales and forecast sales are compared and the difference is analyzed to determine whether to apply markdown or to place a fresh request for additional merchandise to satisfy current demand. This method is very helpful in evaluating fashion merchandise performance. Multi-Attribute MethodThis method is based on the concept that the customers consider a retailer or a product as a set of features and attributes. It is used to analyze various alternatives available with regard to vendors and select the best one, which satisfies the store requirements. Retail Management - Business Operations
The retail business operations include all the activities that the employers perform to keep the store functioning smoothly. The shopping experience of a customer is planned before the customer enters, shops, and leaves the store with a smile or with agony by carrying a perception about the store. This experience drives the customer’s decision of visiting the store in future. Let us see, what efforts retail business operations executives put in to make the shopping experience memorable for the customer. Store ManagementThe retail store being the fundamental source of revenue and the place of customer interaction, is vital to the retailer. The store manager may not himself perform, but is responsible for the following duties −
The store manager ensures that these duties are performed according to the guidelines set by the company. Premises ManagementThe store premises are as important as the retail store itself. Managing premises includes the following tasks − Determining Working Hours of Store. It majorly depends upon the target audience, retailed products, and store location. For example, a grocery store near residential area should open earlier than a fashion store. Also, a solitary store can be open as long as the owner wants to but a store in a mall has to adhere to working hours set by the mall management. Managing Store Security. It helps avoiding inventory shrinkage. It depends upon the size of store, the product, and the location of store. Some retailers attach electronic tags on products, which are sensed at store entrance and exits by sensors for theft detection. Some stores install video cameras to monitor movement and some provide separate entry and exit for personnel so that they can be checked. For example, a large departmental store needs high security than the grocery store located near residential area. Here are some basic formulae used while managing premises − Transaction per Hour = No. of Transactions/Number of Hours The retailer keeps track of the number of transactions per hour, which helps in determining store hours and staff scheduling. Sales per Transaction = Net Sales/Number of Transactions The result gives the value of the average sales and net return, which is used to study sales trends over time. Hourly Customer Traffic = Customer Traffic In/Number of Hours This measure is used to track total number of customer traffic per unit time. It is then applied to schedule hours and determine staff strength. Inventory ManagementMerchandise manager, category manager, and other staff handle the inventory. It includes the following tasks −
Here are some formulae used for inventory control − Inventory Turnover Rate = Net Sales/Average Retail Value of Inventory It is expressed in number of times and indicates how often the inventory is sold and replaced during a given period of time. Cost of Goods Sold/Average Value of Inventory at Cost When either of these ratio declines, there is a possibility that inventory is excessive. % Inventory Carrying Cost = (Inventory Carrying Cost/Net Sales) * 100 This measure has gained importance due to rise in inventory carrying cost because of high interest rates. This prevents blockage of working capital. Gross Margin Return on Inventory (GMROI) = Gross Margin/Average Value of Inventory The GMROI compares the margin on sales on the original cost value of merchandise to yield a return on merchandise investment. Receipt ManagementManaging receipt is nothing but determining the manner in which the retailer is going to get the payment for the sold products. The basic modes of receipt are −
Large stores have the facility of paying by the modes listed above but small retailers generally prefer accepting cash. The retailer pays card fees depending upon the volume of transactions with the suppliers, manufacturers, or producers. The staff responsible for accepting payment needs to clearly understand the procedure for accepting payment by cards and collecting the amount from the bank. Supply Chain Management and LogisticsSupply Chain Management (SCM) is the management of materials, information, and finances while they move from manufacturer to wholesaler to retailer to consumer. It involves the activities of coordinating and integrating these flows within and out of a retail business. Most supply chains operate in collaboration if the suppliers and retail businesses are dealing with each other for a long time. Retailers depend upon supply chain members to a great extent. If the retailers develop a strong partnership with supply chain members, it can be beneficial for suppliers to create seamless procedures, which are difficult to imitate. Customer ServiceThe top management of a retail business decides the customer service policy. The entire retail store staff is trained for customer service. Each employer in the retail store ensures that the service starts with smile and the interacting customer is comfortable and has a pleasant shopping experience. The promptness and politeness of the retail store staff, their knowledge about the product and language, ability to overcome challenges, and rapidness at the billing counter; everything is noted by the customer. These aspects build a great deal of customer’s perception about the store. Many retail stores train staff members to handle the cash counter. They have also introduced a concept of express billing where customers buying less than 10 products can bill faster without having to stand in the regular payment queue. During festivals and markdown periods, the trend of shopping increases. Customer Conversion Ratio = (Number of Transactions/Customer Traffic) * 100 The result is the retailer’s ability to turn a potential customer into a buyer. It is also called “walk to buy ratio”. Low results mean that promotional activities are not being converted into sales and the overall sales efforts need to be assessed afresh. Retail Management - SpaceSpace management is one of the crucial challenges faced by today’s retail managers. A well-organized shopping place increases productivity of inventory, enhances customers’ shopping experience, reduces operating costs, and increases financial performance of the retail store. It also elevates the chances of customer loyalty. Let us see, how space management is important and how retailers manage it. What is Space Management?It is the process of managing the floor space adequately to facilitate the customers and to increase the sale. Since store space is a limited resource, it needs to be used wisely. Space management is very crucial in retail as the sales volume and gross profitability depends on the amount of space used to generate those sales. Optimum Space UseWhile allocating the space to various products, the managers need to consider the following points −
Retail Floor SpaceHere are the steps to take into consideration for using floor space effectively −
Store Layout and DesignCustomer buying behavior is an important point of consideration while designing store layout. The objectives of store layout and design are −
Store Layout FormatsThe retail store layouts are designed in way to use the space efficiently. There are broadly three popular layouts for retail stores − Grid Layout − Mainly used in grocery stores. Loop Layout − Used in malls and departmental stores. Free Layout − Followed mainly in luxury retail or fashion stores. Store DesignBoth internal and external factors matter when it comes to store design. Interior DesignThe store interior is the area where customers actually look for products and make purchases. It directly contributes to influence customer decision making. In includes the following −
Exterior DesignThis area outside the store is as much important as the interior of the store. It communicates with the customer on who the retailer is and what it stands for. The exterior includes −
Retail Management - Pricing
We as customers, often get to read advertisements from various retailers saying, “Quality product for right price!” This leads to following questions such as what is the right price and who sets it? What are the factors and strategies that determine the price for what we buy? The core capability of the retailers lies in pricing the products or services in a right manner to keep the customers happy, recover investment for production, and to generate revenue. What is Retail Pricing?The price at which the product is sold to the end customer is called the retail price of the product. Retail price is the summation of the manufacturing cost and all the costs that retailers incur at the time of charging the customer. Factors Influencing Retail PricesRetail prices are affected by internal and external factors. Internal FactorsInternal factors that influence retail prices include the following −
External FactorsExternal prices that influence retail prices include the following −
Demand-Oriented Pricing StrategyThe price charged is high if there is high demand for the product and low if the demand is low. The methods employed while pricing the product on the basis of demand are −
Cost-Oriented Pricing StrategyA method of determining prices that takes a retail company’s profit objectives and production costs into account. These methods include the following − Cost plus Pricing − The company sets prices little above the manufacturing cost. For example, if the cost of a product is Rs. 600 per unit and the marketer expects 10 per cent profit, then the selling price is set to Rs. 660. Mark-up Pricing − The mark-ups are calculated as a percentage of the selling price and not as a percentage of the cost price. The formula used to determine the selling price is − Selling Price = Average unit cost/Selling price Break-even Pricing − The retail company determines the level of sales needed to cover all the relevant fixed and variable costs. They break-even when there is neither profit nor loss. For example, Fixed cost = Rs. 2, 00,000, Variable cost per unit = Rs. 15, and Selling price = Rs. 20. In this case, the company needs to sell (2,00, 000 / (20-15)) = 40,000 units to break even the fixed cost. Hence, the company may plan to sell at least 40,000 units to be profitable. If it is not possible, then it has to increase the selling price. The following formula is used to calculate the break-even point − Contribution = Selling price – Variable cost per unit Target Return Pricing − The retail company sets prices in order to achieve a particular Return On Investment (ROI). This can be calculated using the following formula − Target return price = Total costs + (Desired % ROI investment)/Total sales in units For example, Total investment = Rs. 10,000, Desired ROI = 20 per cent, Total cost = Rs.5000, and Total expected sales = 1,000 units Then the target return price will be Rs. 7 per unit as shown below − Target Return Price = (5000 + (20% * 10,000))/ 1000 = Rs. 7 This method ensures that the price exceeds all costs and contributes to profit. Early Cash Recovery Pricing − When market forecasts depict short life, it is essential for the price sensitive product segments such as fashion and technology to recover the investment. Sometimes the company anticipates the entry of a larger company in the market. In these cases, the companies price their products to shorten the risks and maximize short-term profit. Competition-Oriented Pricing StrategyWhen a retail company sets the prices for its product depending on how much the competitor is charging for a similar product, it is competition-oriented pricing.
Differential Pricing StrategyThe company may charge different prices for the same product or service.
Retail Management - MarketingRetail marketing is the range of activities the retailer does to create awareness about the products or services among customers for selling. Retail marketing consists of visual merchandising, sales promotion, advertising, and marketing mix. All these factors are involved in shaping the marketing strategies of retail. Visual MerchandisingIt is the activity of developing floor plans and three-dimensional displays in order to engage customers and boost sales. Both, products or services can be displayed to highlight their features and benefits. It is based on the idea that good looks pay off. It requires creativity and an eye for presenting the products or services aesthetically so that the customers find it appealing and are motivated towards buying. Visual merchandising involves displaying products or services aesthetically using various objects, colors, shapes, materials, designs, and styles to attract the customers. Retail AdvertisingIt is advertising the product or service on communication media. The retailer can advertise on electronic media such as television, radio, mobile, and Internet. Print media such as newspaper, brochures, handbills, product catalogues, are also popular among retailers to publish Ads. Retail advertising enables the retailer to reach out to a large number of people and create awareness among them about the product’s availability. The success of an Ad on a particular media depends upon the literacy level of the customers, their age and location. Sales PromotionsSales promotion is the communication strategy designed to act directly as an inducement, as added value, or as incentive for the product to the customer. Advertising may create desire to possess the product but sales promotion actually helps conversion to sales. Sales promotion drives existing customers’ loyalty, attracts new customers, influences customers’ buying behavior, and increases sales. It includes the following techniques − Point of Purchase (POP) DisplaysThey are Ads placed near the merchandise to promote the sale where the customer makes buying decision. Point of Sale (POS) DisplaysThey are Ads placed near the checkout or billing counters to promote on-the-fly purchase that the customer makes at the last minute. Promotional PricesSome techniques such as Loss Leading (where irrespective of how luxurious the product is, retailer offers steep discount), Markdown (where retailer brings down the prices for wide range of products in the store), and Bundle Pricing (Buy one get one free or Get 3 pay for 1) are used in promotional pricing. Loyalty ProgramsRetailers conduct loyalty program for the customers who make frequent purchase by offering first access to new products, free coupons, or special discounted price on particular days. Customer Relationship Management (CRM)It is identification, satisfaction, and management of customers’ stated and unstated needs and demands by the retailer for mutual benefit. It include four prominent phases −
Elements of Retail Marketing Mix (7Ps)The retail marketing mix is the combination of marketing activities that the retailers carry out to meet the target market’s requirements in the best possible way. Retail marketing mix is a combination of 7 Ps −
Retail CommunicationRetailers communicate with the customers about their products or services, new product updates, and upcoming events regarding retail business via print, audio, video, or Internet media. Retail communication involves the following strategies −
Emerging Trends In Retail
In today’s era, the places in the cities have become congested, infrastructure has changed, transport facilities have increased, and the speed of exchanging information has become extremely fast. Retailers are adopting new technology. Society is changing, consumers are changing and so are the retailers. Retailing has managed to keep itself paced with the changing times. Changing Nature of RetailingRetailers are changing their business formats, store designs, modes of communication with customers and ways of handling commercial dealings.
Modern Retail FormatsToday, the Internet has changed the way products are advertised and the manner of selling-buying transactions. Here are some modern innovations in retail −
E-TailingIt is nothing but E-Retailing. It is the process of selling or purchasing the products using Internet for B2B or B2C transactions. E-tailing process includes the customer’s visit to the website, purchasing products by choosing a mode of payment, product delivery by the retailer and finally, the customer’s review or feedback. E-tailing Benefits
What are the steps in the retail management decision process?Steps of Retail Strategy Planning. Objective Setting.. Situational Analysis.. Customer Analysis.. Tactical Planning.. Implementation and Control.. What is the first step in developing a retail strategy?The very first step in your strategic retail planning process is to define the business mission. In other words, describe what your broad objectives are going to be and what activities you're going to engage in.
What is the first form of retailing?The Roman forum was arguably the earliest example of a permanent retail shop-front. In antiquity, exchange involved direct selling via merchants or peddlers and bartering systems were commonplace.
Is the first step involved in choosing the retail location?Market Identification: The first step in arriving at a decision on retail location is to identify the markets attractive to a retailer. This is important as he needs to understand the market well, especially in country like India, here every region has its own peculiarities and needs.
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