Retailing meaning

The distribution of consumer products begins with the producer and ends at the ultimate
consumer. Between the producer and the consumer there is a middleman—the retailer,who
links the producers and the ultimate consumers. Retailing is defined as a conclusive set of
activities or steps used to sell a product or a service to consumers for their personal or family
use. It is responsible for matching individual demands of the consumer with supplies of all the
manufacturers. The word ‘retail’ is derived from the French work retailer, meaning ‘to cut a piece
off’ or ‘to break bulk’.
A retailer is a person, agent, agency, company, or organization which is instrumental in reaching
the goods, merchandise, or services to the ultimate consumer. Retailers perform specific
activities such as anticipating customer’s wants, developing assortments of products, acquiring
market information, and financing. A common assumption is that retailing involves only the sale
of products in stores. However, it also includes the sale of services like those offered at a
restaurant, parlour, or by car rental agencies. The selling need not necessarily take place
through a store. Retailing encompasses selling through the mail, the Internet, door-to-door visits
—any channel that could be used to approach the consumer. When manufacturers like Dell
computers sell directly to the consumer, they also perform the retailing function.
Retailing has become such an intrinsic part of our everyday lives that it is often taken for
granted. The nations that have enjoyed the greatest economic and social progress have been
those with a strong retail sector. Why has retailing become such a popular method of
conducting business? The answer lies in the benefits a vibrant retailing sector has to offer—an
easier access to a variety of products, freedom of choice and higher levels of customer service.

Functions of retailing
Retailers play a significant role as a conduit between manufacturers, wholesalers, suppliers and
consumers. In this context, they perform various functions like sorting, breaking bulk, holding
stock, as a channel of communication, storage, advertising and certain additional services.
Sorting
Manufacturers usually make one or a variety of products and would like to sell their entire
inventory to a few buyers to redu7ce costs. Final consumers, in contrast, prefer a large variety
of goods and services to choose from and usually buy them in small quantities. Retailers are
able to balance the demands of both sides, by collection an assortment of goods from different
sources, buying them in sufficiently large quantities and selling them to consumers in small
units.
The above process is referred to as the sorting process. Through this process, retailers
undertake activities and perform functions that add to the value of the products and services
sold to the consumer. Supermarkets in the US offer, on and average, 15,000 different items
from 500 companies. Customers are able to choose from a wide range of designs, sizes and
brands from just one location. If each manufacturer had a separate store for its own products,
customers would have to visit several stores to complete their shopping. While all retailers offer
an assortment, they specialize in types of assortment offered and the market to which the
offering is made. Westside provides clothing and accessories, while a chain like Nilgiris
specializes in food and bakery items. Shoppers’ Stop targets the elite urban class, while
Pantaloons is targeted at the middle class.
Breaking Bulk
Breaking bulk is another function performed by retailing. The word retailing is derived from the
French word retailer, meaning ‘to cut a piece off’. To reduce transportation costs, manufacturers
and wholesalers typically ship large cartons of the product, which are then tailored by the
retailers into smaller quantities to meet individual consumption needs.
Holding Stock
Retailers also offer the service of holding stock for the manufacturers. Retailers maintain an
inventory that allows for instant availability of the product to the consumers. It helps to keep
prices stable and enables the manufacturer to regulate production. Consumers can keep a
small stock of products at home as they know that this can be replenished by the retailer and
can save on inventory carrying costs.
Additional Services
Retailers ease the change in ownership of merchandise by providing services that make it
convenient to buy and use products. Providing product guarantees, after-sales service and
dealing with consumer complaints are some of the services that add value to the actual product
at the retailers’ end. Retailers also offer credit and hire-purchase facilities to the customers to
enable them to buy a product now and pay for it later. Retailers fill orders, promptly process,
deliver and install products. Salespeople are also employed by retailers to answer queries and
provide additional information about the displayed products. The display itself allows the
consumer to see and test products before actual purchase. Retail essentially completes
transactions with customers.
Channel of Communication
Retailers also act as the channel of communication and information between the wholesalers or
suppliers and the consumers. From advertisements, salespeople and display, shoppers learn
about the characteristics and features of a product or services offered. Manufacturers, in their
turn, learn of sales forecasts, delivery delays, and customer complaints. The manufacturer can
then modify defective or unsatisfactory merchandise and services.
 Transport and Advertising Functions
Small manufacturers can use retailers to provide assistance with transport, storage, advertising
and pre-payment of merchandise. This also works the other way round in case the number of
retailers is small. The number of functions performed by a particular retailer has a direct relation
to the percentage and volume of sales needed to cover both their costs and profits.

Characteristics of retailing
Retailing can be distinguished in various ways from other businesses such as manufacturing.
Retailing differs from manufacturing in the following ways:
 There is direct end-user interaction in retailing.
 In is the only point in the value chain to provide a platform for promotions.
 Sales at the retail level are generally in smaller unit sizes.
 Location is a critical factor in retail business.
 In most retail businesses services are as important as core products.
 There are a larger number of retail units compared to other members of the value chain.
This occurs primarily to meet the requirements of geographical coverage and population
density.
Direct Interaction with Customers
Retail businesses have a direct interaction with end-users of goods or services in the value
chain. They act as intermediaries between end-users and suppliers such as wholesalers or
manufacturers. Therefore, they are in a position to effectively communicate the response and
changing preferences of the consumers to the suppliers or sales persons of the company. This
helps the manufacturers and markets to redefine their product and change the components of
its marketing strategy accordingly. Manufacturers require a strong retail network both for reach
of the product and to obtain a powerful platform for promotions and point-of-purchase
advertising. Realizing the importance of retailing in the entire value chain, many manufacturers
have entered into retail business by setting up exclusive stores for their brands. This has not
only provided direct contact with customers, but has also acted as advertisement for the
companies and has provided the manufacturers with bargaining power with respect to other
retailers who stocked their product. Retailing provides extensive sales people support for
products which are information intensive, such as in the case or consumer durables.
Lower Average Amount of Sales Transaction
The average amount of sales transaction at retail point is much less in comparison to the other
partners in the value chain. Many consumers buy products in small quantities for household
consumption. Due to lower disposable incomes, some consumer segments in India even buy
grocery items on a daily basis rather than a weekly or a monthly basis. Inventory management
becomes a challenge for retailers as a result of the many minor transactions with a large
number of customers. Hence, retailers must take care of determining average levels of stock,
order levels and the retailer has to keep a tight control on costs associated with each
transaction in the selling process. Credit verification, employment of personnel, value-added
activities like bagging, gift-wrapping and promotional incentives all add up to the costs. One way
to resolve this is for the retail outlets to be able to attract the maximum possible number of
shoppers.
Point-of-purchase Display and Promotions
A significant relevant chunk of retail sales comes from unplanned or impulse purchases. Studies
have shown that shoppers often do not carry a fixed shopping list and pick up merchandise
based on impulsive or situational appeal. Many do not look at ads before shopping. Since a lot
of retail products are low involvement in nature, impulse purchases of the shopper is a vital area
that every retailer must tap into. Therefore, display, point-of-purchase merchandise, store
layou8t and catalogues become important. Impulse goods like chocolates, snack foods and
magazines can sell much more quickly if they are placed in a high visibility and high traffic
location.
Larger Number of Retail Business Units
Location of retail store plays an important role compared to other business units. Manufacturers
decide the location on the basis of availability of factors of productions and market. Similarly,
retailers consider factors like potential demand, supply of merchandise and store image-related
factors in locating the retail outlet. The number of operation units in retail is the highest
compared to other constituents of the value chain, primarily to meet the needs for geographic
reach and customer accessibility.
 UNIT - 3
RETAIL ORGANIZATION & FORMATS

1. Form of Ownership
A retail business like any other type of business, can be owned by a sole proprietor, partners or
a corporation. A majority of retail business in India are sole proprietorships and partnerships.
1. Independent Retailer: Generally operates one outlet and offers personalized service, a
convenient location and close customer contact. Roughly 98% of all the retail businesses in
India, are managed and run by independents, including barber shops, drycleaners, furniture
stores, bookshops, LPG Gas Agencies and neighbourhood stores. This is due to the fact
that into retailing is easy and it requires low investment and little technical knowledge. This
 obviously results in a high degree of competition.. Most independent retailers fail because of
the ease of entry, poor management skills and inadequate resources.
2. Retail Chain: It involves common ownership of multiple units. In such units, the
purchasing and decision making are centralized. Chains often rely on, specialization,
standardization and elaborate control- systems. Consequently chains are able to serve a large
dispersed target market and maintain a well known company name. Chain stores have been
successful, mainly because they have the opportunity to take advantage of “economies of
scale” in buying and selling goods. They can maintain their prices, thus increasing their
margins, or they can cut prices and attract greater sales volume. Unlike smaller, independent
retailers with lesser financial means, they can also take advantage of such tools as computers
and information technology. Examples of retail chains in India are Shoppers stop; West side
and IOC, convenience stores at select petrol filling stations.
3. Retail Franchising: Is a contractual arrangement between a “franchiser” (which may be
a manufacturer, wholesaler, or a service sponsor) and a “franchisee” or franchisees, which
allows the latter to conduct a certain form of business under an established name and
according to a specific set of rules. The franchise agreement gives the franchiser much
discretion in controlling the operations of small retailers. In exchange for fees, royalties and a
share of the profits, the franchiser offers assistance and very often supplies as well. Classic
examples of franchising are; McDonalds, Pizza Hut and Nirulas.
4. Cooperatives: A retail cooperative is a group of independent retailers,that have
combined their financial resources and their expertise in order to effectively control their
wholesaling needs. They share purchases, storage, shopping facilities, advertising planning
and other functions. The individual retailers retain their independence, but agree on broad
common policies. Amul is a typical example of a cooperative in India.
2. Store Strategy Mix
Retailers can be classified by retail store strategy mix, which is an integrated combination of
hours, location, assortment, service, advertising, and prices etc. The various categories are:
1. Convenience Store: Is generally a well situated, food oriented store with long operating
house and a limited number of items. Consumers use a convenience store; for fill in items such
as bread, milk, eggs, chocolates and candy etc.
2. Super markets: Is a diversified store which sells a broad range of food and non food
items. A supermarket typically carries small house hold appliances, some apparel items,
bakery, film developing, jams, pickles, books, audio/video CD’s etc.
3. Department Stores: A department store usually sells a general line of apparel for the
family, household linens, home furnishings and appliances. Large format apparel department
stores include Pantaloon, Ebony and Pyramid. Others in this category are: Shoppers Stop and
Westside.
4. Speciality Store: Concentrates on the sale of a single line of products or services, such
as Audio equipment, Jewellery, Beauty and Health Care, etc. Consumers are not confronted
with racks of unrelated merchandise. Successful speciality stores in India include, Music World
for audio needs, Tanishq for jewellery and McDonalds, Pizza Hut and Nirula’s for food services.
5. Hyper Markets: Is a special kind of combination store which integrates an economy
super market with a discount department store. A hyper market generally has an ambience
which attracts the family as whole. Pantaloon Retail India Ltd. (PRIL) through its hypermarket
“Big Bazar”, offers products at prices which are 25% – 30% lower than the market price.
3. Non Store Retailing
In non store retailing, customers do not go to a store to buy. This type of retailing is growing
very fast. Among the reasons are; the ability to buy merchandise not available in local stores,
the increasing number of women workers, and the presence of unskilled retail sales persons
who can not provide information to help shoppers make buying decisions. The major types of
non store retailing are:
1. In Home Retailing: Where, a sales transaction takes place in a home setting – including
door-door selling. It gives the sales person an opportunity to demonstrate products in a very
personal manner. He/She has the prospect’s attention and there are fewer distractions as
compared to a store setting. Examples of in home retailing include, Eureka Forbes vaccum
cleaners and water filters.
2. Telesales/Telephone Retailing: This involves contact between the prospect and the
retailer over the phone, for the purpose of making a sale or purchase. A large number of mobile
phone service providers use this method. Other examples are private insurance companies,
and credit companies etc.
3. Catalog Retailing: This is a type of non store retailing in which the retailers offers the
merchandise in a catalogue, which includes ordering instructions and customer orders by mail.
The basic attraction for shoppers is convenience. The advantages to the retailers include lover
operating costs, lower rents, smaller sales staff and absence of shop lifting. This trend is
catching up fast in India. Burlington’s catalogue shopping was quite popular in recent times.
Some multi level marketing companies like Oriflame also resort to catalogue retailing.
4. Direct Response Retailing: Here the marketers advertise these products/ services in
magazines, newspapers, radio and/or television offering an address or telephone number so
that consumers can write or call to place an order. It is also sometimes referred to as “Direct
response advertising.” The availability of credit cards and toll free numbers stimulate direct
response by telephone. The goal is to induce the customer to make an immediate and direct
response to the advertisement to “order now.” Telebrands is a classic example of direct
response retailing. Times shopping India is another example.
5. Automatic Vending: Although in a very nascent stage in India, is the ultimate in non
personal, non store retailing. Products are sold directly to customers/buyers from machines.
These machines dispense products which enable customers to buy after closing hours. ATM’s
dispensing cash at odd hours represent this form of non store retailing.
6. Electronic Retailing/E-Tailing: Is a retail format in which retailers communicate with
customers and offer products and services for sale, over the internet. The rapid diffusion of
internet access and usage, and the perceived low cost of entry has stimulated the creation of
thousands of entrepreneurial electronic retailing ventures during the last 10 years or so.
Amazon.com, E-bay .etc, are some of the many e-tailers operating today.

Store based and non store based format

Retail industry is continuously going through changes on account of liberalization, globalization

and consumer preferences. While multinational retail chains are looking for new markets,
manufacturers are identifying, redefining, or evolving new retail formats. The existing retail
houses are also gearing up to face the emerging competition from the organized sector and the
changing outlook of the consumers. For example, consumer spending is shifting from goods to
services. Accordingly the retailers too are fast adjusting to the changing consumer preferences.
Consumers are not only looking for the core products or functional benefits from the retailers but
also the non-functional benefits, which need to be compatible with their lifestyles. For example,
most of the traditional eating joints in India such as Haldiram, Bikaner and Sagar Ratna have
revised their product offerings and atmospherics on the lines of the multinational chains to
compete with them and to serve changed expectations of the consumers.
Mom-and-pop Stores and Traditional Kirana Stores
The retail sector is changing as new store categories have started dominating the marketplace.
Mass merchandisers (Wal-Mart, Big Bazaar), discount clubs (Subhiksha), so-called category
killers (Home Depot, Vishal chain), and speciality retailers (Time Zone, Tanishq) have all
developed a successful retail models. At the same time, the small mom-and-pop stores and the
traditional department stores, are finding the competition intense. In 2002, while Wal-Mart and
Target saw revenues grow (by 12% and 10%, respectively), department stores such as Saks
and Federated experienced declining revenues (down 3% and 1% respectively). But even in the
mass-merchandising segment, the competition is fierce, as is evidenced by Kmart’s bankruptcy
announcement in 2002. Small independent stores, across product categories, is a very common
retail formats they are also undertaking large scale renovations to appeal and attract their target
consumer segments.
E-commerce
The amount of retail business being conducted on the Internet is growing every year. Indeed,
Forrester Research Agency projects e-commerce revenue to rise to $123 billion in 2004, an
increase of some 28% over the previous year and for e-tailing to comprise a bigger slice of the
overall retail pie (5.6%, up from 4.5% in 2003). Many major retail organizations and
manufacturers have online retail stores. Companies like Amazon.com and First and
second.com, which helped pioneer the retail e-commerce concept, are now being followed by
bricks-and-mortar and catalogue retailers like J. Crew, which are expanding retail e-commerce
into new markets.
Department Stores
A few years ago, names like Sears, J.C. Penney, Macy’s, and Montgomery Ward dominated
malls and downtowns all over America. Over the last decade or so, however, these department
stores have suffered badly. In part, this is a result of changing shopping patterns and increased
competition from discount stores. It has also come from financial burdens incurred by
companies that acquired competing companies and grew too fast. It is unlikely that these
players will disappear from the market. However, they should be ready to expect more bumps
as the strong get stronger and the weak get absorbed.
Discount Stores
These are giants such as Wal-Mart (the largest retailer in the world, with more than a million;
employees), Target and Kmart, as well as membership warehouses, such as Costco. These,
along with the category killers, have changed the landscape of both the retail industry and
America. Where once mom-and-pop and department stores dominated retail, now the discount
retailers and category killers are at the top of the heap. And where once shopping malls,
anchored by at least one major department store; used to be the dominant retail presence lining
the nation’s roads, now it is the behemoth Wal-Marts and Home Depots.
Category Killers
These are the giant retailers that dominate one area of merchandise (e.g., Office Depot, Tower
Records and The Sports Authority). They are able to buy bathroom tiles, file cabinets, electronic
goods or pet food in such huge volumes that they can then sell them at prices even fairly large
competitors cannot match. The future of this category is better than that of many of the more
general discounters, but the same employment caveats apply. For most job seekers, these
companies offer earn-and-learn experiences with vendors and distributors before they move
onward and upward.
Specialty Stores
These include Crate & Barrel, the Body Shop, and Victoria’s Secret. These stores concentrate
on one type of merchandise and offer it in a manner that makes it special. Some are very high-
end (Louis Vuitton) while others cater to the price-conscious masses (Old Navy). Many are so
successful that department stores have started to emulate their buying, marketing, and
merchandise display strategies. Industry experts predict growth in this segment, particularly in
home furnishings and home improvement, and it seems to attract many of the best and brightest
in retail. Promotion and responsibility come quickly to those willing to work hard, and in many of
these stores the hand of bureaucracy is not heavy.
E-tailers
While most retailers have online storefronts, strictly online purveyors with no bricksand- mortar
counterparts are hoping to snare a percentage of the retail profit. Major players, such as
Amazon.com, have generated enough business to cause top brick-and mortar competitors to
come up with their own Internet sites. Traditional retailers like Wal-Mart and Starbucks, hugely
successful in their own right, have also set up online stores so as not to miss out on the revenue
opportunities that the Interned offers.