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Chapter 1: Retail Overview Retailing

is defined as the activities involved in the sale of goods and services to consumers for their personal, family, or household use. The final link between consumers and manufacturers, Retailers are a vital part of the business world. Retailers add value to products by making it easier for manufacturers to sell and consumers to buy.

Manufacturing

Distribution

Retailing

Retailing is the final step in the distribution of merchandise - the last link in the Supply Chain

No significant change in the product except breaking the bulk Value proposition a retailer offers to a consumer is easy availability of the desired product in the desired sizes at the desired times (at desired prices).

Typical Marketing Channels for

Consumer Products

Classification of Retailing
Retailing can be classified based on various parameters

1) By Ownership
Unaffiliated operations) Corporate retail chains (multiple retail units under common ownership and management) independents (owned and operated by single-unit

Cooperative chain (voluntary associations sponsored by retailers) Voluntary chain (voluntary associations sponsored by wholesalers) Franchise systems (independent retailers sponsored by manufacturers, distributors and service firms)

2) By Channel Store Non-store (Mail Orders, Catalogue, Tele-shopping, e-tailing, Call Centers, Direct Selling) 3) By Assortment and Variety of Merchandise General-line Stores

Department Stores (J.C.Penney, Sears, Macys, Burdines, Dillards, Montogomery Ward, Daytons, Marshall Fields)
Physically large stores that occupy prominent positions in the traditional heart of the town or city or as anchor stores in out-of-town malls and offer wide variety of high-quality items divided into specialized departments.

Membership Warehouse Stores (Sams Club, Price/Costco)

These chains consist of huge warehouses of products on large shelves that are sold with no frills at low prices, and usually, in large quantities. They typically require an annual membership fee and may have requirements or conditions for joining.

Variety Stores (F.W.Woolworth, Dollar General, Ben Franklin)

A retail store that carries a large variety of usually inexpensive merchandise

Super Markets (Nilgiris, CubFoods, Royal SuperMarket)

They are large, low-cost, low-margin, high-volume, self-service store that carries a wide variety of food, laundry, and household products.

Factory Outlets (Arrow, Nike, Sony)

Outlet stores are owned and operated by manufacturers as a way to alleviate the over-production of goods and bypass the traditional department and specialty retail stores. Outlet stores include first-quality products including sporting goods, clothing, leather goods, luggage, shoes and housewares. They are usually located on the outskirts of major cities and towns

Limited-Line Retailing

Specialty Stores ( Gap, Kids Kemp, Musicworld)

A retail store that carries a narrow product line with a deep assortment within that line

Boutiques
A free standing shop or an area within a retail store; devoted to specialized merchandise for a special interest customer. It is usually a specialty shop or a section within a department store devoted to unusual merchandise which is often presented in a nontraditional manner.

Category Dominant Stores (Toys R Us, CompUSA, Circuit City, Bed Bath & Beyond)

4) By Amount of Customer Service

Self-Service Retailer (Vending Machines) Limited Service Retailer (JC Penney, Sears, Target) Full Service Retailer (Tanishq, Nalli Silks, Prada)

5) Other Types

Discount Stores (Wal-Mart, Kmart, Target)

A retail institution that sells standard merchandise at lower prices by accepting lower margins and selling at higher volume

Combination Super stores Convenience Stores ( 7 Eleven)

A small store, located near a residential area, that is open long hours seven days a week for the convenience of the customers and carries a limited line of high-turnover convenience goods like bread, milk, gasoline, cigarettes etc

Hypermarkets (STAR India, GIANT)

They are mass merchandisers that operate on a low-price, self-service basis and carry lines of soft goods, hard goods, and groceries. In short they are huge retail stores, usually a combination of a drugstore, supermarket, and discount store. At 200,000 square feet or larger, this is the most capital intensive of all supermarket formats.

Retail Processes

Core Processes & Respective Sub Processes Plan Demand Forecasting Merchandise Plan (including OTB) Assortment Plan Buy Merchandising Purchasing Contracts/ deals management Vendor management Allocations Replenishments Cost and retail price management

Move Shipping and Transportation o o Freight Planning/Scheduling Transportation

 Warehouse Management o o o o o Receiving Repacking Shipping Cross-docking Trailer/Yard Management

Inventory Management o o Allocation Replenishment Optimization

Reverse Logistics Sell Store Operations, including POS Customer Relationship Management Sales Management Advertisement management

Buying

is the process of implementing the decisions dictated by the

merchandise philosophy. There are five major areas to consider: who buys what to buy how much to buy from whom to buy and when to buy

The importance of good merchandise buying cannot be overstated. Stock is one of the largest form of investment made by the retailer. Good stock selection is important because it: Ties up the optimum amount of capital Reduces the amount of space taken up by the stock Provides an adequate choice for the customer Enhances the image of the business and encourages repeat purchases Increases the overall profitability of the business

WHO BUYS?
One individual or specialists The buyer may be responsible for the purchase of a comparatively small range of merchandise or for several complete departments, depending on the size and type of the retail organization. The advantage of having one individual responsible for buying for the entire store is that consistency within the merchandise mix will be maximized. However, buying for larger stores will usually require specialist in order to do the job properly. By using specialist buyers greater knowledge and control of merchandise can be developed and maintained.

WHAT TO BUY?
The general guidelines are as follows: Past experience: with staple merchandise (non- fashion long term sellers) the majority of sales will be made in the most successful lines of the recent past. With merchandise whose sales change markedly with shifts in consumer taste, e.g. fashion items, past experience is less helpful Current information: a good deal of up- to -date information on customer demands can be gleaned from the normal accounting and control records of a retail business External sources: merchandise information can be obtained from: Organized comparison-shopping of competitive stores Suppliers Consumer research Trade fairs

HOW MUCH TO BUY?

Open - to - buy approach: this determines in cash the amount of purchases to make for a particular selling period Assortment planning approach: Here stock requirements are calculated on a unit rather than a cash basis Model stock plans

Model stocking is a quantitative method of planning to buy which provides general guidelines on the size and composition of stock but does not specify the exact nature of the merchandise. This is particularly important in clothing and fashion stores where customers naturally buy most in middle sizes in the popular colours and in the medium price range Bulk buying Buying large amounts of stock has certain advantages for the large retail store or chain able to afford it but it also produces problems Advantages: Less possibility of run-outs at times of unexpectedly heavy demand Minimum quantity discounts are possible, with higher discounts as the purchase becomes larger Clerical work per unit ordered is reduced Disadvantages: Higher sales and stock turn are required to keep in balance Deterioration and pilferage may increase Valuable storage space is tied up Cash can be over committed Price markdowns tend to occur with stock which is out of date

FROM WHOM TO BUY?

Types of suppliers: Manufacturers and Primary producers: These will normally tend to be limited in the range of goods they produce and to vary considerably in the nature and extent of distributive services they provide Wholesalers: These carry stocks at their own risk in either wide (general) or more limited (specialist) assortments. Importers: These are usually linked in the range of merchandise carried and the extent of the services provided. They may specialize by type of goods wherever produced or by the products of a particular country or area Agents: These intermediaries do not carry stock at their own risk. Some agents do not handle the goods at all and others may carry sample ranges

but do not hold stock at their own risk. The range of merchandise carried and the services provided depends largely on their principals Other Retailers: The three main ways in which retailers act as sources of supply are: For specials For finished goods which themselves form part of a more complex product For bankrupt, damaged or discontinued stock Manufacturer-owned retail chains: The problems of supply are somewhat reduced for such retail stores because substantial percentage of the product ranges are self-supplied Government and semi-government sources: A very broad spectrum of products comes from this source The public: In merchandise fields such as antiques and second-hand items, the public remains an important source of supply. In addition, sources of ideas for products can be obtained from exhibitions, trade journals, members of the public, etc.

WHEN TO BUY?
Merchandise should be purchased so that there will be sufficient stock to meet consumer demand, bearing in mind seasonal factors and the need to keep down inventory levels to acceptable levels Exclusive dealing: Exclusive dealing occurs when a retailer agrees with a supplier not to sell its competitors product. This practice is only illegal when it creates a monopoly or substantially lessens competition. However, often a weak manufacturer has to offer one-way exclusive dealing arrangements to get shelf space at the retail level Exclusive territories and restricted distribution: A supplier may grant a retailer an exclusive right to sell the suppliers product within a specified geographic area. Essentially this leads to a geographic monopoly for the retailer. This practice can be termed illegal when other retailers have no access to similar products and therefore cannot compete

Tying contracts: In a tying contract, the supplier allows the retailer to purchase a product or products only on the condition that the retailer also buys other specific items from the supplier Refusal to deal: Normally, both a retailer and a supplier have the right to deal or refuse to deal with anyone they choose

PAYMENT TERMS:-There are five major types of terms given to retailers when purchasing goods: Net, F.O.B., F.A.S., C.I.F. and C.O.D. Net: terms such as net 30 mean that payment of the invoice must be made within 30 days of the invoice date F.O.B. (free on board): This means that merchandise is placed onboard a truck, a railroad car, or an airplane. Title to the goods passes from the seller to buyer at the F.O.B. point. The merchandise is the responsibility of the supplier till then F.A.S. (free alongside ship): This means that the seller quotes a price for the goods, including charges for delivery alongside a vessel at a named port. The seller handles the cost of loading. The cost of unloading, ocean transportation, and insurance is paid by the buyer C.I.F. (cost, insurance and freight): This means that the seller quotes a price including all transportation, insurance and miscellaneous expenses to a named destination C.O.D. (cash on delivery): These terms are used when the supplier is unfamiliar with the retailer or when the retailer may be a poor credit risk DISCOUNTS:-Discount is a reduction in price given to retailers by their suppliers Treatment of discounts can be done under two heads: Terms of sale: they are the conditions under which merchandise is sold. The terms specify the trade, quantity and the seasonal discounts offered to retailers

Terms of payment: they are the conditions under which retailers must make payment. They indicate the permissible discounts and describe the circumstances under which payment must be made Terms of sale Trade discounts: This is a reduction in price available to some class of buyers, such as wholesalers and retailers. Trade discounts are usually quoted in a series and are expressed as a percentage reduction from a suppliers list or suggested retail price Quantity discounts: This discount is offered to retailers who buy a given quantity Seasonal discount: This discount is one that retailers earn by ordering or taking delivery of merchandise before the normal selling period has begun. It is the suppliers inducement to encourage retailers to buy early, and it helps suppliers obtain business during slack periods Terms of Payment Cash discounts: Cash discounts are a reduction in price given by suppliers in return for prompt payment of the invoice VENDOR RELATIONSHIPS:Earlier an adversarial relationship existed between the suppliers of goods and the buyers. Companies and consumers sought the lowest price and the highest quality through the bidding process and shopping around. Suppliers were continually played against each other in an attempt by the buyer to obtain the best possible deal. This was necessary because the manufacturer usually had a greater power in the negotiating process. The size of most retailers was dwarfed by that of the vendor. Several changes in both the external and internal environments of retailing caused a shift in attitudes. Among these changes were increased competition among suppliers, introduction of new management techniques, increase in the market power of large retailers and the introduction of strategic partnership by innovative retailers and vendors. Large retailer accounts were heavily sought after by the vendors. As a result, retailers dictated terms of

sale to a much greater extent than in the past. Also, these retailers now had the volumes and market power to skip over intermediaries and buy directly from the manufacturers. Using key suppliers Many retailers have found it advantageous to do the bulk of their business with a few suppliers. There are several reasons for doing this. There are a large number of retailers in the market and since each one handles a large number of lines, it is confusing to work with too many of them Retailers who purchase from only a few suppliers reduce the amount of time they must devote to buying Consolidating orders may bring advantages in credit terms, delivery, price breaks and service arrangements such as liberal adjustment policies Suppliers are usually able to give considerable attention to retailers who account for a significant portion of their business Strategic Partnership and Relationship Marketing Vendor/ Retailer partnerships have focused on getting the right products to the retailer at the right time and at the right price. The advent of computers and information transfer technologies allowed coordination between retailers and vendors to reach a degree never before possible. There is less worry about receiving the products ordered and getting them on time. Many manufacturers now help their retail accounts in the development of merchandise and assortment plans. Partnerships also include a give-and-take component that cannot be overlooked. Manufacturers and retailers have started what is referred to as margin sharing. This is where the manufacturer will share losses of margin incurred by the retailer under certain condition. The retailer may agree to devote prime space and/or more space to a manufacturers product under these terms. Merchandise Hierarchy: Discussed in Class