Retail Marketing SMU PDF

MK 0003
Retail Marketing
Contents
Unit 1
Understanding Retailing 1
Unit 2
Retail Institutions 21
Unit 3
Retail Market Strategy 38
Unit 4
Retail Store Management 55
Unit 5
Merchandise Management 74
Unit 6
Merchandise Pricing 98
Unit 7
Retail Control 115
Unit 8
Information Technology and Retailing 133
Unit 9
Latest Trends in Retailing 151
Unit 10
Contemporary Issues in Retailing 177
Revised Edition : Fall 2009
nd
BKID – B1040 22 June 2009
Prof. S. Kannan
Director & Dean (In-charge)
Directorate of Distance Education
Sikkim Manipal University of Health, Medical & Technological Sciences (SMU-DDE)
Board of Studies
Mr. C. Shanath Kumar (Chairman) Mr. Shankar Jagannathan
Head – Management & Commerce Former Group Treasurer
Sikkim Manipal University, DDE Wipro Technologies Limited, Bangalore
Dr. T. V. Narasimha Rao Mr. Pankaj Khanna
Adjunct Faculty & Advisor Director, HR
SMU, DDE, Bangalore – 560 008 Fidelity Mutual Fund
Mr. Ashok Kumar Mr. Abraham Mathew
Additional Registrar, SMU, DDE CFO, Infosys BPO
Mr. M. K. N. Prasad Ms. Sadhana Das
Controller of Examinations Senior Manager – HR
SMU, DDE Microsoft India Corporation (Pvt.) Ltd.
Prof. K. V. M. Varambally Special Invitee
Director Prof. Ramu Iyer
Manipal Institute of Management Ex-Professor
Manipal – 576 104 IIM – Calcutta
Prof. Sunderrajan
IIM – Bangalore
Content Preparation Team

Content Writing Content Editing
1. Prof. Sathyanarayana 1. Prof. Shanath Kumar
JSS Engineering College HOD, Management and Commerce
Bangalore Department, SMU
Bangalore
Edition: Fall 2007

Revised Edition: Fall 2009
This book is a distance education module comprising of collection of learning
material for our students.
All rights reserved. No part of this work may be reproduced in any form by any
means without permission in writing from Sikkim Manipal University of Health,
Medical and Technological Sciences, Gangtok, Sikkim.
Printed and Published on behalf of Sikkim Manipal University of Health, Medical and
Technological Sciences, Gangtok, Sikkim by Mr. Rajkumar Mascreen, GM, Manipal
Universal Learning Pvt. Ltd., Manipal – 576 104. Printed at Manipal Press Limited,
Manipal.
SUBJECT INTRODUCTION
Retailing is nothing but the Shopping means the act or process of buying
different individual products as one or more than one. Most of the times this
is done to provide necessities such as food and clothing; sometimes it is
done as a recreational activity. Recreational shopping often involves window
shopping (just looking, not buying), bulk purchase different individual
products separately, individually priced services, browsing and does not
always result in a purchase.
In order to retail any product, the product needs to be obtained and stocked.
This can range from a simple process of purchasing and collecting from a
wholesaler to planning and executing the whole process from raw materials
through to retailing to the end customer. This book gives an insight of…..
Unit 1 deals with Understanding Retailing, Meaning, Definition, Scope of
Retailing, Importance of Retailing, Evolution of Retailing, and Retail
Environment, Consumer Behavior in retail context, and Retailing and market
segmentation.
Unit 2 deals with Retail Institution on which the Theories of Institutional
Change and Types of Retailers.
Unit 3 deals with Retail Market Strategy, its Meaning, Retail Strategic
Process Planning, Retail Organization, Management and human resource
policies, Strategic Positioning like Operations, Logistics, Market Research,
Financing, Technology and Developing Competitive advantages like
Physical facilities, Merchandising, Pricing, Promotion, Patronage, Service
etc.
Unit 4 deals with Retail Store Management in which Store management,
Site Selection, Approaches to site selection, Store Layout, Design and
Visual Merchandising.
Unit 5 deals with Merchandise Management, Selecting Merchandising and
vendors, Merchandise budget, Sales forecast, Inventory planning,
Assortment planning, Merchandise management and control, purchasing
systems and Merchandise purchasing.
Unit 6 deals with Merchandise pricing, Objectives of retail pricing,
Determinants of retail price setting, Pricing strategies and practices, Price
setting methods and Legal issues in retail pricing.
Unit 7 deals with Retail control like Analyzing performance in retail store,
Budgeting and Accounting records and systems.
Unit 8 deals with Information technology and retailing in which the role of
information, Sources of Information, Retail Information System, Data Mining
and Data Warehousing and business intelligence.
Unit 9 deals with Latest trends in retailing like Non store retailing etc.
Unit 10 deals with Contemporary issues in retailing like Legal and ethical
issues in retailing and Careers in retailing.
Retail Marketing Unit 1
Unit 1 Understanding Retailing
Structure
1.1 Introduction
Objectives
1.2 Importance of retailing
1.2.1 Key member in the channel of distribution
1.2.2 Buying & Assembling
1.2.3 Warehousing
1.2.4 Selling
1.2.5 Risk-shouldering
1.2.6 Grading & Packing
1.2.7 Financing
1.2.8 Advertising
1.2.9 Supply of Market Information
1.2.10 Offer Opportunity
1.2.11 Big Relief
1.2.12 Provision of Information
1.2.13 Produce the risks of loss
1.2.14 Largest Choice
1.2.15 Relief from storage
1.2.16 Extra service:
1.2.17 Supply of Information
1.2.18 Rapid economic growth:
1.2.19 Generates employment opportunities:
1.2.20 Potential untapped Markets
1.2.21 Cash & Carry wholesale trading
1.2.22 Indian Retail Sector
Self Assessment Questions: I
1.3 Evolution of the Retail Sector
Self Assessment Questions: II
1.4 Retail Environment:
Self Assessment Questions: III
1.5 Consumer Behaviour in Retail context
1.5.1 Stages of the Consumer Decision Process
Self Assessment Questions: IV
Sikkim Manipal University Page No. 1

1.6 Retailing and Market segmentation

1.6:1 Development of marketing mix:
1.6:2 Store location decision
1.6:3 Understand customer behavior
1.6.4 Merchandising decisions
1.6:5 Promotional campaigns
1.6:6 Positioning
1.7 Summary
Self Assessment Questions: V
1.8 Terminal Questions
1.9 Answers to SAQS and TQS
1.1 Introduction
Retailing is not only an important aspect of the economic structure but very
much a part of our lies. Although trading of goods has been in existence
since human civilization days, it is only in the recent past that the buying and
selling of goods have become more of a formal and brand dominated
activity. In fact, today retailing is evolving into a global, high-tech business.
Nevertheless, the traditional forms of independently owned small
businesses co-exist along with the organized retailers like department
stores, specialty stores, shopping malls etc.
Organized retailing has emerged in a big way since 2000 onwards and with
it; we are witnessing the emergence of new forms of retailing. The retailers
market can be segmented ion the basis of various retail formats and led to
the development of a very complex retail environment.
Objectives:
 To know the meaning and concept of retailing
 To understand the important role of retailing in economic development
 To understand the complex retail environment
 To learn about various retail market segments
 To understand the behaviour of consumers towards retailing
1.2 Importance of Retailing

The word RETAIL is derived from French word retailer, meaning „to cut a
piece off‟ or „to break bulk‟.

Retail trade may be defined as, “A trade, which consist of selling to ultimate
consumers of a variety of products in small lots”. It is exactly and literally so
and is meaningful that retail trade is that cuts off smaller portions from large
lump of goods. From the bulk of products procured by the wholesaler, small
lots are cut and distributed through retailers. Retailers are the last link in the
channel of distribution between the manufacture and the ultimate consumer.
The retail shop is one of the oldest and most widely used business
establishments in any country.
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
includes all activities directly and indirectly related to the sale of goods or
services to the ultimate consumer. Irrespective of who sells, the distinction
of retailing is normally made on the basis of to whom the products are sold.
Retailing is subject to constant and dramatic changes. Many forces like
Social, Economical, Technological, Government policies etc. influence it.
Following points highlights the importance of retailing.
1.2.1 Key member in the channel of distribution:
Retailer as the link in the chain of distribution performs good many functions
of marketing. The channel of distribution goes incomplete without his
contributions to make the final consumers buy the products. He acts as a
catalyst agent to both the manufacturers as well as to the customers.
1.2.2 Buying & Assembling:
Retailer assembles products from different manufactures and wholesalers
and stock wide variety of products to meet the varied and small
requirements of large number of customers. This assembling is possible
through the process of buying variety of products from different sellers.
1.2.3 Warehousing:
Retailer is a safety valve for releasing the goods in quantities of different
varieties and price ranges according to the consumer needs. Warehousing
makes possible holding the stocks to match between the consumer demand
and supply conditions.
1.2.4 Selling:
The final aim of a retailer is to sell the products so bought and held by him.
Retailer is rightly called as the buying agent of consumers. He is the means

to dispose the goods to the consumers. Successful retailing needs good

deal of salesmanship tactics.
1.2.5 Risk-shouldering:
Risk shouldering is the basic responsibility of a retailer arising out of
physical deteriorations and changes in prices. These are unavoidable as he
holds sufficient and variety of inventories from the time they are bought till
they sell.
1.2.6 Grading & Packing:
Retailers undertake second round grading and packing activities left by the
manufactures and wholesalers. As he sells in loose packs and very odd lots,
packing assumes a particular importance.
1.2.7 Financing:
In successful marketing, the contribution of retailers is really worth
emphasising with consumer financing. His financing consists of credit
granted on liberal terms to the consumers, investment in stocks, salaries &
wages and other trade expenses.
1.2.8 Advertising:
Retailers are the best agents to advertise the products and ideas. In
collaboration with the wholesaler and producer, retailers do undertake shop
display, distribution of sales literature, introduction of new product etc.,
1.2.9 Supply of Market Information:
As being in close and constant touch with consumers, he clearly keenly
observes, studies the consumer behaviour, changes in tastes and fashions
and therefore demands. This collected information is passed on to the
wholesalers & manufacturers for their perusal.
1.2.10 Offer Opportunity:
Retailers give the manufacturers and producers the opportunity of
presenting their products to the consumers by providing the necessary vent
and access.
1.2.11 Big Relief:
Manufacturers and the wholesalers are really relieved of the head braking
odd jub of retailing to the individuals in pretty small quantities.

1.2.12 Provision of Information:

Retailers do provide the wholesalers and manufactures the information
about the latest consumer movements and consumer demand.
1.2.13 Produce the risks of loss:
Being the spokesmen of consumers, they warn the producers as to what
goods to produce and in what quantity at what price. This makes the
wholesalers to stock only those goods needed by the consumers.
1.2.14 Largest Choice:
Retailers assemble products of different varieties from good many
producers enabling the consumers to have largest choice as the cost,
quality, and varieties and so on.
1.2.15 Relief from storage:
In fact, retailers hold goods on behalf of the consumers. Being at their
convenient place, consumers can have ready access suitable stock at
suitable lot. By this he helps them in reducing their capital lock-up.
1.2.16 Extra service:
Many retailers grant extra concessions and facilities such as door delivery,
telephone orders, credit sales, return or replacement of goods not found
suitable by consumers etc.,
1.2.17 Supply of Information:
Retailer is an expert adviser to consumer as help them in deciding about the
product choice. He introduces new products that are superior to earlier
models thus improving customer satisfaction.
Retailing as one of the important sectors for the growth of economy plays a
key role in building a nation to self sufficiency state. Following key elements
explains the importance of retailing to the nation.
1.2.18 Rapid economic growth:
India‟s GDP growth of 9.4 per cent in 2006-07 is the highest posted for over
18 years, reflecting the booming economy of the country. Growing in
tandem with the economy is the Indian retail sector. Retail is one of India‟s
largest industries, contributing to about 10 per cent of the GDP and
providing employment to 8 per cent of the nation‟s workforce. The sector is
on a high growth trajectory and is expected to grow by more than 27 per
cent over the next 5 to 6 years.
1.2.19 Generates employment opportunities:

It offers maximum employment opportunities for people living in a nation. In
India, the youth population is more interested pursuing their career in this
field. Survey shows in India that 60% of population of age group (15-60) is
engaged in this activity.
1.2.20 Potential untapped Markets:
Growing trend of consumerism in has led to the emergence of cities and
small towns add to the market attractiveness. Pantaloon Retail India
Limited, one of India‟s retail giants captures a mere 0.3 per cent of total
market; compared to Tesco Plc, which captures 14.3per cent of England‟s
market and Wal-Mart which captures 20 per cent of USA‟s market; giving an
insight into the large untapped market potential.
1.2.21 Cash & Carry wholesale trading:
Big retail outlets also perform the functions of a wholesaler by selling
products both in bulk and in small quantities. This leads to larger sales
transactions which results in large money flow into the economy. Since
these giant retailers have wider assortment and variety, they can cater to
the needs of every customer who visit their shop and also influence them on
impulsive buying.
1.2.22 Indian Retail Sector:
Indian retail business promises to be one of the core sectors of the Indian
economy, with organised retail sector estimated to grow by 400 per cent of
its current size by 2007-08.
India is expected to be among the top 5 retail markets in the world in 10
years. The growth and potential of the sector is being widely acknowledged
both in the domestic as well as international forums. India topped AT
Kearney‟s Global Retail Development Index 2007 for the third consecutive
year, retaining its position in the global market as the most preferred retail
destination amongst emerging markets.
For the fifth time, India also topped the Global Consumer Confidence Index
June – 2007 conducted twice a year by The Nielsen Company. Indians were
judged the world‟s most optimistic consumers, with large sections of the
population considering “now” a good time to spend. Total estimated
investment opportunity of US$ 5-6 billion in next five yrs .


1. Retail trade may be defined as “A trade, which consist of
________________ of a variety of products in small lots”.
2. Big retailers does cash & carry wholesale trading ________________
and in small quantities.
3. One of the characteristics observed in retail environment is
__________________
4. Consumer behavior in retail context is _____________________.
5. A Market is a group of ___________________ with similar needs
1.3 Evolution of the Retail Sector

The origins of retailing in India can be traced back to the emergence of
Kirana stores and mom-and-pop stores. These stores used to cater to the
local people. Eventually the government supported the rural retail and many
indigenous franchise stores came up with the help of Khadi & Village
Industries Commission. The economy began to open up in the 1980s
resulting in the change of retailing as India began to open up economy.. The
first few companies to come up with retail chains were in textile sector, for
example, Bombay Dyeing, S Kumar's, Raymonds, etc. Later Titan launched
retail showrooms in the organized retail sector.
With the passage of time new entrants moved on from manufacturing to
pure retailing. The latter half of the 1990s saw a fresh wave of entrants with
a shift from Manufactures to Pure Retailers.
Retail outlets such as Foodworld in FMCG, Planet M and Musicworld in
Music, Crossword in books entered the market before 1995. Shopping malls
emerged in the urban areas giving a world-class experience to the
customers with facilities like car parking targeted to provide a complete
destination experience for all segments of society. Eventually hypermarkets
and supermarkets emerged with to provide customer with 3 V‟s i:e Value,
Variety and Volume
The evolution of the sector includes the continuous improvement in the
supply chain management, distribution channels, technology, back-end
operations, etc. this would finally lead to more of consolidation, mergers and
acquisitions and huge investments. It also resulted in expanding target

consumer segment: The Sachet revolution - example of reaching to the

bottom of the pyramid witness the tremendous growth of retail sector
through variety and assortment. At year end of 2000 the size of the Indian
organized retail industry was Rs. 13,000 crore.
Phases in the evolution of retail sector
Weekly markets, village and rural meals
Convenience stores, mom-and –Pop stores /

Kirana stores
Public distribution system, Khadi stores, Co-

operatives
Exclusive brand outlets, hyper markets &

supermarkets, departmental stores &
shopping malls

State whether following staments are True or False:
1. The economy began to change in 1980 resulting in growth of retail
Industry.
2. The Evolution in retail sector started in Exclusive Brand Outlets.
3. Retail evolution is a failure in India
4. Government always opposed retail sector in India.
5. Manufacturing to Pure retailing is part of retail evolution
1.4 Retail Environment

The present day‟s retail sector is highly fragmented with organized retail
contributing to only 8% of the total retail sales. The retail sector in developed
countries was also highly fragmented at the beginning of the last century but

the emergence of large chains like Wal Mart, Sears and others led to the
rapid growth of organized retail and growing consolidation of the retail
industry in the developed countries.
The rapid rising income levels and accompanying changes in lifestyles
greatly contributed to the growth of organized retail in the West. Today, in
India we see a rise in the purchasing power, and growth of a middle class
which follows the western lifestyle. Hence, conditions are conducive for the
rapid growth of orgnised retail in India.
However, the Indian environment is different from that of western countries
in many ways. Indian cities are congested and a large part of the population
is still concentrated in rural areas. The Indian houses are smaller and the
Indian consumer is still not used to buying in bulk in weekends. The Indian
retail scene is hence very different from that prevailing in the developed
countries. As organized retail grows, retail formats, which evolved in the
west, need to be modified and new formats suitable to Indian conditions
have to evolve. Even as organized retail grows, a large part of Indian retail
is still likely to be unorganized.
Hence, it is necessary for us to understand the difference in the retailing
environment and retailing institutions in India. Organized retail is growing
rapidly and we see the emergence of large organized retail chains. It is also
seen that retail malls are mushrooming all over the country. The
opportunities in retail industry are increasing since lot of structural changes
has happened in retail formats.
With the rapid growth in orgnaised retail and increased emphasis of
manufacturers on understanding sales at the retail level, the study of
retailing has become increasingly relevant. Sales managers of consumer
products forms need to understand the perspective of retailers and design
appropriate marketing programs to attract retailers, particularly when large
organized chains become more dominant. Products and brand managers
need to understand the factors behind the growth of retail brands to plan
effective product and branding strategies.
Following characteristics are observed in retail environment:
• Highly developed market
• Highly concentrated market

• International players
• High density of outlets
• Fierce price competition
• Discounter expansion
Several environmental factors influence shopping attitude and behaviour of
consumers. They are:
 State of the economy (under developed, developing or developed) which
describes the standard of living of people in the country.
 Infrastructure where people shop, such as traffic congestion, the crime
rate and the ease of parking should lead to consumer traffic to the retail
outlet.
 Price wars among the retailers have become one of the common factors
in retail environment to attract maximum customers.
 Emergence of new retail formats which answers to the different need
sets of consumers at one roof.
 Trend towards more people working at home makes everyone earn and
spend lavishly on products and services
 Government and community regulations on extending shopping hours,
new construction, consumer protection and so forth also led to the
changes in retail environment.
 Evolving societal values and norms leading to new set of needs and
wants which has affected the lifestyle of consumers to a greater extent.
 Rate of inflation (how quickly the prices raise)

1. __________ Wars among the retailers have become a tool to attract
customers.
2. One of the factors that influence retail environment is_____________.
3. The opportunities in retail Industry are increasing since lot of
_______________ has happened in retail formats.
4. Shopping attitude and behaviour of consumers depends on standard of
_______________ .
5. The emergence of International Players plays major role in _________.

1.5 Consumer Behaviour in Retail context

Consumer buying behaviour refers to the buying behaviour of the ultimate
consumer. Consumer behaviour is the study of how consumers make
decisions to use their respective resources such as time, money and effort
for buying, suing and disposing goods and services. The behaviour of
humans is very complex in nature. Marketers understanding of he drivers of
consumers buying behaviour will help them to serve their customers
effectively and efficiently and attract new customers.
In the retailing context, marketers are required to understand customers
shopping behavior which includes decision variables regarding among other
things, brand selection, shopping timing, and choice of retail format and
store. Consumers shopping behaviour is understood by analyzing the
factors that affect behaviour. These factors could be demographic,
psychological, environmental or related to the lifestyle of the customer. It is
equally important for the retailer to identify the various stages in the
consumer decision making process and the major influences at each stage.
This would make possible an effective retail marketing strategy.
In the retail context, marketers would be specifically be more interested to
know about the consumers shopping behaviour, which involves an
understanding of decision variables regarding when, where and what to
shop i:e shopping timing, choice of retail format and store etc. such decision
variables are the factors to be considered by the retailer while taking
decisions regarding the understanding consumer behaviour.
For instance, in case of pickle, marketers will be interested in finding out the
type of pickle consumers intend to buy (single vegetable/fruit or mixed, spicy
or not, oily or dry, veg or non-veg), the brand preference (national, private,
generic), the reason for using (to add taste, for food preparation, to eat
along with snacks), the place of purchase (Super bazaar, convenience
store, vendors, home made), and frequency of purchase (weekly, fortnightly,
monthly). On the basis of various alternatives to consumer needs, marketers
evolve the best possible marketing mix to attract the target market.
Therefore, shoppers‟ response to retail marketing mix has a great impact on
the forms success in the long run.
Individual consumers consider each element of retail marketing mix in
relation to their culture, attitude, previous learning and personal perception.
Many a times consumers patronize more than one retail outlet for the same
product. The consumer is influenced by both the intrinsic and extrinsic
factors. With the understanding of these elements retailers would be well
placed to devise their retail marketing mix in accordance with their
respective target segments.
Following factors affect a consumer‟s purchase decision.
DEMOGRAPHIC FACTORS PSYCHOLOGICAL FACTORS
 Gender 1. Motives
 Age 2. Perception
 Occupation 3. Learning
 Education 4. Attitude
 Family size 5. Personality
 Income
ENVIRONMENTAL FACTORS LIFESTYLE

 Physical environment 1. Activities and Interests
 Social environment 2. Nature of Occupation
(Culture, Sub-culture, 3. Availability of leisure
Social class)
1.5:1 Stages of the Consumer Decision Process:

When people buy things, they engage in decision making process. Decision
is defined as the selection of an option from two or more alternatives. By
understanding their needs and concerns as they progress through the
decision making cycle, marketers can build better and more successful retail
marketing mix.
The consumer decision making process is the process consumers go
through when they decide to make a purchase. In the retail context, a
marketer is concerned about shopping decisions like what, when and where,
how and from whom to purchase, and the frequency of purchase.
Following steps explains the decision making process:
1. Need Recognition
2. Information Search
3. Evaluation of Alternatives
4. Purchase decision
5. Post-purchase dissonance

Stages in consumer decision making are discussed below:

1. Need Recognition:
Need recognition occurs when a consumer realizes a significant gap
between his or her present state and some desired level of state. Social and
physiological stimuli arouse the consumer about his specific need. To satisfy
this desire the consumer looks for possible sources to shop for the specific
offering. Therefore, decision regarding particular retail formats, private or
national brands, and retail stores follow the awareness of the need for a
good or service.
2. Information search:
It is the process where the prospective buyers examine their environment
for appropriate information to make a sound decision. This they may do just
for pleasure or to collect information for future use. A section of consumers
looks for specific information for satisfaction of very specific needs. This
stage is termed as prepurchase search. An individual usually derives or
acquires information from two sources, namely internal and external.
3. Evaluation of alternatives:
After information search for the required product, the consumer is expected
to take a final decision on one of the choices. The search also helps the
consumer to acquire knowledge about the criterion to be used to evaluate
the various alternatives evolved at the information stage. It is essential for all
retailers or marketers to ensure that their brand finds place in the
consideration set of the target segment. Retailers require an effective
marketing program, especially in terms of their communication strategy in
order to inform and position the store as per the needs of the target
segment.
4. Purchase decision:
After evaluating various alternatives, an individual is in a position to focus on
the preferred product category, good, retail outlet, or brand. This is followed
by a purchase decision by the consumer. Final choice from multiple
alternatives leads to the purchase stage or decision. This involves an
exchange of cash or credit note for the ownership or usage of offering. It is
the purchase stage which generates revenue for the retailers and marketers
in the value chain.

5. Post-purchase dissonance:
After purchasing a particular good or service or visiting an outlet, consumers
evaluate its performance against their expected level of satisfaction on
account of important attributes. In case of post purchase evaluation, the
basic concern of the consumer is to reassure one self that he or she has
opted for the best available option from amongst various alternatives. This
helps to minimize the post-purchase cognitive dissonance.

State Whether following staments are True or False :
1. Consumers Shopping behaviour is understood by analyzing the factors
that affect behaviour.
2. When, Where and what shop is not relevant to consumer decisions.
3. Culture, attiude, previous learning and personal perception of individual
consumers important element of retail marketing mix.
4. Need recognition occurs when a consumer realizes a significant gap
between his or her present state and some desired level of state.
5. Final choice from multiple wiil not lead to alternatives leads to the
purchase stage or decision.
Following exhibits illustrates consumer decision making process stages
Purchase Importance
In India, most of the durable goods and expensive goods such as jewellery
and garments are purchased from the well known retail outlets, as there is
very limited number of brands in these product categories. Therefore,
people are well assured on account of performance of the product they are
buying from a particular retailer.
Even for the durable products, people in small towns give due importance to
the sway of the retailers as they buy most of their durables from one shop.
Things are now changing in metros, where people who migrated from other
towns have to depend on friends, mass media etc, to ward off the
associated risk with every prospective purchase
Rural consumer
In rural India, consumers prefer village shops for making purchases for their
urgent needs. They prefer to purchase in small quantities, preferably on

credit. This helps them avoid the transportation cost associated with periodic
markets. It is also difficult to avail credit facility in such markets.
They consider periodic markets as fit for quantity purchases on cash, which
in turn provides an opportunity to bargain and obtain a greater variety to
make better choices.
Post-purchase Dissonance
In case of a multiplex theatre a consumer is expected to examine the
experience on account of sound effect, air condition efficiency, picture
clarity, contiguous power supply, snacks available and their prices
associated, other entertainment facilities, shopping facilities, seat
arrangement etc.,
This kind of evaluation is likely to lead to three possible outcomes:
1. Actual performance meets expectations, leading to a neutral response.
Hence individual may like to evaluate it further.
2. Performance exceeds expected levels, resulting in satisfaction. This may
lead to repeated purchase and positive word-of-mouth publicity.
3. Performance may fall short of the expectations, resulting in
dissatisfaction. This may lead to discontinuation of purchase of the
particular good or from the retail outlet.
1.6 Retailing and Market segmentation

A market is a group of potential customers with similar needs who are willing
to exchange something of value with sellers offering various goods and
services that can satisfy these needs. The marketer has the option of either
approaching the entire set of customers with a uniform marketing approach
or adopting differentiated approach for different set of customers. While the
former refers to mass marketing, the latter refers to the strategy of market
segmentation.
Consumers have many shopping options today. A consumer can buy
groceries from a neighborhood store or a large supermarket. She may buy
jewellery from a specialty store or from a large department store. The
proliferation of distribution channels and retail formats is increasing
competition and forcing retailers to focus their selling efforts on select
groups of customers. Each type of retail format offers distinct benefits in

terms of product variety, pricing, shopping ambience, etc., which appeals to

a particular group of customers.
Today, even while buying clothes, customers‟ can choose between
traditional stores with unbranded range, upscale specialty stores or discount
stores. They can shop in conventional supermarkets, super stores,
combination stores, factory outlets etc.,
Hence, the retailers‟ arte required to understand the various criteria that can
be adopted for segmenting the market and the benefits offered by each
segment. Based on this analysis, the retail marketer can select one or more
of the segments as the target market and position his outlet as per the
profile of the targeted segment. Availability and analysis of customer data,
specific to the market concerned, facilitates the process of segmentation.
Market segmentation is the process of dividing the heterogeneous total
market into small groups of customers who share a similar set of wants.
Each of these small groups possesses somewhat homogeneous
characteristics. As in case of marketers in other businesses, marketers in
the business of retiling may also seek the benefits of market segmentation
depending on his unique market and business context.
A retailer may divide women customers into two segments, working woman
and housewife. Segmentation is thus an aggregating process. A segment is
a relatively homogenous group and hence responds to a marketing mix in a
similar way. Different groups or segments require different promotional
strategies and marketing mixes because they have different wants and
needs. A niche is a more narrowly defined group seeking a distinctive mix of
benefits.
Retailers segment the market to identify specific groups of customers in
their trade area on whom their selling efforts can be concentrated. Such
focused selling efforts are aimed at making the retailer the preferred
destination for such identified segments for the products or services it deals
in and to develop a dominant position in the target segments. Following are
the benefits of market segmentation:
1.6:1 Development of marketing mix:
Segmentation helps a retailer in identifying the target population and
developing a customized marketing program in terms of products and
service offerings, pricing strategy and promotional program.
1.6:2 Store location decision:

It also helps a retail chain in deciding locations for its new stores. The retail
outlets can be located where there is a concentration of the target
population.
1.6:3 Understand customer behaviors:

Segmentation also helps a retailer to gain insight into why the target group
acts the way it does. The buying behavior of the target segment can be
understood once the market is segmented. This can help the development
of an effective marketing strategy.
1.6.4 Merchandising decisions:

Segmentation helps a retailer in merchandising decisions. Merchandising is
essentially the skill that decides which items will go on the shelves. An
understanding of preferences of target segments is essential for successful
merchandising program.
1.6:5 Promotional campaigns:

Segmentation helps the retailer on developing more effective and accurate
promotional campaigns.
1.6:6 Positioning:
Segmentation helps a retailer on positioning itself in the market. Thus,
Shoppers‟ Stop has targeted the upper income while Westside has targeted
the larger base of middle and upper middle consumers.
In order to achieve the above mentioned benefits, a retailer can segment his
total market on the basis of the following criteria:
 Geographic segmentation
 Psychographic segmentation
 Lifestyle
 Demographic segmentation

Following table illustrates the dimensions in Demographic segmentation

Serial No. Segmentation dimensions
1 GENDER
2 AGE
3 MARITAL STATUS
4 INCOME
5 OCCUPATION
6 EDUCATION
7 TYPE OF FAMILY
8 FAMILY SIZE
9 FAMILY LIFE CYCLE
10 RELIGION
11 SOCIAL CLASS
1.7 Summary
Retailing is defined as the conclusive set of activities or steps used to sell a
product or service to consumers for their personal or for family use. It is
responsible for matching individual needs with suppliers of all
manufacturers. Retailing has been a dynamic industry and new retail firms
have brought innovative approaches to retailing and changing the industry.
This has led to various retail organization formats.
The mass marketing approach, where the retailer targets the entire
population in his trading area with a uniform marketing mix is becoming
infeasible with the increase in competition. An understanding of consumer
behaviour is important in order to formulate and implement effective retail
marketing strategies. Consumer behaviour study is very vital for the retailer
to understand their decision making process.

Match the following:
1. Market a) Skill that decides shelves place
2. Retailers Segment b) Location for its new stores
3. Store location decision c) Helps retailers to look for segmentation
4. Merchandising decision d) Identify specific group of customer
5. Positioning e) Group of potential customers


1. Discuss importance of retailing
2. Explain the phases in the Evolution of Retail Sector
3. Explain the factors that affects consumer purchase decisions .
4. Explain the stages in consumer decision making process
5. Discuss the development in Marketing Mix
1.9 Answers to SAQS and TQS

SAQ I
1) Selling to ultimate customers
2) By selling product in Bulk
3) High density of outlets
4) Shopping Behaviour
5) Potential customers
SAQ II
1) True
2) True
3) False
4) False
5) True
SAQ III
1) Price
2) Discount expansion
3) Structeral Changes
4) Living of Consumers
5) Retail Management
SAQ IV
1) True
2) False
3) True
4) True
5) False

SAQ V
1-e, 2-d, 3-b, 4-a and 5-c
Answers to Terminal Questions:

1. Refer to Section 1.1:1
2. Refer to Section 1.2
3. Refer to 1.2:1
4. Refer to 1.4 :1
5. Refer 1.5:1

Unit 2 Retail Institutions

Structure
2.1 Introduction
Objectives
2.2 Types of Retailers
2.2:1 Nature of Retail Mix:
2.2:2 General Merchandise retail types:
2.3 Structure and Nature of Retailing Channels
2.4 Trends in Retail formats
2.5 Summary
2.7 Answers to SAQ and TQs
2.1 Introduction
Retailing encompasses the business activities involved in selling goods and
services to consumers for their personal, family or household use. It
includes every sale to the final consumer – ranging from cars to apparel to
means at restaurants to movie tickets. Retailing is the last stage in the
distribution process.
A retail institution is the basic format or structure of a business. In the United
States, there are 2.3 million retail firms and they operate 3 million
establishments. An institutional discussion shows the relative sizes and
diversity of different kinds of retailing and indicates how various retailers are
affected by the external environment.
Objectives:
 To show the ways in which retail institutions can be classified
 To study retailers on the basis of ownership type and examine the
characterstics of each
 To explore the methods used by manufacturers, wholesalers and
retailers to exert influence in the distribution channel.
 To understand the growing changes in the retail industry
 To understand the nature and structure of retail channel

2.2 Types of Retailers

Over time, different types of retailers have emerged and prospered because
they have attracted and maintained a significant customer base.
2.2.1 Nature of Retail Mix:
The most basic characteristic of a retailer is its retail mix-the elements used
by retailers to satisfy their customer’s needs. 4 elements of the retail mix
that are particularly useful for classifying retailers are :
• The type of merchandise sold:

The degree to which retailers compete against each other isn’t always
based on the similarity of their merchandise. The variety and assortment of
the merchandise they offer and the services they provide must also be
considered.
• The variety and assortment of merchandise sold:
Variety is the number of different merchandise categories a retailer offers.
Assortment is the number of different items in a merchandise category.
Each different item of merchandise is called and SKU (stock keeping unit).
Variety is often referred to as the breadth of merchandise and assortment is
referred to as the depth of merchandise.
• The level of customer service:
Retailers also differ in the services they offer customers. Customers expect
retailers to provide some services – accepting personal checks, proving
parking, and displaying merchandise
• The price of the merchandise:
Cost of Offering Breadth and Depth of Merchandise and Services influences
the price of the merchandise. When a retailer offers many SKUs, inventory
investment increases because the retailer must have back-up stock for each
SKU. Similarly, services attract customers to the retailer, but they are also
costly. A critical retail decision involves the trade-off between costs and
benefits of maintaining additional inventory or providing additional services.
The difference between the retail mix of department and discount stores
illustrated the tradeoff retailers make between the price of merchandise they
sell and the services they offer to their customers. To make profit and
provide these additional benefits to its customers, department stores have to

increase the prices of its merchandise to cover the additional costs. This is
referred to as the price-cost tradeoff.
2.2.2 General Merchandise retail types:

The major types of general merchandise retailers are department stores,
full-line discount stores, specialty stores, drug stores, category specialists,
home improvement centers, and off-price retailers.
A) Department Stores
• Department Stores are retailers that carry a broad variety and deep
assortment, offer considerable customer services and are organized
into separate departments for displaying merchandise.
• Each department within the store has a specific selling space
allocated to it, a POS terminal to transact and record sales, and
salespeople to assist customers.
• The major departments are women’s, men’s and children’s clothing
and accessories; home furnishing and furniture, and kitchenware
and small appliances.
• In some situations, departments in a department store or discount
store are leased and operated by an independent company.
• A leased department is an area in a retail store that is leased or
rented to an independent firm. Retailers lease departments when
they feel they lack expertise to efficiently operate the department.
• Specialty Department stores use a department store format but
focus primarily on apparel and soft home furnishings.
• The nature of traditional department stores has changed
considerably over the years, so the distinction between traditional,
specialty, and promotional department stores has blurred. With few
exceptions, traditional department stores have eliminated many of
the departments they originally had.
• Department stores’ overall sales have stagnated in recent years due
to increased competition from discount stores and specialty stores.
• Many consumers wait to buy merchandise when it goes on sale
rather than at the initial retail price. 60 to 80% of all merchandise
sold by department stores is on sale.

• In response to this increased competition, department stores are

altering their merchandise mix, improving their in-stock position on
fashion merchandise and improving their customer service.
B) Discount Stores
• A full-line discount store is a retailer that offers low prices. They
offer national brands, but these brands are typically less fashion-
oriented than brands in department stores.
• Category specialists and home improvement centers compete
intensely with full-line discount stores.
• To respond to category specialists’ domination of hard goods, full-
line discount retailers are creating more attractive shopping
environments, placing more emphasis on apparel and developing
private label merchandise, and increasing store visits by offering
easily accessible, convenience store merchandise.
C) Specialty Stores
• A traditional specialty store concentrates on a limited number of
complementary merchandise categories and provides a high level of
service in an area typically less than 8,000 square feet.
• By carrying a narrow variety but deep assortment, they offer
customers a better assortment, they offer customers a better
selection and sales expertise in that category than department or
discount stores provide.
• In response to declining interest in high fashion apparel, specialty
stores are adopting a concept called “Lifestyle Retailing” which
tailors the merchandise to the life style of a specific group of
customers.
D) Drug Stores
• Drug stores are specialty stores that concentrate on health and
personal grooming merchandise. Drug stores are facing
considerable competition in pharmaceuticals from discount stores
and supermarkets adding pharmacies as well as from mail order
retailers filling prescriptions.
• Prescription pharmaceutical margins are shrinking due to
governmental health care policies.

• In response, drug store chains are building larger stores with wider
assortments and are increasing service beyond dispensing pills.
E. Category Specialists
• A category specialist is a discount store that offers a narrow variety
but deep assortment of merchandise. These retailers are basically
discount specialty stores.
• Most category specialists use a self-service approach, but some
specialists in consumer durables offer assistance to customers.
• By offering a complete assortment in a category at low prices,
category specialists can “kill” a category of merchandise for other
retailers and thus are frequently called “category killers”.
• Because category specialists dominate a category of merchandise,
they can use their buying power to negotiate lower prices, excellent
terms, and assured supply when items are scarce.
• Competition between specialists in each category is very intense as
the firms expand into the regions originally dominated by another
firm. In response, category killers continue to concentrate on
reducing costs and acquiring smaller chains to gain economies of
scale.
F. Home Improvement Centers
• A home improvement center is a category specialist that combines
the traditional hardware store and lumberyard. It focuses on
providing material and information that enables do-it-yourselfers to
maintain and improve their homes.
• While merchandise in home-improvement centers is displayed in a
warehouse atmosphere, salespeople are available to assist
customers in seeking merchandise and to tell them how to use it.
G. Off-Price Retailers
• Off-price retailers offer an inconsistent assortment of brand name,
fashion-oriented soft goods at low prices.
• Off price retailers can sell brand names and even designer-label
merchandise at low prices due to their unique buying and
merchandising practices. Typically, merchandise is purchased at
one-fifth to one-fourth of the original wholesale price. Off-price

retailers can buy at low prices because they don’t ask suppliers for
advertising allowances, return privileges, markdown adjustment, or
delayed payments.
• Over the last several years, the sales growth of off-price retailers has
slowed. With the increase in sales and promotion in department
stores, consumers often are able to get fashionable, brand name
merchandise in department stores at the same discounted prices
offered by off-price retailers.
• In response to these conditions, off-price retailers are buying more
current merchandise to complement the excess merchandise bought
at the end of a fashion season.
There are 3 types of off-price retailers. They are
1. Outlet Stores
• Outlet stores are off-price retailers owned by manufacturers,
department or specialty store chains.
• Outlet stores owned by manufactures are frequently referred to
as Factory Outlets.
• Manufacturers view outlet stores as an opportunity to improve
their revenue from irregulars, production overruns, and
merchandise returned by retailers.
2. Close-out retailers
• Closeout retailers are off-price retailers that sell a broad, but
inconsistent assortment of general merchandise as well as
apparel and soft home goods.
3. Single price retailers
• Single price retailers are closeout stores that sell all their
merchandise at a single price typically $1.
H. Hypermarket
• A hypermarket is a very large retail store offering low prices that
combine a discount store and a superstore food retailer in one
warehouse-like building.
• Hypermarkets are 300,000 sq. ft, larger than 6 football fields, and
stock over 50,000 different items. Annual revenues are typically over
$100 million per store.

• Hypermarkets were created in France after World War II. And they
have not been very successful in the US for a variety of reasons
including less restrictive land laws, competition and store size.
I. Franchising
• Franchising is a contractual agreement between a franchiser and a
franchisee that allows the franchisee to operate a retail outlet using a
name and format developed and support by the franchiser.
Approximately one-third of all US retail sales are made by
franchisees.
• The franchising ownership format attempts to combine advantages
of owner-managed businesses with efficiencies of centralized
decision making in chain store operations.
• Franchisees are motivated to make their store successful because
they receive the profits after the royalty is paid. The franchiser is
motivated to develop new products and systems to promote the
franchise because it receives a royalty on all sales.
Other major types of retail formats are:
1. Convenience stores:
They are ideally located close to the residential area to enable target
customers. They have easy accessibility and select convenient
merchandise such as beverages, ready to eat smacks grocer etc.
2. Chain of stores:
A single retailer establishes a chain of stores with its exclusive store
design, synergistic merchandising plan, promotion and service
strategy and son on. For instance, Khazana Jewellery, Raymond
chain of stores, etc.
3. Supermarket:
A store that is departmentalized with self-service offering groceries,
limited non-food items such as health and beauty related items and
general merchandise are called Supermarkets. For instance
Foodworld outlets, Nilgiris in south etc.
4. Shopping Mall:
A shopping mall is an arrangement of retail stores and providing the
right mix of shopping, food courts and entertainment and parking

facilities. The retail space is shared by anchor stores and other

retailers who will pay the developers of the mall- rent or lease
payment for putting up the shop within the mall premises. For
instance, in Bangalore- The Forum, Central etc,
5. Shopping Plaza:
The shopping plaza will be a configuration of many tenants using
space of 1,000 sq.ft or so for putting up stores within a single
building. For instance Fountain Plaza in Chennai etc.
6. Factory / Seconds outlets:
The factory stores are owned and operated by the manufacturers
who sell discounted merchandise or factory seconds or cancelled
orders to consumers at low prices. For instance, the Bata factory
outlets, Indigo Nation/Peter England factory outlets etc.
7. Kiosk:
It is a store often is a concession format store placed within a mall /
shopping centre, a bus station, airport etc. it is a free standing
pavilion open on one or more sides. For instance, in a bookstore
kiosk, customers are provided with online catalogue service to help
them to identify titles and read reviews before making a purchase
decision.
Services Retailing
A. Types of Services Retailers
• Many organizations that offer services to consumers such as banks,
hospitals, health spas, doctors, legal clinics, entertainment firms and
universities traditionally haven’t considered themselves as retailers.
Due to increased competition, these organizations are adopting
retailing principles to attract customers and satisfy their needs.
• All retailers provide goods and services for their customers. Some
firms, such as dry cleaners primarily provide services. Optical
centers and restaurants lie somewhere in the middle of the
merchandise/services continuum. Supermarket and warehouse
clubs primarily provide goods.

B. Differences between Services and Merchandise Retailers

4 Important differences in the nature of the offering provided by services
and merchandise retailers are:
1. Intangibility
2. Simultaneous Production and Delivery
3. Perish ability
4. Inconsistency of offerings
1. Intangibility: Services are generally intangible. Customers can not
see, touch, or feel them. On the other hand, services are performances
or actions rather than objects. Service retailers often have difficulty in
evaluating the quality of services they are providing. They must solicit
customer evaluations and complaints.
2. Simultaneous production and delivery: Service providers create
and deliver the service as the customer is consuming it.
3. Perishability: Because the creation and consumption of services is
inseparable, services are perishable. They can not be saved, stored, or
resold. In addition the demand for services varies over time.
4. Inconsistency: Merchandise is often produced by machines with very
tight quality control. Because services are performed by people, no two
services will be identical.

1. ____________ number of different merchandise categories a retailer
offers.
2. _____________and Depth of Merchandise and services influences
price.
3. _____________ are retailers that carry a broad variety and deep
assortment.
4. ____________ store is a retailer that offers low prices.
5. ____________ retailers offer an inconsistent assortment of brand name,
fashion oriented soft goods at low prices.

2.3 Structure and Nature of Retailing Channels

Retailing is the last stage in the distribution process, which comprises all the
business operations and the people involved in the physical movement and
transfer of ownership of goods and services from the producer to the
consumer. A typical distribution channel consists of a manufacturer, a
wholesaler, a retailer and the final consumer. Wholesaling is the
intermediate stage-during which goods are sold not to the final consumers
but to the business customers’ for resale.
In some distribution channels, different activities are performed by
independent firms. But most distribution channels have a degree of vertical
integration- performing more than one activity. For example, Food World
carries out both wholesaling and retailing activities. It buys directly from the
manufacturers, has merchandise shipped to its warehouses and them
distributes it to their stores. Some retailers, especially in the clothing
business, even design the merchandise they sell and contract its production
to manufacturers.
The nature of retailing channels offers in various parts of the world. The US
has a retail density that is greater than that of all other countries. A feature
of US system is the concentration of large retail forms- 10% of its food and
general merchandise retail firms account for over 40% of all retail sales.
Some firms are even able to eliminate wholesalers as they are large enough
to operate their own warehouses. Large stores-of over 20,000 sq. ft- are
popular mediums of sale. This combination of large retailers and large
stores makes the US one of the most efficient users of the distribution
channel.
In Japan, on the other hand, small firms and stores govern the retail sector.
The wholesale channel is relatively much larger and independent. To reach
all the stores, almost daily, often requires the merchandise to pass through
as many as three channels of distribution. Therefore, this reduced efficiency
means that in contrast to the 10% of the total labour force employed in this
sector in the US, the Japanese use 20% of their workforce.
The European system falls in between that of the US and Japan. Northern
Europe is the closet to the US in terms of concentration levels-in some
national markets, 80% of the retail sales ion food are accounted for by fewer
than five firms. In southern Europe, the market is more fragmented with the
traditional farmer’s market retailing still dominant in some sectors along with
big-box formats. Central Europe has seen an increase in retail floor space
after the privatization of the retail trade. Privatization has also resulted in
transition from an extremely structured system to one that is highly
fragmented, with kiosks rapidly gaining popularity.
In Indian context, traditionally the small retailers have played a major role in
the various sectors with the unorganized players outnumbering the
organized ones. However, the past decade has witnesses the rise of chains
of supermarkets at both regional and national levels. Some of these stores
also have their own line of merchandise, be it clothes, food items, or
household articles. The price consciousness among the large middle class
also means that large stores that are able to offer discounts on bulk
purchases have become more important. The growing place of lifestyle of
the urban consumers and the proliferation of technology has helped
popularize online shopping.
In these countries the variance is primarily due to three factors:
 Social and political objectives
 Geography
 Market size.
The primary objective of Japanese or Indian economy is to reduce
unemployment- the large labour force that is available is employed by small
labour intensive businesses. Secondly, the population density in Japan and
Europe is much higher than in US. Thus, these countries have less low cost
real estate available for development of large stores. Thirdly, the US market
is the largest in the world and is able to leverage on economies of scale.
Indian is still a growing market and has yet to develop a system as efficient
as that of the US.

Following chart explains the structure and nature of retail formats.
 Independent
 Chain
 Franchise
Ownership  Leased department
 Vertical marketing system
 Consumer cooperative
 Convenience stores
 Conventional supermarket
 Food-based superstore
 Combination store
 Warehouse store
Store-based retail  Specialty store
strategy mix  Variety store
 Traditional department
store
 Off-price chain
 Factory outlet
 Membership club
 Flea market
 Direct marketing
Non store-based retail
 Direct selling
strategy mix & non  Vending machine
traditional retailing  World Wide Web
 Other emerging retail
formats
State whether following statements are true or false:

1. Retailing the first stage in the distribution process.
2. A typical distribution channel consists of a manufacturer, a wholesaler, a
retailer and the final consumer.
3. In Indian cintext, traditionally the small retailers have played major in the
various sectors.
4. Indian Market has grown so well that it is compared to U.S.

2.4 Trends in Retail formats

Retail industry is continuously going through changes on account of
liberlisation, globalization and consumer preferences. While multi-national
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.
Consumers today 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. The retail industry is changing rapidly.
Some of the most important changes involve the greater diversity of
retailers, increasing industry concentration and globalization.
Following are the trends in the retail formats:
1. Mom-and-pop stores and traditional kirana stores:
The retail sector is changing as new store categories have starting
dominating the marketplace. Mass merchandisers, discount clubs, specialty
retailers all developed successful retail models. At the same time, the small
mom-and-pop stores and the traditional stores are finding the competition
intense. Small independent stores, across product categories, is a very
common retail format in India, particularly in small townships, but with the
emergence of new retail formats they are also undertaking large scale
renovations to attract their target consumer segments.
2. E-Commerce:
The amount of retail business being conducted on the internet is growing
every year. Many major retail organizations and manufacturers have online
retail stores. Companies like Amazon.com helped pioneer the retail e-
commerce concept, which are expanding retail e-commerce into new
markets.
3. Department stores:
A few years ago, names like Sears, J C Penney etc dominated malls and
downtowns all over America. Over the last decade or so, 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. They should be ready to expect more bumps
as the strong get stronger and the weak get absorbed.
4. Discount stores and category killers:
They have changed the landscape of both the retail industry and economy.
Where once mom-and-pop and department stores dominated the retail
sector, now discount retailers and category killers are at the top of the heap.
5. Specialty stores:
These stores concentrate on one type of merchandise and offer it in a
manner that makes it special. Some are very high end and while others
cater top the price-conscious masses. Many are so successful that
department stores have started to emulate their buying, marketing and
merchandise display strategies. Promotion and responsibility come quickly
to those willing to work hard, and in many of these stores the hand of
bureaucracy is not heavy.
6. E-tailers:
While most retailers have online storefronts, strictly online purveyors with no
brocks and mortar counterparts are hoping to snare a percentage of the
retail profit. Major players have generated enough business to cause top
competitors to come up with their own internet sites.
The Evolution of Marks and Spencer

Financial data drawn from Marks and Spencer’s archives and annual reports
can be used to identify five phases in the company’s sales growth. Early, rather
erratic, growth, often through acquisition, gave way to a second phase of store
development funded by the company’s floatation in 1920. Sales growth in the
third phase came substantively through an increase in store size. A fourth phase
involved improvements in labour and space productivity. The current and final
phase of evolution emphasizes on diversification.
Following are the factors leading to the changes in the retail formats.
A. Greater Diversity of Retail Formats
• Consumers now can purchase the same merchandise form a wider
variety of retailers.

• The Internet has spawned a new set of retailers offering consumers

the opportunity to buy merchandise and services at fixed prices,
participate in an auction, or submit a “take-it-or-leave-it” bid.
• New types of retailers coexist with traditional retailers. Each type of
retailer offers a different set of benefits, thus consumers patronize
different retailers for different purchase occasions.
B. Increasing Industry Concentrations
• While the number of different retail formats has grown, the number of
competitors within each format is decreasing.
• A few national retailers dominate most formats.
• Much of this consolidation has occurred through acquisitions and
mergers.
• Historically retailing was a local business. However, the
development of efficient distribution and communication systems
meant that large national firms could gain substantial cost
advantages over smaller regional and local retailers.
C. Globalization
Some factors stimulating globalization of retailing are the maturation of
the domestic market, the development of skills and systems to
effectively manage global operations, and the removal of trade barriers.
D. Maturation of Domestic Markets:
Most large retailers have saturated their domestic markets. Opening
additional stores across the country results in unlimited additional sales,
leading to build a large retail empire which ensures growth opportunities
in international markets.
E. Skills and Systems:
Retail firms are better prepared with international knowledge and
experience to effectively manage stores in non-domestic markets. To
facilitate global sourcing of merchandise, retailers operate global
information and distribution systems.
F. Trade Barriers:
The relaxation of barriers makes global expansion easier.

III. Match the following:

1. Mom-and-pop Stores a) Suffered badly due to changing scenario.
2. Amzon.com b) Concentrate on special type of
Merchandise.
3. Department Stores c) Global Expansion earlier
4. Specialty Stores d) Pioneer in retail commerce
5. Trade Barriers e) Finding the competition intense
2.5 Summary
Retail is defined as any business that directs its marketing efforts towards
satisfying the final consumer based upon the organization of selling goods
and services as a means of distribution. It is responsible for matching
individual demands of the consumer with suppliers of all the manufacturers.
Today the market sees more of organized retailing mainly due to the
reasons like increase in per capita spending by consumers, rapidly growing
middle class and double income households, rising workforce with global
travel, exposure of international tastes and lifestyle through media, increase
in the usage of credit and debit cards etc.
There are many factors lime economic growth; GDP etc are attracting the
global players to expand their retail business across the world. The factors
which have played a key role in the development and growth of the
organized retail sector are the consumer pull, changes in social structure
and consumer behavior.

1. Elaborate the meaning of price – cost trade off.
2. Discuss major types of general merchandise
3. What do you mean by service retailing
4. Differentiate between services and merchandise retailers
5. Discuss Trends in retail formats

2.7 Answers to SAQ and TQs

SAQ I
1. Variety
2. Cost offering Breadth
3. Department Stores
4. A full-line discount
5. Off-price
SAQ II
1. False 2. True 3. True 4. False
SAQ III
1-e, 2-d, 3-a, 4-b, 5-c,

1. Refer to section 2.1:1
2. Refer to section 2.1:2
3. Refer to 2.1:2-A
4. Refer to 2.1:2-B
5. Refer to 2.3

Unit 3 Retail Market Strategy

Structure
3.1 Introduction
Objectives
3.2 Retail Strategic Planning Process
Self Assessment Question - I
3.2.1 Situational Analysis
3.2.1.1 Organizational Mission
3.2.1.2 Ownership and Management Alernatives
3.2.1.3 Goods / Service Category
3.2.1.4 Personal Abilities
3.2.1.5 Financial Resources
3.2.1.6 Time Demands
3.2.2 Objectives
3.2.2.1 Sales
3.2.2.2 Profit
3.2.2.3 Satisfaction of Publics
3.2.2.4 Image (Positioning)
3.2.3 Identification of Consumer Markets and Needs
3.2.4 Overall Strategy
3.2.5 Specific Activities
3.2.6 Control
Self Assessment Question - II
3.3 Strategic Positioning
Self Assessment Question - III
3.4 Competitive Advantage through effective HRM
Self Assessment Question - IV
3.5 Summary
3.7 Answers to Self Assessment Questions and Terminal Questions
3.1 Introduction
A retail strategy is the overall plan or framework of action that guides a
retailer. Ideally, it will be at least one year long and outline the retailer‟s
mission, goals, consumer market, overall and specific activities and control
mechanisms. Without a defined and well-integrated strategy, a firm may be
unable to cope with the marketplace: “Despite the critical importance of a

business plan, many entrepreneurs drag their feet when it comes to
preparing one. They argue that their marketplace changes too fast for a plan
to be useful or that they just don‟t have enough time. But just as a builder
won‟t begin construction without a blueprint, eager business owners
shouldn‟t rush into new ventures without a business plan.
The process of strategic retail planning has several attractive features:
 It provides a thorough analysis of the requirements for doing business
for different types of retailers.
 It outlines retailer goals.
 A firm determines how to differentiate itself from competitors and
develop an offering that appeals to a group of customers.
 The legal, economic, and competitive environment is studied.
 A firm‟s total efforts and coordinated.
 Crises are anticipated and often avoided.
Strategic planning can be done by the owner of a firm, professional
management, or a combination of the two. Even among family businesses,
the majority of high-growth companies have strategies plans.
The steps in planning and enacting a retail strategy are interdependent; a
firm often starts with a general plan that gets more specific as options and
payoffs become clearer.
Objectives:
1. To show the value of strategic planning for all types of retailers.
2. To explain the steps in strategic planning for retailers: situation analysis,
objectives, identification of consumers, overall strategy, specific
activities, control, and feedback.
3. To examine the individual controllable and uncontrollable elements of a
retail strategy, and to present strategic planning as a series of integrated
steps.
4. To demonstrate how a strategic plan can be prepared.

3.2 Retail Strategic Planning Process
Figure 3.1
Self Assessment Questions: I (For Section 3.1)

1. A retail strategy is the __________ _________ or framework of action
that guides a retailer.
2. Without a defined and __________________ a firm may be unable to
cope with the marketplace:
3. Strategic planning can be done by the owner of a firm, professional
management, ______________________.
4. The steps in planning and enacting a retail strategy are
__________________.
5. The process of strategic retail planning provides outlines for
____________________.

3.2.1 Situational Analysis:

A firm needs to spot trends early enough to satisfy customers and stay
ahead of competitors, yet not so early that shoppers are not ready for
changes or that false trends are perceived. Merchandising shifts – like
stocking fad items – are more quickly enacted than changes in a firm‟s
location, price, or promotion strategy. A new retailer can adapt to trends
easier than existing firms with established images, ongoing leases, and
space limitations. Small firms that prepare well can compete in a market
with large retailers.
During situation analysis, especially for a new retailer or one thinking about
making a major strategic change, an honest, in-depth self-assessment is
vital. It is all right for a person or company to be ambitious and aggressive,
but overestimating one‟s abilities and prospects may be harmful – if the
results are entry into the wrong retail business, inadequate resources, or
misjudgment of competitors.
3.2.1.1 Organizational mission

An organizational mission is a retailer‟s commitment to a type of business
and to a distinctive role in the marketplace. It is reflected in the firm‟s
attitude toward consumers, employees, suppliers, competitors, government,
and others. A clear mission lets a firm gain a customer following and
distinguish itself from competitors.
3.2.1.2 Ownership and management alternatives

An essential aspect of situation analysis is assessing ownership and
management alternatives, including whether to form a sole proprietorship,
partnership, or corporation and whether to start a new business, buy an
existing business, or become a franchisee. Management options include
owner-manager versus professional manager and centralized versus
decentralized structures. Consider that “There is not single best form of
ownership. That‟s partly because the limitations of a particular form of
ownership can often be compensated for. For instance, a sole proprietor can
often buy insurance coverage to reduce liability exposure, rather than form a
limited liability entity. Even after you have established your business as a
particular entity, you may need to re-evaluate your choice of entity as the
business evolves.”

A sole proprietorship is an unincorporated retail firm owned by one person.

All benefits, profits, risks, and costs accrue to that individual.A partnership is
an unincorporated retail firm by two or more persons, each with a financial
interest. Partners share benefits, profits, risks, and costs.A corporation is a
retail firm that is formally incorporated under state law. It is a legal entity
apart from individual officers (or stockholders).
Checklist 3.1:
A checklist to consider when starting a new retail business:
Name of business: _____________________________________
A. Self- Assessment and Business Choice
 Evaluate your strengths and weaknesses.
 Commitment paragraph: Why should you be in business for
yourself? Why open a new business rather than acquire an existing
one or become a member of a franchise chain?
 Describe the type of retail business that fits your strengths and
desires. What will make it unique? What will the business offer
customers? How will you capitalize on the weaknesses of
competitors?
B. Overall Retail Plan
 State your philosophy of business.
 Choose an ownership form (sole proprietorship, partnership, or
corporation).
 State your long and short run goals.
 Analyze your customers form their point of view.
 Research your market size and store location.
 Quantify the total retail sales of your goods / service category in your
trading area.
 Analyze your competition.
 Quantify your potential market share.
 Develop your retail strategy: store location and operations,
merchandising, pricing and store image and promotion.
C. Financial Plan
 What level of funds will you need to get started and to get through
the first year? Where will they come from?

 Determine the first-year profit, return or investment, and salary that

you need / want.
 Project monthly cash flow and profit-and-loss statements for the first
two years.
 What sales will be needed to break even during the first year? What
will you do if these sales are not reached?
D. Organizational Details Plan
 Describe your personnel plan (hats to wear), organizational plan,
and policies.
 List the jobs you like and want to do and those you dislike, cannot
do, or do not want to do.
 Outline your accounting and inventory systems.
 Note your insurance plans.
 Specify how day-to-day operations would be conducted for each
aspect of your strategy.
 Review the risks you face and how you plan to cope with them.
Checklist 3.2:
A checklist for purchasing an existing retail business
Name of Business: _________________________________________
 Why is the seller placing the business up for sale?
 How much are you paying for goodwill (the cost of the business above
its tangible asset value?
 Have sales, inventory levels, and profit figures been confirmed by your
accountant?
 Will the seller introduce you to his or her customers and stay on during
the transition period?
 Will the seller sign a statement that he or she will not open a directly
competing business in the same trading area for a reasonable time
period?
 If sales are seasonal, are you purchasing the business at the right time
of the year?
 In the purchase of the business, are you assuming existing debts of the
seller?
 Who receives proceeds from transactions made prior to the sale of the
business but not yet paid by customers?

 What is the length of the lease of property is rented?

 If property is to be purchased along with the business, has it been
inspected by a professional engineer?
 How modern are the storefront and store fixtures?
 Is inventory fresh? Does it contain a full merchandise assortment?
 Are the advertising policy, customer service policy, and pricing policy of
the past owner similar to yours? Can you continue old policies?
 If the business is to be part of a chain, is the new unit compatible with
existing units?
 How much trading-area overlap is there with existing stores?
 Has a lawyer examined the proposed contract?
 What effect will owning this business have on your lifestyle and on your
family relationships?
By being a franchisee, a retailer can combine independent ownership with
franchisor support: strategic planning assistance; a known company name
and loyal customer following; cooperative advertising and buying; and a
regional, national, or global (rather than local) image. However, a franchisee
contract may specify rigid operating standards, limit the product lines sold,
and restrict supplier choice; the franchisor company is usually paid
continuously (royalties); advertising fees may be required; and there is a
possibility of termination by the franchisor if the agreement is not followed
satisfactorily.
3.2.1.3 Goods / Service Category

Before a prospective retail firm can fully design a strategic plan, it selects a
goods / service category – the line of business – in which to operate. A
potential retail business owner should select a type of business that will
allow him or her to match personal abilities, financial resources and time
available with the requirements of that kind of business.
3.2.1.4 Personal Abilities

Personal abilities depend in an individual‟s aptitude – the preference for a
type of business and the potential to do well; education – formal learning
about retail practices and policies; and experience – practical learning about
retail practices and policies.

An individual who wants to run a business, likes to use initiative, and has the
ability to react quickly to competitive developments will be suited to a
different type of situation than a person who depends on others for advice
and does not like to make decisions. The first individual could be an
independent operator, in a dynamic business such as apparel; the second
might seek partners or a franchise and a stable business, such as a
stationary store. Some people enjoy customer interaction; they would dislike
the impersonality of a self-service operation. Others enjoy the impersonality
of mail order or web retailing.
In certain fields, education and experience requirements are specified by
law. Stockbrokers, real-estate brokers, beauticians, pharmacists, and
opticians must all satisfy educational or experience standards to show
competency. For example, real-estate brokers are licensed after a review of
their knowledge of real-estate practices and their ethical character. The
designation “broker” does not depend on the ability to sell or have a
customer-oriented demeanor.
Some skills can be learned; others are inborn. Accordingly, potential retail
owners have to assess their skills and match them with the demands of a
given business. This involves careful reflection about oneself. Partnerships
may be best when two or more parties possess complementary skills. A
person with selling experience may join with someone who has the
operating skills to start a business. Each partner has valued skills, but he or
she may be unable to operate a retail entity without the expertise of the
other.
3.2.1.5 Financial Resources

Many retail enterprises, especially new, independent ones, fail because the
owners do not adequately project the financial resources needed to open
and operate the firm. Table 3.1 outlines some of the typical investments for
a new retail venture.

Table: 3.1 – Some Typical Financial Investments for a New Retail Venture
Use of funds Source of funds

Land and building (lease or Personal savings, bank loan, commercial
purchase) finance company
Inventory Personal savings, manufacturer credit,
commercial finance company, sales
revenue
Fixtures (display cases, storage Personal savings, manufacturer credit,
facilities, signs, lighting, carpeting, bank loan, commercial finance company
etc.)
Equipment (cash register, marking Personal savings, manufacturer credit,
machine, office equipment, bank loan, commercial finance company
computers, etc.)
Personnel (salesperson, cashiers, Personal savings, bank loan, sales
stockpeople etc.) revenue
Promotion Personal savings, sales revenue
Personal drawing account Personal savings, life insurance loan
Miscellaneous (equipment repair, Personal savings, manufacturer and
credit sales [bad debts], professional wholesale credit, bank credit plan, bank
services, repayment of loans) loan, commercial finance company
Note: Collateral for a bank loan may be a building, fixtures, land, inventory,
or a personal residence.
Novice retailers tend to underestimate the value of a personal drawing
account, which is used for the living expenses of the owner and his or her
family in the early, unprofitable stage of a business. Because few new
ventures are immediately profitable, the budeget must include such
expenditures. In addition, the costs of renovating an existing facility often
are miscalculated. Under funded firms usually invest in only essential
renovations. This practice reduces the initial investment, but it may give the
retailer a poor image. Merchandise assortment, as well as the types of
goods and services sold, also affects the financial outlay. Finally, the use of
a partnership, corporation, or franchise agreement will affect the investment.
3.2.1.6 Time Demands

Time demands on retail owners (or managers) differ significantly by goods
or service category. They are influenced both by consumer shopping

patterns and by the ability of the owner or manager to automate operations

or delegate activities to others.
Many retailers must have regular weekend and evening hours to serve time-
pressed shoppers. Gift shops, toy stores, and others have extreme seasonal
shifts in their hours. Mail-order firms and those selling through the web,
which can process orders during any part of the day, have more flexible
hours.
3.2.2 Objectives
3.2.2.1 Sales
Sales objectives are related to the volume of goods and services a retailer
sells. Growth, stability, and market share are the sales goals most often
sought.
Some retailers set sales growth as a top priority. They want to expand their
business. There may be less emphasis on short-run profits. The assumption
is that investments in the present will yield future profits. A firm that does
well often becomes interested in opening new units and enlarging revenues.
However, management skills and the personal touch are sometimes lost
with overly fast expansion.
3.2.2.2 Profit
With profitability objectives, retailers seek at least a minimum profit level
during a designated period, usually a year. Profit may be expressed in
dollars or as a percentage of sales. For a firm with yearly sales of $5 million
and total costs of $4.2 million, pre-tax dollar profit is $800,000 and profits as
a percentage of sales are 16 percent. If the profit goal is equal to or less
than $800,000, or 16 percent, the retailer is satisfied. If the goal is higher,
the firm has not attained the minimum desired profit and is dissatisfied.
3.2.2.3 Satisfaction of Publics
Retailers typically strive to satisfy their publics: stockholders, customers,
suppliers, employees, and government. Stockholder satisfaction is a goal for
any publicly owned retailer. Some firms set policies leading to small annual
increases in sales and profits (because these goals can be sustained over
the long run and indicate good management) rather than ones based on
innovative ideas that may lead to peaks and valleys in sales and profits
(indicating poor management). Stable earnings lead to stable dividends.

Customer satisfaction with the total retail experience is a well-entrenched

goal at most firms now. A policy of caveat emptor (“Let the buy beware”) will
not work in today‟s competitive marketplace. Retailers must listen to
criticism and adapt. If shoppers are pleased, other goals are more easily
reached. Yet, for many retailers, other objectives rate higher in their list of
priorities.
3.2.2.4 Image (Positioning)
An image represents how a given retailer is perceived by consumers and
others. A firm may be seen as innovative or conservative, specialized or
broad-based discount-oriented or upscale. The key to successful image is
that consumer‟s view the retailer in the manner the firm intends.
Through positioning, a retailer devises its strategy in a way that projects an
image relative to its retail category and its competitors and that elicits a
positive consumer response. A firm selling women‟s apparel could generally
position itself as an upscale or mid-priced specialty retailer, a department
store, a discount department store, or a discount specialty retailer, and it
could specifically position itself with regard to other retailers carrying
women‟s apparel.
3.2.3 Identification of consumer characteristics and needs

The customer group sought by a retailer is called target market. In selecting
its target market, a firm may use one of three techniques: mass marketing,
selling goods and services to a broad spectrum of consumers;
concentrated marketing, zeroing in on one specific group; or
differentiated marketing, aiming at two or more distinct consumer groups,
with different retailing approaches for each group.
3.2.4 Overall Strategy:

A. Controllable Variables:
a. Store location
b. Managing business
c. Merchandise management and pricing
d. Communicating with the customer
B. Uncontrollable Variables:
a. Consumers
b. Competition

c. Technology
d. Economic conditions
e. Seasonality
f. Legal restrictions
3.2.5 Specific Activities

Short-run decisions are now made and enacted for each controllable part of
the strategy. These actions are known as tactics and encompass a retailer‟s
daily and short-term operations. They must be responsive to the
uncontrollable environment.
3.2.6 Control
In the control phase, a review takes place, as the strategy and tactics are
assessed against the business mission, objectives, and target market. This
procedure is called a retail audit, which is a systematic process for analyzing
the performance of a retailer.
The strengths and weaknesses of a retailer are revealed as performance is
reviewed. The aspects of a strategy that have gone well are continued;
those that have gone poorly are revised, consistent with the mission, goals,
and target market. The adjustments are reviewed in the firm‟s next retail
audit.

State whether following statement are True or False :
1. Merchandising shifts – like stocking fad items – are more quickly
enacted than changes in a firm‟s location, price, or promotion strategy.
2. Organizational mission if clear, firm gain a customer following and
distinguish itself from competitors.
3. The customer group sought by a manufacturer is called target market.
4. In the control phase, a review takes place, as the strategy and tactics
are assessed against the business mission, objectives, and target
market.
5. Through positioning, a retailer devises its strategy in a way that projects
an image relative to its retail category and its competitors and that elicits
a negative image consumer response

3.3 Strategic Positioning

Strategic positions that provide competitive advantage are based on the
activities that a retailer chooses to perform and on where it chooses to
perform them. From these positions a firm can deliver unique value to its
customers. A position is based on a set of activities that combine to create
unique value for market. The three positions that retailers use as strategy
are:
 Variety-based positioning
 Need-based positioning
 Access-based positioning
Pantaloon Retail India Ltd has aligned the creative accounts of its value and
lifestyle retailing stores to ad agencies Mudra and Percept, respectively, a
press release has stated.
According to Kishore Biyani, Managing Director, Pantaloon Retail (India)
Ltd, the retail chain's ad spends for the year 2004-05 have been pegged at
Rs 35 crore. "We require strategic positioning for the same and a lot more
work needs to be done in both segments, value as well as lifestyle retail,"
Biyani said.
The media account of Pantaloon continues to be with Millennium; there are
no plans at the moment to scout for a new media agency, the release issued
by Pantaloon said.
Pantaloon's retail ventures include Big Bazaar, Food Bazaar and Gold
Bazaar. A Footwear Bazaar is expected to be launched subsequently under
the same format. All these come under the `value retailing' venture.
Pantaloons, Arcus and Central (a new mall brand) are categorised under the
lifestyle retail chain.
Pantaloon Retail is expected to close this year with Rs 650 crore in sales as
against Rs 450 crore last year. The company has projected sales of Rs
1,000 crore by June 2005

State whether the following statements are True or False:
1. Strategic positions do not provide competitive advantage.
2. Strategic position is based on a set of activities that combine to create
unique value for market.
3. Variety-based positioning based on a set of activities that combine to

create unique value for market.
4. Need based positioning strategy is not useful to retailers.
5. "We require strategic positioning for the same and a lot more work
needs to be done in both segments, value as well as lifestyle retail,"
3.4 Competitive advantage through effective HRM

Unlike manufacturing where capital equipment is fast replacing the work
performed by employees previously, in retailing the jobs are labour
intensive. Retailers are dependent upon their employees to carry out
retailing activities such as buying, displaying merchandise ad providing
service to customers. If retailers are able to mange their employees
efficiently, it can even result in gaining a sustainable competitive advantage.
This is because:
 Effective management of employees can help the retailer to gain cost
advantage, for labour costs make up significant percentage of a retailer‟s
total expenses.
 Since employees are actively involved in - selecting merchandise,
provide information and assistance to customers and shelves and stock
display, they (employees) can give that added touch which will
differentiate the retailer‟s offerings from their competitors.
 Since employee‟s behavior while interacting with customers is „unique‟
and „intangible‟ this gives the retailer potential advantages which will be
difficult for competitors to duplicate.
The strategic objective of HRM is to match the capabilities and behaviors of
employees with the goals (both short term and long term) of the retailing fir.
The human resource management performance can be measured in terms
of employee productivity and employee turnover.
Employee productivity can be measured as:
Retailer‟s Sales or Profit
Total number of employees
Employee productivity can be improved either by increasing the sales
generated or by reducing (or lowering) the number of employees or both. It
is to be noted that on the one hand employee‟s productivity is directly

related to the retailer‟s short-term profits. While, on the other hand,

employees attitudes expressed in terms of job satisfaction and commitment
to job will directly affect customer satisfaction and thereby have implications
on the long term performance of the retailer.
Employee turnover can be expressed as the rate of change in the
employees of a retailing firm during a definite period. This takes into
consideration the extent to which old employees leave and new employees
join the retailing firm. Retailing firms have to be careful while taking short-
term decisions such as reducing labour costs when sales and profits
decrease due to increased competition. For, although by employing part
timers the retailer may temporarily reduce costs and increase short-term
profit through low employee morale and decrease in customer satisfaction
(or service).
The importance of human resources in retailing can be seen from the fact
that the product or service which a customer takes back home from a retail
outlet is a combination of merchandise and the service delivered to him/her
through the human interaction between the outlet staff or employee and the
customer. Customers who are satisfied with the service provided at the
outlet are more likely to patronize the store in future.

State whether the following statements
1. Labour costs make up significant percentage of a retailer‟s total
expenses.
2. If retailer is able to discipline their employees efficiently, it can even
result in cost reduction and gaining a sustainable competitive advantage.
3. Employee‟s behavior while interacting with customers is „unique‟ and
„intangible‟ retailer advantages which will be easy for competitors to
duplicate.
4. Employee turnover can be expressed as the rate of change in the
employees of a retailing firm during a definite period.
5. Employee productivity can be improved by increasing the sales
performance.

3.5 Summary
A retail strategy is the overall plan or framework of action that guides a
retailer. This unit explains the steps involved in strategic planning of
retailers, the controllable and uncontrollable elements of a retail strategy
and also explains how a strategic plan can be prepared.

1. Explain the process of Strategic retail planning.
2. How do you start your new retail business
3. How do you purchase existing retail business
4. Discuss typical Financial Investments for a new retail venture
5. How do you assess Competitive advantage through effective HRM
3.7 Answers to SAQs and TQs

SAQs I
1. Overall Plan
2. Well integrated strategies
3. Or a combination of two
4. Interdependent
5. Retail goals
SAQ II
1. True 2. True 3. False 4. True 5. False
SAQ III
1. False 2. True 3. True 4. False 5. True
SAQ IV
1. True 2 False 3. False 4. True 5. True
3.8 Answers to Terminal Questions

2. Refer to checklist 3.1
3. Refer to Checklist 3.2
4. Refer to Table 3.1

Figure 3.2: Relationship between employee’s behavior and retailer benefits

Unit 4 Retail Store Management

Structure
4.1 Introduction
Objectives
4.2 Site Selection, approaches to site selection
4.2:1 Factors influencing retailers’ choice of location
4.2:2 Site Selection analysis / Approaches to site selection
4.3 Store Layout
4.4 Store Design
4.4:1 Retailer’s view about the store design to create an environment
for customers’ purchases
4.4:2 Physical materials in Store Designing
4.5 Visual Merchandising
4.6 Summary
4.8 Answers to Self Assessment Questions and Terminal Questions
4.1 Introduction
Location is the most important ingredient for any business that relies on
customers. It is also one of the most difficult to plan for completely. Location
decisions can be complex, costs can be quite high, there is often little
flexibility once a location has been chosen and attributes of locations have a
strong impact on a retailer’s overall strategy. Choosing the wrong site can
lead to poor results and in some cases insolvency and closure.
Since more than 90% of the retail sales are made at stores, the selection of
a store location is one of the most significant strategic decisions in retailing.
Although the small store features personal service and long hours, it cannot
match the supermarket’s product selection and prices. A large supermarket
or a discount store can offer lower prices since they get economies of scale
in purchasing and operations. The reasons for locating a store in a certain
place vary with the type of business. Hence retail location and layout plays a
vital role in business of the retail outlets.
Retail store management involves paying adequate attention to factors such

as expected movement of the customers visiting the store and space
allotted to customers to shop, and making adequate provision for
merchandise display. These concerns are important as they contribute to
the capital cost of the retail firm and also the overall image of the store.
Objectives:
 To highlight the significance of selecting right site and location
 To understand the different applications of store layout in retailing
 To learn the importance of store design in creating an environment for
customers’ purchases
 To understanding the use of colour, wall and physical materials in the
context of retail layout planning
 To explain the role of visual merchandising and displays in enhancing
customer shopping experience
4.2 Site Selection, approaches to site selection

Site selection in retailing refers to the type of building the retailer needs and
its affordability. Retailers’ should decide whether they should own the
property, lease the premises on rent or have a joint venture with the
landlord. Site selection depends on the nature of the building, façade
requirements, size requirements and costs. The site selection format is
furnished below as a specimen.
Address of the company
Details of adjacent occupants- North, east, west and
south
Can the site be used commercially?
Name & address of the title holder
Is the site free of encumbrance?
Are all relevant taxes paid and currently up to date?
Is the site free of any civil suit?
When was the building constructed?
Total number of floors
Other prominent facilities nearby
Details of facilities space / parking space
Revenue details / rate per sq.ft etc

4.2.1 Factors influencing retailers’ choice of location:

Decisions regarding the location of a store are very critical not only to the
future performance of that outlet but also the retailer’s long-term prosperity.
Following questions need to be answered first before selecting the site:
1. Is there a need to be in the middle of traffic flow of customers as they
pass between the stores with the greatest customer pull?
2. Who will be the store’s neighbors?
3. What will be their effect on stores sales?
4. How much space is needed?
Based on experience of the retailer, the amount of space required can be
determined to run the expected level of operations. The amount of space
will determine rent and other related expenses. Many retailers need to
rethink their space requirements when locating in a shopping centre. Rents
are generally much higher and therefore, space must be used efficiently.
This is compounded by the consideration of certain specific issues such as:
 Consumers’ choice or preference of a location: The consumer
behaviour is most often guided by their consideration of the ideal
location to shop.
 To gain competitive advantage: the decision on where to locate the
retail outlet will be of strategic importance because if they develop the
best location, it will earn them a long term competitive advantage.
 Understanding of structural and social changes or trends: any
decision on location will definitely have to take into consideration the
exiting trends and likely social changes. For instance, the importance of
out-of-town shopping centers, the rise in multiple retailers and so on is
an eye opener for retailers to select an ideal location to match the
consumer shopping trends.
 High investment involving long-term financial implications: the
retailer has to consider the investment cost, lead times and long-term
financial implications involved in the development of a retail location and
site.
 Select the final property asset carefully: the retailing firm has to
exercise care while selecting the final property assets for its value can
be very high almost as high s the firm’s annual turnover.
 Government formalities: there could be many government policy

decisions having a binding on the development of new retail outlets. This
implies there could be restrictions on selection of new location sites for
retailing purposes.
The retailing firm has to consider the various dimensions of location decision
making right from planning the location site through to the financial analysis
and long term progress of the retailer. Location decisions and analysis
involve examination of different disciplines of strategic marketing, the
geography of retailing, town planning, operations research, consumer
behaviour and economics.
4.2.2 Site Selection analysis / Approaches to site selection:

With the advent of new retail formats, such as planned shopping centres
and malls, emergence of free-standing department stores, hypermarkets
etc., and further development of traditional business districts and other
unplanned shopping locations, a retailer is presented with a wider choice of
locations. Consideration of all the options keeping in view the product mix,
customer profile and overall business model presents an enormous
challenge.
A retailer has to consider the following factors while selecting a site:
1. Kind of products sold:
For stores dealing in convenience goods, the quantity of traffic is most
important. The corner of an intersection, which offers two distinct traffic
streams and a large window display area, is usually a better site than the
middle of a block. Convenience goods are often purchased on impulse from
easily accessible stores. For stores dealing in shopping goods, the quality of
the traffic is more important. Stores carrying specialty goods that are
complementary to certain other kinds of shopping goods may desire to
locate close to the shopping goods stores. In general, the specialty goods
retailer should locate in the type of neighborhood where the adjacent stores
and other establishments are compatible with retailer’s operations.
2. Cost factor:
Location decision on cost considerations alone is risky. Space cost is a
combination of rent or mortgage payment, utilities, leasehold improvements,
general decoration, security, insurance and all related costs of having a

place to conduct business operations. Traditionally, the retail community

placed great importance on owning the place since this was considered
prestigious in the business community. With the emergence of new forms of
retail formats such as franchising, malls and department stores, the
dependence on rent or lease is increasing.
3. Competitor’s location:
The type and number of competitors is another important factor. The
presence of major retail centres, industrial parks, franchisee chains, and
department stores should be noted. Intense competition in the area shows
that new businesses will have to divide the market with existing businesses.
An excellent location may be next or close to parallel or complementary
businesses that will help to attract customers.
4. Ease of traffic flow and accessibility:
These two are the more important factors to some businesses than others.
Retailers selling convenience goods must attract business from the existing
flow of traffic. Studying the flow of traffic, noting one-way streets, street
widths and parking lots, is hence important. The flowing factors like parking
availability, distance from residential areas, side of the street, part of the
block etc is to be considered.
5. Parking and major thoroughfares:
Parking is another site characteristic that is especially a cause for concern in
densely populated areas. When evaluating the parking that exists at a retail
site, there are two considerations i.e. parking capacity and parking
configuration. The ideal parking ratio for a food store is about 3:1 or 3 sq.ft
of the parking space for every square ft of store.
6. Market trends:
Evaluate the community from a broad, futuristic perspective. Local
newspapers are a good source of information. Discussions with business
owners and officials in the area can also help.
7. Visibility:
Visibility has a varied impact on a store’s sales potential. It is important
when a shopper is trying to find the store for the first or second time. Once
the shopper has become a regular customer, visibility no longer matters. It
follows that of a store cannot readily be seen, new residents of an area
probably will not choose it.

State whether the following statements are True or False :
1. Based on experience of the retailer, the amount of space required can
be determined to run the expected level of operations.
2. The retailing firm has to consider the various dimensions of location
decision making right from planning the location site .
3. Consumers’ choice or preference of a location is based on economical
condition of the area.
4. When evaluating the parking that exists at a retail site, the cost of
parking fee is to be taken into consideration.
5. Location decision on cost considerations alone is risky.
4.3 Store Layout

Store layout is the term used to refer the interiors and the allocation or the
plan in which the products are displayed in the store .It is quite imperative
for the retailers to understand the customer and prepare a customer friendly
layout.
A customer friendly layout gives an impetus to the shopper to spend more
time in the store hence increasing the chances of shoppers buying more
merchandise. In the case of India many of the independent retailers do not
have or have limited spaces for customer movement. Especially in smaller
stores, one would find cash counter located at the store entrance. This
treatment is common with so called 'Kinara Stores'.
But on the other hand, many organized retailers provide adequate space
within the store for shoppers and create layouts that facilitate a definite
pattern of customer traffic .In other words the layout creates 'Aisles' so that
the shopper can move on a predefined path inside the store. Layout
planning caters to decisions about nature of traffic flow, kinds of product,
space available and maintenance of the space on a daily basis.
Store layout is one of the many facets of Retail Atmospherics and hence it is
significant. Store layout plays a very important part in the cost analysis by
the retail firm and also the general brand communication of the store.
Store layouts generally show the size and location of each department, any
permanent structures, fixture locations and customer traffic patterns. Each

floor plan and store layout will depend on the type of products sold, the
building location and how much the business can afford to put into the
overall store design.
Below are a few basic store layouts.
1. Straight Floor plan:
The straight floor plan is an excellent store layout for most any type of retail
store. It makes use of the walls and fixtures to create small spaces within
the retail store. The straight floor plan is one of the most economical store
designs.
2. Diagonal Floor plan:
The diagonal floor plan is a good store layout for self-service types of retail
stores. It offers excellent visibility for cashiers and customers. The diagonal
floor plan invites movement and traffic flow to the retail store.

3. Angular Floor plan:
The angular floor plan is best used for high-end specialty stores. The curves
and angles of fixtures and walls make for it a more expensive store design.
However, the soft angles create better traffic flow throughout the retail store.
4. Geometric Floor plan:
The geometric floor plan is a suitable store design for clothing and apparel
shops. It uses racks and fixtures to create an interesting and out-of-the-
ordinary type of store design without a high cost.

5. Mixed Floor plan:
The mixed floor plan incorporates the straight, diagonal and angular floor
plans to create the most functional store design. The layout moves traffic
towards the walls and back of the store.
Sequentially planned and enacted layout should have the following
characteristics:
1. Allocation of floor space:
Each store has a total amount of floor space to allot to selling, merchandise,
personnel and customers. Without this allocation, the retailer would have no
idea of the space available for displays, signs, rest rooms and soon.
Different space allocations in the retail outlets are Selling space (to display
products, interactions between sales-people and customers, demonstrations
etc), Merchandise space (used to stock non displayed items), Personal
space (set for employees personal use), Customer space (includes lounge,
benches, chairs etc for customers)
2. Classification of store offerings:
A store’s offerings are next classified into product grouping. Many retailers
use a combination of groupings and plan store layouts accordingly. Special
provisions must be made to minimize shoplifting and pilferage. This means
placing vulnerable products away from corners and doors. Four types of
groupings are most commonly used. They are:
1. Functional product groupings- which displays common end use products
2. Purchase motivation product groupings- appeal to customer’s urge to
buy
3. Market segment product groupings- placing various products that appeal

to target market.
4. Storability product grouping- used for products needing special handling.
3. Determination of a traffic-flow pattern:
The traffic flow pattern of the store is then set. A straight traffic flow places
displays and aisle in a rectangular or a gridiron pattern. A curving traffic flow
places displays and aisles in a free-flowing pattern.
4. Determination of space needs:
The space for each product category is now calculated with both selling and
non selling space considered. There are two different approaches: the
model stock method and the space-productivity ratio. The model stock
approach determines the floor space necessary to carry and display a
proper merchandise assortment. Apparel and shoe stores use this method.
The sales productivity ratio assigns floor space on the basis of sales or profit
per foot. Highly profitable product categories get large chunks of space.
Book stores and food stores use this technique.
5. Arrangement of individual products:
The most profitable items and brands could be placed in the best locations
and products could be arranged by package size, price, color, brand, level
of personal service required and customer interest. End-aisle display
positions, eye-level positions and check out counter positions are the most
likely to increase sales for individual items.

1. Store layouts generally show the _____________________of each
department.
2. _________________ layout gives an impetus to the shopper to spend
more time in the store.
3. Store layout plays a very important part in the _______________ by the
retail firm.
4. Classification of store offerings is based on _________________.
5. Highly profitable product categories get_______________________

4.4 Store Design

The store can be said to be a product in its won right. The type of planned
store layout can influence the customer’s product decisions. Typically the
store should be designed to facilitate the free movement of customers,
create a planned store experience and also help to make an optimum
presentation of merchandise. The retailer’s goal while designing the store
should be on a proactive basis- reflecting the brand position of the store and
also ensuring the most effective usage of the space.
The main objectives of a good store design should be:
1. It must complement the customers’ needs i.e. be consistent with the
image and strategy.
2. It should act positively on consumer behaviour.
3. It must consider the costs associated versus the value received in terms
of higher sales and profits.
4. It should be flexible to adopt any changes in the merchandise with its
store’s image.
Thus, a proactive planning and atmospherics used in the store layout can
act upon the emotional state of the customers and are more likely to
influence them to enter and purchase merchandise at the stores. Proactive
planning is based upon the manipulation of the in-store experience by acting
upon and responding to the data on store layout in order to influence the
consumer’s shopping behaviour and experience. The consumers are more
likely to enter stores which are made attractive by use of space, color, walls,
pillars, floor coverings, lightings, music etc. this planned combination of
physical messages are known as Atmospherics.
Atmospherics is referred to as a store’s physical characteristics that are
used to develop the retail unit image and draw customers. It describes the
physical elements inn a store’s design that appeals to consumers and
encourages them to buy. Atmospherics are created by the combination of a
whole series of cues and stimulus i.e. the type of merchandise offered and
the way it is displayed can produce the desired store ambience and
emotional response from the target customers.
Retailers have realized that background music can be used as a new tool to
reach out to shoppers and encourage them to spend more. According to

Adrian North, a psychology professor at the University of Leicester,

England, there is a quite a lot of evidence that music can influence the
speed with which people shop, their willingness to spend, their perceptions
of value and more”. In India also, retailers have realized that the right kind of
music at the right time.
4.4.1 Retailer’s view about the store design to create an environment
for customers’ purchases:
Retail outlets have to work towards enticing impulse purchases i.e. they
have to create an attractive store design which will motivate the consumers
to visit and purchase goods at the store. For this, the retailers need to work
on the four dimensions of the retail design which are as follows:
1. Design logic
2. Design expression
3. Design execution
4. Design output
Design logic:
This refers to behind the rationale of answering consumers’ questions like
what do I get in an organized retail shop which is better than an unorganized
kirana store? The answer to this question is to be encapsulated in the store
design logic. The design logic has to be analysed and woven into the retail
design keeping in line with the consumers’ rational and functional needs and
desires. The design logic must be relevant to the three human components
that form the sociological, psychological and historical background of
consumers and this is a part of the subconscious mind where his emotional
attachment resides.
Hence, each retailer must strategically plan a mix of elements to match the
needs of his customers. A mix of the following six elements meets the
physical and emotional needs of the customers:
1. Employee type and density:
The retailer employs sales staff to match the selling and image needs of his
store. A specialty store will have a higher density of the staff at about one
per 100 sft and sales would be one who caters to the needs of the
customers. The sales person speaks local language and looks more
homely. In contrast, the large department store the density of staff would be
one per 400sft. They will be well educated and suitably dressed.

2. Merchandise type and density:

The type pf merchandise determines its density in the store. A supermarket
is very dense and averages about 8000 pieces per 100 sft. The density of
merchandise also determines the margins planned on the merchandise. The
lower the density, the higher the margins.
3. Fixtures type and density:
The fixtures have to complement the value of the merchandise. A jeweler
uses a lot of expensive woodwork and stones to add value merchandise,
while a sportwarwe goods stores use more of metal and plastic.
4. Sound type and density:
Sound can be pleasant or unpleasant and can have a direct impact on the
store atmosphere. A pleasant sound adds to the intensity of the experience.
An unpleasant sound on the other hand, can have a negative effect. The
category of the merchandise determines the type and density of sound.
5. Odour type and density:
Like sound, odour too has a positive or negative effect on the store
atmosphere. Positive odours add to the shopping experience in a store.
Negative odours drive the customer away. The strength of the odour is also
important and even the right odour if it is too strong can have a negative
effect.
6. Visual type and factors:
These are a result of the overall store presentation. The interior design,
display and visual merchandising also add to the purchasing requirements
of the customers. Elements like lighting and colour can be controlled to
make customers buy more.
Thus, the retailer has to consider this critical element in order to motivate
consumers to patronize the store.
Design expression:
Approaching the retail business with the emotion evoked in a differentiable
expressive concept is referred to as design expression. The retail design
should so eloquently express itself that it compels the consumer to
experience the need to step inside and purchase all essential items and not
just the occasional purchase.

Design Execution:
The retailers should create and execute the store design that the customers
will be surprised with such differentiating execution and they elevate the
outlet from the ordinary commodity market. This execution is possible only
through combining the rational, functional and emotional content of delivery.
Design Output:
The design output should be such that it gains sustainable connectivity to
the consumer’s subconscious mind. This is really a challenge for the retailer
because the retail store design must encompass aesthetics, the consumers’
desires and the mind, an attractive in-shop merchandising design and a
striking external character.
The design of the retail stores has to strive to produce an efficient layout
with the qualities of ambience which will attract the right customers or target
market. Few of the factors which can facilitate this are:
1. Using of space effectively: proper planning of territorial areas, break
up store into logical sales sections and functional areas.
2. Plan a productive layout: the layout be planned to encourage
customers to circulate around the space and visit as many merchandise
areas as possible.
3. Provide stimulants to enhance sales: use stimulants such as suitable
music which will be pleasing to the ears and liked by the particular age
of customers visiting the stores, enticing them to spend more time at the
store and also make purchases
4. Make proper arrangements and use combinations of lighting:
lighting apart from being an important mood setter can also produce the
desired ambience and when used in combinations can create interesting
contrasts through a display area. Proper lighting can influence and
create a positive image of the store and its merchandise in the minds of
the consumers.
4.4.2 Physical materials in Store Designing:
Interiors of any retail store are the result of materials used and their
respective colours. With the emergence of organized retailing and well-
aware customers, looking for compatible ambience, associate their
shopping experience with the kind of retail format visited for purchasing.
Therefore, retailers today, irrespective of whether they belong to the

organized or unorganized set-up, are giving due importance to attract
customers ion a competitive environment.
The materials used in the retail outlets are required to be strong in order to
resist customer traffic and colors must go well with not only the merchandise
displayed but also with the entire store image. Some of the materials used in
retail store designing are as follows:
Type of material for flooring Type of material for walls

Carpet: designer, one-colour or Plaster: painter, raw paint effect
multi colour
Wood work: polished or unpolished Glass: Opaque, tainted, coloured
Tiles: terra-cotta, marble, white Paneling: wood, steel, dark light,

mosaic, sun mica etc illuminated
Rubber/plastic Ceramic tiles
Rubber/plastics
Retail store interiors should match with the kind of customer segment a
retailer is targeting for his store. Most of the grocery stores in neighborhood
centres and colonies do not incur any major investment on materials as
most of the purchasing made by customers in these stores is across the
counters, without the need to enter shops. At the same time, most of the
dhabas do not carry out expensive interior decorations as they cater to the
middle and lower income groups and customers looking for value for money
rather than pleasant ambience.
On the other hand, retail units intended to attract the customers from upper
middle and upper class are required to invest in interior decorations with
exclusive materials and inviting colours.
Materials used in the retail unit depends on multiple factors such as the kind
of offerings the retailer deals in, cost of material and installing cost, traffic
quality and safety concerns. A retailer has to consider the investment aspect
while acquiring and installing materials for the store. Good quality materials
need heavy investments not only initially but also on a recurring basis in
respect of maintenance.

Materials used for flooring depends on the kind and strength of traffic that
visits the stores for shopping. For example, in restaurants and
supermarkets, where customers visit in their shoes should have sturdy
material on the floor. On account of safety measures, retailers must ensure
that the flooring must not become slippery when wet. Retailers must also
check that racks, shelves and other display windows do not have edges,
which hinder shoppers’ movements or hurt them.

1. The main objective of good stores design is customers’ design.
2. Atmospherics are created by the combination of a whole series of cues
and stimulus.
3. Retail units intended to attract the customers from lower middle class
are required to invest in interior decorations.
4. Interiors of any retail store are the result of materials used and their
respective colours.
5. On account of safety measures, retailers must ensure that the flooring
must be clean.
4.5 Visual Merchandising

Visual merchandising also referred to as display, is defined as the
presentation of products in order to sell them. The initial point of interaction
with a potential customer is in the window displays of the storefront. Hence,
Visual merchandising is also known as ‘Silent salesman’, is the science and
art of suggestive selling by display and presentation.
Visual merchandising includes various aspects such as store floor plan,
store windows, signs, merchandise display, space design, fixtures and
hardware and the elements that come with it.
Visual merchandising focal points are located strategically to circulate the
customer in the store, and communicate the features and benefits of the
merchandise besides the in-store promotion in vogue. This is done by
converting a passerby to a browser with an effective window display, a
browser to spender through the process of conversion, a spender to a big

spender by increasing the ticket size assisted by the process of cross-

merchandising.
Following are the benefits of effective visual merchandising;
 Entertains, informs and educates the customer about the product /
service in an effective and creative way
 Encourages a customer to wander about to discover novelties
 Re-affirms the store’s image
 Arranges merchandise for easy access
 Draws the attention of the customer to enable him to take purchase
decision within the shortest possible time and thus augment the
shopping process
 Establishes a creative medium to present merchandise in a retail
environment thereby creating a lasting impact and recall value
 Highlights merchandise to promote its sale
 Introduces and explains new products
 Gives ideas on how to use the products
 Encourages the customers to enter the store and shop
 Enhances the shopping experience
 Acts as an effective communication tool to customers
 Helps customers make buying decisions
Visual merchandising today has become more sophisticated and all
encompassing than was arranging of merchandise for easy access to
customers. Visual merchandising techniques are put into practice right from
designing the floor plan of the store to the beautiful mannequins that grace
the store floor. It has become a necessity for the retail industry today.
Specifically, it combines and integrates an understanding of merchandise
presentation, display and retail design.

1. Visual merchandising also referred to as _____________
2. Effective visual merchandising re-affirms the ________________
3. Visual merchandising is also known as _____________________
4. Visual merchandising Introduces and explains __________________
5. Visual merchandising focal points are ___________________ to
circulate the customer in the store .

4.6 Summary
Retail space management is one of the important tools for the success of
the retail business. It contributes to customer acquisition, retention through
improved service experience, reduced costs and higher overall profitability.
It has four key components like site selection and location, store layout,
store design and visual merchandising.
As the saying in the retail industry goes, the three most important success
factors in retailing are location, location and location. It is the location that
determines the number of footfalls into the store. The store design can also
create the right ambience for the customers to buy its products provided the
design is done keeping in mind the requirements of the customers. The
retail store space has to be used carefully without any waste. The success
of the retail store will depend on effective retail floor management that
results in both an increased conversion rate and augment the average
purchase value per customer.

1. What is meant by Site Selection? Discuss approaches to site selection
2. How do you prepare customer friendly retail lay out ?
3. Discuss retailer’s view about the store design.
4. What are the benefits of effective visual merchandising

SAQ I
1. True
2. True
3. False
4. False
5. True
SAQ II
1. Size and location
2. A customer friendly
3. Cost Analysis
4. Product grouping
5. Large chunks of space

SAQ III
1. True
2. True
3. False
4. True
5. False
SAQ IV
1. Display
2. Stores Image
3. Silent Salesmen
4. New Products
5. Located Strategically
Answers to terminal Questions:

4. Refer to `2 3 4 Section 4.4

Unit 5 Merchandise Management

Structure
5.1 Introduction
Objectives
5.2 Merchandise Budgeting
Self Assessment Questions
5.3 Sales Forecasting
5.4 Inventory-Level Planning
5.5 Assortment Planning:
5.6 Merchandise and Management Control:
5.7 Purchase Systems
Self Assessment Questions: VI
5.8 Open-to-Buy System (OTB) – Merchandise Purchasing:
Self Assessment Questions: VII
5.9 Summary
5.1 Introduction
Merchandise management is the process by which a retailer attempts to
offer the right quantity of the right product at the right place and time while
meeting the retail firm‟s financial goals. Merchandise management is the
analysis, planning, procurement, handling, and control of the merchandise
investments of a retail operation. The components of merchandise
management are shown.
Analysis
Planning Merchandise Control

Management
Acquisition Handling

Merchandise analysis expects retailers to identify the target segment prior to

determining their needs in order to buy the required merchandise.
Merchandise planning consists of establishing objectives and devising
plants for obtaining merchandise well in advance of
The selling season.
Merchandise control involves designing the policies and procedures in order
to determine whether the stated objectives or goals have been achieved.
Planning of establishing performance guidelines, whereas control is the
process of checking how well a management is following those guidelines.
The objectives range from the corporate strategic objectives to the micro-
level objectives regarding the merchandise assortment, stocking, and re-
order.
The merchandise mix represents the full range of mixture of products retails
offers to its target consumers. Developing the merchandise mix provides a
retailer with one of
The means to segment the total market and appeal to a select group of
consumer Segments.
Merchandise mix management covers decisions on a host of key
parameters, such as merchandise variety, assortment, and support. This
would lead to an appropriate combination of product lines, product items,
and product units. Merchandise variety is the number of different product
lines that a retailers stocks in the store. Merchandise assortment refers to
the number of different product items the retailer stocks Within a particular
product line. Merchandise support deals with the planning and control of the
number of units the retailer should have on hand to meet the expected sales
for a particular product. Merchandise budget is a financial tool for planning
and controlling a retailer‟s merchandise inventory investment.
Merchandise mix
Variety Assortment Support
Key dimension of the merchandise mix

Objectives:
After reading this unit you should be able to understand
 Merchandise Budgeting

 Sales forecasting
 Steps/process of Inventory level planning
 Merchandise and Management control in a store.
Ethics in RETAILING
Auto Dealers and Ethics: Not an oxymoron

Ethical behavior by auto dealers is increasingly important as consumers
become more knowledgeable due to information on the Web-and as auto
retailing becomes a more popular target of regulators and attorneys. Two
ways for car dealers to instill ethical behavior among their sales personnel
involve rethinking sales force compensation and re-examining how car
dealers operate as business leaders.
Traditionally, many salespeople have been paid on the basis of the gross
margin of each sale. That encourages a salesperson to inflate the sales
price to an unsuspecting consumer or to push high-profit, dealer installed
options. Alternative method are to place fixed prices on cars, to provide
bonuses to sales staff based on customer satisfaction scores, or to link
bonuses to referral and repeat business.
As the leader-manager, the owner of a dealership should set an example for
the practices of his or her employees. The firm‟s code of ethics needs to
reflect what behavior is unacceptable, including high-pressure tactics and
misrepresentation of price or credit. Salespeople who continually violate the
ethical code should be terminated regardless of their profitability.
5.2 Merchandise Budgeting

As we noted earlier, rupee control entails planning and monitoring a firm‟s
inventory investment over time. The six-step control process for
merchandise forecasting and budgeting. This process should be followed
sequentially since a change in one stage affects all the stages after it. If a
sales forecast is too low, a firm may run out of items because it does not
plan to have enough merchandise during a selling season and planed
purchases will also be too low.
Designating Control Units
Merchandise forecasting and budgeting requires the selection of control
units, the merchandise categories for which data are gathered. Such

classifications must be narrow enough to isolate opportunities and problems

with specific merchandise lines. A retailer wishing to control goods within
departments must record data on dollar allotments separately for each
category.
Knowing that total markdowns in a department are 20 percent above last
year‟s level is less valuable than knowing the specific merchandise lines in
which large markdowns are being taken. A retailer can broaden its control
system by combining categories that comprise a department. However, a
broad category cannot be broken down into components.
It is helpful to select control units consistent with other company and trade
association data. Internal comparisons are meaningful only only when
categories are
Designing sales Inventory Reduction Planning Planning

Control forecasting level planning Purchases Profit
Unit planning Margins
The Merchandise Budgeting Process:

Stable Classifications that shift over time do not permit comparisons.
External Comparisons are not meaningful if control units are dissimilar for a
retailer and its trade associations. Control units may be based on
departments; classifications within departments, price line classifications
and standard merchandise classification. A discussion of each follows.
The broadest practical classification for financial record keeping is the
department, which lets a retailer assess each general merchandise grouping
or buyer. Even the small Handy Hardware needs to acquire data on a
departmental basis (tools and equipment, supplies, house wares, and so on)
for buying, inventory control, and markdown decisions.
To obtain more financial data, classification merchandising can be used,
whereby each department is subdivided into further categories for related
types of merchandise. In planning its tools and equipment department,
Handy Hardware can keep financial records on both overall departmental
performance and the results of such categories as lawn mowers/snow
blowers, power tools, hand tools, and ladders.

A special form of classification merchandising uses price line classifications-

sales, inventories, and purchases are analyzed by price category. This
helps if different models of a product are sold at different prices to different
target markets. Retailers with deep assortments most often use price line
control.
To best contrast its data with industry averages, a firm‟s merchandise
categories should conform to those cited in trade publications. The national
Retail Federation devised a standard merchandise classification with
common reporting categories for a range of retailers and products. It
annually produces Retail Horizons, using its classifications. Specific
classifications are also popular for some retailer. Progressive grocer
regularly publishes data based on standard classifications for supermarkets.
Once appropriate control units are set, all transactions-including sales,
purchases, transfer, markdowns, and employee discounts-must be recorded
under the proper classification number. Thus, if house paint is Department
25 and brushes are 25-1, all transactions must carry these designations.
1. Merchandise forecasting and budgeting requires the selection of
______________
2. A retailer can broaden its _____________ by combining categories that
comprise a department.
3. Comparisons are not meaningful if ____________are dissimilar for a
retailer and its trade associations.
4. __________________Regularly publishes data based on standard
classifications for supermarkets.
5. ___________with deep assortments most often use price line control.
5.3 Sales Forecasting

A retailer estimates its expected future revenues for a given period by sales
forecasting. Forecasts may be company wide, departmental, and for
individual merchandise classifications. Perhaps the most important step in
financial merchandise planning is accurate sales forecasting, because an
incorrect projection of sales throws off the entire process. That is why many
retailers have state-of-the art forecasting systems. Longs Drug Stores has
dramatically improved its cash flow by using a system from Evant.

Larger retailers often forecast total and department sales by techniques

such as trend analysis, time series analysis, and multiple regression
analysis. Small retailers rely more on “guesstimates”, projections based on
experience. Even for larger firms, sales forecasting for merchandise
classifications within departments (or price lines) relies on more qualitative
methods. One way to forecast sales for narrow categories is first to project
sales on a company basis and by department, and then to break down
figures judgmentally into merchandise classifications.
External factors, internal company factors, and seasonal trends must be
anticipated and taken into account. Among the external factors that can
affect projected sales are consumer trends, competitors‟ actions, the state of
the economy, the weather, and new supplier offerings. For example,
Paralytics offers a patent.
Methodology to analyze and forecast the relationship among consumer
demand, store traffic, and the weather. Internal company factors that can
impact on future sales include additions and deletions of merchandise lines,
revised promotion and credit policies, and change in hours, new outlets, and
store remodeling. With many retailers, seasonality must be considered in
setting monthly or quarterly sales forecasts. Handy‟s yearly snow blower
sales should not be estimated from December sales alone.
A sales forecast can be developed by examining past trends and projecting
future growth (based on external and internal factors). It is an estimate,
subject to revisions. Various factors may be hard to incorporate when
devising forecast, such as merchandise shortages, consumer reactions to
new products, the rate of inflation, and new government legislation. That is
why a financial merchandise plan needs some flexibility.
After a yearly forecast is derived, it should be broken into quarters or
months. In retailing monthly forecast are usually required. Jewelry stores
know December accounts for nearly one-quarter of annual sales, while
drugstores know December sales are slightly better than average.
Stationery stores and card stores realize that Christmas card generate 60
percent of seasonal greeting card sales, while Valentine‟s Day card are
second with about 25 percent.

To acquire more specific estimates, a retailer could use a monthly sales

index, which divides each month‟s actual sales by average monthly sales
and multiplies the results by 100 is actual monthly sales and monthly sales
indexes. The store is seasonal, with peaks in late spring and early summer
(for lawn mowers, garden supplies, and so on), as well as December (for
lighting fixtures, snow blowers, and gifts). Other monthly indexes are
computed similarly. Each monthly index shows the percentage deviation of
that month‟s sales from the average months. A May index of 160 means
May sales are 60 percent higher than average. An October index of 67
means sales in October are 33 percent below average.

State whether the following statements are True or False:
1. Most important step in financial merchandise planning is accurate sales
forecasting.
2. Larger firms, sales forecasting for merchandise classifications within
departments (or price lines) relies on more quantitative methods.
3. External factors, internal company factors, and seasonal trends must be
anticipated and taken into account.
4. Seasonality must not be considered in setting monthly or quarterly sales
forecasts.
5. A sales forecast can be developed by examining past trends and
projecting future growth (based on external and internal factors).
5.4 Inventory-Level Planning

At this point, a retailer plans its inventory. The level must be sufficient to
meet sales expectations, allowing a margin for error. Technique to plan
inventory levels are the basic stock, percentage variation, weeks‟ supply,
and stock-to-sales methods.
With the basic stock method, a retailer carries more items than it expects to
sell over a specified period. There is a cushion if sales are more than
anticipated, shipments are delayed, or customers want to select from a
variety of items. It is best when inventory turnover is low or sales are erratic
over the year. Beginning-of-month planned inventory equals planned sales
plus a basic stock amount:

Basic stock (at retail) = Average monthly stock at retail- Average monthly
sales
Beginning-of month Planned inventory level = Planned monthly sales +
Basic stock
( At retail)
In the percentage variation method, beginning-of-month planned inventory
during any month differs from planned average monthly stock by only one-
half of that month‟s variation from estimated average monthly sales. This
method is recommended if stock turnover is more than six times a year or
relatively stable.
Tweeter Home Entertainment: Applying Automated Demand
Forecasting
As Jim Bengier, the vice-president of supply chain management at Tweeter
Home Entertainment tells it: “Our common sense tells us that we need to
focus on the customer‟s Needs and shopping experience. Our ability to do
that partly depends on our ability to Forecast demand, and people just can‟t
do that as accurately as a computer can.” Yet, in the past, “many forecasts
were made far, far in advance. I saw some plans that went out For the next
180 to 380 days. How accurate could those be?”
Today, Tweeter Entertainment forecasts demand using the firm‟s vast
amount of Transaction data. This enables Tweeter to systematically
examine shopping behavior, Price sensitivity and other factors that affect
demand. Tweeter works closely with its Vendors in its demand analysis.
Jim Bengier reports that, “For example, if we introduce a new Sony camera
in the United States, maybe it‟s been released in Japan already. Sony would
know what the early demand looked like there. “Tweeter also seeks more
insight into the vendors manufacturing capacity to ensure it can get an
ample supply of products.
Cahill specializes in creative retail displays store atmosphere, and serves a
substantial promotional role. Here‟s what Point-of-Purchase Advertising
International (POPAI) has to say:
POP advertising is persuasive. Serving as the last three feet of the
marketing plan, it is the only mass medium executed at the critical point

where products, consumers, and the money to purchase all meet at the
same time. It is no coincidence that with 74 percent of all purchase
decisions in mass merchandisers made in store, an increasing number of
brand marketers and retailers invest in this medium. POP advertising serves
as the silent salesperson. Signs and in-store media educate and draw
attention to consumers about product availability and attributes. Coming at a
time when most consumers want more information, and retailers have
reduced staffing levels, POP performs a vital service and augments cost-
reduction efforts. POP advertising is flexible. It is the only advertising
medium that can convey the same ovrerall strategic message in differing
languages to varying audience in the same village, city, or region. POP
advertising is increasingly sophisticated in its construction and utilization.
Today‟s displays are easily assembled, maintained, and more powerful in
entertaining and informing in the retail environment. Retailers to enhance
the shopping experience use POP advertising increasingly. POP is used to
help overhaul a store‟s image, re-direct store traffic, and bolster
merchandising plans.

State whether the following statements are True or False
1. A retailer plans his Inventory on the basis of cash flow.
2. Basic Stock Method is best when inventory turnover is low or sales are
erratic over the year.
3. Percentage Variation Method recommended if stock turnover is more
than six times a year or relatively stable.
4. POP advertising is not the only mass medium executed at the critical
point where products, consumers, and the money to purchase all meet
at the same time.
5. Signs and in-store media educate and draw attention to consumers
about product availability and attributes.
5.5 Assortment Planning

Several types of displays are described here. Most retailers use a
combination of them. An assortment display exhibits a wide range of
merchandise. With an open assortment, the customer is encouraged to feel,
look at, and /or tries on products. Greeting cards, books magazines, and

apparel are the kinds of products for which retailers use open assortments.
In addition, food stores have expanded their open displays for fruit,
vegetables, and some department stores have opened up their cosmetics
and perfume displays. With a closed assortment, the customer is
encouraged to look at merchandise but not touch it or try it on. Computer
software and CDs are pre-packaged items that cannot be opened before
buying. Jewelry is usually kept in closed glass cases that employees must
unlock.
A theme-setting display depicts a product offering in a thematic manner and
sets a specific mood. Retailers often vary their displays to reflect seasons or
special events; some even have employees dress for the occasion. All or
part of a store may be adapted to a theme, such as Columbus Day,
Valentine‟s Day, or another concept. Each special theme seeks to attract
attention and make shopping more fun.
With an ensemble display, a complete product bundle (ensemble) is
presented-rather than showing merchandise in separate categories (such as
a shoe department, sock department, plants department, shirt department,
and sports jacket department). Thus, a mannequin may be dressed in a
matching combination of shoes, sock, pants shirt, and sports jacket, and
these items would be available in one department or adjacent departments.
Customers like the ease of a purchase and envisioning an entire product
bundle.
A rack display has a primarily functional use: to neatly hang or present
products. It is often used by apparel retailers; house wares retailers, and
others this display must be carefully maintained because it may lead to
product cutter and shoppers‟ returning items to the wrong place. Current
technology enables retailers to use sliding, disconnecting, contracting/
expanding, lightweight, attractive rack displays. A case display exhibits
heavier, bulkier items than racks hold. Records, books, pre-packaged
goods, and sweaters typically appear in case displays.
A cut case is an inexpensive display that leaves merchandise in the original
carton. Supermarkets and discount stores frequently use cut cases, which
do not create a warm atmosphere. Neither does a dump bin-a case that hold
piles of sale clothing, marked-down books, or other products. Dump bins

have open assortments of roughly handled items. Both cut cases and dump
bins reduce display costs and project a low-price image.
Poster, sign, and cards can dress up all types of displays, including cut
cases and dump bins. They provide information about product locations and
stimulate customers to shop. A mobile, a hanging display with parts that
move in response to air currents, serves the same purpose-but stands out
more. Electronic displays are also widely used today. They can be
interactive, be tailored to individual stores, provide product demonstrations,
answer customer questions, and incorporate the latest in multi-media
capabilities. These displays are much easier to reprogram than traditional
displays are to remodel.
A Nonstore-Based retailing perspective:

Many atmospherics‟ principles apply to both store and nonstore retailers.
However, there are also some distinctions. Let us look at the storefront,
general interior, store layout. Displays and checkout counter from the
vantage point of one type of direct marketer, the Web retailer.
Storefront:
The storefront for a Web retailer is the home page. Thus, it is important that
the home
Page:
 Prominently show the company name and indicate the positioning of the
firm.
 Be inviting. A “virtual storefront” must encourage customers to enter.
 Make it easy to go into the store.
 Show the product lines carried.
 Use graphics as display windows and icons as access points.
 Have a distinctive look and feel.
 Include the retailer‟s E-mail address, mailing address, and phone
number.
 Be highlighted at various search engines.
General interior
As with store retailers, a Web retailer‟s general interior sets a shopping
mood. Colors run the gamut from plain white backgrounds to stylish black
backgrounds. Some firms use audio to generate shopper interest. “Fixtures”

relate to how simple or elaborate the web site looks. “Width of aisles” means
how cluttered the site appears and the size of the text and images. The
general interior also involves these elements:
 Instructions about how to use the site.
 Information about the company.
 Product icons.
 News items.
 The shopping cart (how orders are placed).
 A product search engine.
Although most retailers use assortment planning methodology which vary on
many aspects there are certain general parameters which act as loopholes
in the approach. At the same time assortment planning is a key differentiator
in today‟s progressive retail organizations, having many benefits. Both these
aspects are shown in Table 4.5.
Assorted Solutions
Changing consumer attitudes and buying behavior have forced retailers in
the apparel Industry to rethink the which business is done. The highly
demanding consumer has Compelled retailers to have a large, which, in
turn, leads to a rise in inventory holdings. High lead times, seasonality,
evolving consumer tastes and size are some issues that Create stiff
competition in the marketplace, making discounting an inevitable option. In
such a scenario, it becomes tough for retailers to thrive profitably. To add to
the complexity, a seamless supply chain is a long way off, leading to a very
high concept to shelf time. With these levels of complexity, proper planning
and execution of the available assortment becomes inevitable for better
capital productivity.
Market Modifications
Consumer attitudes in India are changing and the shopper base for core
products such as apparel for men and women is shrinking. In contrast, the
consumer base for products that fall under smaller categories, such as
youth clothing and tennis footwear, is expanding. Consumers are certainly
positively predisposed towards apparel, clothing and footwear, but an
absence of the desired product-mix encourages them to shift loyalties.

A major culprit here is the lack of synchronization between product

availability and the consumer‟s buying cycle. Shoppers are usually pressed
for time and desire value from their purchases. As a consequence, most
shoppers know exactly what they want when they walk into a store and
impulsive purchases are declining. In such a scenario, it becomes
increasingly important to arrive at the proper product mix by seamlessly
integrating assortment planning, buying, production and design. A closer
look reveals that assortment planning is the solution to the problem.
Planned Success
Assortment planning in the fashion industry includes decisions on the kind of
products, their quantity, colours and sizes, and their target audience, though
this directly affects Product selection, price, timing and micro
merchandising, it has traditionally been de-emphasised due to hectic retail
schedules and lack of best practices, managing delivery and meeting
marketing and financial obligations consumes valuable time. This forces
organization to take the easy way out: repeating assortment breadth and
depth from previous seasons, creating store assortments based on store
volume, and ranking items primarily by sales volume.
Decisions and considerations
Key Key
Decisions considerations
What Consumer Store Past Sales Fashion
Profile image sales trend forecast
How much Sales Budgets/ Open Economic Projected
Trend targets to buy order sales
quantity
From where Flexibility Vendor Quality Lead time Economic
capacity order
Quantity
When Lead time Projected Fashion Cost Inventory
Sales change advantage
holdings
The above list is merely indicative but it underlines the complexity of

assortment planning. Retailers who are able to channelise merchandise
appropriately can reduce their inventory-carrying costs and also improve
margins. Customers who are pressed for time to are unlikely to look further
if the assortment offered fulfils their needs. Such an assortment aids
retailers in reducing the impact of price-driven buying and also in
maintaining sound customer relations.
To attract consumers in today‟s increasingly competitive market, assortment
planning must focus on creating appropriate product dimensions based on
the consumer‟s desires and shopping patterns. In the case of apparel, the
business becomes more complex as appropriate assortment planning must
take into account not just lifestyles, climates and trends, but also the change
in lifestyle and shopping habits. Furthermore, assortment planning must
present a compelling mix of products to illustrate the company‟s strategic
vision.

1. _____________________the customer is encouraged to feel, look at,
and /or try on products.
2. ______________________the customer is encouraged to look at
merchandise but not touch it or try it on.
3. Retailers often vary their displays to reflect seasons or
________________
4. Assortment planning in the fashion industry includes decisions on the
kind of products,their quantity, colours and sizes, and their
___________________
5. Retailers who are able to channelise merchandise appropriately can
reduce their ___________________ and also improve margins.
5.6 Merchandise and Management Control

Expensive to maintain and complex legacy integrations, growing price
competition, and declining customer loyalty are some of the many
challenges, and declining customer loyalty are some of the many challenges
that retailers face. To compete and succeed in this environment, business
needs to deliver maximum value to customers. By implementing a
comprehensive business management solution that connects every
components of operations – from financials, operations and distribution to
point of sale, purchasing and store management – retailers can optimize
efficiency and improve service while reducing costs. In addition, this

uniquely integrated platform makes multi-channel retailing an achievable

option. LS Retail, integrated with Microsoft Dynamics, offers end-to-end
business management capabilities combined with retail-specific
functionality.
The focal point of Management Control is operating costs. Without clear
visibility into every aspect of the business – from back office to the point of
sale – effective cost management is virtually impossible. By providing near
real-time access to consolidated data about supply chain events, inventory
levels, sales performance, and other key business activities, our solution
enables retailers to quickly track costs across the entire operation.
The most important investments for any retailer is merchandise inventory.
To effectively put into practice it is necessary to plan and execute more
effective merchandising strategy.
Plan and Execute a More Effective Merchandising Strategy
One of the most important investments for any retailer is merchandise
inventory. Because effective inventory management is integral to success,
retailers need a solution that enables deep insight into demand and sales
trends across all product lines. This capability ensures that the right
products are in the right stores at the right time. As a comprehensive retail
planning system that is fully integrated, our solutions combine rich
performance analysis functionality with powerful planning features, helping
retailers gain maximum value from their merchandise inventory for
enhanced performance and profitability.
Integrate Planning and Purchasing
Seamlessly connect planning and purchasing processes to optimize
resource allocation. This allows retailers to take a more strategic approach
to creating purchase and sales budgets to better align with customer
demand and growth goals. By facilitating more efficient assortment planning
and enhanced purchasing control, our solution helps retailers achieve the
right product mix for their customers, improving the customer experience
and driving repeat sales.
Improve Purchasing with open-to-buy
To effectively control costs, retailers must define purchasing parameters
based on customer demand data for a given sales period. With the

integrated Open-to-Buy module, retailers can quickly establish purchasing

limits and adapt them as their business needs change. This helps retailers
ensure that capital investment matches set limits for each product line. The
Open-to-Buy feature:
 Easily configures to accelerate time to benefit
 Contains multiple calculation fields that can be easily customized
 Enables full synchronization between sales and purchasing
 Completely integrates with other line-of business systems for enhanced
business intelligence
Replenish Inventory Faster
Enhanced supply chain visibility helps to reduce cycle times, ensuring that
 Get Smart, Flexible Solutions
 That Address The
 Equipments and Complexities
 Unique to your Company‟s
 Retail needs and Challenges.
 Tectura Retail Solution Are
 Flexible Eash to Implement And
 Easy to Learn and Use

1. Declining _________________ is one of the challenges retailers have to
face.
2. ____________ management ensures that the right products are in the
right Stores at the right time.
3. Integrate planning and purchasing facilitates optimize ____________
4. To effectively control costs, retailers must define ______________based
on Customer demand data for a given sales period.
5. Enhanced ___________ visibility helps to reduce cycle times, replenish
Inventory faster.
5.7 Purchase Systems

Assortment planning helps the retailer to workout a general outline on what
types of merchandise should be carried. Whereas, Buying Systems will help

the buyers and merchandise planners to decide on how much to buy.

Generally retailers use two distinct types of buying systems:
(a) A staple merchandise buying systems for basics.
(b) A merchandise budget for fashion merchandise.
Staple merchandise buying systems are used for merchandise which follow
a typical (or predictable) order-receipt-order-cycle. This buying system uses
past history for each staple SKU to forecast demand and sales at the
category level. Most of the merchandise found in food and discount stores in
addition to some categories in specially and departmental stores like
underwear, socks etc. fit this criterion.
The retailer must use the „Inventory Management Report‟ containing
information on sales velocity, inventory availability, and amount of order,
inventory turnover, sales forecast and the quantity to order for each SKU to
carryout buying functions. This is because staple merchandise buying
systems comprise of a number of computer programme modules to help the
buying and merchandiser to determine how much to order and when. Mainly
these systems enable buyers to carry out three functions:
 At the SKU level, monitor and measure the average current demand.
 Forecast the future SKU demand with making adjustments for seasonal
fluctuations and changes in trend.
 Work out ordering decision rules for optimum restocking.
Merchandise Budget Plan for Fashion Merchandise

The merchandise budget plan helps to workout the inventory investment in a
category over a period of time. It cannot be referred to as a complete buying
plan because it does not indicate the quantities or the specific assortment to
buy. The plan merely specifies how much money is to be spent each month
to achieve sales and turnover and also the GMROI objectives.
The merchandise plan helps to co-ordinate the supply and demand for
merchandise as well as to ensure that the financial goals are achieved.
Further, the plan co-ordinates the activities of buyers of merchandise for
different categories. So as to ensure that there is a balance and avoid
situations where there is too much merchandise in some categories and not
enough in others. Of course the actual sales may differ from the sales
forecasted in the merchandise budget plan. For working out the
merchandise budget plan, the buyer will have to examine the monthly sales
expected as a percentage of the total sales, the factors which could reduce
the inventory level (due to mark down, shrinkages, discount to employees
etc.), the stock-to-sales ratio at the BOM (Beginning of Month) and the
GMROI. Thus, for the buyer, the GMROI, inventory turnover and the sales
forecast can be used for planning and control. Based on the above inputs,
the buyer will plan to purchase the merchandise for the various category
levels. As discussed earlier in the chapter, fashion products can have
seasonal fluctuations in demand. So after the selling season, the buyer can
understand how the category actually performed when compared to the plan
for control purposes.
Self Assessment Questions: VI

State whether the following statements are True or False
1. Buying Systems will help the buyers and merchandise planners to
decide on how much to buy.
2. Buying system uses present history for each staple SKU to forecast
demand and sales at the category level.
3. Actual sales may not differ from the sales forecasted in the merchandise
budget Plan.
4. The merchandise budget plan helps how much money is to be spent
each month to achieve sales and turnover.
5. For Buyer GMROI, inventory turnover and the sales forecast can be
used for planning and control.
5.8 Open-to-Buy System (OTB) – Merchandise Purchasing

Open-To-Buy (OTB) helps retailers to project and control future buying so
that the flow of merchandise in the store synchronizes with the expected or
anticipated sales at a desirable stock turn rate, which will ensure a positive
cash flow. Organized retailers prefer to follow the OTB planning so as to
eliminate over buying or under stocking, reduce confusion and help the
organization to make more profits.
OTB system provides the buyer with a plan for purchasing merchandise
after using the Merchandise budget plan or staple merchandise system.
That is, it keeps track of Merchandise flows, as they are occurring. This
system keeps a record of how much is Spent each month and thus how
much is left to spend. Specifically put, OTB is a planning.

Tools to assist in setting budgets for sales and merchandise inventory levels
and monitor The existing (or current) status of the OTB amount. This will
work out the amount remaining to be ordered to meet the budget.
There is a tendency mong retailers to overstock when sales increase and
under stock when they are low. But with the help of an OTB system, the
retailer can workout the ideal amount of stock to be kept on hand at the
beginning of any given month and the amount of new merchandise to be
received during the month.
An efficient OTB plan must contain the following elements: Sales Forecast,
Advance (or Forward) stock cover, the stock requirement, Opening Stock,
Actual intake requirement; (difference between required opening stock),
stocks on order, stock open to receive (deducting stock on order from the
intake requirement), and closing stock. Benefits of OTB.
OTB helps to
 Make an estimate on the amount of working capital required to be
employed in inventory from month to month.
 Work out the correct (or right) inventory level to support planned sales
and also achieve the GMROI.
 Work out the merchandise inventory so that the outlet receives the right
amount of merchandise at the right time.
 Ensure a continuous flow of fresh merchandise into the store every
month.
 Perform the controlling function by comparing actual performance with
the OTB plan and take corrective action wherever required.
 Provide the organization an opportunity to earn profit through successful
merchandising and buying efforts.
After the merchandise is purchased, the merchandise buyers of multiple
chain of stores have to look into the differences in the sales potential of
various stores as well as the characteristics of the customer base and then
allocate merchandise to various stores.
Handling Out of Merchandise Situations & Evaluating Merchandise
Performance
At times lack of proper merchandise planning could result in out-of-stock
situations. This could be because the distribution channels are multilayered

and unorganized and by the time the product reaches the hands of the
customers, it must have passed through as many as 3-4 intermediaries.
Further, the supply chain aggregates the inefficiencies of poor demand
forecasting techniques, lack of proper communication between
intermediaries and certain specific issues intrinsic to the concerned sector.
Stores
Distributors and
Manufacturers Retailers
Superstockists
Dependent on remote Delay in delivering stock to Usage of improper or poor

Manufacturing Locations retail distribution point by demand fore-casting
the vendor methods
Emptying the merchandise inadequate working capital Bad relationships with
Stock in the pipeline Much forcing distributors to vendor leading to poor
before all mega Promotions maintain lesser than service from them.
and launches. demand Stocks.
Providing only limited Stocks Stocking errors resulting in Logistic errors at the
to the other intermediaries. stockout situations. Distribution centres of
chain stores.
Poor or bad demand Under pressure from Tendency of retailers to
forecasting methods used. manufacturere‟s sales staff push higher margin brands
to carry more of and understock lower
unproductive stocks. margin brands.
Infrequent production runs Poor assortment planning
for limited time periods process at stores level.
Retailers have a tendency to keep a higher safety stock to avoid supply

ineffiencies which could lead to higher working capital requirements. To
avoid all such problems retailers are integrating the supply chain. In India
also many large retailers are moving in the direction of direct supply chain to
end retailers thereby eliminating a lot of channel and middlemen
inefficiencies. For instance, the setting up of organized wholesale cash and
carry formats like Metro Cash & Carry enables retailers to directly source
their requirements from a single source. This not only eases logistical
compulsions but also streamlines the entire supply chain process.
As a part of merchandise planning process, retailers use various procedures
for analyzing merchandise performance. These procedures could be ABC
Analysis which can be done at any level of merchandise classification (from
SKU to department) to determine which items should never be out of stock,
those items which should be occasionally allowed to be out of stock and

those items which should be deleted from stock selection. Thus,

merchandise is rank-ordered from highest to lowest and the buyer uses this
information to work out a inventory management policy. The Sell through
Analysis is a comparison between actual and planned sales to decide
whether early markdowns are required or if more merchandise is required to
satisfy demand. Thus this method is more useful for examining the
performance of individual SKUs. The Multi-attribute Method evaluates
vendor using a weighted average score, worked out on the basis if the
importance of various issues and the vendor‟s performance on those issues.
Self Assessment Questions: VII

1. Organized retailers prefer to follow the OTB planning so as to eliminate
over buying or under stocking.
2. OTB system keeps a record of how much is spent each month and thus
how much is left to spend.
3. At times lack of proper merchandise planning could result in out-of-stock
situations.
4. Retailers have a tendency to keep a lower safety stock to avoid supply
ineffiencies.
5. In India many large retailers are moving in the direction of direct supply
chain to avoid competitors.
5.9 Summary
Forecasts are projections of expected retail sales and form the foundation of
merchandise plans. Staple merchandise consists of the regular products a
retailer carries. A basic stock list specifies the inventory level, color, brand,
and so on for every staple item carried. Assortment merchandise consists of
products for which there must be a variety so customers have a proper
selection. A model stock plan projects specific assortment merchandise.
Fashion merchandise has cyclical sales due to changing tastes and life-
styles. Seasonal merchandise sells well over nonconsecutive periods. With
fad merchandise, sales are high for a short time. In forecasting for best-
sellers, many retailers use a never-out list.
A retailer‟s innovativeness is related to the target market(s), product growth
potential, fashion trends, the retailer‟s image, competition, customer

segments, responsiveness to consumers, investment costs, profitability,

risk, constrained decision making, and declining goods and services. Three
issues are of particular interest: How fast will a new good or service
generate sales? What are the most sales to be achieved in a season or a
year? Over what period will a good or service continues to sell? A useful tool
is the product life cycle.
An assortment is the selection of merchandise a retailer carries. The retailer
first chooses the quality of merchandise. The assortment is then
determined. Width of assortment refers to the number of distinct product
categories carried. Depth of assortment refers to the variety in any one
category. As part of assortment planning, a retailer chooses its mix of
brands. Manufacturer brands are produced and controlled by
manufacturers. Private brands contain names designated by wholesalers or
retailers. Generic brands feature generic names as brands and are a form of
private brand. The competition between manufacturers and retailers is
called the battle of the brands.
For new goods and services, it must be decided when they are first to be
displayed and sold. For established goods and services, the firm must plan
the merchandise flow during the year. In deciding when and how often to
buy merchandise, quantity discounts should be considered. A single-unit
retailer chooses how much merchandise to allocate to the sales floor and
how much to the stockroom, and whether to use a warehouse. A chain also
allocates items among stores.

Explain the components of merchandise management
1. Explain the Merchandise Budgeting Process
2. “Perhaps the most important step in financial merchandise planning is
accurate sales forecasting”. Discuss
3. An assortment display exhibits a wide range of merchandise. Elaborate.
4. What do you mean by Inventory Level Planning
5. Explain Open-to-Buy System
6. Explain Budget Plan for Fashion Merchandise


SAQ I
1. Control Units
2. Control Systems
3. Control Units
4. Progressive Grocier
5. Retailers
SAQ II
1. True
2. False
3. True
4. False
5. True
SAQ III
1. False
2. True
3. True
4. False
5. True
SAQ IV
1. With an open assortment
2. With an closed assortment
3. Special Events
4. Target audience
5. Inventory carrying-costs
SAQ V
1. Customer Loyalty
2. Effective Inventory
3. Resource Allocation
4. Purchasing parameters
5. Supply Chain

SAQ VI
1. True
2. False
3. False
4. True
5. True
SAQ VII
1. True
2. True
3. True
4. False
5. True
Answers to Terminal Questions

1. Refer to Introduction

Unit 6 Merchandise Pricing

Structure
6.1 Introduction
Objectives
6.2 Determinants of retail price setting
6.2:1 Cost
6.2:2 Desired level of profit margin
6.2:3 Suppliers
6.2:4 Competitors
6.2:5 Governments
6.2:6 Customers
6.3 Pricing strategies and Practices
6.3:1 Demand oriented pricing
6.3:2 Cost oriented pricing
6.4 Price setting methods
6.4:1 Everyday low pricing
6.4:2 High-low Pricing
6.4.3 Loss Leader pricing
6.4.4 Skimming Pricing
6.4.5 Penetration Pricing
6.4.6 Price lining
6.4.7 Psychological Pricing
6.4.8 Prestige Pricing
6.4.9 Reference Pricing
6.4.10 Odd pricing
6.4.11 Even pricing
6.4.12 Bundled pricing
6.4.13 Pre- emptive pricing
6.4.14 Extinction pricing
6.4.15 Perceived value pricing
6.4.16 Fixed and variable pricing
Self Assessment Questions
6.5 Legal issues in retail pricing
6.6 Financial objectives of merchandising

6.7 Summary
6.9 Answers to SAQs & TQs
6.1 Introduction
Price is the monetary value assigned by the seller to something purchase,
sold or offered for sale and on transaction by a buyer as their willingness to
pay for the benefits the product and channel service delivers.
Setting the right price can influence the quantities of various products or
services that consumer will buy, which in turn determines the total revenue
and the profit of the retail store. In the end, the right price for the product or
service is the price that the consumer is willing to pay for it. From
consumers‟ perspective, price is always considered as am important feature
of the entire offer in the purchase decision of a particular product. Therefore,
sound pricing decisions are important to successful retail business.
Systematic and informed decisions regarding pricing strategies must be
made while considering a wide range of issues.
Objectives of the study:

 To develop an understanding of various concepts related to retail pricing
 To understand the impact of cost, consumers, government, producers,
competition in retail pricing decision.
 To discuss various strategies available for retailers to set their price for
products
 To analyse the retail pricing strategies and tools through specific
methods used to set the price for retailer‟s products
 To understand various legal and financial issues related to retail pricing
6.2 Determinants of retail price setting

There are several determinants which affects retail pricing strategy. They
are
 Cost
 Desired level of profit margin
 Suppliers
 Competitors

 Government
 Customers
6.2.1 Cost:
It includes cost of buying merchandise, cost of running business,
promotional cost and cost of investment for further expansion. Higher the
level of these costs borne by the retailer, higher is going to be the cost of the
product.
6.2.2 Desired level of profit margin:

Profitability of retail business is influenced by two factors: one. The margin
of profit on the offerings that are sold and secondly, the cost involved in
selling the merchandise. These two factors directly influence the pricing of
the merchandise store which in turn influences the profitability of the store.
6.2.3 Suppliers:
There may be conflicts between manufacturers and other suppliers and
retailers in setting final prices since each would like some control and want
to price the product or service according to their own image, goals and
objectives. When suppliers are unknown or products are new, retailers may
seek price guarantees.
6.2.4 Competitors:
Competitors are the most influential factor in determini8ng the price. The
competitive environment affects the freedom of a retailer to fix the prices to
a great extent. Competition can range from being perfect to monopoly.
Market pricing occurs when shoppers have a large choice of retailers. In this
instance, retailers often price similarly to each other and have less control
over price because consumers can easily shop around.
6.2.5 Governments:
Role of Government in determining the price for the retailer is one of the key
determinants. It can be viewed from two angles i:e domestic and
international jurisdictions. In domestic jurisdictions there can three levels of
government control that may affect retail pricing. They are Federal, State
and Local. For retailers operating outside their home country, international
jurisdictions come into play.

6.2.6 Customers:
A retailer needs to understand the behavior of the customer who is his
target segment. Consumer behavior is based on various personal, social
and geographical factors and presents a major challenge for retailers while
setting the price. Retailer should understand the price elasticity of demand
because there is often a relationship between price and consumer
purchases and perceptions.

1. Profitability of retail business is influenced by _____________ &
________________.
2. Competitors are the most __________ factor in determining the price.
3. Retailer needs to understand _____________ who is his target
segment.
6.3 Pricing strategies and Practices

A retailer‟s pricing strategy has to reflect its overall goals and be related to
sales and profits. There must also be specific pricing goals to be achieved
with the integration of total retail mix. Following are the strategies and the
most commonly applied practices for retail pricing:
 Demand oriented pricing
 Cost oriented pricing
 Competition oriented pricing
6.3.1 Demand oriented pricing:
Under this strategy a retailer sets prices based on consumer desires. It
determines the range of prices acceptable to the target market. Retailer use
demand oriented pricing to estimate the quantities that customers would buy
at various prices. In this method seller attempts to set price at a level
intended and buyers willing to pay. This approach studies customer
interests and the psychological implication of pricing.
Two aspects of psychological pricing are the Price quality association and
Prestige pricing. According to Price quality association concept, many
consumers feel high prices connote high quality and low prices connote low
quality. This association is especially important if competing firms or
products are hard to judge on the bases other than price, consumer

experience, brand name etc. on the other hand, Prestige pricing assumes
that the consumers will not buy goods and services at prices deemed too
low. Consumers may feel too low price means low quality and status. For
example, Shoppers Stop does not keep any low end items because their
customers may feel they are inferior.
6.3.2 Cost oriented pricing:

It refers to setting prices based on the costs incurred by the retailer while
purchasing a product or service for sale to its customers. This could take the
form of Cost Plus pricing.
Cost plus pricing method will be in relation to either marginal costs or total
costs including overheads. This approach can be used for selecting the
target market, ascertaining the costs of the goods in the store i:e storage
costs, overheads, selling costs etc, determining the maximum ceiling price
when compared to competitors and determining the initial mark-up from
maintained mark-up and gross margin.
Here, initial mark up is the difference between the retail selling price initially
placed on the merchandise and the cost of goods sold. Maintained mark up
is the difference between the amount obtained from actual sales of the
merchandise and the cost of goods sold. Gross margin is the net sales
minus cost of goods sold.
EHIBIT 1
AIR DECCAN TO HIKE NUMBER OF FLIGHTS
After having slashed fares when his competitors increased them, low-cost
carrier Air Deccan‟s chief G R Gopinath said on Monday the airline would
increase the number of flights instead of fares to meet the passenger
demand.
“Our pricing is not in relation to competition. If the demand is more, we will
not increase the fares but the number of flights.” He told a two-day
conference on synergizing of air traffic control (ATC), airports and airlines,
organized by the ATC Guild (India).
He said the airline, which recently slashed fares when other carriers raised
them were getting rich dividends from operations on trunk routes where it
dropped fares.

This was primarily due to the very high load factor, ranging between 90 and
100 per cent, on most of the days, he said, adding such load factor had led
to case positive results leading the airline to report profits.
Gopinath made a strong case for urgent revamp and expansion of airport
infrastructure in the country saying, for low cost operations to succeed, a
faster turnaround for each aircraft was required.
“WE need to turn around the aircraft from landing to take off with a quick
span of 25 minutes” he said while pointing out the unprecedented increase
in passenger traffic in the next few years would prove a disaster if speedy
action was not taken to expand and improve airport and all related
infrastructure including moiré parking bays for aircraft and additional
runways.
Another major initiative taken by Air Deccan was to introduce dedicated
automated machines at airports.
(Source: The Times of India, Bangalore, 2nd November, 2004)
6.3.3 Competition oriented pricing:

A retailer can use competitors‟ price as a guide. The firm might not alter
prices in reaction to changes in demand or costs unless competitors alter
theirs. Similarly, it might change prices when competitors do, even if
demand or costs remain the same. A competition oriented retailer can price
below at or above the market. A firm with a strong location, superior service,
good assortment, favorable image and exclusive brands can set prices
above competitors.
However, above market pricing is not suitable for a retailer that has an
inconvenient location, relies on self service, is not innovative and offers no
real product distinctiveness. Pricing at the market level does not disrupt
competition and therefore does not usually lead to retaliation.

State whether the following statements are TRUE or FLASE:
1. A retailer‟s pricing strategy has to reflect its overall goals
2. Demand oriented pricing of a retailer sets prices based on manufacturer
desires.
3. Cost plus pricing = Marginal cost + pricing.

6.4 Price setting methods

Some of the pricing methods are:
 Every day low Pricing
 High-low Pricing
 Loss Leader pricing
 Skimming Pricing
 Penetration Pricing
 Price lining
 Psychological Pricing
 Prestige Pricing
 Reference Pricing
 Odd pricing
 Even pricing
 Bundled pricing
 Pre- emptive pricing
 Extinction pricing
 Perceived value pricing
 Fixed and variable pricing
6.4.1 Every day low pricing:

EDLP has been popularized by large retailers like Wal Mart, home depot,
and staples among others. This strategy represents continuity of retail prices
below the MRP mentioned on the goods. In other words at a level some
where between the regular price at which the goods are sold and the deep
discount price offered when a sale is held.
So low does not necessarily mean lowest. The price at a competing store
where goods are on sale may be selling at lower prices. In India many co-
operative stores have adopted this strategy. One store that uses EDLP is
Big Bazaar.
Benefits:
 Less reduction on prices to compete.
 Reduced advertising.
 Improved customer service.
 Better inventory management.

6.4.2 High-low Pricing:

In high-low pricing, retailers offer prices that are some times above their
competitor‟s ELDP, but they use advertisements to promote frequent sales.
In the past retailers would mark down merchandise at the off season to clear
the stock. Grocery stores would only have sales when they were over
stocked. Sale is very common in garment retailer.
A Sale is organized at the end of a season to serve basically two purposes.
One, goods that have not managed to get sold is disposed off. Otherwise,
extra handling and storage expenses have to be incurred in respect of these
goods. More over, there is no surety that that they will get sold in next
season. Second the sale provides an opportunity for a different target
segment to visit the store. High-low pricing is used by stores like Lifestyle.
Benefits:
 Same merchandise can be used to target different segments.
 Enthusiasm is created among customers.
 Image of quality is created.
 Difficult to implement Every Day Low Price.
6.4.3 Loss Leader pricing:

Retailers sometimes price particular fast moving products at a lower price to
attract customers to the store. Once the customers are in the store they can
be persuaded to buy more profitable products. For example, a retailer can
sell eggs cheaper than other competing stores. so that customers consider
him while purchasing groceries. Since the customer is also likely to buy milk,
bread, etc. along with eggs these products are priced slightly higher. So, the
profit foregone on eggs is less than that recovered on other items of
groceries. Some times, fast moving products are sold at cost price or even
at a loss, so these are also called Loss Leaders.
6.4.4 Skimming Pricing:

Price Skimming is a Pricing Strategy in which a retailer sets a relatively high
price for a product or service at first, and then lowers the price over a period
of time. It allows the firm to recover its sunk costs quickly before competition
steps in and lowers the market price.
Problems with Skimming Pricing Strategy are:

 Skimming encourages the entry of competitors when other retailers see
the high margins available in the industry, they may decide to quickly
enter.

 The inventory turn-over rate can be very low for skimmed products.
 The retailer could gain negative publicity if he lowers the price too fast
and without significant changes in product profile. Some early
purchasers may feel cheated.
6.4.5 Penetration Pricing:
Penetration pricing is the pricing technique of setting a relatively low initial
entry price, a price that is often lower than the eventual market price. The
expectation is that the initial low price will secure market acceptance by
breaking down existing brand loyalties. Penetration pricing is most
commonly associated with the marketing objective of increasing the market
share or sales volume, rather than short term profit maximization.
Benefits:
 It can create a good will among the entire important early adopter
segment. This can create valuable word of mouth publicity.
 It creates cost control and cost reduction pressures from start, leading to
greater efficiency.
 It can create high stock turn-over.
Problems:
It establishes long term price expectations for the product and image pre-
conceptions about the retailer. This makes it difficult to eventually raise
prices it is also claimed that penetration pricing attracts only switchers
(bargain hunters). And that they will switch away from the retailer as soon as
the prices are increased.
6.4.6 Price lining:
Price lining refers to the offering of merchandise at a number of specific but
predetermined prices. Once set, the prices may be held constant over a
period of time and changes in market conditions are adapted by changing
the quality of the merchandise. A limited number of predetermined price
points are set at which merchandise may be offered for sale. Ex: rs.79.50,
rs.109.50 & rs.149.50.
6.4.7 Psychological Pricing:
Psychological Pricing is a method of setting prices intended to have special
appeal to consumers. Prestige Pricing, Reference Pricing, Odd-even Pricing
and Traditional Pricing are all different types of Psychological Pricing
6.4.8 Prestige Pricing:
It refers to charging a high price for a product or service where it is judged
that this in itself will give it prestige and make it much sought after. Retailers

of various services like beauty parlors' and hair saloons at times price their
offerings in this manner. for example, five star hotels like Taj and Oberio in
terms of their menu offerings. For instance, a glass of coke at Taj would cost
close to Rs.75-100.
6.4.9 Reference Pricing:

It uses consumers‟ frame of reference that is established through previous
experience of purchasing the product or through high levels of information
search. Here, a consumer before making purchase decision, tend to take
the opinion of friends or relatives who have already bought the goods and
such earlier purchasers‟ decision hold a lot of value in making his / her
decision. The customers who have purchased previously act as reference
group or opinion leaders and influences on consumer decision making
process. Here, the customers refers to the shop or outlet, prices offered by
retailers, products offered by him, various discounts given etc from the
previous buyers.
6.4.10 Odd pricing:

Setting the prices at odd numbers to denote a lower price or a “good deal”
because odd pricies are associated with lower prices they are typically used
by retailers who either sell at below the market prices. (Ex – Rs 299 ,199,
99 , pricing in Bata show room)
6.4.11 Even pricing:
Setting the prices at even numbers to imply higher quality is called Even
pricing strategy.
Here, Retailers usually sell above the market price and end their prices in
even numbers that have come to denote quality. (Ex- Rs 200,500).
6.4.12 Bundled pricing:
Bundling, this means pricing & selling the goods as a group rather than
individual or offering 2 or more different products or services at one price.
Price bundling is used to increase both unit sales as well as profits. Eg-
Gillette, Johnson & Johnson products.
6.4.13 Pre- emptive pricing:
It is the strategy which involves setting low prices to discourage potential
new entrants to the retail market. By deterring other entrants to the market,
retailers has opportunity to
 develop the merchandise
 gain market share
 acquire brand recognition
6.4.14 Extinction pricing:

This pricing involves setting very low prices in the short term in order to
under cut the competition. Once the competition has been extinguished,
prices are raised to profitable level
6.4.15 Perceived value pricing:

It is called as value- oriented pricing. Where seller attempts to set the price
at the level that the intended buyers value the product. If perceived value is
high, the retailer can charge the premium price of the product. e.g. FAB
INDIA , KALA MANDIR, EMPORIUM .
6.4.16 Fixed and variable pricing:

 Fixed: Firm or Seller fix the price by examining the situation and
determine an appropriate price. e.g. fixed rate for trousers
 Variable: A form of pricing characterized by individual bargaining &
negotiation products. e.g, unbranded garments, vegetables.
DISCOUNT RETAIL
The secret to the discount format is sourcing while in most international
discounting formats the merchandise categories are quite stable; it is the way
in which the retailer sources these that make the difference. At BIG BAZZAR
the promoters clearly realized that they did not have product expertise in all
the merchandise categories that the offered. We plan to offer an apparel
store, a footwear store, a utensil store, a Photoshop, a tailor, a pharmacy, a
grocery all under one roof, at discount prices says Kishore Biyani, MD
Pantaloon Retails.
So the company adopted a consolidator concept. It has chosen partners who
are major national players in these categories and thus have the capacity to
buy in bulk. These players are given space in the store, with a clear
understanding that they have to provide the best deal in town. In some cases
the store has tied up with regional players like “Shop„nsave” and Vitan in
Hyderabad and Bangalore to run the grocery section.
The terms tend to be favorable to both parties. There are no rentals,
electricity and air-conditioning charges for the consolidator, leading to faster
break even. The margins are shared by Big Bazaar, and the consolidator in
predetermined ratio.
In categories like pharmacy and FMCG, where discounting is not possible, it
is cross subsidized by other categories.
th
(Source: The Economic Times, 12 December, 2004)


a) Benefits of EDLP 1) Value oriented pricing
b) Loss leader pricing 2) Better inventory management
c) Skimming pricing 3) Low initial entry price
d) Penetration pricing 4) Sell at lower price to attract customer
e) Pre-emptive pricing 5) Discourage potential new entrants
f) Perceived value pricing 6) Relatively high pricing.
6.5 Legal issues in retail pricing

Up to December 1990, producers of packaged goods in India had the option
to print the price of the offerings on the package in two distinct ways:
1. Retail price Rs……..(local taxes extra) and
2. Maximum retail price Rs……(inclusive of all taxes)
In the year 1990, the Ministry of Civil Supplies through its executive wing,
the Department of Legal Metrology, directed change in Standards of
Weights and Measures Act (Packaged Commodities Rules) to make all
producers pint the maximum retail price inclusive of all taxes.
Legal issues affecting the retail environment can be broadly divided into two.
One that affects the buying of merchandise, such as price discrimination
and vertical pricing fixing, and the other that affects the customer (horizontal
price fixing, predatory pricing and bait and switch tactics).
Price discrimination refers to
 Vendor selling the same product to two or more customers at different
price
 This may be between the retailer and the customers or between the
retailer and his vendor.
Manufacturer can charge different prices to different retailers under the
following circumstances, generally not illegal are:
 Differences due to cost of manufacture
 Quantity sale / bulk sale
 Generally economical to deliver goods in large quantities

 Trade discount:
It is the abatement given in suggested prices to customers in different
lines of trade (i:e wholesalers and retailers). Wholesalers often receive
lower prices for the same quantity purchased. This is legal because
wholesalers perform more functions such as storing and transporting
goods than retailers. Essentially, the manufacturers pay wholesalers for
servicing the retailers.
 Changing conditions:
Another exception is when the price difference is due to changing
conditions affecting the market or for the marketability of the goods
concerned. Here products sold at different geographical locations are
due to changes in conditions in terms of tax structure for a particular
geographical location, competition, economic development of market
etc.,
 Another exception which indicates the legal aspect of pricing is the
vertical price fixing. It involves agreements to fix prices between parties
at different levels of the same marketing channel i:e retailers and
wholesalers. The agreements are usually to set prices at the
manufacturer‟s suggested retail price. Pricing either above or below
MRP is often a source of conflict.
 Earlier, it was not allowed to sell below MRP to protect small retailers. It
was believed that large chain retailers can sell below MRP because of
their size advantages and this would force small retailers out of
business. However, now it is allowed to sell below MRP. However,
retailers cannot sell above the MRP as it is not permissible under the
existing law.
Some examples of illegal issues in retail pricing are:
 Horizontal price fixing is always illegal since it suppresses competition
and often raises the cost to the consumers. It involves agreements
between retailers that are in direct competition with one another to have
the same prices. Suppose there are three stores in a locality. Two of
them join hands and start selling groceries at very low prices as loss
leaders. If the third store is selling only groceries, he would lose sales
and would have to shut down the shop.

 Predatory pricing is establishing merchandise prices to drive competition

away from the market place and it is illegal. A retailer can however, sell
the same merchandise at different prices at different geographical
locations if the costs of sale or delivery are different.

State whether the following statements are TRUE or FLASE:
1. Retail Price includes all taxes.
2. Price discrimination refers to customers preferring fixed price.
3. Manufacturer charge different prices which to different retailers which
are legal.
4. Predatory pricing is to establish relationship with competitors.
6.6 Financial objectives of merchandising

Financial decisions also form an integral component of a retailer‟s pricing
strategy, when he is going through the process of developing a strategic
retail plan. While working out the strategic retail planning process certain
steps have to be carried out. These include developing a mission statement
and setting objectives, analysis opportunities and threats in retail
environment, identify opportunities for increasing retail sales, evaluate
opportunities to gain competitive advantage, establish specific objectives
and allocate resources, work out a retail mix to implement strategy and
evaluate performance and make adjustments.
Typically the performance of the retailer is obtained by looking into the
financial criteria such as return on investment, sales or profits, shelf space
selling and their unique capabilities. Once this information is obtained, the
retailer can evaluate the alternatives using financial theory and they work at
strategic methods which help build a sustainable competitive advantage.
Ultimately, it will be the retailer‟s financial strategy which will affect the
financial performance of a firm.
Merchandise planning consists of establishing objectives and devising plans
for obtaining these objectives. The objectives range from the corporate
strategic objectives to the micro-level objectives regarding the merchandise
assortment, stocking and re-order.

Merchandise control involves designing the policies and procedures for

collecting and analysing merchandise data in order to determine whether
the stated objectives have been achieved. Planning is the process of
establishing performance guidelines, whereas control is the process of
checking how well the management is following those guidelines.
Merchandise budget is a financial tool for planning and controlling the
retailers‟ merchandise inventory investment. While the planning and control
of the merchandise mix is directed at meeting the customer oriented
objectives, equally important in merchandising process is the firm‟s financial
objective of profitability. To ensure profitable operations, the retailer must
use a merchandise budget in which sales volumes, stock levels, retail
reductions, purchase orders and profit, margins are planned and controlled.
Merchandise management involves decisions related to inventory, which in
turn is the largest investment for any retailer. In this context, the best
merchandise performance measure is Gross Margin Return On Inventory
(GMROI).
GMORI comprises a single measure for both inventory productivity and
profit. The formula is as follows:
(Gross margin / Net sales) X (Net sales / Average inventory at cost) =
(Gross margin / Average inventory at cost)
GMORI is used to evaluate and control the performance of departments,
merchandise, category, vendor lines etc. it is also useful for management in
evaluating the buyer‟s performance on the basis of gross margin ratio and
inventory turnover ratio.
6.7 Summary
Pricing is a critical decision for retailer and influences the effective
realisation of all other retail marketing goals. Various consumers, supplier,
government and competition related factors affect the pricing decision of the
retailer, who can use various pricing approaches. The most popular ones
are cost oriented, competition oriented and demand oriented. Based on the
basic pricing strategy, a retailer can design his pricing method.
Pricing strategy can be a combination of some or all of the methods of
pricing like EDLP, high-low pricing, loss leader pricing, price lining,

psychological pricing, bundled pricing, fixed and variable pricing etc,. Tactics
like coupons and rebates can be used to fine tune the base price. The role
of pricing in the context of private label brands is also discussed, in India, as
elsewhere, private labels are driving growth and market penetration across
various categories.
To set retail prices, it is important to understand the various concepts and
methods to calculate and set the prices. Prices can be fixed on cost-based,
competition based or demand methods. A price plan must be integrated and
responsive and provide a good value to customers.

1. Discuss determinants of retail pricing.
2. What are the elements involved in pricing setting methods.
3. EDLP has been popularized by large retailers. Do you agree? Explain its
benefits.
4. What are the problems a firm faces in skimming strategy?
5. Explain financial objectives of merchandising.
6.9 Answers to SAQs & TQs

SAQ 1
1) Margin of product & cost
2) Influential
3) Behaviour of customer
SAQ 2
1. TRUE
2. FALSE
3. FALSE
SAQ 3
a. 2
b. 4
c. 6
d. 3
e. 5
f. 1

SAQ 4
1. FALSE
2. FALSE
3. TRUE
4. FALSE
Answers to Terminal questions:

1. Refer 6.2
2. Refer 6.4
3. Refer 6.4:1
4. Refer 6.4:4
5. Refer 6.6

Unit 7 Retail Control

Structure
7.1 Introduction
Objectives
7.2 Retail Merchandising Controlling
7.2.1 Controlling Merchandise Variety
7.2.2 Controlling merchandise assortment and support
7.2.3 Meaning of budget
7.2.4 Meaning of Budgetary Control:
7.2.4.1 Characteristics of a budget
7.2.4.2 Advantages of budgeting and budgetary control
7.2.4.3 Problems in budgeting
7.2.4.4 Budget preparations
7.3 Retail Budget Management
7.3.1 Zero base budgeting (ZBB)
7.4 Accounting for retailing
7.4.1 The Cost method
7.4.2 The nature of inventory and retailing operations
7.4.3 Accounting for purchases of inventory and cost of sales under
both the perpetual and periodic inventory systems under COST
METHOD
7.4.4 The Retail methods
7.5 Retail Audit:
7.6 Summary
7.1 Introduction
Success in the retailing industry is largely dependent upon the extent to
which merchandise offered is matched with consumer demands. Human
judgments are critical in this process. First targeted customer must be

identified and then the appropriate merchandise purchased so that

corporate objectives are achieved. The selection of merchandise and its
subsequent control is therefore critical.
A retailer may plan his strategies both financial and non-financial within the
organisation which might cover a future period as short as a day or a week
(e.g. a work schedule), or might cover a long-term future of up to several
years ahead (e.g. a strategic plan). Plans might also consist of financial
data, non-financial data, or a mixture of both.
The type of plans made by these retail outlets will vary according to what
activities they want to carry on, their size and the attitude of retailers
towards planning. Most retail outlets, however, prepare an annual budget as
part of their planning system. An annual budget, usually subdivided into
shorter time periods (months or quarters), sets out the plans for sales, costs
and profits for the period in the case of a company, or plans for income and
expenditure in the case of not-for-profit organisations.
Objectives:
 To learn different types of budgetary control methods available for
retailers
 To learn the importance of budgeting
 To learn different methods of accounting system
 To understand the role of retail audit as an important retail control tool
 To bring an overview of the advantages and disadvantages of
budgeting.
7.2 Retail Merchandising Controlling

Retail Merchandising is the process of developing, securing, pricing,
supporting and communicating the retailer’s merchandise offering. It means
offering the right product at the right time at the right price with the right
appeal.
Retail merchandising requires management & control of the merchandise
budget which includes the following activities:
1. Planning And Controlling Retail Sales
2. Planning And Controlling Inventory Levels
3. Planning And Controlling Retail Reductions

4. Planning And Controlling Purchases

5. Planning And Controlling Profit Margins
Retail Merchandise control involves various planning and Controlling
Product Lines. Retailers use many factors to evaluate product lines.
1. The compatibility among product lines must exercise controlling
measures in the following forms:
 Product substitutes
 Product complements
 Unrelated products
2. The physical attributes of each product line can be controlled through:
 Product bulk
 Product standardization
 Product service levels
 Product selling methods
3. The product lines’ potential profitability can be controlled through:
 Direct and indirect contribution of products to profitability
 Calculations of gross margin %
4. The role branding plays in the success of the product line can be
effectively managed and controlled. Otherwise, over branding or under
branding of a particular product line or product lines can lead to negative
brand image of the retail outlet. This can be ensured through:
 How brands can distinguish a retailer from competitors
 How brands can build store loyalty
 The advantages and disadvantages of offering different types of
brands – no names, vendor brands, store brands (private labels) and
licensed merchandise
5. The age of each product within the product lifecycle to control the
deviations from each product’s contribution towards the profitability of
the retail outlet. Control can be exercised through proper monitoring of
the following:
 What stage a product is in to judge future sales potential
 The number of products offered at different stages
6. The fashionable nature of each product line must Consider:
 Use of unique designer fashions as part of the store’s strategy

 The above average risk of fashion merchandise (But also note: high
margin items with above average profitability)
7. The market appropriateness of each product line can be controlled
through the following strategies:
 How well the product matches consumption patterns and buying
needs of targeted consumers
 The relative advantage, affinity, trialability, observability and
complexity of new product introductions
 Market trends – provide products the market wants
8. The impact of lifestyle on product line acceptance from consumers
perspective can be controlled through conducting:
 Targeted customers’ activities, interests, and opinions
 Research to find out match between consumers’ lifestyle and
retailer’s image
 Promotional campaigns to know usefulness of trade shows
 Survey to identify product lines for targeted consumers’ lifestyles
9. The competitive threat facing each product can be controlled through:
 Designing competitive conditions under which the product line is
available – intensive, selective or exclusive distribution
 The product line availability to direct (intra type) competitors or
indirect (inter type) competitors, or both
10. The conditions under which each product line will be procurable can be
controlled through:
 Availability and reliability of various suppliers
 Terms and conditions under which the product will be made
available
7.2.1 Controlling Merchandise Variety:

It is an art and a science No rules for what should be included in the
merchandise mix and what should be excluded can be so easily spelled out.
Two useful management methods of controlling retail merchandise variety
are:
I. Category Management:
Here, each product managed as a business unit at the store level

II. ABC Analysis:

Here, each product line is rank ordered based on performance levels
The goal of Retail merchandise controlling is

 To ensure that product choice meets targeted consumer needs
 To carefully plan the number of units to have on hand to meet the
expected sales for the brand, size, color combinations
 To develop merchandise lists in the form of
1. Basic Stock List (staple items)
2. Model Stock List (fashion items)
3. Never Out List (key items and best sellers)
7.2.2 Controlling merchandise assortment and support:

It involves monitoring and adjusting the types of product lines that are added
and dropped from the merchandise mix. Two widely used methods to
control assortment and support are:
1. Inventory turnover:
It is the rate at which the retailer depletes and replenishes stock
2. Open-to-buy:
It is the amount of new merchandise a retailer can buy during a specific time
period without exceeding planned purchases for the period.
7.2.3 Meaning of budget:

Budget is a formal statement of the financial resources set aside for carrying
out specific activities in a given period of time. It helps to co-ordinate the
activities of the organisation. An example would be an advertising budget or
sales force budget of a retail outlet.
7.2.4 Meaning of Budgetary Control:

Budgetary control is defined by the Institute of Cost and Management
Accountants (CIMA) as “The establishment of budgets relating the
responsibilities of executives to the requirements of a policy, and the
continuous comparison of actual with budgeted results, either to secure by
individual action the objective of that policy, or to provide a basis for its
revision".

Budgeting is a plan, not a forecast. A forecast is an attempt to predict

what will happen, if events continue to develop the way they appear to be
doing at the moment. A budget is a plan of what management intends
should happen in the future. Measures might have to be taken to ensure
that budgeted targets are achieved, and in this respect, a budget forces
management into decision-making and taking action.
It is a financial plan. When an organization prepares a budget, it will have
to make some plans of a non-financial nature. Preparing a budget for labour
involves planning the number of employees required, or the number of
labour hours of work to be performed. However, finance provides a
‘common language’ for all the component elements of a budget, allowing
non-financial plans to be expressed in a financial form. A labour hours
budget, for example, can be converted into a financial plan by applying a
rate of pay per hour to the budgeted number of labour hours.
A budget is a co-coordinating plan for an entire organisation. Each part of
the organisation has its own budget, but the constituent budgets come
together to create a unified ‘master budget’. A master budget can be
summarized in a budgeted profit and loss account, a budgeted balance
sheet for the end of the period, and a cash budget. Since a budget is a
financial plan, its preparation inevitably involves accountants. The
accounting methods used to put the master budget together are similar to
those used for measuring historical profits, except that expected costs and
revenues are used, rather than actual costs and revenues. It is usual to
recognise variable costs and fixed costs when preparing cost budgets.
7.2.4.1Characteristics of a budget:
A good budget is characterised by the following:
 Participation: Involving as many people as possible in drawing up a
budget.
 Comprehensiveness: embrace the whole organisation.
 Standards: base it on established standards of performance.
 Flexibility: allow for changing circumstances.
 Feedback: constantly monitor performance.
 Analysis of costs and revenues: this can be done on the basis of
product lines, departments or cost centres.

7.2.4.2 Advantages of budgeting and budgetary control:

There are a number of advantages a retailer can enjoy through budgeting
and budgetary control:
1. It compels the retailer to think about the future, which is probably the
most important feature of a budgetary planning and control system. It
forces him look ahead, to set out detailed plans for achieving the targets,
to anticipate and give the organisation purpose and direction.
2. It helps in promoting coordination and communication between various
suppliers and agents involved in the retail channels.
3. It clearly defines areas of responsibility of the retailer to achieve the set
targets through personal control.
4. It provides a basis for performance of the retail outlet. A budget is
basically a ardstick against which actual performance is measured and
assessed. Control is provided by comparisons of actual results against
budget plan. Departures from budget can then be investigated and the
reasons for the differences can be divided into controllable and non-
controllable factors.
5. It enables remedial action to be taken as variances emerge.
6. It motivates retailer by participating in the setting of budgets and also
gives him an opportunity to involve himself in the business completely
and achieve the targets at the earliest.
7. It helps in improving allocation of financial resources among various
merchandise variety.
7.2.4.3 Problems in budgeting:
Whilst budgets may be an essential part of any marketing activity they do
have a number of disadvantages, particularly in perception terms.
1. Budgets can be seen as pressure devices imposed, thus resulting in:
a) Bad labour relations
b) inaccurate record-keeping.
2. It is difficult to reconcile personal/individual and corporate goals.
3. A retailer may overestimate costs and may lead to over stocking or
under stocking.
7.2.4.4 Budget preparations:
Firstly, determine the principal budget factor. This is also known as the key

budget factor or limiting budget factor and is the factor which will limit the
activities of an undertaking. A retailer may have to prepare his sales budget
for the year in order to forecast his activities and accordingly can plan for to
meet the requirements of the future.
Sales budget: This involves a realistic sales forecast. This is prepared in
units of each product and also in sales value. Methods of sales forecasting
include:
Sales force opinions
market research
statistical methods (correlation analysis and examination of trends)
mathematical models.
In using these techniques consider:
pricing policy
general economic and political conditions
competition
consumers' income and tastes
advertising and other sales promotion techniques
after sales service
credit terms offered.

State Whether the following statements are True or False :
1. Sales Budget do not involve a realistic sales forecast
2. The most important feature of a budgetary planning and control system,
is It forces retailers to think of future.
3. A Good budget refers to retailer’s capacity to invest.
4. Budgeting is a plan, not a forecast.
5. Whilst budgets may be an essential part of any marketing activity they
do have a number of disadvantages, particularly in perception terms .
7.3 Retail Budget Management

It is the financial management tool used to plan and control the total amount
(in rupee value) of inventory carried in stock at any time. It determines how

much a retailer should invest in inventory during a specified period. It

considers:
1. Calculating monthly sales index to project next year’s sales.
2. Using Basic Stock Model
3. Using Stock/Sales Ratio Method
4. Calculating planned monthly purchases and open-to-buy.
7.3.1 Zero base budgeting (ZBB)

After a budgeting system has been in operation for some time, there is a
tendency for next year's budget to be justified by reference to the actual
levels being achieved at present. In fact this is part of the financial analysis
discussed so far, but the proper analysis process takes into account all the
changes which should affect the future activities of the company. Even using
such an analytical base, some businesses find that historical comparisons,
and particularly the current level of constraints on resources, can inhibit
really innovative changes in budgets. This can cause a severe handicap for
the business because the budget should be the first year of the long range
plan. Thus, if changes are not started in the budget period, it will be difficult
for the business to make the progress necessary to achieve longer term
objectives.
One way of breaking out of this cyclical budgeting problem is to go back to
basics and develop the budget from an assumption of no existing resources
(that is, a zero base). This means all resources will have to be justified and
the chosen way of achieving any specified objectives will have to be
compared with the al if changes are not started in the budget period, it will
be difficult for the business to make the progress necessary to achieve
longer term objectives. Alternatives. For example, in the sales area, the
current existing field sales force will be ignored, and the optimum way of
achieving the sales objectives in that particular market for the particular
goods or services should be developed. This might not include any field
sales force, or a different-sized team, and the company then has to plan
how to implement this new strategy.
The obvious problem of this zero-base budgeting process is the massive
amount of managerial time needed to carry out the exercise. Hence, some
companies carry out the full process every five years, but in that year the
business can almost grind to a halt. Thus, an alternative way is to look in
depth at one area of the business each year on a rolling basis, so that each
sector does a zero base budget every five years or so.

1. Calculating monthly sales index to project next year’s sales is retail
_________________
2. The obvious problem of this zero-base budgeting process
is_______________ of managerial time needed to carry out the
exercise.
3. The optimum way of achieving the sales objectives is to focus on
_______________ for the particular goods or services .
4. Financial management tool used to plan and control the
_________________________ of inventory carried in stock at any time.
5. Changes to be started in the budget period, it will be difficult to achieve
________________________.
7.4 Accounting for Retailing

Though financial merchandise management, a retailer specifies which
products are to be purchased, when products are to be purchased, and how
much quantity are to purchased. Rupee control involves planning and
monitoring a retailer’s financial investment in merchandise over a stated
period. Unit control relates to the quantities of merchandise a retailer
handles during a stated [period.
A well structured financial merchandise plans offer these benefits:
 The value and amount of inventory stored in a given period are
described. Hence, stock is balanced and fewer markdowns may be
necessary.
 The amount of merchandise in terms of investment a buyer can
purchase during a given period is stipulated. This gives a buyer
direction.
 The inventory investment in relation to planned and actual revenues is
studied. This improves the return on investment.
 Stock shortages are determined and book keeping errors and pilferage
are uncovered.

 Slow moving items are classified

 A proper balance between inventory and out-of-stock conditions is
maintained.
Retail inventory accountings systems can be complex because they entail a
great deal of data due to number of items sold in the retail outlets are large
in number. A typical retailer’s rupee control system must provide such data
as the sales and purchases made by that firm during a budget period, the
value of beginning and ending inventory, and merchandise shortages.
Two inventory accounting systems are available for retailers. They are:
1. The Cost accounting system values merchandise at cost plus inbound
transportation charges.
2. The Retail accounting system values merchandise at current retail
prices.
7.4.1 The Cost method:

With the cost method of accounting, the cost to the retailer of each item is
recorded on an accounting sheet is coded on a price tag or merchandise
container. As a physical inventory is done, item costs must be learned, the
quantity of every item in stock counted, and the total inventory value at cost
calculated.
A retailer can use the cost method as it does physical or book inventories. A
physical inventory means an actual merchandise count; a book inventory
relies on record keeping.
Under the periodic inventory system, the determination of cost of sales
involves many accounts and is rather complex. Reproduce from memory,
the cost incurred and sales done for a particular day is not an easy job.
Retail businesses have to tailor their accounting systems to ensure that
adequate records of sales transactions are maintained and outlays are kept.
Accounts used with the perpetual inventory system are different from those
used with the periodic inventory system.
Cost based inventory system has significant disadvantages:
 It requires that a cost be assigned to each item of the stock. When
merchandise cost change, cost based valuation systems does work for
firms with high inventory turnover, unlimited assortments and low
average prices.
 Does not reflect on style changes, end-of-season sales, and sudden

surges of demand. Thus, ending inventory value based on merchandise
cost may not reflect its actual worth.
7.4.2 The nature of inventory and retailing operations:

A retailing business is one that acquires goods for resale at either the
wholesale or retail level. The inventory of such a business is commonly
referred to as stock or inventory. This implies that these goods will be sold in
essentially the same form as they were acquired, and not converted into
other products as in a manufacturing entity. ‘Stock’ is a common term used
to describe inventory.
The operating cycle for a retail business is the average length of time it
takes to acquire inventory, sell the inventory and collect the cash from the
customer. Accounting for the inventory involves determining the cost of
inventory to be deducted from sales as the cost of sales, and the cost of
inventory to be carried forward in the balance sheet as an asset.
Because inventory is one of the most active assets in a retail business’s
operations and because of the large amount of money involved in these
activities, control and safeguarding of inventories is essential for efficient
and profitable operation of the retail outlet.
The basic format of an income statement for retail businesses is as
follows:
The income statement for a retail business differs in several ways from that
of a service business and is illustrated in its simplest form here.
Service business Retail business

Revenue Rs. XXX Sales revenue Rs. XXX
Less Expenses XXX Less Cost of sales XXX
Profit XX Gross profit XX
Less Expenses XX
Profit XX
A service business’s income statement usually involves a single step

between revenue and profit. The income statement of a retail business,
however, involves multiple steps in the determination of profit.

Here, the cost of sales includes expenses like:

 Beginning inventory at cost(opening stock)
 Purchases at cost
 Transportation charges
 Merchandise available for sale
 Ending inventory (Closing stock)
Expenses include:
 Salaries for employees
 Advertising
 Rent
 Other miscellaneous expenses
7.4.3 Accounting for purchases of inventory and cost of sales under

both the perpetual and periodic inventory systems under COST
METHOD:
A perpetual inventory system involves keeping a current and continuous
record of all inventory transactions on a separate inventory card or computer
record for each type of inventory held. It provides more timely information to
management for use in controlling and planning for inventory. It is an
expensive system because of the detailed record keeping it requires.
However, computer systems have gone a long way towards overcoming the
cost problems, especially through the use of optical scan cash registers
which read product bar codes. Hence it is the most common system in
business use.
Whenever goods are purchased, sold, returned to the supplier or returned
by the customer, the inventory card or computer record is used. When
goods are sold under the perpetual system, two entries are made – the
sales entry, which records revenue at the selling price i:e collections, and a
second entry that records the decrease in inventory (and the increase in
cost of sales) at cost. In other words, sales of goods must be recorded at
selling price and at cost price.
Perpetual systems provide more timely information to retailer for planning
and controlling inventory. However, in the absence of computer assistance
they are time consuming and costly to maintain. A perpetual inventory
system must be supplemented at least once a year with a physical count to

verify the accuracy of the records. Discrepancies are accounted for as

Inventory Shortage Expense. Any material discrepancies should be
investigated.
Retailers who sell a wide variety of items with a low cost per unit typically
use the Periodic inventory system. In this system the Inventory account is
used (changed) only at the end of the accounting period when a physical
count of inventory items is done. At all other times and for all transactions
involving inventory during the accounting period, the Inventory account is
not used. Remember that all accounts used to calculate cost of sales under
the periodic system will be extended to the income statement. This is
because cost of sales is an expense, and expenses are found in the income
statement. The accounts involved are:
(a) Inventory (beginning balance as per adjusted trial balance)
(b) Purchases
(c) Freight Inwards
(d) Purchases Returns and Allowances
(e) Discount Received
(f) Inventory (ending balance as per physical count).
The ending Inventory balance is also recorded in the balance sheet
columns, since it is the current amount of inventory on hand. In terms of
closing accounts, a retailer using the periodic inventory system has extra
accounts to close. Purchases, Freight Inwards, Purchases Returns and
Allowances, and Discount Received must all be closed to Profit and Loss
Summary. The other adjusting/closing entry that must be made is to debit
Profit and Loss Summary for the cost of beginning inventory and to credit
Profit and Loss Summary for the ending inventory balance (as per physical
count).
Familiarization with the following relationships will help us to understand the
characteristics of the periodic inventory system:
1. Net sales revenue = Sales revenue – Sales returns and allowances
2. Gross profit = Net sales revenue – Cost of sales
3. Cost of sales = Cost of beginning inventory + Cost of net purchases –
Cost of ending inventory
4. Cost of net purchases = Cost of purchases + Freight inwards –
Purchases returns and allowances.

When comparing a perpetual inventory system with a periodic inventory

system, two basic differences emerge. With a perpetual system, current and
continuous records of all inventory transactions are maintained for each
inventory item at cost. With the periodic system, current and continuous
records of inventory transactions are not maintained. Accurate inventory
amounts can be determined only when a physical inventory count is taken.
Note the two possible accounting treatments of discount received and
discount allowed. Discount received can be treated as an item of income or
as a deduction accounting for retailing from cost of purchases. Discount
allowed can be treated as a financial expense or as a deduction from sales
revenue.
A perpetual inventory system avoids the problem of infrequent financial
analysis by keeping a running total of the value of all inventories on hand at
cost at a given time. End-of-the month inventory values can be computed
without a physical inventory and frequent financial statements can be
prepared.
FIFO and LIFO are the two ways to value inventory. The FIFO i.e. First-in-
First-out method logically assumes old merchandise is sold first, while
newer items remain in inventory. The LIFO i.e. Last-in-First-out method
assumes new merchandise is sold first while older stock remains in the
inventory.
7.4.4 The Retail method:

With the retail method of accounting, closing inventory value is determined
by calculating the average relationship between cost and retail values of
merchandise available for sale during a period. Though the retail method
overcomes the disadvantages of the cost method, it requires detailed
records and is more complex since ending inventory is first valued in retail
money value and then converted to compute gross margin.
Three basic steps to determine ending inventory value by the retail method
are:
1. calculating the cost complement
2. calculating deductions from retail value
3. converting retail inventory value to cost.

Advantages of Retail method:

 Valuation errors are reduced when conducting a physical inventory since
merchandise value is recorded at retail and costs do not have to
decoded.
 Because the process is simpler, a physical inventory can be completed
more often. This lets a firm a more aware of slow moving items and
stock shortages.
 It helps in determining insurance coverage and settles insurance claims.
The retail method is accepted in insurance claims.
7.5 Retail Audit

After a retail strategy is devised and enacted, it must be continuously
assessed and necessary adjustments made when ever necessary. In this
direction, retail audits help a great way to retailers in order to devise a
continuously and on going evaluation of their performance.
A retail audit is a systematic examination and evaluation of a retail firm’s
total retailing efforts or a specific aspect of it.
The purpose of an audit is to study what a retailer is presently doing,
appraise performance and make necessary recommendations for the future.
Goals are reviewed and evaluated for their clarity, consistency and
appropriateness. The strategy and the methods for deriving it are analysed.
Good auditing includes the following elements:
 Audits are conducted regularly.
 In depth analysis is involved.
 Data are analysed systematically.
 An open-minded, unbiased perspective is maintained.
 Open to recommendations made in the audit report.
Undertaking an Audit / Steps in Retail audit:
There are six steps in retail auditing. They are:
1. Determine who does an audit
2. Decide when and how often an audit is done
3. Establish the areas to be audited
4. Develop audit forms

5. Conduct the audit

6. Report to retailer for further recommendations

1. Purpose of Audit a) Used in selling low cost per unit items
2. Advantages of retail method b) What a retailers presently doing
3. First-in-first-out c) Valuation of errors reduced
4. Net Sales revenue d) Old merchandise is sold first
5. Period Inventory system e) Sales revenues minus sales returns
and allowances
7.6 Summary
An important aspect of management accounting is providing information
about the future, for decision-making. A budget is a plan, not a forecast.
Most retailers prepare a budget, divided into shorter ‘control periods’ of a
month or a quarter. The accounting methods used for budgeting are similar
to those used for measuring profits. Either absorption costing or marginal
costing is used, although marginal costing is simpler and less time-
consuming. Cost budgets should recognize the distinction between fixed
costs and variable costs.
A budgeted profit and loss account and end-of-period balance sheet can be
constructed from the individual constituent budgets, such as the sales
budget and production budget. Companies producing standard products will
use a cost card for each product, for preparing budgets for production costs,
direct materials usage and costs, direct labour hours and cost, and variable
overheads.
Once a budget has been adopted, actual results during the budget period
can be compared against budgeted results. Differences (variances) can be
measured, and reported where necessary, for management control action.
Comparing actual against budget with a view to taking any control action
that might be appropriate is known as budgetary control.
A retail strategy must be regularly monitored, evaluated and fine-tuned and
revised. The retail audit is one way to do this. It is a systematic, through and
unbiased review and appraisal of retail performance.5 1T37


1. Retailers use many factors to evaluate product lines. Discuss
2. Explain Two useful management methods of controlling retail
merchandise variety.
3. Explain the meaning of Budgetary Control.
4. Discuss Zero Base Budgeting .
5. What do you mean by Cost Method ?
SAQ I
1. False 2. True. 3. False. 4. True 5. True
SAQ II
1. Retail Budget Management
2. Massive amount
3. Particular Market
4. Total amount in rupee value
5. Long term objectives
SAQ III
1-b, 2-c, 3-d, 4-e, and 5-a

2. Refer to 7.1:1
3. Refer to 7.1:4
4. Refer to 7.2:1
5. Refer to 7.3:1

Unit 8 Information Technology and Retailing

Structure
8.1 Introduction
Objectives
8.2 Retail Information System
8. 3 Data Mining in Retailing
8.3:1 Gathering information through UPC and EDI
8.4 Data Warehousing
8.5 Business Intelligence (BI) in Retail Industry
8.6 Summary
8.1 Introduction
The recent boom in Information Technology has opened the eyes of many
industries sectors and one among them is the retail industry. IT has made
the retailers of today to realize that in order to compete with the international
standards and processes, it is very necessary to invest in information
technology. Retailers are investing in extensive computers and high speed
communications network which collect and exchange data between stores,
distribution centers, suppliers and head offices. It is necessary to have a
quick data communications for effective application of IT system to retailing.
A large leading retail consultancy had rightly said in 1995, „in the next ten
years, information technology will become a virtual prerequisite to
successful competition. Retail supplier partnerships will depend on
technology, substituting information for inventory in the pipeline to reduce
costs while improving productivity. Retailers will relay on technology to
establish links with customers through electronic retailing and customer
relationship marketing.

Objectives:
 To discuss the role of IT in retailing industry
 To look at the retail information system, its components and the recent
advances in such systems
 To understand the significance of data warehousing
 To learn about data mining and retailing
 To know the management of business intelligence for retail sector with
the help of information technology
8.2 Retail Information System

Information Technology or IT refers tot the technology of the production,
storage and communication of information using computers and
microelectronics.
IT is concerned about both the equipment used to produce, store and
communicate information as well as the application aspect of IT. Usually IT
is referred to in terms of hardware and software or communications. But
here the context of IT will be with reference to how it can be used to help
solve retail business problems.
For a retailer, data gathering and analysis of consumers, competitors,
suppliers or market etc should not be regarded as a one-shot resolution of a
single issue. They should be part of an ongoing, integrated process. A retail
information system anticipates the information needs of retailers, collects,
organizes and stores relevant data on a continuous basis and directs the
flow of information to the proper decision makers.
A general retail information system is portrait below:

As shown in the above picture, the retail information system starts or begins
with its business philosophy and objectives, which are influenced by
environmental factors such as competitors and economy etc, the philosophy
and goals provide broad guidelines that direct strategic planning. Some
aspects of plans are routine and need little re-evaluation. Others are non-
routine and need evolution each time they arise.
Once the strategy is outlined, the data needed to enact it are collected,
analyzed and interpreted. If data already exist, they are retrieved from the
files. When new data are acquired, files are updated. All of this occurs in the
information control center. Based on data in the control center, decisions are
enacted.
Performance results are fed back to the information control center and
compared with pre-set criteria. Data are retrieved from files or further data
are collected. Routine adjustments are made promptly. Regular reports and
exception reports are given to the right persons. Sometimes individuals may
react in away that affect the overall philosophy or goals.
All types of data should be stored in the control center for future and
ongoing use, and the control center should be integrated with the firm‟s
short-and long-run plans and operations. Information should not be gathered
sporadically and haphazardly but systematically.
A good RIS has several strengths. Information gathering is organized and
company focused. Data are regularly gathered and stored so that
opportunities are foreseen and crises averted. Strategic elements can be
coordinated. New strategies can be devised more quickly. Quantitative
results are accessible, and cost benefit analysis can be done. Information is
routed to the right personnel. However, deploying an RIS may require high
initial time and labour costs and complex decisions may be needed to set up
such a system.
In building a retail information system, a number of decisions have to be
made. These decisions will answer the following questions:
1. How active a role should the RIS have?
Will it proactively search for and distribute any relevant information or will it
reactively respond to requests from others when problems arise? The best
systems are more proactive, since they anticipate events.

2. Should an RIS be managed internally or be outsourced?

Although many retailers perform R*IS functions, some use outside
specialists. Either style can work, as long as the RIS is guided by the
retailer‟s information needs. Several firms have their own RIS and use
outside firms for specific tasks such as conducting surveys or managing
networks.
3. How much should an RIS cost?
Retailers typically spend 0.5 to 1.5% of their sales on an RIS. This lags
behind most of the suppliers from which retailers buy goods and services.
4. How technology driven should an RIS be?
Although retailers can gather data from trade associations, surveys and so
forth, more firms now rely on technology to drive the information process.
With the advent of personal computers, in expensive networks and low-
priced software, technology is easy to use. Even a neighborhood deli can
generate sales data by product and offer specials on slow-sellers.
5. How much data are enough?
The purpose on an RIS is to provide enough information, on am regular
basis, for a retailer to make the proper strategy choices, not to overwhelm
retailers. This means a balancing act between too little information and
information overload. To avoid overload, data should be carefully edited to
eliminate redundancies.
6. How should data be disseminated throughout the firm?
This requires decisions as to who receives various reports the frequency of
data distribution and access to data bases. When a firm has multiple
divisions or operates in several regions, information access and distribution
must be coordinated.
7. How should data be stored for future use?
Relevant data should be stored in a manner that makes information retrieval
easy and allows for adequate longitudinal analysis.
Larger retailers tend to have a Chief Information Officer overseeing their
RIS. Information systems departments often have formal, written annual
plans. Computers are used by most companies that conduct information
systems analysis and many firms use he Web for some RIS functions.
Growth in the use of retail information systems is expected. There are many

differences in information systems among retailers, on the basis of revenues

and retail format.
25years back, most computerized retail systems were used only to reduce
cashier errors and improve inventory control. Today, they often form the
foundation for a retail information system and are used in surveys, ordering,
merchandise transfers between stores and other tasks. These activities are
conducted by both small and large retailers. The vast majority of small and
medium retailers as well as large retailers have computerized financial
management systems analyse sales electronically and use computerized
inventory management systems.
Some of the large retail houses use Retail Pro management information
software to build their retailing strategy. This software is used at stores
around the world. Although popular with large retailers, Retail Pro software
also has an appeal among smaller retailers due to flexible pricing based on
number of users and stores, they type of hardware and so forth.
Retail Pro is the leading point-of-sale and inventory management software
used by specialty retailers worldwide. Over 10,000 retail companies in US
have purchased Retail Pro since 1986. Retailers are experiencing the
benefits of this on a daily basis, such as a best of breed point of sale
system, sophisticated business intelligence tools for stock replenishment,
and an easy to use fully integrated report designer module.
Retail pro is currently being used in 73 countries and has been translated
into 18 different languages. Retail Pro excels in multi-store management,
customer tracking and is easy to use. With this, retailers have been able to
take control of their inventory, improve their cash flow, and save time and
money. With Retail Pro decision support system one can avail the following
benefits:
 Diagnose on line any department, vendor, style, season, store or item
 Drill down to the exact information you need instantly
 Set up models and let DSS automatically watch for exceptions
 Instantly rank areas from best to worst using the measurement you
choose
 Pivot data to see it from different viewpoints, without having to re-run a
report
 View data in 3D colour graphs, with trend lines and moving averages
 Drop data, graphs and comparisons into e-mail for relay to managers
and staff
 Forecast growth trends and track your results against them
 Export your data into an excel spreadsheet with a click of the mouse
 Compare annual, quarterly, monthly or weekly numbers year-to-year
 Analyse your customers base with laser accuracy at will

1. IT is referred to in terms of ___________and____________ or
communications.
2. A good RIS has several strengths __________________ organized and
company focused.
3. RIS drive the information process Technology to the
________________
4. There are many differences in information systems among retailers, on
the basis of revenues and _________________
5. Some of the large retail houses use Retail Pro management information
software to build their ________________________
8.3 Data Mining in Retailing

Data mining is the in-depth analysis of information to gain specific insights
about customers, product categories, vendors and so forth. The goal is to
learn if there are opportunities for tailored marketing efforts that would lead
to better retailer performance. One application of data mining is
micromarketing, whereby the retailer uses differentiated marketing and
develops focused retail strategy mixes for specific customer segments,
sometimes fine tuned for the individual shopper.
Data mining relies on special software to sift through a data warehouse to
uncover patterns and relationships among different factors. The software
allows vast amounts of data to be quickly searched and sorted. That is why
many firms have made the financial commitment to data mining.

Data mining in Fairmont resort hotels
The hotel chain wanted to learn more about its customers, but there were
some questions it could not ask them directly. So, the Toronto based
hotel chain decided to use MapInfo‟s Psyte data mining tool to get a
better understanding of who its customers were and what kinds of
vacations they were likely to take.
As its executive director of marketing services noted, “We were looking
for a partner that could provide use with more information about our
guests in terms of their lifestyle, things that would be inappropriate to ask
directly of our guests”. The hotel overlays the information it gets from
customers when they enroll in its loyalty program with information from
MapInfo. It has used the data to help it make purchase decisions for new
resorts, place ads where they are more likely to reach customers and
send better targeted advertising brochures to its customers.
8.3.1 Gathering information through UPC and EDI

To be more efficient with their information systems, many retailers now rely
on the Universal Product Code (UPC) and Electronic Data Interchange
(EDI).
With Universal Product Code, products are marked with a series of thick and
thin vertical lines, representing each item‟s identification code. The preferred
UPC includes both numbers and lines. The lines are read by scanners at
checkout counters. Cashiers do not enter transactions manually – although
they can, if needed. Because the UPC itself is not readable by humans, the
retailer or vendor must attach a ticket or sticker to a product specifying its
size, colour and other information. Given that the UPC does not include
price information, this too must be added by a ticket or sticker.
By using UPC based technology, retailers can record data instantly on an
item‟s model number, size, colour and other factors when it is sold, as well
as send the dat a to a computer that monitors unit sales, inventory levels
and so forth. The goals are to produce better merchandising data, improve
inventory management, speed transaction time, raise productivity, reduce

errors, and coordinate information. Since its inception, UPC technology has
improved substantially. Today, it is the accepted standard in retailing.
Today, there are about five billion scans every day. The UPC has allowed
retailers to control their inventory more efficiently, providing a faster and
more accurate check out for customers and made gathering information for
accurate and immediate marketing studies incredibly simple.
Virtually, every time sales or inventory data are scanned by computer, UPC
technology is involved. More than 250,000 US manufactures and retailers
belong to GSI US, a group that has taken the lead I setting and promoting
inter industry product identification and communication standards.
With Electronic data interchange, retailers and suppliers regularly exchange
information through their computers with regard to inventory levels, delivery
times, unit sales and so on of particular items. As a result, both parties
enhance their decision making capabilities better control inventory, and are
more responsive to demand. UPC scanning is often the basis for product
related EDI data. Tens of thousands of firms around the world use some
form of EDI system.
Virtually, every pair of jeans sold in a department store today is tracked

through a barcode system. When the retailer‟s computer system sees
that the supply of a particular style and size is low, it automatically
generates a purchase order that is transmitted to the apparel
manufacturer via EDI. The manufacturers‟ EDI system imports the
information into a computer data base. It is confirmed that the product is
in stock, the products if found via barcode and a trucking company is
notified. When the truck picks up the jeans, the EDI system creates an
advance shipments notice and sends it via EDI to the retailer. At the
same time, a barcode label for shipping carton is created. When the truck
delivers the jeans, the retailer scans the barcode label. The retailer then
automatically generates an electronic funds transfer.
Today more retailers are expanding their EDI efforts to incorporate internet
communication s with suppliers. The internet has changed the picture for
EDI.


State whether following statements are True or False :
 Data mining is the in-depth analysis of information to gain specific
insights about customers, product categories, vendors and so forth.
 Data mining in retailing allows vast amounts of data to be quickly
searched and sorted.
 Many retailers now rely on the Universal Product Code (UPC) and
Electronic data Interchange (EDI). Despite this Cashiers enter
transactions manually.
 The UPC has allowed retailers to control their inventory more efficiently.
 UPC is not accepted standard in retailing.
8.4 Data Warehousing

One recent advance in database management is data warehousing,
whereby copies of all the data bases in a firm are maintained in one location
and accessible to employees at any locale. Simply stated, a data warehouse
is a collection of data that supports management decision-making. Typically,
a data warehouse is housed on an enterprise mainframe server. It is a
central repository for all or significant parts of the data that a firm‟s
numerous business s systems collect.
Data warehousing describes the process of defining, populating and using a
data warehouse. This process emphasizes the capture of data from diverse
sources for useful analysis and access.
Data warehousing is a mechanism for storing and distributing information
data mining and micro marketing are ways in which information can be
utilized. The data warehouse is where information is collected, sorted and
stored centrally. Information is disseminated to retailer personnel as well as
to channel partners such as alerting them to what merchandise is selling
well and what is not and customers such as telling them about order status.
In data mining, retail executives and other employees and some times
channel partners analyse information by customer type, product category
and so forth in order to determine opportunities for tailored marketing efforts.
With micromarketing, the retailer applies differentiated marketing. Focused

retail strategy mixes are planned for specific customer segments or even for
individual customers.
The following diagram shows the interplay of data warehousing with data
mining and micro marketing.
A data warehousing has the following components:

The data warehouse: where data are physically stored
Software to copy original data bases and transfer them to warehousing
Interactive software to process inquires
Directory for the categories of information kept in the warehouse.
Data warehousing has several advantages. Executives and other

employees are quickly, easily and simultaneously able to access data
wherever they may be. There is more company wide entrée‟ to new data
when they are first available. Data inconsistencies are reduced by
consolidating records in one location. Better data analysis and manipulation
are possible because information is stored in one location.

1. Data warehouse is a collection of data that support management
_________________
2. The data warehouse is ______________________ is collected,
sorted and stored centrally.
3. Focused retail strategy mixes are planned for specific______________
or even for individual customers.
4. Data warehousing advantage is ________________ for executives and
employees wherever they may be.
5. Data Mining in retailing is to learn if there are opportunities for
_______________________________that would lead to better retailer
performance.
8.5 Business Intelligence (BI) in Retail Industry

Traditionally, the retail industry has lagged behind other industries in
adopting new technologies, and this holds true in its acceptance of BI
technology. Some industries, such as financial services, have become very
sophisticated in using BI software for financial reporting and consolidation,
customer intelligence, Regulatory compliance, and risk management.
However, retailers are quickly catching up and beginning to recognize the
many areas of BI that can be applied specifically to their businesses.
As the industry continues to consolidate, retailers have begun to realize that
using technology to better understand customer buying behavior, to drive
sales and profitability, and to reduce operational costs is a necessity for
long-term survival. Retailers are now paying significant attention to BI
software, specifically in the areas of merchandise intelligence (including
merchandise planning, assortment, size, space, price, promotion, and
markdown optimization), customer intelligence (including marketing

automation, marketing optimization, and market basket analysis), and

operational intelligence (including IT portfolio management, labor
optimization, and real estate site selection). There are many factors that
have led retailers to adopt BI software:
 Increased competition
 the need to squeeze more profitability out of less space,
 prevalent credit card usage,
 the Internet's role as an alternative sales channel,
 the popularity of loyalty cards, and soon,
 RFID (radio frequency identification).
These milestones have created a wealth of data that retailers are now
beginning to appreciate and use.
Within individual companies, we view the history of BI in retail through the
lens of the Information Evolution Model, a framework that we devised to
describe the status of any company's evolution toward becoming an
intelligent enterprise. In this model, we determined that organizations pass
through five fundamental stages as they advance in their use of BI as a
competitive differentiator:
 Operate: At this most basic level are the companies rife with information
mavericks: the people in basement offices hammering away on desktop
spreadsheets. If they go, the knowledge goes with them. There are no
processes, and each request becomes an ad hoc data rebuild, resulting
in multiple versions of the truth, with the likelihood of a different answer
to any one question every time it is asked.
 Consolidate: At this stage, a company has pulled together its data at
the departmental level. Here, a question gets the same answer every
time, at least within the department. However, departmental interests
and interdepartmental competition can skew the integrity of the output
and result in multiple versions of the truth.
 Integrate: At this point in the evolution, a company has adopted
enterprise-wide data and bases its decisions on this more complete
information. This company is beginning to have a true awareness of
additional opportunities for the use of BI to improve processes and
profits.

 Optimize: At this stage, the company's knowledge workers are much

focused on incremental process improvements and refining the value-
creation process. Everyone understands and uses analysis, trending,
pattern analysis, and predictive results to increase efficiency and
effectiveness. The extended value chain becomes increasingly critical to
the organization, including the customers, suppliers, and partners who
constitute intercompany communities.
 Innovate: This level represents a major, quantum break with the past. It
exploits the understanding of the value-creation process acquired in the
optimize stage and replicates that efficiency with new products in new
markets. Companies operating at this level understand what they do well
and apply this expertise to new areas of opportunity, thus multiplying the
number of revenue streams flowing into the enterprise.
Armed with information and business process knowledge, organizations are
approaching the innovative level which will introduce truly innovative
products and services that reflect their unique understanding of the market,
their internal strengths and weaknesses, and an unfailing flow of ideas from
continuously engaged employees.
BI in the retail IT infrastructure

In the typical retail IT infrastructure, there are two fundamental categories of
systems: transactional/operational systems, such as POS and purchase
order management systems; and analytic/BI systems.
Operational and transactional systems such as merchandise

management, ERP (enterprise resource planning), and POS, are very good
at what they do – organizing huge amounts of operational data and
transactions. These systems can tell retailers what has happened in their
business and what their customers have done – last week, last month, and
last year.
It's critical, however, for retailers to understand what will happen: what the
demand will be for a select assortment of merchandise, what impact an
incremental price change will have on demand, which floor plan will sell
more designer shoes, which customers will respond to a direct mail or
catalog offer. Real value comes from systems that go beyond the limitations

of operational software alone, systems that can take operational data and
create enterprise intelligence and predictive insights.
These BI systems must combine data management (consolidating,
organizing, and cleansing huge amounts of disparate data from varying
systems and platforms) with predictive analytics (data mining, forecasting,
and optimization). When they do, retailers can make sense of customer,
product, supplier, and operational data and draw insights that will help them
run their businesses better and more profitably.
Leading retailers around the globe – like Wal-Mart, Foot Locker, Staples,
Williams-Sonoma, and Amazon.com in the United States; Carrefour and
Karstadt in Germany; Marks & Spencer and J. Sainsbury's in the United
Kingdom; Pao de Acucar in Brazil; and many others – have begun using BI
and analytics to make an array of strategic decisions. These include where
to place retail outlets, how many of each size or color of an item to put in
each store, and when and how much to discount. The effects of these
decisions can save or generate millions of dollars for retailers.
The retail market is very strong and getting stronger. It is difficult to find a
comprehensive suite of retail-specific BI offerings that spans the spectrum
from merchandise planning and optimization (product, price, promotion, and
placement) based on customer insight, to knowing how to maximize the ROI
on the next marketing campaign, to understanding where to build the next
store, to reducing supply chain costs. Retailers are telling us over and over
that they are seeking a single, stable, reliable, and proven provider of
superior BI solutions. They are implementing projects that span multiple
years and will deliver value for years to come.
Types of retailers realizing the most benefits from BI

Retailers who are realizing the most significant returns on their investments
are those that take a purposeful, pragmatic approach to establishing an
intelligence platform upon which to base all other BI solutions. A single,
reliable demand forecast, for instance, can also be used in merchandising,
marketing, logistics, store operations, call center staffing, etc., for
operational benefit. BI that remains segmented by functional area can
provide some value, but retailers can realize a much larger return by
building the foundation upon which the rest of the house will stand. This is
true of both top-tier and midmarket retailers, regardless of segment.
Specific areas in which retailers can benefit most with the help of BI include:
 Merchandising:
This is clearly the most important area of a retailer's business and an area
where retailers are beginning to exploit the full value of BI. Analysis of past
performance, combined with plans and forecasts of future customer
behavior, leads to more accurate initial allocations of merchandise across
channels and stores. Assortment and size optimization that are based on
customer demand patterns ensure that the correct assortments, size, and
case-pack distributions get sent to the correct stores. Daily price, promotion,
and markdown optimization ensures that items are priced for optimal
profitability, both preseason and in season.
Space automation and optimization ensure that departmental sales and
profit per square foot are maximized, and products are given the correct
inventory and space on the shelf or on the rack. Optimized fulfillment
ensures that products are allocated or replenished based on demand.
Accurate analysis also results in a more efficient use of manpower in
picking, packing, and shipping the first wave of product, while minimizing
additional, costly payroll expenses to facilitate transfers between stores,
vendor returns, changing signage and labels for markdowns, and otherwise
correcting mistakes.
 Marketing:
By understanding customers better – whether by profiling, segmenting,
gauging propensity to respond, or using market basket analysis -- retailers
can create better-defined targeted campaigns, reducing expenses (printing,
paper, postage) while increasing response rates, revenues, and gross
margins. Also, as retailers gain a better understanding of their customers'
buying behavior, this analysis can then be used to create more effective
merchandising plans for the next season.
 Operations:
Understanding and predicting changes in demand i.e. by hour, by day, by
location, by promotion, by price change, which means that the store floors,
the catalog call centers, and the fleet crews delivering replenishment orders,
all appropriately staffed. This understanding also leads to optimal
productivity since store-level human capital costs can be scheduled better
and managed more efficiently.

It is important to note that a good BI solution will be able to integrate with

any other system or platform. That said, different BI solutions need to
interface with different operational systems for different purposes.
A solution seeking to use customer behavioral data to make better
merchandising or marketing decisions needs to interface with sales
transaction systems, loyalty systems, in-house credit systems, coupon
redemption systems, catalog and Internet customer data systems, and so
forth. A system that recommends optimized price changes should interface
with the price management system, the item master, the system that
generates labels, etc.
There must be a closed-loop interface between the operational systems that
retailers rely upon to conduct day-to-day business and the BI systems that
help them conduct that business more efficiently and profitably.
Future of Retail with BI

The future of retail BI will be defined by the retailers that have figured out
how to maximize customer satisfaction and profitability with the right
combination of quality products, friendly and efficient service, unique value,
a differentiated shopping experience, and a business model that truly serves
its community – locally and globally. It starts with understanding the
customer and then linking that insight into every decision that is made, from
merchandising to marketing to distribution to store operations to finance, so
that retailers can predict how to best serve their customers' ever-changing
needs and desires.
Our vision for the future of retail BI provides for that very scenario, through
our intelligence platform and our solutions for customer, merchandise,
operations, and performance intelligence that are combined in a suite
designed to equip retailers to become truly innovative.
1. The retail industry has lagged behind other industries in adopting new
technologies.
2. BI software is used for financial reporting and consolidation, customer
intelligence, regulatory compliance, and risk management.
3. Retailers use BI software to compete with wholesalers.

4. The Future of retail BI will be defined by the retailers to maximize

customer satisfaction.
5. Through BI retail will redefine unique value for products and
differentiated shopping experience.
8.6 Summary
To developing a new strategy or modifying an existing one, good data is
necessary to reduce a retailer‟s chances of making incorrect decisions.
Retailers that rely on non-systematic or incomplete research such as
intuition, increase their probabilities of failure. Useful information should be
acquired through an on-going, well integrated process. A retail information
system anticipates the data needs of retail managers, continuously collects,
organizes and stores relevant data, and directs the flow of information to
decision makers.
Retailers have increased their use of computerized retail information
systems, and Universal Product Code is now the dominant technology for
processing product based data. With electronic data interchange the
computers of retailers and their suppliers regularly exchange information
through web also can be done.

1. Explain through illustration Retail Information System
2. In building a retail information system, a number of decisions have to be
made. What are they ?
3. How to gather Data Mining Information using UPC and EDI
4. “Data warehouse is a collection of data that supports management
decision - making”. Discuss.
5. Organizations pass through five fundamental stages as they advance in
their use of BI as a competitive differentiator. List out those stages.

SAQ I :
1. Hardware & Software.
2. Information Gathering
3. Information
4. Retail Format
5. Retailing Strategy

SAQ II
1. True 2. True 3. False 4. True 5. False
SAQ III
1. Decision Making
2. Where information
3. Customer Segments
4. Accessibility of data
5. Tailored marketing efforts
SAQ IV
1. True 2. True 3. False 4. True 5. True

2. Refer to Section 8.1-1

Unit 9 Latest Trends in Retailing

Structure
9.1 Introduction
Objectives
Self Assessment Questions I
9.2 Trends in Retailing
9.3 Summary
9.5 Answers to Self Assessment Questions
9.1 Introduction
The role of retailers in obtaining new product success is crucial because
they assume the role of a gatekeeper who decides which new products find
their way to the shelves. It is therefore necessary for manufacturers of
consumer products to explore the needs of their partners in the marketing
channel. Product quality, product novelty, compatibility, and launch strategy
related factors have previously also been found to impact new product
adoption by retailers. Competitive pressure measures and market variability
also appear to be important factors for retailers when deciding about
whether or not to adopt a new product.
Learning Objectives
You will understand after reading this unit
 The various non-retailing store
 The activities of non retailing system
9.2 Trends in Retailing
Non store retailing
How can Manufacturers Maximize Brand Exposure in a Given Retail Outlet?
Some of the factors include:
 Number and size of physical 'facings' on the shelves
 Prominent positions in the store (check-outs)
 Multiple positions within the store and promotional opportunities outside
the store (shop windows)
 Identified brand areas (branded racking, dispensers, cabinets)
 In-store shop floor promotions (e.g., tastings, demonstrations, leaflets)

 In-store advertising (shelves, floors, walls, ceilings, counters,

dispensers)
 Promotions and packaging (tell your customers a story)
 Inclusion in the retailer's communication process.
Lifestyle Clustering
The proliferation of choices available and the growth of personal style
possibilities are creating a new kind of store that acts as a 'choice editor' for
shoppers. A large part of what the store stands for is communicated through
limiting the brands and types of products they carry. The trend is now
towards grouping products by lifestyle as opposed to the type of product are
proving to be an effective tactic for retailers. Rather than working through
traditional category management, like putting all the shampoos together and
all the skin creams together, retailers are creating lifestyle clusters inside
their stores, for example all low fat-food, beverages, snacks, and other food
products in one section.
Vertical Retail Concepts are on the Rise

The boundaries between simple store concepts along traditional lines and
verticalist or shop-in-shop concepts are fluid and are reflected in modern
store construction concepts, which make the customer the focus of attention
to a greater extent than in the past and help the retailers stage-manage the
product. The challenge for them involves finding a future-oriented mixture of
system and individuality, without alienating their important target group of
walk-in customers with too sharp a profile.
Alliances with specialists raise the levels of competence and customer
frequency. An example can be taken of the grocery retailing business, which
is fast merging with the convenience-shopping concept. The basic idea
behind this concept involves bringing the sale of non-food articles like
newspapers, magazines, paperbacks, etc., with food, snacks, and
beverages.
Retailers and marketers are not just focusing on temporary price reductions,
feature ads, and displays, but are often going beyond these tactics to adopt
strategies that are changing the face of retailing to accommodate and alter
the way consumers think and behave. Changes in the retail environment are
making today's stores one of the richest, most complex vehicles for

communicating with consumers. The new face of retail is changing the way
shoppers think about the retail brand, as well as the products featured within
the store. The new strategy of gaining access to the consumer is LIM, 'Less
Is More' In the clothing retail business, for example, this involves a
deliberate reduction in the number of models presented per square meter of
sales surface area and is considerably more successful in this respect than
surfaces with a higher number of models per square meter of sales surface
area.
This has brought about the concept of 'retail ecology' in which retail
environments are studied along with how shoppers interact with specific
environments. Once the ecology of the retail space is known and
understood, it can be used to make the shopping trip more efficient, more
intuitive, and more effective for shoppers
Consumption-related Mega-trends
There are certain trends in consumption behaviour that have a direct and
significant impact on the business strategy and profitability of retail
business. These trends relate to the changing demography, increasing
individualization, increasing computerization, increased mobility, and
increased demand in terms of sustainability.
Demographically, there is an increase in the number of consumers with
greater purchasing power and more migrant consumers. In the West there is
a fall in the number of young and increase in the number of senior
consumers. In India there are more young consumers than senior
consumers. The composition of households is also changing with the
increase in smaller and newer forms.
There is also an increase in consumer power both on an individual and on a

collective basis. It is reflected in demand-led production and focus on
narrow niches. There have been consumption changes from acquiring to
experiencing. The retail industry has tried to respond to these trends by
greater focus on customer service and retail atmospherics.
Technology has facilitated the move towards online consumption and

making consumption independent of time (24/7) and space. Product and
price comparison is easier. With process globalization setting in, consumers
want a broad selection of products, and consumption of imported products

has increased. Faster and easier mobility has contributed to the rise of
leisure commuter. The frequency of holidays has increased. There is also
increased consumption en route (stations, gas stations, and airports).
Internationalization of business has caused a rise in international business
trips.
There has been an increase in the demand for high quality and sustainable
products. While expenditure on bio-dynamic and healthy food products has
increased, people now long for 'honest', 'original', and 'green' products and
services. Preference for eco-tourism, recycling and alternative environment-
friendly modes of transport are on the rise. This will doubtless have
implications on retail merchandise and brand stocking decisions, store
positioning, and packaging.
Many retail outlets like Body Shop, Fab India, and Khadi and Village
Industries Commission (KVIC) outlets are such examples. The latest trend
of dematerialization, where experiencing services has become more
important than acquiring them, is increasingly becoming popular.
This has been accompanied by the rise of digital goods (like MP3 music).
Drivers of Success in the Retail Sector
This section essentially puts together different ideas introduced in the
chapter and attempts to elucidate some of the fundamental factors that are
necessary for success in the retailing industry today.
With the growing competition both on and off the Web today, it is becoming
increasingly difficult for retailers to survive in the new economy. A new
revolution is taking place. And for retailers to thrive today, they must
possess revolutionary thinking. This type of thinking involves a desire to
embrace change within their organization. Changes include a more focused
approach to strategic planning, advanced marketing skills, a stronger
customer focus, and enhanced exposure on the World Wide Web. Faced
with an environment where it is hard to raise prices or sales volume,
retailers are seeking subtler ways to increase profits.
Customers are the Driving Force In Change

With two-income families, busier schedules, and less time to shop, retailers
must also offer more convenience than ever before. Today's busy

consumers have less free time. It is becoming harder for people to find time
to shop in a leisurely manner. Excellent customer service of the 21st century
is all about offering more convenience and education to customers. They
want to shop when it is convenient to them.
Customers are becoming more demanding and less forgiving as their

shopping options increase in number, size, and variety. They are less
interested in the lowest price or the biggest selection and more interested in
finding solutions to their problems. They seek and demand unexpected
services and the store goes the extra mile to meet their demands.
Consumers get bored quickly and expect retailers to blend shopping, eating,
and playing into the retail equation.
Retailers may want to offer added convenience by extending their hours of
operation, improving their website purchasing, or by speeding up check-out
lines. Retailers must learn how to sell diversely to multiple generations and
genders. This investment in customers will yield more sales and greater
loyalty.
The key to success in retail is two pronged – knowing what the customer
wants, and providing what the customer wants just as it is required in the
most cost-efficient manner. The first requires customer intimacy, that is, the
combination of soft market research (focus groups, laddering,
psychographics), with hard data analysis – trends, patterns, statistical
clustering, and demographics.
The second requires a supply chain that is efficient and just-in-time. It
requires the information to flow quickly and purposefully from the point of
sale to the supplier, while integrating the logistics provider. Today, the scope
for improvement is tremendous. Currently, most of in-store personnel time is
spent on non-sales activities and margins have been squeezed down to 1%
for many items.
Retailers must encourage their sales staff and allow them to personalize
relations with the customers by spending more time listening to each
customer and understanding their needs. Smaller retailers can get to know
their customers by name and learn more about their families and personal
interests to make stronger one-on-one connections. Larger or corporate
retailers may offer shopper-friendly terminals that will help consumers locate

what they are looking for without searching for the sales help. User-friendly
kiosks will offer self-service to customers.
Re-evaluating the Marketing Plan
Along with the growth in competition, both on and off the Web, advertising
prices too will continue to rise. Retailers will stand out as leaders and
authorities in their respective markets by focusing their advertising efforts on
the benefits of a changing customer base. Mass advertising has become
less effective as many retailers advertise from just one sale to the next. The
word sale has been overused and is becoming a less effective vehicle to
drive traffic into retail stores today. Even corporate discount merchants have
discovered the need for a more upscale image to reach a larger customer
base. For example, Target, a worldwide mass discount retailer, has learned
how to effectively use a more upscale image to build a strong branded
image with their customers.
Generic advertising is becoming less and less effective to stand out from the
crowd, and a strong public relations campaign has become a more effective
way to get customer attention for many retailers. Public relations are often
perceived as a stronger approach and in some cases an even less
expensive one. Retailers may become known as experts in their niche
industries by writing articles for local or international publications or getting
interviewed on radio and TV.
Advanced Education for Retailers is Critical for Growth

Innovative retailers have discovered that to improve and adjust to changes
quickly within their environment, they must continue to learn and become
cutting-edge to move ahead of their competitors. They must begin to work
on their businesses by getting out and seeking opportunities for growth.
Attending seminars, meeting other retailers, and learning from both will add
to the competitive edge that retailers must have today. Business is changing
so rapidly that smart retailers are now learning as much within one year as
they had in the past five years altogether. As this trend continues, innovative
retailers on the move towards future growth are attending more focused
retail seminars and workshops to be aware of the latest marketing trends,
sales skills, and new business strategies within the changing industry.

Strong Visual Recognition

Retailers today must take on a new approach to be successful since visual
marketing has become increasingly important to drive more sales. About
70-80% of the buying decisions in mass retailing today are made at the
point of purchase. Therefore, it is extremely important for retailers to learn
how to focus on their customers' needs and to view their business through
their customers' eyes. To build an effective business image, retailers must
be aware of all the details that make up an overall consistent and effective
image. In a matter of seconds, prospective customers begin to scrutinize
every detail of a business from a retailer's business card, displays,
employees, or directly through their website. A business image is always
perceptible.
The Workplace Challenge
Employees will be even more difficult to come by as information technology
and other high-paying professions lure applicants who would have taken
retail positions. Retailers will counter this threat by hiring more part-timers
and being more flexible with hours, or by choosing to pay a lot more.
Retailers may foresee this challenge by offering more continued education,
greater appreciation, and motivation for their employees. Regular manager
and sales staff meetings are necessary to build a strong relationship.
Retailers should accept inputs from their employees and encourage them to
have independent thinking.
Planning for Success
The retailing world of tomorrow will be very different from today. To survive
in retailing one must begin to plan for the evolution and shifts in the industry.
Strategic planning, which is a combination of strategic thinking and long-
range planning, is the key to planning for success. It can be a retailer's
blueprint to achieve the goals and plans for future growth. In addition,
strategic planning can increase the focus on marketing approach and also
help to build a supportive team of employees.
The Last World

In contrast to the situation a few years ago, competitive advantages in the
retailing sector today, once achieved, are only of short duration unless they
are accompanied by superb management quality or based on a unique
position. The efforts required to maintain such advantages are incomparably

greater. Against this backdrop, cooperation will have a decisive effect on the
future of the retail sector. The necessity of achieving market power, as well
as the drive for size, profitability, and efficiency, will continue to produce
profound changes in the retail sector in the future. This means, for the
majority of companies acting in the market, the companies which do not
master a particular market or category/niche will have no chance of survival.
It also means that non-organized retail businesses in particular will have to
struggle more than ever in future to justify their ongoing existence. Overall,
the opportunities are shrinking for traditionally structured retailers to
maintain themselves against vertical players and companies external to the
sector.
The manner in which India's retail industry is shaping up, the foreseeable
future indicates that large retailers would most certainly cut into a sizable
share of the branded market, which was hitherto largely controlled by small
players. The trend of large national chain stores replacing small
independent retailers is continuing unabated. Rapidly growing catalogue
and Internet usage confront small retailers with new challenges and
dramatic changes that force them to adapt rapidly or perish. As a result,
small retailers will feel the pinch of high mark-ups and may shift to lower
price point merchandise. Thus, they would be required to sell larger volumes
in order to compensate the high price point drop. The independent stores
that survive and prosper will be those who: (1) recognize and act on their
competitive strengths and weaknesses; (2) understand who their customers
are and what they want; and (3) identify and fill a viable niche in the
marketplace.
Small retailers will also have to match the ambience provided by their larger
competitors. They may opt for different business models like specialty
stores, fixed price shops, or discount stores. A few may consider switching
to large format stores and enhance their capabilities in terms of range,
merchandise and price points. Some retailers might even be forced to move
to different categories or even change their line of business. In a similar
manner, large stores might turn to operating out of small format outlets with
specialty offerings, catalogue showrooms, transit stores, and satellite
warehouses for parent showrooms.
The tendency towards integration into a common value chain will increase

significantly in future and will become an essential component of strategies

between companies. Tough negotiation of conditions will give way to
considerations as to how, for example, a prompt and predominantly regional
sourcing strategy can guarantee product range and sales policies adequate
to customer requirements and how synergies may be realized in sales and
marketing. Retail concepts with the potential for future success are based
exclusively on a close network of all parties involved in the process chain.
Lone fighters do not stand much of a chance, unless they have a dominant
position in the market on account of their innovative leadership or strong
brand image.
In the Indian market in particular, concepts focused on emphasizing value-
for-money considerations will accelerate the polarization of the market
across all sectors and will outperform their respective market segments.
Traditional Retail Formats
Traditional retail formats refer to those formats that have long been part of
the retail landscape of India. They include formats like kirana and
independent stores that are typical of the unorganized retail sector across
product categories and also the most administratively organized form of
Indian retailing–co-operatives and government–controlled retail institutions
(like the public distribution system and cottage emporiums). In terms of
professional management and efficiency of integration with the value chain,
the traditional retail formats are better classified under the unorganized retail
sector.
There are predominantly two types of traditional retail formats, namely:
 Kirana and independent stores
 Co-operative and government-owned stores
Independent and kirana stores have emerged with the spread and density of
population. Historically, they are traced to the generation of surplus in
agriculture that needed to be sold to obtain other essential commodities by
the producer. This was accompanied by the emergence of a trading class in
India.
Co-operative stores in India are the result of the co-operative movement that
can be traced to the pre-independence period. They emerged as a reaction
to the feudal system and attempted to place the fruits of labour in the hands
of the producer himself to make him self-reliant. The co-operative movement
was strengthened after independence; yet it was largely successful in

western India. Government-owned and/or-operated stores emerged after
independence because of their increased role in business and their
responsibility towards the socio-economically weaker sections of the
society, and for preservation of handicrafts, promotion of tourism, ensuring
fair prices, and distribution of essential items. In the sections that follow, the
above formats are discussed in detail.
Kirana and Independent Stores

Generally, the kirana, mom-and-pop, and family-owned retail stores
represent the retail business in India. These are usually shops with a very
small area, stocking a limited range of products, varying from region to
region according to the needs of the clientele or the whims of the owners.
About 78% of these retail stores are small family-owned businesses utilizing
only household labour. Even among the retail enterprises that employ hired
workers, the bulk of them use less than three workers. According to
ORG-MARG, a small retailer is defined as one with an average turnover
between Rs 17,500 and Rs 52,500 per annum.
These are low-cost structures, mostly owner-operated, have negligible real

estate and labour costs, and little or no taxes to pay. ; Consumer familiarity
that runs from generation to generation is one big advantage enjoyed by the
traditional retailing sector. The retailer to consumer ratio is very low with
many such shops often located close to people's residence thus making
location and convenience a major factor for their popularity. However, the
retailer offers credit facilities depending on the size of his business and
seeming credibility of his customer.
Branding is not the key decision criteria for a majority of customers at the
traditional retail outlets, particularly in the small townships and rural India.
Traditional retailers play a significant role in the purchase decision,
influencing both the product and the brand perception.
Conventionally, retailers source the merchandise from wholesalers and sell
it to end-users. Manufacturers distribute goods through carrying and
forwarding agents to distributors and wholesalers. The merchandise price
gets inflated to a great extent by the time it reaches from the manufacturer
to the end-user. The new wave of competition has had a healthy effect on
traditional retailers. Many are trying to introduce self-service formats,

attractive atmospherics, services such as home delivery, and even
telephone-based order delivery. Many experts have referred to this as the
'boom in retailing'. However, there are three aspects of boom in retailing in
India:
a) The emergence of newer, specialized, and bigger retail formats in urban
India with greater focus on 'experiential' aspects of shopping. This has
been prompted by a more demanding consumer, higher disposable
incomes, entry of foreign brands in the Indian market, and entry of
Indian business houses in the retail sector.
b) Deeper and wider penetration of retail network in rural India prompted by
greater recognition of the potential of rural markets especially in the
FMCG and consumer durables sector.
c) Redesigning the retail mix by the traditional retailers as a sign of greater
maturity of the sector and also the rub-off effect of the developments in
the organized sector.
The Indian retail sector has traditionally been structured around three small
retail entities – the grocer, the general store, and the chemist. The grocer
stocks non-packaged, unbranded/generic commodities such as rice, flour,
pulses, salt, etc. The grocery stores located in neighborhood centers or
central business districts also sell branded and packaged fast moving
consumer goods (FMCGs).
The general store stocks only branded and packaged FMCGs. These are
generally located prominently in the neighborhood centers and residential
areas. The chemist, apart from dispensing pharmaceutical products, sells
branded FMCGs such as personal care products and health foods.
Alongside the three retail outfits, exist a large segment of smaller,
unorganized players – paan-beedi stores which stock products in sachets,
batteries, confectionery, and soaps; bakeries and confectioners; fruit
juice/tea stalls; ice-cream parlors; electrical, furniture, and hardware stores;
and non-food boutiques. There are a large number of hawkers, carts, and
stalls within the main markets or localities and street corners, and many
door-to-door sellers such as vegetable vendors.
The small independent retailers in India play a crucial role in the entire value
chain. Their importance has been well acknowledged among the marketers
and the customers. This is primarily because of the increase in stock-

keeping units (SKUs) over the past years.
According to ORG-MARG's retail audit, in 1996, the number of packs more
than doubled in the 57 core FMCG categories such as white toothpaste,
detergent powder, and cold cream.
That apart, there have been 19 new FMCG categories (between 1990 and
1996) like branded atta, anti-ageing creams, and dishwashing pastes that
have introduced 1378 brands and 2579 SKUs at the retail counter. This
SKU proliferation has caused intense pressure on shelf space. Marketers,
therefore, have been forced to seek width in distribution rather than depth.
So, the small retailer is playing a significant role as a distribution channel for
FMCGs in the existing and the new settlement areas in urban areas.
Importance of Unorganized Retail Sector in the Value Chain

The war for cigarette marketing has been reduced to a three-by-two-feet-
space retail outlet. That is the size of the board on which cigarette makers
can advertise at retail outlets. With the advertising ban now in effect,
cigarette retailers have lunged up the value chain and are now elevated to
be the premium publicity battleground between cigarette makers.
Cigarette makers like Godfrey Phillips India (GPI) are rushing to forge
exclusivity contracts with cigarette shops for better display of their products
and fliers. Market leader ITC says it already has exclusivity arrangements
and will work within this before it can come up with something new and
innovative later. More goodwill strategies include both GPI and ITC shipping
display boards to retailers, which say that cigarettes will not be sold to
people under 18.
For starters, 'Cigarettes will not be sold to persons below 18 years of age,
and the panwalas who violate this will be prosecuted' (in Hindi). Now that
would seem like just a clause from the Tobacco Bill. It is actually part of the
point-of-sale (POS) material that cigarette companies like GPI are shipping
out to retail outlets as a goodwill gesture. Though the Bill says that retailers
are required to carry these statutory signs, it does not say that cigarette
companies are required to supply these to retailers. GPI is supplying over
four lakh retail outlets with the warning sign–the beginning of the retailer's
new exalted status.

GPI senior vice-president (corporate affairs) says the signs are 'to help
retailers comply with the new government directives which require them to
display such a sign.' ITC senior executive vice-president says, 'We will
supply such boards to our retailers. We will also advise them on these signs
and help in translating exactly as per the government directive, so that they
are not harassed.' According to the government directive, cigarette
companies are allowed to have two boards advertising their products at
retail outlets and merchandising racks.
Considering that cigarette shops are the only place now left where cigarette
companies can advertise their products, the fight for space has narrowed
down considerably. ITC and Godfrey Phillips were the major point-of-sale
advertisers even before the advertising ban came into effect.
GPI will also forge exclusivity contracts with retailers across the country for
better display of its products and publicity boards than others. The retailer is
now absolute king,' KSA Technopak chairman says. 'Cigarette retailers tend
to gain from other means of brand promotion – glow signs, cigarette shelves
and even empty cartons supplied by cigarette companies.1 Source: Shiv
Aroor & Sangeeta Singh, 2004, 'Market Dynamics: Cigarette Retailer As
The New King', The Financial Express, Net Edition, May 04.
Independent Neighbourhood Stores for FMCG Products
The concept of independent neighbourhood stores for FMCG products has
survived and thrived due to plenty of factors such as:
 Location convenience
 These stores are normally located in geographical proximity to
consumer's home or workplace making shopping convenient. Vocational
convenience of retail formats becomes very important in the Indian
context because of the following reasons.
 Indians lack storage space at home and therefore make frequent trips to
nearby retailers.
 Indian consumers prefer fresh grocery rather than keeping bulk and use
stale ones.
 India has low motorized vehicle penetration levels (48.5% in 1995-96) in
comparison to bicycle. Therefore, people prefer to buy from a nearby
store rather than spending on public transport to buy from the main
market.

Value added services

Small independent stores provide a lot of complementary services along
with core offerings such as credit facility, home delivery, returns and adjust-
ments, etc. Some retailers are well aware of the preferences of consumers
and even advise them on the selection of product or brand.
Cost involved
These conventional retail units require very low investments initially, as most
are owned by retailers or are protected tenants. These units have limited
running expenses as family members provide their services to manage day-
today operations.
Importance in value chain
These stores have been acknowledged as the most important retail format
in the value chain of FMCG companies. These outlets are used extensively
not only to dispense products but also to stimulate demand. Therefore,
companies generally provide POP material, banners, and refrigerators, and
manage the display of their offerings effectively. Source: The Indian FMCG
Sector 2002, ICRA.
Supply chain integration does not quite matter in the case of a small retailer
because of the small scale of his operations. Retailers normally prefer to
deal directly with wholesalers with whom they are able to negotiate rates
and payment terms.
Retail consolidation (consolidation of buying power) among supermarket/
hypermarket/chain stores operators is unlikely to hurt the interest of small
retailers simply because it is likely to affect manufacturers/suppliers directly,
who do not want to compromise on the retail penetration against few large
volumes to a few big retailers. Small retailers are patronized by customers
on account of low prices and services they offer.
Small retailers provide a wide variety of facilities to their customers, such as
telephone order, credit facilities, home delivery, customization on account of
offerings and packaging, and specific products procured on order (in case of
stock-outs). More importantly, they are available next door to offer
personalized service. In this way, they are able to develop a strong
relationship with their customers, who, over a period of time, become
extremely loyal.

Cooperatives and Government Bodies

India has a large number of retail stores run by cooperative societies and
government bodies across product categories. Such initiatives were taken
for various socio-economic factors, primarily, to promote industries and
generate employment opportunities in rural areas.
The examples of organized retailing format in India are the Super Bazaars
and the Kendriya Bhandars along with the administered price public
distribution system. These stores were among India's earliest endeavors
into organized retailing with a user-friendly store format, large variety, and
reasonable prices.
However, these were characterized by average customer service,
bureaucratic timings, and poor upkeep. In a similar manner, cooperative
movement in various industries such as dairy products also led to the
emergence of organized retail chain in leading cities of India, such as
Mother Diary outlets in Delhi and Parag in Lucknow. At the same time,
government-established retail chains too provide effective marketing
infrastructure to small-scale industries engaged in handicrafts and local
goods such as KVIC stores in entire India, and state emporiums in the
leading cities.
However, since the 1990s, there has been a reduction in government
support for cooperatives. In 2002, there were about 35,000 outlets run by
cooperatives.
Some of the popular retail institutions that are controlled and managed by
the co-operative or government institutions are discussed below.
Mother Dairy, Delhi, and Fruit and Vegetable Project, Delhi
Mother Dairy, Delhi, and the Fruit and Vegetable Project, Delhi, set up by
the National Dairy Development Board (NDDB) in 1974 and 1986,
respectively, were merged to form Mother Dairy Fruit and Vegetable Limited
(MD F&V) in April 2000.
The new company, a wholly owned subsidiary of NDDB, is involved in
marketing and distribution of milk, milk products, and horticulture produce.
The company's dairy plant handles more than 1.3 million litres of milk daily
and undertakes its marketing operations through 636 own milk shops and
more than 6,500 retails outlets in and around Delhi. Ice-cream market under
the brand name 'Mother Dairy' has a 41% market share in Delhi.
The company markets horticulture produce in fresh, frozen, and processed

form under the brand named 'SAFAL' through a chain of 263 own fruit and
vegetable shops and more than 20,000 retail outlets in various parts of the
country. Fresh produce from the producers is handled at the company's
modern processing facility in Delhi with an annual capacity of 120,000 MT.
A state-of-the-art fruit processing plant, a 100% EOU, set up in 1996 at
Mumbai, supplies quality products in the international market. The
company's unique distribution network of bulk vending booths, retail outlets,
and mobile units gives it a significant competitive advantage.
Safal: Fresh Fruit and Vegetable Outlets

The fruit and vegetables unit of the National Dairy Development Board
(NDDB) was set up in 1988 with the objective of ensuring a direct link
between the farmers and the consumers. The aim is to ensure that the
customer gets the highest quality produce. The processed products of the
unit are marketed with the brand name 'Safal'. The Safal group acts as a link
between the farmer and the consumer in the procurement process that
benefits both.
The farmers get the most remunerative price and the consumers get the
best produce at a reasonable price. A large and ultra-modern central
distribution facility has been set up to handle fresh and frozen fruits and
vegetables. Initial cleaning, grading, and sorting are done, followed by
cooling, to ensure its freshness till the product reaches the consumers.
Specially designed modern retail outlets, the first of their kind in India, have
been set up at various localities in Delhi and Mumbai, to market good quality
fruit and vegetables at reasonable prices directly to the consumers.
As many as 279 specially designed modern retail outlets have been set up
in and around Delhi to market fresh and frozen fruits and vegetables directly
to the consumers. Each shop caters to a large number of customers and
has a capacity to sell 1,600 kilos of fruit and vegetables a day. The shops
are equipped with electronic machines that automatically weigh the produce
and print item-wise bills.
Public Distribution System in New Delhi
The public distribution system (PDS) ensures the distribution of essential
items such as selected cereals, sugar, and kerosene at subsidized prices to

holders of ration cards. The PDS also helps to modulate open-market prices
for commodities that are distributed through the system.
The Department of Food and Civil Supplies, Govt. of Delhi, manages the
PDS in Delhi for regulating supply and distribution of, and trade and
commerce in, essential commodities with a view to maintaining or increasing
supplies thereof, and securing their equitable distribution and availability at
fair prices by enforcing the Essential Commodities Act, 1955, and various
Control Orders made there under.
The main items distributed through the PDS are cereals, such as rice and
wheat, and essential items, such as sugar (only for people below poverty
line) and kerosene. According to the Department of Food and Civil Supplies,
there were 3,165 PDS outlets in Delhi in March 2001. Of these, 2,818
outlets were in urban areas and 347 in rural areas. On an average, each
Fair Price Shop handles 1,000 ration cards. The number of household in
Delhi that have ration cards increased from 23.62 lakhs in 1990-91 to 36.89
lakhs in 2000-2001.
Central Cottage Industries Emporium
The Central Cottage Industries Emporium (CCIE) is a Government of India
undertaking to promote sales of artisan goods to tourists as well as local
customers. There are six stores across the country, by the same name, all
keeping up the tradition of displaying and selling crafts from various regions
of India.
The government runs the Central Cottage Industries Emporium, which has
branches in each major city. These are well-appointed, multi-storeyed
complexes containing a selection of handicrafts from every corner of the
country. In order to provide attractive markets in urban centres and right
prices to the artisans and craftsmen, the government launched the CCIE to
provide them with an alternative retail channel.
India has, over the centuries, kept its arts and crafts alive–ivory, brass,
silver, copper, gold, jewellery, silks and brocades, leather goods, carpets,
excellent woodwork items, precious and semiprecious stones, blue pottery,
and an unending list of other goods.
The central and state governments run various cottage and handicraft
emporiums across the country. In Delhi, the Central Cottage Industries

Emporium and the various state emporiums are located in Connaught

Place. Cottage Emporium, as also many other such stores in the country,
accept all major international credit cards. Each branch has an air freighting
section where bulky purchases are delivered right at the customer's
doorstep.
These emporiums retail a wide variety of product categories, which they
procure from every part of India. They offer a rich variety of silk with special
colours and weaves.
The heavy Kanjeevaram silks of the south, the soft and the richly brocaded
ones of Beneras, the light silks from the east, the golden-hued 'muga' of
Assam, 'tanchoi' from Surat, the magical tie-and-dye of Rajasthan and
Gujarat, the 'ikat' or 'patola' of Orissa, and artifacts in bronze, brass, ivory,
marble, or wood – statues, lamp shades, chairs, delicate filigree work on
ivory and silver, marble inlaid with precious coloured stones, enamel work;
'kundan' or 'mina' jewellery of Rajasthan, silver from Orissa and pearls of
Hyderabad – the entire range of rich handicraft products of India can be
obtained from them. This is especially useful for the shopper in a hurry.
In New Delhi, an entire street – full of state government emporia – on the
Baba Kharag Singh Marg provides the shoppers with virtually everything
that is available in the country. They bring to the customers a wide selection
of textiles, leather goods, art and artifacts, and the best of everything that a
particular state offers. There are other emporia too like the Handloom House
which sell equally good and genuine things.
Modern Retail Formats in India
Formats that have emerged or become popular in the 1990s are classified
as modern retail formats. In terms of professional management and
efficiency of integration with the value chain, these formats are classified as
part of the organized retail sector in India.
Franchised Outlets And Company-owned Stores
Economic liberalization, competition, and foreign investment since the
1990s led to the proliferation of brands, with both foreign and Indian
companies acquiring strong brand equity for their products. Hence,
franchising emerged as a popular mode of retailing. Sales of franchises
grew at a rapid pace of 14% per annum over the review period. In 2002,
there were over 5,000 franchised outlets.
The other major retailing organization format in India is 'chain stores'. In

2002, there were about 1,800 chain stores. Among the various
organizational formats, sales of chain stores grew at the fastest pace, with
sales growth during the review period averaging 24% per year.
There has been a boom in organized retailing in India owing to a gradual
increase in the disposable incomes of the middle-class households.
More and more new or established companies in other trades are coming
into the retail business in India, contributing to the introduction of new
formats like malls, supermarkets, hypermarkets, discount stores,
department stores, and even changing the traditional looks of bookstores,
company-owned stores, chemist shops, and furnishing stores.
For example, Bata India Ltd is one of the largest and oldest retailers in
organized retail sector, with 1,600 footwear stores spread across the
country, and a retail turnover of Rs 6 billion in 2001. Bata enjoyed almost a
monopolistic presence in the organized footwear market until the 1980s.
However, of late, retailing has become one of the most active sectors in
India for almost a decade now. It has been undergoing a metamorphosis of
sorts with the entry of big organized players in a largely traditional
unorganized market. However, organized retail in India does not cover more
than 2% of the retail trade. Moreover, most organized retail formats have
emerged in the metros and on their outskirts. Hence, they have not thrown
up a major challenge to the unorganized retail formats, except for inducing a
positive shift in their strategy in terms of greater focus on experiential
aspects and ambience.
The emergence of organized retailing in India has been influenced by
factors such as the increasing purchasing power of consumers, increased
variety of options, more brand awareness, consumer interest in quality, and
the increasing economies of scale, along with the aid of modern supply and
distribution management solutions.
The most interesting facet of this revolution is the non-food segment, which
has given the urban consumer the power of choice while catering to their
changing needs and lifestyles. These new sectors include lifestyle and
fashion retailers, such as Shoppers' Stop, Globus, LifeStyle, Westside, etc.;
apparel retail, such as Wills Lifestyle and Landmark; books, music, and gift

retailers, such as Archies, Music World, Crosswords, etc.; and drugs and
pharmacy retailers, such as Health and Glow, Apollo. These segments have
taken retail into diverse areas, offering the consumer a wide range of goods
and pleasant shopping experiences.
The success of large malls such as Crossroads in Mumbai, Spencer Plaza
in Chennai, and Ansal Plaza in Delhi has encouraged a number of
developers to join the retail bandwagon. Malls, supermarkets, and various
internationally successful formats are bringing about the retail boom in cities
like Gurgaon, Mumbai, Bangalore, and Chennai. Affordability, variety, and
attractiveness seem to be the key offerings of the retailing chains.
Organized retail in India is looking to change the face of the market with
local, national, and international chains trying to create a space for
themselves.
The traditional food and grocery segment has seen the emergence of
supermarkets and grocery chains such as FoodWorld, Nilgiris, and Apna
Bazaar; convenience stores like Convenio and HP Speedmart are
increasingly found at petrol pumps; and fast-food chains like McDonald's,
Dominos, Nirulas, etc. and coffee shops such as Barista, Cafe Coffee Day
etc. are expanding fast and wide.
Pubs such as Geoffrey’s and speciality eateries such as Copper Chimney
and Mainland China are creating a niche for themselves and are expanding
their franchise. Besides, the food and grocery sector now accounts for 14%
of total organized retail, after clothing and textiles (at 36%), and watches
and jewellery (at 17%). Food and grocery retail offers the biggest
opportunity for growth, and even the provided levels of investment are high,
says the KSA study.
Geographical Markets
There is considerable variance in economic prosperity levels among various
Indian states, which is linked to the overall wealth creation from agriculture,
trade, and industrial development. Accordingly, there are affluent and poor
districts in most states, classified according to their market potential.
At the national level, India has 500 active districts (excluding Jammu and
Kashmir), of which the top 150 districts (Class A) account for 78%, while the
next 150 (Class B) account for 15% of the national market potential for a

wide category of goods. The remaining 200 districts (Class C), which have
40% of the geographical share, are backward and account for only 7% of
India's market potential. The spread of affluent and non-affluent districts is
uniform in all the four regions. However, the eastern, north-eastern and
central regions of India have the largest share of backward districts.
Retailing in Rural India
An important phenomenon in India's consumer culture is the emergence of
the rural market for several basic consumer goods. Three-fourths of India's
population lives in rural areas, and brings one-third of the national income.
This rural population is spread all over India in about 0.6 million villages.
This simply shows the great purchasing potential of rural India. It has also
brought the much-needed volume-driven growth for companies, particularly
in the FMCG sector.
Also, the rural market has been growing steadily over the years and is now
bigger than the urban market for FMCGs (53% share of the total market),
with an annual size, in value terms, currently estimated at around Rs 50,000
crores. It is a definite boon for the companies who have already reached the
plateau in their business curve in urban India and are seeking new ways to
increase sales.
As per the National Council for Applied Economic Research (NCAER) study,
there are as many 'middle income and above' households in the rural areas
as there are in the urban areas. There are almost twice as many 'lower
middle income' households in rural areas as in the urban areas. At the
highest income level there are 2.3 million urban households as against 1.6
million households in rural areas.
According to the NCAER projections, the number of middle-income and
high-income households in rural India is expected to grow from 80 million to
111 million by 2007. Nearly 45% of rural Indians are literate (men 59%,
women 31%), and 33% of all villages (0.21 million) are connected by pucca
roads. In all, there are more than 3.8 million retail outlets in rural India,
averaging 5.8 shops per village (the term 'shop' refers to any type of
premises – huts, stalls, shacks, etc., that sell goods). But despite the high
rural share in these categories, the rural penetration rates are low, thus
offering tremendous growth potential to the companies.

Most manufacturers and marketing companies have a distribution

arrangement for villages through village shopkeepers. While it is necessary
for marketers to select a particular distribution channel in rural areas in
accordance with the characteristics of the product – consumable or durable-
the shelf-life of the product and other factors have to be kept in mind. The
challenges for the marketers and retailers are immense in rural India on
account of poor logistics, limited storage and transport facilities, inaccessible
markets, and high level of demand concentration.
In such circumstances, the significance of retail network increases in the
entire rural marketing system. Therefore, one needs to have good
understanding of the role of rural retailers in rural India. As we know,
retailers undertake a wide range of activities such as determining consumer
needs, finding a supplier, buying, transporting, pricing, and promotion
exercise.
No doubt the retailer is a key source of information for the entire range of
entities from manufacturers, wholesalers, buyers, etc. As per a study
conducted in the eastern UP belt, almost 30% of retail outlets were
managed by females. More than 70% of retailers from rural areas depended
on the nearest feeder centre for their purchases, 20% preferred the haat or
mela, and the rest preferred the city.
Product lines displayed and sold by retailers indicated that differences
persisted from village to village. Each village represented its preferences,
which were quite different from these of the adjoining villages. While big-
retailers were dealing in 60 to over 100 items, small retailers were dealing in
only 30 items. Fifty per cent of the products sold by retailers are packaged
ones, which clearly shows that penetration and receptiveness towards
packaging has increased in the rural market. Even local manufacturers
started providing packaged commodities. Margins are the major
determinants of the brands to be sold.
Regarding the selection of products, brand, quantity, etc., retailers prefer to
collect information from and give due importance to the advice of co-
retailers. The supplier leads the show, as nearly 60% of the retailers depend
on them for selection of brand or merchandise to be sold. Retailers enjoy a
compatible relation with suppliers as suppliers inform them about new
product arrivals, discounts, gifts, etc., and, above all, the assurance of

replacing the product if not sold by the retailer. Consumers and

advertisements also provide information to the retailers.
Therefore, the selection of supplier becomes crucial in the overall strategy of

rural retailers. Retailers favour big suppliers in the trade centre (feeder
market). Reasonable pricing is preferred by most of the retailers, followed by
variety in the products offered and credit facility. It is strange to find that
credit facility is desired only by a few retailers, as they believe they end up
paying more when making purchase on credit. At the same time, credit
facility is not offered very frequently.
In order to maintain regular sales, retailers follow a strict schedule. Thirty

per cent visit market (feeder centre) daily, 40% visit market weekly for
replenishing the stock, 20% visit bi-weekly, and rest as per need. It is not
compulsory that the retailer himself will go for making purchases; he may
ask favour of fellow retailers, relatives, or even neighbours. This not only
saves his time but also is economical. In order to attract customers, retailers
also provide credit facilities.
As most of the regular customers are neighbours and relatives, credit facility
becomes an integral part of retail transactions. Seventy per cent prefer cash
credit transaction, whereas the rest 30% go for cash transaction.
Retail network is an important link between a consumer and a producer.

They provide information regarding quantity of pack, promotional schemes,
influence of advertisement, consumer feedback, etc. Doubts in respect of
credit facility still persist. Retailers are going for diversification in product
line. Female-owned shops are coming up. The study of retailer's behaviour,
requirements, and network is crucial for strategy in respect of the rural
market.
Existing retail formats available in rural India are retail outlets within village,
feeder centre or market, melas, haats and shandies, and hawkers (mobile
retailers). Covering 5.57 lakh villages for distribution appears to be a
formidable task. Most of the corporates have concentrated their efforts on
rural areas which have a population of 2,000 persons or above. The
percentage of such villages is merely 10% of the total number of villages in
India. Therefore, for villages with less than 2,500 populations, the
distribution has been left to the initiative of the shopkeepers and dealers in

larger villages and to the shopkeepers of smaller villages (within the village
retail set-up).
At the same time, the age-old mobile department stores, namely
haats/shandies, etc., (periodic markets), play an exceptional role in reaching
to the rural consumers. Rural consumers have sufficient opportunities to
make a choice not only in respect of products and brands but also regarding
retail formats (haats, retail outlet within villages, hawkers, and feeder
centres)
Retail Outlets With in Villages
These are basically run at low scale, mostly as a secondary business
activity. They deal in limited product and limited brand variety within each
product category. The number of retail outlets is subject to the population of
villages in India. Villages with less than 500 may not even have one shop.
Rural areas having a population of more than 1500 enjoy a strong parallel
retail format set-up.
Periodic Markets (Shandies/Haats/Jathras)
Periodic markets are traditional places where the rural consumers
congregate as a rule. While shandies/haats are held on a particular day
every week, periodic markets are normally timed with religious festivals.
These places attract a large number of itinerant merchants, and temporary
shops are set up to sell all kinds of goods.
The importance of haats in the lives of the rural people is evident from the
fact that 81% of the buyers are regular visitors to periodic markets. Fifty
eight per cent visit ‘haats’ to buy specific products, although, more than half
of them have similar products available in their villages.
Most of the companies, across product categories, are already busy

formulating their rural marketing strategy to tap the potential before
competition catches up. The companies with years of experience in the
urban markets are facing serious problems in rural areas in respect of
distribution strategy. These limitations are attributed to various factors such
as:
 Inadequate infrastructure (road, railway connectivity) with highly
dispersed and thinly populated villages that need huge expenditure to
establish distribution channels

 Inability of the small rural retailers to invest in stocks for multiple

products or brands
 Limited or traditional medium of communication and other sales
promotion difficulties
 Low per capita income and social, economic, and cultural differences of
the rural masses as compared to the urban segment
 Low level of exposure to different product categories and product brands
 One of the major challenges for companies is to ensure availability of
the product or service through the present distribution channel. India's
6,27,000 villages are spread over 3.2 million sq. km; about 700 million
Indians live in rural areas, and approaching them is not an easy task
with the existing retail infrastructure. However, given the poor state of
roads, it is an even greater challenge to regularly transport products to
the far-flung villages.
Any serious marketer must strive to reach at least 13,113 villages with a
population of more than 5,000. Marketers must trade-off the distribution cost
with incremental market penetration. Over the years, India's largest MNC,
Hindustan Lever, a subsidiary of Unilever, has built a strong distribution
system, which helps its brands to reach the interiors of the rural market.
To service remote villages, stockists use auto rickshaws, bullock-carts, and
even boats in the backwaters of Kerala. Coca-Cola, which considers rural
These distributors appoint and supply once a week smaller distributors in
adjoining areas. LG Electronics defines all cities and towns, other than the
seven metro cities, as a rural and semi-urban market. To tap these
unexplored country markets, LG has set up 45 area offices and 59
rural/remote area offices to cater directly the needs of the rural consumers.
The problems of physical distribution and channel management adversely
affect the service as well as the cost aspect. The existent market structure
consists of the primary rural market and retail sales outlet. The structure
involves stock points in feeder towns to service these retail outlets at the
village level. But it becomes difficult to maintain the required service level in
the delivery of the product at the retail level.
One of the ways could be using company delivery vans, which can serve
two purposes – it can take the products to the customers in every nook and

corner of the market and it also enables the firm to establish direct contact
with them and thereby facilitate sales promotion. However, only the bigwigs
can adopt this channel.

State True or False
1. Kirana shops are high cost structures and pay heavy tax.
2. Value Chains are used to stimulate demand.
3. Visual recognition in malls doesnot affect the buying decision.
9.3 Summary
The non retailing in the age-old mobile department stores plays an
exceptional role in reaching to the rural consumers. The non- retailing is the
key element for rural consumers who have sufficient opportunities to make a
choice not only in respect of products and brands but also regarding retail
formats.

1. Explain in detail the system of Non store retailing?
2. Describe the importance of non store retailing?

SAQ 1
1. False
2. True
3. False
Terminal Questions
1. Refer to 9.2
2. Refer to 9.2

Unit 10 Contemporary Issues in Retailing

Structure
10.1 Introduction
Objectives
10.2 Careers in Retailing
Self Assessment Questions – I
10.3 Summary
10.1 Introduction
Retail sector is critically dependent on its suppliers for the effective
operation and profitability of its business. Like every other marketing
decision, the decision about which distribution channels to be used by the
manufacturer should be based on all relevant factors. These factors include
the firm's production capability, marketing resources, target market, buying
patterns of potential customers, and the product itself. After evaluating these
factors, the producer can choose a particular strategy for market coverage.
The producer then selects the middlemen and channels, the retailer being
one of them, to implement the strategy.
Stocking the product in as many outlets as possible is mostly used in the
case of convenience goods. Selective distribution uses only a portion or
percentage of the available outlets in each geographical area. Exclusive
distribution is the use of only a single retail outlet for a product in a large
geographical area. Luxury goods are a good example of this category.
Various socio-economic and demographic factors are considered by the
manufacturers for identifying the ideal retail format mix for its products. To
exemplify this, we use the context of soap category in India and the
resultant retail format preferences.
Selection of Retail Format Mix by Manufacturers in the Soap Category
Soap is primarily targeted towards women as they are the chief decision-
makers in soap purchase. Medicated positioning like germ killing and anti-
bacterial are marketed to families. Manufacturers use various kinds of retail
formats for distributing their products rather than using a particular kind of

retail format. About 75% of the soaps are bought through these different
types of outlets.
Kirana store: This is the most common source for buying soap, which
usually forms a part of the month's grocery list. Consumers exhibit loyalty to
these stores. These stores are largely dependent on proximity to
consumers' homes. Here, consumers buy over the counter and do not have
an option of browsing through display shelves.
Pan-Beedi shops: These are small shops, almost like handcarts, and are
primarily set up to dispense cigarettes and chewing tobacco. One can find
such shops at every corner and they are the main source of soap purchase
for the lower socio-economic classes. These kinds of shops exist by the
dozen in rural areas.
Department stores in India: There are very few department stores and the
'Indianised' version of department stores is called 'Sahakari Bhandars.' It is
still a fairly new concept. Department stores have good display counters and
this is the only place where consumers get a firsthand experience of
shopping and choosing from the available options. Here, soap prices are
also discounted below the retail prices.
Electronic Commerce: Impact on Pharma Value Chain
In recent years, the role of electronic business and electronic commerce in
the supply chain and logistics systems for the retail trade sector has been
considerable, especially in general merchandising and pharmaceutical
retailing. Electronic data interchange (EDI) systems, based on either
proprietary or Internet technologies provide the glue or information
infrastructure to hold the value chain together. The exchange of information
is as important as, or more important than, the exchange of physical goods,
in the general merchandise value chain. The value chain in the general
merchandise business consists of manufacturers, importers, distribution
channels including couriers, truckers, logisticians, trading houses,
wholesalers, department stores, other general merchandise stores, and, of
course, the consumer.
The pharmaceutical value chain consists of manufacturers of prescription

drugs (brand name and generic drugs), manufacturers of non-prescription
drugs (brand name and generic drugs), wholesalers, hospitals, distribution

channels (couriers, etc.), physicians, drug stores and other outlets, and the
consumer. Manufacturers sometimes deal directly with pharmacists and
sometimes sell their products through wholesalers. Internet-based
technologies helped retailers and third-party logistics firms to access their
respective information systems through the Internet.
The general merchandising and the pharmaceutical retailing industries are

heavy users of electronic commerce. Paper systems have largely been
replaced by electronic systems including Electronic Data Interchange (EDI)
and Internet-based systems.
Electronic systems have been instrumental in streamlining the supply chain

and logistics operations of the retail sector. As soon as orders are received
from customers, instructions are sent electronically to suppliers and
distribution centres to ship the order either from the warehouse or the plant.
Orders for 'big-ticket' items such as fridges and stoves are communicated
directly to the manufacturer and shipped to a central distribution centre and
subsequently sent to a retail location or to the customer's home address.
Inventory costs are being passed down the supply chain, as manufacturers
are able to make better decisions on product flow based on collaborative
Internet-based networks between suppliers and retailers. Suppliers are
better informed whether or not to stock key items in their warehouses. The
end result is reduced inventory costs and better product flow.
Legal and ethical issues in retailing
Logistics managers are placing greater emphasis on external functions and
demand-pull systems that are customer oriented. In the past, they
concentrated exclusively on internal logistics functions including
warehousing, transportation, etc.
Retailers are benefiting from improved logistics systems, which utilize
central distribution centres in key locations and electronic systems to keep
track of the movement of goods and the repair needs of the equipment
(tractors, trailers, etc.)
Some retailers perform all their transportation logistics internally as they be-
lieve that they have a competitive advantage in this area. Other retailers
contract out this function, which allows the retailer to concentrate on its core
business.
While EDI systems are still important, retailers are generally moving to
Internet-based systems or plan to do so in the near future. Internet-based
systems are more cost effective and efficient. Suppliers do not have high up
front costs for equipment and software. Internet-based systems are better
able to work with a myriad of suppliers, retailers, distributors, agents,
intermediaries, and customers.
Internet-based systems support mass customization of products and a
management structure that operates collaboratively with all players in the
value chain. Source: Industry Canada 2000, Logistics and Supply Chain
Management: Sector Competitiveness Framework.
Learning Objectives
After reading this unit you will understand
 The legal issues of retailing
 Careers in retailing
10.2 Careers in Retailing

In today's corporate environment, where firms are cutting thousands of
office jobs each year, many students would be well-advised to consider a
career in retailing. Based upon the Occupational Outlook Handbook,
published by the U.S. Department of Labor's Bureau of Labor Statistics, as
many as 877,000 new jobs in retail sales may be created through the year
2000. According to Professor Jean Newhouse of Tuskegee University, in
1990 disposable income in the United States totalled more than $4 trillion
and more people are looking for things and spending money today. With the
largest segment of the population – the baby-boomers – well into their peak
earning years, demographics dictate increased demands for many types of
retail services.
Good Prospects for the Undergraduate
The growth of job opportunities in the retail sector is reflected in the
increased starting salary offers reported by the most recent College
Placement Council Salary Survey. While starting salary offers showed an
overall nine-month increase of 2.6 percent for undergraduate business
administration majors, bachelor's degree candidates who focused upon
retail or merchandise management saw their starting salaries increase by
4.2 percent. These starting salaries averaged $21,981 and ranged upwards
to over $26,000.
The retail industry offers a variety of opportunities for new graduates from
many academic disciplines. "An individual can start a career in retailing right
out of college with no graduate degree," counsels Dr. Addis Taylor of Florida
A&M University. "In addition to base salary, pay incentives can continue to
multiply based upon sales performance." Taylor asserts that the retailing
sector is the only place where there is a direct compensation for the volume
and quality of work done. Thus, employees without a graduate degree have
an opportunity to boost their pay through outstanding performance.
Opportunities for the MBA Candidate
Moreover, master's degree candidates reaped even higher rewards. Their
starting salaries averaged $40,000-$44,000. In some cases, starting
salaries went as high as $60,000 for MBAs with full-time work experience.
However, these master's candidates are generally hired to work in brand
management at the headquarters of large corporations such as Procter &
Gamble or Johnson & Johnson.
These MBAs are often expected to fit in the product management teams
immediately. Most of the training is on-the-job. For example, at Johnson &
Johnson a newly hired MBA may be given an 18-month assignment
followed by six weeks of sales training. After the training, a higher level
18-month assignment is offered. Successful completion of these
assignments places the MBA squarely on the road toward product director
and brand manager.
Target, the upscale discount store owned by Dayton Hudson Corporation,
has a relatively more structured program for training MBAs. Each recruit
spends approximately three months gaining an overview of advertising,
distribution, inventory management, and merchandising positions at Target.
In less than two years, the employee has an opportunity to manage a $30
million to $100 million business as a buyer and, later, as a senior buyer. In
these positions, national and international shopping is required to identify
retail trends and to develop merchandising and advertising strategies. The
successful manager is also involved in product development, financial
planning, and vendor relations.
Preparation for the Retail-Oriented Career
Careers in retail sales offer promising opportunities for people-oriented,
service-oriented individuals. Retail sales personnel are the undisputed

frontline troops in the final phase of actually getting customers to spend their
hard-earned dollars to obtain a company's products and services. "The
ultimate advantage in retail sales is customer service," says Professor
George R. Auzenne of Florida A&M University (FAMU). "There is an art and
there is a science to customer service. When translated to academics, this
includes analytical and communications skills. "
Auzenne and Taylor have established an innovative University Retail Centre
within FAMU's College of Arts and Sciences to make retail careers available
to undergraduates from a wide variety of academic disciplines. The Centre
is supported by major retail organizations such as JC Penney and Wal-Mart.
At the Retail Centre, professors teach students the importance of
understanding demographic trends, Auzenne says. "Students have to
understand population trends, statistics and changing lifestyles. Students
should read the Fortune magazine segment called "Selling" to know what
the trends are. They need to understand the present and emerging
technologies of selling."
Auzenne urges students to understand and prepare for selling in the 21st
century, including selling in cyberspace. Adds Taylor, "Computerized
information can readily tell the retail manager what is required in terms of
labour, inventory, etc." Newhouse agrees by saying that retail-oriented
students must know at least the basics of computer science. As our
economy becomes increasingly technologically-oriented, the sky is the limit
for persons who can apply the high-tech, information-based skills for a
successful career in retail sales.
Newhouse also advocates courses in philosophy, sociology, and psychology
for the student to learn how people think. These courses will help the retail
employee understand and interact with the customers.
This viewpoint is echoed by Ruby Johnson, a branch bank manager for
Barnett Bank, the largest bank headquartered in the state of Florida. The
retail sales functions of the branch banker include the attraction of deposits,
the making of loans and the selling of packaged or bundled accounts as well
as affiliate products such as trust and brokerage accounts. Banks offer
training programs for aspiring branch managers. These programs include
both classroom and on-the-job training. As a retail banking service provider,
Johnson offers this advice: "Know the needs of your customers. Be there for
a purpose. Exhibit patience, and be willing to go that extra mile."
Johnson supervises 10 staff persons, including two other managers.

"Sometimes the retail manager is called upon to resolve a friction between a
customer and a staff member. I must be able to take the customer's
viewpoint, while still being in support of my staff," notes Johnson. In her 12
years with Barnett Bank, Johnson has developed the philosophy that it is
important to master the art of being consistent with customers while
recognizing and adapting to the different needs and desires that different
customers bring to the retail establishment. "Be flexible in dealing with
customers," advises Johnson. As Auzenne puts it, "Interactive skills are
needed for store managers to be good communicators."
To meet the analytical requirements of a good retail manager, Newhouse
suggests that students take accounting and business organization for a
good basic background in the language and culture of business. The
following courses are also helpful to any business activity:
1) General marketing
2) Business law
3) General management
4) Economics
To truly excel in retail management, specialized courses are very helpful.
These include courses such as merchandising, retail mathematics, and
retail buying. Adds Dr. Charles L. Evans of FAMU's School of Business &
Industry, "The marked growth of general merchandisers, such as
department stores, discount houses, chains, and 'warehouse-showroom'
stores, has brought about greater emphasis on professional training as part
of the preparation for a career in retailing."
Hallmark Cards, Inc. provides many opportunities for advancement in the
field of retail sales, beginning with its in-depth training program. Retail sales
assignments begin with the assignment of a territory under the guidance of
a sales manager. Territories are determined by population density,
geographic location, and volume considerations. These territories may
consist of several counties and may include from 25 to 60 established
accounts. The Hallmark retail sales representative, also called the field
representative, is expected to meet and exceed sales objectives both by
increasing the volume of sales to existing accounts and by opening new

accounts. Other responsibilities include the training of retail store personnel

in sales and merchandising techniques and in inventory control procedures.
Finally, the field representative must develop sales strategies, individual
store advertising and other marketing programs aimed at the retail
customer. Successful performance as a field representative can lead to
advancement opportunities as a manager both in the field and at corporate
headquarters.
Students should join retail and marketing clubs. They should be active
participants in organizations that provide opportunities for working with
people from a variety of backgrounds. It is important to be in positions to
meet people and to make decisions. Newhouse tells her students to go to
different retail establishments, look at the displays, critique the service, and
critique the atmosphere. She tells her students to actively consider ideas for
improvement in any retail store.
Co-ops provide another opportunity to gain useful experience. Students
would benefit from an internship or co-op with a department store or any
type of retailer. Many firms offer internships both in the United States and
abroad. Part-time jobs with a retail business will provide needed exposure
and give students ideas about whether they want to pursue careers in the
retailing industry. Even fast-food restaurants offer useful retail experience.
L. C. Frederick has parlayed his expertise in working with the public into a
diverse group of retail businesses throughout the state of South Carolina.
Frederick believes that it is important to bring to the public a sincere effort to
serve. "We are here not only at the point of sale, but at the point of service,"
he remarks. "Service is a key factor. Always keep an even-tempered
demeanour. I don't believe that courtesy or sincerity will ever be outdated"
Frederick and Johnson stress the importance of hard work and high ethics.
Johnson's staffs all have her home telephone number. They can call her
anytime significant problems arise. She has sometimes pitched in to work as
a teller or even sweep the floor in an emergency. Declares Frederick, "You
must bring to the task an insatiable desire to succeed in achieving your goal.
Set goals high and don't minimize your efforts." He reminds students to think
positively and avoid listening to naysayer who try to discourage your efforts.
"Whatever you do, give it your all," urges Johnson. "Your best will always
stand out."


Write short notes on:
1. Retail as a Career
2. Growth prospects of MBA’s in retail
3. Ethics in Retailing
10.3 Summary
Issues regarding the retailing must be dealt very carefully without damaging
the customer expectation and the firm’s main view. The main career in
retailing provides lots of career in retailing.

1. What are the issues regarding retailing-Explain
2. Explain in detail the careers in retailing?
3. Write in detail the scope in retailing?
4. Describe the issues regarding government?

SAQs 1
1. Refer to 10.2
2. Refer to 10.2
3. Refer to 10.1
Terminal Questions
1. Refer to 10.1
2. Refer to 10.2
3. Refer to 10.1
4. Refer to 10.3

Reference:
1. Ashton.G1998, Topics, Volume1, Http://www.erconsultants.co.uk/contact.html
2. Barker.p. 1998 Malls are wonderful, Independent on Sunday, 25
October:
3. Doganis.R. 1992, The airport retail business concepts, Routledge
4. www.rai.org
5. Financial Times 2000, “ Success of the new unorthodoxy; Management
online retailing’,
6. Jones. P. and Pal.J 1998, ‘Retailing services ride the waves,
International journal of retailing distribution management.
7. Mintel 1999, Retail Review 1999, Retail International review group ltd
8. Majumdar.S. 2002, FDI in retailing: India as supermarket, Business line.
9. Levy and Weitz 2002, ‘Retailing Management, tata Mcgraw Hill
Publishing company Ltd, New Delhi
10. Lush and Dunne 1990, Retail Management, Southy-western publishing
co, Cincinnati, HO

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MK 0003

Content Preparation Team

Edition: Fall 2007

Unit 1 Understanding Retailing

Sikkim Manipal University Page No. 1

1.6 Retailing and Market segmentation

1.2 Importance of Retailing

Sikkim Manipal University Page No. 2

Sikkim Manipal University Page No. 3

to dispose the goods to the consumers. Successful retailing needs good

Sikkim Manipal University Page No. 4

1.2.12 Provision of Information:

1.2.19 Generates employment opportunities:

Sikkim Manipal University Page No. 6

Self Assessment Questions: I

1.3 Evolution of the Retail Sector

Sikkim Manipal University Page No. 7

consumer segment: The Sachet revolution - example of reaching to the

Weekly markets, village and rural meals

Convenience stores, mom-and –Pop stores /

Public distribution system, Khadi stores, Co-

Exclusive brand outlets, hyper markets &

Self Assessment Questions: II

1.4 Retail Environment

Sikkim Manipal University Page No. 8

Sikkim Manipal University Page No. 9

Self Assessment Questions: III

Sikkim Manipal University Page No. 10

1.5 Consumer Behaviour in Retail context

ENVIRONMENTAL FACTORS LIFESTYLE

1.5:1 Stages of the Consumer Decision Process:

Sikkim Manipal University Page No. 12

Stages in consumer decision making are discussed below:

Sikkim Manipal University Page No. 13

Self Assessment Questions: IV

Sikkim Manipal University Page No. 14

1.6 Retailing and Market segmentation

Sikkim Manipal University Page No. 15

terms of product variety, pricing, shopping ambience, etc., which appeals to

1.6:2 Store location decision:

1.6:3 Understand customer behaviors:

1.6.4 Merchandising decisions:

1.6:5 Promotional campaigns:

Sikkim Manipal University Page No. 17

Following table illustrates the dimensions in Demographic segmentation

Self Assessment Questions: V

Sikkim Manipal University Page No. 18

1.8 Terminal Questions

1.9 Answers to SAQS and TQS

Sikkim Manipal University Page No. 19

Answers to Terminal Questions:

Sikkim Manipal University Page No. 20

Unit 2 Retail Institutions

Sikkim Manipal University Page No. 21

2.2 Types of Retailers

• The type of merchandise sold:

Sikkim Manipal University Page No. 22

2.2.2 General Merchandise retail types:

Sikkim Manipal University Page No. 23