2014
Vipin MK Srinath
[RETAIL MANAGEMENT]
2nd Semester Bangalore University
Professor Vipin 2014
Unit 1
Introduction to Retail Business
Meaning and Definition
The word ‘Retailer’ had been derived from the French word ‘Re-tailer’ which means ‘to-cut again’.
Obviously then, retailing means to cut in small portions from large lumps of goods. A retailer is last
middlemen in the chain of distribution of goods to consumers. He is a link between the wholesalers and
the consumer.
The American Marketing Association defines retailing as “the activities involved in selling directly to the
ultimate consumer for personal and non-business use. It embraces direct-to-customer sales activities of
the producer, whether through his own stores or by house-to-house canvassing or by mail-order
business. The retailer is an intermediary in the marketing channels and is a specialist who maintains
contact with the consumer and the producer and is an important connecting link in the mechanism of
marketing.
Functions of Retail
1. Buying: A retailer deals in a variety of merchandise and so he buys collects large number of
goods his stocks from a variety of wholesalers. He selects the best from each store them and
bears wholesaler and also pays the most economical price. He brings all the goods marketing
risks, under one roof and then displays them in shop. Thus he performs the twin _ functions of
buying and assembling of goods.
2. Storage: After assembling the goods, the retailer stores them in his godown so that they are
held as reserve stocks for the future. Storage of goods in ready stock is also necessary.
3. Selling: The ultimate aim of every retailer is to sell the goods he buys. So he employs efficient
methods of selling to dispose off his products at a faster rate so that he can increase his
turnover in a period of time.
4. Risk-bearing: The retailer bears the risk of physical damage of goods and also that of price
fluctuations. Moreover, risk of fire, theft, deterioration and spoilage of goods has also to be
borne by him. Changes in fashions, tastes and demand of his customers also have an adverse
effect on his sales; nevertheless a retailer does not lose heart. He bears all these trade risks
which come in his way during the normal course of business.
5. Packing: A retailer packs his goods in small packets and containers for his customers.
Occasionally he may be required to grade the goods also.
6. Credit: Often retailers grant credit to customers and also bear the risk of bad debts, which go
along with credit sales.
7. Supply Information: Retailers supply valuable market information to both wholesalers and
customers.
8. Advertising: Retailers display goods and spend on advertisement also.
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Types of Retailers
Itinerant Retailers
Included under this heading are those retailers who do not possess any shop of their own and who move
from place to place to sell their wares. They include
1. Hawkers: They are itinerant traders who move about in residential localities with their wares
usually on bicycles or hand-carts. They usually deal in consumer goods of a cheap nature. Their
range of merchandise varies from vegetables, fruits to toys, bangles, plastic utensils etc.
2. Peddlers: They carry their wares on their heads or on their back and move from one house to
the other in the residential localities of a city. They also deal in cheap goods and usually cater to
the needs of the low- income gentry.
3. Cheap Jack: They do not stay long at one place of business but differ from pedlars and hawkers
in the sense that while the latter do not have shops of their own, cheap jacks do hire small ships
in residential localities to display their wares. They shift from locality to locality according to the
prospects of getting business.
4. Market traders: They are a type of small-scale sole-proprietors who hold stalls at different
places in different localities on fixed days known as “market days” which may be once a week.
They deal in a variety of cheap goods which are of consumers’ interests and which are needed in
every household daily.
5. Street Traders: They are “pavement retailers” who display and sell their products from
pavements/ footpaths. They are usually seen in crowded cities and handle light goods.
6. One-price Shop: It is a typical retail trading where the distinctive feature is the sale at uniform
price of low-priced articles of large variety which are in continuous demand e.g., pens, toys,
handkerchiefs, socks, etc.
Small Independent Retailers
1. Street stall-holders: Such retailers operate on a small-scale from small shops erected in busy
market places. They buy goods in bulk from wholesalers and also from local sellers, and resell
them to customers. Their field of operations is very small and limited. They are usually sole
traders and deal in goods needed by customers in their day-to-day use.
2. Second-hand goods dealers: They deal in used second-hand goods like books, garments
(readymade), utensils etc. They get their supplies from private or public auctions and even from
private households. Such retailers usually cater to the needs of poor people who cannot afford
to buy new articles.
3. General shops: Such retailers also known as General Merchants and deal in a variety of
merchandise. They have established shops in the market place and stock goods ranging from
food products to daily house needed articles. They are managed by owners and often employ
counter-salesmen to assist them in their selling activities. They even sell on credit to established
and old customers and also provide free-home delivery facility.
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4. Specialty Shops: They are retailers who deal only in one line of goods, e.g., books, drugs, shoes,
etc. They operate from established shops by owners themselves, and since they deal in a
particular line of product only, the retailers often possess sufficient specialised knowledge about
the product.
Retail Theories
At different times, different retail formats have been popular. Strong retail formats have become
marginal and new retail formats have often emerged to dominate the retailing scene.
Three retailing theories explain how different retail formats emerge, mature and are then replaced by
another format.
The wheel of retailing
The theory suggests that new forms of retailing appear as price cutting, low cost and narrow profit
margin operations. Eventually the retailer trades up by improving displays and location, providing credit,
delivery and by raising advertising expenditure. Thus, retailers mature as high cost, high price,
conservative operators, making themselves vulnerable to new, lower priced entrants.
A low price retailer should avoid incurring extra costs on the existing format and instead should open
another store with better service levels and premium brands catering to the up market segment. These
two stores should be distinct in their brand name, offerings and operations.
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Retail Accordion
This theory focuses on the width of product assortment sold by retail outlets and claims a generalspecific-general cycle. The cycle begins by retailers selling a wide assortment of goods followed by more
focused range and vice-versa.
Retail lifecycle
A new retail format passes through the stages of birth, growth, maturity and decline as industries and
products do. A new retail format that enjoys a competitive advantage over existing formats grows
rapidly.
Attracted by the growth potential of the new format, competitors enter the business during the growth
phase, and there is intense competition among the retailers of the new format.
The players develop ambitious plans of expansion and seek to open their stores in new geographical
areas. There is intense competition during maturity, and a new retail format may start replacing it
during its decline stage. The three theories explain the evolution of retail formats, but the decline and
demise of a retail format is not inevitable. Retailers have to learn to anticipate changes in environment
and adapt to them.
Retail in India
The changing face of the retail industry, with geographically spread branches, customization and higher
service levels has necessitated retailers to do business in the smart way. The three critical segments of
Supply Chain Management, innovative retailing and demand creation have all to be met in a costeffective and efficient manner and that requires IT tools.
Typically an organised retailer operating in the modern format functions in at least 4000 sq. feet space
with around 5000 stock keeping units (SKU), adopts a self service format, with distribution from a
central warehouse and so on, and with better displayed and laid-out the SKUs promoted, the more
enticing it looks.
The secret lies in the selection of SKUs and the retail buyer who does not understand the meaning of
price elasticity of demand cannot ever structure profitable promotions. Taking a leaf out of Adam
Smith’s Wealth of Nations, India may be very aptly described as a nation of shopkeepers. India is the
country having the most un-organised retail market. Traditionally it is a family’s livelihood, with their
shop in the front and house at the back, while they run the retail business.
Indian retail sector is estimated at around Rs. 90,000 crore of which the organised sector accounts for a
mere 2 percent indicating a huge potential market opportunity that is lying in the waiting for the
consumer-savvy organised retailer.
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The last millennium has witnessed innovations at every stage of the supply chain, giving rise to new
models. The consumer interface, i.e., the retailing factor has undergone a sea change, partly due to
changing consumer needs and partly due to the emergence of new technologies.
Indian Retailers need to understand the value of retail as a brand rather than remaining as retailers
selling brands. Indian retailing is coming of age and needs to have a clear brand proposition to offer the
discussing Indian consumer.
The focus should be on branding the retail business itself. Sustainable competitive advantage will be
dependent on translating core values combining products, image and reputation into a coherent retail
brand strategy.
Successful retailing has always been said to be, about getting the nitty-gritty right of merchandising,
forecasting, the supply-chain, training and recruitment of high quality personnel and category
management. Building retail brands that offer value will, in future, overshadow all these areas, and
emerge as the dominant reason for the success of the organised Indian retailer.
For new retailers entering the business, excitement of the Sunrise industry could quickly vapourise on
encouraging the complexity of the trade. A retailer needs to be multifaced to be able to work with 600
product categories, have expertise in fields ranging from agriculture to computer systems. Existing
retailers must prepare for a future where profits that will come entirely from the supply chain and not
from “re-pricing”.
Following are 8 key points for Retail Success
1.
2.
3.
4.
5.
6.
7.
8.
Analyses the sales staff’s role.
Analyze employee’s relationship.
Use internal resources.
Know your customers.
Must be customer oriented.
Listen to the product ranges available with competitors.
Go for market expansion.
Take time to listen to company’s sales representatives.
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