Retail Institutions
Theories of Institutional Change:
a) Wheel of retailing
b) Dialectic process
c) Retail accordion
d) Natural selection
Wheel of Retailing
 Malcolm McNair’s “Wheel of Retailing”
classifies into three phases:a) Entry phase
b) Trading-up phase
c) Vulnerability phase
Entry Phase
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Low price store format
High Demand of Goods
Modest Shopping Atmosphere
Locating Store in low rent area
Trading up
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Differentiate its products
Offering maximum customer service
Posh shopping Atmosphere
Relocating to high cost area
Higher status and higher price of
operation
Vulnerability Phase
 High Costs
 Fierce Competition
 Fall in return on investment
Dialectic Process/Melting Pot
 Thomas Maronick and Bruce Walker
“Dialectic Evolution of Retailing”.
 Retailers mutually adapt in the face of
opposites
 Established institution adapts strategies
and tactics adopted by competitors in
direction of advantage
 Innovator becomes unchanged
 Established firm earns profits as economies
of scale
Retail Accordion
 Merchandise mix strategies of
retailers change while retail prices
and margins remain same
 Strategies-Multiple merchandise with
shallow assortment of goods to
limited merchandise with deep
assortment of goods and services
 Firms can choose any strategy
between two extremes
Natural Selection
 Flexible enough to adapt to changing
environment and should adapt to
changes in environment
 Retail institution will survive in
competitive market only if it changes
product ,price, location and
promotion as per social ,economic,
political,legal or technological
changes
Classification of Retailers
 Store Based Retailers on basis of
various parameters:a) Ownership
b) Strategy mix
c) Service vs Goods retail mix
Ownership patterns
 Ownership patterns can be divided
into six categories:
a) Independent stores
b) Chain stores
c) Franchise stores
d) Leased department
e) Vertical marketing system
f) Consumer Cooperatives
Independent store
 Owned by single retailer
 Entry barriers are low i.e. Licensing
procedures are simple and initial
investment is low
 Customer focused
Advantages-Independent Store
 Convenient Location and Suitable Store Format
 Concentrate on Small Target market to achieve
business objectives
 Retailer can decide on timing, product assortment and
price on basis of target market
 Cost of setting is low, stores employ few people with
few modest fixtures
 No excess stocks or duplication of store functions
increasing efficiency and productivity of store
 Owner takes all decisions regarding store
 Specialized store with limited merchandise and wide
assortment
Disadvantages-Independent Store
 Bargaining power is less compared to supermarkets
and chain stores
 Productivity of independent stores is low because they
depend on labor-intensive methods like ordering,
stocktaking ,merchandising and accounting
 Independent stores fail because retailers lack modern
tools for retail like finance, merchandising, promotion
and operations
 Order frequently as they operate with less working
capital
Chain Stores
 Chain stores have two or more retail
stores that are commonly owned and
controlled
 Centralized buying and merchandise
system and sell similar lines of
merchandize
Advantages-Chain Stores
 Purchase at low price
 Purchase for all retail units are done together as
they have high bargaining power
 Centralized decision making system and use of
latest technology
 Chain stores are spread over wide area and they
can be aggressive through electronic and print
media
 Full time experts employed for long term planning
allow chain stores to regularly monitor
performance
Disadvantages-Chain Stores
 Chain stores cannot customize strategies for every
location in terms of price ,promotional activities
and product assortments
 Initial cost is high since it requires additional
fixtures, product assortments and large number of
personnel
 Top management to control activities of every
individual store in chain
 Centralized management is difficult for chain
stores as location of each store is widely spread
 No personal interest as chain store is managed by
several layers of management ,employee unions
,stockholders and board of directors
Franchise Store
 Contractual agreement between franchiser
and franchisee which allows franchisee to
conduct given form of business under
established name
 Franchising can be of two types:a) Product/trademark franchising-Franchised
dealers can sell goods under suppliers name
b) Business format franchising-Franchisee can
sell goods and also handle various aspects of
management like store location, personnel
training ,quality control and accounting
Advantages-Franchisees
 Retailers can operate retail businesses
with small capital investment
 Franchisees get well known brands
 Franchisees gain exposure to standard
operating procedures and management
skills
 Franchisees get advantage of
promotional activities promoted by
franchiser
 Franchisees can sell products at specific
locations
 Better bargain on account of total
purchase volumes of all firms
Disadvantages-Franchisees
 Concentration of too may franchisees lead to
over saturation affecting volumes and profits
 Franchisers can hard sell franchisee rights by
projecting higher returns
 Franchisee have to purchase goods only from
franchiser
 Franchiser can terminate license when franchisee
fails
 Contract time is too short in industries when
retailers have to renew franchisee rights
Leased Department
 Department in a retail store rented to
outside party-Leased department
 Lessee is accountable to all activities
of leased department including
furnishing, merchandise assortment
 Department sees that merchandise
sold by leased dept does not
cannibalize existing product lines
Advantages-Leased department
 Departments can reduce costs by leasing
departments
 Departments short comings can be
overcome by lease departments
 Regular income-rent
 Leased dept can increase customer traffic
because of established name of lessor store
 Initial cost is reduced since cost is borne by
store operator and leased department
Disadvantages-Leased department
 Disputes between leased department
and store will affect brand image
 Leased department may not attract
additional customers
 Lessor can impose restrictions on
goods and services
 Store may increase rent if leased
department is successful
Vertical marketing systems
 Distribution system in which producers,
wholesalers and retailers act in unified
manner
 Three types of vertical marketing
systems:a) Independent vertical marketing system
b) Partially integrated vertical marketing
system
c) Fully integrated vertical marketing system
Independent vertical marketing
systems
 Customers are scattered,
manufacturers and retailers are small
 Vertical marketing systems consist of
stationery stores, gift shops,
hardware stores
Partially integrated vertical
marketing systems
 Only two business units in distribution
channel together
 Manufacturer and retailer manage
shipping ,warehousing and
distribution
 Furniture stores, Appliance stores,
Restaurants,Computer retailers
Fully integrated vertical marketing
system
 One player manages all activities
without any help from channel
members
 Full control over production,
wholesaling and retailing
Consumer cooperative
 Retail operations owned and managed
by customer members
 Members vote on store policies and
select a group to manage operations
Strategic Mix
 Food Oriented retailers
a) Convenience stores-Small stores
located near residential areas
b) Conventional supermarket-Focus on
food and household maintenance
products
They focus on every day low price
(EDLP) policy e.g:-Big Bazaar
Strategic Mix
 Food-oriented retailers
c) Food-based supermarket-Store ranges
from 25,000 to 50,000 square feet and
earns around 25 percent of revenue
from general merchandise goods
e.g:-Foodworld
d) Combination store
Combination store is blend of super
market and general merchandise where
general merchandise contributes more
than 40 percent sales
Combination store ranges from 30,000 to
1,00,000 square feet e.g Shoprite,Giant
Strategic Mix
 Food-oriented retailers
e) Box (limited-line ) store:Box store is food-based discount
store that concentrates on small
selection of goods
Shops have limited shopping hours,
limited services and limited stocks
Strategic Mix
 Warehouse stores:Warehouse stores are discount food
retailers with average size of 100,000
square feet
They cater to customers who look for
low price deals
Strategic Mix
 Depending on functioning style,
warehouse retailers can be divided into
four categories:a) Warehouse showroom
b) Catalog showroom
c) Hypermarket
d) Warehouse club
Strategic Mix
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Warehouse showroom:-Single line hard good retailer selling
well-known brands of furniture and appliances
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Catalog showroom-Discount operations that offer
merchandise through catalog or showroom e.g houseware,
jewellery, consumer electronics
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Hypermarket:-Can be defined as large retail store that
offers product at low price
Typically spread over 3lakh sq.ft and having more than
50,000 different items of sale
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Warehouse Club: General merchandise retailer who offers
limited merchandise assortment with limited service at low
prices
Store is located in remote locations in 1lac sq.ft area
Operated on membership basis known as membership clubs
Strategic Mix
 General merchandise retailers:
On the basis of location, merchandise,
price,store, service and promotional mix
,Retailers can be classified
a) Specialty stores
b) Variety stores
c) Department stores
d) Off price retailer
e) Membership club
f) Flea market
General merchandise retailers
 Specialty stores-Type of merchandise
stores that sells limited lines of closely
related products to selected group of
customers
a) Single specialty stores
b) Limited line specialty stores
c) Category killer-New type of specialty store
that offers enormous selection in product
category at low prices e.g Nalli’s sarees,
S.Kumar shirts
General merchandise
 Variety stores-Deep assortment of
inexpensive and popular goods like
stationery, gift items, house wares
 Department stores-Wide variety and deep
assortment of goods and services
Goods and services are organized into
various departments
One stop-shopping experience to customers
Two types of department stores:
a) Traditional Department stores
b) Full-line department stores
General merchandise
 Off-price retailer-Inconsistent
assortment of branded, fashionoriented soft goods at low prices
Off Price retailers have long term
relationship with suppliers
Buy goods at bulk at reduced prices
and sell at off prices
Off –price retailers
 Off-Price retailers can be classified as
follows:a) Outlet stores-Factory outlets selling
irregular merchandise, discontinued
merchandise,in-season first quality
merchandise
b) Close outlet stores offer inconsistent
assortment of general merchandise as
well as apparels and soft goods
c) Single-price retailers sell merchandise
at single price
General merchandise retailers
 Membership club/wholesale
clubs/warehouse clubs and wholesale
centers
a) Members have to pay annual fee to
become members of club
b) Membership in club allows them to
purchase goods at low price
Flea Market
 Flea market is an outdoor or indoor
facility that rents out space to
vendors who offer merchandise,
services and other goods
 Flea market consists of retail vendors
offering variety of products at
discount rates
Service retailing
a) Services along with goods e.g A/cs,
computers
b) Services without goods (pure
service)-hospitals, hair stylists,
banks
Non store retailing
 Traditional retailing:
a) Direct marketing is an interactive
marketing system that uses one or
more advertising media
b) Direct selling
-Person to person
-Multilevel (network) marketing
-Party plan
Non store retailing
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Vending machines
Catalog marketing
Telemarketing
TV home shopping
Non traditional non store retailers
 World Wide Web
 Video Kiosks
 Video catalog-CD-ROM disk