Introduction to Retail Management

Posted on Oct 1, 2024 in Economy

What is Retail?

According to Swapna Pradhan, the word “Retail” is derived from the French word “Retailer”, which means to break bulk. Retail consists of all activities involved in the marketing of goods and services directly to the consumer for their personal, family, or household use.

What is Retail Management?

The various processes that help customers procure the desired merchandise from retail stores for their end use are referred to as retail management. Retail management includes all the steps required to bring customers into the store and fulfill their buying needs.

Retail management makes shopping a pleasurable experience and ensures that customers leave the store with a smile. In simpler words, retail management helps customers shop without any difficulty.

Drivers of Change in Retailing

  • Changing demographics and industry structure
  • Focus on productivity
  • Expanding computer technology
  • Added experimentation
  • Emphasis on lower cost and price
  • Continuing growth of non-store retailing
  • Emphasis on convenience and service

Retail Industry & Economy

  • The Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. Total consumption expenditure is expected to reach nearly US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017. It accounts for over 10% of the country’s gross domestic product (GDP) and around 8% of the employment.
  • India ranked 73rd in the United Nations Conference on Trade and Development’s Business-to-Consumer (B2C) E-commerce Index 2019. India is the world’s fifth-largest global destination in the retail space and ranked 63rd in World Bank’s Doing Business 2020.
  • India is the world’s fifth-largest global destination in the retail space. In the FDI Confidence Index, India ranked 16th (after the US, Canada, Germany, the United Kingdom, China, Japan, France, Australia, Switzerland, and Italy).
  • Online retail sales were forecast to grow 31% year-on-year to reach US$ 32.70 billion in 2018. Revenue generated from online retail is projected to reach US$ 60 billion by 2020.
  • Revenue of India’s offline retailers, also known as brick and mortar (B&M) retailers, is expected to increase by Rs. 10,000-12,000 crore (US$ 1.39-2.77 billion) in FY20.
  • The Government of India has allowed 100% FDI in online retail of goods and services through the automatic route, thereby providing clarity on the existing businesses of e-commerce companies operating in India.

Characteristics of Retailing

  • Direct interaction with the customer
  • It is the only point in the value chain to provide a platform for promotion
  • In most retail businesses, services are as important as core products
  • Point-of-purchase and display promotion
  • Lower average amount of sales transaction
  • Location is a critical factor in retailing

Functions and Activities of Retailing

  • Sorting
  • Arranging an assortment of offerings
  • Breaking bulk
  • Holding stock
  • Extending services
  • Providing additional services
  • Channel of communication
  • Transport and advertising function

Categorizing Retailers

Categorizing retailers helps in understanding the competition and the frequent changes that occur in retailing. There is no universally accepted method of classifying a retail outlet, although many categorization schemes have been proposed. Some of these include classifying on the basis of:

  1. Number of outlets
  2. Margin vs. turnover
  3. Location
  4. Size

A) Number of Outlets

The number of outlets operated by a retailer can have a significant impact on the competitiveness of a retail firm. Generally, a greater number of outlets add strength to the firm because it can spread fixed costs, such as advertising and managers’ salaries, over a greater number of stores in addition to acquiring economies of purchase. Any retailer operating more than one store can be technically classified as a chain owner; for practical purposes, a chain store refers to a retail firm that has more than eleven units.

B) Margin vs. Turnover

Gross margin and inventory turnover are another means of classifying retailers. Gross margin is net sales minus the cost of goods sold, and the gross margin percentage is the return on sales. Inventory turnover refers to the number of times per year, on average, a retailer sells their inventory.

  1. Low Margin Low Turnover
  2. Low Margin High Turnover
  3. High Margin Low Turnover
  4. High Margin High Turnover

The main limitation of classification by this method is that service retailers who have no inventory turnover cannot be encompassed.

C) Location

One of the oldest means of classification of retailers is by location, generally within a metropolitan area. Location is one of the most critical decisions that the retailer has to take.

  • Offline vs. Online

D) Size

Size is often used as a yardstick to classify retailers because costs often differ based on size, with big retailers having lower operational costs per rupee than smaller players.

  • Small vs. Big Chains
  • Independent Retailers vs. Small/Big Chains

Trends in Retail Formats

A) Mom-and-Pop Stores/Kirana/Traditional Stores

A kirana store is a small, family-owned shop in India that sells groceries and other daily household items like pulses, rice, sugar, shampoo, soap, and detergents. The word “kirana” comes from the Hindi word kirānā, which means “groceries” or “spices.”

B) E-commerce

E-commerce (electronic commerce) is the activity of electronically buying or selling products on online services or over the Internet.

Key Drivers for E-commerce in India
  • Escalating broadband Internet subscribers, 4G penetration, and the recent introduction of 5G in a few cities
  • Explosive growth of smartphone users, soon to be the world’s second-largest smartphone user base
  • Availability of a much wider product range (including long tail and direct imports) compared to what is available at brick and mortar retailers. Competitive prices compared to brick and mortar retail, driven by disintermediation and reduced inventory and real estate costs
  • Increased usage of online classified sites, with more consumers buying and selling second-hand goods
  • In India, cash on delivery is the most preferred payment method, accumulating 75% of the e-retail activities, which needs to make a shift towards online payment mechanisms
  • India has its own version of Cyber Monday known as the Great Online Shopping Festival (GOSF), which started in December 2012 when Google India partnered with e-commerce companies including Flipkart, HomeShop18, Snapdeal, Indiatimes shopping, and Makemytrip. ‘Cyber Monday’ is a term coined in the USA for the Monday coming after Black Friday

C) Departmental Store

  • A department store is a retail establishment offering a wide range of consumer goods in different areas of the store, each area (“department”) specializing in a product category.
  • Department stores sell products like apparel, furniture, home appliances, electronics, and additionally select other lines of products such as paint, hardware, toiletries, cosmetics, photographic equipment, etc.
  • Certain departmental stores can be further classified as discount department stores. These stores commonly have a central customer checkout area.

D) Discount Stores

  • A retail store that sells products at prices lower than those asked by traditional retail outlets
  • Some discount stores are similar to department stores in that they offer a wide assortment of goods; indeed, some are called discount department stores
  • Believe in charging lower prices compared to the market and use huge volume to compensate for low margins

E) Category Killers

  • A category killer is a retailer, often a big-box store, that specializes in and carries a large product assortment of a given category
  • Through their wide merchandise selections, low pricing, deep supply, large buying power, and market penetration, they have a comparative advantage over other, smaller retailers and can greatly reduce the sales of rival retailers within that category, in the area and beyond it

F) Specialty Stores

A specialty store is a retail business that focuses on a specific product category or niche market. They can sell a single product line or part of a line in depth, or a wide variety of products within a specific category.

G) Retailers and Suppliers Relationship

  • Intensive
  • Selective
  • Exclusive Distribution

Changing Face of Retailing

1) Role of IT in Retailing

  1. It is a means of communicating information about the retail organization, its products, and services. Inviting consumers interactively to access the website to gain more product information and facilitate their buying decision-making process.
  2. It provides valuable consumer data to retailers to enable greater targeting. US retailers view the Internet as a communication tool for attracting new customers, penetrating new markets, promoting the company’s brand, and improving customer retention.
  • IT & Size of a Retail Organization – Small vs. Big: It has been suggested that small retail organizations are most likely to take to the Internet due to their greater flexibility, limited resources, and lack of economies of scale, encouraging collective marketing via small business networks.
  • Product vs. Service Offered: Convenience shopping and specialty goods may offer varying attractions to the online consumer. In India, Internet retailing indicates a preference for electronics items, apparel and accessories, and books with a market share of 34%, 30%, and 15%, respectively. After these segments, beauty and personal care with a 10% share, home and furnishing with a 6% share, healthcare with a 3% share, and baby products with a 2% share are considered to be less compatible in the e-retailing market.
  • Further, the availability of e-commerce applications on various mobility devices is helping to drive sales and revenue. E-tailers such as Flipkart, Amazon, and Jabong generate nearly 50% of their revenues from consumers shopping using mobile phones.
  • Retailers are increasingly turning to web-based tools/software for better communication with suppliers and clients and to keep a close eye on inventory. Software to help avoid excess stock and data mining technologies to gather information about customers’ purchasing habits, Just in Time.

2) Vertical Retail Concepts

  • The boundaries between simple store concepts along traditional lines and verticality or shop-in-shop concepts are increasingly becoming fluid and are reflected in modern store construction concepts.
  • Vertical integration/alliances with specialists have raised the levels of competence and customer frequency.
  • The new strategy of gaining access to the consumer is LIM, ‘Less is More’.
  • This trend has given rise to the concept of ‘retail ecology’ in which retail spaces 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.

3) Branding Through Retailers

  • In a cluttered, fragmented media environment, the store now plays a prominent role as both a medium and a mediator between the brand and the consumer.
  • Over the last few years, the largest FMCG manufacturers are being increasingly threatened by large retailers because, without them, they would not be able to reach their customers in terms of both logistics and consumer communication.
  • The role of retailers as communicators for a particular brand:
    • Directly persuades consumers to buy a brand
    • Persuades retailers to allocate extra shelf space or ‘facings’ to that brand. This conveys to the consumers that the brand is much in demand
  • Retailers’ choice of brands – Store planning software, category managers
  • Role of retailers in new product success – Role of a gatekeeper
  • Manufacturers maximizing brand exposure
  • Lifestyle clustering

A large part of what the store stands for is communicated by 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.

4) Consumption-Related Mega Trends

  • There are certain trends in consumption behavior that have a direct and significant impact on the business strategy and profitability of retail businesses. These trends relate to the changing demography, increasing individualization, computerization, mobility, and demand in terms of sustainability and dematerialization.
  • Demographically, there is an increase in the number of consumers with greater purchasing power and more migrant consumers, more young consumers; the composition of households is also changing.