Retail Institutions

1
Retail Institutions

• Theories of Institutional Change
• Wheel of retailing
• Dialectic process
• Retail accordion
• Natural selection

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Wheel of Retailing

• Malcolm McNairs Wheel of Retailing classifies
  into three phases-
• Entry phase
• Trading-up phase
• Vulnerability phase

3
Entry Phase

• Low price store format
• High Demand of Goods
• Modest Shopping Atmosphere
• Locating Store in low rent area

4
Trading up

• Differentiate its products
• Offering maximum customer service
• Posh shopping Atmosphere
• Relocating to high cost area
• Higher status and higher price of operation

5
Vulnerability Phase

• High Costs
• Fierce Competition
• Fall in return on investment

6
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

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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

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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

9
Classification of Retailers

• Store Based Retailers on basis of various
  parameters-
• Ownership
• Strategy mix
• Service vs Goods retail mix

10
Ownership patterns

• Ownership patterns can be divided into six
  categories
• Independent stores
• Chain stores
• Franchise stores
• Leased department
• Vertical marketing system
• Consumer Cooperatives

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Independent store

• Owned by single retailer
• Entry barriers are low i.e. Licensing procedures
  are simple and initial investment is low
• Customer focused

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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

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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

14
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

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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

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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

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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-
• Product/trademark franchising-Franchised dealers
  can sell goods under suppliers name
• Business format franchising-Franchisee can sell
  goods and also handle various aspects of
  management like store location, personnel
  training ,quality control and accounting

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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

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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

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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

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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

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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

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Vertical marketing systems

• Distribution system in which producers,
  wholesalers and retailers act in unified manner
• Three types of vertical marketing systems-
• Independent vertical marketing system
• Partially integrated vertical marketing system
• Fully integrated vertical marketing system

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Independent vertical marketing systems

• Customers are scattered, manufacturers and
  retailers are small
• Vertical marketing systems consist of stationery
  stores, gift shops, hardware stores

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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

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Fully integrated vertical marketing system

• One player manages all activities without any
  help from channel members
• Full control over production, wholesaling and
  retailing

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Consumer cooperative

• Retail operations owned and managed by customer
  members
• Members vote on store policies and select a group
  to manage operations

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Strategic Mix

• Food Oriented retailers
• Convenience stores-Small stores located near
  residential areas
• Conventional supermarket-Focus on food and
  household maintenance products
• They focus on every day low price (EDLP)
  policy e.g-Big Bazaar

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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

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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

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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

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Strategic Mix

• Depending on functioning style, warehouse
  retailers can be divided into four categories-
• Warehouse showroom
• Catalog showroom
• Hypermarket
• Warehouse club

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Strategic Mix

• Warehouse showroom-Single line hard good
  retailer selling well-known brands of furniture
  and appliances
• Catalog showroom-Discount operations that offer
  merchandise through catalog or showroom e.g
  houseware, jewellery, consumer electronics
• 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
• 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

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Strategic Mix

• General merchandise retailers
• On the basis of location, merchandise,
  price,store, service and promotional mix
  ,Retailers can be classified
• Specialty stores
• Variety stores
• Department stores
• Off price retailer
• Membership club
• Flea market

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General merchandise retailers

• Specialty stores-Type of merchandise stores that
  sells limited lines of closely related products
  to selected group of customers
• Single specialty stores
• Limited line specialty stores
• Category killer-New type of specialty store that
  offers enormous selection in product category at
  low prices e.g Nallis sarees, S.Kumar shirts

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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
• Traditional Department stores
• Full-line department stores

37
General merchandise

• Off-price retailer-Inconsistent assortment of
  branded, fashion-oriented 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

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Off price retailers

• Off-Price retailers can be classified as
  follows-
• Outlet stores-Factory outlets selling irregular
  merchandise, discontinued merchandise,in-season
  first quality merchandise
• Close outlet stores offer inconsistent assortment
  of general merchandise as well as apparels and
  soft goods
• Single-price retailers sell merchandise at single
  price

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General merchandise retailers

• Membership club/wholesale clubs/warehouse clubs
  and wholesale centers
• Members have to pay annual fee to become members
  of club
• Membership in club allows them to purchase goods
  at low price

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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

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Service retailing

• a) Services along with goods e.g A/cs, computers
• b) Services without goods (pure
  service)-hospitals, hair stylists, banks

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Non store retailing

• Traditional retailing
• Direct marketing is an interactive marketing
  system that uses one or more advertising media
• Direct selling
• -Person to person
• -Multilevel (network) marketing
• -Party plan

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Non store retailing

• Vending machines
• Catalog marketing
• Telemarketing
• TV home shopping

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Non traditional non store retailers

• World Wide Web
• Video Kiosks
• Video catalog-CD-ROM disk

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