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CRITICAL ELEMENTS OF RETAILING
Definition of Retailing
Retailing consists of the activities involved
in selling goods and services
directly to ultimate consumers
for personal, non business use
Basis of Positioning
Breaking bulk
Spatial convenience
Waiting and delivery time
Product variety
Most retail outlets
Sam’s Clubs
ConvenienceShoppingSpecialty
Large stocksMinimum queuing time
Breadth of product rangeDepth of assortment
Major Retailer Types
• Specialty store• Department store• Supermarket• Convenience store
• Discount store• Off-price retailer• Superstore• Catalog showroom
Elements of Retailing(Customer related)
• Variety and Assortment
breadth of product lines and
depth of product brands or models
• Location and Convenience
• Customer Service
Contrast of Traditional and Modern Retailing
TRADITIONAL
High margin
Low Turnover
Numerous personal services
MODERN
Low margin
High turnover
Minimum Services
In the 21st Century, some retailers are able to combine LOW MARGINS, HIGH MARGINS WITH EXCELLENT PERSONAL SERVICESby using sophisticated information systems for improved asset management
Strategic Profit Model
Net Profit
Net Worth
Net Profit Net Sales Total Assets
Net Sales Total Assets Net WorthX X
Margin Management
Asset Turnover
Financial Leverage
Measures of Performance critical to Retailers
1. Gross margin return on inventory
(GMROI)
2. Gross margin per full time equivalent
employee (GMROL)
3. Gross margin per square foot
(GMROS)
Indicators of Sales Effectiveness
• Number of people passing by location
• Percentage who enter store
• Percentage of those who enter who also buy
• Average amount spent per sale
Trends in Retailing
• New retail forms and combinations
• Growth of intertype competition
• Competition between store-based and non-store-based retailing
• Growth of giant retailers
• Growing investment in technology
• Global presence of major retailers
Strategic Issues in Modern Retailing
Increased Power of RetailersRetailers tend to dominate because :
1. Growth for a manufacturer now translates to market share game
2. In the competitive environment retailers cannot increase prices. Margins can increase only by lowering procurement prices
3. Retailers have many new products to choose when deciding what to stock
4. With information technology the retailer can capture item by item data of sales
Power RetailingCharacterized by :
1. Ability to take risks by forecasting trends
2. Ordering early
3. Selling in large volumes
4. Heavy investments in information technology
5. Commitment to deliver value
6. Emphasis on customer service
Emergence of Global Retailers
Driven by :
1. Slowing of growth in the home
markets
2. Overwhelming attractiveness of new
emerging markets
3. Liberalization of several closed
economies
What spells success for a Retail operation
Merchandise Planning and Control
Merchandise Budgeting :
Planned sales
Planned stock levels
Planned reductions (markdowns)
Planned Gross margins and
Operating Profits
Non Store Retailing
1. Catalogue retailing
2. Direct Selling Organizations
3. Electronic Channels
Catalogue Retailing
Suitable for
Service Outputs
Trade off
Dispersed customers
Time starved customers
Break Bulk
Assortment
Spatial convenience
Delayed deliveries
Catalogue Retailing
Challenges
Procurement of the product
Preparation of the catalogue
Organizing the mailing lists
Order fulfillment and shipping
Out – of – stock situations
Merchandise returns
Direct Selling Organizations(Multilevel selling – Network selling)
‘Distributors’/Consultant primarily perform the promotion flow vigorously
Drawbacks :1. Low entry barriers, hence the danger of
non-serious distributors being inducted
2. Segmenting/targeting/positioning absent
Electronic Channels
Potential constrained by
Service Outputs
Trade off
Penetration of PCsInefficiencies of the ISPFear of fraud
Break BulkAssortmentSpatial convenience
Delayed deliveries
Channels involving use of Internet to reach the end-user. The customer can buy on-line
Electronic Channels
Challenges
Integration of electronic channel with the existing channels
Reduction of conflict
Order fulfillment and shipping
Out – of – stock situations
Merchandise returns
February 29 IKEA calls Indian retail
opportunity a myth
In a scathing attack on misplaced optimism for Indian Retailing, an official of Swedish retail major, IKEA has dismissed the Indian retail market as over-hyped. “India is not ready for big retailers yet. Maybe we can talk about it in 2015-16…I am not impressed by the big investments happening in this market today. I want to see return on investment, which is not happening,” IKEA India Property and Establishment Manager Staf Lenders said at the Technopak Retail Summit. easing of FDI norms was a pre-condition for their entry.
Mr. Lenders further lambasted Indian retailers and those who had already made investment, “I can’t understand how an Indian company can open 200 stores in one year. May be you (India) are just copying the mistakes of others…Also, local companies, including Reliance, do not know how to respect customers.”
FranchisingIs the licensing of an entire business format.
Is a package of industrial or intellectual property rights.
Franchising is characterized by :1. Use of common name or sign, with a uniform presentation
of the premises2. Communication of know how from franchisor to franchisee3. Continuing provision of commercial or technical assistance
by the franchisor to the franchises.
Franchisingfrom a franchisee point of view
1. A good way for the uninitiated to get into business
2. A good system to run a business
3. Renting of brand equity
Franchisingfrom a franchisor point of view
1. A good way to tide over scarcity of capital and managerial talent
2. A justification for national advertising
3. Preempt competition in a fragmented market and build a strong brand
4. Harnessing the motivation of a capable person
5. Cutting down on the monitoring costs by making people into residual elements
The Franchise Contract
Three important sections of the
contract :
1. The payment system
2. The real estate
3. Termination
The Franchise Contract
Three important sections of the
contract :
1. The payment system
2. The real estate
3. Termination
For notes only
Company owned v/s Franchise owned Outlets
When to have company outlets ???
1. Initially the franchisor needs to start out with
some outlets of his/her own to formulate the
business format and develop the brand name.
2. To hold a location in a new market
3. In markets requiring monitoring from the
franchisor a company outlet is preferable
…..2
Company owned v/s Franchise owned Outlets
1. Each form benchmarks for the other
2. Company stores are good laboratories to
test a new product concept. However,
company store managers don’t generate
ideas, they follow rules. Ideas come from
the franchisees.
…..2
That’s all for Today!!!
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