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Theories have been developed to explain the process of retail development
Theories developed : Revolve around importance of Competitive pressuresInvestments in organizational capabilitiesCreation of sustainable competitive advantage
Growth in retail is a result ofUnderstanding market signalsResponding to the opportunities that arise
1. Environmental Theory Where a change in retail is attributed to the change
in the environment in which the retailers operate
2. Cyclical Theory Where change follows a pattern and phases can be
can have definite identifiable attributes associated with them
3. Conflictual Theory The competition or conflict between two opposite
types of retailers, result in a new format being developed
Environmental Theory
Retail institutions are economic entities
Retailers confront an environment (customers, competitors, changing technology etc.)
Environment can alter profitability of a single retail store as well as of clusters and centres
Environment in which retailer competes is robust to squash any retail form that is unable to adjust
The birth, success or decline of different retail enterprises is attributed to business environment
The ability to adapt to these environmental changes, successfully, is the core of this theory
Eg. Department stores I Western markets
Cyclical Theory
Also known as the “Wheel of Retailing” theory. One of the most well known theories
Described by McNair, helps us in understanding retail changes
Theory suggests that retail innovators often appear as 1. low price operators, 2. with low cost structure 3. and low profit margin requirements offering some real
advantages that enable them to take away customers
While prospecting they develop their business
Offer wide range and acquire expensive facilities
Such trading up occurs as the retailer becomes established in his own right
This in turn leaves room for others to enter and repeat he process
Cyclical Theory
Theory of the wheel of retailing can be better understood by taking the
example of a department store
Starts as a low cost competitor to small retailers They develop and prosper Then they are severely undercut by supermarkets and
discount warehouses This theory does not explain the development of retail in all
markets
In less developed markets, introduction may not necessarily occur at a low
Price
There introduction may occur at a high price
Conflict Theory
Conflicts will always exist between operators of similar formats or within broad retail categories
Belief : Retail innovation does not necessarily reduce the number of formats available to customers
But it leads to the development of more formats
Retailing thus evolves through a dialectic process ie. the
blending of two opposites to create a new format
Conflict Theory
This can be applied to developments in retailing as follows
a. “Thesis” : Individual retailers exist as corner shops all across the country
b. “Antithesis” : A position opposed to the thesis develops over a period of time. These are the department stores. Antithesis is a challenge to the thesis
c. “Synthesis” : There is a blending of thesis and antithesis
The result is a position between the thesis and the antithesis
Supermarkets and hypermarkets thrive
This synthesis becomes the thesis for the next round of evolution
Classification of Retail Stores : On the basis of ownership
Independent Retailer
One who owns and operates only one retail outlet Such an outlet features the owner & proprietor and
few local hands or family members Many independent stores are passed from
generation to generation In India large number of retailers are independent
retailers Example : local baniyas, kirana stores, paanwalla etc. Ease of entry into the retail market is one of the
biggest advantages available to an independent retailer
Depending on the location and the product mix independent retailers determine their own strategies
Chain Retailer Also known as a “Corporate Retailer” When two or more outlets are under a
common ownership Characteristics: Similarity in merchandise,
ambience, advertising and promotion Examples : Park Avenue, Parx (Raymond),Wills
Sport (ITC), Louis Phillipe, Van Heusen (Madura Coats), Arrow (Arvind Mills)
Department stores like West Side, Pantaloons, Globus, Shopper’s Stop, Music World, Planet M , etc.
The biggest advantage for the chain stores is the bargaining power over their suppliers
Cost effectiveness is also possible in advertising and promotion
Franchising
Franchise is a contractual agreement between franchiser and franchisee
Allows the franchisee to conduct business under an established name
The business format is specified The franchisee in return pays a fee or
compensationFranchising can be for the following A product or a trade mark franchise, eg.
Archie’s A business format franchise – Mc
Donald’s
Leased Departments These are also termed as shop-in-shops When a section of a department in a retail store is
leased / rented to an outside party A good method available to a retailer for
expanding his product offering to the customers In India many large department stores operate
their perfumes and cosmetics counters in this manner
This is a new trend emerging in Indian retail Large retail chains are setting up smaller retail
outlets Outlets or counters in high traffic areas like malls,
department stores, multiplexes Outlets in public places like airports, railway
stations Main aim is to be available to the customer near
his place of work or home
Consumer Cooperatives
Consumer cooperative is a retail institution owned by its member customers
Consumer cooperative may arise due to dissatisfied consumers, whose needs are not met by existing retailers
The members of the cooperative largely run these cooperatives
Thus there is limited growth opportunities Examples of cooperatives: Sahakari
Bhandars & Apna Bazaar in Mumbai and the Super Bazaar in Delhi
Kendriya Bhandars are probably the oldest examples operated by the government
Classification on the basis of merchandise offered 1. As food oriented 2. General merchandise retailers
Within this classification they may further be classified on
the basis of target markets they cater to Speciality stores, department stores and
convenience stores cater to a very specific target market
They are many a times referred to as products/ service retailers
Supermarkets, hypermarkets and department stores cater to mass market and are often called traditional product retailers.
Convenience Stores Small stores located near residential areas Open for long hours, seven days a week and
offer limited line of convenience products Eggs, milk, bread, toiletries etc. Store size ranges from 3,000 to 8,000 sq.ft. Targeted at customers who wish to make
purchases quickly Convenience stores as such do not exist in
India formally However retail stores have come up at petrol
pumps like HP, IOC, BPC, Speed Mart etc. These can be termed as convenience stores
Supermarkets These are large, low cost, low margin, high
volume, self service operations Designed to meet he needs for food, groceries
& other non-food items This format was at the forefront of grocery
revolution, and today, controls more than 30% of he grocery market in many countries
Internationally the size of these stores varies from 8,000 to 20,000 sq.ft.
ASDA, Safeway, Kroger and Tesco are some of the large international players
The concept of everyday low pricing (EDLP) is followed by some retailers
Under this the price charged by retailers are lower than those charged by other grocery retailers in the area
Hypermarkets These are huge retail stores occupying an area which
ranges anywhere between 80,000 to 2,20,000 sq.ft. Offer both food and non food items like clothes,
jewellery, hardware, sports equipment, cycles, motor accessories, books, CD’s DVD’s, videos, TV’s, electrical equipment and computers
They combine the supermarket, discount & warehousing retailing principles
Hypermarket concept was pioneered by Carrefour in France
Cheapest prices will normally be found in these stores
Across the world, hypermarkets are usually part of a retail park with other shops, cafeterias and restaurants
Other facilities include banks with cash machines, photo processing shops and pharmacies.
Internationally, hypermarkets are located at he outskirts of major towns and cities
Department Stores These as retail format, originated in the mid
nineteenth century They are large-scale retail outlets, often multi
leveled, whose merchandise offer spans a number of different product categories
The merchandise of various departments is displayed separately in the store
Apparel and furnishing are two of the most common product categories
Some of the well known international players in this format are Marks & Spencer, Sears, J C Penny, Harrods, Selfridges etc
This format of retailing has seen a lot of action over the last few years
Some of the national players are Shopper’s Stop, Westside etc
Speciality Stores
These are characterized by narrow product line, with a deep assortments in that product line
Speciality stores usually concentrate on apparel, jewellery, fabrics, sporting goods, furniture etc.
They have a very clear defined target market and their success lies in serving their needs.
Personal attention, store ambience and customer service are of prime importance to these retailers
Internationally most speciality retailers operate in an area that is under 8,000 sq.ft.
Examples of speciality stores in India are proline fitness station, Gautier furniture, etc
Speciality Stores
These are characterized by narrow product line, with a deep assortments in that product line
Speciality stores usually concentrate on apparel, jewellery, fabrics, sporting goods, furniture etc.
They have a very clear defined target market and their success lies in serving their needs.
Personal attention, store ambience and customer service are of prime importance to these retailers
Internationally most speciality retailers operate in an area that is under 8,000 sq.ft.
Examples of speciality stores in India are proline fitness station, Gautier furniture, etc
Off Price Retailers
Here the merchandise sold is less than the retail price
They buy manufacturer’s seconds, overruns and off seasons at deep discount
The merchandise may be in odd sizes, unpopular colours or with minor defects
Off price retailer may be manufacturer owned or may be owned by a speciality or departmental store
These outlets are usually seen by the parent company as a means of increasing the business
Factory outlets, if owned by the manufacturer, may only stock company’s merchandise
Examples Pantaloon, Levi’s, Raymond's factory outlets
These formats depend on the volume of sales to make money
Catalogue Showrooms
Catalogue retailers usually specialize in hard goods
House ware, jewellery, consumer electronics etc
Customers walk into these showrooms and go through the catalogue of products they would like to purchase
Sometimes customers are asked to write the code number and hand it over to the clerk, who hen arranges for the product to be brought out from the warehouse for inspection and purchase
Examples : Electronics & Electrical Equipment, Building Accessories, Sanitary Fittings, Paints etc
Non Store Retailing Ultimate form of retailing directly to the
consumers Direct relationship with the consumer Can be classified into direct selling and direct
response marketing
Direct Selling Involves making of personal contact with end
consumers at his home or his place of work Cosmetics, jewellery, food and nutritional
products, home appliances and educational materials are some of he products sold in this manner
Direct selling industry started in India in mid-1990s, went through a bad phase and today has attained a significant worth of Rs.1,500 crores
Direct Response marketing Involves various non personal methods of
communication with the consumers and these include
- Catalogue retailing - Television retailing - E- retailing
Mail Order Retailing/Catalogue Retailing It eliminates personal selling and store
operations Appropriate for speciality products Key is using customer database to develop
targeted catalogues that appeal to narrow target markets
The basic characteristic of this form of retailing is convenience
Television Shopping Asian Sky Shop was among the first
retailers who introduced television shopping in India
The product is advertised on the television, details about the product features, price and other things like guarantee and warranty are explained
Phone numbers are provided for each city, where the buyer can call in and place the order for the product
The products are then delivered
Electronic Shopping
This format allows customers to evaluate and purchase products from the comfort of their homes
Success depends on the products that are offered and the ability of the retail organization to deliver the product on time
Strong supply chains and delivery mechanisms need to be in place for it to be a success
Many retailers are opting to sell the products on the internet