Retailing is defined as a set of activities or steps used to sell a product or a service to consumers for their personal or family use. It is responsible for matching individual demands of the consumer with supplies of all the manufacturers.
Retailing has become such an intrinsic part of our everyday lives that it is often taken for granted. The nations that have enjoyed the greatest economic and social progress have been those with a strong retail sector.
Why has retailing become such a popular method of conducting business? The answer lies in the benefits that a vibrant retailing sector offers—an easy access to a variety of products, freedom of choice, and high levels of customer service.
A common perception is that retailing involves only the sale of products in stores. However, it also includes the sale of services such as those offered at a restaurant, parlour, or by car rental agencies. The selling need not necessarily take place through a store. Retailing encompasses selling through the mail, the Internet, door- to-door visits—any channel that could be used to approach the consumer.
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Learn about: 1. Introduction to Retailing 2. History of Retailing 3. Evolution 4. Concept 5. Meaning and Definitions 6. Characteristics of Retailing and Retailers 7. Theories of Retailing 8. Features 9. Importance
10. Functions 11. Channels 12. Factors Influencing Retailing 13. The Retailing Environment 14. Information Technology in Retailing 15. Importance of Retailing in Indian Economy.
Retailing: Meaning, Definitions, Evolution, Concept, Features, Theories, Importance, Functions, Channels and Factors
Contents:
- Introduction to Retailing
- History of Retailing
- Evolution of Retailing
- Concept of Retailing
- Meaning and Definitions of Retailing
- Characteristics of Retailing
- Features of Retailing
- Theories of Retailing
- Importance of Retailing
- Functions of Retailing
- Channels of Retailing
- Factors Influencing Retailing
- The Retailing Environment
- Information Technology in Retailing
- Importance of Retailing in Indian Economy
Retailing – Introduction and Meaning
The distribution of finished products begins with the producer and ends at the ultimate consumer. Between the two of them, there is a middle person—the retailer. Retailing is defined as a set of activities or steps used to sell a product or a service to consumers for their personal or family use. It is responsible for matching individual demands of the consumer with supplies of all the manufacturers. The word ‘retail’ is derived from the French word retaillier, meaning ‘to cut a piece of’ or ‘to break bulk’.
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Retailing has become such an intrinsic part of our everyday lives that it is often taken for granted. The nations that have enjoyed the greatest economic and social progress have been those with a strong retail sector. Why has retailing become such a popular method of conducting business? The answer lies in the benefits that a vibrant retailing sector offers—an easy access to a variety of products, freedom of choice, and high levels of customer service.
A retailer is a person, agent, agency, company, or organization, which is instrumental in reaching the goods, merchandise, or services to the ultimate consumer. Retailers perform specific activities, such as anticipating customers’ wants, developing assortments of products, acquiring market information, and financing.
A common perception is that retailing involves only the sale of products in stores. However, it also includes the sale of services such as those offered at a restaurant, parlour, or by car rental agencies. The selling need not necessarily take place through a store.
Retailing encompasses selling through the mail, the Internet, door- to-door visits—any channel that could be used to approach the consumer. When manufacturers like Dell Computers sell directly to the consumer, they too become retailers.
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The world over retail business is dominated by small family-run chains and regionally targeted stores. Gradually more and more markets in the Western world are being taken over by billion-dollar multinational conglomerates, such as Wal-Mart, Sears, McDonald’s, and Marks and Spencer.
The larger retailers have set up huge supply or distribution chains, inventory management systems, financing pacts, and wide- scale marketing plans, which have allowed them to provide better services at competitive prices by achieving economies of scale.
A retailer’s cost and profit varies depending on their type of operation and major product line. They usually manage a profit of 9-10 per cent on their sales. Retail stores of different sizes face distinct challenges and their sales volume influences business opportunities, merchandise purchase policies, nature of promotion, and expense control measures.
As we all know, the ease of entry into retail business results in fierce competition and better value for customers. To enter retailing is easy, and to fail is even easier. Therefore, to survive in the retailing business, any enterprise must perform its primary role of catering to customers satisfactorily.
Over the last decade, there have been sweeping changes in the general retailing business. For instance, what was once a strictly ‘made-to-order’ market for clothing is now a predominantly ‘ready-to-wear’ market? Flipping through a catalogue, picking the right colour, size, and type of cloth a person wanted to purchase, and then waiting to have it sewn and shipped used to be the standard practice in the earlier days.
By the turn of the century, some retailers set up a storefront wherein people could browse whereas new pieces were being sewn or customized in the back rooms. Almost all retail businesses have undergone a similar transition over the years.
In an era of globalization, liberalization, and a highly aware customer, a retailer is required to make a conscious effort to position himself distinctively to face the competition. This is determined to a great extent by the retail mix strategy followed by a company to sell its products.
A major development in the recent times has been the emergence of varied retail formats that have started operating in most product categories. For instance, there are large department stores that offer a huge assortment of goods and services. There are discounters who offer a wide array of products, and compete mainly on price. For example, Big Bazaar and Reliance Mart. There are also the high-end retailers who target extremely niche segments with top-of- the-line brands such as Louis Philippe and Dior.
Each of these retailers have their distinct advantages, and it is interesting to see how these advantages play out. For example, during tough economic times, the discount retailers tend to outperform their rivals whereas the opposite is true when the economy is doing well. The more successful retailers attempt to combine the characteristics of more than one type of retailing to differentiate themselves from the existing competition.
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In today’s competitive environment, retailers have redefined their role in general, and in the value chain in particular. They act as gatekeepers who decide which new products should find their way to the shelves of their stores. As a result, they have a strong say in the success of a product or service being launched into the market.
A product manager of household appliances claimed, ‘Marketers have to sell a new product several times, first within the company, then to the retailer, and finally to the user of the product.’
It is a well-established fact that manufacturers need to sell their products through retail formats that are compatible with their business strategy, brand image, and market profile to ensure a competitive edge.
The role of retailers in the present competitive environment has gained the attention of manufacturers because external parties, such as market intermediaries and supplying partners are becoming increasingly powerful. It is thus, necessary for the marketers of consumer products to identify the needs and motivations of their partners in the marketing channel.
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Consumer companies might improve their new product success rate if they put in more effort at creating retailer value as well as consumer differential advantage. If the objectives of a manufacturer are incompatible with those of a market intermediary like the retailer, the success of a product stands jeopardized.
Consumer durables major LG electronics and Paras Pharmaceuticals, the makers of Moov, Borosoft, Krack cream, etc., for instance, are deriving extensive advantage due to wide retail network developed over years.
The wide and increasing range of product categories accompanied by multiple brands in each category complicate decision-making for both the manufacturers and market intermediaries. Retailers want to optimize sales within the limited shelf space, governed by their individual sales philosophy. They undertake risk in selecting a portfolio of products or brands to offer to their customers.
They have to make an optimum selection of goods to be sold given the following major concerns:
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1. Selling space available is relatively fixed and must return maximum profits. If such space is occupied by merchandise that is not moving, it will not result in profit. The retailer may have to resort to substantial price reductions to get rid of the unsold stock.
2. There is always the risk of non-performance in terms of quality, supplies, etc., which in turn harms the image of the retail outlet.
Retailing is a dynamic industry—constantly changing due to shifts in the needs of the consumers and the growth of technology. Retail formats and companies that were unknown three decades ago are now major forces in the economy. Therefore, the challenges for retail managers the world over are increasing—they must take decisions ranging from setting the price of a bag of rice to setting up multimillion- dollar stores in malls.
Selecting target markets, determining what merchandise and services to offer, negotiating with suppliers, training salespeople—these are just a few of the many functions that a retail manager has to perform on a perpetual basis.
Retailing – History of Retailing
The early peddler with his trinkets had to go from tribe to tribe and from village to village either on foot or by donkey as fast moving transport vehicles were not available. In the orient, the camel was used and long caravans loaded with only luxury goods like spices, silks etc.
The earliest traders were the Cretans who sailed the Mediterranean and carried on trade with the people of that area. The Phoenicians followed the Cretans as the traders of this region. These merchants Specialised in shipping, during this period. These shipping merchants sold goods in retail and wholesale to other regions.
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Tyre and Sidon became the great market cities of the world. Phoenician traders succeeded by the Romans. The first middlemen who specialised in marketing were probably retailers, but they had no allegiance to consumer sales. They used to sell to producers, other merchants or consumers.
During the time of Roman Empire, shops became numerous in Rome and other cities of the empire. Numerous small shops were set up within veritable shopping centres. Roman ruins indicate that the world’s first departmental store was in Rome. The fall of the Roman Empire marked the collapse of retail trade also.
The period following the Roman Empire was known as ‘dark ages’ in the history of retailing. During this period, the chief means of retailing was only peddlers, who with their stores on their backs used to go from village to village to sell their goods. Dishonesty in trading was not uncommon and the traders used to deceive the villagers by offering inferior quality goods for higher prices.
This was the reason why the rulers, scholars and priests looked down the retailing profession. There were instances of penalising the traders for their malpractices. This is clear from the Magna Charta when it reads, “merchants shall have safety to go and come, to buy and sell without any evil tolls, but by ancient and honest customs”. During the tenth century, trade began to revive in a number of Italian cities.
The centre of the resurgence of trade was England and other Italian cities. Merchant middlemen developed by 1000 AD and specialists like smith, tailor, cobbler, miller, baker etc., emerged. They were among the first of the modern retailers, though their basic function was production.
These producer retailers sold directly to consumers, by hawking their goods from village to village or street to street.
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During 13th century, markets and fairs, assumed greater importance. These early markets and fairs had a religious foundation. On festival days, people used to gather at religious places and exchange their goods besides worshipping. Later, it became customary for people to gather at religious places for the exchange of goods.
Therefore, it was said “there is no great festival without a fair, no fair without a festival”. These markets and fairs were to be held with royal sanction. The king promised peace and security to the life and property.
There were number of laws to regulate these markets and fairs such as, no fair can be allowed within 7 miles of the previously established fair, no selling can be carried out before or after the fair, no false rumours can be spread. Forestalling, regrating and engrossing were prohibited.
In the early period of history, they have no permanent establishments at one place. The larger markets were called fairs and which lasted for longer period. They were very few in number. Merchants from all over the country and even from foreign countries used to attend these fairs, for selling their goods.
Though barter was the order of the day, gold and silver was also used as a medium of exchange, to some extent. Gradually, fairs became places of amusement as well as trading centres. The practice of holding the fairs can be seen even today, in rural areas, in the form of jatharas or melas and in urban areas, in the form of trade fairs, exhibitions, etc.
The recently held trade fairs in the name of India Fair by Indian Government in countries like the U.S.A., France, Germany etc., come closer to this concept. The markets of short duration (lesser than that of fairs) by a week or so are popularly known as weekly markets.
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Though there are no evidences of these weekly markets in Western countries, it was very much practiced in backward countries. It is strongly believed that since the time gap between the fairs was much longer, in some cases years and months, the fairs could not satisfy the consumers’ desire for more goods in frequent intervals.
This must have prompted the merchants to hold markets with a shorter gap of time-say a week or fortnight. These weekly markets are prevalent in almost all the backward countries of the world including India. Those who were unable to go to the fairs and weekly markets were served by the peddlers who procured goods from fairs and weekly markets.
By about 15th century, a new development in the history of retailing occurred. Artisans and tradesmen no longer depended solely on fairs and markets or hats for selling their goods, but opened small shops. This was also necessitated by the fact that the consumers wanted goods in more frequent intervals on daily basis and that too at the vicinity of their residences.
This shopping culture was the result of unlimited wants of modern age and also increased purchasing power. In the beginning, there used to be a wooden frame in front of the house called ‘stall’ upon which goods were displayed for sale. Later these were developed into a permanent stacking equipment called shop.
The early English shopkeeper had his home and his shop under the same roof in which front served as shop and the back part for residence. In order to identify the type of shop, some signs were to be put in front of their shops. To promote sales, someone used to be kept outside the shop to cry the articles available in the shop. The shop system had become quite successful in England.
Their importance can be observed from the Napolean’s reference to the English as a “nation of shopkeepers”. Though in America, the retailer has reached the highest levels in the business and social life, most of the American retailing institutions originated only after 1850. Prior to that, most Americans lived in rural areas and were self-sufficient. Transportation was poor in rural areas. Itinerant peddlers and general stores were popular.
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As the frontier of trading moved on, many of the trading posts developed into general stores-characteristic of American, institutions. The retailer or shopkeeper kept a general stock of merchandise like calico and other cotton and woolen goods, household and farm hardware, staple groceries, stationery and medicines, breweries, etc.
As the customers were few with limited wants and limited purchasing power, the retailer used to stock only necessities that too of one variety. Lack of variety of stock was also due to lack of capital. As people’s income increased, their desires increased and accordingly the retailer increased not only the size of the stock, but also the variety of goods.
The luxuries of one age became the necessities of the next. Very often goods were to be exchanged with the agricultural goods like wool, wheat, meat, etc., brought by the farmers. The retailers also extended credit to the farmers for longer periods which generally coincided with harvest season. The store used to serve even as Post Office.
Improvement in the means of transportation, people could move to greater distances for shopping and as a result the business of small towns was shifted to larger towns. However, the large and prosperous general stores did their business well. Many of the modern general stores adopted up-to-date methods of retailing and forged ahead in the face of competition.
By rendering continuing service to their farming communities and giving good values, they built up a large and loyal clientele. There is a certain kind of competition between general store and chain stores.
For shopping and speciality goods people are inclined to go to a nearly city where they can purchase in larger stores carrying more stocks of merchandise while convenience goods are shoppen in local general stores. The general store has an advantage in its location close to its customers and this led to personal relationship between the retailer and his customers.
Emergence of Modern Retail Institutions:
Through the centuries, the retail trade tried to provide goods and service to satisfy consumers’ wants. The agencies it used to accomplish this purpose have been not static but rather kaliedoscopic, changing constantly with the advent of new ideas and new conditions.
The industrial revolution which began in 18th century with large scale production accompanied by mass scale, marketing, and improvement in the quality of life, changing buying behaviour, the growth of cities and the increasing concentration of population in urban centres were instrumental in the emergence of new patterns of retailing methods and institutions.
Retailing – Evolution of Retailing
Retailing has been a very old phenomenon. It can be traced back to the time when trade began. Goods were sold either in some marketplaces or they were sold in small quantities by some peddlers. In the medieval times trade was dependent on local sources since there was hardly any mode of transportation and thus they used to be limited to close by places. For the products that are regarded as specialty, customers travelled quite a distance.
Even in prehistoric times, people travelled much space in order to arrange the merchandise in the areas where goods or products are less or short in supply. Products of basic and outmost necessary were provided by peddlers. Centuries after centuries, there was flourishment of retail market in top towns and cities globally, providing huge variety of merchandise worldwide? It is believed that in the seventeenth century the flea market (original) started in the suburbs of Paris as Marche’ aux paces.
The area or place in which sellers sold their merchandise in earlier days as global flea market developed into congregation of retail. There is evidence that retailing existed in ancient Greece, and in its cities like Troy. At that time also retailing catered to the need of those societies. People of that time were called entrepreneur, since they converted the need and want of societies into opportunities to earn sufficient profits.
We can find the evolution of retail business in the Indian subcontinent with the formation of a store of kirana type as well as a store of mom and pop type. Traditional outlets are used by local people for daily use items. KVIC with government’s help, have many rural retailing and indigenous franchise stores. There were few companies which started their chains of retail business. As time passes, new entrants entered into market from manufacturing to pure retailing unit. After 1990, different retail outlets such as Foodworld, Planet M and Music World and Crossword had made their presence in the market.
After that, the concept of hypermarket and supermarket evolved. Customers had global experience in the shopping malls in the towns and urban centres. The evolution of retailing sector resulted into continuous improvement in the supply chain management (SCM), distribution channels, technological advancement as well as backend operations which resulted into more and more mergers and acquisitions and huge investments.
Retailing – Concept of Retailing
It is essentially the marketing concept of a customer-centred, company-wide approach to developing and implementing a strategy. It provides the guidelines, which must be followed by all retailers irrespective of their size, channel design, and medium of selling.
The retailing concept covers four broad areas and is an essential part of the retailing strategy:
(i) Customer Orientation – The retailer makes a careful study of the needs of the customer and attempts to satisfy those needs.
(ii) Goal Orientation – The retailer has clear cut goals and devises strategies to achieve those goals.
(iii) Value Driven Approach – The retailer offers good value to the consumer with merchandise having the price and quality appropriate for the target market.
(iv) Coordinated Effort – Every activity of the firm is aligned to the goal and is designed to maximize its efficiency and deliver value to the consumer.
The retailing concept, though simple to adopt is not followed by many retailers who neglect one or more of the points enumerated above. There must be a proper balance of all the aspects of this concept for the retailer to achieve success. The retailing concept, while important is limited by its nature as it does not cover the firm’s internal capabilities or the competitiveness of the external environment.
It however remains an important strategic guide. The retailing concept can be used to measure the retailers’ performance through three parameters – the total retail experience, customer service, and relationship retailing. The total retail experience refers to all the ingredients of a customer’s interaction with the retailer. This includes all activities from parking to billing.
If some parts of the retail experience are unsatisfactory, the shopper may decide not to patronize that particular outlet. Therefore, it is necessary for a retailer to ensure that every element in the experience must aim at fulfilling customer expectations. This experience means different aspects for different types of retailers — for an upper-end clothing retailer this might imply the presence of plush interiors and air conditioning while a discount store needs to have adequate stock.
One of the biggest challenges for the retailer today is to devise new ways of attracting customer attention to be able to position themselves differently from competitors. Many novelties in retailing, for example, the theme restaurants, have emerged and there is a battle to snare the customer’s attention. Sometimes though, elements of the retail experience can be beyond the control of the retailer, like the levying of sales tax or the speed of online shopping.
Customer service refers to the tangible and intangible activities undertaken by a retailer in combination with the basic goods and services it provides. It is part of the value- driven approach adopted by retailers in a bid to differentiate themselves and occupy a strategic position.
Among the factors that drive a firm’s customer-centric approach are store hours, parking access, sales personnel, amenities like a recreation area for children, and coffee shops. Different people evaluate the same service in various ways. Even an individual may do so at different times due to intangibility. People’s assessment of a particular service is based not necessarily on reality but on perception.
Keywords such as customer orientation, innovation, and flexibility have become ‘must-haves’.
These words have been repeated like mantras for decades now but rarely have they been put into practice. The service mentality frequently encountered in the Indian retail sector can still be unpleasant even to those customers willing to make purchases. The realisation that the services provided do not suit the prices demanded impels rationally acting customers to switch to the discounters.
Stand-alone businesses and the owner-managed specialist stores are suffering in particular and, at least in urban India, appear to have passed their zenith. Many retail companies have now realised that the competition for the purchasing power of the customers has long crossed the boundaries of their own narrow sectors. New competitors have been courting the attention of customers and trespassing on the traditional territory of the retail companies.
Some of the major criteria for the fight customer approach are as follows:
1. Creating the right environment;
2. Listening to customers;
3. Providing rewards to the best customers; and
4. Realising the lifetime value of consumers.
The concept of lifetime value of consumers is employed in relationship marketing. Retailers need to establish relationships with existing customers to motivate them to return regularly. The ongoing process of identifying and creating new value with individual customers over the lifetime of a relationship is relationship marketing.
It is mutually beneficial in nature creating a win-win solution for both the retailer and the consumer by allowing the retailer to be profitable and giving the consumer value. This is especially important because it is much harder to attract new customers than it is to retain old ones. It is a blend of product, quality, and services.
Relationship marketing uses the event-driven tactics of customer retention marketing, but treats marketing as a process over time rather than single unconnected events. By moulding the marketing message and tactics according to the lifecycle of the customer, the relationship marketing approach achieves very high customer and is highly profitable.
Using the relationship marketing approach, the retailer must customise programmes for individual consumer groups and the stage of the process they are going through as opposed to some forms of database marketing where everybody would get virtually the same promotions, with perhaps a change in offer. The stage in the customer lifecycle determines the marketing approach used with the customer. A simple example of this would be sending new customers a ‘welcome kit,’ as an incentive to make a second purchase.
Retailing – Meaning and Definitions
Retailing is a set of activities performed in selling the goods and services directly to the end users. The goods and services sold to the consumers are meant for their personal use and not for resale or business activity. Retailing is the last activity conducted in the chain of product distribution down to the consumers.
In principle, retailing is a business activity which involves the sale of goods and services to a large number of consumers spread in a large area. The retailer or a retail store is like any business enterprise whose sales volume comes primarily from retailing. There are different forms of retailing. Many of the forms keep emerging according to the convenience of the buyers and retailers.
In large towns, retailing is organised and mostly performed through stores and automatic vending machines. However, in the rural areas, the retailing of goods and services are conducted through a traditional pattern by displaying the goods in mobile vans, carts and on footpaths. For understanding the types of retailers and their functions, we can broadly classify the retailing network into two categories – (i) store retailing and (ii) non-store retailing.
Like the growth cycle of business firms, the retailing activity also passes through the stages of embryonic, growth, maturity and decline. A retail store observes the period of accelerated growth, reaches the stage of maturity and starts declining. It has been observed that the retail stores of older fashion took more than five decades to reach the stage of maturity in terms of the volume of sales, coverage of consumers and expansion of the chain of retail stores. However, in the modern era, the store retail types reach their maturity very fast due to the organised retailing management.
According to Cundiff and Still, “Retailing consists of those activities involved in selling directly to ultimate consumers.”
Thus, Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, non-business use. A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing.
“A set of business activities carried on to accomplishing the exchange of goods and services for purposes of personal, family, or household use, whether performed in a store or by some form of non-selling.” – American Marketing Association
“Retailing includes all the activities involved in selling goods or services to the final consumer for personal, non-business use.” – Philip Kotler
According to Candiff and Still, “Retailing consists of those activities involved in the selling directly to ultimate consumers.”
From the above definitions, the followings important features of retailing come into light:
i. Retailing is essentially an economic activity.
ii. It includes sales of goods as well as services.
iii. It involves earning profits through customer satisfaction and retention.
iv. It aims at increasing the number of customers.
v. It is very dynamic by nature.
vi. It is customer oriented.
vii. It involves lesser quantity in terms of the goods sold.
viii. It involves personal touch with the customer.
ix. It is the last link in the distribution channel.
x. It attracts customers by using various methods such as discounts, vouchers, lucky draw schemes, coupons, etc.
xi. It includes the customers who buy the articles for non-business purposes.
Retailing – Characteristics of Retailing and Retailers
1. There is direct end-user interaction in retailing.
2. It is the only point in the value chain to provide a platform for promotions.
3. Sales at the retail level are generally in smaller unit sizes.
4. Location is a critical factor in retail business.
5. In most retail businesses services are as important as core products.
6. There are a larger number of retail units compared to other members of the value chain. This occurs primarily to meet the requirements of geographical coverage and population density.
Characteristics of Retailing and Retailers:
1. Retailing brings goods and services closer to the consumers
2. A Retailer is the last link in the distribution channel
3. Retailers buy in large quantities but sell in individual units
4. There are large number of retailers as compared to manufacturers and wholesalers
5. Retailing can be organised (branded chain stores) or un-organised (that is normal stores that we find in our neighbourhood)
6. Retailing provides a direct contact with the customers
7. Retailing is the function that keeps an eye on the pulse of the customers
8. Retailing can also be done through online stores, and
9. Provides a variety of products at a single place.
Retailing – 6 Main Features
1. Sale to the final consumer – The most important characteristic of retailing is that it involves the sale of the product or service to the final consumer.
2. Various channels – In retailing the goods and services can be sold either in person, through mail, through telephone, through vending machines or the internet.
3. Small order size – The order size handled by a retailer is much smaller as compared to the wholesaler.
4. Large number of orders – The retailer handles a large number of orders.
5. Wide variety of customers – The retailer handles a wide variety of customers.
6. Keeps a large assortment of goods – The retailer keeps a wide variety of goods.
Retailing – Top 4 Theories
Four theories of retail institutional change have originated in North America, but they are equally applicable to the other parts of world.
These are:
1. Theory of natural selection in retailing
2. Theory of wheel of retailing
3. General-specific-general cycle or accordion theory
4. The retail life- cycle theory.
1. Theory of Natural Selection in Retailing:
Theory of natural selection in retailing is based on the famous of theory of Charles Darwin of natural selection in “origin of species”. This can be stated as ‘retail types (or units), which best adjust to their environment, are most likely to survive’. In this theory environmental factors play major role in survival of retail type.
The department store is often cited as an example of a retail type failing to adapt quickly to changes in external condition like suburban growth and congestion in town centres. However these very factors have helped the growth out-of-town stores.
The major environmental factors affecting retailing are:
i. Changes in the consumer character-
a. Demographic, e.g. population age changes
b. Social, e.g. product and service preferences
c. Economic, e.g. changes in real incomes.
ii. Changes in technology, e.g. greater ownership, use of motorcars, food freezers, and microwave ovens.
iii. Changes in competition, i.e. changes in the levels of competitive strength within the areas of influence.
If a retail outlet or type does not address to these factors, it may have the fate of dinosaurs.
2. Theory of Wheel of Retailing:
This theory, first championed by Professor McNair of Harvard, postulates that an efficient innovatory form of retailing (such as discounting) enters the market and attracts the public by its new appeal. Growth and maturation occur during which market shares are increased, but trading- up occurs and finally the firms become high cost, high price retailers once again vulnerable to the next innovator.
Reasons for its occurrence include:
i. Organizational Deterioration:
As young innovators age they become more conservative and may seek greater social acceptableness. Again, they may be unable to recruit management capable of extending the life of the innovation.
ii. Economic Factors:
The popularity of non-price competition produces higher gross margin requirements as an institution matures. It suggests that non price competition is less ruinous than price competition.
For example, new type of retail firms (such as discount stores in 1950’s in USA) enters the market with low status, low mark-up and low prices. Over time as they become successful, they open more stores offer more services and as a result their costs increase and they have to charge higher prices to their customers.
This in turn makes them vulnerable to new entrants who will use the similar strategy, i.e., low status, low mark up and low prices. Diagram 3.3 depicts theory of wheel of retailing.
3. General-Specific-General Cycle or Accordion Theory:
This describes the tendency for retail business to become dominated (alternatively) by generalists, then specialists and then generalists again.
The switch to the specialist store from the old time ‘general’ store occurred because:
(a) The greater variety of customer goods available could not be accommodated in the old general store
(b) Growth of cities meant that consumer markets allowed profitable segmentation
(c) It provided a social content to the shopping trip, which was required as society became more complex and impersonal.
The tendencies helping to create the new ‘general’ store (superstore or hypermarket) include:
(i) Joining complementary lines, e.g. meat, groceries and produce
(ii) Creaming, i.e. taking the most popular lines from other retail outlets’ ranges, e.g. paperbacks, confectionery, to create small but sure profits
(iii) Scrambling, i.e. the taking of risky merchandise from other outlets means buying high margin, lower stock-turn lines, e.g. unit audio, expensive toys
(iv) Adding complete ranges ‘borrowed’ from other institutions, e.g. Marks & Spencer selling food to increase the physical density of shoppers in their stores
(v) The growth of shopping centres. Large modern air-conditioned centres, particularly those with a substantial food complement, are somewhat like huge general stores. Note also the return to small convenience stores which are now competing successfully primarily by staying open for long hours.
4. The Retail Life-Cycle Theory:
The retail life-cycle theory is based on the product life-cycle theory. The retail life-cycle theory suggests that retail institutions also have a life-cycle which can be divided into four phases- innovation, growth, maturity and decline just like product life-cycle theory.
In the innovation stage, the new retailer will have few competitors, rapid growth in sales but low profitability due to start-up costs, etc. In the growth phase, sales growth is still rapid and profitability is high due to the economies of scale now possible. However competitors will spot this and begin to encroach on this market.
At the maturity stage, there are many competitors, sales growth has declined and profitability moderates. In the final decline phase, sales and profits fall and new, more innovatory retailers are developing and growing. It has also been suggested that the life cycle of retail institutions is getting shorter.
Retailing – Importance to the National Economy (Global Importance)
In the United States there are more than 2.4 million retailing institutions accounting for well over $1.5 trillion in sales. About 14 percent of U.S. workers are employed in retailing, and retailers’ sales account for approximately 97 percent of the sizable chunk of the gross national product known as personal income.
Sales figures give the impression that giant companies dominate the field of retailing. However, small retail companies can and do fare very well. Such success requires careful selection of target market segments that can be better served by smaller companies, along with the development of an appropriate marketing mix.
Retailers are a diverse group of businesses. In the distribution of food there are supermarkets, convenience stores, restaurants, and various specially outlets. Merchandise retailers may be department stores, apparel stores, consumer electronics stores, home improvement stores, specially retailers, or various types of retailing systems for home shopping. Service retailers, such as movie theatres and barber shops, are as diverse as the, types of services offered for sale.
Furthermore, some retailers, like Sears, bridge several categories. Sears is both a merchandise retailer with department stores and a service retailer with financial services such as Allstate Insurance. Sear’s sales volume for all its businesses (about $57 billion) makes it the largest U.S. retailer. However, Wal- Mart’s merchandise sales (about $41 billion) exceed Sear’s merchandise sales volume (approximately $32 billion).
Identifying retailers by industry or type of merchandise is useful. However, several other classifications help us better understand the nature of retailing.
Some More Importance of Retailing:
Retailing occupies a key role in the world economy today. The importance of retail as an industry can be understood from the fact that the fortune 500 list of companies is headed not by a manufacturing firm but a retail major. The 2010 fortune 500 list of America’s largest corporations is headed by the retail firm Wal Mart.
And in the Global Fortune 500 list of 2009 Wal Mart has the 3rd place. In fact the fortune 500 list has about 50 retail organisations on its list. As an industry retailing not only contributes to the GDP, but it also employs a large number of people. In India retailing is believed to employ nearly 8% of the total workforce of the country.
Retailing is important to the national economy for the following reasons:
1. A big part of our personal income is spent on retail goods.
2. It is a major source of employment.
3. In the distribution system, retail is the link to the ultimate consumers.
4. The level of retail sales indicates the consumer’s purchasing power, thus it becomes the basis for determining the economic status of the people of a country.
5. It adds value to the product because it creates time, place and possession utility.
6. It accounts for a major portion of marketing costs.
7. Taxes from retail store add income to our national treasury.
Retailing – 7 Major Functions
Retailing constitutes the final link in the distributive chain. Therefore, it is responsible for the performance of several important marketing functions.
Some of these functions are:
1. Assembling of goods from various wholesalers.
2. The physical movement and storage of goods for the supply to the final consumers to meet their needs and requirements.
3. The providing information concerning the nature and use of goods to the wholesalers and producers. It also inform as about the market trend.
4. The standardisation, grading and final processing of goods which have been left in graded or unstandardised by wholesalers.
5. The provision of ready availability of goods of various qualities and of various manufacturers.
6. The assumption of risk concerning the price, nature and extent of demand of goods as long as they remain unsold.
7. The financing of inventory and the extension of credit to consumers for a short period.
Retailing – 2 Main Channels: Multi-Channel Retailing and E-Commerce
Channel # 1. Multi-Channel Retailing:
Retail does not always have to start with a bricks and mortar presence. Sears (United States) have long been established retail giant. However, they opened their first store in 1925, only to complement their catalogue channel, launched way back in 1886.
Retail Channels and Multi-Channel Retailing:
Retail channels are ways through which a retailer sells its products. Some of the well-known retail channels used by companies around the world. Most of the business is done through physical stores but other channels like online shopping and catalog sales are also important. Choosing which retail channel to be used by a channel depends on the types of service a retailer is providing and also the potential customer behavior.
Currently we are seeing blurring of retail channels. A customer now has “anytime anywhere” shopping options, so it also becomes important for retailers to be present in more than one channel so as not to lose customers.
Multi-channel retailing is selling through more than one channel. This approach increases the reach of retailers by giving them options to satisfy larger customer base, hence do more business.
Different Retail Channels are listed below:
i. Brick & Mortar Stores – The degree of specialization differentiates types of retailers. Department and general merchandise stores offer a wide range of items, while specialty retailers offer a broad selection within a product category.
ii. Direct Response Channels – In direct response channels, retailer initiates the contact with its potential customers and approaches them directly. It’s more personal, and conversion rates (potential to member) are higher. Internet Channels are also part of Direct Response channel.
There are other retail channels as well like Selling direct to the consumers, Souvenir Outlets, Institutional sellers like Restaurant Chains, etc.
Multi-Channel Retailing:
In today’s world, customers want to have “anytime anywhere” shopping experience. Advancement in technology has led to improvement in retail channels too. Technology has given rise to a new kind of business – the e-commerce. Ebay(dot)com and Amazon(dot)com are just two of the many successful enterprises who have succeeded by using internet.
With so many retail options, customers are not confused or complaining. In fact they have become even more demanding, thus leading to the emergence of multi-channel retailers.
More than one third of shoppers use at least three retail channels to buy products and service. Like it or not, retailers have to go multi-channel way. Traditional brick and mortar stores are going online. Online shopping giant, Amazon offers pick up locker. You will find Dell laptops in stores now.
We see that it’s the customers who are changing how retailers do their business. Alternate channels give more options for retailers. For example, store real estate is fixed and it is expensive to expand the space of all the retail stores. So, retailers generally carry limited SKUs (Stock Keeping Unit) in store, however they can offer more options via online.
Multi-channel retailing is also used by retailers as competitive strategy and opportunity to differentiate from the rest.
Benefits of Multi-Channel Retailing:
Multi-channel retailing is not a choice but a must in today’s competitive market. Multi-channel customers are the most sophisticated, demanding and time-starved. They are also the most valuable assets for your brand.
That being said, retailers are facing increasing pressure to create superior customer experience across channels because today’s customers expect their shopping experiences to be consistently excellent regardless of the channel. Many retailers are intimidated by the idea of creating a comprehensive and cohesive multi-channel experience and they question whether it’s worth the effort.
The four benefits that make investing in multi-channel strategy worthwhile include:
i. Improved customer perception
ii. Increased sales
iii. Better data collection
iv. Enhanced productivity.
These benefits make investing in the strategy worthwhile. Retailers who recognize the importance of the fundamental change in customer expectations and embrace the challenge of creating multi-channel experience excellence will remain on the competitive edge.
Multi-Channel Experience Management can help you understand how each customer views his or her journey and ensure the best experiences occur at each stage to build loyalty and foster advocacy.
There are a large number of organizational and customer related benefits to be gained from implementing a multi-channel strategy.
Here are a few:
i. Increased revenue and growth opportunities – more touch points with target market
ii. Better responsiveness and sensitivity to changing environments
iii. Competitive advantage over pure-plays, particularly around immediacy, education opportunities for complex products and easy e-merchandise returns.
iv. Better data collection to know customer
v. Organizational efficiency and effectiveness opportunities through sharing of processes, technology and information.
i. Better and wider customer interaction with a greater variety of information available for improved understanding of customers and identification of opportunities for increasing value per customer (business intelligence)
ii. Increased customer loyalty through better understanding of customers
iii. Better customer experience reducing churn and increasing loyalty
iv. Opportunity to leverage and improve brand perception Customers themselves also benefit from increased choice in interaction opportunities and the ability to switch channels as convenient.
Consumer behavior is driving multichannel growth and if retailers want to stay in touch with their customers they must adapt now. Technology is driving this change. Ease of access to internet has changed the way consumers are shopping now.
Some of the characteristics of multi-channel retailing are:
i. The heart of a multi-channel strategy is to allow the customer to interact with the retailers the way the former wants to.
ii. Multi-channel customers are more profitable than other customers.
iii. Requires a seamless experience that means price across channels are same, loyalty is rewarded through every channel, etc.
iv. Providing a Consistent Product Range
v. Capture Every Possible Order
vi. Have the Right Staff and with right knowledge
vii. Support multi-channel customer service
viii. Integrating Back-office appropriately
ix. Providing consistent consumer experience across the channels
x. Reducing or abolishing organizational boundaries to cope with new channels.
Future of Multi-Channel Retailing:
Today’s shopping experience is increasingly mobile, social and content rich; hyper- connected consumers demand great experiences across all touch points, not just the in-store experience. E-commerce and M-commerce are the latest additions to the multichannel mix.
The key benefit for retailers of multichannel is that it gives them more opportunities to showcase their product, and to customers whom they wouldn’t have been able to reach with a single channel. However, it has the biggest challenge of seamlessly integrating different channels.
Multi-channel retailing is moving towards, what is called as, Omni channel retailing. Retailers want to connect shopping behaviors of each customer across different channels.
Channel # 2. E-Commerce:
Electronic commerce or ecommerce is a term for any type of business, or commercial transaction, which involves the transfer of information across the Internet. It covers a range of businesses, from consumer based retail sites, through auction or music sites, to business exchanges trading goods and services between corporations. It is currently one of the most important aspects of the Internet.
Ecommerce allows consumers to electronically exchange goods and services with no barriers of time or distance. Ecommerce has expanded rapidly over the past 10 years and continues to accelerate. Retailing industry including Fashion Retail and Grocery retailing have caught on to the bandwagon and have begun to offer E-trading or Online Shopping.
Online stores have “shopping carts”. Shopping cart software allows consumers to purchase goods and or services, track customers, and tie together all aspects of ecommerce into one cohesive whole.
E-commerce can be a very rewarding venture, but you cannot make money overnight. It is important to do a lot of research, ask questions, work hard and make on business decisions on facts learned from researching ecommerce.
E-Commerce is growing day by day in both B2B (Business to Business) and B2C (Business to Consumer) context. All Companies have realized the need to have E-commerce strategy as a part of overall Retail Strategy. In the early 1990s we saw Companies setting up websites with very little understanding of E-Commerce and Consumer behavior. Ecommerce as a model is totally different from the traditional shopping in all respect.
Some of the points that a retailer should keep in mind while starting an e-commerce sites are:
i. Know market trends, opportunities as well as threats – Retail Strategy involves planning for the business growth and companies will have to deal with various external factors.
ii. Focus has to be customer – While selling through physical traditional stores, there exists a physical experience from the Customer’s end and hence it is easier to build Customer relationship. E-Commerce platform has got to devise methods to reach out to the virtual Customer on One to One basis and build the relationship. It all begins with a nice, easy to use website which presents the information in the “right way” which will attract customers.
iii. Differentiate from Competition – There are so many e-commerce sites and you have to offer something better to get customers to your online store.
iv. Pricing – Selling and operational costs of online store are much less compared to traditional physical stores, which can encourage customers to buy in bulk.
v. Focus of logistics – The biggest challenge in running an online store is to manage the logistics cost. Retailers have to partner with multiple logistics companies to bring down the cost.
Some of the challenges faced by an e-commerce player are:
i. Channel integration—reach full revenue potential – Given that e-Commerce spawned off as a separate business unit in its early days, retailers built separate e-Commerce and store systems—which now has to be integrated with other channels to realize full revenue potential.
ii. Impact of Social media affecting the buying behavior – Blogs, opinions, peer- reviews, Facebook and other user generated content, play an important part of the shopping process and impact the buying patterns. Online social reputation monitoring and management is more important now than ever.
iii. Challenges in going global – Emerging markets present the greatest growth opportunity for retailers. But there are challenges like complexities of international business laws, taxation, fulfillment, etc. Due to this, we are seeing the emergence of providers that enable international fulfillment and address the complexities of taxation, e-Commerce provides retailers an excellent platform to be able to sell internationally.
iv. Customer loyalty – It’s very difficult to build consumer loyalty and maintain it for online retailers. Switching to another e-commerce site for better deal is easy. Retailers go after their “high value” customers and entice them with deals and reward points, but before all this the retailer needs to identify the “high value” customers, which is a tough exercise.
v. Improve conversion – Studies have shown that only 3 out of 100 visitors on the e-commerce sites actually make a purchase. Out of 97, 70 are those who abandon their purchase midway. This could be because of high total cost including shipping, complex check out process or product not available for immediate dispatch.
Companies are working to overcome above mentioned challenges. Companies are looking to develop tools which can help them address most of the challenges.
Some of the steps taken by e-commerce companies are:
i. Need of personalization – Companies are using the tools to capture the behavior of an online consumer and create a personalized page or experience based on previous purchases, age, gender, location, etc.
ii. Availability of “on-demand” business intelligence – Companies are designing tools based on analytics to predict what a particular customer would be buying. Companies look to create targeted message board and suggestions window.
iii. Design effective campaigns and promotions – Promotions and campaigns continue to be an important part of a retailer’s sales/ marketing strategy. For e-Commerce, this continues to be an important way to drive traffic, conversion and eventually revenues. Companies are using advanced analytical abilities to conduct “what-if” scenarios while setting up promotions and campaigns.
iv. Tools for improving operational effectiveness – From a day-to-day operational perspective, a lot happens in while managing e-commerce operations—there are constant content updates, there are changes being made to items, prices, promotions—practically in real time in response to changing market conditions and dynamics. It becomes important for retailers to have tools that will help them manage all these variables with effective business tools.
v. Know about yourself – Many times companies start focusing on customers neglecting their own e-commerce business. Companies need to know what competition is doing, what is the consumers view of the site and how does it perform on its key business metrics. These things are equally important. Companies constantly evaluate its Search Engine Optimization (SEO) capabilities.
The web continues to disrupt our traditional way of thinking, transforming industries and the business models. It has become very common to see groups on Facebook [www(dot)facebook(dot)com] created by members who sell products online starting from make-up to clothes. We see companies increasingly using Facebook for e-commerce and use it as another channel for shopping. Selling through Facebook is called F-Commerce.
F-Commerce is growing and becoming a trend as it is easy to use and doesn’t require programming skills to set up the Facebook store. Retailers are experimenting with this new channel hoping that their Facebook fans will drive up the sales. The list of software developers offering F-commerce products is growing. Many come from traditional ecommerce, offering Facebook as an extension for their clients.
But, we personally feel that this market is oversubscribed. Facebook is place where people come to socialize and stay in touch with friends but not looking to do business. In February 2012, Bloomberg reported that GameStop, JCPenney, and Nordstrom have all closed their Facebook stores. In April 2011, Gamestop Corp. (GME) opened a store on Facebook to generate sales among the 3.5 million-plus customers who’d declared themselves “fans” of the video game retailer. Six months later, the store was quietly shuttered.
Many internet experts question the social nature of shopping itself, and there is considerable opinion that people visit Facebook to catch up with their Friends and not to be sold products. Another reason why people may resist buying from Facebook is the privacy concerns of the users.
No doubt Facebook is a powerful service and a great marketing tool. Organizations should leverage it to get maximum benefits. There is nothing wrong in experimenting as long organizations are build upon the lessons learnt.
Retailing – Factors Influencing Retailing
R. Hasty and J. Reardon (1997) in his book “Retail Management” stated that retailing is the business segment with which the people have the most intimate contact and it is retailing which is to function in a very complex external environment.
Retailers are affected by the environment in which they operate; it influences how and why they conduct business. This complex external environment can be divided into two types of environment. Newman and Cullen (2002) summarized those factors in macro and micro- environmental influences.
i. Macro-Environmental Influences:
The macro-environmental influences include the following:
(a) Political and legal – consumer protection, equal rights, safety at work, working hours and the minimum wages.
(b) Economic – disposable income, gross domestic product, unemployment, interest rates, inflation.
(c) Socio-cultural – social class, reference groups, culture and subculture.
(d) Technological – products, processes, information handling and management.
(e) Demographic – age, sex, marital status, household size, education and geographic location.
(f) Physical – product availability, air and water quality and noise pollution.
These factors affect the whole sector and the people’s shopping behaviour. Another set of factors i.e. the micro environmental influences which comprises those factors that originate outside the retail firm, but which the retailer can affect through its management processes.
ii. Micro-Environmental Influences:
The micro-environmental influences include:
(a) Market segments – size, behaviours, trends, locations and level of service demand.
(b) Suppliers and intermediaries – supply channels, availability of goods, number of alternatives, locations, geographic concentration and volume concentration.
(c) Competitors – number, strategies, potential new entrants and rivalry.
Retailing – The Retailing Environment
Companies in this sector sell a wide range of products to consumers and businesses, from food, apparel to hardware, household goods, and office supplies. Major companies include US giants Wal-Mart, Home Depot, Kroger, Costco, Target, Carrefour (France), Metro (Germany) and Tesco (UK).
Large companies, by mass merchandising, dominate some retail sectors, as their size give them advantage and help to bring down cost of purchasing, distribution and marketing. While large companies can compete on price, smaller companies can compete by offering unique goods, serving local demand, providing superior customer service and provide better overall shopping experience to their customers.
Retail format can vary – gigantic superstores offer massive selections (e.g. HyperCity), while kiosks allow companies to set up scaled-down versions of retail operations in small spaces. Some retailers (like Reliance Fresh, More Supermarkets, etc.) choose the size of their store based on the local population and other demographics pattern.
In industries where suppliers are numerous, retailers often buy from distributors or wholesalers to simplify the buying process and reduce the lead time (time taken for goods to arrive at the store). However, retailers with multiple stores often operate their own warehouses or distribution centers to receive and store merchandise from suppliers.
Some of the factors that drive customer demand are:
1. Price:
Probably the most important factor that affects demand. Products have different sensitivity to changes in price. Retailers try to negate this factor by offering unique shopping experience like customer service, etc.
2. Personal Income:
Daily use items like bread and milk generally do not see much of impact due to change in personal income but goods like Apparel and other products’ demand increases when an individual’s income goes up. When incomes fall, individual’s ability to purchase goods and services decreases and result in decrease in the demand for most goods.
3. Consumer Preferences:
Customer preferences for luxury watch or apparel leads to increase in demand for a particular product. Companies take help of Persuasive Advertising to cause a change or develop preferences and tastes, for their products, among consumers. When a product becomes unfashionable, demand can quickly fall away.
4. Competition:
Producers compete with each other to take a bigger share of the market. Sometimes their strategies can be competitive and sometimes it can be complementary. They can compete by cutting their prices or by introducing a new or better version of a product.
In complementary strategy, retailers try to increase their pie and try to create more customers which help all the players in the market. For example, after years of competition in urban India, Pepsi and Coca Cola decided to enter rural market. It has helped both the companies increase their customer base.
Retailing – Information Technology in Retailing
Information Technology (IT) has become a vital part of retailing. It has transformed the operation of retail marketing by providing accurate sale data and high quality information about customers. Laser, scanner are used in most of the large stores to read product bar codes and check all the details on the products file. They provide the correct price in a fraction of few seconds.
Internet has enabled consumers to order products like books, CDs, clothing groceries, etc., at any time and have them delivery to their homes.
Retailers invest a substantial portion of their resources in extensive computer and high speed communication network. They collected and exchange data between stores, distribution centres, suppliers, head offices and consumers.
Use of such IT systems in retailing has become more common now as their relative costs have fallen recently. In the words of Management Horizons (1995) “technology is becoming a virtual prerequisite to successful competition. Retail-supplier partnerships benefit from the use of IT, in retailing. It provides key information to reduce cost while improving productivity”.
Let us now study how IT is used to help solve retail business problems.
The following is the simple case of a retail chain comprising five clothing shops.
Each store is equipped with a PC. The PC holds information about the stock in the store in terms of items is sold to a customer, a hand held device reads. The bar code on the label deducts the item from the shop’s stock. Overnight, the sales details on each store’s computer are downloaded automatically through a telephone line to the company PC in the main store.
Every morning, the owner of the chain stores is able to review the previous day’s sales performance of every store of his. While placing orders with the suppliers, the weekly and monthly sales of figures for each type of product sold last year and this year compared. The retailer is able to identify the product lines that are selling very well in the first few days. He places ‘top up’ orders with his suppliers. He can also reallocate stock among branches to ensure that every store has adequate range of sizes, course and designs.
Applications of IT in Retailing:
IT used in retailing to carry out basic functions such as selling items, capturing the sale data by items, stock control, buying, management reports, customers information and managing the finance of the business. However, the most advanced retailers use IT to gain competitive advantages the retailer’s offer and provides innovation in ways that are appreciated by the customer.
Taylor (1998) argues that IT system such as data mining, multimedia kiosks and web-based commerce are helping retailers of differentiate their services from their competitors. IT enables business organizations to develop closer relationships with their customers.
Lower and Wrigley (1996) suggests that retailers use IT in the following ways:
1. Investment in IT along with organizational changes, improved retail logistics, reducing delivery lead times resulting in reduced inventory holdings.
2. Better information about consumers demand supported by retail policies in own brand, product development and the focusing, refocusing and redefinition of many of successful firms.
3. Cutting labor cost by effective staff scheduling and by using more part-time and casual staff. Retailers are able to use IT to measure staff performance, enabling further cost reduction with the help of quality information about transactions and performance levels.
David Gilbert holds that IT is having a major impact on the modern retail business. Article bar coding combined with the advent of business to business electronic commerce, creates and provides the following advantages for the retailer.
1. Cost Productivity Benefits:
(a) Efficiency of time/transaction speed increases
(b) Reduced queuing times
(c) Operating cost reduction e.g. less ticketing
(d) Increased accuracy of all aspects of the sales
(e) Improved administration
(f) No new keying required
(g) Shorter lead time
(h) Reduction in stock outs and stock holding
(i) Pricing can be changed easily and accurately.
2. Marketing Benefits:
(a) Improved data-effectiveness of promotions, forecasts of sales, stock records etc.
(b) Faster distribution cycle system.
(c) Improved trading partner relationship.
(d) Ability to incorporate faster responses to changing market conditions.
(e) Consumers benefits from operational efficiencies e.g. shorter queues.
(f) Building of loyalty schemes and databases.
(g) Additional selling space owing to reduced stockholding.
Retailing – Importance of Retailing in Indian Economy
The retail sector is particularly important because retailing is the final link in the chain of production which begins at the extractive stages, moves through the manufacturing processes and ends by the distribution of goods (and services) to the final consumer.
Retailing accounts for about 15-20% of the organized workforce in any developed economy. It is the second largest employer in the India after agriculture. There are about 6 million retail establishment in India. Of which, 4.1 million (70%) sell food products, and related items. An interesting research in this area has shown that grocery stores (56% of all retail outlets) and general stores (13%) dominate rural India.
There are 1.8 million retail outlets in urban India. Of which more than 50% earn between Rs. 7,500.00 to Rs. 25,000.00 daily. Approximately 6.6% of urban adults in India are shop owners. There are about 21% outlets in urban area engaged in service retailing. Though no official data is available, the given above figure indicate that this sector may be employing about 15-20% of the organized work force, which is in line with global averages.
Retailing accounts for an impressive part of Gross Domestic Product (GDP). The year 1997 – 1999 has been a slowdown in economic growth with the GDP growth rate pegged at 4 to 5 %. Total retail sales in India reached Rs. 5793 billion in 1996 representing around 53% of GDP and 69% of consumer expenditure. Retail sales per capita was Rs. 6297 in 1996.
In US the sales of retail sector is about US$2 trillion. In India, if private final expenditure is taken as an indicator, the total retail trade in India could be about Rs. 700,000- Rs. 800,000 crores or USS 160-180 billion (excluding fuels). In US, the annual sales of Wal-Mart (world’s largest retailer), K-mart, and Sears are much greater than the annual sales of Proctor and Gamble, PepsiCo, and RJR Nabisco- the three largest consumer products manufacturer.
In India, organised retailing is a relatively new concept, still organised retailing accounts for approximately Rs. 13,300 Crores. It is expected to grow at 28% rate becoming Rs. 45000 Crores by 2005. The turnover of India’s biggest retailer Shoppers’ Stop is about Rs. 210 crores annually.
Retailing is also important, as it is an important tax collection point for the government.
There are number of small shops and stores in a suburban location. The area is dominated by middle class and upper middle class service employees. A super market chain opened a store in that area with the supply of fast moving consumer goods (FMGCs). The resident of the area were used to shop at the local stores and were hesitant to enter the posh looking supermarket.
Later on, when they realized that the same products are available in the supermarket at cheaper rate, they started visiting the supermarket. Within a year, the supermarket got good hold of the market and the sales increased by almost 200% from the initial months.