Retailing:
Retailing is the process of selling goods and services from businesses to the end-user i.e., the customer.
Retailer:
A person or business that sells goods to the public in relatively small quantities for use or consumption rather than for resale.
Functions of Retailer:
The function of breaking bulk
The function of creating place utility
Stocking varieties of goods
Providing credit facilities to customers
Providing information to customers and wholesalers
Estimating the demand and arranging the purchase of the product
Acting as consumers agent
Marketing functions
Connecting link
The function of breaking bulk
Retailing breakup large quantities into smaller units such as individual canes, bottles, packets, appropriate for consumer use.
The function of creating place utility
Retailers create place utility by transporting goods to the point of consumption.
Stocking Varieties of goods
Retailers buy varieties of goods from various manufacturers or wholesalers. Thus, a retailer provides a wide range of choices enabling the consumers to select the products of their choice.
Providing credit facilities to customers
Retailers grant credit facilities to consumers and thus increase their short-term purchasing power.
Providing information to customers and wholesalers
Retailers act as a link between the buyers and wholesalers/manufacturers. In the distribution channel, retailers are in direct contact with customers. Retailers supply market information to manufacturers either directly or through wholesalers.
Estimating the demand and arranging the purchase of the product
Retailers create demand for products by communicating with their customers. This demand creation is quite helpful for manufacturers and wholesalers.
Acting as consumer’s agent
The retailers anticipate the wants of the consumers and then supply them with the right kind of goods at a reasonable price. Their job is to make the consumer’s buying as easy and convenient as possible.
Marketing functions
Retailers perform several marketing functions such as sales promotion, advertising, and point of purchase display. They induce customers to buy products from reputed companies.
Connecting link
The retailers are the connecting link between the wholesaler and the ultimate consumer.
Retail Equation:
Marketing has been defined as the process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others.
The Chartered Institute of Management defines marketing as the management process responsible for identifying, anticipating, and satisfying customer requirements profitably.
One can look at the marketing – retail equation from two perspectives – one being that of a manufacturer and the second from the point of view of the retailer. With the growth of industrialization and urbanization, the distance between the manufacturer of a product and the actual consumer has increased. In our world, many products are manufactured in one country and sold to a market in another. Most producers no longer sell their products or services directly to the consumer, but instead, use intermediaries to get their product to the final consumer. The marketing channel design is largely based on the level of service desired by the target consumer. Here, the retailer provides valuable inputs to the manufacturer on the products and the consumers.
Some of the most common marketing channels are illustrated below:
Manufacturer → Wholesaler → Retailer → Consumer
Manufacturer → Retailer → Consumer
Manufacturer → Consumer
Manufacturers or suppliers that offer products for immediate consumption are known as direct manufacturers or suppliers e.g. Eureka Forbes, whose door-to-door salesman offers its products directly to customers is an example of a company that offers its products directly to the consumers. The Direct Mail-order business companies are another example.
More traditional manufacturers or supplies are associated with delayed consumption e.g. shown below. Companies, which deal primarily with immediate consumption are known as service providers, while those that deal with delayed consumption are retailers. An example of a service provider under this definition would be a cinema, while a retailer in the same sector would be a video shop.
The other perspective of looking at the marketing retail relationship is from that of the retail industry itself. Every retailer needs marketing. The marketing efforts of a multi-brand retailer like Food World and Shopper’s Stop are different from those of an own-brand retailer like Westside. However, the basic principles of marketing are no different for a retailer than for any other supply organization. What is different is the immediacy of many retail marketing exchanges and the range of activities that can be undertaken by the retail marketer to achieve a profitable exchange with a customer?
While modern marketing theory may have stemmed from producers of the fast-moving consumer goods (FMVG) manufacturers, more recent developments such as relationship marketing and interactive marketing have evolved from the needs of service providers. These ‘new’ marketing activities focus on the dynamic link between a specific supplier and its immediate customer. It is here that the needs of retailing coincide with the domain of marketing.
There are two specific dimensions to retail marketing: first, how to attract customers into the retail environs – shop, restaurant, supermarket, or the ‘virtual’ Internet store for instance and second, how to persuade those customers to purchase from the store. Both are necessary to achieve success.
The rise of the Retailer:
In the not-so-distant past, manufacturers created a product, advertised it slickly, and sold it through their distribution channel. The manufacturing companies enjoyed economic power, as they were significantly bigger compared to the distributors of the retailers. They determined the prices of the products that the retailer could stock and also the dealer and distributor margins. They would also independently advertise for their products. In case of a dispute with the distributor or retailer, it would not be rare for the manufacturer to discontinue supplies. However, much has changed. Today, retail has emerged as a separate function by itself. The environment in a large organized retail store is significantly different from that in a traditional or mom-and-pop store.
customer proximity
Customer proximity is a company's commitment to being highly connected to the customer and their experience. Both their experiences with your product and service, but more importantly, their experiences every day as they go about their business when they are not dealing with your company.
FDI in Retail:
Foreign direct investment (FDI) in the retail sector in India is restricted. In 2006, the government eased retail policy for the first time, allowing up to 51 percent FDI through the single-brand retail route. Since then, there has been a steady increase in FDI in the retail sector, and the cumulative FDI in single-brand retail stood at $195 million by the middle of 2010 (DIPP, 2010).
According to the Department of Industrial Policy and Promotion (DIPP) of the Government of India, single-brand retail comprises those retailers selling products “of a ‘single brand’ only, such that products should be sold under the same brand internationally; and single-brand product retailing covers only products which are branded during manufacturing. In this category, FDI is allowed to the extent of 51 percent In contrast, no FDI is allowed in the multi-brand retail category. This includes all firms in organized retail that seek to stock and sell multiple brands, such as large international retailers like Wal-Mart and Carrefour. This is the sector that is most under dispute.
The Retail sector of India is vast and has huge potential for growth and development, as the majority of its constituents are un-organized. The retail sector of India handles about $250 billion every year and is expected by veteran economists to reach $660 billion by the year 2015. The business in the organized retail sector of India is to grow most and faster at the rate of 15-20% every year and can reach the level of $100 billion by the year 2015. Here, it is noteworthy that the retail sector of India contributes about 15% to the national GDP, and employs a massive workforce of it, after the agriculture sector. India's growing economy with a rate of approximately 8% per year makes its retail sector highly fertile and profitable to the foreign investors of all sectors of commerce and economy, all over the world.
Organized retailing entails trading conducted by licensed retailers and unorganized retailing includes all types of low-cost trading like local shops, small roadside stores, and temporary shops or door-to-door selling of various goods. Until now, according to the Indian retailing laws, Foreign Direct Investment in the multi-brand retail market was prohibited. But the government is thinking to open the FDI in retail in India which implies that foreign investment in retailing is possible up to 51%. Now the announcement of retail FDI in India has triggered a series of debates on both positive and negative notes and become a political issue.
Advantages And Disadvantages:
Advantages of FDI in the retail sector in India:
Growth in the economy: Due to the coming of foreign companies’ new infrastructure will be built, thus the real estate sector will grow consequently banking sector, as money needs to be required to build infrastructure would be provided by banks.
Job opportunities: Estimates shows that this will create about 80Lakh jobs. These career opportunities will be created mostly in retail, real estate. But it will create a positive impact on other sectors as well. Read about career options in the Retail sector…..
Benefits to farmers: In most cases, in the retailing business, the intermediaries have dominated the interface between the manufacturers or producers and the consumers. Hence the farmers and manufacturers lose their actual share of the profit margin as the lion’s share is eaten up by the middlemen. This issue can be resolved by FDI, as farmers might get contract farming where they will supply to a retailer based upon demand and will get good cash for that, they need not search for buyers.
Benefits to consumers: Consumers will get a variety of products at low prices compared to market rates, and will have more choice to get international brands in one place.
Lack of infrastructure in the retailing chain has been one of the common issues in India for years which has led the process to an incompetent market mechanism.
In the last years, the Public distribution system is proved to be significantly ineffective. Even though the government arranged for subsidies, the food inflation has caused its negative impact continuously and it can be handled by FDI.
Disadvantages of FDI in the retail sector in India:
According to the non-government cult, FDI will drain out the country’s share of revenue to foreign countries which may cause a negative impact on India’s overall economy.
The domestic organized retail sector might not be competitive enough to tackle international players and might lose its market share.
Many of the small business owners and workers from other functional areas may lose their jobs, as lots of people are into unorganized retail businesses such as small shops.
FDI Policy In India:
FDI as defined in Dictionary of Economics (Graham Bannock et.al) is an investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site. To put it in simple words, FDI refers to capital inflows from abroad that are invested in or to enhance the production capacity of the economy.
Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (‘RBI’) in this regard had issued a notification, which contains the Foreign Exchange Management (Transfer or Issue of security by a person resident outside India) Regulations, 2000. This notification has been amended from time to time.
The Ministry of Commerce and Industry, Government of India is the nodal agency for motoring and reviewing the FDI policy on a continued basis and changes in sectoral policy/ sectoral equity cap. The FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP).
The foreign investors are free to invest in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (‘FIPB’) would be required.
FDI Policy Concerning Retailing:
It will be prudent to look into Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 which provide the sector-specific guidelines for FDI about the conduct of trading activities.
FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route.
FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of ‘Single Brand’ products, subject to Press Note 3 (2006 Series).
FDI is not permitted in Multi Brand Retailing in India.
Life cycle in retail:
A theory of retail competition that states that retailing institutions, like the products they distribute, pass through an identifiable cycle. This cycle can be partitioned into four distinct stages:
Innovation,
Accelerated development,
Maturity, and
Decline.
Classification of Retailing Formats
The retailing formats can be classified into the following types as shown in the diagram
Ownership Based Retailing
Let us see these retailers in detail −
Independent Retailers − They own and run a single shop, and determine their policies independently. Their family members can help in business and the ownership of the unit can be passed from one generation to the next. The biggest advantage is they can build a personal rapport with consumers very easily. For example, stand-alone grocery shops, florists, stationery shops, book shops, etc.
Chain Stores − When multiple outlets are under common ownership it is called a chain of stores. Chain stores offer and keep similar merchandise. They are spread over cities and regions. The advantage is, the stores can keep selected merchandise according to the consumers’ preferences in a particular area. For example, Westside Stores, Shopper’s Stop, etc.
Franchises − These are stores that run business under an established brand name or a particular format by an agreement between a franchiser and a franchisee. They can be of two types −
Business format. For example, Pizza Hut.
Product format. For example, Ice cream parlors of Amul.
Consumers Co-Operative Stores − These are businesses owned and run by consumers to provide essentials at reasonable cost as compared to market rates. They have to be contemporary with the current business and political policies to keep the business healthy. For example, Sahakar Bhandar from India, Puget Consumers Food Co-Operative from the north US, Dublin Food Co-Operative from Ireland.
Merchandise Based Retailing
Let us see these in detail −
Convenience Stores − They are small stores generally located near residential premises, and are kept open till late night or 24x7. These stores offer essentials such as food, eggs, milk, toiletries, and groceries. They target consumers who want to make quick and easy purchases.
For example, mom-and-pop stores, stores located near petrol pumps, 7-Eleven from the US, etc.
Supermarkets − These are large stores with high volume and low profit margins. They target mass consumer and their selling area ranges from 8000 sq. ft. to 10,000 sq. ft. They offer fresh as well as preserved food items, toiletries, groceries, and basic household items. Here, at least 70% of the selling space is reserved for food and grocery products.
For example, Food Bazar and Tesco.
Hypermarkets − These are one-stop shopping retail stores with at least 3000 sq. ft. selling space, out of which 35% space is dedicated towards non-grocery products. They target consumers over a large area and often share space with restaurants and coffee shops. The hypermarket can spread over the space of 80,000 sq. ft. to 250,000 sq. ft. They offer exercise equipment, cycles, CD/DVDs, Books, Electronics equipment, etc.
For example, Big Bazar from India, Walmart from the US.
Specialty Stores − These retail stores offer a particular kind of merchandise such as home furnishing, domestic electronic appliances, computers, and related products, etc. They also offer high-level service and product information to consumers. They occupy at least 8000 sq. ft. selling space.
For example, Gautier Furniture and Croma from India, High & Mighty from the UK.
Departmental Stores − It is a multi-level, multi-product retail store spread across an average size of 20,000 sq. ft. to 50,000 sq. ft. It offers to sell space in the range of 10% to 70% for food, clothing, and household items.
For example, The Bombay Store, Ebony, Meena Bazar from India, Marks & Spencer from the UK.
Factory Outlets − These are retail stores that sell items that are produced in excess quantity at discounted prices. These outlets are located close to manufacturing units or in association with other factory outlets.
For example, Nike, Bombay Dyeing factory outlets.
Catalog Showrooms − These retail outlets keep catalogs of the products for the consumers to refer to. The consumer needs to select the product, write its product code, and handover it to the clerk who then manages to provide the selected product from the company’s warehouse.
For example, Argos from the UK. India’s retail HyperCity has joined hands with Argos to provide a catalog of over 4000 best quality products in the categories of computers, home furnishing, electronics, cookware, fitness, etc.
Non-Store Based (Direct) Retailing
It is the form of retailing where the retailer is in direct contact with the consumer at the workplace or home. The consumer becomes aware of the product via email or phone call from the retailer, or through an ad on the television, or Internet. The seller hosts a party for interacting with people. Then introduces and demonstrates the products, their utility, and benefits. Buying and selling happen at the same place. The consumer itself is a distributor.
For example, Amway and Herbalife multi-level marketing.
Non-Store based retailing includes non-personal contact-based retailing such as −
Mail Orders/Postal Orders/E-Shopping − The consumer can refer to a product catalog on the internet and place an order for purchasing the product via email/post.
Telemarketing − The products are advertised on television. The price, warranty, return policies, buying schemes, contact number, etc. are described at the end of the Ad. The consumers can place an order by calling the retailer’s number. The retailer then delivers the product to the consumer’s doorstep. For example, Asian Skyshop.
Automated Vending/Kiosks − It is most convenient to the consumers and offers frequently purchased items round the clock, such as drinks, candies, chips, newspapers, etc.
The success of non-store-based retailing hugely lies in the timely delivery of the appropriate products.
Service-Based Retailing
These retailers provide various services to the end consumer. The services include banking, car rentals, electricity, and cooking gas container delivery.
The success of service-based retailers lies in service quality, customization, differentiation and timeliness of service, technological up-gradation, and consumer-oriented pricing.
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