Lesson 1
Retail Management: An Introduction
Objective: After reading this lesson you will be able to understand: Meaning of retailing, Nature and scope, Characteristics of retailing, the role of retailing in distribution channel, and functions of retailers.
Structure:
1.1. Introduction
1.2. Meaning of Retailing
1.3. Nature and Scope of Retailing
1.4. Characteristics of Retailing
1.5. Retailer’s Role in Distribution Channel
1.6. Functions of Retailers
1.7. Summary
1.8. Key terms
1.9. Questions
1.10. References
1.1. Introduction:
Retailing is a part of our every day life. Retailing consists of business activities involved in selling goods and services to consumers for their personal family or house hold use. It includes every sale of goods and services to the final consumers. Retailing is the last stage in the distribution process. Retailing is selling of merchandise directly to the consumer. Retailing began several thousand years ago with peddlers hawking their wares at the earliest marketplaces. It is extremely competitive, and the failure rate of retail establishments is relatively high. The diversity of retailing is evident in the many forms it now takes, including vending machines, door-to-door and telephone sales, direct-mail marketing, the Internet, discount houses, specialty stores, department stores, supermarkets, and consumer cooperatives.
Providing place, time, and farm and possessing utilities to consumers is the essence of distribution management. Retailing takes care of a major part of this task. It is retailing that actually delivers these utilities to the consumers. It is, on the quality of retailing that the efficiency of this delivery depends.
Customers often are not aware of the sophisticated business decisions retail managers make and the technology they use to provide goods and services. Retail managers must make complex decisions in selecting target markets and retail locations, determining what merchandise and services to offer, negotiating with suppliers and the distributing merchandize to stores, training and motivating sales associates, and deciding how to price, promote and present merchandise. Considerable skill and knowledge are required to make this decisions effectively. Working in this highly competitive, rapidly changing environment is challenging and exciting and offers significant financial rewards.
New technologies are improving retail productivity. There are many opportunities to starting new retail business or work for an existing one an to join franchise. Global retailing possibilities abound. On the other hand retailers face numerous challenges. Many consumers are bored with shopping or do not have much time for it. Some localities have too many stores retailers often seem to spur one another into frequent price cutting. Consumer expectation about customer service are high while retailers are offering more self service and automated system to handle customer interactions.
1.2. Meaning of Retailing:
Retailing is the set of business activities that adds value to the products and services sold to consumers for their personal of family use.
Retailing consists of the sale of goods or merchandise, from a fixed location such as a department store or kiosk, in small or individual lots for direct consumption by the purchaser.
Retailing consists of the sale of goods/merchandise for personal or household consumption either from a fixed location (e.g., store, kiosk, etc.) or away from a fixed location and related subordinated services.
Often people think of retailing only as the sale of products in stores. But retailing also involves the sale of services: overnight lodging in a motel, a doctor’s exam, a hair cut, a videotape rental, or a home-delivered pizza.
Not all retailing is done in stores. Examples of non-store retailing are Internet Sales of record albums by CDNOW (www.cdnow.com), the direct sales of cosmetics by Mary Kay, and catalog sales by L. L. Bean and Patagonia.
Retailing may include subordinated services, such as delivery. Purchasers may be individuals or businesses. In commerce, a retailer buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells smaller quantities to the end-user. Retail establishments are often called shops or stores. Retailers are at the end of the supply chain.
1.3. Nature and Scope of Retailing:
Manufacturing of goods that are used in retail business should also have a working knowledge of retailing. Thus, fixture manufacturer has to understand the operations of its retailers with regard to store layout, linear feet of shelf space, the use of self-service merchandising, routing of customer traffic, and storage specifications. Both knowledge of basic retailing principles and the special factors relative to a given type of retailer are necessary for the fixture manufacturer to succeed.
Firms that sell services, such as insurance, to retailers can benefit from a good understanding of retailing. Inventory valuation, employee job functions, construction costs, crime rates, and depreciation are some relevant factors that must be examined. For example, how should merchandise that has been marked down in price be valued if there is water damage? Or how much will fire insurance premiums be reduced if new sprinklers are installed in a store?
1.4. Characteristics of Retailing:
Several special characteristics distinguish retailing from other types of business. They are.
- Small average sale
- Impulse purchases
- Popularity of stores
Special Characteristics Affecting retailers
The average amount of a sales transaction for retailers is much less than for manufacturers. Final consumers make many unplanned purchases; those who buy for resale or for use in manufacturing products or running a business are more systematic and plan ahead. Most retail customers must be drawn to a retail location; sales people often visit manufacturers, wholesalers, and other firms to initiate and complete transactions. Each factor imposes unique requirements on retail firms.
An average sales transaction per shopping trip is low rupee value for department stores, specialty stores, and supermarkets. These low amounts create a need to tightly control the costs associated wit each transaction such as credit verification, sales personnel, and bagging; to maximize the number of customers drawn to the retailer, which may place more emphasis o ads and special promotions; and to increase impulse sales by more aggressive selling. However, low average sales and high costs cannot always be controlled by the retailer.
Inventory management is often difficult for retailers because of the many small sales transactions to a large number of different customers. As an illustration, a typical supermarket has 6,000 to 7,000 customer transactions per week. This makes ti harder for retailers to determine the levels of exisiting stock and the popularity of various brands, sizes, and prices of merchandise. For that reason, retailers are expanding their use of computerized inventory systems.
Retail sales often involve unplanned or impulse purchases. Surveys show that a large percentage of consumers do not look at ads before shopping, do not prepare shopping lists (or deviate from the lists once in stores), and make purchases that are fully unplanned. This behavior indicates the value of point-of-purchase displays, attractive store layouts, and well organized stores, catalogs, and web sites. Sweets, cosmetics, snack foods, magazines, and other items can be sold as impulse goods if they are placed in visible, high-traffic places in a store, catalog, or Web site. Since consumers buy so many goods and services in an unplanned manner, the retailer’s ability to forecast, budget, order merchandise, and have the proper number of personnel on the selling floor is made tougher.
Retail customers usually visit a store, even though mail, phone, and Web sales have increased in recent years. The large number of final consumers, the interest of many consumers in shopping in person and in comparison shopping among brands and models, the small average transaction, the unplanned nature of purchase, and consumers’ desire for privacy at home are just some reasons for the popularity of stores. And since people must be attracted to a store, the retailer needs to consider such factors as location, transportation, hours, proximity of competitors, product assortment, parking, and advertising.
1.5. Retailer’s Role in Distribution Channel:
A retailer is a business that sells products or services, or both, to consumers for their personal or family use. Retailers attempt to satisfy consumer needs by having the right merchandise, at the right price, at the right place, when the consumer wants it. Retailers also provide markets for producers to sell their merchandise. Retailers are the final business in a distribution channel that links manufacturers to consumers. A distribution channel is a set of firms that facilitate the movement of products from the point of production to the point of sale to the ultimate consumer.
Manufacturers typically make products and sell them to retailers or wholesalers. When manufacturers like to sell directly to consumers, they are performing both the production and retailing business activities. Wholesalers buy products from manufacturers and resell these products to retailers, and retailers resell products to consumers. Wholesalers and retailers may perform many of the same functions described in the next section. But wholesalers satisfy retailers’ needs, whereas retailers direct their efforts to satisfying needs of ultimate consumers. Some retail chains perform both retailing and wholesaling activities. They perform retailing activities when they sell to consumers and wholesaling activities when they sell to other businesses like building contractors or restaurant owners.
In some distribution channels, the manufacturing, wholesaling, and retailing activities are performed by independent firms. But most distribution channels have some vertical integration.
Vertical integration means that a firm performs more than one set of activities in the channel, such as investments by retailers in wholesaling or manufacturing. They buy directly from manufacturers, such as at a farmer’s market, retailers provide important functions that increase the value of the products and services they sell to consumers and facilitate the distribution of those products and services for those who produce them.
1.6. Functions of Retailers:
The retailers perform some important functions to create value to the product as well as customer. They are:
- Providing as assortment of products and services
- Breaking bulk
- Holding inventory
- providing services
Providing assortments: Supermarkets carry large variety of products from maximum number of companies. Offering an assortment enables their customers to choose from a wide selection of brands, designs, sizes, colors, and prices in one location. Manufacturers sometimes specialize in producing specific types of products. If these manufacturers had their own sores that only sold their own products, consumers would have to go many different stores to buy groceries to prepare a single meal.
All retailers offer assortments of products, but they specialize in the assortments they offer. Supermarkets provide assortments of food, health and beauty care, and household products, while the limited provides assortments of clothing and accessories. Most consumers are well aware of the product assortments retailers offer. Even small children know where to buy different types of products. But new types of retailers offering unique assortments appear each year.
Break Bulk: to reduce transportation costs, manufacturers and wholesalers typically ship cases of frozen dinners or cartons of blouses to retailers. Retailers then ofer the products in smaller quantities tailored to individual consumers’ and households’ consumption patterns. This is called breaking bulk. Breaking bulk is important to both manufacturers and consumers. It is cost effective for manufacturers to package and ship merchandise in larger, rather than smaller quantities. It is also easier for consumers to purchase merchandise in smaller, more manageable quantities.
Holding Inventory: A major function of retailers is to keep inventory that is already broken into user-friendly sizes so that products will be available when consumers want them. Thus, consumers can keep a small inventory of products at home because they know the retailers will have the products available when they need more. By maintaining an inventory, retailers provide a benefit to consumers – they reduce the consumer’s cost of storing products. This is particularly important to consumers with limited storage space and for purchasing perishable merchandise like meat and produce.
Providing services: Retailers provide services that make it easier for customers to buy and use products. They offer credit so consumers can have a product now and pay for it later. They display products so consumers can see and test them before buying. Some retailers have salespeople on hand to answer questions and provide additional information about products. Multi-channel retailers offer the flexibility of buying anytime, day or night. Customers can choose whether they want to prick merchandise up at a store or have it shipped to their home.
By providing assortments, breaking bulk, holding inventory, and providing services, retailers increase the value consumers receive from their products ad services.
1.7. Summary:
Retailing is a part of our every day life. Retailing consists of business activities involved in selling goods and services to consumers for their personal family or house hold use. It includes every sale of goods and services to the final consumers. Retailing is the last stage in the distribution process. Retailing is selling of merchandise directly to the consumer. Retail managers must make complex decisions in selecting target markets and retail locations, determining what merchandise and services to offer, negotiating with suppliers and the distributing merchandize to stores, training and motivating sales associates, and deciding how to price, promote and present merchandise Several special characteristics distinguish retailing from other types of business. They are Small average sale, Impulse purchases, Popularity of stores. The retailers perform some important functions to create value to the product as well as customer. They are Providing as assortment of products and services, Breaking bulk, Holding inventory, providing services.
1.8. Key Terms:
Assortment: The number of stock keeping units within a merchandise category. Also called depth of merchandise.
Breaking Bulk: A function performed by retailers or wholesalers in which they receive large quantities of merchandise and sell them in small quantities
Impulse purchases: An unplanned purchase by a customer.
Retailing: Retailing consists of business activities involved in selling goods and services to consumers for their personal family or house hold use.
Vertical integration: An example of diversification by retailers involving investments by retailers in wholesaling or manufacturing merchandise.
1.9. Questions:
1. What is retailing? Explain its nature and scope.
2. What are the Characteristics of retailing?
3. What is the role of retailer in distribution Channel?
4. Explain the functions of retailer.
1.10. References:
Retail Management; Michael Levy, Barton A Weitz, Tata McGraw-Hill Publishing Company limited; Fifth Edition.
Retail Management, Text and Cases; Swapna Pradhan; Tata McGraw-Hill Publishing Company limited; Second Edition.
