Definition, Scope and Importance of Retailing

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In my whole retailing career, I have stuck to one guiding principle: give your customers what they want…and customers want everything: a wide assortment of good quality
merchandise, lowest possible prices, guaranteed satisfaction with what they buy, friendly knowledgeable service, convenient hours, free parking, and a pleasant shopping
experience.

You love it when you visit a store that somehow exceeds your expectations and you hate it when a store inconveniences you, or gives you hard time, or just pretends you are
invisible…

− Sam Walton ( Founder, Walmart )

Retailing includes all activities involved in selling goods or services to the final consumers for personal, non-business use.

− Phillip Kotler

Any organization that sells the products for consumption to the customers for their personal, family, or household use is in the occupation of retailing.

Functions of a Retailer
Retailer provides the goods that customer needs, in a desired form, at a required time and place.

 A retailer does not sell raw material. He sells finished goods or services in the formthat customer wants.
 A retailer buys a wide range of products from different wholesalers and offers the best products under one roof. Thus, the retailer performs the function of both buyingand selling.
 A retailer keeps the products or services within easy reach of the customer by making them available at appropriate location.

Scope:

1. Store Management.
2. Category management.
3. Customer Relationship Management.
4. Vendor Management.
5. Inventory Management.
6. Supply Chain Management.

Importance:

1. Helps in economic growth.

2. Provides various opportunities.
3. Provides employment opportunities.
4. Formation of FDI.
5. Improvement of Infrastructure and enhances the availability of retail space.
6. Transformation of the retail sector in India.
7. Improvement in standard of living.

Retail Formats
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The retailing formats can be classified into 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 next. The biggest advantage is they can build 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 franchiser and a franchisee. They can be of two
types −


o Business format. For example, Pizza Hut.
o Product format. For example, Ice cream parlors of Amul.

 Consumers Co-Operative Stores− These are businesses owned and run by consumers with the aim of providing 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 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 24×7. These stores offer basic 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 US, etc.

 Supermarkets− These are large stores with high volume and low profit margin. 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% 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 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 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 UK.

 Departmental Stores− It is a multi-level, multi-product retail store spread across average size of 20,000 sq.ft. to 50,000 sq.ft. It offers selling 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 UK.

 Factory Outlets− These are retail stores which sell items that are produced in excess quantity at discounted price. These outlets are located in the close proximity of manufacturing
units or in association with other factory outlets.

For example, Nike, Bombay Dyeing factory outlets.

 Catalogue Showrooms− These retail outlets keep catalogues of the products for the consumers to refer. 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 UK. India’s retail HyperCity has joined hands with Argos to provide a catalogue 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 at 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 happens 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 a product catalogue on internet and place order for purchasing the product via email/post.
 Telemarketing− The products are advertised on the television. The price, warranty, return policies, buying schemes, contact number etc. are described at the end of the Ad. The
consumers can place order by calling the retailer’s number. The retailer then delivers the product at 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 timely delivery of appropriate product.

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 retailer lies in service quality, customization, differentiation and timeliness of service, technological upgradation, and consumer-oriented pricing.

Theories of Retail Development

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Theories of Development
In retail management, theories can be broadly classified as follows −

Environmental Theory (Natural Selection)

It is based on Darwin’s theory of survival: “The fittest would survive the longest”. The retail sector comprises consumers, manufacturers, marketers, suppliers, and changing
technology. Those retailers that adapt to changes in demography, technology, consumer preferences, and legal changes are more likely to survive for long and prosper.

Cyclical Theory

McNair represents this theory by Wheel of Retailing that explains the changes taking place in retailing.

According to him, the new entrant retailers are often into low cost, low profit margin, low structure retail business, which offers some unique, real benefit to the consumers. Over
some time they establish themselves well, prosper, and expand their products with more expensive facilities, without losing focus on their core values.

This creates a place for yet new entrants in the market thereby creating threat of competition, substitution, and rivalry.

Conflict Theories (Evolution through Dialectic Process)

Within a broad retail category, there is always a conflict between the retailing of similar formats, which leads to the development of new formats. Thus, the new retail formats are
evolved through dialectic process of blending two formats.

Say, Thesis is a single retailer around the corner of the residential area. Antithesis is a large departmental store nearby the same residential area, which develops over some time in
opposition to Thesis. Antithesis poses a challenge to Thesis. When there is conflict between Thesis and Antithesis, a new format of retail is born.

Global and Indian Retail Scenario

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The Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. It accounts for over 10 per cent of the country’s
Gross Domestic Product (GDP) and around 8 per cent of the employment. India is the world’s fifth-largest global destination in the retail space.

Indian Retail Industry has immense potential as India has the second largest population with affluent middle class, rapid urbanisation and solid growth of internet.

Market Size
India’s retail market is expected to increase by 60 per cent to reach US$ 1.1 trillion by 2020, on the back of factors like rising incomes and lifestyle changes by middle class and
increased digital connectivity. While the overall retail market is expected to grow at 12 per cent per annum, modern trade would expand twice as fast at 20 per cent per annum and
traditional trade at 10 per cent#. Indian retail market is divided into “Organised Retail Market” which is valued at $60 billion which is only 9 per cent of the total sector and
“Unorganised Retail Market constitutes the rest 91 per cent of the sector.

India’s Business to Business (B2B) e-commerce market is expected to reach US$ 700 billion by 2020.## Online retail is expected to be at par with the physical stores in the next
five years and has grown 23 per cent to $17.8 billion in 2017.

India’s total potential of Business to Consumer (B2C) is estimated to be US$ 26 billion, of which $3 billion can be achieved in the next three years from 16 product categories,
according to a study by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Institute of Foreign Trade (IIFT).

India has replaced China as the most promising markets for retail expansion, supported by expanding economy, coupled with booming consumption rates, urbanizing population
and growing middle class.

India is expected to become the world’s fastest growing e-commerce market, driven by robust investment in the sector and rapid increase in the number of internet users. Various
agencies have high expectations about growth of Indian e-commerce markets. Indian e-commerce sales are expected to reach US$ 120 billion! by 2020 from US$ 30 billion in
 FY2016.Further, India’s e-commerce market is expected to reach US$ 220 billion in terms of gross merchandise value (GMV) and 530 million shoppers by 2025, led by faster
speeds on reliable telecom networks, faster adoption of online services and better variety as well as convenience@.

India’s direct selling industry is expected to reach Rs 159.3 billion (US$ 2.5 billion) by 2021, if provided with a conducive environment through reforms and regulation.

Indian exports of locally made retail and lifestyle products grew at a CAGR of 10 per cent from 2013 to 2016.*

India is expected to become the world’s third-largest consumer economy, reaching US$ 400 billion in consumption by 2025.

Luxury market of India is expected to grow to US$ 30 billion by the end of 2018 from US$ 23.8 billion 2017 supported by growing exposure of international brands amongst
Indian youth and higher purchasing power of the upper class in tier 2 and 3 cities, according to Assocham.

The size of modern retail in India is expected to double to Rs 171,800 crore (US$ 25.7 billion) from Rs 87,100 crore (US$ 13 billion) in three years driven by omni-channel retail.
**

Investment Scenario
The Indian retail trading has received Foreign Direct Investment (FDI) equity inflows totalling US$1.09 billion during April 2000–September 2017, according to the Department of
Industrial Policies and Promotion (DIPP).

With the rising need for consumer goods in different sectors including consumer electronics and home appliances, many companies have invested in the Indian retail space in the
past few months.

 Department of Industrial Policy and Promotion (DIPP) approved three foreign direct investments (FDI), Mountain Trail Food, Kohler India Corporation, and Merlin Entertainments
India in the single brand retail sector and two FDI proposals of over Rs 400 crore (US$ 62.45 million) within the retail sector.
 With 2017 being a successful year for herbal-ayurvedic brands, new Indian organic labels in hair care, cosmetics, food and apparel are belting up to carve an organic niche in the
growing herbal segment.
 Investments by private equity firms in Indian retail sector reached US$ 200 million in the first half of 2017, with seven new global brands entering India during the period.

Government Initiatives
The Government of India has taken various initiatives to improve the retail industry in India. Some of them are listed below:

 The Government of India may change the Foreign Direct Investment (FDI) rules in food processing, in a bid to permit e-commerce companies and foreign retailers to sell Made in
India consumer products.
 Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in online retail of goods and services through the automatic route, thereby providing clarity on the
existing businesses of e-commerce companies operating in India.

Road Ahead
E-commerce is expanding steadily in the country. Customers have the ever increasing choice of products at the lowest rates. E-commerce is probably creating the biggest revolution
in the retail industry, and this trend would continue in the years to come. Retailers should leverage the digital retail channels (e-commerce), which would enable them to spend less
money on real estate while reaching out to more customers in tier-2 and tier-3 cities.

Both organised and unorganised retail companies have to work together to ensure better prospects for the overall retail industry, while generating new benefits for their customers.

Nevertheless, the long-term outlook for the industry is positive, supported by rising incomes, favourable demographics, entry of foreign players, and increasing urbanisation.

Information Gathering in retailing

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With the increasing globalization of retailing, both in terms of their points-of-sale and their points-of-supply; the information technology (IT) spend in the retail sector has increased
significantly. IT plays an increasingly important role in the management of complex retail operations.

Market knowledge, as well as control of data and information, is key to obtaining a competitive advantage in the retail sector. Markets are continuing to grow and become more
complex; the simple process of retailing has started to deploy more advanced retail information systems to cope with all the transactions involved.

Today, retailers need to transform their IT capabilities for multiple reasons, including:

 To increase the company’s ability to respond to the evolving marketplace through enhanced speed and flexibility.
 To collect and analyze customer data while enhancing differentiation.
 To work effectively; retailers need one system working across stores (or even across national borders) to make sure the most effective use of stock and improve business processes.

Retailers are beginning to notice that technology’s role is one of an enabler. Essentially, information technology can speed up processes and deliver cost saving benefits to the
company.

The retail industry faces many specific challenges related to IT management, including:

 Customer data

Many retailers struggle with information overload because they’re required to collect and sift through mass amounts of data, then convert it into useful information in a customer-
centric industry.

 Transparency and tracking

Retailers must increase transparency between systems, as well as obtain better tracking to integrate systems from manufacturer through to the consumer while obtaining customer
and sales information.

 Global data synchronization

Due to radio frequency identification/electronic product coding, the entire supply chain has become more intelligent. Retailers must enable the use of real-time data to watch
inventory levels. In addition, radio frequency identification tagging positions the company to be able to safeguard its shipments by allowing products to be tracked from
manufacturer through the entire supply chain.

 PCI Security Compliance

PCI Security Compliance addresses the retailer’s internal security setup and practices, in order to mitigate payment security risks. Every business engaged in credit card payment
processing is required to comply with PCI Security Standards. If a retailer collects or stores credit card information that becomes compromised, the retailer may lose the ability to
accept credit card payments. Other possible consequences include lawsuits, insurance claims, cancelled accounts, and government fines.

The retailers who take advantage of outsourcing IT will obtain optimal advice and benefits from outsourcing. Many retailers have turned towards IT outsourcing as a way to control
costs and improve their service delivery.
 Retail Market Strategy, Financial Strategy
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It is a plan designed by a retail organization on how the business intends to offer its products and services to the customers. There can be various strategies such as merchandise
strategy, own-brand strategy, promotion strategy, to name a few.

A retail strategy includes identification of the following −

 The retailer’s target market.

 Retail format the retailer works out to satisfy the target market’s needs.
 Sustainable competitive advantage.

Strategies for Effective Market Segmentation

For effective market segmentation, the following two strategies are used by the marketing force of the organization −

Concentration (Niche) Strategy

Under this strategy, an organization focuses going after large share of only one or very few segment(s). This strategy provides a differential advantage over competing
organizations which are not solely concentrating on one segment.

For example, Toyota employs this strategy by offering various models under hybrid vehicles market.

Multi-segment Strategy

Under this strategy, an organization focuses its marketing efforts on two or more distinct market segments.

For example, Johnson and Johnson offers healthcare products in the range of baby care, skin care, nutritionals, and vision care products segmented for the customers of all ages.

Strategies for Market Penetration

Market penetration strategies include the following −

Price Penetration

It is setting the price of the product or service lesser than that of the competitor’s product or service. Due to decreased cost, volume may increase which can help to maintain a
decent level of profit.

Aggressive Promotion

Increasing product or service promotion on TV, print media, radio channels, e-mails, pulls the customers and drives them to view and avail the product or service. By offering
discounts, various buying schemes along with the added benefits can be useful in high market penetration.

High Product Distribution

By distributing the product or service up to the level of saturation helps penetration of market in a better way. For example, Coca Cola has a very high distribution and is available
everywhere from small shops to hypermarkets.

Growth Strategies

If a retail organization conducts SWOT Analysis (Strength, Weakness, Opportunity, Threat) before considering growth strategies, it is helpful for analyzing the organization’s
current strategy and planning the growth strategy.

Ansoff’s Matrix

An American planning expert named Igor Ansoff developed a strategic planning tool that presents four alternative growth strategies. On one dimension there are products and on
the other is markets.

This matrix provides strategies for market growth. Here is the sequence of these strategies −

 Market Penetration− Company focuses on selling the existing products or services in the existing market for higher market share.
 Market Development− Company focuses on selling existing products or services to new markets or market segments.
 Product Development− Company works on innovations in existing products or developing new products for the existing market.
 Diversification− Company works on developing new products or services for new markets.

Financial Strategy
The price at which the product is sold to the end customer is called the retail price of the product. Retail price is the summation of the manufacturing cost and all the costs that
retailers incur at the time of charging the customer.

Factors Influencing Retail Prices

Retail prices are affected by internal and external factors.

 Internal Factors

Internal factors that influence retail prices include the following −

 Manufacturing Cost− The retail company considers both, fixed and variable costs of manufacturing the product. The fixed costs does not vary depending upon the production volume. For
example, property tax. The variable costs include varying costs of raw material and costs depending upon volume of production. For example, labor.
 The Predetermined Objectives− The objective of the retail company varies with time and market situations. If the objective is to increase return on investment, then the company may charge a
higher price. If the objective is to increase market share, then it may charge a lower price.
 Image of the Firm− The retail company may consider its own image in the market. For example, companies with large goodwill such as Procter & Gamble can demand a higher price for their
products.
 Product Status− The stage at which the product is in its product life cycle determines its price. At the time of introducing the product in the market, the company may charge lower price for it to
attract new customers. When the product is accepted and established in the market, the company increases the price.
 Promotional Activity− If the company is spending high cost on advertising and sales promotion, then it keeps product price high in order to recover the cost of investments.

External Factors

External prices that influence retail prices include the following −

 Competition− In case of high competition, the prices may be set low to face the competition effectively, and if there is less competition, the prices may be kept high.
 Buying Power of Consumers− The sensitivity of the customer towards price variation and purchasing power of the customer contribute to setting price.
 Government Policies− Government rules and regulation about manufacturing and announcement of administered prices can increase the price of product.
 Market Conditions− If market is under recession, the consumers buying pattern changes. To modify their buying behavior, the product prices are set less.
 Levels of Channels Involved− The retailer has to consider number of channels involved from manufacturing to retail and their expectations. The deeper the level of channels, the higher would be
the product prices.

Demand-Oriented Pricing Strategy

The price charged is high if there is high demand for the product and low if the demand is low. The methods employed while pricing the product on the basis of demand are −

 Price Skimming− Initially the product is charged at a high price that the customer is willing to pay and then it decreases gradually with time.
 Odd Even Pricing− The customers perceive prices like 99.99, 11.49 to be cheaper than 100.
 Penetration Pricing− Price is reduced to compete with other similar products to allow more customer penetration.
 Prestige Pricing− Pricing is done to convey quality of the product.
 Price Bundling− The offer of additional product or service is combined with the main product, together with special price.

Cost-Oriented Pricing Strategy

A method of determining prices that takes a retail company’s profit objectives and production costs into account. These methods include the following −

Cost plus Pricing − The company sets prices little above the manufacturing cost. For example, if the cost of a product is Rs. 600 per unit and the marketer expects 10 per cent
profit, then the selling price is set to Rs. 660.

Mark-up Pricing − The mark-ups are calculated as a percentage of the selling price and not as a percentage of the cost price.

The formula used to determine the selling price is −

Selling Price = Average unit cost/Selling price

Break-even Pricing − The retail company determines the level of sales needed to cover all the relevant fixed and variable costs. They break-even when there is neither profit nor
loss.

For example, Fixed cost = Rs. 2, 00,000, Variable cost per unit = Rs. 15, and Selling price = Rs. 20.

In this case, the company needs to sell (2,00, 000 / (20-15)) = 40,000 units to break even the fixed cost. Hence, the company may plan to sell at least 40,000 units to be profitable. If
it is not possible, then it has to increase the selling price.

The following formula is used to calculate the break-even point −

Contribution = Selling price – Variable cost per unit

Target Return Pricing − The retail company sets prices in order to achieve a particular Return On Investment (ROI).

This can be calculated using the following formula −

Target return price = Total costs + (Desired % ROI investment)/Total sales in units

For example, Total investment = Rs. 10,000,

Desired ROI = 20 per cent,

Total cost = Rs.5000, and

Total expected sales = 1,000 units

Then the target return price will be Rs. 7 per unit as shown below −

Target Return Price = (5000 + (20% * 10,000))/ 1000 = Rs. 7

This method ensures that the price exceeds all costs and contributes to profit.

Early Cash Recovery Pricing − When market forecasts depict short life, it is essential for the price sensitive product segments such as fashion and technology to recover the
investment. Sometimes the company anticipates the entry of a larger company in the market. In these cases, the companies price their products to shorten the risks and maximize
short-term profit.

Competition-Oriented Pricing Strategy

When a retail company sets the prices for its product depending on how much the competitor is charging for a similar product, it is competition-oriented pricing.

 Competitor’s Parity− The retail company may set the price as close as the giant competitor in the market.
 Discount Pricing− A product is priced at low cost if it is lacking some feature than the competitor’s product.

Differential Pricing Strategy

The company may charge different prices for the same product or service.

 Customer Segment Pricing− The price is charged differently for customers from different customer segments. For example, customers who purchase online may be charged less as the cost of
service is low for the segment of online customers.
 Time Pricing− The retailer charges price depending upon time, season, occasions, etc. For example, many resorts charge more for their vacation packages depending on the time of year.
 Location Pricing− The retailer charges the price depending on where the customer is located. For example, front-row seats of a drama theater are charged high price than rear-row seats.

Retail Location
THEINTACTFRONT22 APR 2018 1 COMMENT
Silicon valley is a mindset; not a location.

− Reid Hoffman (Co-Founder, LinkedIn)

Before visiting a mall or a shop, the first question that arises in consumers’ mind is, “How far do I have to walk/drive?”

In populous cities such as Mumbai, Delhi, Tokyo, and Shanghai to name a few, consumers face rush-hour traffic jams or jams because of road structure. In such cases, to access a
retail outlet to procure day-to-day needs becomes very difficult. It is very important for the consumers to have retail stores near where they stay.

Importance of Location in Retail Business

Retail store location is also an important factor for the marketing team to consider while setting retail marketing strategy. Here are some reasons −

 Business location is a unique factor which the competitors cannot imitate. Hence, it can give a strong competitive advantage.
 Selection of retail location is a long-term decision.
 It requires long-term capital investment.
 Good location is the key element for attracting customers to the outlet.
 A well-located store makes supply and distribution easier.
 Locations can help to change customers’ buying habits.

Trade Area: Types of Business Locations

A trade area is an area where the retailer attracts customers. It is also called catchment area. There are three basic types of trade areas −

Solitary Sites

These are single, free standing shops/outlets, which are isolated from other retailers. They are positioned on roads or near other retailers or shopping centers. They are mainly used
for food and non-food retailing, or as convenience shops. For example, kiosks, mom-andpop stores (similar to kirana stores in India).

Advantages − Less occupancy cost, away from competition, less operation restrictions.

Disadvantages − No pedestrian traffic, low visibility.

Unplanned Shopping Areas

These are retail locations that have evolved over time and have multiple outlets in close proximity. They are further divided as −

 Central business districts such as traditional “downtown” areas in cities/towns.

 Secondary business districts in larger cities and main street or high street locations.
 Neighborhood districts.
 Locations along a street or motorway (Strip locations).

Advantages − High pedestrian traffic during business hours, high resident traffic, nearby transport hub.

Disadvantages − High security required, threat of shoplifting, Poor parking facilities.

 Planned Shopping Areas

These are retail locations that are architecturally well-planned to provide a number of outlets preferably under a theme. These sites have large, key retail brand stores (also
called “anchor stores”) and a few small stores to add diversity and elevate customers’ interest. There are various types of planned shopping centers such as neighborhood or
strip/community centers, malls, lifestyle centers, specialty centers, outlet centers.

Advantages − High visibility, high customer traffic, excellent parking facilities.

Disadvantages − High security required, high cost of occupancy.

Factors Determining Retail Locations

The marketing team must analyze retail location with respect to the following issues −

 Size of Catchment Area− Primary (with 60 to 80% customers), Secondary (15 to 25% customers), and Tertiary (with remaining customers who shop occasionally).
 Occupancy Costs− Costs of lease/owning are different in different areas, property taxes, location maintenance costs.
 Customer Traffic− Number of customers visiting the location, number of private vehicles passing through the location, number of pedestrians visiting the location.
 Restrictions Placed on Store Operations− Restrictions on working hours, noise intensity during media promotion events.
 Location Convenience− Proximity to residential areas, proximity to public transport facility.

Steps to Choose the Right Retail Location

A retail company needs to follow the given steps for choosing the right location −

Step 1 – Analyze the market in terms of industry, product, and competitors − How old is the company in this business? How many similar businesses are there in this location?
What the new location is supposed to provide: new products or new market? How far is the competitor’s location from the company’s prospective location?

Step 2 – Understand the Demographics − Literacy of customers in the prospective location, age groups, profession, income groups, lifestyles, religion.

Step 3 – Evaluate the Market Potential − Density of population in the prospective location, anticipation of competition impact, estimation of product demand, knowledge of laws
and regulations in operations.

Step 4 – Identify Alternative Locations − Is there any other potential location? What is its cost of occupancy? Which factors can be compromised if there is a better location
around?

Step 5 – Finalize the best and most suitable Location for the retail outlet.

Measuring the Success of Location

Once the retail outlet is opened at the selected location, it is important to keep track of how feasible was the choice of the location. To understand this, the retail company carries
out two types of location assessments −

Macro Location Evaluation

It is conducted at a national level when the company wants to start a retail business internationally. Under this assessment, the following steps are carried out −

 Detailed external audit of the market by analyzing locations as macro environment such as political, social, economic, and technical.
 Most important factors are listed such as customer’s level of spending, degree of competition, Personal Disposable Income (PDI), availability of locations, etc., and minimum
acceptable level for each factor is defined and the countries are ranked.
 The same factors listed above are considered for local regions within the selected countries to find a reliable location.

Micro Location Evaluation

At this level of evaluation, the location is assessed against four factors namely −

 Population− Desirable number of suitable customers who will shop.

 Infrastructure− The degree to which the store is accessible to the potential customers.
 Store Outlet− Identifying the level of competing stores (those which the decrease attractiveness of a location) as well as complementary stores (which increase attractiveness of a
location).
 Cost− Costs of development and operation. High startup and ongoing costs affect the performance of retail business.

Franchising Decisions
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A contractual agreement between a franchisor (a manufacturer, wholesaler, or service sponsor) and a retail franchise, allowing the franchisee to conduct a certain form of business
under an establishment name and according to a specific set of rules.
 Franchising is a well-known business strategy. Franchising is a form of contractual agreement in which a franchisee (a retailer) enters into an agreement with a franchisor (a
producer) to sell the goods and services for a specified fee or commission. The retailer through his outlet distributes the goods or services.

It brings together the title-holder of recognized merchandise with another business. This strategy can be opted by small businesses by having a brand name of a well-known
company associated with it.

For small business who cannot afford for much finance and capital investment for a business startup, franchising will be beneficial. Buying a franchise can be a shortcut to success.

Advantages of buying a franchise

The following are some of the advantages of buying franchise.

1. Higher success Rate: When entrepreneurs buy a franchise, they buy an established concept that has been successful. Franchisees stand a much better chance of success than people
who start independent businesses.

Today, Raymonds, being the world’s largest integrated producers of suiting fabrics provides franchise opportunities. An entrepreneur by becoming a franchisee of Raymonds will
be able to sell the suiting fabrics at ease due to the well established name.

2. Assistance: When entrepreneurs buy a franchise; they get all the equipment, supplies and instruction or training needed to start the business.
3. Cost reduction: Franchisor can afford to buy in bulk and pass the savings to franchisees. Inventory and supplies will cost less than running an independent company. For example,
running a courier company on own could be a difficult task. But by being a franchisee of Overnite Express, the franchisee can save money.
4. Star Power: Many well-known franchises have national brand-name recognition. Buying a franchise can be like buying a business with built-in customers. For example, buying a
franchise of Aptech will help to attract customers easily.
5. Profits: A franchise business can be immensely profitable. The probability for a small business to succeed is high as they have the backup and support of well established big
business enterprises.
6. Marketing assistance: When a business is associated with a franchisor then the big-business themselves help in corporate marketing of the goods of the small industry or business
they are providing support for.
7. Staff training: The franchisor provides all the necessary training to the franchisee or small business staff and provides additional resources and decision-makingcapabilities to a
small business.

Disadvantages of buying a franchise

The following are some of the disadvantages of buying franchise.

1. Control: Some franchisors exert a great degree of control. No decision can be taken by the franchisees without consulting the franchisor.
2. Ongoing Costs: Besides the original franchise fee, royalties, a percentage of franchise’s business revenue, will have to be paid to the franchisor each month.
3. Lack of Support: All franchisors do not offer the same degree of assistance in starting a business and operating it successfully. Assistance is provided only at the time of starting
the business.
4. Expensive: Buying a well-known franchise is very expensive. Entrepreneurs must have the ability to arrange the necessary finance.
5. Time consuming: Lot of time is required while selecting a franchise. A complete and thorough research is required to select the right franchise and to determine whether it would
work for the business or not.
6. Misunderstanding: Franchise is a complex procedure and disputes may arise between the franchisee and franchisor.

Retail Information System, Customer service

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An important element of the supply chain is the retail. Retail is the place where the products and goods are sold to the end users. Retailer purchases goods and products from
producers in large quantities and in turn sells them to consumers in smaller quantities.

Information Flow

It is very important for the retailer to communicate with the supplier as well as the consumer. From the producer, the retail should know the following:

 Retailer should know when a new product is getting launched or whether the producer is introducing a new variant for the existing product.
 Retailers should get a regular training from the manufacturer about brand new products and fresh technology.
 Retailer should have information well in advance about any impending pricing change.
 Retailer should also know about sales forecast from producer for given line of product.

Consumer is also as important for the retailer as the producer. From the consumer, the retailer should know the following:

 What attract the consumer to a particular retailer?

 What are good and bad points about a particular retailer?
 How did they hear about a particular retailer?

Retail Management Information System

If the retailer is on top of above information, then he would be able manage his business efficiently. In the current scenario, large retailers have their shop across physical
geographies. For them, it becomes very important to centrally manage all shops. Retail management information system precisely does this with help of hardware, software,
database and various modules.

Objective

The objective of the retail information systems is as follows:

 An information system should provide relevant information to retail manager regularly.

 An information system should anticipate needs and requirement of the retail manager.
 An information system should be flexible enough to incorporate constant evolving needs of the consumer market.
 An information system should be able to capture, store and organize all the relevant data on a regular and continuous basis.
 The retail Information systems should be aligned with strategic and business plans of the organization. Therefore, it should be able to provide information, which supports and
drives this objective.

Characteristics of Retail Information System

The retail information system should have following characteristics:

 Retail Information systems Information systemsRetail Information systems should connect all the stores under the company’s
 Retail information system should allow instant information exchange between stores and management.
 Retail information system should handle the various aspect of product management.
 Retail information system should handle customer analysis.
 Retail information system should allow the store manager flexible pricing over a financial year.

Role of Retail Information System

Retail information system should support basic retail function like material procurement, storage, dispatch, etc. It should allow the manager to monitor sales of product mix and
daily sales volume. An information system should help in inventory management.
 Variety of Retail Information System

Retail information system is applicable to different types industry within retail management. An information system can be developed to manage fashion store, pharmacy, a grocery
store as well as a toy store.

Indian Retail Sector

Indian retail sector has been growing by leaps and bounds in last decade or so. One research suggests that it will grow to $ 785 billion by 2015.

Technology is and will play an important role in the Indian retail sector. Various groups in organized as well as the unorganized sector has taken to IT for supporting this growth.

Customer service in Retail

Customer service is one-on-one between a salesperson and a shopper. The customer experience is the customer’s entire event of shopping in a brick and mortar retail store, from the
moment they arrive in the parking lot all the way to the time they are back in their car. Note that the customer experience does not have to include customer service.

With online retail growing every year, retailers with physical stores are discovering that they have let their customer service decline over the years and, as a result, the entire
shopping experience for their customers has kept them from coming back.

The unique advantage brick and mortar retailers have is that they can control the entire customer experience within their four walls. But how do you do it? That’s the key.

While many retail organizations think that retail salespeople are the only ones who need to excel at retail customer service, anyone who answers the phone, who is at a buy-online-
pickup-in-store desk, a warehouse worker or a driver—in short, anyone who serves a customer—needs to know not just a philosophy of others first, but the exact steps to deliver it
again and again.

You have to think like a shopper. After all, it’s their journey, not yours. You have to gather behaviors your shoppers exhibit when they start to think about purchasing. You want to
think about:

 What influences them first? Movies, blogs, videos, articles, brands, etc.
 Where do they get recommendations? Social media, review sites, online retailers, etc.
 Where do they first engage with your brand? Your website, your social media, your store?
 How do you engage them, and what do you want them to do next? Buy from the site, go to your store, sign up for your newsletter?

Next, note what the middle and end of the shopper journey looks like:

 What do they experience as they arrive at your store? The physical details of the condition of your store including lighting, music, overall cleanliness.
 How long does it take to have someone speak to them? Seconds, minutes, hit-or-miss?
 What is the first thing shoppers hear from your associates?
 Does your staff engage shoppers before pitching the merchandise?
 Are your staff little more than warehouse workers fulfilling orders?
 Is there a method in place to help customers purchase more?
 What is your send-off to the shopper? Silence, bid farewall, thank you?
 How do you follow up with customers? Social media, email, text, etc.

Customer Relationship Management

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Business people started using the term Customer Relationship Management (CRM) since the early 1990s when the concept of business started to change from being transactional to
relational. CRM directly contributes towards customer benefits and the growth of businesses.

Information Technology plays a very critical role in identifying, acquiring, and retaining the customers, and thereby managing a healthy relationship with them.

Here in this chapter, we will discuss the very basics of CRM.

What is CRM?
There can be multiple definitions of CRM from different perspectives −

 From the viewpoint of the Management, CRM can be defined as an organized approach of developing, managing, and maintaining a profitable relationship with customers.
 By equating the term with technology, the IT organizations define CRM as a software that assists marketing, merchandising, selling, and smooth service operations of a business.
 As per Franics Buttle, World’s first professor of CRM, it is the core business strategy that integrates internal processes and functions, and external networks, to create and deliver value to a
target customer at profit. It is grounded on high quality customer data and information technology.

The primary goal of CRM is to increase customer loyalty and in turn improve business profitability.

Ingredients of CRM
Take a look at the following illustration. It shows the ingredients that work together to form a successful CRM system.

Here are some of the important ingredients of CRM −

 Analytics− Analytics is the process of studying, handling, and representing data in various graphical formats such as charts, tables, trends, etc., in order to observe market trends.
 Business Reporting− Business Reporting includes accurate reports of sales, customer care, and marketing.
 Customer Service− Customer Service involves collecting and sending the following customer-related information to the concerned department −

o Personal information such as name, address, age
o Previous purchase patterns.
o Requirements and preferences.
o Complaints and suggestions.

 Human Resource Management− Human Resource Management involves employing and placing the most eligible human resource at a required place in the business.
 Lead Management− Lead Management involves keeping a track of the sales leads and distribution, managing the campaigns, designing customized forms, finalizing the mailing lists, and studying
the purchase patterns of the customers.
 Marketing− Marketing involves forming and implementing sales strategies by studying existing and potential customers in order to sell the product.
 Sales Force Automation− Sales Force Automation includes forecasting, recording sales, processing, and keeping a track of the potential interactions.
 Workflow Automation− Workflow Automation involves streamlining and scheduling various processes that run in parallel. It reduces costs and time, and prevents assigning the same task to
multiple employees.

Objectives of CRM
The most prominent objectives of using the methods of Customer Relationship Management are as follows −

 Improve Customer Satisfaction− CRM helps in customer satisfaction as the satisfied customers remain loyal to the business and spread good word-of-mouth. This can be accomplished by
fostering customer engagement via social networking sites, surveys, interactive blogs, and various mobile platforms.
 Expand the Customer Base− CRM not only manages the existing customers but also creates knowledge for prospective customers who are yet to convert. It helps creating and managing a huge
customer base that fosters profits continuity, even for a seasonal business.
 Enhance Business Sales− CRM methods can be used to close more deals, increase sales, improve forecast accuracy, and suggestion selling. CRM helps to create new sales opportunities and thus
helps in increasing business revenue.
 Improve Workforce Productivity− A CRM system can create organized manners of working for sales and sales management staff of a business. The sales staff can view customer’s contact
information, follow up via email or social media, manage tasks, and track the salesperson’s performance. The salespersons can address the customer inquiries speedily and resolve their
problems.

History of CRM

CRM systems are divided based on their prominent characteristics. There are four basic types of CRM systems −

 Strategic CRM
 Operational CRM
 Analytical CRM
 Collaborative CRM

The following table lists the types of CRM and their characteristic features −

Type Characteristic

Customer-centric, based on acquiring and maintaining profitable

Strategic CRM
customers.

Based on customer-oriented processes such as selling, marketing, and

Operational CRM
customer service.

Based on the intelligent mining of the customer data and using it

Analytical CRM
tactically for future strategies.

Based on application of technology across organization boundaries with

Collaborative CRM
a view to optimize the organization and customers.
 Strategic CRM
Strategic CRM is a type of CRM in which the business puts the customers first. It collects, segregates, and applies information about customers and market trends to come up with
better value proposition for the customer.

The business considers the customers’ voice important for its survival. In contrast to Product-Centric CRM (where the business assumes customer requirements and focuses on
developing the product that may sometimes lead to over-engineering), here the business constantly keeps learning about the customer requirements and adapting to them.

These businesses know the buying behavior of the customer that happy customers buy more frequently than rest of the customers. If any business is not considering this type of
CRM, then it risks losing the market share to those businesses, which excel at strategic CRM.

Operational CRM
Operational CRM is oriented towards customer-centric business processes such as marketing, selling, and services. It includes the following automations: Sales Force Automation,
Marketing Automation, and Service Automation.

Salesforce is the best suitable CRM for large established businesses and Zoho is the best CRM for growing or small-scale businesses.

Sales Force Automation

SFA is the application of technology to manage selling activities. It standardizes a sales cycle and common terminology for sales issues among all the sales employees of a
business. It includes the following modules −

 Product Configuration− It enables salespersons or customers themselves to automatically design the product and decide the price for a customized product. It is based on if-then-else structure.
 Quotation and Proposal Management− The salesperson can generate a quotation of the product prices and proposal for the customer by entering details such as customer name, delivery
requirements, product code, number of pieces, etc.
 Accounts Management− It manages inward entries, credit and debit amounts for various transactions, and stores transaction details as records.
 Lead Management− It lets the users qualify leads and assigns them to appropriate salespersons.
 Contact Management− It is enabled with the features such as customers’ contact details, salespersons’ calendar, and automatic dialing numbers. These all are stored in the form of
computerized records. Using this application, a user can communicate effectively with the customers.
 Opportunity Management− It lets the users identify and follow leads from lead status to closure and beyond closure.

Marketing Automation
Marketing automation involves market segmentation, campaigns management, event-based marketing, and promotions. The campaign modules of Marketing Automation enable
the marketing force to access customer-related data for designing, executing and evaluating targeted offers, and communications.

Event-based (trigger) marketing is all about messaging and presenting offers at a particular time. For example, a customer calls the customer care number and asks about the rate
of interest for credit card payment. This event is read by CRM as the customer is comparing interest rates and can be diverted to another business for a better deal. In such cases, a
customized offer is triggered to retain the customer.

Service Automation
Service automation involves service level management, resolving issues or cases, and addressing inbound communication. It involves diagnosing and solving the issues about
product.

With the help of Interactive Voice Response (IVR) system, a customer can interact with business computers by entering appropriate menu options. Automatic call routing to the
most capable employee can be done.

Consumer products are serviced at retail outlets at the first contact. In case of equipment placed on field, the service expert may require product servicing manual, spare parts
manual, or any other related support on laptop. That can be availed in service automation.

Analytical CRM
Analytical CRM is based on capturing, interpreting, segregating, storing, modifying, processing, and reporting customer-related data. It also contains internal business-wide data
such as Sales Data (products, volume, purchasing history), Finance Data (purchase history, credit score) and Marketing Data (response to campaign figures, customer loyalty
schemes data). Base CRM is an example of analytical CRM. It provides detailed analytics and customized reports.

Business intelligence organizations that provide customers’ demographics and lifestyle data over a large area pay a lot of attention to internal data to get more detail information
such as, “Who are most valuable customers?”, “Which consumers responded positively to the last campaign and converted?”, etc.

Analytical CRM can set different selling approaches to different customer segments. In addition, different content and styling can be offered to different customer segments. For the
customers, analytical CRM gives customized and timely solutions to the problems. For the business, it gives more prospects for sales, and customer acquisition and retention.

Collaborative CRM
Collaborative CRM is an alignment of resources and strategies between separate businesses for identifying, acquiring, developing, retaining, and maintaining valuable customers. It
is employed in B2B scenario, where multiple businesses can conduct product development, market research, and marketing jointly.

Collaborative CRM enables smooth communication and transactions among businesses. Though traditional ways such as air mail, telephone, and fax are used in communication,
collaborative CRM employs new communication systems such as chat rooms, web forums, Voice over Internet Protocol (VoIP), and Electronic Data Interchange (EDI).
 There are collaborative CRMs with in-built Partner Relationship Management (PRM) software application which helps in managing partner promotions. SugarCRM is a
popular collaborative CRM. It enables expert collaboration and provides state-of-the-art social capabilities.

CRM Software Buying Considerations

A business needs to consider the following points while selecting a CRM software −

 Business strategy and processes− It helps to automate a customer management strategy. Hence before selecting a CRM software, a business should be clear with its strategies and desired
processes.
 Business requirements− CRM systems range from domain specialty solutions that focus on solving a specific area such as sales force automation, marketing automation, services automation,
partner management, etc., to complete enterprise management solutions.
 Size of business− Small businesses require tools that are easy to learn and can handle a wide range of the most common tasks. Large businesses opt for applications that handle more complex
tasks and thousands of users.
 Customer base− The size of the customer base a business is required to handle.
 Budget− A business needs to set a budget prior vendor selection. The budget allocated for CRM varies according to the degree of customization required.
 Context− The context in which a business is functioning, e.g., B2B or B2C, determines which CRM the business should go for.
 Sales channels− The sales channels a business is employing: Direct sale, channel sale such as distributors, or Direct to customers via retail. They matter while selecting the most suitable CRM
software.
 System integration− All the interfaces the business needs and the CRM vendor can support without requiring too much custom services effort.
 Strength of partners− The partners must be able to provide a business with additional support, or help to implement the CRM successfully.

GAPs Model in Retail

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The five gaps that organizations should measure, manage and minimize:

 Gap 1 is the distance between what customers expect and what managers think they expect – Clearly survey research is a key way to narrow this gap.
 Gap 2 is between management perception and the actual specification of the customer experience- Managers need to make sure the organization is defining the level of service they
believe is needed.
 Gap 3 is from the experience specification to the delivery of the experience – Managers need to audit the customer experience that their organization currently delivers in order to
make sure it lives up to the spec.
 Gap 4 is the gap between the delivery of the customer experience and what is communicated to customers – All too often organizations exaggerate what will be provided to
customers, or discuss the best case rather than the likely case, raising customer expectations and harming customer perceptions.
 Finally, Gap 5 is the gap between a customer’s perception of the experience and the customer’s expectation of the service – Customers’ expectations have been shaped by word of
mouth, their personal needs and their own past experiences. Routine transactional surveysafter delivering the customer experience are important for an organization to measure
customer perceptions of service.

Each gap in the customer experience can be closed through diligent attention from management. Survey software can be key to assisting management with this crucial task.

Sales Forecasting
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Sales Forecasting is the process of using a company’s sales records over the past years to predict the short-term or long-term sales performance of that company in the future. This
is one of the pillars of proper financial planning. As with any prediction-related process, risk and uncertainty are unavoidable in Sales Forecasting too.
 Hence, it’s considered a good practice for Sales forecasting teams to mention the degree of uncertainties in their forecast. Sales Forecasting is a globally-conducted corporate
practice where a number of objectives are identified, action-plans are chalked out as well as budgets and resources are allotted to them.

The first step to proper Sales Forecasting is to know the things that fall within your domain directly as a salesperson. This usually relates to your sales staff, clients and prospects.
Other factors to consider during the setup of a forecast are the negative ones like − uncertainty, abrupt changes in consumer shopping patterns, etc.

One of the most common yet basic challenges that the management of companies face in making business sales forecasts is that their usual approach is a “top to down” one. This
approach leaves very little scope for interaction with the sales manager and the salespersons during the data collection process.

For a successful and accurate Sales Forecasting, it’s necessary to take into consideration the direction from significant departments of the organization, comprising of seniors,
managers, sales teams and finally − your own gut feeling. Let’s list down these sources of instructions and how they contribute towards designing a reliable sales forecast.

 Directions from Top-level Seniors− It may be initially necessary for you to increase your sales by 10%, however your seniors, being wiser, may ask you to reconsider your target
depending on promises made to outside investors as well as stockholders.
 Directions from one’s own manager− These kind of directions are mostly integrated along with the direction from the top level, but their expectations are generally little more
conservative and realistic. If the top management gives you a target of 15% sales growth, your manager will tell you what the real expectations are.
 Direction from Sales Teams− For instance, if the Sales Teams may project a growth of 10% over the management’s forecast figure of 20%; this extra-conservative number is a
cushion, so that they could increase their chances to beat the sales forecast.
 Direction from other Entities− Many other entities also take part in Forecasting. Chief among them are the Research and Development department, Human Resource department,
Marketing department finance team, manufacturing unit, etc.

Once you are done taking feedback and inputs from all these people, the final question to ask is − what is your interpretation of all these factors? Most often a person’s gut feeling
is more accurate than all the numbers put in front of him. Although it’s not advisable to go against the company’s decision, it is always a good policy to do further research till the
negative hunch doesn’t go away.

Role of External Factors

While participating in a sales forecast, it is crucial for you to answer after considering both the corporate and the departmental viewpoints that may arise. This will provide the real
balance between the expectations of the management and the real-case scenarios that different departments project.

External factors have a very significant role to play in Sales Forecasting. This is mainly because they are not dependent on the organizations’ functioning; the organization is
dependent on theirs. Organizations study external factors with great detail because they cannot control or influence them. Just as a forecasting can only inform you about the
weather but cannot change it.

The most influential factor is the competition, where the competition stands in terms of market share, new line of products, recognition of brand, expansion or contraction of the
sales force, etc. Also, whether there is a new competitor in the market or if any competitor is losing out in business.

There are numerous instances where two financially unsound companies enter into Mergers and Acquisitions. Often, these companies form a strong partnership and emerge as a
challenging competitor. Managers need to check whether any of their competitors are involved in any such mergers or acquisitions, and if they are, then what is their collective
strength and which minuses of each other they are cancelling out.

Some people might say that being a salesperson, you should abide by a philosophy similar to all other staff members, i.e., “winning over the numbers is the game”. In fact, the
reality is that winning numbers only proves to the clients that you can perform. Getting numbers is fine, however the individual contributions of team-mates is a significant factor in
correlation to the culture of the corporate world. You need to consider many things, such as the economic status of the environment you are operating in, whether the spot of
business is going through growth, recession, etc.

You would also need to check if there are any government-implemented hikes in the interest rates, pricing of commodities and what is the current rate of unemployment. Foreign
and domestic regulatory bodies implement policies from time to time, which also dramatically influences your business.

The fluctuations of the Dollar, Yuan and Euro also play an important part. When it comes to regulation, the question to ask is – are the regulatory norms going through any
significant changes that could affect your plan in a positive or a negative way? It might initially seem as a great thing to try to revise any forecasts put in front of you in order to
improve your opportunities of showing up at the top level, which will give you and your team the privilege to shine among others.

On the other hand, other factors play a major role here. You are not the only one who has been given an isolated forecast; other departments have also been given forecasts
depending on the same factors that you might want to manipulate.

Merchandise Budget
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Every business works within the confines of a budget, which indicates how much it can spend on various things. One key budget element for a retailer is merchandise. Retailers
must analyze data to create merchandise budgets that are affordable and put the business in the best position to make a profit.

Components
 When a retail business creates a merchandise budget, it must include more than just the cost of goods from wholesalers. While merchandise itself forms the core of that budget,
ancillary costs also contribute, and generally rise with increased spending on merchandise. These include items such as shipping, inventory-management software, labor for sorting
and counting stock, and storage. Marketing is a related cost that a retail business could include in its merchandise budget, since buying more goods will only be profitable if
customers buy them.

Projecting Demand
One technique that a retail business uses to create an accurate merchandise budget is demand forecasting. Understanding what consumer demand for merchandise is likely to be in
the future allows a retailer to devote adequate resources to buying stock and managing inventory so as not to miss sales opportunities. Demand forecasting relies on an analysis of
past sales data, as well as a projection based on upcoming products, seasonal changes in demand, trends in customer buying habits and plans for expansion at the retailer.

Budget Types
Retailers are likely to employ two types of budgets for merchandise. Retailers create a static budget before actually purchasing merchandise. They also use a flexible budget, which
incorporates changes made along the way. For example, a retailer’s static budget may allocate $10,000 for buying snow shovels in a given year, which covers enough shovels to
meet typical demand from past winters. However, if the winter is especially snowy, the retailer can spend an additional $2,000 on shovels to meet increased, temporary demand.
The flexible budget at the end of the year will show $12,000 going toward shovel purchases, along with higher revenue from sales that exceeded projections.

Outcome and Analysis

A business can use its static and flexible budget results to analyze its performance at the end of a quarter or fiscal year. Higher levels of spending on merchandise are not
necessarily bad, especially if they result in increased sales. However, buying merchandise in smaller quantities and multiple orders increases unit cost and delivery charges. This
means that if merchandise spending rises between a static budget and a flexible budget, it may indicate an opportunity to save money by spending more on initial orders in the
future, if demand will remain high. Comparing merchandise budgets to inventory changes over the same period of time can also reveal excessive spending on merchandise that
remains unsold and may need to be discounted so that it sells.

Assortment Plan, Inventory Management

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Assortment planning is about making the right product picks and ordering the right quantities to match market demand. These decisions affect both retailers and manufacturers
supplying them. In the apparel and fashion sector, these challenges are also more complicated, because of limited time windows. Once a fashion season has gone, the market
changes. At this point, the remaining stock often only sells at heavily discounted prices.

Picking Apparel Products to Meet Demand

The first step in assortment planning is understanding the basics. Retailers define the range of products to be sold by width and depth:

 The widthis the number or variety of different product categories.

 The depthis the amount of product and brand variation within an individual category.
 Using Assortment Planning to Drive the Supply Chain

A supply chain should work end-to-end to plan the required supply, stocks, sales, and margins. This includes manufacturing, logistics, wholesaling, and retailing. Market trend data
and retailer requirements can be used by manufacturers to adjust their production schedules. Traditionally, these adjustments have often been ad hoc or carried out by reconciling
plans from different sources. Ad hoc adjustments allow a manufacturer to react rapidly to changes in demand. However, they may unbalance the supply chain in unexpected ways.
They also become increasingly difficult to manage as environments become more complex. On the other hand, reconciliation of plans may work for stable environments but is soon
outstripped by rapidly changing marketplaces.

 A Product Lifecycle Management system manages information through the life cycle of a product, from the initial concept to production. To do this, it integrates data, processes,
and business systems. By using a PLM system, an enterprise can work as one team to make information-driven decisions at each life cycle stage, leveraging best practices and
improving customer experience. A suitable PLM system for fashion and apparel brands supports design, product development, purchasing, sample approval, sales, service, and
workflow tracking. It increases the visibility of all production costs while creating and managing compliance and factory audit documentation. Overall, the PLM system is used to
support brand merchandising, design, development, sourcing, and production.
 An Enterprise Resource Planning system facilitates the flow of information between departments and functions. There is no need to use separate and sometimes incompatible
software applications for accounting, purchasing, logistics, and related functions. Instead, the ERP system integrates all this information, accelerating processes, easing reporting
and tracking, and preventing errors. Overall, an ERP system supports sourcing and production, supply chain management, logistics, and wholesaling.
 Demand and supply management.This system optimizes the replenishment of products, enabling inventory planning for possibly thousands of product references. It helps the
enterprise to balance supply and demand to meet financial and service goals. Specifically, it supports the sales and operations planning (S&OP) part of the supply chain, together
with logistics and wholesaling.
 Retail planning.Merchandise planning, forecasting, brand management, and inventory control are typical functions of a retail planning system. Historical and point of sale (POS)
data may be used for this. Cluster planning for groups of stores, style-by-style, and product or storekeeping unit (SKU) level retail management are all possibilities. As its name
suggests, a retail planning system supports the final part of the supply chain, the retailing operation.

Accurate Assortment Planning, Profitability, and More

With an integrated, information-driven planning approach like the one above, apparel and fashion enterprises reap several benefits. They reduce costs and increase productivity.
Gains come from stopping repetitive data entry, closing gaps in communication, and avoiding human error. With the right PLM system, for instance, apparel designers can enter
designs into the system straight from their design applications, such as Adobe® Illustrator. Manufacturers, wholesalers and retailers get enhanced visibility across the supply chain.
Seasonal and fashion items sell within their window of sales opportunity, without having to cut prices. Buffer stocks and bullwhip effects go down. Sell-through, customer service,
and inventory turns go up. Accurate assortment planning can turn reliably into profitability for the different actors in the supply chain.

Inventory Management
Inventory management is the management of inventory and stock. As an element of supply chain management, inventory management includes aspects such as controlling and
overseeing ordering inventory, storage of inventory, and controlling the amount of product for sale.

Procurement process starts with gathering requirements and ends with procuring goods from vendors. Once goods are procured from vendor they need to be placed in company’s
premises in correct place so that they can be consumed when required. This introduces the term known as inventory management. Inventory management deals with placing and
handling stock received from vendors in correct place within company’s premises. The key points about inventory management are as follows:

 Inventory management deals with management of stock either on value or quantity basis.
 Planning, entry and keeping records of all goods movement comes under inventory management.
 Goods movement will create a document that will update all stock quantity and value in inventory that is known as material document.
 Material document will be referred by a document number and document year.

Inventory management deal with the following terms which are as follows:

 Movement Type
 Goods Receipt
 Reservation
 Goods Issue

Merchandise Buying
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 Merchandise planning and buying refers to retailers’ systematic approach to forecasting merchandise inventory requirements and negotiating the best deals with suppliers.
Typically, retailers have a centralized buyer or team of buyers who manages this process for the chain. They may have more local or regional merchandise managers who oversee
the implementation of merchandise in stores.

Retail Basics
All facets of merchandising are integral to retailer success since holding inventory and selling it to end customers are primary functions of retailers. Buyers have to consider how
much space is available in stores for each department and product category. They also have to plan for volatility in sales and other effects on inventory demands. Buyers also
negotiate with suppliers to make the best deals, to plan for efficient inventory replenishment and to manage other aspects of ultimately satisfying the needs of end customers.

Tasks
Planning and buying includes a number of critical tasks. Retail buyers commonly use merchandise planning software solutions to coordinate them all. The merchandise system
typically begins with a buying plan. This includes consideration of supply partners. Selection of merchandise to carry, establishment of retail prices, ongoing ordering processes,
management of supplier relationships, strategic merchandising and in-store promotion are all important tasks with the merchandise planning and buying process.

Ordering
Getting the best deal from suppliers and managing ordering processes are important ongoing buyer responsibilities. When ordering product for hundreds or thousands of stores
domestically or globally, saving even a few dollars per item can have dramatic bottom-line effects. In their chapter on “Merchandise Planning Systems” in the seventh edition of
their “Retailing Management” textbook, Levy & Weitz say buying staple products and fashion are completely different. Staple products are typically more consistent and
predictable, while fashion is more trendy and evolving. Constant products afford the buyer historical sales for use in planning, while constantly changing fashion is harder to
forecast.

Supply Chain Management

The emergence of stronger collaboration with suppliers and the system known as supply chain management has revolutionized 21st century merchandise systems. Companies have
cut down on the number of suppliers they use to form more mutually beneficial partnerships. Both supplier and retail share an end goal of giving the customer the best value. This
typically means electronic data integration where retailers and vendors link computer systems. This allows for automatic inventory replenishment at store levels to improve just-in-
time inventory processes. This has reduced manual merchandise buying components, helping cut costs and improve value to customers.

Retail Pricing
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We as customers, often get to read advertisements from various retailers saying, “Quality product for right price!” This leads to following questions such as what is the right price
and who sets it? What are the factors and strategies that determine the price for what we buy?

The core capability of the retailers lies in pricing the products or services in a right manner to keep the customers happy, recover investment for production, and to generate
revenue.

The price at which the product is sold to the end customer is called the retail price of the product. Retail price is the summation of the manufacturing cost and all the costs that
retailers incur at the time of charging the customer.

Factors Influencing Retail Prices

Retail prices are affected by internal and external factors.

Internal Factors
Internal factors that influence retail prices include the following −

 Manufacturing Cost− The retail company considers both, fixed and variable costs of manufacturing the product. The fixed costs does not vary depending upon the production
volume. For example, property tax. The variable costs include varying costs of raw material and costs depending upon volume of production. For example, labor.
 The Predetermined Objectives− The objective of the retail company varies with time and market situations. If the objective is to increase return on investment, then the company
may charge a higher price. If the objective is to increase market share, then it may charge a lower price.
 Image of the Firm− The retail company may consider its own image in the market. For example, companies with large goodwill such as Procter & Gamble can demand a higher
price for their products.
 Product Status− The stage at which the product is in its product life cycle determines its price. At the time of introducing the product in the market, the company may charge
lower price for it to attract new customers. When the product is accepted and established in the market, the company increases the price.
 Promotional Activity− If the company is spending high cost on advertising and sales promotion, then it keeps product price high in order to recover the cost of investments.

External Factors
External prices that influence retail prices include the following −

 Competition− In case of high competition, the prices may be set low to face the competition effectively, and if there is less competition, the prices may be kept high.
 Buying Power of Consumers− The sensitivity of the customer towards price variation and purchasing power of the customer contribute to setting price.
 Government Policies− Government rules and regulation about manufacturing and announcement of administered prices can increase the price of product.
 Market Conditions− If market is under recession, the consumers buying pattern changes. To modify their buying behavior, the product prices are set less.
 Levels of Channels Involved− The retailer has to consider number of channels involved from manufacturing to retail and their expectations. The deeper the level of channels, the
higher would be the product prices.

Demand-Oriented Pricing Strategy

The price charged is high if there is high demand for the product and low if the demand is low. The methods employed while pricing the product on the basis of demand are −

 Price Skimming− Initially the product is charged at a high price that the customer is willing to pay and then it decreases gradually with time.
 Odd Even Pricing− The customers perceive prices like 99.99, 11.49 to be cheaper than 100.
 Penetration Pricing− Price is reduced to compete with other similar products to allow more customer penetration.
 Prestige Pricing− Pricing is done to convey quality of the product.
 Price Bundling− The offer of additional product or service is combined with the main product, together with special price.

Cost-Oriented Pricing Strategy

A method of determining prices that takes a retail company’s profit objectives and production costs into account. These methods include the following −

Cost plus Pricing − The company sets prices little above the manufacturing cost. For example, if the cost of a product is Rs. 600 per unit and the marketer expects 10 per cent
profit, then the selling price is set to Rs. 660.

Mark-up Pricing − The mark-ups are calculated as a percentage of the selling price and not as a percentage of the cost price.

The formula used to determine the selling price is −

Selling Price = Average unit cost/Selling price

Break-even Pricing − The retail company determines the level of sales needed to cover all the relevant fixed and variable costs. They break-even when there is neither profit nor
loss.
 For example, Fixed cost = Rs. 2, 00,000, Variable cost per unit = Rs. 15, and Selling price = Rs. 20.

In this case, the company needs to sell (2,00, 000 / (20-15)) = 40,000 units to break even the fixed cost. Hence, the company may plan to sell at least 40,000 units to be profitable. If
it is not possible, then it has to increase the selling price.

The following formula is used to calculate the break-even point −

Contribution = Selling price – Variable cost per unit

Target Return Pricing − The retail company sets prices in order to achieve a particular Return On Investment (ROI).

This can be calculated using the following formula −

Target return price = Total costs + (Desired % ROI investment)/Total sales in units

For example, Total investment = Rs. 10,000,

Desired ROI = 20 per cent,

Total cost = Rs.5000, and

Total expected sales = 1,000 units

Then the target return price will be Rs. 7 per unit as shown below −

Target Return Price = (5000 + (20% * 10,000))/ 1000 = Rs. 7

This method ensures that the price exceeds all costs and contributes to profit.

Early Cash Recovery Pricing − When market forecasts depict short life, it is essential for the price sensitive product segments such as fashion and technology to recover the
investment. Sometimes the company anticipates the entry of a larger company in the market. In these cases, the companies price their products to shorten the risks and maximize
short-term profit.

Competition-Oriented Pricing Strategy

When a retail company sets the prices for its product depending on how much the competitor is charging for a similar product, it is competition-oriented pricing.

 Competitor’s Parity− The retail company may set the price as close as the giant competitor in the market.
 Discount Pricing− A product is priced at low cost if it is lacking some feature than the competitor’s product.

Differential Pricing Strategy

The company may charge different prices for the same product or service.

 Customer Segment Pricing− The price is charged differently for customers from different customer segments. For example, customers who purchase online may be charged less
as the cost of service is low for the segment of online customers.
 Time Pricing− The retailer charges price depending upon time, season, occasions, etc. For example, many resorts charge more for their vacation packages depending on the time of
year.
 Location Pricing− The retailer charges the price depending on where the customer is located. For example, front-row seats of a drama theater are charged high price than rear-row
seats.

Retail Communication Objectives

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The overall objective of retail marketing is creating and developing services and products that meet the specific needs of customers and offering these products at competitive,
reasonable prices that will still yield profits.

Businesses must realize that, in retail, the customer lies at the center of any organization’s marketing efforts, determining the overall success of the product or service.

Understand Your Customer

It is imperative that you understand your target customer. If you primarily sell children’s clothing, you should be targeting females in their 20s and 30s. Your business should take
the time to know these women: what reaches them, what makes them tick, what they truly need out of your product. Your understanding of your target customer will allow you to
communicate better with them, identify their market potential, customize product offers to them according to various market segments and consider their needs during product
changes and updates.

Make Connections
A primary goal of retail marketing is understanding the connections between the customer’s lifestyle and spending characteristics and why he chooses one product over another.
Using this knowledge, businesses can develop their products with a competitive advantage. This requires research and time as you delve into questions of brand loyalty, quality of
product and pricing.

Improve Direct Marketing

Businesses must test to ensure that they are sending the appropriate message to the appropriate households. They also must send this message at the appropriate time using the
appropriate media. Your communications must be spot-on, selling the benefits of your product or service in such a way that a prospect becomes a paying customer.

Increase Customer Loyalty

To increase customer loyalty, businesses must develop relationships with customers, continually selling the value of the product in their situation. Never over or under sell; instead,
operate with integrity. Matching competitors’ prices, developing special rewards for loyal customers — such as a frequent purchase card with discounts, priority service or
personalized offers — and referral programs are effective avenues to increasing customer loyalty.

Make the Product Known

If you know your target customers, understand their needs and have developed the perfect product, you have to get the word out. Using your knowledge of your customers, you
must communicate using the right channel. Using the example of children’s clothing, you should advertise your business in parenting and family magazines, on channels featuring
children’s programming and in or near toy and book stores.
Retail Advertising

It is advertising the product or service on communication media. The retailer can advertise on electronic media such as television, radio, mobile, and Internet. Print media such as
newspaper, brochures, handbills, product catalogues, are also popular among retailers to publish Ads. Retail advertising enables the retailer to reach out to a large number of people
and create awareness among them about the product’s availability.

The success of an Ad on a particular media depends upon the literacy level of the customers, their age and location.

Sales Promotions
Sales promotion is the communication strategy designed to act directly as an inducement, as added value, or as incentive for the product to the customer. Advertising may create
desire to possess the product but sales promotion actually helps conversion to sales.

Sales promotion drives existing customers’ loyalty, attracts new customers, influences customers’ buying behavior, and increases sales. It includes the following techniques −

Point of Purchase (POP) Displays

They are Ads placed near the merchandise to promote the sale where the customer makes buying decision.

Point of Sale (POS) Displays

They are Ads placed near the checkout or billing counters to promote on-the-fly purchase that the customer makes at the last minute.

Promotional Prices
Some techniques such as Loss Leading (where irrespective of how luxurious the product is, retailer offers steep discount), Markdown (where retailer brings down the prices for
wide range of products in the store), and Bundle Pricing (Buy one get one free or Get 3 pay for 1) are used in promotional pricing.

Loyalty Programs
Retailers conduct loyalty program for the customers who make frequent purchase by offering first access to new products, free coupons, or special discounted price on particular
days.

Promotion Mix.
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The Promotion Mix refers to the blend of several promotional tools used by the business to create, maintain and increase the demand for goods and services.

The fourth element of the 4 P’s of Marketing Mix is the promotion; that focuses on creating the awareness and persuading the customers to initiate the purchase. The several tools
that facilitate the promotion objective of a firm are collectively known as the Promotion Mix.

The Promotion Mix is the integration of Advertising, Personal Selling, Sales Promotion, Public Relations and Direct Marketing. The marketers need to view the following
questions in order to have a balanced blend of these promotional tools.

In the process of creating the marketing plan, managers usually use the 4p’s model (which can also be found as the 5p’s model). The 4P’s model includes price, place, product and
promotion (later on the model developed in order to also include people ).

How an organization chooses to promote their products and services can have a direct and substantial impact on sales. There is much thought and consideration that needs to go into
how dollars spent on advertising and promotions will convert into revenue for the company.

Therefore, once you have reached this step in your business plan you have to start building your promotional mix. The basic purpose of the promotional mix is first of all to
create brand awareness but the most essential is to produce organizational goals and profits. A promotional mix is defined as being successful if you manage to deliver a clear,
compelling message based on the fact that you chose the most appropriate promotion method.
 The promotional mix generally involves 5 components such as
1. Personal selling

2. Advertising

3. Direct marketing

4. Sales promotions

5. Public relations

1. Personal Selling

It is a part of the promotional mix which involves a one to one communication between buyers and customers (either potential or already customers). As it is a one-to-one
communication, it generates direct contact with prospects and customers. Even though it is considered to be one of the most expensive forms of promotion, it is also considered to
be the most successful as a seller-buyer relationship can be created and developed.

2. Advertising

One of the key factors in the promotional mix, which contributes to brand building and also how the market perceives the company, is advertising. It is always a big part of the
promotional mix because of the far and wide reach of advertising and the message that you can send to your existing and potential customers. Good advertising can build a solid
brand for the company. On the other hand, bad advertising with a wrong message, can cause the brand or product to fail.

3. Direct Marketing

While advertising targets a mass-audience, direct marketing targets prospects and customers. Social media marketing, Email marketing, Internet marketing are all types of direct
marketing used by companies. They have become important in the promotional mix lately because people are using internet far more than they used to a decade back. Company’s
employ direct marketing in order to engage in one-way communication with its customers, about product announcements, special promotions, order confirmations as well as
customer inquiries.

4. Sales Promotions

Sales promotions are one of the most common types of promotion used by companies. Their main purpose is to stimulate purchasing and sales. While it has the potential of
increasing sales, it is also beneficial for informing prospects about new products on the market or just to recapture old or lost customers. Such examples include: coupons, product
samples, etc.

5. Public Relations

Lastly, public relations enable an organization to influence a target audience and through this, create a favorable and positive image for the company. The company tries to connect
with the audience by sharing information with them about the company and about the product. If anything goes wrong on the information front, the public relations department has
to step forward and rebuild the public image.

While establishing your own promotional mix, you need to consider and decide upon several factors:

 Determine which is your target market– in terms of which customers’ needs you are going to fulfill through your products while understanding the attitudes and behaviors of your targeted
customers
 Determine your objective – more precisely, what are you expecting to get one your promotion mix is implemented.
 Design your message in terms of content and format.
 Select your promotional channels.
 Determine your budget.
 Determine your promotional mix.
 Measure the results of the implemented program and make the necessary adjustments if needed.

In order to succeed with your promotional mix, it would be a good idea to take a look at what your competitors are doing. This does not imply that you copy them as it will not help
you at all since each company has its own identity. Monitoring their ads, promotions and special events might provide you with a guide of how to promote yourself
and differentiate yourself through the promotional mix.

Store layout, Design and Visual Merchandising, Atmospherics

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Store layout
It is the process of managing the floor space adequately to facilitate the customers and to increase the sale. Since store space is a limited resource, it needs to be used wisely.

Space management is very crucial in retail as the sales volume and gross profitability depends on the amount of space used to generate those sales.

Optimum Space Use

While allocating the space to various products, the managers need to consider the following points −

 Product Category −
o Profit builders− High profit margins-low sales products. Allocate quality space rather than quantity.
o Star performers− Products exceeding sales and profit margins. Allocate large amount of quality space.
o Space wasters− Low sales-low profit margins products. Put them at the top or bottom of shelves.
o Traffic builders− High sales-low profit margins products. These products need to be displayed close to impulse products.
 Size, shape, and weight of the product.
 Product adjacencies − It means which products can coexist on display?
 Product life on the shelf.

Retail Floor Space

Here are the steps to take into consideration for using floor space effectively −

 Measure the total area of space available.

 Divide this area into selling and non-selling areas such as aisle, storage, promotional displays, customer support cell, (trial rooms in case of clothing retail) and billing counters.
 Create a Planogram, a pictorial diagram that depicts how and where to place specific retail products on shelves or displays in order to increase customer purchases.
 Allocate the selling space to each product category. Determine the amount of space for a particular category by considering historical and forecasted sales data. Determine the space for billing
counter by referring historical customer volume data. In case of clothing retail, allocate a separate space for trial rooms that is near the product display but away from the billing area.
 Determine the location of the product categories within the space. This helps the customers to locate the required product easily.
 Decide product adjacencies logically. This facilitates multiple product purchase. For example, pasta sauces and spices are kept near raw pasta packets.
 Make use of irregular shaped corner space wisely. Some products such as domestic cleaning devices or garden furniture can stand in a corner.
 Allocate space for promotional displays and schemes facing towards road to notify and attract the customers. Use glass walls or doors wisely for promotion.
 Store Layout and Design
Customer buying behavior is an important point of consideration while designing store layout. The objectives of store layout and design are −

 It should attract customers.

 It should help the customers to locate the products effortlessly.
 It should help the customers spend longer time in the store.
 It should motivate customers to make unplanned, impulsive purchases.
 It should influence the customers’ buying behavior.

Store Layout Formats

The retail store layouts are designed in way to use the space efficiently. There are broadly three popular layouts for retail stores −

Grid Layout − Mainly used in grocery stores.

Loop Layout − Used in malls and departmental stores.

Free Layout − Followed mainly in luxury retail or fashion stores.

Design and Visual Merchandising, Atmospherics

Visual Merchandising

It is the activity of developing floor plans and three-dimensional displays in order to engage customers and boost sales. Both, products or services can be displayed to highlight their
features and benefits.

It is based on the idea that good looks pay off. It requires creativity and an eye for presenting the products or services aesthetically so that the customers find it appealing and are
motivated towards buying. Visual merchandising involves displaying products or services aesthetically using various objects, colors, shapes, materials, designs, and styles to attract
the customers.

Store Management & Responsibilities of a store Manager

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 Retail Store
A fixed set up or location offering merchandise in small quantities to the consumers for their end-use is called a retail store.

Store Manager

 An individual responsible for managing the overall functioning of the store is called a store manager.
 A store manager takes care of the day to day operations of the store and ensures maximum profitability for his store.

In simpler words a retail store is a store manager’s baby.

Hierarchy
General Manager
↑
Store Manager
↑
All employees of the store
(Floor manager, cashier, Department manager, Asst Store manager)

Gender Preference
Both Male/Female. However in certain cases the selection might depend on the merchandise available in the store. A store specializing in female lingerie would prefer a female
store manager as she would be more comfortable with the female buyers.

Responsibilities of the Store Manager

 Recruiting employees for the store is the store manager’s prime responsibility. He not only has to hire the right candidates for the store but also train them for their overall
development. He must ensure that all the employees (floor manager, department manager, cashier and so on) contribute to their level best for the effective functioning of the store.
He must act as a strong pillar of support and stand by his team at the hour of crisis. It is his duty to acquaint his team members with the latest trends in fashion or any other newly
launched retail software. It is his responsibility to delegate responsibilities to his subordinates according to their specializations and extract the best out of them. The store manager
must motivate his team members from time to time.
 The store manager must make sure his store is meeting the targets and earning profits. He is responsible for the smooth and effective functioning of the store.
 The store manager is responsible for maintaining the overall image of the store. It is his duty to sensibly display the merchandise so that it immediately catches the attention of
the customers. The store manager must ensure that his store meets the expectations of the customers and lives up to its predefined brand image.

He must ensure:


1. The store is kept clean
2. Shelves and racks are properly stocked and products do not fall off the shelves.
3. Mannequins are kept at the right place to attract the customers into the store and rotated frequently.
4. The merchandise should be according to the season as well as the latest trends.
5. The store is well lit, ventilated and offers a positive ambience to the customers.
6. The signage displaying the name and logo of the store is installed at the right place and viewable to all.
 One of the major responsibilities of the store manager is to make the customers feel safe and comfortable in the store. It is his key responsibility to make sure that the customer
leaves the store with a pleasant smile.
 He is responsible for managing the assets of the store. The security and safety of the store is his responsibility. The store manager must ensure that sufficient inventory is
available at the store to avoid being “out of stock”.
 He along with his subordinates are responsible for planning, managing profit and loss, handling cash at the store as well as collating daily sales as well as other necessary reports.
 He must ensure that the store is free from pilferage.

Inventory Shrinkage
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‘Shrinkage’
Shrinkage is the loss of inventory that can be attributed to factors such as employee theft, shoplifting, administrative error, vendor fraud, damage in transit or in store, and cashier
errors that benefit the customer. Shrinkage is the difference between recorded inventory on a company’s balance sheet and its actual inventory. This concept is a very real problem
for retailers, and it works to quickly reduce retail sales, resulting in billions of dollars of lost inventory each year for U.S. retailers

To understand shrinkage, it is first important to discuss the difference between book inventory and physical inventory. When a retailer receives product to sell, for example,
accountants record the dollar value of the inventory on its balance sheet as a current asset. If the retailer accepts $1 million of product, the inventory account increases by $1
million. Every time an item is sold, the inventory account is reduced by the cost of the product, and revenue is recorded for the amount of the sale.

For book inventory, the dollar amount tracks the exact amount of inventory that should be on hand for a retailer. However, inventory is often lost due to any number of reasons,
causing a discrepancy between recorded inventory and the physical inventory in the store. The difference between these two inventory types is shrinkage. If, for example, the
retailer loses $100,000 of inventory due to theft, the shrinkage itself would be: $1,000,000 – $900,000, which equates to $100,000.

However, the problem of shrinkage is often much larger. Walmart, for example, has consistently dealt with annual shrinkage losses of $3 billion, equal to roughly 1% of its U.S.
revenue, mainly due to theft.

Negative Impacts of Shrinkage

The largest impact of shrinkage is a loss of profits. This is especially negative in retail environments, where businesses operate on low margins and high volumes, meaning that
retailers have to sell a large amount of product to make a profit. If a retailer loses inventory through shrinkage, it is hit twice over; it cannot recoup the cost of the inventory itself,
and it also cannot sell the inventory and make revenue, which trickles down to decrease the bottom line.

Shrinkage is a fact of life, and many businesses try to cover these potential losses by increasing the price of a product to account for small losses in inventory. These prices are
passed on to the consumer, who is required to bear the burden for theft and inefficiencies that might cause a loss of product. If a consumer is price sensitive, shrinkage works to
decrease a company’s consumer base, causing them to look elsewhere for similar goods.

Finally, shrinkage can increase company costs in other areas. Retailers, for example, have to invest heavily in security, whether that investment is in security guards, technology or
other essentials. These costs work to further reduce profits, or to increase prices if the expenses are passed on to the consumer.

Retail HRM
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Human Resource Management(HRM) is extremely important in Retailing. Because a retail store is a combination of merchandise and service. The product and service is delivered
through the human interface between the store employees and customer.

Human Resource Management is the effective use of human resource in order to enhance organizational performance.
 Human Resource Environment of Retailing

The Retailers face a special human resource environment characterized by:

1. Large number of inexperienced workers – Due to the need of large retail labor force, Low wages paid for positions often means hiring those with little or no prior experience. 2.
Long working hours – Retail shops have longer working hours since most customers want to shop during evenings and weekends.

3. Part Time Employees – Due to their long working hours, retailer regularly hire part-time employees.

4. Highly visible employees – Retailing employees are highly visible because they directly interact to the customer thus special care is taken with regard to their manners and
appearance.

5. Variability in the customer demand – Demands of customers varies by per day, time period, or season.

These factors make the hiring , staffing, and supervision of the employees a complex process.

Online Retailing
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Online shopping is a form of electronic commerce which allows consumers to directly buy goods or services from a seller over the Internet using a web browser. The largest of
these online retailing corporations are Alibaba,Amazon and eBay.

Electronic commerce, commonly known as e-commerce, is a type of industry where buying and selling of product or service is conducted over electronic systems such as the
Internet and other computer networks.

Advantages of online retail

The benefits of retailing online include:

 Easy access to market– in many ways the access to market for entrepreneurs has never been easier. Online marketplaces such as eBay and Amazon allow anyone to set up a simple online shop
and sell products within minutes.
 Reduced overheads– selling online can remove the need for expensive retail premises and customer-facing staff, allowing you to invest in better marketing and customer experience on your e-
commerce site.
 Potential for rapid growth– selling on the internet means traditional constraints to retail growth finding and paying for larger – are not major factors. With a good digital marketing strategy and
a plan a scale up order fulfilment systems, you can respond and boost growing sales.
 Widen your market / export– one major advantage over premises-based retailers is the ability expand your market beyond local customers very quickly. You may discover a strong demand for
your products in other countries which you can respond to by targeted marketing, offering your website in a different language, or perhaps partnering with an overseas company.
 Customer intelligence– ability to use online marketing tools to target new customers and website analysis tools to gain insight into your customers’ needs. For more information on driving sales
through online advertising see how to develop an e-marketing plan, and for advice on improving your customer’s on-site experience see measuring your online marketing.

Disadvantages of online retail

Some negatives of online retail include:

 Website costs– planning, designing, creating, hosting, securing and maintaining a professional e-commerce website isn’t cheap, especially if you expect large and growing sales volumes.
 Infrastructure costs– even if you aren’t paying the cost of customer-facing premises, you’ll need to think about the costs of physical space for order fulfilment, warehousing goods, dealing with
returns and staffing for these tasks.
 Security and fraud– the growth of online retail market has attracted the attention of sophisticated criminal elements. The reputation of your business could be fatally damaged if you don’t invest
in the latest security systems to protect your website and transaction processes.
 Legal issues– getting to grips with e-commerce and the law can be a challenge and you’ll need to be aware of, and plan to cope with, the additional customer rights which are attached to online
sales
 Advertising costs– while online marketing can be a very efficient way of getting the right customers to your products, it demands a generous budget. This is especially true if you are competing
in a crowded sector or for popular keywords.
 Customer trust– it can be difficult to establish a trusted brand name, especially without a physical business with a track record and face-to-face interaction between customers and sales staff.
You need to consider the costs or setting up a good customer service system as part of your online offering.

RM/U4 Topic 6 International Retailing

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International trade and commerce has existed for centuries and played a very important part in the World History. However International Retailing has been in existence and has
gained ground in the past two to three decades. The economic booms in several countries, coupled with globalization have given way to Organizations looking at setting up
retailing across borders. The advent of internet and multimedia has further changed the dimensions as far as International Retailing is concerned.

Who are the International Retailers

When you think of International Retailers the names that come to one’s mind would be the Wal-Mart, Gucci, Ralph Lauren, Mango, GAP etc. All of these are International
Retailers. However we can broadly classify the International Retailers under two categories. The first category would be the global grocery retailers and the second category
belongs to the International fashion Brands.

International Grocery Retailers

The Companies namely Wal-Mart, Carrefour, Metro, Tesco and Ahold etc are the leading international grocery retailers who have multi country presence. Major portion of their
total revenue comes from foreign sales. Wal-Mart operates in over 8,500 stores in 15 countries with foreign sales contributing to 18% of its $405,046 billion net sales (2000).
Carrefour, a French international retailer has presence in 32 countries with foreign sales amounting to over 48% of its net sales.

These international grocery retailers follow a multi brand and multi product business format which includes all products like food encompassing all types of fresh vegetables, fruits,
juices, chocolates etc, fashion and clothing including bed linen etc, grocery, all types of branded consumables, as well as liquor and many more household goods under one roof.
They generally follow a format that allows for selling to whole sellers, retailers as well as general public at the mega stores.

Traditionally these International Grocery Retailers have operated mainly in US and in Europe. Specifically in Europe the largest markets have been in Germany, France and UK.
With globalisation and with several countries opening their markets to FDI in retail, these Organisations are moving into other parts of the world and into emerging markets.

There is yet another group of International retailers like IKEA, Lego, Toys ‘R’Us etc who have chosen to focus and specialise in a particular segment like furniture etc.

International Fashion Retailing

Names like Ralph Lauren, Gucci, Zara, Hugo Boss, JC Penny, Benetton, Jimmy Choo, Swarovski, Dolce & Gabbana etc belong to the second category of International Fashion
Retailers. Originally these Companies catered to domestic markets in the countries of their origin. Fashion and Luxury brands have always been known by their label and brand
value across countries, through word of mouth and sought after by the rich and famous from all over. Over the years, these companies have realised the opportunity in expanding
their product mix and promoting their brands internationally. Thus we see the emergence of international fashion brands, luxury product brands dealing exclusively with branded
clothing including sportswear, casual and formal wear, party wear, foot ware and accessories, luxury items including watches, perfumes, jewellery and many more items of
personal use.
 In the earlier times, the nova rich and the business class were the main customers who sourced these branded products from abroad. However in the recent times we see the
educated and economically empowered youth demanding fashion and going in for branded items. International brands have thus established a niche for themselves in domestic
markets aided by the increasing demand for branded fashion products. International grocery retailers have expanded their business in emerging markets by virtue of their
investments and procurement strategies.

International Retailing – Features and Challenges

International Retailing and branding has been one of the sectors that is seeing exponential growth. With increase in standard of living and disposable income, people in developing
countries are getting exposed to international brands. Rise of internet and multi-media has further provided impetus to the dream of people to aspire for branded consumer goods.
Along with the rising awareness and aspirations of the people, the opening up of economies and foreign direct investment opportunities have fuelled the growth of international
retailing business.

International Retail business consists of two groups of businesses. The biggest value and volume business happens to be the International Multi brand grocery Retailers like Wal-
Mart, Tesco, Metro and Carrefour etc. The second group of international retail business refers to the fashion brands mainly in fashion, luxury brands and personal product category
of businesses.

In this topic we aim to explain some of the characteristic features and challenges of the second group of International retail business dealing with fashion and brands. Brands such
as Ralph Lauren, Hugo Boss, GAP, Dolce & Gabbana, Gucci, Escada, Armani, Versace, Louis Vuitton and many more are known all over the world and are available at exclusive
showrooms in various countries.

In the past two to three decades all these brands have grown to become Global brands, and this has been made possible by their strategic branding, multi product range expansion
and innovative merchandising methods.

Though International Retail Companies are Global businesses, the business and products are hugely influenced by the multi cultural and pan country specific product requirements.
The product categories largely comprise of fashion clothes, food, gadgets as well as personal and luxury products. Each country and each market is characterised by different
fashion trends and consumer behaviour. While the products are fast moving and have very short shelf life, the local culture and outlook has a large part to play in the localisation of
the international brands in domestic markets. These global companies therefore are forced to work on global branding as well as local brand promotion and have international as
well as domestic-country specific customer reach programs and marketing as well as promotional methods.

International Retail Companies have several inherent challenges that they face in their line of business. Product innovation and product mix happen to be the biggest challenges for
these companies both at global as well as country specific domestic levels. The survival and growth of the brand is directly dependent upon these challenges. The global retailers
have to be tuned in to the international as well as domestic specific fashion in each of the countries and get their product mix right for each of the markets. Service quality and
merchandising methods too, play an important role in the brand visibility and reputation. Pricing of products is yet another challenge faced by the brands. Developing and emerging
markets are highly price sensitive. When the international brands are trying to make an entry into the new markets, they have got to have an entry strategy that takes into account
the price sensitivity and profitability as well. Procurement and Supplier reliability as well as quality marks one of the challenges that these companies face as they happen to source
materials and products from several countries. Quality and reliability as well as in time supplies and logistics is always a challenge that can make or break the business which is
highly seasonal in each country. In the recent years we have seen the emergence of ethical practices playing a vital role in the procurement policies of these international
companies. The companies have got to ensure that their sourcing partners do not employ child labour or employ unethical methods in manufacturing the products and as principle
buyers these companies are held responsible. Ethical buying has gained global visibility and these companies have had to be watchful to ensure compliance or risk unwanted
publicity and public outcry.

International retailing business is high volume business. To be a successful international brand, the Companies have got to adapt the right strategies, be aware of the local cultural
as well as political environment in the market and more importantly manage the brand promotion and supply chain perfectly. The challenges faced by the business are several but
so are the business opportunities.

Legal & Ethical Issues in Retailing

THEINTACTFRONT23 APR 2018 1 COMMENT
There are eight major features of business ethics −

 Code of Conduct− Business ethics is actually a form of codes of conduct. It lets us know what to do and what not to do. Businesses must follow this code of conduct.
 Based on Moral and Social Values− Business ethics is a subject that is based on moral and social values. It offers some moral and social principles (rules) for conducting a
business.
 Protection to Social Groups− Business ethics protect various social groups including consumers, employees, small businesspersons, government, shareholders, creditors, etc.
 Offers a Basic Framework− Business ethics is the basic framework for doing business properly. It constructs the social, cultural, legal, economic, and other limits in which a
business must operate.
 Voluntary− Business ethics is meant to be voluntary. It should be self-practiced and must not be enforced by law.
 Requires Education & Guidance− Businessmen should get proper education and guidance about business ethics. Trade Associations and Chambers of Commerce should be
active enough in this matter.
 Relative Term− Business ethics is a relative term. It changes from one business to another and from one country to another.
 New Concept− Business ethics is a relatively newer concept. Developed countries have more exposure to business ethics, while poor and developing countries are relatively
backward in applying the principles of business ethics.

Principles of Business Ethics

The principles of business ethics are related to social groups that comprise of consumers, employees, investors, and the local community. The important rules or principles of
business ethics are as follows −

 Avoid Exploitation of Consumers− Do not cheat and exploit consumer with measures such as artificial price rise and adulteration.
 Avoid Profiteering− Unscrupulous business activities such as hoarding, black-marketing, selling banned or harmful goods to earn exorbitant profits must be avoided.
 Encourage Healthy Competition− A healthy competitive atmosphere that offers certain benefits to the consumers must be encouraged.
 Ensure Accuracy− Accuracy in weighing, packaging and quality of supplying goods to the consumers has to be followed.
 Pay Taxes Regularly− Taxes and other duties to the government must be honestly and regularly paid.
 Get the Accounts Audited− Proper business records, accounts must be managed. All authorized persons and authorities should have access to these details.
 Fair Treatment to Employees− Fair wages or salaries, facilities and incentives must be provided to the employees.
 Keep the Investors Informed− The shareholders and investors must know about the financial and other important decisions of the company.
 Avoid Injustice and Discrimination− Avoid all types of injustice and partiality to employees. Discrimination based on gender, race, religion, language, nationality, etc. should be
avoided.
 No Bribe and Corruption− Do not give expensive gifts, commissions and payoffs to people having influence.
 Discourage Secret Agreement− Making secret agreements with other business people to influence production, distribution, pricing etc. are unethical.
 Service before Profit− Accept the principle of “service first and profit next.”
 Practice Fair Business− Businesses should be fair, humane, efficient and dynamic to offer certain benefits to consumers.
 Avoid Monopoly− No private monopolies and concentration of economic power should be practiced.
 Fulfil Customers’ Expectations− Adjust your business activities as per the demands, needs and expectations of the customers.
 Respect Consumers Rights− Honor the basic rights of the consumers.
 Accept Social Responsibilities− Honor responsibilities towards the society.
 Satisfy Consumers’ Wants− Satisfy the wants of the consumers as the main objective of the business is to satisfy the consumer’s wants. All business operations must have this
aim.
 Service Motive− Service and consumer’s satisfaction should get more attention than profit-maximization.
 Optimum Utilization of Resources− Ensure optimum utilization of resources to remove poverty and to increase the standard of living of people.
 Intentions of Business− Use permitted legal and sacred means to do business. Avoid Illegal, unscrupulous and evil means.

Follow Woodrow Wilson‘s rules − There are four important principles of business ethics. These four rules are as follows −

 Rule of publicity− According to this principle, the business must tell the people clearly, what it tends to do.
 Rule of equivalent price− The customer should get proper value for their money. Below standard, outdated and inferior goods should not be sold at high prices.
 Rule of conscience in business− The businesspersons must have conscience while doing business, i.e. a morale sense of judging what is right and what is wrong.
 Rule of spirit of service− The business must give importance to the service motive.

Example of Unethical Business Practices

Satyam Computers, a global IT company, was defamed in a notorious list of companies involved in fraudulent financial activities. The list includes names such as Enron,
WorldCom, Parmalat, Ahold, Allied Irish, Bearings and Kidder Peabody.

Satyam’s CEO, Ramalinga Raju, accepted his role in a broad accounting impropriety that had overstated the company’s net revenue and profit. The company had earlier reported a
cash reserve of approximately $1.04 billion that actually existed only in books but not in reality.

Ethics in Advertising and Promotion

In the early days of existence of corporations, especially during 1940s and 1950s, tobacco was advertised as a substance that promotes health. Of late, an advertiser who does not
meet the ethical standards is considered an offender against morality by the law.

 Sexuality is a major point of discussion when ethical issues in advertising content are considered. Violence is also an important ethical issue in advertising, especially where
children should not be affected by the content.
 Some select types of advertising may strongly offend some groups of people even when they are of strong interest to others. Female hygiene products as well as haemorrhoid and
constipation medication are good examples. The advertisements of condoms are important in the interest of AIDS-prevention, but are sometimes seen by some as a method of
promoting promiscuity that is undesirable and strongly condemned in various societies.
 A negative advertising policy lets the advertiser highlight various disadvantages of the competitors’ products rather than showing the inherent advantages of their own products or
services. Such policies are rampant in political advertising.

Delivery Channels
Direct marketing is one of the most controversial methods of advertising channels, especially when the approaches included are unsolicited.

Some common examples include TV and Telephonic commercials and the direct mail. Electronic spam and telemarketing also push the limits of ethical standards and legality in a
strong manner.

Example − Shills and astroturfers are the best examples of ways for delivering a marketing message under the guise of independent product reviews and endorsements, or creating
supposedly independent watchdog or review organizations. Fake reviews can be published on Amazon. Shills are primarily for message-delivery, but they can also be used to drive
up prices in auctions, such as EBay auctions.

Deceptive Marketing Policies and Ethics

Deceptive marketing policies are not contained in a specific limit or to one target market, and it can sometimes go unseen by the public. There are numerous methods of deceptive
marketing. It can be presented to consumers in various forms; one of the methods is one that is accomplished via the use of humor. Humor offers an escape or relief from various
types of human constraints, and some advertisers may take the advantage of this by applying deceptive advertising methods for a product that can potentially harm or alleviate the
constraints using humor.

Anti-Competitive Practices
There are various methods that are anti-competitive. For example, bait and switch is a type of fraud where customers are “baited” through the advertisements for some products
or services that have a low price; however, the customers find in reality that the advertised good is unavailable and they are “switched” towards a product that is costlier and was
not intended in the advertisements.

Another type of anti-competitive policy is planned obsolescence. It is a method of designing a particular product having a limited useful life. It will become non-functional or out
of fashion after a certain period and thereby lets the consumer to purchase another product again.