It is in retailing that very drastic changes have occurred during the
last two decades. Some institutions have disappeared whereas newer ones have
been added. This process of deletion / addition still continues in newer forms.
There are large-scale retailing shops together with very small units, both
working simultaneously. They have from hawkers and peddlers, who have no
permanent place, to well-organised, settled retail shops like chain stores,
departmental stores, etc.
The
institutions carrying on the retail business can be classified as under
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Major Types of Retail Stores
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Instore-Retaling
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Non-Store Retailing
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Franchising
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1.
Department Stores
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1.
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Direct
Selling
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2.
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Super
Markets
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2.
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Telemarketing
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3.
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Discount
Houses
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3.
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Online
Retailing
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4.
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Chain
Stores or
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4.
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Automatic
vending
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5.
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Multiple
Shops
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5.
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Direct
Marketing.
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Department Stores
These are large scale retail stores selling under one roof and one
control a variety of goods divided into different departments, each of which
specializes in an individual merchandise. Converse is of the opinion that a
department store is a retail shop handling several classes of goods including
fast moving consumer goods, each class being separated from others in
management, accounting and location. It is viewed by Clarke as that type of
retail institution which handle a wide verity of merchandise under one roof
which the merchandise grouped into well-defined departments which is centrally
controlled and which caters primarily to women shoppers.
Thus a department store is a retailing business
unit that handles a wide variety of shopping and specialty goods and is
organized into separate departments for purposes of sales promotion, accounting
control and store operation.
Recent trends are to add departments for automotive,
recreational and sports equipment, as well a services such as insurance, travel
advice and income-tax preparation. Department stores are distinctive in that
they usually are oriented towards service. They are usually shopping centers.
Classification of Department Stores
These stores may be classified either according to ownership or income
groups to which they appeal.
a) On the
basis of ownership these are :
(i) The independent; (ii) The ownership group; and
(iii) Chain department Stores. Independent stores are owned by a financial
interest which does not own other similar stores Ownership group stores are
those stores which were formerly dependent but now have been combined.
Chain
department stores are those stores which are centrally owned and operated.
b) On the
basis of income groups, These stores cater to the middle and high income
groups. They usually handle good quality
merchandise and offer maximum service to the customers. Other stores cater to
the needs of the lower income group people.
c)
Sometimes there is also to be
found what are called leased department stores. Although it appears to most
customers that all departments in a department store are owned and operated by
the store, that is not always the case. The operations of certain departments
are sometimes turned over to leases and such departments are called leased
departments.
Characteristic
Features of Department Stores The chief features of these stores are:
(i) These are integrated stores performing
operations in addition to other retail stores such as wholesaling.
(ii) Goods are divided into different classes with different locations and
management within the store itself.
(iii)These
stores are distinguished by the nature of goods they self and not by the
varieties they keep for example, drug and variety stores carry a wide variety
of goods.
(iv) The store is a horizontally integrated institution. It brings together
under one roof a range of merchandise offerings comparable to the combined
offerings of many stores specializing in single or fewer merchandise lines.
Location of Department Stores
The success of a department store depends much on
its location, availability of space, the area and community to be served and
ability to attract customers are
the important factors to be considered before establishing a store at a
particular place. Special Consideration should be given to accommodation so as
to allow every possible amusement facilities. Considerable space should also be
allotted for show room displaying stores merchandise.
Merits of Department Stores
1.
Large department stores buy in
large quantities and receive special concession or discount in their purchases.
Many of them purchase direct form manufactures and hence, middleman's charges
are eliminated.
2.
Department stores are in a
position to pay cash on all or most of their purchases and this gives them an
additional advantage of picking up
quality goods at cheaper rates and at the same time stocking the latest
style and
fads.
3.
Customers can do all their
purchases under one roof and it appeals to people of all walks of life.
4.
The organization is too large to
provide expert supervision of various departments for the adoption of a liberal
credit and delivery service for large-scale advertising.
5.
When customers enter the store to
deal with one department they are frequently induced by the advertisement which
the display of goods offers to make purchases in other departments as well.
Limitations of Department Stores
Department
business organizations are not free from abuses. There are certain
specific limitations from which
such institutions suffer such as:
1.
The cost of doing business is very high due to
heavy overhead expenses.
2.
Because of their location in a
central shopping area they are of not much advantage to the public because
goods required at short notice are always purchased from the nearest traders.
3.
There is lack of personal touch
and personal supervision which is to be found in single line.
4.
When hired diligence is
substituted for the diligence of ownership, loss and leaks are likely to occur.
5.
Many customers abuse the liberal
services extended and take advantage of the policy of the 'customers is always
right'.
6.
The type of salesmanship found in
many stores is very poor because of low payments and lack of supervision.
Future of Department Stores
Nothing definite can be predicted whether these department organizations
will continue to carry on and will progress in face of overgrowing competition
of chain stores, mail order business and other smaller independent dealers.
Stores with overhead burdens which cannot be reduced may have to go, but the
department stores as an institution are bound to go on with a future. The
department store which is properly equipped in plant, stock and personnel to
carry on a reasonable sales volume and then does a better job in giving values
and services, then its competitors are entitled to, and will receive its
business profit.
Department Stores are now opening branches in many new areas and making
concerted efforts to meet new competition. They have been modernized,
redecorated and better services are being developed; and they are being
converted to self-service.
4. Super Markets:
These are large, self service stores that carry a broad and complete
line of food and non-food products. They have central check out facilities.
Kotler defines supermarket as 'a departmentalised
retail establishment having four basic departments viz. self-service grocery,
meat, produce and diary plus other household departments, and doing a maximum
business. It may be entirely owner operated or have some of the departments
leased on a concession basis.'
Characteristic Features of Super Markets
Chief
characteristic features of supermarkets include the following:
i.
They are usually located in or
near primary or secondary shopping areas but always in a place where parking
facilities are available.
ii.
They use mass displays of merchandise.
iii.
They normally operate as cash and carry store.
iv.
They make their appeal on the
basis of low price, wide selection of merchandise, nationally advertised brands
and convenient parking.
iv. They operate largely on a self-service basis
with a minimum number of customer services.
Supermarkets came into existence during the
depression in U.S.A. At that time they sold only food products, and their
principal attraction was the low price of their merchandise. As super markets
increased in number day by day they also expanded into other lines of
merchandise.
Advantages of supermarkets
i.
Super markets have the advantage
of convenient shopping, permitting the buyer to purchase all his requirements
at one place.
ii.
Super markets also stock a wide variety of items.
iii. These markets can sell at low prices because of their limited service
feature, combined with large buying power and the willingness to take low
percent of profit margins.
iv.
Shopping time is considerably reduced.
Limitations of Supermarkets
i.
The large and extensive area
required for a super market is not available cheaply in important places.
ii. The products which require explanation for their proper use can not be
dealt in through the super markets.
iii.
Customer services are practically absent.
iv.
Another limitation of the super
market is the exorbitantly high administrative expenses.
Discount Houses
These are large stores, freely open to the public
and advertising widely. They are self-service and general merchandising stores.
They carry a wide assortment of products of well known brands, appliances,
housewares, home furnishings, sporting goods, clothing, toy and automotive
services. They complete on low price basis and operate on a relatively low
mark-up and a minimum number of customer service. They range from small open
showroom to catalogue type order offices to full line limited service, and
promotional stores. They buy their merchandise stocks both from wholesale
distributors and directly from manufacturers.
Chain Stores or Multiple Shops
A chain store system consists of
four or more stores which carry the same kind of merchandise are centrally
owned and managed and usually are supplied from one or more central warehouses.
A chain store is one of the retail units in chain store system.
Chains have been interpreted as a
group of two or more reasonably similar stores in the same kind or field of
business under one ownership and management, merchandised wholly or largely
from central merchandising head quarters and supplied from the manufacturer or
orders placed by the central buyers.
In Europe, this system is called
as Multiple Shops and the American call it as "Chain Stores". Under
the multiple or chain shop arrangement, the main idea is to approach the
customers and not to draw the customers as it as is practiced in the case of
department store. In order to draw more customers, attempts are made to open a
large number of shops in the same city at different places.
In India apt example for this
retail system are offered by 'Bata Shoes', 'Usha Sewing Machines' etc., such
multiple shops have 'centralised buying with decentralized selling".
Fundamentally, they specialize in one product but with all its varieties or
models.
Chief Features of Chain Stores
The chief
features of chain stores are:
i.
One or more units may constitute a chain,
ii.
They are centrally owned with some degree of
centralised control of operation.
iii.
They are horizontally
'integrated' that is, they operate multiple stores. With addition of each new
store, the system extends the reach to another group of customers.
iv.
Many stores are also 'vertically
integrated'. They maintain large distribution centres where they buy from
producers, do their own warehousing and then distribute their own stores.
Advantages of chain stores or multiple shops
i. Lower
selling prices. This is mainly possible due to economy in buying
operation.
ii. Economy and advertising. Common advertisements covering all the units
are feasible and this reduces advertisement expenditure.
iii. Ability to spread risks. Unlike the department store the principle here
is not to "lay all the eggs in one basket". By trail and error, a
unit sustaining losses may be shifted to some other place or even dropped.
iv.
There is flexibility in working.
v.
Since it works only on cash
basis, bad debts as well as detailed accounting processes are avoided.
vi.
Central and costly locations are not essential.
Limitations of chain stores or multiple shops
i.
Lower price is a false claim.
According to Stanton "Price Comparison is not possible, as such stores are
handling only limited items".
ii.
Inflexible in practice. Multiple
shops deal in standardised products only-which creates inflexibility in
offering wide varieties.
iii. Personnel Problems. Being a large organisation, it is always susceptible
to problems associated with large scale business.
iv.
Poor public image. Various
consumer services such as credit facility, door delivery etc. are completely
absent in chain store. The present day consumers prefer to have more services
than quality in addition to desiring low prices.
Non-Store Retailing
A large majority - about - 80% -
of retail transactions are made in stores. However, a growing volume of sales
is taking place away from stores. Retailing activities resulting in
transactions that occur away from a physical store are called non-store
retailing. It is estimated that non-store sales account for almost 20% of total
retail trade.
Following are the five types of
non store retailing: direct selling, tele marketing, online retailing,
automatic vending and direct marketing. Each type may be used not just by
retailers but by other types of organisations as well.
Direct Selling
In the context of retailing,
direct selling is defined as personal contact between a sales person and a
consumer away from a retail store. This type of retailing has also been called
in home selling. Annual volume of direct selling in India is growing fast from
the beginning of the 21st century.
Like other forms of non-store retailing, direct
selling is utilized in most countries. It is particularly widespread in Japan,
which accounts for about 35% of the worldwide volume of direct selling. The
U.S. represents almost 30% of the total and all other countries the rest.
The two kinds of direct selling
are door to door and party plan. There are many well known direct-selling
companies including Amway, Creative memories and Excel communications. Diverse products
are marketed through direct selling. This channel is particularly well suited
for products that require extensive demonstration.
Advantages of Direct Selling
i.
Consumers have the opportunity to
buy at home or at another convenient nonstore location that provides the
opportunity for personal contact with a sales person.
ii.
For the seller, direct selling
offers the boldest method of trying to persuade ultimate consumers to make a
purchase.
iii.
The seller takes the product to
the shoppers home or work place and demonstrates them for the consumer.
Limitations of Direct Selling
i.
Sales commissions run as high as
40 to 50% of the retail price; of course, they are paid only when a sale is
made.
ii.
Recruiting sales people - most of
whom are part timers are difficult tasks, iii. Some sales representatives use
high pressure tactics or are fradulent. Telemarketing
Sometimes called telephone selling, telemarketing
refers to a sales person initiating contact with a shopper and closing a sale
over the telephone. Telemarketing many entail cold canvassing from the phone
directory. Many products that can be bought without being seen are sold over
the telephone. Examples are pest control devices, magazine subscriptions,
credit cards and cub memberships.
Telemarketing is not problem free. Often
encountering hostile people on the other end of the line and experiencing many
more rejections than closed sales, few telephone sales representatives last
very long in the job. Further some telemarketers rely on questionable or unethical
practices. For instance firms may place calls at almost any hour of the day or
night. This tactic is criticised as violating consumers'
right to privacy. To prevent this, some states have enacted rules to
constrain telemarketers' activities.
Despite these problems, telemarketing sales have
increased in recent years. Fundamentally, some people appreciate the
convenience of making a purchase by phone. Costs have been reduced by computers
that automatically dial telephone number, even deliver a taped message and
record information the buyer gives to complete the sale. The future of
telemarketing is sure to be affected by the degree to which the problems above
can be addressed and by the surge of online retailing.
Online Retailing:
When a firm uses its website to
offer products for sale and then individuals or organisations use their
computers to make purchases from this company, the parties have engaged in
electronic transactions (also called
on line selling or internet marketing). Many electronic
transactions involve two businesses which focuses on sales by firms to ultimate
consumers. Thus online retailing is one which consists of electronic
transactions in which the purchaser is an ultimate consumer.
Online retailing is being carried out only by a
rapidly increasing number of new firms, such as Busy.com, Pets Mart and CD
Now.com. Some websites feature broad assortments, especially those launched by
general merchandise retailers such as Wai-mart and Target. Some Internet only
firms, notably Amazon.com are using various methods to broaden their offerings.
Whatever their differences,
e-retailers are likely to share an attribute. They are unprofitable or best,
barely profitable. Of course, there are substantial costs in
establishing an online operation. Aggressive
efforts to attract shoppers and retain customers through extensive advertising
and low prices are also expensive. The substantial losses racked by online
enterprises used to be accepted, perhaps even encouraged by investors and analysts.
The rationale was that all available funds should be used to gain a foothold in
this growing market.
Despite these challenges, online
retailing is expected to grow, rapidly and significantly for the foreseable
future. Online sales represented about 1% of retail spending in 2005, but one
research firm estimates that consumer purchases on the Internet with triple by
the year 2010.
Which product categories are consumers most likely
to buy on the Internet in the future? Consumers' shopping intentions in 2005
placed the following goods and services at the tope of the list: books, music
and videos, computer hardware and software, travel and apparel. Of course,
given that change on the Internet occurs, these categories soon may be
surpassed by others - perhaps groceries, toys, health and beauty aids, auto
parts or pet supplies.
Automatic vending
The sale of products through a
machine with no personal contact between buyer and seller is called automatic
vending. The appeal of automatic vending is convenient purchase. Products sold
by automatic vending are usually well-known presold brands with a high rate of
turnover. The large majority of automatic vending sales comes from the "4
c's" : cold drinks, coffee, candy and cigarettes.
Vending machines can expand a firm's market by reaching customers where
and when they cannot come to a store. Thus vending equipment is found almost
everywhere, particularly in schools, work places and public facilities.
Automatic
vending has high operating costs because of the need to replenish
inventories frequently. The machines also require maintenance and repairs.
The outlook for automatic vending
is uncertain. The difficulties mentioned above may hinder future growth.
Further, occasional vending-related scams may scare some entrepreneurs away
from this business.
Vending innovations give reason for some optimism.
Debit cards that can be used at vending machines are becoming more common. When
this card is inserted into the machine, the purchase amount is deducted from the
credit balance. Technological advances also allow operators to monitor vending
machines from a distance, thereby reducing the number of out-of-stock or
out-of-order machines.
Direct Marketing
There is no consumers on the exact nature of direct marketing. In
effect, it comprises all types of non-store retailing other than direct
selling, telemarketing, automatic vending and online retailing. In the context
of retailing, it has been defined as direct marketing as using print or
broadcast advertising to contact consumers who in turn, buy products without
visiting a retail store.
Direct marketers contact consumers through one or more of the following
media: radio, TV, newspapers, magazines, catalogs and mailing (direct mail).
Consumer order by telephone or mail. Direct marketers can be classified as
either general - merchandise firms, which offer a variety of product lines, or
specialty firms which carry - only one or two lines such as books or fresh
fruit.
Under the
broad definition, the many forms of direct marketing include:
• Direct mail - in which firms mail letters, brochures and even product
samples
to
consumers, and ask them to purchase by mail or telephone.
•
Catalog retailing - in which
companies mail catalogs to consumers or make them available at retail stores.
•
Televised shopping - in which
various categories of products are promoted on dedicated TV channels and
through infomercials, which are TV commercials that run for 30 minutes or even
longer on an entertainment channel.
On the plus side, direct marketing provides
shopping convenience. In addition, direct marketers enjoy comparatively low
operating expenses because they do not have the overhead of physical stores.
Direct marketing has drawbacks. Consumers must
place orders without seeing or touching the actual merchandise. To off-set
this, direct marketers must offer liberal return policies. Furthermore,
catalogs and to some extent, direct mail pieces are costly and must be prepared
long before they are issued. Price changes and new products can be announced
only through supplementary catalogs or brochures.
Direct marketing's future is difficult to forecast, given the rise of
the Internet. The issue is whether or not firms relying on direct marketing can
achieve and sustain a differential advantage in a growing competition with
online enterprises.
Franchising
A franchising operation is legal
contractual relationship between a franchiser (the company offering the
franchise) and the franchisee (the individual who will own the business).
The terms and conditions of the contract vary
widely but usually the franchiser offers to maintain a continuing interest in
the business of the franchisee in such areas as the site selection, location,
management, training, financing, marketing, record-keeping and promotion. He
also offers the use of a trade name, store motif standardized operating
procedure and a prescribed territory. In return the franchisee agrees to
operate under conditions set forth by the franchiser.
For the
manufacturers, the franchising is beneficial in these directions:
i.
it allows them to conserve capital.
ii.
the distribution system is established in the
shortest possible time,
iii.
Marketing costs are lowest and
iv.
Expenses of fixed overhead such
as administrative expenses of the personnel of the company owned units are cut
down substantially.
Franchising
exists in such products as soft drinks, automobiles and parts,
business services, dry cleaning
etc.
The
franchisee should also:
i.
make reference check from the financial institutions.
ii.
make inquiries about the product,
its quality, appeal, exclusiveness, competitiveness and effectiveness in
bringing in repeat customers.
iii.
have enough capital to buy the
franchise, iv.
be
capable of taking supervision work.
v. consult the professionals and seek their guidance in legal matters,
vi. take risks and invest sufficient time.
Summary
Retailers may be classified by form of ownership and key marketing
strategies
Also, types of retailers distinguished according to product assortment,
price and customer service levels. Mature institutions such as department
stores, discount houses and super markets face strong challenges from new
competitors, particularly chain stores or multiple shops in various product
categories.
Five major forms of non store retailing such as direct selling,
telemarketing, automatic vending, on line retailing and direct marketing are
discussed in detail. Each type has advantages as well as drawbacks. Franchising
in particular, is growing dramatically. In this lesson, all these are explained
in detail.
