ASSIGNMENTMK-0003

RETAIL MARKETING Set-1

Q.1 (a) List out the various features of retailing and explain its importance.

(b) Briefly explain function of a department store.

Ans. (a) Retailing is defined as a conclusive set of activities or steps used to sell a product or a service to consumers for their personal or family use. It includes all activities directly and indirectly related to the sale of goods or services to the ultimate consumer. Irrespective of who sells, the distinction of retailing is normally made on the basis of to whom the products are sold. Retailing is subject to constant and dramatic changes. Many forces like Social, Economical, Technological, Government policies etc. influence it.

1 Key member in the channel of distribution:

Retailer as the link in the chain of distribution performs good many functions of marketing. The channel of distribution goes incomplete without his contributions to make the final consumers buy the products. He acts as a catalyst agent to both the manufacturers as well as to the customers.

2 Buying & Assembling:

Retailer assembles products from different manufactures and wholesalers and stock wide variety of products to meet the varied and small requirements of large number of customers. This assembling is possible through the process of buying variety of products from different sellers.

3 Warehousing:

Retailer is a safety valve for releasing the goods in quantities of different varieties and price ranges according to the consumer needs. Warehousing makes possible holding the stocks to match between the consumer demand and supply conditions.

4 Selling:

The final aim of a retailer is to sell the products so bought and held by him. Retailer is rightly called as the buying agent of consumers. He is the means to dispose the goods to the consumers. Successful retailing needs good deal of salesmanship tactics.

5 Risk-shouldering:

Risk shouldering is the basic responsibility of a retailer arising out of physical deteriorations and changes in prices. These are unavoidable as he holds sufficient and variety of inventories from the time they are bought till they sell.

6 Grading & Packing:

Retailers undertake second round grading and packing activities left by the manufactures and wholesalers. As he sells in loose packs and very odd lots, packing assumes a particular importance.

7 Financing:

In successful marketing, the contribution of retailers is really worth emphasising with consumer financing. His financing consists of credit granted on liberal terms to the consumers, investment in stocks, salaries & wages and other trade expenses.

8 Advertising:

Retailers are the best agents to advertise the products and ideas. In collaboration with the wholesaler and producer, retailers do undertake shop display, distribution of sales literature, introduction of new product etc.,

9 Supply of Market Information:

As being in close and constant touch with consumers, he clearly keenly observes, studies the consumer behaviour, changes in tastes and fashions and therefore demands. This collected information is passed on to the wholesalers & manufacturers for their perusal.

10 Offer Opportunity:

Retailers give the manufacturers and producers the opportunity of presenting their products to the consumers by providing the necessary vent and access.

11 Big Relief:

Manufacturers and the wholesalers are really relieved of the head braking odd jub of retailing to the individuals in pretty small quantities.

12 Provision of Information:

Retailers do provide the wholesalers and manufactures the information about the latest consumer movements and consumer demand.

13 Produce the risks of loss:

Being the spokesmen of consumers, they warn the producers as to what goods to produce and in what quantity at what price. This makes the wholesalers to stock only those goods needed by the consumers.

14 Largest Choice:

Retailers assemble products of different varieties from good many producers enabling the consumers to have largest choice as the cost, quality, and varieties and so on.

15 Relief from storage:

In fact, retailers hold goods on behalf of the consumers. Being at their convenient place, consumers can have ready access suitable stock at suitable lot. By this he helps them in reducing their capital lock-up.

16 Extra service:

Many retailers grant extra concessions and facilities such as door delivery, telephone orders, credit sales, return or replacement of goods not found suitable by consumers etc.,

17 Supply of Information:

Retailer is an expert adviser to consumer as help them in deciding about the product choice. He introduces new products that are superior to earlier models thus improving customer satisfaction.

Retailing as one of the important sectors for the growth of economy plays a key role in building a nation to self sufficiency state. Following key elements explains the importance of retailing to the nation.

18 Rapid economic growth:

India’s GDP growth of 9.4 per cent in 2006-07 is the highest posted for over 18 years, reflecting the booming economy of the country. Growing in tandem with the economy is the Indian retail sector. Retail is one of India’s largest industries, contributing to about 10 per cent of the GDP and providing employment to 8 per cent of the nation’s workforce. The sector is on a high growth trajectory and is expected to grow by more than 27 per cent over the next 5 to 6 years.

19 Generates employment opportunities:

It offers maximum employment opportunities for people living in a nation. In India, the youth population is more interested pursuing their career in this field. Survey shows in India that 60% of population of age group (15-60) is engaged in this activity.

20 Potential untapped Markets:

Growing trend of consumerism in has led to the emergence of cities and small towns add to the market attractiveness. Pantaloon Retail India Limited, one of India’s retail giants captures a mere 0.3 per cent of total market; compared to Tesco Plc, which captures 14.3per cent of England’s market and Wal-Mart which captures 20 per cent of USA’s market; giving an insight into the large untapped market potential.

21 Cash & Carry wholesale trading:

Big retail outlets also perform the functions of a wholesaler by selling products both in bulk and in small quantities. This leads to larger sales transactions which results in large money flow into the economy. Since these giant retailers have wider assortment and variety, they can cater to the needs of every customer who visit their shop and also influence them on impulsive buying.

22 Indian Retail Sector:

Indian retail business promises to be one of the core sectors of the Indian economy, with organized retail sector estimated to grow by 400 per cent of its current size by 2007-08.

India is expected to be among the top 5 retail markets in the world in 10 years. The growth and potential of the sector is being widely acknowledged both in the domestic as well as international forums. India topped AT Kearney’s Global Retail Development Index 2007 for the third consecutive year, retaining its position in the global market as the most preferred retail destination amongst emerging markets.

For the fifth time, India also topped the Global Consumer Confidence Index June – 2007 conducted twice a year by The Nielsen Company. Indians were judged the world’s most optimistic consumers, with large sections of the population considering “now” a good time to spend. Total estimated investment opportunity of US$ 5-6 billion in next five yrs .

Ans (b) FUNCTION OF DEPARTMENT STORES

• Department Stores are retailers that carry a broad variety and deep assortment, offer considerable customer services and are organized into separate departments for displaying merchandise.

• Each department within the store has a specific selling space allocated to it, a POS terminal to transact and record sales, and salespeople to assist customers.

• The major departments are women’s, men’s and children’s clothing and accessories; home furnishing and furniture, and kitchenware and small appliances.

• In some situations, departments in a department store or discount store are leased and operated by an independent company.

• A leased department is an area in a retail store that is leased or rented to an independent firm. Retailers lease departments when they feel they lack expertise to efficiently operate the department.

• Specialty Department stores use a department store format but focus primarily on apparel and soft home furnishings.

• The nature of traditional department stores has changed considerably over the years, so the distinction between traditional, specialty, and promotional department stores has blurred. With few exceptions, traditional department stores have eliminated many of the departments they originally had.

• Department stores’ overall sales have stagnated in recent years due to increased competition from discount stores and specialty stores.

• Many consumers wait to buy merchandise when it goes on sale rather than at the initial retail price. 60 to 80% of all merchandise sold by department stores is on sale.

• In response to this increased competition, department stores are altering their merchandise mix, improving their in-stock position on fashion merchandise and improving their customer service.

Q.2 (a) What do you mean by store layout? How is it useful in retailing?

(b) Write a note on sales forecasting.

Ans (a) STORE LAYOUT

Store layout is the term used to refer the interiors and the allocation or the plan in which the products are displayed in the store .It is quite imperative for the retailers to understand the customer and prepare a customer friendly layout. 

Use in Retailing

A customer friendly layout gives an impetus to the shopper to spend more time in the store hence increasing the chances of shoppers buying more merchandise. In the case of India many of the independent retailers do not have or have limited spaces for customer movement. Especially in smaller stores, one would find cash counter located at the store entrance. This treatment is common with so called ‘Kirana Stores’. 

But on the other hand, many organized retailers provide adequate space within the store for shoppers and create layouts that facilitate a definite pattern of customer traffic .In other words the layout creates ‘Aisles’ so that the shopper can move on a predefined path

inside the store.  Layout planning caters to decisions about nature of traffic flow, kinds of product, space available and maintenance of the space on a daily basis.

Store layout is one of the many facets of Retail Atmospherics and hence it is significant. Store layout plays a very important part in the cost analysis by the retail firm and also the general brand communication of the store. 

Store layouts generally show the size and location of each department, any permanent structures, fixture locations and customer traffic patterns. Each floor plan and store layout will depend on the type of products sold, the building location and how much the business can afford to put into the overall store design.

Ans (b) SALES FORECASTING

A retailer estimates its expected future revenues for a given period by sales forecasting. Forecasts may be company wide, departmental, and for individual merchandise classifications. Perhaps the most important step in financial merchandise planning is accurate sales forecasting, because an incorrect projection of sales throws off the entire process. That is why many retailers have state-of-the art forecasting systems. Longs Drug Stores has dramatically improved its cash flow by using a system from Evant.

Larger retailers often forecast total and department sales by techniques such as trend analysis, time series analysis, and multiple regression analysis. Small retailers rely more on “guesstimates”, projections based on experience. Even for larger firms, sales forecasting for merchandise classifications within departments (or price lines) relies on more qualitative methods. One way to forecast sales for narrow categories is first to project sales on a company basis and by department, and then to break down figures judgmentally into merchandise classifications.

External factors, internal company factors, and seasonal trends must be anticipated and taken into account. Among the external factors that can affect projected sales are consumer trends, competitors’ actions, the state of the economy, the weather, and new supplier offerings. For example, Paralytics offers a patent.

Methodology to analyze and forecast the relationship among consumer demand, store traffic, and the weather. Internal company factors that can impact on future sales include additions and deletions of merchandise lines, revised promotion and credit policies, and change in hours, new outlets, and store remodeling. With many retailers, seasonality must be considered in setting monthly or quarterly sales forecasts. Handy’s yearly snow blower sales should not be estimated from December sales alone.

A sales forecast can be developed by examining past trends and projecting future growth (based on external and internal factors). It is an estimate, subject to revisions. Various factors may be hard to incorporate when devising forecast, such as merchandise shortages, consumer reactions to new products, the rate of inflation, and new government legislation. That is why a financial merchandise plan needs some flexibility.

After a yearly forecast is derived, it should be broken into quarters or months. In retailing monthly forecast are usually required. Jewelry stores know December accounts for nearly one-quarter of annual sales, while drugstores know December sales are slightly better than average. Stationery stores and card stores realize that Christmas card generate 60 percent of seasonal greeting card sales, while Valentine’s Day card are second with about 25 percent.

To acquire more specific estimates, a retailer could use a monthly sales index, which divides each month’s actual sales by average monthly sales and multiplies the results by 100 is actual monthly sales and monthly sales indexes. The store is seasonal, with peaks in late spring and early summer (for lawn mowers, garden supplies, and so on), as well as December (for lighting fixtures, snow blowers, and gifts). Other monthly indexes are computed similarly. Each monthly index shows the percentage deviation of that month’s sales from the average months. A May index of 160 means May sales are 60 percent higher than average. An October index of 67 means sales in October are 33 percent below average.

Q.3 If you need to start a retail outlet or store, what strategic consideration wills you take into account, in order to implement your plans?

Ans: 3.2 Retail Strategic Planning Process

Figure 3.1

1 Situational Analysis:

A firm needs to spot trends early enough to satisfy customers and stay ahead of competitors, yet not so early that shoppers are not ready for changes or that false trends are perceived. Merchandising shifts – like stocking fad items – are more quickly enacted than changes in a firm’s location, price, or promotion strategy. A new retailer can adapt to trends easier than existing firms with established images, ongoing leases, and space limitations. Small firms that prepare well can compete in a market with large retailers.

During situation analysis, especially for a new retailer or one thinking about making a major strategic change, an honest, in-depth self-assessment is vital. It is all right for a person or company to be ambitious and aggressive, but overestimating one’s abilities and prospects may be harmful – if the results are entry into the wrong retail business, inadequate resources, or misjudgment of competitors.

1.1 Organizational mission

An organizational mission is a retailer’s commitment to a type of business and to a distinctive role in the marketplace. It is reflected in the firm’s attitude toward consumers, employees, suppliers, competitors, government, and others. A clear mission lets a firm gain a customer following and distinguish itself from competitors.

1.2 Ownership and management alternatives

An essential aspect of situation analysis is assessing ownership and management alternatives, including whether to form a sole proprietorship, partnership, or corporation and whether to start a new business, buy an existing business, or become a franchisee. Management options include owner-manager versus professional manager and centralized versus decentralized structures. Consider that “There is not single best form of ownership. That’s partly because the limitations of a particular form of ownership can often be compensated for. For instance, a sole proprietor can often buy insurance coverage to reduce liability exposure, rather than form a limited liability entity. Even after you have established your business as a particular entity, you may need to re-evaluate your choice of entity as the business evolves.”

A sole proprietorship is an unincorporated retail firm owned by one person. All benefits, profits, risks, and costs accrue to that individual.A partnership is an unincorporated retail firm by two or more persons, each with a financial interest. Partners share benefits, profits, risks, and costs.A corporation is a retail firm that is formally incorporated under state law. It is a legal entity apart from individual officers (or stockholders).

Checklist 3.1:

A checklist to consider when starting a new retail business:

Name of business: _____________________________________

A. Self- Assessment and Business Choice

§ Evaluate your strengths and weaknesses.

§ Commitment paragraph: Why should you be in business for yourself? Why open a new business rather than acquire an existing one or become a member of a franchise chain?

§ Describe the type of retail business that fits your strengths and desires. What will make it unique? What will the business offer customers? How will you capitalize on the weaknesses of competitors?

B. Overall Retail Plan

§ State your philosophy of business.

§ Choose an ownership form (sole proprietorship, partnership, or corporation).

§ State your long and short run goals.

§ Analyze your customers form their point of view.

§ Research your market size and store location.

§ Quantify the total retail sales of your goods / service category in your trading area.

§ Analyze your competition.

§ Quantify your potential market share.

§ Develop your retail strategy: store location and operations, merchandising, pricing and store image and promotion.

C. Financial Plan

§ What level of funds will you need to get started and to get through the first year? Where will they come from?

§ Determine the first-year profit, return or investment, and salary that you need / want.

§ Project monthly cash flow and profit-and-loss statements for the first two years.

§ What sales will be needed to break even during the first year? What will you do if these sales are not reached?

D. Organizational Details Plan

§ Describe your personnel plan (hats to wear), organizational plan, and policies.

§ List the jobs you like and want to do and those you dislike, cannot do, or do not want to do.

§ Outline your accounting and inventory systems.

§ Note your insurance plans.

§ Specify how day-to-day operations would be conducted for each aspect of your strategy.

§ Review the risks you face and how you plan to cope with them.

By being a franchisee, a retailer can combine independent ownership with franchisor support: strategic planning assistance; a known company name and loyal customer following; cooperative advertising and buying; and a regional, national, or global (rather than local) image. However, a franchisee contract may specify rigid operating standards, limit the product lines sold, and restrict supplier choice; the franchisor company is usually paid continuously (royalties); advertising fees may be required; and there is a possibility of termination by the franchisor if the agreement is not followed satisfactorily.

1.3 Goods / Service Category

Before a prospective retail firm can fully design a strategic plan, it selects a goods / service category – the line of business – in which to operate. A potential retail business owner should select a type of business that will allow him or her to match personal abilities, financial resources and time available with the requirements of that kind of business.

1.4 Personal Abilities

Personal abilities depend in an individual’s aptitude – the preference for a type of business and the potential to do well; education – formal learning about retail practices and policies; and experience – practical learning about retail practices and policies.

An individual who wants to run a business, likes to use initiative, and has the ability to react quickly to competitive developments will be suited to a different type of situation than a person who depends on others for advice and does not like to make decisions. The first individual could be an independent operator, in a dynamic business such as apparel; the second might seek partners or a franchise and a stable business, such as a stationary store. Some people enjoy customer interaction; they would dislike the impersonality of a self-service operation. Others enjoy the impersonality of mail order or web retailing.

In certain fields, education and experience requirements are specified by law. Stockbrokers, real-estate brokers, beauticians, pharmacists, and opticians must all satisfy educational or experience standards to show competency. For example, real-estate brokers are licensed after a review of their knowledge of real-estate practices and their ethical character. The designation “broker” does not depend on the ability to sell or have a customer-oriented demeanor.

Some skills can be learned; others are inborn. Accordingly, potential retail owners have to assess their skills and match them with the demands of a given business. This involves careful reflection about oneself. Partnerships may be best when two or more parties possess complementary skills. A person with selling experience may join with someone who has the operating skills to start a business. Each partner has valued skills, but he or she may be unable to operate a retail entity without the expertise of the other.

1.5 Financial Resources

Many retail enterprises, especially new, independent ones, fail because the owners do not adequately project the financial resources needed to open and operate the firm.