Retail Trade: Meaning, Prerequisites, Changing Pattern and Challenges

In this article we will discuss about the retail trade:- 1. Meaning of Retail Trade 2. Prerequisites of Retail Trade 3. Changing Pattern of Retail Trade 4. Organised Retailing 5. Challenges Facing the Retail Sector.

Retail Trade: Meaning, Concept, Importance, Characteristics of Retailers and Examples

Meaning of Retail Trade:

The word ‘Retail’ is derived from the French word ‘Retailer’ meaning to cut a piece off or to break bulk and involves direct interface with the customer. Retailing involves all activities directly related to the sale of goods and services to the ultimate consumer for personal and non-business use. Retailer is a person, agent, company or organisation engaged in reaching goods or services to the end-user or ultimate consumer.

Retail trade may be defined as “A trade, which consists of selling to ultimate consumers of a variety of products in small lots.” A retailer is the last middleman in the channels of distribution and he satisfies recurrent needs of consumers. The retailer operates near residential area and he sells directly to consumers.

He is the connecting link between the company and the consumer. Retailers have personal contacts with the consumers and can provide valuable information about changes in consumer wants and preferences to the distributors and manufacturers.

Characteristics of Retailer:

1. The retailer sells goods in small quantities according to the requirements of the consumers.

2. The retailer keeps adequate stock of many goods needed by his customers every day. Therefore, the customers need not stock their requirements from the retailer.

3. The retailer operates mostly in residential areas. The consumer finds it very easy.

4. The retailer brings new products and new varieties to the notice of the consumers.

5. The retailer keeps various varieties of a product of different firms. Thus, he provides variety of goods for selection to his customers.

6. The retailer grants credit facilities to reliable customers. It is much helpful to salaried employees.

7. Sometimes customers seek the guidance of the retailer in the choice of goods when they have a big variety to choose from. The retailers advise the customers about the selection of goods.

8. Some retailers also undertake home-delivery or door-delivery services.

Prerequisites of Retail Trade:

The success of retail store centres round a proper combination of the following factors:

Factor # 1. Strategic Planning:

Retailer must also have the planning of sound strategies. The selection of target market and development of marketing-mix are important aspects of strategic planning. Product assortment, price strategies and promotional methods need special attention.

Factor # 2. Physical Facilities:

It is said that there are three keys to retail success- location, location, and location. The ultimate success of retail store is governed by favourable location which alone can assure sustained prosperity. Exterior and interior appearances and good layout also play an important role in the success of retail store.

Factor # 3. Price:

Appropriate price strategy can have the greatest market appeal, particularly in inflation. Low price with reasonable quality and due service can work wonders in retail trade. High price and high service demand skilled and highly motivated sales people. Lower price and limited service demand control over marketing expenses as gross margins are small.

Factor # 4. Promotion:

Unique advantages of promotional campaigns explain considerable success in retailing. Retailing is the toughest job in the channel of distribution since the product has to cross the three feet sales counter to reach the customer. If the three feet are not crossed (with the help of sales promotion, e.g., point-of-sale/purchase display), all other sales efforts are useless.

Active co-operation between manufacturer and retailer in promotion-mix can guarantee flourishing sale, assuming that the product or service is intrinsically sound and price is quite reasonable.

Factor # 5. Buying:

A retailer can acquire highly desirable product assortment, indicating good values to his customers, through shrewd buying practices and sound decision-making ability. He should act as expert buying agent on behalf of his customer. Intelligent buying decisions yield rich dividends in retail trade. Acid test of retail success is consumers’ satisfaction, i.e., emphasis on the sale of want-satisfying utilities only.

Factor # 6. Service:

Retailers give non-price competition essentially through personalised services. Prompt and courteous service, quality assurance, sale on approval, money-back guarantee, service after sale, free home-delivery, grant of credit, securing goods to satisfy individual taste and liking, offer of expert advice to customer, and comfort and convenience in the store — all these are welcome by customers and their patronage goes to such retailers who aim at securing profits through service.
The retailer must follow the policy illustrated by such quotations, e.g., ‘The customer is always right’, ‘it pays to be customer-minded and the customer is king/ queen.’ ‘He who serves best will profit most.’ These quotations emphasise the concept of service, not profits, as the chief objective of the seller in the marketplace. Most customers prefer warm and friendly atmosphere.

Factor # 7. Efficient Management:

Better planning, organisation, and control can offer efficient retail operations. Proper selection, training, remuneration, and motivation of sales force will also assure higher efficiency. If a retailer plans his inventories in detail, buys and sells according to plan, at the end of the year he will have his predetermined profits.

The goal of a retail store should, by and large, be- (1) to serve the community, (2) to provide employment opportunities for people, and (3) to make reasonable profit. The success of a retailer depends much on his ability to serve a real need of the people. The retail store has an obligation to its employees.

They have to be well-motivated and kept contended. Profit is an important consideration in the management and operation of a store. High taxes, keen competition and increased cost of sales, all have an unfavourable effect on the profits of the retailers.

Efficient stock control, wise merchandise-investment, cut in unwanted expense and general expense control, personalised services to the customers, adoption of modern principles of business management, liberal use of electronic computers and new communication tools, are some of the progressive measures by means of which retailers can ensure reasonable profit margins.

Sales – Operating Costs = Operating Profit

Sales are influenced by management decisions on location, 4 ‘P’s of marketing-mix and inventory. Operating costs are influenced by decisions on products and services, facilities, promotion, labour and inventories. Computer technology enables management to take sound merchandising decisions on the basis of latest information on supply, demand, costs, etc., quickly and economically.

Changing Pattern of Retail Trade:

The retailing structure is dynamic or ever-changing. There are five forces causing change and innovation in retailing- (1) Under customer-centred marketing approach, there is ever- increasing need to serve consumer demand (ever-changing preferences, tastes and fashions) in the market sincerely, (2) There is constant search for more, novel and effective methods of retailing to face keen competition in the retail trade, (3) Changing methods of distribution are being adopted by big manufacturers, (4) Importance of professional management, and (5) Intense drive toward rise in productivity.

We may summarise changing trends and prospects in retail trade since 1970:

1. Ever-growing importance of branding of goods.

2. Modern means of mass communication.

3. Revolution in packaging. No packaging, no brands, no advertising, no sale.

4. More even distribution of wealth and the emergence of a big middle-income price- conscious people with growing effective demand for rising living standards.

5. Growing employment of women — limited time for household, shopping only a few hours per week.

6. Growth of large-scale retail enterprises, particularly self-service, cash-and-carry, low price retail stores selling food as well as non-food articles (indicating trend of diversification in product line).

7. Automation and computerisation also in retail trade operations and practices. Vending machines are employed to sell goods when stores are closed.

8. Chain-stores, supermarkets, discount houses, direct marketing, self-service stores, are the important and popular retail organisations.

9. Reply of small retailers to competition from large-scale retailers, (a) Co-operative buying associations of retailers for bulk purchases, (b) wholesaler sponsored voluntary chain of independent retailers with one or a few wholesalers, (c) cash and carry wholesalers.

10. Trading stamps, gift coupons as additional attraction to consumers. Free gift with large purchases by consumers and sale at reduced prices for buying in large quantities.

11. When one type of store adds products that usually were sold by other types of retail outlets, we have a new trend toward scrambled merchandising. For example, a supermarket is essentially a food retailer. When it also sells non-food lines such as drugs, hardware, utensils, garden supplies, books, sport goods, etc., we get scrambled merchandising phenomenon.

12. Retailers are now adopting customer-orientation and offering convenience and service so that consumer desire for top quality service is given due emphasis. There is a very keen competition in the market and we have buyer’s markets, all over the world due to emergence of global market economy. Hence, retailers, wholesalers and manufacturers can have profits only through customer satisfaction. Indian marketing environment also indicates similar trends in consumer goods markets.

13. New trend towards growth of direct marketing is becoming quite prominent. Non- store retailing or direct marketing is adequately described to highlight the changing pattern of retail trade, of course, retail stores will continue to be dominant. Direct marketing cannot displace retail stores. It can, however, act as supplementary device for manufacturers to sell goods directly to consumers.

14. We have increasing polarity in retail trade. At one end we have hyper stores, jumbo retailers, shopping centres and the other extreme we have mobile retailers, i.e., hawkers and pedlars and pavement sellers.

15. Specialised stores are also gaining importance as they enable market segmentation and sale to specific target market.

Various problems of marketing such as reduction in selling cost, improvement in customer services, moral and ethical issues in advertising and sales promotion, competition and such other difficulties are now being resolved through better planning, better management and control over sales and channels of distribution.

Organised Retailing:

The Indian retail sector, though dominated through grocery shops/kirana stores, has been witnessing emergence of corporate retail chains such as RPC Retail, Pantaloon Retail, Shoppers Stop, Reliance Fresh, Aditya Birla Group’s ‘More’, Croma (Tata). These large-format stores provide a wide range of products and brands at attractive prices and pleasant shopping experience for family members.

This main objective is to provide the customers with 3 Vs i.e., value, variety and volume. Apart from Four Ps, service marketing includes three more Ps i.e., People, Physical evidence and Process. P (place) includes convenience for shopping, stores interiors and store location.

Growth of Organised Retail:

In our country retailing is the largest employer after agriculture. It employs about seven per cent of the total work-force and has a contribution of 14 per cent to the national GDP. With a total population of over 100 crores, organised retailing is still at its infancy in India. We have the largest network of retail stores but only about 4 per cent of them are larger than 500 sq. feet.

For a long time, the corner grocery store was the only choice available to the consumers and this is slowly giving way to international format of retailing. Share of organised retailing to total retail trade has been growing as shown below.

Organized Retail Business in Comparison to Other Countries:

The Indian retail market is highly fragmented and unorganised. Slowly and steadily, we are seeing a trend of unorganised retailing becoming more and more organised, particularly in cities and towns.

Sectors with high growth potential are given below:

(a) Food and grocery

(b) Clothing

(c) Furniture/fixtures

(d) Pharmacy

(e) Durables

(f) Footwear, watches

Some of the Fastest Growing Retail Formats are:

(a) Speciality and Super market

(b) Hypermarket

(c) Discount Stores

(d) Departmental Stores.

Share of Categories in India’s Retail Sector (2006-2007):

(a) Food and grocery = 59.60%

(b) Clothing and foot ware – 9.30%

(c) Health care products = 8%

(d) Furniture, furnishings, appliances and services – 6.8%

(e) Beverages = 3.6%

(f) Sports goods = 2.7%

(g) Personal care = 4.2%

(h) Jewellery and watches = 5.9%

% of Share of Organised Sector in India’s Total Retail:

Factors Contributing to the Growth of Organised Retailing:

Organised Retail story began with Piramal Holdings opening India’s first world class shopping mall i.e., Cross Roads, in South Mumbai. It was such a novelty at that time that it became a must see destination in Mumbai. There was a sudden mushrooming of Malls in the country. A Mall is an agglomeration of department stores, hypermarkets and speciality stores. The small town of Gurgaon (Near Delhi) has become the Mall capital of India with 18 Malls. It is estimated that are have about 300 Malls in our country (2010).

(1) Economic Development:

Economic development increases disposable income and leads to increase in spending on consumer goods and durables. Example: Modern formats first appeared in cities like Delhi, Mumbai, Chennai, Bangalore and Hyderabad due to relatively higher level of income in cities.

(2) Government Policies:

Favourable Government policies like opening up of our economy have created opportunities for growth and development of service sector. In course of time,
it is expected that Foreign Direct Investment would become 100%, though there is opposition for such a proposal.

(3) Globalisation:

A middle class Indian aspires to wear a Levis, flaunt a Nokia, visit a fast food centre like McDonalds and drive a Maruti car. He has become brand-conscious. Global brands want to explore opportunities in Indian market. The consumers, particularly in cities, have caught up with Mall culture.

(4) We have a very large population falling under younger age group of 15-35 years. They are willing to spend more and buy branded products. Further, a large number of undergraduates and graduates are able to find employment in retail sectors.

(5) Civic Situation:

Safe and secure environment in cities and major towns, public transportation facilities, flexible opening and closing hours, adequate parking facilities encourage consumers to visit organised retail outlets.

(6) Investment in Retailing:

Although there are restrictions on FDI, a number of global retailers are entering into technical agreements and franchise arrangements with Indian firms. Industrial groups such as Reliance, RPG and Tata’s are already active in retailing.

Challenges Facing the Retail Sector:

Retailing, one of the largest sectors in the global economy, is going through a transition phase in India.

The main challenges faced by large-scale retailers are given below:

Challenge # 1. High Cost of Operation:

Organised sector has to incur high expenses towards rentals, manpower cost, renovation costs etc. compared to traditional retailers who are low- cost operators.

Challenge # 2. Lack of Infrastructure:

Lack of infrastructure facilities like transportation, electricity, road and rail required for large-scale operations.

Challenge # 3. IT Support:

Retailing is a complex business and it is concerned with every customer who visits the store and every transaction involving the customers. Lakhs of bills are generated every month. IT support is required to track every aspect of operation from suppliers to the billing counters.

Challenge # 4. Lack of Industry Status:

Though Indian Retail Council was formed in 2000, retailing has not been considered an industry. Some of the problems faced by the sector are lack of finance for mall development, difficulties in having flexible timings, rationalisation of octroi and direct purchase of agricultural produce from farmers.

Challenge # 5. Availability of Skilled Manpower:

Educated class do not consider retailing as a profession of choice and there is shortage of trained manpower in this sector. They are very few institutes who are offering formal courses on retail management.

Challenge # 6. Grocery Stores/Kirana Stores:

Grocery stores/kirana stores have been in existence for ages in our country and they provide personalised service to the consumers. They extend credit facilities to customers, accept telephone orders and provide home-delivery service. There are lakhs of well- established low cost kirana stores in the country and consumers prefer such stores.

Challenge # 7. The Organised Retail Sector is Facing Political Risk:

The organised retail sector is facing political risk as politicians are excessively concerned about adverse impact on grocery stores. The latest example being that of Reliance retail which was forced to shut shops and scale down its future plans in a few states.

Challenge # 8. Foreign Direct Investment in Retail:

Currently FDI is completely prohibited in multi-brand retail. In the case of single brand retail, 51 per cent FDI is allowed with prior Government approval. For healthy growth of retail sector, it requires capital, technology and application of latest global practices. Restricted FDI may be an impediment.

Retail Trade – Conclusion:

Retailing involves all activities directly related to the sale of goods and services to the ultimate consumer for personal use. The retail trade includes both itinerant traders and fixed shops. Fixed shops can be divided into small retail shops and large-scale organised retail stores. Organised retail has opportunities to grow in India along with kirana stores.

The consumers will get good quality products at attractive prices. The farmers too benefit as they can sell directly to retail sector and earn better prices. In India, retail has created about two million jobs by the end of 2011. The present slow-down is just a temporary phase and organised retail is still attractive, considering the huge market size.