UNIT 3 FORMATS Structure 3.0 Objectives 3.1 Introduction 3.2 Theories of Structural Changes in Retailing 3.3 Classification of Retail Formats 3.3.1 Form of Ownership 3.3.2 Store Strategy Mix 3.3.3 Non-store Retailing 3.4 Modem Retail Formats 3.5 Chain Stores in India 3.6 Let Us Sum Up 3.7 Key Words 3.8 Activities 3.9 Terminal Questi c tns

After studying this unit, you will be able to: identify the different types of retailers both in store and non-store retailing; classify retail formats and explain them; distinguish the store and non-store retail formats; discuss the emerging trends in modern retail formats and I outline the emerging retail chains across the sector. I 3.1 INTRODUCTION

I The term retail format is the basic structure of a retail business conceived, designed, and developed to cater the needs of the end users. I Retail formats come in a whole variety of shapes and sizes. These can be quite different in terms of the ownership of retail business itself, the characteristics of the premises used and the orientation of the product range. The origin of retail formats in India may be seen with the establishment of shandies, weekly markets. In due course of time retailers opened small shops and stocked different products of their own housc! at a central place for consumers known as market place. Some types of formats have been in existence with us for over a century (traditional retail formats (e.g., mom and pop stores) while new kinds of retail formats are fast emerging and developing, offering the consumer a constantly evolving choice of shopping arena'which embraces an enormously wide range of businesses (e.g., malls, shopping centres etc.) 3.2 THEORIES OF STRUCTURAL CHANGES IN RETAILING

Retailing ha's always been a iiynamic industry and retail firms have brought innovative approaches into retailing, changing the industry as they entered, developed and grew. Understanding how and why this process occurs is essential 3 1

Content Digitized by eGyanKosh, IGNOU ! Overview of. for success in the industry. We will examine three theories of how firms change Retailing and in doing so change the industry. In retailing, change is not a matter of change, it is a virtual certainty

The Wheel of Retailing: The Wheel of retailing is one better known theories of structural change in retailing. It was proposed by Malcom P MacNair at Harvard University. The wheel of retailing concept describes how the retailing institutions change during their evolutionary life cycles. New retailing institutions enter the markets as low-status, low margin, and low price operations. As these retailers achieve success; attempts are made to increase their customer base and sales. Products are upgraded, facilities are improved, and new services are added. Prices and margins are incr'eased to support these higher costs. New retailers enter the market to fill the low-status, low margined, and low-price niche. The cycle begins again. Hence, the retail store passes through stages of growth and decline. Hence, it can be said that a retail store emerges, enjoys a period of accelerated growth, reaches a maturity, and declines. The wheel of retailing is criticized because it does not explain all changes in retailing. In fact. r many stares do not start as low price and low-service dutlets. .I

The Dialectic Process: A second theory holds that retailing evolves through a dialectic process-the blending of two opposing store types into a superior form. For example, speciality stores offer specialized merchandise, wide array of services, and attractive surroundings to a large and diverse market. The blending of these two formats produces the speciality discount stores.

Natural Selection: According to this theory, retail stores evolve to meet changes in the micro-environment. The retailers that successfully adapt to technological, social, demographic, economic, political and legal changes are most likely to grow and prosper. The variety stores are an example of this theory who failed to adapt to changing environment. As it takes into account macro-environmental forces, the theory of natural selection is more inclusive than those of the wheel of retailing and the dialectic process, which are based solely on a profit-cost analysis. By gravitating to those stores that best meet theilr desires and needs, and shunning those stores that do not, consumers exert a powerful force on the evolution of retailing as does any other part of the macro-environment.

3.3 CLASSIFICATION OF RETAIL FORMATS

Retail markets are broadly divided into Organized & Un organized forms. Generally the unorganized form of a retail set up is operated under a single ownership. e.g., mom & pop stores. Organized retailing can be classified based on different factors.

Regardless of the particular type of retailer (such as a super market or a departmental store or a co-operative stores etc.) , retailers can be broadly classified on the basis of (a) ownership (b) Store strategy mix and (c) Non store operations as shown in fig. 3.1. 3 2

Content Digitized by eGyanKosh, IGNOU Independent Retailer Retail Formats ____9

Form of _I__, Retail Chain Ownership b w Retail Franchising

_1_9 Co-Operative

r 9

* Conventional Super market ,~toreStrategy b Mix Departmental Stores

F Speciality S tore/Hyper Market

* Hyper Markets

In home/TV home retailing

b Vending machines

+ Tele-sales Non Store b Operations b Telephone retailing

9 Catalog retailing

Direct response marketing

Electronic Retailing (e-tailing)

Fig. 3.1: Classification of Retail Formats

Let us now discuss the different formats which are classified in fig. 3.1.

3.3.1 Form of Ownership A retail business like any other type of business can be owned by a sole proprietor, partners or a corporation. A majority of retail business in India are sole proprietorships and partnerships. 3 3

Content Digitized by eGyanKosh, IGNOU Overview of Independent Retailer: Generally operates one outlet and offers personalized service, Retailing a convenient location and close customer contact. Most of the independent retailers fail because of the ease of entry, poor management skills and inadequate resources. Retail Chain: It involves common ownership of multiple units. In such units, the purchasing and the decision making ate centralized. Chainsoften rely on specialization. standardization and elabourate control systems. Consequently chains are able to serve a large dispersed target market and maintain a well known company name. Retail Franchising: Is a contractual arrangement between a "franchiser" (which may be a manufacturer, wholesaler, or a service sponsor) and a "franchisee" or franchisees, which allow the latter to conduct a certain form of business under the established name and according to a specific set of rules? The franchise agreement gives the franchiser much discretion in controlling the operation of the small retailer. Cooperatives: A retail co operative is a group of independent retailers that have combined their financial resources and their expertise in order to effectively control their wholesaling needs. They share the purchases, storage, shopping facilities, advertising planning and other functions. The individual retailers retain their independence but agree ~ on broad common policies, e,g., Amul I 3.3.2 Store Strategy Mix Retailers can be classified by retail store strategy mix, which is integrated combination of hours, location, assortment, service, advertising, and prices act; the various categories are: Convenience Store: Is generally a well situated, food oriented store with long operating house and limited number items. e.g., a store where milk, eggs, bread etc are sold. Conventional : Is a diversified store which sells a broad range of food and non-food items. A typically carries srpall house hold appliances, some apparel items, bakery, film developing books, audiolvideo etc. egg: Apna Bazaar, Sharkar Bandar, Sabka Bazaar etc. Departmental Stores: A departmental store usually sells a general line of appeal for the family, house hold linens, home furnishing and appliances. Large format appeal departmental stores include Pantaloons, Ebony, Shoppers stop and Westside. Specialty Store: Concentrates on the sale of single line product or services, such 'as audio equipment, jewelry, beauty and health care etc. Successful specialty stores in India include, Music World for audio needs, Tanishq for jewellery, Pizza Hut and Nebulas for food items. : Is a special kind of combination store which integrates an economy super market with a discount department store. A hyper market generally has an ambience which attracts the family as a whole. Eg: Pantaloon Retail India Ltd. (PRIL) through its 'Big Bazaar' offers products at prices which are 25%-30% lower than the market prices. 3.3.3 Non-Store Retailing In non-store retailing customers do not go to stores to buy. On the other hand a non- retailer does not utilize conventional store facilities. Thi~type of retailing has been growing much faster than store retailing. The reasons are the ability to buy the merchandise available at the local stores, the increasing number of women workers, and the presence 34 of the unskilled retail sales persons who cannot provide the inforrnation'to help shoppers make buying decisions. The major types of non-store retailing are:

Content Digitized by eGyanKosh, IGNOU In HomeITV Home Retailing: Here, a sales transaction takes place in a home Retail Formats setting- including door-door selling. It gives the sales person an opportunity to demonstrate products in a personal manner. HeIShe has the prospect's attention and there are fewer distractions as compared to store settings. E.g., Eureka Forbes vacuum cleaners and water filters. In case of TV home shopping customers watch a TV programme demonstrating merchandise and then place orders for the products over telephone. The promenent players in this are Asian Sky Shop, Telebrands, TSN, etc. However, in Indiaretailers have not sft up a channel dedicated to TV hame shopping. Tclesales/Telephone Retailing: This involves contact between the prospect buyer and the retailer over the phone for the purpose of making a sale purchase .A large number of mobile phone service providers uses this method. eg; private insurance companies and credit card companies. Catalog Retailing: The type of non-store retailing which offers the merchandise through a catalogue, which includes the ordering instructions and customer orders by mail. The basic attraction for the shoppers is the convenience; the advantage to the retailer is the low operating costs, lower rents, smaller sales staff and the absence of shoplifting. This trend is catching fast in India. e.g. Burlington's Catalogue, Oriflame, Avon etc. Direct Response Retailing: Here the marketers advertise these productslservices in the magazines, newspapers, radio, television offering an address or telephone numbers, so that the consumers can write or call to place an order. Automatic Vending: Although in a very nascent stage in India, is the ultimate in non personal, non store retailing. Products are sold directly to customers /buyers from machine. These machines dispense the products which enable the customers to buy after the closing hours. ATM dispenses cash at odd hours represent this form of non store retailing. Apart from many multinational banks many Indian banks also

-provide ATM services country wide. 4 Electronic Retailing(e-tailing): It is a retailing format in which retailers communicate with the customers and offer the products and services for sale through the internet. In this format, Electronic links to suppliers create a virtual inventory

and a web site creates a virtual store front. When internet transcripts are lightly , integrated with back end office system, the retailer can provide better services to customers while reducing the cost of operations. 3.4 MODERN RETAIL FORMATS You would agree and also appreciate that modem retail formats and store based formats are one and the same. Each of these stores have an entity of its own to cater to. Let us, I now, briefly discuss the following modem retail formats. 1. Department Stores: These are the oldest form of large store concept. It is a

.I multi-level store format usually between 2-5 stories which are segmented into clearly defined areas according to product category. 2. Variety Stores: This format offers a large variety of goods urrder one roof, including both food and non-food items. A differs from departmental store in product range, store environment and prices. 3. Supermarkets/Hypermarkets: The success of supermarkets is attributed to the advantage of offering self service, and therefore much faster method of shopping and saving time. In addition, the space and labour saving factors allow retailers to 3 5 offer a wide choice of products at lower prices.

Content Digitized by eGyanKosh, IGNOU Overview of The major benefits of this format are: Retailing Allows the customer to get involved with the product touch and feel concept) The ability to pursue the product offering, Try new product and impulsive purchase. Supermarkets, superstores and hypermarkets can be considered in the same family of retail format. 4. Convenience Store: The criteria applied to this store format is: Self service 1000-3000 sq.ft selling area Parking facility Open 7 days a week for long hours. Wide range of products with limited brand choice OTC medicines Toiletries etc 5. Discount Stores: As the name suggests, this retail format's key character is the price of merchandise offered by the store, which is subject to individual customer perception. By and large is a retailer that sells merchandise at a price level that is lower than the "typical high-street stores". It is customary that the retailer uses the every day iow pricing policy. 6. Catalog Shops: The basic design is that very little product is displayed in the outlet rn comparison to the range as a whole, but informative catalogs are available for cil\tomer$ to browse through if they wish to. Having decided the product the payment i\ made and the customer waits for a while till the desired product is retrieved from the warehouse which is attached to the showroom. 7. Factory Outlet: This type of outlet offers the customer a range of seconds-quality1 or previous season's stock. The main advantage to the retailer is to push off the unwanted merchandise without damaging the image of the main product or retail brand, which otherwise occupies a large storage space with funds locked in for a long time. On the other hand the consumer is benefited to access certain brands which might not be affordable to him. These are commonly next to the factory premises. 8. Company Owed and Company Operated: These are the type of retail outlets that are run by the manufacturer only. These retail outlets are scattered across the length and breadth of the country. e.g., Bata. 3.5 CHAIN STORES IN INDIA Besides franchising, the other major retailing format that became popular in Indian context is the multiples, which are better known as 'Chain Store'. These chains are predominant with respect to some important product categories such as: Food Health and Beauty Products and Footwear 3 6

Content Digitized by eGyanKosh, IGNOU Home furniture and house hold goods Retail Formats Durable goods Leisure and Personal goods 1. Food Chain: If you closely observe there are a variety of retailers operating in the food retailing sector. However, traditional type of retailers, who operate small single outlet business as mainly using the family labour, dominate this sector. In comparison, supermarkets account for minuscule proportion of food sales. This is for the simple reason that these outlets have strong competitive strength which include low operating costs and overheads, low margins, proximity to customers, long opening hours and additional services to the customers (home delivery).Nevertheless, supermarket sales also expanded at a much higher rate than other retailers. This is because increasing number of higher income Indians prefer, to shop at supermarkets because of convenience, higher standards of hygiene and enticing ambience e.g. Food Bazaar in Big Bazaar. 2. Health and Beauty Products Chain: Rise in incomes and the urge to look good and maintain sound health made Indians spend a considerable amount on health and beauty products. As in case of other retailing sectors, small single-outlet retailers also dominate sales of health and beauty products .However, in the recent past a good number of retail chains specialized in health and beauty products sprung up. As Indians spend more on such products in future, their business will, without doubt, expand substantially and grow exponentially with more scope for new entry of such chains e~.g.VLCC, 3. Clothing and Foot Wear Chains: There is no city in India where you don't find a clothing and foot wear outlet .A traditional outlet basically stocks a limited range of cheap and popular items. In contrast modern outlets are more spacious with attractively displayed windows and sometimes with mannequins. 4. Home Furnitury and Household Goods Chain: The home furniture and the house hold goods'retailing sector in India predominantly belong to small retailers from unorganized sector. Despite the large size of this market very few modern and large retailers have established specialized stores for these products. Looking at the increase of the income levels and the changing life styles of the customers there is considerable potential for the entry of specialized retail chains and is likely that this is possible in next couple of years. 5. Durable Goods Chain: We have witnessed a large number of foreign consumer durable companies into the Indian markets during the 1990s.Thanks to the government decision of inviting foreign investments and import policies, a much wider variety of consumer electronic items and house hold appliances are now 1 available to the Indian consumer. Competition among the companies to sell their ! brands provided strong inputs to the growth retailers operating in this sector. 6. Leisure and Personal Goods Chain: A sharp rise in the house hold income due to economic growth spurred consumer expenditure on leisure and personal goods in India. It is very common to see specialized retailers for each category of products in this sector. A few Retail chains have emerged particularly in the retailing of books and music products in almost all the metros cities and other major cities and towns in the Indian scenario. 3.6 LET US SUM UP In this unit we have discussed various kinds of retail formats in Indian scenario, which include both Traditional and Modern formats on the one hand and non-store on the other.

We have also discussed in detail about these formats and their characteristics. We also , 37

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