Retail Organization

And
Operations Management

Submitted to: Submitted by:

Prof. Suman Lata Harsimran Singh
6921
M.Com. BI
 Index

 History of Retailing
 Store Retailers
 Specialty Store
 Department store
 Supermarkets
 Superstores
 Discount Stores
 Off-Pricing Store

 Non Store Retailers

 Direct Selling
 Direct Marketing
 Automatic Vending

 Retail Organization
 Corporate Chain
 Voluntary Chain and retailers cooperative
 Consumer Cooperative
 Franchise organizations
 Merchandising Conglomerates
 History of Retailing

For centuries most merchandise was sold in marketplaces or by peddlers. In many

countries, hawkers still sell their wares while traveling from one village to the next.
Marketplaces are still the primary form of retail selling in these villages. This was
also true in Europe until the Renaissance, when market stalls in certain localities
became permanent and eventually grew into stores and business districts.

Retail chains are known to have existed in China several centuries before the
Common Era and in some European cities in the 16th and 17th centuries. However,
the birth of the modern chain store can be traced to 1859, with the inauguration of
what is now the Great Atlantic & Pacific Tea Company, Inc. (A&P), in New York
City. During the 15th and 16th centuries the Fugger family of Germany was the
first to carry out mercantile operations of a chain-store variety. In 1670 the
Hudson’s Bay Company chartered its chain of outposts in Canada.

Department stores also were seen in Europe and Asia as early as the 17th century.
The famous Bon Marché in Paris grew from a large specialty store into a full-
fledged department store in the mid-1800s. By the middle of the 20th century,
department stores existed in major U.S. cities, although small independent
merchants still constitute the majority of retailers.

Shopping malls, a late 20th-century development in retail practices, were created to

provide for a consumer’s every need in a single, self-contained shopping area.
Although they were first created for the convenience of suburban populations, they
can now also be found on main city thoroughfares. A large branch of a well-known
retail chain usually serves as a mall’s retail flagship, which is the primary
attraction for customers. In fact, few malls can be financed and built without a
flagship establishment already in place.
 Underground mall at the main railway station
in Leipzig, Germany

Other mall proprietors have used

recreation and entertainment to attract
customers. Movie theatres, holiday
displays, and live musical performances
are often found in shopping malls. In
Asian countries, malls also have been
known to house swimming pools,
arcades, and amusement parks. Hong
Kong’s City Plaza shopping mall
includes one of the territory’s two ice
rinks. Some malls, such as the Mall of
America in Bloomington, Minn., U.S.,
may offer exhibitions, sideshows, and
other diversions.

Amusement park rides at the Mall of America, Bloomington, Minn.

Although there is a great variety of retail enterprises, with new types constantly
emerging, they can be classified into three main types: store retailers, nonstore
retailers, and retail organizations.
 Store retailers

Several different types of stores participate in retail merchandising. The following

is a brief description of the most important store retailers.

Specialty stores

A specialty store carries a deep assortment within a narrow line of goods. Furniture
stores, florists, sporting-goods stores, and bookstores are all specialty stores. Stores
such as Athlete’s Foot (sports shoes only) and Tall Men (clothing for tall men) are
considered superspecialty stores because they carry a very narrow product line.

Department stores

Department stores carry a wider variety of merchandise than most stores but offer
these items in separate departments within the store. These departments usually
include home furnishings and household goods, as well as clothing, which may be
divided into departments according to gender and age. Department stores in
western Europe and Asia also have large food departments, such as the renowned
food court at Harrods in the United Kingdom. Departments within each store are
usually operated as separate entities, each with its own buyers, promotions, and
service personnel. Some departments, such as restaurants and beauty parlours, are
leased to external providers.

Department stores generally account for less than 10 percent of a country’s total
retail sales, but they draw large numbers of customers in urban areas. The most
influential of the department stores may even be trendsetters in various fields, such
as fashion. Department stores such as Sears, Roebuck and Company have also
spawned chain organizations. Others may do this through mergers or by opening
branch units within a region or by expanding to other countries.

Supermarkets

Supermarkets are characterized by large facilities (15,000 to 25,000 square feet

[1,394 to 2,323 square metres] with more than 12,000 items), low profit margins
(earning about 1 percent operating profit on sales), high volume, and operations
that serve the consumer’s total needs for items such as food (groceries, meats,
produce, dairy products, baked goods) and household sundries. They are organized
according to product departments and operate primarily on a self-service basis.
Supermarkets also may sell wines and other alcoholic beverages (depending on
local licensing laws) and clothing.

The first true supermarket was opened in the United States by Michael Cullin in
1930. His King Kullen chain of large-volume food stores was so successful that it
encouraged the major food-store chains to convert their specialty stores into
supermarkets. When compared with the conventional independent grocer,
supermarkets generally offered greater variety and convenience and often better
prices as well. Consequently, in the two decades after World War II, the
supermarket drove many small food retailers out of business, not only in the
United States but throughout the world. In France, for example, the number of
larger food stores grew from about 50 in 1960 to 4,700 in 1982, while the number
of small food retailers fell from 130,000 to 60,000.

Convenience stores

Located primarily near residential areas, convenience stores are relatively small
outlets that are open long hours and carry a limited line of high-turnover
convenience products at high prices. Although many have added food services,
consumers use them mainly for “fill-in” purchases, such as bread, milk, or
miscellaneous goods.

Superstores

Superstores, hypermarkets, and combination stores are unique retail merchandisers.

With facilities averaging 35,000 square feet, superstores meet many of the
consumer’s needs for food and nonfood items by housing a full-service grocery
store as well as such services as dry cleaning, laundry, shoe repair, and cafeterias.
Combination stores typically combine a grocery store and a drug store in one
facility, utilizing approximately 55,000 square feet of selling space. Hypermarkets
combine supermarket, discount, and warehousing retailing principles by going
beyond routinely purchased goods to include furniture, clothing, appliances, and
other items. Ranging in size from 80,000 to 220,000 square feet, hypermarkets
display products in bulk quantities that require minimum handling by store
personnel.

Discount stores

Selling merchandise below the manufacturer’s list price is known as discounting.

The discount store has become an increasingly popular means of retailing.
Following World War II, a number of retail establishments in the United States
began to pursue a high-volume, low-profit strategy designed to attract price-
conscious consumers. A key strategy for keeping operating costs (and therefore
prices) low was to locate in low-rent shopping districts and to offer minimal
service assistance. This no-frills approach was used at first only with hard goods,
or consumer durables, such as electrical household appliances, but it has since been
shown to be successful with soft goods, such as clothing. This practice has been
adopted for a wide variety of products, so that discount stores have essentially
become department stores with reduced prices and fewer services. In the late 20th
century, discount stores began to operate outlet malls. These groups of discount
stores are usually located some distance away from major metropolitan areas and
have facilities that make them indistinguishable from standard shopping malls. As
they gained popularity, many discount stores improved their facilities and
appearances, added new lines and services, and opened suburban branches.
Coupled with attempts by traditional department stores to reduce prices in order to
compete with discounters, the distinction between many department and discount
stores has become blurred. Specialty discount operations have grown significantly
in electronics, sporting goods, and books.

Off-price retailers

Off-price retailers offer a different approach to discount retailing. As discount

houses tried to increase services and offerings in order to upgrade, off-price
retailers invaded this low-price, high-volume sector. Off-price retailers purchase at
below-wholesale prices and charge less than retail prices. This practice is quite
different from that of ordinary discounters, who buy at the market wholesale price
and simply accept lower margins by pricing their products below retail costs. Off-
price retailers carry a constantly changing collection of overruns, irregulars, and
leftover goods and have made their biggest forays in the clothing, footwear, and
accessories industries. The three primary examples of off-price retailers are factory
outlets, independent carriers, and warehouse clubs. Stocking manufacturers’
surplus, discontinued, or irregular products, factory outlets are owned and operated
by the manufacturer. Independent off-price retailers carry a rapidly changing
collection of higher-quality merchandise and are typically owned and operated by
entrepreneurs or divisions of larger retail companies. Warehouse (or wholesale)
clubs operate out of enormous, low-cost facilities and charge patrons an annual
membership fee. They sell a limited selection of brand-name grocery items,
appliances, clothing, and miscellaneous items at a deep discount. These warehouse
stores, such as Wal-Mart-owned Sam’s, Price Club, and Costco (in the United
States), maintain low costs because they buy products at huge quantity discounts,
use less labour in stocking, and typically do not make home deliveries or accept
credit cards.

Nonstore retailers
Some retailers do not operate stores, and these nonstore businesses have grown
much faster than store retailers. The major types of nonstore retailing are direct
selling, direct marketing, and automatic vending.

Direct selling

This form of retailing originated several centuries ago and has mushroomed into a
multibillion-dollar industry consisting of companies selling door-to-door, office-to-
office, or at private-home sales meetings. The forerunners in the direct-selling
industry include The Fuller Brush Company (brushes, brooms, etc.), Electrolux
(vacuum cleaners), and Avon (cosmetics). In addition, Tupperware pioneered the
home-sales approach, in which friends and neighbours gather in a home where
Tupperware products are demonstrated and sold. Network marketing, a direct-
selling approach similar to home sales, is also gaining prevalence in markets
worldwide. In the model used by companies such as Amway and Shaklee,
distributors are rewarded not only for their direct sales but also for the sales of
those they have recruited to become distributors. In 2007 Amway’s parent
company tested an Internet recruitment model by launching Fanista, a Web site
that sells entertainment media such as books, movies, and music while rewarding
users for bringing other customers to the site.

Direct marketing

Direct marketing is direct contact between a seller (manufacturer or retailer) and a

consumer. Generally speaking, a seller can measure response to an offer because of
its direct addressability. Although direct marketing gained wide popularity as a
marketing strategy only in the late 20th century, it has been successfully utilized
for more than one hundred years. Sears, Roebuck and Company and the now-
defunct Montgomery Ward & Co. began as direct marketers in the late 1880s,
selling their products solely by mail order. A century later, however, both
companies were conducting most of their business in retail stores; Montgomery
Ward ceased operations in the early 21st century. Many contemporary department
stores and specialty stores supplement their store operations with direct-marketing
transactions by mail, telephone, or the Internet. Mail-order firms grew rapidly in
the 1950s and ’60s in continental Europe, Great Britain, and certain other highly
industrialized nations. Modern direct marketing is generally supported by
advanced database technologies that track each customer’s purchase behaviour.
These technologies are used by established retail firms, such as Quelle and
Neckermann in Germany, and are the foundation of mail-order businesses such as
J. Crew, The Sharper Image, and L.L. Bean (all in the United States). Direct
marketing is not a worldwide business phenomenon, however, because mail-order
operations require infrastructure elements that are still lacking in many countries,
such as efficient transportation networks and secure methods for transmitting
payments.

Direct marketing has expanded from its early forms, among them direct mail and
catalog mailings, to include such vehicles as telemarketing, direct-response radio
and television, and Internet shopping. Unlike many other forms of promotion, a
direct-marketing campaign is quantitatively measurable.

Automatic vending

Automatic vending is a unique area in nonstore merchandising because the variety

of merchandise offered through automatic vending machines continues to grow.
Initially, impulse goods with high convenience value such as cigarettes, soft
drinks, candy, newspapers, and hot beverages were offered. However, a wide array
of products such as hosiery, cosmetics, food snacks, postage stamps, paperback
books, record albums, camera film, and even fishing worms are becoming
available through machines.

Vending-machine operations are usually offered in sites owned by other

businesses, institutions, and transportation agencies. They can be found in offices,
gasoline stations, large retail stores, hotels, restaurants, and many other locales. In
Japan vending machines now dispense frozen beef, fresh flowers, whiskey,
jewelry, and even names of prospective dating partners. In Sweden vending
machines have developed as a supplementary channel to retail stores, where hours
of business are restricted by law. High costs of manufacturing, installation, and
operation have somewhat limited the expansion of vending-machine retailing. In
addition, consumers typically pay a high premium for vended merchandise.

Retail organizations
While merchants can sell their wares through a store or nonstore retailing format,
retail organizations can also structure themselves in several different ways. The
major types of retail organizations are corporate chains, voluntary chains and
retailer cooperatives, consumer cooperatives, franchise organizations, and
merchandising conglomerates.

Corporate chains

Two or more outlets that have common ownership and control, centralized buying
and merchandising operations, and similar lines of merchandise are considered
corporate chain stores. Corporate chain stores appear to be strongest in the food,
drug, shoe, variety, and women’s clothing industries. Managed chain stores have a
number of advantages over independently managed stores. Because managed
chains buy large volumes of products, suppliers are willing to offer cost advantages
that are not usually available to other stores. These savings can be passed on to
consumers in the form of lower prices and better sales. In addition, because
managed chains operate on such a large scale, they can hire more specialized and
experienced personnel, who may be better able to take full advantage of purchasing
and promotion opportunities. Chain stores also have the opportunity to take
advantage of economies of scale in the areas of advertising, store design, and
inventory control. However, a corporate chain may have disadvantages as well. Its
size and bureaucracy often weaken staff members’ personal interest, drive,
creativity, and customer-service motivation.

Voluntary chains and retailer cooperatives

These are associations of independent retailers, unlike corporate chains.

Wholesaler-sponsored voluntary chains of retailers who engage in bulk buying and
collective merchandising are prevalent in many countries. True Value hardware
stores represent this type of arrangement in the United States. In western Europe
there are several large wholesaler-sponsored chains of retailers located across
multiple countries, each store using the same name and, as a rule, offering the same
brands of products but remaining an independent enterprise. Wholesaler-sponsored
chains offer the same types of services for their clients as do the financially
integrated retail chains. Retailer cooperatives, such as ACE hardware stores, are
grouped as independent retailers who establish a central buying organization and
conduct joint promotion efforts.

Consumer cooperatives

Consumer cooperatives, or co-ops, are retail outlets that are owned and operated by
consumers for their mutual benefit. The first consumer cooperative store was
established in Rochdale, Eng., in 1844, and most co-ops are modeled after the
same, original principles. They are based on open consumer membership, equal
voting among members, limited customer services, and shared profits among
members in the form of rebates generally related to the amounts of their purchases.
Consumer cooperatives have gained widespread popularity throughout western and
northern Europe, particularly in Denmark, Finland, Iceland, Norway, Sweden, and
Great Britain. Co-ops typically emerge because community residents believe that
local retailers’ prices are too high or service is substandard.

Franchise organizations

Franchise arrangements are characterized by a contractual relationship between a

franchiser (a manufacturer, wholesaler, or service organization) and franchisees
(independent entrepreneurs who purchase the right to own and operate any number
of units in the franchise systems). Typified by a unique product, service, business
method, trade name, or patent, franchises have been prominent in many industries,
including fast foods, video stores, health and fitness centres, hair salons, auto
rentals, motels, and travel agencies. McDonald’s Corporation is a prominent
example of a franchise retail organization, with franchises all over the world.

Merchandising conglomerates

Merchandising conglomerates combine several diversified retailing lines and forms

under central ownership, as well as integrate distribution and management of
functions. Merchandising conglomerates are relatively free-form corporations.