Everything you need to know about the different types of retailers. Retailers have multiple functions. At one end they create market for consumption of the goods and services and on the other hand generate employment for millions of people.
A retailer forms the last and vital link in the channel of distribution of products because they are the ones which take the goods from the producers, by purchasing it from the wholesalers, to the end customers. They have a much stronger and personal relationship with the consumers.
The types of retailers can be classified on the basis of:-
1. Product or Service 2. Ownership 3. Number of Outlets/Branches 4. Variety of Product Sold 5. Number of Product Lines Carried 6. Level of Services 7. Pricing Strategy 8. Size of Shop 9. Location 10. Method of Operation 11. Location of Facilities.
Some of the types of retailers are as follows:-
1. Itinerant or Mobile Retailers 2. Fixed Shop Retailers 3. Hawkers and Peddlers 4. Market Traders 5. Street Traders 6. Cheap Jacks
7. Fixed-Shop Small Retailers 8. Fixed-Shop Large Retailers 9. Independent Retailers 10. Chain Store Retailers 11. Manufacturer Owned Outlet 12. Franchise Outlet
13. Department Store 14. Specialty Store 15. variety Store 16. Self Service Store 17. Limited Service Retailers 18. Full Service Retailers.
Types of Retailers: By Product or Services, By Ownership, By Branches, By Pricing Strategy, By Location and Other Details
Types of Retailers – Itinerant or Mobile Retailers and Fixed-Shop Retailers (With Features)
Type # 1. Itinerant or Mobile Retailers:
They keep moving from place to place to sell their goods. They do not have any fixed place of business.
(a) They move from street to street to contact the customers.
(b) They sell low value goods of daily use like toys, fruits, vegetables, etc.
(c) They mostly sell non-branded and local items.
(d) They do not sell at fixed prices.
(i) Hawkers and Peddlers:
They carry goods themselves in basket or on shoulder bags or on push carts. They move about in residential areas and call out names of articles which they are selling. They are hawkers, they don’t have enough capital and cannot store goods in bulk. Their main advantage is that they provide convenient service to the consumers and the limitation is that they deal in such products which are unreliable in terms of quality, price and durability.
(ii) Market Traders:
They sell their goods at different places on fixed market days, e.g., Mondays, Wednesdays. They mainly cater to lower income group of customers and deal in low priced and cheap consumer items of daily use.
(iii) Street Traders:
They spread their goods on pavements at busy street corners or near railway stations or bus terminals. They deal in newspapers, magazines, eatables, stationery items etc. They do not move from place to place with their goods.
(iv) Cheap Jacks:
They have temporary shop structures. They change their place of business after some time. They remain in one locality for a temporary period only, depending upon the prospects of their business. They deal in consumer goods of daily use as well as services such as repairs of watches, shoes etc.
They have permanent establishments to sell their goods either in local markets or in malls.
(i) They have greater resources than these of itinerant retailers.
(ii) They deal in variety of products.
(iii) They provide better services as compared with those provided by the itinerant to the customers such as providing guarantees, credit facilities and home delivery etc.
(iv) They have greater credibility and goodwill in the minds of customers.
i. Fixed-Shop Small Retailers, and
ii. Fixed-Shop Large Retailers.
(1) General Stores:
(a) These are set up in residential areas.
(b) They stock all kinds of products needed by local residents for their daily use.
(d) They provide credit facilities to regular customers if required.
(2) Specialty Stores:
They are located in central place in each locality. They generally specialise in a single type of product instead of dealing in different lines of products.
A few examples of them are:
(a) Stores dealing in children’s garments only.
(b) Stores dealing in educational books only.
(3) Street Stall Holders:
(a) They are located at the street crossings or on the main roads.
(b) They setup their stalls by fixing shelves on a wall or placing a table or making a platform to sell and display goods.
(c) They sell low priced goods such as pens, magazines, cheap hosiery items etc.
(4) Second-Hand Goods Shops:
(a) They deal in used goods like clothes, books, furniture etc.
(b) Persons with modest means purchase goods from such stores.
(c) They store rare articles such as old postage stamps and antique items and sell them at higher prices.
(5) Seconds Stores:
These shops sell goods which are not according to standards specification. These are sold as seconds. They have some minor defects in them and these defects are not visible. These are sold at a heavy discount. These shops are situated at market places. Even the manufacturers also open retail outlets to dispose of such goods. Readymade garments, sports goods, shoes etc. are sold in these shops. Sometimes these stores are set up temporarily by taking premises, hall or banquets on hire.
(6) Single Line Stores:
These stores sell only one line of products. They provide different designs, styles, and sizes of quality of the same product. For example stores selling shoes will have all varieties and sizes of footwear meant for kids, gents and ladies.
These retailers deal in large stock of goods.
The characteristics of such stores are:
(1) They require huge amount of investment.
(2) They are generally located at a central place or in shopping malls.
(3) The footfall of customers is very high in such stores.
The most common type of large scale retailers are as follows:
(a) Departmental stores
(b) Multiple shops chains stores
(c) Mail order retailing
(d) Consumer Co-operative store
(e) Super markets
It is a large retail store in which a wide variety of products are sold through separate departments under one roof. ‘Banmarche’ was the first such retail store opened in France in 1852. There are stores like this in India which include ‘Akberally’ in Mumbai and ‘Spencers’ in Chennai.
(1) Central location in a big local market.
(2) Many units or departments in the same shop under one roof.
(3) Centralised ownership, management and control.
(4) Different varieties of goods stored and sold. Therefore, customers get a better choice.
(5) Personal services like telephone booth, restrooms, restaurant etc. are provided.
(i) Centralised Location – People living in different areas of the city can easily reach there for shopping.
(ii) Convenience in Buying – All goods are available in different sections under one roof.
(iii) Attractive Services – Services like reading room, free home delivery, restaurant, library, saloons etc. are available.
(iv) Economies of Large Scale – Benefits of large scale operations in respect of purchase of goods are available to them.
(v) Heavy Expenditure on Sales Promotion – Due to sound financial position, they can afford to spend liberally on promotion.
(i) Lack of Personal Attention – Employees are appointed on fixed salary. This leads to lack of initiative and personal touch on the part of employees.
(ii) High Operating Cost – Due to expenses on advertising, window display and showroom, it makes the goods highly expensive.
(iii) Inconvenient Location – They are situated far away from residential areas. These lose demand of articles required at short notice by customers.
(iv) High Possibility of Loss – Due to heavy operating costs and large scale operations, there is a possibility of loss.
These are retail shops owned and controlled by a single big organisation. Most of them are also the manufacturers. They are located in different parts of the cities throughout the country. They deal in similar products at uniform prices.
(i) These are located in fairly populous localities, where sufficient number of customers can be approached.
(ii) All the branches are controlled by the head office which is concerned with formulating the policies and getting them implemented.
(iii) Manufacturing and procurement of goods is centralised at the head office.
(iv) Sales are decentralised.
(v) All sales are strictly made on cash basis.
(vi) Multiple shops have identical display, decoration, layout plans etc.
(i) Economies of Large Scale – They enjoy the advantages of large scale operations specially in purchase and production of goods since a large volume of goods are bought and sold on multiple shops.
(ii) Standardised Products – The goods are of high quality. The buyers are assured of its quality.
(iii) No Bad Debts – Goods are sold on cash basis only, so there is no risk of bad debts.
(iv) Transfer of Goods and Spreading of Risk – Products, which are not in demand in a particular shop, can be shifted to another shop. Thus, risk of staleness is minimised. Total business risk is diffused. The profits at one store can provide a cover to the loss at another store at a different location.
(v) Elimination of Middlemen – By selling goods directly to the customers, the multiple shops are able to eliminate middlemen.
(vi) Lower Cost – It is because of centralised manufacturing and purchasing, elimination of middlemen, centralised advertising etc., that shops have low cost of business operation.
(vii) Flexibility – The management has an option to close down loss making stores and shift them to another place.
(i) Limited Variety of Goods – The range of variety is limited and each store keeps stocks of goods manufactured and distributed by its owners only.
(ii) Lack of Services – Free home delivery and credit facility is not available to customers.
(iii) Lack of Initiative – The managers have no freedom of making purchases and fixing prices of the goods. Thus, there is lack of initiative on their part to use their creative skills to satisfy customers.
(iv) Large Capital Investment and Heavy Overheads – These shops require huge capital investment. They spend heavily on shop rent, decoration, administration and supervision.
(v) Chances of Fraud – Strict supervision and control is not possible because there are many branches; so there are chances of fraud.
These are retail outlets that sell their goods through mail. There is generally no direct contact between the buyers and the sellers in this type of trading.
Step 1 – Advertisements to provide information about the products:
Potential customers are approached through advertisements in newspapers or magazines for obtaining orders. Circulars, catalogues etc. are sent to them by post. All the relevant information about the products such as price, features, delivery terms etc. are provided in these advertisements.
Step 2 – Order receiving and processing of goods:
On receiving the orders, goods are carefully scrutinised with respect to special captions asked by the customers. Then the goods are sent to the customers through- (a) the post office by VPP, or (b) the banks
Step 3 – Receiving payments:
There are different alternatives for receiving payments from the customers.
(a) The customers are asked to make full payment in advance before goods are sent by post.
(b) The customers may be asked to deposit the full payment in a bank and collect the goods from the bank. There is no risk of bad debt.
(c) Goods are sent by V.P.P. On receiving the parcel the customer has to pay the amount to the postman.
This trading is suitable when:
(a) Goods are well identified and well known by brand name and are of standardised quality.
(b) There is a popular demand by the customers scattered over wide areas.
(c) Products do not require any demonstrations.
(d) Goods are durable and do not get spoiled in transit.
For example — stationery items, small appliances, medicines, books, cosmetics, toilet goods, readymade jewellery, footwear, watches and other branded products.
This trading is not suitable if-
(a) Goods are perishable, e.g., – milk, fruits etc.
(b) Goods are bulky, e.g., – televisions, refrigerators etc.
(c) Customers are illiterate.
(i) Small Investment – Mail order house trading does not require infrastructural facilities like big showrooms.
(ii) No Bad Debts – Mail order business trading does not extend credit facilities to the customers. Thus, there is no chance of bad debts.
(iii) Wide Reach – This type of trading business is very much suitable where prospective customers are scattered over a wide area and goods can be sent to all places where postal services exist.
(iv) Direct Contact – Unnecessary middlemen between the buyers and sellers are eliminated. This helps in lots of savings.
(v) Convenience – Goods are delivered at the doorstep of the customers. Much time and effort of customers is saved by this method. It is very convenient.
(i) Lack of Personal Touch – The buyer does not get an opportunity to inspect and try the goods before purchasing them. Sellers cannot pay personal attention to the likes and dislikes of the customers.
(ii) High Promotional Cost – Traders have to spend a lot of money on advertisement to inform the potential buyers about the product.
(iii) No after Sales Services – There is absence of after sale service which is important for customer satisfaction.
(iv) No Credit Facilities – The customer has to pay the price at the time of delivery of goods. Sometimes it is to be paid in advance. So credit facilities are not available.
(v) Delayed Delivery – There may be a delay in delivery because of the time taken in correspondence, in procuring of goods and in sending them by post to the customers.
(vi) Possibility of Abuse – Dishonest traders may cheat the customers by making false claims about quality of the products and not honouring the commitments made through advertisements.
An automatic vending machine sells merchandise when a customer deposits sufficient money into its slot or vent to purchase the desired items. It contains products like beverages, snacks, candies, chocolates, platform tickets etc.
(a) Mother Dairy sells milk through vending machines.
(b) ATM (Automated Teller Machine) can be used to withdraw money at any time without visiting any branch of a bank.
(c) Metro token can be purchased through these machines at Metro stations.
(i) It is useful for selling pre-packed brands of low value products having high turnover, e.g., hot beverages, soft drinks etc.
(ii) These can sell the goods round the clock.
(iv) These encourage the habit of ‘self-help’ in the customers.
(i) Customers cannot inspect the goods before buying.
(iii)Special packs are to be developed suitably for the machines.
(iv) Care has to be taken for regular restocking, replacing the stock of the machine regularly.
Types of Retailers – Classified on the Basis of Products or Services, Number of Outlets, Variety of Product Sold, Level of Service, Size of Shop, Location & a Few Others
Retailers can be classified based on different criteria such as:
1. Products or Services
2. Number of Outlets
3. Variety of Product Sold
4. Number of Product Lines Carried
5. Level of Service
6. Pricing Strategy
7. Size of Shop (Physical area)
9. Method of Operation
11. Cluster/Location of Facilities
We will discuss few important categories:
1. By Products or Services:
This is the simplest basis for classification of the retailers. Retailers of goods deal with the tangible products. For example, grocery shops, supermarkets, general shops, chemists, ready-made garment shops etc. Services retailers deal with intangible goods, i.e., services. For example, banks, consultants, doctors, tailoring shops, beauty parlours, crèche, garages, maintenance services, transport, etc. As service industry is growing, services retailing has vast scope in the future.
2. By Ownership:
A retailer may be a part of a chain, manufactured- owned, franchise, or he can be an independent retailer.
(a) Independent Retailer:
Independent Retailer is the owner of one or multiple stores. It is owned by a single proprietor, two or more partners or a family. Retailer is not the part of any chain or of the large retail organizations. Most of the small retailers in India fall under this category. For example, any general store, grocery shop, corner shops, which may have one or more outlets run by the independent retailer.
For example, Chitale Bandhu Mithaiwale — the renowned sweets store in Pune operates through two exclusive outlets owned by the manufacturer. As well as, recently it has given franchising rights to many retailers from different parts of Pune city.
(b) Chain Store:
Chain Store is a part of a group of retail stores owned and operated by a single corporate organization. Chain store can be the part of a corporate or voluntary, cooperative organization. For example, Kamath Restaurant is managed by a single owner but has many outlets in the cities such as Mumbai, Pune, Goa, Hyderabad, etc. Apna Bazaar has the chain of co-operative stores having many outlets in Mumbai. Nalli, a renowned Chennai based silk emporium has opened the outlets in Mumbai.
(c) Manufacturer Owned Outlet/Company Showroom/Factory Outlet:
Manufacturer or a company undertakes the retailing activity. These outlets are owned and managed by the manufacturer. There can be one or more number of such outlets. This form is largely observed in branded garments, shoes, and food retailers. Even the small manufacturers offer their products in their own outlets such as bakery, dairy, etc.
For example, branded products like Bata, Nike, Bombay Dying, Sony World, etc. are sold through the exclusive showrooms or factory outlets. These products are also sold by other independent retailers.
(d) Franchise Outlet:
Manufacturer gives franchise (authority) to a number of independent retailers. But they are not the owners in the real sense. All independent retailers (franchisees) are bound to follow certain rules and regulations laid by the manufacturer (franchiser). For example, McDonald’s, Benetons, Pantaloon, Raymond’s Park Avenue, Dr. Batra’s Clinic, VLCC, Aptech Computer Education Institute, etc.
3. By Number of Outlets/Branches:
Retailer can operate through a single shop or it can be a part of a chain having multiple outlets. For example, banks are the service retailers; they operate through the number of branches spread over the wide geographical area. The retail outlets run by the small independent retailer such as kirana store, bakery, garages, etc. may have only one outlet. Big retailers under single ownership may open multiple branches in different locations.
4. By Variety of Product Sold:
The retail shops can be classified based on variety of products offered. According to this criterion, retail outlet can be a Department Store or a Specialty Store or a Variety Store.
(a) Department Store:
It is a large retail outlet having different departments or sections for different types of products. It offers a wide variety of general products. Representative merchandises/ samples are displayed in the separate areas, which give idea about the merchandise sold in that particular section.
For example, The Department Store selling Garments has different departments such as kids’ wear section, ladies’ wear and men’s wear. Or the department stores offering only kids’ wear may have different sections for different age groups. Shoppers’ Stop has many sections such as jewelry, cosmetics and perfumes, garments, in ladies garments — Indian wear and Western wear, etc.
(b) Specialty Store:
Such type of retail shop offers only specific category of the product. Specialty retailer deals with limited or even a single product line and focuses more on the depth of the product line carried out by him. For example, Retailers selling Furniture, Paints, Gift Articles, Greeting Cards, Dairy Products, Shoes, Paint, Petrol Pump, Flowers, etc. Pure Vegetarian Restaurants, Chinese Restaurants, Tea Stalls, Bakery. Consultants or the experts who deal in specific area such as Surgeons, Interior Decorators, Insurance Agents, etc.
(c) Variety Store:
It offers a wide variety of the general merchandise. It focuses more on variety, i.e., width of product mix and less on depth of the product line. Variety stores offer fewer product lines compared to that of the department store but still they can strongly compete with department stores by offering more variety at the lesser prices. Such stores are preferred by the customers looking out for shopping ‘everything under one roof.’
These customers do not want to visit multiple shops for their different requirements. They are aware about the limited variety available in each category but still they prefer to shop there due to the convenience and time saving.
For example, Warehouse Club offers a variety of product lines but limited range within each product line (depth) and more discount.
5. By Number of Product Lines Carried:
Retailers can be classified on the basis of number of products lines dealt with. Retailer can sell a single line of products or he deals with limited lines or multiple product lines.
Retail stores can be:
(a) General Merchandise Stores
(b) Limited Line Stores
(c) Single Line Stores
For example, General store or a typical grocery shop offers many products, i.e., it deals with multiple product lines. Department Store and Variety Stores are the examples of multiple lines. The dairy shop sells only dairy products or the furniture shop offers variety in only furniture, i.e., they deal with single product line but in the great depth. Specialty Store is an example of single line.
Some retailers offer limited product lines and focus more on depth, e.g., Sports Mart can offer sports shoes, sportswear, sports equipments, nutritious food and heath drinks, health consultancy advice, etc. Generally specialty stores carry limited product lines and products sold are related and supplementary in nature. Specialty Stores, Catalogue Showrooms, and Supermarkets are examples of limited lines.
6. By Level of Service:
Retailers may offer full spectrum of services or they can extend limited services to the customers. However, level of service is largely influenced by the factors such as types of products sold, types of customers, store size, etc.
(a) Self Service Store:
Customers who want to carry out locate-compare-select process at their own prefer shopping in self-service retail stores. They want to enjoy their shopping and hence they want no or least interference and disturbance in their purchase from the store people. This method is suitable when the stores offer the large variety of convenience and consumer goods. Customers can move around in the shop, have a look on the variety available, and then select the right product for themselves.
This arrangement can save stores space and cost of sales staff. Layout of the store must be designed carefully if it is a self-service store. In case of the large outlets offering thousands of items and a wide variety in each product category, it is advisable to provide sales assistance in locating the required product line. Otherwise, the exhaustive search for the required products may frustrate the customers and they may walk out without buying anything.
In such situations, self-selection retail shops are more suitable compared to the self-service shops. In self-selection retail shops, sales staff assists the customers only in locating the right products or they help in purchase only if asked by the customers. For example, Food world operates through self- service store. Customers can pick the grocery items, households, and food products kept on the racks, shelves and counters.
(b) Limited Service Retailers:
They perform a few functions of the retailer. They provide more information, assist customers in their purchase. They also provide credit facility if necessary. They have more operating costs than the self-service and self- selection retail stores.
(c) Full Service:
Retailers provide a full spectrum of services to their customers. Retailers assist in every phase of purchase. The services include many activities right from the customer enters the shop to after sales services. Other services include (free) home delivery, wrapping or gift packing, stitching, altering, financial assistance, free trials, demonstration, valet parking, lockers facility, trial/changing rooms, baby seating arrangement, funny games, rides for the kids coming with the customers, etc.
They help customers in Locate-Compare- Select process. In short full service retailers discharge all the functions of the retailer. For example, in a few large garment stores, personal shopping assistance is provided to the customer, i.e., sales staff or experts in the shop first speak with the customers, understand their needs, psychology, nature and budget.
Then they recommend the right product for the customers, which save shopping efforts and time. Due to this, customers are satisfied and they carry favourable image about the store as they get the personal attention and right product.
7. By Pricing Strategy:
Retailers follow different pricing strategy. They change their strategies considering factors like level of competition, environmental factors, profit objectives, positioning strategies, etc. In practice, many retailers use mixed price techniques.
(a) Discount Stores:
These retailers are different from the shops offering occasional discounts and schemes for a limited period. They regularly sell the products at the lower prices. They buy at regular prices from the wholesalers. But they work on lower margins and they sell in bulk quantities.
Hence they can sell standard product at lower prices. Many people have wrong impression about the discount stores that the quality of products sold is inferior hence the price is less. Today discount retailing has entered into specialized goods such as bookstores, consumer durable goods. For example, Wal-Mart and K Mart are the largest and popular discount stores in USA.
(b) Off-Price Shops:
Unlike discount stores, off-price retailers buy in bulk. They generally buy directly from the manufacturers and hence can avail the bulk quantity discount. They too work on a low margin compared to other retailers. Hence they can offer the merchandise at the low prices. Products sold through these shops are of high quality but generally they are outdated (out of fashion), odd lots, leftovers, discontinued, export surplus or export rejected and irregular goods.
There are three major types of off-price retailers – (i) Factory Outlet or a Company Showroom (ii) Independent Retail Shop (iii) Warehouse Clubs or Wholesale Club. The clothing and footwear companies commonly use this form of retailing. They dispose off such odd lots through their own stores, i.e., factory outlets. For example, Nike, Reebok, Athlete sell their regular and odd products through their own outlets.
(c) Fixed-Price Shops:
They are also known as one-price shops. Generally they sell with gift articles, convenient goods, cosmetics, etc. The products are from low to medium price range. These shops offer the products with fixed prices. They fix some price range that even sounds attractive to the customers. The products are arranged and kept together in the racks according to their prices.
Each product has a price tag. Customers can select from the variety available in the price range affordable to him. It reduces their shopping time and efforts as they are available in their budget. There is no need of assistance from sales staff as there is less room for ambiguity.
8. By Size of Shop:
Retailers can be classified on the basis of size of store i.e. physical area of store. Size varies from small corner shops to the large hypermarkets. Decision on size of the store is influenced by many factors — mainly by types of product sold and cost of store space. However, different nations follow different norms on ‘size’, i.e., the larger retail shop in one country may not be considered as larger shop in other country.
Considering Indian scenario, we can classify retail shops as:
(a) Small Shops:
Corner Shops (typically Indian pan-bidi shops), General Stores, Specialty Stores, One-price Shops, Street Stalls, Exhibition Stalls, Hawkers and Peddlers, Small Stall Holders, etc. For example, Grocery Shops, Fruit and Vegetable Stalls, Ice Cream Parlours, Tea Stalls, Automobile Repairing and Servicing Centers, Barber Shops, Beauty Parlours, Gymnasiums, etc.
(b) Large Shops:
Department Stores, Supermarkets, Hypermarkets, Mega Marts, Chain Stores, Consumer Cooperative Stores, Catalogue Showrooms, Exclusive Showrooms, Mail Order Houses, etc.
9. By Location:
Retailing activities can be carried out at a fixed location in the shops. However, mobile retailers, hawkers or peddlers do not have a fixed location for the retailing activities.
(a) Fixed Shop Retailers:
All types and sizes of retail outlets having fixed store place. Fixed location retailers can open the shop in urban areas, in suburbs, in shopping centers or big malls or as a freestanding store that stands alone and unattached to other retailers. For example, General Stores, Department Stores, Chain Stores, Supermarket, Discount Shops, etc. All retailers of different sizes, formats, and categories having a fixed place for their operations are Fixed Shop Retailers.
(b) Mobile or Itinerant Retailers:
They do not have any fixed location for their retailing activities. For example, Hawkers and Peddlers, Street Vendors, Stalls in Exhibition or Fairs, etc.
10. Method of Operation:
Conventional retailing concept was restricted to store retailing, i.e., the brick and mortar structure. It was assumed that retailing requires some physical store, either fixed or mobile place. However, other methods of operation such as non-store retailing also exist. Today, it has become the important basis for classification of retailers.
(a) Store Retailers:
All the retailers of different sizes, categories but performing their operations in the physical store are the Store Retailers.
(b) Non-Store Retailers:
They do not require physical stores for retailing activities. Some non-store retailing methods are quite old. Various new forms are emerging continuously. Non- store retailing has becoming more popular today. Certain methods of non-store retailing are widely accepted by the customers due to their convenience. Non-store retailing is gaining more attention as it eliminates the cost of a store. There is no need of maintaining a large sales force.
Some non-store retailing methods are given below:
(ii) Online Retailing/Web Retailing/Retailing
(iii) Telemarketing – Telemarketing is a form of direct marketing. Information about the products/services is given and orders are booked over a telephone. There are some complaints about this method and several constraints for selling through this method.
(iv) Teleshopping / Television Home Shopping – In India the companies like Asian Sky Shop, Tele Shopping Network, Jaipan, Kawatchi Group, etc. use private cable Television channels for advertising their products.
(v) Direct Mail Marketing and Catalogue Marketing – Retailers need not have any office or outlet for selling the goods. They send the catalogues to the potential customers and book the orders. Retailers forward these orders to the manufacturers. This method is not much used in India, and still restricted to some standard industrial products and a few branded consumer goods.
(vi) Automatic Vending Machines – There is no human interface in selling the products. Small products are dispensed through the coin-operated machines. For example, ATM, PCO Coin Boxes, etc.
11. By Location of Facilities or a Cluster:
Retailers can be classified based on the location of their facilities. Retail store can be a freestanding store that stands alone and unattached to other retailers or it can be a part of the cluster.
(a) Freestanding Stores:
The stores those stand alone and unattached to other retailers. They are not in the shopping complex and not a part of the cluster. They may be located in the residential areas. They are situated at the scattered individual locations.
(b) Fixed Location Stores:
Retail Store can be one of the outlets in the shopping mall, shopping arcade, shopping complex, and shopping centers, where many other different retailers are located. These stores are part of the neighbourhood cluster where other retailers are located. They are located in a planned shopping center, which is an integrated unit of different types of stores to satisfy customers’ needs.
For example, HUB is one of the largest shopping malls in Mumbai. It has many large retail outlets such as multiplex, McDonald’s, Subway, Foodmall, etc.
(c) Temporary Stores:
In the exhibition, fairs or shopping festivals, many shops/stalls are temporarily set up for a limited period. Many small retailers have their stalls in the general fairs or specialized fairs. For example, a retailer can have a food stall in the shopping festivals, trade fairs and industrial exhibitions, which are general fairs and wide variety of products are sold by different types of retail shops. As well as he can have his food stall in the food festivals, which is a specialized fair and many food retailers will have their shops.
Types of Retailers – Classified on the Basis of Ownership and Strategy
The decade of the 20005 will witness many dramatic changes in retailing. Many of these changes will affect the types and classifications of existing retail institutions. These institutions are generally based on some type of classification system that mirrors the retailer’s business operations.
For example, a retailer that specialises in getting the consumer a product or service in the most convenient way possible could be classified as a convenience retailer. Think of how many different retailers you know that specialise in convenience products. You have probably thought of 7-Eleven, Stop-and-Go, or perhaps even Sheetz or Loaf-and-jug. What would you call retailers that specialise in the sale of food products?
If you say “supermarkets,” you are correct. There is some overlap among the types of retailers that exist and also some differences in the way they are classified. For example, a convenience store and a supermarket may both be classified as food retailers.
It is important to understand the types of retail institutions because they have a competitive impact on business. With this knowledge, managers are better prepared to develop comprehensive competitive analyses for use in their retail businesses. Retail professionals must strive to stay current with the numerous changes in their environments that may affect their businesses as well as their professional lives. Remember the Wal-Mart neighbourhood market concept.
One of the first decisions that the retailer has to make as a business owner is how the company should be structured. This decision is likely to have long-term implications, so it is important to consult with an accountant and attorney to help one select preferred ownership structure.
In making the choice, the following aspects need to be considered:
(i) Retailer’s vision regarding the size and nature of his business.
(ii) The level of control he wishes to have.
(iii) The level of ‘structure’ they are willing to deal with.
(iv) The business’s vulnerability to lawsuits.
(v) Tax implications of the different ownership structures.
(vi) Expected profit (or loss) of the business.
(vii) Whether or not one is required to re-invest earnings in the business.
(viii) Retailer’s need for access to cash from the business for personal use.
We now take an overview of the some basic legal forms of ownership for retailers:
The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has the day-to-day responsibility for running the business. In this case, the retailer owns all the assets of the business and the profits generated by it. He also assumes complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, the retailer is one and the same with the business.
A partnership is a common format in India for carrying out business activities (particularly trading) on a small or medium scale. A business unit is generally carried out through a partnership. There is no restriction on a company’s participation in a partnership, but this is rare in practice. In a partnership, two or more people share ownership of a single business. As in case of proprietorships, the law does not distinguish between the business and its owners in partnership.
The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out or what steps will be taken to dissolve the partnership when needed.
It is hard to think about a ‘break-up’ when the business is just getting started, but many partnerships split up at crisis times and unless there is a defined process, there will be even greater problems. They must also decide up-front how much time and capital each partner will contribute, etc.
A joint venture is not well defined in the law. Unless incorporated or established as a firm as evidenced by a deed, joint ventures may be taxed like association of persons, sometimes at maximum marginal rates. It acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognised as an ongoing partnership, and will have to file as such and distribute accumulated partnership assets upon dissolution of the entity.
(a) Taxable Income – The taxable income of a venture is determined in the same manner as in a company. Interest and remuneration payable to the ventures are treated as profit participation and added back in arriving at the venture’s taxable income.
(b) Taxation of a Foreign Venturer – A foreign venturer is taxed in the same manner as an Indian venturer, subject to the higher tax rate in the case of a non-resident corporate venturer.
The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership. The owners are members, and the duration of the LLC is usually determined when the organization papers are filed.
The time limit can be continued if desired by a vote of the members at the time of expiration. LLC’s must not have more than two of the four characteristics that define corporations – limited liability to the extent of assets; continuity of life; centralisation of management; and free transferability of ownership interests.
An Independent retailer operates only one retail establishment – The majority of these stores are owner or family managed. The case of entry into this type of retailing makes the independent retail store attractive to those with few capital resources. Although independent retailers make up 80 percent of all retailers, their sales represent only 40 percent of retail sales.
Independent retailers have the advantage of being able to respond quickly to their customers’ needs and wants. In addition, the owners of independent retail operations usually have many community contacts and are active in local chambers of commerce. They rely on these connections to generate business within the community. Because many independents are located in neighbourhoods and rural locations, rental expenses tend to be less than for stores located in major shopping districts.
Due to the smaller size and location, independent retailers have greater opportunities than other types of retailers to build customer relationships. A downside to being an independent retailer is the inability to capitalise on economies of scale; therefore, the independent’s prices are usually higher than those of larger corporate chain stores.
Another disadvantage is a lower level of expertise among personnel. Because independents are traditionally smaller than corporate chains, they have a smaller personnel base. They have fewer resources for hiring and training, qualified experts in each of the functional retail areas — IMC, buying, management, and accounting.
Corporate chain stores operate multiple (more than one) retail stores. Although the majority of chain operations are small, the bulk of sales in retailing come from the larger chain stores such as Wal-Mart, Sears, and Home Depot. Many chain stores are divisions of larger companies. Intimate Brands Company, for example, owns a number of chain stores, including Victoria’s Secret and Bath & Body Works. J.C. Penney Corporation owns 1,049 domestic and international C. Penney department stores in the United States, Puerto Rico, and Mexico; 54 Renner department stores in Brazil; and the Eckerd chain of more than 2,600 drugstores in the United States.”
The biggest advantage of operating a chain store is the ability to reduce costs through economies of scale. By purchasing in large quantities, the big chains can purchase products at reduced costs, thereby gaining the ability to pass on the lower costs to their customers. The large-volume purchases also allow these retailers to negotiate with suppliers for a lower per- product cost.
In addition to lower costs for purchases, the large chains generally use computerised systems for inventory control, ordering, and theft control. By reducing the costs associated with these functions, the chains can, once again, pass the savings on to their customers in the form of lower product and service prices.
Due to their size, chains have the advantage of using information technology more efficiently than smaller retailers. Many large chains, such as Office Depot and Target, can monitor instantly what is currently selling and what remains in inventory. Technology also allows chains to link directly with suppliers and have merchandise shipped when it falls below a given level.
Finally, chains are able to hire and train the “best and brightest” minds in the retail business and have specialists for each functional area within the business. For example, chains can have specialists assigned to the buying function as well as the selling function. Chain store operations also have some disadvantages. The biggest drawback is the cost associated with running a large operation.
As the chain’s size increases, so do its financial commitments. Furthermore, many chain operations are slower to respond to environmental problems due to bureaucracies typical in larger businesses. Another disadvantage is the difficulty in tailoring the product assortment to different geographic areas. To take advantage of economies of scale, chains often purchase the same products for all their stores.
Independents and chain operations come with unique sets of advantages and disadvantages. The disadvantages, when understood, can be minimised or eliminated by good management, however.
A franchise is a contractual agreement between a franchisor and a franchises. This agreement allows the franchises to operate a retail establishment using the name and (usually) the franchisor’s operating methods. Simply stated a franchisor is the owner of a franchise and can be a wholesaler, manufacturer, or service provider. McDonald’s, for example, is a franchisor.
McDonald’s creates contracts with individual owners of restaurants and allows the owners to use the McDonald’s name. The franchises is the owner of the restaurant who has a contract with McDonald’s to operate the establishment under the McDonald’s name and (usually) follow McDonald’s operating practices.
Depending on the contract, the franchises pays the franchisor a fee plus royalties, typically based on sales, for the right to own and Operate the business in a particular location (generally geographical). In return, the franchisor offers the franchises expert assistance in site selection, building requirements, IMC, employee or managerial training, and advice or requirements for product or service offerings.
The franchises receives all profits from the operation of the retail business after paying the royalty and thus is motivated to try to increase sales as much as possible. Because franchisors have more expertise in their areas and have greater resources, they generally design the systems for the operation of the franchised business.
In a franchise program, the parties gain from the increased size-of the organization and are able to share resources while dividing costs associated with running a retail operation. In comparison to other types of retailers franchisors’ networks grow rapidly with few capital and managerial resources, while franchisees gain ‘instant’ expertise as well as a large market presence.
During the past two decades, franchising has been split among product, business, and trademark franchising. In product franchising, the franchisee agrees to sell the franchisor’s products and services. In business franchising, the franchises follows– the McDonald’s model, wherein a lot of interaction goes on between frarichisor and franchises.
The franchisor provides all assistance necessary to carry out the business functions (advertising, training, site selection, accounting, planning, and other executions) while at the same time listening to the needs and wants of its franchise holders. In trademark franchising, the franchises acquires the franchisor’s identity and utilises the trademarks developed by the franchisor.
The transportation industry, in particular the automobile industry, exemplifies both product and trademark franchising. General Motors allows its dealers to sell certain products (usually divisional, such as Chevrolets or Pontiacs) and to use its trademark while selling these products. The main advantage of franchising to franchisees is that each owner (franchisee) can own and operate his or her own business with a smaller capital outlay than would be possible without joining the franchise team.
In addition, franchising breaks down a barrier to entry into the retail market by allowing the franchises to sell established brand names and products. Franchisees can also achieve economies of scale through their association with a larger, more powerful buying group, thereby bringing down their cost per unit.
Finally, the franchises gets specialised training in the functional areas of retail operations, such as advertising (IMC), retail information systems (RIS), inventory control procedures, employee/managerial development and training ;and the right to exclusivity in selling the national or regional product or service.
Another form of retail ownership is the leased department. A leased department consists of space in a larger retail store (such as J.C. Penney) that is rented to an outside vendor. The retail business that leases the space runs that area as if it were a small business within the larger business unit. It is generally responsible for all retail functions (in many cases including the fixtures of the leased area). In addition, the lessee pays rent for the space. Examples of leased departments often include jewellery and shoe departments in large department stores.
Because many larger stores lack the expertise for a given product line-for example, jewellery — they get the advantage of greater expertise within the store. The stores are also assured of having a product that their customers need or want. The lessee has the advantage of established customers and customer traffic for their products and services. In addition, many costs can be reduced for the lessee, such as security and parking.
There are three major types of cooperative store arrangements (also called co-ops): retail-sponsored cooperatives, wholesale-sponsored cooperatives, and consumer cooperatives. To overcome many of the disadvantages associated with being a smaller, independent retailer, some retailers band together to create a retail-sponsored cooperative, an organization that allows centralised buying and overcomes other problems involved in running a small retail operation.
Through centralised buying, member retailers can take advantage of the price savings that accompany large purchases from vendors. In addition, retailers can improve their operating efficiency by sharing methods developed by the cooperative organization. An example of a retail-sponsored cooperative is Carpet One, a national cooperative of independent floor retailers.
A wholesale-sponsored cooperative is developed, owned, and run by a group of wholesalers. The wholesaler groups generally offer integrated retail programs to smaller, independent retailers. The wholesalers may offer the independents services such as warehousing and transportation. In addition, members receive additional services (many fee based) such as site selection, store displays, and other merchandising methods. An example of a wholesale- sponsored cooperative is Blooming Prairie (www(dot)bpcoop(dot)com), which has been distributing natural foods throughout the Midwest since 1974.
In a consumer cooperative, the consumers themselves own and operate the retail establishment. Generally, consumer cooperatives come about because members believe they can offer products and services at a lower price than traditional retailers. Often these consumers believe there is a need in the marketplace traditional retailers are not serving.
It may be, for example, that a group of consumers believe a traditional retailer isn’t being environmentally friendly and in response join forces and form a co-op more responsive to environmental concerns. In the banking industry, consumer cooperatives have emerged in response to a perceived lack of sensitivity to the consumer by traditional banks. These cooperatives are known as credit unions.
Suppose you and your classmates have been discussing the high cost of textbooks. You decide that you can offer textbooks cheaper than the traditional publishing houses, so you go into business. Your first job is to create a company and look for substantial company investment. Next, you elect company officers and establish the amount of time each “employee” needs to devote to running the business. You need managers and personnel to sell and buy the products (textbooks).
In addition, you need an accountant and perhaps some retail and marketing professionals. Finally, you may want to hire a lawyer to make sure you are compliant with all laws and regulations involved in running your business. You need to find an acceptable site and negotiate rates for rent or purchase.
In the end, you and your investors will share the profits you have earned through the development of this cooperative. You may discover that it takes a lot of time, effort, and money to sell textbooks through a cooperative and that they may not be as overpriced as you previously thought.
Retail stores are often classified by the types of strategies they employ in selling their goods and services.
This section is divided into two major strategic categories:
1. General merchandise retailers and
2. Food retailers.
General merchandise retailers are involved, obviously, in the sale of general, nonfood merchandise. Almost any nonfood item falls into this category. This article discusses the major types of general merchandise retailers. According to the U.S. Census Bureau, general merchandise sales in the United States were over $450 billion for the year 2002, making general merchandise retailing a powerful retail institution.
Department stores are large retailers that carry a wide breadth and depth of products. In addition, they offer more customer service than their general merchandise competitors. Department stores are so named because they are organized by departments — such as juniors, men’s wear, or lingerie.
Each department acts as a ‘ministore.’ The department is allocated sales space and managers and sales personnel that pay particular attention to their departments. , Often departments are responsible for their own IMC, which is coupled with the store’s overall IMC executions.
Department stores often are the anchors of major shopping centres. Macy’s, Nordstrom, Bloomingdale’s, Saks Fifth Avenue, J.C. Penney, and Dillard’s are some of the larger department stores. Most, but not all, department stores are parts of a large chain.
Department stores have a perceptual advantage because they use IMC more than most other types of retailers. Department stores utilize newspapers, magazines, radio, television, and direct mail to deliver their marketing communications. Due to overstoring, most of the promotional budgets are geared to sale advertising. Couponing, historically used by grocery stores, has been used to generate sales. Unfortunately, the use of coupons diminishes profits and creates a situation where consumers do not buy unless they receive some type of discount.
In recent years, department store sales have slowed because of the appearance of specially retailers and full-line discount stores such as Target, Kmart, and Wal-Mart. Strategies for success in department store retailing include expanded customer service, sales training for sales personnel, exciting IMC (especially at point of sale), and the elimination of nonproductive, slow-selling products.
A movement is under way in department store retailing to generate more research in the area of consumer information to be used to create better customer relations. In addition, department stores have moved toward greater centralisation in their buying and IMC areas. A key to successful retailing in department stores is the use of store brand names to develop customer loyalty.
In an attempt to retain and attract new customers, department stores are being more innovative. For example, Macy’s invested $100 million to make over 42 of its stores. The renovations included shopping carts, bright signage, customer price-scanner stations, and lounges. Saks Inc. partnered with Smith & Hawken to set up garden boutiques in 243 stores, and Sears, Roebuck and Co. brought Lands’ End clothing into its stores and changed its electronics department to include high-end items.
Full-line discount stores can also fall under the U.S. Census Bureau definition of a department store. The difference between a department store and a full-line discount store lies in the service and merchandise areas. Discount stores generally offer limited customer services but have merchandise priced below that of department stores. In addition, the products sold at some discount stores tend to be less fashionable than similar merchandise carried at larger department stores. Wal-Mart, Target, and Kmart are the world’s largest discount retailers.
The main strategy employed by the discounter is to develop an image of high-volume, low-cost products. Since strong national discount retail chains began in the 1960s, they have taken a large share of the market away from traditional retailers. This trend continues. Discount retailers’ sales climbed from $2 billion in 1960 to over $300 billion in 2001. Wal-Mart is the nation’s leading discounter with 2001 annual sales of $220 billion, followed by Target ($39 billion) and Kmart ($37 billion). The 2002 sales numbers were $280 billion for Wal-Mart, $ 40 billion for Target, and $36 billion for Kmart.
A key factor spurring the growth of discount retailers is value consciousness. This change began in recessionary periods but has cut across all economic climates and income levels. The rise in discount retailers has been due in part to the attention they have paid to their core competencies, such as low prices and a wide selection of products.
Many customers no longer see any added value in paying higher prices at traditional department stores. The department stores have lost their differentiation of quality customer service. Thus, discount retailers have captured a significant share of the overall general merchandise market.
Specialty stores carry a limited number of products within one or a few lines of goods and services. They are so named because they specialise in one type of product, such as apparel and complementary merchandise. Specialty stores utilize a market segmentation strategy rather than a typical mass marketing strategy when trying to attract customers. They tend to create a market niche for their product assortments. Although they do not carry a large number of product lines (width), they offer many products within each line (depth). Specialty retailers tend to specialize in apparel, shoes, books, toys, auto supplies, jewellery, and sporting goods.
Customers frequent specially stores because of the extensive assortments and personal service provided. For example, the Great American Spice Co. boasts 3,200 items including Ashwagandha root powder and Kittens’ Big Banana hot sauce. The online store has over 25,000 recipes. Specialty stores’ staff tends to be more knowledgeable about the products sold.
In addition, specialty stores often offer a more physically comfortable shopping atmosphere. The larger specially stores include Borders Books, Toys “R” Us, Gap, Circuit City, Office Depot, and Best Buy. Smaller specially stores include GNC (vitamins and other food supplements), Hallmark, The Body Shop, and The Rocky Mountain Chocolate Factory.
In recent years, specially stores have seen the emergence of the category killer. Category Killers (sometimes called power retailers or category specialists) are generally discount specially stores that offer a deep assortment of merchandise in a particular category (books, toys, shoes, sports items, etc.). Blockbuster Video, for example, offers a large selection of DVDs and VHS tapes at a relatively low price.
Other examples include Babies “R” Us and Toys ‘R’ Us. Some shoppers do not want a ‘huge’ store atmosphere. Therefore, many category killers have created additional retail venues that carry some of the same merchandise but are downsized to give the customer a smaller, more intimate store. Home Depot, for example, has created a number of smaller stores (called Villager Hardware) to satisfy those customers who prefer the smaller store format.
Off-price retailers resemble discount retailers in that they sell brand-name merchandise at everyday low prices (EDLP). Off- price retailers rarely offer many services to customers. The key strategy of off-price retailers is to carry the same type of merchandise as traditional department stores but offer prices that can be 40 to 50 percent lower.
To be able to offer lower prices, off-price retailers develop special relationships with their suppliers for large quantities of merchandise. Inventory turnover is the key to a successful off-price retailing business. Because of this, the buying strategy developed and executed by off-price retailers is very aggressive.
In addition to purchasing closeouts and cancelled orders, off-price retailers negotiate with manufacturers to discount orders for merchandise that is out of season or to prepay for items to be manufactured, thus reducing the buying prices of those items. Because off-price retailers do not ask the manufacturers for additional services such as return privileges, advertising allowances, or delayed payments, they are often able to get reduced prices for the merchandise they purchase.
There are many types of off-price retailers, including outlet stores. Manufacturers, department stores, or even specially store chains can own off- price stores. Stores owned by the manufacturer are usually referred to as factory out- let stores. One-price stores, such as dollar stores, are also considered off-price retailers. This type of store offers every product at the same price.
Consumers like these stores because they know exactly how much each product costs. In each of these stores, most merchandise is discounted for the reasons, or the merchandise has been specifically made to sell at a lower price.
In addition to outlet stores are closeout retailers, which sell broad assortments of merchandise that they purchase at closeout prices, and flea markets, where many vendors sell used as well as new and distressed merchandise.
(v) Food Retailers:
There are many types of food retailers. To make their classifications easier to understand, this section is broken down into the main types of food retailers that operate in the United States and around the world. The premier association for food retailing is the Food Marketing Institute (FMI). FMI conducts programs in research, education, industry relations, and public affairs on behalf of its member companies-food retailers and wholesalers.
To learn more about this important group, access their website at www(dot)fmi(dot)org. In addition, Saint Joseph’s University, in Philadelphia, has a very strong academic program in food retailing and marketing, with a wealth of information and experts in the area of food marketing. For more information, write to Erivan K. Haub School of Business, Saint Joseph’s University, 5600 City Avenue, Philadelphia, PA 19131-1395.
To remain competitive in the mature food retail business, many retailers are carrying merchandise outside their traditional lines. “As the mass merchandisers industry begins to mature, this channels vigorous focus on food as a vehicle for growth results in super centers that are beginning to look similar to conventional grocery stores.
The conventional supermarket channel, in turn, has fought back with an expanded offering of general merchandise and various other peripheral departments that are beginning to look a lot like the super centre format. The net result is a blurring of the retail channels.” Nevertheless, there are general categories into which food retailers fall.
(vi) Conventional Supermarkets:
Conventional supermarkets are essentially large department stores that specialise in food. According to the Food Marketing Institute, a conventional supermarket is a self-service food store that generates an annual sales volume of $2 million or more. These stores generally carry grocery, meat, and produce products.
A conventional food store carries very little general merchandise Supermarkets first appeared in the 1930s, when food retailers found they could increase the size of their operations to persuade customers to make purchases by offering more products at lower costs. Piggly Wiggly was the first self-service store (opened in 1916); the first supermarket was King Kullen Grocery Company in New York (1930).
In 2002, there were about 33,000 supermarkets in the United States, accounting for approximately $411.8 billion in sales. Average weekly sales per supermarket were $361,564.26 Chain Supermarkets accounted for $340.5 billion in sales, representing 82.7 percent of the total $411.8 billion. One benefit that accompanied the development of supermarkets was increased Impulse buying.
Impulse purchases are those that haven’t been planned. Shoppers at conventional supermarkets generally prepare a list of items needed for their households. While in the supermarket, however, they may find some tempting items that weren’t on the list and may purchase them on the spot, or by impulse.
The key to successful supermarket sales is high inventory turnover. Because supermarkets have a great deal of competition from convenience stores, warehouse stores, and superstores, they must develop an effective strategy to keep their customers coming back.
To compete effectively, many supermarkets have developed intensive IMC programs that offer their customers many types of promotions — such as coupons, advertisements, fliers, free samples, and customer affinity cards. The strategic use of couponing, coupled with other promotions such as double or even triple manufacturer coupon values, is called hi-lo pricing.
Other supermarkets do very little promotion; instead they rely on consistently low-priced merchandise sales. By selling the merchandise at the basic same low price each day, they are utilising a strategy known as everyday low pricing, or EDLP.
On a day-to-day basis, the listed prices at an EDLP supermarket are lower than those at a promotional supermarket. At a promotional supermarket, customers must rely on their coupons and take advantage of the store’s promotional activities to keep their overall purchase costs lower.
One of the biggest trends over the past twenty years in food retailing has been the development of superstores. Superstores are food-based retailers that are larger than the traditional supermarket and carry expanded service dell, bakery, seafood, and nonfood sections. Superstores vary in size but can be as large as 150,000 square feet. Generally they are no smaller than 20,000 square feet.
Wegmans Food Markets, Inc., is an example of a superstore, although the stores refer to themselves as supermarkets. Typical stores run 80,000 to 130,000 square feet and carry more than 60,000 products, compared to an average of 40,000 products for supermarkets. Typically included in Wegmans stores are bakeries, ready-to-cook meat and seafood entree sections, international foods, photo labs, floral shops, and a fun centre for kids to play in while their parents shop.
(viii) Combination Stores:
Because shoppers have been demanding more convenience in their shopping experiences, a new type of food retailer has been emerging. Called a combination store, this type of retailer combines food items with nonfood items to create a one-stop shopping experience for the customer.
In general, customers can find general merchandise along with food products and can take all these products to a common checkout area. Combination stores emerged in the mid-1960s and early 1970s and grew rapidly. Combination stores can be as large as 100,000 or more square feet.
In 1934, Hendrik Meijer started one of the first combination stores in the United States, in Greenville, Michigan Melier (www(dot)Meijer(dot)com) is a family- owned and operated retailer with 157 stores throughout Illinois, Indiana, Kentucky, Michigan, and Ohio. Meijer customers can select from a full range of attractively displayed food products, as well as toys, sporting goods, clothing, health and beauty aids, domestics, furniture, gifts, small appliances, and other products.
A super centre is a combination of a superstore and a discount store. Super centers developed based on the European hypermarket, an extremely large retailing facility that offers many types of products in addition to foods. In super centers, more than 40 percent of sales come from nonfood items.
Super centers are the fastest-growing retail category and encompass as much as 200,000 square feet of area; Wal-Mart is the category leader with a 74 percent share of super centre retail sales. Wal-Mart is focusing on the food industry to spur growth. By 2005, Wal-Mart expects food sales to contribute more than 20 percent of total divisional sales.
The key to a successful super centre is sales of food products at very low prices to stimulate customer traffic and sales of nonfood items with higher markups. The market area for super centers is much greater than that for the other food retailer classifications. This means customers are willing to drive longer distances to visit super centers than to visit any other type of food retail centre.
The major disadvantage of super centers is that customers may not want to frequent them for small purchases. Because the centers are so large, it is often difficult to find the exact product one is looking for in a reasonable period of time.
Warehouse clubs and warehouse stores (also known as club stores) were developed to satisfy customers who want low prices every day and are willing to give up service needs. These retailers offer a limited assortment of goods and services, both food and general merchandise, to both end users and small to midsize businesses.
The stores are very large and are located in the lower-rent areas of cities to keep their overhead costs low. Merchandising within the store is almost nonexistent, and pallets are used extensively. Steel shelving and concrete floors are common.
Generally, warehouse clubs offer varying types of merchandise because they purchase products that manufacturers have discounted for a variety of reasons (overruns, returns, and so on). Warehouse clubs rely on fast-moving, high- turnover merchandise. One benefit of this arrangement is that the stores purchase the merchandise from the manufacturer and sell it prior to actual, having to pay the manufacturer.
Typically, warehouse clubs and stores charge their customers an annual membership fee. These fees vary but generally are around $30 to $40. Warehouse clubs may require that customers be affiliated with a government or business entity, such as a credit union, local business, or university. Many warehouse clubs do not carry perishable items, or carry a limited amount, because of the costs associated with storing them. Among the larger warehouse stores are Costco Wholesale, Sam’s Club, and Bj’s Wholesale Club.
As the name suggests, convenience stores are located in areas that are easily accessible to customers. Convenience stores (also called c-stores) carry a very limited assortment of products and are housed in small facilities. The major sellers in convenience stores are cigarettes, accounting for about 25 percent of in-store sales, and nonalcoholic beverages, which amount to about 15 percent. Owners of convenience stores locate in neighbourhoods and try to intercept consumers between their homes and places of employment.
The strategy convenience stores employ is ‘fast shopping’ – consumers can go into a convenience store, pick out what they want or need, and check out in a relatively short time. They don’t have to search for the products they want, and they don’t have to wait a long time in line to pay. The vast majority of products purchased at convenience stores are consumed within an hour after purchase.
Due to their high sales, convenience stores receive products almost daily because convenience stores don’t have the luxury of high-volume purchases, and because many of the products are impulse purchases, most products are priced relatively high.
In recent years, many convenience stores have added gasoline to their product mix; gasoline now accounts for the majority of sales for those stores carrying this product. In addition, convenience goods such as milk, eggs, tobacco, soft drinks, and beer are among the largest sales items.
Limited-line stores, also known as box stores or limited-assortment stores, represent a relatively small number of food retail stores in the United States. Limited-line stores are food discounters that offer a small selection of products at low prices. They are no-frills stores that sell products out of boxes (or shippers). Limited-line stores rarely carry any refrigerated items and are often cash-and- carry, accepting no checks or credit cards.
Limited-line store customers do their own bagging and frequently bring their own bags or purchase bags from the retailer. In a limited-line store, the strategy is to price products at least 20 percent below similar products at conventional supermarkets. Many of these stores focus “on private labels, which eliminates the need for manufacturers to recoup the costs of advertising and sales promotions.”
Aldi is an example of a successful limited-line retailer. Located in Europe and the United States, Aldi has about 570 stores in the United States alone. Its product line includes a little more than 700 most-often-used products for the average home. In comparison, most full- line grocers offer more than 25,000 items.
Types of Retailers – Classified on the Basis of Size, Geographic Location, Product-Line Method and Form of Ownership
1. Size – That is according to their sales volumes during a particular period, say a year. Retailing may be both a small scale and a large scale operation; and it may be integrated and non-integrated.
2. Geographic Location – The stores classified according to these criteria tell about consumer buying habits. The retailers may be found in rural trading centre, large cities, outlying suburbs, or along the main streets of a town.
3. Product-line handled – That is according to the goods dealt with. They may be classified – (a) General merchandise stores (such as department stores, dry goods stores, variety stores, and general stores) dealing in furniture, home furnishings, appliances, household goods, groceries, drugs, convenience goods and shopping goods; (b) single-line stores, dealing in assorted group of products (such as grocery stores, furniture stores, medical stores, building material stores, hardware stores, sporting goods stores, cloth stores and book stores); they may also carry two related lines, such as men’s and women’s clothing; (c) Limited-line or specialty stores, which carry a limited variety of products such as shopping or convenience goods — apparel, shoes, gifts and decorative accessories selling stores.
4. Form of Ownership – On this basis we have independent stores and corporate chain stores; less important are leased department, company stores, consumer co-operatives, etc.
5. Method of Operation – On this basis retailers may be of two types; (a) full-service retailers, where the sale is generally made at the counter, especially of high- fashion goods or where a salesman’s demonstration, explanation or fitting is needed. Such retailers are super markets, and discount retailers (b) non-store retailing, where buyers and sellers meet and transact their business at the buyer’s home or at some other non-store location, known as door-to-door or house- to-house selling. Major forms of non-store retailing are mail order selling, automatic vending and personal selling on a door-to-door basis.