UNIT 3 RETAIL FORMATS

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

After studying this unit, you will be able to:

identify the different types of retailers both in store and non-store retailing;
classify retail formats and explain them;
distinguish the store and non-store retail formats;
discuss the emerging trends in modern retail formats and
I outline the emerging retail chains across the sector.
I
3.1 INTRODUCTION
I The term retail format is the basic structure of a retail business conceived, designed, and
developed to cater the needs of the end users.
I

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

3.2 THEORIES OF STRUCTURAL CHANGES IN

RETAILING
Retailing ha's always been a iiynamic industry and retail firms have brought
innovative approaches into retailing, changing the industry as they entered,
developed and grew. Understanding how and why this process occurs is essential 31

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

The Wheel of Retailing: The Wheel of retailing is one better known

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

The Dialectic Process: A second theory holds that retailing evolves

through a dialectic process-the blending of two opposing store types into
a superior form. For example, speciality stores offer specialized merchandise,
wide array of services, and attractive surroundings to a large and diverse
market. The blending of these two formats produces the speciality discount
stores.

Natural Selection: According to this theory, retail stores evolve to meet

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

3.3 CLASSIFICATION OF RETAIL FORMATS

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

Regardless of the particular type of retailer (such as a super market or a

departmental store or a co-operative stores etc.) , retailers can be broadly
classified on the basis of (a) ownership (b) Store strategy mix and (c) Non
store operations as shown in fig. 3.1.
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 Retail Formats
Independent Retailer
____9

Form of _I__, Retail Chain

Ownership b

w Retail Franchising

_1_9
Co-Operative

r 9
Convenience Store
* Conventional Super market
, ~ t o rStrategy
e
b
Mix Departmental Stores
F
Speciality S tore/Hyper
Market
* Hyper Markets

In home/TV home
retailing

b Vending machines

+ Tele-sales
Non Store b
Operations b Telephone retailing

9 Catalog retailing

Direct response
marketing

Electronic Retailing
(e-tailing)

Fig. 3.1: Classification of Retail Formats

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

3.3.1 Form of Ownership

A retail business like any other type of business can be owned by a sole proprietor,
partners or a corporation. A majority of retail business in India are sole proprietorships
and partnerships.
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 Overview of Independent Retailer: Generally operates one outlet and offers personalized service,
Retailing
a convenient location and close customer contact. Most of the independent retailers fail
because of the ease of entry, poor management skills and inadequate resources.
Retail Chain: It involves common ownership of multiple units. In such units, the
purchasing and the decision making ate centralized. Chainsoften rely on specialization.
standardization and elabourate control systems. Consequently chains are able to serve a
large dispersed target market and maintain a well known company name.
Retail Franchising: Is a contractual arrangement between a "franchiser" (which may
be a manufacturer, wholesaler, or a service sponsor) and a "franchisee" or franchisees,
which allow the latter to conduct a certain form of business under the established name
and according to a specific set of rules? The franchise agreement gives the franchiser
much discretion in controlling the operation of the small retailer.
Cooperatives: A retail co operative is a group of independent retailers that have
combined their financial resources and their expertise in order to effectively control their
wholesaling needs. They share the purchases, storage, shopping facilities, advertising
planning and other functions. The individual retailers retain their independencebut agree
on broad common policies, e,g., Amul
~
I 3.3.2 Store Strategy Mix
Retailers can be classified by retail store strategy mix, which is integrated combination
of hours, location, assortment, service, advertising, and prices act; the various categories
are:
Convenience Store: Is generally a well situated, food oriented store with long
operating house and limited number items. e.g., a store where milk, eggs, bread etc
are sold.
Conventional Supermarkets: Is a diversified store which sells a broad range of
food and non-food items. A supermarket typically carries srpall house hold appliances,
some apparel items, bakery, film developing books, audiolvideo etc. egg: Apna
Bazaar, Sharkar Bandar, Sabka Bazaar etc.
Departmental Stores: A departmental store usually sells a general line of appeal
for the family, house hold linens, home furnishing and appliances. Large format
appeal departmental stores include Pantaloons, Ebony, Shoppers stop and Westside.
Specialty Store: Concentrates on the sale of single line product or services, such
'as audio equipment, jewelry, beauty and health care etc. Successful specialty stores
in India include, Music World for audio needs, Tanishq for jewellery, Pizza Hut and
Nebulas for food items.
Hypermarkets: Is a special kind of combination store which integrates an economy
super market with a discount department store. A hyper market generally has an
ambience which attracts the family as a whole. Eg: Pantaloon Retail India Ltd.
(PRIL) through its hypermarket 'Big Bazaar' offers products at prices which are
25%-30% lower than the market prices.
3.3.3 Non-Store Retailing
In non-store retailing customers do not go to stores to buy. On the other hand a non-
retailer does not utilize conventional store facilities. T h i ~
type of retailing has been growing
much faster than store retailing. The reasons are the ability to buy the merchandise
available at the local stores, the increasing number of women workers, and the presence
34 of the unskilled retail sales persons who cannot provide the inforrnation'to help shoppers
make buying decisions. The major types of non-store retailing are:
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 In HomeITV Home Retailing: Here, a sales transaction takes place in a home Retail Formats
setting- including door-door selling. It gives the sales person an opportunity to
demonstrate products in a personal manner. HeIShe has the prospect's attention
and there are fewer distractions as compared to store settings. E.g., Eureka Forbes
vacuum cleaners and water filters.
In case of TV home shopping customers watch a TV programme demonstrating
merchandise and then place orders for the products over telephone. The promenent
players in this are Asian Sky Shop, Telebrands, TSN, etc. However, in Indiaretailers
have not sft up a channel dedicated to TV hame shopping.
Tclesales/Telephone Retailing: This involves contact between the prospect
buyer and the retailer over the phone for the purpose of making a sale purchase .A
large number of mobile phone service providers uses this method. eg; private
insurance companies and credit card companies.
Catalog Retailing: The type of non-store retailing which offers the merchandise
through a catalogue, which includes the ordering instructions and customer orders
by mail. The basic attraction for the shoppers is the convenience; the advantage to
the retailer is the low operating costs, lower rents, smaller sales staff and the absence
of shoplifting. This trend is catching fast in India. e.g. Burlington's Catalogue,
Oriflame, Avon etc.
Direct Response Retailing: Here the marketers advertise these productslservices
in the magazines, newspapers, radio, television offering an address or telephone
numbers, so that the consumers can write or call to place an order.
Automatic Vending: Although in a very nascent stage in India, is the ultimate in
non personal, non store retailing. Products are sold directly to customers /buyers
from machine. These machines dispense the products which enable the customers
to buy after the closing hours. ATM dispenses cash at odd hours represent this form
of non store retailing. Apart from many multinational banks many Indian banks also
-provide ATM services country wide. 4

Electronic Retailing(e-tailing): It is a retailing format in which retailers

communicate with the customers and offer the products and services for sale through
the internet. In this format, Electronic links to suppliers create a virtual inventory
and a web site creates a virtual store front. When internet transcripts are lightly ,

integrated with back end office system, the retailer can provide better services to
customers while reducing the cost of operations.

3.4 MODERN RETAIL FORMATS

You would agree and also appreciate that modem retail formats and store based formats
I are one and the same. Each of these stores have an entity of its own to cater to. Let us,
now, briefly discuss the following modem retail formats.
1. Department Stores: These are the oldest form of large store concept. It is a
.
I multi-level store format usually between 2-5 stories which are segmented into clearly
defined areas according to product category.
2. Variety Stores: This format offers a large variety of goods urrder one roof, including
both food and non-food items. A variety store differs from departmental store in
product range, store environment and prices.
3. Supermarkets/Hypermarkets:The success of supermarkets is attributed to the
advantage of offering self service, and therefore much faster method of shopping
and saving time. In addition, the space and labour saving factors allow retailers to 35
offer a wide choice of products at lower prices.
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Overview of The major benefits of this format are:
Retailing
Allows the customer to get involved with the product touch and feel
concept)
The ability to pursue the product offering,
Try new product and impulsive purchase.
Supermarkets, superstores and hypermarkets can be considered in the same
family of retail format.
4. Convenience Store: The criteria applied to this store format is:
Self service
1000-3000 sq.ft selling area
Parking facility
Open 7 days a week for long hours.
Wide range of products with limited brand choice
OTC medicines
Toiletries etc
5. Discount Stores: As the name suggests, this retail format's key character is the
price of merchandise offered by the store, which is subject to individual customer
perception. By and large discount store is a retailer that sells merchandise at a price
level that is lower than the "typical high-street stores". It is customary that the
retailer uses the every day iow pricing policy.
6. Catalog Shops: The basic design is that very little product is displayed in the outlet
rn comparison to the range as a whole, but informative catalogs are available for
cil\tomer$ to browse through if they wish to. Having decided the product the payment
i\ made and the customer waits for a while till the desired product is retrieved from
the warehouse which is attached to the showroom.
7. Factory Outlet: This type of outlet offers the customer a range of seconds-quality1
or previous season's stock. The main advantage to the retailer is to push off the
unwanted merchandise without damaging the image of the main product or retail
brand, which otherwise occupies a large storage space with funds locked in for a
long time. On the other hand the consumer is benefited to access certain brands
which might not be affordable to him. These are commonly next to the factory
premises.
8. Company Owed and Company Operated: These are the type of retail outlets
that are run by the manufacturer only.
These retail outlets are scattered across the length and breadth of the country. e.g.,
Bata.

3.5 CHAIN STORES IN INDIA

Besides franchising, the other major retailing format that became popular in Indian context
is the multiples, which are better known as 'Chain Store'. These chains are predominant
with respect to some important product categories such as:
Food
Health and Beauty Products
Clothing and Footwear
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 Home furniture and house hold goods Retail Formats

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

3.6 LET US SUM UP

In this unit we have discussed various kinds of retail formats in Indian scenario, which
include both Traditional and Modern formats on the one hand and non-store on the other.
We have also discussed in detail about these formats and their characteristics. We also , 37

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