Retail Management

Unit 3 Strategy & Planning

 Out Line. . . . .
• Retail Strategy
3.1.1 Strategy- the retail perspective [SP: Chapter-6; Pages-140-148]
3.1.2. International expansion – A growth strategy [SP: Chapter-6; Pages-148-154]
3.1.3. The retail value chain [SP: Chapter-6; Pages-154-155]
3.1.4. Ethics in retailing [SP: Chapter-6; Pages-155-158]
• Retail Store Locations
3.2.1 Type of retail location [SP: Chapter-7; Pages-168-171]
3.2.2. Steps involved in choosing a retail location [SP: Chapter-7; Pages-173-179]
3.2.3. Methods of evaluating a trading area [SP: Chapter-7; Pages-180-182]
3.2.4. Trends in retail property development in India [SP: Chapter-7; Pages-183-185]
• Retail Franchising
3.3.1 The concept of franchising and Advantages & Disadvantages of Franchising [SP: Chapter-
8;Pages-183-193]
3.3.2. Franchising in India [SP: Chapter-8; Pages-194-198]
 Retail Strategy

• Increased competition, changing consumer expectations and

shifting economies increase the risk of failure.

• To be successful, a retailer needs to plan his moves very carefully.

• The retail marketplace has fast become the domain of those who
know how to use core strength to dominate.
• What is Strategy?
• The word come from ancient Greece, „strategeos‟.

• “ The art of the employment of battler as a means to gain the

object of war.
- Carl von Clausewitz
• According to Henry Mintzberg, people use “strategy’ in several
different ways, the most common being these four:
– Strategy is a plan, a “how”, a means of getting from here to
there.
– Strategy is a pattern in actions over time; for example,
company that regularly markets very expensive products is using
a “high end” strategy.
– Strategy is Position, that is, it reflects decisions to offer
particular products or services in particular markets.
– Strategy is perspective, that is, vision and direction.
• According to Michael Porter, competitive strategy is “about being
different”.
• It means deliberately choosing a different set of activities to deliver
a unique mix of value.
• Porter argues that strategy is;
– about competitive position,
– about differentiating yourself in the eyes of the customer
– about adding value through a mix of activities different from
those used by competitors.
• Treacy and Wierseman identify three “value-disciplines” that
can serve as the basis for strategy:
1. Operational Excellence: strategy is predicted on the production and
delivery of product and services. The objective is to lead the industry in
terms of price and convenience.
2. Customer Intimacy: strategy is predicted on tailoring and shaping
products and services to fit an increasingly fine definition of the
customer. The objective is long-term customer loyalty and long-term
profitability.
3. Product leadership: Strategy is predicted on producing a continuous
stream of state-of the –art products and services. The objective is the
quick commercialization of new ideas.
 Strategy- the retail perspective
• A clear and define plan that the retailer outlines to tap the market and
build a long-term relationship with the consumers.
• It helps in define the organization, its purpose and how the retailer will
face various challenges in the environment and marketplace.
• The strategy document for the retailer thus acts as the guide for how
processes, systems and information are handled in the organisation.
• The definition of a retail strategy enable other areas within the
organisation to determine their strategies. Primary among these are;
1. Store location
2. Merchandising
3. Pricing
4. Marketing
1. Store location:
• For years experts have argued that the three most important aspects
of any retail business are Location, Location and Location.
• Depending on the business model that is to be adopted by a retailer,
the store location has to be chosen.
• A strategy for tapping the up-market consumer requires that the
store be located in a place where such a consumer will shop.
2. Merchandising:
• The retailer chooses to dominate the marketplace on the basis of
product selection, he needs to ensure that he has the largest and
wider selection of product category imaginable.
• The merchandising strategy has to draw from the overall business
strategy.
• The merchandise strategy should be based on consumer research.
• Selling strategy should also be based on research, not just
merchandise- based research that indicates to the retailer what
consumers want to buy, but relationship-based research which
indicates to the retailer how they want to be treated when thy buy.
3. Pricing:
• The concept of pricing is also influenced by the business model that
the retailer has chosen to adopt.
• Being a price leader is a valid strategy, not only from lower end but
also from other end.
4. Marketing:
• The complete marketing strategy adopted by the retailer is a
reflection of the overall business strategy.
• It is a combination of the advertising, promotions, communications,
sales staff, the level of customer service and the complete shopping
experience offered to the end consumer.
 Steps Involved in strategic Planning
Establish Mission

Analyze Situation

Identify Options
Feed Back

Set Objectives

Obtain And Allocate Resources

Develop Implementation Plan

Monitor Progress And Control

 1. Establish Mission
• The mission statement is a statement of the long-term purpose of
the organisation.
• It describes what the retailer wishes to accomplish in the markets in
which it chooses to compete.
• A retailer’s mission statement normally highlights the following
elements.
– The products and services that will offered.
– The customer who will be served
– The geographic areas that the organisation chooses to operate in
– The manner in which the firm intends to compete in its markets
 1. Establish Mission

• Mission Statement Example:

– Starbucks: “To inspire and nurture the human spirit – one person, one
cup and one neighborhood at a time.”

– Wal-Mart: “To give ordinary folk the chance to buy the same things as
the rich people.”
 2. Analyze Situation

• The retail organisation needs to look inwards and understand what

its strengths and weaknesses are and look outwards and analyze the
opportunities and threats, which may arise in the environment.
• The retailer can perform this with help of models like PEST
analysis, SWOT analysis, porter’s five forces model and BCG
matrix.
• PEST factors that affect the retail sector.
– Political
– Economic
– Social
– technological
 3. Identify Options/Strategy alternatives

• After analyzing the internal and external environment, the retailer

need to consider the various alternatives available to him for tapping
a particular market.
• The retailer can use Ansoff’s matrix which help to understand the
options available.
• The alternatives are:
A. Market Penetration
B. Market development
C. Retail Format Development
D. Diversification
 3. Identify Options/Strategy alternatives

A. Market Penetration
• Growth with the existing products, in the market segment that it operates.
• Least risky strategy.
• Once the market approaches saturation, some other strategy must be
pursued.
• This strategy may focus either on;
– Increase the number of customer
• By adding new stores
• By modifying the product mix
• To bring the new customers
• Cross selling
– Increase the quantity purchase by the customer
• By motivating customer to consume product more
 3. Identify Options/Strategy alternatives

B. Market Expansion/development:
• A retailer is said to follow a strategy of market development if he
reaches new market segment or completely changes the customer
base.
• This strategy involve:
– Tapping new geographical markets or,
– Introducing products to the existing range that appeal to wider audience.
 3. Identify Options/Strategy alternatives

C. Retail Format Development

• Developing a retail format is introducing a new retail format to
customers.
• Example: McDonald’s and Subway, who offer limited menus in
smaller locations many a time inside large department stores.
• This strategy may be appropriate if the retailer’s strengths are
related to specific customers rather than to specific products itself.
• It can leverage its strength by developing a new product targeted to
its existing customers.
 3. Identify Options/Strategy alternatives

D. Diversification:
• The retailer grows by diverting into new business by developing
new products for new markets.
• Example: ITC
• International expansion is also a growth alternative.
 4. Set Objectives
• It indicate the results to be achieved.
• The purpose of setting objectives is to give direction
and set standards for the measurement of performance.
• Good objectives are measurable, are specific to time
and indicate the priorities for the organisation.
• Two areas which are important for retailers, are market
performance and financial performance.
5. Obtain & allocate Resources needed to compete
• The resources that a retailer needs are human as well as
financial.
• Financial resources take care of the monetary aspects of
the business, like shop rent, salaries and payment for
merchandise.
• Human resources are just as vital to the success of a retail
operation as are financial resources and physical facilities.
6. Develop the strategic Plan
• At this stage the retailer determines the strategy by which he will
achieve the objective.
• The target market is defined and the retail mix that will serve this
audience finalized.
• There is no definite or best way for deciding upon and selecting the
target market in which to compete.
• In order to be successful in segmenting the market, the retailer must
ensure that it is;
– Measurable
– Accessible
– Economically Viable
– Stable
7. Implementing the strategy, Evaluate & Control
• To implement a firm’s desired positioning effectively,
every aspect of the store must be focused on the target
market.
– Merchandising must be single-minded.
– Displays must appeal to the target market,
– Advertising must talk to it,
– Personnel must have empathy for it,
– Customer service must be designed with the target
customer in mind.
• Feed back….
 International Expansion- A growth Strategy
• Retail Internationalization is defined as, “the
management of retail operations in markets which are
different from each other in their regulation, economic
development, social conditions, cultural environment
and retail structures.”
• The population levels, the expected growth rates,
density of the population and the income levels are
important factors to be taken into consideration.
 Methods to enter in to the new market:
1. Export
2. Franchising/Licensing
3. Acquisitions and mergers
4. Join Venture
5. Organic Growth
1. Exporter:
• Exporter is the selling of domestically manufactured
products, in different country.
• A retailer who has distinct product, such as an own
brand, which may be attractive to customers in other
markets, may look at exports as an option.
• If the response to the exported product is good in the
market, it is a good indication that the retail store for
that brand would also do well in that particular country.
2. Franchising/Licensing:
• This arrangement permits a company in the target
country to use the property of the licensor.
• Such property usually is intangible, such as trademarks,
patents and production techniques.
• The licensee pays fee in exchange for the right to use
the intangible property.
• This strategy enables a retailer to build a strong identity
in the market.
3. Acquisitions and Mergers:
• Acquisition means one organisation acquiring another
organisation.
• Various aspects need to be taken into consideration are
management structure, new operating culture and the
financial burdens of the company being acquired.
• Merger means two organizations coming together to form
a combined entity.
4. Joint Venture:
• A joint venture is a strategic partnership between a local
retailer and an international/foreign player.
• This arrangement allows the international retailer to learn
from the experience of the domestic partner, while the
domestic retailer can learn from the international practices
of the partner.
• The key issues to consider in a joint venture are ownership,
control, pricing, technology transfer, local firm capabilities
and resources and government.
5. Organic Growth:
• Organic growth occurs when an organization creates more
transactions with its current customer base and with
continuously growing margins.
• Organic growth refers to replacing the retail format in the
non-domestic market, within the regulatory framework of
the new market.
 Branding
Brand:
“A name, term, design, symbol or a combination of them,
intended to identify the goods or services of one seller or group of
sellers and to differentiate them from those of the competitors”.
• It is often said that branding is the art and cornerstone of marketing.
 The concept of Retail Brand
• Retailer needs to create a store identity which is different
from that of the brands that he sells within the store.
• In a complex and mature marketplace, a strong retail brand
emerges as the key differentiator.
• In the competitive retail environment, the three generic
strategies of cost, focus and differentiation, have become
necessities to survive in business.
• A brand is essentially a seller’s promise to deliver a
specific set of features, benefits and services
consistently, to the buyer.
• There is a thin line between losing a customer and
retaining him.
• Customer memory is short for good experience, but a
negative experience will stay with him forever.
• Now experience have become an integral part of
branding.
 Building A Retail Brand
• A retail brand is a combination of the company’s heritage, the
merchandise mix available in the store, the store environment,
the service strategy, the advertising and the promotion.
• Retail brands constantly needs to keep evaluating themselves
by asking the following questions:
– Can the brand be identified with the lifestyles of its target
customers?
– Is there a perceptible difference between the brand and the
products offered by the retailers and other retailers?
– Can a story be woven around the brand?
• The building of a retail brands starts with a precise definition
of the target customer group and their needs and
expectations.
• The retailer then needs to determine the specific value
proposition that he is going to offer to the end consumers.
• Retail branding is about customer service and how the
salespeople greet the customers.
• At the heart of retail branding lies a deep understanding of
the business that the retailer is in and how he can satisfy the
customer’s needs.
 The Retail Value Chain
• Michael Porter has identified various elements which go into
the composition of a typical value chain. These include
inbound logistics, operations, outbound logistics, marketing
and sales, services, procurement, technology development and
[
human resource management.
• A firm may create a cost advantage by reducing the cost of
individual value chain activities, or by reconfiguring the value
chain can also provide a cost advantage.
• Reconfiguration means structural changes such as a new
production process, new distribution channel, or a different
sales approach.
• The retailer either become a pentagon player or a triangle
player.
• If the retailer chooses to become a pentagon player, he
would focus on:
– Product
– Place
– Value
– People and
– Communications
• If he chooses to become a triangle player, he would focus
on:
– Systems
– Logistics
– Suppliers
 Retail Franchising
• Franchise:

A relationship in which the franchisor provides

a licensed privilege to do business, plus assistance in
organizing, training, merchandising, and management, in
return for a consideration from the franchisee.”
– International Franchise
Association
Franchisor:
• The franchisor is the provider of the franchise.
• Typically, he owns the trademark/product/\service and
licenses the trademark to another party.
• He may support for the running of the franchising, which
may be in the form of product/service training,
advertising, marketing etc.
• In exchange, he receives a fee, commonly known as the
royalty or franchisee fee.
Franchisee:
• The person who pays for and purchases a franchise from
franchisor and operates a business using the name,
product, business format and other items provided by the
franchisor.
• The franchisor helps the franchisee in setting up the
business and managing it.
 Types Of franchising
• At a broad level, franchising can be divided into two formats.
1. Product/trade name franchising:
The franchisee concentrates on one manufacturer’s product, and
thereby acquires the manufacturer’s identity to some extent.
Example: Typical Example are automobile dealerships and gas
service stations.
2. Business Format franchising:
It has been defined as the granting of a license for a
predetermine financial return, by a franchising company to its
franchisees, entitling them to make use of a complete business
package.
• A franchise system may be a single unit franchise, a master
franchise, or a regional franchise.
• A unit franchise, the franchisee is granted the right to operate one
unit or outlet of the franchised business.
• Master franchisee, the franchisee is grated the rights to substantial
territory usually a whole country. The master franchisee then, may
set up unit franchises. The master franchisee in this case, acts like
the franchisor.
• In geographically large area, a franchisor or a master franchisee may
decide to divide the territory into separate “regions” and grant a
master franchise for each separate region. This is known as a
regional franchise.
Advantages Of Franchising:
1. Low Risk
• Eliminates the risk of learning from a new business
2. Growth
• A franchise of a part of network.
• As this network grows, the opportunity for the individual
franchise to grow also increase.
• The franchise begins to squeeze out competition through
its sheer size.
3. Ease of Financing and Operational Support
• Many a times, a franchisor may assist the franchisee in
obtaining financing for the setting up of the business.
• Training and consultancy is given to the franchisee by the
franchisor on the product/service.
4. Advertising
• Advertising costs are generally reduced because the
advertising cost is shared by the franchisees.
• So the franchise enjoys a national exposure at an
affordable price.
Disadvantages Of franchising
1. Royalty/Fees
• The franchise fees or the royalty that may be required to be
paid may be relatively steep for a successful brand.
• The franchisee fee is normally paid only at the time of starting
or renewing the franchise agreement.
• Royalty on the other hand, is a recurring cost which has to be
paid to the franchisor at a predefined frequency.
2. Lack of Control
• Franchising requires adherence to the predetermined terms
and conditions as laid down by the franchisor.
• There are also terms that grant the franchisor the right to
terminate the franchise agreement if the policies and
regulations prescribed are not observed.
 Retail Store Locations

• Most important “P” in retailing.

• Locating the retail store in the right place was considered to be
adequate for success.
• It also influences the merchandise mix and the interior layout
of the store.
• It is fairly difficult to change the location, moving from one
location to another may result in the loss of customers and
employees.
 Types Of retail Location
• The choice of retail location of the store depends on the target
audience and the kind of merchandise to be sold.
• Typically a store location may be;
1. Freestanding/Isolated Store
2. Part of a business district
3. Part of shopping Center
1. The Isolated Store or a Freestanding Location:
• A freestanding location is a store located along a major
traffic root, without any other competitive retailers
around.
• The biggest advantage of such location is that there is no
competition around.
• Rents are usually low and facilities like parking are
available.
• The advertising cost for such a location are usually high.
• It is necessary that the location of the store and the
catchment area for the store to be defined keeping in
mind the distance that the customer is willing to travel
for a particular product or service.
• Example: Hotels and Fast food restaurants on highways.
2. Part of Business District:
• A business district is the place of commerce in the city,
which developed historically as the centre of trade and
commerce in the city or town.
• Most of time it have no pre-set format or structure.
• A business District can be;
– Central Business District
– Secondary Business District
– Neighborhood Business District
• Central Business District (CBD) is the main center of
commerce and trade in the city.
– It is characterized by peak land rates and intense
developments.
– The shopping area within this district is usually different
from the main office area.
– It has good accessibility in terms of transport from all the
part of the city.
– Rents are fairly high and facilities like parking for the
customers is cumbersome.
– The retailer may not have to spend heavily on drawing
customers.
• Secondary Business District (SBD) is one which has evolved
over a period of time, with the spread of population within the
city.
– A city may have more than one SBD.
– An SDB is characterized by a good mix of retailers,
– The stores are generally smaller than those in the CBD and
– Public transportation is adequate.
• Neighborhood Business District is an unplanned shopping
area that has developed to serve the needs of the neighborhood.
– Example: Stationery stores, medical shops etc.
3. Part of a shopping Centre:
• “A group of retail and other commercial establishments that is
planned, developed owned and managed as a single property”.
- International Council of Shopping Centers
• The availability of parking is an important feature of a
shopping centre.
• A mall is typically enclosed and climate controlled.
• The international council of Shopping centers has defined eight
basic types of shopping centers.
Neighborhood shopping centre Fashion or Specialty Centre
Community Shopping Centre Power Centre
Regional Shopping Centre Theme Centre
Super Regional Centre Outlet Centre
 Steps Involved in Choosing A Retail Location
• In order to arrive at the decision on where to locate the retail
store, a retailer needs to first decide on the region that he
wants to locate the store.
• After identifying the region, the following steps have to be
followed.
1. Identify the market in which to locate the store.
2. Evaluate the demand and supply within that market.
3. Identify the most attractive sites.
4. Select the best site selection.
1. Market Identification:
• The first step in arriving at a decision on retail location is to
identify the market attractiveness to a retailer.
• This is important that retail needs to understand the market
well.
• It is more important in the case of retail expansion.
2. Determining the market Potential:
• The retailer need to take into consideration various elements
like;
– Demographic features of the population
– Competition and compatibility
– Laws & regulations
– Trade area analysis
 Determining the market Potential

Demographics Competition
of population
& area

Trade area Laws &

analysis Regulation
A) Demographic Feature of the Population:
• Understanding the features of the population is integral to
developing a retail marketing strategy.
• It is essential to know the break-up of rural and urban population in
country like India.
• Income, average age profile of the population etc..
B) Competition and Compatibility:
• While determining the market potential, it is necessary to check the
compatibility of the retail store with the other retail outlets in an
area.
• Ex. Gift shop near a restaurant.
C. Laws and Regulations:
• Before opening a store, it is essential to have a good
understanding of the laws and regulations governing the
opening of a retail shop in the area.

• Various permissions which are needed, the hours for which the
store can operate, the minimum wage to be offered to the
persons, the holiday required.
D. Trade area analysis:
• A trade area is the geographic area that generates the
majority of the customers for the store.
• Primary trade area: primary trading covers between 50-
80% of the store’s customers.
• Secondary Trading Area: this area contains the
additional 15- to 25% of the store’s customers.
• Tertiary trading area covers the balance customers
• These trading areas are dependent on distance and do not
always have to be concentric in nature
Types of Trades areas.
• The trade areas can often be generalized into two different
types:
– Convenience shopping trade areas: are based on the ease
of access to these types of products. That is people will
obtain these products from stores near to them or that
required lesser travel time.
– Comparison shopping trade area: are based on price,
selection, quality and style. People are more likely to this
types of goods as well as travel longer distances for their
purchases.
3 & 4 Identify Alternate sites and select the site:
After having determined the market potential and taking a decision on
the location of the store, a retailer has to select the site to locate the
store. There are various factors that need to consider, the chief
among them are;
• Traffic
• Accessibility of the market is also a key factor
• The total number of stores and the type of store that exist in the area
• Amenities
• To buy or to lease
• The product mix to be offered by the retailer
 Method of Evaluating A Trade Area
1. Herfindahl-Herschman Index
2. The Index of Retail Saturation
3. Reilly’s Law of Retail Gravitation
4. Central Place Theory
5. The Huff’s model of Trading Area Analysis.
 1. Herfindahl-Herschman Index:
• It is commonly accepted measure of market concentration, it
also known as HHI.
• The HHI is determined by adding the squares of the market
shares of each competitor within the relevant product and
geographical market.
• Example: Four firm having share of 25,30,35,10, the HHI
would be 2850(625+900+1225+100).
• The HHI takes into account the relative size and
distribution of the firms in a market and approaches zero
when a market consist of a large number of firm relatively
equal size.
• The regulatory authority in the USA believe that markets
are concentrated when the HHI is above 1800, moderately
concentrated when the HHI is between 1000 and 1800 and
unconcentrated when the HHI is below 1000.
 2. Index of Retail Saturation
• This index is based on the assumption that if a market has a
low level of retail saturation, the likelihood of success is
higher.
• This theory takes in to consideration the number of stores
which exist in a market.
• If the market has too few stores and is unable to satisfy the
customers’ demand satisfactorily, then the market is under-
stored.
• On the other hand, if the number of stores is too many, it is
over-stores and unable to give a fair return on investment to the
retailer.
• Saturation is calculated in terms of the existing retail facilities
and their use. The formula for IRS is;
IRS = H × RE/RF
Where:
IRS: Index for retail saturation for a particular area.
H = Number of Households in that area
RE = Annual retail expenditures for a particular line of trade per
household in that area.
RF = The total square footage of that particular line of trade in that
area including the proposed store.
• In the given formula, a higher IRS indicated a lower level of
saturation, thereby increasing the likelihood of retail success.

• This theory basically implies that a retailer needs to clearly check

the demand for a particular product or service that he wishes to retail
and the number of stores offering the same.
 3. Reilly’s Low of retail Gravitation
• W.J. Reilly’s Law of retail Gravitation states;
• “When two cities for retail trade area from the immediate rural
areas, the breaking point for the attraction of such trade will be
more or less in direct proportion to the population of the two
cities and in inverse proportion to the square of the distance from
the immediate area of each city.”
• This theory propagates that two cities attract trade from an
intermediate place, approximately;
– In direct proportion to the population of the two cities and
– In inverse proportion to the square of the distance from these
two cities to the intermediate place.
• The formula for the same is;
(Ba/Bb) = (Pa/Pb) (Db/Da)2
• Ba = the business which city a draws from the intermediate place.
• Bb = The business which city b draws from the intermediate place.
• Pa = Population of City a
• Pb = Populatio of city b
• Da = Distance of city a to the intermediate place
• Db= Distance of city b to the intermediate place
• Example: If a retailer wanted to know the spend of consumer in city
X, which is 20kms from city a and has population of 2,00,000 and
50kms form the city B which has a population of 5,00,000.
• In effect, all this law says is that people will travel to the largest
place most easily reached; and in suburbia, theoretically at least, all
places are easily reached.
 Central Place Theory
• Wlater Christaller postulated the central Place theory, which
describes the central place as the centre of commerce of a village,
town, or city, which comprises of a cluster of retail organizations.
• In this theory, he presented two important concepts- the range
and the threshold.
• The range is maximum that a consumer is willing to travel for a
particular product or service and the threshold is the minimum
amount of consumer demand that must exist for a store to
survive.
• The need fors of the groups of consumers residing in a particular
location dictate the needs of retail development.
 Huff's model of Trading Area Analysis
• This model is widely used for predicting consumer spatial
behavior.
• The probability (Pij) that a consumer located at i will choose to
shop at store j, is calculated according to the following
formula.
• The quotient received from dividing by is known as the
perceived utility of store j by a consumer located at i
• Where;
– Aj is a measure of attractiveness of store I, such as square
footage
– Dij is the distance from i to j.
– Α is an attractiveness parameter estimated from empirical
observations
– Β is the distance decay parameter estimated from empirical
observations
– n is the total number of stores including store j.