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What is Retailing ?

Chapter-13: Retailing

Lecture-9 and 10

Course: Marketing Channels

(MKT 450)

Retailing consists of the sale of goods or merchandise from a

fixed location, such as a department store or kiosk, shop or by
post, in small or individual lots for direct consumption by the
purchaser or end user.

A retailer buys goods or products in large quantities from

manufacturers or importers,
importers either directly or through a

Faculty: Abdullah Al Faruq (AFq)

wholesaler, and then sells smaller quantities to the end-user.

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North South University (NSU)

Retailers are at the end of the supply chain and thereby,

manufacturing marketers see the process of retailing as a
necessary part of their overall distribution strategy.

Retailers forms the end-link between the end-users or consumers

and the marketers marketing-mix.

Cost-Side Factors for Positioning: Margin and Inventory

Choosing a Retail Positioning Strategy

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competitiveness and performance.

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Turnover Goals (Cont.)

Retailers choice of its positioning strategy significantly affects its

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The introduction of modern concept led to low margins-high

But with growing trend and increase in competition retailers now

turnover and less personal services.

Retailers can choose on the basis of cost and on the basis of

demand in order to determine the position it will occupy in the

have to focus on that fine line of balance whereby, ensuring

marketplace.
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On the cost side a retailer

retailerss focus is on margin and inventory

profitable margins, balance turnover and perfect blend of

turnover goals and on the demand side it is on the service-

professional services (service outputs).

outputs that is demanded by the end-users.

Cost-Side Factors for Positioning: Margin and Inventory
Turnover Goals
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The appropriate pathway to determine this choice is best

summed by way of the Strategic Profit Model (SPM) i.e. a model
that guides the retailer to determine the balance of margin, profit

Traditionally retailing system have been categorized as high

and turnover and comprises of three choices margin

margin-low turnover operations with numerous personal services.

management; asset turnover and financial management.

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Cost-Side Factors for Positioning: Margin and Inventory

Cost-Side Factors for Positioning: Margin and Inventory

Turnover Goals (Cont.)

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On the basis of SPM a more specific to the retail context formula

or measures have been identified that help retailers to improve

GMROI = Gross Margin Percentage X Sales to Inventory Ratio

profitability

GMROI= [Gross Margin/Net Sales] X [Net Sales/Avrg.Inv at Cost]

For example, Retailer-A sells dark chocolate giving him total gross

a. Gross Margin Return on Inventory Investment (GMROI)

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Turnover Goals (Cont.)

The formula of GMROI is:

GMROI is equal to gross margin percentage times the ratio of

margin of 50% and a sales to inventory ratio of 2. Again the same

sales to inventory (at cost). It is amalgamation of margin

retailer sells box of white chocolate giving him total gross margin

management and financial management.

percentage of 35% and sales to inventory ratio 2 same as the dark

GMROI allows a retailer to evaluate inventory on the return on

investment it produces not just on the gross margin percentage.

chocolate.
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Now, GMROI (Dark)= 1 or 100% and GMROI (White)= .7 or 70%

Thereby, indicating it is better to sale more of dark chocolates

currently than of white as profit margin in comparison to sales
turnover is better.

Demand Side Factors for Positioning

Cost-Side Factors for Positioning: Margin and Inventory

Turnover Goals (Cont.)
b. Gross Margin per full-time equivalent employee (GMROL)
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a. Bulk-Breaking
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product purchased into smaller quantities to meet the smallest of consumer

Another measure that a retailer can utilize to identify their profit

margin. In this measure the cost of full-time employees needs to be
considered instead of sales to inventory.

demand.
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This measure allows the retailer to assess how well they are using
their unique assets-shelf or floor space to allocate to a certain
suppliers product.

The underlying principle here is by identifying the level of profit

small sales etc

etc.
b. Spatial Convenience
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The convenience in retail sales means customers speed and ease in order

Consumer search-shopping behavior varies between consumer segments as

A next door retail is positioned to give more of ease and speed in shopping

to get a product.

margin a retailer can understand the limit he/she can go by providing

the best value added service and yet no sacrifice in the profit with the
appropriate level of inventory.

Some retailers encourages consumers to purchase in higher quantity to

reduce their inventory cost and quick assets turnover and some focuses on

c. Gross Margin per square foot (GMROS)

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One of the function of a retailer has been to break huge quantities of

well as between products.

than a big retail/super store a little further from home.

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Demand Side Factors for Positioning (Cont.)

Types of Retailers

c. Waiting and Delivery Time

a. Department store

Consumers purchase when it comes to wait and get the product varies

a wide range of products without a single predominant merchandise

A consumer is not willing to wait for a lump of bread in comparison to wait

line. They usually sell apparels, furniture, white-goods, toys, cosmetics,

for a new model sofa-set.

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A department store is a retail establishment which specializes in selling

significantly from product to product and from situation to situation.

The underlying perspective is a retailer always try to position themselves as

a provider of instant service when it comes to product that is frequently

chocolates. For example, Almas in Bangladesh.

b. Category Killers
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purchased and then those are not.

d. Product Variety
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In the retail word variety refers to the breadth of the product lines and

A retailer always targets to create a position in consumers minds that they

assortment as the depth of product brands offered within the product-lines.

are enriched in both the breadth and depth of a product-lines such that no

Also known as big box retail chain such as Toys "R" Us which is focused
on one or few categories of merchandise and offers a wide selection of
merchandise in these categories at relatively low prices.

c. Super Store/Hypermarket
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These are large scale retail stores widely branched into a market.

They have big parking, huge staffs and sell merchandise varying from white
goods to groceries in a discounted price. For example, Wal-mart.

one is being said no and returned.

Types of Retailers (Cont.)

Trade Deals for Retailers

d. Supermarket

a. Free Goods

A supermarket is a self-service store offering a wide variety of food and

household merchandise, organized into departments. It is larger in size and

goods from the manufacturer to be sold to the end-users.

has a wider selection than a traditional grocery store and it is smaller than

b. Display Allowance

a hypermarket or superstore.

e. City Market/Open Market

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A gathering of many retailers selling variety or similar merchandise in a

fixed locations either using a mobile kiosk, tent or a small physical shop.
They charge fairly low price and is normally governed by way of
cooperative society.

f. Convenience store
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This is a common form of trade deals whereby, a retailer receives free

A convenience store is a small store or shop and are often located

alongside busy roads, or at gas/petrol stations or at a densely-populated

A fixed fees paid to the retailer to display the product in the most
appropriate way during a consumer price promotion.

c. Count-Recount
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This is a form of paying the retailer on the basis of how many products
have been sold after a certain period of time.

d. Slotting-allowance
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This is a payment made to the retailer for the shelf-space to display a

new product that is marketed by the manufacturer.

urban neighborhoods.

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Trade Deals for Retailers (Cont.)

Strategic Issues in Retailing (Cont.)

e. Inventory Financing

a. Importance of Convenience to Consumers (Cont.)

A manufacturer increases the payment period for certain level of

b. Increased Power of Retailers

investment in inventory.
f. Cooperative Advertising
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Consumers of today highly prefers shopping convenient shopping

environment which needs to be considered by almost every of retailers.

inventories purchased thus enabling the retailer to earn profit with zero
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It has been noticed over past few years that retailers has been increasing

The reasons of this growth is mainly due to rising pressures on the retailers

becoming a dominant force to be reckon with in marketing channels.

Manufacturers undertakes advertising related efforts of the retailer on their

own responsibility.
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to perform due to rise in competition, usage of information technology in

Strategic Issues in Retailing

a. Importance of Convenience to Consumers

the operation, usage of private level brands, utilization of consumer

segment information in marketing.

Convenience in retailing is measured on the basis of the time required to

make a purchase, getting to and from the store, getting in and out of the
store etc.

Strategic Issues in Retailing (Cont.)

Strategic Response by the Manufacturers to tackle Power

b. Increased Power of Retailers (Cont.)

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Retailing (Cont.)

The concept of power-retailing sums up this strategic issue altogether i.e.

c. Product line Expansion

power-retailing is retailing activities that is being undertaken by retailers

whose size, investment and business operation is significantly big compared

with general retailers.

increasing demand of the private label or store brands.

d. Dual-Distribution

Strategic Response by the Manufacturers to tackle Power

Retailing
a. Develop New Channel Technologies
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Manufacturers can expand their product line or brands to counter the ever

Manufacturers can undertake or introduce dual distribution in the same

market to combat the power
power-retailers
retailers or create a sense of level playing
field.

Manufacturer can develop new retail management strategies, techniques

and technology that can be shared with a retailer for their self-benefit

b. Enrich Roles of Consumer Sales Promotion

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Manufacturer can undertake intense consumer sales promotion such that

the product is pulled by the end-users rather than being pushed by the
retailer.

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