CHAPTER 1

Chapter 1
INTRODUCTION TO
THE WORLD OF
RETAILING

Mr. Saad Ahmed Khan

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 Overview CHAPTER 1
2

- An enterprise has many players.

- Each POS is supported by a network of distributors,
service providers, and manufacturers
- Stores are the proverbial tip of an iceberg.
- Trading partners living in different worlds.

Manufacturer/ Retailers
Logistics Service
Provider

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 What is Retailing? CHAPTER 1
2

Retailing – a set of business

activities that adds value to the
products and services sold to
consumers for their personal or
family use

A retailer is a business that sells

products and/or services to
consumers for personal or
family use.

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 What is Retailing? CHAPTER 1
2

- The word retailer has its origins in the French verb “retaillier”,
which means “to cut off or break bulk”, and refers to one of the
fundamental retailing activities.
- Retailing is the set of business activities that’s adds value to the
product and services sold to consumer for their personal or family
use.
- Retail is a sales of products or services to consumers.

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 Examples of Retailers CHAPTER 1
2

• Retailers:
McDonalds, Daraz.pk,
Imtiaz Super Market,
Outfitters, Bin Hashim,
Sana Safinaz.

• Firms that are retailers and wholesalers - sell to other

business as well as consumers:
Imtiaz Super Market, Habitt, Pakistan International
Airlines,

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 Types of Retailers CHAPTER 1
2

• Department Stores
• Supermarkets
• Warehouse Retailers
• Franchises
• Malls and Shopping Centers
• Online Retailing

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 Distribution Channel CHAPTER 1
2

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 Typical Supply Chain Network CHAPTER 1
2

Customers

Suppliers Plants

retailers
Distribution
Centers
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 A Retailer’s Role in a Supply Chain CHAPTER 1
2

• Retailers are the final business within a supply chain

which links manufacturers to consumers.

• A Supply Chain is a set of firms that make and deliver a

given set of goods and services to the ultimate
consumer.

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 Manufacturing, Wholesaling
CHAPTER 1
2
and Retailing – Types of Integration

1. VERTICAL INTEGRATION – firm performs more than one set of activities in

the channel. Ex: Retailer invests in wholesaling or manufacturing
a) Backward Integration – retailer performs some distribution and
manufacturing activities
• Ex: Imtiaz sale Ponam Rice(Private Label)
b) Forward Integration – manufacturers undertake retailing activities
• Ex: Levis operates its own stores
• Large retailers engage in both wholesaling and retailing
• Ex: Wal-Mart, Gul Ahmed
2. HORIZONTAL INTEGRATION – Horizontal integration is the process of a
company increasing production of goods or services at the same part of the supply
chain. E.g expansion, acquisition or merger

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 Manufacturing, Wholesaling
CHAPTER 1
2
and Retailing - Types of Integration

Vertical
Integration

B F
a o
c r
k e
w w
a a
r r
d d

Horizontal Integration
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 Do Retailers Add Value? CHAPTER 1
2

a box of crackers at a grocery store

Example • costs $1 to manufacturer
• sells at a price of $2

Retailers add significantly to the prices consumers face

Why not buy directly from the manufacturer?

Does that mean that grocery stores are very profitable?

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 Why Not Get Rid of the Middlemen? CHAPTER 1
2

Price to Price to Price to

Distributor Retailer Consumer
$1.00 $1.20 $2.00

$.85 $.15 $.70

Manufacturer Distributor Retailer Consumer

Vendor Wholesaler
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 How Retailers Add Value/ Functions
CHAPTER 1
2
performed by Retailers

■ Provide Assortment
Buy other products at the same time

■ Break Bulk
Buy it in quantities customers want

■ Inventory Management
Buy it at a convenient place when you want it

■ Offer Services
See it before you buy; get credit; layaway

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 Social and Economic
CHAPTER 1
2
Significance of Retailing

• Retail Sales:
• Over $210.28 billion in annual
sales in 2018 in Pakistan
• Employment:
• One of the largest sectors for
job growth in Pakistan
• Social responsibility
• Global player

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 Structure of Retailing and Distribution Channels
around the World: The United States CHAPTER 1
2

The United States CHINA

• The nature of retailing and
distribution channels in the U.S.
is unique.
• Has the greatest retail density
• Has the greatest concentration of
large retail firms
• Large enough to operate their
own warehouses, eliminating the
need for wholesaling.
• The combination of large stores
and large firms result in a very
efficient distribution system.

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 Comparison of Distribution Channels
CHAPTER 1
2
around the World

United EU Pakistan China

States
Concentration (% of retail High High Low Low
sales made by large
retailer)

Retail Density High Medium Low Low

Average store size High Medium Low Low

Role of whole seller Limited Moderate Extensive Extensive

Infrastructure supporting Extensive Extensive Limited Limited
efficient supply chain
Restriction of retail Few Considerable Considerable Few
locations, store size and
ownership

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 What have created these differences
CHAPTER 1
2
in distribution systems?

Social & Political • China, India, Pakistan: To reduce unemployment by

Objectives protecting small businesses
• EU: To protect small retailers
• To preserve green spaces/town centers

Geography • Much lower population density in the US than in Pakistan,

China, and EU (where less low-cost real estate are available
for building large stores)

Market size • Large retail markets in US, India, China, Pakistan

• Countries in EU – distribution channels and retail chains
operate in a single country (no economy of scales to be
achieved; trade barriers still exist)

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 Whole Foods Implementation CHAPTER 1
2

• Corporate social responsibility

• The voluntary actions taken by a company to address the
ethical, social, and environmental impacts of its business
operations, in addition to the concerns of its stakeholders

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 Social Responsibility CHAPTER 1
2

Examples:
• Target stores give to local
communities as well as through its
“Bullseye Gives” program.
• McDonald’s is developing LEED-
certified buildings.
• Nike is creating shoes that score high
on the sustainability index.
• Home Depot partners with Habitat
for Humanity to build houses and
donate supplies.

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 Opportunities in Retailing:
CHAPTER 1
2
Management Opportunities

• People with a wide range of skills and interests needed because

retailers’ functions include
• Finance
• Purchase
• Accounting
• Management information system (MIS)
• Supply management including warehouse and distribution
management
• Design and new product development

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 Successful Retailers CHAPTER 1
2

1. Identify a niche for their offering and determine the target

market
2. Must design and develop an appropriate and effective retail
format.
3. Must figure out how to manage a sustainable competitive
advantage.

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 More than Stores CHAPTER 1
2

- Retail marketing include more than stores in their makeup. The nature of the supply chain
will vary from product type to product type according to the characteristics of the product
itself, as well as the preferences of customers and end-users.

- Retailers and distributors refer to OEMs as the manufacturer, the vendor, or the resource.

- Some retail supply chains include more than one intermediary distributor. This is especially
true of the food industry, where freshness is a concern.

- For example: Milk may be produced on a farm, then sold to a cooperative, which sells it to a
processor, who in turn sells it to a distribution brand; it is then sold to a retailer, who sells it
to the consumer. Such a distribution network or supply chain has been likened to the fire
brigade, where it is faster to pass the bucket along a chain of people than to have one person
carry it the entire distance.

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 More than Stores CHAPTER 1
2

- An analogy to the supply chain is the iceberg.

- The alternative distribution options are called retail channels.

- The store, direct, and dealer/reseller are each channels of distribution.

- Each level in a supply chain (e.g., distributor, OEM, or supplier) is called an echelon.

- Bypassing an echelon is a process called disintermediation. Disintermediation, in some cases,

can lower cost, inventory, and lead times. Many supply chain participants, particularly
distributors, are wary of disintermediation efforts that cut them out of the flow of goods.

- A number of well-known apparel brands have opened up their own brand-centered specialty
stores just up the street from other retailers who carry their lines.
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 More than Stores CHAPTER 1
2

- The OEM often provides the brand identity for the products sold by the retailer. However,
brand identity might be associated with the retail enterprise through private label brands
designed and sold exclusively by that particular retailer.

- In some cases, major components of a product are branded for inclusion in other products
sold at retail, such as Intel chips or Microsoft operating systems in computers sold by Lenovo,
Toshiba, Dell, or Hewlett-Packard.

- Supply chain design needs to support extended product strategies. Examples include value-
added resellers of computer systems and after-market maintenance provided by automobile
dealers.

- Starbucks, with Internet access and comfortable places to drink coffee, offers an extended
product to support sales of base products such as coffee, other beverages, merchandise, and
food.

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 More than Stores CHAPTER 1
2

- After sales service – Risk Reduction

- Some companies refer to upstream trading partners as their supply chain and downstream
trading partners as their demand chain.

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 Opportunities in Retailing:
CHAPTER 1
2
Management Opportunities

• Retailing provides opportunities for Wal-Mart: Sam Walton

people who want to start their own
business
• Some of the world’s richest people are
retailing entrepreneurs

• Examples of retailing entrepreneurs IKEA: Ingvar Kamprad

• Jeff Bezos (www.Amazon.com)

• Ingvar Kamprad (IKEA)
• Howard Schulz (Starbucks)

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 Retail Management Decision Process CHAPTER 1
2

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 Strategic vs Tactical Decisions CHAPTER 1
2

• Doing the Right Thing (direction) vs.

• Doing Things Right (execution)

• Strategic Decisions Are:

• Made Infrequently
• Long-term
• Require significant investment
• Not easily reversed

• Location, Organization Design, Information and Distribution Systems,

Customer Service

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 Retail Strategy CHAPTER 1
2

Need to identify the competition

Intratype competition
• department stores compete against other department stores, and
supermarkets compete with other supermarkets. This competition
between the same type of retailers
• (e.g., Metro vs. Imtiaz)

Intertype competition
• or competition among retailers that sell similar merchandise using
different types of retail outlets, such as drug and department stores
• (e.g., Dvago vs. Bin Hashim)

Identifying customers
• What are the significant demographic and life-style trends
• Who are your target customers

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 Retail Strategy CHAPTER 1
2

A retail strategy should identify

• the target market
• the product and service mix
• a long-term comparative
advantage

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 Decision Variables for Retailers CHAPTER 1
2

Customer
Customer
Service
Service

Store
StoreDesign
Design Merchandise
Merchandise
and
andDisplay
Display Assortment
Assortment

Retail
Strategy

Pricing
Pricing Location
Location

Communication
Communication
Mix
Mix

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 PAKISTAN INDUSTRY - RETAILERS CHAPTER 1
2

​S.# Name​ Owner​ Outlets​ Origin​ Started Logo​ ​ olor

C Competitive
from​ Theme Advantage

1​ Imtiaz​ ​ ​ ​ ​ ​

2​ Naheed​ ​ ​ ​ ​ ​

3​ Aghaz​ ​ ​ ​ ​ ​ ​

4​ Chase​ ​ ​ ​ ​ ​ ​ ​

5​ Chase up​ ​ ​ ​ ​ ​ ​ ​

6 Metro​ ​ ​ ​ ​ ​ ​ ​
​

7 Carrefour

8 SPAR​

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