Back Entering retail's easy; to fail, easier
D. Murali
REAL estate saw some real development days before the Budget when the Government allowed 100 per cent foreign direct investment in construction. Will something similar happen in retail too? While that may be the top question global giants should be tossing in their minds, a book that should help most of us understand the sector is Retail Management by Chetan Bajaj, Rajnish Tuli and Nidhi V. Srivastava, published by Oxford University Press (www.oup.com) .
The book begins with questions: "Which business considers every individual a customer? Which business accounts for less than 10 per cent of the worldwide labour force and is still the single largest industry in most nations?" Well, the answer is obvious: retailing - `the last link' in a chain that begins with manufacturing and ends in distribution. Thus, retailing does the matching between individual demands of consumers with products.
"To enter retailing is easy, and to fail is even easier," note the authors. Retailers' profit is usually "a small fraction of sales and is generally about 9-10 per cent." Survival depends not only on sales volume and business opportunities but also on "merchandise purchase policies, nature of promotion, and expense control measures."
You'd learn from the book that there are different theories and models of retailing. Thus, `dialectic process' says that retail institutions evolve as new formats emerge. `Gravity model' states that purchase volume and visit frequency are a function of store size and distance. `Retail accordion theory' a.k.a. `general-specific-general theory' postulates that outlets move from wide assortments to specialised, narrow line and again back.
There's also the `retail lifecycle theory' that sees retail institutions passing through the same phases as the products they distribute: innovation, accelerated development, maturity, and decline. But decline doesn't seem to happen to the sector, despite the e-commerce threat that eats but less than 6 per cent of the total retail pie.
A few stunning statistics that the authors include in their work are: Worldwide retail sales are about $7 trillion; top 200 retailers account for 30 per cent of worldwide demand; rural market in India has 53 per cent share of the total; at the `highest income level' there are 2.3 million urban households as against 1.6 million in rural areas; and there are 5.8 shops per village, accommodated in buildings, huts, stalls and shacks.
A chapter on merchandise management lists the key dimensions of the mix as variety, assortment, and support. A box explains `merchandise specialisation' with examples, such as the Paranthe Wali Gali in Chandni Chowk, Delhi, where you get different variants of parathas from the outlets on the lane. An example of minimal variety is Tunde Kabab in Lucknow, which offers "just two variants" of the non-vegetarian delicacy "along with an Indian bread to go along with it." It may surprise you that the shop's `unique preparation' has attracted not only national but also international popularity.
The discussion on pricing talks about EDLP or everyday low pricing, popularised by Wal-Mart, Home Depot and so on. "This strategy entails continuity of retail prices below the MRP mentioned on the goods," and you'd find many cooperative stores too adopting such a technique. Then, there's the `loss leader pricing' ploy where the retailer prices certain products at a lower price "to attract customers to the store." Skimming strategy involves setting a high price "to recover sunk costs quickly before competition steps in" and then lowering the price over time. Other pricing methods that the book explains are high-low, penetration, psychological, prestige, reference, traditional, odd-even, bundled, pre-emptive, extinction, and so on.
`Atmospherics and retail space management' are dealt with in a separate chapter. For those interested in metrics, the authors list `retail performance measures' such as sales/ profit per square/ linear/ cubic metre. For fashion retailing, square metre is common, while the linear metre is useful where mutli-shelved fixtures are used. And cubic metre is appropriate for the frozen food business.
Useful read to shop for, to add value to your cubic metres of book collection.
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