Which type of retail institution sells standard merchandise at lower prices by accepting lower margins and selling at a higher volume?

From a marketing perspective, retailers are closer to consumers than manufacturers. Retailers are the final stage in the marketing chain and the contact point between consumers and manufactured products.

Retailing Meaning – What is Retailing?

Retailing previously prioritized buying decisions and product assortment, it now follows a more strategic approach to management and marketing and is seizing the opportunity to be consumer-oriented, engage in personal contact with customers, and gather information on consumer behavior, and exploit insights into consumer behavior and preferences.

A simple way to do business has been transformed into a highly sophisticated form of management and marketing.

Retailing involves those companies that are engaged primarily in purchasing products from other organizations with the intent to resell those goods to private households, generally without transformation, and rendering services incidental to the sale of merchandise.

The retailing process is the final step in the distribution of merchandise. Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, nonbusiness use.

Types of Retailing

Many institutions, including manufacturers, wholesalers, and retailers, perform retailing. But most retail business is conducted by retailers.

Although most retailing is done in retail stores, non-store retailing has developed amazingly in recent years. Nonstore retailing includes selling by mail, telephone, door-to-door contact, vending machines, and numerous electronic means.

Types of retailing are;

1. Store Retailing
   1. Amount of Service.
   2. Product Line Sold.
   3. Relative Price Emphasis.
   4. Control of Outlets.
   5. Type of Store Cluster.
2. Nonstore Retailing
   1. Direct Marketing.
   2. Direct Selling.
   3. Automatic Vending.

Store Retailing

Retail stores are found in different shapes and sizes. Moreover, new types of retail stores are emerging. Retail stores can be classified by one or more of several features.

For example, amount of service, product line, relative prices, control of outlets, and type of store cluster. The following table exhibits these classifications and the corresponding retailer types.

Amount of Service Retailing

Different products need different amounts of service. Customer service preferences also vary. We concentrate on three levels of service;

1. Self-service retailing.
2. Limited-service retailing.
3. Full-service retailing.

Self-service retailing

Self-service retailers overgrew in the United States during the Great Depression of the 1930s. Customers were eager to locate, compare, and select the products by themselves.

Today, self-service provides all discount operations and is primarily used by sellers of convenience goods such as supermarkets and nationally branded, fast-moving shopping goods such as catalog showrooms.

Limited-service retailing

Limited-service retailers offer more sales assistance because they carry more shopping goods. Customers need information about these goods. The operating costs of these retailers are high, which results in higher prices.

Full-service retailing

Full-service retailers, such as specialty stores and first-class department stores, employ salespeople who assist customers in every shopping process phase. Full-service stores generally carry more specialty goods, and customers are ready to spare more time for shopping.

They provide services like liberal return policies, various credit plans, free delivery, home servicing, and extras such as waiting rooms and restaurants. Services provided by full-service retailers push up their operating costs, which eventually increases prices.

Product Line Retailing

Retailers can also be classified by the length and breadth of their product lines. Types of retailers under this classification are;

1. Specialty Store.
2. Department Store.
3. Supermarket.
4. Convenience store
5. Superstore
6. Combination Store
7. Hypermarkets.

Each of the different types of Retailers can be stated as under.

Specialty Store

A specialty store is a retail store that carries a narrow product line with a deep assortment within that line. Examples of specialty stores are shops selling furniture, books, electronics, flowers, etc. The narrowness of their product lines can further classify specialty stores.

For example, a clothing store is a single-line store, a women’s clothing store is a limited-line store, and a women’s “Jamdani” saree store is a super-specialty store. In recent times, specialty stores are growing for several reasons.

The increasing application of market segmentation, market targeting, and product specialization has generated the need for stores that concentrate on specific products and segments. Specialty stores attract customers because they provide quality products, convenient locations, suitable hours, highly satisfactory service, and quick entry-exit.

Department Store

A Department store is a retail organization that carries a wide variety of product lines. Typical of these products are clothing, home furnishings, and household goods. Each product line is operated as a separate department and managed by specialist buyers or merchandisers.

Examples of well-known department stores include Bloomingdale’s, Marshall Field, Hudson’s, and Filene’s. Specialty department stores carry only clothing, shoes, cosmetics, luggage, and gift items – examples are Saks Fifth Avenue and I. Magnin.

Department stores flourished through the first half of this century.

However, after World War II, they competed with other retailers, including discount stores, specialty store chains, and “off-price” retailers. Changes in urban areas like heavy traffic, inadequate parking, and general decaying of central cities, where many department stores were located, made downtown shopping less popular. Consequently, many department stores went into liquidation or merged with others.

Most department stores nowadays operate in suburban malls. Many of them have introduced bargaining facilities to counter discount threats.

Others have remodeled their stores for competing with other specialty stores. Many are even resorting to mail-order and telephone selling.

Service remains a critical factor for differentiating department stores from other types of retail stores. Many department stores are renewing their emphasis on service to keep old customers and win new ones.

Moreover, many large department store chains have joined instead of fighting the competition through diversification into discount and specialty stores.

Supermarket

Supermarkets are large, low-cost, low-margin, high- volume, self-service stores that carry a wide variety of food, laundry, and household products. Most supermarket stores are owned by supermarket chains.

The earlier supermarkets had introduced the concepts of self-service, customer turnstiles, and checkout counters. Supermarkets emerged in the 1930s and grew fast for several decades. Most supermarkets in the USA, however, today are experiencing slow sales growth because of declining population growth and an increase in competition from convenience stores, discount food stores, and superstores.

Thus, supermarkets are trying to find out new ways to enhance their sales.

Most supermarket chains now run fewer but larger stores and carry many nonfood items such as housewares, toys, appliances, videocassettes, sporting goods. Supermarkets expect that they would be able to earn higher profits by adding high margin lines.

In their pursuit of more customers, supermarkets also are improving their facilities and services. Examples of such improvements are better locations, improved decorations, longer store hours, cheque cashing, delivery, and even child-care centers.

Finally, to draw more customers, many supermarket chains are starting to organize their stores to best suit the locality in which they operate. They decide on store size, product assortments, prices, and promotions to local markets’ economic and ethnic needs.

Convenience Store

The convenience store is a small store near a residential area that is open extended hours, seven days a week, and carries a limited line of high-turnover convenience goods.

Although convenience stores charge high prices to cover higher operating costs and lower sales volume, they fulfill an important consumer need.

Consumers go to convenience stores for purchases at off-hours or when they do not have enough time. With the changes in buying habits and increased participation of women in shopping, convenience stores redesign their stores and tailor their marketing methods to meet the customers’ needs.

Through such moves, convenience stores hope to remain strongly differentiated from other food stores while adapting to today’s fast-paced consumer lifestyles.

Superstore

A superstore is a store almost twice the size of a regular supermarket. Superstores carry a large assortment of routinely purchased food and non-food items.

They offer such services as dry cleaning, post offices, photo finishing, lunch counters, etc. Superstore prices are usually 5 to 6 percent higher than conventional supermarkets because superstores carry a broader assortment.

Combination Store

A combination store is a combined food and drug store. They average about one and a half football fields in size, which is about twice the superstores’ size. Some renowned combination stores in the USA are AZP’s Family Mart, Wal Mart’s Supercentres, and Kmart’s Super Centres.

Hypermarkets

Hypermarkets are massive stores that are a combination of supermarket, discount, and warehouse retailing. Besides food items, they carry furniture, appliances, clothing, and many other goods. Hypermarkets have many checkout counters, and they operate like warehouses.

Products in wire “baskets” are stacked high on metal racks; forklifts move through aisles during selling hours to restock shelves. The store gives discounts to customers who carry their heavy appliances and furniture out of the store.

Relative Price Emphasis Retailing

Retailers can also be classified based on the prices they charge. The majority of the retailers charge regular prices and offer normal-quality goods and customer service. Some charge higher prices and offer higher-quality goods and services. The retailers that are characterized by low prices are discount stores, off-price retailers, and catalog showrooms.

Types of relative price emphasis retailing are;

1. Discount Store.
2. Off-price Retailers.
3. Catalogue Showroom.

A brief discussion on each type can be presented as under:

Discount Store

A discount store is a retail institution that sells standard merchandise at lower prices by accepting lower margins and selling at a higher volume. Stores that offer occasional discounts are not discount stores.

A typical discount store regularly sells products at lower prices. The early discount stores reduce expenses by operating in warehouse-like facilities in low-rent, heavily traveled districts. They cut prices, advertise heavily, and carry a reasonable width and depth of products. In recent times, many discount retailers are facing competition from other discounts and department stores.

To cope with this competition, they have redesigned their stores, added new lines and services, and opened suburban branches, increasing cost and prices.

On the other hand, many department store retailers have improved their stores and services to remain competitive with improved discounters.

Off-price Retailers

Off-price retailers are retail institutions that buy at less than regular wholesale prices and sell at less than retail. They usually carry a changing and unstable collection of higher-quality merchandise. These are often leftover goods, overruns, and irregulars procured at reduced prices from manufacturers or other retailers.

Off-price retailers have been most successful in clothing, accessories, and footwear. But they are operating in diverse areas, from food stores to electronics.

Off-price retailers are mainly of three types. They are; factory outlets, independents, and warehouse clubs.

• Factory outlets are owned and operated by manufacturers, which normally carry the manufacturers surplus, discontinued, or irregular goods.
• Independent off-price retailers are either owned and run by entrepreneurs or are divisions of larger retail corporations.
• Warehouse clubs are off-price retailers that sell a limited selection of brand name grocery items, appliances, clothing, and a mix of other goods at discounts to members who pay annual membership fees.

Although off-price retailing has flourished during the 1980s, competition has intensified as more off-price retailers entered the market.

The growth of off-price retailing retarded recently due to effective counter-strategies by department stores and regular discounters. Nevertheless, off-price retailing will exist as a growing and vital force in modern retailing.

Catalogue Showroom

A catalog showroom is a retail institution that sells a wide selection of high markup, fast-moving, brand name goods at discount prices.

These include jewelry, power tools, luggage, small appliances, and sporting goods. Catalog showrooms policy is to cut costs and margins for providing low prices that will attract a higher volume of sales.

In recent years, catalog showrooms face severe price competition from department stores, discount retailers, and off-price retailers. Many catalog showroom chains broaden their lines to tackle this competition, advertise widely, renovate stores, and add service to secure more business.

Control of Outlets Retailing

The majority of retail stores are independent. Other forms of ownership also exist.

They include;

1. Corporate Chain.
2. Voluntary Chain and Retailer Cooperative.
3. Franchise Organization.
4. Merchandising Conglomerate.

Let us discuss each category in detail.

Corporate Chain

Chain stores are two or more commonly owned and controlled outlets, employ central buying and merchandising, and sell similar merchandise lines.

Corporate chains are found in all retailing types, but they are most spectacular in department stores, variety stores, food stores, drug stores, shoe stores, and women’s clothing stores. Corporate chains have many advantages over independent retail outlets.

Because they are big, they can buy in large quantities at lower prices and can hire corporate-level experts to handle areas such as pricing, promotion, merchandising, inventory control, and sales forecasting.

Chains can also enjoy economies in promotion because their advertising costs are spread over many stores and a large sales volume.

Voluntary Chain and Retailer Cooperative

Being inspired by corporate chains’ amazing success, many independent retailers decided to band together in either of the two forms of contractual associations.

The first one of these two contractual associations is a voluntary chain, a wholesaler-sponsored group of independent retailers engaging in group buying and common merchandising.

The second one is the retailer cooperative, a group of independent retailers that bands together to set up a jointly owned central wholesale operation and perform joint merchandising and promotion efforts.

Franchise Organization

A franchise is a contractual association between a manufacturer, wholesaler, or service organization (the franchiser) and independent business people (the franchisees) who buy the right to own and operate one or more franchise system units.

The distinction between a franchise and other contractual systems like voluntary chains and retail cooperatives is that franchise systems usually are based on some unique product or service, on a method of doing business, or on the trade name, goodwill, or patent franchiser has developed.

Franchising has been prevalent in fast-food companies, soft-drink producers, filling stations, auto rentals, real estate, travel agencies, and many other product and service areas. The return received by the franchiser may include an initial fee, royalty on sales, lease fees for equipment, and a share of the profits.

Merchandising Conglomerate

Merchandising conglomerates are corporations that combine several different retailing forms under central ownership and share some distribution and management functions

Type of Store Cluster Retailing

Most stores nowadays cluster together to increase their power to draw customers and provide consumers the convenience of one-stop shopping.

The main store clusters are of two types;

1. central business districts and
2. the shopping center.

Central Business District

Central business districts were the main form of retail clusters in North America and Western Europe until the 1950s. Every large city and town had a central business district with department stores, specialty stores, banks, and movie theaters. These central business districts began to decline when people began to move to the suburbs.

Many cities are trying to revive downtown shopping areas by building malls and providing underground parking.

Regional Shopping Center

A shopping center is a group of retail businesses planned, developed, owned, and managed as a unit.9 The main variations of shopping centers are regional shopping centers, community shopping, and neighborhood shopping center.

A regional shopping center is like a mini-downtown, which typically contains between 40 and 100 stores. It pulls customers from a wide area.

Big regional shopping centers (malls) often have several department stores and a wide variety of specialty stores. Usually, a community shopping center houses between 15 and 50 retail stores. It usually contains a branch of a department store or variety store, a supermarket, specialty stores, professional offices, and sometimes a bank. Neighborhood shopping centers (strip malls) generally contain between 5 and 15 stores.

These shopping centers are close to and convenient for consumers. They usually contain a supermarket, a discount store, and several service stores such as a dry cleaner, self-service laundry, drugstore, beauty shop, or other stores.

Nonstore Retailing

Although stores account for a significant share of retail sales of goods and services, nonstore retailing is growing fast. Traditional store retailers have to cope with increasing competition from nonstore retailers.

Nonstore retailers sell through catalogs, direct mail, telephone, online computer shopping services, home, office parties, and other natural retailing methods.

Three forms of nonstore retailing are;

1. direct marketing,
2. direct selling, and
3. automatic vending.

Direct Marketing

Direct marketing is performed through various advertising media that interact directly with consumers, generally calling for the consumer to respond directly. Direct marketing began mostly with direct mail and mail-order catalogs.

But in recent years, other new forms such as telemarketing, direct radio and television marketing, and on-line computer shopping have appeared.

Direct marketing provides many benefits to consumers. Instead of taking the trouble of going to crowded shopping centers, consumers can use their telephone or computers to do their shopping. Today’s sophisticated communications technology has linked buyers and sellers in convenient ways.

People consider buying through direct mail or telephone conversation and time-saving, enabling them to select from a larger merchandise volume. Industrial customers can know about and order products and services without sparing time by meeting and listening to salespeople.

Direct marketing also provides many benefits to sellers. It gives the sellers the opportunity of more excellent selectivity. A direct marketer can obtain a mailing list containing any social group names which can be contacted later on.

A marketer can be personalized and customized to his message through direct marketing. The marketer can browse its database, select consumers with specific characteristics, and send them very individualized letters.

Direct marketing helps marketers build continuous customer relationships. Direct marketing also can be scheduled to reach prospects at the proper time.

As direct marketing reaches more interesting prospects at the best times, its message receives higher readership and response. Direct marketing also enables the marketer to test specific messages and media easily. Finally, direct marketing has the unique advantage of privacy. Competitors remain ignorant of the direct marketers’ offer and strategy.

Direct Selling

Door-to-door retailing, which started centuries ago with peddlers who used to roam around. Door-to-door selling has mainly two advantages – consumer convenience and personal attention.

But it involves high costs of hiring, training, paying, and motivating the sales force lead to higher prices. However, with recent developments in interactive direct- marketing technology, the future of door-to-door selling has become somewhat uncertain.

Automatic vending

Automatic vending is not new – in 215 B.C. Egyptians could buy sacrificial water coin-operated dispensers. Automatic vending machines are widespread in developed countries. But underdeveloped countries are yet to go a long way to introducing them.

Today automatic vending machines sell a wide variety of convenience and impulse goods – cigarettes, beverages, candy, newspapers, foods and snacks, cosmetics, paperback books, insurance policies, video cassettes.

In developed countries vending machines are seen everywhere in factories, offices, lobbies, retail stores, filling stations, airports, and train and bus terminals. Banks are installing automatic teller machines that provide bank customers with checking, saving withdrawal, and funds-transfer services.

Unlike retail stores, vending machines offer consumers greater convenience (self-service and full-time availability) and fewer damaged goods.

But the expensive equipment and labor required for automatic vending increase the costs of selling. Moreover, the prices of vended goods are often higher than those in retail stores.

Final Words: Future of Retailing

We can visualize several trends that will affect the future of retailing. Retailers can no longer expect sales and profit growth through expansion in current and new markets against the backdrop of fall in population and economic growth.

To grow, retailers must increase their shares of current needs. This seems to be difficult as competition is increasing, and new types of retailers are emerging.

In developed economies, the retailing industry suffers from severe overcapacity. Consumer demographics, lifestyles, and shopping patterns are also changing rapidly, offering new retailing challenges.

It follows that to be successful, retailers will have to select target segments carefully and position themselves precisely.

Also, rising costs will make more efficient operation and efficient buying imperative for successful buying.

As a result, technologies are making their headway as tools for fighting competition.

In countries with higher technological level, smarter retailers are using computers to produce better forecasts, control inventory costs, order electronically from suppliers, communicate between stores, and even sell to consumers within stores.

We can forecast that new retail forms will continue to appear to meet unique consumer needs and new situations.

But evidence shows that the life cycle of new retail forms is getting shorter. Given the rapidly changing socio-economic environment, retailing success will depend on adapting to such changes.

Astute retailers should identify the nature and dimensions of such changes in their real perspective to formulate the most appropriate strategies to cope with them.