What are the classifications of retail formats?

Do you know what a chain store is? Basically, it is the group of 4 or more stores that deal with the same merchandise. They are controlled by central ownership. The supplies to these chain stores come from the central warehouse. Their main motive is to approach a huge number of consumers by expanding their operations. They concentrate on selling the same product. In India, USHA and BATA are the main examples of chain stores. Although the buying is centralized, the selling process is decentralized.

Benefits of chain stores:

• Since the risks are distributed, the possibility of loss is also less.
• Chain stores can be established anywhere. They do not need prime or costly locations. So, there is a greater level of flexibility.
• These stores always enjoy cost advantages because they buy in bulk. Also, their advertisement expenditure is quite less.

Disadvantages of chain stores:

• Chain stores can be quite expensive from the consumer point of view.
• Since chain stores operate as a large-scale business organization, lots of difficulties pop up regarding management and maintenance.

Also Read: Overview of Retail Management

Supermarkets:

Supermarkets, too, operate on a large-scale basis, just like the chain stores. But here, the service is more like the self-service type. Supermarkets are either operated by the owner, or they may lease out a few departments. Mostly, you will notice that these supermarkets are located in plush locations and prime markets of a city. You will get branded products and merchandise. Also, they offer a parking facility.

Benefits of supermarkets:

• Supermarkets offer attractive discounts. The products can be affordable because of these schemes and discounts.
• They offer you the experience of convenient shopping. Also, consumers get to choose from a huge variety.
• Shopping time also gets reduced since consumers get most of the things under one roof.

Disadvantages of supermarkets:

• The expense of store operation is quite hefty.
• Their maintenance and administrative expenses are also quite high.

Departmental stores:

Departmental stores can be categorized as income group-based or ownership-based. A departmental store always operates in proper integration under a common roof. They can have multi-level retail outlets that operate at the national as well as international level. You will find them locally, as well. Shoppers Stop, Westside, and Lifestyle, are some of the major national level departmental stores in our country.

Advantages of departmental stores:

• Customers get to buy a lot of products under a common roof. So, they tend to surge departmental stores more often.
• These stores are always in a position to enjoy the advantage of economies of scale. They operate on a large-scale basis, and hence, they enjoy cost benefits. Bulk quantity purchases result in special discounts or concessions to consumers.

Disadvantages of departmental stores:

• Generally, the staff members lack the much-needed expertise and professionalism to tackle everyday business affairs.
• There is a severe lacking in the efforts to maintain a long-term relationship with clients. The element of personal involvement is almost zero.
• The overall expenses involved in operating and managing a departmental store is exceedingly high.

Direct selling:

Direct selling always involves that much-coveted personal touch. The customers will be able to create personal contact with the salesperson. Also, consumers can freely discuss their needs, requirements, and queries with the sales representative. The seller plays a significant role as he is in the position to influence and convince the consumers to buy the products.

Retailing is the set of activities related to the sale of products and services to the ultimate customer. Companies carry out market research to know customer attitude towards their products but the customers’ real intents are displayed only during the process of buying in retail stores. A company can develop insights into the behaviour of its customers as they shop in the retail store.

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But most retail stores are not owned by the companies whose items are sold in them. Retailers have a huge amount of information about customer behaviour but all this information is not passed on faithfully to the companies.

A retailer’s prime affinity and loyalty is towards the customers of his store, and not to the companies whose goods he sells. Companies either need to have more leverage with the retailers or own some retail stores themselves to be able to know their customers better.

It is a huge managerial challenge to run a retail operation. A retailer is required to have both marketing and operational skills. He needs empathy to understand customers’ requirements but he also has to be indifferent enough not to let customers’ anguish about the products in his store bother him.

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He has to remember that he sells the manufacturer’s products and it is the manufacturer’s duty to make the right products for the customers. The retailer’s focus has to be on getting the operation of his store right, which is itself a stupendous task.

The retailer has to get the right assortment of products in the store in an efficient way, arrange the products in a way that stimulates purchase and minimizes inconvenience for customers, and manage a group of friendly and effective salespersons.

Consumer decision making involves the choice of brands, and also the choice of retail outlets from where the customer will buy his chosen brands. It may also happen that a customer decides to buy from a particular retail format, and then buys from among the brands that the retail format stocks.

Most customers buy in physical retail stores of various types having various product assortments and levels of service, but non-store retail formats such as mail order, automatic vending and Internet sales account for large amount of sales, especially in developed countries.

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In developing countries, these formats are slowly finding acceptance now. Retailing makes products available when and where customers want to buy them. Retailing is becoming international in nature and is slowly emerging as an important service.

Classification of Retail Formats:

There are many types of retail formats like discount stores, supermarkets, convenience stores, department stores, etc. These retail store formats vary from each other on the basis of their product assortment (product depth and width), price and location.

1. Product Factors:

Retail store formats can be classified on the basis of the number of products sold by the retailer and the range of products in each category.

Narrow and Deep Product Assortment:

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The store has one product category or a very narrow, related range of products. The store however stocks large amount of variety of these products. The variety available in this store format is unparalleled and is the competitive criteria among these stores.

These are sometimes called specialty stores. The price range in these stores could either be narrow, catering to a specific market segment, or it could be broad covering a large number of segments. Product categories in which this format is popular are footwear, clothing, furniture and furnishing.

As the economy of a country develops, people will want more sophistication and variety in greater number of categories and this can be provided only in this type of format. This format can afford specialization of retail personnel which will be necessary in handling customers’ enquiries as categories develop.

Some specialty stores have a very limited number of product categories (typically one) and the complete range in that category is available under one roof. These stores can afford lower prices because of their influence on the manufacturers as they sometimes control the market of the category.

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For instance, IKEA is one such store that stocks every type of furniture, in all price ranges and usage. Called category killers, these stores eliminate competition in the specified category.

Wide and Shallow Product Assortment:

The store has a number of products, but stocks a limited variety of all these goods. The store usually stocks related items, for instance, lifestyle goods for the whole family that include clothes, books, home decor, jewellery, cosmetics, accessories, stationary, toys, etc.

For instance, in India, Ebony Shopper’s Stop are such stores. This store format is gaining wide acceptance in India as the store acts as a one- stop-shop for the complete family. Usually such stores are also accompanied by food joints and entertainment plazas that provide an ideal day out.

Such formats always face a conflict between the number of product categories they should store and the range in each category. If the number of product categories is large, chances are that the range in each one of them would be smaller because of space constraints or else it may become too unwieldy.

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But this arrangement will leave a lot of customers dissatisfied as they may find the range too limited. The other option is to have limited product categories and a wide range in each one of them. But this will reduce the number of occasions that the customer will find a reason to walk into the store.

These store formats will ultimately be targeted to specific segments. One such store targeted towards the up market will stock premium brands in all categories, whereas the down-market store will stock popular or less premium brands.

Hypermarkets:

The evolution of hypermarkets has resulted in wider and deeper product assortments for customers. These retail formats are characterized by very large retail spaces that are leased out to various brands. These huge retail formats have many single brand stores in many of the product categories.

The choice of the brands offered conveys the depth of the category, image of the store and reflects the intended target market.

2. Location Factors:

One specific type of specialty store is the grocery store or the chemist, whose critical factor for success is the proximity to the customer. These stores operate in those product categories for which the customer desires convenience of location.

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The products may be urgently required like medicines. Some of these products, like grocery items, vegetables and fruits, have to be bought frequently as they would be spoiled if they were stored for a long time.

The importance of a store’s proximity to customers has not waned even with improvement in transportation and more families owning vehicles because, in most households, both husbands and wives are working longer hours.

Purchasing for the household is done only during weekends. Such families need nearby stores when they have to purchase fresh grocery items during the weekdays. Therefore such stores should stock only those items whose purchases the family cannot postpone till the weekend. These stores can have arrangement to deliver the items on a regular basis to the households.

Families make major purchases for the household during the weekend. But they often combine the purchasing of supplies with an entertainment trip. The family would watch a movie and buy its supplies on a common trip.

For such excursions, location of stores is not important in terms of proximity to customers. Proximity to customers may even become a liability, because for most people, the idea of entertainment is not walking into the theatre or restaurant which is next door.

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Customers would like to travel some distance for their weekend trips. But location still remains important. The store has to be located at places where the customers are most likely to visit during their weekends. Shopping and entertainment have to be packaged together for customers who do not have the time to shop during weekdays.

3. Price Factors:

Some retail stores may charge normal or list prices, while some may charge lower than list prices on a regular basis. Retail stores that offer products on the list price do not give discounts on a regular price, though they engage in promotions.

All the stores mentioned above charge list prices from their customers. But there are stores called discount stores which sell products at low prices daily.

They can do this by bulk buying, accepting low margins, managing costs tightly and choosing locations where real estate prices are low. These discount stores get price concessions from manufacturers because of the high offload from these stores.

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