Unit-1: Introduction to Retailing

Introduction-Meaning and Definition-Characteristics of Retailing-Functions of Retailing-Types of Retailing-

Forms of Retailing based on ownership. Retail Theories. Wheel of Retailing. Retail Life Cycle. Retail
Business in India. Influencing factor-Present Indian retail scenario. International Perspective in Retail
Business.
Introduction: Once the manufacturer is ready with a product and has decided about the prices, he needs to
distribute the product to the consumers. It is possible to distribute the products through direct and indirect
marketing. Direct marketing involves distribution through own sales force. Indirect marketing involves
distribution through a set of intermediaries like distributors, wholesalers and retailers. The retailer is a
middleman who links the producer with the ultimate consumer.
Retailing is one of the pillars of Indian Economy and accounts for about 10% of its GDP. India is one
of the fastest growing retail markets in the world, with 1.4 billion people. The Indian retail market is
estimated to be worth $1.3 trillion as of 2022.
Origin of the word Retail: The word ‘retail has been derived from the French word “retaillier” and means
‘to cut a piece’ or ‘to break bulk’. Evidently, retail trade is one that cuts off small portions from large lumps
of goods. It covers all the activities involved in the sale of product and services.
Meaning of Retailing: Retailing is the business activity directly related to the sale of goods and services to
the ultimate consumers for non-business use or their personal use. Retailing or retail sale is the last stage in
the distribution process.
In the world of retailing a retailer purchases goods or merchandise in bulk from manufacturers
directly or from distributers/wholesalers and then sells in small quantities to the ultimate consumers. Retail
stores/shops may be located in residential areas, colony streets, community centres or in modern shopping
malls.
Definition of Retailing: According to Philip Kotler, “Retailing includes all the activities involved in
selling goods or services directly to final consumers for personal, non-business use”.
Meaning of Retailer: Retailers are those business institutions or middleman or intermediaries, whose main
business is buying/receiving goods/services from producers and other middleman like-distributors,
wholesalers and or agents and is selling directly to ultimate/final consumers for their personal use.
Characteristics of Retailing
1. Retailing offers direct interaction with customers/and users.
2. Retailers buy the products from manufacturers or from wholesalers in bulk and sell them to the final
consumer in small quantities.
3. Sales at the retail level are generally in small unit sizes.
4. Consumer sales promotions are offered at this point only.
5. Customer service plays a vital role in the success of retail business and as important as core product
in retail business.
6. In almost all countries, retail outlets are more numbers, when compared to any other forms of
business.
7. Retailing is primarily to meet the requirements of geographical coverage and populating density.
8. Retailing offers employment opportunity to all groups of people irrespective of age, gender, religion
etc.
9. Retailer is an important linking-pin between producer and final consumer.
10. Retailing is the final connection in the distribution channel.
11. Retail stores/shops may be located in residential areas, colony streets, community centres or in
modern shopping malls.

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 12. Retailers sell the products or services to ultimate customers on both terms -either on cash or on
credit.
13. Generally, the retailers deal in variety of products and brands.
14. Good behaviour and desired services to customers play an important role in the success of retailers.
15. Providing product guarantees, after-sales service and dealing with consumer complaints are some of
the services that add value to the actual product at the retailers’ end.
Functions of Retailing: Retailers play a significant role as a link between manufacturers, wholesalers,
suppliers and consumers. In this context, they perform various functions such as:
1. Sorting: Manufacturers make one single line or multiple product lines and will always prefer to sell
their entire output to few buyers to reduce their costs. Final consumers will prefer to buy from a large
variety of goods and services to choose from and usually buy in small quantities. Retailers have to
balance between demands of both the sides, by collecting a combination of goods from different
producers, buying them in large quantities and selling them to individual consumers in smaller
quantities. This process is called sorting. Example, ‘Big Bazaar’ sells around 20,000 assortments
from around 900 companies.
2. Providing Assortments: Retailers may select the combination of assortments from different
categories. The assortments include substitutable items of multiple brands and prices. Offering an
assortment enables customers to choose from a wide selection of brand design, sizes, colours and
prices in one location.
3. Breaking Bulk: The work retailing is drawn from French, which means ‘cutting a piece off’, which
shows the true function of a retailer. Breaking bulk means physical repacking of the products by
retailers in small unit sizes according to customer’s convenience and stocking requirements.
Normally, retailers receive large quantities of sacks and cases of merchandise from suppliers to
reduce their transportation costs. In order to meet customer requirements, retailers will break the bulk
into convenient units.
4. Rendering personal services to customers and suppliers: Retailers render various services that
make it easier for customers to buy and use products. Those include:
➢ Retailers display products, which attract the customers.
➢ They provide credit facilities to the customers.
➢ They provide product guarantee from owner’s side, after sales services and dealing with
consumer complaints.
➢ They offer credit to customers through hire purchase facilities to enable them to buy a
product immediately and pay the price at their ease / convenience.
➢ They discharge orders, deliver and install the product at customer point.
➢ Retail sales people answer the customer complaints and demonstrate the product for the
customer to evaluate before make a choice.
5. Risk Bearing: The retailers bear a different kind of risks. The customers can come back to the retail
point and return the product. In that case, the risk of product ownership many times rests with the
retailers.
6. Holding inventory: A major function of retailers is to keep inventory so that products will be
available for consumers. So, to ensure the regular availability of their offerings, retailers maintain
appropriate levels of inventory. Retailer’s inventory allows customers instant availability of the
products and services.
7. Channels of Communication: Retailers are the bridge between the manufacturer and the end
customers. They serve as a two-way channel of communication. The manufacturer collects customer

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 data, data on gaps in demand and supply cycles and customer satisfaction from retail points. And
retailers provide information about the products to the customers.
8. Transport and advertising function: Retailers also help in transport and advertising function. The
larger assortments are transported from wholesaler’s point to retailers point by retailer’s own
arrangements and many times the retailer delivers the goods at final consumer’s point.
9. Other Functions:
➢ Buying and selling of goods
➢ Promotion of goods and services
➢ Facilitate standardization and grading
➢ Undertake transfer of ownership of goods
➢ Undertake storage of goods
➢ Create demand by undertaking promotional activities.
➢ Data processing etc.
10. Increasing the value of products and services: By providing assortments, sorting, breaking bulk,
holding inventory, providing services, risk bearing, channels of communication, transport and
advertising function and other functions, retailers increase the value of the products and services sold
to consumers for their personal and family use.

Classification of Retailing Formats/ Types of Retailing

The retailing formats can be classified into following types as shown in the diagram.

I. Ownership Based Retailing: The major classifications of forms of retail ownership are:
1. Independent Retailers: They own and run a single shop, and determine their policies
independently. Their family members can help in business and the ownership of the unit can be
passed from one generation to next. The biggest advantage is they can build personal rapport with
consumers very easily.
For example, stand-alone grocery shops, florists, stationery shops, book shops, etc.
2. Chain Stores: When multiple outlets are under common ownership it is called a chain of stores.
Chain stores offer and keep similar merchandise. They are spread over cities and regions. The
advantage is, the stores can keep selected merchandise according to the consumers’ preferences in a
particular area.

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 For example, Westside Stores, Shopper’s Stop, etc.
3. Franchises: These are stores that run business under an established brand name or a particular
format by an agreement between franchiser and a franchisee.
4. Consumers Co-Operative Stores: These are businesses owned and run by consumers with the aim
of providing essentials at reasonable cost as compared to market rates. They have to be contemporary
with the current business and political policies to keep the business healthy.
For example, Sahakar Bhandar from India, Puget Consumers Food Co-Operative from north US,
Dublin Food Co-Operative from Ireland.
II. Merchandise Based Retailing:
1. Convenience Stores: They are small stores generally located near residential premises, and are kept
open till late night or 24x7. These stores offer basic essentials such as food, eggs, milk, toiletries, and
groceries. They target consumers who want to make quick and easy purchases.
For example, mom-and-pop stores, stores located near petrol pumps, 7-Eleven from US, etc.
2. Supermarkets: These are large stores with high volume and low profit margin. They target mass
consumer and their selling area ranges from 8000 sq.ft. to 10,000 sq.ft. They offer fresh as well as
preserved food items, toiletries, groceries and basic household items. Here, at least 70% selling space
is reserved for food and grocery products.
For example, Food Bazar and Tesco.
3. Hypermarkets: These are one-stop shopping retail stores with at least 3000 sq.ft. selling space, out
of which 35% space is dedicated towards non-grocery products. They target consumers over large
area, and often share space with restaurants and coffee shops. The hypermarket can spread over the
space of 80,000 sq.ft. to 250,000 sq.ft. They offer exercise equipment, cycles, CD/DVDs, Books,
Electronics equipment, etc.
For example, Big Bazar from India, Walmart from US.
4. Specialty Stores: These retail stores offer a particular kind of merchandise such as home furnishing,
domestic electronic appliances, computers and related products, etc. They also offer high level
service and product information to consumers. They occupy at least 8000 sq.ft. selling space.
For example, Gautier Furniture and Croma from India, High & Mighty from UK.
5. Departmental Stores: It is a multi-level, multi-product retail store spread across average size of
20,000 sq.ft. to 50,000 sq.ft. It offers selling space in the range of 10% to 70% for food, clothing, and
household items.
For example, The Bombay Store, Ebony, Meena Bazar from India, Marks & Spencer from UK.
6. Factory Outlets: These are retail stores which sell items that are produced in excess quantity at
discounted price. These outlets are located in the close proximity of manufacturing units or in
association with other factory outlets.
For example, Nike, Bombay Dyeing factory outlets.
7. Catalogue Showrooms: These retail outlets keep catalogues of the products for the consumers to
refer. The consumer needs to select the product, write its product code and handover it to the clerk
who then manages to provide the selected product from the company’s warehouse.
For example, Argos from UK. India’s retail HyperCity has joined hands with Argos to provide a
catalogue of over 4000 best quality products in the categories of computers, home furnishing,
electronics, cookware, fitness, etc.
III. Non-Store Based (Direct) Retailing : It is the form of retailing where the retailer is in direct
contact with the consumer at the workplace or at home. The consumer becomes aware of the
product via email or phone call from the retailer, or through an ad on the television, or Internet.
The seller hosts a party for interacting with people. Then introduces and demonstrates the
products, their utility, and benefits. Buying and selling happens at the same place. The consumer
itself is a distributor.
For example, Amway and Herbalife multi-level marketing.
Non-Store based retailing includes non-personal contact based retailing such as:

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 1. Mail Orders/Postal Orders/E-Shopping: The consumer can refer a product catalogue on internet
and place order for purchasing the product via email/post.
2. Telemarketing: The products are advertised on the television. The price, warranty, return policies,
buying schemes, contact number etc. are described at the end of the Ad. The consumers can place
order by calling the retailer’s number. The retailer then delivers the product at the consumer’s
doorstep.
For example, Asian Skyshop. .
3. Automated Vending/Kiosks: The sale of products through a machine with no personal contact
between buyer and seller is called automatic vending. It is most convenient to the consumers and
offers frequently purchased items round the clock, such as drinks, candies, chips, newspapers, etc.
IV. Service Based Retailing: These retailers provide various services to the end consumer. The
services include banking, car rentals, electricity, and cooking gas container delivery. The success
of service based retailer lies in service quality, customization, differentiation and timeliness of
service, technological upgradation, and consumer-oriented pricing.

Forms of Retail Business Ownership

The term ‘retail sales by ownership’ refers to the basic system or basic format of doing business. In
India, around 12 million retail outlets are covered under this format. Under this format, proprietor is
responsible for the success and failure of the store. It is a type of format, which legally has no separate
existence from its owner.
1. Independent Retailer: An independent retailer usually a small retailer (always not true) and is found in
all lines of trade and in all communities. He has a business of his own. The high numbers of independent
retailers are associated with the ‘ease of entry’ into the market place.
Example, stand-alone grocery shops, florists, stationery shops, book shops, etc.
Merits of Independent Retailer
i. The independent retailer has no restrictions on who, how or where the business to be set up. He is
free to do what he wants and to select a convenient location.
ii. The independent retailer takes all decisions related to the store functioning. It drastically saves the
time the usually exist between decision-making and the implementation process. Therefore, an
independent retailer can respond quickly to the environmental changes and adopt proper strategies.
iii. The independent retailer can concentrate on a local area to achieve its business goals.
iv. To serve the local demand, a retailer can decide the trading hours, merchandise to be sold/removed
and prices as and when desired.
v. It avoids duplication of work, ambiguity of role and excess stock due to clarity of role, thus resulting
in increased productivity and time utilisation.
vi. To start an independent store is comparatively an easy task as it requires low investment, modest
fixtures and merchandise.
vii. The independent store by providing limited but deep merchandise can act as a specialized store to
serve a particular consumer segment.
Demerits of Independent Retailer
i. Due to limited exposure and small investments, in most of the cases, they don’t stand in competition
with the emergence of giant retailers and international store outlets.
ii. As independent stores are dependent on labour intensive techniques, they find themselves difficult to
improve store-productivity when it comes to stock-keeping, ordering, displays, accounting and
dispatching.

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 iii. Undoubtedly, the bargaining power of independent retailers is comparatively less as they offer
limited merchandise. On the other hand, big retailers (like supermarkets, hypermarkets and chain
stores) due to bulk buying, negotiate vendors effectively and offer less price, better quality goods and
great service at short notice or in small lots create problem for independent stores.
iv. Due to limited operations, less working capital, improper logistics arrangements, retailers are not
able to have benefits of economies of scale.
v. Independent retailers due to limited funds cannot go for mass sales promotion programs resulting in
limited target market and geographical coverage.
2. Chain Store / Chain Retailer: A chain retailer or a chain store is a group of two or more outlets
carrying the same sort of merchandise assortment, owned and controlled jointly and usually supplied
from one or more central warehouse. The main advantage of such a retail format is to make retailer
enable to bargain well with the suppliers. Another advantage is cost effectiveness in advertising and sales
promotions. Thus, a very small number of stores constitute a chain-store system.
Merits of Chain stores:
i. Good bargaining power with suppliers
ii. Cost effectiveness due to centralized operations
iii. Ease of managing store operations
iv. Use of advanced technology increases their working efficiency
Demerits of Chain stores:
i. The establishment cost to set up such chain of outlets requires huge money and expertise.
ii. Difficulty in managerial control due to geographically dispersed branches/outlets
iii. Due to centralized decision-making, some outlets may have difficulty in adapting to local needs.
iv. Due to huge network of outlets, it is difficult for management to monitor their day to day activities
resulting in communication gap, inefficiencies, and delay in decision making.
v. Expense on safety stock remains high.
(3) Franchising: A Franchise is a contractual agreement between the franchiser and the franchisee that
allows the franchisee the right to supply its brand (goods and services) exclusively within a defined area, as
per a particular format for a specified period of time. In return, franchisee pays a fixed fee in advance and a
monthly percentage of gross sales made by him under franchiser name and fame in the form of royalty. In
India, franchising business is becoming very popular and growing rapidly.
The small businesses find it convenient by being a part of large, multinational firm because franchiser
provides great assistance to franchisee for locating and constructing the retail store (including interiors, and
exteriors), developing the goods and services for selling, hiring employees, training, advertising and
administering the store effectively.
Key franchisers in India:
a. Domino’s Pizza
b. McDonalds
c. Pizza’s Hut
d. KFC
Types of Franchising: The franchising may be of three categories:
(a) Product or a Trademark Franchising: In this sort of franchising, a franchisee with mutual consent
acquires the name and identity of the franchiser by agreeing to sell the franchiser’s goods and services
exclusively made and supplied by him under his name. In actual, under such an arrangement, franchisee use
the franchiser’s business methods, selling techniques, standardized product lines and advertising on co-
operative basis.

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Although, franchisee adheres to certain operating rules and regulations, but still is independent in their day-
to-day operations. In consultation with the franchiser, franchisee can decide the store hours according to the
locality needs. Archie’s Gallery, Hallmark stores, which are spread all over India, is the best suitable
examples of a product/ trademark franchisee.
(b) Business Format Franchising: In business format franchising, there is a more synergetic relationship
between a franchiser and the franchisee. The franchisee receives assistance on the issue of site location,
building the store, quality control, accounting practices, training to store employees, and the problems faced
in conducting the store.
Besides these services, a franchisee enjoys the benefits of prototype stores, standardized product lines,
selling and presenting skills and co-operative advertising. McDonald’s outlets, Domino’s, Pizza Hut are the
best suited examples of business format franchising. In India, since 2000, most growth has been observed
under this type of franchising format.
(c) Area Development Franchising System: In an area development franchisee system, the franchiser
grants development rights of a particular area to the franchisee in turn for a front-end development fee. The
franchisee on his part is responsible for developing a certain number of units within a given period of time.
Excel InfoTech EIIT has adopted this unique mode of franchising.
(4) Leased Department Stores:
A leased department which is also known as shop-in-shops or store-in-store, is a section of a department in a
retail store in the form of specialty/discount store given to any outside party on monthly rental basis. The
person who provides the store space to outside party is known as lessor, and the person who takes the
shop/store space is known as lessee.
The payment made by lessee to lessor for the use of store space is decided in a contract in the form of
monthly rent. The lessee (the proprietor) is usually responsible for all aspects of business such as managing
fixtures and furniture. In order to maintain the overall consistency and co-ordination, the store has some
operating and administrative restrictions for each lessee in a uniform manner. For a lessee (retailer), the
main reason to have rented premises is the property price that usually is so high that buying the premises is
beyond the reach of the retailer.
Leased Departments in India:
In India, leased departments are an emerging trend in the field of retail business. Most of the renowned retail
chain stores set up their outlets or extension counters in commercial complexes of residential areas, malls,
PVR multiplexes, public places like bus terminals, railway stations, metro stations, airports and on national
highways. The reason behind their popularity is the business and marketing philosophy of the retail chains
that insures the availability of their brands to the consumers near their place of work or home.
Advantages and disadvantages of leased departments:
Following are the advantages of having leased departments from stores’ point of view:
i. It provides one-stop shopping experience.
ii. Leased stores pay for property, personnel and other expenses resulting in fewer burdens on lessor.
iii. Lessor gets regular monthly income in the form of rent.
iv. Employees’ management, merchandise displays and arrangement, reordering of items, complaint
handling and so on are handled by individual lessees.
Disadvantages:
i. Operating hours may vary from store to store on the basis of goods and /or services sold.
ii. Items sold /business lines are restricted.
iii. If lessees are performing well, the store owner may increase the rent or lessees themselves can create
problems by changing /not obeying agreements’ rules and regulations.

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iv. The bad image of one lessee can spoil the image of entire store.
(5) Vertical Marketing System: A Vertical Marketing System (VMS) is a system in which almost all the
members of distribution channel such as manufacturers, wholesalers and retailers work together to satisfy
human needs and wants by facilitating the smooth flow of goods and services from manufacturer to ultimate
consumer.
In traditional marketing system, manufacturers, wholesalers and retailers are separate entities that try to
maximize their own profits. The philosophy behind developing vertical marketing system is that when one
member of distribution channel tries to maximize its profits on the expense of rest of the members, it will
create conflicts resulting in decline in profits for the whole channel of distribution. To avoid these conflicts,
now retail firms have started forming vertical marketing systems. Three types of VMS are in existence
through which goods and services are usually distributed to customers.
These are:
(i) Independent firm VMS
(ii) Partially integrated VMS
(iii) Fully integrated VMS
(i) Independent firm VMS is a marketing system where manufacturers play vital role to provide goods and
services to customers. This is the case where retailers are very small and therefore, manufacturers have to
reach the whole market. Also when firm’s financial resources are limited and channel members are not in a
position to share risks and expenses, therefore, they want manufacturer to come forward and lead the
retailing efforts. Independent retailers on the other hand, target their customer base and build loyalty by
becoming friendly retailer and mouth advertisement.
Examples:
i. Campbell
ii. Coke
ii. GE
iv. JC Penney
v. Kellog
vi. McKesson Corp
vii. P&G
viii. Pepsi
ix. Wal Mart
(ii) Partially integrated VMS is a marketing system in which two independent, financially strong firms along
a channel of distribution perform all manufacturing and distribution functions without the involvement of
any intermediary. This is the case where involvement of wholesalers may be expensive and/or unaffordable.
Partially integrated VMS is most suitable where:
(i) Wholesalers are costly to afford,
(ii) Company has ample resources,
(iii) Both manufacturers and retailers are large,
(iv) Unit sales are moderate, and
(v) Strict control over channel is required.
(iii) Fully integrated VMS is a system where one member of the distribution channel for say manufacturer
performs all production, storage and distribution functions without the involvement of any channel member.
This is the case where manufacturer being resource sound wants direct interaction with its customersIn
short, fully integrated system is based on the concept of ‘manufacturing to retailing’.
Other examples are:

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a. Banana Republic
b. Gallo
c. Giant Foods
d. Hallmark
(6) Consumer Cooperatives: Consumer Cooperatives are retail outlets owned and managed by its customer
members. A group of interested customers (members) start retail operations by investing money, receive
stock certificates, elect members to run day to day activities and share the profits on the basis of investment
made or certificates held.
The reason to setup consumer cooperative is that local retailers are not able to satisfy consumers’ needs
(whatever the reason may be). Therefore, consumers are left with no option but to open their own store.
Examples of cooperatives in India are the ‘Kendriya Bhandaars’, owned and managed by government,
‘Apna Bazaar’ shops in Mumbai and ‘Super Bazaar’ stores in Delhi. In some cases, these stores are run by
the local residents of society/colony/apartment residents.
State Consumer Cooperative Organizations:
In a few States, where the central stores and the local traditional stores have not made much progress, the
State Federations have come forward to provide merchandise by establishing supermarkets. Assam, Madhya
Pradesh, Karnataka and Assam are the leading states having such kind of cooperatives stores.
Janata Bazar owned and run by Karnataka Federation with an annual sale of more than one crore rupee is
one of the biggest retailers of the Karnataka state. Similarly in Madhya Pradesh, Pridarshani super market at
Bhopal is the leading retailer of Madhya Pradesh with an annual turnover of rupee five crore.
Some of the leading State Consumer Co-operatives are:
1. Karnataka Cooperative Consumers Federation Ltd
2. Maharashtra State Cooperative Consumers Federation Ltd.
3. Gujarat State Cooperative Consumers Federation Ltd. and
4. Pondicherry State Cooperative Consumers Federation Ltd. (CONFED).
Characteristics:
1. Limited expansion
2. Profit is shared by its members
3. They sell usually essential commodities at reasonable price
4. Main purpose is social service not to earn profit, and
5. Average customer service.

Retail Theories: Retailing theories help in explaining the development of retailing and changes in retailing
formats/types. The two powerful theories are:
I. Cyclical Theory: Retail organisations go through cycles overtime. The cyclical theory include:
1. Wheel of Retailing Theory: Harvard Professor Malcolm P Mc Nair developed this theory
in 1958 to explain the continuous evolution of retailing. His theory is known as wheel of
retailing. This theory divides the cyclical patterns of retail evolution-Innovation, Trading up
and Vulnerability.
According to this theory a new retailer enters the market with a low status, low profit
margin and low price store formats. Later they move to trade up their market locations,
adding more services, expanding product lines to differentiate themselves from imitators.
Eventually they mature high cost, high price retailers, vulnerable to new retailers. And the
newest entrants start the wheels of retailing turning once again in a new round of evolution.

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 This is called the wheel of retailing. The wheel of retailing is explained in the following
figure:

2. Accordion Theory / General-Specific-General Cycle Theory: This theory of retail

institutional change, evolved by Hollander (1966). The Accordion theory of retailing
suggests that retailers initially enter a market as a general retailer with wide assortments and
then they focus down on particular group (specialized narrow line store). Over the time they
begin to diversify their offer in order to grow and then back to the more general wide
assortment institution.
The Accordion effect describes how general stores moved to specialize but then widened
their range of merchandise again as new classes of products were added.

II. Evolutional Theory: The Evolutionary theory include:

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 1. The Dialectic Process: The dialectic process has been proposed to explain the changes that
occur in retailing. In other words, it suggests how the original forms of retailers change into
new forms. According to this theory, when a new competitor uses an innovation that gives it
an advantage over an established retailer, the established retailer will adopt a strategy, that
brings it closer to that innovation. By making the innovation his own, the established retailer
negates some of the innovator’s appeal. The new comer, in turn changes its strategies in a
fresh attempt to gain competitive superiority generally by upgrading, adding product lines or
otherwise modifying the original retail concept. These changes result in a new type of
retailing that blends the best of the established retailers and the new comers. The dialectic
process is explained as follows:

2. The Natural Selection: The natural selection theory suggests that retailers with the most
appropriate organisational structure and format will survive. This theory is based on Charles
Darwin’s view that organisms change and evolve on the basis of survival of the fittest. This is
explained as follows:
a) Retail formats/types best able to adapt are most likely to survive. Example, stores
originally resisted internet channel, but now are benefiting from it.
b) Must adapt in response to environmental changes:
i. Customer needs (e.g., longer store hours, ability to shop-online)
ii. Technology (e.g., logistics efficiencies)
iii. Competition
III. Conflict Theory: Conflict always exist between operators of similar formats within broad retail
categories. It is believed that retail innovation does not necessarily reduce the number of formats
available to the consumer, but leads to the development of more formats. Retailing thus evolves
through a dialectic process, i.e., the blending of two opposites to create a new format.

IV. Retail Life Cycle Theory: The concept of product life cycle as explained by Philip Kotler is also
applicable to retail organisations. This is because retail organisations go through identifiable
stages of innovation, development, maturity and decline. This is commonly termed as the retail
life cycle. This theory is about the change through time of the retailing outlets. This is an “S
shaped” development. The “S-Shaped” development curve has been classified into four main
phases.
i. Innovation: A new organisation is born; it improves the convenience or creates other
advantages to the final customers that differ sharply from those offered by other retailers.
This is the stage of innovation, where the organisation has a few competitors. Since it is a

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 new concept the rate of growth is fairly rapid. Levels of profitability are moderate and
this stage can last up to five depending on the organisation.
ii. Growth: The retail organisation faces rapid increases in sales. As the organisation moves
to stage two growth, which is the stage of development, a few competitors emerge. Since
the retail company has been in the market for a while, it is now in a position to pre-empt
the market by establishing a position of leadership. Investment level is high in this stage.
This stage can last from five to eight years.
iii. Maturity: The organisation still grows, but competitive pressures are felt acutely from
newer forms of retailing that tend to arise. Thus, the growth rate tends to decrease.
Gradually, as markets become more competitive and direct competition increases the rate
of growth slows down and profits also start declining. This is the time when the retail
organisation needs to rethink its strategy and reposition itself in the market. A change
may occur not only in the format, but also in the merchandise mix offered.
iv. Decline: The retail organisation looses its competitive edge and there is a decline. In this
stage the organisation needs to decide, if it is still going to continue in the market. The
rate if growth is negative, profitability declines further and overheads are high.
Retail Business in India
Retailer is the largest private industry in India and second largest employer after agriculture.
Retailing is one of the pillars of Indian Economy and accounts for about 10% of its GDP. India has the
highest retail outlet density in the world. India is one of the fastest growing retail markets in the world, with
1.4 billion people. The Indian retail market is estimated to be worth $1.3 trillion as of 2022.
Retail sector is a sunrise industry in India and the prospect for growth is simply huge. There are
many factors that have stimulated the rise of the shopping centers and multiplex-malls in a jiffy. Some of
them can be listed as follows:
1. Rise in the purchasing power of Indians- the rise in the per capita income in the last few years has been
magnificent. This has led to the generation of insatiable wants of the upper and middle class. The demand of
new as well as second hand durables has risen throughout the country thus providing the incentive for taking
up retailing.
2. Favorable to farmers- retailing has helped in removing the middlemen and has thus enhanced the
remuneration to farmers. This is a new revolution in the agricultural sector in India and will go a long way in
amending the condition of agriculture, a major concern among policy makers.
3. Use of credit- a typical Indian is most conversant with using credit cards than carrying money. This has
led to a shift of the consumer base towards supermarkets and make the payments in the form of credit.
4. Comfortable Atmosphere- a visit to a retail store appears to be more soothing for the generation-Y.
People and kids prefer to shop in an air conditioned a tech savvy manner. The retail industry is the second
largest employer in India. It currently employs about 7 percent of the total labor force in India. Finance
Minister P. Chidambaram's recent statement “salaries ought not be legislated” is a welcome move as most of
the organized retail is in private hands. However only about 4.6% of the total retail trade is in organized
sector. It generates about Rs.55,000 crore ($12.4 billion). The major and minor players desperately need to
work hard in this direction so that next time the figures look more decent. The government must also make
an attempt to ameliorate the situation as political instability and infrastructure namely power and roads are
the major roadblocks in the path of smooth functioning of the market.

Types of Retailing in India

1. Unorganised Retailing: Unorganised retailing refers those retailing which is not regulated by statute
or legal provisions. In other words, it refers to the traditional formats of low-cost retailing and which

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 is not required to follow any of legal rules and regulations. Examples, local kirana shops, owner-
operated stores, street vendors etc. The unorganised sector, which is primarily run by families and
accounts for around 93% of India’s Retail Industry.
2. Organised Retailing: Organised retailing refers those retailing which is regulated by a stature or
legal provisions. In other words, it refers to that modern retailing, which is required to follow a set of
rules and regulations to conduct trading activities such as – license, sales tax registration, income tax
registration etc. Examples – hyper marker, retail chains and also privately owned large retail
business.
Influencing Factors for the Growth of Organised Retailing
Some other main factors responsible for the growth in Retail Industry are as follows:

1. Growth of Consumers – Nowadays there is tremendous growth in number of consumers in India,

especially the middle class. Consumer demand & income structure has also increased further raising
their expectations for quality products at reasonable prices. Retail outlets offer a wide variety of
products & services to the customers to meet their demands thus resulting into the growth of Retail
Sector.
2. Working Population – In recent times the graph of working population has seen a steep increase in
urban as well as rural areas thus changing their spending habits & income structure. It becomes very
difficult for the working people to spend enough time in shopping at different locations. This enables
a retailer to provide them various products at one place, creating a platform for development.
3. Value for Money – Big & organised retail outlets basically deal in volumes & can offer a good
range of products at reasonable price thus attracting customers at a very large scale. This in return
also creates a good opportunity for retailers to get more profits & enables new business groups to
enter into this sector.
4. Rural Market – Today’s Indian Retail market has entered in rural areas creating a big competition,
as the rural population has become more literate & quality conscious. These high potential rural
populations have thus enabled the retailers to enter rural market & develop new products & strategies
to meet their demands. Also it has created employment opportunities for the rural people thus
heading towards growth & development.
5. Corporate Sector –Corporate sectors have also entered into the retail business to cater the customers
demand & provide them better quality products at reasonable price. This is one of the reasons that
have brought revolution to the retail sector thus driving it towards the growth.
6. Foreign Retailers – Rapid expansion & the race to cater the demand of every customer is catching
the interest of foreign retailers to enter the market &provide good quality products & services
through joint ventures or franchising. This will further boost the retail sector & will help in
developing economy of the country.
7. Technological Impact – Advance technology has made it easier for the retailers to handle large
scale business & cater the needs of consumers. With the introduction of computerized billing system,
electronic media & marketing techniques, barcode system has changed the face of retailing in
providing products & services to customers. Also the use of online market has driven the retail sector
towards advanced growth structure.
8. Income Structure –Increase in the number of working population has resulted in increase in the
income structure in cities as well as remote areas. This has further led to increase in the demand for
quality products & services. People nowadays tend to try new things & improve their look thus
increasing the spending habits & giving an opportunity to grow & expand their business.
9. High standard of living: Standard living in India has improved. Earlier shopping in India always
had an emotional tag attached to it, along with that people use to have myth that shopping from
shopping complexes is costlier and it suits only to rich class. But now things have changed, people
have changed their misconception and have adopted shopping culture. This shows that standard of
living has increased.

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 10. Entry to various sources of financing: Indian economy gets finance from foreign countries in two
routes, either in the form of FDI (Foreign Direct Investment) or as FII (Foreign Institutional
Investment). Now both the ways are opened up for retail sector. Routes for FDI is simplified.
International Perspective in Retail Business
Retail internalisation is the transfer of retail operations outside the home market. It involves the
international transfer of retail concepts, management skills, technology and even the buying function.
International trade and commerce has existed for centuries and played a very important part in the world
history. However international retailing has been existence and has gained ground in the past two to three
decades. The economic boom in several countries, coupled with globalization have given way to
organisations looking at setting up retailing across border.
Factors involved in International Retailing
1. Operations: Retail internationalization is the expansion of retailer’s operations into a foreign
market. The store format may or may not be similar to that in the home market. Identical operations
may well trade under a different brand than that operated in the domestic market. On the acquisition
of a foreign retail operation, the new owner may retain the original brand if it is a respected brand.
Sometimes, a new foreign brand is perceived as more fashionable than its competitors.
2. Concepts: Retail concepts lay emphasis on innovations in the industry. The self service concept first
emerged in California in 1912. Later, the concept was followed in a number of international markets
in the next two decades. The retail concept currently operated by retailers may also become
successful in a foreign market.
3. Management Expertise: The transfer of concepts is linked with the internalization of management
expertise. This encompassed the internationalization of skills and techniques used in the management
of the business. Formation of alliances is an important means of transferring management functions.
4. Technology: Retailers who operate internationally require the use of technology advances. Use IT in
central management of retail operations has improved its decision making in areas such as finance,
personnel and logistics. Internationalization will employ relatively advanced technology. It is
preferable for retailers to move into a market where they have a technological advantage.
Reasons for Internationalization of Retailing: Hollander proposes five reasons for retail
internationalization.
1. Inadvertent internationalization: Inadvertent internationalization is due to political instability.
Sometimes, changes in the demarcation of national borders take place. This may mean a retail
company is operating in a different market although it store have not physically moved. The US
retailer Kmart entered Czechoslovakia. Within a year it found itself operating in two district markets,
the Czech and Slovak republics.
2. Non-Commercial Reasons: Non-commercial reasons of political, personal, ethical or social
responsibility have motivated retailers to move into foreign markets. For example, retailers foray into
markets for reasons of social and environmental responsibility.
3. Commercial Objectives: It includes entering the market which gives retailers competitive edge.
Gaining important market knowledge before moving in on a larger scale learning about innovations
may be other commercial objectives of retail internationalization.
4. Government Regulations: Government regulations influence the choice of market by retailers. It is
not a prerequisite to internationalization. Retailers prefer the markets with fewer restrictions on their
growth. Severe regulations at home push retailers into the international area.
5. Growth Potential: Retailers seek the best growth potential possible. If they perceive profitable
opportunities in overseas markets, they are likely to capitalize on them.

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