What is Retailing? Meaning, Definition, Types & Functions

If an institution (the producer, wholesaler, or retailer) offers final products directly to the ultimate consumers, it is doing retailing. Any business enterprise whose main sales volume is derived from the retailing activities is considered as a ‘retailer’ or ‘retail store’. Personal and non-business needs of different customers are satisfied by the retailer; irrespective of the place of offering (i.e., in Store, at consumers’ residence or on streets) or the methods used (i .e., by vending machines, mail, internet. telephone or in person).

They collect feedback from the customers directly and convey it to the manufacturers. The comprehensive combination of different activities or steps which are used to sell a product or a service to the consumer for self or family consumption is termed as retailing. Individual demands of target customers and supplies of available producers are effectively matched by the retailers.

Types of Retailing

The operating format or organisation of a retail institution is called retail structure. Following types of retail structures are available to the retailers:

1. Retail institutions by ownership,
2. Store retailing/retail institutions by store based Strategy mix and
3. Non-store based, web and other forms of non-traditional retailing.

• Retail Institutions by ownership: Retail institutions may be consumer-owned, chain-owned, owned by manufactures, franchisee-operated or leased departments. These are briefly described below:

Independent Retailer: When a retailer operates only in a single retail establishment, it is regarded as an ‘independent retailer’. One of the main reasons for the attractiveness of this format of retailing is its ease of entry and it is mainly useful for those individuals who have limited capital resources. Almost 80% of total retailers fall in the category of independent retailers and they have almost 40% shares in the total retail sales. Family or the owner manages such retail institution.

Retail Chains: When more than one retail stores are operated by the single retailer, it is called retail chains. Only small sales are made by these retail chains. Big chain stores like, Sears, Wal-Mart and  Home Depot offer bulk of sales.

Franchising: Franchising is an agreement between two entities where the owner (franchisor) of an institution (producer/wholesaler/retailer) grants the right to the retailer (franchisee), to use its trade name and specific business processes and techniques for offering goods or services. In general, the franchisor lists all the terms and conditions to the franchisee on the basis of which the entire business is conducted. The franchisor provides all these facilities to the franchisee in return or a fee. For this purpose, the franchisee willing to do a business provides the required time and capital to the franchisor in order to utilise all the available resources. Hence, it is a between the franchisor and franchisee, who individual business entities, may be in form of sole proprietorship, partnership, or corporations.

Leased Departments (Shop in Shop): Leased department can be seen as another form of retail ownership. The larger space in retail store which is rented to an outside vendor is known as ‘leased department’. Leased departments work as a business unit under the large business. Apart from this, the rent for the space is paid by the lessee. Jewellery and shoe departments in large department stores can be seen as the example Of this type Of ownership. As the expertise which is required for a certain product line such as jewellery is not possessed by the larger stores, they can get the advantage of greater expertise within the store. These stores also provide various types of products which can fulfill the needs and wants of the customers.

Cooperatives: Several retailers come together to form an organisation so as to maintain economies of scale, this is called ‘cooperative’. These are also called marketing or secondary cooperatives. Making marketing an integrated effort and getting discounts from the producers are the key objectives of these cooperatives. Members Own and control the operations Of the cooperative and they are strongly attached with the cooperative. Producers, consumers, or even the employees may be the member of such cooperatives.

• Store Based Retailing: The type of strategy which is adopted by the retail stores for selling their goods and services can be used to categorise various retail stores. It includes two major formats:

General Merchandise Retailing: Selling general, non-food products in the store is termed as general merchandise retailing. All kind of non-food products are available With such retailers. Different retail formats or structures used within general merchandise retailing are as follows:

Departmental Stores/Variety Stores: Such retailers are very diverse in nature and are segmented into several departments or segments. These segments contain numerous varieties of products (deep assortment), that is why they are also called ‘variety stores’. Some sorts of customer services are also provided by these departmental stores. Such stores give close competition to the discount Stores as they offer relatively low-cost products. The depth and breadth of products offered by departmental stores is wide in nature. In comparison to other general merchandise competitors, greater levels of services are provided by the department stores to their customers. In such stores, every department is treated as a ‘ministore’ having different set of merchandise. Individual sales space, sales personnel as well as managers are assigned to different segments or departments and they are responsible for their respective departments. These departments have their own integrated marketing communication (IMC) practices which may be incorporated in overall IMC practice of the store.

Discount Stores: A store based on offering discount in any product is termed as ‘discount store’. It is a low-cost, high volume and quick-turnover store, offering variety of merchandise at very less prices. These stores have the similar product lines as in the case of department stores such as electronics, appliances, furniture, etc. Apart from this the items related to auto accessories, house wares, gardening equipment, etc., are also offered by these stores. They have the facility of centralised checkout. The customer services are offered at a centralised area rather than the store department. Majorly these stores operate on the principle of self-service, yet in adverse cases, assistance is provided to the customers.

Specialty Stores: Such stores specialise in limited product line (one or few), that is why they are termed as ‘specialty stores’. In such stores limited variants of the particular product line(s) are available. Market segmentation approach instead of mass marketing is applied in such stores so as to attract prospective customers. A particular market niche is developed by specialty stores as per their offerings. These types of retailers have speciality in the products such as books, apparel, toys, jewellery. sporting goods, shoes, auto supplies and so On. In the current era, a new retailing format has evolved, i.e., category killers (category specialist). Such stores are characterised by offering discounts on the products. They offer numerous variants of a particular product like toys, sporting goods, shoes, books, etc. For example, numerous varieties of consumer electronics are offered by Best Buy.

Membership Club: In this retailing format, a club is constituted of price-sensitive business buyers as well as individual consumers. Only members can benefit from such clubs. It lies between the retailing and the wholesaling. Employees and business buyers constitute a relatively small portion of the club yet they alone constitute the 60 percent of the total sales of membership clubs. They pay a given annual fee so as to purchase the products at wholesale rate, The products are bought for personal use or for business purpose. Individual consumers are the major constituents of the membership club who contribute to the 40 per cent of the total sales of the club. They buy products for their personal use. After submitting a reasonable membership fee, they are allowed to buy products at retail prices. The prices may be higher sometimes in comparison to that paid by business buyers. Membership is allowed to only those consumers who are employed in any educational institution, member of a union, or associated with other defined groups.

Airport Retailing: Airport retailing can be seen as one of the fastest form of retailing, however, there is no fixed financial report to support this fact. In recent past, prevailing retail formats were tiny gift shops, newspaper/magazine Stores or fast-food chains in airport retailing. At present, airport retailing has a greater significance in the area Of retailing. The fully operating shopping areas can be seen in many large and medium airports. In fact some kind of fast food retailer, vending machines for candy or soft drinks can be seen in small airports.

Drugstores: The speciality Stores which mainly deal with the health care and personal grooming product category are regarded as ‘drugstores’. Almost 50 percent of the total sales of these stores is recovered from the pharmaceuticals and the profit margin on these products is more than 50 per cent. There is a sustainable growth in the drug stores particularly national chains as more and more drugs are required by the ageing population. Most of the drugstores have created standalone stores which have a large variety of products, more frequently bought food products and equipped with drive through windows so that the medicines and other items can be picked up.

Cash and Carry: These outlets operate on a very simple format. As the name suggests, goods are sold only for cash. The responsibility of carrying the product to the destination is on the customer who buys the products. In these types of stores, no cart assistance services are provided as in the case of standard grocery stores. These stores do not provide the facility of credit card payments or credit accounts. Similar to different wholesalers, cash and carry retails mainly operate in a warehouse. Cash and carry businesses mainly operate in large setups and the large amounts of products can be sold to the customers. The cost can be reduced for both the customers and business because of the general setup.

Food Merchandise Retailing: Under this category only food items are sold. Following retail formats are used for selling food products:

Convenience Stores: A limited variety and assortment of merchandise is provided by the convenience stores at a location (having area of 2000 to 3000 square foot) which is quite convenient to the customers. These have fast checkout facilities. They can be seen as the new avatars of mom and pop stores. The customers can buy quickly in these stores as they do not have to search and need not wait in queues. The products which are bought in these stores are consumed within 30minutes of buying. The deliveries are made almost each day as these stores have relatively small size and give high volume of sales. Only a limited variety and assortment are offered in these stores and the prices of goods are relatively higher than those of supermarkets. Initially, major part Of the sales of these stores was composed of milk, eggs and breads. Now-a-days, several other items are also included in such stores.

Conventional Supermarkets: The large departmental stores which have speciality in food products are known as ‘conventional supermarkets’. As per the Food Marketing Association, a self-service food store which has an annual sale of $2 million or more can be termed as conventional supermarkets. The main products in these stores are meat, grocery and produce products. Very limited general merchandise is carried by these stores. Increasing impulse buying can be seen as the major factor behind the growth of these supermarkets. The buying which is done spontaneously is termed as impulse buying. The customers of these supermarkets mainly make a list of different products which they want to buy. When they come in the supermarket, some products (which were not in their buying list) can catch their attention, and the customers end up buying such products instantly. High volume sales or high inventory turnover is the key feature of such conventional supermarkets. They have a lower profit margin. Their average gross margins and net profits are approximately 20-22 percent and 1-3 percent respectively.

Food Based Superstores: The development of superstores can be seen as the biggest trend which occurred in food retailing in past twenty years. The food based retailers which are larger than the conventional supermarkets and have a large service deliver, seafood, non-food section, bakery, etc., are known as superstores. Different superstores have different sizes but the minimum and maximum area of such stores is 20,000 and 150,000 sq. ft. respectively. These stores are seen as efficient. provide the facility of one-stop shopping, motivate impulse
buying, and focus on the high profit general merchandise as it is the case with combination stores. There are other advantages too – the supermarkets can easily be converted and redesigned into the food based superstores in comparison to combination stores. Customers prefer to buy in true shopping stores rather than buying in huge combination stores. The focus of management is more concentrated in food based superstores.

Combination Stores: There is an emergence of a new type of superstore due to the requirement of customers for more convenient shopping experience. These stores are called combination stores as both food and non-food products are offered in these stores. Thus, they provide one-stop shopping facility to the commonly, the general merchandise and food products both can be bought from these stores and checkout is done through common checkout area. In mid-1960s and early 1970s, the concept of combination stores came into existence and experienced a rapid growth. There are various reasons behind the popularity Of combination stores. They are very huge in size ranging from 30000 to 100000 square feet. This can facilitate the cost saving and operational efficiency. One-stop shopping is preferred by the customers and they are ready to move too far locations to find all the products. These stores have high impulse buying. A higher gross margin is received on general merchandise in this Store in comparison to traditional supermarket stores.

Supercentres and Hypermarkets: The combination of superstore and discount store can be seen as a super centre. The basis for the development for these super centres was the European hypemarket, which is the huge retailing facility in which a number Of products are offered apart from the food products. More than 40 per cent Of the sales are contributed by non-food products in these stores. These Stores can be seen as the fastest growing retailing formats spread over 200000 sq ft of area. Wal-Mart is a trendy example of such supercentres. The main reason for the success of these stores is the selling of food products at a lower price to attract the customer traffic and selling the non-food products at a higher margin. In comparison to other retailers, these stores have a huge facility in which goods are sold. Thus, the customers are ready to move to a long distance to buy the merchandise from these stores rather than going to any other food retailer. As customers may not find it beneficial to come in these stores for small buying, this can be seen as a major limitation of these stores. It will be very difficult for some customers to find a certain product quickly as the size Of the store is huge.

Limited-Line Stores: Limited-line stores are also known as limited-assortment stores or box stores. These can be seen as the discounters which offer limited variety of food at a relatively lower price. These stores can be seen as no-frill stores which sell their products out of boxes (or shippers). These Stores do not accept any types Of checks or credit cards and mainly operate on cash and carry principle. No refrigerated products are offered by such retailers. The customers are required to bring their own carry bags or they need to buy it from the retailers. The main strategy of these stores is to sell the food products at minimum 20 per cent below the price of products which are offered in conventional supermarkets.

Non-Store Based Retailing: When the retailers use the strategy mix which is not related to the stores in order to reach to the customers and complete the tmnsactions, they are termed as non-store based retailers. Different retail formats used under non-store based retailing are as follows:

Electronic Retailing/Web Retailing: Online retailing, web retailing, e-commerce, internet retailing or e-tailing are the other names of the electronic retailing. The interaction in these types of retailing takes place between the retailer and customer With the help Of any non-personal communication medium such as interactive system, electronic system or a computer which is connected to the internet. There has been a significant growth in case of e-tailing. Both the conventional retailing and e-tailing are used by many firms to sell their products. In order to support the sales and establish better customer relations, most of the e-tailers have started developing brick-and-mortar sites.

Catalogue and Mail Order Retailing: Mail order retailing is a broad term encompassing different sales marketing concepts like online marketing, direct marketing, infomercial marketing, direct mail,
catalogue marketing, direct response marketing, niche marketing and database marketing.  When the retailers use catalogue so as to make the sales, it is called ‘catalogue retailing’. These catalogues can be collected from the stores (if any) Of the retailers or the retailers mail the catalogues to the respective customers. In mail order retailing, sales are made through posts, i.e., the retailer receives the order through post and the final products are transferred to the buyer through posts. In terms of buyers, mail order retailing can be said ‘shopping by the post’, whereas, from the retailer’s point of view, it is called ‘selling through post’. Different types of advertisements are published on T.V., radio, newspapers and magazines by the manufacturers in order to contact their customers. The price list, sample, circulars and so on are sent to the customers for providing details of the product by post. Once the customer goes through the advertisement. he can place the order for the delivery of the goods.

Vending Machines: An additional class of retail institution is represented by vending machines. It can be seen as a non-store retailing in which different products are sold with the help of machines. The
whole transaction is carried out by the machine itself, i.e., from receiving the money to providing the product. Different types of products can be sold through vending machines such as soft drinks, candy, paper, pens, phone cards, and so on. These vending machines are generally installed in hotels so as to help the travelers who forgot their personal belongings like soap, toothpaste and toothbrushes. The reverse logistic is not possible in vending machine, i.e., the customer cannot return the product which is unwanted or defective. There may be some breakdown incidents in vending machines because of which the customers may not receive any product despite paying for it. This creates a negative attitude of the customers towards the brand or the owner of the vending machines.

Telemarketing: When a retailer uses telephone operator to maintain good relationships with the existing customers, attract the new customers or to receive orders, it is regarded as ‘telemarketing’. It is also regarded as ‘telesales’ in normal circumstances. In most of the cases, many customers place their order by telephone. With the help of call centres, retailers perform inbound as well as outbound telemarketing. When the retailers receive calls from the customers, it is termed as ‘ inbound telemarketing’, whereas ‘outbound telemarketing’ includes making calls to the prospective clients.

Television Home Shopping: The retail pattern, in which an advertisement is telecasted on television demonstrating the products and the customers place the order by telephone, is regarded as ‘television home shopping’. Different types of television home shopping are as follows:

• Cable channels dedicated to television shopping,
• Infomercials, and
• Direct response advrertising.

The TV programs of approximately 30 minutes in which product is demonstrated by mixing some form of entertainment and the customers can place the order by telephone, are known as ‘infomercials’. In ‘direct response advertising’, the particular product is advertised on TV or radio and consumers are provided an opportunity to order the product instantly. There are dedicated television channels which are operating in the THS pattern, for example, Naptol channel.

Video Kiosks: Video kiosks can be understood as interactive freestanding, electronic computer terminals which are used to display the product details on a video screen. A touch panel is provided on these kiosks so that the customers can select any product. There are some video kiosks which are installed inside the retail outlets for providing better customer service. On the other hand, there are some kiosks which can be used to place the orders, arrange the shipment Of the product or to facilitate the transactions with the help of credit cards. Such kiosks remain connected with the computer networks of the retailer. These video kiosks can be placed anywhere, i.e., in a store, college lobby, bus and railway stations, hotels, etc. There is almost no requirement of personnel assistance apart from maintenance activities. It can be seen as an entertaining and easy way of shopping.

Multi-channel Retailing: Multi-channel retailing can be seen as the combined utilisation of interactive kiosks, catalogues and online retailing apart from the store based format. When any retailer provides its products and services by using more than one modes Of retailing, it is termed as ‘multi-channel retailing’. The major types of channels used in multi-channel retailing are as follows:

Store Channel: A wide variety of advantages can be offered to the customers by the stores which cannot be provided by the internet or catalogue shopping. The main traits Of store channels are described below:

• Browsing: Generally, customers are aware of their needs, i.e., what they want, but they are notable to determine the type of product until they actually see it in the store.
• Touching and Feeling products: The best advantage of the store retailing is that it provides a chance to the customers to touch and feel the product and customers can examine the quality of the product by touching, smelling, tasting, seeing and hearing.
• Personal Service: A lot of meaningful and personalised information regarding different products can be provided to the customers by the sales associates in the stores; however, customers can have a lot of criticism about them. These sales associates can express their opinion about a certain dress matching to a customer or not. They can also advice what a customer can wear in a marriage ceremony.
• Cash Payment: The only retail facility where cash is accepted is the store channel. Because of ease of operation, problem resolution and immediate transaction, most of the customers prefer paying in cash. Additionally, it does not incur any interest rate.
• Immediate Gratification: The opportunity of getting the product immediately after buying is facilitated by the stores.

Catalogue Channel: A non-store format of retailing in which the information related to various offerings of a retailer are communicated to the customers through a catalogue, is known as ‘catalogue retailing’. In case of ‘direct mail retailing’ information related to product is provided to the customers with the help of letters and brochures. It has been observed that in rural customers, the concept of catalogue retailing and direct mail retailing is quite popular. Customers can receive a lot of advantages which are offered by the catalogue shopping. By combining the internet with the catalogue operations, the advantages of multi-channel retailing are endorsed by major catalogue retailers. The main traits of catalogue channels are as follows:

• Convenience: Similar to all the other non-store retail formats, catalogue also provides convenience to the customers in many ways. It not only enables the customers to assess the information anytime and from anywhere, but it also eliminates the restriction of possessing an internet connection and an associated gadget. With the help of catalogues, different products can be seen from anywhere; be it a restaurant, a movie theatre, a train or bus, etc. Last but not least, an individual can save or retain the information of products mentioned in the catalogues for a fairly long period and can assess the product related information whenever he wants.
• Safety: Some Of the customers are becoming concerned about the security situations in mall and other shopping areas. For such segment of customers, the non-store retailing format is an added advantage as they can have a look at the product, can obtain different information on it, and place an order from the safest and most convenient location, i.e., their house. Moreover, they may also get the goods delivered at their doorstep.
• Quality of Visual presentation: The quality of the photographs of the product shown in the catalogues is better than the ones shown on CRT screens; however, the value of in-store experience cannot be overcome by any of the non-store retail formats.

Electronic Channel: The electronic channel of retailing provides a greater selection of products and more detailed information about the various products and services apart from providing the various advantages such as shopping from anywhere at any time. The main traits of electronic channels are as follows.

• Broader Selection: There is a huge collection of products over the electronic channel of retailing in comparison to other two types of retailing. Consumers do not prefer visiting number of stores so as to buy products.
• Greater Information to Analyse Merchandise: In order to facilitate a better buying decision, different types of information is provided to the customers by the electronic channels.
• Personalisation: As per the requirement of the customer, the information can be personalised by the electronic channels.
• Problem-Solving Information: In comparison to the traditional stores, which offer information about the product. electronic channels provide problem-solving tools and information so as to assist customers in dealing with diffeft2nt problems.

Functions of Retailing

Following are the main functions of retailing:

• Sorting:  In this, they first buy the products from numerous producers having different type of products in large quantities and then offer those products to the customers to choose from for making their small purchases.
• Holding Stock: Holding stock is also a function of retailing which is significant to the producers. In this way, they help producers to regulate the level of production and price. It is also significant for the consumers because they know they can buy desired products in desired quantity from the retailers at any time.
• Supplementary Services: Through variety of services, retailers make the buying process simple and convenient and thus, ease the process of changing merchandise ownership. In order to add value to the products, retailers are engaged in after-sales services, product guarantees and entertaining consumer complaints. Some retailers appoint sales executive so as to assist the customers with the displayed products. These executives answer the queries Of the customers and provide desired information about the concerned product.
• Transport and Advertising Services: Retailers can also provide assistance to the small manufacturers in advertising, storing, transporting and pre-payment of goods. In case Of significantly small retailers, this activity can also be performed from the manufacturer’s side. The percentage and volume of sales which is required to be covered by the cost and profit determine the number of functions which will be performed by the retailer.
• Channel Of Communication
• Breaking Bulk

Importance of Retailing

Retailing is important to producers, wholesalers as well as customers, which is described below:

Importance for Producers and Wholesalers: Retailers are important to the producers and wholesalers in the following manner:

• Selling Goods: In order to help the producers as well as the wholesalers, retailers sell the products directly to the customers in required quantities. Thus, they divest the responsibility of sales from the producers/wholesalers.
• Assessing Consumers’ Tastes and Preferences: The producers/wholesalers can collect the information about the Customers, their taste and preferences, with the help of retailers as these retailers are in direct contact with the customers. Retailers also observe the changing trends of buying behaviour of the customers.
• Promoting New Products: Retailers help the producers wholesalers in promoting a new product. As they understand the needs and preferences of the consumers, it becomes easy for the retailers to promote a new product among the customers. Customers rely on the retailers for understanding the features and uses of a new product.

Importance for Consumers: Retailers are important to the consumers in the following manner:

• Variety of Goods: A large variety Of products is stored by the retailers which are produced by the different manufacturers. These products are offered to the customers at a reasonable price. The different products which are required by the customer cannot be stored by him due to high associated costs.
• Demand Creation: Retailers create demand for specific products on behalf Of the consumers. They use different techniques to communicate the demand of the consumer to the producers/wholesalers.
• Distribution: Retailers distribute different products of the producers directly to the customers. They are able to deliver appropriate goods to the concerned customers. The customers are helped in the selection of goods by the retailers on the basis of their intimate knowledge and experiences.
• Credit Facility: Retailers offer credit services to the consumers so as to build relations. By this, are able to achieve large sales volumes.
• Personal Services: Different additional services like exchange, free home delivery, after sales-service, etc., are provided by the retailers to the consumers.
• Sale on Approval: Retailers provide sale on approval service to the customers. Under this facility, the product can be returned to the retailer within the specified time if the product is not approved by the family or if it does not match the requirement of the customer.