Retail Organization and Classification of Retail Units

Retail Organization

The term retail organization refers to the basic format or structure of a retail business designed to cater to the needs of the end customer. Recently, some scholars have started referring to India as a nation of shopkeepers. This epithet has its roots in the huge number of retail enterprises in India, which were over 12 million in 2003. About 78% of these are small family businesses utilizing only household labour.

Retail firms may be independently owned, parts of a retail chain, operated as a franchisee, leased departments, owned by manufacturers or wholesalers, consumers owned or co-operative society.

A retail unit could be owned by:

  • Manufacturer (e.g., company owned retail outlets)
  • Wholesaler (e.g., Vastra outlet in Rajouri in New Delhi)
  • Independent retailer (Chanakya Sweet Shop near Hazratganj in Lucknow)
  • Consumer (consumer owned grocery stores in man y residential societies)
  • Co-operative society (e.g., Mother Dairy milk booths in Delhi)
  • Government (e.g., Cottage Emporia)
  • Ownership shared among franchiser and franchisee (e.g., Archies Gallery)

Although most Indian retailers fall in the category of small-scale units, there are also some very big retailers. Organized retail stores are generally characterized by large, professionally managed store formats providing goods and services that appeal to customers, in an ambience that is conducive for shopping and provides a memorable experience to customers.

From positioning and operating perspectives, each ownership format serves a marketplace niche and presents certain advantages and disadvantages. Retail executives must not lose sight of this in playing up their strengths and working around their weaknesses.

Classification of Retail Units

Conceptual classification of a business unit provides the marketers with strategic guidelines, useful in the design of retailing strategy. Besides, retail businesses are extremely diverse and there are quite a few types of retail units. Therefore, retail units are classified on multiple of ownership, geographical locations, kind of customer interaction level of services provided etc.

1. Retailers Classified on the Basis of Ownership

One of the first decisions that the retailer has to make as a business owner is how the company should be structured. This decision is likely to have long-term implications, so it is important to consult with an accountant and attorney to help one select preferred ownership structure.

There are four basic legal forms of ownership for retailers:

  • Sole proprietorship: – The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has the day-to-day responsibility for running the business.
  • Partnership: – A partnership is a common format in India for carrying out business activities (particularly trading) on a small or medium scale. In a partnership, two or more people share ownership of a single business.
  • Joint venture: – A joint venture is not well defined in the law. Unless incorporated or established as a firm as evidenced by a deed, joint ventures may be taxed like association of persons, sometimes at maximum marginal rates. It acts like a general partnership, but is clearly for a limited period of time or a single project.
  • Limited liability Company (public and private):- The Limited Liability Company (LLC) is a relatively new type of hybrid business structure that is now permissible in most states. The owners are members, and the duration of the LLC is usually determined when the organization papers are filed.

2. Classification of Retailers on the basis of Operational Structure

Retail businesses are classified on the basis of their operational and organizational structure. Operational structure defines the key strategic decision of retail entity, whether to hire employees and manage the distributed sales function internally or to reach customers though franchised outlets owned and operated by local entrepreneurs.

Retail firms can be classified into five heads on the basis of their respective operational structures:

  • Independent retail unit: – The total number of retailers in India is estimated to be over 5 million in 2003. About 78% of these are small family businesses utilizing only household labour. An independent retailer owns one retail unit.
  • Retail Chain: – A chain retailer operates multiple outlets (store units) under common ownership; it usually engages in some level of centralized (or coordinated) purchasing and decision making.
  • Franchising: – Franchising involves a contractual arrangement between a franchiser (which may be a manufacturer, a wholesaler, or a service sponsor) and a retail franchisee, which allows the franchisee to conduct a given form of business under and establishments name and according to a given pattern of business.
  • Leased Department or Shop-in-shop:- It refers to department in a retail store that are rented to an outside party. Usually this is done in case of department and specialty stores and also at times, in discount stores.
  • Co-operative Outlets: – Co-operative outlets are generally owned and managed by co-operative societies. In this context the detailed example of Kendriya Bhandar in India.

3. Classification of Retailers on the basis or Retail Location

Retailers have also been also been classified according to their store location. Retailers can locate their stores in an isolated place and attract the customers to the store on their own strength—such as a small grocery store or paan shop in a colony, which attracts the customers staying close by.

Classification of retailers on the basis of location is discussed below:

  • Retailers in a free-standing location: – Retailers located at a site which is not connected to other retailers depend entirely on their sore’s drawing power and on the various promotional tools to attract customers. This type of location has several advantages including no competition, low rent, better visibility from the road, easy parking and lower property costs. For example the Haldiram’s outlet on the Delhi-Jaipur highway and the McDonald’s outlet on Delhi-Ludhiana highway.
  • Retailers in a Business-associated Location:- In this case, a retailer locates his store in a place where a group o retail outlets, offering a variety of merchandise, work together to attract customers to their retail area, and also compete against each other for the same customers.
  • Retailers in Specialized Markets: Besides the above location-based classification, we also have in India-retailers who prefer specialized markets, particularly traditional independent retailers or chain stores. In India, most of the cities have specialized markets famous for a particular product category. For example, in Chennai, Godown Street is famous for clothes, Bunder treet for stationery products, Usman street for jewellery, T Nagar for ready-made garments, Govindappan naicleen street for grocery, Poo Kadia for food and vegetables.
  • Airport Retailing: – For quite some time, duty-free shops and newsstands dominated the small amount of commercial space provided at airports. Lately, serious efforts are being made to design new airport facilities in order to incorporate substantial amounts of retail space.

The key features of airport retailing are:

  • Large groups of prospective shoppers
  • Captive audience
  • Strong sales per square foot of retail space
  • Strong sales of gift and travel items
  • Difficulty in replenishment
  • Longer operating hours
  • Duty-free shopping possible.

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