Classification of Retail Formats, Key Features, Advantages and Disadvantages

Retail Formats can be classified into the following categories:

Store Based: Store based formats can be further classified into two formats based on the basis of Ownership or Merchandise offered.

Non Store Based Classification: Non Store retail organizations focus on establishing direct contact with the consumer. This may be both personal (direct personal selling) and nonpersonal TV, the Internet, mail, catalog or phone).

Service Based Classification: Such retailers specialize in providing different kinds of services to the end consumer. The services can be classified as Banking Services, Rentals, Electricity, cooking gas, etc. Various factors like quality of service, how much customization can be provided for meeting the client specific requirements, the uniqueness of the service and delivery within the timelines, usage of innovative technology, etc, are given importance for determining the success of service.

Classification of Retailers on the Basis of Ownership

  1. Sole Proprietorship: This constitutes the majority as many small business ventures start on a sole proprietorship basis only. In the case of sole proprietorship, the ownership of the business exists with a single person, usually the one who is responsible for the day to day affairs of running the business.

  2. Partnership: This is also one of the most common business formats in India. In Partnership form of business, the ownership is shared between two or more people for running the business.

  3. Joint Venture: A Joint venture involves the creation of a third or a new entity due to collaboration between two or more than two parties, with an agreement to manage the business operations in a particular area by combining their resources and sharing their profits as per the well-defined terms and conditions of the contract.

Key Features of Chain Stores: When 4 or more than four stores manage the same merchandise under the central ownership and usually receive their supplies from a central warehouse. The Chain stores in Europe are equally called as Multiple Shops, unlike America where it is regarded as Chain Stores. The main objective of Chain Store system is to approach the maximum number of customers by expanding operations across a larger territory, but with a concentration on selling the same merchandise.

In Indian context organizations such as BATA and Usha Lexus operate chain stores across the country. These organizations offer varieties or various model variants of a single product, and the buying is centralized, but selling is decentralized.

Salient Features are given below

  • A retail system to be considered as a Chain store should have more than 1 retail store engaged in the same merchandise and being operated with a moderate degree of centralization.

  • The focus is on horizontal expansion by establishing multiple stores for reaching maximum customers across various geographies.

Advantages of Chain Stores

  • Chain Stores enjoy cost advantages due to the economy in purchase operations, low advertisement expenditures and low selling prices of the products.

  • The risks are distributed as a result of which the possibility of losses is minimized.

  • Delinquency, bad debts and the complexities in the processes of accounting can be avoided since the chain stores operate on the basis of cash.

  • Chain stores need not be established in costly or prime locations and enjoy flexibility in their style of operation.

Limitations of Chain Stores

  • The claim that the products in chain stores are sold at lower prices is false.

  • Practically chain stores are inflexible as the chain stores specialize in offering standardized products only.

  • Chain stores face a lot of personnel issues due to the complexities of a large-scale business operation.

  • Chain stores run a perennial risk of losing the brand image because various customer-centric initiatives are not being given that much importance. But the customers in the present scenario look for several other benefits regarding services.

  • Chain Stores enjoy cost advantages due to the economy in purchase operations, low advertisement expenditures and low selling prices of the products.

  • The risks are distributed as a result of which the possibility of losses is minimized.

  • Delinquency, bad debts and the complexities in the processes of accounting can be avoided since the chain stores operate on the basis of cash.

  • Chain stores need not be established in costly or prime locations and enjoy flexibility in their style of operation.

Features of Departmental Stores

Departmental Stores can be either classified on the ownership basis or income groups. The key features of Departmental Stores are given below:

  • Departmental stores perform operations in an integrated manner all under the single roof.

  • Departmental stores are multi leveled retail outlets operating on a large scale at the international level, national level and locally as well, offering a variety in their merchandise. In India, the major national players operating departmental stores are Westside, Shoppers Stop, Lifestyle, etc. While the local players Meena Bazaar of Hyderabad and Ebony in Delhi.

  • The key criterion which determines the success of a departmental store is the location in which it operates and also other factors like store size, space availability, the area which is being targeted and crucial issues such as the potential of the store in attracting the customers.

Advantages of Departmental Stores

  • Departmental stores enjoy the benefits of economies of scale and also cost advantages due to its large scale operation. Usually, the purchases are done in bulk or large quantities as a result of which special concessions can be availed on the purchases.

  • Departmental stores usually have ready availability of cash in liquid form, which provides an advantage of procuring quality goods at affordable prices along with special discounts/concessions and keeping a reserved stock for meeting the growing demands of the customers and enjoying a business advantage.

  • Customers usually get attracted towards the departmental stores for their buying requirements due to the availability of a variety of products under a single roof.

Disadvantages of Departmental Stores

  • The overall costs and expenses involved in the operation of the departmental stores are very high.

  • The element of personal involvement or maintaining client relationship is found to be lacking in the case of departmental stores.

  • The departmental stores always run the perennial risk of incurring heavy losses or damages.

  • The staff members are usually poor qualified and lack the requisite competencies or the training for dealing with the day to day business affairs or addressing the challenges involved in the business.

Features of Super Markets

  • Supermarkets operate on a large scale basis and are the self-service kind of stores which may be entirely operated by the owner or may lease some of the departments on concessional rates.

  • These stores are usually located in prime shopping locations where facilities for the parking are available.

  • The key hallmarks of supermarkets are the availability of a variety of merchandise and branded products, affordable prices and availability of parking facility.

Advantages of Super Markets

  • Supermarkets offer convenience in shopping, and the customers enjoy the benefit of buying their preferred products by selecting from a variety.

  • The supermarkets sell products at affordable prices.

  • The customerís shopping time is considerably reduced.

Disadvantages of Super Markets

  • Supermarkets incur heavily on administrative and maintenance expenses.

  • Service aspects are usually ignored in this model of retail.

  • The store operation costs are very high.

Advantages of Direct Selling

  • Direct selling also called as home selling involve an element of a personal touch as the customers can establish a contact with the sales representative and discuss their buying requirements or clarify their queries.

  • The consumers enjoy the benefit of purchasing the products as per their convenience either at home or any other location of their choice.

  • The role of the seller is very crucial in case of direct selling as the seller can personally demonstrate the products before the consumer and influence them for the purchase by trying out persuasive skills.

Limitations of Direct Selling

  • Managing the administrative requirements, determining the sales commissions for the sales agents, determining the terms and conditions of work (part time or full time) may involve heavy costs.


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