Business Models in Retail

Every business has its distinctive way of organizing the very many activities that are involved in delivering its product or service to the end consumer. In retail parlance, one would term it as the format adopted by the retailer to reach his end consumer. Over a period of time, as business grows, changes occur in the environment, the customer and the geographies in which business is conducted. Companies are confronted with new information and communication technologies, shorter product life cycles, global markets and tougher competition. Various retail models exist in the world of retail. To start with, let us first understand what a business model in retail entails. A business model is the manner in which a business chooses to serve its customers and stakeholders. In retail, a business model would dictate the product and / or services offered by the retailer, the pricing policy that he adopts. The communication that follows to reach out to customers and the size looks at the location of Retailer’s retail store. This is termed in retail as a format in which the retailer operates.

It has to be borne in mind that a retail model is relevant with reference to a particular time frame and the critical factors, which affect the Retail model are:

1) Trends in market positioning
2) Competition and
3) The organizational capabilities.

These three factors jointly enable the understanding of the contexts and strategies adopted by retailers over a period of time.

In this article we attempt to classify the existing retail models formats. Retailers range in size form small, independent, owner-operated shops like the local florist, dry cleaners or barber, to national and international giant category killers. The basic classification done is on the basis of store based retailers and non-store retailers. The store based retailers can be further classified on the basis of the merchandise that they offer, or by the manner of ownership. This section discusses some of the prominent retail formats under each classification.

The first type of classification that can be done of the existing business models is on the basis of their ownership.

Figure Classification of retail formats

Classification of Retail Formats

1) Store Based Retailing
2) Non-store Retailing
3) Service Retailing

Store Based Retailing>>
1) Form of Ownership
2) Merchandise offered

Form of Ownership>
1) Independent retailer
2) Chain retailer
3) Franchise
4) Leased departments
5) Consumers co-operatives

Merchandise offered>

1) Convenience stores
2) Super markets
3) Hypermarkets
4) Specialty stores
5) Departmental stores
6) Off Price retailers
7) Factory outlets
8) Catalogue showrooms

Non – storing Retailing>

1) Direct selling
2) Mail order
3) Tele marketing
4) Automated Vending

Service Retailing>
1) Banks
2) Car Rentals
3) Service contracts
4) Providers of various services.

Classification on the basis of Ownership:

On the basis of ownership, a retail store can be an independent retailer, a chain retailer or a corporate retail chain, a franchise or a consumer co-operative.

Independent retailer

An independent retailer is one who owns and operates only one retail outlet. Such outlets essentially feature the owner & proprietor and a few other local hands or family members working assistant in the shop. Many independent stores tend to be passed on from generation to generation.

In India, a large number of retailers who operate are independent retailers. Stores like the local baniya/kirana store and a paanwala, are examples of independent retailers as are stores like Benzer, In style, Premsons, Amarsons, etc. The ease of entry into the retail market is one of the biggest advantages available to an independent retailer. Depending on the location and product mix that he chooses to offer, he can determine the retail strategy. The independent retailer often has the advantages of having a one to one rapport with most of his customers. However, on the flip side, the advantages of economies of scale and the bargaining power with the suppliers is limited.