Retail Chain Management

Broad Objectives of the course

Aims to enable develop an in-depth knowledge and understanding of this emerging and dynamic sector of the Indian economy.

Covers basic principles and practices of retailing.

Also aims at bringing to the fore the operational aspects of running a retail business.

Broad Structure of the Course

Retailing- An Introduction Retail Environment and Concepts Working of a wide variety of retail institutions. How to set up a retail organization? Operations management: Location format and size, space allocation, Other

operational issues etc. Retail inventory and supply chain management Billing and customers handling tools & supports. Accounting. Retail sales force mgmt.-Soft skills development. • Key factors in the planning, development and enactment of an integrated

retail strategy. • Challenges in an emerging economy.• Customer relationships and channel relationships.

Future of Retail in the Indian context

Recommended Reading

Retail Management- A Strategic Approach- 9th Edition by Berman Barry, Evans Joel R.

Brand Equity

Assessment

Class (Discussion Contribution) Participation: 10 %

Group Project: 30 % Assignments: 10 % Presentations/Industry Overview: 10 % Final Examination: 40 %.

Why Study Retailing?

World’s largest private industry US$ 6.6 trillion sales annually India- $250 billion in 2005

Why Study Retailing?

Wal-Mart Topmost global Fortune 500 company(3 Consecutive

Years) Annual Sales of over US$ 250 bn India’s two largest retail player turnover around US$

158 mn (Bata) and US$ 102 mn (Shoppers Stop) Fortune 100 9 Retailers Carrefour, Ahold, Home Depot, Kroger, Metro,

Kmart-Sears, Target, Albertsons’

Why Study Retailing?

Indian retailing Largest employer after agriculture - 8%* of

population Highest outlet density in world Around 12 mn outlets Still evolving as an industry Long way to go Impacts the economy

What is Retailing?

Business activities involved in selling – Goods – Services.

To Final Consumers. Last stage in the distribution process.

Some Myths on Retailing

Retailing only sales of Tangible Goods– It includes services as well !– (Ambikapillai, Ayush, Multiplexes)

Retailing only involves “Stores”– Mail, phone orders, direct selling, web transactions all are

retailing.– (Domino’s, Astropredictions)

Retailing is only thru “Retailer”– (Selling to “final” consumer is retailing)

Retail in the Channel

Manufacturer Wholesaler ConsumerRetailer

Functions of Retail

Last Stage in the distribution process Helps in two way communication

– Consumers to Mfrs. & wholesalers– Mfrs. & wholesalers to Consumers

Provide Logistics, mktg. and finance support. Complete transactions with customers.

(Multi channel retailing)

Retailers and Suppliers

Complex Relationships Areas of Conflict

– Control– Profit Allocation– No. of retailers selling the product in a market– Display– Promotion Support– Payment Terms and other flexibility

Retailers and Suppliers

Types of arrangements– Exclusive Distribution

Smooth arrangement Selected/Exclusive Retailers in a geography. Both work together-Image, shelf space, profits etc. Retailer limits variety, hence sales. Manufacturer limits long run total sales.

Retailers and Suppliers

Types of arrangements– Intensive Distribution

Volatile Relationship Suppliers sell thru as many retailers Retailers offer as many brands Maximises suppliers’ sales Retailers- low shelf space, profits

Retailers and Suppliers

Selective Distribution– Combines aspects of exclusive & intensive dist.– Suppliers sell through a moderate no of retailers– Retailers likely to get marketing support– Suppliers likely to get more shelf space and

Involvement

Class Exercise

Types of Distribution

Retailer Strategy & Performance ?

What is the Strategy ?– Overall plan guiding a firm– Can be treated in “Diamond” of Opportunities– What, to whom, how and where?

Retailing Concept Total Retail experience Customer service Relationship Retailing

Opportunity Diamond

Channel Mix

Consumer Segment

Geography

Pdt/Service Mix

The Retailing Concept

Helps decide the retail strategy Four components

– Customer Orientation Understand attributes and needs of the customers Works to satisfy them

– Coordinated effort Integrates all plans & activities to optimize efficiency

– Value Driven Offers value to its customers

The Retailing Concept

– Goal Orientation Decides on its goals Formulates strategy Work towards achieving them

Total Retail Experience

Includes all elements in a retail offering Like location, displays, prices, brands Sales people, marketing etc. Important element of the strategy

Customer Service

Tangible and intangible activities undertaken In conjunction with goods/services sold Product might affect the deliverables

Relationship Retailing

Why ?– Pareto Principle– Important for the overall goal.– Strong feedback mechanism– Scientific planning

Home Assignment

Study the Case of Big Bazaar. Read similar cases from Brand Equity

Session 2

Categorization of Retail Institutions

Categorization of Retail Institutions

Categorization of Retailers ?

Based on six factors (directly related to major marketing decisions):

Target markets served Product offerings Pricing structure Promotional emphasis Distribution method Service level Operational factor: Ownership

Target Markets Served

Mass Market – – Appeal to the largest market possible. – The competition among these retailers is often fierce.

Specialty Market – – Target buyers looking for special products (customers who require

more advanced product options or higher level of customer service).  – Not as large as the mass market, the target market serviced by

specialty retailers can be sizable. Exclusive Market –

– Appealing to discriminating customers who pay a premium for features found in very few products and for highly personalized services. 

– Small target market hence the number of retailers addressing this market is small.

Product Offerings

Retailers are divided based on– Width (i.e., number of different product lines) – Depth (i.e., number of different products within a product line)

General Merchandisers – – Carry a wide range of product categories though the number of different

items within a particular product line is generally limited (i.e., shallow depth).

Multiple Lines Specialty Merchandisers –– Stock a limited number of product lines (i.e., narrow) but deep. – For example, a consumer electronics retailer would fall into this

category. Single Line Specialty Merchandisers

– Limit their offerings to just one product line, and sometimes only one product.

– E.g. Computer gaming software or Small jewelry store that only handles watches.

Pricing Strategy

Price a competitive advantage or competitive advantage in non-price ways.

Discount Pricing – Low priced products with low profit margin (i.e., price minus cost). Sell in high volume. Low overhead costs.Competitive Pricing – Not to compete on price but not to be seen as charging the highest

price. These retailers, who often operate in specialty markets, aggressively

monitor the market to insure their pricing is competitive but they do not desire to get into price wars with discount retailers.

Thus, effort to create higher value for which the customer will pay more.

Pricing Strategy-2

Full Price Pricing – – Targeting exclusive markets

Such markets are far less price sensitive than mass or specialty markets.

– In these cases the additional value added through increased operational spending (e.g., expensive locations, more attractive design, more services) justify higher retail prices.

– While these retailers are likely to sell in lower volume than discount or competitive pricing retailers, the profit margins for each product are much higher.

Promotional Focus

Advertising – – Many retailers find traditional mass promotional methods of advertising, such as

through newspapers or television, continue to be their best means for creating customer interest

– Retailers selling online rely mostly on Internet advertising as their promotional method of choice.

Direct Mail – – A particular form of advertising that many retailers use for the bulk of their promotion

is direct mail – advertising through postal mail.– Using direct mail for promotion is the primary way catalog retailers distribute their

materials and is often utilized by smaller local companies who promote using postcard mailings.

Personal Selling –– Retailers selling expensive or high-end products find a considerable amount of their

promotional effort is spent in person-to-person contact with customers. – Consumer-salesperson relationship is key to persuading consumers to make

purchase decisions.

Distribution Method

Store-Based Sellers – – By far the predominant method consumers use to obtain products is to

acquire these by physically visiting retail outlets (aka brick-and-mortar). Stand-Alone – These are retail outlets that do not have other retail

outlets connected. Strip-Shopping Center – A retail arrangement with two or more outlets

physically connected or that share physical resources (e.g., share parking lot).

Shopping Area – A local center of retail operations containing many retail outlets that may or may not be physically connected but are in close proximity to each other such as a city shopping district.

Regional Shopping Mall – Consists of a large self-contained shopping area with many connected outlets.

Distribution Method-2

Non-Store Sellers – – No physical outlet– Customers make their purchase from within their own homes.

Online Sellers – The fastest growing retail distribution method allows consumer to purchase products via the Internet. In most cases delivery is then handled by a third-party shipping service.

Direct Marketers – Retailers that are principally selling via direct methods may have a primary location that receives orders but does not host shopping visits. Rather, orders are received via mail or phone.

Vending – While purchasing through vending machines does require the consumer to physically visit a location, this type of retailing is considered as non-store retailing as the vending operations are not located at the vending company’s place of business.

Service Level

There are at least three levels of retail service:

Self-Service – This service level allows consumers to perform most or all of the services associated with retail purchasing.

– 1) self-selection services, such as online purchasing and vending machine purchases– 2) self-checkout services where the consumer may get help selecting the product but

they use self-checkout stations to process the purchase including scanning and payment.

Assorted-Service – The majority of retailers offer some level of service to consumers. Service includes handling the point-of-purchase transaction; product selection assistance; arrange payment plans; offer delivery; and many more.

Full-Service – The full-service retailer attempts to handle nearly all aspects of the purchase to the point where all the consumer does is select the item they wish to purchase. Retailers that follow a full-price strategy often follow the full-service approach as a way of adding value to a customer’s purchase.

Ownership Structure

Individually Owned and Operated Corporate Chain Franchise Cooperative

Ownership Structure-Independent

Independent– Owns one retail unit or so.– Low entry barriers– Advantages

Flexibility in choosing retail formats & strategy Have “Independence”, entrepreneurial drive

– Disadvantages Can’t gain economies of scale Labor intensive, low spends Mostly unprofessional setups

Ownership Structure-Chain

Chain Retailer– Operates multiple outlets– Most establishments are chains today– Advantages

Bargaining capable, Cost efficiencies exist Structured policies and methods

– Disadvantages Low flexibility, independence in style Higher investments (Merchandise)

Ownership Structure-Franchising

Franchising– Contractual agreement –franchisor to franchisee– Typically pays an initial fee and royalty on sales– Product/Trademark Franchising

Acquires identity of Franchisor Auto dealers/ Petrol stations

– Business format Franchising Interactive relationships Mcdonald’s

Ownership Structure-Franchising

Advantages and Disadvantages– Own a retail enterprise with small investment– Acquire well known names/goods– Cooperative marketing efforts– Over saturation could be a problem– Franchisee profits controlled by franchisor– Franchisees are owners (not employees) hence

incentive to work hard

Case Study-NIIT

Ownership- Leased Department

A Department within a store rented out Space rented out ! Store enhancing its offerings Market is enlarged by more offerings Can affect stores’ images

Ownership Structures- VMS

Consists of all levels of independently owned

businesses along a channel of distribution. Independent VMS

– 3 Levels of independently owned firms– Features

Mfrs/Retailers are small Intensive Distribution Stationary shops/food stores etc.

Vertical Marketing System

Independent System

Manufacturing

Wholesaling

Retailing

Partially Integrated System

Partially Integrated System– Two channel members own all facilities & perform

all functions– Absence of a wholesaler– Large mfrs., retailers– Greater channel control is desired– Selective/Exclusive distribution is sought– Appliance stores/Restaurants

Fully Integrated System

Fully Integrated System– One firm performs all functions– Full control on strategy, distribution etc.– Specialized system but costly– Avon etc.

Consumer Cooperative

Retail owned by customer members A Gp. Of consumers invests, elects office

bearers and manages operations,

Concerns of Retailers

Customer Satisfaction Ability to Acquire the Right Products Product Presentation Traffic Building Layout Location Keeping Pace With Technology

Retail Formats/Business Models-1

Mom-and-Pop – Represent the small, individually owned and operated retail outlet. In many cases these are family-run businesses catering to the local community.

Mass Discounters - These retailers can be either general or specialty merchandisers but either way their main focus is on offering discount pricing. Compared to department stores, mass discounters offer fewer services and lower quality products.

Warehouse Stores – This is a form of mass discounter that often provides even lower prices than traditional mass discounters. In addition, they often require buyers to make purchases in quantities that are greater than what can be purchased at mass discount stores. These retail outlets provide few services and product selection can be limited. Furthermore, the retail design and layout is as the name suggests, warehouse style, with consumers often selecting products off the ground from the shipping package. Some forms of warehouse stores, called warehouse clubs, require customers purchase memberships in order to gain access to the outlet.

Category Killers – Many major retail chains have taken what were previously narrowly focused, small specialty store concepts and have expanded them to create large specialty stores. These so-called “category killers” have been found in such specialty areas as electronic (e.g., Best Buy), office supplies (e.g., Staples) and sporting goods (e.g., Sport Authority).

Department Stores – These retailers are general merchandisers offering mid-to-high quality products and strong level of services, though in most cases these retailers would not fall into the full-service category. While department stores are classified as general merchandisers some carry a more selective product line. For instance, while Sears carries a wide range of products from hardware to cosmetics, Nordstroms focuses their products on clothing and personal care products.

Boutique – This retail format is best represented by a small store carrying very specialized and often high-end merchandise. In many cases a boutique is a full-service retailer following a full-pricing strategy.

Retail Formats/Models-2

Catalog Retailers– Orders are then delivered by a third-party shipper.

e-tailers – Electronic retailers or e-tailers also have the ability to offer a

wide selection of product since all they really need in order to attract orders is a picture and description of the product..

Franchise Convenience Vending – Within this category are automated

methods for allowing consumers to make purchases and quickly acquire products.

Retail Summary Chart

Session 3

Understanding Customers

Understanding Consumers

Identifying Consumers– Characteristics, needs and attitudes

Recognizing how people make decisions Devising proper target market plan

(Studying environmental factors that affect purchase decisions)

What makes shoppers purchase ?

Environmental factors

Retailer actions

Attitudes &Behaviour

Needs & desires

Lifestyles

Demographics

Retail Shoppers

Demographics

Market Size Gender Age Household Size Marital status Income Retail sales Employment Status

Consumer Life-styles

Based on social and psychological factors Social factors

– Culture– Social Class– Reference Groups– Family life cycles

Psychological Factors– Personality– Class consciousness– Attitudes– Perceived risks

Consumer Life-Styles Profiles

Retailer can develop lifestyle profile of target market by

– Understanding Culture- What values, norms, and customs are important.

– Understanding Class- Are potential customers lower, middle or upper class.

– Reference Groups- Whom do they look for advice? How to target opinion leaders?

– Family Lifecycles- What stage bulk customers are ?– Time utilization- How do these people spend time?

Consumer Life-Styles Profiles

– Class consciousness- Are they status conscious ?– Attitudes- How does the consumer perceive the

retailer and his strategy?– Perceived risk- Do they feel risk with the retailer ?– Importance of the purchase- How important the

goods or services are ?

Retailing Implications

Gender Roles- Huge no. of working women Changing lifestyles Educated, well informed Men also involved in shopping

Consumer Sophistication and Confidence– Shopping seen as part necessity & part adventure– More aware of trends, styles but self assured

Poverty of Time– Time a great social equalizer– Requirement of making the most of limited time

Component Life-styles– Shopping is less predictable and more individualistic– More situation based, means no issue.

Consumer needs and desires

Consumers spend more on desires than needs today– Needs- Person’s basic shopping requirements consistent

with past demographics– Desires- Discretionary shopping goals that have an impact

on the attitudes and behaviours– Retail strategy should study Customer “Motives”

How far the customer shall travel? What about price ? What service levels/hours are desired? Etc..

Shopping attitudes & behavior

Where people shop and how they make purchase decisions ? Shopping Enjoyment-Layout/service levels Attitude towards Shopping Time

– Precision Shopping Shifting feelings about retailing- Loyalty takes a hit Why people buy or don’t buy on a shopping trip ?

– Why people leave without making a purchase? Attitudes by market segment

– Upscale customers more keen on :Highly professional, competent people say in banks…..

– Middle income consumers want “Friendliness and location”

Attitudes

Grocery Shoppers– Shopping avoiders- Dislike– Time starved- Convenience– Responsible- Key task – Traditional Shoppers- Who plan carefully.

Web Consumers– Comfort with Technology– Online Security

Attitudes Toward Shopping

Attitudes towards Private Brands– Stop vs Arrow– Many believe private brands equally good.

Where they shop?

Pattern differs on the basis of retailers– Location and hence planning the key

Most prefer Cross Shopping– Shop for a particular product category at all

outlets– Visit multiple retailers on one occasion

Consumer decision process

What product/service one wants to buy. Where the purchase shall happen. The process

– Stimulus- Cue or drive meant to motivate– Problem awareness- The item/service purchase shall fulfill the

unfulfilled desire or shall save from the problem.– Information Search-To help solve the problem does further

research– Evaluation of alternatives-Determining the alternatives and

selecting the best one amongst the choices– Purchase act- An exchange of money/ expression.– Post Purchase behavior-Further purchase or revaluation –

Cognitive Dissonance

Types of Consumer Decision Making

Extended Decision Making– Consumer makes full use of the decision process– Lot of time spent on information gathering and evaluation of

alternatives– Potential or Cognitive dissonance is high– Examples- Car, Home, Life Insurance– Tools found successful

Personal selling Printed Material Information in detail

The Decision Process

StimulusProblem

AwarenessInfo

SearchEvaluation of Alternatives

Purchase

Post PurchaseBehaviour

Demographics Life Style

Types of Consumer Decision Making

Limited Decision Making– Stepwise purchase process but ltd time spent– Prior experience of what and where available.– Priority on evaluating alternatives– Examples- Used Car, Vacation, Gifts– Tools Used

Specialty Stores with choices Sales personal to help one choose

Types of Consumer Decision Making

Routine Decision Making– Buys out of Habit– Skips steps– Little time spent– Same brands purchased– Examples- Groceries, newspapers etc.– Tools used

Good location Long Hours Product Availability Objective to complete transaction quickly and precisely

Impulse Purchases & Customer Loyalty

Impulse Purchases– Completely Unplanned

NO decision prior to visiting the outlet

– Partially Planned Intends to purchase the good or service Brand not predecided

– Unplanned Substitution Intends to buy a specific brand/service Changes mind after retailers’ influence

Customer Loyalty

Time conscious Customer satisfaction leads to shopper

loyalty Price has little bearing

Retailer Actions

Mass Marketing Strategies– Broad Spectrum of consumers– Does not focus on one set

Concentrated Marketing Strategies– Needs of one distinct consumer group– “W”

Retailer Actions

Differentiated Marketing Strategies– Two or more distinct groups– E.g. men and boys– Different strategies for both groups– Sub outlets for them maybe.

Environmental Factors

State of the economy Inflation Infrastructure Price wars Emergence of new retail formats Trend of more people working at home Govt. regulations Evolving social values and norms

What makes shoppers purchase ?

Environmental factors

Retailer actions

Attitudes &Behaviour

Needs & desires

Lifestyles

Demographics

Retail Shoppers

Home Assignment

Prepare a questionnaire to understand the target group– 1) Starting a Retail Academy– 2) A website targeting youth for education– 3) A blog

Session 4

Information Gathering and Processing in Retail

Why study it ?

Reduces chances of wrong decisions Opportunity to study attributes & buying

behaviour of consumers Provides data for planning and analysis Provides “Business Intelligence” Helps gain competitive advantage

Information Flow

Information & the supplier

Information & the retailer

Information & the Consumer

Information needs

Supplier Needs -from the retailer – Estimates on category sales– Inventory turnover rates– Feedback on competition– Level of customer returns

Supplier- from the consumer– Attitudes on styles and models– Extent of brand royalty– Willingness to pay a premium for quality

Information Needs

Retailer needs- from the supplier– Advance notice of new models, changes– Training material for complex products– Sales forecasts– Price logic

Retailer needs- from the consumer– Why people come to him– What they like/dislike from his services– Where else they go

Information Needs

Consumer needs- from the supplier– Assembly and operating instructions– Extent of warranty coverage– Service centre details

Consumer needs- from the retailer– Where specific merchandise is stocked in the

store– Payment modes– Policies etc.

Retail Information System

Anticipates the information needs of managers

Collects, organizes & stores relevant data on continuous basis

Directs flow of information to proper decision makers

Building a RIS

How active role RIS should have?– Proactive/ Reactive

Should it be internally managed/outsourced ?– Specialists In house/Hire experts?

How much should it cost?– Typical spend on RIS is .5 to .5 % of sales

How tech driven should it be? How much data is enough? Who should look at the data and analyse it? How should it be stored for future use?

Advantages of RIS

Information gathering is organized Focused at company goals Data regularly gathered and stored Opportunities are foreseen and strategies drafted Quantitative results are accessible, cost benefit

analysis is objective Information is routed to relevant persons Easy and scientific decision making

Database Management

Has two aspects– Data warehousing

Mechanism of storing and distributing information

– Data mining and Micromarketing Ways in which information can be utilized

Database Management

Retailer gathers, integrates, applies and stores Information on subject areas.

Used in conjunction with Customer databases, Vendor databases and pdt. Category databases

Database management-Steps

Plan particular database, its components and determine information needs

Acquire necessary information Retain info in usable and accessible format Update dbase regularly- demographics,

recent purchases etc. Analyse data to determine co. strengths and

weaknesses

Database Management

Information -Internal and external sources Databases by Customer

– Purchase frequency– Items bought– Avg. Purchase– Demographics and payment method

Databases by Vendor– Total retailer purchases per period– Total sales to customers per period– Most popular items– Retailer profit margins– Avg. Delivery time and service quality

Database Management

Databases by Product Category– Total category sales per period– Item sales per period– Retailer profit margins– % of items discounted

Dbase Mgmt- Vital Considerations

Is senior mgmt involved? Is someone responsible for this dbase? Does the firm have some dbase retention goals? Is every initiative analyzed? Are potential problem areas/opportunities flagged? Different product categories/co. divisions linked? Dbase updated every time customer interacts? Dbase analysed to eliminate redundant data?

Database Management

Data Warehouse

Executives Channel Partners Customers

DataMining

Micromarketing

Data Warehousing

Is a store of integrated data obtained from various internal and external sources representing events or facts at a given point of time.

Strong Buisness intelligence tool

Components

Data Warehouse– Data is physically stored

Software– To copy original databases and transfer them to warehouse

Interactive Software– To allow inquiries to be processed

Directory – For the categories of information

Advantages

Executives can quickly and easily access data

Aggregation of data from all locations Better data analysis and manipulation

possible Helps find new trends

Data Mining and Micromarketing

Data Mining– Indepth Analysis of Information to gain specific insights on

customers, pdt categories and vendors etc.– Objective is to derive opportunities to talor marketing efforts

to improve retailer performance

Micromarketing– Using data for differentiated marketing – Develop focused retail strategy mixes for specific segments– Or individual shopper

Data Mining and Micromarketing

Data Mining– Relies on special software to sift thru data

warehouse to uncover patterns and relationships among different factors

– Allows vast amounts of data to be quickly searched and sorted.

– Success mantra- Ability to identify and segment customers

Gathering information- UPC & EDI

Universal product code– Products are marked with a series of thin and thick vertical lines –

represents item code– UPC A Labeling-

Includes numbers and lines Read by Scanners Does not include price

– Advantages Retailers can record data instantly on items’ model no. etc Sends to data to central server monitoring unit sales, inventory levels

etc. Helps in better merchandising data, improve inventory mgmt., speed

transaction time, raise productivity, reduce errors, coordinate information.

Gathering information- UPC & EDI

EDI– Retailers and suppliers regularly exchange

information thru systems on inventory levels, delivery times, unit sales, etc.

– Advantages Both parties enhance decision making capabilities Better coordination Better inventory control More service oriented More responsive to demand.

Marketing Research Process

Define Problem

Examine Secondary

data

Generate Primary Data

Analyze Data

Make recomtions

Implement Findings

Infosys-Case Study

The ClientA large retail chain based in US.

The Challenge The client was facing issues with inventory management and service level. Hence, they wanted to reduce inventory and improve service levels throughout their supply chain network by improving forecast accuracy and enhancing supply chain planning.

The Solution Infosys evaluated and improved the clients’ supply chain metrics and systems and developed a solution strategy to achieve the clients’ supply chain vision. Infosys conducted a supply chain assessment exercise and helped the client define future state supply chain processes. Infosys also helped the client, as part of this exercise, in selecting the right set of planning and execution tools to enable the defined processes. Infosys helped the client define an implementation road map for deployment of various business and IT initiatives to enable the vision. The process vision was based on a time-phased planning process construct. As a part of the solution selection exercise, Infosys helped the client with a detailed application vendor evaluation exercise where leading supply chain planning and execution vendors were evaluated for fitment. Infosys was also involved in the implementation of a SCM planning solution and some custom developed applications in a phased manner to enable the defined process vision at the client warehouse and at the stores to achieve optimum supply chain benefits. The first phase was to implement the tool at the warehouse for a limited scope of items. Subsequent phases then rolled out the tool to additional scope of items and warehouse locations. After realizing the early benefits like improved forecasting accuracy and dropped inventory levels, the client has planned to roll out the solution to all stores and all SKUs in phased manner.

Key features of the implementation were: 1.Achieving high forecast accuracy for majority of the SKUs, especially during promotional periods by applying a high level of mathematical rigor, configuration of user interfaces and development of utility applications to capture promotions.2.Application of statistical safety stock principles to control inventory.3.Practical application of time-phased planning principles in a retail context.Business benefits 1.Reduction in inventory at the warehouse due to time-phased planning2.Improvement in service level3.Improvement in forecast accuracy4.Qualitative benefits like ease of use of the system for planners and focus on other value-added activities

Supply Chain Efficiency

Producer Push– Follows Contemporary Supply chain model– Based on production source– Production efficiency is the key– Production determines availablility and equals

sales

Supply Chain-Producer Push

Retail sales can be maximized if excess stock is available, production maximized if sales are maximized, inventory reduced if prodn,. and deliveries are aligned to sales

Requirements –Consumer Pull

Data Synchronization– Common framework for pdt and party data

Visibility– Level of retail sales drives consumer pull supply

chain and hence– All entities should have access

Supply Chain-Consumer Pull

Requires full visibility of consumer sales Visibility required for product movements &

stock levels Each entity can observe demand and

translate it into movements Product movements then determine

production schedule Operate on JIT principles

Requirements –Consumer Pull

Point of sale data– In the form of a SKU– Stock replenishment takes place at product line

rather than brand or sub brand.– Scanners are a big help at the EPOS

IT integration of retail operations Store Control

– Implementation of marketing strategies to forecast sales surges

Session 5

Store locations Trading Area Types of locations

Choosing a Store Location

Trading area analysis Deciding on most desirable type of location Selecting a general location Choosing a particular site within the location

Importance of Location

Location, location, location!!!! Long Run

– Influences the strategy– The site is consistent with its mission, goals &

target market for extended time– Location to population trends– Distances people travel– Competitors’ entry and exit

Store

Short Run– Impact on the specific elements of the strategy

mix– Product Mix

Store Location- Steps

Evaluate Geographic areas- Residents, Retailers

Determine where to locate- Isolated Store, Unplanned business district, Shopping Centre

Select the decided location Analyse alternate sites in the specified retail

location

Trading Area

Geographic Area containing the customers of a particular firm or group of firms for specific goods or services.

Trading Area Analysis- Advantages

Consumer Demographic and socio economic characteristics are known.

Focus of Promotional strategies is known Poach others or catch new customers Anticipate competition Best no. of stores for a chain in a given area

Trading Area- Advantages

Geographic weaknesses are known Impact of other forms of retailing is known Competition, Financial Institutions etc.

Size and Shape of Trading Areas

Primary Trading Area – Covers 50-80% of stores’ customers– Closest Area to the store– High Density of Customers to Population– Highest per capita sales

Secondary Trading Area– Covers 15-20 % of stores’ customers– Located outside the Primary area– Customers are more widely spread

Size and Shape of Trading Areas

Fringe Trading Area– Includes all remaining customers– Most widely dispersed– Includes some outshoppers who travel great

distances

Types

Destination Store– Store with better assortment, promotes more and

creates stronger image (It’s worth the trip)

Parasite Store– Doesnot create own traffic– No trading area of own– Store depends on people who are drawn on a/c of

other reasons

Delineating the Trading Area

Existing Store– Secondary Data (Store records)– Primary Data (Survey)– Some methods

Frequency with which people shop from a locality Avg. dollar purchases from the given locality Concentration of shop card holders’ from a given locality

Delineating the Trading Area

New Store– Trend Analysis (Past data, census)– Consumer Surveys (Time, distance, factors attracting)– Three Computerized Trading area models

Analog Model– Potential Sales on basis of existing sales of existing st.

Regression Model– Potential store sales with location, pop size

Gravity Model– Premise People are drawn to stores that are closer & more

attractive than competition

Trading Area Delineation

Reilly’s Law of Retail Gravitation– Establishes point of indifference between two

cities or areas.– Point of indifference is the geographic breaking

point between two cities at which consumers are indifferent to shopping at either.

– Assumptions: Two competing areas are accessible from a major road Retailers in two areas are equally effective Other factors are constant

Reilly’s Law

Dab= d/(1+sq root(Pb/Pa))Where

Dab= Limit of city A’s trading area, measured in miles along the road to city B.d= Distance in miles along a major roadway between cities A and BPa= Population of city APb= Population of city B

Limitations

Distance measured only via major roadway Travel Time not a good measure of distance Actual distance may not correspond with the

perceptions of the distance

Huff’s Law of Shopper Attraction

Basis-Product Assortment, Travel times, Sensitivity of the kind of shopping time to travel time.

Assortment- Total square feet of selling space a retailer expects all firms in a shopping area to allot to product category.

Sensitivity- Trip’s purpose and type of goods sought

Characteristics of Trading Areas

Attributes of residents and relation with target market definition

Population Size and characteristics Availability of labor, competition, regulations etc

Characteristics of Population

Census Survey of buying power

Competition and Level of Saturation

Number of existing stores, size, rate of new store openings, strengths and weaknesses, trends, saturation

Under stored Trading Area– Too few stores selling a specific good/service

Over stored Trading Area– So many stores that some retailers cannot earn an

adequate profit Saturated Trading Area

– Proper amounts of stores and retailers prosper

Measuring Trading Area Saturation

Number of persons per retail establishment Avg. Sales per retail store Avg. Sales per retail store category Avg. Store sales per capita Avg. Sales per square foot of selling area Avg. Sales per employee

Site Selection

Site Selection

Evaluate Alternative Trading areas

Determine Location Type

Select GeneralLocation

Types of Locations

Isolated Store Unplanned Business District Planned Shopping Centre

Isolated Store

Freestanding retail outlet located on highway or street

No adjacent retailers to share traffic No competition Low rental costs Flexibility high, expansion easy Isolation good for convenience shopping Easy parking, facilities, Lower prices

Isolated Stores

Disadvantages– Initial Customers difficult– Travelling this far might be unviable– High Ad expenses– Variety missing for the shopper– Costs: outside lighting etc not shared, high– Store has to be built not rented

Business District

Two or more stores situate together in an unplanned manner

Stores locate based on their interest not area Four Types

– CBD– SBD– Neighbourhood BD– String

CBD

Hub of retailing activity in the city (Downtown) Exist in the area of greatest density of office

buildings, stores At least one big store & speciality, convenience

stores exist Strengths

– Excellent assortment of goods– Access to public transportation– Variety of stores and positioning strategies– Close to commercial and social facilities

CBD

Weaknesses– Travel time for suburbs– Inadequate parking– High rents and taxes– Cost of setting the store

SBD

Unplanned shopping area in a city/town usually bounded by two streets

SBD offers similar products like CBD Smaller trading area, less stores, mostly convenience oriented

items Strengths

– Robust product selection– Access to thoroughfares and public transport– Placement near to residential areas than CBD

Weaknesses– Parking – Fewer chain outlets

NBD

Unplanned shopping area Appeals to the convenience shopping needs

of a neighborhood Contains several small stores Leading retailer could be a superstore Prices higher than CBD, SBD

String

Unplanned shopping area- Gp. of retail stores with similar product lines on a street/highway

Extension of shopping into perpendicular streets Starts with an isolated store, then expands Lower rents, lower operating costs but less variety,

increased travel time, high ad costs, need to create infrastructure

Planned Shopping Centre

Group of architecturally unified commercial establishments on a site centrally owned/managed, designed and operated as a unit based on balanced tenancy and with parking facilities.

Planned Shopping Center

Advantages– Well rounded assortment of goods/services– Strong suburban population– One stop family shopping– Cooperative planning and sharing of costs– Distinctive and unified image.– Popularity of malls– Maximization of foot falls– Common ad costs

Disadvantages– Landlord regulations – Higher rent and infra costs– Highly competitive environment– Domination by larger anchor stores

Planned Shopping centers

Regional Community Neighbourhood

Regional Shopping Centre

Large, planned shopping facility Atleast one to two department stores Broad and deep assortment of goods Market is 1 lac people + drive less than 20

min Result of planned effort to create shopping

variety of a city in a suburb Megamall

Community Shopping Center

Moderate sized, planned shopping facility Branch department store, category killer, and

smaller stores Moderate assortment of goods offered Caters to 20 k- 1 lac people with 10-20 min

drive

Neighborhood Shopping Center

Planned Shopping center Largest store is a superstore Focuses on convenience oriented goods Caters to 3000 to 50 k people within 15 min

drive Usually arranged in a strip Balanced tenency

Census

Trade Area Analysis

Session 6

Managing a Retail Business– Setting up an organization structure– Hiring and Managing personnel– Managing Operations

Setting up a Retail Organization

Retail organization– Ways by which a firm structures and assigns

tasks, policies, resources, responsibilities etc– To efficiently & effectively satisfy the needs of – Target market, employees and management

Organizing a Retail Firm

Specific Tasks to perform

Dividing Tasks among channel Members

Grouping tasks into jobs

Classifying Jobs

Integrating positions in an organization chart

Specific Tasks in the channel

Buying, receiving, marking & shipping Merchandise Setting prices for distributor, retailer, customer Inventory storage and control Preparing merchandise and window displays Facilities management Customer- Research, contact Facilitating Shopping Etc.

Dividing Tasks among channel members

Retailer- Performs all or some tasks in the channel- Buying merchandise to coordination

Manfr./Wholesaler- Some tasks like shipping, marking merchandise, inventory storage, research.

Specialist-Specific Tasks like buying office, delivery firm, warehouse, MR, Ad agency, Accounting, Credit bureau

Consumer-Delivery, credit, Sales effort (self service), pdt alternations.

Grouping Tasks into Jobs

b  

   

Displaying merchandise, customer contact, followup Sales Personnel

Entering transaction data, handling cash, credit purchases Cashier

Recving Merchandise, checking shipments, marking merchandise, Inventory Personnel

inventory storage and control, returning merchandise to vendors  

Window dressing, interior display setups Display personnel

Billing customers, credit ops, customer research Credit Personnel

Merchandise repairs, alterations, resolution of complaints Customer service

Cleaning store, replacing old fixtures Janitorial

Personnel management, sales forecasting, budgeting, pricing Management Personnel

coordinating tasks  

Classifying Jobs

Functional-Jobs by Task Product- Jobs on goods/services based. Geographic- Operations in different areas Combination- Mixed use (Sales people

locally hired but sourcing, HR central)

Organization Chart

A CEO builds an organization which builds a business.

Flat Organization Tall Organization

Organized Patterns

Arrangements used by Small Retailers Departmental Stores Chain Retailers Diversified Retailers

Small Retailers

Use uncomplicated arrangements Two or three levels Owner-Manager and employees Multitasking by employees

Departmental Stores

Follow Mazur Plan-All activities into functional areas. Merchandising: Buying, selling, stock planning,

control and promotion planning Publicity: Window, interior, a&p, ad research, PR Store Management: Merchandise Care, customer

services, buying store supplies, insurance, employee trg. And compensation, workroom ops.

Accounting and Control: credit, collections, expense budgeting, record keeping etc.

Departmental Stores

Line Functions: Direct authority and responsibility Staff Functions: Advisory and Support Three versions of the Mazur Plan Main Store control: HO oversees and controls

branches Separate Store Organization: Branch has buying

responsibilities Equal Store Organization: Buying is centralized,

branches are sales units with equal operational status

Chain Retailers

Follow Equal Store Organization Functional divisions exist: sales promo etc. Overall Authority is HO Store Managers have selling targets Standardized operations Elaborate Control system. Little decentralization/localization allowed

Diversified Retailers

Multiline firm operating under central leadership

Operates diversified stores unlike chains Interdivision control a must Shared and clear goals Resources shared but also divided

HRM Process

Issues– LONG HOURS– Inexperienced Workers– Many part time workers– Variable customer demand– High turnover of employees– Low wages– Diverse labor force (young to old)

HRM Process

Must generate enough applicants Training a must Compensation perceived fair Career plan explained Expectations and JD’s clearly established Job fit and format fit needs training

HRM Process

Recruitment Selection Training Compensation Supervision Follow local labor laws

JD of a Management Trainee

Attributes required Analytical skills Creativity Decisiveness Flexibility Initiative Leadership Organization Risk Taking Stress Tolerance

Session 7

Operations Management-1

Operations Management

Profit Planning Asset Management Budgeting Resource Allocation

Profit Planning

P&L Statement

Asset Management

Assets Liabilities Net Worth Use of assets in optimal manner

– Net Profit Margin=Net Profit after taxes/Net Sales– Asset Turnover= Net Sales/Total Assets

ROA=NET Profit Margin X Asset Turnover

– Financial Leverage-Retailer’s total assets/net worth

Strategic Profit Model

Return on Net Worth– Relationship between net profit margin, asset

turnover & financial leverage– Net Profit Margin X Asset Turnover X Financial

Leverage– Net Profit/Net Worth– Useful in planning or controlling assets

Budgeting

Outlines retailer’s planned expenditures for a given time based on expected performances.

Costs are linked to Target market, employee and management goals.

Advantages of Budgeting

Expenditures are related to expected performances.

Resources are allocated to right departments, pdts etc.

Spending for all departments is coordinated Goal of efficiency is clearer Planned vs actual budgets are analysed Costs and performances are benchmarked

Preliminary Budgeting Decisions

Budgeting authority is specified– Top down or bottom-up

Time frame is defined Budgeting frequency is determined Cost categories are established

– Capital Expenses– Fixed and variable– Direct and indirect costs– Natural account vs functional account expenses

Preliminary Budgeting Decisions

Level of detail is set Budget flexibility is defined

Ongoing Budgeting Process

Follows the preliminary budgeting process Goals are set based on customer, employee and

mgmt needs Performance standards are specified Expenses are planned

– Zero based \incremental budgeting Actual expenses incurred Results are monitored Budget is adjusted

Cash Flows Vs P&L

Resource allocation

Magnitude of various costs Spending divided into

– Capital Expenses– Operating Expenses usually % of sales ?– Opportunity costs

Budget plan-Class Assignment

You have to start a grocery shop in qutab institutional area to cater to the needs of student population. You have just signed a lease deed for a shop measuring 1500 sq ft. The rent for this is Rs. 25 k per month. Security deposit is 6 mths. You need to hire 4 sales people to manage the outlet. Pls create a budget plan for operating this outlet.

Resource allocation

Productivity Costs as % of sales Ways to enhance productivity

– A firm can improve employee performance– Reduce costs by automating etc.– General strategies adapted

Space Productivity Labor expenses

Session 8

Describe Operational Scope Examine specific aspects of operating a retail

business

Ops Management

Efficient and effective implementation of policies and tasks that satisfy a retailer’s customers, employees and management

Operational Aspects

What operating guidelines are used? Optimal format/size of the store Relationship between shelf space, location and sales Personnel best be matched to customer traffic? Energy costs, inventory management, safety Insurance required? Credit transactions, computer systems What kind of crisis management team?

Operations Blueprint

Systematically lists all operating functions to be performed, their characteristics and timing.

Retailer specifies in detail every operating function from store opening to closing and who is responsible for them

A large diversified retailer uses multiple blueprints

Store format, size, space allocation

Store format determined on the productivity criteria.

Key decision- Prototype stores– Multiple outlets conform to relatively uniform

construction, layout, operations standards.– Centralized management control is easier,

standardize operations and display consistent brand image

– Mcdonald’s, Starbucks

Store format, size, space allocation

Some use Rationalized Retailing programs– High degree of centralized management control

with strict operating procedures for every phase of business.

– Most of the operations are performed in virtually identical manner in all outlets.

– Rigid control and standardization makes it easy to expand.

Some use mix and match techniques

Store Space

Retailers often focus on allocating store space. Top-down space management approach

– Start with total space available– Divide space into categories– Then work on product layouts

Bottom-up Management Approach– Begins planning at the individual product level– Proceeds to categories, total store and overall company

levels

Store Space Allocation

Productivity– Vertical displays– Hang from ceilings– Point of sale displays, vending machines– Open doorways, mirrored walls give small stores

a larger appearance– Generally 75 % of space is used for selling, rest is

for storage, rest rooms etc.– Open longer hours

Personnel Utilization

Maximization of worker productivity– Hiring process– Workload forecasts– Job standardization and cross trainings

Cashier in each department Cashier, gift wrapper and stockperson is same Employee performance standards Compensation Self service reduces operating costs

Store maintenance, energy management and renovations

Store maintenance- encompasses all activities in managing physical facilities

Exterior- Parking lot, outside displays, point of entry and exit

Interior- Windows, walls, flooring, climate control, lighting, displays, signs and fixtures

Store Maintenance

Quality of store maintenance affects consumer perceptions, life span of facilities, operating costs

Energy management is gaining importance as the energy costs are rising-Methods– Better insulation– Adjust internal temperatures at off hours– Use computerized controls

Renovations

When ? How frequently ? What areas ? Why ? Better revenues, lower operating

costs or both

Inventory Management

Maintain proper merchandise assortment and ensure efficient and effective ops.

How much inventory on sales floors vs warehouse or store room?

How often inventory be moved from nonselling to selling area ?

Tradeoffs between faster supplier delivery, higher shipping costs?

What is the level of reorder point ?

Store Security

Two aspects– Personal and Merchandise Security

Personal Security– Uniformed security guards- visible presence assures

customers, employees- a warning to thieves and shop lifters– Undercover personnel are also used– TV cameras and other devices scan the areas– Brighter lighting & manned parking lots– Bank deposits are done frequently– Access to stores’ own areas is restricted

Insurance

Workers’ compensation Product liability Fire, accident, property and officers’ liability Health insurance for full time employees

Credit Management

What form of payment is acceptable? Who administers the credit plan? Own cards vs others Who is eligible ? What credit terms are used ? How do we handle non payments and late payments ? Options one must weigh

– Credit vs sales growth– Credit costs vs returns (Financial and competitive advantages)– Debit cards and Fund management– Discount coupons– Gift cards

Computerization

Helps improve overall productivity Must define level of computerization

– Billing system– ERP systems– Individual store location vs integrated systems– Computerized checkouts– UPC codes vs RFID– Electronic point of sale system– Self scanning and payments

Computerization

Theft prevention Energy control- Based on traffic Others

Outsourcing

Expert Services Security Billing Inventory Management Store layout, design etc.

Crisis Management

Contigency Plan should be ready– Blue Book/ Red Book

Essential information communicated to all parties

Chain of command should be clear Cooperation not confusion desired Responses should be swift SHE

Session 9

Merchandise Management and Pricing– Developing Merchandise Plans

Merchandising

Activities involved in acquiring particular goods &/or services and making them available at places, times & prices in quantities that enables a retailer to achieve its goals.

Merchandising-Quotes

Consists of two factors– Customers & Goods– U take good care of buying your products, they

don’t come back – U take care of customers, they do come back

Merchandising Philosophy

Sets guiding principles for all merchandise decisions that a retailer takes.

Must reflect– Target market desires, market place positioning, the defined value

chain, supplier capabilities, costs, competitors, product trends. Drives product decision- from what product lines to carry to the

shelf space allotted to different products to inventory turnover to pricing.

Retailers have to decide the balance between width and depth of the products

They need to decide on pricing policies and if the product assortments shall be stable over time?

Merchandising Philosophy

Scope of responsibility for merchandise personnel.– Both buying and selling– Buying only

Micro merchandising and cross merchandising

Micro Merchandising– Retailer adjusts shelf space allocation to respond to

customer & other differences among local markets– Walmart adjusts shelf space to reflect local preferences.

e.g. amul products

Cross Merchandising– Retailer carries complimentary goods & services to

encourage shoppers to buy more– Apparel stores stocking accessories

Buying Organization formats & processes

For a merchandising plan to succeed buying processes need structure– Who takes decisions?– What are their roles?– Do they have authority?– How does merchandising fit in overall strategy?

Buying Organization formats & processes

Level of formality– Formal

Separate department is set up Involves acquiring merchandise and making it available for sale Big stores use this format Specialist merchandisers are hired

– Informal No separate role Small retailers use this format Less defined responsibility and hence less emphasis on merchandise planning

Degree of Centralization– Centralized

Centralized decision making Integration of effort, strict controls, consistent image, discounts Inflexibility

– Decentralized Purchase decisions are made locally Disjointed effort

Organization Breadth– General & specialized approach based on size

Personnel Resources– Inside buying organization– Usually used by very large and small

organizations– Outside Buying organization– Used by small and medium sized retailers

Functions Performed– Merchandising

Merchandise personnel oversee all buying and selling functions

Including assortments, advertising etc.

– Buying Merchandise personnel oversee buying of products,

advertising etc. while in store personnel oversee assortments, displays etc.

Staffing– Buyer

Responsible for selecting merchandise to be carried by the retailer

Sets a strategy to market the merchandise Devises, controls sales and profit projection for a pdt category Plans assortments, styles, sizes etc.

– Sales Manager Supervises on floor selling & operational activities for a

department Must be a good organizer, administrator and motivator

Devising Merchandise Plans

Forecasts

Allocation

Timing

Brands

Assortment

Innovativeness

MerchandisePlan

Forecasts

Projection of expected retail sales in a period Staple Merchandise- Regular pdts carried by the retailer e.g.

supermarket- milk, bread etc.– Basic stock list is kept ready

Assortment Merchandise- Consists of apparel, furniture etc. for which a wide variety is required.

This is harder to forecast – style changes, demand variations etc.

Decision is two pronged- Pdt lines, styles, sizes are forecasted Model stock plan is used to project specific items and includes

then other items to offer good assortment.

Forecasts

Fashion Merchandise- Consists of products with cyclical sales due to changing tastes/lifestyles.

Seasonal Merchandise- Consists of products that sell over non consecutive time periods such as ski equipments, ACs.

Fad Merchandise- High sales for a short period of time. (Harry Potter stuff)

Never out list- They are always is stock.

Innovativeness

Innovative retailer has a great opportunity Distinctiveness (First in the market) Great Risk (Misreading the customers) Retailers should assess growth potential of

each new good and service Good tool is PLC

Innovativeness

Factors to keep in mind– Target Market– Good/Service Growth Potential– Fashion trends- vertical/horizontal– Retailer image– Competition– Responsiveness to consumers– Investment required vs returns

Assortment

Selection of a merchandise a retailer carries Includes the width and breadth of product

categories A firm first chooses the quality of

merchandise– Top line for upper income – Middle line for the middle income– Carry promotional products

Assortment

After product quality, width and breadth of assortment is decided

KFC only chicken Distinction between Scrambled

merchandising, complementary goods and services, and substitute goods and services

Assortment

Scrambled Assortment- Unrelated goods and services added to increase revenue

Complimentary goods/services- Retailer sells basic items and related offerings

Substitute goods/services- competing products (competing brands of toothpastes)

Brands

Retailer chooses proper mix of manufacturer, private and generic brands

Manufacturer brands- Produced and controlled by mfrs. (Coke, Gillette)

Small firms associate with them Private Brands (Store brands)- Names designated by

wholesalers or retailers controlled by them only. Less expensive for customers Generic Brands- no frills associated by them. Usually receive secondary shelf spaces.

Timing

New products- Retailer must decide when to purchase, display and sell them

Established brands- The firm must plan the merchandise flow during the year.

Allocation

A single unit retailer chooses how much merchandise to place on the sales floor, how much in the stock room

Session 10

Financial Merchandise Management

Financial Merchandise Management

Thru this a retailer specifies which products are purchased, when products are purchased and how many are purchased

Dollar Control involves planning and monitoring a retailer’s financial investment in merchandise over a stated period.

Unit control relates to the quantities of merchandise a retailer handles during a stated period.

Inventory Valuation

Two inventory accounting systems available are:

Cost Accounting system values merchandise at cost plus inbound transportation charges

Retail Accounting system values merchandise at current retail prices

Cost Method

The cost to the retailer of each item is recorded on an accounting sheet or coded on a price tag.

Physical inventory is done, item costs are known, the quantity of each item is counted and total inventory value is calculated.

Example”10 letter equivalency system M0, N1,O2, P3, Q4, R5, S6, T7, U8 STOP=67.23

Inventory using Cost Method

Physical Inventory-Counting the merchandise in stock at the close of selling period. Actually done once or twice in an year.

Gives actual figure but does not reflect what it should be ?

Book Inventory-Keeps a running total of the value of all inventory at hand at cost at a given time.

Valuing inventory: FIFO and LIFO Disadvantages of Cost Based Inventory Systems

1) Requires that cost be assigned to each item in stock. Works best for low turnover companies, high avg. prices…..otherwise difficult to monitor change in costs.

2) Ending inventory value based on merchandise cost may not reflect actual worth.

The Retail method

Closing inventory value is determined by calculating the average relationship between cost and the retail values of merchandise available for sale in a period.

Requires detailed records, is more complex.

Steps to determine ending inventory value– Calculating the cost complement– Calculating the deductions from retail value– Converting retail inventory value to cost.

Calculating the Cost Complement

Cost Complement= Total Cost Valuation ----------------------------

Total Retail valuation Value of beginning inventory, net purchases,

additional markups and transportation costs are all included in the retail method.

Beginning inventory and net purchase amounts are recorded at both cost and retail levels.

Cost Complement

  At Cost   At Retail

       

Beginning Inventory 90500   139200

       

Net Purchases 205900   340526

       

Additional Markups 0   16400

       

Transportation Charges 3492   0

       

Total Merchandise for sale 299892   496126

Cost Complement= 299892/496126= .6045

Calculating Deductions from Retail Value

Ending retail value of inventory must reflect deductions from the total merchandise available for sale at retail.

Deductions like markdowns, employee discounts, pilferages, etc.

To compute stock shortages- the retail book value of ending inventory is compared with actual physical ending inventory at retail

Converting Retail Inventory Value to Cost

Retailer must convert adjusted ending retail book value of inventory to cost to calculate gross margin.

Ending inventory at cost =Adjusted ending retail book value X Cost Complement

Advantages of the retail method

Valuation errors are reduced at physical inventory as merchandise value is recorded at retail.

Simpler process Physical inventory method at cost requires a physical

inventory to prepare a P&L statement. The retail method lets a firm prepare P&L on the book inventory.

Retail method is accepted in insurance claims.

Merchandise Forecasting and Budgeting

Six step Dollar Control Process (Planning and monitoring a firm’s inventory investment over time)

Designing Control Units Sales Forecasting Inventory Level Planning Reduction Planning Planning purchases Planning profit margins

Designing Control Units

Merchandise forecasting and budgeting requires selection of control units- the merchandise categories for which data is gathered.

Retailer must record data in each category. Retailer can broaden control system by

combining categories that comprise a department.

Helpful to select control units with other company and trade association data.

Classification Merchandising can be used- whereby each department is subdivided into further categories for related types of merchandise.

Price line classifications- Sales, inventories and purchases are analysed by price categories.

Sales Forecasting

Forecasts may be companywide, departmental or individual merchandise based.

Large retailers use trend analysis, time series analysis and multiple regression analysis techniques.

For specific estimates- Monthly sales index could be used.

Monthly sales index= (Monthly sales/Avg Monthly sales) X 100

Based on this a retailer can forecast monthly sales based on the yearly sales forecast.

Inventory level planning

Methods used are – Basic Stock Method– Percentage Variation– Weeks’ Supply– Stock to Sales Methods

Reduction Planning

Retail reduction =Beginning inventory plus purchases - sales plus ending inventory

Planned reductions incorporate anticipated markdowns, employee discounts etc.

Reduction planning revolves around two factors- Estimating expected total reductions by budget period and assigning estimates monthly.

Planning reduction should take into account- Past experience, markdown data, changes in co policies etc.

Planning Purchases

Planned purchases =planned sales for the month +planned reduction for the month+ planned end of month stock- beginning of month stock.

Open to buy =difference between planned purchases and purchase commitments already made by the buyer.

Planning Profit Margins

In planning a profitable merchandise budget a retailer must consider planned net sale, retail op expenses, profit and retail reductions in pricing merchandise.

Required initial markup % =(planned retail expenses+ planned profit+ planned reductions) /planned net sales + planned reductions

Session 11

Pricing in Retailing– Role of pricing in retail strategy– Examine impact of market forces on pricing

decisions– Developing a retail price strategy

Pricing options for a Retailer

Discount Orientation– Uses low prices as the comp. advantage– Low price image, fewer shopping frills, low per unit margins,

low operating costs, high inventory turnover At the Market Orientation

– Retailer has average prices– Offers great service & nice ambience to middle class

customers– Margins are moderate to good & avg. to above average

pdts are stocked.– Traditional departmental stores are part of this category

Pricing Options for a Retailer

Upscale Orientation– A prestigious image is the retailers’ competitive

advantage– Smaller target market, higher expenses, lower

turnover mean customer loyalty, distinctive services

– High per unit profits– Upscale department stores/ speciality stores

Price Vs Value

External Factors Affecting Pricing

Retailers should understand the price elasticity of demand.

– Sensitivity of consumers to price changes in quantities they buy.

– Elastic- Urgency of purchases is low, alternatives are easily available

– Inelastic- Purchase urgency is high & no acceptable substitutes are available

– Unitary elasticity- % changes in price are in proportion to % changes in quantity

Elasticity= (Q1-Q2)/(Q1+Q2) ------------------------------------

(P1-P2)/(P1+P2)

Price Sensitivity varies by market segment After identifying market segments, it is

required to determine which is your target segment.

Economic Consumers– Perceive competing retailers as similar & shop for the

lowest prices Status Oriented Consumers

– Perceive competing retailers as quite different Assortment Oriented Consumers

– Seek retailers with strong selection, want fair price Personalizing Consumers

– Shop where they are known, pay slightly above avg. prices Convenience Oriented

Govt. & Retail Pricing

Three Levels– Federal, State, Local

Major Govt. Policies relate to– Horizontal Price Fixing

An agreement between Mfrs, W/S, Retailers- illegal– Vertical Price Fixing

Mfrs, W/S seek to control retail prices of their goods– Price Discrimination– Minimum Price Levels– Unit Pricing– Item Price Removal– Price Advertising

Mfrs., W/s & other suppliers

Mfrs want to decide final selling price to the customer

W/s- Selling against the brand

Developing a Retail Price Strategy

Retail Objectives Broad Price Policy Price Strategy

Implementation of price strategyPrice Adjustments

Retail Objectives

Overall Objectives and Pricing– Sales Goals are specified in terms of revenues &/or unit volumes.

Market Penetration Strategy– Large revenues by low prices & large volumes– Customers must be price sensitive, low prices discourage actual &

potential competition Market Skimming Pricing

– Firm sets premium pricing – Does not achieve high volumes but high profit per unit– Target segment is price insensitive

ROI and Early recovery of cash Specific Pricing Objectives

Broad Price Policy

Integrated Plan created with short and long run perspectives & consistent image.

Relates price policy with target market, retail image and other elements of the retail mix.

Some examples– No competitors shall have lower prices or higher

or same.– Price leadership shall be exerted– Prices shall change only with costs

Price Strategy

Demand Oriented Pricing– Retailer sets price on consumer desires– Determines range of prices acceptable to target market– Top of the range is demand ceiling, the most people shall

pay for a good or service.– It is used to estimate the quantities that customers would

buy at various prices– This approach studies Customer interests and

Psychological implications of pricing– The aspects of psychological pricing are:

Price Quality association Prestige pricing

Cost Oriented Pricing Retailer sets a price floor, the minimum acceptable

to the firm. Retailer usually computes the merchandise, op.

costs and adds some margin to these prices Markup Pricing

– Retailer sets prices by adding per unit merchandise costs, op. expenses and desired profit.

– Diff. between merchandise costs and selling prices

Markups

Markups can be computed on the basis of retail selling price or cost but are typically calculated using retail price.

Markup % (At retail)= (Retail Selling price-Merchandise Cost)/Retail Selling Price

Markup % (at cost) = (Retail Selling price-Merchandise Cost)/Merchandise Cost

Variable Markup policy

Retailer adjusts markups by Merchandise Category

Prices of diff goods might fluctuate Allows for differences in pdt investments May help retailer generate more customer

traffic by advertising certain pdts at deep discounts

Session 12

How to establish and maintain a retail image?

Retail atmosphere, store fronts, layouts etc. are examined

Significance of the retail image

Image- how a retailer is perceived by customer and others

Positioning- project an image relative to retail category and competitors to elicit positive response

Components of a retail image

Target market Firm’s positioning Customer Service Store Location Merchandise attributes Pricing Attributes of physical facilities Shopping experiences Community Services Promotion Tools

– Advt, Public relations, personal selling, sales promotion.

Retail Image

Store atmosphere Entertainment for shoppers

– Cooking lessons– Makeup– Looking at an emotional connection

Shopper must be able to determine the following from a retailer in 3 sec- name, line of trade, claim to fame, price position, personality.

Atmosphere

Image depends on the atmosphere—the psychological feeling

Store Based retailer- Store’s physical characteristics Non store- Physical characteristics of catalogs,

vending machines etc, websites etc. Visual Merchandising- Lighting, props, to increase

the shopper’s relationship with the pdt.– Store display windows, width of the aisle, merchandise

presentation

Store Based Retailing Perspective

Exterior– Storefront

Modular structure Prefabricated Prototype Recessed Storefront Unique building design

– Marquee Sign that displays store’s name

– Entrances- No., Type, Walkways– Display Windows- To identify the store & offerings, to induce people to

enter-----Sale items, Eye Catching displays, General Interior Store Layout Displays

General Interior1. Flooring-Cement, wood, carpet ?2. Colors- Bright, vibrant?3. Scents, sounds4. Store fixtures5. Customer moods- Temperature, polite staff6. Vertical transportation in multilevel stores7. State of the art technology8. Cleanliness

Store Layout Allocation of Floor Space-done on planogram

– Selling space– Merchandise space– Personnel Space– Customer Space

Classification of store offerings– Functional product offerings

Display merchandise by common end use Men’s clothing might grp. Shirts/socks etc

Purchase Motivation Pdt. Grpings– Appeals to the consumer’s urge to buy pdts and time spent– Disinterested person shall not visit third floor

Market Segment Pdt. Grpings– Items placed together that appeal to a given target market.

Art gallery places paintings into diff price categories. Storability Pdt. Gpings

– Based on pdts needing special handling– Florist keeps some refrigerated, others at room temp

Determination of a Traffic Flow Pattern

Straight (Gridiron) Traffic Flow- Places displays and aisles in a rectangular pattern

– Used by food retailers, discount stores– Advantages efficient atmosphere, more space floor, quick

shopping, service levels

Curving (Free Flowing) Traffic Flow-Displays and aisles in a free flowing pattern

– Departmental Stores, apparel stores, – Advantages- Friendly atmosphere, Impulse purchase

enhanced

Determination of Space Needs

Space for each category is calculated, with both selling and non selling space

2 Models- Model Stock Approach– Determines Floor space necessary to carry & display

proper merchandise assortment. – Apparel stores and shoe stores

– Sales Productivity Ratio– Assigns floor space on basis of sales or profit per foot– Food stores

Mapping out in store locations

Department locations are mapped out. Multilevel stores mean assigning store levels What items should be placed where? How should groupings be placed relative to doors,

vertical transportation etc? Where should impulse purchase stuff be ? How should associated product categories be

aligned? How can the overall crowding be averted?

Arrangement of Individual Products

Most profitable Items placed in best location Pdts could be on the basis of Package size,

price, color etc., eye level etc. Most undesirable level is below knee level Cereal Theory- placing boxes on lower

levels- at eye level of children

Interior (POP) Displays

POP Provides shoppers with information, adds to

store atmosphere, serves a substantial promotional role.

Is persuasive Silent salesperson Flexible Enhances shopping experience

Types of displays

Assortment display- exhibits wide range of merchandise.

– Open assortment-Customer encouraged to feel/look/try pdts– Closed- look but don’t touch/try– Theme Setting display-depicts pdt. Offering in a thematic

manner & sets specific mood.– Ensemble Display- complete pdt bundle is displayed.– Rack Display- functional use-neatly hang or present

products.– Case display- heavier items,.– Cut Case- An inexpensive display– Dump bin.

Non Store Based Retailing Perspective

Promotional Strategy

Scope of Retail Promotion Study the elements of Retail Promotion

Retail Promotion

Includes any communication by a retailer that inform, persuades, and/or reminds the target market about any aspect of the firm.

Elements of Retail Promotion Mix

Advertising PR Personal Selling Sales promotion

Advertising

Paid Non personal Uses out of store mass media Identified Sponsor

Objectives for the retailer

Lifting Short term sales Increasing customer traffic Developing a retail image Informing customers about goods/services Easing the job for sales personnel

Session 13

Integrating and controlling the retail strategy

Integrating the Retail Strategy

Four Fundamental Factors– Planning Procedures and Opportunity analysis– Defining Productivity– Performance Measures– Scenario Analysis

Planning Procedures & Opp. Analysis

Outlining the firm’s overall direction and goals

Top down, bottom-up or horizontal plans are combined

Specific Plans are enacted, including checkpoints and dates

Defining Productivity

Productivity refers to efficiency with which a retailer strategy is carried out.

Effort is to reach sales and profit goals Potential trade-offs mean neither the least

expensive strategy nor the most expensive one is the most productive strategy.

Performance Measures

Outlining relevant performance measures and setting standards for each of them, retailer can– Better develop and integrate its strategy– Some parameters to keep track are total sales,

average sales/store, sales by goods/services, sales per square foot, gross margins etc.

– A firm should use Benchmarking.

Benchmarking of service retailing Popular tool is SERVQUAL wherein customers

respond to questions in the following areas: Reliability Responsiveness Assurance Empathy Tangibles

Benchmarking Leads to Gap analysis Efforts to fill those gaps is taken

Scenario Analysis

Retailer projects the future by studying factors that affect long run performance and then forms contingency plan.

CONTROL

After a retail strategy is devised and enacted it must be assessed and adjustments made.

Retail audit is then done. Objectives of this audit are:

– What is the reatiler doing now?– Appraise performance– Make recommendations for the future

Audit helps in understanding– Retailer objectives– Strategy– Implementation– Organisation

Undertaking the Audit

Six steps in retail auditing– Determine who does an audit– Decide when and how often it is done ?– Establish areas to be audited– Develop audit form– Conduct an audit– Report to the management

Retail Strategy

Define Type of Business – In terms of Goods/Services– Company Orientation (Full service/No frills)

Set Long and short term goals– Sales & Profit– Market Share– Image

Determine Customer Market to Target & Pdt Needs Devise Overall, Long run plan that gives general direction to all. Implement integrated startegy that combines factors as store

location, pdt. Assortment, pricing, Advertising, displays

ADAG (Group A)

ADAG has decided to open a chain of Retail Executive Education Centers across the country. U have to draw a retail business plan for them. The company has a target of 50 Crores revenue for the first year.

Please work (First list them) on the steps u shall undertake to draw the business plan for them.

Using the projected revenue figure create a viable retail plan.

Gp. B

U have been hired by Reliance Fresh (Vegetables, Fruits & Grocery) as Delhi Head. U have two outlets (Area: 16000 Sq ft) in Delhi. Mukesh ji wants you to increase the sq. ft area under Reliance Fresh Control to 2.5 lac within 18 Months.

What Options would you explore and why ? Create a viable business plan for Reliance

Fresh in terms of Business figures.

Group C

You have been hired by Wal Mart as a HR manager in North India.

The co. needs to hire 28000 employees by the end of Mar 2008. You are required to draw out a game plan on how would you meet this requirement.

While working please use the cost & revenue elements and submit a budget plan.

Group D

IIM A with a turnover of 28 crores & 280 AICTE Accredited seats has been granted a license by the govt. to offer this recognised diploma to 2800 students by September 2007. U are the director of IIMA. How would u ensure this implementation?

Factors to keep in mind: Quality of education, Costs, Brand Equity.

Submit a game plan to the board.

Group E

Ash (after the marriage!) has decided to open a branded chain of high end boutiques.

She needs you to create a business plan. She wants to be the leader in the category. How much money she needs? What should be the retail strategy for her ?