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 Approach9th 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?

Worlds 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 Indias 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) Mail, phone orders, direct selling, web transactions all are retailing. (Dominos, Astropredictions) (Selling to final consumer is retailing)

Retailing only involves Stores

Retailing is only thru Retailer

Retail in the Channel

Manufacturer

Wholesaler

Retailer

Consumer

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
Pdt/Service Mix

Geography Channel Mix

Consumer Segment

The Retailing Concept

Helps decide the retail strategy Four components

Customer Orientation

Understand attributes and needs of the customers Works to satisfy them Integrates all plans & activities to optimize efficiency Offers value to its customers

Coordinated effort

Value Driven

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 companys 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 fullservice approach as a way of adding value to a customers 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

Cant 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 Low flexibility, independence in style Higher investments (Merchandise)

Disadvantages

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 Interactive relationships Mcdonalds

Business format Franchising

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. 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..

e-tailers

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 ?

Demographics

Environmental factors

Lifestyles

Retail Shoppers

Retailer actions Attitudes & Behaviour

Needs & desires

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 Personality Class consciousness Attitudes Perceived risks

Psychological Factors

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 Time a great social equalizer Requirement of making the most of limited time Shopping is less predictable and more individualistic More situation based, means no issue.

Poverty of Time

Component Life-styles

Consumer needs and desires

Consumers spend more on desires than needs today Needs- Persons 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 dont 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. Comfort with Technology Online Security

Web Consumers

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 Shop for a particular product category at all outlets Visit multiple retailers on one occasion

Most prefer Cross Shopping

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

Stimulus Problem Awareness Info Search Evaluation of Alternatives

Purchase

Demographics

Life Style

Post Purchase Behaviour

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 Intends to purchase the good or service Brand not predecided Intends to buy a specific brand/service Changes mind after retailers influence

Partially Planned

Unplanned Substitution

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 Needs of one distinct consumer group W

Concentrated Marketing Strategies

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 ?

Demographics

Environmental factors

Lifestyles

Retail Shoppers

Retailer actions Attitudes & Behaviour

Needs & desires

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 Why people come to him What they like/dislike from his services Where else they go

Retailer needs- from the consumer

Information Needs

Consumer needs- from the supplier

Assembly and operating instructions Extent of warranty coverage Service centre details Where specific merchandise is stocked in the store Payment modes Policies etc.

Consumer needs- from the retailer

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 Specialists In house/Hire experts? Typical spend on RIS is .5 to .5 % of sales

Should it be internally managed/outsourced ? How much should it cost? 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 Ways in which information can be utilized

Data mining and Micromarketing

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

Databases by Vendor

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

Data Mining

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

To allow inquiries to be processed For the categories of information

Interactive Software

Directory

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

Micromarketing

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
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.

Advantages

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 Client A 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 Level of retail sales drives consumer pull supply chain and hence All entities should have access

Visibility

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 Covers 15-20 % of stores customers Located outside the Primary area Customers are more widely spread

Secondary Trading Area

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 (Its worth the trip) Doesnot create own traffic No trading area of own Store depends on people who are drawn on a/c of other reasons

Parasite Store

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. Potential store sales with location, pop size Premise People are drawn to stores that are closer & more attractive than competition

Regression Model

Gravity Model

Trading Area Delineation

Reillys 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

Reillys Law
Dab= d/(1+sq root(Pb/Pa)) Where Dab= Limit of city As trading area, measured in miles along the road to city B. d= Distance in miles along a major roadway between cities A and B Pa= Population of city A Pb= 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

Huffs 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- Trips 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 So many stores that some retailers cannot earn an adequate profit Proper amounts of stores and retailers prosper

Over stored Trading Area

Saturated Trading Area

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 General Location

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 Parking Fewer chain outlets

Weaknesses

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 channelBuying 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 Entering transaction data, handling cash, credit purchases Recving Merchandise, checking shipments, marking merchandise, inventory storage and control, returning merchandise to vendors Window dressing, interior display setups Billing customers, credit ops, customer research Merchandise repairs, alterations, resolution of complaints

Sales Personnel Cashier Inventory Personnel

Display personnel Credit Personnel Customer service

Cleaning store, replacing old fixtures

Personnel management, sales forecasting, budgeting, pricing coordinating tasks

Janitorial
Management Personnel

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 JDs 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-Retailers 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 retailers 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 retailers 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 Mcdonalds, 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 Begins planning at the individual product level Proceeds to categories, total store and overall company levels

Bottom-up Management Approach

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 dont 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 Retailer carries complimentary goods & services to encourage shoppers to buy more Apparel stores stocking accessories

Cross Merchandising

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

Informal

Degree of Centralization

Centralized

Centralized decision making Integration of effort, strict controls, consistent image, discounts Inflexibility Purchase decisions are made locally Disjointed effort

Decentralized

Organization Breadth

General & specialized approach based on size Inside buying organization Usually used by very large and small organizations Outside Buying organization Used by small and medium sized retailers

Personnel Resources

Functions Performed

Merchandising

Merchandise personnel oversee all buying and selling functions Including assortments, advertising etc. Merchandise personnel oversee buying of products, advertising etc. while in store personnel oversee assortments, displays etc.

Buying

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. Supervises on floor selling & operational activities for a department Must be a good organizer, administrator and motivator

Sales Manager

Devising Merchandise Plans

Innovative ness

Forecasts

Assortment

Merchandise Plan

Allocation

Brands

Timing

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 retailers 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. Example10 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.

 1)

2)

Valuing inventory: FIFO and LIFO Disadvantages of Cost Based Inventory Systems 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. 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 Beginning Inventory 90500 At Retail 139200

Net Purchases
Additional Markups

205900
0

340526
16400

Transportation Charges
Total Merchandise for sale

3492
299892

0
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 firms 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 usedwhereby 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 factorsEstimating 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 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

At the Market Orientation

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 Perceive competing retailers as quite different Seek retailers with strong selection, want fair price Shop where they are known, pay slightly above avg. prices

Status Oriented Consumers

Assortment Oriented Consumers

Personalizing Consumers

Convenience Oriented

Govt. & Retail Pricing

Three Levels

Federal, State, Local Horizontal Price Fixing

Major Govt. Policies relate to

An agreement between Mfrs, W/S, Retailers- illegal Mfrs, W/S seek to control retail prices of their goods

Vertical Price Fixing

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

Price Adjustments

Implementation of price strategy

Retail Objectives

Overall Objectives and Pricing

Sales Goals are specified in terms of revenues &/or unit volumes. Large revenues by low prices & large volumes Customers must be price sensitive, low prices discourage actual & potential competition Firm sets premium pricing Does not achieve high volumes but high profit per unit Target segment is price insensitive

Market Penetration Strategy

Market Skimming Pricing

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 priceMerchandise Cost)/Retail Selling Price Markup % (at cost) = (Retail Selling priceMerchandise 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 Firms 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 atmospherethe psychological feeling Store Based retailer- Stores physical characteristics Non store- Physical characteristics of catalogs, vending machines etc, websites etc. Visual Merchandising- Lighting, props, to increase the shoppers 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 Sign that displays stores name

Marquee

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


1. 2. 3. 4. 5. 6. 7. 8.

General Interior
Flooring-Cement, wood, carpet ? Colors- Bright, vibrant? Scents, sounds Store fixtures Customer moods- Temperature, polite staff Vertical transportation in multilevel stores State of the art technology 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 Mens clothing might grp. Shirts/socks etc

Purchase Motivation Pdt. Grpings

Appeals to the consumers urge to buy pdts and time spent Disinterested person shall not visit third floor Items placed together that appeal to a given target market. Art gallery places paintings into diff price categories. Based on pdts needing special handling Florist keeps some refrigerated, others at room temp

Market Segment Pdt. Grpings

Storability Pdt. Gpings

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 dont 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 firms 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 ?