CHAPTER 7 AND CHAPTER 8

RETAIL MANAGEMENT
7.MERCHANDISE MANAGEMENT Retail
Management

“Advertising moves people toward goods; merchandising moves goods toward

people.”

- Morris Hite (American Advertising Expert)

In the fierce competition of retail, it is very crucial to attract new customers and to keep
the existing customers happy by offering them excellent service. Merchandising helps in
achieving far more than just sales can achieve.

Merchandising is critical for a retail business. The retail managers must employ their
skills and tools to streamline the merchandising process as smooth as possible.

What is Merchandising?
Merchandising is the sequence of various activities performed by the retailer such as
planning, buying, and selling of products to the customers for their use. It is an integral
part of handling store operations and e-commerce of retailing.

Merchandising presents the products in retail environment to influence the customer’s

buying decision.

Types of Merchandise
There are two basic types of merchandise:

Staple Merchandise Fashion Merchandise

It has predictable demand It has unpredictable demand

History of past sales is available Limited past sales history is available
It provides relatively accurate forecasts It is difficult to forecast sales

Factors Influencing Merchandising

The following factors influence retail merchandising:

Size of the Retail Operations

This includes issues such as how large is the retail business? What is the demographic
scope of business: local, national, or international? What is the scope of operations:
direct, online with multilingual option, television, telephonic? How large is the storage
space? What is the daily number of customers the business is required to serve?

Shopping Options

38
 Retail Management

Today’s customers have various shopping channels such as in-store, via electronic media
such as Internet, television, or telephone, catalogue reference, to name a few. Every
option demands different sets of merchandising tasks and experts.

Separation of Portfolios
Depending on the size of retail business, there are workforces for handling each stage of
merchandising from planning, buying, and selling the product or service. The small
retailers might employ a couple of persons to execute all duties of merchandising.

Functions of a Merchandising Manager

A merchandising manager is typically responsible to:

 Lead the merchandising team.

 Ensure the merchandising process is smooth and timely.
 Coordinate and communicate with suppliers.
 Participate in budgeting, setting and meeting sales goals.
 Train the employees in the team.

Merchandise Planning
Merchandise planning is a strategic process in order to increase profits. This includes
long- term planning of setting sales goals, margin goals, and stocks.

 Step 1 - Define merchandise policy. Get a bird’s eye view of existing and
potential customers, retail store image, merchandise quality and customer service
levels, marketing approach, and finally desired sales and profits.

 Step 2 – Collect historical information. Gather data about any carry-forward

inventory, total merchandise purchases and sales figures.

 Step 3 – Identify Components of Planning.

o Customers – Loyal customers, their buying behavior and spending power.

o Departments – What departments are there in the retail business, their sub-
classes?

o Vendors – Who delivered the right product on time? Who gave discounts?
Vendor’s overall performance with the business.
o Current Trends – Finding trend information from sources including trade
publications, merchandise suppliers, competition, other stores located in
foreign lands, and from own experience.

39
 o Advertising – Pairing buying and advertising activities together, idea about
last successful promotions, budget allocation for Ads.

 Step 4 – Create a long-term plan. Analyze historical information, predict

forecast of sales, and create a long-term plan, say for six months.

Merchandise Buying
This activity includes the following:

 Step 1 - Collect Information: Gather information on consumer demand,

current trends, and market requirements. It can be received internally from
employees, feedback/complaint boxes, demand slips, or externally by vendors,
suppliers, competitors, or via the Internet.

 Step 2 - Determine Merchandise Sources: Know who all can satisfy the
demand: vendors, suppliers, and producers. Compare them on the basis of
prices, timeliness, guarantee/warranty offerings, payment terms, and
performance and selecting the best feasible resource(s).

 Step 3 - Evaluate the Merchandise Items: By going through sample products,

or the complete lot of products, assess the products for quality.

 Step 4 - Negotiate the Prices: Realize a good deal of purchase by negotiating

prices for bulk purchase.

 Step 5 - Finalize the Purchase: Finalizing the product prices and buying the
merchandise by executing buying transaction.

 Step 6 - Handle and Store the Merchandise: Deciding on how the vendor will
deliver the products, examining product packing, acquiring the product, and
stocking a part of products in the storehouse.

 Step 7 - Record the Buying Figures: Recording details of transactions, number

of unit pieces of products according to product categories and sub-classes, and
respective unit prices in the inventory management system of the retail business.

Vendor Relations
Cordial relationship with the vendor can be a great asset for the business. A strong
rapport with vendors can lead to:

 Purchasing products when required and paying the vendor for it later according to
credit terms.

 Getting the latest new products in the market at discount prices or before other
retailers can sell them.
  Having a great service of delivery, timeliness of delivery, returning faulty
products with exchange, etc.

Merchandise Performance
The following methods are commonly practiced to analyze merchandise performance:

ABC Analysis
It is a process of inventory classification in which the total inventory is classified into
three categories:

 A – Extremely Important Items: Very crucial inventory control on order

scheduling, safety, prompt inspection, consumption pattern, stock balance, refill
demands.

 B – Moderately Important Items: Average attention is paid to them.

 C – Less important Items: Inventory control is completely stress free.

This approach of segregation gives importance to each item in the inventory. For
example, the telescope retailing company might be having small market share but each
telescope is an expensive item in its inventory. This way, a company can decide its
investment policy in particular items.

Sell-Through Analysis
In this method, the actual sales and forecast sales are compared and the difference is
analyzed to determine whether to apply markdown or to place a fresh request for
additional merchandise to satisfy current demand.

This method is very helpful in evaluating fashion merchandise performance.

Multi-Attribute Method
This method is based on the concept that the customers consider a retailer or a product
as a set of features and attributes. It is used to analyze various alternatives available
with regard to vendors and select the best one, which satisfies the store requirements.
8.RETAIL BUSINESS OPERATIONS Retail
Management

“Customers remember the service a lot longer than they remember the price.”

- Lauren Freedman (President, E-tailing Group)

The retail business operations include all the activities that the employers perform to
keep the store functioning smoothly. The shopping experience of a customer is planned
before the customer enters, shops, and leaves the store with a smile or with agony by
carrying a perception about the store. This experience drives the customer’s decision of
visiting the store in future.

Let us see, what efforts retail business operations executives put in to make the
shopping experience memorable for the customer.

Store Management
The retail store being the fundamental source of revenue and the place of customer
interaction, is vital to the retailer.

The store manager may not himself perform, but is responsible for the following duties:

 Maintaining cleanliness in the store.

 Ensuring adequate stock of merchandise in the store.

 Appropriate planning, scheduling, and organization of staff, inventory and

expenses, for short and long-term success.
 Monitoring the loss and taking preventive measures to protect the company’s
assets and products in the store.
 Upgrading store to reflect high profitable image.

 Communicating with head office/regional office when required.

 Conducting constructive meetings with staff to boost their morale and motivate
the staff to achieve sales goals.
 Communicating with customers to identify their needs, grievances, and complaints.
 Ensuring that the store is in compliance with employment laws regarding salary,
work hours, and equal employment opportunities.
 Writing performance appraisals for assisting staff.

The store manager ensures that these duties are performed according to the guidelines
set by the company.

42
 Retail Management

Premises Management
The store premises are as important as the retail store itself. Managing premises
includes the following tasks:

Determining Working Hours of Store. It majorly depends upon the target audience,
retailed products, and store location.

For example, a grocery store near residential area should open earlier than a fashion
store. Also, a solitary store can be open as long as the owner wants to but a store in a
mall has to adhere to working hours set by the mall management.

Managing Store Security. It helps avoiding inventory shrinkage. It depends upon the
size of store, the product, and the location of store. Some retailers attach electronic tags
on products, which are sensed at store entrance and exits by sensors for theft detection.
Some stores install video cameras to monitor movement and some provide separate
entry and exit for personnel so that they can be checked.

For example, a large departmental store needs high security than the grocery store
located near residential area.

Here are some basic formulae used while managing premises:

Transaction per Hour = No. of Transactions/Number of Hours

The retailer keeps track of the number of transactions per hour, which helps in
determining store hours and staff scheduling.

Sales per Transaction = Net Sales/Number of Transactions

The result gives the value of the average sales and net return, which is used to study
sales trends over time.

Hourly Customer Traffic = Customer Traffic In/Number of Hours

This measure is used to track total number of customer traffic per unit time. It is then
applied to schedule hours and determine staff strength.

43
Inventory Management
Merchandise manager, category manager, and other staff handle the inventory. It
includes the following tasks:

 Receiving products from the vendor.

 Recording inward entry of the products.

 Checking the products against quality norms laid by the retail company and for
details such as colors, sizes, and styles. In case of large stores, this task is
automated to a large extent.

 Separating and documenting the faulty or damaged products for returning.

 Displaying the products appropriately to gain customers’ attention. Heavy

products are kept at the lower level. Most accessed products are kept at the eye-
level and the less accessed products are kept at high level of shelves. On-the-fly-
purchased products such as chocolates, candies, etc. are placed near payment
counters.

Here are some formulae used for inventory control:

Inventory Turnover Rate = Net Sales/Average Retail Value of Inventory

It is expressed in number of times and indicates how often the inventory is sold and
replaced during a given period of time.

Cost of Goods Sold/Average Value of Inventory at Cost

When either of these ratio declines, there is a possibility that inventory is excessive.

% Inventory Carrying Cost = (Inventory Carrying Cost/Net Sales) * 100

This measure has gained importance due to rise in inventory carrying cost because of
high interest rates. This prevents blockage of working capital.

Gross Margin Return on Inventory (GMROI) = Gross Margin/Average Value of

Inventory

The GMROI compares the margin on sales on the original cost value of merchandise to
yield a return on merchandise investment.

Receipt Management
Managing receipt is nothing but determining the manner in which the retailer is going to
get the payment for the sold products. The basic modes of receipt are:
  Cash

 Credit card

 Debit card

 Gift card

Large stores have the facility of paying by the modes listed above but small retailers
generally prefer accepting cash. The retailer pays card fees depending upon the volume
of transactions with the suppliers, manufacturers, or producers.

The staff responsible for accepting payment needs to clearly understand the procedure
for accepting payment by cards and collecting the amount from the bank.

Supply Chain Management and Logistics

Supply Chain Management (SCM) is the management of materials, information, and
finances while they move from manufacturer to wholesaler to retailer to consumer. It
involves the activities of coordinating and integrating these flows within and out of a
retail business.

Most supply chains operate in collaboration if the suppliers and retail businesses are
dealing with each other for a long time. Retailers depend upon supply chain members to
a great extent. If the retailers develop a strong partnership with supply chain members,
it can be beneficial for suppliers to create seamless procedures, which are difficult to
imitate.

Customer Service
The top management of a retail business decides the customer service policy. The entire
retail store staff is trained for customer service. Each employer in the retail store
ensures that the service starts with smile and the interacting customer is comfortable
and has a pleasant shopping experience.

The promptness and politeness of the retail store staff, their knowledge about the
product and language, ability to overcome challenges, and rapidness at the billing
counter; everything is noted by the customer. These aspects build a great deal of
customer’s perception about the store.
 Many retail stores train staff members to handle the cash
counter. They have also introduced a concept of express billing
where customers buying less than 10 products can bill faster
without having to stand in the regular payment queue.

During festivals and markdown periods, the trend of shopping increases.

Customer Conversion Ratio = (Number of Transactions/Customer Traffic) * 100

The result is the retailer’s ability to turn a potential

customer into a buyer. It is also called “walk to buy ratio”.
Low results mean that promotional activities are not being
converted into sales and the overall sales efforts need to
be assessed afresh.