2®RETAIL MANAGEMENT.

Retail Economics, Retail-

Formats, Retail
Merchandising &Shop
Displays.

1
 Retail Economics.
 What are the Economic implications of the Growth of the
Retail Sector in India and what are the Factors and the
Functions in Retailing that can enhance Economic Value?
 The Retail Environment: The Retail Environment can be
used to offer benefits to Customers. Bulk Breaking is when
Retailers buy goods in large quantities and Break them into
smaller sizes for individual Customers.
 As a result, purchases become convenient for Customers-both
in terms of quantity bought as well as expenses incurred.
 The Assorting Function evaluates all the different Products
available, and offers to the target the optimum array of
Products to choose from.
 The Storing Function involves stocking goods until Customers
are willing to buy and use them. This relieves Customers the
task of anticipating their needs too far in advance.
 Retailers create Economic Utility for Consumers by providing
the Products in the form and at the place and time they
desire.
 Further the Retailers help Manufacturers smoothen the
Production Cycle by placing orders in advance and by
managing inventory even on behalf of the Manufacturer.
 Retailing is hugely Labor Intensive, and studies indicate that
given the level of investment expected, it has potential to
2 generate an additional 8 Million Jobs, both direct and indirect.
It has a high number of Female Employees compared to other
 Retail Economics (Cont’d).
 A direct fallout of Retail Consolidation in India would be
Employment Generation. Most of the Frontline Employees in
Retail Trade normally have only about 12 years of formal
education.
 For these youngsters, Retailing not only provides
Employment, it gives them enormous self-worth and
confidence and teaches them skills of managing their
careers and work lives.
 A good indicator of this is Employment Profile of Food
World operations. As many as 70% of its Employees are
high school graduates, most of them children of daily wage
earners.
 Today, they are on the threshold of a viable career, and
many of the earlier recruits will probably be income tax
payers in a couple of years, thereby making virtually
unemployed people productive corporate citizens.
 Retailing not only provides Employment, it also creates a
Service Culture in Society, which in turn has an important
effect on development of the country
 Singapore Retailers insist on certification for prospective
Employees, who have to pass a weekly/monthly
examination administered by the Singapore Retail
Association before they join the Firm.
 This leads to standardization, builds confidence in the
3
Employee of his/her abilities and helps the Retailer get
people who have chosen Retail as a career.
 Retail Economics (Cont’d).
 The road that all Products in India take, from the original
Producer to the Customer, is long and tortuous. According to
estimates, Supply Chain costs in India across Product
Categories are between 12% to 50%.
 This is largely Cost and not Value –Added. In the case of Basic
Products, a significant portion of these Costs is a sheer waste.
 A pioneering study done by McKinsey for its ‘FAIDA’ report on
Food and Grocery Retailing estimates that wastage in the
Indian Food Chain accounts for over Rs 50,000 Crore annually,
almost all of it attributable to the archaic intermediary, Chain
Food has go through to reach the final Consumer.
 While the Consumer ends up paying more, the original
Producer-in many cases the Indian Farmer-gets paid much less
than what he would have got in a modern Retail Environment.
 Retail Consolidation or Organized Retailing will aggregate
demand at the Retail end, bypass the intermediary system,
invest in the Supply Chain to ensure zero wastage, ensure
lower prices to the end customer and higher prices to the
Farmer/original Producer.
 Over time, savings in the Indian Economy on this count alone
would be a whopping Rs 50,000 Crore plus.
 Revenue to Government Through Value Added Tax
(VAT).
 Market Access: Large number of Small Scale Manufacturers
4
will have access to the Market/Consumers through the
Organized Retail Outlets.
 Contribution of Retailing to the
Indian Economic Scenario.
 1) Real Estate: The Retail Industry’s Real Estate
requirement will be in Millions of square feet. This will
release for productive use large tracts of land lying with
various Government Agencies such as Ports, Railways, the
Armed Forces, Mill Land etc.
 2) Tourism/Outbound Shopping: One of the best features of
any city that attracts a large number of tourists every year-
London, Singapore, Dubai, New York and so on-is a well
developed shopping environment.
 Organized Retailing will help significantly in developing our
cities as Tourist Destinations. And, if well Marketed and
Managed, it can significantly enhance Government
revenues, apart from spreading the word about Indian
Brands across the world.
 3) Higher GDP: Organized Retailing has huge potential,
which could lead to higher GDP Growth and Generate
Employment. Organized Retailing could also bring about the
transformation of the Agricultural Supply Chain, remove
inefficiencies in the Distribution of Consumer Goods and
improve Productivity.
 It will also provide Consumers with a better range of
5
Products at better prices in a better ambience at the same
 Indian Economic Scenario
(Cont’d).
 4) Outsourcing Opportunities: If Organized Retailing is a
$200 Billion Industry, how big can its Outsourcing
Opportunities be? Pretty Big, including every thing from
Supply Chain Management to Pilferage Control to Loyalty
Management.
 Take Solutions, a Chennai-based Firm. It has set up a
nationwide network of Transporters and Warehouse Owners.
Checkpoint Systems has just launched its Pilferage
Prevention System, and Venture Infotek has come in with
Transaction Management for Loyalty Programs.
 Expenses on Advertising and Promotions have also gone up
three-fold.
 The Benefits are difficult to quantify, but clearly they will be
huge. In countries where Retailing and Modernization has
progressed, it has favorably affected the value capturing
capacity and modernization of the Farming Industry.
 It has also restructured the Supply Chain for all FMCG
Products, driven end-Customer prices down on a sustained
basis, created significant Employment Opportunities.
 It has been a source of considerable revenue for
6
Governments, both Local and National, and in general been
a catalyst for creating considerable National Wealth and we
 Foreign Direct Investment
(FDI) in India.
 The Small Trader Lobby has been vocal in opposing FDI into
Retail, and has ensured that Government Policy on this front
remained unchanged.
 The Lobbying is based on the premise that Modern Retailing
will impact the livelihood of millions of small family run
business.
 There are fears that Organized Sector will put small mom-and-
pop shops out of business, as it did in the US.
 However, Analysts say that this is not likely to happen in
India; in fact, small stores in Europe as well as other Asian
Countries have survived and are doing well in the Modern
Retail Environment.
 Some feel that small Retailers in India should form
cooperatives to purchase stock as is done in France, Italy and
Spain. In India a small beginning towards this has been made
in Mumbai, Tamilnadu and Delhi.
 In Indian Scenario, it makes sense for large chains to leverage
their Brand names and set up shop extensions in more places
than one. The implementation of such a Retail Marketing
Strategy would not only yield benefits for Consumers,
7 Manufacturers and Wholesalers but also create Economic
Utility.
 Retail Formats.
 What is Retailing all about? It is about reaching out to
Customers first-hand through Formats that Differentiate
offerings to suit their needs, to fulfill them every time
and provide true shopping value.
 It is about efficiently providing a vehicle for mediation
with the Customers, with the Right Merchandise at the
Right Place in the Right Quantities/Assortments/Sizes at
the Right Price and at the Right Time.
 Retail Formats and their Evolution: Many Researchers and
Retail Analysts describe the Growth of Retailing in India
as Evolution, especially when they discuss Retail Formats.
 But has the Industry Evolved? The Indian Retailing
Scenario cannot be said to have Evolved, as in the
process of Evolution one graduates and shifts Gear from
one Stage to the next.
 It is more of a Revolution than Evolution. There is a Retail
Revolution happening with more and more Formats being
defined by the day, not only by the Market Place, but by
the method of Retail Mediation with Customers, by
Physical Store Characteristics, by Merchandise
Characteristics, etc.
 At the same time, these newly defined Formats Co-Exist
with the most primitive ones. In fact it is the Store
8 Format that creates a Unique Identity for Retailers,
enabling recall in the minds of the Customers.
 Retail Formats (Cont’d).
 Conventional Retail Formats Defined by the Market Place:
Retail Formats in India first emerged when the Barter
System was in vogue with the Primitive Format of the
“Shanty”, where the Produce was brought to the Market
for convenient Access by Consumers.
 Keeping the Consumers in mind, small mobile Retailers
brought these Products to villages on Carts, Bicycles etc.
Later, Retailers opened small shops, stocking them with
such produce.
 As Towns and Cities grew, these Retail Shops began
stocking a mix of convenience Merchandise, enabling the
formation of High-Street Bazaars that became the hub of
Retail activity.
 Thus to cite an instance, Ranganathan Street in Chennai
came into existence initially, followed later by Pondy
Bazaar, which had largely mom and pop outlets, as a
High Street Destination. Thus gradual development of
the Market Place led to the emergence of New Formats.
 Organized Retailers are coming up with new Retail
Formats that range from Marketplace-based ones to
Newer Forms which are now becoming commonplace.
 Modern Retailing is thus about getting the Customers’
9 Heart-Share than his mind share by offering a
Differentiating Value Proposition through various
 Contemporary Retail Formats by
Customer Mediation.
 Most Indian Organizations choose to reach the Consumer through
brick and mortar Retail Store Formats. However, there are other
methods too, including non-store formats too, such as Catalogue,
Cable TV and World Wide Web( WWW).
 These non-store formats use non human interactions like Paper,
Print, telecast, broadcast and Internet website.
 The most interesting aspect of non-store format is that the entire
Store is brought to the Customer. In a Physical Store Format, on the
other hand, an attempt is made to bring the Customer to the Store.
 Where the Mediation is by Human Beings, face-to-face Sales and
Service interaction and actual Presentation of Products is important
to achieve Customer Service Objectives.
 In non-personal Mediation, Customer Relations are established
through remote communication. At times this communication is
coupled with voice and photographs, text images or demonstrations
while presenting the Merchandise.
 Each Medium used to reach Customers has both advantages and
disadvantages. Retail Organizations at times use a combinations of
these formats.
 Physical Store Formats, which form a critical part of Contemporary
Indian Retailing, will be discussed shortly.

10
 Comparison of Retail Media
Formats.
Media/ In Store Catalogue Cable TV www Telephone
Activity
Elements.

Means of Humans in Paper & Broadcast Computer Telephone

Mediation Brick and Telephonic And &
Mortar Telephonic Voice over
Environment Internet
Protocol
Customer Face to Face Remote, Remote, Remote, Remote,
Interface Sales and Print, Voice only, Voice Voice Only.
Service Response Recreate often
Voice only Social Aspect Electronic

Product Three Photograph Television Computer Telephonic,

Presentation Dimensional And Text Image & Image, Product&
Displays. Demonstration Photo, Service
Text Description
11
 Retail Store Formats.
 What are Store Formats in Retail Parlance? Store
Formats-their Positioning and Differentiation-create
a distinct image of the Store among its Customers.
 These Formats are defined in terms of Location,
Layout, Size, Design, Merchandise, Service
Experience Offerings etc. As there are many Formats
at present, it makes sense to have a clear
understanding of the key Store Format Definitions.
 Store Formats by Location: If Retail Stores are Multi-
locational –linked by a common Store Presentation
created by its Signature Store Design, a Synergistic
Merchandising Plan, a Cohesive Promotional and
Service Strategy, and owned and operated by a
single Organization-the Format is known as the Chain
Store Format.
 Store Formats are defined by their Location too. If a
Retail Chain consciously seeks to locate its Stores in
Busy Shopping Areas, it is known as High-Street
Format (generally less than 2000 sq ft, with no
12
parking facilities, and focused Merchandise
 Retail Store Formats (Cont’d).
 Store Formats by Location (Cont’d):
 Independent Retail Stores that are located in a particular
area with alluring propositions for the Customers to visit
the Store with the primary intention of shopping only there,
rely on the Destination Format (usually large in size, with
ample concessions, huge parking space, wide Merchandise
Categories).
 If a Retail Store is located in a catchment area of its target
Customers who can quickly access it and choose from a
wide array of consumable products and services, it is
known as Convenience Store Format (typically less than
5000 sq ft, extended hours of operation if not 24 hours,
parking for a few vehicles, convenience Merchandise like
beverages, ready to eat snacks, grocery type items,
confectionary etc)
 Store Format by Ownership: Retail Stores owned and
operated by individuals on behalf of (and licensed by) a
large supporting Organization adopt the Franchise Format.
 When a Retail Store is owned by a single person or a

13 Partnership, and not operated as a part of a larger Retail

Institution, it comes under the Independent Shop Format
 Store Format by Merchandise
Categories.
 Retail Stores can be classified according to Merchandise
Categories they deal in. In Apparel Retailing, if the Store
deals with all categories of Merchandise to suit the
Wardrobe of a Family, the Format is known as the Family
Store.
 A Specialty Store Retails Merchandise narrow in Product
Lines but with a good depth within that area. Specializing
in a given type of Merchandise, the Specialty Store offers
attentive Customer Service. For instance, Park Avenue by
Raymond's is a Men’s Specialty Store.
 A Store with several Departments-Apparel, Cosmetics and
Fragrances, Accessories, Home-Ware, Electronics etc-under
one roof with each section within the Stores functioning as
a Strategic Business Unit (SBU) is known as a Department
Store (large in size, usually more than 10,000 sq ft, often
owned by National Chains, good concessions, with usually
more than 100,000 SKUs).
 A Store that is Departmentalized, specializing in Foodstuff,
Grocery, and Rations and limited non-food Categories with
free access displays for Customers so that they can pick
Products from the Shelves is known as the Super Market
(large, usually more than 3000 Sq ft, and more than 30,000
SKUs.
 A Retail Store selling a variety of a particular group of
14 Merchandise is known as an Emporium (Sari Emporium, Art
Emporium, etc.). Example: CIE-Bangalore, Chennai).
 Store

Formats by Size.
A single-level large Store (usually more than 5,000 sq ft) selling
Food and Non-Food goods is known as a Super Store. A Super
Store is generally twice the size of a Super Market and offers non-
traditional goods and Services like a Pharmacy, Flower Shop,
Bookstore, Salad Bar, Bakery etc. under one roof (Nilgiris,
Bangalore).
 A Shopping Mall is an arrangement of Retail Stores and Places for
leisure activities such as Dining, Entertainment, etc, selected
according to their contribution to an overall Merchandising Plan.
 A mall is spread over a large area of more than 200,000 sq ft and
run as an integrated business by an individual or an Organization,
to which independent Retailers pay for opportunities to participate.
 A Shopping Centre or a Plaza is a configuration of Five or more
tenant spaces of approximately 1,000 Sq ft each used for Retailing,
and developed under one building plan such that it has a unified
character (Kannaiya Shopping Centre in Linking Road, Mumbai;
Fountain Plaza in Egmore, Chennai; Basant Lok in Vasant Vihar,
New Delhi).
 A Hyper Market is spread over 200,000 sq ft and more, Retailing
Groceries and General Merchandise goods, with a Pharmacy, Flower
Shop, Photo Shop, other concessions, etc.
 It has a wide variety of Merchandise offerings in large quantities in
each Category selling huge volumes at low margins (Giant,
Hyderabad.)

15
 Store Formats by Concessions.
 The Stop Over Store Format is one that rides
piggyback on another Retail Outlet, say Petrol Pump.
This Stop Over Format is a Concession that offers
instant use or Ready to Eat Categories of Merchandise.
 A Kiosk is one such Concessionaire Format, placed in a
Mall, a Shopping Center, a Bus Station, Airport, etc. A
Kiosk is a small freestanding pavilion often open on one
or more sides and used for Information, Sales and
Promotion.
 Partnerships and Alliances for Concessions offer a lot of
opportunities for increasing Customer Contact, “Share
of Mind” and “Share of Heart”, especially in large
Formats, such as Department Stores, Malls, and
Hypermarkets.
 Apart from Alliances such as McDonalds with
Crossroads, Qwiky’s with Lifestyle, Ritazza with
Shopper’s Stop, Retail Ventures are trying to link with
such concessions as Travel, Information, Entertainment,
16 Communications etc in order to hit upon that winning
signature configuration.
 The Impact of Scalability of Store
Formats.
 Scalability is the most critical factor in Retail Formats,
helping an Organization to have the Ideal Format or the Right
Format Mix. Such efficient Scalability Facilitates:
 Achieving the highest long term profitability.
 Ensuring an efficient rollout.
 Providing Shoppers the greatest shopping opportunity and
greatest satisfaction.
 Hitting upon a Strategic Mix of Formats to mediate with the
Customers first-hand and cater to the needs of all target
Customer Segments.
 Enjoying the benefits of each Format (if there happens to be a
mix of formats), attempting to improve proper Shopping
Experience while competing healthily within themselves to
overcome the weaknesses of each.
 Helping the Organization acquire the Signature Configuration
for a common understanding of the Store and achieve its
‘positioning’ in various locations with diverse Customer
Demographic Characteristics.
17  Establishing a Core Differentiated Value Proposition for
Customers.
 Retail Merchandising.
 The term ‘Merchandising’ is Unique and Exclusive to
the Retail Industry. It refers to the Entire Process of
Inventory Planning and Management in a Retail
Organization.
 Merchandising, when done properly, leads to an
increase in the Return On Investment (ROI). The
Greater the ROI, more the Profitability.
 Merchandise Planning: For a Retailer , the objective
of Merchandise Planning is clear: Achieving the
following Seven ‘RIGHTS’:
 The Right Product.
 The Right Place.
 The Right Quantity.
 The Right Quality.
 The Right Price.
 The Right Mix or Assortment.
 The Right Time.
18  In order to satisfy every Customer’s Needs, the Retail
Store must have all the above Seven Rights.
 Merchandise Hierarchy.
 While planning the Merchandise Mix, a Retail Organization
has to start with a clear definition of its Merchandise
Hierarchy.
 The Merchandize Hierarchy is a disciplined way of
Grouping the Merchandise Mix at different levels, starting
from a High-Level Grouping to the Lowest Level of the
Stock Keeping Unit (SKU).
 The Grouping may at times have even more than Four-Five
Levels as shown in the example in the next slide.
 The Merchandise Hierarchy forms the platform needed to
create the Stores Merchandise Mix. The Merchandising
Vision for the Store dictates the Different Divisions and the
Lower Rungs that the Store must have in the Hierarchy.
 Building the Store’s Merchandise Mix by following the
concept of Merchandise Hierarchy has its advantages:
 a) One can define in terms of ratios the Mix of Elements at
each level of Hierarchy.
 b) One can analyze and drill down through the rungs of the
Hierarchy to the problem areas, if any , up to SKU Level.
 c) One can remove or add elements following security
escalations. Decisions at the Lower Rungs can be taken by
Front-Line Personnel and those at the Higher Levels, which
19
would impact the Merchandise Proposition/Image of the
Store, can be taken by the higher ups.
20
 Stock Keeping Unit (SKU).
 To use an example-refer to earlier slide, a 40 Size
White Shirt of Solid Design at a price-point of Rs
750(all options in the last level) having a button
down collar of the Arrow Brand in the Full Sleeves
Sub-Category or Sub-Class of the Shirts Category
belonging to the Men’s Department at the Apparel
Division in a Retail Organization is an SKU.
 The Levels in the Merchandise Hierarchy may be
different for various Categories. For instance, in a
Supermarket, the levels may be:
 Division: Food.
 Department: Packaged Food.
 Category: Sauces.
 Sub-Category: Tomato.
 Brand: Maggi

21 Options: 250 gms, 500 gms.
 Range Planning.
 The first step in the process of Range Planning is
Merchandise Assortment Planning. This is a Mix in
percentage terms at every rung of the Store’s
Merchandise Hierarchy.
 The first element in the Merchandise Plan is the
Strategic Plan. This is normally taken at the High Level
and used to set out the critical success factors for
Merchandising in terms of Sales, Margins, and Stocks.
 A Category Level Margin Plan is also created to plan
the Gross Margins that each Level (up to the SKU
Level) contributes to the Store.
 The Definition of the Merchandise and the Assortment
Planning based on the Hierarchy Levels help in
analyzing Weekly Sales, Stock, and Intake Plan etc. at
the Category, Sub-Category, Brand or SKU Levels.
 With this one can also identify any problems in Sales,
or inventory holding at any level and take corrective
action. It is here that Open To Buy is Planned in the
Process of Buying. This is the first significant success
factor in the implementation of the Planning Process.
22
 Range Planning (Cont’d).
 Example of an Assortment of Shirt for 20 pieces in Stock:
 Small/ 2, Medium/ 6, Large/ 7, X’tra Large/ 4, X’tra X’tra Large/ 1= 20 pieces. Such an
Assortment Plan helps replenish items to the Store Stock after they are sold by
establishing Minimum and Maximum levels of stocking units.
 For Instance, in the above example if the Assortment ratio is planned as per the
planned stock-turn for the Stores as 20 pieces, then the Maximum stock that is
available in the SKU can only be 20.
 The Replenishment Trigger can be planned so that it is set off when the Stock reaches
a minimum specified level after Sales. Another way of Planning Replenishment-which is
done generally in high turn-over Categories-is to trigger Re-orders as and when the
Merchandise is sold with a cap on maximum stock holding.
 Planogram: There is another type of Assortment Plan that is emerging now. It is a
graphical Range Plan called Planogram. This sort of Plan moves away from the purely
numerical type of Planning that has been used until now and allows the Range to be
put together in a Visual Way.
 Typically digitally stored images are manipulated into Collage-type Storyboards. Space
Planning Software like that of AC Nielson support such graphic base Stock Mapping,
which helps in easy replenishment planning and effective store space utilization.
 Thus Merchandise Assortment Planning and Base Stock Mapping-Numerical and Visual
Numerical methods respectively –enable one to take account of space utilization in a
Store by calculating the Return on Space Employed or Returns on Footage.

23
 The Buying Plan.
 Buying for a Retail Organization is a critical function of
Merchandising. The Process begins with the preparation of
Buying Plan, called ‘Open to Buy’ or OTB.
 It helps Retailers project and control future buying so that
flow of Merchandise in the Store matches anticipated
Sales at desired stock turn rates to give a positive cash
flow.
 For organized Buying one needs to follow the OTB
Planning, since it prevents over-buying, eliminates
confusion and enables the organization to make more
profits.
 So what exactly is OTB? OTB refers to Merchandise
Budgeted for purchase during a certain period of time for
which stocks have not yet been ordered. It is also the
process of forecasting Sales and Purchases.
 OTB is a planning tool that assists in setting Budgets for
Sales and Merchandise Inventory Levels and in Monitoring
the current status of the OTB Amount, which is the
amount remaining to be ordered to meet the Budget.
 OTB helps a Retailer fix the ideal amount of Stock that
24 should be on hand at the beginning of any given month
and the quantum of new Merchandise to be received
 An Efficient OTB Plan.
 An efficient OTB Plan has the following Elements:
 a) Forward Sales Planning (Sales Forecast): The Sales Plan ought to be prepared
for the entire year with month wise details of Planned Sales.
 b) Forward Cover: This is based on the Planned Stock Turns for the Retail Outfit.
For instance, if Planned Stock Turns for the Store is Four Times in a year, Then the
ideal Stock holding at any point in time should be equivalent to Three Months’
Stock Cover.
 c) Stock Required: This is based on the forward cover planned for the Store. If the
forward cover is for Three Months and the current month is month 1, then the
stock required will be the sum of the Planned/Forecast Sales for the months 2, 3,
and 4.
 d) Opening Stock: The value of the opening stock is a flow calculation. In OTB Planning, the
first entry is an estimate. From the second month onwards, the opening stock is the closing
stock figure of the previous month.
 e) Intake Requirement: This is the difference between the required stock and opening stock,
Plus the Sales Forecast for the current month- i.e. month 1
 f) On Order: These are stocks that have already been ordered and due for delivery during
the relevant period.
 g) Open to Receive (OTB) This figure is arrived at by deducting the stock on order, if any,
from intake requirement. This figure indicates the OTB Quantity.
 h) Closing Stock: To arrive at this figure, one needs to take the opening stock, subtract the
Sales, and add the on-order and open to receive quantities.

25
A Model OTB Plan.
Month Month Month Month Month Month
1 2 3 4 5 6
Forecast Sales. 1000 1500 2000 1500 1000 1000

Months Forward 3 3 3 3 3 3
Cover.
Stock Required. 5000 4500 3500 3000 3000 3000

Opening Stock. 2000 5000 4500 3500 3000 3000

Intake 4000 1000 1000 1000 1000 1000

Requirement.
On Order. 2000 1000

Open to Receive- 2000 0 1000 1000 1000 1000

OTB.
Closing Stock. 5000 4500 3500 3000 3000 3000
26
 Advantages of an Open To Buy
Plan.
 1) The OTB Plan enable Retailers to estimate in advance the amount of
Working Capital to be employed in Inventory from month to month.
 2) It helps ensure the Right Inventory Level to support Planned Sales and
to attain best Gross Margin Return on Inventory (GMROI).
 3) The OTB Plan places restraints on Merchandise Commitments so that
the Store receives the Right Merchandise at the Right Time and not
before or after.
 4) It enables a continuous flow of Fresh Merchandise into Store month
after month during the season.
 5) The OTB Plan establishes goals so that the actual performance can be
compared with the Plan and Corrective Action can be taken in the
required areas.
 6) Above all, an efficient OTB Plan provides the Organization more
opportunity for Profit.
 Retailers who follow a well formulated OTB Plan are successful in their
Merchandising and Buying Efforts.
 The Merchandise Management System employed in the Organization
generally supports such statistical techniques in the OTB Plan, but it is
the Buyer’s insight and decision making capability that help deliver the
best results.

27
 Category Management.
 Category Management in Retailing is defined as
the process of Managing Categories (explained in
the Merchandise Hierarchy) as Strategic Business
Units (SBUs). This produces enhanced Business
results by achieving a robust bottom-line for each
category.
 A Category is a Merchandise Group that addresses
similar Consumer Needs and Wants. Goods in a
Category are displayed and sold together in a
Retail Environment so that Consumer Choices are
easier, thus enhancing the shopping experience.
 It is felt that Category Management in Retailing is
similar to Brand Management in Manufacturing, as
Product Groups become focal point in terms of
development, Merchandising and Marketing.
 The Category Management Process in Retailing

28 involves a number of steps as shown in the next

slide .
29
 Category Management
Process.
 The Category Management Process in Retailing involves the following
steps, as shown in the Category Management Model in earlier slide.
1) Category Vision: This refers to the top management’s view of what each
Category ought to achieve in terms of Customer Satisfaction or Value
Offering and the Differentiation thus achieved for Leadership.
2) Category Definition: This is made based on customer segmentation and
the specific SKUs that belong to the Category. For Example, a broad
Category definition can be ‘Soft Drinks’, a narrower sub-category can be
‘aerated soft drinks’ and one of the SKUs within the same can be ‘Pepsi
500 ml’.
3) Category Role: This defines the objective of the Category in the entire
Merchandise Mix and determines its relative importance. Some
Categories may play a ‘Destination’ Role in the Product Mix-as in the
case of the Grocery Category in a Super Market- and some an ‘Impulse’
Role.
4) Category Assessment: The Category Assessment is done to identify gaps
if any between the Category Vision and the existing contributing SKUs
to the Category. This Assessment helps improve the Category’s business
by identifying opportunity gaps in Sales, Stock Turns and Profits.
5) Category Balanced Score Card: This helps measure the performance of
the Retail Business. It establishes specific business targets for the
Category while reflecting on its performance.
6) Category Strategies: These aim at achieving the best of Customer Off
take from the Shelves, ringing in the maximum number of transactions,
earning maximum margins and achieving certain subjective goals like
excitement, sensationalism etc for Customer Satisfaction.

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 Category Management Process
(Cont’d).
7) Category Tactics: Category Tactics refer to the Tactical
Requirements to achieve the Score Card Targets. These
Targets are compared with those of the Competition to
attain the best advantage and edge and may centre on
the areas of Assortment, Pricing, Space Planning,
Promotions etc.
8) Category Implementation and Review: This refers to the
Store-Level execution of the Category Business Plan and
Strategies and Monitoring Category Performance
against the Plan to take action on an ongoing basis.
 Successful Category Management in Retailing is a
Customer Driven Process.
 It enables the Retailer to have the Right Category Mix
through the preparation and implementation of an
efficient Category Plan.

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 Markups and Markdowns in Merchandise
Management.
 Markup is the percentage amount (calculated on
cost) added to cost in order to arrive at the
Maximum Retail Price for a Product.
 Hence Markup=Percentage of margin calculated on
cost added to arrive at the Maximum Retail Price.
(MRP).
 Cost= Maximum Retail Price-Margin.
 Margin= Maximum Retail Price-Cost.
 Maximum Retail Price= Cost Plus Margin.
 Markdown: is the amount reduced from the
Maximum Retail Price to arrive at the New Retail
Price. Markdown is calculated as a percentage of
MRP.
 Markdowns are done when Product Sales are low
or when Season draws to a close and the Product
Line needs to be cleared from the shelves. It is
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also done when inventories are high, saleable
 on Inventory.
 Shrinkage in Retail Merchandise Management: At periodical intervals, a
difference between actual Stock Quantity or Value-found or established by
actual physical count of all inventories-and the book value figure can be
found.
 The difference between the two-normally where the figure physically counted
is less than the book value is known as ‘Shrinkage’, and is expressed as a
percentage of Sales. This varies from 0.1% to as high as 2.5% of Sales.
 Globally Three Major reasons attribute to Shrinkage: 1) Incorrect Paper Work.
2) Employee Theft and 3) Customer Theft.
 Gross Margin Return On Inventory: GMROI is calculated by dividing the Total
Margin by the Average Inventory held during the period.
 The Average Inventory held may be considered either on Cost or at MRP
Value, but consistency needs to be maintained while measuring Growth in
GMROI or comparing the same for different periods.
 Problem: What is the GMROI for a Retail Store if its Margin earned is Rs 30
Lakhs and the average inventory held during the month is Rs 2 Crores?
 GMROI= 30,00,000÷200,00,000 x 100= 15%
 The significant means of achieving better GMROI is by a) Reducing the Cost of
Goods Sold by achieving better Buying Efficiencies.
 b) Increasing the stock turn over rate by reducing the average inventory held.
 c) Increasing Sales constantly, retaining the same average value of inventory
held.

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 Shop Displays.
 Displaying Merchandise in the Store allows Customers to make Quick
Decisions on purchases. Shop Displays-done both in the exterior and
interior of the Store-are of different types.
 A few significant ones are listed below:
1) Window Displays: a) Exclusive Windows b) Open Windows.
2) Live Displays: Children’s Stores often use people dressed as Cartoon
Characters to attract Kid’s attention. Ex: Kid’s Kemp in Bangalore.
3) Marquee Displays: These are done under a Marquee Panel erected in
the front of the Store or in the forecourt. They are often used in
Supermarkets.
4) Freestanding or Island Displays: These are Displays of Merchandise
found generally at the entrance of the Store (inside) to announce new
arrivals, special offers etc.
5) Counter Displays: Categories like Jewellery and Watches have Counter
Displays lit from within to highlight the Merchandise.
6) Brand Corners:
7) Cascade/Waterfall Displays: Found commonly in Garment Stores,
these displays are done on the linear walls with the help of stooping
rods. Such Cascade/Waterfall displays are used for Blazers, Jackets etc.

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