Retail Management

Module 4
Syllabus Retail management Operations

management--Financial managementHuman resource managementmerchandising management merchandising philosophy plans-logistics-inventory managementretail pricingstrategies Ref: Barry & Evans

Operations Management
Operations management is the efficient and effective implementation of the policies and tasks that satisfy a retailers customers, employees, and management (and stockholders, if it is publicly owned)

Operational Decisions
What operating guidelines are used? What is the optimal format and size of a store?

What is the relationship among shelf space, shelf location, and sales for each item in the store? How can personnel be matched to customer traffic flows? Would increased staffing improve or reduce productivity? What impact does selfservice have on sales?

Operational Decisions_2
What effect does the use of various building

materials have on store maintenance? How can energy costs be better controlled? How often should facilities be renovated? How can inventory best be managed? How can the personal safety of shoppers and employees be ensured?

Operational Decisions_3
What levels of insurance are required? How can credit transactions be managed most

effectively? How can computer systems improve operating efficiency? Should any aspects of operations be outsourced? What kind of crisis management plans should be in place?

Operating A Retail Business

Operations Blueprint Store Format, Size, and Space Allocation Personnel Utilization Store Maintenance, Energy Management, and

Renovations Inventory Management Store Security Insurance Credit Management Computerization Outsourcing Crisis Management

Figure 13.1 An Operations Blueprint

Maximizing Personnel Productivity

Hiring Process
Workload Forecasts Job Standardization and Cross-Training

Employee Performance Standards

Compensation Self-Service

Length of Employment

Figure 13.3 A Checklist of Selected Store Maintenance Decisions

Inventory Management Decisions

How can handling of merchandise from different suppliers be

coordinated? How much inventory should be on the sales floor versus in a warehouse or storeroom? How often should inventory be moved from nonselling to selling areas of a store? What inventory functions can be done during nonstore hours? What are the trade-offs between faster supplier delivery and higher shipping costs? What supplier support is expected in storing merchandise or setting up displays? What level of in-store merchandise breakage is acceptable? Which items require customer delivery? When? By whom?

Figure 13.4 Inventory Management at Costco

Store Security
Uniformed security guards
Undercover personnel Brighter lighting

TV cameras and other devices

Curfews Limited access to backroom facilities

Frequent bank deposits

Insurance Issues
Rising premiums
Reduced scope of coverage by insurers Fewer insurers servicing retailers

Greater need for insurance against

environmental risks

Credit Management Decisions

What form of payment is acceptable?
Who administers the credit plan? What are customer eligibility requirements for a

check or credit purchase? What credit terms will be used? How are late payments or nonpayments to be handled?

Figure 13.5 Effective In-Store Communications

Crisis Management
There should be contingency plans for as many

different types of crisis situations as possible Essential information should be communicated to all affected parties as soon as the crisis occurs Cooperation not conflict among the involved parties is essential Responses should be as swift as feasible The chain of command should be clear and decision makers given adequate authority

Finance Mgmt in Retailing

Profit Planning

Profit-and-loss (income) statement

Summary of a retailers revenues and expenses over a given period of time Review of overall and specific revenues and costs for similar periods and profitability

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Major Components of a Profit-and-Loss Statement

Net Sales
Cost of Goods Sold Gross Profit (Margin) Operating Expenses Taxes Net Profit After Taxes
Net Sales
CGS Gross Profit Operating Expenses Other Costs

$330,000
$180,000 $150,000 $ 95,250 $ 20,000

Total Costs
Net Profit before Taxes Taxes

$115,250
$ 34,750 $ 15,500

Net Profit after Taxes $ 19,250

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Asset Management
The Balance Sheet Assets Liabilities Net Worth Net Profit Margin Asset Turnover Return on Assets Financial Leverage
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Figure 12-1: The Strategic Profit Model

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Other Key Business Ratios

Quick ratiocash plus accounts receivable divided by total current liabilities (due within one year).
Current ratiototal current assets divided by total

current liabilities. Collection periodaccounts receivable divided by net sales and then multiplied by 365. Accounts payable to net salesaccounts payable divided by annual net sales. Overall gross profitnet sales minus the cost of goods sold and then divided by net sales.
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Financial Trends in Retailing

Funding sources

Mergers, consolidations
Bankruptcies and liquidations Questionable accounting and financial

reporting practices

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Budgeting
Budgeting outlines a retailers planned

expenditures for a given time based on expected performance. Costs are linked to satisfying target market, employee, and management goals.

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Figure 12-3: The Retail Budgeting Process

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Cash Flow
Cash flow relates the amount and timing of revenues received to the amount and timing of expenditures for a specific time. In cash flow management, the usual intention is to make sure revenues are received before expenditures are made. If cash flow is weak, short-term loans may be needed or profits may be tied up in inventory and other expenses. For seasonal retailers, erratic cash flow may be unavoidable.
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Table 12-6: The Effects of Cash Flow

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Resource Allocation
Capital Operating

Expenditures Long-term investments in fixed assets

Expenditures Short-term selling and administrative costs in running a business

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Enhancing Productivity
A firm can improve employee performance,

sales per foot of space, and other factors by upgrading training programs, increasing advertising, etc. It can reduce costs by automating, having suppliers do certain tasks, etc.

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HRM in Retailing
procedures to set up a retail organization
various retail organizational

arrangements human resource environment HR principles and practices

Planning & Assessing a Retail Organization Target Market Needs

Figure 11-1a:

Figure 11-2:

The Process of Organizing a Retail Firm

Figure 11-4: A Job Description for a Store Manager

Table 11-1: Principles for Organizing a Retail Firm

Show interest in employees Monitor employee turnover, lateness, and

absenteeism Trace line of authority from top to bottom Limit span of control Empower employees Delegate authority while maintaining responsibility Acknowledge need for coordination and communication Recognize the power of informal relationships

Figure 11-6: Organization Structures Used by Small Independents

Figure 11-8: Equal-Store Organizational Format Used by Chain Stores

Human Resource Management in Retailing

Recruiting Selecting Training Compensating Supervising

Table 11-2: True Cost of Employee Turnover

Recruiting and hiring new employees Training costs including management time Full pay and benefits during training, before full

productivity is reached Costs of mistakes made by new, inexperienced employees Loss of customers loyal to departing employees Lost or damaged relationships with suppliers Employee morale and customer perceptions of that morale

Women in Retailing
Issues to address with regard to female workers Meaningful training programs Advancement opportunities Flex time: the ability of employees to adapt their hours Job sharing among two or more employees who each work less than full time Child care

Diversity
Two premises: 1. That employees be hired and promoted in a fair and open way, without regard to gender, ethnic background, and other related factors 2. That in a diverse society, the workplace should be representative of such diversity

Labor Law Considerations

Retailers must not
* Hire underage workers * Pay workers off the books * Require workers to engage in illegal acts * Discriminate in hiring or promoting workers * Violate worker safety regulations * Deal with suppliers that disobey labor laws

Figure 11-11: A Checklist of Selected Training Decisions

Components of Compensation
$ Total compensation $ Salary plus commission $ Profit-sharing

Employee Behavior and Motivation

Several attitudes may affect employee behavior
Sense of accomplishment Liking of work Attitude toward physical work conditions Attitude toward supervisors Confidence in company Knowledge of business strategy

Recognition of employee role in achieving

corporate objectives

Style of Supervising Retail Employees

Management assumes employees must be

closely supervised and controlled; only economic inducements motivate Management assumes employees can be self-managers and assigned authority; motivation is intrinsic Management applies self-management approach

Merchandising Management
Activities involved in acquiring particular goods and/or services and making them available at the places, times, and prices and in the quantity that enable a retailer to reach its goals

Merchandising Philosophy

Sets the guiding principles for all the merchandise decisions that a retailer makes Should reflect Target market desires Retailers institutional type Market-place positioning Defined value chain Supplier capabilities Costs Competitors Product trends

Micromerchandising
Retailer adjusts shelf-space allocations to respond to customer and other differences among local markets

Cross-Merchandising
Retailers carry complementary goods and services to encourage shoppers to buy more

Functions Performed
Merchandising view
All buying and selling functions

Assortments Advertising pricing Point-of-sale displays Employee utilization Personal selling approaches

Functions Performed (cont.)

Buying view
Buyers manage buying functions

Buying Advertising Pricing Assortments Point-of-sale displays Employee utilization Personal selling approaches

In-store personnel manage other tasks

Figure 14-5: Devising Merchandise Plans

Forecasts
These are projections of expected retail sales

for given periods Components: Overall company projections Product category projections Item-by-item projections Store-by-store projections (if a chain)

Types of Merchandise

Staple merchandise Assortment merchandise Fashion merchandise Seasonal merchandise Fad merchandise

Staple Merchandise
Regular products carried by a retailer Grocery store examples: milk, bread, canned soup Basic stock lists specify inventory level,

color, brand, style, category, size, package, etc.

Assortment Merchandise
Apparel, furniture, and other categories for

which the retailer must carry a variety of products in order to give customers a proper selection Decisions on Assortment
Product lines, styles, designs, and colors are

projected Model stock plan

Fashion and Seasonal Merchandise

Fashion Merchandise: Products that may

have cyclical sales due to changing tastes and life-styles Seasonal Merchandise: Products that sell well over nonconsecutive time periods

Table 14-1a: Factors in Planning Merchandise Innovativeness

FACTOR
Target market(s) Goods/service growth potential

RELEVANCE for PLANNING

Evaluate whether the target market is conservative or innovative Consider each new offering on the basis of rapidity of initial sales, maximum sales potential per time period, and length of sales life Understand vertical and horizontal fashion trends, if appropriate Carry goods/services that reinforce the firms image

Fashion trends Retailer image

Table 14-1b: Factors in Planning Merchandise Innovativeness

FACTOR
Competition

RELEVANCE for PLANNING

Lead or follow competition in the selection of new goods/services

Customer segments Segment customers by dividing merchandise into established-product displays and new-product displays

Responsiveness to consumers
Amount of investment

Carry new offerings when requested by the target market

Consider all possible investments for each new good/service: product costs, new fixtures, and additional personnel

Table 14-1c: Factors in Planning Merchandise Innovativeness

FACTOR
Profitability Risk

RELEVANCE for PLANNING

Assess each new offering for potential profits Be aware of the possible tarnishing of the retailers image, investment costs, and opportunity costs Restrict franchisees and chain branches from buying certain items Delete older goods/services if sales and/or profits are too low

Constrained decision making Declining goods/ services

Table 14-2b: Factors in Planning Merchandise Quality

FACTOR
Profitability

RELEVANCE for PLANNING

Recognize that high quality goods generally bring greater profit per unit than lesserquality goods; turnover may cause total profits to be greater for the latter Understand that, for many, manufacturer brands connote higher quality than private brands

Manufacturer versus private brands

Customer services Know that high-quality goods require offered personal selling, alterations, delivery, and so on Personnel Employ skilled, knowledgeable personnel for high-quality merchandise

Table 14-2c: Factors in Planning Merchandise Quality

FACTOR Perceived goods/ service benefits RELEVANCE for PLANNING Analyze consumers. Lesser quality goods attract customers who desire functional product benefits; High-quality goods attract customers who desire extended product benefits

Constrained decision making

Face reality. Franchises or chain store managers have limited or no control over products; Independent retailers that buy from a few large wholesalers are limited to the range of quality offered by those wholesalers

Retail Assortment Strategies

Width of assortment refers to the number of distinct goods/service categories (product lines) a retailer carries
Depth of assortment refers to the variety in any one goods/service category (product line) a retailer carries An assortment can range from wide and deep (department store) to narrow and shallow (box store)

Brands
Manufacturer (national) Private (dealer or store)

Generic

Figure 14-11: Wal-Marts New Approach to Private Brands

Merchandising Software
General Merchandise Planning Software Forecasting Software Innovativeness Software

Assortment Software
Allocation Software Category Management Software

Logistics
Logistics, also known as physical

distribution, encompasses the activities concerned with efficiently delivering raw materials, parts, semi-finished items, and finished products to designated places. It includes customer service, shipping, warehousing, inventory control, trucking operations, packaging, receiving, materials handling, and plant, warehouse, and store location planning. It affects costs, the value of customer service, its relationship with other functional areas.

Logistics and Other Functional Areas

There is a critical interaction between logistics and each of the firms marketing functions and this requires careful coordination.
Product variations (color, size, features, styles)

may impose a burden on distribution facilities. Logistics planning is related to overall channel strategy. Promotion campaigns must realistically coordinate with potential logistics delivery. Pricing may be the firms differential advantage based on superior logistical service.

What Happens When a Firm Has Stock Shortages

When a firm runs out of stock, customers can

Wait until merchandise is available.

Purchase a substitute product from the same seller.

Switch to a new seller while merchandise is not available.

Permanently switch to a new seller for all purchases.

Most Desirable Action

Least Desirable Action

5 Transportation Forms for Shipping

Next Day, Inc. Railroads carry heavy, bulky items over long distances but have

high fixed costs due to facility investments. Motor Carriers usually transport small shipments short distances Waterways best for bulk shipments,slow but economical Airways are fast and expensive but move high-value perishable and emergency goods. Speed may provide a differential advantage. Pipelines move gas and petroleum products with low costs.

Inventory Management
Good inventory management matches the quantity of goods

kept in inventory with customer demand. To improve efficiency, many firms use a just-in-time inventory system and electronic data interchange. Four specific aspects of inventory management are stock turnover, when to reorder, how much to reorder, and warehousing. Stock turnover refers to the number of times during a stated period that average inventory on hand is sold. A reorder point depends on lead time, usage, and safety stock. The economic order quantity (EOQ) is the order volume corresponding to the lowest sum of order-processing and inventory-holding costs.

Pricing Options for Retailers

Discount orientation At-the-market orientation

Upscale orientation

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Figure 17-1: Barnes & Noble A Huge Selection and Discounts

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Figure 17-3: Factors Affecting Retail Price Strategy

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Figure 17-6: Specific Pricing Objectives

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Figure 17-8: Specific Pricing Decisions

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Price Strategy Concepts

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Customary Pricing Everyday Low Pricing Variable Pricing Yield Management Pricing One-Price Policy Flexible Pricing Contingency Pricing Odd Pricing Leader Pricing Multiple-Unit Pricing Price Lining
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Figure 17-9: Wal-Mart and Everyday Low Pricing

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Figure 17-10: Odd Pricing

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Reasons to Use Multiple-Unit Pricing

A firm could seek to have shoppers increase

their total purchases of an item. This approach can help sell slow-moving and end-of-season merchandise. Price bundling may increase sales of related items.

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Timing Markdowns
Early markdown policy Late markdown policy

Staggered markdown policy

Automatic markdown plan Storewide clearance

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