SUMMER INTERNSHIP PROJECT REPORT

ON

MARKETING STRATEGY FOR RETAIL STORE EXCEUTION

at

DMS PROJECTS PVT. LTD.

Submitted in partial fulfillment of the requirements for the award of BBA Markt degree

Submitted by

HIMANSHU PREMI

BBA MARKETING

Batch – (2017–2020)

Roll No.: 170241135

Under The Guidance Of

Mr.Rohit Verma

Manager, DMS PROJECTS PVT. LTD.

SCHOOL OF BUSINESS STUDIES

SHARDA UNIVERSITY, GREATER NOIDA-201307

1
 EXECUTIVE SUMMARY

Shadowing members of the Accounts department as they perform their duties.

Assisting with filling, data entry and recording maintaining the inventory to

complete financial records. Working with book keeping software. Handling

confidential and sensitive information with honesty and integrity.

Learning how to work as aa part of accounting team and analyzing inventory to

compile, track information, and support the client or the company. Taking on

addition tasks and projects to learn more about accounting and how to manage

inventory in the organization.

2
 PREFACE

This Project Report has been prepared in partial fulfillment of

the requirement for the subject. The Project Report,

we have visited the Retail Store during the suggested

duration for the period of 21 days, to avail the necessary
information. The blend of learning and knowledge acquired
during our practical studies at the company is presented in this
project report . The rationale behind visiting the Retail Store
and preparing the project report . Report is to study the
Design basics, history and development of market growth
of economy and its functional areas like Inventory department and
financial department . The Project Report starts with the
basic concepts of company history and its functional
departments like Inventory department and financial department.

3
 AKNOWLEDGEMENT

I express my sincere gratitude to my industry guide

Mr.Rohit Verma, Manager, DMS PROJECTS PVT. LTD.

For his able guidance, continuous support and

cooperation throughout my project, without which the

present work, would not have been possible.

I would also like to thank the entire team of DMS

PROJECTS PVT. LTD. For the constant support and help

in the successful completion of my project.

Also, I am thankful to my faculty guide Dr. Aarti

Sharma,, for his continued guidance and invaluable

encouragement.

Signature
Himanshu Premi

4
 CERTIFICATE OF ORIGIN

This is to certify that Mr. Himanshu Premi, student of BBA

MARKETING, Sharda University, Greater Noida has worked in

the Marketing department, under the able guidance and

supervision of Mr.Rohit Verma, Manager DMS PROJECTS PVT.

LTD. The period for which he was on training was for 6 weeks,

starting from 18th May 2019 to 2th July 2019. This Summer Internship

report has the requisite standard for the partial fulfillment of the

bachelors Degree in Commerce. To the best of our knowledge no

part of this report has been reproduced from any other report and

the contents are based on original research.

Dr. Aarti Sharma Himanshu Premi

(Faculty Guide) (Student)

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 TABLE OF CONTENT

Chapter Particular(s) Page No.

1 INTRODUCTION 6

2 ORGANIZATION STRUCTURE 14

3 PERFORMANCE 15

4 PRODUCTS 16

5 COMPETITORS 18

6 SWOT ANALYSIS 19

7 PROBLEMS FOUNDED 20

PARI - II

8 RESEARCH OBJECTIVES 21

9 RESEARCH METHODOLODGY 22

10 THERITICAL ANALYSIS 24

11 DATA ANALYSIS 42

12 FINDINGS 53

13 CONCLUSION 56

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WHO WE ARE:
We specialize in interior fit-out work, turn-key interior projects, innovations for shop-in-shop, visual
merchandising and display solutions. All our jobs are done with full adherence to PERT charts / MS
charts. Interior execution is our forte.

With a work experience of over 15 years, combining a synthesis of the corporate and retail sector, the
director founded DMS Projects Pvt. Ltd in the year 2006. The company specializes in the corporate
and retail sectors but is always open to new ideas. In it’s current form, the company has a vast
portfolio and almost limitless experience having completed more than 500 corporate offices and over
5000 retail installations pan India.

OUR VISION
To be the first and foremost name when it comes to interiors for corporate and retail sectors. We will
continue to provide our current and future clients with excellent value and unrivaled customer service.

Our aim – “Think interiors, think DMSP”

OUR MISSION
To be the pre-eminent provider of superior interior services by consistently improving the quality of
our product; to add value for customers through professional integrity, exceptional workmanship,
extraordinary service and aggressive performance; thereby establishing not a business relationship but
a PARTNERSHIP with our customers.

CORE VALUES
As we grow as a company, it becomes more and more important to explicitly define the core values
from which we develop our culture, our brand and our business strategies.

Integrity – We believe in honoring our commitments through honest, trustworthy, respectful and
ethical actions.

Innovation – We are innovative in identifying new opportunities and approaches for our customers
and for ourselves as well as being ready to embrace change.

Client Value Creation – Deliver a “WOW” result through our service. We focus on achieving total
customer satisfaction by understanding the customer’s vision and delivering it flawlessly.

Client Value Creation – Deliver a “WOW” result through our service. We focus on achieving total
customer satisfaction by understanding the customer’s vision and delivering it flawlessly.

What sets us apart:

We have an extensive workshop in Delhi with latest technology of machinery for mill works (paint
finish, wood finish, metal finish, FRP) and printing of any kind of roll media for back-lit, front lit
visuals and signage. We also manufacture VM props for various brands as per their requirements.

We have a dedicated design team to support production and project team with shop drawings, 3D and
graphic designing because of which we can achieve quality of international standards.

We also have provisions of high volume warehousing in our facility.

We are coming up with our new factory building in IMT, Faridabad next year.
Trade Area Analysis and Site Selection

BACKGROUND

The significance of location decisions cannot be overstated. Because of its

tremendous impact on virtually all other operational decisions, the location
decision is perhaps the single most important operation decision a retailer has to
make. A retailer who selects a poor location will always be at a competitive
disadvantage. To overcome the mistake of selecting the poor location, the retailer
is forced to make substantial adjustments in the product, prices and promotional
mixes. Such adjustments are usually very expensive to implement and they are
sure to affect the firm's profits and profitability. On the other hand, selecting a
good location enhances the degree and extent of success because it allows greater
flexibility in developing the product price and promotional mixes. Given the
long-term commitment, the huge financial investments and the effects on the
retailing-mix, the retailer must consider the location problem as one of paramount
importance. Hence, a critical element in determining a retailer's success is the
ability to assess and acquire a good location. To achieve this objective, the
retailer is expected to identify, evaluate and select trading areas to segment his
consumer markets further. After identifying and evaluating local markets, the
retailer must then segment them into trading areas. After this, the terminal point
in location decision is that of selection of proper site. Therefore, this chapter is
devoted to two major aspects namely trading areas and retail store site. This is
very interesting and technical study which we are currently touching. The chapter
ends with chapter summary and chapter based questions, as usual.

THE RETAIL TRADING AREA

WHAT IS A RETAIL TRADING AREA?

A "retail trading area" is the area from which a store attracts its customers or

7
 obtains its business: According to Professor Robert. F. Hartley, "a trading area is
the geographical area from which most customers are drawn." Professors Dale.
M. Lewison and M. Wavne DeLozier say "depending on the kind of retail
operations, a retail trading area can be described more specifically in four terms
namely, DRAWING POWER-the area from which a shopping centre could
expect to derive as much as 85 per cent of its total volume; PER CAPITA
SALES-the area from which a general merchandise store can derive a minimum
annual per capita sale of one US dollar : PATRONAGE PROBABILITY-the
area from which potential customers come who have a probability greater than
zero of purchasing a given class of products and services that either a retailer or
group of retailers offers for sale; RETAIL OPERA NONS-the area from which
either a marketing unit or group can operate economically, depending on volume
cost to operate and cost to sell and or deliver a good or service economically.
From what has been said above two characteristics are common namely, (1) they
identify an area which retailers draw customers over a specit1c period of time
and (2) they identify a single focal point may be a town, a shopping centre, or a
retail outlet around which the trading area develops. It means then, a retail
trading area is a "gravity" area-the retail site to which consumers will gravitate or
be pulled from an identifiable area.
The trading area analysis is done with three purposes namely, (1) to
determine the area from which the majority of the retailer's customers might come,
(2) to determine the potential sales level of the area of a majority support and (3)
to determine the source of support in terms of customers needs. Based on these,
the trading area analysis have to follow threefold approach to decide as to (a) how
to identify several potential trading areas (b) to evaluate these trading areas and
(c) to select a trading area.

I. THE TRADING AREA IDENTIFICATION PROCESS

Before we touch up on trading area identification process, it is essential to

8
know the dimensions to describe a retail trading area because the first step is to
describe the trading areas dimensions. These trading areas dimensions are-area
size, area shape and areas structure.

The Trading Area Size

Trading areas range in size from a few 8quare meters to' a radius of many
kilometers. The size of the trading area is a function of the cumulative effects of
several operational and environmental factors. The two major operational factors
are type and size. The type of operation stands for the kind of goods and services
offered. Those retailers who offer the speciality and shopping goods are to draw
consumers from a wider geographic area than those retailers who are offering
convenience goods because the consumers are willing to exert greater effort and to
travel greater distances to buy speciality and shopping goods than to buy
convenience goods. Thus, American, Mangal Deep of Belgium city are attracting
customers from Goa state a distance of 165 kilometers. The second operational
factor is directly related to the retailer's trading area size namely, size of the store.
That is, the larger the retail store and the greater its selection of merchandise, the
larger its trading area will be. Because of their physical size and wide range of
merchandise. Departmental store of India like those of Spencers and Akbarally's
have naturally wide trading areas.
The size of trading area is also determined by environmental factors.
There can be at least three such environmental factors. (1) A retailer locates near
other retailers because, he is in the cluster, the area of clustered retail units will be
pretty large all put togather and will have larger share in business than had he
located in an isolated area. Thus, a retailer who locates in a regional shopping
mall shares more potential customers from a larger area than a retailer that locates
either in a small neighbourhood shopping centre or an isolated free-standing
location. (2) The size of a retail trading area also depends on location, size and the
activity of competing stores. For example, one large departmental store might

9
locate next to another large departmental store to facilitate consumer's
comparative shopping and thus draw from a larger geographic area. Consumers
strongly believing in this reasoning that by going to the geographic site of two
similar stores, they will find what they are looking for. (3) The transportation
network strongly influences a retailer's ability to attract consumers from an area.
The effect of traffic-networks on the size of a retailer's trading area becomes
apparent when one considers that the stores located on major thoroughfares
usually have larger trading area than those located on secondary streets and roads.
Thus, the number of traffic lanes, the number of intersections and nature of
intersections, the speed limit and the presence of or absence of barriers to
uncongested movement all affect the size of the area from which a retailer can
attract the customers.

The Area Shape

The trading areas are likely to assume many possible different shapes. The
exact trading area shape is dependent on three distinct factors namely,
transportation networks, barriers-physical, social and political and location of
competitors.
1. Transportation networks. The shape of a trading area depends largely on
the makeup of the transportation network near which a retailer is located. A store
located along the major route should expect an elongated trading-area shape
because of the ease of movement along a major astery such as an interstate
highway and lack of physical barriers such as traffic lights, traffic signs and high
speed limits in case of underdeveloped nations and low speed limits in developed
nations. It goes without saying that where two major arteries intersect, the shape
of trading area tends to be elongated along both major routes.
2. Barriers-physical, social and political. Though the major transportation
arteries extend a retailer's trading area, some physical, social and political barriers

10
reduce these extensions. Physical barriers are lakes, rivers, mountain sides, ocean,
deserts, land formations, limited access high ways and rail-road tracks. Social
barriers are high-crime area, ethnic neighbourhood where people confine to their
own ethnic neighbourhood. The political barrier are city limits, state boundaries
and country borders that have tax implications-local, sales, customer tariffs. Ail
these greatly influence the shape of trading area.
3. Location of competitors. A retailer trading area affects the shape whe1e
the competitors locate their stores. The trading area is sharply cut by the
competitor location, size and type of operation.

The Trading Area Structure

The final dimension of retail trading area is its structure. Trading area
structure is the comparative ability of a retailer or a cluster of retailers to attract
customers from various distances or from various customer regions. Expert think
of three such possible trading area structures namely generalcoinp0site and
proportional.
1. General trading areas. General trading areas is one which provides
maximum of retailer's business. Therefore, general trading area includes any and
all customers who do or might buy any product lire the retailer Carrie. Thus, a
customer who might-purchase only a tooth paste is included along with customers
who buy perfumes, toiletries, dresses, shoes handbags and several other products.
2 Composite trading areas. A composite trading area is a set of trading
areas, each of which is structured according to the type of goods the retailer sells.
Thus a retail unit might be dealing in convenience, shopping and specialty goods.
It might so happen that a retailer might draw larger trading for specialty goods
than for convenience and shopping. The composite ea boundary lines are
dependent up on consumer's willingness and expert in shopping effort.
3. Proportional trading areas. A proportional trading area is based on the
distance customers are from the store, unlike composite trading area which is

11
 base on the types of products the retailer carries and the degree of consumer
willingness to search for the products. The far-off customers are less likely
patronise the store than the nearby customers. These two categories together call
the retailers as the "distance decay fUilction"-that is, the number customers
attracted to a given store decreases as their distance from the store increases.
Based on this distance factor, experts have conceived three distance zones
namely, pri y, secondary and fringe--together constituting proportion to the total
trading ea.
(1) The primary trading zones. It is the area around which a retailer can
expect to attract nearly 50 per cent to 70 per cent of his total business. In other
words, primary trading zone includes the areas closest to the store, the area in
which retailer has the competitive advantage and the area from which the retailer
produces highest per capita sales.

(2) The secondary trading zones. Secondary trading zone is one which
surrounds the primary zone and generally represent 20 per cent to 30 per cent of
retailer's total business. In this case, the customer give second or third choice to a
retail outlet.
(3) The fringe trading zones. A fringe trading zone is one from which the
retailer draws occasionally 5 per cent to 10 per cent of total business. These
customers are either in the close vicinity of the store or because they are
extremely loyal to store for one reason or the other.
TECHNIQUES OF IDENTIFYING THE TRADING AREAS

The experts in the field have come out with two techniques of identifying the
trading areas. These are spotting techniques and quantitative procedures.

I. SPOTTING TECHNIQUES

Spotting techniques include several methods by which the retailer attempts

to "spot" customer origins on a map. By carefully observing me magnitude and

12
arrangement of these origins the retailer can identify the dimensions of the
trading area. Retailers normally define customer orgins by home addresses,
although customers place of employment are also important. Some of the more
common spotting techniques include surveys of customers' license plates,
customer surveys, analysis of customer ~cords and studies of customer activities.
1. License Plate Surveys. By recording the license plate numbers of
automobiles in the store's parking area, retailers can obtain customer home
addresses. Sampling normally includes the checking of licence plates at different
times of the day, different days of the week and different weeks of the month to
ensure a representative sample. The major advantage of this technique is it is
relatively in expensive method. However, the advantages are; (1) It is not
possible as to who drove? Was he a customer? (2) There is no revealing of
information on the shopping behavior as what they bought ? How much they
bought ? Where they bought ? why they bought ? or not bought anything? (3)
The number of purchases and purchasers in each car cannot be determined. Still it
is alternative method as they cost least in terms of cost and time as they provide
general information.
2. Customer Surveys. Either a personal interview, mil questionnaire or
telephone survey can be conducted to provide informantion on who lives or works
in a given area and who either current or potential customers are. Actual
customers can be surveyed on the premises by either personal interviews or take-
home- back questionnaires. Good surveying techniques must be employed to
ensure anus-biased, truly representative sample. Customer surveys can provide a
significant amount of information regarding demographics and the shopping
behavior. However customer surveys suffer from the-
limitations of cost, time and necessary skill needed to do the job efficiently and
effectively.
3. Customer Records. Retailers have several ways to obtain addresses of
current customers as well as additional valuable information. Customer credit,

13
service and delivery records contain good deal of information if developed and
maintained properly. From their records, retailers can find customer addresses and
places of unemployment, age brackets, family status telephone numbers and types
and amounts of purchases. Though customer credit, service, and delivery records
are a fast and inexpensive ways of obtaining information, they are biased because
cash customers, who require no service or delivery, are omitted from the analysis.
4. Customer Activities. Any method that seeks or requires customers to
provide their names and addresses can help in identifying an existing or proposed
trading area. Promotional activities such as contests and sweep takes can be
effective in obtaining names and addresses. Unfortunately, these tend to be biased
toward the consumer who is willing to participate. Rupee-off coupons that require
the consumers to provide minimum information also have been used in identifying
trading areas.

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Trading-area Adequacy

Trading area adequacy is the ability of a trading area to support proposed and
the existing retail operations. The support capability may be viewed in a GROSS
as well as NET form. Here Gross adequacy is the ability of a trading area
to support a retail operation without any consideration of retail competition. That
is, the gross adequacy measures the total amount of business available to all
the competing retailers within a defined trading area contrary to this, "net
adequacy" is the ability of a trading area to provide support for a retailer after
competition has been taken into account.

Trading-area Potential
Coming to trading area potential, it is something, which is predicted ability
of a trading area to provide acceptable support levels for a retailer in future.

The Gross Adequacy of Trading Area

Measurement of gross adequacy determines the trading area's total capacity to
consume. The capacity of a retail market to consume is the function of the total
number of consumers within a trading area at a given time and their
need, willingness and the ability to purchase a particular class of goods. Infact, it
is not a child's play to determine the consumers' need, willingness and the
ability to purchase a certain class of goods.
To determine the gross adequacy, the retailer must first consider the appropriate
consumption units such as people homes, business and the like to count for a general
class of goods. Secondly, the retailer must find an appropriate measure of a consumption

17
unit's need, willingness and the ability to buy. This also warrants use of one or more
indicators of potential buyers behavior because to develop confidence in the analysis.
Finally, the support capabilities of a trading area depend to some extent on sources
outside the gross trading area.

Residential Support levels

A retailer is to concentrate on the most important source of business, namely

the area's residents, after sufficiently identifying the gross trading area. To
measure a trading area's potential consumers, the retailer is expected to analyse
population or demographic and household or residential variables.
Population or Demographic Analysis. A trading areas total capacity to
consume is partly a function of the total number of population and partly the
demographic features such as age, sex, income, occupation, family status, rate of
literacy. Evaluating gross adequacy is a matter of identifying demographic
features that best indicate the consumers' need, willingness and ability to buy. For
this census reports provide the necessary information.
Household or Residential Analysis. In case of some retailing operations, a
trading area's capacity to consume is more directly related to the number of
households or residential units than the number of people in the area. This is
particularly in case of consumer durable goods. This relationship simply reflect!'
the fact that the household unit purchases many goods and the consumer's home is
the prime determinant of the need for a particular product line. In this context,
'households' are private dwelling units that include all persons occupying a
particular house or apartment, whereas a 'residential' unit is a housing unit
occupied as separate living quarters, such as an apartment building. A count of
households world produce a more dependable estimate of the existing capacity to
consume and a count of residential units might better reflect the potential
consumption capacity at least in terms of existing residential facilities.

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Non-residential Support levels
All consumption support does not come from residential trading area.
The consumers who reside outside the trading area contribute significantly to that
areas capacity to consume.
The characteristics of most trading areas are the daily inward, outward and
through migration of consumers who are attracted into the trading area for work,
recreation and other reasons say need for professional services. Though these
consumers are living many kilo-meters away, they do represent a significant
position of trade customers who visit the area. It is quite possible that some of
these might be visiting frequently and regularly or others infrequently and
irregularly. Nonetheless, it accounts for gross adequacy which one can not forget.
Though it is very difficult to calculate accurately the number of such consumers
capacity, at the numbers can be ascertained. As all non-residential units do not
have equal consumption generating abilities, the system of weightage can be used.
However, at any cost non-residential consumers cannot be forgotten.

Estimating Trading Area Sales

Though there are several methods of estimating the trading area sales, the
most widely used techniques are two namely, (a) Corollary Data Method and (b)
Per-capita Sales Method.
Corollary Data Method

This method assumes that an identifiable relationship exists between sales for
a particular class of goods and one or more trading features such as population,
residential units. Knowledge of these relationships helps the retailers to estimate
the sales.
Per-capita Sales Method

There are several variations. One such most widely used method is that the
estimated trading area sales for a general product line is a function of the per
capita expenditures for the product line times the total population of that trading

19
area. In this connection, the retailers get reliable information of both population-
and per capita expenditure figures from secondary published or unpublished
sources.
The Net Adequacy of Trading Areas

In order to determine the net adequacy of trading area, a retailer was to find
out gross adequacy of trading area. "Net adequacy" can be defined as the portion
or the sales volume a retailer can be expected to receive from the total sales in a
trading area, that is net adequacy is the percentage of gross adequacy or market
share a retailer can expect to get. To determine the net adequacy, a retailer must
consider the trading areas capacity to consume and its capacity to sell.
The capacity to consume is the gross adequacy measurement. Having got a
gross estimate of the trading areas sales volume capabilities, the retailer's problem
is to find out a method of allocating the total sales volume to each of the trading
areas existing and proposed competitors. This allocation process consists of two
major issues namely, (1) analysing the competitive environment and (2) estimating
each retailer's sales and market share. To determine net adequacy, a retailer must
first identify the competitive environment. To analyse competitive environment,
the retailer must examine the types of competition, the number and size of
competitors and the marketing mix of the competitors. To get a clearer picture of
the competitive environment, a retailer can use two very reliable and useful
methods namely, competitive audit and an out-shopper analysis.
Competitive Audit
A '~competitive audit" is' an arbitrary, composite rating of each competitors
product, service, price, place and promotion mixes. An audit covers a wide range
of activities including eye balling competitors floorspace, checking ad results,
getting information from media people and the vendors, checking competitors'
prices and evaluating the competitions merchandise mix. The purpose of any
competitive audit is to assess the ability of competitors to provide a marketing mix
that consumers desire within the trading area. The sum of all audits is a

20
measurement of total competition. The retailers use a competitive audit is several
ways. First, they use to measure the total competition within the trading area-the
sum of all competitors items their competitiveness rating. Secondly, they derive at
a measure of each competitor's expected share of total area sales. Thirdly, they
gain a picture of an unfulfilled product position or "niche" in the trading area. The
latter information helps the retailer to develop a marketing strategy.
Out-shopper Analysis

It is very clear that not all the consumers who are within the trading area shop
exclusively from that area. A group of consumers known as "outshoppers"
frequently and regularly shop outside their local trading area. These consumers
spend a considerable amount of time, money and effort making inter-trading area
shopping trips. One of the analysts namely, Mr. Ram. J. Markin Jr. in his title
"Retail Management", has given characteristics of out-shoppers and their
shopping behavior in his own terms. Some outshoppers look for economic gains
arising from lover prices in larger trading centres where assortments are better and
the level of competition is more intense. Some shoppers simply seek the diversity
of unfamiliar or more stimulating surroundings. Demographically outshoppers are
younger and are relatively well educated and their relative income is high;
psychologically, outshoppers are active and are on the "go", urban-oriented who
are neither time conscious nor store loyal shoppers. They tend to manifest a
distaste for local shopping and, hence, a strong preference for out of town
shopping areas.
To obtain an accurate estimate of total expected sales, the retailer has to
undertake this outshopper analysis, substracting outshopping sales, normally
called as "sales leakage", from the trading areas gross sales to arrive at a more
realistic sales volume for the trading area. To estimate "sales leakage" that results
from outshopping behaviour, a retailer can conduct consumer surveys or use
standard adjustment. Consumers survey help in getting information on how much
the consumers spend locally on a particular class of goods as a percentage of their

21
total expenditure for those goods. Here, retailer can use this percentage to adjust
the gross sales figure for the trading area. Another simple and less expensive
method is that of standard adjustment. A standard adjustment figure depends on
the prevailing trading area conditions. In case the trading area contains large
number of consumers who are similar to the demographic and psychographic
profile of outshoppers, the retailer make a standard downward adjustment say of 5
to 8 per cent. The other factors to consider while making such standard
adjustments are (a) the

22
existence of major shopping centres outside the trading area that are within the
easy driving distance. (b) the presence of major traffic arteries that facilitate
outshopping and (c) the lack of a sufficient number of competiting retailers to
facilitate consumers comparison shopping. Though estimates of outshopping are
not always accurate, the retailer must consider these factors in making a
conservative estimate of trading area net adequacy.
Estimating the Retailer's Sales

A retailer can estimate each competitor's sales once he has evaluated the
competitive environment. To calculate the net adequacy-the trading area market
share-figure, the retailer can use either the "total sales method" or the "sales per
square foot method." Both methods use a ratio of trading area activity to consume-
gross adequacy-to the trading--area capacity to sell. Let us not these methods in
brief.
Total Sales Method

With the help of this method, a retailer allocates an equal share of the trading
area's total sales for a specific product category to each competing retailer. The
merit of this method is that it is simple and quick to calculate. However, the
limitation is the assumption that all competing retailers are equal and can generate
an equal share of the trading area sales. To reduce the impact of this, the
competive audit technique may be used.
Sales Per Square-foot Method

This is another method under which the retailer computes the ratio of each
retailer's floor space devoted to a specific product category to the total of all retail
floor-space for the product category in tl1e trading area. This method assumes that
the selling space is a good predictor of a retailer's competitiveness.

THE GROWTH POTENTIAL OF TRADING AREAS

Every retailer must answer one more question before completing the trading

23
area evaluation process. That is what holds for the future for the trading area ? In
other words he is to fore see the growth, potentials of trading areas. It is because,
the marketing opportunities can change quickly or dynamically growing trading
areas might turn either static or decline. The retailer either must fight to maintain
present market share or be willing to survive on a smaller share without future
growth. However, with the growth, the retailer has an opportunity to expand sales
and market share at a reasonable amount of cost and effort. Therefore, the final
step in evaluating a retail trading area is to determine the areas future growth.
The retailer can very often learn what to expect by examining fuose
conditions because, the future of a trading area is an outgrowth of past and present
conditions. Visual observation of an area is a simple method of looking into the
future. Though it lacks scientific methodology, visual inspection of current
activities can produce a useful picture of future. While projecting the future
picture, the retailer should give due weightage to the following factors: (1) New
and expanding residential areas combined with older, stable neighbourhoods
provide a solid base for future growth. (2) An expanding commercial or industrial
base signals growth opportunities. (3) A good balance between item number one
and two cited above reflects a stable growth rate that avoids over-dependence on
limited economic activity. (4) A well developed transpiration net-work as well as
proposed future transportation networks in the trading area contribute to a trading
area's growth. (5) An involved local government that takes an interest in
residential and business development is a great asset. and (6) A progressive social
and cultural environment is a healthy climate such as theatres, museums, zoos,
parks and so on.

THE SITE AND ITS SELECTION

After successfully undertaking the onerous task of trading-area analysis, net

thing the retailer is to come to the exact site of his store.
A "retail site" is the actual physical location from which a retail business

24
operates. According to retail specialists, retailer's site is one of the principal tools
obtaining and maintaining a competitive advantage through spatial monopoly. A
given site is unique when its "positional qualities" serve a particular trading area
consumer in way that no other site can match. That is why, retailer's site problem
has solution in its identification evaluation and final decision of perfectly
matching site. These aspects are taken care of in these on going pages.

THE SITE IDENTIFICATION PROCESS

The first step in appraising retail site locations is to identify all potential site
alternatives. The number of site alternatives in any given trading area can range
from an extremely limited to a very large selection. Therefore, before a retailer
attempts to have any formal evaluation, he should scan and screen the alternatives
by asking three crucial questions. These are :
1. Availability. Is the site available for rent or out-right purchase? 2.
Suitability. Are the site and the facilities of a suitable size and structure?
3. Acceptability. Is the asking rental rate within the retailer's operating'
budget ? It is because rent rates vary sharply according to location, type, size of
retailing cluster and market size and the quality standards. If he Is going for
outright purchase whether rate per square foot or square meter Is fitting in the
financial resources of a retailer.
To be considered for further evaluation, a site alternative must meet all the
three screening criteria. That is a selectable site is available, suitable and
acceptable.

25
CLASSIFICATION OF RETAIL SITES
Retail sites can be classified as either ISOLATED or CLUS1ERED.

ISOLATED SITES

Isolated sites are retail locations that are geographically separated from other
retail sites. However, they can be next to other forms of economic and social
activity. One site alternative is to "go it alone" by selecting an absolute location
isolated from other retailers. The degree of isolation can range from "around the
corner down the block" to for out on the outskirts of town. Here isolation means
physical isolation, In relative location terms, "an isolated site is located or situated
so that it will not normally share consumer traffic, with other retailers, however,
its relative location offers certain advantages in attracting customers from other
sources of business. Generally, a retailer selects an isolated site in seeking to gain
either a monopolistic or an operational advantage. Let us understand the
implications of monopolistic and operational isolation.
Monopolistic Isolation. Monopolistic isolation is a site that affords the retailer
a unique, convenient and accessible location to serve consumers. A
monopolistically isolated site is isolated from competing retail sites but is uniquely
situated for traffic generating activities. The common examples of these kinds are,
convenience-food store in a residential area, a neighbourhood bar, a local service
station a cafeteria located in an office complex. Exclusive airport, bus terminals,
railway stations and in campus book stores and so on.
Operational Isolation. Some retailers prefer to locate in isolated areas because
they think it gives them greater flexibility in operating a retail business. This
greater operational flexibility are seen in terms of :
1. Site Geography. Site alternatives that meet the size, shape and terrain
requirements of the retailers operation constitute site-geography. A home-
improvement centre, for example, normally requires a large, flat site to

26
accommodate large show-rooms and storage facilities.
2. Transportation Network. Some site alternatives haw transportation
networks that generate good consumer traffic and also have good supply
connections. A large warehouse-showroom retailer might think of locating the
store at the junction of two major highways where customer traffic is high, but
should also consider whether there is an adjacent railroad spur to handle large
number of heavy, bulky products, particularly.
3. Type of Facilities. Certain site alternatives permit the installation of facilities
that are conducive to the retailers operations. For a retailer, the store's
architectural motif, internal layout fixturing, atmosphere as well as the supporting
facilities such as parking and signing and the like are really important. Majority
of clustered locations have numerous facility restrictions unlike isolated location
that permit great deal of freedom in these regards.
4. Operating Methods. Some sites offer the retailer much warranted freedom
of operation and avoidance of group rules that are common to shopping centres.
These restrictions include the working hours of store, external displays and
cooperative advertising programmes including holidays.
5. Operating Costs. A site must give the retailer the opportunity to operate
within the business cost constraints. Naturally, a low margin, high turnover
retailer needs to keep the operating expenses at lowest point to offer the
consumers the discount prices. Normally, an isolated site has low rental costs that
helps in lowering operating costs.
Though isolated sites give certain advantages to the retailer he has to accept
certain disadvantages also. These are : (1) The retailer must attract. and hold his
own customers. An isolationist strategy may cause the shopping goods retailer to
encounter serious problems, since these consumers prefer either to compose
brands or are one stop shoppers. (2) Retailers must design and build their own
facilities. It is possible to do so only for largest retail organisations which possess
human and financial resources. (3) The isolated retailer can not share operating

27
costs with neighbouring establishments, as it is possible in case of clustered
locations where they share. Such expenses such as maintenance, security,
lighting, garbage removal, on common grounds.

CLUSTERED SITES

Clustered sites are retail locations that are either next to each other or in
close proximity. From a shopping perspective, a custer is two or more closely
located retailers capable of sharing customers with minimum effort. Retail
clusters are two types namely, 'unplanned' and 'planned'. Let me go into the
details of these two for the benefit of readers.
The Unplanned Clustered Site. An unplanned retail cluster is the result of a
natural evolutionary process. In any country in absence of urban planning and
zoning laws, unplanned retail clusters come up and continue to exist. Though
these planning laws and zoning restrictions are not strictly implemented, it allows
much room growth of unplanned retail clusters. Unplanned retail clusters are
often part of larger unplanned business districts where retailers can be either
clustered together or scattered with no discernible pattern; One can think of four
general types of unplanned clusters namely, central business district, the
secondary business district, the neighbourhood business district and the string-
strip shopping cluster. This classification is applicable to advanced nations
particularly America. Here .a mere reference is made.
"Central Business District" (CBD) is the single most important retailing
cluster. These are mostly down town retail clusters. "Secondary Business
Districts" (SBD) are those clusters which are located in medium and large size
cities having one or more secondary business districts, located at the intersections
of major traffic arteries. They were originally down town clusters.
"Neighbourhood Business Districts" (NBD) is small retail cluster that serves
primarily one or two residential areas. The NBDs generally contain four or five
stores combining food and drug, gasoline service stations, neighbourhood bars,

28
self-service laundries, barber shops, beauty parlors and small general merchandise
stores. It has a four-corner structure each locating at each corner. "String/Strip
cluster" is one that develops along major thoroughfares and depends on the
consumption activity of people who travel these busy thoroughfares. The size of
the strip or string is directly related to the average volume of traffic along the
thorough-fares. Some strings stretch for kilometers along the heavily travelled
arteries leading in out of a CBD and others are limited to one or two blocks along
streets carrying a lower density of traffic. The long strips are dealing in new and
old cars, rows of mobile home dealerships, strings of home-furnishings, outlets
and a strand of side by-side fast food restaurants or even a collection of specialty
shops.
The Planned Cluster Site. Growth of suburban population has given the golden
opportunity to the retailers to meet the needs of suburban shopper. Originally, the
basic problem was to develop an institution that could satisfy the shopping needs
0f a geographically dispersed market. The most common solution was and is a
one-stop shopping institution such as a planned shopping centre. A planned
shopping centre is a purposeful cluster of retail and service establishments at a
location designed to serve a specific geographic, demographic and psychographic
market segment. Through deliberate and careful planning. a developer could offer
a merchandise-mix-products, services, prices, to meet most customer needs for
convenience, shopping and specialty goods. These planned clustered shops or
shopping centres vary in nature according to their tenants and the size of the
market they serve. On the basis of type and size, the planned shopping centres can
be of four types namely, regional, community, neighbourhood and specialty
retailers. A "regional shopping centres serve regional markets varying in size
according to the type of transportation network serving the centre, the location of
competing centres and unplanned business districts, the willingness of consumers
to travel various distances to shop and the tenant mix. They provide consumers
with a wide range of assortment of convenience, shopping and specialty goods as

29
well as numerous personal and professional facilities. "Community Ilnd
Neighbourhood centres" serve the market areas their names suggest. A community
shopping centre serves a composite of many neighbourhoods within a ten to
fifteen minute drive from the centre. It is a larger centre and diverse in its mix
than neighbouthood centres. It contains ten to thirty retail establishments. It
provides consumers with shopping and convenience goods. On the other hand, the
"neighbourhood shopping centre" gets its customers from one or a few
neighbourhoods within the immediate vicinity. Its trading area can be roughly
defined as the area within five minutes drive of the centre, containing anywhere
from 7000 to 50,000 potential customers. A "specialty shopping centre" is
essentially a smaller cluster of specialty retailers that tends to be more focussed in
its target market.

THE SITE EVALUATION PROCESS

Selection of a site is based on certain principles that act as guidelines for

selecting a site. Again there are certain methods of site selection. Let us take up
these one by one.

THE PRINCIPLES OF SITE EVALUATION

Several consumers oriented location principles guide the retailers in

evaluating the site alternatives. It should be noted that there is no straight jacket or
standard criteria for site evaluation. These principles are :

1. The Principle of Interception. The principle of INTERCEPTION covers a

site's potential qualities that determine its ability to incept consumers as they travel
from one place to another. 'Interception' has two distinct elements namely, "source
of region" and "terminal regions." "Source of region" is one from which the
consumers are drawn and "terminal region" is one that speaks of consumer
destination, a region to which consumers are drawn. The examples of terminal
regions are residential areas, office complexes, industrial plants, business districts
and shopping centres. Any point between- source and terminal regions can be

30
considered as point of interception. In considering a site's interceptor qualities, the
evaluator has both an identification and evaluation problem. The identification
problem consists of determining (a) the location of source and terminal regions,
(b) the lines connecting those regions and (c) appropriate points or sites along the
connection line. The evaluation problem is one of measuring the magnitude and
quality of these regions, lines and points. Thus, the evaluators problems is how to
determine whether a site is an efficient "intervening opportunity" between known
source and terminal regions to that effect.

2. The Principle of Cumulative Attraction. According to the principle of

"cumulative attraction", a cluster of similar and complementary retailing activities
will generally have greater drawing power than dispensed and isolated stores
engaging in the same retailing activities. Retail location literature generally refers
to the cumulative attraction effects of the familiar 'rows', "cities" and "alleys," In
many large cities, certain types of retailing establishments tend to cluster in
specific areas. Examples of these kinds are automobile rows, mobile home cities
and restaurant alleys. The evaluators problem in this case is how to determine
whether the retail operation can benefit from the cumulative drawing power of a
site's immediate environment.
3. The Principle of Compatibility. Retail compatibility refers to the degree to
which two businesses interchange customers. As a rule, the greater the
compatibility between businesses located in close proximity, the greater the
interchange of customers and the greater the sales volume of each compatibility
business. Compatibility between retailers occurs when their merchandising mixes
are complimentary, as in the case of an apparel shop, shoe store and jewellery
store that are located very close to one another. It there are several apparel, shoe
and jewellery stores located in the same cluster, all the better! They are not only
complementary, they also provide a healthy competitive situation that satisfies the
customers 'need for comparison shopping and thus provide greater customer

31
interchange for the retailers. A high degree of compatibility is more likely to occur
when the pricing structures of neighbouring businesses are complementary. Other
things being equal, there will be greater interchange of customers between one
high margin retailer and another than between a high-margin and low-margin
retailer. Equally important in site evaluation is determining whether neighbouring
businesses are compatible. Thus, an exclusive dress shop would be incompatible
with a pet shop because of odour and noise produced by the pets.
4. The Principle of Store Congestion. Where the advantages of cumulative
attraction and compatibility end, the problems of site congestion begin. The
principle of store congestion states that as locations become more saturated with
stores other business activities and people they become less attractive to additional
shopping traffic. This results from the limited mobility of people and cars in the
area. Retailers should have learnt this lesson from the original congested Central
Business Districts as noted earlier. While the excitement of the crowd can be a
positive factor, the aggravation of a mob can be a limiting factor, discouraging
customers from visiting the site. Thus, in the site evaluation process, the retailer
should estimate at what point the volume of vehicle and foot traffic would limit
business, both in the present and the near future. In measuring the store
congestion, the retailer should recognise the fact that the shopper's tolerance for
retail crowding may differ across types of retail establishments say discount stores
versus departmental stores and the shopping times, say Christmas, Diwali,
weekends, lunch hour and the like.

5. The Principle of Accessibility. This is the basic principle of all that are
considered while evaluating the site. This principle of accessibility states that the
more easily potential consumer can approach, enter, traverse and exit a site, the
more likely they will visit the site to shop. Accessibility is a function of both
physical and psychological dimensions. The physical dimensions of accessibility
are tangible site attributes that either facilitate or hinder the actual physical
movement of potential consumers in, though, or out of site. Psychological

32
dimensions of accessibility include potential customers perceive the ease of
movement toward and away from site. If consumers believe that it is difficult,
dangerous or inconvenient to enter a site, then a psychological barrier has been
created equal to any physical barrier. Retailers should consider both real and
apparent barriers to accessibility. There are four components of accessibility
namely, number and directional flow of traffic, number of intersections, the type
of medium and the control on traffic.
(1) The number and directional flow of traffic. It has sub components namely,
number of traffic arteries, number of traffic lanes and directional flow of traffic
arteries. (A) Number of traffic arteries : The number of traffic arteries adjacent to
a site has a profound effect on the consumers ability to approach and enter the
site. Other things being equal a corner site is approachable from two traffic
arteries is more accessible than a site served by a single traffic artery. The traffic
arteries are not all equal, Major thoroughfares provide greater accessibility to
trading areas than secondary, feeder, or side streets. Because their function is to
provide access for local traffic, the side streets are of less value to retailers. (B)
Number of traffic lanes: The more lanes in a traffic artery, the more accessible the
site located on this artery, Multi-lane arteries are the consumer's first choice in
selecting routes for most planned shopping trips. Multi-lanes often reduce the
consumer's access to a site, however, especially with left-turns. (right turns in
right hand drive countries). Given some drivers hesitancy to turn left across
traffic, wide roads create a psychological barrier, especially when 'consumers
must cross two or more lanes of oncoming traffic. In essence, multi-lanes·
increase consumers perceived risks. (C) Directional flow of traffic arteries: The
accessibility of any site is enhanced if the site is directly accessible from all
possible directions. Any reduction in the number of directions from which the site
can be approached has an adverse effect on accessibility. Usually, several traffic
arteries adjacent to the site enhance accessibility. The location analyst should
examine local maps to determine directional biases.

33
 (2) Number and Configuration of Intersections. This intersection factor has
two aspects : (A) Number of intersections: The number of intersections in the
sites' general vicinity has both positive and negative effects on accessibility. A
large number of intersections offers consumers more ways to approach site, but
may also reduce accessibility because of slower speeds and the consumer's
increased risk of an accident. Where intersections are large in number, the role of
traffic-control devices becomes critical. (B) Configuration of intersections:
Consumers generally perceive a site located on a three-corner or four corner
intersection as very accessible because these kinds of intersections are fairly
standard ; consumers are familiar with them and with negotiating them. When
there are more than four corners at an intersection, consumers are often confused
by "unstandardised" configuration. This "zone of confusion" exists across the
entire intersection and presents the potential consumer with numerous conflict
situations.
(3) The Type of Median. The type of median associated with each of the site's
adjacent traffic arteries strongly influences accessibility. Some medians are
crossable, while others are not. Generally, crossable medians increase
accessibility, although in varying degrees. Medians that provide a "crossover lane"
are more encouraging to potential consumers attempting site entry than those
without a crossover lane. Crossable medians that force consumers to wait in a
traffic lane until crossover is possible create a perceived risk or danger. The driver
has often to put up with horn honkers and has the fear of being "stuck out there."
This situation results in a psychological deterrent to the site's accessibility.
Uncrossable medians are both a physical and psychological barrier to site entry.
Elevated and depressed medians serve to physically separate traffic, but they also
separate traffic psychologically. Potential consumers travelling on the right side of
an uncrossable median tend to feel isolated from left-side locations and become
more aware of right-side locations, where accessibility is substantially easier.
(4) The Speed limit and Number and Type of Traffic Control Devices.

34
It has two aspects: (A) The speed limit on traffic arteries: The speed limit on a
traffic artery influences a site's accessibility, since it determines the amount of
time potential customers have in which to make a decision about entering a site.
Expert opinion vary over what constitutes an ideal speed limit which is between
25 to 40 mph as the best range. (B) Number and type of traffic control devices: Of
the general different devices for controlling traffic, the most common are traffic
lights, stop signs, rule signs and guidance lines. In terms of accessibility, the
traffic lights have enormous effect at cross-overs because of the protection left-
turn arrows allow. Traffic lights may be more important for their psychological
value than for their physical value. Consumers perceive retail sites with controlled
cross overs as more accessible. All other devices have both increase or decrease
accessibility to site.
Therefore, the size and shape of the site should be large enough to facilitate
all four components of accessibility. Sufficient space should be available to allow
ease of parking as well as turning and backing in and out without interfering with
consumers who are entering and exiting the site. The shape of the site also can
affect accessibility. The wider the site, the greater the exposure to passing traffic,
thereby increasing consumer's awareness of the retailer's location and activities.
Finally, a site should be deep enough to allow ease of entry without interference
from exitiIl~ traffic or other onsite traffic activities.

THE METHODS OF SITE EVALUATION

Experts and analysts have at their disposal several methods to evaluate retail
site alternatives. These are broadly classified as subjective and objective. Again
some are quite simple and some are sophisticated. It suffices to take two most
commonly used methods namely, checklist method and quantitative methods.
I. Checklist Method

It provides an evaluator with a set of procedural steps for arriving at a

35
subjective yet quantitative expression of a sites value. First, the evaluator
enumerates the general factors that are usually considered in any site evaluation.
A typical list of factors includes all or most of the site-evaluation principles~
interruption, cumulative attraction, compatibility and accessibility. Secondly, for
each general factor, the evaluator identifies several attribute measurements that
reflect the location needs of the proposed operation. For instance, interception
which is a key location attribute for most convenience retailers, can be divided
into the volume and quality of vehicular and pedestrian traffic. Thirdly, each
location attribute receives a subjective weight based on its relative importance to a
particular type of retailer. A common weightage system assigns '3' to very
important, '2' to moderately important and "I" to slightly important and '0' to
unimportant attributes. Fourthly, the evaluator is to go ahead with rating of each
alternative in terms of such each location attribute. Any number of rating scales
can be constructed; one possible scale might be ranging from say 01 to 10, with
01 as very poor and 10 as highly superior. To illustrate, a site alternative located
on a major thoroughfare with a high volume of traffic throughout the day be rated
a 09 or 10 ; another site alternative located on a traffic artery featured by high
volumes of traffic only during morning and evening rush hours could be rated as a
05 or 06. Fifthly, evaluator should go ahead with calculating weighted rating for
each attribute for each site alternative. The weighted rating is obtained by
multiplying each attribute rating by its weight. Sixthly, the weighted ratings for all
attributes are added to produce an overall rating of each site alternative. Seventhly
and finally, the last steps is to rank all the evaluated alternative sites in order to
know their overall ratings and to select the one with the highest.
This check-list method has the special advantages: (1) It is easy to understand
(2) It is simple to construct (3) It is easy to interprete.

II. Quantitative Methods

Several quantitative models can be used to evaluate retailer's site.

36
The most commonly used are two, namely, analog Models and Regression
Analysis.
(1) Analog Models. Analog Models are used to make sales projections for a
new stores based on the sales performance of existing stores. A chain retailer
can approach the evaluation problem by finding the best 'match' between the
site characteristics of a new site alternatives and those of successful existing
site. This matching process is usually quantified into a statistical model. The
only advantage of these analog models are the ease of implementation.
However, analog model methodology suffers from two significant
disadvantages: (1) The results are dependent on the particular store chosen as
analogs and therefore, rely heavily on the analyst's ability to make judicious
selection of the analogous stores. (2) The method does not directly consider
the competitive environment in evaluating the sites. The competitive situation
is brought into consideration only through the selection of analog stores.

(2) Regression Models. Regression models are more rigorous approach to the
problem of site location. Therefore, they offer certain advantages over checklist
and a log approaches. (1) A regression model allows systematic consideration of
both trading area and factors as well as site-specific elements in a single frame-
work (2) The regression models allow. the analyst to identify the factors that are
associated with various kinds of revenues from stores at different sites. Following
is one such basic multiple regression model for analysing the determinants of
retail performance is expressed as a linear function of location (L), Store attributes
(S), market attributes (M), price (P), and competition (C) :
Y = f (L, S, M, P, C)
THE SITE SELECTION PROCESS
The final selection of a retail site is essentially a process of elimination.
By analysing the regional and local markets, assessing retail-trading areas and
appraising retail site locations, the range of choices has been narrowed to site
alternatives consistent with the firms objectives, operations and the further

37
expectations. In case markets, trading areas and sites have all been carefully
evaluated, the retailer should be able to arrive at the final location decision.
Normally, the retailer will not select the optimal location but rather a compromise
location that has most of the desirable attributes. The very best location need not
have all ideal attributes in toto.
That is in the end, no steps, procedures, or models can totally quantity the
final site selection process. However, the data generated and analysis completed in
market trading area and site evaluations, the retailer has the sufficient information
to make a good site selection. In other words, to appraise retail site locations, the
location analyst must determine each site's ability to interact with the trading area.
Then the retailer's problem is to how he is going to identify, evaluate and select a
good site location. Essentially, the task of site selection becomes one of selecting
the best location from several acceptable alternatives.

MERCHANDISE PLANNING AND CONTROLLING

BACKGROUND

As noted in earlier chapters, the retailers problem to how to find the "right
blend" of marketing ingredients that satisfy the needs of the target market. The
"right blend" is the best combination of the right product, at the right time, in the
right quantities, at right prices with right appeal. This takes us to the detailed
study of the merchandising process which is to do with developing the right
merchandise-mix, securing the merchandise mix and managing the merchandise-
mix, which means merchandise planning and control processes. This chapter
concentrates on planning and controlling of merchandise after briefly explaining
the process of merchandising. The chapter ends with chapter summary and
chapter based questions.

38
WHAT IS MERCHANDISING PROCESS?

We know that as consumers patronise a particular retail store for many

different reasons, its convenient location, friendly personnel, desirable prices,
pleasant shopping atmosphere, credit facilities, door deliveries, refund for
defectives and so on.
Merchandising is a process involving developing, securing and managing the
merchandise mix to meet the firm's marketing objectives. The merchandisemix
stands for the retailer's total offering, be it goods or services or both. The
merchandising process is a three tier structural set of activities. The following
configuration gives the idea of merchandising process.
The first stage or tier is to do with developing the merchandise-mix which is
composed of two elements namely product and service-mix. The second stage or
tier is securing the merchandise-mix which involves two highly skillful and
specialised activities namely the buying process and the procurement process.
Here, the retailer determines "from where", "when" and "how" to get products
into the stores. The third and the final stage or tier in the merchandising process is
managing the merchandising-mix which is to do with planning and controlling the
merchandise to ensure efficient, profitable operations. Since we are concerned
with planning and control of merchandise. In effect, it is management of
merchandise-both starting and ending functions namely planing and control-the
alpha and omega functions of management process.

DEVELOPING THE MERCHANDISE MIX

THE MERCHANDISE PLANNING
Merchandise planning consists of establishing objectives and devising plans for
obtaining those objectives. The planning process normally includes both rupee
planning in terms of merchandise budgets and unit planning in terms of
merchandise lists. The overall objective of merchandise planning is to satisfy both

39
the customer's merchandise needs and the retailer's financial requirements. To
attain that objective, the retailer must devise merchandise plans that create an
acceptable balance between the merchandise inventories and sales. This inventory
to sales balance requires the retailer to plan each merchandise category carefully
regarding (1) Inventory investment (2) Inventory assortment and (3) Inventory
support. "Inventory investment" involves planning the total rupee investment in
merchandise so that the firm can retire its financial objectives. "Inventory
assortment" is a planning the number of different product items such as brand,
style, size, colour, material, and price combinations that retailer should stock
within the particular product line and determining whether this assortment is
adequate to meet the merchandise selection needs of the firm's targeted
consumers. "Inventory support" refers to planning the number of units the retailer
should have on hand for each product item to meet the sales estimates. For
instance stocking· 1,000 six packs of Coca-Cola in the 12 ounce can. By carefully
planning the investment, assortment and support aspects of merchandise
inventori~s, the retailer can take a major step toward merchandising objective of
"Customer satisfaction at a profit,"
The following configuration makes the merchandise planning process very
clear. One should go through it to have a clear-cut picture of merchandise
planning process.
I. RUPEE PLANNING:
MERCHANDISE BUDGETS A. Planning Sales
Annual Sales Estimates Monthly Sales Estimates
B. Planning Stock Levels Basic Stock Method Percentage-Variation
Method
Weeks Supply Method Stock to Sales-ratio Method
C. Planning Reductions
D. Planning Purchases
E. Planning Profit Margins

40
IT .UNIT PLANNING :
MERCHANDISE LISTS A. Basic Stock List

B. Model Stock List

C. Never-out List

Both rupee and unit planning are essential if the retailer expects to balance
INVENTORY INVESTMENT, ASSORTMENT AND SUPPORT. Inventory
investment is the focus for rupee planning and unit planning spotlights on the
retailer's inventory assortment and support.
I. RUPEE PLANNING

Rupee planning is largely a financial management tool that retailers use to

plan the amount of total value, rupees, inventory they should carry. In other words,
it answers the inventory question of how much the retailer

should invest in merchandise during any specified period. Rupee planning is

accomplished through a merchandise budget-a financial plan for managing
merchandise inventory investments. Preparing a merchandise budget has five
stages to be moved namely: (1) Planning sales, (2) Planning stock levels, (3)
Planning Reductions, (4) Planning purchases and (5) Planning Profit Margins.
1. Planning Sales
The starting point in developing the merchandise budget is sales planning.
It is of crucial importance to remember that accurate forecast of future sales is the
solid foundation for scientific and accurate sales planning; if anything goes wrong
in this initial stage the entire exercise goes fut. That, all the dimension of
merchandise budget start yielding wrong results. To make the work easy in case
of merchandising planning and preparing the merchandise budget, majority of
retailers use a form that summarizes the basic budgetary information for a given

41
 merchandise grouping during a specified period normally for a period of six
months. Following is the model of this form of merchandise budget for a period of
six months. This gives, all the details such as sales, stock levels, reductions,
purchases and initial mark up percentage
SIX MONTH MERCHANDISE BUDGET
Date: ......... Department: ............
Oct. Nov. Dec. Jan. Feb. Mar. Total
Last year
Sales Planned
Adjusted
Actual
BOM Last year
Stock Planned
Levels Adjusted
Actual
Last year
Reductions Planned
Adjusted
Actual
Last year
Purchases Planned
Adjusted
Actual
Initial
Mark up
Percentage

where = BOM = Beginning of month stock = Monthly

opening inventory.

The retailer must select the control unit for which projections will be made,
before making sales estimates. The "control unit" is the merchandising grouping
that serves as the basic reporting unit for various types of information namely,
past, present and future. The retailer has the choice to estimate future sales for an

42
entire store, for a merchandise division or department, or for an individual
product-line or item. The most three acceptable control units can be merchandise
groups, merchandise classes and merchandise categories of all these three,
experts recommend merchandise categories as the basic control unit as it is
generally much easier to aggregate the information than it is to disaggregate
information, i.e., breaking down merchandise groups into classes and categories.
This attempt increases the accuracy in estimating future sales and to get greater
degree of control throughout the entire budgetary process. This first stage of sales
planning involves two types of estimates namely annual and monthly.
Annual Sales Estimates
A thorough examination of retailer's past sales records is the alpha point for
making sales forecasts for each merchandise category-better known as control
unit. By plotting the actual sales forecasts for each control unit over the last few
years, the retailer can identify part sales patterns and gain some insight into
possible future sales trends. This approach to sales estimates is generally referred
to as time series forecasting .. It represents a simple, inexpensive and used
method for getting reasonably reliable estimates of sales in the near future. Time-
series forecasting is generally quite appropriate for staple merchandise,
somewhat less appropriate for fashionable merchandise and totally inappropriate
for faddish merchandise.

Methods of Sales Estimating

Annual sales for each merchandise category are estimated largely by means
of judgment or qualitative methods. Two such methods are namely, Fixed and
Variable Adjustment Procedures.
A. Fixed Adjustment Method. Under this method, the retailer adjusts last
year's sales by some fixed percentage to estimate the coming years sales. The
direction i.e., plus or minus and the size i.e., the exact percentage of the
adjustment are based on the retailers part sales experience with each merchandise

43
 category. Fixed adjustment method usually works reasonably well in the
estimating future sales if a clear and stable sales trend has been established.
However, when the part sales pattern are erratic. a fixed percentage adjustment is
inappropriate.
B. Variable Adjustment Method. Under this method, the sales
estimating starts with an examination of the past sales history of the merchandise
category. Based on the sales history, the forecaster determines a percentage
change that appears quite reasonable. The figure is then adjusted upward or
downward by a degree that depends on the nature of the merchandise and its
exposure and sensitivity to environmental influences. To make these adjustments,
the retailer takes into account the external and internal environmental factors. The
external environmental factors are: (a) general prosperity of local and national
markets (b) rate of inflation (c) chances for recess nary developments (d)
discernible trends say growth or decline in the size of the target population (e)
changes in the demographic make-up of the population if) developing legal and
social restrictions (g) changing pattems of competition and (h) changing
consumer preferences and life styles. The internal factors to be considered while
adjusting the sales estimates include (a) changes in the amount and location of
shelf or floor space devoted to the merchandise category (b) changes in the
amount and type of planned promotional support and (c) changes in basic
operating policies say, longer store hours or higher level of service.
In short, the annual sales estimate for a particular merchandise category
equals the previous years sales plus or minus a fixed or variable percentage
adjustment. The adjustment factor is a fine blend of forecaster's judgement,
experience and analytical skill.
Monthly Sales Estimates

Retail planning periods typically are based on one month or several month
periods. For example, some retailers estimate sales for products for the three
month winter season or six month rainy and winter season. The best operational

44
estimate for budgetary planning purposes is monthly sales estimates. Estimating
monthly sales involves three steps namely (1) Making annual sales estimates (2)
Determining estimated monthly sales and (3) Adjusting monthly sales estimates
using monthly sales index. The following box clearly gives the estimation of
monthly sales.

Once the monthly sales index is calculated, it can be used to adjust the future
or estimated annual and average monthly sales to obtain the planned monthly
sales.
2. Planning of Stock Levels

The second stage in developing a merchandise budget involves planning

appropriate stock levels for a specific sales period. The retailers stock plan ideally
should (a) meet the sales expectations, (b) avoid stock-out-conditions (c) guard
against overstocking and (d) keep inventory investment at an acceptable level.
Though it is virtually impossible to have a merchandise plan that tries to achieve
all four goals at a time, experts have developed four methods that help the retailer
in planning stock requirements. These methods are: Basic Stock Method. The
Percentage Variation Method, The Weeks Supply Method and the Stock/Sale
Ratio Method.

The Basic Stock Method

The basic stock method is designed to meet sales expectations and avoid out-
of-stock-conditions by beginning each month with the stock levels that equal the
estimated sales for the month plus an additional basic stock amount that serves as
a 'cushion' or 'safety' or 'buffer' stock in the event that the actual sales exceed
estimated sales. The safety stock also protects the retailer against stockouts if
future shipments of merchandise are delayed to arrive damaged and must be
returned to the vendor. On negative side. safety stock means a dead investment

45
involving stock carrying costs. Retailers use the basic stock method to ensure
minimum stock levels for particular merchandise category. In general, retailers
who operate stores and departments with low inventory turnover are most likely to
use this method.
The basic stock method inv6lves calculating the beginning of month stock
'BOM Stock' or opening stock for the month of the sales period. This BOM stock
is computed by adding a basic amount to each of the planned monthly sales as
determined in the sales planning stage of the budgetary process. The following
statement explains the same in the form of a frame.

Sales Period Planned BOM Stock

Sales Monthly Using Basic
Period Sales (Rs.) Stock Method (Rs.)

October 94,500 2,29,500

Novembe 2,71,500 4,06,500
Decembe
r 4,44,000 5,79,000
Total 8,10,000 -
Calculations
Average sales for each month:
Rs. 8,10,000 +3 = Rs.2,70,000.

Average stock for three months:

= Total sales + 2 = 8,10,000 + 2 = 4,05,000 Basic stock = Average stock =
Average sales = Rs. 4,05,000 - Rs. 2,70,000 = Rs. 1,35,000
BOM stock for October:
Let us take a basic stock: 1,35,000 :. BOM for the
month
= Planned monthly sales + Basic stock

46
 = Rs. 94,500 + Rs. 1,35,000 = Rs. 2,29,500 For Nov. = Rs.
2,91,500 + 1,35,000 = Rs. 4,06,500 For Dec.= Rs. 4,44,000 +
1,35,000 = Rs. 5,79,000
The Percentage Variation Method

The percentage variation method uses a procedure that attempts to adjust the
stock levels is accordance with actual variations in sales. BOM stock is increased
or decreased from average stock for the sales period by 0.5 percentage of varation
in planned monthly sales for that month from the average monthly sales for the
sales period .
Accordingly 80M stock for October will be :
December:
Rs. 4,05,000 x t (1 + ~:~::) = Rs. 5,35,500

Planned BOM stock

Sale. Period Monthly Sales Using Percentage
Rs. Variation Method (Rs.)
October 94,500 2,73,375
November 2,71,500 4,06,125
December 4,44,000 5,35,500
Total 8,10,000 -

The Weeks Supply Method

The weeks supply method is a stock plan that determines stock-levels in

direct proportion to sales. As a mean to plan stocks on a weekly basis, this method
uses a desired annual stock turnover rate to establish the amount of stock
necessary to cover a predetermined number of weeks.
Let us assume a retailer with STR of 8, is interested in finding BOM stock for
month of October where his annual weekly sales are Rs. 18,00,000. Then, the
BOM stock for October will be:
BOM Stock = Average weekly sales x 6.5 weeks
.. Average weekly stock

47
 = Annual sales + weeks = Rs. 18,00,000
+ 52
= Rs. 34,615.38
:. Number of weeks to be stocked
= Annual Weeks + STR
= 52 weeks + 8 = 6.5 weeks
.. BOM stock = Rs. 34615.38 x 6.5 weeks
= Rs. 2,24,999.97
= Rs. 2,25,000 (Rounded)
However, the principal limitation of this method is that during the weeks a
slow stock turn i.e. below the annual rate, there will be an excessive accumulation
of stock. Therefore, this method is most appropriate for those retailers whose
merchandise. categories show stable sales and stable stock turnover rates.

The Stock/Sales Ratio Methods

The stock/sales ratio method is yet an another method used by the retailers to
determine BOM levels. The assumption behind this method is that retailer
should maintain a certain ratio of goods on hand to planned monthly sales. For
instance, this ratio can be say 2 : 1 or 3 : 1 or any other appropriate relationship.
A stock/sales. ratio of 2 : 1 means the planned sales monthly of say Rs. 50,000
would require Rs. 1,00,000 of stock. The key to use this method is finding the
dependable stock/sales ratio, for which the best source is the retailer's own past
records-provided that it has been kept in sufficient detail over a reasonable
length of time.
The formula to arrive at BOM stock for the month :
= Planned monthly sales x Stock to sales ratio.
Taking a stock/sales ratio as 2 : 1 as desirable and planned sales for
October month are Rs. 94,500, the BOM stock for October will be :
2
Rs. 94,500 x T = Rs. 1,89,000

48
 By same takes BOM stock~ for the month of November and December will
be as under provided planned sales are Rs. 2,71,500 and Rs. 4,44,000 are
respective figures for the said months :
BOM stock for the month of November :
2
= Rs. 2,71,500 x T = Rs. 5,43,000
BOM stock for the month of December:
2
= Rs. 4,44,000 x T = Rs. 8,88,000
3. Planning Reductions

This is the third very significant stage in developing the merchandise budget
namely planning of reductions. "Retail reductions" are the difference between
the merchandise item's original retail value and its actual final sales value. This
difference is the result of three major factors namely, mark-downs, discounts and
shortages. "Mark downs" are the reductions in the original retail price for the
purpose of stimulating the sale of merchandise. The amount of markdown can
vary considerably depending on the type of merchandise and the condition under
which it is sold. "Discounts" are reduction in the original retail price that are
granted to store employees as special fringe benefits and to special customers in
recognition of their special status say senior citizens, disadvantaged customers
and religious personalities like clergy, priests, and so on. "Shortages" are the
reductions in the total value of the retailer's inventory as a result of shoplifting,
pilferage and merchandise being damaged and misplaced.

In a ready-made garments department shop a typical percentages for each

product category might be, for mark downs, discounts and shortage as under:

Product Mark Stock shortage

Discount %
Category downs % %

49
Female apparel 26.30 1.00 2.70
Mens apparel 21.30 1.60 2.10
Children's apparel 22.20 2.00 1.80
Home furnishings 14.40 1.10 1.50
Female accessories 13.50 1.20 3.30
Men's accessories 22.30 2.10 1.10
Children's accessories 23.40 1.00 1.60
Other merchandise 13.60 L80 2.60

There are several reasons as to why the retailer is to plan for reductions.
The major one are : (1) The major purpose of the merchandise budget is to outline
the retailer's total rupee investment in the form of inventory. Therefore, any
occurrences that might reduce the value of that inventory should be accounted for
to give the retailer an accurate inventory investment picture (2) The merchandise
budget calls for an estimate of stock levels in rupee amounts. Without reductions
planning the retailer's proposed stock levels might be inadequate to meet expected
sales levels (3) Reductions planning is necessary if the retailer is to plan future
operations or purchases accurately. Estimating reductions is the key input into the
planned purchases formulae.
Planning reduction essentially involves making a percentage-of-sale rupee
estimate for each of the three major reduction factors namely mark downs,
discounts, and shortages. These percentage estimates are made on the basis of part
experience of got from trade sources. To be consistent with sales and stock level
planning, reduction estimates should be made in retail rupees on a monthly basis
for a particular merchandise category. Taking the earlier situation, if a retailers
merchandise category experienced mark downs of 6 per cent and discounts and
shortages averaged say 1.50 per cent and 2.50 per cent, respectively then the total
planned reductions for October would be 10 per cent of planned monthly sales of
rupees 4950 (10 per cent of Rs. 49500). Having determined a monthly estimate of
reductions, the retailer proceeds to plan the purchases.
4. PLANNING PURCHASES

50
 Planning the purchases is the fourth stage in developing a merchandise
budget. In this stage, the retailer plans the rupee amount of merchandise that must
be purchased for a given period of time-a month or a season-in view of planned
sales and reductions for that period as the planned stock levels at the beginning of
the period and the desired stock levels at the end of the period. It goes without
saying that the ending stock of this month will be opening stock of next month.
The format for calculating planned purchases for a monthly planning period will
be as under.
Planned monthly purchases = Planned monthly sales + Planned monthly
reductions + Desired stock at the end of the month -
Planned stock at the beginning of the month.
Let us take the previous case of October, November and December months:
On the basis of the facts: (1) Monthly planned sales Rs. 94,500, Rs. 2,71,500 and
Rs. 4,44,000 respectively for the months of October, November and December.
(2) Monthly planned reductions of 10 per cent of planned sales (3) The desired
month and stock Rs. 4,05.000 for October which will be the opening stock for the
month of November (4) Planned opening stock of Rs. 2,25,000 for the October :
Therefore by using the given formula planned purchase for the month of October
will be :
Planned monthly sales Rs. 94,500 + Planned monthly reduction Rs. 10 per
cent Rs. 9,450 + desired stock at the end of the month. Rs. 4,06,500 stock at the
beginning of the month Rs. 2,29,500 = planned purchases of Rs. 2,80,950 = Rs.
94,500 + Rs. 9,450 + Rs. 4,06,500 - Rs. 2,29,500 = Rs. 2,80,950.
The planned monthly purchase value represents the retailer's additional
merchandise need for that month- how much merchandise must be purchased and
made available during that month. However, retailer should make these purchases.
The living purchases depend on a number of internal and external conditions.

5. Planning Profit Margins

51
 A very important dimension of merchandise budget is to allow for reasonable
profit by ensuring an adequate gross margin. The gross margins the difference
between cost of goods sold and net sales. An adequate gross margin in rupee terms
is essential to cover operating expenses associated with buying, stocking and
selling the merchandise and to produce an acceptable operating profit. The margin
depends on type of merchandise category and the retailer's desired or expected
margin. The procedure to calculate the gross margin and operating profit can be :
Net Sales Rs ...........
Less: Cost of goods sold Rs ...........
Gross Margin Rs ...........
Less: Operating Exp.
Administrative }
Financial .......................
Selling+ Distribution Operating Profit. .

Generally retailers attempt achieve an adequate gross margin and operating

profit by planning an initial makeup percentage-the percentage difference between
the cost of merchandise and its original retail price-that will cover expenses,
profits and reductions. The formula for calculating
the initial markup percentage can be :
Desired Markup Percentage

Expenses + Profits + Reductions

= Sales + Reductions
Let us say estimated annual sales are amounting to Rs. 18,00,000,
reductions are 10 per cent of sales and the anticipated expenses are 20 per cent
of sales. The retailer wants earn say 12 per cent profit on sales. The
" initial markup percentage can be calculated as :
Required initial Markup percentage

52
 % Exp. + % Profits + % Reductions
Sales + % Reductions
= 20 % + 12 % + 10 % x 100
100 % + 12 %
= 38.18% = 38.20.

Alternatively,
Required initial markup percentage
Rs. 3,60,000 + Rs. 2,16,000 + Rs. 1,80,000 Rs.
18,00,000 + Rs. 1,80,000
= Rs.7,56,000 x 100 = 38.18
Rs. 19,80,000
= 38.20 (Rounded)

This required initial markup percentage represents an overall average for a

merchandise category. As long as this category average is maintained, the actual
markup on any individual merchandise item can vary from the average to adjust to
different demand conditions, competitive circumstances and other external and
internal merchandising factors.
To sum up, the merchandise budget is the sequential rupee planning
of sales, stock levels, reductions, purchases and profit margins. Thus, the retailer
develops a blue print of what must be attained to realise a desired profit and other
financial goals by carefully planning the rupee investment is merchandise
inventory. The retailer's merchandise budget also sets the financial standards
against which to measure actual performance.

II. UNIT PLANNING

Unit planning is an operational management tool to plan the merchandise

53
 assortment and support. It is directed at determining the amount of inventory the
retailer should carry by items and by units and answers the inventory questions of
how many product items or assortment and how many units of each items or
support to stock. The process of unit planning involves the use of several
merchandise lists which constitute a set of operational plans for managing the
total selection of merchandise. Based on the type of merchandise, the retailer
carries, one or more of the following three merchandise lists, will apply namely,
Basic Stock list. Model stock list and Never-out list.
, These merchandise lists represent essentially the 'ideal' stock for meeting the
consumer's merchandise needs in terms of assortment and support.
Basic Stock List

The "basic stock list" is a planning instrument retailers use to determine the
assortment and support for staple merchandise. 'Staples' are product items for
which sales are either very stable or highly variable but predictable. In either
case, estimates of the required assortment of merchandise items and the number
of support units for each item can be made with a relatively high degree of
accuracy. Thus, in planning for staple merchandise, the retailer can develop a
very specific stocking plan. The basic stock list is a schedule or listing of "stock
keeping units" (SKU) for staple merchandise. A "stockkeeping unit" is a
merchandise category for which separate records (both sales and stock) are
maintained. A 'SKU' can consist of a single merchandise item or group of items.
The basic stock list usually identifies each SKU in precise terms. A retailer can
use the following product features to distinguish clearly a SKU of staple
merchandise: (a) Brand name (b) Style or Model number (c) Product or Package
size (d) Product color or Material (e) Retail price or cost price of the product if)
Manufacturer's Name and Identification number. In addition to a complete listing
of SKUs. the basic stock list also contains a detailed description of the stock
position for each SKU by stock levels-merchandise support or total number of
units. This description of stock support normally identifies (a) a minimum stock

54
 level to be on hand (b) actual stock on hand (c) amount of stock on order (d)
planned sales and (e) actual sales. Stock support information is recorded on a
standardised form at regular and frequent intervals say monthly, quarterly.
The significance of carefully maintaining a basic stock list can not be
overstated. Majority of merchandise departments, including those that are fashion
oriented contain at least some product items that are basic staples. The simple
fact that consumers expect an adequate supply of staple merchandise makes it all
the more significant to have an adequate supply. Good many staple items have no
totally satisfactory substitutes for many consumers a stock-out of a particular
staple forces the consumer to look elsewhere for the item. Budgeting unable to
meet the consumer's need for a basic staple, the retailer not only loses the sale but
also damages the store's assortment image and strains the customer's goodwill.
Additionally, the customer, in the process of looking elsewhere, might decide to
switch to a competitor whose stock of staples is well maintained.
Model Stock List
Stock planning for fashion merchandise is accomplished through use of the
"Model stock list." It is a schedule or listing of SKUs for fashion merchandise.
The model stock-list differs from the basic stock list because it defines each
SKU in general than precise terms. The common criteria in identifying a model
SKU are general price lines. The examples may be :
"Better Presses" at Rs. 100, Rs. 150. and Rs. 200 per shirt; moderate dresses at
Rs. 40, Rs. 60, and Rs. 80; distribution sizes say 8-10-12-14 and 16; certain
basic colures-black cocktail dresses or navy blue dresses; general style features,
long or short sleeves dresses, crew neck-v-neck and turtleneck sweaters: product
materials. Wool cotton-polyester dresses. The more general character of each
SKU is a model stock plan reflects the transience of fashion merchandise, which
represents only the currently prevailing style. The likelihood of style changes
within a short period and the high probability that market demand will fluctuate
considerably, within any selling season require a more general approach to stock

55
planning. In essence, the model stock, list provides general guidelines on the
size and composition of an ideal stock of fashion merchandise, without
specifying the exact nature of the merchandise assortment or support. The form
used to plan the model stock list differs somewhat from the basic stock list form.

Never-out List
The "Never-out list" is a specially created list of merchandise items that are
identified as key items or best sellers for which the retailer wants extra
protection against the possibility of a stock out. As a result of the high level of
demand for these items, many retailers establish rigid stock requirements. For
instance, a retailer might specify that 99 per cent of all items on the never-out
list must be on hand and on display at all times. Stockouts of these key items
result in a permanent loss of sales. Typically, the consumer simply will not wait
to purchase best-sellers. Never-out lists can include fast-selling staples, key
seasonal items, and best selling fashion merchandise. The integrity of the never-
out list is preserved thoroughly through regular and frequent revision. The
significance of the never-out list is underscored by the fact that many chain units
expect individual store managers to have a near-perfect record in maintaining
the stock levels for merchandise as the list. Even a moderate number of
stockouts of merchandise on the list is considered an indication of poor
management.
In a nutshell merchandise planning process consists of rupee planning and
unit planning, the former speaks of merchandise plan in rupee form
while the latter in number units.
I MERCHANDISING CONTROL \ WHAT IS
MERCHANDISING CONTROL?
Merchandise control is the process of designing and maintaining inventory
system for controlling the planned balance between inventory and sales. That is
inventory control provides the necessary parameters to the planning process.
The merchandise control is a system made up' of two sub-systems namely,

56
"Inventory Information system" and 'Inventory Analysis system'. The following
configuration ' gives a very clear picture about the merchandising control
system. As a part of retail management, it is the counterpart of planning and to
do with the product ' component of retail mix or blend.

RETAIL- MIX MANAGEMENT

PLACE PRODUCT PRICE PROMOTION

THE MERCHANDISE CONTROL PROCESS

I II
Inventory Information Inventory – Analysis
System System
A. Inventory Information A. Stock Turnover
1. Kinds of Information 1. Benefits
2. Sources of information 2. Limitation
B. Inventory Systems B. Return on Inventory

57
 1. Rupee/ perpetual/book Investment
2. Rupee/ periodic/ physical C. Open to buy
3. Unit/ perpetual/ book 1. Rupee open to buy
4. Unit/ periodic/ physical 2. Unit open to buy
C. Inventory Valuation
1. Cost method
2. Retail method

Inventory Information System

Inventory information system is the set of methods and procedures for

collecting and processing merchandise data pertinent to the planning and control
merchandise inventories. Retailers must have an efficient and effective means of
obtaining information on inventories past and present status to control their
inventories. An adequate and updated information system is a prerequisite to
planning and controlling future merchandising activities. When we turn to
inventory information’s, system one must know inventory information, inventory
systems and inventory valuation.
A. Inventory Information

One knows as to what information stands for it signifies an evaluated data,

data symbols, usually numbers, used to represent things. Information is any
perceived or recorded fact, opinion or thought. Data becomes information as it has
meaning and implications. Information means relevant data that helps managers to
reduce uncertainty. Therefore, inventory information is inventory data that helps
in inventory decision making.
1. Kinds of Information
Merchandise investment and merchandise assortment and support are the
principal elements the retailer wants to control. To complement the merchandise
planning, the retailer's inventory'-information system must be capable of
providing both rupee control and unit control. Rupee control considers the value

58
of the merchandise and attempts to identify rupee amount of investment in
merchandise. Rupee control warrants the retailer to collect. record and analyse
merchandise data in terms of rupees. On the other hand, unit control deals not
with rupees but with the number of different product items or assortment and the
number of units stocked within each item or support. It is the number of physical
units say, sales, purchases and stock levels recorded and analysed. Both rupee
and unit control are essential for the retailer who needs investment information
for profit control and assortment information for stock control.
2. Sources of Information
The retailer's source of inventory information is the inventory system itself.
However inventory systems differ widely depending on when- perpetual or
periodic-inventory is taken and how book or physical-it is taken. Based-on these
two factors of 'when' and 'how', the inventory procedures can be classified as
either perpetual book inventory systems or periodic physical inventory systems.
A 'periodic book inventory' is a system of inventory taking and Information
gathering on a continuous or ongoing basis using various accounting records
to compute stock on hand at any given time. The purchase sales and mark
down figures needed to calculate stock on hand are derived from internal
accounting records that must be kept current if computed book inventory is
to correctly reflect the retailer's true stock position. In short, perpetual book
inventory represents an up-to minute, day or week accounting system in
which all the transactions that affect inventory are considered as they occur
or shortly thereafter. The major merit of this system is the retailer
determines stock on hand as required by operating conditions and the need
for inventory information.
A 'Periodic physical inventory' is the system of gathering information
intermittently say, once or twice a year, using an actual physical count and
inspection of the merchandise items to compute sales for the period since the
last physical inventory. The serious limitations of periodic physical

59
 inventory system are that it is time consuming as it involves physical stock
taking and physical verification is must to decide income tax payable. It also
identifies stock shortages, which is a postmortem analysis. However, small
retailer has no option than go in ,for this as sophisticated methods beyond
his means and needs ..
B. Inventory Systems

The major types of inventory-information systems used in merchandise

control are: (1) Rupee Perpetual/Book (2) Rupee Periodic/Physical (3) Unit
perpetual book and (4) Unit/periodic/physical. These are based on the kinds of
information the retailer needs and the methods and sources for obtaining the
information. Let us note these in brief.
1. Rupee/Perpetual/Book System

Rupee control using a rupee/perpetual/book inventory system provides the

retailer with continuous information on the amount of inventory-rupees that
should be on hand at a given time. The amount of stock is arrived at by using the
formula:
Rupee Stock on Hand at end = Rupees stock at the beginning
+ purchases - sales + mark downs.
2. Rupee/Periodic/Physical System

A rupee/periodic/physical inventory system for rupee control provides - the

retailer with periodic information on the amount of inventory-rupee-actually on
hand at a given time. The formula used to arrive at end stock is :
Rupee Stock at close = Rupee stock at commencement
+ purchases sales + mark down.
3. Unit/Perpetual/Book System

A perpetual book inventory system for unit control-involves continuous

recording of all transactions-number units purchased and sold which changes the
unit status of the retailer's 'merchandise inventory. The formula used is :

60
 Unit Stock end = Unit stock at commencement + purchase
- units sold
There can be two ways of maintaining this recording namely manual and
automatic.

4. Unit/Periodic/Physical System

Unit control also can be achieved by making a periodic physical check on the
status of the retailers inventory. The formula used to calculate the stock at end is :
Unit Stock at close = Unit stock at commencement
+ Purchases - sales and shortages

C. Inventory Valuation
Finding the actual worth of inventory on hand is the major concern of every
retailer. Valuation stock on hand affects his financial statements , Particularly
income statement and the balance sheet and the financial results correct valuation
of inventory is also an element of sound financial planning and control. Retailers
use different methods to value the stock on hand namely, Cost and Retail Price
method. Let us note these two.
1. The Cost Method
Generally small retailers prefer to use cost method of inventory valuation
method because of its simplicity, ease and cost. The retailer values merchandise
inventory at the original cost to the store each time physical inventory is taken.
When one talks of cost method, one can think of FIFO and LIFO. Over a period
of say one month or for that matter a year, there will be several consignments
purchased at different prices. The price trend may be rising or falling or both
rising and falling. This creates an interesting case. Let us take two cases of rising
prices and falling prices for a month to illustrate how the profits or business
results are influenced by adopting these alternative methods and Rising and
Falling price trends: Problem: (Rising Price Trend)

FIFO LIFO

61
 Date Particulars Inventory

Units Rs. Units Rs.

1.12.97 Opening Stock 100 1,000 100 1,000

5.13.97 Purchase 200 2,400 200 2,400

10.12.97 Purchase 300 4,200 300 4,200

20.12.97 Purchase 200 3,000 200 3,000

25.12.97 Purchase 100 2,000 100 2,000

31.12.97 Sales for the 800 17,600 800 17,600

month

Business Results
INCOMES STATEMENT
FOR THE MONTH ENDING 31-12-97

Particulars FIFO Rs. LIFO Particulars FIFO Rs. LIFO Rs.

Rs.
To Stock Opening 1,000 1,200 By Sales 17600 1,700
To Purchase 11,600 11,600 By Closing 2,000 1,200
Stock
To Gross Profit 7,000 6,000
Total 19,600 18,800 19,600 18,800

This is very clear that when price rising trend is there under FIFO shows
higher profits than in case of LIFO and opposite is equally true. Therefore, it is
better to employ while facing rising price trend LIFO to reduce the profit and
while falling prices FIFO to the firms advantage. However, Income tax
authorities do not accept this manipulation as it distorts the profit taxable.

62
2. The Retail Method

The retail method of inventory valuation allows the retailer to estimate the
cost value of an ending inventory for a particular accounting period without
taking a physical inventory. The retail method is essentially a book inventory
system whereby the cost value for each group of selected - merchandise is based
on its retail value or selling price. By determining the percentage relationship
between the total cost and the total retail value or sales price of the merchandise
available for sale during an accounting period, the retailer can obtain a reliable
estimate of the ending inventory value at cost. To use retail method, the retailer
must make the following calculations : (1) Total merchandise available for sale.
(2) The cost complement. (3) The total retail deductions and (4) The ending
inventory at retail and cost values. Let us take an illustration with figures :

1. Total Merchandise available for Sale

At Cost At Retail Price
Inventory at beginning 1,20,000 2,00000
Add Purchases 80000 140000
Add Markons - -
Add Freight charges 4000 -
Total Merchandise Available 2,04,000 3,42,000
2. Cost Complement. The cost complement is the average relationship of cost
to retail value for all merchandise available for sale during an accounting period.
In essence, it is the complement of the cumulative markup percentage The cost
complement is computed as follows :

Cost Value of Inventory

Cost Complement = ------------------------------- x 100
Retail Value of Inventory
Rs. 2,04,000
= -----------------x 100 = 59.65%
3,42,000

63
 That is, the retailers merchandise cost is, on the average, equal to 59.65 per
cent of the retail value of the merchandise.
3. Retail Deductions. The next step is to determine the total merchandise
available for sale. Retail reductions. include merchandise that has been sold, mark
down, discounts, stolen and lost. Total retail deductions are obtained by adding all
the deductions, reducing the retail value of the merchandise that was available for
sale. Continuing the .same above illustration.

Sales for the period - 1,60,000

Add markdowns - 30,000
Add Discounts - 10,000
Add shortages - 2,000
Total Retail Deductions = 2,02,000

4. Ending Inventory Value. This is the final step in implementing the retail
method. It is to do with determining the value of ending inventory at retail and at
cost.
The retail value of ending inventory i£ computed by deducting total retail
deductions from total merchandise available for sale at retail. Taking the relevant
figures:

Total Merchandise available at Retail value 3,42,000.00

Less total retail deductions 2,02,000.00
Ending inventory at Retail value 1,40,000.00
This figure of Rs. 83,510 is only an estimate of the true cost value of the
ending inventory. It is reliable enough to allow the retailer to calculate both cost
of goods sold and the gross margin for the accounting period. To
Demonstrate with above figures :

64
 Total merchandise available at retail at retail value - 2,04,000
Cost of goods sold - 83,510
Gross Margin - 1,20,490
Sales for the period - 39510
Sales for the period - 1,60,000
Majority of retailers use retail method because of good many merits : (1) It
makes him to think retail highlighting both cost and/retail values. (2) Results can
be ascertained as and retailers wants as ready figures are there. (3) It is time
reducing as it avoids physical stock taking. (4) It facilitates planning and control
on departmental basis-sales, purchases, inventories and so on. (5) Shortages are
located easily by providing book figures. (6) It facilitates planning of insurance
coverage and collecting insurance claims by providing up to date valuation of
inventory. The demerits are that the retailer (1) has to maintain elaborate and
Rs.
updated records and (2) to use the average to estimate the cost values.
2,04,00
0
II. INVENTORY ANALYSIS SYSTEM
83,510
Merchandise data collected and processed by the inventory-information
1,20,49
system can be used to evaluate past performances and to plan future actions; It is
0
imperative to note here that the inventory information is only useful, when it
39,510
provides the retailer with clear insights into past mistakes and with foresight for
future planning. These are two major methods to evaluate the retailers past
performance in controlling merchandise inventories namely, stock turnover ratio
and return on inventory investment. Again, rupee and unit open-to-buy methods
are the two of the more significant tools for controlling future merchandising
activities. Let us touch these four to complete inventory control process.
Stock Turnover Rate

Stock turnover rate is a rate at which the retailer depletes and replenishes his
stock of merchandise. It is the number of times during a specific periodusually one
year--that the average stock on hand is sold. The stock turnover rates can be

65
calculated in terms of rupees and units. Different formulae are used which are
given as under:

Rupee STR Net sales at retail value

(l) STR in Retail Value = ------------------------------
Average stock at retail value

Cost of goods sold

(2) STR in terms of Cost Average = ------------------------
Average at cost

Units sold .
STR in Units = ----------------
Average stock of Units

Let us take an illustration of River valley company Ltd. that fushshes

the following details for the year 1998 as under :
Units Retail Value Cost
Stock on 10,000 50,000 40,000
Stock on 12,000 72.000 57,600
Unit sold 1,08.000 6,48,000 5,18,400

(l)STR in Retail Value = Rs. 6,48,000

Rs.50,OOO + Rs. 72,000 2
= Rs.6,48,OOO 1062' times
Rs.61,OOO .
Rs. 5,18,400
2) STR at Cost = ----------------------
= 40,000 + Rs. 57,600
2

66
 = Rs. 5,18,400 = 10 .62 times
- Rs. 48,800 - .

Unit STR
1,08,000 Units
STR in Units =----------------------------- = 9.81 times
11,000 units
Note. The rate of STR should be same whether we take retail price or cost or
units provided both stocks opening and closing and sales are taken at same rate.
Here opening stock rate is different while closing and sales at different rate.
Therefore, the STR has worked out 9.81 times instead of 10.62 times.
The benefits of high stock turnover rate are: (a) Fresh merchandise. (b)
Lesser markdowns and depreciation. (c) Lower expenses of carrying and
procurement. (d) Greater sales and higher returns. Retailer can increase the STR
by carefully balancing the inventory investment for greater profit with inventory
assortment and support for adequate customer selection. The strategies to be
followed are: (a) Limit merchandise assortments to most popular brands, styles,
sizes, colors and price lines. (b) Reduce merchandise support by maintaining a
minimum reserve or safety. (c) Clear out slow moving stock through price
reductions. (d) Increase the promotional effort in an attempt to increase sales. The
limitations of high rate of stock turnover are : (l) It does not allows to take
advantage of quantity discounts. (2) It adds to the cost of transportation and
handling and (3) It increases accounting costs by processing too many orders.
Sometimes, it might lead another potential danger of losing sales because of
stockouts.

III. RETURN ON INVENTORY INVESTMENT

It goes without saying that merchandise assortments must be effective if the

retail store is to proper. An effective assortment is one that creates good financial

67
returns. Return on inventory investment is another method of evaluating past
performance in controlling the merchandise inventories. This also, is known as
gross margin return on inventory (GMROL). It is the ratio of gross margin rupees
to the average stock on hand. This ratio tells the retailer the rupee investment in
inventory needed to achieve a desired gross profit. Return on inventory
investment, essentially, concerns the relationship between stock turnover and
profitability. The significance of this ratio is

that it allows the retailer to evaluate past and future effects of turnover on a stores
profitability. The ways of calculating the return on inventory investment are:
1. Return on Inventory Investment
Gross Profit in Rupees 100
Average stock on hand in rupees (Retail) x 2. Return on Inventory Investment
Net Sales in Rupees
Average stock on hand in retail (rupees)
Let us take a case of Mis Tom Porn Ltd. who have provided the details for the
year 1998. Calculate ROI (GMROI)
Rs.
Net sales for the year 1998, 1,20,000
Opening inventory in retail 25,000
Closing inventory in retail 30,000
Gross profit in rupees 20,000
M = Gross Profit in Rupees
et 0 A k"1
verage stoc III retal rupees
= Rs. 25~2~'~30,OOO ~:O~~ = 0.7272697 = 0.73
2
Method II = Net Sale~ Rupe.es
Average stock 10 retaIl rupees

68
 Rs 1,20,000 Gross Profit
= -------- x -== -=...::...;;..;=
Rs 25,000 + Rs 30,000 Net sales
2

R Rs 1,20,000 Rs 20,000 ae =
----x----
27,500 Rs 1,20,000
= 4.363636 x 0.166666 = 0.7272697 = 0.73.

IV. OPEN TO BUY

Open to buy is one of the most significant tools for controlling the future
merchandise inventories. This helps the retailer to decide as to how much to buy.
In other words "open to buy" is the amount of new merchandise the retailer can
buy during a specific time period without exceeding the planned purchases for the
period. Alternatively open to buy represents the difference between what the
retailer plans to buy and what is has already bought planned purchases minus
purchase commitments. Open to buy applies to both rupee and unit control. To be
very precise, rupee open to buy sets a financial constraint on the retailers
activities, whereas-unit open-to-buy controls assortment and support in the buying
process. As a tool of control, it is very versatile because retailer can control
purchase activities on daily,

weekly or monthly basis. It also helps to control purchases of any classification or

sub-classification of merchandise. Further, it allows the retailer to allocate
purchases so stocks are maintained at predetermined levels by either the
merchandise budget or merchandise list. Let us know "rupee open to buy" and
unit-open to buy before we conclude merchandising control.
"Rupee Open to Buy"

69
 Rupee open to buy is used to determine the amount of money the retailer has
to spend for new merchandise at any given time. It can be calculated and recorded
at both retail and cost prices. To calculate rupee open to buy at retail prices for
any day of a monthly period, the buyer starts with planned monthly purchases and
subtracts purchases commitments already made during the month. To get rupee
open to buy at cost, the buyer simply multiplies open to buy at retail price by the
complement of the initial markup percentage. The formulae are :
Open to Buy at Retail Price
= Planned monthly sales + Planned monthly reductions + Desired
stock at close
= Total stock needs for the month - Stock at commencement -
Purchases at commencement.
Open to Buy at Cost Price
= Open to Buy at Retail price x 100% - Initial markup % To explain, let us take
an illustration of M/s Rosy and Cosy Ltd. which has provided the following
details.
The merchandise budget for the month of May 1997 reveals that planned
sales for the month Rs. 70,000 Reductions (shortages + markdowns Rs. 4,000).
The inventory records reveal that the store started the month with Rs. 60,000
worth of inventory and plans call for an ending inventory of rupees 50,000. A
review of the purchase orders indicates that the department has made purchase
commitments of Rs. 14,000 since the beginning of the month. Given the initial
markup of 50 per cent on retail, the buyer calculated the rupee open to buy to be
Rs. 50,000 at retail price and Rs. 25,000 at cost. These figures have been arrived
as under:
Open to Buy at Retail Price

= Rs. 70,000 + Rs. 4,000 + Rs. 50,000 - Rs. 60,000 -- Rs. 14,000

= Rs. 50,000
Open to Buy at Cost Price

70
 = Open to Buy at Retail Price x 100% - Initial markup %

= Rs. 50,000 x 100% - 50%

= Rs. 50,000 x 50% = Rs. 25,000.
"Unit Open to Buy"

For a retailer who is interested in unit control, unit open to buy is a successful
and necessary tool in preventing stock outs and overstocking.
Unit open-to buy is very often used to control inventories of staple
merchandise. This method readily lends itself to formal and systematic
procedures for reordering merchandise that has well established and predictable
sales trends. Unit open to buy calculations involve two steps namely, (1)
Determining the minimum inventory and (2) Computing the unit open to buy
quantity
Step One
Determining the Maximum Inventory
"Maximum inventory" is the number of merchandise units the retailer needs
to cover expected sales during and delivery periods plus a safety stock for either
unexpected sales or problems recurring the merchandise. The formula for
determining the maximum inventory is.
MAXIMUM INVENTORY = ROP + DP x Rate of Sales +
Safety stock.
Where, ROP = Reorder Period
DP = Delivery Period
RS = Rate of sales i.e. number of units expected to
be sold during a specific period on a weekly
basis.
SS = Safety stock i.e., the number of reserve units
needed to cover any unexpected sales or
delivery delays (say three weeks supply)
Step Two

71
Computing unit open to buy
Maximum inventory represents the number of merchandise units the retailer
is open to buy if there is no stock on hand or stock on order. Unit open to buy is
the maximum inventory minus stock on hand and stock on order. The formula is:
Unit Open to Buy = MI - (SH + SO)
where, MI = Maximum Inventory
SH = Stock on Hand
SO = Stock on Order
Let us take an example to ascertain these two components finally arriving at
unit open to buy quantity.
M/s Ping Pong Ltd. dealing in staple item of merchandise every six weeks,
expecting that delivery will take three weeks. Based on past experience, the
company expects to sell approximately 400 units a week and considers a two
week safety stock necessary. The maximum inventory for the merchandise is to
be calculated and the unit open buy quantity taking stock on hand units 2100 and
stock on order 900.
Maximum Inventory = (RP + DP) (RS + SS)
= 6 weeks + 3 weeks x 400 units + 800 units = (9 weeks)
(1200 units)
= 10,800 units.
Unit Open to Buy Quantity = MI - (SH + SO)
= 10,800 units - (2100 + 900 units) = 10,800'units -
(3,000 units)
= 7,800 units.
Thus the whole merchandise control involves designing of rupee and unit
information system and analysis system for collecting, analysing and using
merchandise data to control the planned balance between the retailers merchandise
inventory and sales. Merchandise control is a must to see whether there were any
pitfalls in merchandising planning.

72
Retail Store’s Environment, Layouts and Displays

BACKGROUND

A retailers' store and its surrounding area create the environment within
which a retailer is to operate. It is the store's environment which either attracts or
detracts the potential customers. As it is of paramount importance, retailer should
create that kind of stores environment which is conducive both to the retailer's
operations and to that of consumers-the greatest asset. This environment that
imprints the image,· the status, has a compendium of elements like stores design,
its exterior and interior, layout and the display and service facilities, where the
store should be able to create "LOVE AT FIRST SIGHT." Therefore, I propose to
discuss the vital aspects of stores environment, layout and display. The chapter
ends with a chapter summary and chapter based questions.

THE STORE'S ENVIRONMENT

What is it ?

Environment is something that stands for an atmosphere which is external

to the retail organisation. Retail store is a subsystem of a supra-system namely,
environment because retail units cannot exist in vacuum. In selecting and
developing a store's environment, the retailer must consider its physical and
psychological impacts on customer attraction, employee moral and store's
operations. Store's operations and consumer shopping are both enhanced by a well
planned and creatively designed setting. It is a mad, mad-world where ad, ad plays
very important role. To appeal to the fashion conscious, hedonistic and up-scaled
shopper, the store must create a theatrical environment enhanced by colourful
displays and high-tech lighting and audio presentations. A store's physical
environment is a complex of the tangible elements of form reflected in the way
land, building, equipment and fixtures are assembled for the convenience and

73
comfort of both customers and the retailer. Equally significant is the store's
psychological environment-the perceived atmosphere the retailer creates;
psychological environment is the mental image of the store produced in
consumers minds. A store's effectiveness, absoluteness and uniqueness be in the
retailer's ability to plan well, create consciously and control carefully both the
store's physical and psychological setting. The psychological impression, a store
makes on consumers depend on the stores image and the buying atmosphere. In
effect, the retailers have to produce best theatrical atmosphere of all the aspects of
theatrical approach. One aspect is very very special and that is escapism. Many
shoppers, retail store can magnate them as they provide quick escape. Therefore,
the store image and buying atmosphere are of top importance.
Create Store's Image

One of the major concerns of a successful retailer is creating the store image.
It represents to the consumer a composite picture of the retailer where he can use
image the most powerful tool in attracting and satisfying the class of customers.
However, creating an image is not a child's play. An image is the mental picture
that forms in the mental frame of human mind as a result of good many divergent
stimuli. These stimuli include the retailer's physical facilities, the store's location,
product-lines, service offering, pricing policies and promotional activities. A
store's image is its personality. It represents the consumer's feelings and outlook
about the store. Therefore, it is very important that retailer knows and plans what
they want the consumer to see and feel. A retailer has a wide variety of store
images of which he can choose to his advantage to guarantee a successful business
operations. The possible alternatives are-prestigious or economical; contemporary
or traditional; swinging or subdued; family or singles; formal or informal; friendly
or reserved and restful or active.
In building the image of a store, the exterior and interior dimensions are of
paramount importance. Externally, the position of the store on tile site, its
architectural design, its store front and the placement of signs, entrances and

74
display windows all contribute to the store's image. Internally, a store's image can
be created, impart, if not whole, by the layout of the departments and traffic isles,
the use of store displays and the selection of store fixtures and equipment. It is
foolish and futile to imagine that standard combinations of external and internal
store factors can produce a given image. It is so because a unique image is highly
creative activity.
While designing the image creating factors or features of the store's physical
facilities, the retailer is to have the kind of customer's class, he is going to serve
for neither the retailer nor the store can be all the things to all the people. It is
equally true, neither a single image be created that will appeal to all the
consumers. To be very succinct and precise, the store's facilities should be tailored
to the psychological and physical needs of a selected or target consumer group.
The physical facilities of a retail store can be an important vehicle for non-verbal
communication. The importance

Retail Stores Environment, Layouts and Displays of communicating the

right impression assumes that store's personality helps
in "positioning" one retail unit against another thereby facilitating the store's
selection process for consumers.
Create Buying Atmosphere
A retailer is expected to establish the consumer a frame of mind that
promotes a buying spirit to create an atmosphere conducive to buying. Even the
economy class consumer wants something more than a shopping atmosphere
with only the bare minimum essentials. Todays shoppers are drawn to safe,
attractive and comfortable shopping environments irrespective of their major
shopping motives. Therefore, the store's atmosphere should be an agreeable
environment both for the consumer and the retailer. Experts have given some
congenial yet stimulating atmospheres that have features like- Quiet and push
for the prestige shopper-safe but engaging for the elderly shopper, Friendly and
loved for the young shopper- clean and cheerful for the family shopper-Formal

75
and pleasant for the professional shopper. It pays to influence the consumer's
mood by creating on atmosphere that will positively influence their buying
behaviour. It must be noted that an appealing buying atmosphere uses cues that
appeal to the consumer's five senses of SIGHT_HEARING-SMELL-TOUCH-
and TASTE. Sensory cues can be strongly butressed if they are structured
around shopping themes that unify and organise the store's atmosphere. It will
not be out of place
to touch these sensory appeals in brief.

1. Sight Appeal
The sense of SIGHT provides people with more information than any
other sense mode and, therefore, must be classified as the most important
means by which retailers can appeal to consumers. Sight appeal is the process
of imparting stimuli, resulting in perceived visual relationship. Size, shape and
colour are the primary visual stimuli on which retailer can encash. Visual
relationships are interpretations made by the "minds eye" from visual stimuli
consisting of harmony, contrast and clash "harmony" is the visual agreement.
"Contrast" is the "visual diversity" and clash is the "visual conflict." All these
can occur in the areas of display-layout-or the physical arrangement. In a given
situation, either harmony or contrast or clash may be the best way to create an
appealing shopping atmosphere. Experts are of the opinion that harmonious
visual relationships are generally associated with a quieter, plusher and more
formal shopping setting; whereas contrasting and clashing visual relationships
can promote an exciting, cheerful or informal atmosphere.
A. Size Perceptions
Mere physical size of a store, a display, a sign, or a department can
communicate many things to many people. Size communicates relative
significance, success, strength, power and security. Size is a key element in
creating harmony, contrast and clash.

76
 B. Shape Perceptions

A given shape can arouse certain emotions within the buyers. While planning
the store's layouts and designing displays, the retailer should recognise the fact
that "vertical line" gives a rigid, sevre and masculine quality to an area. It
speaks of strength and stability, gives the viewer an up and down eye
movement; tends to heighten the area; gives an illusion of increased space; On
the other hand "horizontal lines" promote feeling of rest, relaxation and repose.
The diagonal lines connote action and movement giving, sometimes, an illusion
of instability. Similarly, curved lines suggest feminine atmosphere and add a
flowing movement that directs the eye to a display or department.

C. Color Perceptions
Color makes the first impression on any body looking at an object.
Color catches the customer's eyes, keeps their attention and stimulates then to
buy. By nature human being is color conscious so much so that if colour is
wrong all is wrong. The psychological impact of color is the result of the three
basic properties of HUE, VALUE and INTENSITY. 'Hue' is the name of the
colour. "Value" is the lightness or darkness of a hue. Darker values are called as
"shades" while lighter values are called the "hints." The brightness or dullness
of a hue is the intensity. Retailer should know these details as it is great
psychological factors that help him in selling merchandise and creating a
matching atmosphere. Colour experts classify colours or hues into two
categories as "warm" and "cool." Warm colours are RED, YELLOW and
ORANGE and cool colours are BLUE, GREEN and VIOLET. 'Warm' colours
generally give an impression of a comfortable, informal atmosphere, while
'cool' colours project formal, aloof, icy impression. Each hue symbolises / some
kind of feeling. "Red" represents love, romance, sex, courage, danger, fire,
sinful, warmth, excitement, vigor, cheerfulness, enthusiasm and stop. "Yellow"
speaks of Sunlight, warmth, cowardice, openness, friendliness, gaiety, glory,

77
 lightness and caution. "Orange" pinpoints sunlight, warmth, openness,
friendliness, gaiety and glory. 'Blue' represent coolness, aloofness, fidelity,
calmness, piety, masculine, assurance and sadness. 'Green' marks coolness,
restful, peace, freshness, growth, softness, richness and go. Violet signifies
coolness, retiring, dignity and rich.

2. Sound Appeal

Sound is such an appeal that can enhance or hinder the store's buying
atmosphere. People like sounds which are pleasant and soothing while disturb-
ing and irritating none likes. In latter case sound becomes a noise. It should be
appealing music than detracting noise. In this regard, there are two things
namely, sound or noise avoidance and sound creation. Obstructive sounds or
noise disturb and interrupt the buying process. Unwanted sounds are to be
either eliminated or controlled. Noise pollution is to be avoided. Noise
avoidance is a problem tailor made for physical facilities planning. In fact,
careful use of architectural design, construction materials, equipment and the
interior decorations can eliminate or reduce considerably disturbing and
obstructing sounds or noise.
Coming to creation of sound, retailer can use sound appeal in a variety of
ways to create buying atmosphere. Sound is a mood setter, an attention getter and
informer. Music is capable of relaxing the customer, promoting a buying spirit, set
the stage for a particular shopping theme or remind the customer a special season
or holiday. Music must match the selling scene. The type and volume of must be
suitable to the consumers than retailers.
3. Scent Appeal

Scent appeal or smell appeal is also important, for smell is a product feature.
Creation of scent appeal is almost similar to that of sound appeal. The question is
how to avoid unpleasant odors and to create pleasant smells. Stale, musty, and foul
odors offend everyone and are sure to create negative impressions. These

78
unwanted odors are the outcome of inadequate ventilation, insufficient humidity
control and poorly placed and maintained sanitation facilities. Contrary to this,
pleasant scents or smells are the key ingredients generating an atmosphere
inducing, propelling the consumers to buy. For instance, a well-placed fan in a
bakery section or candy store or food section attracts the passersby as these
pleasant and aromic smells spell bound the consumers which encourages impulse
buying. Retailers of foods, tobacco, flowers, perfumes and other scented products
know the value of bringing the fragrance or sweet smell to the noses of consumers.
It is rightly said "a store should smell like it is supposed to smell." For instance,
drug store should smell clean and antiseptic. An antique store should smell a
dusty, musty smell to enhance the buying atmosphere.

4. Touch Appeal
While buying, the consumers, they want to test the product by touch. Personal
inspection-handling, squeezing and cudding-is a prerequisite of buying. There
are products or produce where touch feel is a must, bet it a fish, meat,
vegetable, fruit, consumers want to touch them before buying. In fact machine
vending and pre packing do not provide touch feel because of which some of
the customers hate vending machines and super markets. Generally there
should be facility of providing the consumer sense of touch. The chances of
sale increase. Substantially when the consumer is allowed to touch the
product. If not the entire lot, this touch appeal can be provided through good
planning facilities. Displays and fixtures should be designed: (1) to provide
consumers with samples to handle, (2) to provide product protection from
normal store dust and dirt. In spite of revolutionary changes in methods of
market, sale by inspection has not been totally exctinct, and therefore,
consumers should be provided with touch appeal.

5. Taste Appeal

79
 In some cases, sale of products is impossible unless the retailers provide
an opportunity of tasting a bit of it. This is the case with specially foods such
as meats, cheeses, bakery and dairy products. While designing the in store
displays, retailers have to provide the potential Customers with a sample of the
product under clean and sanitary conditions. Basically, the reason to taste is a
test of freshness or the extent of caring.

6. Theme Appeal

Good many retailers have given special importance to shopping theme while
planning the physical facilities. Theme appeal is a very useful vehicle around
which to organise the fine sensory appeals: The theme appeal can be employed
faithfully in a number of ways. Common themes center around the natural and
holiday seasons, historical periods, current issues and special events and so on.
Shopping themes can be organised retailer on storewide, department or
product basis

THE STORE'S EXTERIOR

The first impressions, in every walk of life are so important that they act as
swing factors to reach the cutoff point. In case of consumer's decision to stop at
one shop or another is the out of impression the shop has imprinted upon the
minds of consumers. Largely, a consumer's first impression about a store is
produced by the exterior. The store's exterior is a key factor in shopping and
attracting new customers and retaining the existing one. The major aspects of
store's exterior planning are the store's position, architecture, sign and the front.
It is worthwhile to touch these aspects for better understanding.

(1) The Store's Position

Attracting the customers is the crux of the issue of retail trade. How and

80
 where the store is positioned on the site affects the retailer's ability to attract the
Customers. Therefore in evaluating the existing store facilities or planning future
site layouts, the retailer should answer effectively and satisfactorily these three
questions. These are: How visible is the store? Is the store compatible with its
surroundings? and Are store facilities placed for Customer convenience ?

A. Ensuring the Store Visibility

The customers must see the store if the retailer wants to achieve the goals
of stopping, attracting and inviting the customers. A visible store becomes a
part of the consumers mental map of where, to shop for certain product as
service. Visual awareness of a stores existence has the shortrun benefit of
alluring impulse shoppers and the long-run benefit of attracting the future
customers who develop a particular need for the retailers products
Architecture is a major factor both ill making the right impression on the
consumers and in developing an efficient retail operation. The actual store's
architecture is a compromise between both the aims namely, making an
impression and designing a functional facility and services. Ideally, a store
should be positioned so that it is clearly visible from the major traffic arteries
adjacent to the site. A retailer can improve the store's visibility be using three
interacting factors namely, setback, angle and elevation to his advantage.
Set back. Reduced visibility is the result of either setting the store too far back
from a traffic artery or from positioning it too close to the street. Therefore, ideally
a store should be setback far enough to give the passersby a broad perspective of
the entire store, but close enough to let them read major signs and see the possible
window displays.
Angle. Visual impression can also be increased or decreased by the angle of
the store relative to a traffic artery. A retailer should place the building at an angle
to the traffic artery that maximises the exposure, in positioning the store. Since the
store's front is designed to stop and attract potential customers it should face the

81
major traffic artery when the store's back or sides are visible to passersby, they too
should be attractive and informative.
Elevation. The elevation of a site can place the retailer's store above or below
the main traffic artery level. Normally, elevation problems can be overcome by
landscaping and the use of signs. However, such problems always translate into
visibility problems for retailers that badly need exposure. It so happens that most
of the consumers do not see stores that are too high as too low.
B. Designing Site Compatibility

By fitting the store to the naturally of the land and the natural habitat a retailer
can reap the harnest of benefits in terms of visual impressions. The retailer must
consider several issues in designing for site compatibility. (1) The size of the
facility should be appropriate to the size of the site. A sense of proportion makes a
sea of difference. (2) The architectural design and construction materials should
portray a harmonious relationship with immediate environment (3) A certain
amount of open space adds to the natural appearance of the store in making it
attractive.

C.Planning Consumer Conveniences

The retailer should take into account as to how the position affects consumer
convenience while planning the store's on the site position. Enough parking space
for vehicles should be available with sufficient access to these vehicles. Parking
lot should allow easy movement-to and fro and turnaround the vehicles. Parking
should be with safety and that ensures easy movement of pedestrians to the store.

(2) The Store's Architecture

Architecture is a majorfactor both in making the right impression on the
consumers and in developing an efficient retail operation. The actual store’s
architecture is a compromise between both the aims namely, making an
impression and designing a functional facility.

82
Making an Impression

The store's architectural motif can convey any number of different

impressions and communicate considerable amount of information. Architectural
style indicates the size and prestige of retailer's operation, the nature of the
retailer's principal product line and affiliation of retailer. Further, architectural
design can support a control theme or focal point for the retailer's merchandising
activities.

Designing a Functional Facility

The functional facility needs are as important as impression creating

components of architecture. What is important is, both are to be balanced well.
Functional considerations that are paramount in the store's design are costs,
energy, efficiency, security, occupational efficiency and customer convenience.
Ever-rising costs of land, construction and material costs for retailer are not
allowing to compete with strong competitors. Cost and architectural freedom
clash and resulting in reduced consumer conveniences. Energy rising costs have
resulted in energy saving. Construction includes lower ceilings, less window-
space, proper air-circulation, controlled entrances and exits and proper insulation.
Rise in crime rates make retailers to spend heavily on security. This security
aspect is taken up as part of architectural plan. Another architectural design
consideration is operational efficiency. The best allocation of store space for
operational activities is possible when plan provides easy movement for
customers, sales personnel and merchandise and maximum merchandise exposure.

(3) The Store's Sign

A store's sign or marquee is the first 'mark' of the retailer that a potential

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customer sees. It serves two purposes namely, identifying the store and attracting
the customers.

Identifying the Store

Sign provides the potential customers with 'who', 'what', 'where' and 'when'
of the retailer's offerings. 1Qese signs may be names, logos or symbols.

Attracting Consumer Attentions

Sign is a communication tool which creates an awareness, generates interest

and invite the consumer to try the store. The size, shape, colour, lighting and other
allied materials contribute the sign's get up and interest arousing capacity.

(4) The Store's Front

A store's front is the first impression that consumer has for a store.
Three components make up store's front namely, front configurations, window
displays and store's entrances.

The Store-front Configuration

There are three possible front configurations namely, Straight front Angled front
and Arccide front. The "straight front" is a store configuration that runs parallel to
the side-walk, street, mall or a parking lot. Usually the only break in the front is a
small recess for an entrance. This store front design is operationally efficient
because it does not reduce the interior selling space. However, it lacks consumer
appeal because it is monotonous and less attractive than either of the other
configurations. Window shoppers can inspect only a small part of any display
from anyone position when retailers use the straight configuration. Another
limitation is that reflective glare from windows can inhibit window-shopping,
while heavy foot traffic and little privacy deter in store shopping. The "angled-

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front" configuration overcomes the monotony of the straight front by positioning
the store's front at a slight-angle to the traffic arteries. To create a more attractive
and interesting front, retailers that use the angled front approach place windows
and entrances off centre or at one end of the store's front. Angled fronts also give
the window-shopper a better viewing angle of the merchandise is the window and
reduce the possible window glare. The entrance in an angled front is usually
located at the most recessed part, to funnel and direct consumers into the store. It
provides more protection for the window-shoppers than straight-front. The major
limitation of the angled front is that it reduces the interior space. the retailer
otherwise could use for selling operations. The "arcade front" is charcterised by
several recessed windows and entrances. The main merits are : (1) It increases the
store's frontage exposure and display areas; (2) It provides the shopper with
several protected areas for window-shopping; (3) It increases the privacy under
which the shopper can inspect window displays; (4) It creates an attractive,
relaxing atmosphere for the shopper and (5) It reduces glare for major part of the
store front. The demerits are: (1) It reduces substantially the interior space for
selling and displaying merchandise; (2) It calls for huge investment in
construction and construction materials and (3) It requires a professional display
staff to make full use of the arcade concept of window settings.

(5) Window Displays

The number, the size and the type of windows of a store has sure to alter
beyonds one's imagination its exterior appearance and the general impression it
produces on consumers. There are different types of window display patterns and
retailer can choose anyone or combination to his advantage to maxi mise
exposure and sales.
Windows are the 'face' of the store. They are of great importance
since they constitute the first impression that the store makes on the customers. They
have two major objectives namely: (1) The prestige of the store may be enhanced by

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 imaginative special event windows such as novelty Christmas, or Easter Windows,
Diwali and Ganesh windows; (2) The merchandise featured in regular window displays
may generate large business much as an advertisement does. One can think of at least
four types of window displays namely, Elevated, Ramped shadow-box and Island
windows. 'Elevated windows, are the display windows with floors of varying heights.
The floor is elevated in the range of 12 to 36 inches above side-walk-level. The choice
of the floor height depends on the kind of merchandise and the elevation necessary to
place, the display at the typical shopper's eye level. Elevated windows give consumers
an excellent visual perspective of the retailer's merchandise and also protect the glass
from damage that might otherwise occur at side-walk levels. The retailer can use one of
the three backings for elevated windows namely, open backed, closed back and partial
back. "Openbacked" window is on which permits the consumer to view the store's
interior. "Closed-back" windows prevent that view and "partial-back" windows allows
the consumer to see only a part of the store's interior. "Ramped windows" are the
standard display windows having a display floor higher in back than in front. The floor
ramp either is a wedge or is tiered, while backing may be either open, partially opened
or closed. The basic advantage of the ramped display window is the greater visual
impact of merchandise displayed in the rear. "Shadow-box windows" are small, box-
like display windows set at eye level heights. They are usually completely enclosed and
focus the shopper's attention on a selected line of merchandise. Mostly jewellery stores
use this type. "Island windows" are four-sided display wil'ldows, isolated from the rest
of the store. Used in conjunction with arched store front configuration, the island
windows can be effectively used to highlight the retailer's merchandise line!! from all
angles. However, this display merit might turn to be a demerit in case retailer fails to
select and position the merchandise carefully.

(6) Store Entrance

One can not forget the entrance of the store which is so vital for operational
and success reasons including convenience and security aspects. Retailers should
design the store entrances for the customer's safety, comfort and convenience, as
well as for guiding the customer into the store. The design considerations for

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store's entrance include : (l) Easy to-open doors, (2) Good lighting, (3) Flat entry
surfaces having no steps, (4) Use of non-skid materials (5), Little or no entrance
cluster such as merchandise tables and (6) Wider doors to allow easy carrying of
large parcels. In addition the store entrances must meet all the access regulations
for the handicapped customers.

THE STORE'S INTERIOR

The store's exterior is responsible for attracting the passers by both actual and
potential customers to induce them to enter the store. The store's interior is much
more important than the exterior as it welcomes the consumer-the Rex of
marketing mechanism. The store's interior must contribute to the retailer's
fundamental objectives of minimising operational ~xpenses and maxi mise sales
and consumer satisfaction, therefore, protits. To attain these goals, the store's
interior not only must be inviting, comfortable and convenient for the consumer.
It must also permit the retailer to use tbe interior space efficiency and effectively.
The major aspects of the store's interior are the store's space, the store's layout
store's security and displays. Let us try to touch up on these basic dimensions of
the interior.

1. The Store's Space

All the interior space is not considered to be equal to value as against its
revenue generating capacity. It is effective space that counts. The consumer's in-
store shopping responses to different interior arrangements differ widely.
Specifically, the value of any unit of store space will vary with the floor location,
with the area position and with each floor and with its location relative to various
types of traffic aisles~ Good many retailers recognise these variations in the value
of store-space and allocate total store rent to sales departments according to where
they are located and how valuable each space is. The store space value is to be
seen from floor, area and aisles.

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Floor Values

The value of space in multilevel stores decreases further from the main or
entry-level floor. Though experts differ on how exactly to allocate rental costs to
each floor, they all agree that sales areas on main floor should be charged higher
rent than sales areas in the basement or on second and third or higher floors. The
additional customer exposure associated with entry-level floors justifies both the
greater sales expectations and the higher rent allocation of the total store rent by
floors.

Area Values
The value of space also differs depending on where the customer enter and
how they traverse the store. In assigning value to interior store areas and making
rent allocations, the retailer should consider at least, three. factors : (1) The most
exposed area of any floor is the immediate area surrounding the entrance; (2) The
most consumers tend to turn right when entering the store or the floor and (3) A
general rule of thumb" is that only one fourth of the store's customers will go
more than half way into the store Aisle Values.
Because the merchandise located on primary traffic aisles greatly b "nefits
from increased customer exposure, the retailer should assign a. higher value and a
rent to space along these aisles than to that along secondary aisles. Thus, the
interior store space is classified into high, medium and low rent areas based on
their position relative to primary and secondary traffic isles.

2. The Store's Layout

Layout refers to the arrangement of merchandise, fixtures and displays, including
non selling areas. Layout decisions involve many levels of retail executives. The
aisles, which regulate the flow of customer traffic, are of prime importance.
Certain, non-selling areas must be carefully related to selling activities so that

88
selling can be expedited. The examples of this kind are the location of reserve
stocks, fitting rooms and check out counters. A store's interior is broadly divided
into two categories as "non-selling" and "selling" areas. On an average retail
organisations have 75 to 80 percent of total space for "selling" and the balance for
"non-selling." Let us know what thesl1 mean and what are their implications.

Non-selling Areas

A non-selling area is a space devoted to customer services, merchandise

processing and management and staff activities. The examples of customer
service areas are--checkout area, dressing room, wrapping desk, complaint desk,
credit desk, catalog desk, repair counter, return desk, rest-room, restaurants. The
merchandise processing areas are receiving areas, checking areas, marking areas,
stocking areas, merchandise control areas and alteration and work rooms. The
management and staff areas are offices, lounges, locker rooms, conference rooms,
class-rooms, training areas and so on.
Very important consideration in planning a store's interior is where to locate
non-selling areas. There are four well-established general approaches to locate
non-selling areas that satisfy both the consumer convenience and employee
productivity needs. These are-Sandwich, Core, Peripheral and Annex approaches.
The Sandwich Approach involves using one of the floors for nonselling areas
within a central core area-surrounded by selling areas. This is applicable to multi-
storeyed store. This is illustrated as under :

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 Fig 8.1 The Sandwich Approach
The Core Approach is the concept of locating all non-selling areas within a
central core area surrounded by selling areas. This approach takes the following
configuration.

Fig 8.2 The Core Approach

The Peripheral Approach locates non-selling areas around the exterior of the
store or floor.

Fig 8.3 The Principal Approach

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 The Annex Approach locates all non se\1ing activities awaY' from the sales
floor in a non-se\1ing annex. Normally, the annex is an appendage to the back of
the store.

Selling Area
Selling space is the area of the store devoted to the display of merchandise
and the interaction between the customers and store persoHnel. In planning the
store's interior se\1ing areas, the designer must organise m(l'chandise il)to logical
groups and allocate space, locate merchandise and design layouts that are
conducive to both the selling function and efficient overall operations. It pays to
touch these vital aspects for perfect understanding.
1. Grouping the Merchandise
Better merchandise planning leads to greater merchandise control and more
personalised shopping atmosphere. A logical grouping of merchandise helps also
the customers to find, compare and select the merchandise suited to their just
needs. The most common criteria the retailers use in grouping merchandise are:
functional-say footware, underwear, outerwear; storage and display-say racks,
bins, shelves or dry, refrigerated, frozen and target market consumer -say men's,
women's, children's wear; it might be economy minded, prestige oriented,
convenience directed. The key points that the retailers are to ensure in grouping

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merchandise are that the customers understand and appreciate the organisation and
that merchandise groupings are consistent with the efficient operating principle'i.
2. Allocating the Space
Once the retailer groups Ihe merchandise according to some logical criterion, the
selling space must be allocated to each merchandise group. Given that each store
has a limited amount of space, the retailer is to select some method to allocate
selling space. These are two most commonly accepted methods namely, Model
Stock Method and Sales/Productivity Ratio Method
A. Model Stock Method
According to this method, the floor space needed to stock desired assortment
of merchandise for each grouping is determined. For the more important
merchandise groupings, the retailer allocates sufficient amount of space to attain
the desired assortment. The merchandise groupings of lesser importance are
allocated space based on their assortment needs and the remaining available space.
B . Sales/Productivity Ratio Method
This method allocates the space on the basis of sales per square foot or meter
for each merchandise group. The merchandise groupings might be best performers
or normal performers or worst performers. That is sales per square foot or meter is
tt~e criterion. In other words profit per square foot or meter is considered as the
base for allocating the space.
3. Locating the Merchandise
The tbird factor in selling space planning is locating the merchandise. That is
where exactly to put the merchandise group on the space available. The
retailers feel one of the criteria for locating the merchandise groups. These
are Rent Paying Ability, Consumer Buying Behaviour, Merchandise,
Compatibility, Season ability of Demand, Space Requirements and Display
Requirements. It will not be out of place if one knows each criterion
A. Rent Paying Ability Criterion
Rent paying ability is the contribution that merchandise group can generate in

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sales to pay the rent for the area to which it is assigned. Merchandise groups with
the highest rent paying ability are located in the most valuable selling space, other
things being equal.
B. Consumers Buying Behaviour Criterion
It is based on the recognition that consumers are willing to spend different
amounts of time and effort in searching for merchandise. For instance, a retailer
should place- impulse and convenience goods in areas with high exposure because
customers will not exert much effort to find them. In contrast, retailer should
locate shopping and speciality goods in less accessible areas because the
consumer's purchase intents are well established and they are willing to exert the
warranted effort on them.
C. The Merchandise Capability Criterion
Merchandise compatability is the d e g re .t.lof relationship between diffen'l\l70
merchandise groups. This concept says that closely related merchandise should be
located together to promote complementary purchases. For instance, the sale of
man's suit will increase the chances of selling men's ties and shirts if those
products are located close and are visible from the men's suit department and the
like.
D. Seasonability of Demand CriteNon

A merchandise characterised by reasonability of demand is very often

accorded highly valuable, visible space during the appropriate season. In addition,
the merchandise groups with different seasonal selling peaks are very often placed
together to allow the retailer to expand or contract these lines without major
changes in the store's layout. For instance, during winter, woollen apparels, sports
equipments, X'mas toys; during rainy season, all possible water proof products
like shoes, caps, rain coats, umbrellas and so on.
E. Space Requirement Criterion
Space requirements for each merchandise group can as well be a criterion.
For instance, merchandise groups that need large amounts of floor space use less

93
valuable space either at the rear of the store, on upper floor or in basement or in an
annex. Generally, the bulky products can not justify their placement in higher rent
locations.
F. Display Requirements Criterion

To a very great extent, display-requirements also influence where the retailer

places a particular group of merchandise. For instance, a merchandise such as
clothing which must be hinge to display, is located along the sides of walls or at
the rear of the stores where it will not interfere with the customer's needs for
convenience and comparison shopping and the retailer's selling and operating
needs.
4. Designing the Lay-outs

Selling floor layouts are extremely important because they strongly influence
in-store traffic patterns, shopping atmosphere, shopping behaviour and the
operational efficiency. As noted earlier, layout refers to the arrangement of
merchandise fixtures and displays including non-selling areas. The importance of
a sound layout brings in : (a) maximised flow of customer traffic to all parts of the
store, thereby giving the best exposure of merchandise, (b) improved shopping
power for impulse buying, (c) maximum amount of sales-space in relation to non-
selling-space, (d) consumer product selection and comparison of merchandise and
(e) placement of departments and merchandise categories for maximum impact to
increase sales potential.

A store layout should be highly flexible. Planning the layout can be a never-ending
process. The retailer wants to optimise the layout within the existing facilities of
the store, but one is never sure that optimum point has been reached. Therefore, an
aggressive retailer experiments with different arrangements. In fact, each season
requires layout changes. Further, changing the layout periodically can keep a store
fresh and exciting both for its
customers and the employees.
STEPS IN PLANNING STORE LAYOUT

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 Sound planning of a store layout involves three basic steps : (A)
Determining the space available in the fadlity. (B) Determining space needs for
selling and non-selling areas and « ) Fitting space needs to available space so as
to achieve a good traffic fl ,1W and maximum sales per square
foot or meter.
The first step in planning the la "out is comparatively easy. If blue
prints are there, the problem is solver, if blue prints are not available the
dimensions of the building can be mf asured.
The second step in planning the layout is to determine the selling and
non-selling areas. While determining the space needs, the following factors
should be considered: (1) Kind and extent of departmentalising (i) space
requirements of departments, and (ii) locations of departments. (2) Traffic flow
desired. (3) Space for displays and the types to be used. (4) Extent of layout
flexibility. (5) Types of non-';elling activities (i) space requirements, (ii)
location requirements and (6) ~ ,pecial provisions for self-service.
The third step in layout planning is filling the space needs. Filling the selling
and non-selling areas into available space involves a compromise. Very often a
retailer does not have enough space. Typically, the receiving room aud
stock~room facilities are cramped. Less often a retailer may be confronted with
too much space. In both the cases, some compromise is a must. A retailer who
has too much space might consider renting it out to some one, or he might use
as a non-selling area. So long as he can not use it for selling purpose. At any
rate, the excess space should not be exposed to avoid negative image in the
I~yes of consumers.
The factors to be conside:ed while designing the sales floor layout
comprise of : (a) Types of difplays and fixtures. (b) Size and shape of fixtures.
(c) Permanence of displlYS and fixtures. (d) Arrangement of displays and
fixtures. (e) Width and le.lgth of traffic aisles aud (j) Positioning of
merchandise groups, customer services and other customer attractions.

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LAYOUT FATTERNS

The layout experts have thought of three alternative types of layout based on
the pattern of tram: flow in the retail store. These are GRID, FREE FORM and
BOUTIQU "TYPE. Let us know the logic behind these patterns and what type
retail stores can go in for a particular type of layout pattern.

Grid Type of layout

The 'grid layout' is a rectangular arrangement of displays and aisles that generally
run parallel to one another. It represents a formal arrangement in which the size
and shape of display areas and the length and width of the traffic aisles are
homogenous throughout the store. Grid pattern is a traditional store layout. It
results in traffic patterns much like highways, with a main artery and perhaps
secondary and tertiary aisles that carry less traffic. It is relatively simple to plot the
flow of customers as they enter and leave such stores and thus determine which
are the "feature" spots and the corners or ends of counters that have the most
customer exposure. These are good places for impulse goods and new items which
might produce extra sales. Although retailer can develop various modifications in
this layout to create variety and to respond to operational needs, this grid pattern
essentially retains its formal arrangement.

96
Used most frequently by super markets and convenience. variety and discount
houses, the grid layout offers several merits. (1) It allows the most efficient use of
seIling space of any of the layout patterns. (2) It simplifies shopping by creating
clear distinct traffic aisles. (3) It promotes the image of a clean, efficient shopping
atmosphere. (4) It facilitates the routine and planned shopping behaviour as well
as self-service and self selection by creating a well-organised environment. (5) It
allows more efficient operations by simplifying the stocking, marking and house-
keeping tasks and reduces some of the problems connected with inventory and
security control. Perhaps the major disadvantage of the grid layout pattern is that it
is sterile shopping atmosphere that it creates. For this reason, the grid pattern is
simply inappropriate for most shopping and speciality goods-retailers.

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Free-form Layout

The free form layout arranges displays and aisles in a free-flowing manner.
This layout employs a variety of different sizes, shapes and styles of displays,
together with fixtures positioned in an informal unbalanced arrangement. A
typical configuration of a free-form layout will be as under:
The main benefits the retailers derive from the free-form layout is the

98
pleasant atmosphere it produces-an easy going environment that promotes window
shopping and browsing. This comfortable environment increases the time
consumer is willing to spend in the store and results in an increase in both planned
and unplanned purchases. The free-form layout provides greater flexibility in
layout. It reduces to a minimum the structural elements that form the fixed shell of
the building, such as columns and fixed-positions. Counters are arranged to give
maximum visual interest and customer attention to each merchandise department.
The counters can be posihoned so their angles will literally capture customers in a
department. However, these benefits of a superior shopping atmosphere are
partially offset by the increased cost of displays and fixtures, high labour
requirements, additional inventory and security control problems and the wasted
selling space that normally accompany a free-form lay-out.

The Boutique Layout

Boutique or 'shop' concept has been the natural extension of the freeform
layout arrangement. The idea behind the "shop" is to create departments that sell
merchandise which is related in use. This layout arranges the sales floor into
individual, semi-separate areas each built around a particular !.hopping theme. It is
a creation of good many small speciality shops. Each department has its own
identity created through its own signage, display fixtures and shopping bags. By
using displays and fixtures appropriate to a particular shopping theme and by
stocking the boutique according to this theme, the retailer can create an unusual
and interesting shopping experience. Following is the configuration.
III the layout, the space designated as "Leisure World" boutique might includi; on
unconventional merchandise assortment as sport goods, exercise equipment, home
lectricals and computer games, musical instruments, and so on. The "natural shop"
might display apparel and food products along with home furnishings-all made
from natural materials. To reinforce the theme, the fixtures could be contracted to
the mood, background and need of the theme. Boutique layout, being an extension

99
of free-form layout patterns, enjoy some set of merits and suffer from same set of
demerits.

5. Store Security

Consumer theft, employee pilferage, burglary and robbery are everyday events of
the life of every retailer must face and protect against those. These events are
collectively called as security threats against which protective measures are taken.
Security of the store, must include not only the store and its merchandise, but also
its customers and employees. This is a detailed study as to how and what steps a

100
retailer takes against losses that stem from criminal activities such as shop-lifting
by customers, pilferage by employees and suppliers, passing of bad cheques and
credit cards, the thefts by burglary and robbery. The security measures taken work
out about 5 per cent of in every rupee spent in retail store. Prevention is better than
cure that works.
6. Displays

This is the terminal part of the store's interior. Advertising does attract the
consumers to the store. However, visual displays have much more to play once the
customer gets into the store. Retail displays are non-personal, in-store
presentations and exhibitions of merchandise together with related information. In
actual practice, retail displays are used to : (1) Maximise product exposure. (2) To
enhance product appearance. (3) To stimulate product interest. (4) To exhibit
product information. (5) To facilitate sales transactions. (6) To ensure product
security. (7) To provide product storage. (8) To remind customers of planned
purchases. (9) To generate additional sales of impulse items and (10) To improve
the image and prestige of a retailer.

Merchandise displays are to gain the attention of consumers, provide proper

balance, be structured in right proportion, be hard-hitting and convey their
me~sage quickly. The expert study conducted by display specialists reveal that on
an average consumer spends only 11 seconds in observing a display. In addition,
the retail displays are essential ingredients in creating the stores shopping
atmospherics, because the sight, sound, tOllch, taste and smell appeals are largely
the result of in-store display. Every business has a personality and each display
should contribute to express the stores personality-be it black and white or colour
presentation.
Types of Displays

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 Store interiors are the sum total of all the displays designed to sell the
retailer's merchandise. Retail displays are classified by different experts in
different ways. However, the most common classification is one which identifies
in-store displays a four way classification namely, Selection Displays, Special
Displays, Point Of. Puschase Displays and Audiovisual Displays. It is really
interesting to know about each type.
1. Selection Displays

Nearly all the merchandise for which retailers rely on self-service and self-
selection selling is presented to the consumers in the form of selection displays.
These are mass displays typically occupying rows of stationary aisles and wall
units-shelves, counters, tables, racks' and bins--designed to expose the complete
assortment of merchandise to the class of consumers.
Selection display units are generally "open" to promote merchandise inspection.
The primary functions of this displays are to provide customer access to the
store's merchandise and to facilitate self-service sales transactions. More as a
rule, the retailers use selection displays to exhibit their normal, every day
assortments of convenience and shopping goods. Effective selection displays
should present the merchandise in (a) logical selling or usage groupings, (b) a
simple, well organised arrangement, (c) a clean and neat condition, (d) an
attractive informative setting, and (e) a safe, secure state. In fact, customer
convenience and operational efficiency are the watchwords for good selection
displays.
2. Special Displays
A special display is special in that it represents a notable presentation of
merchandise designed to attract special attention and make a lasting impression
on the consumer. Special displays use highly desirable in-store locations,
special display equipment or fixtures and distinctive merchandise. Placing
special displays in highly desirable locations ensures maximum exposure for the

102
display and its merchandise, thereby significantly influencing the number of
units sold. End of-aisles, counter-topS, check-out stands, store entrances and
exits and free-standing units in high traffic areas are all preferred locations for
attracting special attention from shoppers. Unique combinations of display
equipment such as counters, tables, racks, shelves, bins, mobiles and display
fixtures such as stands, easels, millinary heads, forms, set pieces etc., help in
creating a dramatic setting that will attract consumer attention and build shopper
interest. The choice of display equipment and the fixtures depends on
merchandise, the amount of space available and the effect expected.
The key to the successful display merchandising is the merchandise itself
though store location and display equipment and fixtures are extremely
important in structuring a special display. Special displays highlight the
merchandise that can attract customers into the store, build the store's image,
improve sales volume, or increase net profits. Special displays, therefore, are
reserved for advertised, best-selling high-margin and high-fashion merchandise
along with the product items suitable to impulse and c;:,ntemporary
. and complementary buying behaviour. Merchandise select~d for special
displays should also lend itself to good display techniques, which create a
favourabie sight, sound, taste, touch or smell approach.
3. Point-of-Purchase Disp/~ys
A point-of-purchase or 'POP' display is a particular type of special display.
Retailers make heavy use of POP material to stimulate immediate purchase
behaviour. The POPs are often the first and the last chance the retailers and the
manufactures have to tell customers about the merchandise. The significance of
POP displays is indicated by the fact that 81 per cent of super markets and drug
store shoppers make their final purchase decisions in store. Shoppers also say 60
per cent of their super-market purchases are not planned in advance. Point-of-
purchase displays include items such as counter displays, window-displays, self-
extenders, grocery-cart ads, floorstand displays, dumpbins, end aisle stands,

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banners, shelf-talkers, clocks, counter-cards, sniff teasers and video screen
displays. POP displays are designed to attract the attention and interest of
customers, reinforce the stores creative theme and fit in with the stores interior
decoration.
Recently, the retailers have begun to "program" their on-site promotions.
The idea is to stage a sequence steps that lead the prospective customer from some
point outside the store to the ultimate point of making a purchase decision.
Grocers have been particularly active in using POP materl&.ls to increase their
sales. Promotional materials such as hand-bills, bag-stuffers and window signs
remind shoppers of what they saw advertised in local news-papers. Counter
decorations include dummy products, manufacturer's signs, and price signs. To
draw attention to special sales, some retailers use in store microphones. Each
department announces the "blue light specials" each 15 minutes. The purpose of
this kind of promotion is to keep customers in the store to "shop around." The
POP promotion not only increases store traffic but maintains it for longer periods
of time. Finally, the POP displays make store a more exciting and fun-place to
shop.
4. Audwv~uaID~pffiys

The retailers have tried to exploit developments in science and technology to

increase their sales through increased consumer satisfaction. The latest trend in
fashion retailing is to make a video statement by applying current technology to
stimulate the consumer purchases. Retailers are using extensively now visual
merchandising, audio-merchandising and audio-visual merchandising to sell
products. Three key applications of audio-visual merchandising are: (1) To display
the depth and breadth of product lines-say all sizes and styles in shoes. (2) To use
kiosks to explain the benefits. of different products. (3) To provide customer with
basic price information-say in case of jewelleries-price range and quality range.
These display approaches use technology to "speak" to and to "show" the
consumer the available merchandise. Devices include "shelf talkers"tape

104
recordings describing the merchandise audibly; rear-screen projectionsslide
projectors that present wide-screen, colour picture of the merchandise and its
possible uses; and audiovisual displays-a combination of sound and videotape or
slides to present the products story. There is no end for this for there no end for
change in technology.

GENERAL RULES FOR BUILDING DISPLA VS

It goes without saying that the displays play very significant role in retailing
and retail outlet. An attractive and informative displays can help in large volume
of sales in terms of goods and services. In building a display, some fundamental
rules should be followed to get best out of these where good deal of treasure,
talent and time is involved on the part of retailer. This
golden rules are:

1. Achieve Balance
It is important to make sure that the display appears balanced to the viewer,
in building display. This is achieved by arranging products and props in a
particular way. A display may have formal or informal balance. "Formal"
balance is achieved by balancing on each side of the center one more or more
similar items. "Informal" balance is achieved by balancing on opposite sides of
the centre dissimilar items. The effects produced by informal balance are less
peaceful and less obvious but often more interesting than the effects produced by
formal balance.

2. Provide for a Point of Dominance

All displays should have a central point that affects the viewer's eyes.
This point may be established by using a prominent piece of-merchandise,
dramatic colour or streamers arranged to centre on an object. A point of
dominance acts as a focal point on which the viewer's eyes rest and from which

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the eyes move to other parts of the display.
3. Provide for Proper Eye Movement
Too many displays do not direct the eyes in a systematic fashion, but permit
them to jump from so one end of the display to other. If his eyes move
indiscriminately around the display, the viewer will not see some of the
merchandise in the dispiay and will not understand the intended message. To
achieve proper eye movement, merchandise should be displayed in such a way
that the eyes move from one part of the display to another. Sometimes the use of
streamers facilitates this objective.
4. Provide for Gradation
Gradation is the sequence in which items are arranged. For example, small
items are usually placed at the front of the display, medium sized items further
back and large-sized items at the rear. This provides harmony and creates an
appealing illusion.
5. Place at Eye Level Merchandise Designed to Create Deep Impact
Because, viewers tend to look straight ahead, merchandise placed at eye
level is most likely to be seen. Neither toe high nor too low positions to be
avoided. No specific height can be said, but normal 3.5 foot to 5.00 foot can be
the safe range.
6. Group Merchandise

Too many merchants place one item after another in long row. Shoe stores,
jewellery stores and mass merchandisers, especially tend to do this. Stores with
large amounts of one item or with one line of goods are likely to build display in
this manner. Merchandise should be grouped so that the customers eyes travel
from group to group. If this is not done, the window has a junky appearance and
the customer has difficulty in picking out the merchandise being displayed.
7. Give Merchandise Sales Appeal

AIl windows should display the best merchandise. Displays take up valuable

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space, and to use slow selling items for display merchandise is to waste the
potential in a display. One way to generate sales appeal is to choose the most
important feature of merchandise being displayed and then emphasize it. Another
way is to have the display tell a story. In other words, build the display around a
theme, such as a back-to school or Valentine theme. Customers relate best when
they can grasp the total picture; they imagine themselves in the situation and are
able to understand the role of merchandise might play.
8. Keep Displays Clean and Neat

Merchandise who permit dust to accumulate on a display, who leave dead

months lying around, who do not dust display merchandise and props, who do
not wash glass display fixtures and windows to eliminate the blue film that
frequently collects on them, who do not replace burnout light bulbs and who do
not replace merchandise that has been taken out are guilty of poor display
maintenance.
9. Use Colour Properly

Do not use colours in an offensive way. Different colours are appropriate for
displays of women's wear and displays of men's wear. Pinks and greens are less
approprhte for men than women. The featured items should be in the brightest
colours. Light colours deepen a display space, seemingly increasing its size. Dark
colours do the opposite.
10. Use Name Cards and Show Cards

Every window should have the name of the store on a name card or printed
one on the window. Too many times customers must step back from the window
and look up to find out which store is running the display. Show cards are
informative and give the sales message and, therefore, act as sales agents.
11. Plan Displays in Advance
The proper procedure is to sketch out a display prior to its construction.
This facilitates the gathering of merchandise to be used in the display and

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collecting of fixtures for display. Planning should also include attention to

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the show cards to make sure that they are ready to be placed I I I ill 1 '1Then
,1 build
display is the least amount of time possible.
12. Do not Clutterup the Display

Putting of too much merchandise in a small area spoils lilt' N tlu 1 1 II"Keep
display orderly. Clutter reduces the glitter of displays.
The discussion on displays remains incomplete if we fail to lO tH IItW IImore
aspects namely, display elements and display contents not exl.'llHllll display
arrangements. Let us touch each of these points.

DISPLAY ELEMENTS
A retailer must carefully consider and plan each element of display.
Display elements include the merchandise, shelf display areas or window
displays, props, colours, background materials, lighting and signs. The retailer is
to compare contrast, repetition, motion, harmony, balance rhythm and proportion
of each display to draw the consumer's attention to it.
Display elements must be evaluated to determine how well and if they attract and
hold the attention of the passersby. "Contrast" is one way to attract attention.
Contrast is achieved by using different colours, lighting, form i.e., size and shape,
lettering or textures. "Repetition" attracts consumer attention by duplicating an
object to reinforce and strengthen the impression. For instance, by displaying 20
tennis rackets, the image is created of a store with a wide assortment of
merchandise in that category. "Physical motion" is a powerful attention getter, as
is dominance. If an item is much larger than other items in display, it will be the
dominant item and will draw attention to the entire display. After getting attention
and harnessing it, the attention is to be directed to the intended message where
harmony and frequency are used to attain it. 'Harmony' stands for the unification
of merchandise, lighting, props, shelf space and show cards to create a pleasing
effect. Balance, emphasis, rhythm and proportion work to focus attention on the
central point. Balance is of two types. Formal and informal. Formal balance

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display in which one side is duplicated by the other tend to produce feelings of
dignity, neatness and order. Informal balanced displays are one in which one side
does not exactly match the other tend to generate excitement and are less stuffy.
'Rythm' refers to the eyes path after initial contact with the display. The objective
is to hold the eye until the entire displa~' is seen. Proportion concerns the relative
sizes of the display's various objects. Attention can be directed to the desired focal
point by arranging items in a graduated pattern from the small to the large. The
proportion concept also involves the positioning of objects in patterns. Popular
display patterns include pyramid, steps, zigzags, repetition and mass. The image
of height and formality is created with pyramids, while the zigzag is a popular
method of displaying clothing to create an aura of excitement. Repetition
arrangements are used basically in shelf merchandising situations. Merchandise
placed equidistant from one another in a straight, horizontal line. The mass
arrangement is the placement of a large quantity of merchandise in either neatly
stacked lines or in jumbled dump bins to convey the image of a sale item. These
minute aspects go a long way in creating needed effect.
THE DISPLAY CONTENT

Display content is the type and amount of merchandise to be set off.

Cluttered display of unrelated merchandise attract little attention and are
ineffective in stimulating customer interest. To ensure good display content, many
retailers confine their efforts to one of the three groupings namely, units, related
and theme groupings.
The Unit Groupings

Unit groupings of merchandise highlight a separate category of product items

say shoes, shirts, cocktail dresses or hand bags. Unit groupings contain
merchandise that is almost identical say five black leather hand bags of different
sizes or closely related say three red leather hand bags and three brown leather
hand bags.
The Related Groupings

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 Related groupings of merchandise are ensemble display that present
accessory items along with the featured merchandise say a mannequin may be
dressed in a matching sports-wear out-fit with sporting accessories for example
tennis racket and a bag. The main idea behind the inclusion of accessory items is
to remind the customer of a need for more than the featured item. In other words,
the retailer is using suggestive selling. A display of either unit or related
groupings should contain an odd number of product items. Consumers perceive an
odd number of items as more irritating; hence, the items attract more attention and
create a more dramatic setting. When displaying an even number of merchandise
items say a set of eight stemmed glasses, it is recommended that one item be set
apart from the rest or differentiated in some other way say by elevating.
The Theme Groupings

Theme groupings display merchandise according to a central theme or

setting. Themes provide a focus in planning displays and are useful vehicles
around which the five sensory appeals can be employed. The number of possible
display themes is unlimited. If one talks of product themes-"shoes complete the
appearance", seasonal themes-"Swing into spring", patronage themes-"cheaper by
the dozen", usage themes-"Meal-time magic", occasion themes-"Along the bridal
path", colour themes-"Pastel softness", Lifestyle themes-"The swinging singles",
holiday themes- "Santa approved", as well as themes based on historical current
and special events.

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DISPLAY ARRANGEMENTS
Display arrangement is organising display merchandise into interesting,
pleasing and stimulating patterns. Haphazard arrangement of merchandise it~ms
can substantially reduce a display's effectiveness. Selection displays are simply
arranged in some well organised fashion, but special display merchandise
frequently is presented in one of four definite arrangement patterns namely,
pyramid, zigzag, step or fan arrangements.

Pyramid Arrangements
Pyramid arrangements are triangular displays of merchandise in vertical
stacked or horizontal-un stacked form. The configuration of pyramid pattern
will be :

The pyramid begins at a large or broad base and progresses up to an annex

or point, at the highest level. The vertical pyramid can be two or three
dimensional and is well suited to displaying boxed and canned merchandise. It
also represents an efficient use of space. The base of a horizontal pyramid is
placed in the rear of the display to achieve the clear visual perspective. While

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 displaying different-sized . merchandise items, larger items are positioned at the
base and smallest item occupies the apex. The use of pedestal displayers
arranged in a pyramid fashion-an affective arrangement pattern for window,
counter and table displays.
The Zig-zag Arrangements
Zig-zag arrangements are modified pyramids that zig-zag their way to the
apex of the display. No two displays levels are at the same height. This
arrangement is less monotonous than pyramid. The configuration can be:

It is perceived to be more fluid and graceful and perhaps more feminine.

A zig-zag pattern of pedestral displayers such as the one as seen above is
especially appropriate for displaying women's jewelleries, cosmetics, small
apparel items and shoes.
Step Arrangements

step arrangements are essentially speak of series of steps. Step arrangements

lead the eye in a direct line, they begin at a low point on the one side of a display
area and progress directly to a higher point on the opposite side of the area. T Ile
configuration of this step arrangement can be :

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 Typically, the step displays are constructed so that the base of each
increases in area. The larger the base area used to display accessory items, while
the steps are used for the featured merchandise. The step arranRcment is very
well suited to display of wide variety of merchandise.
Fan Arrangements
Fan arrangements speed up and out from small base, thereby directing the
viewer's eyes upward and outward. In fact, it is inverted-pyramid arrangement.
The configuration of fan arrangement can be:

This fan pattern is most appropriate for displaying merchandise ranging from
clothing goods to sporting goods. It gives much leeway for the vivid and variety of
possible arrangements as boxes are not fixed which can be positioned as per the
creativity of a retailer or his personnel.
In a nut-shell, stores atmosphere, layout designs and displays playa decisive
role in we.oming the customers, meeting their needs and making them to have
impulse buying with a smile. The work of a retailer is like a swan giving a
beautiful look on water working hard in peddling the water

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underneath.

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