INTRODUCTION TO RETAIL

SMITU MALHOTRA

1
 WHAT IS RETAIL?

• RETAIL – DERIVED FROM THE FRENCH WORD “RETAILLIER”,

WHICH MEANS TO BREAK BULK.

• RETAILING – A SET OF BUSINESS ACTIVITIES THAT ADDS VALUE

TO THE PRODUCTS AND SERVICES SOLD TO CONSUMERS FOR
THEIR PERSONAL OR FAMILY USE.

2
 FUNCTIONS

• PHYSICALLY DELIVER THE PRODUCT

• PRODUCT INFORMATION

• BULK BREAKING
• ASSORTMENT
• AFTER SALES SERVICE
• INFORMATION FLOW TO THE CO.

• AND NOW
• EXPERIENCE
• CONVENIENCE
3
 THE MARKETING – RETAIL
EQUATION

Manufacturer Manufacturer Manufacturer

Wholesaler

Retailer

Retailer
Feedback

Consumer Consumer Consumer

4
 THE RISE OF THE RETAILER -THE POWER
SHIFT

• PROXIMITY TO THE CUSTOMER

• TECHNOLOGY- BARCODE
• THE RISE OF CONSUMERISM
• INTRODUCTION OF THE PRIVATE LABEL

5
Source : https://www.statista.com/chart/22016/top-10-global-retailers/
 Top Global Retailers by FY2020 Growth

Source: https://www2.deloitte.com/global/en/pages/consumer-business/articles/global-powers-of-retailing.html
Source: https://www.marketingcharts.com/charts/the-10-most-valuable-global-retail-brands-in-2020/attachment/brandz-
most-valuable-global-retail-brands-may2020
Source: https://www2.deloitte.com/global/en/pages/consumer-business/articles/global-powers-of-retailing.html
 Impact of COVID-19 on leading global retailers

Source: https://www2.deloitte.com/global/en/pages/consumer-business/articles/global-powers-of-retailing.html
 I M PA C T O F C O V I D -19 O N LEA D I N G G LO BA L
R ETA I LER S

 In the United Kingdom, the proportion of retail sales spent online soared to 35.2% in January 2021, up from
19.5% in January 2020.”

 “In France, the online share of retail reached 13.4% in 2020, up from 9.8% in 2019. Sales of products were
up by 32%, while sales of services were down by 10%.”

 “In Germany, online grocery sales grew by almost 90% in the second half of 2020, compared to the same
period in 2019.”

 “In the United States, online share of retail increased from 11.8% in the first quarter of 2020 to 16.1% in the
second quarter of 2020.”

 “In China, the online share of retail rose to 24.6% in August 2020, up from 19.4% in August 2019.”

 “In Thailand, downloads of shopping apps jumped by 60% in a single month in March 2020.”

 “In Latin America, online marketplace Mercado Libre saw deliveries per day more than double for the
second quarter of 2020 compared to 2019.”

 “In Argentina, the online share of retail jumped from 18% to 49% in the first half of 2020.”
Source: https://www2.deloitte.com/global/en/pages/consumer-business/articles/global-powers-of-retailing.html
Source: https://www.smartinsights.com/digital-marketing-strategy/online-retail-sales-growth
Source: https://www.smartinsights.com/digital-marketing-strategy/online-retail-sales-growth/
 INDIA - THE TOP RETAIL DESTINATION

• The retail market in India has undergone a major transformation and has witnessed tremendous
growth in the last 10 years.
• The overall retail market is set to cross the $1.75 tn mark by 2026 from $795 bn in 2017.
• India’s e-commerce retail market which stood at $30 bn in 2019 is also set to grow at a CAGR
of 30% for gross merchandise value to be worth $200 bn by 2026.
• The Indian e-commerce sector is expected to grow at a 27% CAGR over 2019-24 and is
expected to reach $99 bn by 2024
• Direct-to-Consumer segment could have a $100 billion addressable market by 2025.
• The number of households carrying out online transactions in India is estimated to grow from
154 mn in 2020 to 233 mn in 2025
• India ranked No. 2 in Global Retail Development Index (GRDI) in 2019.
• Retail is India's largest industry, currently accounting for over 10% of the country's GDP and
8% of total employment.

Recent policy changes allow 100% FDI under the automatic route for single-brand retail trading.

Source: https://www.investindia.gov.in/sector/retail-e-commerce
 India - The Top Retail
Destination

Source: https://static.investindia.gov.in/s3fs-public/202006/Retail%20Sector%20Brochure_0.pdf
India - The Top Retail Destination

Source: https://www.ibef.org/industry/retail-india.aspx
 India - The Top Retail Destination

Source: https://www.aidio.in/yoy-retail-market-challenges-in-india-2020/#page-content
India - The Top Retail Destination

Source: https://www.aidio.in/yoy-retail-market-challenges-in-india-2020/#page-content
 E-commerce Industry in India

Source :https://www.ibef.org/industry/ecommerce/infographic
 E-commerce Industry in India

Source: https://www.ibef.org/industry/ecommerce/infographic
Source: https://www.thehindubusinessline.com/info-tech/pandemic-tailwinds-push-e-commerce-growth-estimate-
to-40-in-2020/article32620816.ece

Source: https://www.proschoolonline.com/blog/top-5-reasons-why-india-is-a-hot-e-commerce-destination
 POTENTIAL UNTAPPED MARKET
15 Mn outlets in India, 96% of which are smaller than 500 sq ft

Indian retail density of 6% is highest in the world

100% 10%
20% 20%
30%
80% 40% 36%
55%

60% 81%
85%

40%

20%

0%
US Taiwan Malaysia Thailand Brazil Indonesia Poland China India

Traditional Channel Modern Channel

25
 TOP 10 RETAILERS -- FORTUNE 500 list 2013

% change in the % change in

Revenue Profit
Fortune Rank Corporation revenue profit from
$ million $ million
from 2011 2011

Wal-Mart
1 Stores 469,162 5 16,999 8.3
40 CVS Caremark 123,133 14.3 3,877 12
59 Carrefour 105,996 -12.9 1,585 207.2
63 Tesco 104,425 0.6 197 -95.6
Costco
67 Wholesale 99,137 11.5 1,709 16.9
72 Kroger 96,751 7.1 1,497 148.6
87 Metro 85,768 -7.5 4 -99.6
106 Home Depot 74,754 6.2 4,535 16.8
113 Target 73,301 4.9 2,999 2.4
120 Walgreen 71,633 -0.8 2,127 -21.6

From the May 20, 2013 issue

KEY PLAYERS IN THE WORLD

OF RETAIL 26
 2018 FORTUNE 500 LIST

27
Source: https://www.patentlyapple.com/patently-apple/2019/05/the-2018-fortune-500-list-published-today-ranks-apple-3.html
Here’s the top 10 with projected global retail sales for 2019:

1. Walmart US $517.7 billion

2. Amazon US $213.8 billion
3. Costco US $144.3 billion
4. Schwarz Group Germany $130.3 billion
5. Kroger US $124.3 billion
6. Walgreens Boots Alliance US $114 billion
7. Aldi Germany $109.5 billion
8. Home Depot US $108.9 billion
9. Carrefour France $101.1 billion
10. JD.com China $94.4 billion

https://www.producebluebook.com/2019/06/01/kantars-top-50-world-retailers-for-2019/
 Geograp
hic
Analysis

Source: https://www.thebalancesmb.com/worlds-largest-us-retail-chains-2892856
 •Seven U.S. retail chains have
been included in the list’s top
10 with four of the them
leading in the top four
rankings.

•Walmart, Costco, and Kroger

remained the top three with
Walmart leading revenue at
$500.3 billion.

•Amazon jumped two spots to

move into fourth place with
revenue of $118.6 billion.

Source: https://www.thebalancesmb.com/worlds-largest-us-retail-chains-2892856
 31
Source: https://wearesocial.com/blog/2020/01/digital-2020-3-8-billion-people-use-social-media
RETAILING-TWO CAREER
PATHS

32
 A TYPIC AL RETAIL BUSINESS:
FUNCTIONS, MERCHANDISE
FLOW AND STAKEHOLDERS

Store Manager
Buyer Zonal /
Vendors Regional
Warehouses
Retail
Stores
Vendors Company DCs
Zonal /
Regional
Warehouses
Vendors Merchandiser
Retail
Stores
The movement of merchandise across the channel
Is regarded as the supply chain.
 MAIN RESOURCES AT THE DISPOSAL OF
THE RETAILER ?

• SPACE
• INVENTORY
• PEOPLE

2
Strategic Management Tasks
Performed in a Retail Firm
Merchandise Management Tasks
Performed in a Retail Firm
 Store Management Tasks
Performed in a Retail Firm

Recruit Motivate
Prevent Shrinkage Maintain Facilities

Sell Merchandise Train Employees

Provide Services Take Inventory

Plan Schedules Hire Personnel

Evaluate Performance Display Merchandise

Administrative Management Tasks Performed in
a Retail Firm

Promote the Firm, its Merchandise and

its Services
Manage Human Resources
Distribute Merchandise
Establish Financial Control
ASSIGNMENT OF RESPONSIBILITY FOR TASKS

• Strategic – Top Management, Board of

Directors
• Merchandise Management – Merchandise
Division
• Store Management – Stores Division
• Administrative – Corporate Specialists
 CLASSIFICATION

Food Type of
Retailers Retailing Ownership

General
Merchandize Non-Store
Retailers Retailers
 FOOD RETAILERS – CLASSIFIC ATION

Supercentres

Supermarkets A C Hypermarkets

FOOD
RETAILERS

Convenience E D Warehouse
Stores Clubs
 FOOD RETAILERS

SUPERMARKETS
• Self Service Food Store
• 70-80% of sales comes from Food Products
• 20000-30000 sq ft Size
• Limited assortment Supermarkets: Stock lesser number
of SKU’s than conventional supermarket; Limited variety and
assortment of brands
• Example: Food Bazaar
 FOOD RETAILERS

SUPERCENTRES
• Combines a supermarket and a full line discount store
• Broad Assortment
• One stop shopping experience
• Usually outside the city, customers have to travel distances
• 150000-220000 sq ft in size
 FOOD RETAILERS

HYPERMARKETS
• Combination of Food (60-70%) and General Merchandize
stores (30-40%)
• Carry larger proportion of food items than supercentres with
high emphasis on Perishables
• Stock fewer SKU’s than supercentres
• 100000-300000 sq ft in size
• Example: Big Bazaar
 FOOD RETAILERS

WAREHOUSE CLUBS
• Offers a limited and irregular assortment of food and general
merchandize
• Low Prices for the small Businesses
• Equivalent to Wholesalers in India
• 100000-150000 sq ft in Size
 FOOD RETAILERS

CONVINIENCE STORES
• Convenient Location near residential areas
• Limited variety and assortment
• Easy access, storefront parking, quick in and out access are key
benefits
• Open for long hours, seven days a week
• Modern version of conventional mom and pop stores
• Example: In & Out
 GENERAL MERCHANDIZE RETAILERS

DEPARTMENT STORES
• Broad Variety and Deep Assortment
• Offer Customer Services
• Not very convenient as usually located inside large malls and
not the local neighborhood
• Example: Shoppers Stop

FULL LINE DISCOUNT STORES

• Broad Variety of Merchandize
• Limited Service
• Low Prices
• Offer private labels and National Brands
• Example: Target
 GENERAL MERCHANDIZE RETAILERS

SPECIALITY STORES
• Offer a limited number of complimentary merchandize
categories
• Focus towards very specific market segment
• Offer deep but narrow assortment
• Example: Archies Gallery, Planet M

DRUGSTORES
• Concentrate on Health and Personal Grooming merchandize
• Pharmaceuticals represent over 50% of sales
• Highly fragmented market in India
• Example: 98.4, Apollo Pharmacies
 GENERAL MERCHANDIZE RETAILERS

CATEGORY SPECIALISTS
• Discount Stores with narrow but deep assortment of
merchandize
• Also known as “category killers” for offering very low prices in
the category they operate in

EXTREME VALUE RETAILERS

• Small full line discount stores
• Offer limited merchandize assortment at very low prices
• Example: The Dollar Store,
 GENERAL MERCHANDIZE RETAILERS

FACTORY OUTLETS
• Sell Branded Merchandize at discounted price
• Located away from conventional shopping places
 NON STORE RETAILERS
CHANNEL MODE OF COMMUNICATION FEATURES
Electronic Dramatically changed the traditional
Internet
retailing
Catalog Catalog General and specialty catalog retailers
Successful with rural customers who
Direct Mail
Letters and Brochures lacked access to retail stores. Compete
with CRM
Direct selling
Salespeople Party plan system , Multi level network

Television Home Customers watch TVB program and Cables channels

Shopping then place orders for the
merchandise by telephone
Automated Machine Services are stores in machine and
Retailing dispensed to customers when they
deposit cash/credit card
Infomercials
Direct response advertising
Vending machine placed at convenient
,high traffic locations primarily contain
snacks or drinks
RETAIL STRATEGY
• TARGET AUDIENCE
• FORMAT
• SUSTAINABLE COMPETITIVE ADVANTAGE
2
Competitive advantage
 The Eight Ways To Win In Retailing
The Pentagon & The Triangle
Size
Place Location
Layout & Design
Positional Style & Fashion
Communication Systems Product Intensity
Promotional Assortment

Logistics Suppliers

Service Price
Knowledge People Value
Climate Quality
Est theory for Retail Success
•The Est theory derives from the word best, and it
essentially says that a retailer must be best at one
proposition that’s important to a specific group of
customers
•Retailers must strive for a specific positioning to a
specific set of customers rather than attempting to
be great at everything to everybody

BASED ON WINNING AT RETAIL BY ANDER AND STERN

26-08-2021 5
Est theory for Retail Success
• To accomplish this might mean targeting a specific
customer at the exclusion of others,
• giving up on merchandise categories that today might still
be yielding profitable sales,
• or forgoing short-term growth and profits with an eye
toward long-term success
• Even though these are the fundamental to any marketing
business, most retailers find it tough to follow

BASED ON WINNING AT RETAIL BY ANDER AND STERN 26-08-2021 6

The Est Model

BASED ON WINNING AT RETAIL BY ANDER AND STERN 26-08-2021 7

EST
• Big – Est (Home Depot, Best Buy)-Maximum assortment and
variety; not size or volume over all
• Cheap – Est (Wal-Mart, Costco, Dmart )- Consistently having
lower prices than the competitors
• Hot – Est (Starbucks, Zara )-Stores that carry latest products just as
customers begin to buy them in volume (mass fashion)
• Quick – Est (McDonald’s, Walgreens) -Most efficient service;
helps customers save time significantly
• Easy – Est (Container Store, Publix, Kohl’s)-Best solution
oriented service (ease of use) Experience that makes shopping easy
and hassle free

BASED ON WINNING AT RETAIL BY ANDER AND STERN 8

The Est Model
• The organization needs to be the best in one of the five
rather than pretty good in all of them
• The model proposes a non-compensatory decision
making for the consumers that has no place for diffused
branding
• Alternatively, it proposes razor sharp focus and incessant
drive to achieve the desired position

BASED ON WINNING AT RETAIL BY ANDER AND STERN 26-08-2021 9

The Est Model
• There could be positions other than this; but they would
be niche positions
• Fine – Est
• Best quality merchandise (luxury retailing)
• Being best in one does not men complete lack of concern
for all other parameters; each retailer need to achieve an
acceptable level on all other parameters
• Est is not forever; it changes with time

BASED ON WINNING AT RETAIL BY ANDER AND STERN 26-08-2021 10

Retail Mix

Customer Location
Service

Store Design Merchandise

And Display Retail Strategy Assortment

Communication Pricing
Mix

11
Wal-Mart’s Retail Mix
Location Strategy

Free-standing Stores

Customer
Service

Store Display Merchandise

And Design Assortment

Communication
Mix Pricing

12
Wal-Mart’s Retail Mix
Assortment Strategy

Customer
Service Location

Large Number
Store Design
and Display
of Categories
Few Items
Communication
Mix Pricing
in Each Category

13
Wal-Mart’s Retail Mix

Location
Pricing Strategy
Customer
Merchandise
Service
Assortment

Store Design
and Display

Communication
Mix Low, EDLP

14
Wal-Mart’s Retail Mix
Customer
Service Location

Communication Mix
Store Design Merchandise
and Display Assortment

Pricing

TV and Newspaper
Insert Ads

15
Wal-Mart’s Retail Mix

Store Design and Display

Customer
Service Location

Basic, Special
Merchandise
Displays Assortments
for Products
Communication
Mix Pricing

16
Wal-Mart’s Retail Mix

Customer Service

Limited

Location

Merchandise
Assortment

Store Design
and Display Pricing

Communication
Mix

17
CONSUMER DECISION
MAKING
Why People Go Shopping?

 Personal motives
 Role playing
 Diversion
 Self gratification
 Learning about new trends
 Physical activity
 Sensory stimulation

2
Why People Go Shopping?

 Social motives
 Social experience
 Communication with others
 Peer group attraction
 Status and authority
 Pleasure of bargaining

3
SHOPPER
THE NEW CONSUMER

 Constantly connected
 More Free time
 Higher Level Skills
 Experience focused
 FUNNEL TO
FISH

 UNBUNDLING
 DECOUPLING
DIGITAL DECOUPLING
 PURCHASE COSTS
USAGE COSTS
SEARCH COSTS
SUBSCRIPTION SERVICES
PEER TO PEER
AMAZONS PRICE APP SHARING

TIME AND EFFORT TO EFFORT IN PAYMENT AND

USING AND
SEARCH FOR RIGHT DELIVERY INVOLVED
MAINTAINING COSTS
PRODUCT
 BONOBOS
 https://www.youtube.com/watch?v=pjQp3zSYitY

 Hema
 https://www.youtube.com/watch?v=uEbYNJZ9iJ4&list=RDCMUC9awv94A7Wz
WuTUP2frSuDA&index=1
New retail – hema example – 11.11
reality
 https://www.youtube.com/watch?v=H9p5jaiOxD8&list=RDCMUC9awv94A7Wz
WuTUP2frSuDA&index=3
Retail Mix

Customer Location
Service

Store Design Merchandise

And Display Retail Strategy Assortment

Communication Pricing
Mix

1
Retail Mix

Location Strategy

Customer
Service

Store Display Merchandise

And Design Assortment

Communication
Mix Pricing

2
LOCATION ANALYSIS
SMITU MALHOTRA

3
 Why is Store Location Important for a Retailer?

 Location is typically prime consideration in

customer’s store choice.
 Location decisions have strategic importance
because they can help to develop sustainable
competitive advantage.
 Location decisions are risky: invest or lease?

4
location research – why ?
 SALES POTENTIAL OF A STORE

 CHOOSE LOCATION THAT

 OPTIMIZES THE SHARE OF MARKET POTENTIAL
 MINIMUM HAZARD FOR FUTURE SALES EROSION
 MAXIMIZES ROI OVER THE LEASE PERIOD

5
ERGO ------ USEFUL WHEN ??
• FIRM SEEKS TO EXPAND /IMPROVE MARKET
• PROPOSES TO OPEN STORES IN NEW AREAS
• CONSIDERS AN ACQUISITION

6
Issues in Location Planning
• Rollout / extension (increase in floor space)
• Relocation (combining two nearby stores or moving to a better
location)

• Rationalization (the closure of individual stores or selling of

divisions

• Refascia (altering the image of outlets by changing the name and

appearance)

• Refurbishment (changing or updating the fittings)

• Remerchandising (altering the product range and
merchandising of a retail location)

7
 WHAT INFLUENCES LOCATION
DECISIONS?
 CONSUMER BEHAVIOR
 DENSITY OF TG
 UNIQUENESS OF RETAIL OFFERING
 COMPETITION
 COSTS OF OPERATION

8
Effect of Competition
 Why do retailers cluster around together?

 Hotelling’s rule

9
 Geographic Planning -----Central
Place Theory

Threshold – yellow area

tC
A
th range

10
 Shopping Behavior of Consumers
in Retailer’s Target Market
 Consumer Shopping Situations
 Convenience shopping
 Comparison shopping
 Specialty shopping

11
Convenience Shopping
 Minimize the
customer’s effort to
get the product or
service by locating

The McGraw-Hill Companies, Inc./Andrew Resek, photographer

store close to where
customers are located

12
Comparison Shopping

 Customers have a good idea of

what type of product they
want, but don’t have a strong
preference for brand, model or
retailer.
 Competing retailers locate near
one another

Typical for furniture, appliances,

apparel, consumer electronics,
hand tools and cameras.
13
Specialty Shopping

 Customers know what

they want
 Designer labels
 Convenient location
matters less

14
 What kinds of locations are
available to the retailer ?
 FREE STANDING
 CITY
 BUSINESS DISTRICT – CP IN DELHI
 MAIN STREET / HIGH STREET - JANPATH
 MALLS AND SHOPPING CENTERS
 OUTLET MALLS
 SPECIALIZED
 AIRPORTS

15
 FOUR LEVELS OF LOCATION
DECISIONS
 What region of the country?
 What city or community?
 What area of the city?
 What specific site?

16
Location – 2
FOUR LEVELS OF LOCATION
DECISIONS
 What region of the country?
 What city or community?
 What area of the city?
 What specific site?

2
Three Levels of Analysis

3
Global Retail Development Index

Source AT Kearney
Source: https://www.co.kearney.com/global-retail-development-index/2019
1. What region of the country?
 Consider:

 Tax variables
 Type of market coverage
1. Regional Dominance
2. Saturation
3. Smaller communities

6
2.What City?
Must consider:

7
 Economic  Regulation
Characteristics Characteristics
• Number and type of • Taxes
industries • Licensing
• Dominant industries • Zoning restrictions
• Growth projections • Local ordinances
• Financial Base
2. What City?
Must consider:
 Population  Competitive
Characteristics Characteristics
• Total size of trading • Saturation level
area • Number and size of
• Age and income competitors
distribution • Geographic coverage
• Growth trends
• Competitive growth
• Education levels trends
• Occupation distribution
and trends

8
What City?
Must consider:
 Location  Supply

9
Characteristics Characteristics
• Number and type of • Delivery time
locations
• Delivery costs
• Costs
• Availability and
• Accessibility to customers
reliability
• Accessibility to
transportation • Storage facilities
• Owning/leasing options
• Utility Adequacy
What City?
Must consider:
 Promotion

10
 Labor Characteristics
Characteristics
• Availability of
• Type of media
Management
coverage
Clerical
• Media overlap
Skilled
• Wage levels • Costs
• Unions
• Training
Indices for Assessing Sales Potential

 Market Potential Index (MPI)

 Number of Households Purchasing a Product or Service in a
Trade Area

 Spending Potential Index (SPI)

 Average Amount Spent on a Product or Service by a Household
in a Trade Area

11
Cluster/Town Finalization

• All towns in the country have been identified and

classified by Market Potential Value (MPV)

• MPV = Potential( index of select economic indicators )

x
Population of town.

• MPV captures the per capita purchasing power of a town /

purchase intensity

12
 MPV – List of Top Towns

Rank Town MPV % Cont. to Cum. % Cont. to Top Towns

All India MPV All India MPV Contribution

1 Mumbai 1000 11.0 % 11.0 %

2 Delhi 790 8.6 % 19.6 %
3 Kolkata 613 6.7 % 26.3 % Top 3 Towns
4 Chennai 363 4.0 % 30.3 %
5 Hyderabad 258 2.8 % 33.1 % Top 5 Towns
6 Bangalore 255 2.8 % 35.9 %
7 Ahmedabad 221 2.4 % 38.2 %
8 Pune 207 2.3 % 40.6 %
9 Surat 125 1.4 % 41.9 %
10 Nagpur 105 1.1 % 43.1 % Top 10 Towns

11 Kanpur 95 1.0 % 44.1 %

12 Jaipur 94 1.0 % 45.2 %
13 Lucknow 87 1.0 % 46.1 %
14 Ludhiana 79 0.9 % 47.0 %
15 Baroda 79 0.9 % 47.8 %
16 Coimbatore 71 0.8 % 48.6 %
17 Indore 70 0.8 % 49.4 %

18 Kochi 67 0.7 % 50.1 % Top 18 Towns

 MPV – List of Other Major Towns

Rank Town MPV % Cont. to Cum. % Cont. to Top Towns

All India MPV All India MPV Contribution

19 Patna 61 0.7 % 50.8 %

20 Bhopal 59 0.6 % 51.4 %

23 Chandigarh 53 0.6 % 53.2 %

30 Trivandrum 42 0.5 % 56.7 %
32 Guwahati 40 0.4 % 57.6 %
38 Jamshedpur 34 0.4 % 60.0 % Top 38 Towns
50 Hubli 29 0.3 % 64.1 % Top 50 Towns

52 Ranchi 26 0.3 % 64.7 %

57 Bhubaneshwar 24 0.3 % 66.1 %

70 Dehradun 17 0.2 % 68.9 %

76 Pondicherry 17 0.2 % 70.0 % Top 76 Towns

100 Jhansi 13 0.1 % 73.8 % Top 100 Towns
1.Cluster/Town Finalization

• Targeted coverage of all towns with MPV per cap greater

than 4

• All other towns with an MPV Per capita of greater than 3

also considered, subject to fitting into the cluster.

• Cluster identified based on number of cluster-able towns

and total potential therefore
2.Town Finalization/Prioritization

All India
Grade MPV Popn.'000 MPV Per cap
Rank

Kolkata West Bengal AAA 3 613.19 13216.55 4.64

Asansol West Bengal B 28 42.45 1090.17 3.89

Siliguri West Bengal B 75 16.63 470.28 3.54

Durgapur West Bengal B 83 15.04 493.00 3.05

Barddhaman West Bengal C 126 9.28 285.87 3.25

Jamshedpur Jharkhand B 38 34.17 1101.80 3.10

Dhanbad Jharkhand B 44 32.78 1064.36 3.08

Ranchi Jharkhand B 52 25.57 862.85 2.96

Bokaro Steel City Jharkhand B 94 13.79 497.86 2.77

3. What area of the city?

 TRADING AREA ANALYSIS

 A trading area is a geographic area containing the customers

of a particular firm or group of firms for specific goods or
services

17
SIZE OF THE TRADE AREA

 DEPENDS UPON
 NATURAL AND PHYSICAL BOUNDARIES
 TYPE OF STORE – DESTINATION OR PARASITE
 COMPETITION

18
Oblong Trade Area Caused by
Major Highways and Natural
Boundaries

19
TRADING AREA ANALYSIS
 HOW DOES IT HELP THE RETAILER?
 ESTIMATE THE NO. OF POTENTIAL CUSTOMERS
 LIFESTYLE OF CONSUMERS
 COMMUNICATION STRATEGIES THAT CAN BE ADOPTED
 NO. OF STORES THAT CAN BE LOCATED
 CANNABALISATION ISSUES

20
The Trading Areas of Current and
Proposed Outlets

21
QUANTIFYING THE TRADING AREA

 OBSERVATIONAL METHODS
 NATURAL CATCHMENT BOUNDARIES LIKE RIVERS , MOTORWAYS,
RAILWAY TRACKS ETC
 CUSTOMER SPOTTING
 GIS

22
CUSTOMER SPOTTING

23
 GIS Software

 Geographic Information Systems

 digitized mapping with key locational data to graphically
depict trading-area characteristics such as

 population demographics
 data on customer purchases
 listings
of current, proposed, and
competitor locations

24
GIS Components

25
GIS Software in Action

26
Analysis of competition in catchment area

 Number of Players
 By size
 Pricing
 Assortment & Range
 Promotions – quality and range and frequency
 Facilities available at stores
 Location of competitor store
 Competitor USP
 Index of Retail Saturation
 Understored
 Overstored
 Saturated

Ci * REi
IRSi =
RFi
Where
IRSi = Index of retail saturation for area i (where i is the local market)
Ci = number of customers in area i for the product service catgory
REi = retail expenditures per customer in area i for product/service category
RFi = total retail square footage in area i allocated to the product / service category
Question
Parameter 1 2 3
Number of Customers buying 60000 30000 10000
Daily
Average annual purchases per 60 75 100
customer
Total sq. ft including the current 20000 15000 75000
store

What is the saturation index ?

Solution
Parameter 1 2 3
Number of Customers buying 60000 30000 10000
Daily
Average annual purchases per 60 75 100
customer
Total sq. ft including the current 20000 15000 75000
store
Index of Retail Saturation 180 150 133
including the store
Index of retail saturation 240 225 400
excluding the store
 31
Methods of Estimating Demand: Computerized
Trading-Area Analysis Models
Interpretation

 Compare the breakeven sales of the company with the IRS. Choose the
site with IRS>Breakeven sales.
 IMPORTANT: INCLUDE THE STORE IN QUESTION IN THE CALCULATIONS
OR ELSE, THERE WILL BE DISTORTIONS.
 Analog Model

Regression Model

Huff’s Model/
Gravity Model

Reilly’s Law

33
 The Analog Approach

3 Steps:

34
1. Current trade area is determined by using the
customer spotting technique.

2. Based on the density of customers from the store,

the primary, secondary and tertiary trade area zones
are defined.

3. Match the characteristics of our current store with

the potential new stores’ locations to determine the
best site.
 Multiple Regression Steps

• Current trade areas are determined by using

35
the customer spotting technique
• Primary, secondary, and tertiary zones are
determined by plotting customers on a map
• Select appropriate measures of performance,
such as per capita sales or market share
• Select a set of variables that may be useful in
predicting performance
• Solve the regression equation and use it to
project performance for future sites
Illustration of Regression Approach

1. Specify Regression Model – Identify Critical Predictors of Store Sales

Sales = B0 + B1 x X1 + B2 x X2
X1 = population in trade area
X2 = average household income in trade area
2. Estimate Weights - B0,B1, B2
3. Use Estimated Weights to Forecast sales
Sales = -144,146 + 6,937 x X1 + 10,132 x X2
Sales = -144,146 + 6,937 x 55,000 + 10,132 x 28,000 = $521,085

36
WHERE WOULD YOU LOCATE YOUR
STORE ?

RANCHI – 29 LAKHS JAMSHEDPUR

12 LAKHS
A B
130 KMS

37
REILLY’S LAW OF RETAIL GRAVITATION

 Two cities attract trade from an intermediate place ,

appox. In direct proportion to the population of the
two cities and inverse proportion to the square of
distance from these two cities to intermediate place.

38
Reilly’s Law of Gravitation
d
Dab =
Pb
1+
Pa

where Dab is the breaking point from A,

measured in miles along the road to B;
d is the distance between A and B along the
major highway;
Pa is the population of A; and
Pb is the population of B
39
40
Trading Area for City A

41
Huff’s Law/Gravity Model

Huff’s law of shopper attraction delineates

trading areas on the basis of product
assortment (of the items desired by the
consumer) carried at various shopping
locations, travel times from the shopper’s
home to alternative locations, and the
sensitivity of the kind of shopping to travel
time

42
 Huff’s Model Formula

S j  Tij b
Pij  n

43
 S j  Tij b
j 1
Where
Pij  Probabilit y of a customer at a given point of origin i traveling to a
particular shopping center j
S j  Size of shopping center j

Tij  Travel time or distance from customer's starting point to shopping

center
b  An exponent to Tij that reflects the effect of travel time on different
kinds of shopping trips
Explanation
 Larger the Shopping center, more will be the people purchasing
 Longer the Distance, lower is the number of people purchasing
 b is dependent on type of goods. Usually, the higher the b the
lower will be the inclination of people to travel. We would travel
more for Gold purchases than for grocery purchase.

44
 University and Shopping Centers:
EXISTING STORE

PROPOSED

EXISTING STORE

45
 Huff’s Model: The Solution

Pij = 1000  32
(1000  32) + (500  52) + (100  12)

Probability = .48

.48 x 12,000 students = 5,760 customers

5,760 customers x $150 = $864,000

Repeat steps 1 to 3 for the remaining areas and then sum them.

46
What specific site?

47
Location/ Site Evaluation Checklist

48
Business Viability in location finalization
TRADE AREA EVALUATION AND FEASIBILITY for a 3000 sft store

Case A Case B Case C

Fixed Opex( Rent) 50 50 50

Variable Opex 100 100 100

Total Opex 150 150 150

The Break Even requires RGM/SFT Of Min Rs 150/ at a Sale/Sft of Rs 789 at 19% GM.

Estimated No of Bills/day 300 400 600

Estimated ABV 200 200 200

Estimated Sales/Day 0.60 lac 0.80 lac 1.20 lac

Estimated Sales/Month 18 lacs 24 lacs 36 lacs

Estimated Sales/Sft 720 800 1200

Standard GM% 19% 19% 19%

Break even sales /sft 789 789 789

Breakeven sales/ month 2367000 2367000 2367000

RGM per sft(actual) 136.8 [720*0.19] 152 228

EBITDA per sft on Trading -13.2 2 78

 5. Analyze Property alternatives

 Proximity of larger relevant population

 2000 to 3000 households for a daily
 Visibility from the road
 30 ft frontage
 Parking facilities
 3 to 4 car parks for a daily / 150 to 200 for a hyper
 Approachability
 Way home rather than way to work
 Rent
 Currently in the Rs 40 to 45 range
 Flexibility in terms of agreement with landlord
 Trading Area economics
 Feasibility of bringing in concessionaires
Neighbourhood social capital –
 https://www.youtube.com/watch?v=jeKiNMs4QqM

 david bell – online offline

51
11/08/20 0
Merchandising
Significance
 What is the hallmark of a successful retail operation?

Introduction Merchandise selection that matches the tastes,

preferences, and expectations
of its target customers
  Merchandise selection effects all aspects of retail
operations

 Funds allocation to hold stock

Introduction  Amount of space, labor, and equipment required for
stock and display
 Sales and margin generated by the store
 Types of customers the store will attract
  Store image is a function of

Introduction  Quality,
 Price,
 And
 Selection
  The goal of merchandising

Introduction  Select the right mix of

 products or services
 To sell at the store
  Merchandise is the primary means of satisfying
customers

Introduction  that meets the tastes and preferences of the target

market
 And is consistent with store positioning
 Merchandising framework
Consumer
s
Distributio Retail
Warehouses
n Centres Stores

Consumer
Suppliers s

STORE
Suppliers BUYERS MERCHANDISERS Consumer
MANAGEMENT
s

Suppliers
Retail Objective Consumer
~ Positioning 11/08/20 7
s
  ANALYSIS
 PLANNING
 ACQUISITION
IN DETAIL IT  HANDLING/STOCK MANAGEMENT

MEANS -  CONTROL

 SAID TO BE THE CORE OF RETAIL

11/08/20 8
  ANALYSIS – identification of customers and their needs
 PLANNING – as merchandise is purchased 6-12 months
before
 ACQUISITION – bought from wholesalers/vendors
HANDLING/STOCK MANAGEMENT – where is it needed
IN DETAIL IT 
and in proper shape
MEANS -  CONTROL – of large money inventory to ensure financial
return

 SAID TO BE THE CORE OF RETAIL

11/08/20 9
  Merchandising decisions in retail is equivalent to the
product line decisions in marketing

Analogy  Product decisions involve optimizing the product mix of

the organization whereas merchandising decisions
involve optimizing the merchandise mix for the retail
store

11/08/20 10
Product Line & Product Mix
• Product Mix
Product Product Product
Line 1 Line 2 Line 3

LAMPS TABLES CHAIRS

•Table •Kitchen •Dining Room
•Ceiling •Dining Room •Living Room
•Track •End •Bedroom
•Desk •Coffee •Outdoor
•Outdoor •Desk
•Conference
•Computer
Selected
Acme Furniture Co.
Products
11/08/20 11
  Variety or Merchandise lines – or categories e.g. dept
store (appliances, shoes, clothing, perfumes, etc.) or
an apparel store (men, women, teens, kids etc.)

Merchandise  Assortment– selection of products / brands/

styles/colours etc. under each business category
classification
 Depth – number of each SKU to be kept. Large stock
raises inventory cost and low stock reduces customer
satisfaction


Merchandise strategy
 Variety + assortment

Variety Hypermarket Department stores

Carrefour Department store
 Big Bazaar Debenhams
High
Spencers Shoppers Stop
Westside

Service outlets Specialty stores

McDonald Clarks
KFC Plug Inns
Low Currency exchange Zara
Dunkin Donuts
Shoe city / Shoe Mart

Low High
11/08/20 13

assortment
  The heart of merchandising is
 balancing variety, assortment and depth

Merchandise  Example – add a new department (variety) in the

same space – reduce assortment or depth – leads to
strategy reduced customer satisfaction and reduced sales

 Every merchandise decision has three dimensions

 Variety + assortment impact

Constraint Action Trade-off

•Fixed investment •Expand variety •Reduce assortment,

maintain depth for
remaining assortment
factors, or
•Maintain assortment,
reduce depth

•Expand assortment for a •Reduce variety or depth

product group

•Reduce variety or depth

•Expand depth for a
product item
 Variety + assortment impact

Constraint Action Trade-off

•Fixed variety •Reduce total investment •Reduce assortment or

depth

•Increase assortment of •Increase assortment or

product group reduce depth

•Fixed investment and •Increase assortment for •Reduce depth

fixed variety product group

•Increase depth of •Reduce assortment

product item
Advantages
 Broad Market
 Full Selection of Items
 High Level of Customer
Traffic
 Customer Loyalty
 One-Stop Shopping
 No Disappointed
Customers
Disadvantages
 High Inventory
Investment
 General Image
 Many Items with Low
Turnover
 Some Obsolete
Merchandise

11/08/20 17
Advantages Disadvantages
 Broad Market  Low Variety Within
 High Level of Customer Produce Lines
Traffic  Some Disappointed
 Emphasis on Customers
Convenience Customers  Weak Image
 Less Costly Than Wide  Many Items with Low
and Deep Turnover
 One-Stop Shopping  Reduced Customer
Loyalty

11/08/20 18
Advantages Disadvantages
 Special Image  Too Much Emphasis on
 Good Customer Choice One Category
in Category(ies)  No One-Stop Shopping
 Specialized Personnel  More Susceptible to
 Customer Loyalty Trends/Cycles
 Greater Effort Needed
 No Disappointed
Customers to Enlarge the Size of
the Trading Area
 Less Costly Than Wide
 Little (no) Scrambled
and Deep
Merchandising

11/08/20 19
Advantages Disadvantages
 Aimed at Convenience  Little Width and Depth
Customers  No One-Stop Shopping
 Least Costly  Some Disappointed
 High Turnover of Items Customers
 Weak Image
 Limited Customer
Loyalty
 Small Trading Area
 Little (no) Scrambled
Merchandising
11/08/20 20
 Manufacturer (National)
 Private Label (Dealer)

11/08/20 21
Buying Organization Formats & Processes

 A merchandising plan cannot be properly devised and implemented unless the

buying organization and its processes are well defined
 Figure on next slide highlights the range of attributes from which retailers may
choose

11/08/20 22
 Formal
Level of Formality
Informal

Centralized
Degree of Centralization
Decentralized

General
Breadth
Specialized

Internal
Source of Personnel External
Resident Buying Office
Cooperative Buying

Merchandising
Philosophy
Buying

Staffing Buyer
11/08/20 23
Sales Manager
Merchandise Heirarchy
Company TESCO India

Division Non Food Grocery

Department Health & Beauty

Category Personal Care BabyCare Beauty

Sub Category Hair Care Skin Care Oral Care

Conditioner &
Product Group Shampoo Colorants
Oil & Gels

Product SubGroup Anti-dandruff Regular Herbal

Product XXXXXXXX XXXXXXXX XXXXX

11/08/20 24
Standard Merchandise Classification
Scheme and Organizational Chart

11/08/20 25
MERCHANDISING II

Smitu Malhotra
 MERCHANDISE PLANNING PROCESS

• FORECASTING SALES
• DEVELOP AN ASSORTMENT PLAN
• DETERMINE APPROPRIATE INVENTORY LEVELS
• DEVELOPING A CONTROL SYSTEM FOR MANAGING INVENTORY
• ALLOCATE MERCHANDISE TO STORES
• BUY MERCHANDISE
• MONITOR AND EVALUATE PERFORMANCE
FORECAST CATEGORY SALES
 TYPES
Staple Merchandise
Predictable Demand
History of Past Sales
Relatively Accurate Forecasts
Fashion Merchandise
Unpredictable Demand
Limited Sales History
Difficult to Forecast Sales
 TYPES OF MERCHANDISE

• Staple merchandise
• Assortment merchandise
• Fashion merchandise
• Seasonal merchandise
• Fad merchandise
 STAPLE MERCHANDISE

• Regular products carried by a retailer

• Grocery store staple examples
• Milk
• Bread
• Canned soup
• Basic stock lists specify inventory level, color, brand, style, category, size,
package, etc.
 ASSORTMENT MERCHANDISE

• Apparel, furniture, auto, and other products for which the retailer must carry
a variety of products in order to give customers a proper selection
• Decisions on Assortment
• Product lines, styles, designs, and colors are projected
• Model stock plan
 FASHION AND SEASONAL
MERCHANDISE

• Fashion Merchandise: Products that may have cyclical sales due to changing
tastes and life-styles
• Seasonal Merchandise: Products that sell well over nonconsecutive time
periods
 FORECAST CATEGORY SALES

• FOR STAPLE MERCHANDISE

• HISTORICAL SALES
• ADJUSTMENTS FOR CONTROLLABLE FACTORS
 FORECAST CATEGORY SALES

• FOR FASHION MERCHANDISE

• CATEGORY LIFE CYCLE

• PREVIOUS SALES DATA
• VENDOR INFORMATION
• MARKET RESEARCH
 HANDY HARDWARE STORE,
A SIMPLE SALES FOREC AST USING
PRODUCT CONTROL UNITS

Product Control Units Actual Sales Projected Growth/ Sales Forecast

2018 ($) Decline (%) 2019($)
Lawn movers/ snow blowers 200,000 +10.0 220,000
Paint and supplies 128,000 + 3.0 131,840
Hardware supplies 108,000 +8.0 116,640
Plumbing supplies 88,000 -4.0 84,480
Power tools 88,000 +6.0 93,280
Garden supplies/ chemicals 68,000 +4.0 70,720
Housewares 48,000 -6.0 45,120
Electrical supplies 40,000 +4.0 41,600
Ladders 36,000 +6.0 38,160
Hand tools 36,000 +9.0 39,240
Total year 840,000 +4.9 881,080
HANDY HARDWARE STORE, 2018 SALES BY MONTH

Month Monthly Actual Sales ($) Sales Index

January 46,800 67
February 40,864 58
March 48,000 69
April 65,600 94
May 112,196 160
June 103,800 148
July 104,560 149
August 62,800 90
September 46,904 67
October 46,800 67
November 66,884 96
December 94,792 135
Total yearly sales 840,000
Average monthly sales 70,000
Average monthly index 100
HANDY HARDWARE STORE, 2019 SALES FORECAST BY
MONTH

Month Actual Sales Monthly Sales Index Monthly Sales Forecast 2017
2016 ($)
January 46,800 67 73,423 * .67 = 49,193
February 40,864 58 73,423 * .58 = 42,585
March 48,000 69 73,423 * .69 = 50,662
April 6,600 94 73,423 * .94 = 69,018
May 112,196 160 73,423 * 1.60 = 117,477
June 103,800 148 73,423 * 1.48 = 108,666
July 104,560 149 73,423 * 1.49 = 109,400
August 62,800 90 73,423 * .90 = 66,081
September 46,904 67 73,423 * .67 = 49,193
October 46,800 67 73,423 * .67 = 49,193
November 66,884 96 73,423 * .96 = 70,486
December 94,792 135 73,423 * 1.35 = 99,121
Total Sales 840,000 Total sales forecast 881,080
Average monthly sales 70,000 Average monthly forecast 73,423
ASSORTMENT PLANNING
 ASSORTMENT PLAN

• An Assortment Plan indicates on general terms what the retailer

wants to carry in a particular merchandise category

16
 Assortment Plan for Girls’ Jeans
Styles T R A D I T I O N A L
Price levels $20 $20 $35 $35 $45 $45
Fabric Reg denim Stone- Reg denim Stone- Reg denim Stone-
composition washed washed washed
Colors Light blue Light blue Light blue Light blue Light blue Light blue

B O O T C U T
Price levels $25 $25 $40 $40
Fabric Reg denim Stone- Reg denim Stone-
composition washed washed
Colors Light blue Light blue Light blue Light blue
Indigo Indigo Indigo Indigo
Black Black Black Black

17
 Model stock plan –
Size Distribution for Traditional $20
Denim Jeans in Light Blue for a Large Store
Length/SIZE
1 2 4 5 6 8 10 12 14

Short 2 4 7 6 8 5 7 4 2 %
9 17 30 26 34 21 30 17 9 units

Medium 2 4 7 5 8 4 6 3 2 %
9 17 30 21 34 17 26 12 9 units

Long 0 2 2 2 3 2 2 1 0 %

0 9 9 9 12 9 9 4 0 units
Total 100%
429 units
• An assortment plan indicates that a buyer can purchase 1,000 units
of fashion wristwatches.The buyer must choose between buying 20
styles of 50 units each or 5 styles of 200 units each. In terms of the
store’s philosophy toward risk and space utilization, how does the
buyer make this decision?
• The buyer must understand the corporate philosophy
toward risk and space. If the philosophy is to take less risk
and/or if there is plenty of space, then the buyer will want
to select the 20 styles of 50 units each, because the general
rule of thumb is that a retailer will have less risk of large
losses if the assortment is diversified. Also a diversified
assortment requires more space to be devoted to it. If, on
the other hand, the corporate philosophy is to encourage
risk and/or there is limited space, then the buyer will
probably want to choose 5 styles of 200 units.
INVENTORY PLANNING
• Inventory levels are planned for a time period. The level must be sufficient to
meet sales expectations, allowing a margin for error
• The objective is to manage flow of merchandise into the stores so that the
amount of inventory is minimized but the merchandize is still available for
customers.
 FOR STAPLE MERCHANDISE

• How the orders, deliveries ,inventory levels and merchandise sales will evolve
over time ?
• So control system to manage the flow of merchandise
• – for staple good – automatic continuous replenishment control system
 INVENTORY PLANNING

• Basic stock (at retail) = Average monthly stock at retail – Average monthly sales
• BOM = Planned sales at retail + Basic stock
• The weeks’ supply method forecasts average sales weekly, so beginning inventory equals
several weeks’ expected sales:

Beginning-of-month inventory = Plan sales x Number of weeks to

be stocked

• the stock-to-sales method, a retailer wants to maintain a specified ratio of goods on hand
to sales.
• A ratio of 1.3 means If sales are 69018 – then inventory shd be 89723 at retail .
 MONTH PLAN SALES -$

JAN 30,000

FEB 60,000
BASIC STOCK METHOD MAR 90,000

APRIL 60,000

MAY 60,000

• CALCULATE BOM INVENTORY JUN 30,000

• GIVEN INVENTORY TURNOVER OF 4.0 JULY 30,000

• BASIC STOCK = AVG INVENTORY – AVG AUG 60,000

SALES
SEPT 60,000

OCT 90,000

NOV 120,000

DEC 30,000

TOTAL 720,000
• TURNOVER = NET SALES/AVG
INVENTORY
• 4= 720000/X
• AVG INVENTORY = 720,000/4=180,000
• AVG SALES = 720,000/12=60,000
• BASIC STOCK = AVG INVENTORY – AVG
SALES
• =180,000-60,000=120,000
 • WEEKS SUPPLY METHOD
• WEEKS OF SUPPLY = 52/ TURNOVER

INVENTORY
PLANNING • IF TURNOVER =6 THEN WEEKS SUPPLY = 52/6=8.7
• PLAN INVENTORY = PLAN SALES X WEEKS OF
SUPPLY
• = $5000 x 8.7 = $43,500
 • Reorder points are based on three factors.
• Order lead time is the period from the date an order is
placed by a retailer to the date merchandise is ready for
sale.
• Usage rate refers to average sales per day, in units, of
WHEN TO REORDER merchandise.
• Safety stock is the extra inventory that protects against
out-of-stock conditions due to unexpected demand and
delays in delivery.
• Reorder point = Usage rate x Lead time + Safety stock
FOR FASHION MERCHANDISE
 Six-Month Merchandise
Budget Plan for Men’s Tailored Suits
 • Forecast Six Month Sales for Category
• Breakdown Total Sales Forecast into Forecast for
each Month (lines 1, 2)
• Plan Reductions for Each Month (lines 3, 4)
STEPS IN PREPARING • Determine Beginning of the Month (BOM) Stock to
PLAN Sales Ratio (line 5)
• Calculate BOM Inventory (line 6)
• Calculate EOM Inventory (line 7)
• Calculate Monthly Additions to Stock (line 8)
 OPEN TO BUY

• Monitors Merchandise Flow

• Determines How Much Was Spent and

How Much is Left to Spend
SIX MONTH OPEN TO BUY
 • Projected EOM stock =
• Actual BOM stock
• + Actual monthly additions to stock (what was
OPEN-TO-BUY FOR actually received)
CURRENT PERIOD (I) • + Actual on order (what is on order for the
month)
• - Plan monthly sales
• - Plan reductions for the month
 • Open-to-buy =
OPEN-TO-BUY FOR
CURRENT PERIOD • Planned EOM stock (from merchandise budget plan)
(II) • Minus Projected EOM stock (based on what is really
happening)
ALLOCATING MERCHANDISE TO
STORES
 • Allocating merchandise to stores involves three
decisions:

• how much merchandise to allocate to each store

• ALLOCATION BASED ON SALES VOLUME
ALLOC ATING
MERCHANDISE TO
• what type of merchandise to allocate
STORES
• STORE TRADE AREA GEODEMOGRAPHICS

• when to allocate the merchandise to different stores

• SEASONALITY AND CONSUMER DEMAND
LEVELS
 Breakdown by Store of
Traditional $35 Denim Jeans in Light Blue

(1) (2) (3) (4) (5) (6)

TYPE OF NUMBER OF % OF TOTAL SALES PER SALES PER UNIT SALES
STORE STORES SALES, EACH STORE (TOTAL STORE TYPE PER STORE
STORE SALES X COL. 3) (COL. 2 X COL. 4) (COL. 4/$35)

A 4 10.0% $15,000 60,000 429

B 3 6.7 10,000 30,000 286
C 8 5.0 7,500 60,000 214

Total sales $150,000

Source: Banner Distributing Company, Denver, Colorado; used with permission.

 Merchandise Performance
ANALYZING • ABC Analysis
MERCHANDISE • Sell Through Analysis
MANAGEMENT Vendor Analysis
• Multiattribute Method
 • Rank - orders merchandise by some
performance measure determine which items:
• should never be out of stock.
ABC ANALYSIS
• should be allowed to be out of stock
occasionally.
• should be deleted from the stock selection.
 ABC ANALYSIS RANK MERCHANDISE
BY PERFORMANCE MEASURES

• Contribution Margin
• Sales Value
• Sales in Units
• Gross Margin
• GMROI
Use more than one criteria
 ABC Analysis for Dress Shirts
C 100
10% Sales
90
B
20% 80
Percentage of Sales Dollars 70
60
A 50
70% 40
30
20
10
0

No Sales

10 20 30 40 50 60 70 80 90 100
A
5% B
10% 65% C 20% D

Percentage of Items
 Sell-through Analysis for Blouses

Week 1 Week 2
Stock Actual-to-Plan Actual-to-Plan
Number Description Plan Actual Percent. Plan Actual Percent.
1011 -Sm White silk V-neck 20 15 -25 20 10 -50

1011 -Med White Silk V-neck 30 25 -16.6 30 20 -33

1011 -Lg White Silk V-neck 20 16 -20 20 16 -20

1012 -Sm Blue Silk V-neck 25 26 4 25 27 8

1012 -Med Blue Silk V-neck 35 45 29 35 40 14

1012 -Lg Blue Silk V-neck 25 25 0 25 30 20

EVALUATING A VENDOR
 Evaluating a Vendor:
A Weighted Average Approach


i1
I j * P ij = Sum of the expression

= Importance weight assigned

Ij to the ith dimension

= Performance evaluation for

Pi jth brand alternative on the
jth issue

1 = Not important

10 = Very important
 Evaluating a Vendor:
A Weighted Average Approach
Performance Evaluation of Individual
Brands Across Issues
Importance
Evaluation Brand A Brand B Brand C Brand D
Issues of Issues (I) (Pa) (Pb) (Pc) (Pd)
(1) (2) (3) (4) (5) (6)
Vendor reputation 9 5 9 4 8
Service 8 6 6 4 6
Meets delivery dates 6 5 7 4 4
Merchandise quality 5 5 4 6 5
Markup opportunity 5 5 4 4 5
Country of origin 6 5 3 3 8
Product fashionability 7 6 6 3 8
Selling history 3 5 5 5 5
Promotional assistance 4 5 3 4 7
Overall evaluation = n 290 298 212 341
I *P
i 1
j ij
 • INTEGRATING DOLLAR AND UNIT CONTROLS
FINANCIAL
INVENTORY
• Stock turnover
CONTROL
• GMROI
 ILLUSTRATION

BREAD READY TO EAT

FOODS
SALES $150,000 $300,000

GROSS 1.33% 50%

MARGIN
 ILLUSTRATION

BREAD READY TO EAT

FOODS
SALES $150,000 $300,000

GROSS 1.33% 50%

MARGIN
AVERAGE $1000 $75,000
INVENTORY

49
 • The buyer / merchandiser has control over the
merchandise they buy (inventory), cost of the said
E VA L UAT I N G merchandise and the price at which it is sold
MERCHANDISE
M A N AG E M E N T • The financial ratio that is important to plan and
PERFORMANCE measure merchandising performance is a return on
investment measure called gross margin return on
inventory investment (GMROI)

50
 • It measures how many gross margin dollars are
earned on every dollar of inventory investment.
E VA L UAT I N G
• GMROI is a very similar concept to return on assets,
MERCHANDISE
only its components are under the control of the
M A N AG E M E N T
PERFORMANCE buyer / merchandiser rather than higher level
executives.

51
 GMROI

Combine Gross Margin% X sales to stock ratio

GMROI = Gross Margin x Net Sales
Net Sales Avg Inventory
@ cost
GMROI = Gross Margin
Avg Inventory (@ cost)

Output (Margin Generated by Sales)

Input (Inventory Investment in Inventory)
 • Measure of productivity and performance of
Inventory.

GMROI • Deciding on credit terms with vendor.

• Stocks on the shelf.
• Margins for category basis inventory

53
 • NO. OF UNITS SOLD / AVG NO. OF UNITS
CARRIED
• COGS/COST OF AVG INVENTORY
STOCK TURNOVER
• NET SALES / AVG INVENTORY @ RETAIL
• NET SALES / COST OF AVG INVENTORY= SALES
TO STOCK RATIO
 INVENTORY TURNOVER CONCEPT

• IT = sales / avg inventory

• Average inventory = BOM 1+ BOM2+BOM3….+BOM12+EOM 12/13

• EXAMPLE
• A JEWELLER SELLS 600 WATCHES EACH YEAR- EXACTLY SELLING 50
WATCHES A MONTH
• BUYS 600 WATCHES AT THE BEGINNING OF THE MONTH …….
• CALCULATE HIS TURNOVER ASSUMING HE SELLS ALL THE WATCHES?
• 600+550+500+450+400+350+300+250+200+150+100+50+0/13 = 3900/13
=300
• IT= 600/300 = 2
• Scenario 2
• Jeweller buys 50 watches each month
• Therefore – avg inventory = 50+50+50+50+50+…….+0/13 = 600/13= 46
• IT = 600/46 =13
 • LOW TURNOVER
• MERCHANDISE APPEARS OLD
• SHOPWORN
• MONEY BLOCKED

HIGH VS LOW • HIGH TURNOVER – DESIRABLE BUT

TURNOVER • CAN LEAD TO STOCK OUTS/ CUSTOMERS MAY FEEL
TOO LITTLE CHOICE
• SMALL QUANTITIES – INCREASES ORDER
PROCESSING COSTS
• HAVE TO FORGO QUANTITY DISCOUNTS
Assume Sears is planning a special promotion for the upcoming holiday
season. It has purchased 2.5 million Santa Bears, a stuffed Teddy bear
dressed like Santa Claus, from a vendor in Taiwan. The GMROI for the
bears are expected to be 144% (gross margin = 24% and sales-to-stock ratio
= 6), about average for a seasonal promotion. Besides the invoice cost of the
bears, Sears will incur import fees, transportation costs from Taiwan to
distribution centers and then to stores, and distribution center and store
costs such as marking and handling. Since the bears arrived early in April,
additional storage facilities are needed until they are shipped to the stores
the first week of October. Is GMROI an adequate measure for evaluating
the performance of Santa Bears? Explain your answer.
• GMROI is not an adequate measure for evaluating the performance of
Santa Bears. GMROI only deals with Gross Margin, which in turn only
accounts for expenses found in Cost of Goods Sold. These expenses
only include the transportation costs and the import fees. However,
the distribution costs and more importantly, the carrying costs are not
included. Because the Bears arrived early in April and are not being
sold until October, there is money invested in the bears just sitting in
storage that could have been invested elsewhere. This is called the
opportunity cost of capital. Because the bears are being stored for 6
months, the carrying costs may be substantial, which will greatly affect
the bears net profit performance.
• Since GMROI ignores expenses, it is impossible to say
whether a 100.0% GMROI for this SKU is good, bad or
ugly. If the cost of selling, handling and processing the SKU
are 25.0% of sales, then a gross margin of 20.0% leading to
a 100.0% GMROI is woefully insufficient. However, if said
costs are 15.0% of sales, then the 100.0% GMROI is
wonderful.
• First, SKUs with very similar expense structures (all within a narrowly-defined
merchandise category, for example) can be compared directly on the basis of
their GMROI.

• Second, year-to-year changes can be evaluated with some degree of confidence.

If the 100.0% GMROI SKU achieves a 150.0% GMROI during the next year,
then things are getting better. The firm will not know when the SKU stops
being terrible and becomes simply bad or even graduates to good or excellent.
Higher is better than lower is all you get.
 CATEGORY ROLE MATRIX – CRM-

• Tool for analysis

• Helps in assortment -range rationalization

• Identify potential SKU’s to maximize sales and margins

 CRM

CATEGORY ROLE MATRIX: It is a two by three grid

which enables us to determine the position of the SKU
in the sub category. It works on margins and sales
While the earlier category definitions were from
the consumers perspective the CRM matrix is from
the point of the retailer and a tool for decision making.
 CATEGORY ROLE MATRIX

MAINTAIN & GROW

FLAGSHIP CASH MACHINE
(Sales)

GM%

MANITAIN & GROW

CORE TRAFFIC UNDER FIRE
(Margin)

0% 50% 80% 100%

CUMULATIVE CONTRIBUTION TO SALES