Chapter 2

Retail Strategic Planning and Operations Management

Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.

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Learning Objectives
Explain why strategic planning is so important and be

able to describe the components of strategic planning: statement of mission; goals and objectives; an analysis of strengths, weaknesses, opportunities, and threats; and strategy.

Describe the texts retail strategic planning and

operation management model, which explains the two tasks that a retailer must perform and how they lead to high profit.

Components of Strategic Planning

LO 1


Planning Is the anticipation and organization of what needs to be done to reach on objective.

Components of Strategic Planning

LO 1


Strategic Planning Involves adapting the resources of the firm to the opportunities and threats of an ever changing retail environment.

Components of Strategic Planning

LO 1

Mission Statement Statement of Goals and Objectives Strategies SWOT Analysis

Components of Strategic Planning

LO 1


Mission Statement is a basic description of the fundamental nature, rationale, and direction of the firm.

Elements of a Mission Statement

LO 1

How the retailer uses or intends to use its

resources

How it expects to relate to the ever-changing

environment

The kinds of values it intends to provide in order

to serve the needs and wants of the consumer

Components of Strategic Planning

LO 1


Goals and Objectives Are the performance results intended to be brought about through the execution of a strategy.

Statement of Goals and Objectives

LO 1

Market Performance Objective Financial Performance Objective Societal Objectives Personal Objectives

Statement of Goals and Objectives

LO 1


Market Performance Objectives represents how a retailer desires to be compared to its competitors.

Importance of Planning - Sams View

LO 1
Sam M. Walton Chairman and Chief Executive Officer Dear Bob: I am replying to your letter of the 19th concerning the Wal-Mart monopoly of communities. I have realized for some time and, I suspect, many folks have in the company, as well, how fortunate we are to have very little competition in some of the larger communities in the country. That hasnt always been the case, as you well know. The history of our company has been that we have had more competition early on than most any regional discounter in the United States. However, one by one, our competitors weakened, were mis-managed, and have fallen out in many of the cities that we practically no have to ourselves. That has been the case generally with Howards, TG&Y, Gibson, Kuhns, Magic Mart, and certainly some of the variety chains which were once active in this area. These competitors, plus Alco, Pamida, and the group in Indiana, are on the ropes now and I dont choose to believe those companies disappeared because of our effectiveness. Rather, I choose to believe, for the most part, they were mis-managed and, had they been managed well, there could and would have been enough business in their areas for them and for us. May 4, 1998

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Market Performance Objectives

LO 1

Sales Volume Market Share

Is the retailers total sales divided by total market sales.

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Statement of Goals and Objectives

LO 1


Financial Performance Objectives Represent the profit and economic performance a retailer desires.

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Financial Performance Objectives: Profitability

LO 1

Net Profit Margin Asset Turnover Return on Assets Financial Leverage Return on Net Worth

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Financial Performance Objectives: Profitability

LO 1

Net Profit Margin

Is the ratio of net profit (after taxes) to total sales and shows how much profit a retailer makes on each dollar of sales after all expenses and taxes have been met.

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Financial Performance Objectives: Profitability

LO 1

Asset Turnover
Is the total assets and shows how many dollars of sales a retailer can generate on an annual basis with each dollar invested in assests.

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Financial Performance Objectives: Profitability

LO 1

Return on Assets (ROA)

Is net profit (after taxes) divided by total assets.

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Financial Performance Objectives: Profitability

LO 1

Financial Leverage
Is total assets divided by net worth or owners equity and shows how aggressive the retailer is in its use of debt.

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Financial Performance Objectives: Profitability

LO 1

Return on Net Worth (RONW)

Is net profit (after taxes) divided by owners equity.

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Strategic Profit Model

LO 1: Exhibit 2.1
Net Profit Margin Net Profit* z Total Sales x Asset Turnover Total Sales z Total Assets =

Return on Assets Net Profit* z Total Assets

Financial Leverage Total Assets z Net Worth

Return on Net Worth Net Profit* z Net Worth

*Net profit after taxes

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Financial Performance Objectives: Productivity

LO 1

Productivity Objectives:
State the sales objective that the retailer desires for each unit of resource input: floor space, labor, and inventory investment.

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Financial Performance Objectives: Productivity

LO 1

Space Productivity
Annual net sales divided by the total square feet of retail floor space.

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Financial Performance Objectives: Productivity

LO 1

Labor Productivity
Annual net sales divided by the number of full-timeequivalent employees.

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Financial Performance Objectives: Productivity

LO 1

Merchandise Productivity
Annual net sales divided by the average dollar investment in inventory.

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Statement of Goals and Objectives

LO 1


Societal Objectives Reflects the retailers desire to help society fulfill some of its needs.

Employment objectives Payment of taxes Consumer choice Equity Benefactor

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Statement of Goals and Objectives

LO 1


Personal Objectives Reflects the retailers desire to help individuals employed in retails fulfill some of their needs.

Self-gratification Status and respect Power and authority

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Retail Objectives
LO 1: Exhibit 2.2
Sales Volume

Profitability

Market Share

Market Performance Objectives

Financial Performance Objectives Retail Mission Societal Objectives

Productivity

SelfGratification

Personal Objectives

Employment Taxes

Power and Authority Status and Respect Benefactor

Consumer Choice Equity

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Strategies
LO 1


Strategy Is a carefully designed plan for achieving the retailers goals and objectives.

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Minimal Retail Strategies

LO 1
 

Get shoppers into your store. Convert these consumers into customers by having them purchase merchandise. Do this at the lowest operating cost possible that is consistent with the level of service that your customers expect.

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Question to Ponder
How should a retailer determine the proportion and
the number of market performance, financial performance, societal, and personal objectives?

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Strategies
LO 1


SWOT Analysis Is the identification and analysis of a retailers strengths, weaknesses, opportunities and threats a firm faces.

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SWOT Analysis: Outback Restaurant

LO 1
   

Strengths? Weaknesses? Opportunities? Threats?

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Strategies
LO 1


Target Market Is the group or groups of customers that the retailer is seeking to serve.

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Strategies
LO 1


Location Is the geographic space or cyberspace where the retailer conducts business.

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Strategies
LO 1


Retail mix Is the combination of merchandise, assortment, price, promotion, customer service, and store layout that best serves the segments targeted by the retailer.

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Service Retailing
Even though many flyers tried JetBlue for the first time because of its low fares, the airlines customer service won them over.

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Retail Planning and Management

LO 2

Strategic Planning Operations Management Administration High-Profit Retailing

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Retail Planning and Management

LO 2


Strategic Planning Is a plan of action detailing how the retailer will respond to the environment in an effort to establish a long-term course of action to follow.

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Retail Strategic Planning and Operations Management Model LO 2: Exhibit 2.4

Competitive Environment: Behavior of Consumers, Competition and Channel Members Strategic Planning

SWOT Mission Goals and Objectives

Strengths Weaknesses Opportunities Threats

Social and Legal Environment: Socioeconomic Environment, State of Technology, Legal System, Ethical Behavior

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Retail Strategic Planning and Operations Management Model LO 2: Exhibit 2.4

Competitive Environment: Behavior of Consumers, Competition and Channel Members
Retail Marketing Strategy Target Market(s) Location(s) Retail Mix Merchandise Pricing Advertising & Promotion Customer Service & Selling Store Layout & Design Operations Management Buying & Handling Merchandise Pricing Advertising & Promotion Customer Services & Selling Facilities High-Profit Performance Retailing

Social and Legal Environment: Socioeconomic Environment, State of Technology, Legal System, Ethical Behavior
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Retailing Truism
LO 2

Good execution can never overcome bad planning.

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Retail Planning and Management

LO 2


Operations Management Deals with activities directed at maximizing the efficiency of the retailers use of resources. It is frequently referred to as day-to-day planning.

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Retail Planning and Management

LO 2


Administration Involves the acquisition, maintenance, and control of resources that are necessary to carry out the retailers strategy.

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Retail Planning and Management

LO 2


High-Profit Retailing To be a high profit retailer, the retailer needs good strategic planning coupled with strong operations management.

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Square Feet of Retail Space

LO 2

Football Field 54,000 sq ft.

End Zone 120 yards 360 ft.

Supercenters 80,000 - 100,000 sq ft. Example: 108,000 sq ft.

End Zone End Zone

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50

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End Zone 50 yards 150 ft.

End Zone

End Zone

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The SPM for Some of the Countrys Top Retailers

LO 2: Exhibit 2.5

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Additional Slides

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Elements of a Mission Statement

LO 1

the kinds of vales it intends to offer to serve the needs and wants of the consumers how it expects to how the retailer relate to the uses or intends ever-changing to use its environment resources

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Goals and Objectives

LO 1

Market Performance Objectives Societal Objectives

Financial Performance Objectives Personal Objectives

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Retail Planning and Management

LO 2

Strategic Planning Administration

Operations HighManagement Profit Retailing

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