Retail Management

 Module 4
Syllabus Retail management— Operations
management--Financial management—Human
resource management—merchandising
management –merchandising philosophy plans-
logistics-inventory management—retail pricing—
strategies
Ref: Barry & Evans
Operations Management
Operations management is the
efficient and effective
implementation of the policies and
tasks that satisfy a retailer’s
customers, employees, and
management (and stockholders, if it
is publicly owned)
Operational Decisions
What operating guidelines are used?
What is the optimal format and size of a store?
What is the relationship among shelf space,
shelf location, and sales for each item in the
store?
How can personnel be matched to customer
traffic flows? Would increased staffing improve
or reduce productivity? What impact does self-
service have on sales?
Operational Decisions_2
What effect does the use of various building
materials have on store maintenance? How can
energy costs be better controlled? How often
should facilities be renovated?
How can inventory best be managed?
How can the personal safety of shoppers and
employees be ensured?
Operational Decisions_3
What levels of insurance are required?
How can credit transactions be managed most
effectively?
How can computer systems improve operating
efficiency?
Should any aspects of operations be outsourced?
What kind of crisis management plans should be in
place?
Operating A Retail Business
 Operations Blueprint
 Store Format, Size, and Space Allocation
 Personnel Utilization
 Store Maintenance, Energy Management, and
Renovations
 Inventory Management
 Store Security
 Insurance
 Credit Management
 Computerization
 Outsourcing
 Crisis Management
Maximizing Personnel Productivity
Hiring Process
Workload Forecasts
Job Standardization and Training
Employee Performance Standards
Compensation
Self-Service
Length of Employment
Figure 13.3 A Checklist of Selected Store Maintenance
Decisions
Inventory Management Decisions
 How can handling of merchandise from different suppliers be
coordinated?
 How much inventory should be on the sales floor versus in a
warehouse or storeroom?
 How often should inventory be moved from nonselling to
selling areas of a store?
 What inventory functions can be done during nonstore hours?
 What are the trade-offs between faster supplier delivery and
higher shipping costs?
 What supplier support is expected in storing merchandise or
setting up displays?
 What level of in-store merchandise breakage is acceptable?
 Which items require customer delivery? When? By whom?
Figure 13.4 Inventory Management at
Costco
Store Security
Uniformed security guards
Brighter lighting
TV cameras and other devices
Curfews
Frequent bank deposits
Insurance Issues
Rising premiums
Reduced scope of coverage by insurers
Fewer insurers servicing retailers
Greater need for insurance against
environmental risks
Credit Management Decisions
What form of payment is acceptable?
Who administers the credit plan?
What are customer eligibility requirements for a
check or credit purchase?
What credit terms will be used?
How are late payments or nonpayments to be
handled?
Figure 13.5 Effective In-Store
Communications
Crisis Management
 There should be contingency plans for as many
different types of crisis situations as possible
 Essential information should be communicated
to all affected parties as soon as the crisis occurs
 Cooperation – not conflict – among the involved
parties is essential
 Responses should be as swift as feasible
 The chain of command should be clear and
decision makers given adequate authority
Finance Mgmt in Retailing
 Profit Planning
Profit-and-loss (income) statement
 Summary of a retailer’s revenues and
expenses over a given period of time
 Review of overall and specific revenues
and costs for similar periods and
profitability

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Major Components of a
Profit-and-Loss Statement
Net Sales Net Sales $330,000

Cost of Goods Sold CGS $180,000

Gross Profit $150,000
Gross Profit (Margin)
Operating Expenses $ 95,250
Operating Expenses
Other Costs $ 20,000
Taxes
Total Costs $115,250
Net Profit After Taxes Net Profit before $ 34,750
Taxes
Taxes $ 15,500
Net Profit after $ 19,250
Taxes

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Asset Management
 The Balance Sheet
 Assets
 Liabilities
 Net Worth
 Net Profit Margin
 Asset Turnover
 Return on Assets
 Financial Leverage

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12-19
Figure 12-1: The Strategic Profit Model

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Other Key Business Ratios
 Quick ratio—cash plus accounts receivable divided
by total current liabilities (due within one year).
 Current ratio—total current assets divided by total
current liabilities.
 Accounts payable to net sales—accounts payable
divided by annual net sales.
 Overall gross profit—net sales minus the cost of
goods sold and then divided by net sales.

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Financial Trends in Retailing

 Funding sources
 Mergers, consolidations
 Bankruptcies and liquidations
 Questionable accounting and financial
reporting practices

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Budgeting
 Budgeting outlines a retailer’s planned
expenditures for a given time based on
expected performance.
 Costs are linked to satisfying target
market, employee, and management
goals.

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Figure 12-3: The Retail Budgeting Process

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 Cash Flow

 Cash flow relates the amount and timing of revenues

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

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 Resource Allocation

Capital Operating
Expenditures Expenditures
 Long-term  Short-term
investments in selling and
fixed assets administrative
costs in running
a business

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Enhancing Productivity

 A firm can improve employee performance,

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

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HRM in Retailing
 procedures to set up a retail
organization
 various retail organizational
arrangements
 human resource environment
 HR principles and practices
 Planning & Assessing a Retail Organization –
Figure 11-1a:
Target Market Needs
Figure 11-2: The Process of Organizing a Retail Firm
Figure 11-4: A Job Description for a
Store Manager
Table 11-1: Principles for
Organizing a Retail Firm
 Show interest in employees
 Monitor employee turnover, lateness, and
absenteeism
 Trace line of authority from top to bottom
 Limit span of control
 Empower employees
 Delegate authority while maintaining
responsibility
 Acknowledge need for coordination and
communication
 Recognize the power of informal relationships
 Human Resource Management in
Retailing

 Recruiting
 Selecting
 Training
 Compensating
 Supervising
Table 11-2: True Cost of
Employee Turnover
 Recruiting and hiring new employees
 Training costs – including management time
 Full pay and benefits during training, before full
productivity is reached
 Costs of mistakes made by new, inexperienced
employees
 Loss of customers loyal to departing employees
 Lost or damaged relationships with suppliers
 Employee morale and customer perceptions of
morale
Women in Retailing
 Issues to address with regard to female workers
 Meaningful training programs
 Advancement opportunities
 Flex time: the ability of employees to adapt their
hours
 Child care
Diversity
 Two premises:
1. That employees be hired and promoted in a
fair and open way, without regard to gender,
ethnic background, and other related factors
2. That in a diverse society, the workplace
should be representative of such diversity
Labor Law Considerations
 Retailers must not
* Hire underage workers
* Pay workers “off the books”
* Require workers to engage in illegal acts
* Discriminate in hiring or promoting workers
* Violate worker safety regulations
* Deal with suppliers that disobey labor laws
Figure 11-11: A Checklist of Selected Training
Decisions
Components of Compensation
$ Total compensation
$ Salary plus commission
$ Profit-sharing
Employee Behavior and Motivation
 Several attitudes may affect employee behavior
 Sense of accomplishment
 Liking of work
 Attitude toward physical work conditions
 Attitude toward supervisors
 Confidence in company
 Knowledge of business strategy
 Recognition of employee role in achieving
corporate objectives
Style of Supervising Retail Employees
 Management assumes employees must be
closely supervised and controlled
 Management assumes employees can be
self-managers and assigned authority
Merchandising Management
Activities involved in acquiring particular
goods and/or services and making them
available at the places, times, and prices and
in the quantity that enable a retailer to reach
its goals
Merchandising Philosophy
 Sets the guiding principles for all the
merchandise decisions that a retailer makes
 Should reflect
 Target market
 Retailer’s institutional type
 Market-place positioning
 Defined value chain
 Supplier capabilities
 Costs
 Competitors
 Product trends
Micromerchandising

Retailer adjusts shelf-space allocations

to respond to customer and other
differences among local markets
Cross-Merchandising

Retailers carry complementary goods

and services to encourage shoppers to
buy more. Eg?
Functions Performed
 Merchandising view
All buying and selling functions
Assortments
Advertising
pricing
Point-of-Purchase displays
Employee utilization
Personal selling approaches
Functions Performed (cont.)
 Buying view
Buyers manage buying functions
 Buying
 Advertising
 Pricing
In-store personnel manage other tasks
 Assortments
 Point-of-sale displays
 Employee utilization
 Personal selling approaches
Figure 14-5: Devising
Merchandise Plans
Forecasts
 These are projections of expected retail
sales for given periods
Components:
 Overall company projections

 Product category projections

 Item-by-item projections

 Store-by-store projections (if a chain)

Types of Merchandise

 Staple merchandise
 Assortment merchandise
 Fashion merchandise
 Seasonal merchandise
 Fad merchandise
Staple Merchandise
 Regular products carried by a retailer
Grocery store examples: milk, bread,
canned soup
 Basic stock lists specify inventory level,
color, brand, style, category, size,
package, etc.
Assortment Merchandise
 Apparel, furniture, and other categories for
which the retailer must carry a variety of
products in order to give customers a proper
selection
 Decisions on Assortment
Product lines, styles, designs, and colors are
projected
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
Factors in Planning Merchandise
FACTOR RELEVANCE for PLANNING
Target market(s) Evaluate whether the target market is
conservative or innovative

Goods/service Consider each new offering on the basis of

growth potential rapidity of initial sales, maximum sales
potential per time period, and length of
sales life

Fashion trends Understand fashion trends, if appropriate

Retailer image Carry goods/services that reinforce the

firm’s image
Table 14-1b: Factors in Planning Merchandise
Innovativeness
FACTOR RELEVANCE for PLANNING
Competition Lead or follow competition in the selection
of new goods/services

Customer segments Segment customers by dividing

merchandise into established-product
displays and new-product displays

Responsiveness to Carry new offerings when requested by the

consumers target market

Amount of Consider all possible investments for each

investment new good/service: product costs, new
fixtures, and additional personnel
Table 14-1c: Factors in Planning Merchandise
Innovativeness
FACTOR RELEVANCE for PLANNING
Profitability Assess each new offering for potential
profits

Risk Be aware of the possible tarnishing of the

retailer’s image, investment costs, and
opportunity costs

Constrained Restrict franchisees and chain branches

decision making from buying certain items

Declining goods/ Delete older goods/services if sales and/or

services profits are too low
Table 14-2b: Factors in Planning Merchandise
Quality
FACTOR RELEVANCE for PLANNING
Profitability Recognize that high quality goods generally
bring greater profit per unit than lesser-
quality goods
Manufacturer Understand that, for many, manufacturer
versus private brands connote higher quality than private
brands brands
Customer services Know that high-quality goods require
offered personal selling, alterations, delivery, and so
on
Personnel Employ skilled, knowledgeable personnel for
high-quality merchandise
Table 14-2c: Factors in Planning Merchandise
Quality
FACTOR RELEVANCE for PLANNING

Perceived goods/ Analyze consumers. Lesser quality goods

service benefits attract customers who desire functional
product benefits; High-quality goods attract
customers who desire extended product
benefits

Constrained Face reality. Franchises or chain store

decision making managers have limited or no control over
products; Independent retailers that buy from
a few large wholesalers are limited to the
range of quality offered by those wholesalers
 Retail Assortment Strategies
Width of assortment refers to the number
of distinct goods/service categories
(product lines) a retailer carries
Depth of assortment refers to the variety
in any one goods/service category
(product line) a retailer carries
An assortment can range from wide and
deep (department store) to narrow and
shallow (box store)
 Manufacturer
(national)

Private
(dealer or store) Generic
Figure 14-11: Wal-Mart’s New Approach to
Private Brands
Merchandising Software
 General Merchandise Planning Software
 Forecasting Software
 Innovativeness Software
 Assortment Software
 Allocation Software
 Category Management Software
 Logistics

Logistics, also known as physical

distribution, encompasses the activities
concerned with efficiently delivering raw
materials, parts, semi-finished items, and
finished products to designated places.
It includes customer service, shipping,
warehousing, inventory control, trucking
operations, packaging, receiving, materials
handling, and plant, warehouse, and store
location planning.
It affects costs, the value of customer
service, its relationship with other functional
areas.
 Logistics and Other Functional Areas
There is a critical interaction between logistics
and each of the firm’s marketing functions and
this requires careful coordination.
Product variations (color, size, features, styles)
may impose a burden on distribution facilities.
Logistics planning is related to overall channel
strategy.
Promotion campaigns must realistically
coordinate with potential logistics delivery.
Pricing may be the firm’s differential advantage
based on superior logistical service.
 When a firm runs
out of stock,
customers can

Purchase a Switch to a new Permanently

Wait until
substitute seller while switch to a new
merchandise is
product from the merchandise is not seller for all
available.
same seller. available. purchases.

Most Desirable Action Least Desirable Action

 Next Day, Inc.

 Railroads carry heavy, bulky items over long distances but have
high fixed costs due to facility investments.
 Motor Carriers usually transport small shipments short
distances
 Waterways best for bulk shipments,slow but economical
 Airways are fast and expensive but move high-value perishable
and emergency goods. Speed may provide a differential
advantage.
 Pipelines move gas and petroleum products with low costs.
 Inventory Management
 Good inventory management matches the quantity of goods
kept in inventory with customer demand.
 To improve efficiency, many firms use a just-in-time inventory
system and electronic data interchange.
 Four specific aspects of inventory management are stock
turnover, when to reorder, how much to reorder, and
warehousing.
 Stock turnover refers to the number of times during a stated
period that average inventory on hand is sold.
 A reorder point depends on lead time, usage, and safety stock.
 The economic order quantity (EOQ) is the order volume
corresponding to the lowest sum of order-processing and
inventory-holding costs.
 Pricing Options for Retailers
 Discount orientation: ie, low pricing
Eg: discount stores and off price retailers.
 At-the-market orientation: it refers to moderate
quality, moderate pricing and moderate profit.
Eg. Department stores
 Upscale orientation: prestigious image for the
retailer, small target market, customer loyalty,
high per unit profit. Eg Specialty stores

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

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 Figure 17-3: Factors Affecting Retail Price Strategy

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Figure 17-6:
Specific
Pricing
Objectives

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 Figure 17-8: Specific Pricing Decisions

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Price Strategy Concepts
 Customary Pricing
 Variable Pricing
 One-Price Policy
 Flexible Pricing
 Odd Pricing
 Leader Pricing
 Multiple-Unit Pricing
 Price Lining

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 Figure 17-9: Wal-Mart and Everyday Low Pricing

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 Figure 17-10: Odd Pricing

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 Reasons to Use Multiple-Unit Pricing

 A firm could seek to have shoppers increase

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

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 Timing Markdowns
 Mark down refers to the temporary reduction in
the selling price of an item to stimulate its
demand or to drive a competitor out of the
market. Permanent markdowns are created to
remove a slow-selling item from the inventory

 Early markdown policy

 Late markdown policy
 Storewide clearance
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