Fashion Retail Management

INDEX
Introduction : FRM Page # 1

Store Page # 51
Retailing Strategy Page # 97
Merchandise Planning Page # 118
Retail Maths Page # 168
Loss Prevention Page # 185
RFID Page # 206
FDI in Retail Page # 226
www.vasantkotharl.com 1
Retail
Retail is derived from the French

word retaillier, meaning to cut a
piece off or to break bulk.
Retailing
All the business activities
necessary to sell goods and
services to the final consumer.
The final stage in the flow of
merchandise from producer to
consumer.
Global Retail Scene - Snapshot
Global retail market est. at US$ 7 trillion
US employs 22 million and is worth US 3 trillion
Country Organized Unorganized Size
% % (in US$)
India 3.50 96.50 200 bil
China 15.00 85.00 325 bil
Indonesia 30.00 70.00 75 bil
Thailand 60.00 40.00 32 bil
Top 10 Retailers World Wide
Prominent Players - International
Walmart - USA Sears-Kmart - USA
JC Penny - USA
Target - USA IKEA - Sweden
Carrefour - France H&M - Sweden
Kroger - USA M&S - UK
Tesco - UK McDonald’s - USA
Ahold - Netherland Zara - Spain
Sainsbury - UK 7 Eleven - USA
Metro - Germany
Indian Retail Market
Total retail market est. at Rs.1,000,000 cr. ’05
Employs over 8% of national workforce
Organized retail contributes only 3.5 % or Rs.35,000 cr.
Estimated to grow to Rs.110,000 cr by 2010
Investment in retail sector to touch Rs.15,000 cr
Total outlets 55,00,000
Per capita retail space 2.5 sft
96 % outlets are <500sft
Online Shopping grown to Rs.1180 cr in ’05
Prominent Players - lndian
Big Bazaar Westside
Giant Bata
Foodworld Bennetton
Food Bazaar Adidas
Pantaloon Barista
Shoppers Stop Café Coffee Day
Lifestyle Planet M
Musicworld
Where is it Happening ?
Delhi/NCR by 2007 50 Malls 22 mil sft
Mumbai by 2007 42 Malls 19 mil sft
B’lore by 2007 14 Malls 6 mil sft
Kolkata by 2007 13 Malls 4 mil sft
Chennai
Chandigarh
Hyderabad
Retail Environment in India
Absence of proper Town Planning
Poor infrastructure – water, roads, power,
communication, waste
Multiple mandatory / govt agencies to cope with
Real estate market exhorbitant & not organized
Poor national supply chain – quality , commitments ,
productivity, temperature, ancient practices
Shortage of skilled manpower at all levels.
TEXTILE
BOMBAY DYEING
S KUMARS
RAYMOND
GRASIM
FOOD
FOODWORLD
NILGIRIS
SUBIKSHA
HALDIRAM’s
MUSIC
PLANET M
MUSIC WORLD
FAST FORWARD
GROOVE
BOOKS
CROSSWORD
HIGGINBOTHAMS
SAPNA
GANGARAMS
NAVNEET
CONSUMER DURABLES
VGP
VIVEKS
GIRIA’S
PAI
NEXT
GARMENTS
SHOPPERS STOP
LIFESTYLE
PLANET FASHION
PANTALOONS
GLOBUS
SPORTSWEAR
NIKE
REEBOK
BATA
ADIDAS
KEY INSIGHTS
6 million retail establishments in India
6.6 % urban adults are shop owners
8-10% adults employed in retailing
15-20% of work force employed in retail sector
Total retail trade in india-7 lakh crore to 8 lakh
crore or $180 billion
Organised retailing – 13,300 crore growing by
28% per annum.
THE INDIAN CONSUMER
India’s GDP among highest
Purchasing power parity- 4th largest economy
Second populous nation
I/6th of the gobal population is in india
Increased house hold incomes
Socio-economic classification-
70-80% lies in low, middle class
20-30% account for the high purchasing power
URBANISATION
Towns with population of 10 lakh + increased
Traffic congestion/parking
One stop shop -choice
CONSUMERISM
Media-cable TV
Exposure to new ideas/desires fuel consumer
demand
Aspirations of consumers
BRAND PROFUSION
Explosion of brands in each sector
Size variations of packs
Many respectable brands in world has operations
in India
Need for shelf space to accommodate –growth of
retail
TIME USAGE
< 2 hrs per week
Women spend more time
Socialising-liesure time-clubs
17% non-grocery shoppers eat out
24% grocery shoppers do grocery shopping side
by side
43% meet friends for going non-grocery shopping
RETAILING FORMAT IN INDIA
Malls:
Ranges from 60,000 sq ft to 7,00,000 sq ft and
above. Examples include Shoppers Stop,
Pantaloon.
Specialty Stores:
Chains such as the Bangalore based Kids Kemp,
the Mumbai books retailer Crossword, RPG's Music
World and the Times Group's music chain Planet
M.
Discount Stores:
As the name suggests, discount stores or factory
outlets, offer discounts on the MRP through selling in
bulk reaching economies of scale or excess stock left
over at the season.
Department Stores:
Large stores ranging from 20000-50000 sq. ft,
catering to a variety of consumer needs. Further
classified into localized departments such as clothing,
toys, home, groceries, etc.
Hyper marts/Supermarkets:
Large self-service outlets, catering to varied shopper
needs are termed as Supermarkets. These are located in
or near residential high streets.
Convenience Stores:
These are relatively small stores 400-2,000 sq. feet
located near residential areas.
MBO’s:
Multi Brand outlets, also known as Category Killers,
offer several brands across a single product category.
These usually do well in busy market places and Metros.
Wheel of Retailing - Evolution
Starts with low price & service
Attempt to attract additional TG, raise prices,
change product / pricing mix & format, better
locations, makeover & refixturing
Trading up leads to higher cost higher price
New low price retailers enter & threatens
existence
Achieved Target:-
Successfully reestablished its place in the
market, with opening 22 stores.
Higher development – In fact the highest of
all segments and categories.
Enhanced brand image from small to huge
format flagship.
Wishes
People should enhance living standard, moving to mono-
brand from multi-brand outlets.
Excellent training and salaries to sales staff and be more
mass-oriented.
Expand in 5 lakh plus towns, providing similar buying
experience.
Looking for continues support from the consumers and to
emerge as fastest evolving brand.
To enhance team’s performance in coming years.
Achieved targets:-
Take a lead in the dress-up segment that
features dressing for occasion, success etc in
trousers, and also in men's suits.
Concentrated on top around 70 MBOs and
trying to deliver better.
Enhancing perform of team – planning to
establish systems to make them more
productive and glad.
Wishes:-
To implement system for on-time deliveries.
To put scissors on product assortment in
terms of the number of styles – which will led
company to serve better to fewer customers.
Excellent outsourcing with making dedicated
team to take care of it.
Achieved Targets:-
In a span of less than two years, Daks brand
has been successful to hit the Indian market
despite of being a foreign brand.
Managed tie-up arrangements for
manufacturing Daks brand in India and Central
Europe.
Also signed agreements for Trussardi and
Savile Row.
Wishes:-
To be a front runner in the Indian apparel
market.
To add 25 more stores.
Allure entire high-end women class to wear
Trussardi.
Enhance sales staff performance.
Achieved Targets:-
Signed agreement with Reliance
Signed license agreement for its kidswear
brand ‘Levi's Sykes’.
Increased production capacities at Daman
and Baddi.
Wishes:-
To get recognition as global brand in the
international market.
To create a different brand identity for all in
related segments.
Establish entire lifestyle stores for kids,
under the brand Gini & Jony
Pull down custom duties on accessories and
fabrics etc.
Achieved Targets:-
Expanded product assortment mix and added
knits, which was entirely woven product base
before.
Arranged tie-ups with some global brands,
such as J Jill, Tommy Hilfiger, Hugo Boss and
Marks & Spencer.
Increased capacity to attain a 40% growth
rate comparing to the previous year.
Wishes:-
To work close with fashion institutes like NIFT to
revise and develop fashion trends.
To introduce a brand, which is competitive, enduring
and reliable product.
To introduce specialized product assortment,
featuring all-weather conditioner and change character
consequently to match the consumer demands.
To develop a stage where high-tech technology is
available to small and medium scale producers so that
they can enhance quality standards.
Achieved Targets
Started Asset Management Companies.
Launched Big Bazaars in remote towns like Sangli.
Wishes:-
Reaching a target business of two and a half thousand
crores in 2006-07 fiscal.
Identify and present the consumers’ fashion requirement.
Dominate the in all fashion segments like lifestyle,
premium and value.
Introduce or acquire new brands in fashion.
To rope-in best fashion industry veterans.
Achieved Targets:-
Emerged steadily in the market – launched
stores at Ahmedabad and Ludhiana, and
planning three more in coming months.
Introduced new brand “Trumart” with three
stores in Mumbai and four in Pune.
The IPO got oversubscribed by nearly 12
times that generated about Rs 108 crore.
Wishes:-
To Launch FDI for least lifestyle retail, this will lead
Indian fashion designers to think globally.
Create enhanced retail space for high-end retail.
To make Fashion Alliance more practical and a reality
to make sure that it gains momentum.
To make fashion more affordable with a better
ambience.
Achieved Targets:-
Launched EBOs for all brands.
Successfully introduced new product
assortment such as non-iron shirt in Park
Avenue and new suit ranges to uphold brand
image.
Also introduced the womenswear and
kidswear collection
Wishes:-
To launch a magazine on fashion.
Begin a fashion week.
Expand in US market.
To launch a website that talks about lifestyle
and fashion.
Sports Station
Achieved Targets:-
Successfully introduced two brands: H2O Plus
and CPS Clothing.
In a move to concentrate on expansion and
new concepts for brands, the company has
signed agreements with global brands such as
Nike and Levi's.
Launched MBO for leather shoes “Shoe Tree.”
Sports Station
Wishes:-
To present new concept, where both international
and local brands can be presented under single roof.
Expand product assortment in luxury, premium and
affordable segments.
Duty validation, especially in footwear which is at a
12.5 % as compared to apparel which is at only 4 %.
Validating countervailing duty (CVD) which is at of 60
%.
Store Location
The three keys to retail success --
location,
location &
location
Store Location
The location of stores is a key concern to any
retail organization ... whether it's your first store
or your one hundredth.
Spending time and money wisely in the process
of site selection is critical.
Newcomers to retail often open shop in a
location simply because it is the only vacant space
within a stone’s throw of their home or office.
How does one go about selecting a location for a
store?
What kind of store are you planning?
What kind of merchandise will you be selling, at what
prices and to whom?
What is the store offering customers in price, service, and
convenience?
What are the company's financial capabilities?
Understanding company's image and restraints will be
helpful in limiting the number of site choices.
Store Location
Options
High Street
Destination Location
Convenience Location
Carts
Kiosks
Retail Merchandising Units.
Tall Wall Units
Selecting A Retail Location
Developing the location plan requires a careful
study of potential markets.
Market assessment begins by examining all
regions or metropolitan areas, then choosing the
one that appears to offer the greatest potential.
Such a process is known as market selection.
Choices must then be made within the selected region or
city.
An analysis of the different sub-areas, or trading areas,
of a city is then conducted.
Finally, separate site analyses and evaluations must be
made.
At this stage, management assesses the cost of land or
rents, construction costs, traffic flow, etc.
Note that each step in this process is a refinement of the
previous one.
Market Analysis
Trading Area Analysis
Site Analysis
Market Analysis
During the process of market selection, management
evaluates a variety of fact ors in the target regions.
These include demographics, economic characteristics, the
competitive environment, and the overall potential of the
area.
Population Characteristics
Total size
Age and income distribution
Growth trends
Education levels
Market Analysis
Labour Availability
Availability of management candidates
Wage levels
Unions
Media Mix Issues
Type of media coverage
Media overlap
Costs
Market Analysis
Economic Characteristics
Number and types of industry
Dominant industry
Growth projections
Financial base
Competitive Characteristics
Saturation level
Number and size of competition
Competitive growth trends
Market Analysis
Location Characteristics
Number and type of locations
Costs
Access to customers
Regulation Characteristics
Taxes
Licensing
Zoning restrictions
Index of Retail Saturation (IRS)
One of the more commonly used measures of
market attractiveness is the Index of Retail
Saturation (IRS).
This index is based on the assumption that if a
market has a low level of retail saturation, the
likelihood of success is higher.
In the following formula, a higher IRS indicates a
lower level of saturation, thereby increasing the
likelihood of retail success.
The trading area analysis takes place after
management has selected a specific geographic
region or section of a city as a possible retail
location.
“Trading area” refers to the local geography
from which a store attracts the majority of its
customers.
This territory is sometimes broken down into the
“primary trading area”, which includes the majority of
customers living within a certain range of the store and
having the highest per capita sales; and the “secondary
trading area”, which includes almost all of the
customers situated outside the primary area.
A typical shopping center may have a primary area
that includes 75,000 customers within a five minute
drive, and a secondary area housing 150,000 customers
within 30 minutes.
License Plate Analysis
One of the most common methods of measuring a
trading area with comparable stores is called auto
license plate analysis.
The license plate numbers of cars in the area
under consideration are recorded and cross-
referenced with public records to get their
registration addresses.
By plotting these addresses on a map, you can
get a good feel for the general nature of the area.
Population Characteristics
Population characteristics are even more critical when
evaluating a trading area.
As in the larger market analysis, you must understand such
features as the population profile, density and growth trends in
the target area.
Variables such as gender, occupation, education, age, family
size and ethnic breakdown are also important.
If you sell young children's clothes, you’ll want to know the
number of local preschoolers.
A craft store, on the other hand, will want information about
seniors.
Potential Sales In A Trading Area
With the right data, you can forecast your
potential sales in the trading area. Use this
formula:
Number of households in the trading area X Dollars
per household spent on your product category
= Total market size
Total market size X Your % share of the market
= Your potential sales
Site Analysis
Site analysis and evaluation is the third and final step in the
selection of a retail location. As a retailer, you have three basic
choices for a site:
Shopping centers/malls
Downtown core
Free-standing location
The following chart highlights the strengths and weaknesses of
these sites.
Location Type
Potential Advantage
Potential Disadvantage
Choosing A Shopping Center
Sales Per Square Foot
Total Rent
Cost Per Shopper Analysis
Responsiveness of the Landlord
Sales Per Square Foot
Most shopping centers require tenants to report monthly
sales figures.
This valuable data makes it easier to compare malls and
their rents.
It also allows you to make more accurate sales forecasts.
For example, let’s say a mall’s average sales for women’s
wear are $300 per square foot and you are contemplating
renting a 1000 square foot location. If you perform to the
average, you would expect to attain a sales level of
$300,000 per year.
Total Rent
Traditionally, malls will charge a minimum rent per
square foot or a percentage of sales (whichever is
greatest), plus a pro-rated common area and maintenance
charge (CAM) per square foot leased.
CAM expenses are the developer's total cost of
maintaining the mall divided by the total allowable space
for rent.
They usually include the mall's expenses for insurance,
real estate taxes, snow removal, maintenance staff
wages, garbage removal, promotions, etc.
The landlord is asking $30 per square foot, or 6% of
sales, plus CAM charges of $15 per square foot. Answer
the following:
What would the minimum rent be for a 1000
square foot store?
What level of sales would you have to achieve
before you start paying the 6% overage?
As a percentage of sales, what is your occupancy
cost for a store that does $300,000 in this example?
What would the minimum rent be for a 1000
square foot store?
Rent Per Year = (Base rent + CAM Charges) x Sq.

Feet
= ($30 + $15) x 1000
= $45,000
What level of sales would you have to achieve
before you start paying the 6% overage?
This is known as the “break point”.
Break point = Base rent x Square footage
Overage percent
= $30.00 x 1000
6%
= $500,000
As a percentage of sales, what is your occupancy
cost for a store that does $300,000 in this example?
Occupancy % = Total Yearly Rent

Total Yearly Sales
= $45,000
$300,000
= 15%
How Much Rent Can You Afford To Pay?
Based on the above table of occupancy cost, we
see that a typical fashion store with an ending
gross margin of 40% to 50% of sales should have a
maximum rent threshold of 14%.
This means that, with annual sales of $300,000,
the most it should pay for rent is $42,000 per year
($300,000 x 14%). To stay within budget,
management must therefore negotiate a base rent
of $27 per sq. ft.
Base Rent = $42,000 - $15,000
Base Rent
CAM==$42,000 - $15,000
$27 per sq. ft. CAM = $27 per sq. ft.
1000 sq. ft. 1000 sq. ft.
Cost Per Shopper Analysis
One approach to determining the true “cost” of
a location is to calculate the “cost per shopper”.
The key here is to determine whether the traffic
created at a particular site consists of your target
customers or a more general customer base.
Location “A” “B”
Fixed rent per year $17,000 $45,000
+ Overhead $ 1,000 $ 2,000
+ Advertising $ 9,000 $ 3,000
Total Costs $27,000 $50,000
Traffic per Year 150,000 600,000
Cost per shopper $0.18 $0.083
As you can see in this example, even though the rent at Location B is
considerably higher than Location A, it is significantly more efficient.
Responsiveness of the Landlord
Directly related to the appearance of a retail location is
the responsiveness of the landlord to the individual
merchant’s needs.
Unfortunately, some landlords actually hinder the
operation of their tenants' business by restricting the
placement and size of signs, renting
adjacent spaces to incompatible or directly competing
stores, and forgoing maintenance and repairs.
By these actions, landlords can cripple a retailer’s
attempts to increase business.
Store Format
Conventional supermarkets
Self service food store
Groceries, meat, other products
Limited health, beauty, general merchandise
Low ad cost
Every day low pricing
Store Format
Convenience store
3000-8000 sq ft
Limited variety / assortment of general
merchandise
Prices higher than super markets
For convenience/
Quick purchases
Store Format
Big box food retailers
Super stores
Large super markets
20,000 to 50,000 sq ft
Combination stores
Food based retailers
30,000 to 100,000 sq ft
Non food items like flowers, health care, beauty
aids, utensils, etc., Account for 25% sales
Store Format
Warehouse type stores
Discount food retailers
No- frills environment
Low prices
Less / no service / ambience
Merchandise is bought at special deals
One size and one brand per item
Same size and brand may not be available next
time
International General
Merchandise Retailing
Specialty Stores
Department Stores
Specialty Department Stores
Discount Stores
Specialty Stores
Concentrates on limited no. Of merchandise
High level of service
Area less than 8000 sq ft
Better selection
Sales expertise
Niche markets-wider assortment
Department Stores
Broad variety deeper assortment
Organised separate departments
Considerable service
Sales person to assist
Point of sales terminal to transact
Higher priced due to –
High costs of fashionable merchandise
High level of service
Personel selling
Major tenants of malls
Liberal spending on visual merchandising
Specialty Department Stores
Department store format
Focus mainly on apparel
Promotion stores
speciality department stores that sells
substantial portion of its merchandise on
weekly promotions
Concessionaires
Leased area in department stores
Discount Stores
Full line discounter
Category specialists
Home improvement centres
Warehouse clubs
Off price retailers
Catalogue showrooms
A successful retail store is nothing
more than a series of well
connected and thought out plans,
ideas and processes.
Creating Strategy
The retail marketplace has fast become the
domain of those who know how to use core
strengths to dominate. Successful retail strategies
are based on four primary areas:
1) Product Selection
2) Convenience
3) Shopping Experience
4) Price
Product Selection
To dominate marketplace based on Product
Selection, one must have either the largest and
widest selection of a product category imaginable
(think Home Depot), or merchandise that is so
unique people will seek you out (think Build-A-
Bear Workshop).
The reality is that very few retailers have the
resources to dominate the market based on a vast
product assortment.
It requires a tremendous amount of retail space, and
even more financial resources. As well, the market
continues to sub-divide and become more specialized.
You need to determine where your product selection fits
on this scale:
If the majority of consumers think of your store first

Convenient Competitive Dominant
when they’re interested in your product category, then you
are the dominant player based on Product Selection.
Convenience
Many retailers establish their position in the
market based primarily on their Convenience (think
of convenience stores and many pharmacies).
Convenience is achieved predominantly through
one of three avenues:
Location
Hours
Mass Assortment
Shopping Experience
Let’s face it ... most retail shopping experiences
are boring.
This strategy involves the creation of a shopping
experience that is not only positive, but (more
importantly) memorable.
It encourages word-of-mouth marketing.
Numerous retailers have created successful
concepts based on Shopping Experience.
Shopping Experience
Your Shopping Experience strategy will be
driven by two important factors:
A unique, exciting and inspiring store
environment.
Staff that provide exceptional entertainment
and service.
Price
It’s pretty tough to achieve dominance in this
area, but being the price leader is still a valid
strategy.
However, don’t just think about being the low-
price leader. The other end of the pricing
spectrum also presents an opportunity (albeit a
narrow and risky one).
Low-price leader High End
Product, Convenience, Shopping Experience and
Price ... in your marketplace, are you the very best
in one of these areas?
If you don’t dominate at least one and perform
well in another, you probably aren’t having the
success you need or want.
Let’s examine the components of store’s strategy
and discuss how you can become a store “worth
shopping at”.
Location
Store location is an essential element of
retailing strategy. For years, experts argued that
the three most aspects of any retail business
were:
Location
Location
Location
Merchandising
Merchandising drives the core retail business.
If you don't have a handle on merchandising strategy,
then you're out of the game already.
To quickly summarize strategy options, consider the
following choices:
Low-price leader versus Higher prices.
Narrow, highly specialized product focus versus
Broader, more general assortment.
Basic, standard items versus Unique, leading edge
selection.
Pricing
All retailers have a basic philosophy about how
to price their products.
What is more important is that they create and
stick to a pricing strategy that conveys a clear
message to the consumer.
The market has certainly developed a need for
all retailers (even those at the higher end) to
become more value-oriented.
Pricing
Here are some examples of value-pricing
strategies:
Frequent Shopper programs
Regular pricing, frequently "on sale"
Added values
Value lines
Everyday low price
Price guarantees
Personnel
Retail is a business that is built on the skills, abilities,
attitudes, commitment and dreams of people.
Personnel strategy will greatly influence success in this area.
Training is always a key issue, but it rarely gets the
attention it deserves.
Pay and incentives play a major role in your personnel
strategy.
In developing competitive strategy, remember that one must
strive to maximize sales and profits every area of business.
Promotion
Running the advertising and promotion element
just by seating is a route to disaster.
By developing a proper and well thought out
promotion strategy, you can begin to gain control
over your marketplace and the message you are
sending to your target customers.
Service
You must determine the level of personal
service you want to provide in your business. Here
are your options:
Are you a full service store where the
customer is pampered?
Are you a completely self-serve store where
customers are left to fend for themselves?
Or, are you somewhere in between?
Setting Goals
People are goal-driven creatures. Give them an objective they
can identify with and want to achieve, then stand back and
watch them work.
This is equally true in the retail world.
In setting goals for retail business, one should consider the
following:
The Owner’s Personal Quality of Life
Sales
Profits
Customer Satisfaction
Suppliers
Employees
Image and Positioning
Defining Target Customer
Trying to satisfy the entire marketplace results in no
one group ever being truly satisfied.
One need to determine who is "best" customer group.
This is known as Target Customer.
That is not to say you won't have secondary consumer
markets you will sell to, but rather that you need to
build your store around your target customer profile.
In the absence of such a target customer, strategies
become weak, misguided and ultimately fail.
Watching The Trends
Uncontrollable trends do affect Retail business and
there is nothing any one can do about them.
However, what one can do is be aware of them and
make plans for any changes they may create. By keeping
an eye on these external events, anyone can often
discover new opportunities ahead of the competition, or
at least avoid significant economic loss from negative
consequences.
Consumers Government Policy
Technology Competition
Industry Economy
The Internet And Retail
Retailers are currently using the internet for a
variety of functions, including:
Communication with suppliers.
Communication with customers.
Banking/electronic funds transfer.
Purchasing goods and services online.
Selling goods and services online.
Merchandise Planning is "A systematic
approach. It is aimed at maximising
return on investment, through planning
sales and inventory in order to increase
profitability. It does this by maximising
sales potential and minimising losses
from mark - downs and stock - outs."
It is a "systematic approach" in many
ways.
Need the systems to ensure that one
must have the right people, the right
processes and the right computerised
support.
It is "aimed at maximising return on
investment“.
Most obviously we are talking about a
financial outlay in stock, but less evidently
there is also considerable financial
investment in retail space, people and
corporate infrastructure.
Achieve the goals "through planning sales and
inventory".
These two elements are inextricably linked
and finding an optimum balance is the key to
retail success. We need to balance carefully the
requirement to support sales with the
constraints and tensions imposed by store
layouts and warehousing and transportation
issues.
We put the effort into Merchandise Planning
"in order to increase profitability".
Profitability is the key driver of most
businesses. Effective merchandise planning
delivers margin increases directly to the
bottom line.
We achieve the increase in profitability "by
maximising sales potential and minimising
losses from mark - downs and stock - outs".
There are two major areas of profit
leakage in retail. Firstly lost sales resulting
from lack of stock and secondly forced
margin reductions due to excessive stock.
A typical retail clothing business will lose about 15% of its
turnover in markdown and perhaps 10% due to lost sales.
If we assume a turnover of $100 million, then we are
looking at a loss of $25 million here.
Reducing each of these figures by 1%, adds $2 million to
the bottom line.
What is equally important it that this profit increase can
be delivered in a sustained way.
That is "Merchandise Planning".
In creating a holistic system it is helpful to
realise that we can split the planning process into
four logical sections
Review
Merchandise planning
Range planning
Space planning
Review
The review process consists of two separate
activities.
Firstly carry out a Pre-Season Review of
performance history to identify opportunities and
problems.
Secondly "normalise" it. Normalisation is the
process of looking at history and ironing out the
"bumps" to make it useful as a basis for planning.
Merchandise Planning
The first element in the merchandise plan is the
Strategic Plan.
This is normally high level, with perhaps a five
year timescale.
It is used to set the critical success factors for
merchandising in terms of sales, margins & stocks.
Next is to create a Channel Sales Budget. This
would allow us to take into account the effect of
new channels, new stores, closures and refits.
Merchandise Planning
Once complete we would create a Category
Level Margin Plan.
Here we are creating a weekly version of the
strategic plan at category level for sales, margins
and markdowns.
Range Planning
In Assortment Plan, break down the goals of the
merchandise plan into specific lines, or sometimes
SKUs.
In Distribution Planning, the lines that are planed are
given a distribution profile. From this we should be able
to see both which stores a line is ranged to, and which
lines a given store will receive. The link between
available physical space and ranging done here is a key
determinant of merchandise performance.
Space Planning
Space planning systems can be split into two
types - numeric and visual.
Numeric planning systems simply allow users to
take account of space available and to calculate
ratios like return on space.
Visual systems allow users to create 3
dimensional walk-through models of the stores and
to preview the look of a store once ranging
decisions have been made.
Open to Buy
An Open to Buy control system uses planned
sales forecasts and stock turn requirements to
determine the optimum level of stock required.
In fact, given the extended lead times between
order and receipt in fashion merchandise, this
might more properly have been called an Open to
Receive, as it really shows the amount of
merchandise still required for intake in the given
period.
The stock turn requirement is normally expressed in terms
of Weeks Forward Sales Cover.
Weeks Forward Sales Cover means the number of weeks'
future sales that we need to keep in stock.
There is a direct link between Weeks Cover and Annual
Stock-turn.
For example 26 weeks cover is equal to an Annual Stock-
turn of 2 in a 52 week year.
As some systems are based on periodic or monthly data
one must see the terms Periods Cover or Months Cover used.
Open to Buy systems normally operate using a flow
calculation. This is also known as a "ladder plan".
This is shown in the following simple, unit-based,
example where the Closing Stock for the first period
is a result of adding the Opening Stock, On Order and
Open to Buy, and then subtracting the Forecast Sales.
This closing stock then becomes the opening stock
for period two and so on.
Period 1 2 3 4 5 6
Opening
Stock 200 500 450 350 300 300
Forecast
Sales 100 150 200 150 100 100
Periods
Forward 3 3 3 3 3 3
Cover
Closing
Stock 500 450 350 300 300 300
Reqd
Intake
Reqd 400 100 100 100 100 100
On Order 200 100
OTB
Remaining 200 0 100 100 100 100
Closing
Stock 500 450 350 300 300 300
Dollar Plan
or
6 month
Merchandising Plan
The goal of a business plan is to minimise the
use of capital and maximise profits. The
merchandise plan is one of the most important
“tools” to support this effort.
The merchandise plan consists of 2 major
elements.
An estimate of merchandise needed.
A control method to regulate stock levels.
Larger the organisation, greater the need to plan.
Dollar Plan is also known as 6 months merchandise plans.
This is because we generally do merchandise planning for 2
different periods.
Feb to July
Aug to Jan.
These periods are divided in this way because each of

these period contains 2 major related seasons – Spring,
Summer & Autumn, Winter
Dollar Plan & Control
Dollar plan is actually a budget which balances
planned sales and planned stocks in terms of
dollars. It also includes standards, if achieved,
which would result in a planned profit”
“ The Control feature is known as the open-to-
buy i.e. the dollars that a buyer may spend for
delivery of good within a period.
Dollar Plan & Control
Dollar Planning and Control consists of:
A prediction of customer demand for each
month of the plan.
An estimate of the inventory need for each
month of the plan.
The maintenance of planned inventory levels
by means of a control feature.
Elements of the Dollar Plan
Planned Sales – estimates for each month and
the period.
Planned Stock – estimated inventory need at the
beginning of each month.
Planned Markdowns – estimated inventory
reductions for each month
Planned Purchases – estimated purchase budget
to be spent during a given period.
Since a plan is also a set of financial goals. It may
include planned figures for:
Workroom Cost – cost of alterations and repairs of
garments that are charged to a department.
Cash discounts – percentage of the period’s cost
purchases (discounts earned through early or prepayment
of accounts payable) the ratio is a percentage of net
sales.
Season Stock Turnover – net sakes divided by the
average inventory.
Shortage – Difference between book inventory at
retail and physical inventory in terms of retail
values. The shortage ( or overage ) is expressed as a
percentage of net sales.
Average Stock – beginning of the moth inventories
divided by the number of months of the period.
Markdown – Dollar reductions from originally set
retail prices of merchandise, a percentage of net
sales.
Percentage of initial Markon – difference
between costs and first retail prices, expressed as
a percentage.
Newspaper Advertising – shown in dollars or as a
percentage of net sales, or both.
Gross Margin Percentage – difference between
the cost of goods and the amount of sales,
expressed as a percentage.
In preparing the six month merchandising plan,
larger retail chains will build from the bottom up.
Starting at the class level, each class of
merchandise will have its own plan.
Combining entire subclasses will give us the
strategy for each department.
Taking that one step further, the amalgamation of
all department strategies will give the total
company plan.
Completing Six Month Merchandise Plan
Step #1: Assemble Last Year’s Figures
Assemble and fill in last year’s results.
Unless operation is computerized, however,
getting most of the monthly data for plan will be
impossible.
In such cases, simply begin with six month or
even annual figures, then divide by the relevant
number of months.
Or just take an educated guess.
Step #2: Planned Sales
Sales planning is the most difficult step in the whole
process.
In the real world, however, start by reviewing last
year’s figures and trying to determine what might affect
performance this year. Some things to consider are:
Sales Performance Coming Into The Season
Monthly Promotions
How is Customer Changing?
Economic Factors
Step #3: Planned Reductions
Markdowns, employee discounts and inventory
shrinkage come under the heading of planned
reductions.
These three figures affect ending gross margin, so
they must be considered when calculating department
and class profitability.
Since they also affect inventory levels, they must be
projected to ensure enough merchandise is on hand to
attain forecasted sales levels.
Step #4: B.O.M. & E.O.M. Planned Inventory Levels
Planning End-of-Month (E.O.M.) or Beginning-of-
Month (B.O.M.) inventory levels (one month’s
“ending” is the next month’s “beginning”) is another
important element of the six month merchandise plan.
Inventory is by far the number one dollar asset
within the company, and careful planning is required
to ensure an adequate return on investment is
attained.
Stock-to-Sales Method
The Stock-to-Sales Method is a popular way
to forecast how much inventory is required to
attain monthly sales projections.
Stock-to-sales (S/S) is a ratio of the amount
of inventory on hand at a particular date to the
sales for the same period, and is calculated as
follows:
S/S ratio = Stock on hand E.O.M (at retail value)

Sales for the same month
When using the S/S method for planning stock levels,
the buyer selects the S/S ratios he desires each month.
Desired S/S ratios are usually obtained by referencing
previous seasons.
The selected ratio is then multiplied by the projected
period sales to get the desired E.O.M inventory level.
For example, the E.O.M. chart on the following page
is from the sample six month plan:
The Stock-to-Sales Ratio also provides with an
estimate of what Inventory Turnover will be.
If S/S Ratio is Estimated Annual

Inventory Turnover is
1 12
2 6
3 4
4 3
Step #5: Inventory Stock Turns
Inventory stock turns measure the rate at which
merchandise is sold from store compared to the
inventory level on hand.
The higher the rate, the more profit the buyer brings
to the company and the better cash flow will be.
Stock turns are calculated by dividing the total sales
for the season by the season’s average ending
inventory (at retail value).
Using the sample six month merchandise plan, the season’s
average inventory and stock turn rate is calculated in the following
way:
Season Average Inventory
= Sum of E.O.M. Inventory
Months in Season
= $110,000 + 140,000 + 150,000 + 170,000 + 140,000+90,000
6
= $800,000
6
= $133,000
Stock turn rate = Total sales for season
Season average inventory
= $310,000
$133,000
= 2.33 times for the 6 month
season
Step #6: Gross Margin Return On Inventory
Investment (GMROII)
While the standard Inventory Turnover ratio tells you
how efficiently you are moving your inventory, it ignores
the profitability of this inventory movement.
For example, an item with a low gross margin and high
sales will show a higher turnover rate. However, this is
obviously not as desirable as moving inventory with higher
(or even average) gross margins. Basically, it produces a
lot of activity, but with fewer financial results.
Gross Margin Return On Inventory Investment has
become the standard inventory statistic for many retailers
because it reflects the movement of inventory relative to
profitability, rather than to sales.
This is a better measure of inventory performance
because retailers are more interested in profitability than
sales.
A savings bond that pays 8% is better than one that pays
only 3%. Similarly, inventory that provides you with a
higher rate of return is more desirable.
If we were to look only at Inventory Turnover rates, we would
say both departments perform equally.
However, as soon as you calculate GMROII, you can clearly see
how clothing outperforms bikes.
The minimum standard for GMROII in most retail operations is
200%. Anything less is considered to be unprofitable.
Step #7: Planned Purchases
Once sales projections, stock reductions and stock
levels have been established, retailers can calculate
planned purchases. The planned purchase figure is
also the buyer’s first "open-o-buy" estimate. Using
the August figures from the sample six month plan,
the formula for planned purchases is as follows:
Planned Purchases = EOM Inventory + Sales
+ Reductions - BOM Inventory
= $110,000 + $35,000 +
($1750+ $350 + $700) - $50,000
= $97,800
Step #8. Planned Markup
After calculating how much inventory to purchase,
retailers must determine the initial markup for these goods.
This may fluctuate between different classes of goods
within a department. The original markup must allow for a
final profit after paying all operating costs, reductions, cost
of goods, etc.
Most retailers have a target markup they want to start
with. This markup percentage is calculated by dividing the
markup in dollars by the retail price.
Markup dollars is the difference between the cost price and
the selling price. i.e. Our shoe store buys men's slippers for $10
and follows the manufacturer's suggested retail of $20 which is
a 50% markup percentage, otherwise known as gross margin.
Markup dollars = Selling price - Cost price
= $20 - $10
= $10.
Markup percent = Markup dollars / Retail Price
= $10.00 / $20.00
= 50%
Step #9: Gross Margin
Gross margin is the difference between the selling price
and the cost of the product, less reductions for
markdowns, shrinkage and employee discounts.
To determine the gross margin for each month, all
purchases and inventories must be converted to cost
price.
To calculate cost price, multiply the inventories and
purchases by the original markup percent (in this case
50%).
Example: Using the month of August from the
six month plan, we must first convert to cost
figures by multiplying opening/closing inventories
and purchases by 50%.
Next, we calculate Cost of Goods Sold
(C.O.G.S.) as follows:
C.O.G.S.= B.O.M. Inventory + Purchases -
E.O.M. Inventory.
= $25,000 + $48,900 - $55,000
= $18,900
Finally, we determine Planned Gross Margin like
this:
Planned Gross Margin = Period sales -
C.O.G.S.
Period sales
= $35,000 - $18,900
$35,000
= 46%
Retail Maths
There is dispute among segments of the retail
industry as to the retail math terminology and
calculations used in the business.
There is definitely a need for a "common language"
for the industry as it pertains to calculations and terms!
Retail math is considered an integral part of a good
retail manager's skill set.
It can be found on some companies pre-employment
screening tests.
$ Cost = $ Retail x (100% - Markup %)
Example: $100 retail item with 56% markup has

a cost of $44
(100% - 56% = 44%)
$100 retail X .44 = $44.
Note: This retail math formula is useful for
calculating the most you can pay for an item you
need to retail at $100, but want a markup of 56%.
Use this retail math formula in cost negotiations
with vendors.
Cost of Goods Sold (COGS) = Beginning Inventory
+ Purchases - End Inventory
Inventory at beginning of year +

Purchases or additions during the year
= Goods available for sale -
Inventory at end of year
= COGS
Inventory @ cost Beginning of year = $1,000,000.
Purchases @ cost + freight During year = $550,000.
Total available ($1,000,000. + $550,000.) =
$1,550,000.
Inventory On Hand end of year @ cost = $900,000.
Cost of Goods Sold
=($1,550,000 - $900,000)
= $600,000.
$ Retail = $ Cost / (100% - markup %)
Example: Cost on an item is $44. Desired

markup is 56%. 100% - 56% = 44% cost complement
to the retail markup. Cost $ of $44 is divided by
cost complement of .44 to arrive at target retail
price of $100. ($44 divided by .44 = $100)
Note: This retail math formula is used to
determine the retail price to mark an item, when
the cost and the desired markup % is known.
$ Markdown = Original retail price - lower retail price
Example: Original retail price $100.

New lower price $80.
The markdown is $20.
This 20% discount becomes an markdown
expense of 25% because the $20 must be divided
by the $80 sale to be expressed as a % to sales,
the way other expenses are expressed as a % to
sales.
GMROI (Gross Margin Return on Investment)
= Gross Margin $ / average inventory at cost.
Annual Gross Margin $ of $400,000 with an

average inventory cost of $150,000 would have a
GMROI of $2.67; in other words, for each dollar
invested in inventory on average, the $1 invested
returned $2.67. ($400,000 divided by $150,000.)
This is a particularly important retail math
formula. Most retailers do not pay enough
attention to GMROI).
(Gross Margin% / (100% - Gross Margin %)) x Annual
Stockturn
In simple terms it shows how many times over a year we

get every penny we invest in stock at cost returned as profit.
So if Product Group A has a gross margin of 60% and an
annual stock turn of 1.8 this would give us a G.M.R.O.I of 2.7.
(60/40 x 1.8 = 2.7)
If we compare this with Product Group B which has a gross
margin of 40% but an annual Stockturn of 4.0 we see that the
G.M.R.O.I. is also 2.7. (40/60 x 4.0 = 2.7)
Product Group C has the same Gross Margin and the same
Stock Turn as Product Group B, but is driving through only
half the sales value.
Product Product Product
Group A Group B Group C
Selling Price $10.00 $10.00 $10.00

Sale Units 180 200 100
Sales 1,800 2,000 1,000
Gross Margin % 60.0% 40.0% 40.0%
Gross Profit 1,080 800 400
Average Stock - Retail 1000 500 250
Annual Stock Turns 1.8 4.0 4.0
GMROI 2.7 2.7 2.7
GMROII = GM% x (Sales / Avg. Inventory)
Example: Assume that the store's net sales over

a period of 12 months is 24M and during this time
it carries an average inventory of 6M. Then:
GMROII % (Gross Margin Return on Inventory
Investment (GMROII):
= 39.94 x (24 / 6)
= 159.76%
Gross Margin = Sales - cost of good sold
Margin % = ($ Retail - $ Cost) / $ Retail
Markdown % = $ Markdown / $ Net Sales
Percent Change In Sales =
This Period Of Sales - Last Period Of Sales
Last Period Of Sales
Example: This period sales = $1,000,000. Last

period sales = $900,000.
Percent Change in Sales
Increase of $100,000 divided by last period
sales of $900,000 = 11.1% increase.
Stock Sales Ratio =
B.O.M. $ Stock / Sales For Period
Example: As in example above, a B.O.M. stock

of $400,000 retail divided by that month's sales of
$100,000 = a stock to sales ratio of 4.0 to 1.
($400,000 divided by $100,000).
B.O.M = beginning of month inventory. This is
one retail math formula which can vary – many
companies look at cost inventory- not retail, when
computing turns.
Planned Stock =
Planned Monthly Sales X Stock Sales Ratio
Example: Planned monthly sales of $100,000 X

planned stock to sales ratio of 4.0
= a planned first of (planned) month
inventory of $400,000.
Averaging a 4 to 1 stock to sales ratio each
month (4 months supply on hand) will result in
achieving retail inventory turns of 3 per year.
Shrinkage = Difference Between Book And Physical Inventory
Breakeven =
Fixed Costs $
(Net Sales - Contribution Margin %)
The Contribution Margin % (CM) is the sum of

the Variable Expense % + Cost of Goods Sold %
after the impact of markdowns.
Breakeven Analysis: Simply stated, this formula
indicates how much sales volume must be
accomplished in order to cover all costs (fixed and
variable), and begin generating a profit. In other
words, it is the point in sales volume at which you
have no profit and no loss.
Loss Prevention
"Loss Prevention" is not a very glamorous part of
retail.
It is, however, an extremely important element
of the success equation.
Call it theft or shrinkage is all lost dollars ...
and each one of these dollars would otherwise be
100% pure bottom-line profit.
Facts
General Shrink
Breakdown:
38% Customer
33 % Employee
21% Admin. &
Paperwork
8% Vendor
Facts
1 in 12 people in the US is a shoplifter and a
shoplifter will commit an average of 50 thefts
before being caught.
What is worse for retailers is that this
represents close a 5 Billion dollar loss to shrink.
Shrinkage Rates by Retail Sector
Shrinkage
The loss that results from shoplifting and
employee theft.
Shrinkage is reduction in physical count of
inventory as compared to accounted value.
Assume that an employee takes a pop, chips,
and a candy bar from the bookstore without
paying for their products:
Cost to bookstore of Markup of items to
items taken: Cover Shrinkage
Pop 0.93 Pop 0.32
Candy 0.33 Candy 0.17
Chips 0.27 Chips 0.13
Total $1.53
WE WOULD HAVE TO SELL
3 Pops
2 Candy
2 Chips
Shoplifting - Employees
3% steal every day
8% steal every week
20% steal 12 times a year
42% of all retail employees steal
80% of shoplifting involved senior store
management
Solution
Specific responsibility
Less staff handling cash
Staff integrity test
Covert work force to security force
Frisking & restricting personal cash to Rs 100
only
Types of Shoplifters
Addictive shoplifters
Professional shoplifters
The needy shoplifters
The thrill seeking shoplifters
Shoplifters who are drug addicts
The absent minded shoplifters
Psychological Reasons
Temptation
Most of the people have inside them the desire of
getting something more than the basic needs that is
desire for luxury items. The basic desire is to get
something extra without giving something in return for
it.
Justification
Most of the shoplifters do not consider themselves
to be criminals and shoplifting as crime. Generally in
order to justify their act they frame their own set of
values that suit their act.
“One will miss the things I took.”
“It is ok to shoplift sometimes as I have also give much money
in the past for my purchases.”
“The queue for the billing is very long and I don’t have much
time for it.”
“Retailer has put the price quite high than the normal prices.”
“There are many people unlike me who shoplift.”
“It is my right to possess good things and it is not necessary
that I pay for it everytime.”
The above list justifications are just the tip of the iceberg of
excuses shoplifters give forstealing.
Motivation
Motivation leads to action. The primary
motivation for stealing is that no one is watching
them and they are not hurting anyone and this act
of them will not lead to negative result. They are
under the impression that the retail store can
easily afford the loss due to shoplifting and thus
their stealing has no effect on the shopkeeper and
society. Also believe that it is a harmless activity.
Recognize The Shoplifter
They spend less time for shopping and more time
observing the cashier or salesman.
Their dressings is huge and wear heavy clothes like
blazer or overcoat even when it is hot.
Watch out for their body language that is they
tend to walk awkwardly with short steps which
denotes that, they are trying to hide something.
They take many items in the trial room and when
they come out have only one item with them.
Recognize The Shoplifter
Sometimes such people become too self-conscious
and nervous. They shop without interest and pick up
the items randomly.
There visit to the shop is quite frequent but do not
make any purchases.
Sometimes shoplifters enter the store/mall in groups
especially the teenagers. One of them strikes heated
conversation without any relevance in order to distract
attention from other members of their group.
Calculations
Shrinkage $ = Book Value of Inventory

- Actual Inventory on Hand
Shrinkage % = Shrinkage $ at Retail Values

Total Sales
From the above information, calculate the dollar shrink
figures for each department and the % shrink figures this
represents. What department has the biggest shrink
problem?
Mark Ups
Let's say you received some earrings from a supplier and
originally put them into inventory at $10.
You received 15 pairs, so you added $150 to your inventory
level.
Now, you realize that the earrings should have been priced at
$12.
You have to change your tickets to reflect the new price.
As well, you must post your mark up of $30 (15 pairs increased
by $2/pair) to your inventory. So the value of your inventory just
increased by $30.
That's a mark up calculation and recording.
Markdowns
You have two ways to record markdowns.
First, you can record them when the merchandise is
sold. So, if you reduced the price of a handbag from $30
to $25, you would record a $5 markdown when the bag
was sold.
The second recording method is what we call a “one
time markdown." If you were reducing the same handbag
from $30 to $25 and you had 10 bags in stock, you would
record an immediate markdown of $50 (10 bags reduced
by $5 each).
Introduction
Radio frequency Identification (RFID has been around
since World War II).
The technology used in RFID has actually been around
since the early 1920’s.
A much more related technology, the IFF transponder,
went into operation in 1939 and was routinely used by the
British in the World War II to identify airplanes as friend
and foe.
RFID became reality after 3 years of advances in many
different fields.
In simple, RFID tags consist of silicon chips and an
antenna that can transmit data to a wireless receiver.
Therefore the radio Id tags do not receive line-of-
sight for reading that is the RFID tagged product need
not be held close to the scanner to read the data of a
RFID tag.
Within the field of a wireless reading device, it is
possible to automatically read hundred of tags a
second.
RFID
Radio Frequency Identification (RFID), the
technology of the future, has long established itself
in our everyday lives.
It is already deployed in various areas ranging
from efficient inventory management and road toll
collection through to timing the performance of
individual participants in mass sporting events.
With its enormous potential it is only right that
RFID is on everyone's lips.
RFID technology builds a bridge between the
physical world of a product and the virtual world of
digital data.
The technology thus meets the demands of
companies cooperating in a closely knit value chain
and is being deployed promisingly in all sectors of
the economy.
RFID will soon be considered an indispensable
part of the chain.
RFID - An Overview
RFID or Radio Frequency Identification is a system
that uses radio waves to transmit an object's identity.
There are several methods of identifying objects
using RFID, but the most common is to store an ID or
serial number that identifies a specific product along
with other information, on a tag, which is a small
microchip attached to an antenna.
The antenna enables the chip to transmit whatever
identification information it contains to a reader.
The reader converts the radio waves from the
RFID tag into digital information that software
systems can use for processing.
Typically, when a reader reads a tag, it passes
three things to a host computer system: the tag
ID, the reader's own ID, and the time the tag was
read.
By knowing which readers are in which
locations, companies can know where a product is,
as well as what it is, and by tracking the tag data
by time, they can know everywhere it's been.
Until recently, a bar coded item used to sit on a
retail shelf and did not generate any data until it
was scanned by a bar code reader. And then the
data was read only once.
RFID, on the other hand, is a passive technology
that does not require human interaction to scan.
A reader can extract location and product
description data from a tagged item every 250
milliseconds.
Some readers are capable of reading data from
200 tags per second.
Classification
RFID tags can be classified into
Passive tags
Active tags.
Passive Tags
Passive tags do not have their own power supply.
The minute electrical current is induced in the antennas by the
incoming radio frequency scan provides enough power for the tag
to send a response.
Due to power and cost concerns. The response of a passive RFID
tag is brief – typically just an ID number.
The smallest such devices commercially available measured
0.4mm x 0.4mm, which is thinner than a sheet of paper; such
devices are practically invisible.
Passive tags have practical read ranges that vary from about
10mm up to about 6 meters.
Active Tags
Active RFID tags, on the other hand, must have a
power source and may have longer ranges and
larger memories than passive tags as well as the
ability to store additional information sent by the
transceiver.
At present, the smallest active tags are about
the size of a coin.
Many active tags have practical ranges of tens of
meters and a battery life of up to several years
How different RFID is from Barcode??
Many retailers and manufacturers have been using bar
codes. These are scanned manually and read individually.
In the case of RFID tags, it is a small object similar to
adhesive sticker and is attached to or incorporated in the
product.
RFID tags work better and more data can be collected
and stored in the RFID micro chip.
Further RFID tags cold identify exactly which box it is,
which is lacking in barcode system.
Benefits of RFID
Product security and Quality
Real time inventory visibility (a check can be
seen an unwanted qauntitities)
Exhaustive information about product and
Better mans of accountability
Adverse Factors
Factors Adverse for the adoption of RFID Technology
Expensive technology: RFID tags at present costs
between $1 and $10. Specialized tags costs still more
may be $100. Passive tags are available at 30 cents to
$1.
Uncertainty about standards
Read errors due to technology.
Lack of awareness
Technology issues
Adverse Factors
Environmental /process related factors include:
Active /Passive,
Frequency; low/high frequency tags,
Mental proximity reverts the radio frequency,
Liquid items tend to absorb the radio frequencies thus
making it impossible for the reader to comprehend them,
read range depends on the power of the antenna and
read accuracy,
Level of security, Size, Anti- clone/ Anti collision
functionality, Humidity and temperature, Interference.
Adverse Factors
The use of RFID technology has engendered
considerable controversy and even product
boycotts. The four main privacy concerns regarding
RFID are :
The purchase of an item will not necessarily be
aware of the presence of the tag or be able to
remove it.
The tag can be read at a distance without the
knowledge of the individuals,
Adverse Factors
If a tagged item is paid for by the credit card or
in conjunction with the use of loyalty card, then it
would be possible to the unique ID of that item to
the identity of the purchase,
The EPC global System of tags create or are
proposed to create, globally unique serial numbers
for all products though this creates privacy
problems and is completely unnecessary for most
applications.
Strategies for the rapid adoptions of RFID
Big retail formats are growing in India and hence RFID
technology can be used for reaping the advantages
identified in the above pages.
During March 2005, wireless planning and coordinating
wing, Ministry Of Communications and Information
Technology, Govt of India had issued a notification for
the use of wireless equipment in the band 865-867 MHz.
As per the notice, no license is required to establish,
maintain, work, and possess the tags and their uses.
Research is going on the substitution of cheap or cost
effective material to make the technology, for example,
use of nanotechnology makes the RFID technology
cheaper.
Govt. of India should bring a policy to make the use of
the technology compulsorily in certain sectors namely,
Education sector; universities and institutions should
use the technology on the certificates by recording the
basic details of that student hence it becomes easy for
verification and there is no scope for manipulation.
Pharma sector; to avoid fake medicine brands

standard companies can use this technology.
Election Commission to issue voter ID cards, to
avoid others to vote, this technology is very
much useful.
For very expensive goods such as jewelry,
costly wrist watches, diamonds etc also, the
manufacturers can use this technology, to avoid
duplication in the market.
WHAT IS FDI?
FDI is defined as a firm based in one country (the
'home country') owning 10 percent or more of the
stock of a company located in a foreign country (the
'host country') -- this amount of stock is generally
enough to give the home country firm significant
control rights over the host country firm.
Investment made by a foreign individual or company
in productive capacity of another country for
example, the purchase or construction of a factory.
Investing in India
Prior Permission
Automatic Route
(FIPB)
General Rule By Exception

No prior permission Prior Government
required Approval needed.
Inform Reserve Bank Decision generally
within 30 days of within 4-6 weeks
inflow/issue of shares
Retailing: An overview
Retailing
World’s largest private industry
US$ 7 trillion sales annually
Indian retailing
Contributing 14% to national GDP
Largest employer after agriculture - 8% of population
Highest outlet density in world
Around 12 mn outlets
Still evolving as an industry
Long way to go
Indian Retail: “The Sunrise Sector”
Total retail market : 10 lac crores

Organized retail market: 3.5 % or 35,000 Crores
Estimated to grow to Rs 1,10,000 crores by 2010
Total outlets – 55 lacs
Per capita retail space- 2.5 sq feet.
(96 % outlets are < 500 sq ft)
The Changing Indian Consumer
Greater per capita income
Increase in disposable income of middle class
households
20.9%* growth in real disposable income in ’99-’03.
Growing high and middle income population
Growing at a pace of over 10%* per annum over last
decade
Affordability growth
Falling interest rates
Easier consumer credit
Greater variety and quality at all price points
The Changing Indian Consumer
The urban consumer
Getting exposed to international lifestyles
Inclined to acquiring asset
More discerning and demanding than ever
No longer need-based shopping
Shopping is a family experience
Changing Mindset
Increasing tendency to spend
Post Liberalization children coming of age
100 mn 17-21 year olds. Tend to spend freely.
Greater levels of education
Anticipated Growth
Market size
Current market size is roughly US$ 286 bn
96% of the 12 Million stores are less than 500 Sq. ft.
Forecast Growth rate for the retailing industry is
roughly 8.3% for 2003-2008
Sales from large format stores would rise by 24-49%
Formal and modern format retailing would enjoy
rapid growth
Industry Dynamics
Low domestic competition
Because of fragmented nature of industry
Lack of exposure to global best practices
Low entry barriers for unorganized retailing
Moderate entry barriers for organized retailing
Wholesale system under-invested leading to 20-40% wastage
Non level playing field issues
Wide differences in treatment of small and large
retailers
India As An Investment Option
India ranked 5th in the Global A.T Kearney Retail
Development Index
Second only to China (from 30 emergent markets)
Least saturated of all global markets studied
The least competitive of all global markets studied
Implies lower barriers of entry for global
players
Considering tremendous market size, excellent
potential for foreign players
FDI in Indian Retailing
Current Indian FDI Regime
FDI not permitted in retail trade sector, except in:
Private labels
Hi-Tech items / items requiring specialized after sales
service
Medical and diagnostic items
Items sourced from the Indian small sector
(manufactured with technology provided by the foreign
collaborator)
For 2 year test marketing (simultaneous
commencement of investment in manufacturing facility
required)
Entry Routes To FDI In Retail
Present FDI Regime and Entry Routes.
The Central Government in 1997 had taken a careful
policy decision of keeping FDI in Retail at bay. But the
present policy allows India to have a presence of
international brands, through different routes as follows:
Franchise
Joint Venture
Manufacturing
Distribution
Cash & Carry (100%)
International Retailers in India: Strategies
Franchise :Mc Donalds

International company gives name and
technology to local partner. Gets royalty in
return
In case master franchise is appointed for
region or country, he has right to appoint local
franchisees
Nike, Pizza Hut, Tommy Hilfiger, Marks
and Spencer, Mango
Manufacturing
Company sets up Indian arm for product
Bata India. It also has right to retail in India
Joint Ventures:
Foodworld :51:49 JV between RPG and Dairy
Farm International
Distribution
International company sets up local distribution office
Supply products to Indian retailers to sell
Also set up franchised outlets for brand
Swarovski, Hugo Boss
Wholesale trading
Cash and Carry operations
100% FDI permitted
Metro Cash n Carry
FDI : How??
FDI should be allowed in stages
Initial stages: 26% FDI
Establishment Phase: 49% FDI
Mature Phase: 100% FDI
FDI policy
No incentives needed to attract FDI
Market size and potential are sufficient inducers
No need for costly tax breaks, import duty exemptions,
land and power subsidies, and other enticements.
FDI: Concerns
Foreign players would displace the unorganized
retailers because of their superior financial strengths
Induce unfair trade practices like Predatory Pricing,
in the absence of proper regulatory guidelines
Create Monopoly and promote cartels
Give rise to cut-throat competition rather than
promoting incremental business
Increase in real estate prices and marginalize
domestic entrepreneurs
FDI : Benefits
By allowing FDI in retail trade, India will become more
integrated with regional and global economies in terms
of quality standards and consumer expectations
Greater level of exports due to increased sourcing by
major players
Provides access to global markets for Indian producer
The international experience and skills that may come
with FDI would provide the confidence and capital
FDI : Benefits
Investment in technology
Cold storage chains solve the perennial
problem of wastage.
Greater investment in the food processing
sector technology
Better operations in production cycle and
distribution
FDI : Benefits
Better lifestyle
Greater level of wages paid by international players
usually
More product variety
Newer product categories
Economies of scale to help lower consumer price
Increased purchasing capacity of consumers
They can lay down better and tighter quality standards
and ensure that manufacturers adhere to them.
FDI : Benefits
Manpower and skill development
Through retail training and
Greater managerial talent inflow from other countries
Tourism Development
A strong retailing sector boosts tourism as seen from the
experience of Singapore and Dubai
Investment in whole supply chain
Improved product basket from India for exports
Long term benefits
Up-gradation of agriculture
Development of efficient small and medium size industries
Benefits To The Government
Greate r Co nsum e r
Gre ate r Pe r
Sp e nding d ue to
Cap ita Inco m e
e co no m ic b o om
GDP Gro wth
Em p lo y Be ne fits Gre ater

m e nt to Go vt. Expo rts
Incre as ing Greate r
Tax Paying S ourcing
Incre ase d Tax
Po p ulation From Ind ia
Re ve nue s
Re d uced Tax
Evas ion
Benefits To The Government
Increase employment levels
FDI would result in market growth and
expansion
Employment generated at various levels
Increased consumer demand implies
employment generation across the value chain
Vendors will be benefited through long-term
contracts & associations, introduction of best
practices in production, designing, labor
conditions, waste/effluence management,
volumes and export possibilities, better quality of
life for rural masses through direct contract
farming.
Infrastructures such as roads, power, sewerage,
garbage disposal, public parking lots, real estate,
cold chains, logistics & warehousing, flow of
funds-public and private, import & exports.
The environment is likely to be impacted first
owing to global best practices by these brands who
are likely to come over the nest few years.
Hence, it will lead to overall economic growth and

create benchmarks.
Case study : Chinese retailing
FDI permitted in 1992. 40 foreign retailers have secured
approval
Retail sales have grown@13.5% since FDI was permitted
FDI initially restricted to 6 major cities (including Beijing,
Shanghai and Guangzhou and SEZs)
Foreign ownership initially restricted to 49%
US$ 22 bn of FDI attracted, 3.6% of total FDI
In 2003, FDI in wholesale and retail was US$ 1.1 bn (Around
30% of our total FDI in 2003)
Current restrictions on FDI will be phased out over 5 years as
condition of WTO entry
China: The effect of FDI
Type No. of stores in No. of stores in
1996 2001
Traditional 1,920,604 2,565,028
Supermarkets 13,079 152,194
Convenience 18,091
Hypermarkets 593
Employment In Retailing Is Increasing
Employment in Retailing
60 8.00%
7.00%
50
% o f To ta l La b o r
w h o le s a le (Mn )
Em p lo y m e n t in
6.00%
40
Re ta il a n d
5.00%
fo rc e
30 4.00%
3.00%
20
2.00%
10 1.00%
0 0.00%
90 91 92 93 94 95 96 97 98 99 00 01
Ye a r
Em p lo ym en t %
Case Study : Chinese Retailing
Wal-Mart
Entered Chinese market in 1996
Has 43 stores in 19 cities as on date
Had sales of US$ 704 mn in 2003
Has employed more than 20,000 people
Has paid taxes of US$ 111 mn in total*
Carrefour
Has 54 stores as on date
Had sales of US$ 1.6 bn in 2003*
Lessons from China
Strong evidence in favor of FDI
FDI improves the entire size of the industry
Retailing in China has grown at a compound rate of 15%
per annum after FDI inflow
Employment growth
Evolution of modern formats
Local players can survive and even beat foreign
competition
Need for a strong retailing industry in India
Scale is the key to success for local retailers
Recommendations
Grant industry status to retail.
Permit FDI in Retail in phases.
Invest in supply chain infrastructure.
Organize market for real estate
Ensure flexibility of labor laws
FDI should be gradually allowed first in
relatively less sensitive sectors – garments,
lifestyle products, houseware, entertainment etc.
Recommendations
Entry of foreign players must be gradual and with
social safeguards so that the effects of labor
dislocation can be analyzed and the policy can be
fine-tuned.
Initially allow them to set up supermarkets only
in metros.
Make costs of entry high and according to
specific norms and regulations so that the retailer
cannot immediately indulge in predatory pricing.
Recommendations
In order to address the dislocation issue, it
becomes imperative to develop and improve the
manufacturing sector in India.
If this sector is given due attention, and allowed
to take wings, then it could be a source of great
compensation to the displaced workforce from the
retail industry.

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INDEX

Introduction : FRM Page # 1

Retail is derived from the French

Trading Area Analysis

Rent Per Year = (Base rent + CAM Charges) x Sq.

Occupancy % = Total Yearly Rent

If the majority of consumers think of your store first

Low-price leader High End

These periods are divided in this way because each of

S/S ratio = Stock on hand E.O.M (at retail value)

If S/S Ratio is Estimated Annual

Example: $100 retail item with 56% markup has

Inventory at beginning of year +

Example: Cost on an item is $44. Desired

Example: Original retail price $100.

Annual Gross Margin $ of $400,000 with an

In simple terms it shows how many times over a year we

Selling Price $10.00 $10.00 $10.00

Example: Assume that the store's net sales over

Margin % = ($ Retail - $ Cost) / $ Retail

Markdown % = $ Markdown / $ Net Sales

Example: This period sales = $1,000,000. Last

Example: As in example above, a B.O.M. stock

Example: Planned monthly sales of $100,000 X

The Contribution Margin % (CM) is the sum of

Shrinkage $ = Book Value of Inventory

Shrinkage % = Shrinkage $ at Retail Values

Pharma sector; to avoid fake medicine brands

General Rule By Exception

Total retail market : 10 lac crores

Franchise :Mc Donalds

Em p lo y Be ne fits Gre ater

Hence, it will lead to overall economic growth and

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