Trade Area Analysis and Site Selection

BACKGROUND The significance of location decisions cannot be overstated. Because of its tremendous impact on virtually all other operational decisions, the location decision is perhaps the single most important operation decision a retailer has to make. A retailer who selects a poor location will always be at a competitive disadvantage. To overcome the mistake of selecting the poor location, the retailer is forced to make substantial adjustments in the product, prices and promotional mixes. Such adjustments are usually very expensive to implement and they are sure to affect the firm's profits and profitability. On the other hand, selecting a good location enhances the degree and extent of success because it allows greater flexibility in developing the product price and promotional mixes. Given the long-term commitment, the huge financial investments and the effects on the retailing-mix, the retailer must consider the location problem as one of paramount importance. Hence, a critical element in determining a retailer's success is the ability to assess and acquire a good location. To achieve this objective, the retailer is expected to identify, evaluate and select trading areas to segment his consumer markets further. After identifying and evaluating local markets, the retailer must then segment them into trading areas. After this, the terminal point in location decision is that of selection of proper site. Therefore, this chapter is devoted to two major aspects namely trading areas and retail store site. This is very interesting and technical study which we are currently touching. The chapter ends with chapter summary and chapter based questions, as usual. THE RETAIL TRADING AREA WHAT IS A RETAIL TRADING AREA? A "retail trading area" is the area from which a store attracts its customers or

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

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

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

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

reduce these extensions. Physical barriers are lakes, rivers, mountain sides, ocean, deserts, land formations, limited access high ways and rail-road tracks. Social barriers are high-crime area, ethnic neighbourhood where people confine to their own ethnic neighbourhood. The political barrier are city limits, state boundaries and country borders that have tax implications-local, sales, customer tariffs. Ail these greatly influence the shape of trading area. 3. Location of competitors. A retailer trading area affects the shape whe1e the competitors locate their stores. The trading area is sharply cut by the competitor location, size and type of operation. The Trading Area Structure The final dimension of retail trading area is its structure. Trading area structure is the comparative ability of a retailer or a cluster of retailers to attract customers from various distances or from various customer regions. Expert think of three such possible trading area structures namely generalcoinp0site and proportional. 1. General trading areas. General trading areas is one which provides maximum of retailer's business. Therefore, general trading area includes any and all customers who do or might buy any product lire the retailer Carrie. Thus, a customer who might-purchase only a tooth paste is included along with customers who buy perfumes, toiletries, dresses, shoes handbags and several other products. 2 Composite trading areas. A composite trading area is a set of trading areas, each of which is structured according to the type of goods the retailer sells. Thus a retail unit might be dealing in convenience, shopping and specialty goods. It might so happen that a retailer might draw larger trading for specialty goods than for convenience and shopping. The composite ea boundary lines are dependent up on consumer's willingness and expert in shopping effort. 3. Proportional trading areas. A proportional trading area is based on the distance customers are from the store, unlike composite trading area which is

base on the types of products the retailer carries and the degree of consumer willingness to search for the products. The far-off customers are less likely patronise the store than the nearby customers. These two categories together call the retailers as the "distance decay fUilction"-that is, the number customers attracted to a given store decreases as their distance from the store increases. Based on this distance factor, experts have conceived three distance zones namely, pri y, secondary and fringe--together constituting proportion to the total trading ea. (1) The primary trading zones. It is the area around which a retailer can expect to attract nearly 50 per cent to 70 per cent of his total business. In other words, primary trading zone includes the areas closest to the store, the area in which retailer has the competitive advantage and the area from which the retailer produces highest per capita sales. (2) The secondary trading zones. Secondary trading zone is one which

surrounds the primary zone and generally represent 20 per cent to 30 per cent of retailer's total business. In this case, the customer give second or third choice to a retail outlet. (3) The fringe trading zones. A fringe trading zone is one from which the retailer draws occasionally 5 per cent to 10 per cent of total business. These customers are either in the close vicinity of the store or because they are extremely loyal to store for one reason or the other. TECHNIQUES OF IDENTIFYING THE TRADING AREAS The experts in the field have come out with two techniques of identifying the trading areas. These are spotting techniques and quantitative procedures. I. SPOTTING TECHNIQUES Spotting techniques include several methods by which the retailer attempts to "spot" customer origins on a map. By carefully observing me magnitude and

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

service and delivery records contain good deal of information if developed and maintained properly. From their records, retailers can find customer addresses and places of unemployment, age brackets, family status telephone numbers and types and amounts of purchases. Though customer credit, service, and delivery records are a fast and inexpensive ways of obtaining information, they are biased because cash customers, who require no service or delivery, are omitted from the analysis. 4. Customer Activities. Any method that seeks or requires customers to provide their names and addresses can help in identifying an existing or proposed trading area. Promotional activities such as contests and sweep takes can be effective in obtaining names and addresses. Unfortunately, these tend to be biased toward the consumer who is willing to participate. Rupee-off coupons that require the consumers to provide minimum information also have been used in identifying trading areas. II. QUANTITATIVE PROCEDURES Retailers are having several quantitative procedures to delineate retail trading areas. One of the most widely used concept is "retail gravitation concept" which provides a measure of the potential interaction between various locations by determining the relative drawing power of each location. Based on this relative drawing power of a location within an area, each area can be identified as a part of a trading area. The retailing analysis have developed several formulae of the gravitation concept, each uses somewhat different procedure to identify the trading areas. These two most widely accepted formulations namely, Converse's Break Even Point and Huffs probability model. Converse's Break Even Point. Mr. Converse developed of a formula that allows the retailer to calculate the Break Even Point in miles or kilometers between the competing retail centers. Mr. Converse computes the break even point as a point between the competing retailing centers where the probability of a

consumer patronising each retailing centre is equal. This break even point, in essence, identifies the trading area boundary line between competing retail trade centers. By identifying the break even point between one retail centre and all competing centers, the retailer can determine the trading area. The formula expressed by Mr. Converse is as under: d BP = .... ~{P;' .. 1 + V~
A. = a parameter which ·is to be estimated empirically to reflect the effect of

travel time on various kinds of shopping trips. BP = Break even point between the competing retail centers in miles or kilometers from the smaller centre. d = distance between the two competing retail centers. PI = Population of the larger retail centre. P2 = Population of the smaller retail centre. Huff's Probability Model. 'The consumer choice of a retail store or shopping cluster is a complex decision making process. The number and importance of store and cluster attributes used in the selection process vary with each shopper. Mr. Huffs model was the first to suggest that market areas were complex, continuous and probabilistic rather than the non overlapping geometrical areas of central place theory. The basic premise of Huff's "shopper attraction" model is based on the following empirical regularities : (a) The proportion of consumers patronising a given shopping area or cluster varies with distance from the shopping area. (b) The proportion of consumers patronising various shopping areas or clusters varies with the breadth and depth of merchandise offered by each

shopping area. (c) The distance that consumers travel to various shopping areas or clusters varies for different types of products purchased and (d) The "pull" of any given shopping area or cluster is influenced by the proximity of competing shopping areas. The model developed by D.L. Huff to measure the probability of consumers expected to be attracted to a particular shopping cluster can be formally expressed as follows: S A :} (T .. )A p k .= _---"J __ I) n SA: L (/./)A j = I') Pkij = Pkj = the probability of a consumer at a given origin i travelling to a particular shopping cluster j for a type k shopping trip. the size of the shopping cluster j devoted to shopping trip k measured in square footage of the retail selling area devoted to shopping trip k items. Tij = m= n= p= the travel time involved in getting from a consumer's point of origin i to a given shopping cluster j. the number of origins in the market area. the number of shopping clusters in the marketing area. the number of different types of shopping trips defined.

THE TRADING AREA EVALUATION PROCESS The fundamental problem of any trading area evaluation is to answer two very significant questions namely, (1) What is the total amount of business a trading area can generate now and in the future? and (2) What share of the total

business can a retailer in a given location expect to attract? In fact, there is 'no standardised trading area evaluation process. However, most of the evaluation procedures use the concepts of "trading area adequacy" and the "trading area potential" to predict the total trading area business and the share of business a particular retailer can expect. Trading-area Adequacy Trading area adequacy is the ability of a trading area to support proposed and the existing retail operations. The support capability may be viewed in a GROSS as well as NET form. Here Gross adequacy is the ability of a trading area to support a retail operation without any consideration of retail competition. That is, the gross adequacy measures the total amount of business available to all the competing retailers within a defined trading area contrary to this, "net adequacy" is the ability of a trading area to provide support for a retailer after competition has been taken into account.

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

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

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

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

Non-residential Support levels All consumption support does not come from residential trading area. The consumers who reside outside the trading area contribute significantly to that areas capacity to consume. The characteristics of most trading areas are the daily inward, outward and through migration of consumers who are attracted into the trading area for work, recreation and other reasons say need for professional services. Though these consumers are living many kilo-meters away, they do represent a significant position of trade customers who visit the area. It is quite possible that some of these might be visiting frequently and regularly or others infrequently and irregularly. Nonetheless, it accounts for gross adequacy which one can not forget. Though it is very difficult to calculate accurately the number of such consumers capacity, at the numbers can be ascertained. As all non-residential units do not have equal consumption generating abilities, the system of weightage can be used. However, at any cost non-residential consumers cannot be forgotten. Estimating Trading Area Sales Though there are several methods of estimating the trading area sales, the most widely used techniques are two namely, (a) Corollary Data Method and (b) Per-capita Sales Method. Corollary Data Method This method assumes that an identifiable relationship exists between sales for a particular class of goods and one or more trading features such as population, residential units. Knowledge of these relationships helps the retailers to estimate the sales. Per-capita Sales Method There are several variations. One such most widely used method is that the estimated trading area sales for a general product line is a function of the per capita expenditures for the product line times the total population of that trading

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

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

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

existence of major shopping centres outside the trading area that are within the easy driving distance. (b) the presence of major traffic arteries that facilitate outshopping and (c) the lack of a sufficient number of competiting retailers to facilitate consumers comparison shopping. Though estimates of outshopping are not always accurate, the retailer must consider these factors in making a conservative estimate of trading area net adequacy. Estimating the Retailer's Sales A retailer can estimate each competitor's sales once he has evaluated the competitive environment. To calculate the net adequacy-the trading area market share-figure, the retailer can use either the "total sales method" or the "sales per square foot method." Both methods use a ratio of trading area activity to consumegross adequacy-to the trading--area capacity to sell. Let us not these methods in brief. Total Sales Method With the help of this method, a retailer allocates an equal share of the trading area's total sales for a specific product category to each competing retailer. The merit of this method is that it is simple and quick to calculate. However, the limitation is the assumption that all competing retailers are equal and can generate an equal share of the trading area sales. To reduce the impact of this, the competive audit technique may be used. Sales Per Square-foot Method This is another method under which the retailer computes the ratio of each retailer's floor space devoted to a specific product category to the total of all retail floor-space for the product category in tl1e trading area. This method assumes that the selling space is a good predictor of a retailer's competitiveness. THE GROWTH POTENTIAL OF TRADING AREAS Every retailer must answer one more question before completing the trading

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

operates. According to retail specialists, retailer's site is one of the principal tools obtaining and maintaining a competitive advantage through spatial monopoly. A given site is unique when its "positional qualities" serve a particular trading area consumer in way that no other site can match. That is why, retailer's site problem has solution in its identification evaluation and final decision of perfectly matching site. These aspects are taken care of in these on going pages. THE SITE IDENTIFICATION PROCESS The first step in appraising retail site locations is to identify all potential site alternatives. The number of site alternatives in any given trading area can range from an extremely limited to a very large selection. Therefore, before a retailer attempts to have any formal evaluation, he should scan and screen the alternatives by asking three crucial questions. These are : 1. Availability. Is the site available for rent or out-right purchase? 2. 3. Acceptability. Is the asking rental rate within the retailer's operating' budget ? It is because rent rates vary sharply according to location, type, size of retailing cluster and market size and the quality standards. If he Is going for outright purchase whether rate per square foot or square meter Is fitting in the financial resources of a retailer. To be considered for further evaluation, a site alternative must meet all the three screening criteria. That is a selectable site is available, suitable and acceptable. Suitability. Are the site and the facilities of a suitable size and structure?

CLASSIFICATION OF RETAIL SITES Retail sites can be classified as either ISOLATED or CLUS1ERED. ISOLATED SITES Isolated sites are retail locations that are geographically separated from other retail sites. However, they can be next to other forms of economic and social activity. One site alternative is to "go it alone" by selecting an absolute location isolated from other retailers. The degree of isolation can range from "around the corner down the block" to for out on the outskirts of town. Here isolation means physical isolation, In relative location terms, "an isolated site is located or situated so that it will not normally share consumer traffic, with other retailers, however, its relative location offers certain advantages in attracting customers from other sources of business. Generally, a retailer selects an isolated site in seeking to gain either a monopolistic or an operational advantage. Let us understand the implications of monopolistic and operational isolation. Monopolistic Isolation. Monopolistic isolation is a site that affords the retailer a unique, convenient and accessible location to serve consumers. A monopolistically isolated site is isolated from competing retail sites but is uniquely situated for traffic generating activities. The common examples of these kinds are, convenience-food store in a residential area, a neighbourhood bar, a local service station a cafeteria located in an office complex. Exclusive airport, bus terminals, railway stations and in campus book stores and so on. Operational Isolation. Some retailers prefer to locate in isolated areas because they think it gives them greater flexibility in operating a retail business. This greater operational flexibility are seen in terms of : 1. Site Geography. Site alternatives that meet the size, shape and terrain requirements of the retailers operation constitute site-geography. A homeimprovement centre, for example, normally requires a large, flat site to

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

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

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

well as numerous personal and professional facilities. "Community Ilnd Neighbourhood centres" serve the market areas their names suggest. A community shopping centre serves a composite of many neighbourhoods within a ten to fifteen minute drive from the centre. It is a larger centre and diverse in its mix than neighbouthood centres. It contains ten to thirty retail establishments. It provides consumers with shopping and convenience goods. On the other hand, the "neighbourhood shopping centre" gets its customers from one or a few neighbourhoods within the immediate vicinity. Its trading area can be roughly defined as the area within five minutes drive of the centre, containing anywhere from 7000 to 50,000 potential customers. A "specialty shopping centre" is essentially a smaller cluster of specialty retailers that tends to be more focussed in its target market. THE SITE EVALUATION PROCESS Selection of a site is based on certain principles that act as guidelines for selecting a site. Again there are certain methods of site selection. Let us take up these one by one. THE PRINCIPLES OF SITE EVALUATION Several consumers oriented location principles guide the retailers in evaluating the site alternatives. It should be noted that there is no straight jacket or standard criteria for site evaluation. These principles are : 1. The Principle of Interception. The principle of INTERCEPTION covers a site's potential qualities that determine its ability to incept consumers as they travel from one place to another. 'Interception' has two distinct elements namely, "source of region" and "terminal regions." "Source of region" is one from which the consumers are drawn and "terminal region" is one that speaks of consumer destination, a region to which consumers are drawn. The examples of terminal regions are residential areas, office complexes, industrial plants, business districts and shopping centres. Any point between- source and terminal regions can be

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

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

interchange for the retailers. A high degree of compatibility is more likely to occur when the pricing structures of neighbouring businesses are complementary. Other things being equal, there will be greater interchange of customers between one high margin retailer and another than between a high-margin and low-margin retailer. Equally important in site evaluation is determining whether neighbouring businesses are compatible. Thus, an exclusive dress shop would be incompatible with a pet shop because of odour and noise produced by the pets. 4. The Principle of Store Congestion. Where the advantages of cumulative attraction and compatibility end, the problems of site congestion begin. The principle of store congestion states that as locations become more saturated with stores other business activities and people they become less attractive to additional shopping traffic. This results from the limited mobility of people and cars in the area. Retailers should have learnt this lesson from the original congested Central Business Districts as noted earlier. While the excitement of the crowd can be a positive factor, the aggravation of a mob can be a limiting factor, discouraging customers from visiting the site. Thus, in the site evaluation process, the retailer should estimate at what point the volume of vehicle and foot traffic would limit business, both in the present and the near future. In measuring the store congestion, the retailer should recognise the fact that the shopper's tolerance for retail crowding may differ across types of retail establishments say discount stores versus departmental stores and the shopping times, say Christmas, Diwali, weekends, lunch hour and the like. 5. The Principle of Accessibility. This is the basic principle of all that are considered while evaluating the site. This principle of accessibility states that the more easily potential consumer can approach, enter, traverse and exit a site, the more likely they will visit the site to shop. Accessibility is a function of both physical and psychological dimensions. The physical dimensions of accessibility are tangible site attributes that either facilitate or hinder the actual physical movement of potential consumers in, though, or out of site. Psychological

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

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

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

THE METHODS OF SITE EVALUATION Experts and analysts have at their disposal several methods to evaluate retail site alternatives. These are broadly classified as subjective and objective. Again some are quite simple and some are sophisticated. It suffices to take two most commonly used methods namely, checklist method and quantitative methods. I. Checklist Method It provides an evaluator with a set of procedural steps for arriving at a

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

The most commonly used are two, namely, analog Models and Regression Analysis. (1) Analog Models. Analog Models are used to make sales projections for a new stores based on the sales performance of existing stores. A chain retailer can approach the evaluation problem by finding the best 'match' between the site characteristics of a new site alternatives and those of successful existing site. This matching process is usually quantified into a statistical model. The only advantage of these analog models are the ease of implementation. However, analog model methodology suffers from two significant disadvantages: (1) The results are dependent on the particular store chosen as analogs and therefore, rely heavily on the analyst's ability to make judicious selection of the analogous stores. (2) The method does not directly consider the competitive environment in evaluating the sites. The competitive situation is brought into consideration only through the selection of analog stores. (2) Regression Models. Regression models are more rigorous approach to the problem of site location. Therefore, they offer certain advantages over checklist and a log approaches. (1) A regression model allows systematic consideration of both trading area and factors as well as site-specific elements in a single framework (2) The regression models allow. the analyst to identify the factors that are associated with various kinds of revenues from stores at different sites. Following is one such basic multiple regression model for analysing the determinants of retail performance is expressed as a linear function of location (L), Store attributes (S), market attributes (M), price (P), and competition (C) : Y = f (L, S, M, P, C) THE SITE SELECTION PROCESS The final selection of a retail site is essentially a process of elimination. By analysing the regional and local markets, assessing retail-trading areas and appraising retail site locations, the range of choices has been narrowed to site alternatives consistent with the firms objectives, operations and the further

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


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

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

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

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

IT .UNIT PLANNING : MERCHANDISE LISTS A. Basic Stock List B. C. Model Stock List Never-out List

Both rupee and unit planning are essential if the retailer expects to balance INVENTORY INVESTMENT, ASSORTMENT AND SUPPORT. Inventory investment is the focus for rupee planning and unit planning spotlights on the retailer's inventory assortment and support. I. RUPEE PLANNING Rupee planning is largely a financial management tool that retailers use to plan the amount of total value, rupees, inventory they should carry. In other words, it answers the inventory question of how much the retailer should invest in merchandise during any specified period. Rupee planning is accomplished through a merchandise budget-a financial plan for managing merchandise inventory investments. Preparing a merchandise budget has five stages to be moved namely: (1) Planning sales, (2) Planning stock levels, (3) Planning Reductions, (4) Planning purchases and (5) Planning Profit Margins. 1. Planning Sales The starting point in developing the merchandise budget is sales planning. It is of crucial importance to remember that accurate forecast of future sales is the solid foundation for scientific and accurate sales planning; if anything goes wrong in this initial stage the entire exercise goes fut. That, all the dimension of merchandise budget start yielding wrong results. To make the work easy in case of merchandising planning and preparing the merchandise budget, majority of retailers use a form that summarizes the basic budgetary information for a given

merchandise grouping during a specified period normally for a period of six months. Following is the model of this form of merchandise budget for a period of six months. This gives, all the details such as sales, stock levels, reductions, purchases and initial mark up percentage SIX MONTH MERCHANDISE BUDGET Date: ......... Department: ............ Oct. Nov. Dec. Jan. Feb. Mar. Last year Sales Planned Adjusted Actual BOM Last year Stock Planned Levels Adjusted Actual Last year Reductions Planned Adjusted Actual Last year Purchases Planned Adjusted Actual Initial Mark up Percentage where = BOM = Beginning of month stock = Monthly opening inventory. The retailer must select the control unit for which projections will be made, before making sales estimates. The "control unit" is the merchandising grouping that serves as the basic reporting unit for various types of information namely, past, present and future. The retailer has the choice to estimate future sales for an


entire store, for a merchandise division or department, or for an individual product-line or item. The most three acceptable control units can be merchandise groups, merchandise classes and merchandise categories of all these three, experts recommend merchandise categories as the basic control unit as it is generally much easier to aggregate the information than it is to disaggregate information, i.e., breaking down merchandise groups into classes and categories. This attempt increases the accuracy in estimating future sales and to get greater degree of control throughout the entire budgetary process. This first stage of sales planning involves two types of estimates namely annual and monthly. Annual Sales Estimates A thorough examination of retailer's past sales records is the alpha point for making sales forecasts for each merchandise category-better known as control unit. By plotting the actual sales forecasts for each control unit over the last few years, the retailer can identify part sales patterns and gain some insight into possible future sales trends. This approach to sales estimates is generally referred to as time series forecasting .. It represents a simple, inexpensive and used method for getting reasonably reliable estimates of sales in the near future. Timeseries forecasting is generally quite appropriate for staple merchandise, somewhat less appropriate for fashionable merchandise and totally inappropriate for faddish merchandise. Methods of Sales Estimating Annual sales for each merchandise category are estimated largely by means of judgment or qualitative methods. Two such methods are namely, Fixed and Variable Adjustment Procedures. A. Fixed Adjustment Method. Under this method, the retailer adjusts last year's sales by some fixed percentage to estimate the coming years sales. The direction i.e., plus or minus and the size i.e., the exact percentage of the adjustment are based on the retailers part sales experience with each merchandise

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

estimate for budgetary planning purposes is monthly sales estimates. Estimating monthly sales involves three steps namely (1) Making annual sales estimates (2) Determining estimated monthly sales and (3) Adjusting monthly sales estimates using monthly sales index. The following box clearly gives the estimation of monthly sales. Once the monthly sales index is calculated, it can be used to adjust the future or estimated annual and average monthly sales to obtain the planned monthly sales. 2. Planning of Stock Levels The second stage in developing a merchandise budget involves planning appropriate stock levels for a specific sales period. The retailers stock plan ideally should (a) meet the sales expectations, (b) avoid stock-out-conditions (c) guard against overstocking and (d) keep inventory investment at an acceptable level. Though it is virtually impossible to have a merchandise plan that tries to achieve all four goals at a time, experts have developed four methods that help the retailer in planning stock requirements. These methods are: Basic Stock Method. The Percentage Variation Method, The Weeks Supply Method and the Stock/Sale Ratio Method.

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

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

Sales Period Sales Period October Novembe Decembe r Total Calculations

Planned Monthly Sales (Rs.) 94,500 2,71,500 4,44,000 8,10,000

BOM Stock Using Basic Stock Method (Rs.) 2,29,500 4,06,500 5,79,000 -

Average sales for each month: Rs. 8,10,000 +3 = Rs.2,70,000.

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

= Rs. 94,500 + Rs. 1,35,000 = Rs. 2,29,500 For Nov. = Rs. 2,91,500 + 1,35,000 = Rs. 4,06,500 For Dec.= Rs. 4,44,000 + 1,35,000 = Rs. 5,79,000 The Percentage Variation Method The percentage variation method uses a procedure that attempts to adjust the stock levels is accordance with actual variations in sales. BOM stock is increased or decreased from average stock for the sales period by 0.5 percentage of varation in planned monthly sales for that month from the average monthly sales for the sales period . Accordingly 80M stock for October will be : December: Rs. 4,05,000 x t (1 + ~:~::) = Rs. 5,35,500 Planned Sale. Period Monthly Sales October November December Total Rs. 94,500 2,71,500 4,44,000 8,10,000 BOM stock Using Percentage Variation Method (Rs.) 2,73,375 4,06,125 5,35,500 -

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

= Annual sales + weeks = Rs. 18,00,000 + 52 = Rs. 34,615.38 :. Number of weeks to be stocked = Annual Weeks + STR = 52 weeks + 8 = 6.5 weeks .. BOM stock = Rs. 34615.38 x 6.5 weeks = Rs. 2,24,999.97 = Rs. 2,25,000 (Rounded) However, the principal limitation of this method is that during the weeks a slow stock turn i.e. below the annual rate, there will be an excessive accumulation of stock. Therefore, this method is most appropriate for those retailers whose merchandise. categories show stable sales and stable stock turnover rates. The Stock/Sales Ratio Methods The stock/sales ratio method is yet an another method used by the retailers to determine BOM levels. The assumption behind this method is that retailer should maintain a certain ratio of goods on hand to planned monthly sales. For instance, this ratio can be say 2 : 1 or 3 : 1 or any other appropriate relationship. A stock/sales. ratio of 2 : 1 means the planned sales monthly of say Rs. 50,000 would require Rs. 1,00,000 of stock. The key to use this method is finding the dependable stock/sales ratio, for which the best source is the retailer's own past records-provided that it has been kept in sufficient detail over a reasonable length of time. The formula to arrive at BOM stock for the month : = Planned monthly sales x Stock to sales ratio. Taking a stock/sales ratio as 2 : 1 as desirable and planned sales for October month are Rs. 94,500, the BOM stock for October will be : 2 Rs. 94,500 x T = Rs. 1,89,000

By same takes BOM stock~ for the month of November and December will be as under provided planned sales are Rs. 2,71,500 and Rs. 4,44,000 are respective figures for the said months : BOM stock for the month of November : 2 = Rs. 2,71,500 x T = Rs. 5,43,000 BOM stock for the month of December: 2 = Rs. 4,44,000 x T = Rs. 8,88,000 3. Planning Reductions This is the third very significant stage in developing the merchandise budget namely planning of reductions. "Retail reductions" are the difference between the merchandise item's original retail value and its actual final sales value. This difference is the result of three major factors namely, mark-downs, discounts and shortages. "Mark downs" are the reductions in the original retail price for the purpose of stimulating the sale of merchandise. The amount of markdown can vary considerably depending on the type of merchandise and the condition under which it is sold. "Discounts" are reduction in the original retail price that are granted to store employees as special fringe benefits and to special customers in recognition of their special status say senior citizens, disadvantaged customers and religious personalities like clergy, priests, and so on. "Shortages" are the reductions in the total value of the retailer's inventory as a result of shoplifting, pilferage and merchandise being damaged and misplaced. In a ready-made garments department shop a typical percentages for each product category might be, for mark downs, discounts and shortage as under:

Product Category

Mark downs %

Discount %

Stock shortage %

Female apparel Mens apparel Children's apparel Home furnishings Female accessories Men's accessories Children's accessories Other merchandise

26.30 21.30 22.20 14.40 13.50 22.30 23.40 13.60

1.00 1.60 2.00 1.10 1.20 2.10 1.00 L80

2.70 2.10 1.80 1.50 3.30 1.10 1.60 2.60

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

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

5. Planning Profit Margins

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

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

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

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

Alternatively, Required initial markup percentage Rs. 3,60,000 + Rs. 2,16,000 + Rs. 1,80,000 Rs. 18,00,000 + Rs. 1,80,000 = Rs.7,56,000 x 100 = 38.18 Rs. 19,80,000 = 38.20 (Rounded) This required initial markup percentage represents an overall average for a merchandise category. As long as this category average is maintained, the actual markup on any individual merchandise item can vary from the average to adjust to different demand conditions, competitive circumstances and other external and internal merchandising factors. To sum up, the merchandise budget is the sequential rupee planning of sales, stock levels, reductions, purchases and profit margins. Thus, the retailer develops a blue print of what must be attained to realise a desired profit and other financial goals by carefully planning the rupee investment is merchandise inventory. The retailer's merchandise budget also sets the financial standards against which to measure actual performance.

II. UNIT PLANNING Unit planning is an operational management tool to plan the merchandise

assortment and support. It is directed at determining the amount of inventory the retailer should carry by items and by units and answers the inventory questions of how many product items or assortment and how many units of each items or support to stock. The process of unit planning involves the use of several merchandise lists which constitute a set of operational plans for managing the total selection of merchandise. Based on the type of merchandise, the retailer carries, one or more of the following three merchandise lists, will apply namely, Basic Stock list. Model stock list and Never-out list. , These merchandise lists represent essentially the 'ideal' stock for meeting the consumer's merchandise needs in terms of assortment and support. Basic Stock List The "basic stock list" is a planning instrument retailers use to determine the assortment and support for staple merchandise. 'Staples' are product items for which sales are either very stable or highly variable but predictable. In either case, estimates of the required assortment of merchandise items and the number of support units for each item can be made with a relatively high degree of accuracy. Thus, in planning for staple merchandise, the retailer can develop a very specific stocking plan. The basic stock list is a schedule or listing of "stock keeping units" (SKU) for staple merchandise. A "stockkeeping unit" is a merchandise category for which separate records (both sales and stock) are maintained. A 'SKU' can consist of a single merchandise item or group of items. The basic stock list usually identifies each SKU in precise terms. A retailer can use the following product features to distinguish clearly a SKU of staple merchandise: (a) Brand name (b) Style or Model number (c) Product or Package size (d) Product color or Material (e) Retail price or cost price of the product if) Manufacturer's Name and Identification number. In addition to a complete listing of SKUs. the basic stock list also contains a detailed description of the stock position for each SKU by stock levels-merchandise support or total number of units. This description of stock support normally identifies (a) a minimum stock

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

planning. In essence, the model stock, list provides general guidelines on the size and composition of an ideal stock of fashion merchandise, without specifying the exact nature of the merchandise assortment or support. The form used to plan the model stock list differs somewhat from the basic stock list form. Never-out List The "Never-out list" is a specially created list of merchandise items that are identified as key items or best sellers for which the retailer wants extra protection against the possibility of a stock out. As a result of the high level of demand for these items, many retailers establish rigid stock requirements. For instance, a retailer might specify that 99 per cent of all items on the never-out list must be on hand and on display at all times. Stockouts of these key items result in a permanent loss of sales. Typically, the consumer simply will not wait to purchase best-sellers. Never-out lists can include fast-selling staples, key seasonal items, and best selling fashion merchandise. The integrity of the neverout list is preserved thoroughly through regular and frequent revision. The significance of the never-out list is underscored by the fact that many chain units expect individual store managers to have a near-perfect record in maintaining the stock levels for merchandise as the list. Even a moderate number of stockouts of merchandise on the list is considered an indication of poor management. In a nutshell merchandise planning process consists of rupee planning and unit planning, the former speaks of merchandise plan in rupee form while the latter in number units. I MERCHANDISING CONTROL \ WHAT IS MERCHANDISING CONTROL? Merchandise control is the process of designing and maintaining inventory system for controlling the planned balance between inventory and sales. That is inventory control provides the necessary parameters to the planning process. The merchandise control is a system made up' of two sub-systems namely,

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


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

1. Rupee/ perpetual/book 2. Rupee/ periodic/ physical 3. Unit/ perpetual/ book 4. Unit/ periodic/ physical C. Inventory Valuation 1. Cost method 2. Retail method Inventory Information System

Investment C. Open to buy 1. Rupee open to buy 2. Unit open to buy

Inventory information system is the set of methods and procedures for collecting and processing merchandise data pertinent to the planning and control merchandise inventories. Retailers must have an efficient and effective means of obtaining information on inventories past and present status to control their inventories. An adequate and updated information system is a prerequisite to planning and controlling future merchandising activities. When we turn to inventory information’s, system one must know inventory information, inventory systems and inventory valuation. A. Inventory Information One knows as to what information stands for it signifies an evaluated data, data symbols, usually numbers, used to represent things. Information is any perceived or recorded fact, opinion or thought. Data becomes information as it has meaning and implications. Information means relevant data that helps managers to reduce uncertainty. Therefore, inventory information is inventory data that helps in inventory decision making. 1. Kinds of Information Merchandise investment and merchandise assortment and support are the principal elements the retailer wants to control. To complement the merchandise planning, the retailer's inventory'-information system must be capable of providing both rupee control and unit control. Rupee control considers the value

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

inventory system are that it is time consuming as it involves physical stock taking and physical verification is must to decide income tax payable. It also identifies stock shortages, which is a postmortem analysis. However, small retailer has no option than go in ,for this as sophisticated methods beyond his means and needs .. B. Inventory Systems The major types of inventory-information systems used in merchandise control are: (1) Rupee Perpetual/Book (2) Rupee Periodic/Physical (3) Unit perpetual book and (4) Unit/periodic/physical. These are based on the kinds of information the retailer needs and the methods and sources for obtaining the information. Let us note these in brief. 1. Rupee/Perpetual/Book System Rupee control using a rupee/perpetual/book inventory system provides the retailer with continuous information on the amount of inventory-rupees that should be on hand at a given time. The amount of stock is arrived at by using the formula: Rupee Stock on Hand at end = Rupees stock at the beginning + purchases - sales + mark downs. 2. Rupee/Periodic/Physical System A rupee/periodic/physical inventory system for rupee control provides - the retailer with periodic information on the amount of inventory-rupee-actually on hand at a given time. The formula used to arrive at end stock is : Rupee Stock at close = Rupee stock at commencement + purchases sales + mark down. 3. Unit/Perpetual/Book System A perpetual book inventory system for unit control-involves continuous recording of all transactions-number units purchased and sold which changes the unit status of the retailer's 'merchandise inventory. The formula used is :

Unit Stock end = Unit stock at commencement + purchase - units sold There can be two ways of maintaining this recording namely manual and automatic. 4. Unit/Periodic/Physical System Unit control also can be achieved by making a periodic physical check on the status of the retailers inventory. The formula used to calculate the stock at end is : Unit Stock at close = Unit stock at commencement + Purchases - sales and shortages C. Inventory Valuation Finding the actual worth of inventory on hand is the major concern of every retailer. Valuation stock on hand affects his financial statements , Particularly income statement and the balance sheet and the financial results correct valuation of inventory is also an element of sound financial planning and control. Retailers use different methods to value the stock on hand namely, Cost and Retail Price method. Let us note these two. 1. The Cost Method Generally small retailers prefer to use cost method of inventory valuation method because of its simplicity, ease and cost. The retailer values merchandise inventory at the original cost to the store each time physical inventory is taken. When one talks of cost method, one can think of FIFO and LIFO. Over a period of say one month or for that matter a year, there will be several consignments purchased at different prices. The price trend may be rising or falling or both rising and falling. This creates an interesting case. Let us take two cases of rising prices and falling prices for a month to illustrate how the profits or business results are influenced by adopting these alternative methods and Rising and Falling price trends: Problem: (Rising Price Trend) FIFO LIFO


Particulars Units Rs.

Inventory Units 100 200 300 200 100 800 Rs. 1,000 2,400 4,200 3,000 2,000 17,600

1.12.97 5.13.97 10.12.97 20.12.97 25.12.97 31.12.97

Opening Stock Purchase Purchase Purchase Purchase Sales month for the

100 200 300 200 100 800

1,000 2,400 4,200 3,000 2,000 17,600

Business Results INCOMES STATEMENT FOR THE MONTH ENDING 31-12-97 Particulars To Stock Opening To Purchase To Gross Profit Total FIFO Rs. 1,000 11,600 7,000 19,600 LIFO Rs. 1,200 11,600 6,000 18,800 19,600 18,800 Particulars By Sales FIFO Rs. 17600 LIFO Rs. 1,700 1,200

By Closing 2,000 Stock

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

2. The Retail Method The retail method of inventory valuation allows the retailer to estimate the cost value of an ending inventory for a particular accounting period without taking a physical inventory. The retail method is essentially a book inventory system whereby the cost value for each group of selected - merchandise is based on its retail value or selling price. By determining the percentage relationship between the total cost and the total retail value or sales price of the merchandise available for sale during an accounting period, the retailer can obtain a reliable estimate of the ending inventory value at cost. To use retail method, the retailer must make the following calculations : (1) Total merchandise available for sale. (2) The cost complement. (3) The total retail deductions and (4) The ending inventory at retail and cost values. Let us take an illustration with figures : 1. Total Merchandise available for Sale At Cost Inventory at beginning Add Purchases Add Markons Add Freight charges Total Merchandise Available 1,20,000 80000 4000 2,04,000 At Retail Price 2,00000 140000 3,42,000

2. Cost Complement. The cost complement is the average relationship of cost to retail value for all merchandise available for sale during an accounting period. In essence, it is the complement of the cumulative markup percentage The cost complement is computed as follows : Cost Value of Inventory Cost Complement = ------------------------------- x 100 Retail Value of Inventory = Rs. 2,04,000 -----------------x 100 = 59.65% 3,42,000

That is, the retailers merchandise cost is, on the average, equal to 59.65 per cent of the retail value of the merchandise. 3. Retail Deductions. The next step is to determine the total merchandise available for sale. Retail reductions. include merchandise that has been sold, mark down, discounts, stolen and lost. Total retail deductions are obtained by adding all the deductions, reducing the retail value of the merchandise that was available for sale. Continuing the .same above illustration. Sales for the period Add markdowns Add Discounts Add shortages 1,60,000 30,000 10,000 2,000 2,02,000

Total Retail Deductions =

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

Total Merchandise available at Retail value Less total retail deductions Ending inventory at Retail value

3,42,000.00 2,02,000.00 1,40,000.00

This figure of Rs. 83,510 is only an estimate of the true cost value of the ending inventory. It is reliable enough to allow the retailer to calculate both cost of goods sold and the gross margin for the accounting period. To Demonstrate with above figures :

Total merchandise available at retail at retail value Cost of goods sold Gross Margin Sales for the period Sales for the period


2,04,000 83,510 1,20,490 39510 1,60,000

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

calculated in terms of rupees and units. Different formulae are used which are given as under: Rupee STR (l) STR in Retail Value = Net sales at retail value -----------------------------Average stock at retail value

Cost of goods sold (2) STR in terms of Cost Average = -----------------------Average at cost Units sold . STR in Units = ---------------Average stock of Units Let us take an illustration of River valley company Ltd. that fushshes the following details for the year 1998 as under : Units Stock on Stock on Unit sold 10,000 12,000 1,08.000 Retail Value 50,000 72.000 6,48,000 Cost 40,000 57,600 5,18,400

(l)STR in Retail Value = =

Rs. 6,48,000 Rs.50,OOO + Rs. 72,000 2 Rs.6,48,OOO Rs.61,OOO . 1062' times

Rs. 5,18,400 2) STR at Cost = ---------------------= 40,000 + Rs. 57,600 2

= Unit STR

Rs. 5,18,400 Rs. 48,800 - .

= 10 .62 times

1,08,000 Units STR in Units =----------------------------- = 9.81 times 11,000 units Note. The rate of STR should be same whether we take retail price or cost or units provided both stocks opening and closing and sales are taken at same rate. Here opening stock rate is different while closing and sales at different rate. Therefore, the STR has worked out 9.81 times instead of 10.62 times. The benefits of high stock turnover rate are: (a) Fresh merchandise. (b) Lesser markdowns and depreciation. (c) Lower expenses of carrying and procurement. (d) Greater sales and higher returns. Retailer can increase the STR by carefully balancing the inventory investment for greater profit with inventory assortment and support for adequate customer selection. The strategies to be followed are: (a) Limit merchandise assortments to most popular brands, styles, sizes, colors and price lines. (b) Reduce merchandise support by maintaining a minimum reserve or safety. (c) Clear out slow moving stock through price reductions. (d) Increase the promotional effort in an attempt to increase sales. The limitations of high rate of stock turnover are : (l) It does not allows to take advantage of quantity discounts. (2) It adds to the cost of transportation and handling and (3) It increases accounting costs by processing too many orders. Sometimes, it might lead another potential danger of losing sales because of stockouts. III. RETURN ON INVENTORY INVESTMENT It goes without saying that merchandise assortments must be effective if the retail store is to proper. An effective assortment is one that creates good financial

returns. Return on inventory investment is another method of evaluating past performance in controlling the merchandise inventories. This also, is known as gross margin return on inventory (GMROL). It is the ratio of gross margin rupees to the average stock on hand. This ratio tells the retailer the rupee investment in inventory needed to achieve a desired gross profit. Return on inventory investment, essentially, concerns the relationship between stock turnover and profitability. The significance of this ratio is that it allows the retailer to evaluate past and future effects of turnover on a stores profitability. The ways of calculating the return on inventory investment are: 1. Return on Inventory Investment Gross Profit in Rupees Net Sales in Rupees Average stock on hand in retail (rupees) Let us take a case of Mis Tom Porn Ltd. who have provided the details for the year 1998. Calculate ROI (GMROI) Rs. Net sales for the year 1998, 1,20,000 Opening inventory in retail 25,000 Closing inventory in retail 30,000 Gross profit in rupees M = et 0 A k"1 20,000 Gross Profit in Rupees 100 Average stock on hand in rupees (Retail) x 2. Return on Inventory Investment

verage stoc III retal rupees = Rs. 25~2~'~30,OOO ~:O~~ = 0.7272697 = 0.73 2 Method II = Net Sale~ Average stock 10 retaIl rupees

Rs 1,20,000

Gross Profit

= -------- x -== -=...::...;;..;= Rs 25,000 + Rs 30,000 Net sales 2 R --x--- -27,500 Rs 1,20,000 = 4.363636 x 0.166666 = 0.7272697 = 0.73. IV. OPEN TO BUY Open to buy is one of the most significant tools for controlling the future merchandise inventories. This helps the retailer to decide as to how much to buy. In other words "open to buy" is the amount of new merchandise the retailer can buy during a specific time period without exceeding the planned purchases for the period. Alternatively open to buy represents the difference between what the retailer plans to buy and what is has already bought planned purchases minus purchase commitments. Open to buy applies to both rupee and unit control. To be very precise, rupee open to buy sets a financial constraint on the retailers activities, whereas-unit open-to-buy controls assortment and support in the buying process. As a tool of control, it is very versatile because retailer can control purchase activities on daily, Rs 1,20,000 Rs 20,000 a e =

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

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

= Open to Buy at Retail Price x 100% - Initial markup % = Rs. 50,000 x 100% - 50% = Rs. 50,000 x 50% = Rs. 25,000. "Unit Open to Buy" For a retailer who is interested in unit control, unit open to buy is a successful and necessary tool in preventing stock outs and overstocking. Unit open-to buy is very often used to control inventories of staple merchandise. This method readily lends itself to formal and systematic procedures for reordering merchandise that has well established and predictable sales trends. Unit open to buy calculations involve two steps namely, (1) Determining the minimum inventory and (2) Computing the unit open to buy quantity Step One Determining the Maximum Inventory "Maximum inventory" is the number of merchandise units the retailer needs to cover expected sales during and delivery periods plus a safety stock for either unexpected sales or problems recurring the merchandise. The formula for determining the maximum inventory is. MAXIMUM INVENTORY = ROP + DP x Rate of Sales + Safety stock. Where, ROP = Reorder Period DP RS = Delivery Period = Rate of sales i.e. number of units expected to be sold during a specific period on a weekly basis. SS = Safety stock i.e., the number of reserve units needed to cover any unexpected sales or delivery delays (say three weeks supply) Step Two

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

Let us take an example to ascertain these two components finally arriving at

Retail Store’s Environment, Layouts and Displays
BACKGROUND A retailers' store and its surrounding area create the environment within which a retailer is to operate. It is the store's environment which either attracts or detracts the potential customers. As it is of paramount importance, retailer should create that kind of stores environment which is conducive both to the retailer's operations and to that of consumers-the greatest asset. This environment that imprints the image,· the status, has a compendium of elements like stores design, its exterior and interior, layout and the display and service facilities, where the store should be able to create "LOVE AT FIRST SIGHT." Therefore, I propose to discuss the vital aspects of stores environment, layout and display. The chapter ends with a chapter summary and chapter based questions. THE STORE'S ENVIRONMENT What is it ? Environment is something that stands for an atmosphere which is external to the retail organisation. Retail store is a subsystem of a supra-system namely, environment because retail units cannot exist in vacuum. In selecting and developing a store's environment, the retailer must consider its physical and psychological impacts on customer attraction, employee moral and store's operations. Store's operations and consumer shopping are both enhanced by a well planned and creatively designed setting. It is a mad, mad-world where ad, ad plays very important role. To appeal to the fashion conscious, hedonistic and up-scaled shopper, the store must create a theatrical environment enhanced by colourful displays and high-tech lighting and audio presentations. A store's physical environment is a complex of the tangible elements of form reflected in the way land, building, equipment and fixtures are assembled for the convenience and

comfort of both customers and the retailer. Equally significant is the store's psychological environment-the perceived atmosphere the retailer creates; psychological environment is the mental image of the store produced in consumers minds. A store's effectiveness, absoluteness and uniqueness be in the retailer's ability to plan well, create consciously and control carefully both the store's physical and psychological setting. The psychological impression, a store makes on consumers depend on the stores image and the buying atmosphere. In effect, the retailers have to produce best theatrical atmosphere of all the aspects of theatrical approach. One aspect is very very special and that is escapism. Many shoppers, retail store can magnate them as they provide quick escape. Therefore, the store image and buying atmosphere are of top importance. Create Store's Image One of the major concerns of a successful retailer is creating the store image. It represents to the consumer a composite picture of the retailer where he can use image the most powerful tool in attracting and satisfying the class of customers. However, creating an image is not a child's play. An image is the mental picture that forms in the mental frame of human mind as a result of good many divergent stimuli. These stimuli include the retailer's physical facilities, the store's location, product-lines, service offering, pricing policies and promotional activities. A store's image is its personality. It represents the consumer's feelings and outlook about the store. Therefore, it is very important that retailer knows and plans what they want the consumer to see and feel. A retailer has a wide variety of store images of which he can choose to his advantage to guarantee a successful business operations. The possible alternatives are-prestigious or economical; contemporary or traditional; swinging or subdued; family or singles; formal or informal; friendly or reserved and restful or active. In building the image of a store, the exterior and interior dimensions are of paramount importance. Externally, the position of the store on tile site, its architectural design, its store front and the placement of signs, entrances and

display windows all contribute to the store's image. Internally, a store's image can be created, impart, if not whole, by the layout of the departments and traffic isles, the use of store displays and the selection of store fixtures and equipment. It is foolish and futile to imagine that standard combinations of external and internal store factors can produce a given image. It is so because a unique image is highly creative activity. While designing the image creating factors or features of the store's physical facilities, the retailer is to have the kind of customer's class, he is going to serve for neither the retailer nor the store can be all the things to all the people. It is equally true, neither a single image be created that will appeal to all the consumers. To be very succinct and precise, the store's facilities should be tailored to the psychological and physical needs of a selected or target consumer group. The physical facilities of a retail store can be an important vehicle for non-verbal communication. The importance Retail Stores Environment, Layouts and Displays right impression assumes that store's personality helps in "positioning" one retail unit against another thereby facilitating the store's selection process for consumers. Create Buying Atmosphere A retailer is expected to establish the consumer a frame of mind that promotes a buying spirit to create an atmosphere conducive to buying. Even the economy class consumer wants something more than a shopping atmosphere with only the bare minimum essentials. Todays shoppers are drawn to safe, attractive and comfortable shopping environments irrespective of their major shopping motives. Therefore, the store's atmosphere should be an agreeable environment both for the consumer and the retailer. Experts have given some congenial yet stimulating atmospheres that have features like- Quiet and push for the prestige shopper-safe but engaging for the elderly shopper, Friendly and loved for the young shopper- clean and cheerful for the family shopper-Formal of communicating the

and pleasant for the professional shopper. It pays to influence the consumer's mood by creating on atmosphere that will positively influence their buying behaviour. It must be noted that an appealing buying atmosphere uses cues that appeal to the consumer's five senses of SIGHT_HEARING-SMELL-TOUCHand TASTE. Sensory cues can be strongly butressed if they are structured around shopping themes that unify and organise the store's atmosphere. It will not be out of place to touch these sensory appeals in brief. 1. Sight Appeal The sense of SIGHT provides people with more information than any other sense mode and, therefore, must be classified as the most important means by which retailers can appeal to consumers. Sight appeal is the process of imparting stimuli, resulting in perceived visual relationship. Size, shape and colour are the primary visual stimuli on which retailer can encash. Visual relationships are interpretations made by the "minds eye" from visual stimuli consisting of harmony, contrast and clash "harmony" is the visual agreement. "Contrast" is the "visual diversity" and clash is the "visual conflict." All these can occur in the areas of display-layout-or the physical arrangement. In a given situation, either harmony or contrast or clash may be the best way to create an appealing shopping atmosphere. Experts are of the opinion that harmonious visual relationships are generally associated with a quieter, plusher and more formal shopping setting; whereas contrasting and clashing visual relationships can promote an exciting, cheerful or informal atmosphere. A. Size Perceptions Mere physical size of a store, a display, a sign, or a department can communicate many things to many people. Size communicates relative significance, success, strength, power and security. Size is a key element in creating harmony, contrast and clash.

B. Shape Perceptions A given shape can arouse certain emotions within the buyers. While planning the store's layouts and designing displays, the retailer should recognise the fact that "vertical line" gives a rigid, sevre and masculine quality to an area. It speaks of strength and stability, gives the viewer an up and down eye movement; tends to heighten the area; gives an illusion of increased space; On the other hand "horizontal lines" promote feeling of rest, relaxation and repose. The diagonal lines connote action and movement giving, sometimes, an illusion of instability. Similarly, curved lines suggest feminine atmosphere and add a flowing movement that directs the eye to a display or department. C. Color Perceptions Color makes the first impression on any body looking at an object. Color catches the customer's eyes, keeps their attention and stimulates then to buy. By nature human being is color conscious so much so that if colour is wrong all is wrong. The psychological impact of color is the result of the three basic properties of HUE, VALUE and INTENSITY. 'Hue' is the name of the colour. "Value" is the lightness or darkness of a hue. Darker values are called as "shades" while lighter values are called the "hints." The brightness or dullness of a hue is the intensity. Retailer should know these details as it is great psychological factors that help him in selling merchandise and creating a matching atmosphere. Colour experts classify colours or hues into two categories as "warm" and "cool." Warm colours are RED, YELLOW and ORANGE and cool colours are BLUE, GREEN and VIOLET. 'Warm' colours generally give an impression of a comfortable, informal atmosphere, while 'cool' colours project formal, aloof, icy impression. Each hue symbolises / some kind of feeling. "Red" represents love, romance, sex, courage, danger, fire, sinful, warmth, excitement, vigor, cheerfulness, enthusiasm and stop. "Yellow" speaks of Sunlight, warmth, cowardice, openness, friendliness, gaiety, glory,

lightness and caution. "Orange" pinpoints sunlight, warmth, openness, friendliness, gaiety and glory. 'Blue' represent coolness, aloofness, fidelity, calmness, piety, masculine, assurance and sadness. 'Green' marks coolness, restful, peace, freshness, growth, softness, richness and go. Violet signifies coolness, retiring, dignity and rich. 2. Sound Appeal Sound is such an appeal that can enhance or hinder the store's buying atmosphere. People like sounds which are pleasant and soothing while disturbing and irritating none likes. In latter case sound becomes a noise. It should be appealing music than detracting noise. In this regard, there are two things namely, sound or noise avoidance and sound creation. Obstructive sounds or noise disturb and interrupt the buying process. Unwanted sounds are to be either eliminated or controlled. Noise pollution is to be avoided. Noise avoidance is a problem tailor made for physical facilities planning. In fact, careful use of architectural design, construction materials, equipment and the interior decorations can eliminate or reduce considerably disturbing and obstructing sounds or noise. Coming to creation of sound, retailer can use sound appeal in a variety of ways to create buying atmosphere. Sound is a mood setter, an attention getter and informer. Music is capable of relaxing the customer, promoting a buying spirit, set the stage for a particular shopping theme or remind the customer a special season or holiday. Music must match the selling scene. The type and volume of must be suitable to the consumers than retailers. 3. Scent Appeal Scent appeal or smell appeal is also important, for smell is a product feature. Creation of scent appeal is almost similar to that of sound appeal. The question is how to avoid unpleasant odors and to create pleasant smells. Stale, musty, and foul odors offend everyone and are sure to create negative impressions. These

unwanted odors are the outcome of inadequate ventilation, insufficient humidity control and poorly placed and maintained sanitation facilities. Contrary to this, pleasant scents or smells are the key ingredients generating an atmosphere inducing, propelling the consumers to buy. For instance, a well-placed fan in a bakery section or candy store or food section attracts the passersby as these pleasant and aromic smells spell bound the consumers which encourages impulse buying. Retailers of foods, tobacco, flowers, perfumes and other scented products know the value of bringing the fragrance or sweet smell to the noses of consumers. It is rightly said "a store should smell like it is supposed to smell." For instance, drug store should smell clean and antiseptic. An antique store should smell a dusty, musty smell to enhance the buying atmosphere. 4. Touch Appeal While buying, the consumers, they want to test the product by touch. Personal inspection-handling, squeezing and cudding-is a prerequisite of buying. There are products or produce where touch feel is a must, bet it a fish, meat, vegetable, fruit, consumers want to touch them before buying. In fact machine vending and pre packing do not provide touch feel because of which some of the customers hate vending machines and super markets. Generally there should be facility of providing the consumer sense of touch. The chances of sale increase. Substantially when the consumer is allowed to touch the product. If not the entire lot, this touch appeal can be provided through good planning facilities. Displays and fixtures should be designed: (1) to provide consumers with samples to handle, (2) to provide product protection from normal store dust and dirt. In spite of revolutionary changes in methods of market, sale by inspection has not been totally exctinct, and therefore, consumers should be provided with touch appeal.

5. Taste Appeal

In some cases, sale of products is impossible unless the retailers provide an opportunity of tasting a bit of it. This is the case with specially foods such as meats, cheeses, bakery and dairy products. While designing the in store displays, retailers have to provide the potential Customers with a sample of the product under clean and sanitary conditions. Basically, the reason to taste is a test of freshness or the extent of caring. 6. Theme Appeal Good many retailers have given special importance to shopping theme while planning the physical facilities. Theme appeal is a very useful vehicle around which to organise the fine sensory appeals: The theme appeal can be employed faithfully in a number of ways. Common themes center around the natural and holiday seasons, historical periods, current issues and special events and so on. Shopping themes can be organised retailer on storewide, department or product basis

THE STORE'S EXTERIOR The first impressions, in every walk of life are so important that they act as swing factors to reach the cutoff point. In case of consumer's decision to stop at one shop or another is the out of impression the shop has imprinted upon the minds of consumers. Largely, a consumer's first impression about a store is produced by the exterior. The store's exterior is a key factor in shopping and attracting new customers and retaining the existing one. The major aspects of store's exterior planning are the store's position, architecture, sign and the front. It is worthwhile to touch these aspects for better understanding. (1) The Store's Position Attracting the customers is the crux of the issue of retail trade. How and

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

major traffic artery when the store's back or sides are visible to passersby, they too should be attractive and informative. Elevation. The elevation of a site can place the retailer's store above or below the main traffic artery level. Normally, elevation problems can be overcome by landscaping and the use of signs. However, such problems always translate into visibility problems for retailers that badly need exposure. It so happens that most of the consumers do not see stores that are too high as too low. B. Designing Site Compatibility By fitting the store to the naturally of the land and the natural habitat a retailer can reap the harnest of benefits in terms of visual impressions. The retailer must consider several issues in designing for site compatibility. (1) The size of the facility should be appropriate to the size of the site. A sense of proportion makes a sea of difference. (2) The architectural design and construction materials should portray a harmonious relationship with immediate environment (3) A certain amount of open space adds to the natural appearance of the store in making it attractive.

C.Planning Consumer Conveniences The retailer should take into account as to how the position affects consumer convenience while planning the store's on the site position. Enough parking space for vehicles should be available with sufficient access to these vehicles. Parking lot should allow easy movement-to and fro and turnaround the vehicles. Parking should be with safety and that ensures easy movement of pedestrians to the store. (2) The Store's Architecture Architecture is a majorfactor both in making the right impression on the consumers and in developing an efficient retail operation. The actual store’s architecture is a compromise between both the aims namely, making an impression and designing a functional facility.

Making an Impression The store's architectural motif can convey any number of different impressions and communicate considerable amount of information. Architectural style indicates the size and prestige of retailer's operation, the nature of the retailer's principal product line and affiliation of retailer. Further, architectural design can support a control theme or focal point for the retailer's merchandising activities.

Designing a Functional Facility The functional facility needs are as important as impression creating components of architecture. What is important is, both are to be balanced well. Functional considerations that are paramount in the store's design are costs, energy, efficiency, security, occupational efficiency and customer convenience. Ever-rising costs of land, construction and material costs for retailer are not allowing to compete with strong competitors. Cost and architectural freedom clash and resulting in reduced consumer conveniences. Energy rising costs have resulted in energy saving. Construction includes lower ceilings, less windowspace, proper air-circulation, controlled entrances and exits and proper insulation. Rise in crime rates make retailers to spend heavily on security. This security aspect is taken up as part of architectural plan. Another architectural design consideration is operational efficiency. The best allocation of store space for operational activities is possible when plan provides easy movement for customers, sales personnel and merchandise and maximum merchandise exposure. (3) The Store's Sign A store's sign or marquee is the first 'mark' of the retailer that a potential

customer sees. It serves two purposes namely, identifying the store and attracting the customers. Identifying the Store Sign provides the potential customers with 'who', 'what', 'where' and 'when' of the retailer's offerings. 1Qese signs may be names, logos or symbols. Attracting Consumer Attentions Sign is a communication tool which creates an awareness, generates interest and invite the consumer to try the store. The size, shape, colour, lighting and other allied materials contribute the sign's get up and interest arousing capacity.

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

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

front" configuration overcomes the monotony of the straight front by positioning the store's front at a slight-angle to the traffic arteries. To create a more attractive and interesting front, retailers that use the angled front approach place windows and entrances off centre or at one end of the store's front. Angled fronts also give the window-shopper a better viewing angle of the merchandise is the window and reduce the possible window glare. The entrance in an angled front is usually located at the most recessed part, to funnel and direct consumers into the store. It provides more protection for the window-shoppers than straight-front. The major limitation of the angled front is that it reduces the interior space. the retailer otherwise could use for selling operations. The "arcade front" is charcterised by several recessed windows and entrances. The main merits are : (1) It increases the store's frontage exposure and display areas; (2) It provides the shopper with several protected areas for window-shopping; (3) It increases the privacy under which the shopper can inspect window displays; (4) It creates an attractive, relaxing atmosphere for the shopper and (5) It reduces glare for major part of the store front. The demerits are: (1) It reduces substantially the interior space for selling and displaying merchandise; (2) It calls for huge investment in construction and construction materials and (3) It requires a professional display staff to make full use of the arcade concept of window settings. (5) Window Displays The number, the size and the type of windows of a store has sure to alter beyonds one's imagination its exterior appearance and the general impression it produces on consumers. There are different types of window display patterns and retailer can choose anyone or combination to his advantage to maxi mise exposure and sales. Windows are the 'face' of the store. They are of great importance
since they constitute the first impression that the store makes on the customers. They have two major objectives namely: (1) The prestige of the store may be enhanced by

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

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

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

THE STORE'S INTERIOR The store's exterior is responsible for attracting the passers by both actual and potential customers to induce them to enter the store. The store's interior is much more important than the exterior as it welcomes the consumer-the Rex of marketing mechanism. The store's interior must contribute to the retailer's fundamental objectives of minimising operational ~xpenses and maxi mise sales and consumer satisfaction, therefore, protits. To attain these goals, the store's interior not only must be inviting, comfortable and convenient for the consumer. It must also permit the retailer to use tbe interior space efficiency and effectively. The major aspects of the store's interior are the store's space, the store's layout store's security and displays. Let us try to touch up on these basic dimensions of the interior. 1. The Store's Space All the interior space is not considered to be equal to value as against its revenue generating capacity. It is effective space that counts. The consumer's instore shopping responses to different interior arrangements differ widely. Specifically, the value of any unit of store space will vary with the floor location, with the area position and with each floor and with its location relative to various types of traffic aisles~ Good many retailers recognise these variations in the value of store-space and allocate total store rent to sales departments according to where they are located and how valuable each space is. The store space value is to be seen from floor, area and aisles.

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

Area Values The value of space also differs depending on where the customer enter and how they traverse the store. In assigning value to interior store areas and making rent allocations, the retailer should consider at least, three. factors : (1) The most exposed area of any floor is the immediate area surrounding the entrance; (2) The most consumers tend to turn right when entering the store or the floor and (3) A general rule of thumb" is that only one fourth of the store's customers will go more than half way into the store Aisle Values. Because the merchandise located on primary traffic aisles greatly b "nefits from increased customer exposure, the retailer should assign a. higher value and a rent to space along these aisles than to that along secondary aisles. Thus, the interior store space is classified into high, medium and low rent areas based on their position relative to primary and secondary traffic isles. 2. The Store's Layout Layout refers to the arrangement of merchandise, fixtures and displays, including non selling areas. Layout decisions involve many levels of retail executives. The aisles, which regulate the flow of customer traffic, are of prime importance. Certain, non-selling areas must be carefully related to selling activities so that

selling can be expedited. The examples of this kind are the location of reserve stocks, fitting rooms and check out counters. A store's interior is broadly divided into two categories as "non-selling" and "selling" areas. On an average retail organisations have 75 to 80 percent of total space for "selling" and the balance for "non-selling." Let us know what thesl1 mean and what are their implications. Non-selling Areas A non-selling area is a space devoted to customer services, merchandise processing and management and staff activities. The examples of customer service areas are--checkout area, dressing room, wrapping desk, complaint desk, credit desk, catalog desk, repair counter, return desk, rest-room, restaurants. The merchandise processing areas are receiving areas, checking areas, marking areas, stocking areas, merchandise control areas and alteration and work rooms. The management and staff areas are offices, lounges, locker rooms, conference rooms, class-rooms, training areas and so on. Very important consideration in planning a store's interior is where to locate non-selling areas. There are four well-established general approaches to locate non-selling areas that satisfy both the consumer convenience and employee productivity needs. These are-Sandwich, Core, Peripheral and Annex approaches. The Sandwich Approach involves using one of the floors for nonselling areas within a central core area-surrounded by selling areas. This is applicable to multistoreyed store. This is illustrated as under :

Fig 8.1 The Sandwich Approach

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

Fig 8.2 The Core Approach

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

Fig 8.3 The Principal Approach

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

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

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

sales to pay the rent for the area to which it is assigned. Merchandise groups with the highest rent paying ability are located in the most valuable selling space, other things being equal. B. Consumers Buying Behaviour Criterion It is based on the recognition that consumers are willing to spend different amounts of time and effort in searching for merchandise. For instance, a retailer should place- impulse and convenience goods in areas with high exposure because customers will not exert much effort to find them. In contrast, retailer should locate shopping and speciality goods in less accessible areas because the consumer's purchase intents are well established and they are willing to exert the warranted effort on them. C. The Merchandise Capability Criterion Merchandise compatability is the d e g re .t.l relationship between diffen'l\l70 of merchandise groups. This concept says that closely related merchandise should be located together to promote complementary purchases. For instance, the sale of man's suit will increase the chances of selling men's ties and shirts if those products are located close and are visible from the men's suit department and the like. D. Seasonability of Demand CriteNon A merchandise characterised by reasonability of demand is very often accorded highly valuable, visible space during the appropriate season. In addition, the merchandise groups with different seasonal selling peaks are very often placed together to allow the retailer to expand or contract these lines without major changes in the store's layout. For instance, during winter, woollen apparels, sports equipments, X'mas toys; during rainy season, all possible water proof products like shoes, caps, rain coats, umbrellas and so on. E. Space Requirement Criterion Space requirements for each merchandise group can as well be a criterion. For instance, merchandise groups that need large amounts of floor space use less

valuable space either at the rear of the store, on upper floor or in basement or in an annex. Generally, the bulky products can not justify their placement in higher rent locations. F. Display Requirements Criterion To a very great extent, display-requirements also influence where the retailer places a particular group of merchandise. For instance, a merchandise such as clothing which must be hinge to display, is located along the sides of walls or at the rear of the stores where it will not interfere with the customer's needs for convenience and comparison shopping and the retailer's selling and operating needs. 4. Designing the Lay-outs Selling floor layouts are extremely important because they strongly influence in-store traffic patterns, shopping atmosphere, shopping behaviour and the operational efficiency. As noted earlier, layout refers to the arrangement of merchandise fixtures and displays including non-selling areas. The importance of a sound layout brings in : (a) maximised flow of customer traffic to all parts of the store, thereby giving the best exposure of merchandise, (b) improved shopping power for impulse buying, (c) maximum amount of sales-space in relation to nonselling-space, (d) consumer product selection and comparison of merchandise and (e) placement of departments and merchandise categories for maximum impact to increase sales potential. A store layout should be highly flexible. Planning the layout can be a never-ending process. The retailer wants to optimise the layout within the existing facilities of the store, but one is never sure that optimum point has been reached. Therefore, an aggressive retailer experiments with different arrangements. In fact, each season requires layout changes. Further, changing the layout periodically can keep a store fresh and exciting both for its customers and the employees. STEPS IN PLANNING STORE LAYOUT

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

LAYOUT FATTERNS The layout experts have thought of three alternative types of layout based on the pattern of tram: flow in the retail store. These are GRID, FREE FORM and BOUTIQU "TYPE. Let us know the logic behind these patterns and what type retail stores can go in for a particular type of layout pattern. Grid Type of layout The 'grid layout' is a rectangular arrangement of displays and aisles that generally run parallel to one another. It represents a formal arrangement in which the size and shape of display areas and the length and width of the traffic aisles are homogenous throughout the store. Grid pattern is a traditional store layout. It results in traffic patterns much like highways, with a main artery and perhaps secondary and tertiary aisles that carry less traffic. It is relatively simple to plot the flow of customers as they enter and leave such stores and thus determine which are the "feature" spots and the corners or ends of counters that have the most customer exposure. These are good places for impulse goods and new items which might produce extra sales. Although retailer can develop various modifications in this layout to create variety and to respond to operational needs, this grid pattern essentially retains its formal arrangement.

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

Free-form Layout

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

pleasant atmosphere it produces-an easy going environment that promotes window shopping and browsing. This comfortable environment increases the time consumer is willing to spend in the store and results in an increase in both planned and unplanned purchases. The free-form layout provides greater flexibility in layout. It reduces to a minimum the structural elements that form the fixed shell of the building, such as columns and fixed-positions. Counters are arranged to give maximum visual interest and customer attention to each merchandise department. The counters can be posihoned so their angles will literally capture customers in a department. However, these benefits of a superior shopping atmosphere are partially offset by the increased cost of displays and fixtures, high labour requirements, additional inventory and security control problems and the wasted selling space that normally accompany a free-form lay-out. The Boutique Layout Boutique or 'shop' concept has been the natural extension of the freeform layout arrangement. The idea behind the "shop" is to create departments that sell merchandise which is related in use. This layout arranges the sales floor into individual, semi-separate areas each built around a particular !.hopping theme. It is a creation of good many small speciality shops. Each department has its own identity created through its own signage, display fixtures and shopping bags. By using displays and fixtures appropriate to a particular shopping theme and by stocking the boutique according to this theme, the retailer can create an unusual and interesting shopping experience. Following is the configuration. III the layout, the space designated as "Leisure World" boutique might includi; on unconventional merchandise assortment as sport goods, exercise equipment, home lectricals and computer games, musical instruments, and so on. The "natural shop" might display apparel and food products along with home furnishings-all made from natural materials. To reinforce the theme, the fixtures could be contracted to the mood, background and need of the theme. Boutique layout, being an extension

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

5. Store Security

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

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

This is the terminal part of the store's interior. Advertising does attract the consumers to the store. However, visual displays have much more to play once the customer gets into the store. Retail displays are non-personal, in-store presentations and exhibitions of merchandise together with related information. In actual practice, retail displays are used to : (1) Maximise product exposure. (2) To enhance product appearance. (3) To stimulate product interest. (4) To exhibit product information. (5) To facilitate sales transactions. (6) To ensure product security. (7) To provide product storage. (8) To remind customers of planned purchases. (9) To generate additional sales of impulse items and (10) To improve the image and prestige of a retailer. Merchandise displays are to gain the attention of consumers, provide proper balance, be structured in right proportion, be hard-hitting and convey their me~sage quickly. The expert study conducted by display specialists reveal that on an average consumer spends only 11 seconds in observing a display. In addition, the retail displays are essential ingredients in creating the stores shopping atmospherics, because the sight, sound, tOllch, taste and smell appeals are largely the result of in-store display. Every business has a personality and each display should contribute to express the stores personality-be it black and white or colour presentation. Types of Displays

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

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

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

banners, shelf-talkers, clocks, counter-cards, sniff teasers and video screen displays. POP displays are designed to attract the attention and interest of customers, reinforce the stores creative theme and fit in with the stores interior decoration. Recently, the retailers have begun to "program" their on-site promotions. The idea is to stage a sequence steps that lead the prospective customer from some point outside the store to the ultimate point of making a purchase decision. Grocers have been particularly active in using POP materl&.ls to increase their sales. Promotional materials such as hand-bills, bag-stuffers and window signs remind shoppers of what they saw advertised in local news-papers. Counter decorations include dummy products, manufacturer's signs, and price signs. To draw attention to special sales, some retailers use in store microphones. Each department announces the "blue light specials" each 15 minutes. The purpose of this kind of promotion is to keep customers in the store to "shop around." The POP promotion not only increases store traffic but maintains it for longer periods of time. Finally, the POP displays make store a more exciting and fun-place to shop. 4. Audwv~uaID~pffiys The retailers have tried to exploit developments in science and technology to increase their sales through increased consumer satisfaction. The latest trend in fashion retailing is to make a video statement by applying current technology to stimulate the consumer purchases. Retailers are using extensively now visual merchandising, audio-merchandising and audio-visual merchandising to sell products. Three key applications of audio-visual merchandising are: (1) To display the depth and breadth of product lines-say all sizes and styles in shoes. (2) To use kiosks to explain the benefits. of different products. (3) To provide customer with basic price information-say in case of jewelleries-price range and quality range. These display approaches use technology to "speak" to and to "show" the consumer the available merchandise. Devices include "shelf talkers"tape

recordings describing the merchandise audibly; rear-screen projectionsslide projectors that present wide-screen, colour picture of the merchandise and its possible uses; and audiovisual displays-a combination of sound and videotape or slides to present the products story. There is no end for this for there no end for change in technology. GENERAL RULES FOR BUILDING DISPLA VS It goes without saying that the displays play very significant role in retailing and retail outlet. An attractive and informative displays can help in large volume of sales in terms of goods and services. In building a display, some fundamental rules should be followed to get best out of these where good deal of treasure, talent and time is involved on the part of retailer. This golden rules are: 1. Achieve Balance It is important to make sure that the display appears balanced to the viewer, in building display. This is achieved by arranging products and props in a particular way. A display may have formal or informal balance. "Formal" balance is achieved by balancing on each side of the center one more or more similar items. "Informal" balance is achieved by balancing on opposite sides of the centre dissimilar items. The effects produced by informal balance are less peaceful and less obvious but often more interesting than the effects produced by formal balance. 2. Provide for a Point of Dominance All displays should have a central point that affects the viewer's eyes. This point may be established by using a prominent piece of-merchandise, dramatic colour or streamers arranged to centre on an object. A point of dominance acts as a focal point on which the viewer's eyes rest and from which

the eyes move to other parts of the display. 3. Provide for Proper Eye Movement Too many displays do not direct the eyes in a systematic fashion, but permit them to jump from so one end of the display to other. If his eyes move indiscriminately around the display, the viewer will not see some of the merchandise in the dispiay and will not understand the intended message. To achieve proper eye movement, merchandise should be displayed in such a way that the eyes move from one part of the display to another. Sometimes the use of streamers facilitates this objective. 4. Provide for Gradation Gradation is the sequence in which items are arranged. For example, small items are usually placed at the front of the display, medium sized items further back and large-sized items at the rear. This provides harmony and creates an appealing illusion. 5. Place at Eye Level Merchandise Designed to Create Deep Impact Because, viewers tend to look straight ahead, merchandise placed at eye level is most likely to be seen. Neither toe high nor too low positions to be avoided. No specific height can be said, but normal 3.5 foot to 5.00 foot can be the safe range. 6. Group Merchandise Too many merchants place one item after another in long row. Shoe stores, jewellery stores and mass merchandisers, especially tend to do this. Stores with large amounts of one item or with one line of goods are likely to build display in this manner. Merchandise should be grouped so that the customers eyes travel from group to group. If this is not done, the window has a junky appearance and the customer has difficulty in picking out the merchandise being displayed. 7. Give Merchandise Sales Appeal AIl windows should display the best merchandise. Displays take up valuable

space, and to use slow selling items for display merchandise is to waste the potential in a display. One way to generate sales appeal is to choose the most important feature of merchandise being displayed and then emphasize it. Another way is to have the display tell a story. In other words, build the display around a theme, such as a back-to school or Valentine theme. Customers relate best when they can grasp the total picture; they imagine themselves in the situation and are able to understand the role of merchandise might play. 8. Keep Displays Clean and Neat Merchandise who permit dust to accumulate on a display, who leave dead months lying around, who do not dust display merchandise and props, who do not wash glass display fixtures and windows to eliminate the blue film that frequently collects on them, who do not replace burnout light bulbs and who do not replace merchandise that has been taken out are guilty of poor display maintenance. 9. Use Colour Properly Do not use colours in an offensive way. Different colours are appropriate for displays of women's wear and displays of men's wear. Pinks and greens are less approprhte for men than women. The featured items should be in the brightest colours. Light colours deepen a display space, seemingly increasing its size. Dark colours do the opposite. 10. Use Name Cards and Show Cards Every window should have the name of the store on a name card or printed one on the window. Too many times customers must step back from the window and look up to find out which store is running the display. Show cards are informative and give the sales message and, therefore, act as sales agents. 11. Plan Displays in Advance The proper procedure is to sketch out a display prior to its construction. This facilitates the gathering of merchandise to be used in the display and

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

the show cards to make sure that they are ready to be placed I I I ill 1 '1 ,1 build Then display is the least amount of time possible. 12. Do not Clutterup the Display Putting of too much merchandise in a small area spoils lilt' N tlu 1 1 II" Keep display orderly. Clutter reduces the glitter of displays. The discussion on displays remains incomplete if we fail to lO tH II IImore tW aspects namely, display elements and display contents not exl.'llHllll display arrangements. Let us touch each of these points. DISPLAY ELEMENTS A retailer must carefully consider and plan each element of display. Display elements include the merchandise, shelf display areas or window displays, props, colours, background materials, lighting and signs. The retailer is to compare contrast, repetition, motion, harmony, balance rhythm and proportion of each display to draw the consumer's attention to it. Display elements must be evaluated to determine how well and if they attract and hold the attention of the passersby. "Contrast" is one way to attract attention. Contrast is achieved by using different colours, lighting, form i.e., size and shape, lettering or textures. "Repetition" attracts consumer attention by duplicating an object to reinforce and strengthen the impression. For instance, by displaying 20 tennis rackets, the image is created of a store with a wide assortment of merchandise in that category. "Physical motion" is a powerful attention getter, as is dominance. If an item is much larger than other items in display, it will be the dominant item and will draw attention to the entire display. After getting attention and harnessing it, the attention is to be directed to the intended message where harmony and frequency are used to attain it. 'Harmony' stands for the unification of merchandise, lighting, props, shelf space and show cards to create a pleasing effect. Balance, emphasis, rhythm and proportion work to focus attention on the central point. Balance is of two types. Formal and informal. Formal balance

display in which one side is duplicated by the other tend to produce feelings of dignity, neatness and order. Informal balanced displays are one in which one side does not exactly match the other tend to generate excitement and are less stuffy. 'Rythm' refers to the eyes path after initial contact with the display. The objective is to hold the eye until the entire displa~' is seen. Proportion concerns the relative sizes of the display's various objects. Attention can be directed to the desired focal point by arranging items in a graduated pattern from the small to the large. The proportion concept also involves the positioning of objects in patterns. Popular display patterns include pyramid, steps, zigzags, repetition and mass. The image of height and formality is created with pyramids, while the zigzag is a popular method of displaying clothing to create an aura of excitement. Repetition arrangements are used basically in shelf merchandising situations. Merchandise placed equidistant from one another in a straight, horizontal line. The mass arrangement is the placement of a large quantity of merchandise in either neatly stacked lines or in jumbled dump bins to convey the image of a sale item. These minute aspects go a long way in creating needed effect. THE DISPLAY CONTENT Display content is the type and amount of merchandise to be set off. Cluttered display of unrelated merchandise attract little attention and are ineffective in stimulating customer interest. To ensure good display content, many retailers confine their efforts to one of the three groupings namely, units, related and theme groupings. The Unit Groupings Unit groupings of merchandise highlight a separate category of product items say shoes, shirts, cocktail dresses or hand bags. Unit groupings contain merchandise that is almost identical say five black leather hand bags of different sizes or closely related say three red leather hand bags and three brown leather hand bags. The Related Groupings

Related groupings of merchandise are ensemble display that present accessory items along with the featured merchandise say a mannequin may be dressed in a matching sports-wear out-fit with sporting accessories for example tennis racket and a bag. The main idea behind the inclusion of accessory items is to remind the customer of a need for more than the featured item. In other words, the retailer is using suggestive selling. A display of either unit or related groupings should contain an odd number of product items. Consumers perceive an odd number of items as more irritating; hence, the items attract more attention and create a more dramatic setting. When displaying an even number of merchandise items say a set of eight stemmed glasses, it is recommended that one item be set apart from the rest or differentiated in some other way say by elevating. The Theme Groupings Theme groupings display merchandise according to a central theme or setting. Themes provide a focus in planning displays and are useful vehicles around which the five sensory appeals can be employed. The number of possible display themes is unlimited. If one talks of product themes-"shoes complete the appearance", seasonal themes-"Swing into spring", patronage themes-"cheaper by the dozen", usage themes-"Meal-time magic", occasion themes-"Along the bridal path", colour themes-"Pastel softness", Lifestyle themes-"The swinging singles", holiday themes- "Santa approved", as well as themes based on historical current and special events.

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

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

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

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

It is perceived to be more fluid and graceful and perhaps more feminine. A zig-zag pattern of pedestral displayers such as the one as seen above is especially appropriate for displaying women's jewelleries, cosmetics, small apparel items and shoes. Step Arrangements

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

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

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


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