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Retail Chain Management

Broad Objectives of the course

 Aims to enable develop an in-depth

knowledge and understanding of this
emerging and dynamic sector of the Indian
 Covers basic principles and practices of
 Also aims at bringing to the fore the
operational aspects of running a retail
Broad Structure of the Course
 Retailing- An Introduction
 Retail Environment and Concepts
 Working of a wide variety of retail institutions.
 How to set up a retail organization?
 Operations management: Location format and size, space allocation, Other
operational issues etc.
 Retail inventory and supply chain management
 Billing and customers handling tools & supports.
 Accounting.
 Retail sales force mgmt.-Soft skills development.
 • Key factors in the planning, development and enactment of an integrated
retail strategy.
• Challenges in an emerging economy.
• Customer relationships and channel relationships.
 Future of Retail in the Indian context
Recommended Reading

 RetailManagement- A Strategic Approach-

9th Edition by Berman Barry, Evans Joel R.
 Brand Equity

 Class (Discussion Contribution) Participation:

10 %
 Group Project: 30 %
 Assignments: 10 %
 Presentations/Industry Overview: 10 %
 Final Examination: 40 %.
Why Study Retailing?

 World’s largest private industry

 US$ 6.6 trillion sales annually
 India- $250 billion in 2005
Why Study Retailing?

 Topmost global Fortune 500 company(3 Consecutive
 Annual Sales of over US$ 250 bn
 India’s two largest retail player turnover around US$
158 mn (Bata) and US$ 102 mn (Shoppers Stop)
Fortune 100
 9 Retailers
 Carrefour, Ahold, Home Depot, Kroger, Metro,
Kmart-Sears, Target, Albertsons’
Why Study Retailing?

Indian retailing
 Largest employer after agriculture - 8%* of population
 Highest outlet density in world
 Around 12 mn outlets
 Still evolving as an industry
 Long way to go
 Impacts the economy
What is Retailing?

 Business activities involved in selling

– Goods
– Services.
 To Final Consumers.
 Last stage in the distribution process.
Some Myths on Retailing

 Retailing only sales of Tangible Goods

– It includes services as well !
– (Ambikapillai, Ayush, Multiplexes)
 Retailing only involves “Stores”
– Mail, phone orders, direct selling, web transactions all are
– (Domino’s, Astropredictions)
 Retailing is only thru “Retailer”
– (Selling to “final” consumer is retailing)
Retail in the Channel

Manufacturer Wholesaler Consumer

Functions of Retail

 Last Stage in the distribution process

 Helps in two way communication
– Consumers to Mfrs. & wholesalers
– Mfrs. & wholesalers to Consumers
 Provide Logistics, mktg. and finance support.
 Complete transactions with customers.

(Multi channel retailing)

Retailers and Suppliers

 Complex Relationships
 Areas of Conflict
– Control
– Profit Allocation
– No. of retailers selling the product in a market
– Display
– Promotion Support
– Payment Terms and other flexibility
Retailers and Suppliers

 Types of arrangements
– Exclusive Distribution
 Smooth arrangement
 Selected/Exclusive Retailers in a geography.
 Both work together-Image, shelf space, profits etc.
 Retailer limits variety, hence sales.
 Manufacturer limits long run total sales.
Retailers and Suppliers

 Types of arrangements
– Intensive Distribution
 VolatileRelationship
 Suppliers sell thru as many retailers
 Retailers offer as many brands
 Maximises suppliers’ sales
 Retailers- low shelf space, profits
Retailers and Suppliers

 Selective Distribution
– Combines aspects of exclusive & intensive dist.
– Suppliers sell through a moderate no of retailers
– Retailers likely to get marketing support
– Suppliers likely to get more shelf space and
Class Exercise

 Types of Distribution
Retailer Strategy & Performance ?

 What is the Strategy ?

– Overall plan guiding a firm
– Can be treated in “Diamond” of Opportunities
– What, to whom, how and where?
 RetailingConcept
 Total Retail experience
 Customer service
 Relationship Retailing
Opportunity Diamond

Pdt/Service Mix


Channel Mix

Consumer Segment
The Retailing Concept

 Helps decide the retail strategy

 Four components
– Customer Orientation
 Understand attributes and needs of the customers
 Works to satisfy them

– Coordinated effort
 Integrates all plans & activities to optimize efficiency
– Value Driven
 Offers value to its customers
The Retailing Concept

– Goal Orientation
 Decides on its goals
 Formulates strategy
 Work towards achieving them
Total Retail Experience

 Includes all elements in a retail offering

 Like location, displays, prices, brands
 Sales people, marketing etc.
 Important element of the strategy
Customer Service

 Tangible and intangible activities undertaken

 In conjunction with goods/services sold
 Product might affect the deliverables
Relationship Retailing

 Why ?
– Pareto Principle
– Important for the overall goal.
– Strong feedback mechanism
– Scientific planning
Home Assignment

 Studythe Case of Big Bazaar.

 Read similar cases from Brand Equity
Session 2

 Categorization of Retail Institutions

Categorization of Retail Institutions
Categorization of Retailers ?

Based on six factors (directly related to major

marketing decisions):
 Target markets served
 Product offerings
 Pricing structure
 Promotional emphasis
 Distribution method
 Service level
 Operational factor: Ownership
Target Markets Served
 Mass Market –
– Appeal to the largest market possible.
– The competition among these retailers is often fierce.
 Specialty Market –
– Target buyers looking for special products (customers who require
more advanced product options or higher level of customer service).
– Not as large as the mass market, the target market serviced by
specialty retailers can be sizable.
 Exclusive Market –
– Appealing to discriminating customers who pay a premium for features
found in very few products and for highly personalized services.
– Small target market hence the number of retailers addressing this
market is small.
Product Offerings
 Retailers are divided based on
– Width (i.e., number of different product lines)
– Depth (i.e., number of different products within a product line)
 General Merchandisers –
– Carry a wide range of product categories though the number of different items within a
particular product line is generally limited (i.e., shallow depth).
 Multiple Lines Specialty Merchandisers –
– Stock a limited number of product lines (i.e., narrow) but deep.
– For example, a consumer electronics retailer would fall into this category.
 Single Line Specialty Merchandisers
– Limit their offerings to just one product line, and sometimes only one product.
– E.g. Computer gaming software or Small jewelry store that only handles watches.
Pricing Strategy
Price a competitive advantage or competitive advantage in non-price
Discount Pricing –
 Low priced products with low profit margin (i.e., price minus cost).
 Sell in high volume.
 Low overhead costs.
Competitive Pricing –
 Not to compete on price but not to be seen as charging the highest price.
 These retailers, who often operate in specialty markets, aggressively
monitor the market to insure their pricing is competitive but they do not
desire to get into price wars with discount retailers.
 Thus, effort to create higher value for which the customer will pay more.
Pricing Strategy-2
 Full Price Pricing –
– Targeting exclusive markets
 Such markets are far less price sensitive than mass or
specialty markets.
– In these cases the additional value added through increased
operational spending (e.g., expensive locations, more attractive
design, more services) justify higher retail prices.
– While these retailers are likely to sell in lower volume than discount
or competitive pricing retailers, the profit margins for each product
are much higher.
Promotional Focus

 Advertising –
– Many retailers find traditional mass promotional methods of advertising, such as through
newspapers or television, continue to be their best means for creating customer interest
– Retailers selling online rely mostly on Internet advertising as their promotional method of choice.
 Direct Mail –
– A particular form of advertising that many retailers use for the bulk of their promotion is direct mail
– advertising through postal mail.
– Using direct mail for promotion is the primary way catalog retailers distribute their materials and is
often utilized by smaller local companies who promote using postcard mailings.
 Personal Selling –
– Retailers selling expensive or high-end products find a considerable amount of their promotional
effort is spent in person-to-person contact with customers.
– Consumer-salesperson relationship is key to persuading consumers to make purchase decisions.
Distribution Method

 Store-Based Sellers –
– By far the predominant method consumers use to obtain products is to
acquire these by physically visiting retail outlets (aka brick-and-mortar).
 Stand-Alone – These are retail outlets that do not have other retail
outlets connected.
 Strip-Shopping Center – A retail arrangement with two or more outlets
physically connected or that share physical resources (e.g., share
parking lot).
 Shopping Area – A local center of retail operations containing many
retail outlets that may or may not be physically connected but are in
close proximity to each other such as a city shopping district.
 Regional Shopping Mall – Consists of a large self-contained shopping
area with many connected outlets.
Distribution Method-2
 Non-Store Sellers –
– No physical outlet
– Customers make their purchase from within their own homes.
 Online Sellers – The fastest growing retail distribution method allows
consumer to purchase products via the Internet. In most cases delivery is
then handled by a third-party shipping service.
 Direct Marketers – Retailers that are principally selling via direct methods
may have a primary location that receives orders but does not host
shopping visits. Rather, orders are received via mail or phone.
 Vending – While purchasing through vending machines does require the
consumer to physically visit a location, this type of retailing is considered as
non-store retailing as the vending operations are not located at the vending
company’s place of business.
Service Level
There are at least three levels of retail service:

 Self-Service – This service level allows consumers to perform most or all of the
services associated with retail purchasing.
– 1) self-selection services, such as online purchasing and vending machine purchases
– 2) self-checkout services where the consumer may get help selecting the product but they
use self-checkout stations to process the purchase including scanning and payment.
 Assorted-Service – The majority of retailers offer some level of service to consumers.
Service includes handling the point-of-purchase transaction; product selection
assistance; arrange payment plans; offer delivery; and many more.
 Full-Service – The full-service retailer attempts to handle nearly all aspects of the
purchase to the point where all the consumer does is select the item they wish to
purchase. Retailers that follow a full-price strategy often follow the full-service
approach as a way of adding value to a customer’s purchase.
Ownership Structure

 Individually
Owned and Operated
 Corporate Chain
 Franchise
 Cooperative
Ownership Structure-Independent

 Independent
– Owns one retail unit or so.
– Low entry barriers
– Advantages
 Flexibility in choosing retail formats & strategy
 Have “Independence”, entrepreneurial drive

– Disadvantages
 Can’t gain economies of scale
 Labor intensive, low spends
 Mostly unprofessional setups
Ownership Structure-Chain

 Chain Retailer
– Operates multiple outlets
– Most establishments are chains today
– Advantages
 Bargaining capable, Cost efficiencies exist
 Structured policies and methods

– Disadvantages
 Low flexibility, independence in style
 Higher investments (Merchandise)
Ownership Structure-Franchising

 Franchising
– Contractual agreement –franchisor to franchisee
– Typically pays an initial fee and royalty on sales
– Product/Trademark Franchising
 Acquires identity of Franchisor
 Auto dealers/ Petrol stations

– Business format Franchising

 Interactive
 Mcdonald’s
Ownership Structure-Franchising

 Advantages and Disadvantages

– Own a retail enterprise with small investment
– Acquire well known names/goods
– Cooperative marketing efforts
– Over saturation could be a problem
– Franchisee profits controlled by franchisor
– Franchisees are owners (not employees) hence incentive to
work hard
Case Study-NIIT
Ownership- Leased Department

A Department within a store rented out

 Space rented out !
 Store enhancing its offerings
 Market is enlarged by more offerings
 Can affect stores’ images
Ownership Structures- VMS

 Consistsof all levels of independently owned

businesses along a channel of distribution.
 Independent VMS
– 3 Levels of independently owned firms
– Features
 Mfrs/Retailers are small
 Intensive Distribution
 Stationary shops/food stores etc.
Vertical Marketing System

 Independent System


Partially Integrated System

 Partially Integrated System

– Two channel members own all facilities & perform
all functions
– Absence of a wholesaler
– Large mfrs., retailers
– Greater channel control is desired
– Selective/Exclusive distribution is sought
– Appliance stores/Restaurants
Fully Integrated System

 Fully Integrated System

– One firm performs all functions
– Full control on strategy, distribution etc.
– Specialized system but costly
– Avon etc.
Consumer Cooperative

 Retailowned by customer members

 A Gp. Of consumers invests, elects office
bearers and manages operations,
Concerns of Retailers

 Customer Satisfaction
 Ability to Acquire the Right Products
 Product Presentation
 Traffic Building
 Layout
 Location
 Keeping Pace With Technology
Retail Formats/Business Models-1
 Mom-and-Pop – Represent the small, individually owned and operated retail outlet. In many cases these are family-run
businesses catering to the local community.
 Mass Discounters - These retailers can be either general or specialty merchandisers but either way their main focus is on
offering discount pricing. Compared to department stores, mass discounters offer fewer services and lower quality products.
 Warehouse Stores – This is a form of mass discounter that often provides even lower prices than traditional mass
discounters. In addition, they often require buyers to make purchases in quantities that are greater than what can be
purchased at mass discount stores. These retail outlets provide few services and product selection can be limited.
Furthermore, the retail design and layout is as the name suggests, warehouse style, with consumers often selecting products
off the ground from the shipping package. Some forms of warehouse stores, called warehouse clubs, require customers
purchase memberships in order to gain access to the outlet.
 Category Killers – Many major retail chains have taken what were previously narrowly focused, small specialty store
concepts and have expanded them to create large specialty stores. These so-called “category killers” have been found in
such specialty areas as electronic (e.g., Best Buy), office supplies (e.g., Staples) and sporting goods (e.g., Sport Authority).
 Department Stores – These retailers are general merchandisers offering mid-to-high quality products and strong level of
services, though in most cases these retailers would not fall into the full-service category. While department stores are
classified as general merchandisers some carry a more selective product line. For instance, while Sears carries a wide range
of products from hardware to cosmetics, Nordstroms focuses their products on clothing and personal care products.
 Boutique – This retail format is best represented by a small store carrying very specialized and often high-end merchandise.
In many cases a boutique is a full-service retailer following a full-pricing strategy.
Retail Formats/Models-2
 Catalog Retailers
– Orders are then delivered by a third-party shipper.
 e-tailers
– Electronic retailers or e-tailers also have the ability to offer a
wide selection of product since all they really need in order
to attract orders is a picture and description of the product..
 Franchise
 Convenience
 Vending – Within this category are automated
methods for allowing consumers to make purchases
and quickly acquire products.
Retail Summary Chart
Session 3

 Understanding Customers
Understanding Consumers

 Identifying Consumers
– Characteristics, needs and attitudes
 Recognizing how people make decisions
 Devising proper target market plan

(Studying environmental factors that affect

purchase decisions)
What makes shoppers purchase ?



Retail Shoppers

Retailer Needs
actions & desires

Attitudes &

 Market Size
 Gender
 Age
 Household Size
 Marital status
 Income
 Retail sales
 Employment Status
Consumer Life-styles
 Based on social and psychological factors
 Social factors
– Culture
– Social Class
– Reference Groups
– Family life cycles
 Psychological Factors
– Personality
– Class consciousness
– Attitudes
– Perceived risks
Consumer Life-Styles Profiles

 Retailer can develop lifestyle profile of target market by

– Understanding Culture- What values, norms, and customs are
– Understanding Class- Are potential customers lower, middle or
upper class.
– Reference Groups- Whom do they look for advice? How to
target opinion leaders?
– Family Lifecycles- What stage bulk customers are ?
– Time utilization- How do these people spend time?
Consumer Life-Styles Profiles

– Class consciousness- Are they status conscious ?

– Attitudes- How does the consumer perceive the
retailer and his strategy?
– Perceived risk- Do they feel risk with the retailer ?
– Importance of the purchase- How important the
goods or services are ?
Retailing Implications
 Gender Roles- Huge no. of working women
 Changing lifestyles
 Educated, well informed
 Men also involved in shopping
 Consumer Sophistication and Confidence
– Shopping seen as part necessity & part adventure
– More aware of trends, styles but self assured
 Poverty of Time
– Time a great social equalizer
– Requirement of making the most of limited time
 Component Life-styles
– Shopping is less predictable and more individualistic
– More situation based, means no issue.
Consumer needs and desires

Consumers spend more on desires than needs today

– Needs- Person’s basic shopping requirements consistent
with past demographics
– Desires- Discretionary shopping goals that have an impact on
the attitudes and behaviours
– Retail strategy should study Customer “Motives”
 How far the customer shall travel?
 What about price ?
 What service levels/hours are desired?
 Etc..
Shopping attitudes & behavior
 Where people shop and how they make purchase decisions ?
 Shopping Enjoyment-Layout/service levels
 Attitude towards Shopping Time
– Precision Shopping
 Shifting feelings about retailing- Loyalty takes a hit
 Why people buy or don’t buy on a shopping trip ?
– Why people leave without making a purchase?
 Attitudes by market segment
– Upscale customers more keen on :Highly professional, competent people
say in banks…..
– Middle income consumers want “Friendliness and location”

 Grocery Shoppers
– Shopping avoiders- Dislike
– Time starved- Convenience
– Responsible- Key task
– Traditional Shoppers- Who plan carefully.
 Web Consumers
– Comfort with Technology
– Online Security
Attitudes Toward Shopping

 Attitudes towards Private Brands

– Stop vs Arrow
– Many believe private brands equally good.
Where they shop?

 Pattern differs on the basis of retailers

– Location and hence planning the key
 Most prefer Cross Shopping
– Shop for a particular product category at all
– Visit multiple retailers on one occasion
Consumer decision process
 What product/service one wants to buy.
 Where the purchase shall happen.
 The process
– Stimulus- Cue or drive meant to motivate
– Problem awareness- The item/service purchase shall fulfill the
unfulfilled desire or shall save from the problem.
– Information Search-To help solve the problem does further
– Evaluation of alternatives-Determining the alternatives and
selecting the best one amongst the choices
– Purchase act- An exchange of money/ expression.
– Post Purchase behavior-Further purchase or revaluation –
Cognitive Dissonance
Types of Consumer Decision Making

 Extended Decision Making

– Consumer makes full use of the decision process
– Lot of time spent on information gathering and evaluation of
– Potential or Cognitive dissonance is high
– Examples- Car, Home, Life Insurance
– Tools found successful
 Personal selling
 Printed Material
 Information in detail
The Decision Process

Problem Info Evaluation of

Stimulus Awareness Search Alternatives


Demographics Life Style

Post Purchase
Types of Consumer Decision Making

 Limited Decision Making

– Stepwise purchase process but ltd time spent
– Prior experience of what and where available.
– Priority on evaluating alternatives
– Examples- Used Car, Vacation, Gifts
– Tools Used
 SpecialtyStores with choices
 Sales personal to help one choose
Types of Consumer Decision Making

 Routine Decision Making

– Buys out of Habit
– Skips steps
– Little time spent
– Same brands purchased
– Examples- Groceries, newspapers etc.
– Tools used
 Good location
 Long Hours
 Product Availability
 Objective to complete transaction quickly and precisely
Impulse Purchases & Customer

 Impulse Purchases
– Completely Unplanned
 NO decision prior to visiting the outlet
– Partially Planned
 Intendsto purchase the good or service
 Brand not predecided

– Unplanned Substitution
 Intends
to buy a specific brand/service
 Changes mind after retailers’ influence
Customer Loyalty

 Time conscious
 Customer satisfaction leads to shopper
 Price has little bearing
Retailer Actions

 Mass Marketing Strategies

– Broad Spectrum of consumers
– Does not focus on one set
 Concentrated Marketing Strategies
– Needs of one distinct consumer group
– “W”
Retailer Actions

 Differentiated Marketing Strategies

– Two or more distinct groups
– E.g. men and boys
– Different strategies for both groups
– Sub outlets for them maybe.
Environmental Factors

 State of the economy

 Inflation
 Infrastructure
 Price wars
 Emergence of new retail formats
 Trend of more people working at home
 Govt. regulations
 Evolving social values and norms
What makes shoppers purchase ?



Retail Shoppers

Retailer Needs
actions & desires

Attitudes &
Home Assignment

 Prepare a questionnaire to understand the

target group
– 1) Starting a Retail Academy
– 2) A website targeting youth for education
– 3) A blog
Session 4

 Information Gathering and Processing in

Why study it ?

 Reduces chances of wrong decisions

 Opportunity to study attributes & buying
behaviour of consumers
 Provides data for planning and analysis
 Provides “Business Intelligence”
 Helps gain competitive advantage
Information Flow

Information & Information & Information

the supplier the retailer & the Consumer
Information needs
 Supplier Needs -from the retailer
– Estimates on category sales
– Inventory turnover rates
– Feedback on competition
– Level of customer returns
 Supplier- from the consumer
– Attitudes on styles and models
– Extent of brand royalty
– Willingness to pay a premium for quality
Information Needs

 Retailer needs- from the supplier

– Advance notice of new models, changes
– Training material for complex products
– Sales forecasts
– Price logic
 Retailer needs- from the consumer
– Why people come to him
– What they like/dislike from his services
– Where else they go
Information Needs

 Consumer needs- from the supplier

– Assembly and operating instructions
– Extent of warranty coverage
– Service centre details
 Consumer needs- from the retailer
– Where specific merchandise is stocked in the
– Payment modes
– Policies etc.
Retail Information System

 Anticipates the information needs of

 Collects, organizes & stores relevant data on
continuous basis
 Directs flow of information to proper decision
Building a RIS
 How active role RIS should have?
– Proactive/ Reactive
 Should it be internally managed/outsourced ?
– Specialists In house/Hire experts?
 How much should it cost?
– Typical spend on RIS is .5 to .5 % of sales
 How tech driven should it be?
 How much data is enough?
 Who should look at the data and analyse it?
 How should it be stored for future use?
Advantages of RIS

 Information gathering is organized

 Focused at company goals
 Data regularly gathered and stored
 Opportunities are foreseen and strategies drafted
 Quantitative results are accessible, cost benefit
analysis is objective
 Information is routed to relevant persons
 Easy and scientific decision making
Database Management

 Has two aspects

– Data warehousing
 Mechanism of storing and distributing information
– Data mining and Micromarketing
 Ways in which information can be utilized
Database Management

 Retailer gathers, integrates, applies and

stores Information on subject areas.
 Used in conjunction with Customer
databases, Vendor databases and pdt.
Category databases
Database management-Steps

 Plan particular database, its components and

determine information needs
 Acquire necessary information
 Retain info in usable and accessible format
 Update dbase regularly- demographics,
recent purchases etc.
 Analyse data to determine co. strengths and
Database Management
 Information -Internal and external sources
 Databases by Customer
– Purchase frequency
– Items bought
– Avg. Purchase
– Demographics and payment method
 Databases by Vendor
– Total retailer purchases per period
– Total sales to customers per period
– Most popular items
– Retailer profit margins
– Avg. Delivery time and service quality
Database Management

 Databases by Product Category

– Total category sales per period
– Item sales per period
– Retailer profit margins
– % of items discounted
Dbase Mgmt- Vital Considerations

 Is senior mgmt involved?

 Is someone responsible for this dbase?
 Does the firm have some dbase retention goals?
 Is every initiative analyzed?
 Are potential problem areas/opportunities flagged?
 Different product categories/co. divisions linked?
 Dbase updated every time customer interacts?
 Dbase analysed to eliminate redundant data?
Database Management

Data Warehouse

Executives Channel
Partners Customers

Data Micromarketing
Data Warehousing

 Is a store of integrated data obtained from

various internal and external sources
representing events or facts at a given point
of time.
 Strong Buisness intelligence tool

 Data Warehouse
– Data is physically stored
 Software
– To copy original databases and transfer them to warehouse
 Interactive Software
– To allow inquiries to be processed
 Directory
– For the categories of information

 Executives can quickly and easily access

 Aggregation of data from all locations
 Better data analysis and manipulation
 Helps find new trends
Data Mining and Micromarketing

 Data Mining
– Indepth Analysis of Information to gain specific insights on
customers, pdt categories and vendors etc.
– Objective is to derive opportunities to talor marketing efforts
to improve retailer performance
 Micromarketing
– Using data for differentiated marketing
– Develop focused retail strategy mixes for specific segments
– Or individual shopper
Data Mining and Micromarketing

 Data Mining
– Relies on special software to sift thru data
warehouse to uncover patterns and relationships
among different factors
– Allows vast amounts of data to be quickly
searched and sorted.
– Success mantra- Ability to identify and segment
Gathering information- UPC & EDI
 Universal product code
– Products are marked with a series of thin and thick vertical lines –
represents item code
– UPC A Labeling-
 Includes numbers and lines
 Read by Scanners
 Does not include price
– Advantages
 Retailers can record data instantly on items’ model no. etc
 Sends to data to central server monitoring unit sales, inventory levels
 Helps in better merchandising data, improve inventory mgmt., speed
transaction time, raise productivity, reduce errors, coordinate
Gathering information- UPC & EDI

– Retailers and suppliers regularly exchange
information thru systems on inventory levels,
delivery times, unit sales, etc.
– Advantages
 Both parties enhance decision making capabilities
 Better coordination
 Better inventory control
 More service oriented
 More responsive to demand.
Marketing Research Process

Define Examine
Generate Analyze Data
Problem Secondary

Infosys-Case Study
 The Client
A large retail chain based in US.
The Challenge
The client was facing issues with inventory management and service level. Hence, they wanted to reduce inventory and improve
service levels throughout their supply chain network by improving forecast accuracy and enhancing supply chain planning.
The Solution
Infosys evaluated and improved the clients’ supply chain metrics and systems and developed a solution strategy to achieve the
clients’ supply chain vision. Infosys conducted a supply chain assessment exercise and helped the client define future state
supply chain processes. Infosys also helped the client, as part of this exercise, in selecting the right set of planning and
execution tools to enable the defined processes. Infosys helped the client define an implementation road map for deployment of
various business and IT initiatives to enable the vision. The process vision was based on a time-phased planning process
construct. As a part of the solution selection exercise, Infosys helped the client with a detailed application vendor evaluation
exercise where leading supply chain planning and execution vendors were evaluated for fitment. Infosys was also involved in
the implementation of a SCM planning solution and some custom developed applications in a phased manner to enable the
defined process vision at the client warehouse and at the stores to achieve optimum supply chain benefits. The first phase was
to implement the tool at the warehouse for a limited scope of items. Subsequent phases then rolled out the tool to additional
scope of items and warehouse locations. After realizing the early benefits like improved forecasting accuracy and dropped
inventory levels, the client has planned to roll out the solution to all stores and all SKUs in phased manner.
Key features of the implementation were:
1.Achieving high forecast accuracy for majority of the SKUs, especially during promotional periods by applying a high level of
mathematical rigor, configuration of user interfaces and development of utility applications to capture promotions.2.Application of
statistical safety stock principles to control inventory.3.Practical application of time-phased planning principles in a retail context.
Business benefits 1.Reduction in inventory at the warehouse due to time-phased planning2.Improvement in service
level3.Improvement in forecast accuracy4.Qualitative benefits like ease of use of the system for planners and focus on other
value-added activities
Supply Chain Efficiency

 Producer Push
– Follows Contemporary Supply chain model
– Based on production source
– Production efficiency is the key
– Production determines availablility and equals
Supply Chain-Producer Push

 Retail sales can be maximized if excess

stock is available, production maximized if
sales are maximized, inventory reduced if
prodn,. and deliveries are aligned to sales
Requirements –Consumer Pull

 Data Synchronization
– Common framework for pdt and party data
 Visibility
– Level of retail sales drives consumer pull supply
chain and hence
– All entities should have access
Supply Chain-Consumer Pull

 Requires full visibility of consumer sales

 Visibility required for product movements &
stock levels
 Each entity can observe demand and
translate it into movements
 Product movements then determine
production schedule
 Operate on JIT principles
Requirements –Consumer Pull

 Point of sale data

– In the form of a SKU
– Stock replenishment takes place at product line rather than
brand or sub brand.
– Scanners are a big help at the EPOS
 ITintegration of retail operations
 Store Control
– Implementation of marketing strategies to forecast sales surges
Session 5

 Store locations
 Trading Area
 Types of locations
Choosing a Store Location

 Trading area analysis

 Deciding on most desirable type of location
 Selecting a general location
 Choosing a particular site within the location
Importance of Location

 Location, location, location!!!!

 Long Run
– Influences the strategy
– The site is consistent with its mission, goals & target market for extended
– Location to population trends
– Distances people travel
– Competitors’ entry and exit

 Short Run
– Impact on the specific elements of the strategy
– Product Mix
Store Location- Steps

 Evaluate Geographic areas- Residents,

 Determine where to locate- Isolated Store,
Unplanned business district, Shopping
 Select the decided location
 Analyse alternate sites in the specified retail
Trading Area

 Geographic Area containing the customers of

a particular firm or group of firms for specific
goods or services.
Trading Area Analysis- Advantages

 Consumer Demographic and socio economic

characteristics are known.
 Focus of Promotional strategies is known
 Poach others or catch new customers
 Anticipate competition
 Best no. of stores for a chain in a given area
Trading Area- Advantages

 Geographic weaknesses are known

 Impact of other forms of retailing is known
 Competition, Financial Institutions etc.
Size and Shape of Trading Areas

 Primary Trading Area

– Covers 50-80% of stores’ customers
– Closest Area to the store
– High Density of Customers to Population
– Highest per capita sales
 Secondary Trading Area
– Covers 15-20 % of stores’ customers
– Located outside the Primary area
– Customers are more widely spread
Size and Shape of Trading Areas

 Fringe Trading Area

– Includes all remaining customers
– Most widely dispersed
– Includes some outshoppers who travel great

 Destination Store
– Store with better assortment, promotes more and
creates stronger image (It’s worth the trip)
 Parasite Store
– Doesnot create own traffic
– No trading area of own
– Store depends on people who are drawn on a/c of
other reasons
Delineating the Trading Area

 Existing Store
– Secondary Data (Store records)
– Primary Data (Survey)
– Some methods
 Frequency with which people shop from a locality
 Avg. dollar purchases from the given locality
 Concentration of shop card holders’ from a given locality
Delineating the Trading Area

 New Store
– Trend Analysis (Past data, census)
– Consumer Surveys (Time, distance, factors attracting)
– Three Computerized Trading area models
 Analog Model
– Potential Sales on basis of existing sales of existing st.
 Regression Model
– Potential store sales with location, pop size
 Gravity Model
– Premise People are drawn to stores that are closer & more attractive than
Trading Area Delineation

 Reilly’s Law of Retail Gravitation

– Establishes point of indifference between two
cities or areas.
– Point of indifference is the geographic breaking
point between two cities at which consumers are
indifferent to shopping at either.
– Assumptions:
 Two competing areas are accessible from a major road
 Retailers in two areas are equally effective
 Other factors are constant
Reilly’s Law

 Dab= d/(1+sq root(Pb/Pa))

Dab= Limit of city A’s trading area, measured
in miles along the road to city B.
d= Distance in miles along a major roadway
between cities A and B
Pa= Population of city A
Pb= Population of city B

 Distance measured only via major roadway

 Travel Time not a good measure of distance
 Actual distance may not correspond with the
perceptions of the distance
Huff’s Law of Shopper Attraction

 Basis-Product Assortment, Travel times,

Sensitivity of the kind of shopping time to
travel time.
 Assortment- Total square feet of selling
space a retailer expects all firms in a
shopping area to allot to product category.
 Sensitivity- Trip’s purpose and type of goods
Characteristics of Trading Areas

 Attributes of residents and relation with target

market definition
 Population Size and characteristics
 Availability of labor, competition, regulations
 etc
Characteristics of Population

 Census
 Survey of buying power
Competition and Level of Saturation

 Number of existing stores, size, rate of new store

openings, strengths and weaknesses, trends, saturation
 Under stored Trading Area
– Too few stores selling a specific good/service
 Over stored Trading Area
– So many stores that some retailers cannot earn an adequate
 Saturated Trading Area
– Proper amounts of stores and retailers prosper
Measuring Trading Area Saturation

 Number of persons per retail establishment

 Avg. Sales per retail store
 Avg. Sales per retail store category
 Avg. Store sales per capita
 Avg. Sales per square foot of selling area
 Avg. Sales per employee
Site Selection
Site Selection

Evaluate Alternative Determine Select General

Trading areas Location Type Location
Types of Locations

 Isolated
 Unplanned Business District
 Planned Shopping Centre
Isolated Store

 Freestanding retail outlet located on highway or

 No adjacent retailers to share traffic
 No competition
 Low rental costs
 Flexibility high, expansion easy
 Isolation good for convenience shopping
 Easy parking, facilities, Lower prices
Isolated Stores

 Disadvantages
– Initial Customers difficult
– Travelling this far might be unviable
– High Ad expenses
– Variety missing for the shopper
– Costs: outside lighting etc not shared, high
– Store has to be built not rented
Business District

 Two or more stores situate together in an

unplanned manner
 Stores locate based on their interest not area
 Four Types
– Neighbourhood BD
– String

 Hub of retailing activity in the city (Downtown)

 Exist in the area of greatest density of office buildings,
 At least one big store & speciality, convenience stores
 Strengths
– Excellent assortment of goods
– Access to public transportation
– Variety of stores and positioning strategies
– Close to commercial and social facilities

 Weaknesses
– Travel time for suburbs
– Inadequate parking
– High rents and taxes
– Cost of setting the store
 Unplanned shopping area in a city/town usually bounded by two
 SBD offers similar products like CBD
 Smaller trading area, less stores, mostly convenience oriented items
 Strengths
– Robust product selection
– Access to thoroughfares and public transport
– Placement near to residential areas than CBD
 Weaknesses
– Parking
– Fewer chain outlets

 Unplanned shopping area

 Appeals to the convenience shopping needs of a
 Contains several small stores
 Leading retailer could be a superstore
 Prices higher than CBD, SBD

 Unplanned shopping area- Gp. of retail stores with

similar product lines on a street/highway
 Extension of shopping into perpendicular streets
 Starts with an isolated store, then expands
 Lower rents, lower operating costs but less variety,
increased travel time, high ad costs, need to create
Planned Shopping Centre

 Group of architecturally unified commercial

establishments on a site centrally
owned/managed, designed and operated as
a unit based on balanced tenancy and with
parking facilities.
Planned Shopping Center

 Advantages
– Well rounded assortment of goods/services
– Strong suburban population
– One stop family shopping
– Cooperative planning and sharing of costs
– Distinctive and unified image.
– Popularity of malls
– Maximization of foot falls
– Common ad costs
 Disadvantages
– Landlord regulations
– Higher rent and infra costs
– Highly competitive environment
– Domination by larger anchor stores
Planned Shopping centers

 Regional
 Community
 Neighbourhood
Regional Shopping Centre

 Large, planned shopping facility

 Atleast one to two department stores
 Broad and deep assortment of goods
 Market is 1 lac people + drive less than 20
 Result of planned effort to create shopping
variety of a city in a suburb
 Megamall
Community Shopping Center

 Moderate sized, planned shopping facility

 Branch department store, category killer, and
smaller stores
 Moderate assortment of goods offered
 Caters to 20 k- 1 lac people with 10-20 min
Neighborhood Shopping Center

 Planned Shopping center

 Largest store is a superstore
 Focuses on convenience oriented goods
 Caters to 3000 to 50 k people within 15 min
 Usually arranged in a strip
 Balanced tenency
Trade Area Analysis
Session 6

 Managing a Retail Business

– Setting up an organization structure
– Hiring and Managing personnel
– Managing Operations
Setting up a Retail Organization

 Retail organization
– Ways by which a firm structures and assigns
tasks, policies, resources, responsibilities etc
– To efficiently & effectively satisfy the needs of
– Target market, employees and management
Organizing a Retail Firm

Specific Tasks Dividing Tasks among

to perform channel Members

Grouping tasks
Classifying Jobs
into jobs

Integrating positions
in an organization chart
Specific Tasks in the channel

 Buying, receiving, marking & shipping Merchandise

 Setting prices for distributor, retailer, customer
 Inventory storage and control
 Preparing merchandise and window displays
 Facilities management
 Customer- Research, contact
 Facilitating Shopping
 Etc.
Dividing Tasks among channel

 Retailer- Performs all or some tasks in the channel-

Buying merchandise to coordination
 Manfr./Wholesaler- Some tasks like shipping,
marking merchandise, inventory storage, research.
 Specialist-Specific Tasks like buying office, delivery
firm, warehouse, MR, Ad agency, Accounting, Credit
 Consumer-Delivery, credit, Sales effort (self service),
pdt alternations.
Grouping Tasks into Jobs

Displaying merchandise, customer contact, followup Sales Personnel

Entering transaction data, handling cash, credit purchases Cashier

Recving Merchandise, checking shipments, marking merchandise, Inventory Personnel

inventory storage and control, returning merchandise to vendors

Window dressing, interior display setups Display personnel

Billing customers, credit ops, customer research Credit Personnel

Merchandise repairs, alterations, resolution of complaints Customer service

Cleaning store, replacing old fixtures Janitorial

Personnel management, sales forecasting, budgeting, pricing Management Personnel

coordinating tasks
Classifying Jobs

 Functional-Jobs by Task
 Product- Jobs on goods/services based.
 Geographic- Operations in different areas
 Combination- Mixed use (Sales people
locally hired but sourcing, HR central)
Organization Chart

A CEO builds an organization which builds a

 Flat Organization
 Tall Organization
Organized Patterns

 Arrangements used by
 Small Retailers
 Departmental Stores
 Chain Retailers
 Diversified Retailers
Small Retailers

 Use uncomplicated arrangements

 Two or three levels
 Owner-Manager and employees
 Multitasking by employees
Departmental Stores

 Follow Mazur Plan-All activities into functional areas.

 Merchandising: Buying, selling, stock planning,
control and promotion planning
 Publicity: Window, interior, a&p, ad research, PR
 Store Management: Merchandise Care, customer
services, buying store supplies, insurance, employee
trg. And compensation, workroom ops.
 Accounting and Control: credit, collections, expense
budgeting, record keeping etc.
Departmental Stores
 Line Functions: Direct authority and responsibility
 Staff Functions: Advisory and Support
 Three versions of the Mazur Plan
 Main Store control: HO oversees and controls
 Separate Store Organization: Branch has buying
 Equal Store Organization: Buying is centralized,
branches are sales units with equal operational
Chain Retailers

 Follow Equal Store Organization

 Functional divisions exist: sales promo etc.
 Overall Authority is HO
 Store Managers have selling targets
 Standardized operations
 Elaborate Control system.
 Little decentralization/localization allowed
Diversified Retailers

 Multiline firm operating under central

 Operates diversified stores unlike chains
 Interdivision control a must
 Shared and clear goals
 Resources shared but also divided
HRM Process

 Issues
– Inexperienced Workers
– Many part time workers
– Variable customer demand
– High turnover of employees
– Low wages
– Diverse labor force (young to old)
HRM Process

 Must generate enough applicants

 Training a must
 Compensation perceived fair
 Career plan explained
 Expectations and JD’s clearly established
 Job fit and format fit needs training
HRM Process

 Recruitment
 Selection
 Training
 Compensation
 Supervision
 Follow local labor laws
JD of a Management Trainee
 Attributes required
 Analytical skills
 Creativity
 Decisiveness
 Flexibility
 Initiative
 Leadership
 Organization
 Risk Taking
 Stress Tolerance
Session 7

 Operations Management-1
Operations Management

 Profit
 Asset Management
 Budgeting
 Resource Allocation
Profit Planning

 P&L Statement
Asset Management

 Assets
 Liabilities
 Net Worth
 Use of assets in optimal manner
– Net Profit Margin=Net Profit after taxes/Net Sales
– Asset Turnover= Net Sales/Total Assets
 ROA=NET Profit Margin X Asset Turnover
– Financial Leverage-Retailer’s total assets/net worth
Strategic Profit Model

 Return on Net Worth

– Relationship between net profit margin, asset
turnover & financial leverage
– Net Profit Margin X Asset Turnover X Financial
– Net Profit/Net Worth
– Useful in planning or controlling assets

 Outlines retailer’s planned expenditures for a

given time based on expected performances.
 Costs are linked to Target market, employee
and management goals.
Advantages of Budgeting

 Expenditures are related to expected

 Resources are allocated to right
departments, pdts etc.
 Spending for all departments is coordinated
 Goal of efficiency is clearer
 Planned vs actual budgets are analysed
 Costs and performances are benchmarked
Preliminary Budgeting Decisions

 Budgeting authority is specified

– Top down or bottom-up
 Time frame is defined
 Budgeting frequency is determined
 Cost categories are established
– Capital Expenses
– Fixed and variable
– Direct and indirect costs
– Natural account vs functional account expenses
Preliminary Budgeting Decisions

 Levelof detail is set

 Budget flexibility is defined
Ongoing Budgeting Process

 Follows the preliminary budgeting process

 Goals are set based on customer, employee and
mgmt needs
 Performance standards are specified
 Expenses are planned
– Zero based \incremental budgeting
 Actual expenses incurred
 Results are monitored
 Budget is adjusted
Cash Flows Vs P&L
Resource allocation

 Magnitude of various costs

 Spending divided into
– Capital Expenses
– Operating Expenses usually % of sales ?
– Opportunity costs
Budget plan-Class Assignment

 You have to start a grocery shop in qutab

institutional area to cater to the needs of
student population. You have just signed a
lease deed for a shop measuring 1500 sq ft.
The rent for this is Rs. 25 k per month.
Security deposit is 6 mths. You need to hire 4
sales people to manage the outlet. Pls create
a budget plan for operating this outlet.
Resource allocation

 Productivity
 Costsas % of sales
 Ways to enhance productivity
– A firm can improve employee performance
– Reduce costs by automating etc.
– General strategies adapted
 Space Productivity
 Labor expenses
Session 8

 Describe Operational Scope

 Examine specific aspects of operating a retail
Ops Management

 Efficientand effective implementation of

policies and tasks that satisfy a retailer’s
customers, employees and management
Operational Aspects

 What operating guidelines are used?

 Optimal format/size of the store
 Relationship between shelf space, location and sales
 Personnel best be matched to customer traffic?
 Energy costs, inventory management, safety
 Insurance required?
 Credit transactions, computer systems
 What kind of crisis management team?
Operations Blueprint

 Systematically lists all operating functions to be performed,

their characteristics and timing.
 Retailer specifies in detail every operating function from
store opening to closing and who is responsible for them
 A large diversified retailer uses multiple blueprints
Store format, size, space allocation

 Store format determined on the productivity

 Key decision- Prototype stores
– Multiple outlets conform to relatively uniform
construction, layout, operations standards.
– Centralized management control is easier,
standardize operations and display consistent
brand image
– Mcdonald’s, Starbucks
Store format, size, space allocation

 Some use Rationalized Retailing programs

– High degree of centralized management control
with strict operating procedures for every phase of
– Most of the operations are performed in virtually
identical manner in all outlets.
– Rigid control and standardization makes it easy to
 Some use mix and match techniques
Store Space

 Retailers often focus on allocating store space.

 Top-down space management approach
– Start with total space available
– Divide space into categories
– Then work on product layouts
 Bottom-up Management Approach
– Begins planning at the individual product level
– Proceeds to categories, total store and overall company
Store Space Allocation

 Productivity
– Vertical displays
– Hang from ceilings
– Point of sale displays, vending machines
– Open doorways, mirrored walls give small stores a
larger appearance
– Generally 75 % of space is used for selling, rest is for
storage, rest rooms etc.
– Open longer hours
Personnel Utilization

 Maximization of worker productivity

– Hiring process
– Workload forecasts
– Job standardization and cross trainings
 Cashier in each department
 Cashier, gift wrapper and stockperson is same
 Employee performance standards
 Compensation
 Self service reduces operating costs
Store maintenance, energy
management and renovations

 Store maintenance- encompasses all

activities in managing physical facilities
 Exterior- Parking lot, outside displays, point
of entry and exit
 Interior- Windows, walls, flooring, climate
control, lighting, displays, signs and fixtures
Store Maintenance

 Quality of store maintenance affects

consumer perceptions, life span of facilities,
operating costs
 Energy management is gaining importance
as the energy costs are rising-Methods
– Better insulation
– Adjust internal temperatures at off hours
– Use computerized controls

 When ?
 How frequently ?
 What areas ?
 Why ? Better revenues, lower operating
costs or both
Inventory Management
 Maintain proper merchandise assortment and ensure
efficient and effective ops.
 How much inventory on sales floors vs warehouse or
store room?
 How often inventory be moved from nonselling to
selling area ?
 Tradeoffs between faster supplier delivery, higher
shipping costs?
 What is the level of reorder point ?
Store Security

 Two aspects
– Personal and Merchandise Security
 Personal Security
– Uniformed security guards- visible presence assures
customers, employees- a warning to thieves and shop lifters
– Undercover personnel are also used
– TV cameras and other devices scan the areas
– Brighter lighting & manned parking lots
– Bank deposits are done frequently
– Access to stores’ own areas is restricted

 Workers’ compensation
 Product liability
 Fire, accident, property and officers’ liability
 Health insurance for full time employees
Credit Management
 What form of payment is acceptable?
 Who administers the credit plan? Own cards vs others
 Who is eligible ?
 What credit terms are used ?
 How do we handle non payments and late payments ?
 Options one must weigh
– Credit vs sales growth
– Credit costs vs returns (Financial and competitive advantages)
– Debit cards and Fund management
– Discount coupons
– Gift cards

 Helps improve overall productivity

 Must define level of computerization
– Billing system
– ERP systems
– Individual store location vs integrated systems
– Computerized checkouts
– UPC codes vs RFID
– Electronic point of sale system
– Self scanning and payments

 Theftprevention
 Energy control- Based on traffic
 Others

 Expert Services
 Security
 Billing
 Inventory Management
 Store layout, design etc.
Crisis Management

 Contigency Plan should be ready

– Blue Book/ Red Book
 Essential information communicated to all
 Chain of command should be clear
 Cooperation not confusion desired
 Responses should be swift
Session 9

 Merchandise Management and Pricing

– Developing Merchandise Plans

 Activities involved in acquiring particular

goods &/or services and making them
available at places, times & prices in
quantities that enables a retailer to achieve
its goals.

 Consists of two factors

– Customers & Goods
– U take good care of buying your products, they
don’t come back
– U take care of customers, they do come back
Merchandising Philosophy
 Sets guiding principles for all merchandise decisions that a retailer
 Must reflect
– Target market desires, market place positioning, the defined value chain,
supplier capabilities, costs, competitors, product trends.
 Drives product decision- from what product lines to carry to the shelf
space allotted to different products to inventory turnover to pricing.
 Retailers have to decide the balance between width and depth of the
 They need to decide on pricing policies and if the product
assortments shall be stable over time?
Merchandising Philosophy

 Scopeof responsibility for merchandise

– Both buying and selling
– Buying only
 Micro
merchandising and cross
 Micro Merchandising
– Retailer adjusts shelf space allocation to respond to
customer & other differences among local markets
– Walmart adjusts shelf space to reflect local preferences.
e.g. amul products
 Cross Merchandising
– Retailer carries complimentary goods & services to
encourage shoppers to buy more
– Apparel stores stocking accessories
Buying Organization formats &

 Fora merchandising plan to succeed buying

processes need structure
– Who takes decisions?
– What are their roles?
– Do they have authority?
– How does merchandising fit in overall strategy?
Buying Organization formats &

 Level of formality
– Formal
 Separate department is set up
 Involves acquiring merchandise and making it available for sale
 Big stores use this format
 Specialist merchandisers are hired
– Informal
 No separate role
 Small retailers use this format
 Less defined responsibility and hence less emphasis on merchandise planning
 Degree of Centralization
– Centralized
 Centralized decision making
 Integration of effort, strict controls, consistent image, discounts
 Inflexibility
– Decentralized
 Purchase decisions are made locally
 Disjointed effort
 Organization Breadth
– General & specialized approach based on size
 Personnel Resources
– Inside buying organization
– Usually used by very large and small
– Outside Buying organization
– Used by small and medium sized retailers
 Functions Performed
– Merchandising
 Merchandise personnel oversee all buying and selling
 Including assortments, advertising etc.

– Buying
 Merchandise personnel oversee buying of products,
advertising etc. while in store personnel oversee
assortments, displays etc.
 Staffing
– Buyer
 Responsible for selecting merchandise to be carried by the
 Sets a strategy to market the merchandise
 Devises, controls sales and profit projection for a pdt category
 Plans assortments, styles, sizes etc.

– Sales Manager
 Supervises on floor selling & operational activities for a
 Must be a good organizer, administrator and motivator
Devising Merchandise Plans


Forecasts Assortment


Allocation Brands

 Projection of expected retail sales in a period
 Staple Merchandise- Regular pdts carried by the retailer e.g.
supermarket- milk, bread etc.
– Basic stock list is kept ready
 Assortment Merchandise- Consists of apparel, furniture etc.
for which a wide variety is required.
 This is harder to forecast – style changes, demand variations
 Decision is two pronged- Pdt lines, styles, sizes are forecasted
 Model stock plan is used to project specific items and includes
then other items to offer good assortment.

 Fashion Merchandise- Consists of products with

cyclical sales due to changing tastes/lifestyles.
 Seasonal Merchandise- Consists of products that
sell over non consecutive time periods such as ski
equipments, ACs.
 Fad Merchandise- High sales for a short period of
time. (Harry Potter stuff)
 Never out list- They are always is stock.

 Innovative retailer has a great opportunity

 Distinctiveness (First in the market)
 Great Risk (Misreading the customers)
 Retailers should assess growth potential of
each new good and service
 Good tool is PLC

 Factors to keep in mind

– Target Market
– Good/Service Growth Potential
– Fashion trends- vertical/horizontal
– Retailer image
– Competition
– Responsiveness to consumers
– Investment required vs returns

 Selection of a merchandise a retailer carries

 Includes the width and breadth of product
 A firm first chooses the quality of
– Top line for upper income
– Middle line for the middle income
– Carry promotional products

 After product quality, width and breadth of

assortment is decided
 KFC only chicken
 Distinction between Scrambled
merchandising, complementary goods and
services, and substitute goods and services

 Scrambled Assortment- Unrelated goods and

services added to increase revenue
 Complimentary goods/services- Retailer sells
basic items and related offerings
 Substitute goods/services- competing
products (competing brands of toothpastes)
 Retailer chooses proper mix of manufacturer, private and
generic brands
 Manufacturer brands- Produced and controlled by mfrs. (Coke,
 Small firms associate with them
 Private Brands (Store brands)- Names designated by
wholesalers or retailers controlled by them only.
 Less expensive for customers
 Generic Brands- no frills associated by them.
 Usually receive secondary shelf spaces.

 New products- Retailer must decide when to

purchase, display and sell them
 Established brands- The firm must plan the
merchandise flow during the year.

Asingle unit retailer chooses how much

merchandise to place on the sales floor, how
much in the stock room
Session 10

 Financial Merchandise Management

Financial Merchandise Management

 Thru this a retailer specifies which products

are purchased, when products are purchased
and how many are purchased
 Dollar Control involves planning and
monitoring a retailer’s financial investment in
merchandise over a stated period.
 Unit control relates to the quantities of
merchandise a retailer handles during a
stated period.
Inventory Valuation

 Two inventory accounting systems available

 Cost Accounting system values merchandise
at cost plus inbound transportation charges
 Retail Accounting system values
merchandise at current retail prices
Cost Method

 The cost to the retailer of each item is recorded on

an accounting sheet or coded on a price tag.
 Physical inventory is done, item costs are known, the
quantity of each item is counted and total inventory
value is calculated.
 Example”10 letter equivalency system
 M0, N1,O2, P3, Q4, R5, S6, T7, U8
 STOP=67.23
Inventory using Cost Method

 Physical Inventory-Counting the merchandise

in stock at the close of selling period. Actually
done once or twice in an year.
 Gives actual figure but does not reflect what
it should be ?
 Book Inventory-Keeps a running total of the
value of all inventory at hand at cost at a
given time.
 Valuing inventory: FIFO and LIFO
 Disadvantages of Cost Based Inventory Systems
1) Requires that cost be assigned to each item in
stock. Works best for low turnover companies, high
avg. prices…..otherwise difficult to monitor change
in costs.
2) Ending inventory value based on merchandise cost
may not reflect actual worth.
The Retail method

 Closing inventory value is determined by

calculating the average relationship between
cost and the retail values of merchandise
available for sale in a period.
 Requires detailed records, is more complex.
 Steps to determine ending inventory value
– Calculating the cost complement
– Calculating the deductions from retail value
– Converting retail inventory value to cost.
Calculating the Cost Complement

 Cost Complement= Total Cost Valuation

Total Retail valuation
 Value of beginning inventory, net purchases,
additional markups and transportation costs
are all included in the retail method.
 Beginning inventory and net purchase
amounts are recorded at both cost and retail
Cost Complement
At Cost At Retail

Beginning Inventory 90500 139200

Net Purchases 205900 340526

Additional Markups 0 16400

Transportation Charges 3492 0

Total Merchandise for sale 299892 496126

Cost Complement= 299892/496126= .6045
Calculating Deductions from Retail

 Ending retail value of inventory must reflect

deductions from the total merchandise
available for sale at retail.
 Deductions like markdowns, employee
discounts, pilferages, etc.
 To compute stock shortages- the retail book
value of ending inventory is compared with
actual physical ending inventory at retail
Converting Retail Inventory Value to

 Retailer must convert adjusted ending retail

book value of inventory to cost to calculate
gross margin.
 Ending inventory at cost =Adjusted ending
retail book value X Cost Complement
Advantages of the retail method

 Valuation errors are reduced at physical inventory as

merchandise value is recorded at retail.
 Simpler process
 Physical inventory method at cost requires a physical
inventory to prepare a P&L statement. The retail
method lets a firm prepare P&L on the book
 Retail method is accepted in insurance claims.
Merchandise Forecasting and

 Six step Dollar Control Process (Planning and

monitoring a firm’s inventory investment over time)
 Designing Control Units
 Sales Forecasting
 Inventory Level Planning
 Reduction Planning
 Planning purchases
 Planning profit margins
Designing Control Units

 Merchandise forecasting and budgeting

requires selection of control units- the
merchandise categories for which data is
 Retailer must record data in each category.
 Retailer can broaden control system by
combining categories that comprise a
 Helpful to select control units with other company
and trade association data.
 Classification Merchandising can be used- whereby
each department is subdivided into further
categories for related types of merchandise.
 Price line classifications- Sales, inventories and
purchases are analysed by price categories.
Sales Forecasting

 Forecasts may be companywide,

departmental or individual merchandise
 Large retailers use trend analysis, time series
analysis and multiple regression analysis
 For specific estimates- Monthly sales index
could be used.
 Monthly sales index= (Monthly sales/Avg
Monthly sales) X 100
 Based on this a retailer can forecast monthly
sales based on the yearly sales forecast.
Inventory level planning

 Methods used are

– Basic Stock Method
– Percentage Variation
– Weeks’ Supply
– Stock to Sales Methods
Reduction Planning

 Retail reduction =Beginning inventory plus

purchases - sales plus ending inventory
 Planned reductions incorporate anticipated
markdowns, employee discounts etc.
 Reduction planning revolves around two factors-
Estimating expected total reductions by budget
period and assigning estimates monthly.
 Planning reduction should take into account- Past
experience, markdown data, changes in co policies
Planning Purchases

 Planned purchases =planned sales for the

month +planned reduction for the month+
planned end of month stock- beginning of
month stock.
 Open to buy =difference between planned
purchases and purchase commitments
already made by the buyer.
Planning Profit Margins

 In planning a profitable merchandise budget

a retailer must consider planned net sale,
retail op expenses, profit and retail
reductions in pricing merchandise.
 Required initial markup % =(planned retail
expenses+ planned profit+ planned
reductions) /planned net sales + planned
Session 11

 Pricing in Retailing
– Role of pricing in retail strategy
– Examine impact of market forces on pricing
– Developing a retail price strategy
Pricing options for a Retailer

 Discount Orientation
– Uses low prices as the comp. advantage
– Low price image, fewer shopping frills, low per unit margins, low
operating costs, high inventory turnover
 At the Market Orientation
– Retailer has average prices
– Offers great service & nice ambience to middle class customers
– Margins are moderate to good & avg. to above average pdts are
– Traditional departmental stores are part of this category
Pricing Options for a Retailer

 Upscale Orientation
– A prestigious image is the retailers’ competitive
– Smaller target market, higher expenses, lower
turnover mean customer loyalty, distinctive
– High per unit profits
– Upscale department stores/ speciality stores
Price Vs Value
External Factors Affecting Pricing

 Retailers should understand the price elasticity of

– Sensitivity of consumers to price changes in quantities they
– Elastic- Urgency of purchases is low, alternatives are easily
– Inelastic- Purchase urgency is high & no acceptable
substitutes are available
– Unitary elasticity- % changes in price are in proportion to %
changes in quantity
 Elasticity= (Q1-Q2)/(Q1+Q2)
 Price Sensitivity varies by market segment
 After identifying market segments, it is required
to determine which is your target segment.
 Economic Consumers
– Perceive competing retailers as similar & shop for the lowest prices
 Status Oriented Consumers
– Perceive competing retailers as quite different
 Assortment Oriented Consumers
– Seek retailers with strong selection, want fair price
 Personalizing Consumers
– Shop where they are known, pay slightly above avg. prices
 Convenience Oriented
Govt. & Retail Pricing
 Three Levels
– Federal, State, Local
 Major Govt. Policies relate to
– Horizontal Price Fixing
 An agreement between Mfrs, W/S, Retailers- illegal
– Vertical Price Fixing
 Mfrs, W/S seek to control retail prices of their goods
– Price Discrimination
– Minimum Price Levels
– Unit Pricing
– Item Price Removal
– Price Advertising
Mfrs., W/s & other suppliers

 Mfrs want to decide final selling price to the

 W/s- Selling against the brand
Developing a Retail Price Strategy

Retail Objectives Broad Price Policy Price Strategy

Price Adjustments Implementation of price strategy

Retail Objectives
 Overall Objectives and Pricing
– Sales Goals are specified in terms of revenues &/or unit volumes.
 Market Penetration Strategy
– Large revenues by low prices & large volumes
– Customers must be price sensitive, low prices discourage actual &
potential competition
 Market Skimming Pricing
– Firm sets premium pricing
– Does not achieve high volumes but high profit per unit
– Target segment is price insensitive
 ROI and Early recovery of cash
 Specific Pricing Objectives
Broad Price Policy

 Integrated Plan created with short and long

run perspectives & consistent image.
 Relates price policy with target market, retail
image and other elements of the retail mix.
 Some examples
– No competitors shall have lower prices or higher
or same.
– Price leadership shall be exerted
– Prices shall change only with costs
Price Strategy
 Demand Oriented Pricing
– Retailer sets price on consumer desires
– Determines range of prices acceptable to target market
– Top of the range is demand ceiling, the most people shall pay
for a good or service.
– It is used to estimate the quantities that customers would buy
at various prices
– This approach studies Customer interests and Psychological
implications of pricing
– The aspects of psychological pricing are:
 Price Quality association
 Prestige pricing
 Cost Oriented Pricing
 Retailer sets a price floor, the minimum acceptable to the firm.
 Retailer usually computes the merchandise, op. costs and adds
some margin to these prices
 Markup Pricing
– Retailer sets prices by adding per unit merchandise costs, op. expenses
and desired profit.
– Diff. between merchandise costs and selling prices

 Markups can be computed on the basis of

retail selling price or cost but are typically
calculated using retail price.
 Markup % (At retail)= (Retail Selling price-
Merchandise Cost)/Retail Selling Price
 Markup % (at cost) = (Retail Selling price-
Merchandise Cost)/Merchandise Cost

Variable Markup policy

 Retailer adjusts markups by Merchandise

 Prices of diff goods might fluctuate
 Allows for differences in pdt investments
 May help retailer generate more customer
traffic by advertising certain pdts at deep
Session 12

 How to establish and maintain a retail

 Retail atmosphere, store fronts, layouts etc.
are examined
Significance of the retail image

 Image- how a retailer is perceived by

customer and others
 Positioning- project an image relative to retail
category and competitors to elicit positive
Components of a retail image
 Target market
 Firm’s positioning
 Customer Service
 Store Location
 Merchandise attributes
 Pricing
 Attributes of physical facilities
 Shopping experiences
 Community Services
 Promotion Tools
– Advt, Public relations, personal selling, sales promotion.
Retail Image

 Store atmosphere
 Entertainment for shoppers
– Cooking lessons
– Makeup
– Looking at an emotional connection
 Shopper must be able to determine the following
from a retailer in 3 sec- name, line of trade, claim to
fame, price position, personality.

 Image depends on the atmosphere—the

psychological feeling
 Store Based retailer- Store’s physical characteristics
 Non store- Physical characteristics of catalogs,
vending machines etc, websites etc.
 Visual Merchandising- Lighting, props, to increase
the shopper’s relationship with the pdt.
– Store display windows, width of the aisle, merchandise
Store Based Retailing Perspective
 Exterior
– Storefront
 Modular structure
 Prefabricated
 Prototype
 Recessed Storefront
 Unique building design
– Marquee
 Sign that displays store’s name
– Entrances- No., Type, Walkways
– Display Windows- To identify the store & offerings, to induce people to
enter-----Sale items, Eye Catching displays,
 General Interior
 Store Layout
 Displays
 General Interior
1. Flooring-Cement, wood, carpet ?
2. Colors- Bright, vibrant?
3. Scents, sounds
4. Store fixtures
5. Customer moods- Temperature, polite staff
6. Vertical transportation in multilevel stores
7. State of the art technology
8. Cleanliness
 Store Layout
 Allocation of Floor Space-done on planogram
– Selling space
– Merchandise space
– Personnel Space
– Customer Space
 Classification of store offerings
– Functional product offerings
 Display merchandise by common end use
 Men’s clothing might grp. Shirts/socks etc
 Purchase Motivation Pdt. Grpings
– Appeals to the consumer’s urge to buy pdts and time spent
– Disinterested person shall not visit third floor
 Market Segment Pdt. Grpings
– Items placed together that appeal to a given target market. Art
gallery places paintings into diff price categories.
 Storability Pdt. Gpings
– Based on pdts needing special handling
– Florist keeps some refrigerated, others at room temp
Determination of a Traffic Flow Pattern

 Straight (Gridiron) Traffic Flow- Places displays and

aisles in a rectangular pattern
– Used by food retailers, discount stores
– Advantages efficient atmosphere, more space floor, quick
shopping, service levels
 Curving (Free Flowing) Traffic Flow-Displays and
aisles in a free flowing pattern
– Departmental Stores, apparel stores,
– Advantages- Friendly atmosphere, Impulse purchase
Determination of Space Needs

 Space for each category is calculated, with both selling

and non selling space
 2 Models- Model Stock Approach
– Determines Floor space necessary to carry & display proper
merchandise assortment.
– Apparel stores and shoe stores
– Sales Productivity Ratio
– Assigns floor space on basis of sales or profit per foot
– Food stores
Mapping out in store locations

 Department locations are mapped out.

 Multilevel stores mean assigning store levels
 What items should be placed where?
 How should groupings be placed relative to doors,
vertical transportation etc?
 Where should impulse purchase stuff be ?
 How should associated product categories be aligned?
 How can the overall crowding be averted?
Arrangement of Individual Products

 Most profitable Items placed in best location

 Pdts could be on the basis of Package size,
price, color etc., eye level etc.
 Most undesirable level is below knee level
 Cereal Theory- placing boxes on lower levels- at
eye level of children
Interior (POP) Displays

 Provides shoppers with information, adds to
store atmosphere, serves a substantial
promotional role.
 Is persuasive
 Silent salesperson
 Flexible
 Enhances shopping experience
Types of displays
 Assortment display- exhibits wide range of merchandise.
– Open assortment-Customer encouraged to feel/look/try pdts
– Closed- look but don’t touch/try
– Theme Setting display-depicts pdt. Offering in a thematic
manner & sets specific mood.
– Ensemble Display- complete pdt bundle is displayed.
– Rack Display- functional use-neatly hang or present products.
– Case display- heavier items,.
– Cut Case- An inexpensive display
– Dump bin.
Non Store Based Retailing Perspective
Promotional Strategy

 Scope of Retail Promotion

 Study the elements of Retail Promotion
Retail Promotion

 Includes any communication by a retailer that

inform, persuades, and/or reminds the target
market about any aspect of the firm.
Elements of Retail Promotion Mix

 Advertising
 PR
 Personal Selling
 Sales promotion

 Paid
 Non personal
 Uses out of store mass media
 Identified Sponsor
Objectives for the retailer

 LiftingShort term sales

 Increasing customer traffic
 Developing a retail image
 Informing customers about goods/services
 Easing the job for sales personnel
Session 13

 Integrating and controlling the retail strategy

Integrating the Retail Strategy

 Four Fundamental Factors

– Planning Procedures and Opportunity analysis
– Defining Productivity
– Performance Measures
– Scenario Analysis
Planning Procedures & Opp. Analysis

 Outlining the firm’s overall direction and

 Top down, bottom-up or horizontal plans are
 Specific Plans are enacted, including
checkpoints and dates
Defining Productivity

 Productivity refers to efficiency with which a

retailer strategy is carried out.
 Effort is to reach sales and profit goals
 Potential trade-offs mean neither the least
expensive strategy nor the most expensive
one is the most productive strategy.
Performance Measures

 Outlining relevant performance measures

and setting standards for each of them,
retailer can
– Better develop and integrate its strategy
– Some parameters to keep track are total sales,
average sales/store, sales by goods/services,
sales per square foot, gross margins etc.
– A firm should use Benchmarking.
 Benchmarking of service retailing
 Popular tool is SERVQUAL wherein customers respond
to questions in the following areas:
 Reliability
 Responsiveness
 Assurance
 Empathy
 Tangibles
 Benchmarking
 Leads to Gap analysis
 Efforts to fill those gaps is taken
Scenario Analysis

 Retailer projects the future by studying

factors that affect long run performance and
then forms contingency plan.

 Aftera retail strategy is devised and enacted

it must be assessed and adjustments made.
 Retail audit is then done.
 Objectives of this audit are:
– What is the reatiler doing now?
– Appraise performance
– Make recommendations for the future
 Audit helps in understanding
– Retailer objectives
– Strategy
– Implementation
– Organisation
Undertaking the Audit

 Six steps in retail auditing

– Determine who does an audit
– Decide when and how often it is done ?
– Establish areas to be audited
– Develop audit form
– Conduct an audit
– Report to the management
Retail Strategy
 Define Type of Business
– In terms of Goods/Services
– Company Orientation (Full service/No frills)
 Set Long and short term goals
– Sales & Profit
– Market Share
– Image
 Determine Customer Market to Target & Pdt Needs
 Devise Overall, Long run plan that gives general direction to all.
 Implement integrated startegy that combines factors as store
location, pdt. Assortment, pricing, Advertising, displays
ADAG (Group A)

 ADAG has decided to open a chain of Retail Executive

Education Centers across the country. U have to draw a
retail business plan for them. The company has a target
of 50 Crores revenue for the first year.
 Please work (First list them) on the steps u shall
undertake to draw the business plan for them.
 Using the projected revenue figure create a viable retail
Gp. B

U have been hired by Reliance Fresh

(Vegetables, Fruits & Grocery) as Delhi
Head. U have two outlets (Area: 16000 Sq ft)
in Delhi. Mukesh ji wants you to increase the
sq. ft area under Reliance Fresh Control to
2.5 lac within 18 Months.
 What Options would you explore and why ?
 Create a viable business plan for Reliance
Fresh in terms of Business figures.
Group C

 You have been hired by Wal Mart as a HR

manager in North India.
 The co. needs to hire 28000 employees by
the end of Mar 2008. You are required to
draw out a game plan on how would you
meet this requirement.
 While working please use the cost & revenue
elements and submit a budget plan.
Group D

 IIM A with a turnover of 28 crores & 280

AICTE Accredited seats has been granted a
license by the govt. to offer this recognised
diploma to 2800 students by September
2007. U are the director of IIMA. How would
u ensure this implementation?
 Factors to keep in mind: Quality of education,
Costs, Brand Equity.
 Submit a game plan to the board.
Group E

 Ash (after the marriage!) has decided to open

a branded chain of high end boutiques.
 She needs you to create a business plan.
 She wants to be the leader in the category.
 How much money she needs?
 What should be the retail strategy for her ?