Introduction to the

Economics of Commercial
and Service Companies
S. 9.
Merchandise
Management
Functions of a retailer–making value
added
1. Providing an assortment of products
2. Breaking the bulk (mass volume)
3. Holding stock
4. Providing services
Holding Stock
 Holds stock for the manufacturers
 Maintain an inventory for instant availability of products
for consumer.
 This helps to keep prices stable.
 Maintaining service level, Avoid shortage of goods
 Enabling manufacturer to regulate production
 Helps consumers to keep products in small quantities
Providing Services

 Credit to consumers
 Display of products , consumers can see and test them
 Sales people to answer questions and additional
information.
 Home delivery
Retail management is…..
 The retailer must keep a record of all the products coming into the
store.
 The products must be well arranged on the assigned shelves
according to size, colour, gender, patterns etc.
 Plan the store layout well.
 The range of products available at the store must be divided into
small groups comprising of similar products. Such groups are
called categories.
Retail management is…..
 A unique SKU*code (SKU= stock keeping unit) must be
assigned to each and every product for easy tracking.
 Necessary labels must be put on the shelves for the
customers to locate the merchandise on their own.
 Make sure the sales representatives attend the customers
well.
 The retailer must ensure enough stock is available at the
store.
Retail management is…..
 Make sure the store is kept cleaned and ordered.
 The store manager, department managers, cashier and all
other employees should be trained from time-to-time to
extract the best out of them.
 The store manager must make daily sales reports to keep
a track of the cash-flow.
Retail management is…..
 Remove the unsold merchandise from the shelves. Keep
them somewhere else.
 Create an attractive display.
 Plan things, forecast sales well in advance to avoid
confusions later on.
A Classification of Retail
Institutions
A Classification Method for Retail
Institutions
I
Ownership

II
Store-Based
Retail Strategy Mix

III
Nonstore-Based
Retail Strategy Mix
4-12
I. According to Ownership

 Independent
 Chain
 Franchise

12
4-13
Independent Retailers
Small – Big (According to)
1. Store size (>1000 m2 = Big)
2. Number of staff
3. Sales volume
4. Capital
5. 1 Cash machine (small), 8 or more>hypermarket

Store-Non-store
Independent stores= 18%, Bakkal & agents= 35 %, Total 53 % in
Turkey
 Competitive State of Independents
Advantages
 Flexibility in formats, locations,
and strategy
 Control over investment costs,
personnel functions, and
strategies
 Personal image
 Consistency and independence
 Strong entrepreneurial leadership
Disadvantages
 Lack of bargaining power
 Lack of economies of scale
 Labor intensive operations
 Over-dependence on owner
 Limited long-run planning
4-15
Chain Retailers

 Operate multiple outlets under common ownership

 Engage in some level of centralized or coordinated
purchasing and decision making
 In Turkey:
 National and international chains 15 %
 Regional Chains 32%
4-16
Competitive State of Chains

Advantages
 Bargaining power
 Cost efficiencies
 Efficiency maintained by
computerization, warehouse
sharing, and other functions
 Defined management
philosophy
 Considerable efforts in long-
run planning
Disadvantages
 Limited flexibility
 Higher investment costs
 Complex managerial control
 Limited independence among
personnel

16
4-17
Franchising

 A form of chains
 A contractual agreement between a franchisor and a retail franchisee
that allows the franchisee to conduct business under an established
name and according to a given pattern of business
 Franchisee pays an initial fee and a monthly percentage of gross
sales in exchange for the exclusive rights to sell goods and services
in an area
Franchise Formats
Product/ Trademark
 franchisee acquires the
identity of a franchisor by
agreeing to sell products
and/or operate under the
franchisor name
 franchisee operates
autonomously
 2/3 of retail franchising sales
Business Format
 franchisee receives assistance:
location, quality control,
accounting systems, startup
practices, management training
 common for restaurants, real-estate
Competitive State of Franchising

Advantages Disadvantages
 low capital required  over-saturation could occur
 acquisition of well-known  franchisors may overstate potential
names  contractual confinement
 operating/ management skills
 agreements may be cancelled or
taught
voided
 cooperative marketing
 royalties are based on sales, not
possible
profits
 exclusive rights
 less costly per unit
From the Franchisor’s Perspective
Benefits
 national or global presence
possible
 qualifications for
franchisee/operations are set
and enforced
 money obtained at delivery
 royalties represent revenue
stream
Potential Problems
 potential for harm to reputation
 lack of uniformity may affect customer
loyalty
 ineffective franchised units may damage
resale value, profitability
 potential limits to franchisor rules
5-21
II. According to Retailer Strategy Mix

 A strategy mix is the firm’s particular combination of:

 store location
 operating procedures
 goods/services offered
 pricing tactics
 store atmosphere
 customer services
 promotional methods
Store-Based Retail Strategy Mixes
Food-Oriented General Merchandise
 Convenience store  Specialty store
 Conventional  Traditional department
supermarket
 Full-line discount store
 Food-based superstore
 Combination store  Variety store
 Box (limited-line) store  Off-price chain
 Warehouse store  Factory outlet
 Membership club
 Flea market
Convenience Store Strategy Mix (Bakkal)

Prices:
Location:
Average to
Neighborhood
Above average

Atmosphere and
Merchandise: Services:
Medium width Average
and low depth
of assortment; Promotion:
average quality Moderate
Conventional Supermarket Strategy Mix
(Süpermarket)

Location: Prices:
Neighborhood Competitive

Atmosphere and
Merchandise: Services:
Extensive width Average
and depth
of assortment;
Promotion:
average quality;
Heavy use of
manufacturer,
newspapers, flyers,
private, & generic brands
and coupons
Food-Based Superstore Strategy Mix
(Kipa, 3M+ Migros)

Location:
Prices:
Community shopping
Competitive
center or isolated site

Atmosphere and
Merchandise: Services:
Full assortment plus Average
health and beauty aids
and general Promotion:
merchandise Heavy use of
newspapers, flyers
Combination Store Strategy Mix
Location:
Community shopping Prices:
Competitive
center
or isolated site
Atmosphere and
Services:
Average
Merchandise:
Full assortment plus
health and beauty aids Promotion:
and general merchandise Heavy use of
newspapers, flyers
Box Store Strategy Mix (Şok-Kipa Express)

Location: Prices:
Neighborhood Very low

Atmosphere and
Services:
Merchandise: Low
Low width and depth of
assortment; few
perishables; few national
Promotion:
brands
Little or none
Warehouse Store Strategy Mix (Bauhaus)

Location:
Prices:
Secondary site, often in
Very low
industrial area

Atmosphere and
Merchandise: Services:
Moderate width and Low
low depth of
assortment; emphasis on
manufacturer brands Promotion:
bought at discount Little or none
Specialty Store Strategy Mix (Esse)

Location: Prices:
Business district or Competitive to
shopping center Above average

Atmosphere and
Services:
Merchandise: Average to excellent
Very narrow width and
extensive depth of
assortment; average to Promotion:
good quality Heavy use of displays
Extensive sales force
Traditional Department Store Strategy Mix
(Yeni Konak, YKM)
Location: Prices:
Business district, shopping Average to
center or isolated store Above average

Atmosphere and
Services:
Merchandise: Good to excellent
Extensive width and
depth of
Promotion:
assortment; average to
Heavy ad and catalog
good quality
use; direct mail;
personal selling
Full-Line Discount Store Strategy Mix

Location:
Prices:
Business district, shopping
Competitive
center or isolated store

Atmosphere/Services:
Slightly below
Merchandise: average to average
Extensive width and
depth of
assortment; average to Promotion:
good quality Heavy on newspapers;
price-oriented; selling
Variety Store Strategy Mix

Location:
Prices:
Business district, shopping
Average
center or isolated store

Atmosphere/Services:
Merchandise: Below average
Good width and
some depth of
assortment;
below-average Promotion:
to average quality Use of newspapers
Off-Price Chain Strategy Mix
(BİM, A-101, Tschibo)
Location:
Prices:
Business district, shopping
Low
center or isolated store

Atmosphere/Services:
Merchandise: Below average
Moderate width and
poor depth of
assortment; Promotion:
average to good quality; Use of newspapers;
low continuity brands not advertised;
limited selling
Factory Outlet Strategy Mix

Location:
Prices:
Out of the way site
Very Low
or discount mall

Atmosphere/Services:
Merchandise: Very low
Moderate width and
poor depth of
assortment;
Promotion:
low continuity
Little
Membership Club Strategy Mix (Metro)

Location:
Prices:
Isolated store or
Very Low
secondary site

Atmosphere/Services:
Merchandise: Very low
Moderate width and
poor depth of
assortment; Promotion:
low continuity Little;
some direct mail
Flea Market Strategy Mix (Kemeraltı Dükkanı)

Location: Prices:
Isolated store Very Low

Atmosphere/Services:
Merchandise: Very low
Extensive width and
poor depth of
assortment;
low continuity; Promotion:
variable quality Limited
 III. Nonstore Retailing

 Retailing strategy that is not store-based

 Exceeds $410 billion annually
 80% comes from direct marketing
 Web-based retailing is the fastest- growing area
 Nontraditional Retailing

 Nontraditional retailing also includes formats that do

not fit into store and nonstore-based categories:
 Video kiosks
 Airport retailing
Vending Machines

 Vending machines are a cash- or card-operated retailing format

that sells goods and services.
 Eliminates the use of sales personnel and allows 24-hour sales.
 Machines placed wherever convenient for consumers.
 95 percent of the $50 billion in annual U.S. vending machine
sales involve hot/cold beverages and food items.
Retail management
Retai Mix
Information and
product flow
Customer

Sales info

Buyer Stores

Distribution center
Vendor

- - - - Merchandise flow Information flow

Operation of a retail shop

Accounting Finance Marketing

Operations MIS Human Resources

Operation management
Overview

Operations management is ..
 the efficient and effective implementation of the policies
and tasks that
 satisfy a retailer’s customers, employees, and management
(and stockholders, if it is publicly owned)
 Operational Decisions

 What operating guidelines are used?

 What is the optimal format and size of a store? What is the
relationship among shelf space, shelf location, and sales for
each item in the store?
 How can personnel be matched to customer traffic flows?
Would increased staffing improve or reduce productivity?
What impact does self-service have on sales?
 Operational Decisions (cont.)

 What effect does the use of various building materials have on

store maintenance? How can energy costs be better
controlled? How often should facilities be renovated?
 How can inventory best be managed?
 How can the personal safety of shoppers and employees be
ensured?
 Operational Decisions (cont.)

 What levels of insurance are required?

 How can credit transactions be managed most effectively?
 How can computer systems improve operating efficiency?
 Should any aspects of operations be outsourced?
 What kind of crisis management plans should be in place?
 Operating A Retail Business
 Operations Blueprint
 Store Format, Size, and Space Allocation
 Personnel Utilization
 Store Maintenance, Energy Mgt., Renovations
 Inventory Management
 Store Security
 Credit Management
 Computerization
 Outsourcing
 Crisis, Risk Management, Insurance
Operations Blueprint

 An operations blueprint systematically lists all the

operating functions to be performed, their characteristics,
and their timing.

 The retailer specifies, in detail, every operating function

from the store’s opening to closing – and those
responsible for them.
 Maximizing Personnel Productivity

 Hiring Process
 Workload Forecasts
 Job Standardization and Cross-Training
 Employee Performance Standards
 Compensation
 Self-Service
 Length of Employment
 Finding Bottleneck – Maximizing
Productivity

Process Number of complaint Implied

File Time workers Capacity (pre)sales info handling Total utilization

customer
service 10 2 12 5 3 8 67%

shop
assistant 2 3 90 70 20 5 95 106%

check out 3 2 40 40 40 100%

Store Maintenance Decisions
 Inventory Management Decisions

 How can handling of merchandise from different suppliers be coordinated?

 How much inventory should be on the sales floor versus in a warehouse or
storeroom?
 How often should inventory be moved from non-selling to selling areas of a
store?
 What inventory functions can be done during non-store hours?
 What are the trade-offs between faster supplier delivery and higher shipping
costs?
 What supplier support is expected in storing merchandise or setting up
displays?
 What level of in-store merchandise breakage is acceptable?
 Which items require customer delivery? When? By whom?
The Order Point and the Needed
Information
quantity on hand 10
quantity on order 10

quantity available 20

sales forecast 4 wks (28 days) 56

sales forecast/ day 2

lead time (days) 3

review time (days) 1

backup stock 18

order point 26
order quantity 6
Store Security

 Uniformed security guards

 Undercover personnel
 Brighter lighting
 TV cameras and other devices
 Curfews
 Limited access to backroom facilities
 Frequent bank deposits
 Credit Management Decisions

 What form of payment is acceptable?

 Who administers the credit plan?
 What are customer eligibility requirements for a check or
credit purchase?
 What credit terms will be used?
 How are late payments or nonpayments to be handled?
 The Retail Information System

A Retail Information System

 anticipates the information needs of retail managers;
 collects, organizes and stores relevant data on a continuous
basis;
 directs the flow of information to the proper decision
makers.
Information and Merchandise Flows

Customer

Sales info

Buyer Stores

Distribution
Vendor center

- - - - Merchandise flow Information flow

Source: Levy and Weitz

 Retail IT System

Customer Merchandise
EDI
trans. plan

Bank EPOS
Order system Retail Deposit
sales

Price
Maint.
Store Head
Manufactures
computer Office

Customer Data Sales analysis

Applications of IT in Retailing
 Automating Processes: Electronic Point of Sales (EPOS),
Inventory Planning, Ordering and Management
 Collecting Data About Customers: Purchasing patterns of
customers, segmentation, personalization, customization of
offers, loyalty programmes, store design and product placements
 Feedback on Marketing Decisions: EPOS data to study effects
of promotions, prices, new products and packaging changes
 Communications: With suppliers, customers, internal
Applications of IT in Retailing (contd.)

 Tools to Plan the Business: Software to plan, budget,

forecast.
 Adding Value to Retail Transactions: IT-assisted
transactions (ATMs) may be preferred by some customers,
self-scanning, in-store kiosks for product and info search.
 Technologically-enabled Shopping: Internet shopping,
Crisis Management

 There should be contingency plans for as many different

crisis situations as possible
 Essential information should be communicated to all affected
parties as soon as the crisis occurs
 Cooperation – not conflict – among the involved parties is
essential
 Responses should be as swift as feasible
 The chain of command should be clear and decision makers
given adequate authority
64 The Risk Management Goals

 Remedial Action (Risk Response) Plan as regard the Retail

at risk
 Identify those risks which hazard the Retail Process
 Working out the risk governance system to monitor the
crucial risks

2024.04.07.
65
Risk definition to Retail

Combined effect at the probability of occurrance of

 the undesirable event and
 the magnitude of the event , the possibility of loss or
injury .

2024.04.07.
Risk Types

Business, • Technology
Internal
Financial • Organisational

•
EXTERN Macro
AL• Market

Damage
• Operational
LEGAL
• Legal
67
Risk management Project Phases

Part1: Risk Management and Activity Overview

Part 2: Risk Identification
Part 3: Risk Analysis
Part 4: Risk Response Planning
Part 5: Risk Monitoring and Control
68 Risk Identification

The components of risk register:

 Threat: Category which helps to identify potential sources of risk to the
project
 Blocking Cause: The activity or the missing of the activity which gives
rise the risk:
 Risk: This is a negative consequence which cause uncertain in project
completion.
 Effect: The result of evaluation which shows the severity of the risk.
 Source of Information: Documentation, meeting, etc.
Risk Register -Example

Threat Cause Risk Effect

Business Underestimated Supply Decreased
Sales Problem Loyalty

Business HUF Price Reduced

Devaluation Increase Sales

Asset Warehouse Fire Goods Loss

Damage Descruction

Asset Shoplift Goods Loss

Damage Shortage
Risk Analysis

Probability Financial Exposur

Risk Effect Effect e
Supply Decreased
Problem Loyalty 50% 10 5

Price Reduced
Increase Sales 3% 100 3

Goods Loss
Destruction 1% 100 1

Goods Loss
Shortage 10% 10 1
 Risk Response Planning
71

 Avoid – eliminate the cause

 Mitigate – reduce the impact or probability of occurrence
 Transfer – assign the risk to 3rd party
 Accept – contingency plan or nothing

Risk Response Form for Threats

Threats Rating Score Fallback Risk
Activity Ranking Trigger
Cause Risk Effect P I PxI Plan Owner

2024.04.07.
Insurance Issues

 Rising premiums (fees)

 Reduced scope of coverage by insurers
 Fewer insurers servicing retailers
 Greater need for insurance against
environmental risks
Risk Response Planning

Risk Exposure Risk Response Risk Owner

Supply Problem 5 SCM System Logistic
Development Manager

Price Increase 3 Futures CFO

Goods 1 Property CFO

Destruction Insurance
Goods Shortage 1 More Control Shop
Manager
74
Risk Monitoring and Control I.
Cost Risk Reserve Report

Used Used Contingency Management

Reserve Used
Contingency Management Balance ($ Balance
For:
Reserve Reserve _____ at start) ($ _____ at start

Time Risk Reserve Report

Used Used Contingency Management

Reserve Used
Contingency Management Balance Balance
For:
Reserve Reserve (_____ at start) (_____ at start)

Reserve at Start – Used Reserve = Reserve Balance

2024.04.07.
75 Summary for Retail Risk Governance

 Roles and Responsibilities

 Policies, Procedures
 Creation of Metrics
 Monitor Risk Response Plan
 Systematize the regular monitoring and reporting process

2024.04.07.
Managing Product Lines and
Brands
Definition
 The product is the most important in the market offering.
 Wider aspect definition: A product is anything that can be offered
to a market to satisfy a want or a need (including services)
 A brand is a name, term, sign, symbol, or design, or a combination
intended to identify a product
 The question of Packaging (the container) and labelling (the tag) are
often handled together with the brand
Product vs. brands
Product Brand
Can be offered A name, term, sign, symbol, or
design, or a combination
Can be sold Identification
To satisfy a need Additional, packaging, additional
Durable, have physical For a product or for a company
appearance, sensible, usable
Product levels
 Core benefit
 Basic product
 Expected product,
 Augmented product
 Potential product,
augmentation and
transformation of the product
Product Hierarchy
 need family - security
 product family - savings & income
 product class - financial instruments
 product line - life insurance
 product type - term life
 brand - Allianz
 item - Allianz renewable term life insurance
Product Classifications

 Classified according to
 Durability,
 Tangibility, and
 Use (consumer or industrial)
Consumer goods classification

 Convenience goods (frequently, immediately)

 Shopping goods (process of selection)
 Specialty goods (unique characteristics or brand)
 Unsought goods (which we do not think we would buy)
Merchandise Management

 A retailer specifies
 which products are purchased,
 when products are purchased, and
 how many products are purchased.
 Value control involves planning and monitoring a retailer’s
investment in merchandise over a stated period.
 Unit control relates to the quantities of goods a retailer handles
during a stated period.
Merchandise Forecasting and
Budgeting Process
Merchandise management
considerations
Benefits of Financial Merchandise Plans

 The value and amount of inventory in each department and/or

store unit during a given period are delineated.
 The amount of merchandise a buyer can purchase during a given
period is stipulated.
 The inventory investment in relation to planned and actual revenues
is studied.
 The retailer’s space requirements are partly determined by
estimating beginning-of-month and end-of-month inventory levels.
Benefits of Financial Merchandise Plans

 A buyer’s performance is rated. Measures may be used to set

standards.
 Stock shortages are determined and bookkeeping errors and
pilferage are uncovered.
 Slow-moving items are classified, leading to increased sales efforts
or markdowns.
 A proper balance between inventory and out-of-stock conditions is
maintained.
The Category and Merchandise
Management
 A category is an assortment of items that the customer sees as reasonable substitutes
for each other:
 girls’
 apparel,
 laundry
 detergents,
 soup,
 DVD players.
 In merchandise management, we do everything at the category level. The category
can mean different things to different retailers.
Category Management

 Category management is the process of managing a

retail business with the objective of maximizing the sales
and profits of a category.
 Objective is to maximize the sales and profits of the
entire category, not just a particular brand.
 One person managing the entire category and responsible
for its success or failure.
Category Captain

 Selected vendor responsible for managing assortment of

merchandise in a category
 Vendors frequently have more information and analytical skills
about the category in which they compete than retailers
 Works with category Mgr ---Promotion, pricing, brand & product
placement on shelves.
 Problems – Vendor category captain may have different goals than
retailer
Assortment

 Variety is the number of different merchandising

categories within a store or department
 Assortment is the number of SKUs within a category.
 Product availability defines the percentage of demand
for a particular SKU that is satisfied.
Determining Variety and
Assortment
 Profitability of Merchandise Mix
 Corporate Philosophy Toward Assortment
 Physical Characteristics of Store
 Complementary Merchandise
Relationship between Inventory
Investment and Product Availability
Cycle and Backup Stock
Cycle and Backup Stock
Merchandise Branding Strategies
Merchandise Branding Strategies

 MANUFACTURER (NATIONAL) BRANDS

 Designed, produced, and marketed by a vendor and sold
by many retailers
 PRIVATE-LABEL (STORE) BRANDS
 Developed by retailer and only sold in retailer’s outlets
 LICENSED BRAND
 Developed by licensee and right sold to either
manufacturer or retailer
Relative Advantages of Manufacturer
versus Private Brands
 Private Labels
Advantages
Unique merchandise not available
at competitive outlets
Difficult for customers to compare
price with competitors
Higher margins
Disadvantages
Need to develop expertise in
developing and promoting brand
Unable to sell excess merchandise
Typically less desirable for
customers
 Manufacturer (National) Labels

Advantages Disadvantages

More desired by customers Lower margins

Resell excessive merchandise Vulnerable to competitive
pressures
Don’t need skills and people to
develop and promote merchandise
Private Label Options
 Bargain Branding
 no-frills product at a discount price.
 Copycat Branding
 imitates the manufacturer brand in appearance and trade dress
 Premium Branding
 private label at a comparable manufacturer-brand quality.
 Parallel Branding
 private labels that closely imitate the trade dress and product attributes of
leading manufacturer brands.