Chain Store Operations Model

8/4/2019 Chain Store Operations Model

1/18

THE 4 STEP CHAIN STOREMODEL

Bharat Rishi


2/18

THE PROBLEM

Chaotic operations of different stores

Synchronizing the operations of a chain store

Identifying the weakest link

Defining corrective measures

Interpretation of data


3/18

THE 4 STEP SOLUTION

1. Identify the measures you will use to assess store performance

2. Assemble that data for the desired period (daily, weekly, monthly,yearly), rank the stores performance and identify the weak

performer(s)

3. Make operational changes to improve performance and assess theresults of the changes

4. If no significant change occurs, decide to either close the store or

change the concept


4/18

1) IDENTIFY THE MEASURES YOU WILL USE

TO ASSESS STORE PERFORMANCE

>> Store margin contribution

>> Net profit (store)

>> Sales per square foot

>>Average transaction

>> Items per ticket

>> Conversion rate / traffic

Accounts department

Store manager


5/18

2) ASSEMBLE THAT DATA FOR THE DESIRED

PERIOD

Store and

year

Sales per

sq.ft

Margin

contribution

Net profit Average

transaction

Items per

ticket

conversion

Dxb mall 455 46100 15400 208 2.7 44%

Moe 258 47000 16000 290 2.9 58%

Dfc 375 11000 11000 175 1.4 63%

The purpose of assembling the data is to figure out specific areawhich gives the management a direction to work upon and thereby

increasing the overall productivity of business


6/18


7/18

3) Make Operational Changes To Improve

Performance

If This Is Low Examine This Try This

Store Contribution

Margin

> Occupancy cost

Rent

Percentage rent

HVAC charges

Maintenance contracts

Telephone/communication charges

> Payroll

Staff hours

Staff salaries

> Other expenses

Bank charges

Insurance Supplies

Advertising

Donations

> Excessive markdowns or allowances at

POS

> Challenge each cost and

speak with the Store Manager

about trying to reduce costs

such as maintenance, HVAC

and communication costs

Examine the markdown to

see if this store is above

others on markdowns

Reduce full time staff and

increase part time staff

> Convert to a commission

plan that will fix payroll costs

at a known percentage of

sales


8/18

Sales Per Square Foot Is the store too big?

What is the comparison to

other stores in the company?

Does the store always look

half full? Are there constant out of

stocks?

Prepare a core inventory list and test

the store in stock rate

> Consider re-setting the store fixtures

> Consider reducing the size of theselling area

Net Profit Are you assigning corporate

overheads equally or on a

weighted basis?

> Are there any overheads that

should not be assigned to this

store?

> If you are not using weighted

assignment of overheads then use it

> Only assign direct overheads that can

be rightfully charged to the store

Average Transaction > Are you giving staff

information on ATperformance on a daily basis?

> Do you have any incentives in

place to increase AT?

> Increase training on suggestion and

trade up selling

> Make AT a critical performance

measure

> Post it every day in back of store and

incent staff with contests/bonuses to

increase


9/18

Items Per Ticket > Are you giving staff

information on IPT

performance on a daily basis?

> Do you have any incentives

in place to increase IPT?

> Increase training on suggestion

and trade up selling

> Make IPT a critical performance

measure

> Post it every day in back of

store and incent staff with

contests/bonuses to increase

> Make sure you are stocking the

store with related items

Conversion Rate > Do you measure traffic?

> Do you measure the

conversion of traffic

to buyers?

Install traffic counters

Balance peak traffic times to

peak staff times

> Establish a customer/associateratio (i.e., ideal is no more than 4

customers for each sales

associate at peak times)

> Conduct exit interviews with

non-buyers to find out reasons

for not buying


10/18

4) IF NO SIGNIFICANT CHANGE OCCURS,

DECIDE TO EITHER CLOSE THE STORE OR

CHANGE THE CONCEPT

The decision to close a store will be made based on the low

contribution to total company operating expenses that the store has

delivered However, it may not be a wise option, for example

Before After Closing 1 Store

Total Sales 10,000,000 9,500,000

Total contribution 4,000,000 3,900,000

Total company overheads 3,850,000 3,825,000

Net profit 150,000 75,000


11/18

Even though the contribution of the store that is now closed was not great, it

still contributed to company overhead and without that contribution of both

sales and margin, the net profit was reduced.

So, the decision to close a store should be measured against the impact on

total company net profit if the store contribution goes away

Look at these measures on a weekly basis and take action before the store

cannot be saved

The measures to access the operations of a store can vary according fromorganization to organization

Some useful metrics for operations are mentioned in the next slides


12/18

OPS METRICS

Stock

In order to determine the strength of your stock holding you need answers to this

question what is the average selling price (average selling price is calculated by dividing

the total value sold during a day or a period by the total quantity sold during the same

day or period) compared to the average price (average stock price is calculated dividing

the value of the total merchandise in stock by the total quantity in stock). Its an ideal

situation if both happens to be around the same value this measure help retailers find

out if there store is over stocked or under stocked in any category or even in an SKU.

Average selling price

= total values of goods sold/ total quantity sold

Average stock price

= total value of goods and stock / total quantity in stock

Turning stock around efficiently yields better profits: the more times the retailers

turn his stock the more his margins are. This can be found for any category or any

SKU any time by checking the percentage sold from the stock of a specified

category or SKU.


13/18

Stock turnover/ inventory turnover rate

= net sales / average retail value of inventoryExpressed as number of times, this ration indicates how often the inventory is

sold and replaced in a given period of time. Some retailers also use the ratiocost of goods sold divided by average value of inventory at cost. Both can becalculated for any time period. When either of these ratio declines there is apossibility that inventory is excessive.

Percent inventory carrying cost

= (inventory carrying cost / net sales) * 100

The importance of this measure has increased in recent years with the rise ininventory carrying cost due to high interest rates. This measure is also

important to reduce stock obsolescence and to prevent blockage of workingcapital. Retailers use this measure to track the percentage of their net salesrepresented by the fixed cost of maintaining inventory.


14/18

Occupancy cost per square foot selling space

= occupancy cost/ square feet of selling space

Expressed in dirham, this measure translates occupancy cost into dirham value

per unit of selling space. It gives an estimate of the amount of the gross

margin each unit of space employed for retail selling must generate to cover

occupancy costs. For a multiunit retailer it is a helpful measure for comparing

the performance of units at different locations. It can be calculated for

anytime period, such as a year or a month.

Stock per square foot

= net stock/ square feet of selling space

Expressed in quantity or value, this measure can be used to compare alternative

uses of space involving different product lines, or to compare the

performance of different departments or stores using a common standard.

This ratio will vary according to the type of merchandise and merchandising

methods used.

Percentage of selling space

= (selling space in square feet/ total space in square feet) * 100

Retailers use this measure to calculate the percentage of total space used for

sales.This ratio varies according to the type of merchandise andmerchandising methods.


15/18

Implementation


16/18

1. Mr. Amit Pratihari, the operationsmanager selects the measures toassess store performance.

2. He prepares a checklist to improve theperformance.

3. He distributes the checklist to all thestore managers.

4. Store managers paste the checklist intheir store.

5. Store managers evaluate theirperformance as per the measures set.

6. Store managers figure out their area ofconcern and examines the checklist.

7. Store managers prepare their action

plan in accordance to the checklist.8. Most important FOLLOWUP


17/18

Benefits of the model

Divides the work load from the operations manager to the store managers

to the sales staff

Motivates the store managers to improve continuously as it specifies the

key area of concern

Makes the workforce more skilled and efficient as the knowledge is flowing

from the top to the bottom Gets the store managers to understand the strategic implications of the

brand in a better way

The model is very flexible as the checklist can be continuously updated

without ignoring the already existing solutions

Helps the brand to stick to the basics

Makes the analysis of different stores easy


18/18

THANK YOU

Documents

Chain Store Operations Model