RETAIL OPERATIONS, SYSTEMS AND INVENTORY

UNIT- I

Choosing a Store Location: Importance of location to a retailer – Trading Area Analysis

regional Analysis” – Characteristics of the trading areas

Importance of location to a retailer

- Store location is most often the first consideration in a store choice

- Having a good location increases chances of developing a strong sustainable competitive advantage

- Location decisions can be risky and should be well-thought out

Process of Choosing Particular Locations

- Size of the trade area

- Occupancy cost of the location

- Pedestrian and vehicle customer traffic location

- Restrictions on operations by property managers

- Convenience of location for customers

Trade area: the geographic area that encompasses most of the customers who would patronize a specific retail site

Types of Retail Locations

- Freestanding Sites such as outparcels and merchandise kiosks

- City or Town Locations such as central business districts, main streets, and inner city locations

Advantages

- Convenience for customers

- High vehicular traffic and visibility

- Modest occupancy costs

- Separation from competition

Disadvantages

- Limited trade area when not around nearby retailers

- Higher Occupancy costs that strip centers

- Usually located where there is little pedestrian traffic

Freestanding Sites

Retail locations for an individual, isolated store unconnected to other retailers

Merchandise kiosks

Small selling spaces, typically located in the walkways of enclosed malls, airports, train stations, or office building lobbies.

Outparcels

City or Town Locations

Advantages

- Lower occupancy costs

- Higher pedestrian traffic

Disadvantages

- Traffic is limited due to congestion

- Parking problems reduce consumer convenience

Central Business Districts

Advantages

- Draws people during business hours

- Heavy public transportation

- Pedestrian traffic

- Residential area as well

Disadvantages

- High security required

- Shoplifting

- Parking is poor

- Evenings and weekends are slow

Main Streets vs. CBD’s

- Occupancy costs are generally lower than CBD’s

- Fewer people are employed

- Smaller selection due to fewer stores

- Range of entertainment is usually smaller

- City planning sometimes restrict store operations

Inner City

High density urban areas with higher unemployment and lower median incomes than surrounding areas

- Retailers here achieve higher sales volume and higher margins, thus producing higher profits

- Redevelopments in inner cities can cause increased traffic and parking difficulties, causing them to be controversial

Trading-Area Analysis

A trading area is a geographic area containing the customers of a particular firm or group of firms for specific goods or services

Benefits of Trading Area Analysis

Discovery of consumer demographics and socioeconomic characteristics

Opportunity to determine focus of promotional activities

Opportunity to view media coverage patterns

Assessment of effects of trading area overlap

Ascertain whether chain’s competitors will open nearby

Discovery of ideal number of outlets, geographic weaknesses

Review of other issues, such as transportation

The Trading Areas of Current and Proposed Outlets

GIS Software

Geographic Information Systems

– digitized mapping with key locational data to graphically depict trading-area characteristics such as

• population demographics

• data on customer purchases

• listings of current, proposed, and competitor locations

The Size and Shape of Trading Areas

Primary trading area - 50-80% of a store’s customers

Secondary trading area - 15-25% of a store’s customers

Fringe trading area - all remaining customers

Destinations versus Parasites

• Destination stores have a better assortment, better promotion, and/or better image

• It generates a trading area much larger than that of its competitors

• Dunkin’ Donuts: “It’s worth the trip!”

Parasites

• Parasite stores do not create their own traffic and have no real trading area of their own

• These stores depend on people who are drawn to area for other reasons

Reilly’s Law

Reilly’s law of retail gravitation, a traditional means of trading-area delineation, establishes a point of indifference between two cities or communities, so the trading area of each can be determined

Limitations of Reilly’s Law

Distance is only measured by major thoroughfares; some people will travel shorter distances along cross streets

Travel time does not reflect distance traveled. Many people are more concerned with time traveled than with distance

Actual distance may not correspond with perceptions of distance

Huff’s Law

Huff’s law of shopper attraction delineates trading areas on the basis of product assortment (of the items desired by the consumer) carried at various shopping locations, travel times from the shopper’s home to alternative locations, and the sensitivity of the kind of shopping to travel time.

Chief Factors to Consider in Evaluating Retail Trading Areas

Population Size and Characteristics

• Total size and density• Age distribution• Average educational level• Percentage of residents owning homes• Total disposable income• Per capita disposable income• Occupation distribution• Trends

Availability of Labor

• Management• Management trainee• Clerical

Closeness to Sources of Supply • Delivery costs• Timeliness• Number of manufacturers• Number of wholesalers• Availability of product lines• Reliability of product lines

Economic Base

• Dominant industry

• Extent of diversification

• Growth projections

• Freedom from economic and seasonal fluctuations

• Availability of credit and financial facilities

Competitive Situation

• Number and size of existing competition

• Evaluation of competitor strengths and weaknesses

• Short-run and long-run outlook

• Level of saturation

Availability of Store Locations

• Number and type of store locations

• Access to transportation

• Owning versus leasing opportunities

• Zoning restrictions

• Costs

Regulations

• Taxes

• Licensing

• Operations

• Minimum wages

• Zoning

Selected Population Statistics for Trading Areas A and B

UNIT- II

Site selection: Actual site analysis and selection – Choice of a general location – characteristics

of the available site – Retail store layout – the circulation plan – space mix and effective retail

space management – Floor space management

Actual site analysis and selectionChoosing a retail site in the absence of sound trade area analysis is a lot like flying an airplane with blinders: It forces a business to commit itself to a course in the absence of vital information such as store patronage, local market opportunities, competing businesses, and barriers that would dissuade consumers from visiting the site.Geographic Information System technology is a fundamental tool for analyzing retail trade areas today. This technology removes site selection "blinders" because it identifies and illustrates the crucial factors for site selection within a geographic framework.

Essentially, trade area analysis is a methodology, process or technique that provides a basis for understanding, visualizing and quantifying the extent and characteristics of known or approximated trade areas.

Trade area analysis provides the foundation for:

Understanding the geographic extent and characteristics of store patronage. Spatially assessing performance. Performing competitive analysis. Evaluating market penetration and market gap analysis. Target marketing. Merchandising. Identifying/quantifying effects of cannibalization. Developing and exploiting demographic profiles. Site suitability and site selection studies.Trade area analysis also employs theoretical techniques that are used to approximate the potential patronage area. Three types of theoretical approaches are commonly employed in trade area analysis, including:

Radial (ring) studies Gravity models Drive time analyses

Radial Studies:

Radial or ring based analysis is performed by selecting and evaluating demographic variables that fall within a pre-defined distance from a store location. This technique assumes that the trade area is circular, with the store at its center. Ring analysis does not account for barriers such as rivers or railroad tracks that may cross through a trade area and restrict access to a retail site. Consequently, radial studies are a simplistic approach that can result in an incorrect delineation of the trade area and errors of omission or commission.

Gravity Models:

Gravity models, or spatial interaction models, define a trade area based on its attractiveness relative to other trade areas. These models provide an approximation of store trade area by putting the distribution of all locations (including competitors) into a geographical context and evaluating each location's relative attractiveness. Typically, a distance decay curve is used to model the spatial interaction of individual locations. Often size of the store, or store sales if available, is used to drive the attractiveness parameter.

Gravity models are more sophisticated than simple radial approximations, but they still do not account for logistical barriers and they are limited by the availability and accuracy of competitor data. Moreover, gravity models basically are sophisticated algorithms, which may not be appropriate for non-technical analysts.

Drive Time Analyses:

Recently, GIS based tools for modeling the drive time or drive distance from a location have become available. These tools use digitized roadway systems that indicate the type of road such as a city street or a divided highway. Speed limits are assigned based on the type of road, the mode of transportation (car, truck, motorcycle, etc.), congestion parameters, and the time of day. These parameters are used to dictate the ease of traveling along road segments. Through this process, a polygon is generated to represent the extent to which a vehicle can travel outward from the site in all directions along the existing roadway system. Unlike the radial distance or gravity model-based trade area approximations, GIS based drive time analyses account for logistical barriers.

Drive time analyses are generally considered to be valid for “convenience” store scenarios, where patrons are expected to go to the closest or most logistically convenient location. Since this analysis is governed by the presence of properly located and attributed roadway systems, the accuracy of the drive time analysis can be limited by the availability of accurate and up-to-date digitized road data.

Choice and Character of Retail

Population and Your Customer

If you are choosing a city or state to locate your retail store, research the area thoroughly before making a final decision. Read local papers and speak to other small businesses in the area. Obtain location demographics from the local library, chamber of commerce or the Census Bureau. Any of these sources should have information on the area's population, income and age. You know who your customers are, so make sure you find a location where your customers live, work and shop.

Accessibility, Visibility and Traffic

Don't confuse a lot of traffic for a lot of customers. Retailers want to be located where there are many shoppers but only if that shopper meets the definition of their target market. Small retail stores may benefit from the traffic of nearby larger stores.

How many people walk or drive past the location. Is the area served by public transportation? Can customers and delivery trucks easily get in and out of the parking lot? Is there adequate parking?

Depending on the type of business, it would be wise to have somewhere between 5 to 8 parking spaces per 1,000 square feet of retail space.

When considering visibility, look at the location from the customer's view point. Can the store be seen from the main flow of traffic? Will your sign be easily seen? In many cases, the better visibility your retail store has, the less advertising needed. A specialty retail store located six miles out of town in a free standing building will need more marketing than a shopping store located in a mall.

Signage, Zoning and Planning

Before signing a lease, be sure you understand all the rules, policies and procedures related to your retail store location. Contact the local city hall and zoning commission for information on regulations regarding signage. Ask about any restrictions that may affect your retail operation and any future planning that could change traffic, such as highway construction.

Competition and Neighbors

Other area businesses in your prospective location can actually help or hurt your retail shop. Determine if the types of businesses nearby are compatible you're your store. For example, a

high-end fashion boutique may not be successful next door to a discount variety store. Place it next to a nail or hair salon and it may do much more business.

Location Costs

Besides the base rent, consider all costs involved when choosing a retail store location.

Who pays for lawn care, building maintenance, utilities and security? Who pays for the upkeep and repair of the heating/air units? If the location is remote, how much additional marketing will it take for customers to find

you? How much is the average utility bill? Will you need to make any repairs, do any painting or remodeling to have the location fit your

needs? Will the retailer be responsible for property taxes?

The location you can afford now and what you can afford in the future should vary. It is difficult to create sales projects on a new business, but one way to get help in determining how much rent you can pay is to find out what sales similar retail businesses are making and how much rent they're paying.

Personal Factors

If you plan to work in your store, think about your personality, the distance from the shop to home and other personal considerations. If you spend much of your time traveling to and from work, the commute may overshadow the exhilaration of being your own boss. Also, many restrictions placed on a tenant by a landlord, management company or community can hamper a retailer's independence.

Special Considerations

Your retail shop may require special considerations. Make a list of any unique characteristic of your business that may need to be addressed.

Will the store require special lighting, fixtures or other hardware installed? Are restrooms for staff and customers available? Is there adequate fire and police protection for the area? Is there sanitation service available? Does the parking lot and building exterior have adequate lighting? Does the building have a canopy that provides shelter if raining? What is the crime rate in the area? Are there (blue laws) restrictions on Sunday sales?

Don't feel rushed into making a decision on where to put your retail store. Take your time, research the area and have patience. If you have to change your schedule and push back the date of the store's opening, than do so. Waiting to find the perfect store location is better than just settling for the first place that comes along. The wrong location choice could be devastating to your retail business.

Retail store Layout and Design

Plan your store layout, atmosphere, and create irresistible visual merchandising displays. View floor plans and other retail store designs. Learn how to select and care for store fixtures, as well as using special lighting techniques to accent your products. Find store layout software and browse our resource of vendors selling store fixtures and displays.

Basic Retail Floor Plans

A well-planned retail store layout allows a retailer to maximize the sales for each square foot of the allocated selling space within the store.

Store layouts generally show the size and location of each department, any permanent structures, fixture locations and customer traffic patterns.

Each floor plan and store layout will depend on the type of products sold, the building location and how much the business can afford to put into the overall store design.

Below are a few basic store layouts.

Straight Floor Plan

The straight floor plan is an excellent store layout for most any type of retail store. It makes use of the walls and fixtures to create small spaces within the retail store. The straight floor plan is one of the most economical store designs.

Diagonal Floor Plan

The diagonal floor plan is a good store layout for self-service types of retail stores. It offers excellent visibility for cashiers and customers. The diagonal floor plan invites movement and traffic flow to the retail store.

Angular Floor Plan

The angular floor plan is best used for high-end specialty stores. The curves and angles of fixtures and walls makes for a more expensive store design. However, the soft angles create better traffic flow throughout the retail store.

Geometric Floor Plan

The geometric floor plan is a suitable store design for clothing and apparel shops. It uses racks and fixtures to create an interesting and out-of-the-ordinary type of store design without a high cost.

Mixed Floor Plan

The mixed floor plan incorporates the straight, diagonal and angular floor plans to create the most functional store design. The layout moves traffic towards the walls and back of the store.

Space Mix and effective retail floor Space Management

Mixed use retail development has its advantages and disadvantages. The advantage of variety is mixed retail's most obvious bonus. Giving customers multiple shopping choices under one roof, or multiple roofs in the structure, is a definite retailing advantage. Customers are drawn to mixed use shopping, since they can shop for more needs at a single location and drive less. The biggest disadvantage is that mixed use retailers are interdependent. All the different stores must succeed to maintain the full shopping diversity advantage. When stores in a mixed use area fail and are empty, that can hurt the remaining stores. Sketch out on a piece of paper your idea for a mixed use retail space. Arrange and locate the different store types in a logical shopping pattern. Group auto-related, sports and other outdoors type shopping in close proximity to each other. Locate grocery, household and inside needs shopping with any food establishments. Think logically and plan for organized, free-flowing foot traffic. Include well-lit and convenient entry and exit for each store.

2 Take your sketch to the local zoning department. Review the tentative plan with zoning officials to make sure what you have planned is permissible according to current ordinances. Check with the permits department and confirm permit needs before finalizing your plan. Meet with the fire marshal and go over your mixed use plan to be sure the plan is within fire code standards. 3 Research the expense of each store within the mixed use plan. Write down and expense out each store's specific plumbing, lighting, waste disposal and other requirements. Auto service stores will have very different requirements than, say, restaurants. Remember that mixed use development is more expensive than single use development. Plan to meet the different needs of each shop/store, or you will not attract and keep tenants to those stores. 4 Recruit construction, plumbing and electrical contractors. Visit them and discuss specifically how to lay out each phase of the construction for each store within the facility. Be

proactive and look for potential layout issues. Address them in advance with your contractors to avoid potential code violations and other problems. 5 Take all the information from all your meetings and compare the requirements from the various departments to what you initially sketched out. Make the necessary corrections; then, draw out a final design concept. Draw in each store's floor plan according to what was learned in the meetings. 6 Line up your contractors and develop construction schedules to get the facility built. Have signs erected announcing what is being built and when the stores will be opening. Increase the advertising and announce tenants as opening day draws near. Be very careful to whom you lease your stores. Require solid performance numbers and business histories of those who express interest in your development. Remember that store occupants are the lifeblood of your project

UNIT- III

Operations Management: Operating a retail business – operations Blueprint – store maintenance,

Energy management and renovations – Inventory management – store security – Insurance –

Credit management – Computerisation – Outsourcing – Crisis Management

Operating a retail Business

If you are an aspiring or established entrepreneur looking to open a small retail business, there are many things to consider before opening your doors. Options abound with regards to locations, types of merchandise you will sell, price points and other factors that will ultimately affect the success of your store. It is important that you or someone you will partner with has extensive experience working in various roles with a small or large retail business to navigate through the following process.

1. Decide what kind of small retail business you wish to establish. Visit your local library and conduct Internet research on the benefits and advantages of opening a

small retail business that interests you. Make a list of options for a small retail business—from a clothing boutique to a pet or beauty

supply store—and detail the pros and cons of establishing each unique store.2. Determine how much capital, time and resources you will need to successfully open a small retail business within your intended timeframe.

3. Make a list of necessities from a location to supplies to staff and begin working on a plan to secure these requirements.

4. Work with a commercial real estate agent to identify viable locations or contact the commercial real estate developer for a specific property that interests you.

Conduct research on the viability of your potential business in the location you are considering. Search public records and statistical data on the area as well as the businesses of competitors and similar ventures in the area.5. Rent or purchase equipment and merchandise required to open your doors.6. Choose a name for your business. Search databases such as Hoovers, the Better Business Bureau and the Web to find information about other organizations that may have the same or similar names.7. Create a solid business plan that includes location options, budget proposals, first through 5 years of perspective profits, and legal considerations and other required details.

Consult with a lawyer or the Small Business Association to have an impartial and professional third-party review your business plan prior to submitting it to any potential investors.

Hire an accountant to review financial aspects of your business plan to ensure accuracy of information.8. Contact the SBA or the local chamber of commerce to create a list of potential investors, such as venture capitalists and financial institutions.

9. Communicate with potential investors, keeping in mind that you must personalize your message according to your audience and your specific request.

Apply for a small business loan with banks and financial institutions.10. Obtain all required licenses and permits. Your lawyer or SBA consultant can assist you in the process as you may be required to have an employer identification number as well as appropriate registration.

11. Develop a plan for staffing your small retail business. Consider hours of operation, wages and applicable employment laws.

12. Design a marketing plan. Consult with or hire professionals to assist in the development of a plan to reach potential employees as well as customers prior to opening.

13. Plan your grand opening. Whether this event features local entertainment, food and fun, make sure you have staffed and advertised the event accordingly to ensure a successful turnout.

Operation Blueprint

An operations blueprint systematically lists all the operating functions to be performed, their characteristics and their timing.

While developing a blueprint, a retailer specifies in detail every operating function from the store’s opening to closing and those responsible for them. E.g. who opens the stores, alarms etc.

A large or diversified retailer may use multiple blueprints and have separate blueprints for areas like store maintenance, inventory management, credit management and store displays.

Whenever a store modifies its store format or operating procedures, it must also adjust the operations blueprint.

Store Maintenance, Energy Management and renovations

Store maintenance encompasses all the activities in managing physical facilities.

Exterior- parking lot, points of entry and exit, outside signs and display, windows and common areas adjacent to a store (sidewalk)

Interior- windows, walls , flooring, climate control and energy use, lighting, displays and signs, fixtures and ceilings

The quality of store maintenance affects consumer perceptions, the lifespan of facilities and operating costs. Customers don’t like decaying stores.

Replace burn out bulbs

Repaint room surfaces

Heating, ventilation, air-conditioning equipment lasts an average of 15 years

Display fixtures- 12 years

Interior signs – 9 years

Energy Management- e.g Giant Eagle Store 30% less energy

1. Use better insulation in constructing and renovating stores

2. Adjust interior temperature levels during non-selling hours

3. Use computerized systems to monitor temperature levels

4. Substitute high efficiency bulbs and fluorescent ballasts for traditional lighting

5. Install special air conditioning systems that control humidity levels sp. In freezers

Checklist for Store Maintenance

Level of responsibility in maintaining outside facilities?

Store maintenance activities be done by retailer’s personnel?

Emergency repairs?

Frequency of store maintenance?

Seasonal variation?

Usage duration of stores?

Performance stds for each element?

Inventory Management

A retailer uses inventory management to maintain a proper merchandise assortment while ensuring that operations are efficient and effective.

Store Security

Personal Security

Merchandise security

Personal Security

At night

Parking lots

E.g. Jersey Gardens Outlet Mall has 220 cameras

Uniformed security guards and horse mounted guards

Undercover personnel

Brighter lighting in parking lots

TV cameras and other devices scan the areas frequented by shoppers e.g 711 store has in store cable tv

Some shopping areas have curfew for teenagers (controversial tactic)

Access to store backroom facilities has been tightened

Bank deposits are made more frequently by armed security guards

Merchandise Security

Each year $30 billion to $35 billion

Insurance

Worker’s compensation, product liability, fire, accident, property and officer’s liability.

Many firms also offer health insurance

Credit Management

The retailer must weigh the ability of credit to increase revenues against the cost of processing payments-screening, transaction and collection costs plus bad debts

Computerization

With declining costs of computers and software, small firms have improved their operations productivity

Retailers such as Home Depot, Wal-Mart and JC Penney use video-conferencing

In-store telecommunications aid operations by offering low cost, secure in-store transmissions. Spectra Link Corporation markets light weight pocket phones

Software provides computerized inventory control and customer order tracking

Computerized check-out is used by both large and small retailers so they can efficiently process transactions and monitor inventory

Computerized registers instantly record and display sales, provide detailed receipts and store inventory data

Wireless scanners let workers scan heavy items without lifting them, radio-frequency identification tags (RFID) and emit a radio frequency code when placed near a receiver (faster than UPC codes and better for harsh climates) and speech recognition ( that can tally an order on verbal command)

Electronic point-of-sale system performs all the tasks of a computerized checkout and verifies check and charge transactions

Today's scanners are faster and more versatile, more durable and more accurate

Hand-held scanners, hands free scanners and miniaturized data transceivers

Self-scanning where consumers himself scans the items

Outsourcing

A retailer pays an outside party to undertake one or more of its operating functions e.g. Limited Brands use outside firms to oversee its energy use and facilities maintenance, Kmart uses logistics firms to consolidate small shipments and process returned merchandise

Crisis Management

In-store fire or broken pipe

Access to a store blocked due to picketing by striking workers

Car accident in the parking lot

Burglary

Sudden illness by employer

Storm knocking out power

Unexpectedly high or low demand for a good or service

Sudden increase in suppliers prices

Natural disaster like flood

UNIT- IV

Evaluating a retail operation: Store operating parameters – Using the strategic resource model in

retailing – designing a performance programme

Store Operation Parameters

Along with the product purchased, a customer takes with him the memory of customer service

given at that particular store and keeps it on top of his mind recall along with the purchased

product’s worth. And since, he is the king; he needs to be treated in a special manner.  So, in

keeping with the image of the product he is buying, retail store operations need to be quick,

updated and proper in matching. Hence, evaluation of store operations from time to time

becomes vital to ensure not only the above but also to improve revenue, profitability, customer

loyalty and individual productivity. Below are some areas of concern for a watertight functioning

of a store.

Safety

Creating and maintaining a safe environment for workers and consumers is a primary concern of

a retail store operation. Following proper procedures, awareness of hazards and maintenance are

some of the key ingredients for achieving this. To take care of personal injury, medical

equipment needs to be kept along with safety equipments in case there is a mishap like fire,

burglary etc. Also, it is important to adhere to state government guidelines that outline certain

requirements, such as material safety data sheets, proper storage of chemicals and related

regulations for workplace safety. These safety cover by the employers will instill a confidence in

associates as they will work fearlessly and in case there is a catastrophe in the shop during sale

time.

Office Business Applications

Changing market conditions require agility in business applications. Service orientation answers

the dispute by centering on XML and Web services standards that transfigure how developers

create systems and integrate them over distributed networks.

The technology which is useful in giving stock of  item not found, item recall, item-out-of-stock,

promotional item sales data transfer and supply chain etc will ensure a proper flow of value

supply chain.

Managing attrition

Attrition is another area of concern so check that there is less attrition by ensuring facilities to

employees and better pay check. Also, since training entails lot of expenditure, it is better to

employ for a longer period. An agreement would work fine and so will employee plans and

schemes, employee insurance, leaves and a congenial environment.

Promotion works

Retails today do lot of promotion works for increasing footfalls and give the feeling of belonging

to the customers. The retailer’s office must know the trends of promotions. Alongside, it is also

imperative that one knows how the particular promotions have fared by taking feedbacks and

assessing the sale during that time. Diwali, Holi, Christmas and other festivals are right time to

have these events.

Signages and promotional materials

It is also important that signages and promotional methods are updated from time to time in

keeping with the evolving trend.

Discounts and Sales

Also check the upshot of sales and applied discounts to know their efficiencies.

Store operations management

This also includes other things like ensuring that the shop fitting and designs are in keeping with

the modern trend and updated as per the drifts.

Customer is the King

Customer feedback is very important to determine the level of customer service, analyse the

business and recognize the area of opportunity for an overall analysis of the performance.

Here is a quick check list of Evaluation of Customer Services:

    * If the shoppers were not properly informed of or did not clearly understand what to look for

    * If the shoppers lacked retail management experience and he was assisted and shown the

correct departments, bill counter, and he appreciated the VM which was proper and not over

flooded.

    * If the shoppers were just that…a shopper, not persons who were necessarily capable of

providing meaningful feedback on the execution of your particular service standards and who is

not completely aware of the impact their comments may have.

    * If the shoppers were not able to offer tangible advice on how the experience could have been

bettered or improved.

    * If the shoppers were being paid for the report or feedback. Mind you, a shopper is not

accountable and responsible to give accurate report. If Mystery Shopping was applied.

    * If the shoppers have approached the associates and engaged them in meaningful talks.

Maybe he did not greet or approach, whether he knows how to sell, whether he is pleasant or

helpful.

    * If customer reported of soiled parking area, dirty door, fitting rooms, sitting area, register

area etc. The shop is smelling good and the music and lightning is proper and not over bearing.

    * If the shopper was disgruntled and his problem was solved peacefully and he did not return

dissatisfied.

    * Whether the shoppers became loyal customers and repeat loyal customers etc.

For maintaining the above order, inculcate a habit of regular data from the manager.

Your shop reflects your image to the world. Make sure you don’t give any reason of complain to

the customer. Ensure flawless retail store operations through regular evaluation for a good flow

of bucks, a big customer base and a thorough goodwill in the market.

Strategic Resource Model in retailing

RETAIL STRATEGY

A clear and definite plan outlined by the retailer to tap the market

A plan to build a long-term relationship with the consumers

Process of strategy formulation in retail is the same as that for any other industry

It starts with the retailer defining or stating the mission for the organization

The mission is at the core of the existence of the retailer

Other aspects of the strategy may change over a period of time or vary for different

markets

Establish Mission

Analyze Situation Objectives

Identify Options

Set Objectives

Obtain & Allocate Resources

Develop Implementation Plan

Monitor Progress & Control

DEFINE MSSION OR PURPOSE

Mission statement is a long term purpose of the organization

It describes what the retailer wishes to accomplish in the markets in which he chooses to

operate

Retailers mission statement would normally highlight the following

1. The products and services that will be offered

2. The customers who will be served

3. The geographic areas that the organization chooses to operate in

4. The manner in which he firm intends to compete

CONDUCT A SITUATION ANALYSIS

Once the retail mission is defined, the retail organization needs to look inwards

Understand what its strengths and weaknesses are

Look outwards to analyze its opportunities and threats

Situation analysis helps the retailer determine his position and his strengths and

weaknesses

Helps formulate a clear picture of the advantages and opportunities which can be

exploited

The weaknesses need to be worked upon

This forms the basis or he core element of any strategy

IDENTIFY OPTIONS / STRATEGIC ALTERNATIVES

After determining the strengths and weaknesses vis-à-vis he environment retailer needs to

consider various alternatives available to tap a particular market

Igor Ansoff presented a matrix which looked at growth opportunities

He focused on firm’s present and potential products in the existing and new markets

Ansoff’s matrix also helps to understand the options available to a retailer

IDENTIFY OPTIONS / STRATEGIC ALTERNATIVES

The alternatives available to a retailer are :

Market Penetration

Market Development

Retail Format Development

Diversification

Performance Program in Retail

Employee motivation is probably the most important single manageable factor for success and profitability of all the facets of specialty store retailing.  It is too vital to be handled on a hit or miss basis, depending on the whim or spirit that stirs the store owner or manager from time to time.

To be effective, employee motivation must be promoted on a day-to-day, month-to-month basis.  It is a function that can and will pay enormous dividends.

There are almost as many effective ways of motivating employees as there are ways of enticing customers into your store.  Of course, there are also innumerable ways to "turn off" your associates and it is equally important to recognize these poor practices so they can be avoided.  A disgruntled salesperson is unlikely to present a shining countenance to a prospective customer.

Some store owners and/or managers prefer to drive rather than lead and this manifests itself in a tense and uneasy store atmosphere.  Fear destroys confidence as well as pride in one's place of employment; its effect on productivity is negative and destructive in the long run.

It is desirable for management to be highly enthusiastic, articulate and effervescent although each person comes across in a different way.  Sincerity, fairness and candor are essential.  True personal interest in your associates problems is valuable.

One of the very best ways to motivate is to consciously try to help bring out the very best in your staff and to do everything in your power to develop leadership talent and knowledge.  There is great satisfaction in being able to point to successful people and honestly claim that you contributed to that success.  This kind of interest comes through to all your people and enhances the image of your store.

Motivation and teaching are closely related.  They should start from the first day of employment. Discipline as well as rewards are part of the motivation program.  Both should be thoroughly and constantly explained to be effective.

Loyalty and pride are instilled by making people feel they are important to the business; that their opinions are sought and listened to; that they are respected as persons and treated accordingly and that they will share in the success of the business in the degree of their productivity and contribution.  This all comes under the umbrella of involvement.  Involving people to bring out the very best.

Another general area of motivation relates to competitions within the store.  These add spice and excitement to routine.  Contests can be planned for individual winners; team against team; store against other stores; or managers versus managers.  Efforts against quotas for individuals, departments or total store can be just as productive and exciting.  Contests can run for one day, one week, or as long as a month.  Variety is important.  Total sales, multiple items per sales transaction, selling older or higher priced goods, new or reactivated charge accounts, etc.

Money is generally the greatest motivator, but should be used wisely.  More isn't always better and how it is applied is very important.  A $20 bill being passed around all day to the salesperson who has written the sale with the highest number of different classifications may get more action than $100 in p.m.'s.

In setting up any monetary reward plan it is necessary to establish criteria that relate to the area of responsibility of the individual.  It is a mistake to tie a salesperson's incentive compensation to gross margin since salespeople do not determine markup or markdowns.  Likewise, in a centrally controlled, multi-store environment a store manager should not have his bonus based on net profit because he cannot control many of the elements that determine that figure. 

Plans must be tailored to each unique store and situation.  For selling staff, some retailers prefer commission plans, while others insist on salary only.  The repetitive presentation and constant application of principals on which each plan is based are of major significance.

Before trying to set up an incentive plan you must first decide by what standards you want to measure employees.  Observe employees on the job and compare the behavior of those who perform well with those who don't.  Define which areas would produce the highest profits if performance were improved.  The details of the specific plan or plans used must rest with  management and should be tailor-made to fit each situation and, in many cases, each individual.  Since every person within your organization is unique, what motivates one person may not motivate another.

The simpler the plan, the better.   However, simplicity itself cannot be given excessive consideration since it is necessary to cover every major measurable factor of a job. Ideally, incentive compensation plans should have no limit or cap on potential earnings.  The more a person earns for him or herself, the more the company will profit, provided the plan is soundly developed.  Thus, management should be proud and pleased to have a high earning team rather than ever feeling that its employees are overpaid.

For incentives to be effective it is imperative that the right kind of employees be hired. Not everyone responds positively to productivity incentives. For some people incentives translate to increased stress and poor performance.

Regular reviews during the year are important in stimulating effort. Everyone wants to know how they are doing.

Following are ideas for setting up compensation plans for different jobs within the retail store.

1.  Salesperson

Methods of compensation in retail apparel stores can vary all the way from straight salary to straight commission with countless variations in between.  The most commonly used are draw against commission or a base rate plus commission. 

It is incumbent upon retailers to use the method or combination best suited to their particular business.

Many specialty apparel stores use salary plus commission of 1%, 2% or 3%.  This is simple to explain, understand and operate.  It is not as motivating as draw against commission or straight commission, but is popular, particularly for part-time or temporary help.  A variation would be to set a quota beyond which the incentive would be greater. 

A draw-against-commission arrangement is common.  The draw should be sufficient for monthly living costs and can be increased as evidence of greater productivity is shown.  When draw-against-commission is used it is desirable to stretch the settlement period as long as possible so high and low sales months offset each other.  We normally recommend quarterly settlements with the quarters being December-February, March-May, June-August, and September-November.  When using a draw-against-commission we endorse the use of higher commission rates as the salesperson’s volume increases.  For example:

7% on sales up to $150,0007 1/2% on sales up to $200,0008% on sales up to $250,000, and so on.

If commissioned salespeople occasionally or regularly work overtime hours you must be aware of the overtime exemption provided in the Fair Labor Standards Act.

2.  Store Managers

In a centrally controlled operation there are three primary areas which store managers can effectively control; volume, selling costs and shrinkage.

For volume increases, a percentage of the sales increase over last year or plan is simple and stimulating.  The percentage to be used will depend on the store's situation.  Where there is a flat lease and no override a higher percentage can be afforded.  A relatively new store should produce high increases in early years so a smaller rate is in order.  On the contrary, large increases will be more difficult to achieve in a long-established store so a higher rate may be needed.

Bonuses for achieving savings in selling costs and for reducing shrinkage can be based on either goals or last year's figures or a combination of the two. 

Most retail apparel stores are not large enough to warrant the luxury of a non-selling manager.  A manager who is sales-oriented can set the pace for others and is better equipped to teach others how to develop a personal following.

3. Buyers and/or Merchandise Managers

The responsibilities of buyers and merchandise managers rest primarily with gross margin, stock turn rate and volume so an incentive compensation plan should be based on these criteria.

4. Credit Manager

The credit manager responsibilities normally concern credit sales growth, control of bad debts and control of departmental expenses.  

Some areas on which to develop incentives include:  increases in total credit sales, reactivation of inactive accounts, opening new accounts, bad debts as a percent of charge sales, departmental expenses including payroll.

5. Alterations

Productivity, reduced returns-for-alterations.

6. Control and Operations Personnel 

Production, limitation of errors, departmental operating cost control, meeting deadlines.

7. Top Level Executives

Net profit before taxes and bonuses.

The decision of whether or not to utilize incentive compensation is one that each retailer must make depending on the store's situation.   Once the decision is made to institute incentive compensation plans, they must be adapted to the store's unique situation and designed so as to result in an increase in sales and profits.  The installation of an effective incentive plan is the foundation of a successful motivational compensation program.  To optimize results the program requires regular nourishing and promotion and a yearly review to make sure it is still working as you want it to do.

We've helped dozens of retailers implement an incentive compensation plan for about every position in retailing. Call us; we can help you too.

UNIT -V

Retail Inventory: Inventory Planning – Return on inventory investments and stock turnover –

Inventory Management – Physical and perpetual inventory systems – retail method of inventory

valuation.

Retail Inventory

keeping an accurate count of your product and maintaining an organized item inventory is

essential. Making out timely orders and maintaining regular deliveries is also important, so your

inventory neither gets too low and forces you to lose sales, nor your inventory builds up too big,

threatening you with an expiration date crisis, as well as time lost moving around excess product

that's in your way.

Floor managers need to be part of the process of ordering new inventory, even if they are only

consulted. Good communication about poor sales from all your staff is important, to avoid

inefficient new inventory orders. Beyond good communication and smart, informed supply

orders.

Return on Inventory investment

In retail, successfully managing return on investment (ROI) and other financial indicators is the

key to a healthy business. Expansion is an important part of retail growth but only when

generating positive cash flow from those capital expenditures. Without a positive return on

investment, retailers are wasting good money after bad. It's critical for retail managers to

quantify as much as possible so that they may better understand the profitability and financial

health of their business. When combined with other financial metrics like same-store sales, the

four R's of retail should paint a financial picture that's vibrant and constantly getting stronger:

1. Return on Revenues

Return on revenues (ROR) is the first R and the cornerstone of any retail operation. It tells you

how much net income is made from those top-line revenues. Nearly as important is gross margin

return on investment, which is the gross margin profit on the cost of your inventory. The more

you make per unit sold, the easier it is to produce bottom-line net profits.

ROR has two basic building blocks: 

Balance Sheet

Every retail store maintains inventory. Considered an asset on the balance sheet, when combined

with the P&L statement, it can tell you a lot about how the product is selling. Dividing inventory

into the trailing-12-months' revenue, you arrive at the number of inventory turns in those 12

months (the higher number, the better). Grocery stores traditionally have lower margins, and thus

need to turn inventory many more times than luxury retailers who make far more per transaction

but far less in overall unit sales. Ultimately, the two retailers may deliver the same net income,

but from much different volumes.

Cash Flow Statement

Did you know it's possible to be profitable and yet generate negative cash flow? Well, it's true

and the converse happens as well. This is when a business losing money generates positive cash

flow. Often it can be as simple as the payment terms you have with your suppliers. For instance,

the profitable retailer might get 30 days to pay its bills while the money loser gets 60. Although

this catches up with the money-losing retailer eventually, it can carry on for some time. Look for

companies that make money and generate positive cash flow. Even better are those that generate

free cash flow, which is the cash from operations after taking into account capital expenditures.

2. Return on Invested Capital

Moving from the big picture company-wide to the front line individual store operations for a

moment, the second R in retail makes its appearance. Return on invested capital, sometimes

referred to as "four-wall cash contribution," is the amount of profit generated per store. The

speed at which each store can return the invested capital required to open it, the faster the retailer

can grow its overall profits. For example, if a new store in a home improvement chain averages

$2 million in annual sales in the first year open and its four-wall contribution is $200,000, a

$300,000 investment to build and open the store is repaid in 18 months. Its return on invested

capital is 67%. Successful retailers look for store revenues and four-wall contribution to increase

in years two and three. If not, there's a problem.3. 

3. Return on Total Assets 

Back to the big picture, return on total assets tells a company how much operating profit it's

making from its assets. Here again, bigger is better. In the retail industry, this number will vary

depending on the business. Specialty retailers require less retail space, fixtures, inventory, etc.

Home improvement stores on the other hand operate in much larger retail footprints and thus

require greater assets. Having to use more doesn't necessarily make these stores inferior. It's

simply the cost of doing business in that particular industry. What's important is how a retailer's

return on total assets compares with the competition. If it's generating a return on total assets of

10% and its competitor across the street does 20%, it's an indication that the competitor is

operating more efficiently.

4. Return on Capital Employed

This tells us how efficiently retailers use their capital. It is defined as earnings before interest and

taxes (EBIT) divided by capital employed, which generally is represented by total assets less

current liabilities. However, a more appropriate definition of capital employed would be

shareholders' equity plus net debt. After all, ROCE is a pretax look at its return on debt & equity,

which is different from ROIC, which is an after-tax (dividends paid) look at its profitability.

While ROCE is a more telling number than return on equity, it too has its limits. For instance, if

a retailer in the auto parts business repurchased $1 billion of its own stock in a given year and as

a result, its book value turned negative, both the ROE and ROCE are affected adversely, despite

the fact it made close to $1 billion in net profit. Financial metrics can only take you so far.

ConclusionAlthough customer service is an important component of successful retail, it's just one of the many things that must be executed flawlessly in order to continue growing. At the top of the list should be financial discipline. If a retail business doesn't possess this trait, it likely won't be around very long. The strongest retailers understand that every store should be profitable. Otherwise, there is no justification for tying up the capital required to open them. The faster a store is able to recover the initial investment, the faster it's able to please the four R's of retail. 

Stock turnover Inventory Management

Two primary factors control inventory turnover. The average amount of inventory you keep on hand, and the total cost of all the inventory you sold in a given time period.

Average inventory will largely be determined by your business model and your business finances.  Are you a small specialty shop that primarily deals in service? In that case, you might keep a little inventory on hand, but mainly you deal with special orders. If you have a large retail store that aims to move a higher volume of goods, you need to have sufficient capital and financing to hold that inventory. A report from your accounting software should give you your total cost of goods sold.

The Formula

Inventory turnover over a specific period of time is calculated by the following formula.

Inventory turnover = Cost of Goods Sold / Average Inventory

In plain English, the inventory turnover ratio tells you how many times your inventory sold through. To calculate, take the total cost of goods sold for the year and then divide this by the average inventory. First, choose a period of time to examine.  The most useful period for small retailers is one year. Average inventory can quickly be calculated by adding your inventory at the beginning of the period to your inventory at the end of the period, then dividing by 2.

A more accurate calculation for average inventoryIn the method described above, the equation does not account for fluctuations in inventory. Following our example, if Sara’s shop kept $90,000 worth of inventory from April to 12.To illustrate inventory turnover, let’s look at an example. The cost of goods sold in Sara’s Bike Shop was $110,000 in 2010.  On January 1, 2010, she had $50,000 worth of inventory assets.  On December 31, 2010, she had $60,000.  To get her inventory turn, we calculate: 110000/((60000+50000)/2) = 2.  In other words, Sara sold through the average amount of inventory on her sales floor 2 times that year.  Put another way, every 182.5 days she sells through her inventory.

What’s a good number?Inventory turnover is a reflection of holding costs – the cost of storing inventory.  A low inventory turnover reflects a high holding cost. This is bad, right? Costs are our enemy! Not so quick. The problem with just looking at that number is that the number doesn’t provide the context.  Every retailer’s inventory situation will be different.

In our example, if Sara’s revenue depends completely on inventory sales and her terms with her vendors are net 30, then it’s true her low inventory turnover indicates a struggling business.

She’ll struggle to pay her vendors. She only has 30 days to pay the vendors, but it takes 182.5 days for her to sell through what she bought from the vendors on average.  This situation is hand-to-mouth at its worst.

Without additional capital, more lenient terms with her vendors, or faster sales, Sara will most likely run out of cash to operate her business.  This is not just because she has a low inventory turnover, it’s also because she is so dependent on inventory sales for cash.

When is low inventory turnover OK?

Let’s say Sara’s Bike Shop is located in a tourist town on a bike path.  During the summer, Sara rents bikes to the visiting tourists.  She has 30 rental bikes that cost $500.  So $15,000 (27% of her average inventory) is in rental bikes.  She paid cash for these bikes with the initial capital she put into the business. Every two years, she sells the bikes at a small profit. In addition to the rental bikes, she has $12,000 in clothing inventory. She’s a savvy buyer and is known in town for having a great selection of women’s clothing, and she’s able to sell through most of the clothing every few months. She’s worked out a deal with her clothing vendors for net 90 terms, meaning she has 3 months to pay her invoices once she’s received the goods.

Almost half of Sara’s average inventory is in goods that, by their nature, don’t sell quickly. The remaining inventory is in parts, accessories, and other bikes. Additionally, her rental business means that she has a solid revenue source that is not tied to selling inventory. A lower inventory turn might be fine in this case.

High Turnover Problems

In an ideal world, you, the retailer, has every item that every customer walking through the door wants, and you don’t have to pay for it until the customer buys it.  In the real world, it’s a challenge to have the right mix of products for your customers.  You can’t possibly have everything that every customer wants. A high inventory turnover ratio might indicate that you’re losing sales.  Imagine a bike shop that just sells tubes.  They might have a high turnover ratio because they sell tubes without a large inventory, but they’re probably losing tire sales.

Checklist for Managing Inventory

I suspect that a high inventory turnover is not a problem for most small retailers. In my business, I’ve found it is much easier to add new inventory than it is to sell it.   The more stuff that collects on your shelves the greater the holding cost, and by end of the year all that stuff is obsolete. With that in mind, here is a checklist to increase your inventory turnover and manage inventory:

1. Know your inventory!Use an inventory tracking software or spreadsheet to track how much and what types of inventory you have. If you’re a ski shop, you might have 100 new skis on the floor in November, and only 20 new skis in April. It also helps to categorize your inventory.  A bike shop might simply use categories like rubber, parts, accessories, and new bikes.

2. Constantly evaluate your business plan.Every inventory purchase you make should reflect your goals for the business and what sets you apart from the competition.  A baby clothing store that buys a size run of pants for teenage boys should not be surprised if those baggy pants are collecting dust next year.

3. Pause before you buyAsk yourself: “If this product I’m buying doesn’t sell within my vendor’s terms, can I afford to have it on the floor? Is it worth the risk?” I made the mistake when I first opened my store of bringing on more inventory than I could possibly afford.  It wasn’t worth the risk!

4. Time is your friend.Many distributors are moving towards the “just in time” model, getting products to the retailers just in time for sales. This model means you need to carry less product on your shelves because the vendor can have it to you quickly. The trade-off is having to order more frequently and possibly incurring more shipping costs.

5. Churn and burn.If a new product line didn’t work out or you get to the end of the year with more inventory on hand than you can manage, be prepared to dump it! You might promote an in-store sale, or in today’s connected world it might behoove you to have a means for inventory clearance outside of your brick and mortar store.  Ebay, craft fairs, swap meets, and discount websites reach customers beyond your usual geographic reach, plus you avoid having customers think of your store as a discount store.

Physical and Perpetual Inventory

Physical inventory is a process where a business physically counts its entire inventory. A physical inventory may be mandated by financial accounting rules or the tax regulations to place an accurate value on the inventory, or the business may need to count inventory so component parts or raw materials can be restocked. Businesses may use several different tactics to minimize the disruption caused by physical inventory.

Inventory services provide labor and automation to quickly count inventory and minimize shutdown time.

Inventory control system software can speed the physical inventory process.

A perpetual inventory system tracks the receipt and use of inventory, and calculates the quantity on hand.

Cycle counting, an alternative to physical inventory, may be less disruptive.

The Finance or Business Manager of the unit is responsible for ensuring the annual physical inventory is properly performed, inventory records reflect actual quantities on hand, inventory valuation methods are appropriate, and adjustments are entered in the University's accounting system on a timely basis. In addition, the Finance or Business Manager is responsible for ensuring that segregation of duties is maintained throughout the inventory process to promote the safeguarding of the assets, protection of employees, and objective reporting of inventory. Specifically, no one person should be able to authorize a transaction (e.g., a purchase or sale), record the transaction, have custody of the inventory, and perform the related reconciliation.

Retail Method of Inventory valuation

Retail Method of Inventory Estimation

Retail method is a technique used to estimate the value of ending inventory using the cost to retail price ratio. Retail method involves the following steps:

1. Determine the retail value of goods available for sale during the period by adding the retail value of beginning inventory and retail value of goods purchased.

2. Subtract total sales during the period from the retail value of goods available for sale.

3. Calculate the cost to retail price ratio (formula given below).

4. Multipl the difference obtained in 2nd step and the cost to retail ratio to obtain estimated cost of ending inventory.

Cost to retail ratio is calculated using the following formula:

Cost to Retail Ratio = A+B C+D

WhereA is the cost of beginning inventoryB is the cost of inventory purchased including incidental costs such as freight inC is the retail value of beginning inventory and D is the retail value of goods purchased during the period

The formula given above implies that records of a business using the retail method must show the beginning inventory both at cost and at retail price. Since such information is readily available to retail merchandising business, retailers commonly opt to use retail method to estimate the value of ending inventory. Example  Cost Retail

Beginning Inventory $36,000 $46,000

Purchases $140,000 200,000

Freight-In $8,160  

Packing Cost $5,440  

Cost of Goods Available for Sale

$189,600 $246,000

Cost to Retail Ratio = $189,600

= 0.7707$246,000