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
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Store location is most often the first consideration in a store choice
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Having a good location increases chances of developing a strong sustainable competitive
advantage
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Location decisions can be risky and should be well-thought out
Process of Choosing Particular Locations
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Size of the trade area
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Occupancy cost of the location
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Pedestrian and vehicle customer traffic location
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Restrictions on operations by property managers
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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
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Freestanding Sites such as outparcels and merchandise kiosks
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City or Town Locations such as central business districts, main streets, and inner city locations
Advantages
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Convenience for customers
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High vehicular traffic and visibility
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Modest occupancy costs
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Separation from competition
Disadvantages
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Limited trade area when not around nearby retailers
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Higher Occupancy costs that strip centers
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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.
City or Town Locations
Advantages
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Lower occupancy costs
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Higher pedestrian traffic
Disadvantages
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Traffic is limited due to congestion
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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
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Occupancy costs are generally lower than CBD’s
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Fewer people are employed
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Smaller selection due to fewer stores
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Range of entertainment is usually smaller
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City planning sometimes restrict store operations
Inner City
High density urban areas with higher unemployment and lower median incomes than
surrounding areas
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Retailers here achieve higher sales volume and higher margins, thus producing higher
profits
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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
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digitized mapping with key locational data to graphically depict trading-area
characteristics such as
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population demographics
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data on customer purchases
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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
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Destination stores have a better assortment, better promotion, and/or better image
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It generates a trading area much larger than that of its competitors
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Dunkin’ Donuts: “It’s worth the trip!”
Parasites
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Parasite stores do not create their own traffic and have no real trading area of their own
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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
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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
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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
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Dominant industry
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Extent of diversification
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Growth projections
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Freedom from economic and seasonal fluctuations
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Availability of credit and financial facilities
Competitive Situation
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Number and size of existing competition
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Evaluation of competitor strengths and weaknesses
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Short-run and long-run outlook
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Level of saturation
Availability of Store Locations
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Number and type of store locations
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Access to transportation
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Owning versus leasing opportunities
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Zoning restrictions
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Costs
Regulations
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Taxes
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Licensing
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Operations
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Minimum wages
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Zoning
Selected Population Statistics for Trading Areas A and B
Characteristics
Area A
Area B
13,732
15,499
Population change, 1990-2000
+8.2
+2.5
College graduates, 25 +, 2000 (%)
41.4
39.2
$61,236
$61,242
45.3
45.0
Total population, 2000
Median household income, 2000
Managerial and professional
occupations (%), 2000
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 selection
Choosing 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:
handising.
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.
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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.
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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.
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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.
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.
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.
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.
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.
struction 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.
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Visit your local library and conduct Internet research on the benefits and advantages of opening a
small retail business that interests you.
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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.
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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.
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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.
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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.
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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 drawagainst-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 SeptemberNovember. 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 $150,000
7 1/2% on sales up to $200,000
8% 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.
Conclusion
Although 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 inventory
In 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 handto-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 buy
Ask 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
Where
A is the cost of beginning inventory
B is the cost of inventory purchased including incidental costs such as freight in
C 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
$36,000
$46,000
Cost of Goods Available for Sale
Purchases
$140,000
200,000
− Sales
Freight-In
$8,160
Ending Inventory
Packing Cost
$5,440
× Cost to Retail Ratio
Beginning Inventory
Cost of Goods Available for Sale
$189,600
$189,600
Cost to Retail Ratio =
= 0.7707
$246,000
$246,000
Cost
Retail
$189,600
$246,000
$198,000
$48,000
0.7707
$36,994
Ending Inventory