Name ___________________
MAR 3231 Introduction to Retail Systems and Management
Fall 2008 Section 6289 10:40 to 12:35
This exam is open notes. There are 80 points on the exam – 3 points at the end are extra credit
(45 points) Answer all 30 questions. Your score for these questions is 1 ½
points for each correct answer. Circle the best answer for each question.
1. Which of the following is a foundation of a successful strategic relationship?
A) using reverse auctions
B) mutual trust
C) buying from a wide variety of vendors
D) evaluating the relationship every month
E) using detailed contracts
2. CRM is based on the philosophy that retailers can increase their profitability by:
A) providing better assortments
B) expanding their services
C) building stronger relationships with their better customers
D) extending hours of operation
E) all of the above
3. Customer needs and preferences for consumer electronics are very similar across the U.S. What
organization form would you suggest for a national consumer electronics retailer?
A) Mazur structure
B) centralization
C) decentralization
D) organic
E) hierarchical
4. The most serious disadvantage inherent in a freestanding site is:
A) no shopping center management
B) restrictions on merchandise sold
C) limited hours of operation
D) higher costs
E) smaller trade area
5. Chef's Corner, a shop for gourmet cooks, is evaluating the sales performance of Black & Decker brand 4slice toasters. During the last year, the Black & Decker brand toasters had net sales of $10,000. The
gross margin for the Black & Decker brand 4-slice toaster was $4,000, and the average inventory at
cost for that brand of toaster was $2,000. Calculate the GMROI for a Black & Decker 4-slice toaster.
A) 5 percent
B) 40 percent
C) 60 percent
D) 200 percent
E) 100 percent
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6. What is the responsibility of shopping center management?
A) maintaining the common area
B) making sure parking lot is well lit
C) maintaining outdoor signage for the center
D) creating special events to attract customers
E) all of the above
7. Which of the following statements about shopping centers is true?
A) Each retailer is responsible for the external environment outside its store.
B) Managers of shopping malls want to only have stores that do not compete against each other.
C) Shopping malls have lower rents than central business districts.
D) The tenant mix in a shopping mall is not planned.
E) None of the above statements about shopping malls is true.
8. Apparel specialty stores like Zara and The Gap typically locate their stores in enclosed shopping malls
because:
A) the rents are low
B) the number of apparel retailers in one location attracts a lot of shoppers
C) customers can parking close to the stores
D) there are few restrictions on the signs and displays the retailer’s can use in front of their stores
E) none of the above
9. Analysts often use increase in comparable store sales as a measure of a retailer’s performance since this
measure:
A) assessing the performance of a retailer’s fundamental business model because it eliminates the
effects o sales growth due to new store openings
B) is readily valuable because it is based on information in a retailer’s income statement
C) is closely related to a retailer’s inventory turnover
D) compares the retailer’s performance to other retailer’s using the same format
E) none of the above
10. When evaluating a specific site for a store, which retailer should consider vehicular traffic count as
particularly important?
A) a home improvement center like Home Depot
B) a category specialist like Best Buy
C) a department store like Macy’s
D) a Wal-Mart Supercenter (combination discount store and supermarket)
E) a convenience store retailer like 7-Eleven
11. The Round Robin offers upscale children's furniture from newborn through grade school. The shop has
total assets of $400,000, current assets of $200,000, accounts receivable of $100,000, and end-of-the-year
inventory valued at $300,000. What is the retailer's inventory turnover?
A) 2
B) 4
C) 1.5
D) 1.33
E) cannot be determined from information given
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12. Which of the following is true in describing the size of trade area?
A) Convenience stores’ trade areas are relatively large
B) Category specialists have relatively small trade areas
C) A retailer like Starbucks has small size of trade area
D) A retailer like IKEA selling unique merchandise with a strong brand name has a small trade area
E) Supermarkets typically have a large trading area
13. Which of the following is the best approach for determining where to location a retail store?
A) at a place where there are no competing stores
B) where the rent is the cheapest
C) in a heavily trafficked area
D) in an area surrounded by customers with profiles similar to those surrounding your high
performing stores
E) all of above
14. Which of the following retailers do you expect to have the LOWEST asset turnover?
A) A department store retailer like Neiman Marcus catering to wealthy consumers
B) A department store retailer like JCPenney catering to middle income consumers
C) A discounter retailer like Wal-Mart
D) A supermarket retailer like Publix
E) An electronic superstore retailer like Best Buy
15. The design of organizational structure needs to match the firm’s strategy. Which of the following shows
a mismatch?
A) Costco with a competitive advantage of low cost tries minimize the number of employees by
assigning decisions to a few people at corporate headquarters
B) Wal-Mart targeting price-sensitive customers uses a centralized organization structure
C) Retailers targeting high-fashion clothing customers providing extensive customer service tries to
minimize the number of managers and employees through centralization
D) Best Buy built a competitive advantage based on low cost by using a decentralized organization
structure
E) Retailers selling to customers whose preferences and taste differ across geographic regions use a
centralized organizational structure.
16. What is the advantage of having your adjacent tenant in a mall or shopping center be a retailer selling
similar merchandise to the same target market?
A) share maintenance expense and reduce costs
B) increase visibility
C) reduce employee turnover
D) builds customer traffic
E) there are no advantages to having competitors close by
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17. The best for a retailer to reduce employee turnover is to
A) reduce variable cost
B) reduce its fixed costs
C) treat employees all the same
D) build an atmosphere of mutual commitment
E) do all of the above
18. Why is managing diversity beneficial to a company?
A) It leads to a more homogenized workforce.
B) It is the law.
C) It insure that all employees are treated the same
D) Retail managers can better understand and respond to the needs of their customers.
E) All of the above
19. Which of the following is an advantage of using distribution centers over direct store delivery?
A) DCs can store more merchandise inventory than holding inventory in stores.
B) DCs enable the retailer to carry less merchandise inventory in the system
C) DCs are better at handling perishable merchandise
D) DCs can deliver merchandise faster to stores than a vendor
E) all of above.
20. Which of the following is true about crossdocking distribution centers?
A) Cartons are stored in a distribution center until they need to be shipped to a store.
B) Cross docking is only feasible if the cartons have RFID tags
C) Cross-docking increases handling by DC employees.
D) Crossdocked merchandise carton have labels that are read so cartons go to the correct outbound
truck bay for delivery to the appropriate store.
E) All of the above are true.
21. What happens when retailers and vendors do not coordinate their supply chain management activities?
A) prices drop at the negotiation level
B) costs increase
C) the DC are no longer needed
D) Inventory builds up in the system
E) lower inventory leads to more stock outs.
22. Organization culture:
A) has a much stronger effect on employees' actions than compensation incentive
B) is used to guide employee behavior
C) is reinforced by social pressure from other employees
D) does not rely on written rules to guide employee behavior
E) is described by all of the above
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.23. Which of the following best describes a lifetime customer value (LTV)?
A) LTV is the value placed upon a retailer by a consumer.
B) LTV is a numerical value of how much a “best customer” shops.
C) LTV is what a customer contributes to a retailer's profits over her entire relationship with the
retailer.
D) LTV is an assessment of how many valued customers shop with a retailer.
E) LTV is what retailers use to rate the value of vendors.
24. Supermarket retailers often use vendors to manage a category because:
A) Most supermarkets are large chains.
B) Vendors make unbiased decisions
C) Vendors know more about the category and its customers than supermarkets.
D) Vendors pay the retailer to do this function
E) All of above
25. Which of the following is an example of a productivity measure?
A) cost of goods sold
B) inventory turnover
C) gross margin
D) net sales
E) advertising expenses
26. Which of the following statements describes the relationship between product availability and stock
level?
A) The greater the amount of backup or safety stock, the lower the product availability,
B) Low product availability is need for A items – the best selling items.
C) If product availability is high, the retailer will have high inventory turnover.
D) If the product availability is set too high, scarce financial resources will be wasted on needless
inventory that could be more profitably invested in more variety or assortment.
E) A very high level of product availability are achieved by lowering backup stock.
27. Why are retailers placing more emphasis on private label merchandise:
A) As the industry consolidates, retailers have the scale economies to develop their private labels.
B) Private labels are more popular with low income consumers
C) The quality of private label merchandise has increased.
D) Private brands result in competitive advantage due their exclusivity.
E) all of above
28. If you are a general merchandise manages supervising five buyers (labeled A thru E) , which the buyers
is performing the best?
A. sales to stock ratio of 10 and gross margin of 30%
B. sales to stock ratio of 7 and gross margin of 35%
C. sales to stock ratio of 5 and gross margin of 40%
D. sales to stock ratio of 4and gross margin of 55%
E. sales to stock ratio of 2 and gross margin of 65%
29. Why are inventory levels higher for retailers who source globally?
A) Lead times are longer so there is a need to maintain higher levels of safety stocks and inventory.
B) There is no way to predict the extra tariffs that will be levied by importing countries.
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C) Labels of origin are typically put on products and need to be removed upon arrival.
D) Change in fixed costs result in additional inventory.
E) Foreign distribution centers charge higher storage fees.
30. Which of the following describes one of the advantages associated with high inventory turnover?
A) increased employee turnover
B) greater probability of obsolescence
C) more money for market opportunities
D) decreased sales volume
E) all of the above
Essay Questions
A. (12 points) Urban Meyer has a sporting goods store that is frequented by college and professional athletes
His financial information is as follows:
Income Statement Information
Net Sales
Cost of Goods Sold
Total Expenses
$1,800,000
1,200,000
300,000
Balance Sheet Information
Average Inventory
Other Current Assets
Fixed Assets
400,000
200,000
300,000
Calculate the following and show all work for partial credit
(a) (3) gross margin %
GM% = (sales – cogs)/sales = (1.8 -1.2)/1.8 =33.3%
(b) (3) net profit %
Net profit margin = (sales – cogs – expenses)/sales = (1.8 – 1.2 - .3)/1.8 = 16.7%
(c ) (3) asset turnover
Asset turnover = sales/(total assets) = 1.8/(.4 + .2 + .3) = 2.0
(d) (3) return on assets
ROA = profit margin x asset turnover = 16.7 x 2.0 = 33.3% or
ROA = profit margin/total assets) = .3/.9 = 33.3%
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B. ( 5 points) If private brands have better margins and provide an opportunity for developing a sustainable
competitive through their exclusivity, why do large, well known, highly regarded retailers carry national
brands?
The most important reason is that customers are loyal to some national brands and will not patronize the
retailer if it does not offer the desired national brands..
A secondary reason is that the presence of national brands can serve as a basis for comparison with the store
brand. For example, customer might see a store brand and a national brand, feel they are similar in quality,
but select the store brand because it is cheaper. This secondary reason does not need to be mentioned to get
full credit
C. (5 points). A retailer has a gross margin of 40%. Its annual sales are $2 million. The BOM inventory at
cost for January was $100,000; for April was $150,000; for July was $150,000; and for October was
$600,000. What was the retailer’s annual inventory turnover?
Inventory turnover = COGS/average inventory = (sales – gross margin)/average inventory
= (2.0 - .8)/ (.1 +.15 +.15 +.6)/4 == 1.2/.25 = 4.8
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D.(9 points) Tiffany’s is a well known, high price jewelry store that targets upper class customers. It does
not sell its products over the Internet. Blue Nile is an internet retailer also selling expensive jewelry. It does
not have stores. If you compared the productivity measures for these two retailers, what difference or lack of
difference would you expect?
This is a difficult question to grade and be generous
(5 points) Check the appropriate box for each measure
productivity measure
Tiffany higher
gross margin
Xxxxxx – need
more margin
due to extra
services
(stores,
employees)
provided
inventory turnover
Blue Nile Higher
xxxxxx
Can’t tell
because of the
tradeoff
between asset
turnover and
profit margin
ROA
sales per square foot
sales per employee
About the same or
difficulty to tell
Xxx – very few
square feet
only
warehouse
space
xxconsolidation
and
centralization
of activities
leads to lower
costs
(4 points)Why are there differences, or no differences, in the performance measures?
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E. (4) Why should retailers be concerned about satisfying the needs of their employees?

Satisfied employees provide better customer service

Satisfied employees are more committed to the firm,, less likely to quit thus hiring and training costs
are reduced and skills and knowledge of employees are retained in the company.
extra credit (3 points) What is an SKU? Give an example of a SKU
lowest level at which inventory kept. Specific example – 32 oz Tide with bleach or 16” neck, 32” sleeve.
blue, oxford cloth, button down collar, Ralph Lauren men’s dress shirt.
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