Examination 2
MAR 3231 Introduction to Retail Systems and Management
Spring 2008 Section 4053
Grading Key
This exam is open notes. There are 80 points on the exam – 5 points are extra credit
(50 points) Answer all 25 questions. Your score for these questions is two point for
each correct answer. Circle the best answer for each question.
1. Customer needs and preferences for grocery products differ greatly across the U.S.
What organization form would you suggest for a national supermarket chain?
A. centralization
B. Mazur structure
C. decentralization
D. organic
E. hierarchical
2. Which of the following types of retailers is characterized by low asset turnover but
high margins:
A. Supermarket
B. Jewelry specialty store
C. Apparel specialty store
D. Automobile dealership
E. Department store
3. The average sales per square foot of department stores in the U.S. is approximately:
A. $2
B. $20
C. $200
D. $2,000
E. $20,000
4. What is the most important factor in choosing a site for a convenience store like 7Eleven?
A. The demographic characteristics of the trade within a 60 minute drive time to the
locations.
B. The foot traffic going by the location
C. The amount of traffic driving by and the accessibility to the location.
D. The number of parking spots parking spots
E. The nature of the other retailers located near or at the site.
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5. Comparable (or same store) sales growth
A. Compares the sales growth of retailer with the sales growth of its competitors
B. Compares the growth in net sales of retailer with its net sales the previous year
C. Does not consider the growth in the retailer’s sales due to the opening of new stores
during the past year
D. Reflects the effectiveness of a retailer in opening new stores and acquiring
comparable retailers.
E. Has nothing to do with evaluating a retailer’s performance
6. The advantage from the retailer’s perspective of an enclosed mall store location
compared to a stand alone site is:
A. lower rents
B. greater attraction of potential customers to the general location
C. smaller trading areas
D. more vehicular traffic
E. convenient parking
7. Organization cultures are developed and maintained through:
(a) employee specialization
(b) extensive interactions with customers
(c) stories and symbols
(d) high salaries
(e) advertising campaigns
8. Lifestyle shopping centers:
A. are typically anchored by a supermarket
B. are enclosed malls
C. typically have restaurants as well as specialty stores
D. are enclosed to protect consumers from the weather
E. none of above
9. What a factor affect the size of retailer store’s trading area?
A. The uniqueness of the retailer’s offering
B. The attractiveness of the other store’s located in the same area
C. The roads and highway near the store’s location
D. The traffic congestion in the area near the store
E. All of the above
10. When a retailer responds to an economic downturn by putting a freeze on salaries,
laying off sales associates, and hiring more part-time workers, it’s employees tend to
respond with
A. Higher levels of job satisfaction
B. Provision of better customer service
C. More motivation and effort
D. None of the above
E. all of the above (A through C)
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11. Which of the following is an advantage of the centralized buying of merchandise:
A. coordinates buying and store management better
B. better tailor merchandise to the needs of local customers
C. use more buyers
D. get merchandise at lower costs from suppliers
E. increase diversity in buying organization
12. Retail distribution centers use cross docking to:
A. reduce the chances that hazardous materials will spill on people
B. give the retailer a chance to go through the carton to make sure that everything is there
C. enable inbound shipments to be stored easily in the warehouse
D. lower the cost of distributing merchandise to stores
E. make sure that all trucks going to stores are full
13. If you owned a retail store, which of the following financial results would you rather
have:
A. asset turnover of 15 and net profit margin of 2%
B. asset turnover of 3 and net profit margin of 12%
C. asset turnover of 5 and net profit margin of 5%
D. asset turnover of 7 and net profit margin of 4%
E. asset turnover of 9 and net profit margin of 3%
14, Which of the following is an advantage of using distribution centers (DC) over direct
store delivery?
A. The DCs can always deliver faster than a vendor.
B. The DCs have the advantage of keeping backup stock in the store.
C. The DCs enable the retailer to carry less merchandise in the system.
D. The DCs increases inventory in the system.
E. There are no advantages of DCs over direct store delivery
15. Wal-Mart supercenters attract customers from a wide geographic area; therefore, the
primary consideration for selecting a site for a super center is:
A. occupancy cost
B. pedestrian traffic
C. automobile traffic
D. visibility from the road
E. demographics of population living within a five mile drive
16. Managing diversity means
A. trying to get everyone to think and act alike to avoid problems
B. simply obeying all equal employment opportunity laws
C. using the same approach to deal with each employee
D. treating each employee as a unique individual as long as it does not affect the
treatment they get
E. accepting and valuing how employees differ from each other
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17. Organization cultures are developed and maintained through:
A. employee specialization
B. stories and symbols
C. high salaries
D. advertising campaigns
E. None above
18. Which of the following is NOT a benefit of an efficient supply chain?
A. reduced lead time
B. increased product availability
C. lower inventory investment
D. better assortments
E. reduced logistic expense
19. CRM is based on the philosophy that retailers can increase their profitability by
A. providing better assortments
B. expanding their services
C. extending hours of operation
D. building relationships with their better customers
E. building better relationships with vendors
20. EDI is:
A. an technique for developing a retail strategy
B. a new type of retail location
C. an approach for selecting merchandise
D. a method for sending data and purchase orders to suppliers
E. a new brand for men’s sports shirts
21. Which of the following statement about frequent shopper programs is correct?
A. These programs encourage customers to shop at different stores.
B. Customers like to carry a lot of frequent shopper program cards with them.
C. Frequent shopper cards make it easier for retailers to create a customer data base
D. A retailer needs to increase their assortments to make it work.
E. Vendors need to be ready for faster replenishment
22. What happens when retailers and vendors do not coordinate their supply chain
management activities?
A. prices drop.
B. prices increase
C. fewer DCs are needed
D. Inventory builds up in the system
E. lower inventory reduce stock outs
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23.Why is constructing a customer database for CRM more difficult for customers
making transactions in the stores versus over the Internet?
A. Customer returns to the store confound the data.
B. Store purchases with cash can be anonymous.
C. Store customers are not interested in sharing personal information.
D. Availability of store assortments are not always similar to website assortments.
E. None of the above.
24. A retailer should:
A. identify its unprofitable customers and try to get them to buy more high margin
merchandise.
B. due to legal requirements, offer the same prices and service to all customers
C. try to get as many new customers as possible
D. focus on the 20% of its customers who account for 80% of its business
E. a retailer should do all of the above.
25. Although having information about individual customers enables retailers to provide
more benefits to their better customers, consumers are concerned about
A. too many price promotions
B. becoming to loyal
C. invasion of their privacy
D. the lack of product information
E. retail data mining
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Part II (30 points)
A. (5 points) What is RFID and what are the advantages and disadvantages of using
RFID?
RFID (radio frequency identification) are tiny transmitter that are placed on merchandise
or shipping cartons. Information about the product such as price or what is in the carton
can be acquired electronically even if the tag can not be seen. Thus RFID reduces the
cost of scanning products at checkout or identify what is in the carton and where it is to
be sent making store and distribution center operations more efficient. The disadvantage
is that the transmitter chips are very costly
B. (12 points) Sandy Koufax has a sporting goods store that is frequented by professional
athletes His financial information is as follows:
Income Statement Information
Net Sales
Cost of Goods Sold
Total Expenses
Net profit
$1,800,000
1,200,000
300,000
300,000
Balance Sheet Information
Average Inventory
Other Current Assets
Fixed Assets
Total assets
400,000
200,000
300,000
900,000
Calculate the following and show all work for partial credit
(a) (3) gross margin %
(1,800,000 – 1,200,000)/ 1,800,000 = 33%
(b) (3) net profit %
(1,800,000 – 1,200,000 - $300,000)/ 1,800,000 = 16.67%
(c ) (3) asset turnover
$1,800,000/($400,000 + $200,000 + $300,000) = 2.0
(d) (3) return on assets
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16.7 x 2 =33.3%
Or
$300,000 profit / total assets $900,000 = 33.3%
C. (5 points) In an enclosed mall, fast food restaurants are typically located in an area
know as a food court. What are the advantages and disadvantages of these food court
locations from the perspectives of the fast food restaurants?
While locating near each other enables customers to easily compare offerings and
potential rake sales from each other, the principle of cumulative attraction suggests that
by locating near each other more potential customers will be drawn to the area and both
stores will benefit by in effect splitting a bigger pie.
D. (8 points) The data below shows the performance of a national chain of department
stores and a national chain of discount stores.
Department Store Chain
2008
2007
2006
Gross margin %
Operating expenses% of
sales
Profit% pre-tax
Asset turnover
ROA
Sales per square feet
Inventory turnover
Sales per employee
Comparable store growth
Discount Store Change
2008
2007
2006
39%
42%
43%
12%
10%
10%
30%
9%
1.00
9%
188
2.9
139,000
3%
29%
13%
1.00
13%
192
3.0
137,000
4%
28%
15%
1.00
15%
199
3.1
136,000
6%
8%
4%
3.00
12%
826
12
436,000
8%
8%
2%
2.50
5%
771
11
413,000
8%
8%
2%
2.5
5%
751
10
395,000
7%
A. (4) Based on this data which store would you invest in (by stock in)? In other
words which company has the brightest future? Why?
The discount store has a brighter future. First its ROA is greater and it is trending up as
are all of the resource productivity numbers.
B. (4)Why do the retailers have such different inventory, space, employee, and asset
productivity measures and different gross margins?
Department stores typically sells more fashionable merchandise, stock more SKUs, have
more clearance markdowns, sell more exclusive brands (private labels), and provide more
service. Thus they will typically have higher gross margin percent, higher net profit
percent, lower inventory turnover, higher sales per employee and per square foot, and
more expenses as a percent of sales ( generally have more salespeople)
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Discount store focus on lowering costs and prices, have lower gross margin and net profit
margin percent, lower expenses (self-serve), higher asset turnover, and higher sales per
square foot and sales per employee
E. extra credit (5 points) Marcia Tanner is making a business plan to open a used
computer store. She is planning on buying used computers for an average of $200 a
computer and reselling them for an average of $400 per computer. Her fixed expenses
for the lease on the building, leasing a computer for inventory control, the costs for
running the business including service people, and her salary are $300,000 per year. She
plans to pay all of her other employees a commission based on their sales. The
commission will be 10% of sales. Her other variable costs will be advertising and
promotion which she has budgeted at 10% of sales. Show all of your work if you want
partial credit.
(3)What is her breakeven sales?
Breakeven = fixed cost / (gross margin % - variable cost)
= 300,000 /(.5 – .2) = 1,000,000
Gross margin % = (400 – 200)/ 400= .50
Variable cost = 20%
(2) What would her breakeven sales be if she had to buy used computers at $300 a piece
instead of $200 a piece?
Breakeven = fixed cost / (gross margin % - variable cost)
= 300,000 /(.25 – .2) = 6,000,000
Gross margin % = (400 – 300)/ 400= .250
Variable cost = 20%
Some students might solve this for the breakeven unit sales rather than the dollar sales
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