ICSC European Retail Property School
RETAILING PRINCIPLES
TENANT RETENTION
Introduction and Overview
I. Retailing defined
II. Retailer Classifications
III. The Retailer’s Organizational Structure
IV. Understanding Retail Math
V. Retail Real Estate Research
VI. Sales Analysis Format
VII. Tenant Retention Principles
VIII.Basic Communication
IX. Retailer Participation
X. Conclusion
RETAILING DEFINED
Retailing
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Retailing is an activity that includes all functions
associated with the sale of goods and services to the
ultimate consumer for personal non business use. It is
the final activity in a distribution channel that links
manufacturers with customers.
Retailers are middlemen whose primary business is
selling the goods and services to the ultimate
consumer for their personal non business use.
A retail establishment is a separate place of business
that is engaged primarily in selling to individuals for
their personal or household consumption.
RETAILER CLASSIFICATIONS
The Retailer’s Ownership Structures
The retail structure can be classified in many ways,
including ownership and merchandise offered.
A classification of retailers facilitates an understanding of
retail evolution, growth and change.
It aids government officials in analyzing the impact of
retailing on the economy and assists management in
developing strategy to increase profit.
The Retailer’s Ownership Structures
By ownership:
• Local Store/ Individual Owner are single stores. They
usually operate as a majority of all retail stores and
account for the large portion of all retail sales.
• Chains consist of 2 or more stores that sell substantially
the same type of goods and or services. They usually
have some centralization of decision making in defining
and implementing their strategy.
- National Chains
- Regional Chains
- Global Chains
The Retailer’s Ownership Structures
By ownership:
• Franchises are stores that use a name and a format
developed and supported by the franchisor. The
franchise agreement between the franchisee and the
franchisor spells out the terms and control over store
operations.
• Leased departments are departments or stores within a
retail store. The space they occupy is leased from the
primary operator of the store.
Traditional Retailers
Department Stores:
• Traditional Department Store:
A large store with a broad variety and deep assortment
of shopping and specialty goods including home
furnishings, apparel for men, women and children, linens
and house ware. They offer extensive customer service,
store credit and branded merchandise.
• Specialty Department Store:
A department store with a broad variety and deep
assortment in a more limited line of merchandise than
the traditional department store. They do not handle
furniture or appliances.
Traditional Retailers
Department Stores:
• Promotional Department Store:
A department store with a broad variety but less deep
merchandise assortment with more emphasis on self service.
The store mark-up and cost structures are significantly less
than the traditional or specialty department store.
• Mass Merchandisers:
A store with a discount image handling not less than 3
merchandise lines in a floor space of not less than 10,000
Sq.Ft. E.g. discount department stores, Super drug stores.
Traditional Retailers
• Specialty Stores:
They offer a narrower line of goods than single line
stores and provide a high level of service in stores of
less than 8,000 Sq.Ft.
Contemporary General Merchandise Retailers
• Category Specialists:
A discount store that offers a narrow variety but deep
assortment of merchandise in stores over 8,000 sq ft.
• Home Improvement Centers:
A category specialist that combines the traditional
hardware store and lumber yard focusing on providing
material and information that enables do it yourselfers to
maintain and improve their homes.
Contemporary General Merchandise Retailers
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Wholesale clubs:
A general merchandise retailer that offers a limited
merchandise assortment with little service at low prices to
selected groups of consumers and small businesses who pay
an annual membership fee.
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Off-Price/ Factory Outlet Stores:
A retailer that offers an inconsistent assortment of brand
name, fashion oriented soft goods at low prices.
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Local Market
A retailer that offers goods for short time needs. Mostly
traditional and near by the living area. Might not need always a
shop.
Food Retailers
• Conventional Supermarkets:
A self-service food store offering groceries, meat, produce with
annual sales of over $ 2 million and size of under 20,000 Sq.Ft.
• Superstores / Supercenters:
Superstores are large supermarkets ( 20,000 – 50,000 Sq.Ft ).
Supercenters are typically over 150,000 Sq.Ft.
• Hypermarkets (Hypermarche):
A large retail operation combining the features of a supermarket and
discount store traditionally in a warehouse atmosphere. They stock a
wide range of general merchandise and food items.
• Convenience Store:
Store that provides a limited variety and assortment of merchandise
in a convenient location in 3,000 – 8,000 Sq.Ft with speedy checkout.
• Home delivery/ internet
Non store retailing
• Direct marketing
Customers are exposed to merchandise through an impersonal
medium and then purchase the merchandise by:
– Catalog
– TV Home Shopping
– SMS/Text Sales
• Internet/Transactional Websites
• Direct to Home
• Vending Machines:
Machines which a customer can get food or merchandise
after making a payment by cash or credit card.
Service Retailing
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Auto rental companies
Auto repair and service stations
Child care centers
Fitness centers/ health spas
Home maintenance companies
Hotels and motels
Income tax preparers
THE RETAILER’S ORGANIZATIONAL
STRUCTURE
THE RETAILER’S ORGANIZATIONAL STRUCTURE
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Executive Management
Sales and Marketing
Merchandising Management
Operational and Store Management
Administrative Management
THE RETAILER’S ORGANIZATIONAL STRUCTURE
Executive Management:
Board of Directors,
Chairman,
President & Vice President(s)
Responsibilities:
- Develop Retail Strategy
- Identify Target Market
- Determine Retail Format
- Design Organizational Structure
THE RETAILER’S ORGANIZATIONAL STRUCTURE
Sales & Marketing Management
Promote the firm, its merchandise and services
Plan communication program
Select media
Plan special days
Manages public relations
THE RETAILER’S ORGANIZATIONAL STRUCTURE
Merchandise Management
Merchandise buyers and planners buy and allocate merchandise
Responsibilities:
- Buy Merchandise
- Locate, evaluate and negotiate terms with vendors
- Place orders
- Control merchandise budget plans
- Allocate merchandise to stores
- Review open to buy and stock
- Price merchandise
- Set initial prices
- Adjust prices
THE RETAILER’S ORGANIZATIONAL STRUCTURE
Operational and Store Management
District Manager, Store Manager, Department Manager
Responsibilities:
- Recruit, hire, train store personnel
- Plan work schedules
- Evaluate store personnel
- Maintain store facilities
- Locate and display merchandise
- Sell merchandise
- Take inventory
- Prevent inventory shortage
- Provide services such as gift wrapping and delivery
THE RETAILER’S ORGANIZATIONAL STRUCTURE
Administrative Management
Human Resources, Finance, Marketing, Research, Real
Estate, Construction, MIS, Logistics, Loss Prevention.
Responsibilities:
1. Human Resources
- Develop policies for store personnel
- Recruit, hire, train managers
- Plan career paths
- Keep employee records
THE RETAILER’S ORGANIZATIONAL STRUCTURE
Administrative Management
2. Finance
- Establish financial systems
- Prepare financial reports to forecast sales, profits and cash flow
- Bill customers
- Provide credit
- Raise capital from investors
3. Research
- Determine customer profile
- Measure effectiveness of promotion campaigns
- Evaluate how store brand merchandise and service are
perceived by customers
THE RETAILER’S ORGANIZATIONAL STRUCTURE
Administrative Management
4. Real Estate
- Select new store locations
- Negotiate lease term
- Renew existing leases
- Dispose of under performing locations
5. Construction
- Carry out building inspections for new locations
- Design fixtures and store lay-out
- Construct store
- Refurbish existing stores
THE RETAILER’S ORGANIZATIONAL STRUCTURE
Administrative Management
6. MIS
- Develop systems to process information to effectively operate
the store
7. Logistics
- Locate warehouses
- Receive, mark, label merchandise
- Store merchandise
- Distribute merchandise to stores
- Return unsold merchandise to vendors
8. Loss Prevention
- develop systems to reduce merchandise loss
Understanding Retail Math
RETAIL MATHEMATICS
a) Trade discounts
In order for a retailer to buy efficiently it is
important that the retailer understand how to
negotiate for trade discounts.
Some suppliers or manufacturers prefer to try to
control the price their merchandise is sold at by
selling the merchandise to the retailer with a
suggested or recommended retail price they want
the retailer to sell the merchandise for.
RETAIL MATHEMATICS
a) Trade discounts & Prices
• The List Price:
This is the retail price, suggested or recommended by the
manufacturer.
• The Trade Discount:
This is the manufacturer’s or supplier’s discount from the
suggested list price expressed as a percentage.
• The Retailer’s Cost Price or Net Price
This is found by multiplying the list price by the compliment
of the trade discount percentage. The compliment is 1.0 –
the trade discount
RETAIL MATHEMATICS
a) Trade discounts & Prices
Example 1:
Determine the retailers cost price when a trade
discount is offered.
A line of baseball gloves have a suggested retail
price for each glove of €50.00.
The retailer is offered a trade discount of 40%.
What will the the retailers cost price be?
RETAIL MATHEMATICS
a) Trade discounts & Prices
In some cases the supplier will offer several discounts to
encourage the retailer to buy more of the product.
Series Discounts
Represent a number of discounts offered by the
manufacturer to a retailer.
To Find the cost price the retailer would pay when a series
of discounts is offered, the retailer multiplies the list price or
suggested retail price by the compliment
(1.00 – the discount) of each of the discounts.
RETAIL MATHEMATICS
a) Trade discounts & Prices:
Example 2:
Determine the retailers cost price when a
series discount is offered.
A bath towel has a suggested retail price of
€20.00 per towel and the retailer is allowed a
series discount of 30%, 10% and 5%.
What is the retailers cost price?
RETAIL MATHEMATICS
a) Trade discounts & Prices
It is useful for a retailer to be able to compare the
series discount a manufacturer might offer to a single
discount offered by other manufacturers.
The single discount equivalent is equal to a series of
discounts offered by a manufacturer and is expressed
in a single percent.
RETAIL MATHEMATICS
a) Trade discounts & Prices:
The single discount equivalent is equal to: 1.0 minus
the compliment of the series of discounts multiplied by
each other
Example 3:
Find the single discount equivalent to a series
discount of 30%, 10% and 5%.
RETAIL MATHEMATICS
b) Cash Discounts:
Cash discounts are important to the retailer to
increase profitability while trade discounts may
always be taken by a retailer, cash discounts may
only be taken for payment of an invoice on or in
advance of a specified time.
The manufacturer grants the cash discount as an
inducement to get the retailer to pay promptly.
RETAIL MATHEMATICS
b) Cash Discounts:
A cash discount consists of 3 parts:
1. A percentage discount
2. A period of time in which the discount may be taken
3. A net period which determines the date by which the
full amount of the invoice must be paid.
RETAIL MATHEMATICS
b) Cash Discounts:
A cash discount of 3/10, N 30 means that the manufacturer will
allow the purchaser a cash discount of 3% from the invoice
amount if paid within 10 days of the date of the invoice and the
net amount of the invoice is due within 30 days of the date of
the invoice.
It is important for the retailer if he has the cash or borrowing
ability to take the cash discount since the real interest rate
savings on an annual basis are much greater than the 3% in
the previous example.
The 3% discount represents a discount for paying within 10
days. The whole amount of the invoice would have to be paid
in 30 days. So the 3% discount is obtained by paying 20 days
in advance.
RETAIL MATHEMATICS
b) Cash Discounts:
The effective annual interest rate savings would be:
3.0 X 365 = 54.8%
20
The most important cash discount terms are:
D.O.I. – Date of Invoice Ordinary Dating
R.O.G. – Receipt of Goods
RETAIL MATHEMATICS
c) Mark – Up:
The price retailers charge for their merchandise
(Retail Selling Price) must cover the cost of the
merchandise (cost), anticipated expenses in
connection with selling the merchandise, and a
profit.
The retailers mark – up is the difference between
the retail selling price of the merchandise and the
cost of the merchandise.
RETAIL MATHEMATICS
c) Mark – Up:
Expressed as an equation:
Retail Pr. = Mark–up + Cost
or:
Mark–up = Retail Pr. – Cost
or:
Cost
= Retail Pr. – Mark - up
RETAIL MATHEMATICS
Example 6:
A baseball glove was bought from a manufacturer by a
retailer for €30.00 and sold for €50.00. Find the Mark–
Up.
When MU is expressed as percent it can be expressed as a
percent of retail or cost.
MU% on Retail =R-C x 100
R
MU% on Cost = R-C x 100
C
Example 7:
In the above example:
What is the mark-up percent on retail?
What is the mark-up percent on cost?
RETAIL MATHEMATICS
d) Initial Mark – Up:
We have determined how a retailer sets the price for
individual items of merchandise.
We also know that events will occur that will affect the
initial MU percent that the retailer establishes. We
know that retailers take reductions in the selling price
of their merchandise either voluntarily or involuntarily
to reflect:
Employee discounts:
Most stores offer their employees discount of 10% to
40%.
RETAIL MATHEMATICS
Stock shortage:
This is the shrinkage or loss of merchandise inventory
through theft by the employee or customer.
Mark downs:
The selling price of the merchandise does not always remain
the same although the invoice cost does. Mark downs are
taken to reflect, among other things, buying errors (wrong
sizes, wrong colors), unusual seasonal weather (below
average snow, unusually cool summers).
Reductions =
Employee Discounts, Stock Shortages and Mark Downs.
RETAIL MATHEMATICS
Other things that affect the initial mark – up and
maintained
mark – up besides reductions are:
Alteration Expenses:
Some types of merchandise need adjustments to fit the
customer – shortening sleeves on suits and sports
jackets, turning up cuffs on pants etc. If the service is
provided free, then this cost will reduce the profit on the
sale of the goods. The initial mark-up must be planned
to be large enough to cover the expenses generated by
the alteration service. Alteration expenses are usually
treated separately from operating expenses.
RETAIL MATHEMATICS
Cash Discounts:
As we have already learned, cash discounts are offered to
retailers for the prompt payment of accounts.
When an invoice is paid early and the retailer receives a
cash discount, this reduces the price of the merchandise
and as a result this increases the final mark-up obtained by
the store. The retailer usually does not reduce the cost
price of the merchandise by the amount of the cash
discount in calculating the mark-up since the buyer has no
control over whether the company has sufficient funds
available to allow them to pay the invoice early and take
the discount. The retailer usually calculates the mark-up on
billed cost rather than actual cost.
RETAIL MATHEMATICS
Initial mark-up is the first mark-up placed on an item and is
used to calculate the original retail price the merchandise will
be sold for.
The initial mark-up must cover operating expenses, net
profit, alteration expenses, reductions, minus cash discounts:
Initial MU % =
Operating Net
Alteration
Cash
100.0 X Expenses + Profit + Expense + Reductions - Discounts
Net Sales + Reductions
RETAIL MATHEMATICS
Example 8:
Find the initial MU % in a department that has the
following planned figures for the spring/ summer
season.
Net Sales
€200,000
Net Profit
10,000
Operating Expenses 78,000
Alteration Expenses 3,000
Markdowns
€6,000
Employee discounts 1,000
Stock shortages 2,000
Cash discounts 2,000
RETAIL MATHEMATICS
e) Maintained Mark - Up
As we have discussed, if the retailer finds the merchandise
isn’t selling he takes a mark-down. Other things affecting final
mark-up are stock shortages and employee discounts. Markdowns, stock shortages and employee discounts are referred to
as reductions.
The formulas for maintained mark-up in $ and % are:
Maintained Mark-Up% = IMU% (100%+Reductions %) –
Reductions %
Maintained mark-up % = 100 x maintained MU $
Net sales
Maintained Mark-Up $ = IMU% (Net Sales $ + Reductions $) –
Reductions $
RETAIL MATHEMATICS
Example 9:
A buyer of a department expects to have reductions of 5%
during the coming season and plans an initial mark-up of
40%. Find the maintained mark-up planned by the buyer.
Example 10:
A sporting goods department plans the following figures:
Gross sales $300,000
Employee discounts
$5,000
Sales returns 15,000
Stock shortage
2,000
Markdowns
20,000
Initial Mark-Up
40.0%
Find the maintained mark-up US$.
Find the maintained mark-up %.
RETAIL MATHEMATICS
f) Mark Downs
To determine the markdown percent that a retailer may take to
achieve a specific maintained mark-up after he has
established his initial mark-up, the retailer uses the following
formula:
Reductions % = IMU % - MMU % x 100
I-IMU %
Example 11:
A toy department plans a MMU % of 40%. The buyer’s initial
mark-up for the department is 45%. What is the maximum
markdown percent the buyer could take?
RETAIL MATHEMATICS
g) Gross Margin:
Gross Margin is the final mark-up that is obtained by
the retailer upon selling the merchandise in inventory.
GM = Initial Mark Up(%) – markdowns + discounts
/ Gross margin %
Example 12:
A menswear department has the following planned
figures:
Net Markdowns 7.0% Alt. Expenses
2.0%
Cash Discounts 2.0% Initial Mark-Up 38.0%
Find Gross Margin Percent.
RETAIL MATHEMATICS
h) Stock Turnover:
Stock turnover measures the degree of balance between the
retailer’s inventory and the retailer’s sales. Stock turnover
measures the speed with which merchandise moves into
and out of a department or store.
Stock turnover is defined as the number of times during a
specific period, usually a season (spring-summer or fallwinter) or year, that the average inventory on hand during
that period has been sold.
If a menswear store reports a stock turnover of 3.0 it would
mean that the store turned over its average stock 3 times
during the reporting period.
RETAIL MATHEMATICS
h) Stock Turnover:
Stock Turn =
Sales per year
Average inventory
Exp: €1.000.000 / € 250.000 = 4 turns
RETAIL MATHEMATICS
h) Stock Turnover:
Example 14:
Find average stock required to achieve a
planned stock turnover.
A ski shop has planned net sales of €200,000 with a
planned stock turnover of 3. What should the store’s
average stock be?
RETAIL REAL ESTATE RESEARCH
RETAIL REAL ESTATE RESEARCH
a) Types of locations:
Central Business District – CBD
Neighborhood Centers
Community Centers
Regional Centers
Super Regional Centers
Power Centers
Specialty Centers.
RETAIL REAL ESTATE RESEARCH
b) Retail Location Strategy:
1. Select the city by analyzing:
– Progressiveness
– Demographics
– Economy
– Competition
RETAIL REAL ESTATE RESEARCH
b) Retail Location Strategy:
2. Select the area in the city by:
– Drawing the trade area for the location
– Determining
the
demographic
and
psychographics
characteristics of the trade area population.
– Match the demographics and psychographics of the trade area
population with those of the retailers target customer.
– Estimate the market potential in the trade area for the category
of merchandise being sold by the retailer.
– Determining the sq ft size and current sales of the competition
in the trade area.
– Determining the strengths and weaknesses of the competition
– Estimate the potential sales that could be achieved in a 100%
location
RETAIL REAL ESTATE RESEARCH
b) Retail Location Strategy
3. Select the specific site
– Are there any market changes that will affect the
quality of the location in the foreseeable future?
– Determine the location quality based on the
pedestrian traffic passing the retail location.
– Identify retail adjacencies that have similar
customers
– Compare the tenancy costs of locations.
– Does the store front and signing make a strong
external statement.
RETAIL REAL ESTATE RESEARCH
b) Retail Location Strategy:
– Are the legal and business terms of the lease
reasonable?.
– Estimate potential sales for the store.
– Estimate construction and fixture costs for the
store.
– Prepare a 10 year profit and loss statement to
measure: Return on Investment, Internal Rate
of Return and Payback.
RETAIL REAL ESTATE RESEARCH
c) Store Space Planning:
• Profitability
• Seasonality
• Merchandise Considerations
• Trends
• Visual impacts.
SALES ANALYSIS FORMAT
SALES ANALYSIS FORMAT
• Summary of Monthly Sales
– Euros Per Square Meter (Month & YTD)
• Centre
• Merchandise
• Category
– Percentage Comparisons (Month & YTD)
• Centre
• Category
• Total Sales vs. Comparison Sales
– Category Sales Summaries
• Sales Per Square Meter
• Individual Category Leaders
TENANT RETENTION PRINCIPLES
TENANT RETENTION PRINCIPLES
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Identification desirable & undesirable tenants
History of retailer
Financial stability
Operational considerations
Problem identification
Proposed strategy & solution
BASIC COMMUNICATION
LANDLORD & TENANT
BASIC COMMUNICATION
a) Landlord Tenant Partnership:
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Work with the tenant to help him maximize
sales
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Provide information to help retailer determine
how he is doing
•
Schedule regular visits with the tenant to
discuss mutual concerns
BASIC COMMUNICATION
b) Landlord Tenant Contacts
Pre-opening:
• Leasing agent:
- the first contact with the tenant
• Construction coordinator:
- Initiate contact with the retailers construction
management as soon as possible
- Provide Construction Handbook
- Meet with the tenants general contractor,
Superintendent
- Facilitate permit process, using local resources
BASIC COMMUNICATION
b) Landlord Tenant Contacts
• Tenant Coordinator:
- Creates and provides the tenant information kit:
- Phone numbers/ General Contractors list
- Building inspectors and utilities numbers
- Sign requirements
- Rules and regulations
- Procedures
- Contacts
- Sales and rent payments
- Emergency Information
BASIC COMMUNICATION
b) Landlord Tenant Contacts:
Post-opening
• Property Manager:
- Meets the tenant
- Liaison between Leasing, Construction, Marketing,
Operations
• Marketing Director:
- Communicates with merchants
- Visits merchants frequently
- Develops the marketing plan
- Plans and executes events
- Hires and trains customer service staff
BASIC COMMUNICATION
b) Landlord Tenant Contacts:
Post-opening
• Maintenance/ Service Charge Liaison:
- Meets the tenant
- informs about common area charges
• Retailer Associations:
- meets on a regular rhythmus (mostly once a year)
- «we» feeling
- direct feed-back from tenants
- best platform for informing for marketing and positioning
BASIC COMMUNICATION
c) Types of Communication:
•
The marketing plan
- Marketing objectives
- Retailer retention plan
- Merchant communication plan
- The market
- Zip codes
-Tourism
- Competition
- Media
- Calendar
BASIC COMMUNICATION
c) Landlord Methods of Communication:
• The welcome kit:
- The formal procedure
- Everything you need to know about the center
• The merchants handbook:
- Weekly memos
- Newsletters
- Center meeting notes
- Current marketing promotions
- Store listings
- Center maps
BASIC COMMUNICATION
c) Landlord Methods of Communication:
• Memos
Make it visible
• Newsletters
Wednesday newsletter
Quarterly newsletter
BASIC COMMUNICATION
c) Landlord Methods of Communication:
• The merchants advisory board
- Merchants input
- Participation
- Feedback
- Marketing funds
- Communication
- Advertising funds
- Sponsorship
BASIC COMMUNICATION
c) Landlord Methods of Communication
• Daily sales programs:
- Helps identify trends
- Can be cumbersome, time consuming,
with limited participation and results
• Incentive programs:
- Special events participation
- Employee/ Store of the month
BASIC COMMUNICATION
c) Landlord Methods of Communication:
• Merchant meeting:
- Formal v. Informal format
- Store participation
- Guest speakers
- Issues related
• Telefon & email
BASIC COMMUNICATION
c) Landlord Methods of Communication
• Other meetings:
- Annual meetings
Celebrate the year’s performance
Create a special edition of the newsletter
Celebrate the holidays, renovation announcements
- Category meetings
Merchants buy into the plan, Needs bases
- Anchor Store meetings
RETAILER PARTICIPATION
RETAILER PARTICIPATION
• Participation Strategies
Create ways to inspire retailers:
• Monthly sales increases percentages
• Acknowledgement of stores
• Personal notes
• Prizes
• Lunch
• Brainstorming to discuss retailers problems
• Store visits
• Committees
• Encouragement
• Events and Promotions
• Joint Marketing Activity
RETAILER PARTICIPATION
• Type of Research (Follow up tactics):
- Event evaluation forms
- Sales analysis
- Tenant surveys
- Retailer focus groups
- Customer comment cards
- Sharing information at merchants meetings
RESOURCES FOR
INFORMATION
Books
- Dictionary of Retailing & Merchandising Terms
Jerry M. Rosenberg
- Essentials or Retailing
Michael Levy, Barton A. Weitz
- Shopping Center Marketing
International Council of Shopping Centers
- Shopping Center Tenant Relations
International Council of Shopping Centers
Useful Websites
www.icsc.org - International Council of Shopping Centers
www.nrf.com - National Retail Federation
www.retailindustry.about.com - About.com Guide
www.stores.org - Stores Magazine
www.entrepreneur.com - Entrepreneur Magazine
www.imra.org - International Mass Retail Association
www.rama-nrf.org - Retail Advertising and Marketing
Association
SUMMARY
Q & A’ s
Important: Video / Movies
ICSC European Partners
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ICSC European Partners