Chapter 2 Retail Strategic Planning and Operations Management Learning Objectives Explain why strategic planning is so important and be able to describe the components of strategic planning: statement of mission; goals and objectives; an analysis of strengths, weaknesses, opportunities, and threats; and strategy. Describe the retail strategic planning and operations management model, which explains the two tasks that a retailer must perform and how they lead to high profit. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Components of Strategic Planning Strategic planning - Adapting the resources of the firm to the opportunities and threats of an ever-changing retail environment. Through the proper use of strategic planning, retailers hope to achieve and maintain a balance between resources available and opportunities ahead. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Components of Strategic Planning Strategic planning consists of four components: Development of a mission (or purpose) statement for the firm. Definition of specific goals and objectives for the firm. S(strengths)W(weaknesses)O(opportunities)T(threats) analysis. Development of basic strategies that will enable the firm to reach its objectives and fulfill its mission. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Mission Statement It is a basic description of the fundamental nature, rationale, and direction of the firm. Elements of a mission statement are: How the retailer uses or intends to use its resources. How it expects to relate to the ever-changing environment. The kinds of values it intends to provide in order to serve the needs and wants of the consumer. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Statement of Goals and Objectives Provide: Specific direction and guidance to the firm in the formulation of its strategy. A control mechanism by establishing a standard against which the firm can measure and evaluate its performance. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Exhibit 2.2 - Retail Objectives © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Statement of Goals and Objectives Market performance objectives Establish the amount of dominance the retailer seeks in the marketplace. Market share - The retailer’s total sales divided by total market sales. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Statement of Goals and Objectives Financial objectives Profit-based objectives - Deal directly with the monetary return a retailer desires from its business. Profit is the aggregate total of net profit after taxes— that is, the bottom line of the income statement. Profit can be expressed as a percentage of net sales. It can also be defined in terms of return on investment (ROI), which can be defined by—Return on assets (ROA) and Return on net worth (RONW). © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Exhibit 2.1 - Strategic Profit Model © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Statement of Goals and Objectives Financial objectives Stockouts - Products that are out of stock and therefore unavailable to customers when they want them. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Statement of Goals and Objectives Financial objectives Productivity objectives - State the sales objectives that the retailer desires for each unit of resource input. Space productivity - Net sales divided by the total square feet of retail floor space. Labor productivity - Net sales divided by the number of fulltime–equivalent employees. Merchandise productivity - Net sales divided by the average dollar investment in inventory. Productivity objectives are vehicles by which a retailer can program its business for high-profit results. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Open or acquire on store over the next four years Remodel one existing store every three years Increase operating profit margin in each story by .25 percent for each six-month period Increase clothing sales in existing stores by 10 percent over the preceding year © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategies Are a carefully designed plan for achieving the retailer’s goals and objectives. Retailers can operate with three strategies: Get shoppers into your store. Convert these shoppers into customers by having them purchase merchandise. Implement the above two strategies at the lowest operating cost possible that is consistent with the level of service that your customers expect. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 SWOT Analysis Strengths: What major competitive advantage(s) do we have? What are we good at? What do customers perceive as our strong points? Ikea Target McDonald's © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 SWOT Analysis Weaknesses What major competitive advantage(s) do competitors have over us? What are competitors better at than we are? What are our major internal weaknesses? Ikea Target McDonald's © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 SWOT Analysis Opportunities What favorable environmental trends may benefit our firm? What is the competition doing in our market? What areas of business that are closely related to ours are undeveloped? Ikea Target McDonald's © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 SWOT Analysis Threats What unfortunate environmental trends may hurt our future performance? What technology is on the horizon that may soon have an impact on our firm? © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Building competitive advantage Physical differentiation The selling process After-purchase satisfaction Location Never being out of stock © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategies The retailer must develop a retail marketing strategy with strong financial elements. A fully developed marketing strategy should address the following considerations: the specific target market, location, the specific retail mix that the retailer intends to use, and the retailer’s value proposition. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Strategies Target market - Group of customers that the retailer is seeking to serve. Location - Geographic space or cyberspace where the retailer conducts business. Retail mix - Combination of merchandise, price, advertising and promotion, location, customer service and selling, and store layout and design. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Strategies Value proposition - A clear statement of the tangible and/or intangible results a receives from shopping at and using the retailer’s products or services. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 1 Exhibit 2.6 - Retail Strategic Planning and Operations Management Model © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 2 The Retail Strategic Planning and Operations Management Model Operations management - Deals with activities directed at maximizing the efficiency of the retailer’s use of resources. It is frequently referred to as day-to-day management. The need to strive for a high profit is tied to the extremely competitive nature of retailing. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. LO 2