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.
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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.
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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
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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
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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
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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
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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