Competitive Retail Strategy For Fashion Merchandise New

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 COMPETITIVE RETAIL STRATEGY FOR FASHION MERCHANDISE ArunKumar Arunachalaiah - Retail Consultant Em ail – aarun9677@hot mail.com, Mobile: 9740067765 ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 1

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Contents Introduction Emerging Trends in Retail Sector – India Story Page - 01 Industry Overview – Indian Retail Sector Page 02 - 07 Oppurtunities,Threats and Risks in Indian Retail Sector Page 08 - 10 An intuitive assumption Page - 11 Need for Topic – Retail Strategy for Fashion Merchandise Page 13 - 15 Project Objectives and Scope Page 16 - 19 Retail Marketing Strategy Market Penetration Page 23 - 24 Pricing Page 25 - 27 Store Location Approach Page 28 - 29 Establishing a Retail Brand Image Page 30 - 34 Planning and Forecasting Forecasting Demand Page 35 - 36 Merchandise Planning and Category Management Page 37 - 39 Merchandise Budget Plan for Fashion Merchandise Page 40 - 41 Procurement and Inventory Management Supplier Scoring and Assessment Page 42 - 43 Supplier Contract Administration Page 44 Vendor Management Page 45 Inventory Management Page 46 - 49 ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 2

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Retail Operations Management Store Layout Designing and Visual Merchandising Page 51 - 61 Customer Service Management Page 62 - 63 Store Facility Management and Maintenance Page 64 Loss Prevention Page 65 - 66 Store Operations Parameters Page 67 - 68 Supply Chain Management Framework Page 69 - 76 Summary Report and Conclusion Page 77 Annexures Proposal Page 78 - 80 References Page 81 ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 3

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Emerging Trends in Retail Sector – India Story It is beyond doubt that Retailing in India is the most attractive sector of this decade. While the retailing industry itself has been present through the history in our country, it is only in the recent past that has witnessed so much dynamism and growth. It’s the latest bandwagon that has witnessed hordes of players leaping onto it. While international retail store chains have caught the fancy of many travellers abroad, the action was missing from the Indian business scene, atleast till the last 5 to 7 years. The emergence of retailing in India now has more to do with the increasing purchasing power of buyers, especially post liberalization, increase in product variety and the increase in economies of scale with the aid of modern supply and distribution management solutions. Indian Retail Scenario at a glance Ø The contribution of retail industry to India’s GDP is more than 13%. Ø Indian retail industry spreads over more than 6 million outlets including organised and unorganised sectors. Ø Even with 6 million retail outlets the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term.This presents organised retail a great oppurtunity. Ø Less than 6% of India retail is in an organised format in year 2006. Ø There is complete absence of Supply Chain Management perspective in the Indian retail industry. Ø 96% of outlets in India are less than 500sqft. India per capita retail space is the lowest in the world with just 2sqft compared to 16sqft in USA. Ø Only 8%of India’s one billion population is engaged in retailing. Ø 60% of sales in Retail still comes from food items in India. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 4

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Industry Overview – Indian Retail Sector With only about 3% share in an estimated $320-bn Indian retail industry, we see significant growth potential in the organized retail segment in India. The expected growth in income levels, easy availability of credit, increasing urbanization and favorable demographic conditions are expected to put the Indian organized retail industry on a rapid growth path. A CAGR of 26% is expected for this industry over the next four years and have a positive view on the sector. Key Growth Drivers of Retail Industry v Low penetration The current penetration levels of organized retail are the lowest in the world. With a massive population, the potential of the industry in India, going forward, is tremendous. Companies have announced plans entry into various segments in the industry. The penetration levels are as low as 3-4% overall and as low as 1% in segments such as food and grocery retail. Clearly, the potential of the sector going forward is enormous. Global retail development index Rank Country Country Risk Market attraction 0=high 0=high 100=low 100=low 1 India 67 42 2 Russia 62 52 3 China 75 46 4 Vietnam 57 34 5 Ukraine 41 43 (Illustration 1)Source: Economic Times Intelligence group 2004 ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 5

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 v Favorable demographics provide enough potential for organized retail Out of India's population of about 1 bn, the overall target market for modern retail is Estimated at about 50 million people. With more than 50% of the population being under the age of 25, the market looks extremely attractive for organized retail players as this population has demanding lifestyles. This segment forms a major portion of any retailer's plan. Growth in urbanization is a key driver for the organized retail industry. This is because, currently 85% of organized retail market is concentrated in India's 8 largest cities. In India, the top six cities currently account for about 6% of population but contribute to 14% of GDP The population of urban areas is expected to touch 550 million by 2021 as against 376(E) currently. INDIA HAS THE YOUNGEST POPULATION IN THE WORLD. IN 2020, THE AVERAGE INDIAN WILL BE ONLY 29 YEARS OLD COMPARED WITH 37 IN CHINA AND THE US, 45 IN WEST EUROPE AND 48 IN JAPAN. Source: (Business Line) v Easy availability of credit The number of credit cards issued in India has been witnessing a strong growth over the past few years. Currently, there are 22.6 mn cards in circulation as compared to 7.1 mn in 2003. This number is expected to grow by over 30% over the next few years. Easy avail- -ability of credit and also easy EMI schemes being offered by the bank as well as companies Do provide a boost to retail companies as this directly has an impact in consumption patterns Of people. In India, less than 1% of personal consumption happens through credit cards as Compared to the global average of 5%. With a significant increase in the expected usage of credit cards, the spending patterns of consumers are expected to change further in turn Benefiting organized retailers. THERE ARE 23MILLION CREDIT CARDS IN CIRCULATION IN 2007 IN INDIA AGAINST 7.5MILLION CARDS IN2003 ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 6

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 v Rising incomes & consumption patterns to spur growth Out of an estimated 209 million households in India, nearly 6 million are classified as 'rich' as Compared to 3 million in 1999-00. (Source: E&Y). Also, about 91 million households are classified As 'Consuming' as compared to 55 million in 1999-2000. While rich households have income levels of greater than US$4700, the consuming class enjoys average income of US$1000-4000.Also the average income level of high-income households has been growing @ 20% YoY since 95-96. This growth in income brings along with it a higher disposable income,willingness to spend and demand for better lifestyle. As income levels rise, one tends to spend more on lifestyle related activities and products, which is a key driver for these segments of the retail industry. These can be clearly observed from the statistic that discretionary spending has been seeing a 16% rise for upper and middle classes over the past three years. The private final consm expenditure (PFCE) which is basically what a consumer spends on food and grocery, apparel, medical services, savings, entertainment etc , is estimated to grow from Rs.18.9 trillion in 2005 to Rs.53.62 trillion in 2015 & expected to constitute 57.5% of India’s GDP. Classification Number of Households( Millions) 2005 - 2006 annual household income) 1994 - 95 1999 - 2000 estimated Very Rich ( > INR 215,000) 1 3 6 Consuming (INR 45000 - 215000) 29 55 75 Climbers (INR 22000 - 45000) 48 66 78 Aspirants (INR 16000 - 22000) 48 32 33 Destitutes (<INR 16000) 35 24 17 (Illustration 2)Source: The Marketing White Book, 2003-04 ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 7

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 v Increased acceptance of "mall culture" to help growth The organized retail boom was given a boost with the concept of shopping malls.Currently, India has 179 operational malls and is expected to have 412 malls by 2010.These malls attract footfalls in ten of thousands everyday and have become family destinations to shop, eat and for entertainment. While further details are not available, we believe the expected growth in shopping malls and increased acceptance of the "Mall culture" should provide further boost to the organized retail sector. There has been a sudden spurt in the number of malls coming up all over the country and are attracting daily footfalls in millions. This is attracting retailers to open stores in them. Malls provide not only a great shopping experience but are turning out to be places for family Outing and entertainment. This coupled with the rise in incomes & willingness to spend is Only boosting the growth of the industry. As of today, India has 179 operational malls wi h t 47.4 million sqft of retail space, and is expected to have 412 malls offering 205 million sqft Of retail space in 2010, and by 2015 there would be more than 715 operational malls offering 350 million sq ft of retail space and a very large chunk of these developments would be in India’s Tier-II and Tier-III cities. (Source: Images F&R Research) (Illustration 3)Source: ( Kotak Securities 2007) ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 8

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 v Category-wise spend In India's retail industry, food, beverages and tobacco form a substantial portion, comprising 76% of the total industry However, it is in this sector where organized retail penetration is the lowest, i.e. 1%.According to a McKinsey report, the share of an Indian household's spending on food is one of the Highest in the world, with 48% income being spent on food & beverage. The penetration of organized retail is highest in the footwear category at 31% followed by Apparel, books, music/gifts, consumer durables, home décor and furnishings. The Indian Consumer is spending most of his income on food, groceries and beverages. Taking into Account that penetration levels in this sector are the lowest. We can see this segment grow Fast pace. Also, big players such as Reliance, Bharti & RPG are all betting big on this sector. They are focused on back-end logistics. These players are aiming to provide groceries at a low cost compared to small neighborhood shops, street vendors who, as of today account for most of the sales in groceries, vegetables etc. .Even segments such as jewelry, beauty care, books are seeing good growth, mainly propelled by the growth in malls. Segmentwise Share in Organised Retail - 2006 40% 37% 35% 30% 25% 20% 20% 18% 15% 10% 8% 6% 6% 5% 3% 2% 0% (Illustration 4)Source: ( Kotak Securities2007) ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 9

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Opportunities for India through Retail Sector In our opinion, the growth in the retail sector can have a multiplier effect on the economy. Some of the benefits which can accrue are: Ø Farm income in India can increase if organized retail enhances farmer's realizations on food items from the currently estimated low level of 30-35% of retail price to the International norm of over 60% of retail price. Ø The supply chain for unprocessed food items is fairly under-developed in India. It has Many layers leading to high wastages & a high cost of distribution. Increased penetration of organized retail into food and grocery segment can boost farm incomes. Ø The current farm realizations for unprocessed items are estimated at around Rs.1.2 Trillion. If this segment shifts entirely to organized retailing the realizations of farmers Are at levels compared to international countries (60-65%) Ø Higher farm income can boost the purchasing power of 60% of the population adding to GDP growth through higher economic activity. If farmers spend 80% of their incremental Income the economy will witness an incremental spending of around Rs.1trillion which is Equal to 3% of India’s GDP even if economic multiplier effect is excluded. Ø Companies are spending heavily on marketing, hence improving the growth of the marketing sector as well. Intense competition will only further increase advertisement and marketing expenditure. Ø Also, logistics and supply chain companies are set to benefit from the retail boom.Thus growth in retail can have a multiplier effect on economy. Indian consumers will be the Largest beneficiaries. India's middle class as well as lower income consumers will be the ultimate gainers with multiple benefits. Reduction of prices in typical monthly basic needs Shopping bills may reduce by at least 10% within the next 24-30 months, leading to generation of an equivalent amount of surplus disposable income, Improve- -ment in quality of fresh/perishable products in the market, Improved assortment and reliable availability of products. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 10

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Threats in Retail Sector v Foreign Direct Investment in Retail Currently, foreign direct investment in retail chain stores is restricted in India. Prior to 1997, there were no FDI restrictions in the domestic retail sector. Players who entered were McDonalds, which opened in India in 1996 and Foodworld, which was hived off as a 51:49 joint venture between Spencer & Company (RPG Group) and Dairy Farm International. Companies that entered prior to 1997 have been allowed to continue with their existing foreign equity components. Drawbacks of FDI in retail would be cut-throat competition, Promoting cartels and creating monopoly, Increase in real estate prices, Marginalize small domestic entrepreneurs. Displacement of unorganized players because of financial strength of foreign companies, Unfair trade practices like predatory pricing in case of absence of proper regulatory guidelines v Steps being taken to protect margins Retail is a low margin, high volume business. With the retail boom being witnessed in the country, all companies are on an expansion mode and adding stores at a fast pace. This expansion drive is leading to cost pressures and biting into the margins of retailers. In order to protect its margins and also with the aim to counter competition in the industry companies are taking several measures to stay competitive and also expand margins,a well as offer best prices to the customer. Companies are setting up massive supply chain systems , promoting private label apparels and concentrating on their backend support by setting up warehouses at different locations to reduce sourcing costs as well as stocks reach the stores on time. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 11

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Risks and Concerns in Retail Ø Delays in mall construction may delay launch plans of retailers Malls would account for half of the total organized sector retail space demand in the next Five years. However, the rising cost of retail space in India is affecting the growth plans of Retailers. Real estate costs are hampering their margins, which are already not very high. They are also entering into long-term lease & revenue sharing arrangements with mall Ø High employee costs Another major concern is staff costs. Owing to increasing competition and new entrants in the retail business, attrition levels for the industry have gone up drastically resulting in high Expenses to retain and hire new people. Staff costs have gone up by 35% since 2006. Companies are now focusing on retaining their employees and are forced to offer them higher Salaries and bonuses, which in turn have an impact on the profitability. Ø Delays in mall construction may delay launch plans of retailers Malls would account for half of the total organized sector retail space demand in the next Five years. However, the rising cost of retail space in India is affecting the growth plans of Retailers. Real estate costs are hampering their margins, which are already not very high. They are also entering into long-term lease & revenue sharing arrangements with mall Ø Opposition to organized retail Opposition from the unorganized sector and any consequent political opposition can Hamper growth plans of retailers. Also, delays in opening up the retail sector to FDI Ø Pressure on margins Another important fact is the pressure on margins, which the retailers will face once Competition enters. Retailing as such is low margin business. EBITDA margins for food & Groceries are wafer thin@3-3.5%. Margins in the apparel business are in the range of 8-16%. Given the big expansion plans of retailers, net profits may have to take a hit in order to Increase volumes. Retailers are concentrating more and more on private labels where Margins are higher. However, going forward, this is a key risk in this business. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 12

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 An intuitive assumption on Indian Retail The Indian retail industry leaders are very positive on the sector and believe current players such as Pantaloon, are well positioned to take full advantage of the growth in the sector. With the growth in consumerism, urbanization and a young population the Retail sector is clearly on an upswing. To protect margins, retailers have now started to Concentrate on their supply chain and logistics so as to ensure low cost of procurement. as such retail is a high volume, low margin business and one which requires sizeable Investments in working capital. With organized retail penetration levels of 3-3.5% of the total industry, and as low as 1% in segments such as food and grocery the scope for growth is tremendous. layers such as Reliance Retail, Aditya Birla group are all expected to do well, going forward. Looking at the size of the market and the potential, there is a market large enough for several large players to co-exist. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 13

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Why Study Retail Strategy on Fashion Merchandise? FASHION BUSINESS: IN-TUNE WITH RETAIL EVOLUTION India in recent years has been the focal point of continuous growth and development making it one of the fastest growing economies of the world. It is the 4 largest economy in terms of Purchasing Power Parity, after USA, China & Japan, and is rated among the top 10 FDI desti- -nations. The Indian consumer is evolving and driving retail growth due to increased consumptn. Private consumption growth contributes to more than half of the GDP growth and is growing in double digit figures. Several businesses are reacting to this evolution positively, both through pull and push phenomenon. Following a similar trend, the Indian textile and apparel industry is also experiencing rapid changes and growth. Apparel today has the largest share of the modern organized retail in India i.e. 20% of the current market of Rs. 56,000 crore and this is expected to grow at a constant rate of 20% over the next 4 years. This report puts together some of the recent trends being witnessed by the textile and apparel industry. The central theme woven through these trends is the way the consumer at various income-levels is evolving, thereby ensuring that businesses are reacting in multiple ways. India is the second fastest growing major economy in the world ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 14

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 The 'mass consumer' segment is moving from tailored clothes to stitched apparel giving rise to discounted apparel stores/retailers. This causes a shift from unbranded to branded apparel. The 'middle end consumers’, already exposed to brands is now looking to extend these brands into all aspects of their life. Brands are thereby becoming lifestyle brands instead of being product brands only. These consumers are also moving up the social ladder and wish to flaunt the change in stature by wearing affordable 'designer prêt wear'. This is prompting designers to introduce prêt lines and corporatize their lines to reach out to a larger audience. The 'high end Consumer' who is exposed to international luxury brands, now demands them in his/her vicinity. Apparel businesses are realizing this and tying up with international brands to retail in India. These consumers are also increasingly exposed to environmental issues and want to use eco- friendly products (including apparel) to do their bit for the society. Though this concept is at a very nascent stage in India, apparel companies are reacting by 'going green' and using natural fibers in some of their collections. As all consumers, especially kids and the youth, are exposed to fashion and media, they wish to associate themselves with characters and icons. Picking on this trend, apparel companies are licensing these characters/icons for apparel & accessories to increase their customer base. Additionally, as consumers face hectic lifestyles, they are looking for convenience in all aspects of life including shopping. Fashion businesses are taking the lead from here and taking on consumers at unconventional avenues of retailing like airports, metro stations, cafes, beauty saloons, etc. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 15

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Recent Trends in Indian Fashion Retail Business è Fashion industry is pushing to keep pace with the retail evolution witnessed in India è Indian consumers are converting from stitched apparel to ready-to-wear Causing a surge In discount retailing è Factory outlets have become distinct and important shopping destinations è Consumers now desire branded products in all aspects of their life è Traditionally brands that offered formal wear are now extending into Casual wear, Accessories, footwear etc. è Brands are opening large EBOs to showcase their expanded product range. These flagship Stores are positioned as ultimate one-stop destinations for the latest fashion trends. è Kids and youth are influenced by icons & characters and desire to possess them in their everyday life è India has become an important market for character licensing specially in apparel. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 16

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Project – Objectives and Scope Successful Apparel Retailing has always been said to be about getting nitty gritty right of Merchandising, Forecasting, Supply Chain, Training and Recruitment of high quality personnel and Category Management. Building retail brands that offer value will, in future overshadow all these areas and emerge as the dominant reason for the success of the organized Indian Retailer. Indian Retailers should understand that the retail experience has become a popular Leisure activity and they are vulnerable to any new competition for customer entertainment. Retailers must build a brand with image to seek entertain and involve customers. It is the Quality and value of the Retail Brands that they have sought to establish that will determine the loyalty of the retail shopper in future. Apparel Retailing is one of the most complex verticals in the Retail Sector. This is because Forecasting sales for a particular SKU is not possible as there is no sales history at the SKU level. During every fashion season, Trends, Customer demands, Styles and Fabrics/Colors keep changing it is practically impossible to completely rely on previous sales data. Forecasting Sales is much more straightforward for staples than for Fashion merchandise as there is an established sales history for each SKU and standard statistical techniques are used to forecast sales. A Retailer is more vulnerable to face Stock outs, Loss of Sales, Losing customer loyalty due to inadequate product availability during peak season or face Excess stocks, increasing inventory and operating costs due to excess buying exceeding demand levels. Objective of this Project is also to carry out extensive studies to make certain the right retail Strategy for an apparel retailer to create a loyal and repetitive customer. The project scope will also Include coverage of areas of establishing a strong Retail image through Marketing Strategies, Brand Building, Identifying the right Retail Mix, Pricing, Advertising, Forecasting, Category Management, Retail Store Operations, Supply Chain and usage of Information Tech- - nology applications in Apparel specific retailing. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 17

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 To ensure the loyalty of the retail shopper any retailer has to develop a strategy for long term Sustainable competitive advantage. Few measure that a retailer takes to build sustainable Competitive advantage Customer Loyalty Retail Location Vendor relationship Effective and committed employees Cost effective operations Below is an outline of Scope of this project which will cater to accomplishing the above menti - -oned objectives of the project to create a sustainable Competitive advantage. • Retail Store • Financial Operations Operations Mgmt Mgmt Information Retail System & Marketing Supply Chain Strategy Competitive Advantage Merchandise Establishing Planning, Retail Brand Buying, and Image Forecasting • Human • Customer Resource Relationship Mgmt Mgmt (Illustration 5) ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 18

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Understanding the Retail Value Chain of Fashion Merchandise To propose a Competitive Retail strategy it is imperative to first understand the various functions involved in the different channels of fashion merchandise. A brief outlook is provided below to understand the value chain. Each function has a range of processes for successful implementation which is described in (Illustration 7) Marketing Consumer Planning Fashion Merchandise Retail Outlet Design Retail Value Chain Distribution Procurement Manufacturing (Illustration 6) Fashion Merchandise Retail Value Chain ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 19

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Process functions in Fashion Merchandise Distribution Channel We will look into greater detail into each of this process functions in subsequent chapters • Market strategy • Demand Planning • Product Lifecycle Mgmt • Inventory Mgmt • Segment/Target mkt • Sales Forecasting • Product specification • Vendor Mgmt • Retail Location • Merchandise Budget • Fashion Forecast • Supplier Assessment • Brand Mgmt Plan • Design Trend • Strategic Sourcing • Pricing • Buying • Product information • EBO/MBO/Franchising Marketing Planning Design Procurement • Manufacturing • Supply Chain Mgmt • Promotion/ Pricing • Customer delivered execution • Transport Planning • Customer Service Value • Quality Mgmt • Warehouse Planning • Transactional Service • Repeat Sales • Compliant solution • Reverse Logistics • Store Layout , Design • Word of Mouth • Material Mgmt • Cross Docking • Operations mgmt • WIP Tracking • Invoicing Manufacturing Distribution Retail Outlet Consumer (Illustration 7) ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 20

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Retail Market Strategy A Retail Market Strategy is the statement of identifying Ø The Retailer’s Target Market. Ø The format that the retailer plans to use to satisfy the Target market needs. Ø Building a sustainable advantage over competitors. Explore Value Creation Opportunities through a appropriate understanding of Customers – Consumers and Clients Company – Core Strengths and advantage over market competition Competitors – Existing and New entrant competitors in market. Collaborators – Suppliers, Channel Partners Context – Government Policies Choose the right Retail Mix with the 4P’s of Marketing Mix – Product/Price/Promotion/Place v Merchandise / Product Sold – Food/Apparel/Pharma/Auto/General Merchandise v Pricing of the Merchandise – Differentiating factor v Customer Service Level – Gift wrap/Home delivery/Free parking/Entertainment v Variety/Assortment of merchandise offered – Breadth and depth of product line. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 21

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 The target market segment is a market which a retailer wants to focus all its efforts and Retail mix. Target marketing requires marketers to take 3 important steps. S T P Segmentation Target Market Positioning STP Strategy Market Segmentation : Dividing a market into distinct group with distinct needs. Its is important to determine v Who the consumer is – Demographic base of age, economic status, residence etc. v What the consumer buys – Products, Brands, Colors, and Flavors etc. v What kind of shopping trip is typical – In/Out, Convenience, Destination trip etc. v How the consumer buys – By Promotion, Price or Product or Place v How often the consumer buys – Daily Weekly or Monthly Target Market Selection: Once the retailer has identified a feasible market segment opportunities it has to decide on a targeting approach which revolves around v How many segments to target? v Which segments to target? v Single Segment Concentration/Market Specialization/Product Specialization ? Positioning: Positioning is not what you do to a product but what you to do the mind of the prospect. A position of a brand is its perception among its customers. It is placing the brand in the appropriate slot in the customer’s mind so that when need is felt it pops up in the mind of consumer without much effort as humans are selectively attentive to marketing comm. unications and selectively retail information. Positioning is the art of placing entire marketing mix in the customer mind and create relevant association, emotion and attitude through power words so as to stand apart from other competitive offerings. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 22

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 We will consider a Retail Marketing Strategy for a Formal Wear Apparel Brand to be launched by the retailer. A formal Brand is an all season product not determined by the seasonal demand factors. Factors to be considered to develop a formal wear retail market strategy v Kind of Business: Medium Range Priced Formal Wear Catering to both Men’s and Women’s segments v Future of Business: • Uniform demand for formal wear throughout the year. • Growing need for Services sector induces many working professionals to be dressed in formal and professional for a minimum of 5days per week. • Sales not determined by seasonal demand factors. • Increased urbanization in Metro and Tier2 and Tier 3 cities. v Target Customers: • According to a study the India has about 14crore working professionals in the middle to junior level executive cadres. This segment is known as “Aspiring India” • Junior to Middle non managerial Executives Men and Women in the age group of 22 – 35years with high spending potential. v Long Term Goal of the Business: “To be the largest retailer of apparel with pan India presence” ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 23

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Situational Analysis Market Factors External Factors Competitor Threats •Market Size-24-35yrs •Technology - Cost •Entry Barrier - Low •Rising cost of Real •Growth Potential - high •Vendor Bargain Estate prices Huge •Economy - Healthy power - high •Absence of Supply •Business Cycle - Year •Regulatory - Helpful •Competitor - chain round PeterEngland,John •Lack of trained Player Human Resource •Scale of Economy- Achievable Finalizing the Market Growth Strategy A Retailer has 4 options to pursue any of the following Growth Strategies. Existing Mkt New Mkt Market Market Current Retail Penetration Expansion Format Strategy Strategy Retail Format New Retail Diversification Development Strategy Format Strategy Rapid Market Penetration Strategy An ideal growth strategy for a Formal wear fashion merchandise business would be that ofa Rapid Market penetration strategy which gives an edge to capture market share quickly through Low pricing, High volumes and enhanced and aggressive Advertising .t is used when I retailers seek larger revenues by setting low price and selling many units Profit per unit is low . but total profit is high. It offers growth opportunity to target existing customers using the present retailing format. This approach suits the target market as young middle level executives are usually price sensitive to Formal wear and looking for a best deal all the time. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 24

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Approach to Rapid Market Penetration Strategy ØConcentrated Marketing targeting the needs of very specific defined market of age group of 24-35year middle level cadre. ØAggressive display of Merchandise to create impulse purchases. ØAvailability of greater breadth of product assortment will be considered by the consumer and hence stronger the salience as most consumers today are time-constrained. ØAugment the depth of the Product mix by extending the product Line into Ties, Leather Belts, Wallets, Handkerchief, Socks, Cufflinks ØPromote the idea of Cross selling approach to the customers by selling Complimentary merchandise along with core merchandise. For eg: A customer buying a Shirt would also want to buy Tie or Cufflinks. ØProp up the point of Purchase counters with unplanned purchase Items like Handkerchiefs or Wallets that can comprise a significant Portion of consumers total shopping basket size. ØOpen more stores in the Target market Area ØKeep existing stores open for longer hours ØStimulate customers to spend more time in the outlets on shopping Using clever tactics such as filling up of loyalty card programs, Research questionnaire, Superior lounges, in store entertainments to create an enhanced Shopping experience which drives the consumers to make repeat visits to the stores. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 25

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Pricing Strategy Pricing merchandise is one of the most important activities in Retailing. Once the assortment Plan is ready the retailer decides how to price the merchandise for maximum sales and profit. A value of the product is determined by the customer and not by the retailer or manufacturer. Correct pricing decisions are a key to successful retail management. The first step in Pricing is Identifying the costs. Only costs that will rise or fall when price changes affect profitability of Different pricing strategies, these are called incremental costs as they represent increment to Cost that result from pricing decision. Retailer must also consider Contribution for each product Sold. Contribution margin as a % of price is the share of price that adds to profit or reduce losses In other words the added profit or loss due to additional sale. It is measure of leverage between a firm’s sales volume & profit. An effective Pricing strategy requires good understanding of value of product to the buyers. Value refers to total savings or satisfaction customer receives from the product. This is known as Economic Value referred as price of customer’s best alternative plus value that differentiates the offering from the alternative. The gap between buyer’s willingness to pay and economic value of the product is known as Price sensitivity of the customer. Evaluating customers on 2 dimensions of perceived value of a product’s difference and perceived pain of price will reveal valuable value segments. Different Groups of Buyers or Consumers • Price Buyers – High pain of price, Low value of differentiation(Price Sensitive) • Relationship Buyers – Low pain of price, high value of differentiation(Brand Loyal) • Value Buyers – High Pain of price and differentiation (Time Rich Value conscious) • Convenience Buyers – Low pain of price and differentiation (Time Poor, Cash rich) Goal of Pricing: • Profit maximization – Maximum revenue leading to maximum profits. • GMROI – Target return on Inventory Investment • ROS – Target return on Total Sale. • Market Share – Grab a portion of competitor’s customers in merchandise category. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 26

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Setting Retail Prices : • Cost oriented Pricing: (Maintained Markup Percentage) Price determined by adding fixed % to cost of merchandise Maintained Markup % = (Net Sales – COGS)/ Net Sales Gross Margin = (Maintained Markup – Workroom cost – Cash discount) / Net Sales Initial Markup =(Maintained markup + Reductions) /(Net Sales + Reductions) • Demand Oriented Pricing: Prices are based on what customer expects or is willing to pay or determines the range Of price acceptable to the target market. It assumes minimum price acceptable to the Firm to reach a specified profit. Mostly used to estimate quantities that customer would Buy at various prices. • Competition Oriented Pricing: Prices are based on competition rather than cost or demand of the product. This method Keeps a constant eye on competitors pricing and promotion activities. • Combined Cost Demand Competition pricing: Useful method where cost should be basis for pricing, competition should provide insights to market & demand orientation should be used to fine tune to customer expectations. Implementation of Competitive Price Strategy Pricing Strategy is not as easy as it sounds. Retailer may have to customize strategy looking at various pricing options. EDLP – Everyday Low Pricing and High Low Pricing remains at the back ground and retail price is set as per Cost, Demand and Competition consideration. Pricing Tactics Price adjustments let retailers use price as an adaptive mechanism v Full Price – When Retailer Sells to customer at a full retail price when demand is high and Product is still new in the shelf of the Retail Stores. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 27

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 v Markdowns – Tool for Retailer for pricing end of lifecycle products, seasonal inventory Markdown prices are optimized to reduce inventory and maximize contribution margin. It is lesser than an item’s original price to clear out shop worn out merchandise, reduce Assortment of odds and ends and increase customer traffic and make way for new items On shelf space. v Discounts – A discount is a reduction of price on the list price granted by retailer to the Consumers usually to clear of end of season inventories, outdated packaged items and dead stock non moving inventory. Every Retailer makes sure irrespective of which ever method of setting retail prices will consider an a propionate percentage of markdowns sales and discount sales and shrinkages in the Retail price of the product to consume losses incase of sales dip or excess inventory. Special Pricing Tactics: v Price Lining: Retailer establish price points for entire product line like for a range of v Shirts in different designs Rs499 ,549,799,949. v Odd even Pricing : It is a means of psychological pricing where a price ending with odd number entail Bargain and price ending with even number imply quality. Bata - Rs.99.99 v Price induced Sampling: Promotional pricing for a limited period of time. Eg: Tata Sky v One Price policy – Retailer charges one price to all customers buying a particular item In a store. For eg: One dollar store v Price Bundling : Marketing two or more products in a single package at a special price often used for complimentary products such as toiletries. Retailer use this to push slow moving items or to induce trial for new products. A related tactic would be unbundling reducing the number of products sold with core product. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 28

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Retail Store Location approach Store Location is one of the prime considerations in a customers store choice. Location Decisions have long term strategic importance. Location decisions are hard to change as they involve huge investment. If a retailer moves from one location to another the potential problems he could face are Loyal customers and employees might be lost, New site might not have the same traits as the old one. Store fixtures and renovations from old site usually cannot be transferred. Attractiveness of a Retail Site for a Fashion merchandise store depends on below factors Traffic & Demographics Competition Site Factors Cost Factors Access •Lifestyle •# & type of •# & types of •Size of Site •Terms of •Income vehicles stores in area •Parking space lease/ rent potential •access to •Key players •Visibility of •Rent rates •Occupation store analysis store •Operation mix •street •Location of •Entry & Exit cost •Nearby offices congestion competitor •Building •Local taxes •mass transit condition •membership presence •Retailers cost of Association Association of retailers Various options available for a retailer to choose a retail location for a fashion merchandise Depends on target audience, investment requirement and competition. Fashion merchandise store can be in any of the formats according to its location EBO’s – Exclusive Brand Outlets(Specialty Stores) Exclusive Brand Outlets is a distribution strategy whereby a retailer sells his products in only one retail outlet in a specific geographical area.An EBO can be suitable in a Central Business district/Shopping centre which is the main centre of commerce and trade in the city. Usually every Metro city has more than one Central Business district Bangalore popular and .In well know Central Business district is created in Commercial Street ,Brigade Road Indiranagar, , Koramangala and Jayanagar. It is better to have EBO’s in each of these places as it gives a significant presence of brand due to huge customer traffic movement and also footfalls will increase and convert suspect customers into prospective clients. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 29

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Multi Brand Outlet (MBO’s) Multi Brand Outlets are retail stores owned not by the retailer but a channel partner of the Retailer who has made agreements with various retailers to sell their brands in their outlets This type of MBO for fashion merchandise is suitable in a Secondary Business District which has a shopping area that is smaller than a central business district and revolves around at least one variety store at a major street intersection. These MBO’s are available in plenty in Metro cities and also quite popular in Tier2 and Tier 3 cities. Customers in these trading areas are not specifically brand conscious but more of Value buyers and they prefer to shop in a store which houses a variety of brands. Franchising Franchising is a very specific innovative method of distributing goods and services where Franchisor (owner of business/retail) provides product and assigns to Franchisees the right To market and distribute the franchisors goods and service The Business format Franchise model is the most popular method in Apparel Franchising Franchising model of store operations best suits the retailer when the retailer needs to Expand his business into new geographical areas where limited knowledge is available to Conditions for business and market potential is not very clear. Also having own stores in new locations attracts lot of investment and riskier. It is better to enter new geographical areas through franchising model and with its success the retailer can plan to expand his own market through opening EBO’s and Flagship stores. Primary Trading Area - 50-80% customers Central Business district - Metro cities - EBO's Secondary Trading area - 15-25% customers Secondary Business District - Metro & Tier2 cities - MBOs Fringe Trading Area - 10% of customers Stores in new States, expansion mode - Franchising Model Store Mapping for Fashion Merchandise Retail Outlets ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 30

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Establishing a Retail Brand Image The emphasis here is on retail as a brand rather than retailers selling brands. The focus should be on branding the retail business itself. In their preparation to face fierce competitive pressure, Indian retailers must come to recognize the value of building their own stores as brands to reinforce their marketing positioning, to communicate quality as well as value for money. Sustainable competitive advantage will be dependent on translating core values combining products, image and reputation into a coherent retail brand strategy. Retail branding creates a brand preference, which goes beyond the product in itsef. What might it then mean, when branding is applied to retailing? The issue is not of retailers selling brands but branding the retail business itself, like the grocery supermarket chain or the fashion store. The retailer must attempt to brand himself differently, especially when today’s product brands are being launched through their product brand’s own shops.(Examples – Nike, Adidas and Reebok. Jeans segment – Lee and Wrangler, Perfumes –Hugo Boss. ) Fundamental characteristics of a brand (1) Recognizability: A true brand is instantly recognized and identified. The brand name passes into every day use (Nike’s ‘Just do it’) or (‘Make a Xerox of this document’) (2) Meaning, story, value: This is the second characteristic of a brand. The brand must have a value proposition. It must stand for something and one of the most effective ways is to have a story to transmit those values. (3) Legitimacy: The meaning of the brand should be obviously appropriated by the target customer group. In Retail business Legitimacy rests on emotional authority, earned by the brand and granted by the customers like unique shopping experience warmth in store. (4) Consistency, alignment: A brand story should contain no internal contradictions and should be appear to be consistent over time, applicable across the business and attempt at total brand integration. (5) Proximity: The brand building process should culminate with assuring the brand’s proximity to the consumer. The brand’s definition gets expanded by opening stores in a number of locations to make it convenient to the consumer. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 31

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 A retail organization, like any other corporate company, will have to ensure that its own brand includes the characteristics of product brands detailed above. Retailers need to work on three dimensions to achieve this: ( 1 ) Brand value: The retail brand has to embody and transmit clear values to the customer. (Like ‘value for money’, ‘Luxury shopping redefined’). Some companies have attempted to define this in their mission statements but they are often too vague and not actionable. While many Indian product brands have successfully weaved values around their brands (Hamam on ‘trust’, Godrej on ‘quality’ and TVS on ‘service’) retailers are yet to develop a consistent value across their businesses. (2) Brand strategy: It is imperative that retailers have a systematic strategy on issues like whether to develop the retail brand or corporate brand and decisions on one product/one brand that they may be selling in their shop. Retailers can also decide to launch high quality retailer brands (‘own labels’) backed by promotional campaigns, reinforcing clear personalities. Pricing policies, today position retailer brands as good value lines or premium lines.The view that retailer brands offer a cheaper alternative to manufacturer brand is no longer valid. There is even scope for retailers to develop alternative types of ‘own labels’ targeted at different consumer groups in their outlets. An essential ingredient for success, in such cases, must be consumer-relevant added values – not just lower prices. Experienced consumers are no longer primarily motivated by low prices. There is scope to attempt a retail segmentation strategy. ( 3) Brand structure : Operational levels of the retail business have to be held together to integrate the whole brand proposal. At this level, marketing, human resources, distribution, logistics, administration and sales have to work towards a common brand value that has to be communicated to the consumer. The retail brand’s messages must be weaved into the every day experiences that the consumer has with the retail brand. Brand building constitutes a way in which the main value of the retail store shifts to what has been traditionally called an intangible. Indian Retailing is coming of age and needs to have a clear brand proposition to offer the discerning Indian consumer. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 32

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Value of Brand Image Brands provide value to both customers and retailers. Brands convey information to the Consumer about nature of shopping experience, retailer’s mix. Brand image also affect consumer confidence in decisions made to buy merchandise from the retailer. Brands can enhance customer satisfaction with the merchandise they buy. The value that brand image offers the retailer is called Brand equity. A strong brand image enables retailers to increase their margins. Retailers with strong brand names can leverage their brand to successfully introduce new retail concept with only a limited effort on marketing. Building brand equity involves the following activities. Brand Awareness Brand Awareness is the ability of a potential customer to recognize or recall that the brand Is a type of retailer or a product/service. Brand awareness is the strength of the link between Brand name and type of merchandise in the mind of the customer. Aided recall is when Consumer indicates they know the brand when the name is presented to them. Top of mind Recall happens when consumer mentions a brand name when asked about a type of retailer. Retailers build top of mind recall by having memorable names, repeatedly exposing their Name through advertising, locations and using memorable logos. Favorable association with the Brand Value of brand is largely based on the association that customers make with brand names. Eg: McDonalds link is so strong when customer thinks of hamburgers it reminds them McDonalds Common associations that retailer build with their brand names are • Merchandise Category – Madura garments associates with Formalwear • Price/Quality – Eg: Wall-mart associates itself with low prices • Specific attributes – Retailer can link stores to attributes such as service/convenience. • Lifestyle/Activity – Some retailers associate their name with specific lifestyles. Reinforcement of Brand Image Brand image is reinforced to deliver a consistent image through retailer’s integrated Communication program such as Advertising, Sales Promotion, Publicity, Store Atmosphere Visual merchandising and Personal selling. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 33

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Indian Retail Brand Building – the road map ahead Indian Retailers should learn quickly to build the retail brand directly and not look to factors like prime location, value pricing or product assortment to build their businesses. Indian retailers, to build a strong retail brand presence, can use the following strategies. Relationship management to enhance in-store shopping experience: Competition will force retailers to think about their customers as individuals, analyze their share of customers and calculate their customer lifetime values. Retailers need to build data bases using in-store data collection and launch frequent shopper rewards, carry on an interactive communication with them, make special offers, drive traffic and add value outside the in-store relationship.Retail brands get built by developing personal relationships with consumers rather than only through product and pricing. For example, staff should be trained to recognize their V.I.P customers. ‘Soft’ rewards for V.I.P customers include priority service, free gift wrapping, enhanced guarantees and sales pre-notifications. ‘Hard’ benefits include privileged rewards and extra value offers as well as straight discounts. The quality of management of the customer is becoming an increasingly important source towards building the retail brand. Education and training of staff needs to be done to enhance customer service. Local store management can be empowered to maximize the value of each customer visit. Analysis of customer behavior can guide store merchandising to match the profile of their customers and even the needs of the shoppers at different times of the day. External communication to add value outside the store: Retailers use advertising to build their brands and promotions to drive store traffic. Retailers have, still not felt the concept of individual customer communication outside the stores as a necessity. It is necessary that they seek to add a new form of dialogue with their customers. Retail chain Subiksha, for examples, mails a broadsheet to its customers giving them details of the promotional offers available and price comparisons across brands that helps its customers to take more informed decisions. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 34

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Motivating the staff to volunteer value The quality of in-store service is a key factor in differentiating the retailer and winning a higher share of customer spend. In one survey, shoppers were asked, would they ask for the same salesperson on their next purchase visit; the ‘yes’ respondents were found to more likely give the store a 8-10 rating. Staff must be trained and motivated to recognize their best customers and to offer them superior service. Building retail brands that offer value will, in future, overshadow all these areas, and emerge as the dominant reason for the success of the organized Indian retailer. Indian retailers must build their brands with images that seek to entertain and involve their customers. It is the quality and value of the retail brands that they have sought to establish that will determine the loyalty of the retail shopper in future. Community Relations The way retailer interact with the communities around them can have significant impact on the brand image and performance. Engaging in community oriented actions enhance their Stature. Some of them can be listed below v Make sure Stores are barrier free for disabled shoppers v Showing concern for environment by recycling trash and cleaning streets v Supporting charity and noting that support at the company website v Running special sales for senior citizens and other groups v Sponsoring Youth activities v Donating money and equipment to schools and orphanages. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 35

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Planning and Forecasting Retailers have a proactive approach to respond to the fluctuations in Demand and Supply to increase the overall profitability of the firm. Planning methodology is adopted to manage allocation, production and distribution of available resources and also to make trade-offs when necessary between inventory and capacity. Forecasting Demand Every Strategic and planning decision taken by a retailer has to be based on Demand forecasts. Forecasting is a very important tool which helps in taking accurate decisions. Different products have different demand trends and are therefore difficult to forecast. Products like milk and bread have stable demand and hence easy to forecast whereas technology products like mobile phones are extremely difficult to forecast. Characteristics of a Forecast: • Forecast Error – Forecast must always include both an expected value of forecast and a measure of forecast error (varies between 2% to 5%) Et – Ft – Dt (Diff b/w actual forecast & actual demand in period t) • Accuracy of forecasts – Long term forecasts has larger standard deviation of error with respect to mean than short term forecasts. Forecasts made for shorter lead time products are more accurate. Aggregate forecasts have small standard deviation of error relative to the mean and hence are more accurate. • Information Distortion – As we move up the supply chain the degree of information distortion increases. Forecasting Components: • Past Demand • Lead time involved in the product • Economy • Advertising decision and discounts offered • Competitors ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 36

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Steps involved in Demand Forecasting • Forecasting Objective – How much to sell, How much inventory to maintain, How much discount to be allowed • Demand planning and forecasting integration – Issues like capacity, production, promotion, purchasing and advertising require planning to be done in accordance with the forecast made. • Customer Segment identification – Different customers may be grouped under different segments to use different forecasting methods. • Factors influencing Demand forecast – Demand, Supply and features of product are main factors affecting forecast. Retailer must understand what would the demand be in absence of promotional activity. • Forecasting method determination – Larger number of companies use multiple forecasting techniques individually or in combination • Establishing Performance and error measures – Actual accuracy compared with desired accuracy and resulting gap should be called error, corrective action is taken to reduce it. Forecasting Methods: • Qualitative Methods – Used when there is no historical date. Expert judgment is involved and highly subjective in nature • Time Series – Use of historical data and past results when demand is stable Mixed – {(L + T) x S.D}, Additive - {L + T + S.D}, Multiplicative - {L x T x S.D} Where L is Level , T is Trend, SD is Seasonal demand. • Casual – Forecasts are correlated with certain environmental factors like economy & market rates. • Simulation – Methods imitate customer choices. Simulation can be used by combining time series methods and casual methods to arrive at a forecast. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 37

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Merchandise Planning and Category Management Merchandise Management is the process where the financial goals of the company are achieved by offering the right merchandise in the right place at the right time in the right quantity. This encompasses sales forecasting, buying merchandise, making the assortment plan, pricing and determining the communication mix. Category Management is the process of managing the retail business with the objective of maximizing sales and profit from a particular category. Category is the basic unit of analysis for making merchandise decisions like Divisions in Apparel, Electronics, Food, Department in Men’s, Ladies and Kids segment, further category into formal, casual, sportswear and ethnic wear. The planning for the merchandise category culminates in an assortment plan. An assortment plan is a list of merchandise that indicates in very general terms what should be carried in a merchandise category like men’s formal wear includes average number and percentage of each style/color/size that the retailer should have in his inventory. Mission and Roles of Category • Destination Category – Customer’s first choice of retailer • Routine Category – Customer’s preferred retailer of routine needs • Seasonal Category – Retailer is a major supplier for a particular time or season. • Convenience Category – Retailer is the supplier of fill-in products Some examples of subcategories include • Traffic builders – Product with high market share • Transaction builders – Products frequently purchased on impulse. • Cash generators – Products with high stock and margins • Image creators – Products that are promoted with features that makes it unique. • Excitement creators – Products with high impulse appeal. The goal of category management is to improve operating results of a retailer and its associate partners including manufacturers, distributors & brokers. Category management is a strategy of differentiation. It should drive multiple item purchase, not selection of single SKU, should be a function of times, space and product utilization. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 38

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Focus area of Category Management: Category Management has its roots with the landmark Efficient Customer Response industry initiatives of 90’s developed by GMA – Grocery Manufacturers of Amercia. ECR established best practices guidelines that have helped guide countless category management initiatives. • Efficient Product Introduction • Efficient Product Promotion • Efficient Store Assortment Merchandise Planning Process Merchandising directions are set for the company by Top management who look at the overall merchandising strategy which involves 1. Defining Target Market 2. Establishing performance goal 3. Deciding on basis of trends which merchandise division should be given emphasis 4. Studying category past performance 5. Project assortments for their merchandise categories for coming season Merchandise Plan tells the buyer and planned how much to spend on each category every month/season. Once merchandise plan is set buyer and planner set the assortment plan. The buyer works with vendors choosing merchandise, negotiating prices and developing promotions. The planner breaks down overall financial plan into how many of each item to purchase and how to allocate to stores. Assortment Planning Process • Variety – Number of different merchandising categories within a store or department. Large variety means to have a good breadth. Variety is the most important defines the retailer in the customer’s eye • Assortment – Number of SKU’s within a product category. Stores with large assortment is said to have good depth. • Product availability – defines percentage of demand for a particular SKU that is satisfied. Also referred as support level or service level. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 39

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Category Management Guide of determining Variety & Assortment Ø Profitability of Merchandise Mix – Retailers are always concerned with the amount of money they have to invest in merchandise and space. Ø Corporate Strategy and Positioning – Strategy towards assortment helps number of colors and styles to purchase. The more diversified the stock portfolio less risk of huge losses as on an average the category might perform well even if a few don’t sell. With large assortment buyer runs risk of broken sizes and hence usually take markdowns as they are hard to sell. Ø Physical characteristics of Stores – Retailers much consider how much space to devote to each category. The space requirement increases with increase in assortment and colors. The display area’s physical characteristics in terms of capacity are also important. Retailers typically divide their chain into A, B and C stores based on their ability to generate sale. “A” Stores get the largest inventory allocation and assortment. Ø Determining Product availability – Higher the product availability, higher the amount of backup stock necessary to prevent out of stocks on particular SKU’s. A very high level of service results in higher inventory investment. The relation between cycle stock and safety stock explains this better. Ø Assortment Plan – Historical precedence is the starting point for developing assortment plan for any season. Category manager uses GMROI,Sales forecast and turnover ratios along with assortment plans to develop a buying plan for the new season. It also requires expert and subjective judgment. Ø Space Allocation - a. Sales/Sq feet - Sales/Linear foot of shelf space which is annual sales divided by total linear footage devoted to the product category. b. GMROF - Gross profit per linear foot of shelf space which is annual gross profit divided by the total linear footage devoted to the product category. Ø Performance measures a. GMROI – Gross Margin divided by average Inventory Investment at retail price. b. Inventory Turnover - # of times in a year average inventory on hand is sold. c. Direct product profitability – Gross profit minus its direct retail cost. d. Average sale/Transaction – total sale for day/total # of bills generated in that day, measures customer spend per transaction and also determines ticket size. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 40

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Merchandise Budget Plan for Fashion Merchandise The merchandise budget plan aims to setup specific merchandise objectives and to plan financial aspects of the merchandise side of the business. It involves below steps Planning Data Ø Assortment Plan - Historical precedence is the starting point for developing assortment plan for any season Ø Sales Forecast – It is a simple way to adjust past sales to make projections into the future. Sources of information for sales forecast could be a. Previous sales volume with which real trends are identified b. Published sources c. Customer information – through observation, sales people and market research d. Observing competition e. Vendors, Distributors, Channel partners and Expert judgments Method of forecast is mainly a. Time series - Moving average – average of several months sale, as each new period sale data is added the average the oldest period is removed from total. b. Time series – Exponential Smoothing – often used for Short range forecasting. New forecast = Old forecast + f (Actual demand – Old forecast) where f is const b/w 0 & 1 that determine influence actual demand on the new forecast. Ø Reductions – to have enough merchandise levels apart from sales value of inventory may go down due to Markdowns, Shrinkages and Discounts. Ø GMROI goal for category is planned based on past performance of same merchandise. Ø Inventory Turnover – when inventory turnover is planned Gross margin is ignored as the budget plan is an inventory plan and not a pricing or margin control plan. Ø Average stock to sale ratio – To achieve planned inventory turnover purchase must be kept in line with sale forecast with the period. The average BOM Stock to sale ratio helps to do this. Ø Monthly planned purchase - Monthly sales + Monthly reductions + EOM Stk – BOM Stk ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 41

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Evaluating the Merchandise Budget Plan GMROI, Inventory & Sales Forecast are used for both planning and control as it is based on top down planning process. After the selling process the buyer determines how well they actually performed compared to the plan. If actual GMROI, turnover and forecast are greater than planned then performance is better than expected. Questions should be answered as to why the actual performance is above or below planned. Open to Buy Analysis OTB Analysis starts where merchandise budget plan ends. The merchandise budget provides a plan for purchasing merchandise to be delivered in a particular month. The OTB keeps track of how much is spent each month and how much left to spend. As such OTB acts as a buyer Checkbook. The purpose of OTB is to keep actual spending in line with the planned level of purchase to avoid over investment and can maintain rate of inventory turnover at planned levels. OTB is usually kept at retail price. Steps in Buying Merchandise Ø Gathering data from Customers, Suppliers, Sales staff, Competitors and Internet. Ø Selecting and Interacting with Merchandise sources- Agents, Manufacturers etc Ø Evaluating the Merchandise – Inspection, Sampling Ø Negotiating the purchase and terms Ø Concluding Purchase Ø Receiving and Stocking Merchandise – storing, GRN, invoice, monitoring pilferage. Ø Reordering Merchandise – Inventory holding vs ordering costs, turnover, cash outlay Ø Re-evaluating on Regular basis ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 42

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Procurement and Inventory Management Sourcing can be defined as the process by which companies acquire raw material, parts, components, different products and services from various suppliers in order to carry out their operations. Such a process is called Procurement. The sourcing process comprises of the below mentioned stages • Supplier selection • Supplier contracts designing • Product design collaborations • Procurement of material • Performance evaluation of suppliers. Supplier Scoring and Assessment Supplier scoring and Assessment means rating the supplier’s performance. Traditionally price was the primary characteristic; however suppliers were ignored on other characteristics like lead times, quality, reliability and design capability and moreover, the impact of total costs doing business with them. With the help of details received by supplier scoring, Supplier selection is done to identify appropriate suppliers. Once suppliers are identified Supplier Contracts need to be formulated and negotiated with the suppliers. Once contracts are signed product designs need to be prepared with the help of supplier and in turn Product design collaboration takes place. While doing this it is necessary to ensure that these designs are communicated effectively to all parties involved in the production and operations. The next stage is Procurement in which supplier sends the products in response to the orders placed and delivered on schedule at the lowest possible costs. The final stage of Sourcing Planning and Assessing involves identification of opportunities where buyers are able to decrease overall cost of the product. Benefits of the sourcing process are • Aggregation of orders resulting in economies of scale. • Reduction in overall costs and distribution of risks with better co-ordination. • Better forecasting and planning due to better supplier relations. • Help to reduce inventories. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 43

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Some of the scoring points while identifying the right supplier using Supplier Scoring and Assessment are noted below v Replenishment lead time v Scheduled Performance v Supply flexibility v Delivery frequency v Supply Quality v Transportation costs v Pricing v Coordination of information v Product design capability v Exchange rates and taxes v Supplier viability A Sample of the Supplier Comparison Chart is illustrated below supplier quality feature supplier 1 supplier 2 supplier 3 product quality 2 5 3 service quality 3 4 1 ontime delivery 4 1 3 knowledge 2 2 4 reputation 2 4 3 customer focus 2 4 3 customer service 2 4 4 responsiveness 3 4 1 average 2.5 3.5 2.8 average 2.5 3.5 supplier 1 2.8 supplier 2 3 supplier 3 responsiveness 4 1 2 customer service 4 4 2 customer focus 4 3 2 reputation 4 3 2 knowledge 2 4 4 ontime delivery 1 3 3 service quality 4 1 2 product quality 5 3 1 1.5 2 2.5 3 3.5 4 4.5 5 ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 44

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Supplier Contracts Administration It is very important to note that contracts between suppliers and buyers are made keeping in mind two basic aspects of supply chain profits and product availability. In order to improve the overall profit of supply chain the suppliers must design contracts that encourage retailers to purchase in larger quantities and thereby increase the level of product availability. But at the same time it is important for suppliers to share some of the buyer’s demand uncertainty. There are few types of contracts best suited for both suppliers and buyers 1. Buy Back Contracts – This contract allows the retailer to return the unsold goods up to a certain specified amount at an agreed price. Allows retailer to order more number of products resulting in higher product availability and higher profits for both retailer and supplier, disadvantages is higher inventory levels 2. Revenue Sharing Contracts – In this contract buyer pays only a minimal amount for each unit purchased from supplier but shares a fraction of the revenue for each unit sold. This also increases the level of product availability meanwhile increasing profits. Best suited for products having low variable costs and higher cost of return. 3. Quantity Flexible contracts – This contract allows buyer to modify the order within certain limits as notified by supplier as and when the demand visibility inches closer to the point of sale. This contract has less information distortion than those above. This contract is suitable for suppliers serving multiple retailers and also must possess flexible capacity. 4. Contract for Supply chain cost co-ordination – Quantity discount contract there is a reduction in overall cost but lead to higher lot sizes and thus higher levels of inventory in supply chain. 5. Two Part tariff contract – offers right incentives for dealer to exert right amount of effort to increase supply chain profitability 6. Threshold contract – offers the dealers an increase in margin for sales exceeding a certain threshold limit. 7. Performance improvement contracts – are structured at instances where a buyer wants performance improvement from supplier who has little incentive to do so. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 45

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Vendor Management The use of the following sourcing practices makes sourcing easier and managing vendors efficiently resulting in lower product costs and increasing the overall profitability of firm. Ø Use of Multifunctional teams Multifunctional groups help develop better strategies for sourcing. It helps purchasers to stress and focus on purchase price. Collaboration between the purchasing, manufacturing, engineering and planning departments is much more likely to identify correct costs. This collaboration must be continued up to the procurement stage to realize the benefits of a good sourcing strategy. Ø Co-ordination across regions and business units To maximize economies of scale in purchasing and reducing transaction cost, coordination of purchasing across all levels of firm and supplier is essential Ø Evaluation of Total cost of ownership An effective sourcing strategy should not make price reduction its main objective. Primarily the factors that influence total cost of ownership should be identified and used for supplier selection. The performance of the supplier should be evaluated and its impact on the total cost be quantified. Focusing on total cost of ownership also allows a buyer to identify opportunities in designing and planning in better way Ø Building long term relationship with the suppliers Sourcing itself is essential to both supplier and buyer working together as this generates more opportunities for savings than the two parties working independently. Trust should be established between the buyer and supplier in order to maintain a long term relationship. At the time of sourcing direct materials these capabilities are very important and thus such relationships should be nurtured with suppliers of critical and strategic direct material. Better relationships result in better profitability for both supplier and the buyer. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 46

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Inventory Management Inventory is a very large and costly investment that every stage of the supply chain needs to incur. Every stage works independently to make supply chain profitable. Thus it is very important that every stage of supply chain co-ordinates and together forms the inventory policy. A large number of firms make use of following two approaches in combination when managing the inventory in order to meet predictable variability. The two approaches are 1. Use of Common components - This approach involves manufacturer to design common components that can be used in multiple products which have a predictably variable demand that result in overall constant demand for the components. Eg: Buttons in a Shirt 2. Developing Inventory for highly demanded products - Products that are highly demanded or that have a high predictable demand it is important to decide upon which of their products will have highest demand and therefore build inventory for that product in the off season because there are less chances of fluctuation in demand for these products closer to peak season. Need for holding inventory • Achieve Economies of Scale • Balance demand and supply • Specialization • Protection from uncertainty and order cycles • Act as a buffer between the stages of the supply chain. Types of Inventory A. Cycle Inventory Defined as average inventory that exists in the supply chain either due to production or purchase of products in lot sizes that are larger than those demanded by the customers. Cycle Inventory = Lot size/2 = the average inventory = 1000 / 2 = 500pcs Average flow time = Average inventory / Average flow rate. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 47

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Average flow rate is the demand itself Average flow time resulting from cycle inventory = cycle inventory / demand = 500/100 = 5 days EOQ – Economic order quantity = Twice the Cycle inventory = 500x2=1000pcs. B. Safety Stock Safety inventory can be defined as inventory carried for the purpose of satisfying the demand that exceeds the amount forecasted for a given period of time. Due to the uncertainty in the demand a product shortage may result. The table below shows the summary of alternate service levels, safety stock levels and also the total average inventory to be maintained. Fill rate represents the magnitude of a stock out. It represents the percentage of units demanded that are on hand to fill the customer’s orders. Service Level # of Std Deviations Safety Stock Average Total Average reqd Requirement Cycle Stock Inventory 84.10% 1.0 175 500 675 90.30% 1.3 228 500 728 94.50% 1.6 280 500 780 97.70% 2.0 350 500 850 98.90% 2.3 403 500 903 99.50% 2.6 455 500 955 99.90% 3.0 525 500 1025 C. Speculative Inventory Stock held for reasons other than satisfying current demand. Reasons can be bulk purchases larger than demand to get bulk discounts or because of a future price increase or future shortage expected. D. Seasonal Inventory Form of Speculative demand accumulation of inventory before a season begins. E. Dead Stock Products which have no demand registered over a large period of time. Products are obsolete and block working capital. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 48

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Symptoms of Poor inventory level Ø Increase in number of back orders Ø Increase in inventory investment with back orders remaining constant Ø High customer turnover rate Ø Lack of sufficient space Ø Increase in number of orders being cancelled Ø Wide variance in inventory turnover among distribution centers and major items Ø Deteriorating relationships with intermediaries in stages of supply chain. Inventory Holding Costs Holding cost is estimated as the sum of the following mentioned costs.Usually the holding cost is a percentage of the cost of the product Ø Cost of Capital – Weighted average cost of capital on inventory is calculated before taxes are paid. Pre Tax WACC = Post tax WACC / (1 – t) Ø Spoilage costs Rate at which value of product the firm stores drop following drop in market value due to quality deterioration usually high on perishable food items Ø Handling costs Include receiving and storage costs of products. Ø Occupancy costs Show an incremental change in the space cost due to the change in the cycle inventory. If a firm is charged on # of units stored we call it direct occupancy costs. Ø Miscellaneous costs Deal with large number of costs such as cost due to theft, damage, tax and insurance that may be incurred by the company. Ø Ordering costs Costs associated with placing or receiving an extra order independent of the size of the order Ø Transportation costs A fixed transportation cost is often incurred by firms regardless of the size of the order. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 49

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Objectives of Inventory Control Avoid shortage of material Prevent excess material Reduce costs Provide proper customer service Selective Inventory Control v Visual Control – Examine inventory visually to determine if addtnl inventory reqd. v Tickler Control – Physically count small portion of inventory each day v Click sheet Control – Record items as it is used on paper for reorder purposes. v Stub Control – Retain a portion of price ticket when an item is sold v Point of Sale terminal – relay information on each item used or sold. v ABC Analysis – 20% of the items contribute to 80% of total sales , Decision based on 80:20 rule, A-important, B-moderate imp, C – least imp. % Sales 100% 80% 80% 80% 60% 40% % Sales 15% 15% 15% 5% 5% 5% 5% 5% 20% 0% A A B B B C C C C C v FSN Analysis – Based on speed of movement of inventory , F- Fast, S – Slow and N – Non moving goods v Two Bin System – Principle of reorder level physically separates entire stock into two bins. Reorder Qty is EOQ , Second Bin Qty = Minimum Stk + Lead time consm First bin Qty = Order Qty – Lead time consumption. v HML Analysis – H – High priced item, M – Medium priced item, L – Low priced items. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 50

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Retail Operations Management Operations Management is an area of the business that is concerned with the production of goods and services and involves the responsibility of ensuring business operations are efficient and effective. It is also the management of resources and distribution of goods and services to customers. A typical retail operating process is focused towards ensuring efficient attending on the customer all the time he or she is in store. For doing this the operations department has to work on the following steps. 1. Connect with customer: Salesman has to be humorous, sweet, shy or confident while interacting with customers. 2. Probe need subtly: By communicating freely with customer & striking a humorous note, needs of customer could be understood even if they don’t spell out clearly. 3. Presenting Merchandise: Salesman should initiate the trial of product by the customer and give truthful opinions at the same time give personal space. He should not insist. 4. Handling objections and indecisions: Customer doubts are to be clarified by the salesperson to his or her satisfaction. 5. Recognizing buying signals: Must respond quickly to buying signals which may come in the form of positive statements. 6. Closing the Sale: Preparation of cash memo and guiding the customer to the invoice counter. To ensure this, the operations have to carry out jobs for which the broad retail activities are classified as below and each of these topics will be touched upon in detail. v Store Layout and Designing / Visual Merchandising v Customer Service Management v Store Facility Management and Maintenance v Loss Prevention v Store Operations Parameters ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 51

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Store Layout and Designing / Visual Merchandising Store Layout and Designing is one of the most vital ways of communicating and helping customers to buy. Any retailer while designing the store layout must consider following: Ø Store atmosphere must be consistent with the store and brand image of retailer Ø Store designing must help influence customer’s buying decisions. Ø Optimization of Productivity from retail space. Store Layout It refers to planned physical location and arrangement of merchandise, departments, displays, checkout counters and non-selling areas. In doing this first consideration must be given to customer convenience and then comes the retailer’s convenience. In designing a good store layout the retailer must consider the following 1. The layout must entice customers to move around the store to purchase more merchandise than planned. 2. Customers should ideally be exposed to layout pattern that facilitates a specific traffic pattern. 3. Effective merchandise presentation and balance between sale and shopping space. A typical layout divides the store into four different kinds of space Ø Selling Space – Assigned for interior displays, product demonstrations and sales transactions. Ø Merchandising Space – Allocated to items that are kept in inventory for selling. Ø Personnel Space – Assigned to store staff for lockers, lunch breaks and rest rooms. Ø Customer Space – Assigned for comfort and conveniences of customer including food court, dressing rooms, lounges and recreational space for children. Once the selling to sales support ratio is known designers can begin the planning process. The planning of store layout consists of five distinct steps 1. Selection of layout type 2. Division of Merchandise by department 3. Allocation of selling space by department 4. Assignment of department location 5. Organization of Merchandise within departments. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 52

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Layout Patterns The basic arrangement of the selling floor is of primary importance, because it affects all other design decisions. Each type of layout has inherent strengths and weaknesses resulting from the traffic flow patterns they create. With changing formats and increasingly sophisticated store design research and techniques, retailers have been experimenting with many combinations of these plans. Layouts may be categorized into three basic types: Grid Layout: A linear design for a selling floor where fixtures are arranged to form vertical & horizontal aisles throughout the store. Supermarkets, discounters, grocery, drug store and other convenience –oriented retailers, typically use it. This layout is done for more of the store’s convenience and the need to get a lot of product out on display. The basic advantages of using this kind of layout can be summed up as it is efficient in terms of space use, Allows orderly stocking, Helps shoppers see a great number of items easily, Is simple and predictable to navigate, Efficient to maintain, Simplify inventory maintenance. In a self-service format, this arrangement permits customers to shop in a quick manner. Strategic location of departments ensures that customers are drawn through the store and exposed to all merchandise categories. Weaknesses of the layout include the psychological effect on customers is one of feeling constrained and rushed, which reduces the time they spend browsing, Not aesthetically pleasing, Contains long gondolas of merchandise and aisles in a repetitive pattern, which creates a monotonous effect that makes the customers feel bored after a certain time. It is not necessarily convenient for all consumers or the most effective selling approach. Certainly the main aisles will get lots of exposure, but the secondary aisles are often over looked and as a result sales are missed. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 53

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Free-flow Layouts - It is an asymmetrical arrangement of merchandise that encourages an unstructured traffic flow. It is mainly used in specialty stores and within departments of department stores that emphasize mainly on ambiance and personal selling. This layout is the most flexible of the three plans. Advantages: The main advantages of this layout are:It does not restrict the customers who do more browsing and unplanned purchasing.It also enhances interior design, as individual departments are more easily distinguished.Tends to provide more relaxed atmosphere. Personal selling is emphasized. Disadvantages: The major disadvantages of this layout can be summed up as Its main weakness lies in the inefficient use of space and customer disorientation. Also requires higher labor & security expenditures. Lends itself to higher rates of theft because of blocked vision. Setup is expensive because the setup is custom made. Critical factor is providing enough room between fixtures ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 54

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Loop or Boutique or Racetrack Layouts - It exposes shoppers to a great deal of merchandise as they follow a perimeter traffic aisle with departments on the right and left of the circular, square, rectangular or oval racetrack. This layout divides the selling floor into shops within the store. This layout is employed in a discount or a department store. This layout exposes shoppers to a great deal of merchandise. It forces the customer to visit multiple departments as they pass through. This loop effect facilitates impulse buying. The newest merchandise is prominently displayed on these main aisles. Overhead directional signs and departmental graphics provide visual cues to the location of other departments, helping shoppers while shopping, Construction, interior design and security costs are substantial, however. Soft Aisle Layout - This layout treats merchandised walls as some of the most important sales generators in the store. Floor fixtures are arranged into groups with a 5-foot aisle along merchandised wall sections. Encourages customers to shop the walls and move easily around the store. Minimal floor Layout - Almost gallery-like in its simplicity, shows small selections of Hand crafted or very exclusive merchandise. This layout is used in very high-end retail stores with designer merchandise. The products are presented dramatically on the walls of the store much like the art objects- with a minimal use of selling fixtures on the floor. It allows for wide-open spaces in the center of the store. Combination floor Layout - It has best features of several floor layouts in an overall plan that suits a retailer’s specific strategy. It is a blend of free-flow layout in the 1st third of the store & a grid layout for a clearance department in the rear of the store. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 55

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Division of Merchandise by Department Merchandise is organized into groupings or classifications for the purpose of store layout & design. The creation of the various merchandise departments should be based on a logical plan that allows customers to locate desired items and make comparisons. Criteria used to divide merchandise by departments are: Function/usage – includes sports goods, kitchen appliances, home entertainment products. Customer purchase motive - Impulse items, Diet foods etc. Price points –Bargain, moderate, and better dresses. Vendor identification – Giorgio Armani, Gucci etc. Storage and display considerations – frozen foods, dairy products, etc. Target Audience – men’s, women’s and children’s clothing. Allocation of Selling Space When designing a store layout, it is important to have a clear analysis of the yearly sales & gross margin contributed by each merchandise grouping. Naturally those with the highest return per square foot of selling space will have contributed the most to the business. Every retailer should plan on allocating space to also highly appealing. Merchandise located in the primary (main) traffic aisles will receive more customer exposure and less in the secondary (other) aisles. A higher level of customer exposure will occur at the junction of two or more primary aisles. Certainly the performance of any merchandise group will improve if it is moved to a prime location. However, do not waste valuable selling space by assigning it to merchandise that will not provide adequate gross margin dollars. Locating Departments within the Store The value of a space varies by location within the retail store. The best locations are on the main floor near the entrances and escalators, as they are the highest traffic areas. In a multi-level department store, the value of space decreases from the 2nd to the 3rd floor, since customers are less likely to go up another flight. Within level, the best locations are near the main aisles. Floor space that is located on the right of an entrance is most attractive. The major factors that help a retailer in deciding about the location of departments within a store can be summed up as under:- Amount of space needed-Amount ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 56

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 of inventory needs to be displayed-The type of merchandise- Profitability of the department. The amount of space needed and the amount of inventory to be displayed are both adjustable numbers for most retailers, but within limits. The retailers know that certain merchandise requires specific fixtures or will need to be displayed in a certain fashion. This will put a lower limit on the space to be allocated. Departments requiring excessive space are often displayed in the back of the store, eg: office furniture is often placed in the back of the office supply store since it requires so much space. To relegate the smaller departments to the back of the store would result in them possibly being over looked consumers. Presenting your store is a very strategic part of your business. You need to have a reason for positioning every item in your store beyond the usual… “It was the only place left available so that’s where it ended up!” Organizing Merchandise within the Departments A number of criteria may be used to arrange merchandise, including brand, category, size, and price. New or heavily advertised products often are distinguished, as are items with particular service specifications. Retailers give their best selling merchandise the best selling area of the stores. The most favorable locations for merchandise are feature floor displays, end-aisle units, eye-level positions on gondolas and wall fixtures, and point-of- sale counter areas. Consider these suggestions for positioning departments: High margin / High profit - The merchandise that is highly profitable for the store sales can afford the “high rent” district in the store. Demand Merchandise - This is the merchandise; the customers make a point of coming to the store to get and will hunt for it. This should be put in a less valuable space and make them walk buy the more impulse related items. Impulse Items - These are the unplanned purchases customers make on a shopping trip. Items with high impulse success get great locations in the store. Related merchandise - Put merchandise even though it may be in separate departments, near each other if they are coordinating or complementary items. This will make them visible to the customer and make shopping easier. Seasonal stock - Some stores designate an area of the floor for merchandise that is on hand on only a short-term basis. This makes for efficient changeover of that area when a new season arrives. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 57

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 High Frequency Items - Customers want convenience; so position items that they buy frequently in a convenient area of the store. Department size - Smaller departments typically get better positions in the store than a larger department in order to help them be seen by the customer. Giving a small dept a poor visibility area in the store is like putting the “kiss of death” on that department. New Departments - If your trying a new department or line of merchandise, give it best chance possible to succeed by giving it a prime selling area. This is but obvious through the above discussion that high margin/high profit items go on the best shelf. Research shows that eye level and just slightly below is the best shelves to sell from. Planogram Process Plano gram is a computer –based technique for designating a precise placement for every item stocked in a department. It illustrates exactly where every SKU should be placed. These are used by chain stores to display merchandise in the best way and to achieve standardization across company locations. A planogram is nothing more than a picture of how various fixtures, shelves and walls will be presented with merchandise. But while it is a relatively simple concept, it is a very powerful one too. The planogram will force the retailer to consider very carefully what products go where, why and how many. It will also take into consideration what is known about the psychology of consumer buying habits. The Planogram is a detailed plan that gives store guidelines for: • Storefront, window display or department setup. • The quantities of merchandise to be used and how they are to be displays. • The type of fixture to use and its placement • Price and description of the merchandise. • Signs are to be used. Using this type of planning system provides continuity from the storefront to the display & fixture positioning in the store; the customer will recognize the store by its uniform merchandise presentations and visual displays. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 58

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Merchandise Presentation With labor costs continually increasing, the retailer must take advantage of every opportunity to sell merchandise. Appropriate presentation tools placed correctly on selling floors and dressed properly are a successful silent sales force. A primary goal of the fashion retailer is to create and maintain a quality fashion image. Merchandise presented interestingly to the public can contribute greatly to both a store’s and a department’s image. To achieve this goal, a retailer needs to remember how the customer sees the store and the merchandise displayed in it. Each item of merchandise, properly arranged, is part of he image development process. Principles of Merchandise Presentation There are certain basic principles for each display that a retailer maintains for the store. T 1. The merchandise should be displayed in a manner consistent with the store’s image. 2. Consider the nature of the product (e.g., Levis can be stacked, dresses can be hung) 3. Packaging often dictates how the product is displayed (e.g.bulk, self service vs. pkgd) 4. Profit potential influences display decisions (e.g. low profit, high turnover items require less elaborate displays.) Types of Merchandise Presentation The different kinds of presentation techniques followed by retailers while displaying merchandise can be summed up as under: Idea –Oriented Presentation - It is a method of presenting merchandise based on a specific idea or the image of the store. E.g. Furniture displayed as room settings. In this kind of presentation the products by one manufacturer are displayed together. The basic idea of this presentation is to encourage complementary purchases. Style/ Item Presentation - In this type the organization of merchandise is done by style or item type e.g. products in a grocery store, electrical supplies in a hardware store. Within a specified area in this presentation style, types, size, etc also organize the merchandise. For example, casual cotton dresses may be offered in jumper styles, and low-waisted styles. These should be presented on separate fixtures, or atleast on separate arms of the same fixture. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 59

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Price Lining Presentation - It means organizing the merchandise in price categories. Retailers offer a limited number of predetermined price points within a classification. Also that the merchandise is presented in accordance of their price line. E.g. merchandise of same price line can be stacked together in a display. End use Presentation - A dress department may carry dresses for several different end uses- casual, career, evening, and formal wear. Therefore the merchandise can be displayed on different fixtures as per their classifications of their end use. Fabrication Presentation - Each classification of merchandise should also be separated by fabrication. E.g. casual jumpers may be offered in both linen and cotton, and these fabrications must be presented separately to give a well-designed presentation. Color group - All fashions can be separated into one of the seven groups of color. This is a method of display in which the merchandise is organized into color blocks, from left to right, from light to dark. The effect is to create a display that is visually appealing to the customers. For example, if you were arranging T-shirts on a hanging fixture the display would look like: Yellow-S, M, L Blue- S, M, L Red – S, M, L Also remember that neutrals can be presented separately or combined with any of the other color groups. Vertical presentation - In this type of presentation merchandise is presented vertically using walls and high gondolas. People scan merchandise like they read: top to bottom, left to right. Tonnage presentation - Large quantities of merchandise are displayed together, and the merchandise is the display in this type. E.g. cap displays of soups, soda, chips etc. Frontal presentation - A method of displaying merchandise in which the retailer exposes as much of the product as possible to catch the customer’s eye. E.g. one frontal display of books with the rest showing spines, one frontal display of an apparel item with the rest racked. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 60

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Planning the Store The retailer must consider the store personality and design the exteriors and interiors accordingly 1. Store Personality Each retail store has a unique personality. To the consumers a store can be warm, expensive, sterile, exciting or dull. Store’s personality is in reality the image the consumer has of the store. There is a multitude of factors that go into a store image formation. Location, Merchandise, Price, service, promotional effort and the attitude of the store personnel all have an important role to play. Store atmosphere and store’s physical facilities contribute heavily to the store image. 2. Developing a central theme Many merchants effectively create a store personality through the development of a central theme. This can be accomplished by co-coordinating the décor and fixtures through out the entire store. Retailer may generally create a central theme during seasons, holidays, festivals etc to attract customers. Such themes are temporary and will have to be changed more often. 3. Exterior Design consideration The images the consumers have of a store include its exterior design as well as its parking facilities. The external character of the store should reflect its interior character. In this way it conveys a message to the consumers regarding the nature of merchandise inside the store. Three important aspects of exterior design are: Ø Store Signage – Every store should have an identifying sign that tells the consumer the name of the store and if needed the nature of the business. Included on the sign should be a store’s logo. The store name or logo should be chosen with care & shd be distinctive, easy to pronounce & remember. Ø Display windows – Windows can be highly effective in attracting customers into the store, especially when a high pedestrian exists and the merchandise mix of the retailer is composed of shopping goods. Display windows should reflect the atmosphere and merchandise that will be found in the store Open Back – permits customer to look directly inside the store. Closed Back – Completely blocks the view of the store interiors Semi-Closed back – contains partition below line of vision allowing display of merchandise and same time to look into the store partially ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 61

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Ø Store Entrances Customers should have an easy access to the store. Doors should be easy to open without subjecting the customers to a tug of war. Entrances should be wide enough so that entering and exiting customers can pass without knocking into each other. The entrances should be inviting enough to induce customers to step inside. Some retailers have automatic doors for entry/exit 4. Interiors of the Store The interior designs of the store are of utmost importance as it gives the first impression about the store and merchandise. Important variables in interior designing of a retail outlet are : Ø Fixtures – To hold and display merchandise Ø Equipments – Elevators, escalators, air conditioners Ø Store Atmosphere – Effects of a good store atmosphere can be as below Attention creating medium – creative use of colors and visuals Message creating medium – brand message, company profile, values Affect creating medium – Slow music, slowing the shopper’s speed Sense of Smell – Good smell attracts customers to visit & shop more. Sense of hearing – Tinkling bells, ringing wind chimes, rock music in coffee shops, blast of space in video game rooms Sense of touch – people prefers to feel product before they buy. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 62

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Customer Service Management Customer Service is the set of activities undertaken by the retailer to make the shopping experience more convenient and rewarding for the consumers. It is an integral part of store management. The retailers job is to identify the needs and wants of every group of customers and develop different levels and type of customer service that will keep the customers happy. CRM in retailing have focused on improved productivity of the consumers shopping experience. The five C’s of consumer efficiency are v Clarity – Maintaining a clear focus on what you offer and what consumer can expect v Choice – Too much or too little choice can waste customer’s time. v Control – Customers like to be in control of their shopping dislike pushy salesguys v Communications – Methods of communicating – Signage, Brochure, Phone, Internet v Checkout – Inefficient handling at checkout will waste customer’s time. Customer Service Strategies Customer service can be leveraged as a competitive advantage. To do so, there are 2 important tools. Standardization – involves requiring service providers to follow a set of rules and procedures while providing service . By strict enforcement of these procedures, inconsistencies in the services are minimized Customization – approach encourages service providers to tailor the service to meet each customer’s personal needs. This approach can result in customer’s receiving superior service. But service might be inconsistent because service delivery depends on judgment and capability of the service providers. Customer Evaluation of Service Often customers use some tangible cues to judge the quality of service of the retailer. Tangibles – store appearance, merchandise display, appearance of salesperson Understanding customer – provide individual attention, recognize regular customers Security – safety in parking lot, communications/transactions treated confidentially Credibility – reputation of honoring commitments, trustworthiness of sales staff Information provided to customers – explanation, infm on sale, customer assurances ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 63

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Courtesy – friendliness, respect and interest shown to customers Access – Waiting time in queue, convenient operating hours, location Responsiveness – Returning a customer’s call, customer query answered Reliability – Billing accuracy, time conscious service performance. Classification of Customer Service Customer service starts well before the customer can step into the store and extends much after he/she has left the store premises. 1. Pre-Transactional Services – Convenient hours, Information aids and Manuals / Brochures 2. Transactional Services – Offering credit, Transaction time (Queuing Theory), Layaways, Gift wrapping, Credit and debit cards acceptance, Personal shopping (assembling an assortment of goods, selecting a wedding gift), Merchandise availability, Personal selling. 3. Post-Transactional services – Complaint handling, Servicing and Repair, Home delivery. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 64

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Store Facility Management and Maintenance A facilities department in retail stores is responsible to maintain all facilities of store which include both internal as well as external facilities. Some of the responsibilities of the facilities department are 1. Overseeing the retail facilities service including repair, maintenance and capital improvements 2. Supervising the retail facilities department to maintain equipment and facilities in stores for regular equipment maintenance, upgrades and re-models. To ensure proper functioning of all facilities all the time the facilities are required to be maintained properly, For this there is a separate maintenance department which is in charge for all types of maintenance such as alarm systems, conveyor repairs, Tele - communications, electrical and elevator services, Fire inspection service, Lighting, Janitorial, Gate installations, Trash service and cleanups, Upholstery and repairs. Maintenance Management The maintenance department is one of the greatest levers of profitability that any capital intensive organization has. An average of 40 – 50% of a capital intensive industry operating budget is consumed by maintenance expenditure. With advances today in technology this figure can be greatly reduced. Maintenance is the single largest controllable expense. A planned and scheduled job is executed after which we should record what was done in order to enable analysis of potential future problem. Some of the maintenance measures available and followed in retail industry are: v Predictive Maintenance (PDM) – Condition monitoring, applying corrections based on predictions. Also known as Just in time method v Preventive Maintenance (PM) – Systematic inspection, detection and correction of incipient failures either before they occur or before they develop into major defect v Corrective / Breakdown Maintenance – conducted when an equipment ceases to function. Mean down time = Mean wait time + Mean time to repair v Total Productive Maintenance (TPM) – Systematic execution of maintenance by all employees through group activities. Dual goal of TPM is zero breakdown and zero defects. Minimizes inventory costs associated with spare parts. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 65

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Loss Prevention Loss Prevention is not a very glamorous part of retail. It is however an important element of the success equation. Theft or Shrinkage erodes 100% pure bottom line profit. Know what your annual inventory shrinkage / loss figures are Shrinkage = Book Value of Inventory - Actual Inventory on Hand Shrinkage% = Shrinkage at Retail value / Total Sales Have a systemized procedure for doing physical counts of inventory • Preperation – Precount any merchandise that wont be sold before the official count • After hours – Count your inventory when the store is closed. • Supervision – Supervise the counting process by an Senior not from store. • Count sheets – Should be pre-numbered printed and padded. Every count sheet must be accounted for. Steps for Loss prevention by employee theft 1. Basic Loss prevention steps involve good procedures in hiring, training and supervision of employees and managers 2. Have an employee reward system for reducing shrinkage 3. Have a policies and procedures manual 4. Make staff aware of the effects of shrinkage 5. Attentive sales staff: Thieves do not want to be watched upon. Stay with your customer as much as possible. This also improves staff’s selling skills 6. Store design to minimize shoplifting opportunities – Blind spots, cash counter and merchandise displays should be in such a way that at no point customer cannot hide himself from sales staff vision 7. Use of security system – A centrally monitored security system can reduce shrinkages plus give reports that who was in store and at what time. Security mirrors help eliminate blind spots 8. Management of Keys – Limit access of keys as much as possible. Keep record of who has the keys, use non duplicating type of keys 9. Account all markdowns – Strict policies must be in place to handle markdowns. 10. Spot checks – False refunds are popular method for dishonest employees to get cash from the till and still balance at the days end. To control this customer name, ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 66

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 address and contact number must be recorded on special form and signature. Spot calls to customers must be made on validity of refund 11. Cash register – Daily audit trail gives indication of everytime the cash drawer is opened for which reason. Ideally drawer is opened for recording sales and if any other reason explanation is needed 12. Entry and Exit – Back door is a prime route for dishonest employees to get merchandise from store. Access to and from back door must be restricted. 13. Garbage disposal – Putting merchandise along with garbage is one of the oldest tricks. Have second party check garbage before disposal 14. Employee checking – Hard one to implement but is a must, physical checks on person and bags and belongings before exit from store. 15. Reference checks on new employees – Checking employee history with past employer and immediate supervisor on work habits etc 16. Staff purchase program – generous staff discount off retail price will minimize theft in stores by employees Steps to avoid shop lifting • Fix your fixtures – Minimize blind spots on the sales floor • Alternate clothing hanger directions prevents thief from a quick grab from the rack • Take receipt for all returns – Thieves steal merchandise and return for refund hence always ask for receipt • Lock up attractive expensive merchandise to prevent shop lifting • Be Smart about EAS tag placement – Electronic Article Surveillance is tagged on merchandise in hidden areas which is removed when item is purchased, if not removed it triggers alarm when it passes sensors near store exit • Monitor your fitting rooms – customer must encounter staff when entering fitting room as it is an ideal place to conceal merchandise • Signage – Correct signs around store deter shoplifters – “ Smile- You’re on Candid camera” even if you do not use cameras • Camera domes – CCTV systems can be costly but very effective • Prosecute all thieves as they will continue their practice if let off • Exceptional customer service also can deter shoplifting by knowing who your customers and offering assistance and attending their needs. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 67

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Store Operations Parameters Customer Transactions Customer conversion ratio – Retailers ability to turn potential customer into a buyer = No of transactions / Customer traffic x 100 Return to Net Sales – indication of customer satisfaction by showing value of returned goods and allowances as %age of net sales = Total Returns and allowances / Net Sales x 100 Transaction per hour – Keep track of number of transactions they carry on per hour/ day/week or season = Number of Transactions / Number of Hours Sales per transaction – Measure to give rupee value of average sale = Net Sales / No of transactions Hourly customer traffic Tracks total customer traffic/ hour/day/week. Can apply to each dept or entire store. = Customer Traffic / Number of hours Stock Transactions Inventory Turnover – Number of times stock is sold and replaced in a period of time = Net Sales / Average retail value of Inventory % Inventory carrying costs – Track % age of netsales represented by fixed inventory cost = Inventory carrying cost / net sales x 100 Gross Margin return on Inventory – Margin on sales with original cost value of merchandise to yield a return on merchandise investment = Gross Margin / Average value on inventory at retail price Markdown Goods percentage – if ratio increases retailer need to look at merchandising practices and pricing. Markdowns are symptoms of poor buying, advertising, store layout = Net Sales at Markdowns / Total net sales x 100 Shrinkage to Net Sales – To determine % of net sale lost due to shrinkage Actual Inventory –Book inventory / Net Sales x 100 ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 68

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Space Transactions Occupancy cost/ Square foot selling space – Measure of comparing performance of units at different locations = Occupancy Cost / Square feet of selling space Gross Margin return on Floor space (GMROF)– Gross profit per linear foot of shelf space which is annual gross profit divided by the total linear footage devoted to the product category. = Gross Margin / Total linear footage devoted to a product category or entire store Sales per square foot – Total sales value in rupee for every square feet of retail space = Net Sales / Square feet of selling space Stock per square foot – Use of space involving different product lines or compare performance of different departments or stores using common standard = Net Stock / Square feet of selling space Employee Transactions Net Sales per full time employee = Net Sales / Total full time employee Customers served per full time employee = No of customers served / Total no of full time employees Labor productivity = Total labor costs / Net Sales Gross Margin per full time employee = Gross margin / Total full time employees Supplier/ Quantity or value purchased per buyer = Total suppliers / quantity or value purchased / Total buyers ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 69

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Supply Chain Management Framework Supply Chain management in retailing is the total process of planning, implementing and coordinating all the activities required for the movement of merchandise from manufacturer to retailer to customer in the most timely, most effective and cost efficient manner. SCM includes the following points which need to be integrated and coordinated • Inventory Management • Warehousing • Material Handling • Transportation • Customer service • Order processing and fulfillment Goals of SCM in retailing 1. Place and receive orders as easily, accurately as possible 2. Minimize time between ordering and receiving merchandise 3. Coordinate shipments from various suppliers 4. Have enough merchandise on hand to satisfy customer demand without having much inventory that heavy markdowns will be necessary 5. To place merchandise on sales floor efficiently 6. Process customer orders in smooth manner 7. Have backup plans in case of breakdown in the system 8. Optimize cost to enable fulfilling all activities as economically as possible Decision phases in Supply Chain • Supply chain design Decisions regarding configuration of supply chain based on company’s strategies like location of warehouse, manufacturing facilities, the production, different modes of transportation to be used and the information systems applied are all very critical. These decisions are long term & expensive. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 70

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 • Supply Chain Planning It is the second phase on supply chain decision process which requires decisions to be made in considerations with the corporate time frame. Since the configurations involves constraints it is important for careful planning to be done in terms of forecasting demand, supplies to be made from different locations, manufacturing decisions whether in-house or outsourced, policies regarding inventory, timing and size of the marketing promotions. • Supply Chain Operations Here the time horizon is extremely short. Decisions are based on individual customer orders. Main objective of this phase is to handle the incoming customer’s order in the best possible manner by allocating inventory or production capacity to individual orders, fixing the transport and delivery schedules of trucks and also placing replenishment orders. The Macro Processes of Supply Chain 1. Customer Relationship Management (CRM) – interface between firm & its customers. Function of marketing, promotions, sales & website management 2. Internal Supply Chain Management (ISCM) – process that takes place internally within the concerned firm 3. Supplier Relationship Management (SRM) – Function of evaluation and selection of suppliers, negotiation of supply terms and communication regarding new products and orders with suppliers CRM ISCM SRM •Market Research •Strategic Planning •Source •Sell Products •Demand Planning •Negotiate •Call Centres •Supply planning •Buy •Order Management •Fulfillment •Design collaboration •Field Services •Supply collaboration ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 71

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Achieving a Strategic fit in Supply chain strategy A retailer is said to be strategically fit when its competitive strategy and supply chain strategy coincide and have the same goal. Factors which retailer has to emphasize to achieve this strategic fit are Understanding the customer uncertainty and supply chain uncertainty – In terms of price of product, variety of products required, service level required, Tolerable response time, Quantity required in each lot, Rate of product innovation Implied demand uncertainty – uncertainty exists because of that part of demand that a supply chain is required to fulfill. Demand uncertainty is the uncertainty of customer demand of a particular product whereas the implied demand uncertainty is the uncertainty for only that part of the demand that the supply has to fulfill keeping in view the attributes of the customer. Understanding capabilities of supply chain – This is the spectrum which has to be given the trade-off between the Efficiency and Responsiveness of the supply chain in terms of Range in quantity demanded, meet short lead times, meet high service levels, tackle supply uncertainty and introduce innovative products. Other issues affecting strategic fit – large number of products and market segments, Product life cycles, time related competitive changes. The Best strategy in terms of achieving a strategic fit is maximizing the supply chain surplus view within Intercompany and inter-functional scope. Suppliers Manufacturer Distributors Retailers Customers Competitive Strategy Product Development Strategy Supply Chain Strategy Marketing Strategy Inter Company Inter-Functional scope of Strategic Fit Horizontally: Supply Chain stages, Vertically: Functional Strategies ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 72

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Major drivers in achieving a strategic fit in a supply chain are 1. Facilities Facilities include those places where the material is stored, assembled and produced. Components of facilities decision are Location – Whether to centralize facilities to achieve economies of scale or it needs to be more responsive by opening more facilities closer to customers Capacity – Decide on capacity to perform its intended function. Excess capacity allows more flexibility to large fluctuations in demand but also increases costs and decrease efficiency. Operations Methodology – Company should take decisions regarding design of facility whether a product focused facility or a function focused facility Warehousing methodology – Warehouse design decisions whether as a Stock keeping unit storage or a Job lot storage or Cross docking. 2. Inventory Existence of inventory is because of mismatch between supply and demand. Such mismatch occurs where it is economical for firms to produce excess and stock goods due to production constraints or in anticipation of future demands. Components of Inventory decisions are Cycle Stock: Average amount of inventory used to satisfy demand between receipts of supplier shipments Safety Stock: Held incase of an increase in demand more than expected. Seasonal Inventory – Company builds inventory in order to counter the predictable variability in demand Sourcing – Set of business processes required to purchase goods and services from a single supplier or a host of suppliers. 3. Transportation Transportation moves a product between different stages in a supply chain and has a great impact on the efficiency and responsiveness of the supply chain. Quick ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 73

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 transportation methods increase the responsiveness but lower the efficiency by increasing costs. Components in transportation decision making are: Modes of Transportation – Air, Sea, Road, Rail, Pipeline, E-transport Selection of routes /network – Path along which goods travel is called Route Inhouse or outsourced transportation – owning vehicles or leasing/renting 4. Information Information has no physical presence yet this driver plays an important role in the supply chain. Information is collected at each and every stage of supply chain and it helps to rectify, reconfigure itself and maximizing supply chain profitability. The day to day operation of any facility requires analysis of information available so that production schedules can be made, produce on time, maintain a good inventory and provide on time delivery and becoming more responsive and efficient. Components of Information decisions are Push versus Pull – If the retailer wish to execute a push process then it needs to have proper information on raw material requires and needs to plan on their timely availability, incase of a pull process information regarding actual demand of products from customers must flow through supply chain. Forecasting and Proper Planning – Projecting future conditions in advance with the help of projecting techniques. Once projection is made on future demand it is time for action to decide upon how much to produce and plan production schedule, marketing technique and pricing Information coordination – Every stage of supply chain must coordinate with each other in order to fulfill the objective of maximizing the profitability of the supply chain. If there are no proper coordination there would be disorder as “Information is the Life Blood of the Supply Chain” Pricing and Managing revenue – It is vital to keep check on demand and supply info at the time of altering the prices, analyze impact of price change on future demands, costs incurred and market competition. Technology – Varied technologies are used to help it work efficiently like Electronic Data Interchange (EDI), Internet, Enterprise resource planning, Supply chain Management software etc. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 74

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Decision Making in the Supply Chain Competitive Facilities Strategy Efficiency / Strategic Fit Responsivenes Supply Chain s Stragegy Inventory Supply Chain Drivers Transportatn Information Information Technology Perspective in Supply Chain Management IT would help retail in providing the right product at the right place at the right time with a price tag acceptable to customers. It provides hardware and software capabilities to cover end to end retail / business processes/ operations and also be critical in efficiently and effectively carrying out all the core functions which would include global sourcing, procurement, distribution, transportation, logistics, demand forecasting, product innovation, merchandising, compliance, Point of sale data management, Property management, Marketing, CRM and loyalty management. • It can leverage sales history and anticipated demand to create an accurate forecast of customer demand • Simulate midterm and long term planning options, allocate resources and make strategic sourcing decisions in a timely fashion to best meet operational goals. • Integrate sourcing, purchasing, production, distribution and transportation to create a demand plan. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 75

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 • Create a calculated, time phased replenishment plan based on customer demand forecasts and using automated state of the art algorithms within the supply chain • Institute real time inventory tracking across all channels enabling the retailers to manage and monitor stocks and values and minimize the inventory levels while avoiding out of stock situations. • Ensure an efficient warehouse management system, picking and packing, controlling logistics documents and in-bound and out-bound monitoring. • Integrate GIS/GPS and mobile devices or RFID technology to gain reliable, real time information about the storage and movement of goods between warehouse locations • Move from a product push to a customer pull approach and reap the rewards of reduced operating costs and larger profit margins. IT Applications: The technology perspective Applications of IT in Retail span a very wide spectrum from store front right up to Business intelligence tools integrated with ERP/SCM and CRM applications and further to MPLS/VPN. The front end applications are mainly in the form of Point of Sales Terminals and Barcode readers for faster clearance. Then there are the SCM tools for constraints based supply chain planning and forecasting. CRM tools cater to trend analysis, customer usage pattern, purchase, promotion management and lifecycle analysis. Use of data warehousing, data reviving and BI tools has made the campaigns and promotions associated with stores more focused to target customers at all levels. BI Tools along with CRM have also made it possible to offer customer loyalty programs to intend benefits to retail and have loyal customers. E-Commerce covering inventory visibility, on-site merchandising, cross selling, price comparison and multi channel congruity would be the next phase in Retail. MPLS-VPN Networks are more recent trends converting stores of centrally networked infrastructure with 100% network uptime would offer precise information related to merchandise, logistics, online customers and would help in reducing the turn around time required to take decisions. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 76

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Points of Sale - POS systems capture data about orders at the POS are are frequently found in fast-food chains and grocery stores. The POS systems provide immediate update to sales and inventory systems and allow firms to monitor sales trends as they happen. They also allow firms to capture customer data and preferences and add information to their data warehouses. The information available from POS becomes input to the financial accounting systems which then supply data to marketing information systems. Bar Code/ UPC - Bar code or Universal Product code is used in point of sales systems in supermarkets and retail stores. It is a product identifier and is made up of series of bars and spaces which represent alphanumeric information pertaining to product code, price etc. Barcode help enhance accuracy in demand forecast, real time stock management, faster checkout at POS, product tracking and tracing and reduced labeling and administration costs. RFID - Radio frequency identification is a wireless barcode which provides wireless communication between objects and readers. RFID uses embedded microchips containing information about item, location. It has the ability to identify and track products and equipment in real time without contact or line of sight. It offers reading, waiting, transmitting and storing and updating information. It can track inventory and tasks performed by employees in store, customer profiles, transaction history & levels of stock. VPN - Virtual private network is a secure connection between 2 points across internet, enables private communications to travel securely over public infrastructure. It saves long distance communication costs. EDI - Electronic data Interchange is the in charge of business information through standard interfaces by using computers without requiring re-keying information. Main benefits are saves time and data transmission is immediate, reduced manual errors, no paper handling. Data Warehousing and Data Mining - Retail organizations are data rich but information poor, hence data warehousing and data mining provides users with tools to store summarized information from multiple heterogeneous bases in a single repository. Data mining is an information analysis tool involves automated discovery of patterns and relationships in data warehouse. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 77

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Summary Report and Conclusion To conclude the project we can say that the project report explains the best practices in retail business processes that can be applied effectively in a Fashion Merchandise Retail concept to improve the profitability and the overall operating effectiveness of the business. The summary of the project is listed as below • The project gives a detailed insight into the value chain processes involved in the Fashion Merchandise life cycle. • Market Entry - The Project describes the best strategy for a Market entry which is the rapid Market penetration strategy with high volume, high advertising and low cost products. • Pricing - The pricing strategy describes effective implementation of pricing tactics to counter competition and also promotional pricing techniques to eliminate excess stock. • Location – The checklist evaluation provides in depth details on selection of a retail site for fashion merchandise retail outlets and also describes what type of stores suit which market areas. • Brand Image – The project outlines detailed explanation on establishing a healthy brand image of the retailer which helps to connect better with customers and gives a top of mind aided brand recall. • Demand forecasting – This section provides factors and methodologies in arriving at an accurate forecast for buying to prevent loss of sales and excess stock in the stores • Procurement – Detailed analysis of Supplier selection policies, scoring, contracts while negotiating have been provided to select the best sourcing policy for a fashion merchandise retail strategy. • Retail Operations – explains the designing of layout, visual merchandising concepts, merchandise presentation techniques, store maintenance, loss prevention and customer service management • Supply chain management – Section outlines the importance of IT applications in retail end to end coverage to maximize the profitability of the supply chain and the organization ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 78

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Annexures - I Proposal Name of the Learner: Arun Kumar Arunachalaiah Registration No: 200711493 Program: Post Graduate Diploma in Retail Management Address: #291, 20th Main, Nandini Layout, Bangalore - 560096 Title of the Project: Competitive Retail Strategy for Fashion Merchandise Objectives: Objective of this Project is also to carry out extensive studies to make certain the right retail Strategy for an apparel retailer to create a loyal and repetitive customer. The project scope will also Include coverage of areas of establishing a strong Retail image through Marketing Strategies, Brand Building, Identifying the right Retail Mix, Pricing, Advertising, Forecasting, Category Management, Retail Store Operations, Supply Chain and usage of Information Tech-- nology applications in Apparel specific retailing. Successful Apparel Retailing has always been said to be about getting nutty gritty right of Merchandising, Forecasting, Supply Chain, Training and Recruitment of high quality personnel and Category Management. Building retail brands that offer value will, in future overshadow all these areas and emerge as the dominant reason for the success of the organized Indian Retailer. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 79

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Need for the Topic: India in recent years has been the focal point of continuous growth and development making it one of the fastest growing economies of the world. It is the 4 largest economies in terms of Purchasing Power Parity, after USA, China & Japan, and is rated among the top 10 FDI destinations. The Indian consumer is evolving and driving retail growth due to increased consumption. Private consumption growth contributes to more than half of the GDP growth and is growing in double digit figures. Several businesses are reacting to this evolution positively, both through pull and push phenomenon. Following a similar trend, the Indian textile and apparel industry is also experiencing rapid changes and growth. Apparel today has the largest share of the modern organized retail in India i.e. 20% of the current market of Rs. 56,000 crore and this is expected to grow at a constant rate of 20% over the next 4 years. This report puts together some of the recent trends being witnessed by the textile and apparel industry. The central theme woven through these trends is the way the consumer at various income-levels is evolving, thereby ensuring that businesses are reacting in multiple ways. The 'mass consumer' segment is moving from tailored clothes to stitched apparel giving rise to discounted apparel stores/retailers. This causes a shift from unbranded to branded apparel. The 'middle end consumers’, already exposed to brands is now looking to extend these brands into all aspects of their life. Brands are thereby becoming lifestyle brands instead of being product brands only. These consumers are also moving up the social ladder and wish to flaunt the change in stature by wearing affordable 'designer prêt wear'. This is prompting designers to introduce prêt lines and corporatize their lines to reach out to a larger audience. The 'high end Consumer' who is exposed to international luxury brands, now demands them in his/her vicinity. Apparel businesses are realizing this and tying up with international brands to retail in India. These consumers are also increasingly exposed to environmental issues and want to use eco-friendly products (including apparel) to do their bit for the society. Though this concept is at a very nascent stage in India, apparel companies are reacting by 'going green' and using natural fibers in some of their collections. As all consumers, especially kids and the youth, are exposed to fashion and media, they wish to associate themselves with characters and icons. Picking on this trend, apparel companies are licensing these characters/icons for apparel & accessories to increase their customer base. Additionally, as consumers face hectic lifestyles, they are looking for convenience in all aspects of life ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 80

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 including shopping. Fashion businesses are taking the lead from here and taking on consumers at unconventional avenues of retailing like airports, metro stations, cafes, beauty saloons, etc. Methodology: Analyzing the correct and a competitive retail strategy for a fashion merchandise office wear brand through a detailed study and thorough understanding of retail concepts explained in the curriculum of the course program PGD in Retail Management by the Symbiosis Faculty program and extensive research conducted through various reference books and internet links in google and various top retail organization company websites. ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 81

Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Annexures - II References • Technopak Retail Outlook • Indian Consumer Trends 2006 – The knowledge company • Wipro Technologies • Kotak Securities Limited • www.google.com • www.fibre2fashion.com • Symbiosis Institute of Retail Management • Rai – Retailers association of India • Bharatidasan Institute of Management, Trichy • Hindu Business Line • Economic times ArunKumar Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 82

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