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Retail
Management
What is Retail Management?

   Retailing encompasses the business activities involved in selling goods &
   services to consumers for their personal, family, or household use.
   It includes every sale to the final consumer – ranging from cars to apparel to
   meals at restaurants to movie tickets.

 Key issues that retailer must resolve:
   How can we best serve our customer while earning a fair profit?
   How can we stand out in a highly competitive environment where customers
   have so many choices?
   How can we grow our business while retailing a core of loyal customers?




  ISB&M                                                          Retail Management
Retail Functions in Distribution

                                                             Final
  Manufacturer    Wholesaler                               consumer
                                         Retailer


                 A Typical Channel of Distribution

  Manufacturer
    Brand A                                                  Brand A
                   Wholesaler                               customers
  Manufacturer
                                                             Brand B
    Brand B
                                          Retailer          customers
  Manufacturer                                               Brand C
    Brand C                                                 customers
                   Wholesaler
                                                             Brand D
  Manufacturer
                                                            customers
    Brand D
                 Retailers role in sorting process

  ISB&M                                              Retail Management
Retail Functions in Distribution
contd..
  Retailers often act as the contact between manufacturers, wholesalers, & customers.
  Retailers collect an assortment (variety) from various sources, buy in large quantity, &
  sell in small amount. This is sorting process.
  Retailers communicate with customers, wholesalers & manufacturers.
  Shoppers learn about the availability & characteristics of goods & services, store hours,
  sales etc., from retailers advt., sales people & displays.
  Manufacturers & wholesalers are informed by their retailers with regard to sales forecast,
  delivery delays, customer complaints, defective items, inventory turnover and so on..
  Many goods & services have been modified due to retailer feedback.
  For small suppliers, retailers provide assistance by transporting, sorting, marketing,
  advertising, & pre-paying for the products.
  Retailers also complete transactions with customers i.e., having convenient locations,
  filling order promptly & accurately, & processing credit purchase.
  Some retailers also provide customer services such as gifts wrapping, delivery, &
  installation.
  To be more appealing, many firms engage in multi-channel retailing i.e., multiple point
  of contact like physical stores, websites, mail-order catalogs etc.

  ISB&M                                                                 Retail Management
Retail Functions in Distribution
contd..
 Benefits
   Reach more customers
   Reduce costs
   Improve cash flow
   Increase sales more rapidly
   Focus on area of expertise


 Manufacturers also do operate retail
 facilities (besides selling at
 conventional retailers). In running their
 stores, these firms compete the full
 range of retailing functions & compete
 with conventional retailers.




  ISB&M                                      Retail Management
Retailer-Supplier Relationship
 Retailers are part of distribution channel, so manufacturers (wholesalers) are concerned
 about:
   Caliber of displays
   Customer service
   Store hours
   Retailer‘s reliability as business partners
   Retailers are also major customers of goods & services for resale, store fixtures,
   computers, management consulting ,& insurance.
 Retailers and supplier have different priorities on:
   Control over distribution channel
   Profit allocation
   No. of competing retailers handling supplier‘s products
   Product display
   Promotion support
   Payment terms
   Operating flexibility
  ISB&M                                                                  Retail Management
Retailer-Supplier Relationship
contd..
 Channel Relations
   Exclusive Distribution
   Suppliers make agreements with one or a few retailers that designates them the only one
   to carry certain brands/products in a specific geographic region.
   Both parties work together to maintain an image, assign self space, allot profits & costs,
   & advertise.
   This is the smoothest channel relationship.
   Intensive Distribution
   Suppliers sell through as many retailers as possible.
   This maximizes suppliers‘ sales & lets retailers offer many brands & product versions.
   Retailers may assign little self space to specific brands, set high price on them, & not
   advertise them.
   This is most volatile channel relationship.
   Selective Distribution
   Suppliers sell through a moderate no. of retailers carrying some competing brands.
   This combines aspects of Exclusive & Intensive Distribution

  ISB&M                                                                   Retail Management
The Special Characteristics of
Retailing
 The average amount of a sales transaction for retailers is much less than
 manufacturers.
   This low amount creates the need to tightly control the cost associated with each
   transaction like sales personnel, credit verification, & bagging.
   To maximize the no. of customer the retailer has to emphasize more on ads & special
   promotions.
   Increase impulse sales by more aggressive selling.
 Final consumers make many unplanned or impulse purchases.
   Large %age of consumers do not look at ads before shopping.
   They do not prepare shopping list.
   Make fully unplanned purchases.
   This indicates the value of in-store displays, attractive store layouts, & well organized
   stores, catalogs, & website.
   Retailer‘s ability to forecast, budget, order merchandise, & sufficient personnel on the
   selling floor becomes difficult.



  ISB&M                                                                  Retail Management
The Special Characteristics of
Retailing
 Retail customers usually visit a store, even though mail, phone, & web sales has
 increased.
   Most retail transactions happen in stores & will continue in future.
   Many people like to shop in person, want to touch, smell, and/or try on products.
   Many people to browse for unplanned purchases.
   They feel more comfortable talking a purchase home with them than waiting for a
   delivery.
   Desire privacy while at home.
   Retailers must work to attract shoppers to stores & consider such factors such as store
   location, transportation, store hours, proximity (nearness) of competitors, product
   selection, parking & ads.




  ISB&M                                                                   Retail Management
Importance of Retail Strategy
 Retail strategy is the overall plan guiding a retail firm. It influences the firm’s business
 activities & its response to market forces, such as competition & economy.
 Six steps in strategic planning
    Define the type of business in terms of the goods or services & company‘s specific
    orientation.
    Set long-run & short-run objectives for sales & profit, market share, image etc.
    Determine the customer market to target on the basis of its characteristics (like gender
    & income level) & needs (like product & brand preferences).
    Devise an overall, long-run plan that gives general direction to the firms & its employees.
    Implement an integrated strategy that combines factors like store location,
    transportation, product variety, pricing, and advertising & display to achieve objectives.
    Regularly evaluate performance & correct weaknesses or problems when observed.




  ISB&M                                                                  Retail Management
Key to success

  Growth-oriented objectives
  Appeal to prime market
  Distinctive company image
  Focus
  Strong customer service for its retail category
  Multiple points of contact
  Employee relations
  Innovation
  Commitment to technology
  Community involvement
  Constantly monitoring performance




 ISB&M                                              Retail Management
The Retailing Concept
          Customer
         orientation


    Coordinated effort
                                           Retailing
                                           concept                    Retail Strategy

       Value- driven


     Goal orientation

  Customer orientation - The retailer determines the attributes & needs of its customers
  & endeavors (take action) to satisfy these needs.
  Coordinated effort - The retailers integrates all plans & activities to maximize
  efficiency.
  Value-driven - The retailer offers good value to the customers, whether it be upscale
  (expensive) or discount i.e., ―appropriate pricing‖ for goods & customer service.
  Goal oriented - The retailer sets goal & uses its strategy to attain them.

 ISB&M                                                                 Retail Management
Classification of Retail Institutions

                                                                           Nonstore-based
                                         Store-based retail               retail strategy mix
             Ownership                                                     & nontraditional
                                            strategy mix
                                                                                retailing



 •   Independent                 •   Convenience store              •   Direct marketing
 •   Chain                       •   Conventional supermarket       •   Direct selling
 •   Franchise                   •   Food-based supermarket         •   Vending machine
 •   Leased department           •   Combination store              •   World wide web (WWW)
 •   Vertical marketing system   •   Box (limited line) store
 •   Consumer cooperative        •   Warehouse store
                                 •   Specialty store
                                 •   Variety store
                                 •   Traditional department store
                                 •   Full-line department store
                                 •   Off-price chain
                                 •   Factory outlet
                                 •   Membership club
                                 •   Flea (louse) market

     ISB&M                                                               Retail Management
Retail Institution by Ownership
 Ownership format serves a marketplace niche.
   Independent retailers capitalize on a very small targeted customer base & please
   shoppers in a friendly, folksy (simple) way. Word-of mouth communication is important.
   These retailers should not try to serve too many customer & enter into price wars.
   Chain retailers benefit from widely known image, economies of scales (i.e. cost
   advantages that a business obtains due to expansion), & mass promotion possibilities.
   They should maintain their image chain wide & not be inflexible in adapting changes in
   the marketplace.
    Franchisors have strong geographic coverage & motivation of the franchisees as owner-
   operators. They should not get bogged down in policy disputes with franchisees or charge
   excessive royalty fees.
   Leased departments enable store operators & outside parties to join forces & enhance
   the shopping experience, while sharing expertise & expenses. They should not hurt the
   image of the store or place too much pressure on the lessee to bring in store traffic.
   A vertically integrated channel gives a firm greater control over sources of supply, but it
   should not provide consumers with too little choice of products or too few outlets.
   Cooperatives provide members with price savings. They should not expect too much
   involvement by members or add facilities that raise costs too much.


  ISB&M                                                                  Retail Management
Independent Retailer
 An independent retailer owns one retail unit.
 Advantages
   There is flexibility in choosing retail formats, location, assortment (variety), prices, hours etc.,
   & devising strategy based on the target customers.
   Investment costs for leases, fixtures, workers, & merchandise can be brought down. There is no
   duplication of stock or personnel function. Responsibilities are clearly delineated (defined)
   within the store.
   Independents frequently act as specialist in a niche of the particular goods/services category.
   They are then more efficient & can lure (attract) shoppers interested in specialized retailers.
   Independents exert strong control over their strategies, & the owner-operator is typically on
   the premises. Decision making is centralized & layers of management personnel are minimized.
   There are certain image attached to independents, particularly small ones, that chains cannot
   readily capture.
   Independents can easily sustain consistency in their efforts because only one store is operated.
   Independents have ―Independence‖. No meetings, union, stockholders & labor unrest etc.
   Entrepreneurial drive.




  ISB&M                                                                        Retail Management
Independent Retailer
 Disadvantages
   Less bargaining power with the suppliers as they buy less quantity.
   Cannot gain economies of scale (i.e. cost advantages that a business obtains due to expansion) in
   buying & maintaining inventory. Transportation, ordering, & handling costs are high.
   Operations are labor intensive.
   They are limited to certain media for advt. because of financial constraints.
   Family-run independents is overdependence on the owner. It is difficult to keep it up &
   running.
   Limited time allotted to long-run planning, since owner is intimately involved in day-to day
   operations.




  ISB&M                                                                        Retail Management
Chain Retailer
 Chain retailer operates multiple outlets (store units) under common ownership. It
 usually involves in some level of centralized purchasing & decision making.
 Advantages
   Many chains have bargaining power due to their purchase volume. They receive new items
   when introduced, have orders promptly filled, get sales support, & obtain volume discounts.
   Chains achieve cost efficiencies when they buy directly from the manufacturers & in large
   volumes, ship and store goods, & attend trade shows sponsored by the suppliers to learn about
   new offerings. They can sometimes bypass wholesalers.
   Efficiency is gained by sharing warehouse facilities; purchasing standardized store fixtures;
   centralized buying & decision making etc. Headquarters have broad authority for personnel
   policies & for buying, pricing, & advt. decisions.
   Computerized ordering merchandise, inventory, forecasting, sales, & bookkeeping. This reduces
   overall costs.
   Take advantage of variety of media from print to electronic.
   Detailed & clear responsibility for employees with available substitute incase any employee is
   retiring or quitting.
   Spend considerable time in strategic planning. Opportunity & threat are closely monitored.



  ISB&M                                                                      Retail Management
Chain Retailer
 Disadvantages
   Flexibility may be limited. Consistent strategies on pricing, promotions, & product variety must
   be followed throughout all units which may be difficult to adapt to local diverse market.
   Investment is high due to infrastructure & store as multiple store has to be stocked.
   Managerial control is complex due to geographically dispersed branches.
   Limited independence to the personnel.




  ISB&M                                                                      Retail Management
Franchising
   Franchising involves a contractual arrangement between a franchisor (a
   manufacturer, wholesaler, or service sponsor) & a retail franchisee, which allows
   the franchisee to conduct business under a established name & according to a given
   pattern of business.
   The franchisee pays an initial fees & a monthly %age of the gross sales in exchange
   for the rights to sell goods & services in an area.
   A franchisee operates autonomously in setting store hours, chooses a location, &
   determines facilities & displays.
 Three structural arrangements dominate retail franchising
   Manufacturer-retailer – A manufacturer gives independent franchisees the right to sell goods &
   related services through licensing agreement. (Eg., Auto/truck dealers like GM, Petroleum
   products dealers like IOC).
   Wholesaler-retailer
        Voluntary - A wholesaler sets up a franchise system & grants franchises to individual
        retailer. (Eg., Auto accessories stores, Consumer electronics stores).
        Cooperative – A group of retailers sets up a franchise system & shares the ownership &
        operations of a wholesaling organization. (Eg., Food stores).
   Service sponsor-retailer – A service firm licenses individual retailers so they can offer specific
   service packages to customers. (Eg., McDoland‘s).

  ISB&M                                                                       Retail Management
Franchising contd..
Advantages of Franchisees
  They own a retail enterprise with a relatively small capital.
  They acquire well-known names & goods/services lines.
  Standard operating procedures & management skills may be taught to them.
  Cooperative marketing efforts (like national advt.) are facilitated.
  They obtain exclusive selling rights for specified geographical territories.
  Their purchases may be less costly per unit due to the volume of the overall franchise.

Disadvantages of Franchisees
  Oversaturation could occur if too many franchisees are there in one geographical area.
  Due to overzealous selling by some franchisors, franchisees‘ income potential, required
  managerial ability, & investment may be incorrectly stated.
  They may be locked into contracts requiring purchases from franchisors or certain vendors.
  Cancellation clauses may give franchisors the right to void agreement if provisions are not
  satisfied.
  In some industries, franchise agreements are of short duration.
  Royalties are often a %age of gross sales, regardless of franchisee profits.

 ISB&M                                                                           Retail Management
Franchising contd..
Advantages of Franchisors
  A national & global presence is developed more quickly & with less franchisor investment.
  Franchisee qualification for ownership are set & enforced.
  Agreement require franchisees to abide by stringent operating rules set by franchisors.
  Money is obtained when goods are delivered rather than when goods are sold.
  Because franchisees are owners & not employees, they have greater initiative to work hard.
  Even after franchisees have paid for their outlets, franchisors receive royalties & may sell
  products to the individual proprietors.

Disadvantages of Franchisors
  Franchisees harm the overall reputation if they do not adhere to company standards.
  Lack of uniformity among outlets adversely affects customer loyalty.
  Intra-franchise competition is not desirable.
  The resale value of individual units is injured if franchisees perform poorly.
  Ineffective franchised units directly injure franchisors‘ profitability.
  Franchisees, in greater number, are seeking to limit franchisors‘ rules & regulations.


 ISB&M                                                                       Retail Management
Leased Department
   A leased department is a department in a retail store – usually a department,
   discount, or specialty store – that is rented to outside party.
   The leased department proprietor is responsible for all aspects of its business &
   normally pays a %age of sales as rent.
   The store sets operating restrictions for the leased department to ensure overall
   consistency & coordination.

 Advantages (from the stores’ prespective)
   The market is enlarged by providing one-stop customer shopping.
   Personnel management, merchandise displays, & reordering items are undertaken by lessees.
   Regular store personnel do not have to be involved.
   Leased department operators pay for some expenses, thus reducing store costs.
   A %age of revenue is received regularly.

 Disadvantages (from the stores’ prespective)
   Leased department operating procedures may conflict with store procedures.
   Lessees may adversely affect the stores‘ image.
   Customers may blame problems on the store rather than on the lessees.

  ISB&M                                                                    Retail Management
Leased Department
 Advantages for Leased department operators
   Stores are known, have steady customers, & generate immediate sales for leased departments.
   Some costs are reduced through shared facilities like security equipment & display windows.
   Their image is enhanced by the relationships with popular stores.

 Disadvantages for Leased department operators
   There may be inflexibility as to the store hours they must be open & the operating style.
   The goods / services lines are usually restricted.
   If they are successful, the store may raise rent or not renew leases when they expire.
   In-store locations may not generate the sales expected.




  ISB&M                                                                     Retail Management
Vertical Marketing System
       A vertical marketing system consists of all the levels of independently owned businesses along a
       channel of distribution.

             Type of channel                     Channel Functions               Ownership
 Independent system                                Manufacturing       Independent manufacturer
 •   Manufacturers or retailers are small
 •   Intensive distribution is sought
 •   Customers are widely dispersed                 Wholesaling        Independent wholesaler
 •   Unit sales are high
 •   Company resources are low                        Retailing        Independent retailer
 •   Channel members share costs & risk
 •   Task specialization is desirable

 Partially integrated system                       Manufacturing       Two channel members own all
 •   Manufacturers & retailers are large                               facilities & perform all functions.
 •   Selective or exclusive distribution
 •   Unit sales are moderate                        Wholesaling
 •   Company resources are high
 •   Greater channel control is desired               Retailing
 •   Existing wholesalers are too expensive or
     unavailable

 Fully integrated system                           Manufacturing       All production & distribution
 •   Firm has total control over its strategy                          functions are performed by one
 •   Direct customer contact
 •   Exclusive offerings                            Wholesaling        channel member.
 •   System is costly & requires lot of
     expertise                                        Retailing

     ISB&M                                                                      Retail Management
Consumer Cooperative
  A consumer cooperative is a retail firm owned by its customer members.
  A group of customers invests, elects officers, manages operations & share profits.
  They account for tiny piece of retail sales.
  Cooperatives are formed because they think they can do retailing function,
  traditional retailers are inadequate & prices are high.
  They have not grown because consumer initiative is required, expertise may be
  lacking, expectations have frequently not been met, & boredom occurs.




 ISB&M                                                            Retail Management
Retail Location Strategies &
        Decisions




ISB&M                          Retail Management
Why Location is Important?
  There are three most important aspects in Retailing – location, location
  & location.
  Locating the retail store in the right place was considered to be
  adequate for success.
  It is a important part of the retail strategy as it conveys a fair amount
  of image.
  It influences the merchandise mix & interior layout of the store.
  It is difficult to change the location once the store comes into
  existence.
  Change of location may result in loss of customer & employees.




 ISB&M                                                     Retail Management
Types of Retail Location
 The choice of the location of the store depends on the target audience & kind
 of merchandise to be sold.
 Types:
   Freestanding/Isolated store
          Store located along major traffic artery
          No competitive retailers around
          Rents are usually low
          Advertising cost are high
          Customers may not prefer to travel long distance to visit only one store
   Part of a business district
          A business district (primary, secondary or neighborhood) is a place of commerce in
          the city
          Rent is high; parking is cumbersome
          It has good accessibility in terms of transport
          Customers are more

  ISB&M                                                                  Retail Management
Types of Retail Location contd..
 Types:
   Part of a shopping centre
          Shopping centre - A group of retail & other commercial establishments that is
          planned, developed, owned & managed as single property
          Parking is available
          Basic configuration – mall or strip centre with walkway
          Ideally enclosed & climate control




  ISB&M                                                                  Retail Management
Steps involved in choosing a retail
location
 1. Identify the market in which to locate the store
 2. Evaluate the demand & supply within that market i.e., determine the market potential
      1. Demographic features of the population
      2. The characteristics of the households in the area
      3. Competition & compatibility
      4. Laws & regulations
      5. Trade area analysis
 3. Identify the most attractive sites
      1. Traffic
      2. Accessibility of the market
      3. The no. & types of stores in the area
      4. Amenities available
      5. To buy or to lease
      6. The product mix offered
 4. Select the best site available
  ISB&M                                                              Retail Management
The Spread of Organized Retail in
India


                                                        Jaipur
                                     Pune
                                                         Bhopal
                      Mumbai               Chandigarh
                                                             Bhubaneshwar
         Bangalore                    Hyderabad
                           Delhi
          Chennai
                                       Indore            Nagpur
                     Kolkata
                                      Gurgaon              Udaipur
                                   Noida




 ISB&M                                                           Retail Management
Retail Merchandising




ISB&M                          Retail Management
What is Merchandising?
  Merchandising is planning, buying & selling of merchandise (product).
  The American Marketing Association defined merchandising as ―the planning involved in
  marketing the right merchandise at the right place at the right time in the right quantity
  at the right price‖.
  Merchandising can be termed as the analysis, planning, acquisition, handling & control of
  the merchandise investments of a retail operation.

Factors affecting the merchandising function

                                            Size of
                                         organization




                                                          Merchandising
                         Organization




                                                           to be carried
                          structure




                                        Merchandising
                                          function


                                        Types of stores


 ISB&M                                                                     Retail Management
Merchandise Planning
  Merchandise planning can be defined as the planning & control of the merchandise
  inventory of the retail firm, in a manner which balances between the expectations of the
  target customers & the strategy of the firm.

Implication of Merchandise Planning

                                                                          Finance
                                                                  Payments to suppliers
                                                                Profitability measurements




                                                                                             Developing advertisements
                                                                                             New product introductions
                                    Details of Purchase Order
                                    Warehouse & Logistics

                                      Details of allocations




                                                                                                    Marketing
                                                                  Merchandise
                                                                   Planning

                                                                    Store Operations
                                                                     Space planning
                                                                Communication about new
                                                                 products & their features


 ISB&M                                                                                  Retail Management
Merchandise Planning Process
Stage I: Developing the Sales Forecast
         1. Reviewing past sales
         2. Analyzing the changes in the economic conditions
         3. Analyzing the changes in the sales potential
         4. Analyzing the changes in the marketing strategies & the competition
         5. Create the sales forecast
Stage II: Determining the Merchandise Requirements
         Planning in merchandising is at two levels:
         1. The creation of the Merchandise Budget (5 parts)
         2. The Assortment Plan

                                         Merchandise
                                           Budget

                           Stock           Planned     Planned        Gross
          Sales Plan
                        support plan      reduction    Purchase      Margins


 ISB&M                                                              Retail Management
Merchandise Planning Process
Stage II: Determining the Merchandise Requirements
         Planning in merchandising is at two levels:
         1. The creation of the Merchandise Budget (5 parts)
         2. The Assortment Plan


  The Merchandise Hierarchy




                            Merchandise      Merchandise   Merchandise    Style Price    SKU (Stock
    Company    Department
                            Classification    Category     Sub Category      point      Keeping Unit)




 ISB&M                                                                      Retail Management
Merchandise Planning Process
Some key merchandising terms
Staple/basic merchandising – products always in demand (basic necessities)
Fashion merchandising – products has high demand for a relatively short period of time
Seasonal merchandising – seasonal products
Fad merchandising – enjoy popularity for a limited period of time; generated high sales for
                    a short time
Style – unique shape or form of any product (taste in music)
Assortment – variety of merchandise mix

     The width/breadth of assortment – refers to the number of brands
     The depth of assortment – variety in one goods/services category


Points to be kept in mind while creating a plan -
   The merchandise budget should be prepared in advance of selling season.
   The language of the budget should be easy to understand.
   Merchandise budget must be planned for a short period – 6 months is the normal norm.
   Budget should be flexible.

 ISB&M                                                                     Retail Management
Key Components of Merchandise
Planning
Planned sales – Planned sales are projected sales for a period that is planned.


           Example:
           Last year’s sale for the same period = 35,000

           Month            %age increase     Planned sales (Rs)
           Feb              12%                35,000 X 12% + 35,000 = 39,200
           April            25%                                          43,750
           June             21%                                          42,350


Planned purchase – Planned purchases represent the merchandise that is to be purchased
                   during any given period.
  Planned Purchase = Planned Sales + Planned Reductions + Planned EOM – Planned BOM




 ISB&M                                                                  Retail Management
Key Components of Merchandise
Planning
Planned reduction – Markdowns (deductions in prices), employee discounts & inventory
                   shrinkage due to theft or pilferage come under planned reduction.
Planned markup – After calculating the level of inventory that needs to be purchased, the
                 retailer needs to determine the initial markup for the products.
                    Markup in Rs. = Selling Price – Cost Price
                    Markup % = Markup in Rs.
                                 Retail Price
Gross Margin – Gross margin is the difference between the selling price & the cost of the
               product, less reductions from markdowns, shrinkage & employee discounts.
               Profit = Gross margin – operating expenses

B.O.M (Beginning-of-month) & E.O.M (End-of-month) planned inventory levels –
Four Methods of Inventory Planning:
a. Stock-to-Sales Method
   S/S Ratio = Stock in hand E.O.M (at retail value)   =    Value of inventory
                 Sales for the same month                        Actual sales
   Planned BOM Inventory = Stock-sales ratio x Planned sales
 ISB&M                                                                    Retail Management
Key Components of Merchandise
Planning
  The Basic Stock Method – In this method, the buyer believes that he needs to carry a
  certain amount of inventory in the store at all times.
  Basic Stock = Average stock for the season – Average monthly sales for the season
  Average monthly sales for the season = Total planned sales for the season
                                            No. of months in the season
  Average stock for the season =      Total planned sales for the season
                                   Estimated inventory turnover rate for the season
  Beginning of the month (BOM) stock = Planned monthly sales + Basic Stock

  The Percentage Variation Method – This method of inventory calculation is used in case
  the stock turnover typically exceeds six times a year.
  BOM Stock = Avg. stock for season * 1/2 * [1 + (Planned sales for the month / Avg.
                                                  monthly sales)]
  The Week’s Supply Method – Retailers who need to maintain a control over the
  inventories on a weekly basis, may use this method.
  BOM Stock = Average weekly sales x No. of weeks to be stocked



 ISB&M                                                                 Retail Management
Merchandise Planning Process
Stage III: Merchandise Control – The Open to Buy
         The concept of Open to buy has two folds:
         1. depending on sales of the month & the reduction, the merchandise buying can
            be adjusted.
         2. the planned relation between the stock & sales can be maintained.
         Open to buy ensures that the buyer –
                Limits overbuying & under buying
                Prevents loss of sales due to unavailability of the required stock
                Maintain purchases within the budgeted limits
                Reduce markdowns i.e., reduction in price which may arise due to excess
                buying
         Open-to-Buy = Planned EOM Stock – Projected EOM Stock
         Projected EOM Stock = Actual BOM Stock + Actual Additions to stock + Actual on
                              order – Planned monthly sale – Planned reductions for the
                              month



 ISB&M                                                                 Retail Management
Merchandise Planning Process
Stage IV: Assortment Planning
         Assortment Planning involves determining the quantities of each product that will
         be purchased to fit into the overall merchandise plan.
         Details of color, size, brand, materials etc. have to be specified.
         To create a balanced assortment merchandise for the customer.




   Department                                                                      Menswear




   Product Line                                                    Shirts              Trousers           Accessories



                                                                             Louis
   Breadth                                  Zodiac    Van Heusen
                                                                            Philippe
                                                                                                  Arrow




   Depth                        Styles      Color        ……




 ISB&M                                                                                  Retail Management
Merchandise Planning Process
Stage IV: Assortment Planning
The Range Plan:
The aim of the range plan is to create a balanced range for each category of products that
the retailer choose to offer.
Range planning should take care of -
   The no. of items/options available to the customer should be sufficient at all times &
   should be such that it helps the customer make a choice.
   The overbuying & under buying is limited.
   Sufficient quantities of the product are available, so that all the stores can be serviced
   & the product is available at all the stores across various locations.




           The lower limit of the range width is often called aesthetic minimum




 ISB&M                                                                   Retail Management
Merchandise Planning Process
Stage IV: Assortment Planning
The Model Stock Plan:
After determining the money available for buying, a decision needs to be taken on what to
buy? & in what quantity?
Steps -
 1. Identify the attributes that the customer would consider while buying the product.
 2. Identify the number of levels under each attribute.
 3. Allocate the total units to the respective item category.




   The process of merchandise planning may be top down or bottom up.
   Top down planning occurs when the corporate objectives dictate the company’s financial objectives
   in terms of sales, profit & working capital.
    In Bottom up planning, individual department managers work on the estimated sales projections




 ISB&M                                                                       Retail Management
The Model Stock Plan
                                                                                             Men’s shirt
                                                                                            100% (1000)


                                                               Casual                Dress              Formal         Sport
                                                              40% (400)           10% (100)           20% (200)      30% (300)


                                  Small               Medium                 Large              Extra large
                               25% (100)              40% (160)           25% (100)             10% (100)


                                       Full Sleeve         Half Sleeve
                                         30% (48)             70% (112)


                                                     Button
                                                                          Other
                                                     Down
                                                                         60% (67)
                                                    40% (45)


                    White                 Blue                 Cream                 Grey
                   40% (18)              30% (14)              20% (9)              10% (4)


                              Cotton
         Cotton
                              Blend
         25% (4)
                              75% (14)

 ISB&M                                                                                                            Retail Management
Branding & Private Labels




ISB&M                         Retail Management
Branding

                                       Brand
The American Marketing Association defined a brand as “a name, term, design,
symbol or a combination of them, intended to identify the goods or services of
one seller or group of sellers & to differentiate them from those of the
competitors”.
  Branding existed from the time man felt the need to differentiate his products from that
  being offered by others.
  Branding gradually became a guarantee of the source of the product & ultimately its use
  as a form of legal protection against copying grew.
  With the development of shops, shopkeepers hung pictures above their shops indicating
  the types of goods they sold.
  With industrial revolution mass production came into existence but the distance between
  the manufacturers & customers increased.
  This eventually led to the evolution of the role of the brands as tools by which consumers
  identified the products.



 ISB&M                                                                Retail Management
Building a Retail Brand

Key questions for retail brands –
   Can the brand be identified with the lifestyles of its target customers?
   Is there a perceptible difference between the brand & the products offering by the
   retailer & other retailers?
   Can a story be woven around the brand?

   A retail brand is a combination of the company‘s heritage, the merchandise mix, the
   store environment, the service strategy, the advertising & promotion.
   Successful retail branding starts with a clear definition of what retailers stand for – an
   identification of what the customers associate it with, leading customers to think: “This
   brand is a reflection of me.. This brand is meaningful to me..”
   The retailer needs to determine the specific value proposition for the end customers.
   Playing on emotional benefits can also be a branding exercise of the retailer.
   Retail branding does not sell a specific product. It is about customer service.




 ISB&M                                                                   Retail Management
The Retail Value Chain



                           Support Functions




             Third Party         Retail        Customer          Customers
 Suppliers
              Logistics        Operations       Mgmt.




                                 Systems




 ISB&M                                                    Retail Management
Private Label
When the retailer decides to sell products or a line of merchandise which is owned,
controlled, merchandised & sold by the retailer in his own store/chain of stores, he is said
to be Selling Own Label / Brand or Private Label merchandise.

The Private Label Marketing Association defines store products as “all merchandise sold
under a retail store’s private label. That label can be stores name or a name created
exclusively by that store. In some cases, a store may belong to a wholesale buying group
that owns labels, which are available to the members of the group. These whole-sale
owned labels are referred to as controlled labels”

A private label can be classified as:
   Store Brand – which carries the retailer‘s name, such as Westside, Food World, Big Bazaar
   etc.
   An Umbrella Brand – where a common brand name is used across multiple categories –
   example Splash (Lifestyle), Bare (Pantaloon) etc.
   Individual Brands – where specific brand names are created for specific market segments
   and/or categories.




 ISB&M                                                                  Retail Management
Private Label - Evolution
  Private labels were traditionally defined as generic product offerings that competed with
  national brands on the basis of value proposition.
  They were often seen as the lower priced alternative to the ―real‖ thing.
  Private label carried the stigma of inferior quality & therefore inspired less confidence.
  Generics, which were products distinguishable by their plain & basic packaging were the
  first type of private labels.
  With the increase in retail stores, the need to earn higher profit & the desire to service
  the gaps in consumer requirements gave rise to private labels, both in apparel & the food
  & grocery sector.
  Today, most of the large department stores have their own private labels which cater to a
  specific audience.
  Private labels rely on in-store advertisements.
  In order to compete with national brands, private labels need to focus on quality.
            The average quality of one product compared to other
            Consistency in quality over a period of time

  Private label goods become more successful where the no. of competing products is
  lower.

 ISB&M                                                                 Retail Management
Why Private Label?
   Retailer can fill in the need gaps that may exist in the market place.
   Private label gives the retailer an advantage of offering the customer another
   option.
   A private label allows the retailer to offer a unique product in the marketplace.
   Private label allows a retailer to earn a higher margin than other brands he
   chooses to retail because designing, merchandising, sourcing & distribution is
   done by the retailer. Also, advertisement is in-store.



Private Label Creation Process
                                     Placing
                                    the order
Identification of   Make or                                           Performance
                                        &            Marketing        Measurement
   the need          Buy
                                    Allocating
                                    the goods




 ISB&M                                                           Retail Management
Merchandise Procurement / Sourcing

The term sourcing means finding or seeking out products from different places,
manufacturers or suppliers.

Method of Procuring Merchandise
    1. Identifying the sources of supply
         Costs associated with global sourcing:
              Country of origin effects – Many a times, where the merchandise has been
              manufactured makes a difference in the final sale of the product.
              Foreign currency fluctuations – Effects the buying price of the products.
              Tariffs – Taxes placed by the govt. on imports.
              Foreign trade zones – These are special areas within the country that can be
              used for warehousing, packaging, inspection, labeling, exhibition, assembly,
              fabrication etc., of imports, without becoming subject to the country‘s
              tariffs.
              Cost of carrying inventory
              Transportation cost



 ISB&M                                                                  Retail Management
Merchandise Procurement / Sourcing
   2. Contacting & Evaluating the sources of supply
         Contacting can be vendor initiated contact or retailer initiated contact
         Points to be kept in mind
              The target market for whom the merchandise is being purchased.
              The image of the retail organization & the fit between the product & the
              image of the retail organization.
              The merchandise & the prices offered.
              Terms & service offered by the vendor.
              The vendor‘s reputation & reliability.
   3. Negotiating with the sources of supply
         The types of discounts that could be made available to the buyer
              Trade discounts
              Chain discounts
              Quantity discounts
              Seasonal discounts
              Cash discounts

 ISB&M                                                                  Retail Management
Merchandise Procurement / Sourcing

   4. Establishing Vendor Relations
         To build & maintain strategic partnership with vendors, the buyer needs to build on:
             Mutual trust
             Open communication
             Common goals
             Credible commitments
   5. Analyzing Vendor Performance
             The total orders placed on the vendor in a year
             The total returns to the vendor, the quality of the merchandise
             The initial markup on the products
             The markdowns (if any)
             Vendor‘s participation in various schemes & promotions
             Transportation expenses if borne by the retailer
             Cash discounts offered by the vendor
             The sales performance of the merchandise
 ISB&M                                                                 Retail Management
Category Management
               - A Method of Merchandise Management




ISB&M                              Retail Management
Category Management

Category Management can be defined as “the distributor/supplier process of managing
categories as SBUs, producing enhanced business results by focusing on delivering customer
value”.
         A category is an assortment of items that a customer sees as reasonable substitutes
         of each other.
         A category management concept is a focus on a better understanding of consumer
         needs as the basis for retailers‘ & suppliers‘ strategies, goal, & work processes.
         The need to reduce costs, control inventory levels & replenish (refill) stock
         efficiently led to the concept of Efficient Consumer Response (ECR).
         Category management provides renewed opportunities for meeting consumer needs
         & at the same time, for achieving competitive advantage as well as lower costs
         through greater work process efficiencies.




 ISB&M                                                                   Retail Management
Category Management contd..

Category Management is now considered as the “new science of retailing”
because -
    1. It involves a systematic process.
    2. It emphasizes decision-making based on complex analysis of consumer
       data & market level syndicate data.
    3. It replaces the brand bias that stems from suppliers‘ interest & encourages
       objective view based on consumers‘ desires.

Why Category Management?
         Consumer changes
         Competitive pressures
         Economic & efficiency considerations
         Advances in IT




 ISB&M                                                         Retail Management
Components Category Management


                           Performance
                           Measurement




                             Strategy
            Trading
                                            Organizational
            Partner
                                             Capabilities
         Relationships
                         Business Process




                            Information
                            Technology



 ISB&M                                       Retail Management
The Category Management Business
Process




 ISB&M                             Retail Management
The Category Management Business
Process
Step 1: Category Definition
         A distinct, manageable group of products/services that consumers perceive to be
         interrelated/substitutable in meeting a consumer need.
         The category definition should be based on how the customer buys, & not on how
         the retailer buy.
         This step decides the products that represent a category, sub-category & major
         segmentation.
         At this step, the retailer assigns products to the various categories based on factors
         such as consumer usage & packaging.
Step 2: Category Role
         It determines the priority & importance of each category in the overall business.
         It serves the basis of resource allocation.
         Consumer-based category roles:
              Destination categories – Why you as a retailer?
              Preferred/routine category
              Occasional/seasonal category
              Convenience category – one-stop shop
 ISB&M                                                                   Retail Management
The Category Management Business
Process
Step 3: Category Assessment – Brain Harris’s Quadrant Analysis

                 Sleepers                                            Winners
                 -   Identify key products within category           - Continue current policies
                 -   Delist slow movers & marginal products          - Be alert to adaptation of new products
                 -   Give quick movers more self space               - Minimise operational problems like “out of
                 -   Optimize margin mix                               stock”
                                                                     - Optimise margin mix
  Market Share




                 Questionable                                        Opportunities
                 - Limit product mix to core assortment & delist     - Harmonise product mix with market trends
                   marginal products                                 - Improve price image via low prices for key
                 - Look for price raises                               products
                 - Minimise self space at category level             - Maximise shelf space at category level
                 - Transfer logistical & operational work to third   - Give promotional support to key items
                   parties




                                                              Market Growth

 ISB&M                                                                                   Retail Management
The Category Management Business
Process
Step 4: Category Performance Measures
         Sales
         Profits
         Market Share
         Inventory Turnover
         Changes in the Assortment
         Consumer Transaction

Step 5: Category Strategies
    Typical category marketing strategies are:
         Traffic building
         Transaction building
         Turf defending
         Profit generating
         Cash generating
         Excitement creating
         Image enhancing (Areas: Price, Service, Quality & Varity)

 ISB&M                                                               Retail Management
The Category Management Business
Process
Step 6: Category Tactics
         Category tactics work towards the determination of optimal category pricing,
         promotion, assortment & self management/presentation of the merchandise.

Step 7: Category Plan Implementation
         What specific tasks needs to be done?
         When each task needs to be completed?
         Who will accomplish each task?

Step 8: Category Review




 ISB&M                                                                Retail Management
Retail Marketing Mix




                       The Retail
                       Marketing
                         Mix




 ISB&M                              Retail Management
The Retail Image Factors

                             People




                                Pricing




                                                           Associations
             Presentation                                                 The Adidas Retail Store
                                                                                        CA, USA




                                                              Brand
                              Retail
  Customer




                                               Promotion
   Service




                               Store
                              Image

                  Product /                Place /
                 Merchandise              Location
                  features



                             Shopping
                            Experience


 ISB&M                                                                    Retail Management
The Retail Communication Mix


                                  Sales
                               Promotion




                                                        Public
           Advertising
                                                       Relations
                                  Retail
                               Communication
                                   Mix




                    Personal                    Direct
                     Selling                   Marketing




 ISB&M                                                             Retail Management
Retail Selling Process

             Acquiring Product/Merchandise Knowledge


                      Studying the Customer


                    Approaching the Customer


                   Presenting the Merchandise


                      Overcoming Resistance


                        Suggestive Selling


                         Closing the Sale

 ISB&M                                                 Retail Management
Retail Management Information System




ISB&M                           Retail Management
Effect of a Single Customer Transaction


                                   Marketing &
                                   Promotions


                Recording                                 Inventory
               Merchandise                               Management




                              Customer
            Warehouse
                             Transaction                       Sales Analysis




                        Customer                 Credit Card
                        Database                  Payments




 ISB&M                                                                     Retail Management
Why IT in Retail?

                                                              Scale &
                                                             scope of
                                                            operations




                                                              Factors            The
                                                 HR          affecting        financial
                                             availability   the use of       resources
                                                                 IT           available




         Efficient Stocking of Merchandise                  The nature
                                                                of
         Collection of Data                                  business

         Efficiency in Operations
         Helps Communication


 ISB&M                                                             Retail Management
Application of IT

   Electronic Data Interchange (EDI)

   Database Management, Data Warehousing, Data Mining

   Radio Frequency Identification (RFID)

   Transaction Processing System (TPS)

   Decision Support System (DSS)

   Enterprise Resource Planning (ERP)

   Intranet & Internet

   E-Commerce or E-Trailing

   ……




 ISB&M                                                  Retail Management
SCM in Retail




ISB&M                   Retail Management
The Basic Supply Chain




             Raw material packaging                       Manufacturer warehouse
 Supplier    warehouse                     Manufacturer




                                                                           Physical Flow
                                      Finance Flow




                                                               Retailer warehouse
                                           Retailer
 ISB&M                                                      Retail Management
Framework for Analyzing Issues in SCM

                                   Customer
                                    Service

                                  STRATEGIC

                       Channel                     Network
                        Design                     Strategy

                                 STRUCTURAL
              Warehouse
                                  Transportation          Materials
               Design &
                                   Management            Management
              Operations

                                 FUNCTIONAL
                                                              Organization &
         Information        Policies &        Facilities &
                                                                 Change
           Systems         Procedures         Equipment
                                                              Management

                              IMPLEMENTATION

 ISB&M                                                          Retail Management
Servicing the Retail Customer




ISB&M                             Retail Management
Kill a Brand, Keep a Customer!
Customer Service
―Customer service is a task, other than proactive selling, that involves
interactions with customers in person or by telecommunication, mail or
automated process. It is designed, performed & communicated with two goals in
mind –
     Operational Production

     Customer Satisfaction


Customer Service focuses on measurement of how
well a firm meets the established performance
standards that are viewed as important for
meeting customer needs.


Customer Satisfaction is how the customers
measure externally the service performance of a
firm.
 ISB&M                                                      Retail Management
Customer Service – A USP

Retail mix like Product, Price, Place, Promotion can be duplicated or copied by
competitors – the total experience (image of the store, ambience, music,& level
of service offered) that the customer gets in the store stay unique.

                             Identify the key customers & listen
                             & respond to them

                                Define superior service & establish a
                                service strategy

                                    Set standards & measure
                                    performance

                                       Select, train & empower employees
                                       to work for the customer

                                           Recognize & reward
                                           accomplishments

 ISB&M                                                             Retail Management
Measuring Gaps in Service




 ISB&M                      Retail Management
Customer Relationship Management (CRM)




 ISB&M                                   Retail Management
How CRM Benefits Retailer?

      Customer needs       Retailer traditionally   CRM benefits customer
                                 provides               by enabling
  Product choice         Range selection            Tailored range
  Access                 Channel choice             Consistent experience
  Support                Information                Enhanced service
  Individual treatment   Customer service           1:1 relationship
  Value                  Scale efficiencies         Customer defined
                                                    “value”




 ISB&M                                                      Retail Management
Customer Segmentation in Retail
   Lower Value Segment
   Grow able Segment
   Most Valued Segment
                                                                     Value per
         No. of                                                      customer
         customers




                       In-store PoS

                       Advertisement   Targeted Direct
                                       Mail
                       Merchandising
                                       Added value       Tailored, cross-
                                       services          learning based
                                                         relationship
                        Lower value     Grow able            Most Valuable
                        segment         Segment              Segment

 ISB&M                                                   Retail Management
Retail Store Design & Visual
        Merchandising




ISB&M                              Retail Management
Retail Store Design
   Retail stores needs to be designed to be more competitive, the retailer first needs to
   catch the customer‘s eye & then, to draw his attention away from other stores.
   The basic principles of store design require that the image being created in tune with
   the merchandise, the advertising & the service offered by the store.
   Retail design is primarily a specialized practice of architecture and interior design,
   however it also incorporates elements of interior decoration, graphic design,
   ergonomics, and advertising.



                  Store
                 Image




                             Store
  Store Theme
                          Atmosphere


                                       Elements of the Store Environment

 ISB&M                                                                     Retail Management
Why Retail Store Design is Important?

   The store design & layout tells a customer what the store is all about.

   The creates the image of the retail store in the minds of the customer.

   This image is the starting point of all marketing efforts.

   It make the store simple to navigate.

   It creates the sense to belongingness, responsibility, security, & pleasure in
   shopping.




 ISB&M                                                           Retail Management
Elements of Retail Design


         Frontage &                                                      Parking
          Entrance                Location


                      Building                          Location
                       Arch.

                                                                          Access
         Safety                        Store Design



                                              Store
                                             Theme

                        Target                        Merchandise
                       Customer                          Mix




 ISB&M                                                              Retail Management
Interior Store Design

                 Space              Space Planning helps determining:
                Planning               The location of various departments.
                                       The location of various products within the
                                       department i.e., creating planograms.
                                       The pros/cons of specific location for impulse
                                       products, destination areas, seasonal products,
 Atmosphere                            products with specific merchandising needs,
                           Layout
 & Aesthetics                          adjacent departments etc.
                                       The relationship of space to profitability.

                                    Atmosphere & Aesthetics
                                      Fixtures
                                      Flooring & Ceiling
                                      Lighting
                                      Graphics & Signage
                                           Theme graphics
                                           Campaign graphics
                                           Promotional graphics

 ISB&M                                                          Retail Management
Free-flow Layout




     Fixtures and merchandise are grouped into free-flowing patterns
     on the sales floor.

 ISB&M                                                      Retail Management
Grid Layout




     The counters and fixtures are placed in long rows or ‗‗runs,‘‘
     usually at right angles, throughout the store.

 ISB&M                                                         Retail Management
Racetrack/Loop Layout




  A major customer aisle begins at the entrance, loops through the store—
  usually in the shape of a circle, square, or rectangle—and then returns the
  customer to the front of the store.

 ISB&M                                                        Retail Management
Spine Layout




  A single main aisle runs from the front to the back of the store,
  transporting customers in both directions, and where on either side of this
  spine, merchandise departments using either a free-flow or grid pattern
  branch off toward the back side walls.

 ISB&M                                                        Retail Management
Visual Merchandising
An orderly, systematic, logical, & intelligent way of putting stock on the floor.




   ISB&M                                                            Retail Management
Visual Merchandising contd..
  It has several aspects & involves SKU planning, store windows & floor displays, signs,
  space design, fixtures & hardware, props & mannequins.
  Creating the right atmosphere in the store & presenting the merchandise in the right
  manner is very important.
  Good visual merchandise means a selling space that is neat, easy-to-see, follow & shop.


                    Color
                  dominance




                  Methods
                    of
                  Display
   Coordinated                   Presentation
   presentation                    by price




 ISB&M                                                                Retail Management
Thank you

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Retail management

  • 2. What is Retail Management? Retailing encompasses the business activities involved in selling goods & services to consumers for their personal, family, or household use. It includes every sale to the final consumer – ranging from cars to apparel to meals at restaurants to movie tickets. Key issues that retailer must resolve: How can we best serve our customer while earning a fair profit? How can we stand out in a highly competitive environment where customers have so many choices? How can we grow our business while retailing a core of loyal customers? ISB&M Retail Management
  • 3. Retail Functions in Distribution Final Manufacturer Wholesaler consumer Retailer A Typical Channel of Distribution Manufacturer Brand A Brand A Wholesaler customers Manufacturer Brand B Brand B Retailer customers Manufacturer Brand C Brand C customers Wholesaler Brand D Manufacturer customers Brand D Retailers role in sorting process ISB&M Retail Management
  • 4. Retail Functions in Distribution contd.. Retailers often act as the contact between manufacturers, wholesalers, & customers. Retailers collect an assortment (variety) from various sources, buy in large quantity, & sell in small amount. This is sorting process. Retailers communicate with customers, wholesalers & manufacturers. Shoppers learn about the availability & characteristics of goods & services, store hours, sales etc., from retailers advt., sales people & displays. Manufacturers & wholesalers are informed by their retailers with regard to sales forecast, delivery delays, customer complaints, defective items, inventory turnover and so on.. Many goods & services have been modified due to retailer feedback. For small suppliers, retailers provide assistance by transporting, sorting, marketing, advertising, & pre-paying for the products. Retailers also complete transactions with customers i.e., having convenient locations, filling order promptly & accurately, & processing credit purchase. Some retailers also provide customer services such as gifts wrapping, delivery, & installation. To be more appealing, many firms engage in multi-channel retailing i.e., multiple point of contact like physical stores, websites, mail-order catalogs etc. ISB&M Retail Management
  • 5. Retail Functions in Distribution contd.. Benefits Reach more customers Reduce costs Improve cash flow Increase sales more rapidly Focus on area of expertise Manufacturers also do operate retail facilities (besides selling at conventional retailers). In running their stores, these firms compete the full range of retailing functions & compete with conventional retailers. ISB&M Retail Management
  • 6. Retailer-Supplier Relationship Retailers are part of distribution channel, so manufacturers (wholesalers) are concerned about: Caliber of displays Customer service Store hours Retailer‘s reliability as business partners Retailers are also major customers of goods & services for resale, store fixtures, computers, management consulting ,& insurance. Retailers and supplier have different priorities on: Control over distribution channel Profit allocation No. of competing retailers handling supplier‘s products Product display Promotion support Payment terms Operating flexibility ISB&M Retail Management
  • 7. Retailer-Supplier Relationship contd.. Channel Relations Exclusive Distribution Suppliers make agreements with one or a few retailers that designates them the only one to carry certain brands/products in a specific geographic region. Both parties work together to maintain an image, assign self space, allot profits & costs, & advertise. This is the smoothest channel relationship. Intensive Distribution Suppliers sell through as many retailers as possible. This maximizes suppliers‘ sales & lets retailers offer many brands & product versions. Retailers may assign little self space to specific brands, set high price on them, & not advertise them. This is most volatile channel relationship. Selective Distribution Suppliers sell through a moderate no. of retailers carrying some competing brands. This combines aspects of Exclusive & Intensive Distribution ISB&M Retail Management
  • 8. The Special Characteristics of Retailing The average amount of a sales transaction for retailers is much less than manufacturers. This low amount creates the need to tightly control the cost associated with each transaction like sales personnel, credit verification, & bagging. To maximize the no. of customer the retailer has to emphasize more on ads & special promotions. Increase impulse sales by more aggressive selling. Final consumers make many unplanned or impulse purchases. Large %age of consumers do not look at ads before shopping. They do not prepare shopping list. Make fully unplanned purchases. This indicates the value of in-store displays, attractive store layouts, & well organized stores, catalogs, & website. Retailer‘s ability to forecast, budget, order merchandise, & sufficient personnel on the selling floor becomes difficult. ISB&M Retail Management
  • 9. The Special Characteristics of Retailing Retail customers usually visit a store, even though mail, phone, & web sales has increased. Most retail transactions happen in stores & will continue in future. Many people like to shop in person, want to touch, smell, and/or try on products. Many people to browse for unplanned purchases. They feel more comfortable talking a purchase home with them than waiting for a delivery. Desire privacy while at home. Retailers must work to attract shoppers to stores & consider such factors such as store location, transportation, store hours, proximity (nearness) of competitors, product selection, parking & ads. ISB&M Retail Management
  • 10. Importance of Retail Strategy Retail strategy is the overall plan guiding a retail firm. It influences the firm’s business activities & its response to market forces, such as competition & economy. Six steps in strategic planning Define the type of business in terms of the goods or services & company‘s specific orientation. Set long-run & short-run objectives for sales & profit, market share, image etc. Determine the customer market to target on the basis of its characteristics (like gender & income level) & needs (like product & brand preferences). Devise an overall, long-run plan that gives general direction to the firms & its employees. Implement an integrated strategy that combines factors like store location, transportation, product variety, pricing, and advertising & display to achieve objectives. Regularly evaluate performance & correct weaknesses or problems when observed. ISB&M Retail Management
  • 11. Key to success Growth-oriented objectives Appeal to prime market Distinctive company image Focus Strong customer service for its retail category Multiple points of contact Employee relations Innovation Commitment to technology Community involvement Constantly monitoring performance ISB&M Retail Management
  • 12. The Retailing Concept Customer orientation Coordinated effort Retailing concept Retail Strategy Value- driven Goal orientation Customer orientation - The retailer determines the attributes & needs of its customers & endeavors (take action) to satisfy these needs. Coordinated effort - The retailers integrates all plans & activities to maximize efficiency. Value-driven - The retailer offers good value to the customers, whether it be upscale (expensive) or discount i.e., ―appropriate pricing‖ for goods & customer service. Goal oriented - The retailer sets goal & uses its strategy to attain them. ISB&M Retail Management
  • 13. Classification of Retail Institutions Nonstore-based Store-based retail retail strategy mix Ownership & nontraditional strategy mix retailing • Independent • Convenience store • Direct marketing • Chain • Conventional supermarket • Direct selling • Franchise • Food-based supermarket • Vending machine • Leased department • Combination store • World wide web (WWW) • Vertical marketing system • Box (limited line) store • Consumer cooperative • Warehouse store • Specialty store • Variety store • Traditional department store • Full-line department store • Off-price chain • Factory outlet • Membership club • Flea (louse) market ISB&M Retail Management
  • 14. Retail Institution by Ownership Ownership format serves a marketplace niche. Independent retailers capitalize on a very small targeted customer base & please shoppers in a friendly, folksy (simple) way. Word-of mouth communication is important. These retailers should not try to serve too many customer & enter into price wars. Chain retailers benefit from widely known image, economies of scales (i.e. cost advantages that a business obtains due to expansion), & mass promotion possibilities. They should maintain their image chain wide & not be inflexible in adapting changes in the marketplace. Franchisors have strong geographic coverage & motivation of the franchisees as owner- operators. They should not get bogged down in policy disputes with franchisees or charge excessive royalty fees. Leased departments enable store operators & outside parties to join forces & enhance the shopping experience, while sharing expertise & expenses. They should not hurt the image of the store or place too much pressure on the lessee to bring in store traffic. A vertically integrated channel gives a firm greater control over sources of supply, but it should not provide consumers with too little choice of products or too few outlets. Cooperatives provide members with price savings. They should not expect too much involvement by members or add facilities that raise costs too much. ISB&M Retail Management
  • 15. Independent Retailer An independent retailer owns one retail unit. Advantages There is flexibility in choosing retail formats, location, assortment (variety), prices, hours etc., & devising strategy based on the target customers. Investment costs for leases, fixtures, workers, & merchandise can be brought down. There is no duplication of stock or personnel function. Responsibilities are clearly delineated (defined) within the store. Independents frequently act as specialist in a niche of the particular goods/services category. They are then more efficient & can lure (attract) shoppers interested in specialized retailers. Independents exert strong control over their strategies, & the owner-operator is typically on the premises. Decision making is centralized & layers of management personnel are minimized. There are certain image attached to independents, particularly small ones, that chains cannot readily capture. Independents can easily sustain consistency in their efforts because only one store is operated. Independents have ―Independence‖. No meetings, union, stockholders & labor unrest etc. Entrepreneurial drive. ISB&M Retail Management
  • 16. Independent Retailer Disadvantages Less bargaining power with the suppliers as they buy less quantity. Cannot gain economies of scale (i.e. cost advantages that a business obtains due to expansion) in buying & maintaining inventory. Transportation, ordering, & handling costs are high. Operations are labor intensive. They are limited to certain media for advt. because of financial constraints. Family-run independents is overdependence on the owner. It is difficult to keep it up & running. Limited time allotted to long-run planning, since owner is intimately involved in day-to day operations. ISB&M Retail Management
  • 17. Chain Retailer Chain retailer operates multiple outlets (store units) under common ownership. It usually involves in some level of centralized purchasing & decision making. Advantages Many chains have bargaining power due to their purchase volume. They receive new items when introduced, have orders promptly filled, get sales support, & obtain volume discounts. Chains achieve cost efficiencies when they buy directly from the manufacturers & in large volumes, ship and store goods, & attend trade shows sponsored by the suppliers to learn about new offerings. They can sometimes bypass wholesalers. Efficiency is gained by sharing warehouse facilities; purchasing standardized store fixtures; centralized buying & decision making etc. Headquarters have broad authority for personnel policies & for buying, pricing, & advt. decisions. Computerized ordering merchandise, inventory, forecasting, sales, & bookkeeping. This reduces overall costs. Take advantage of variety of media from print to electronic. Detailed & clear responsibility for employees with available substitute incase any employee is retiring or quitting. Spend considerable time in strategic planning. Opportunity & threat are closely monitored. ISB&M Retail Management
  • 18. Chain Retailer Disadvantages Flexibility may be limited. Consistent strategies on pricing, promotions, & product variety must be followed throughout all units which may be difficult to adapt to local diverse market. Investment is high due to infrastructure & store as multiple store has to be stocked. Managerial control is complex due to geographically dispersed branches. Limited independence to the personnel. ISB&M Retail Management
  • 19. Franchising Franchising involves a contractual arrangement between a franchisor (a manufacturer, wholesaler, or service sponsor) & a retail franchisee, which allows the franchisee to conduct business under a established name & according to a given pattern of business. The franchisee pays an initial fees & a monthly %age of the gross sales in exchange for the rights to sell goods & services in an area. A franchisee operates autonomously in setting store hours, chooses a location, & determines facilities & displays. Three structural arrangements dominate retail franchising Manufacturer-retailer – A manufacturer gives independent franchisees the right to sell goods & related services through licensing agreement. (Eg., Auto/truck dealers like GM, Petroleum products dealers like IOC). Wholesaler-retailer Voluntary - A wholesaler sets up a franchise system & grants franchises to individual retailer. (Eg., Auto accessories stores, Consumer electronics stores). Cooperative – A group of retailers sets up a franchise system & shares the ownership & operations of a wholesaling organization. (Eg., Food stores). Service sponsor-retailer – A service firm licenses individual retailers so they can offer specific service packages to customers. (Eg., McDoland‘s). ISB&M Retail Management
  • 20. Franchising contd.. Advantages of Franchisees They own a retail enterprise with a relatively small capital. They acquire well-known names & goods/services lines. Standard operating procedures & management skills may be taught to them. Cooperative marketing efforts (like national advt.) are facilitated. They obtain exclusive selling rights for specified geographical territories. Their purchases may be less costly per unit due to the volume of the overall franchise. Disadvantages of Franchisees Oversaturation could occur if too many franchisees are there in one geographical area. Due to overzealous selling by some franchisors, franchisees‘ income potential, required managerial ability, & investment may be incorrectly stated. They may be locked into contracts requiring purchases from franchisors or certain vendors. Cancellation clauses may give franchisors the right to void agreement if provisions are not satisfied. In some industries, franchise agreements are of short duration. Royalties are often a %age of gross sales, regardless of franchisee profits. ISB&M Retail Management
  • 21. Franchising contd.. Advantages of Franchisors A national & global presence is developed more quickly & with less franchisor investment. Franchisee qualification for ownership are set & enforced. Agreement require franchisees to abide by stringent operating rules set by franchisors. Money is obtained when goods are delivered rather than when goods are sold. Because franchisees are owners & not employees, they have greater initiative to work hard. Even after franchisees have paid for their outlets, franchisors receive royalties & may sell products to the individual proprietors. Disadvantages of Franchisors Franchisees harm the overall reputation if they do not adhere to company standards. Lack of uniformity among outlets adversely affects customer loyalty. Intra-franchise competition is not desirable. The resale value of individual units is injured if franchisees perform poorly. Ineffective franchised units directly injure franchisors‘ profitability. Franchisees, in greater number, are seeking to limit franchisors‘ rules & regulations. ISB&M Retail Management
  • 22. Leased Department A leased department is a department in a retail store – usually a department, discount, or specialty store – that is rented to outside party. The leased department proprietor is responsible for all aspects of its business & normally pays a %age of sales as rent. The store sets operating restrictions for the leased department to ensure overall consistency & coordination. Advantages (from the stores’ prespective) The market is enlarged by providing one-stop customer shopping. Personnel management, merchandise displays, & reordering items are undertaken by lessees. Regular store personnel do not have to be involved. Leased department operators pay for some expenses, thus reducing store costs. A %age of revenue is received regularly. Disadvantages (from the stores’ prespective) Leased department operating procedures may conflict with store procedures. Lessees may adversely affect the stores‘ image. Customers may blame problems on the store rather than on the lessees. ISB&M Retail Management
  • 23. Leased Department Advantages for Leased department operators Stores are known, have steady customers, & generate immediate sales for leased departments. Some costs are reduced through shared facilities like security equipment & display windows. Their image is enhanced by the relationships with popular stores. Disadvantages for Leased department operators There may be inflexibility as to the store hours they must be open & the operating style. The goods / services lines are usually restricted. If they are successful, the store may raise rent or not renew leases when they expire. In-store locations may not generate the sales expected. ISB&M Retail Management
  • 24. Vertical Marketing System A vertical marketing system consists of all the levels of independently owned businesses along a channel of distribution. Type of channel Channel Functions Ownership Independent system Manufacturing Independent manufacturer • Manufacturers or retailers are small • Intensive distribution is sought • Customers are widely dispersed Wholesaling Independent wholesaler • Unit sales are high • Company resources are low Retailing Independent retailer • Channel members share costs & risk • Task specialization is desirable Partially integrated system Manufacturing Two channel members own all • Manufacturers & retailers are large facilities & perform all functions. • Selective or exclusive distribution • Unit sales are moderate Wholesaling • Company resources are high • Greater channel control is desired Retailing • Existing wholesalers are too expensive or unavailable Fully integrated system Manufacturing All production & distribution • Firm has total control over its strategy functions are performed by one • Direct customer contact • Exclusive offerings Wholesaling channel member. • System is costly & requires lot of expertise Retailing ISB&M Retail Management
  • 25. Consumer Cooperative A consumer cooperative is a retail firm owned by its customer members. A group of customers invests, elects officers, manages operations & share profits. They account for tiny piece of retail sales. Cooperatives are formed because they think they can do retailing function, traditional retailers are inadequate & prices are high. They have not grown because consumer initiative is required, expertise may be lacking, expectations have frequently not been met, & boredom occurs. ISB&M Retail Management
  • 26. Retail Location Strategies & Decisions ISB&M Retail Management
  • 27. Why Location is Important? There are three most important aspects in Retailing – location, location & location. Locating the retail store in the right place was considered to be adequate for success. It is a important part of the retail strategy as it conveys a fair amount of image. It influences the merchandise mix & interior layout of the store. It is difficult to change the location once the store comes into existence. Change of location may result in loss of customer & employees. ISB&M Retail Management
  • 28. Types of Retail Location The choice of the location of the store depends on the target audience & kind of merchandise to be sold. Types: Freestanding/Isolated store Store located along major traffic artery No competitive retailers around Rents are usually low Advertising cost are high Customers may not prefer to travel long distance to visit only one store Part of a business district A business district (primary, secondary or neighborhood) is a place of commerce in the city Rent is high; parking is cumbersome It has good accessibility in terms of transport Customers are more ISB&M Retail Management
  • 29. Types of Retail Location contd.. Types: Part of a shopping centre Shopping centre - A group of retail & other commercial establishments that is planned, developed, owned & managed as single property Parking is available Basic configuration – mall or strip centre with walkway Ideally enclosed & climate control ISB&M Retail Management
  • 30. Steps involved in choosing a retail location 1. Identify the market in which to locate the store 2. Evaluate the demand & supply within that market i.e., determine the market potential 1. Demographic features of the population 2. The characteristics of the households in the area 3. Competition & compatibility 4. Laws & regulations 5. Trade area analysis 3. Identify the most attractive sites 1. Traffic 2. Accessibility of the market 3. The no. & types of stores in the area 4. Amenities available 5. To buy or to lease 6. The product mix offered 4. Select the best site available ISB&M Retail Management
  • 31. The Spread of Organized Retail in India Jaipur Pune Bhopal Mumbai Chandigarh Bhubaneshwar Bangalore Hyderabad Delhi Chennai Indore Nagpur Kolkata Gurgaon Udaipur Noida ISB&M Retail Management
  • 32. Retail Merchandising ISB&M Retail Management
  • 33. What is Merchandising? Merchandising is planning, buying & selling of merchandise (product). The American Marketing Association defined merchandising as ―the planning involved in marketing the right merchandise at the right place at the right time in the right quantity at the right price‖. Merchandising can be termed as the analysis, planning, acquisition, handling & control of the merchandise investments of a retail operation. Factors affecting the merchandising function Size of organization Merchandising Organization to be carried structure Merchandising function Types of stores ISB&M Retail Management
  • 34. Merchandise Planning Merchandise planning can be defined as the planning & control of the merchandise inventory of the retail firm, in a manner which balances between the expectations of the target customers & the strategy of the firm. Implication of Merchandise Planning Finance Payments to suppliers Profitability measurements Developing advertisements New product introductions Details of Purchase Order Warehouse & Logistics Details of allocations Marketing Merchandise Planning Store Operations Space planning Communication about new products & their features ISB&M Retail Management
  • 35. Merchandise Planning Process Stage I: Developing the Sales Forecast 1. Reviewing past sales 2. Analyzing the changes in the economic conditions 3. Analyzing the changes in the sales potential 4. Analyzing the changes in the marketing strategies & the competition 5. Create the sales forecast Stage II: Determining the Merchandise Requirements Planning in merchandising is at two levels: 1. The creation of the Merchandise Budget (5 parts) 2. The Assortment Plan Merchandise Budget Stock Planned Planned Gross Sales Plan support plan reduction Purchase Margins ISB&M Retail Management
  • 36. Merchandise Planning Process Stage II: Determining the Merchandise Requirements Planning in merchandising is at two levels: 1. The creation of the Merchandise Budget (5 parts) 2. The Assortment Plan The Merchandise Hierarchy Merchandise Merchandise Merchandise Style Price SKU (Stock Company Department Classification Category Sub Category point Keeping Unit) ISB&M Retail Management
  • 37. Merchandise Planning Process Some key merchandising terms Staple/basic merchandising – products always in demand (basic necessities) Fashion merchandising – products has high demand for a relatively short period of time Seasonal merchandising – seasonal products Fad merchandising – enjoy popularity for a limited period of time; generated high sales for a short time Style – unique shape or form of any product (taste in music) Assortment – variety of merchandise mix The width/breadth of assortment – refers to the number of brands The depth of assortment – variety in one goods/services category Points to be kept in mind while creating a plan - The merchandise budget should be prepared in advance of selling season. The language of the budget should be easy to understand. Merchandise budget must be planned for a short period – 6 months is the normal norm. Budget should be flexible. ISB&M Retail Management
  • 38. Key Components of Merchandise Planning Planned sales – Planned sales are projected sales for a period that is planned. Example: Last year’s sale for the same period = 35,000 Month %age increase Planned sales (Rs) Feb 12% 35,000 X 12% + 35,000 = 39,200 April 25% 43,750 June 21% 42,350 Planned purchase – Planned purchases represent the merchandise that is to be purchased during any given period. Planned Purchase = Planned Sales + Planned Reductions + Planned EOM – Planned BOM ISB&M Retail Management
  • 39. Key Components of Merchandise Planning Planned reduction – Markdowns (deductions in prices), employee discounts & inventory shrinkage due to theft or pilferage come under planned reduction. Planned markup – After calculating the level of inventory that needs to be purchased, the retailer needs to determine the initial markup for the products. Markup in Rs. = Selling Price – Cost Price Markup % = Markup in Rs. Retail Price Gross Margin – Gross margin is the difference between the selling price & the cost of the product, less reductions from markdowns, shrinkage & employee discounts. Profit = Gross margin – operating expenses B.O.M (Beginning-of-month) & E.O.M (End-of-month) planned inventory levels – Four Methods of Inventory Planning: a. Stock-to-Sales Method S/S Ratio = Stock in hand E.O.M (at retail value) = Value of inventory Sales for the same month Actual sales Planned BOM Inventory = Stock-sales ratio x Planned sales ISB&M Retail Management
  • 40. Key Components of Merchandise Planning The Basic Stock Method – In this method, the buyer believes that he needs to carry a certain amount of inventory in the store at all times. Basic Stock = Average stock for the season – Average monthly sales for the season Average monthly sales for the season = Total planned sales for the season No. of months in the season Average stock for the season = Total planned sales for the season Estimated inventory turnover rate for the season Beginning of the month (BOM) stock = Planned monthly sales + Basic Stock The Percentage Variation Method – This method of inventory calculation is used in case the stock turnover typically exceeds six times a year. BOM Stock = Avg. stock for season * 1/2 * [1 + (Planned sales for the month / Avg. monthly sales)] The Week’s Supply Method – Retailers who need to maintain a control over the inventories on a weekly basis, may use this method. BOM Stock = Average weekly sales x No. of weeks to be stocked ISB&M Retail Management
  • 41. Merchandise Planning Process Stage III: Merchandise Control – The Open to Buy The concept of Open to buy has two folds: 1. depending on sales of the month & the reduction, the merchandise buying can be adjusted. 2. the planned relation between the stock & sales can be maintained. Open to buy ensures that the buyer – Limits overbuying & under buying Prevents loss of sales due to unavailability of the required stock Maintain purchases within the budgeted limits Reduce markdowns i.e., reduction in price which may arise due to excess buying Open-to-Buy = Planned EOM Stock – Projected EOM Stock Projected EOM Stock = Actual BOM Stock + Actual Additions to stock + Actual on order – Planned monthly sale – Planned reductions for the month ISB&M Retail Management
  • 42. Merchandise Planning Process Stage IV: Assortment Planning Assortment Planning involves determining the quantities of each product that will be purchased to fit into the overall merchandise plan. Details of color, size, brand, materials etc. have to be specified. To create a balanced assortment merchandise for the customer. Department Menswear Product Line Shirts Trousers Accessories Louis Breadth Zodiac Van Heusen Philippe Arrow Depth Styles Color …… ISB&M Retail Management
  • 43. Merchandise Planning Process Stage IV: Assortment Planning The Range Plan: The aim of the range plan is to create a balanced range for each category of products that the retailer choose to offer. Range planning should take care of - The no. of items/options available to the customer should be sufficient at all times & should be such that it helps the customer make a choice. The overbuying & under buying is limited. Sufficient quantities of the product are available, so that all the stores can be serviced & the product is available at all the stores across various locations. The lower limit of the range width is often called aesthetic minimum ISB&M Retail Management
  • 44. Merchandise Planning Process Stage IV: Assortment Planning The Model Stock Plan: After determining the money available for buying, a decision needs to be taken on what to buy? & in what quantity? Steps - 1. Identify the attributes that the customer would consider while buying the product. 2. Identify the number of levels under each attribute. 3. Allocate the total units to the respective item category. The process of merchandise planning may be top down or bottom up. Top down planning occurs when the corporate objectives dictate the company’s financial objectives in terms of sales, profit & working capital. In Bottom up planning, individual department managers work on the estimated sales projections ISB&M Retail Management
  • 45. The Model Stock Plan Men’s shirt 100% (1000) Casual Dress Formal Sport 40% (400) 10% (100) 20% (200) 30% (300) Small Medium Large Extra large 25% (100) 40% (160) 25% (100) 10% (100) Full Sleeve Half Sleeve 30% (48) 70% (112) Button Other Down 60% (67) 40% (45) White Blue Cream Grey 40% (18) 30% (14) 20% (9) 10% (4) Cotton Cotton Blend 25% (4) 75% (14) ISB&M Retail Management
  • 46. Branding & Private Labels ISB&M Retail Management
  • 47. Branding Brand The American Marketing Association defined a brand as “a name, term, design, symbol or a combination of them, intended to identify the goods or services of one seller or group of sellers & to differentiate them from those of the competitors”. Branding existed from the time man felt the need to differentiate his products from that being offered by others. Branding gradually became a guarantee of the source of the product & ultimately its use as a form of legal protection against copying grew. With the development of shops, shopkeepers hung pictures above their shops indicating the types of goods they sold. With industrial revolution mass production came into existence but the distance between the manufacturers & customers increased. This eventually led to the evolution of the role of the brands as tools by which consumers identified the products. ISB&M Retail Management
  • 48. Building a Retail Brand Key questions for retail brands – Can the brand be identified with the lifestyles of its target customers? Is there a perceptible difference between the brand & the products offering by the retailer & other retailers? Can a story be woven around the brand? A retail brand is a combination of the company‘s heritage, the merchandise mix, the store environment, the service strategy, the advertising & promotion. Successful retail branding starts with a clear definition of what retailers stand for – an identification of what the customers associate it with, leading customers to think: “This brand is a reflection of me.. This brand is meaningful to me..” The retailer needs to determine the specific value proposition for the end customers. Playing on emotional benefits can also be a branding exercise of the retailer. Retail branding does not sell a specific product. It is about customer service. ISB&M Retail Management
  • 49. The Retail Value Chain Support Functions Third Party Retail Customer Customers Suppliers Logistics Operations Mgmt. Systems ISB&M Retail Management
  • 50. Private Label When the retailer decides to sell products or a line of merchandise which is owned, controlled, merchandised & sold by the retailer in his own store/chain of stores, he is said to be Selling Own Label / Brand or Private Label merchandise. The Private Label Marketing Association defines store products as “all merchandise sold under a retail store’s private label. That label can be stores name or a name created exclusively by that store. In some cases, a store may belong to a wholesale buying group that owns labels, which are available to the members of the group. These whole-sale owned labels are referred to as controlled labels” A private label can be classified as: Store Brand – which carries the retailer‘s name, such as Westside, Food World, Big Bazaar etc. An Umbrella Brand – where a common brand name is used across multiple categories – example Splash (Lifestyle), Bare (Pantaloon) etc. Individual Brands – where specific brand names are created for specific market segments and/or categories. ISB&M Retail Management
  • 51. Private Label - Evolution Private labels were traditionally defined as generic product offerings that competed with national brands on the basis of value proposition. They were often seen as the lower priced alternative to the ―real‖ thing. Private label carried the stigma of inferior quality & therefore inspired less confidence. Generics, which were products distinguishable by their plain & basic packaging were the first type of private labels. With the increase in retail stores, the need to earn higher profit & the desire to service the gaps in consumer requirements gave rise to private labels, both in apparel & the food & grocery sector. Today, most of the large department stores have their own private labels which cater to a specific audience. Private labels rely on in-store advertisements. In order to compete with national brands, private labels need to focus on quality. The average quality of one product compared to other Consistency in quality over a period of time Private label goods become more successful where the no. of competing products is lower. ISB&M Retail Management
  • 52. Why Private Label? Retailer can fill in the need gaps that may exist in the market place. Private label gives the retailer an advantage of offering the customer another option. A private label allows the retailer to offer a unique product in the marketplace. Private label allows a retailer to earn a higher margin than other brands he chooses to retail because designing, merchandising, sourcing & distribution is done by the retailer. Also, advertisement is in-store. Private Label Creation Process Placing the order Identification of Make or Performance & Marketing Measurement the need Buy Allocating the goods ISB&M Retail Management
  • 53. Merchandise Procurement / Sourcing The term sourcing means finding or seeking out products from different places, manufacturers or suppliers. Method of Procuring Merchandise 1. Identifying the sources of supply Costs associated with global sourcing: Country of origin effects – Many a times, where the merchandise has been manufactured makes a difference in the final sale of the product. Foreign currency fluctuations – Effects the buying price of the products. Tariffs – Taxes placed by the govt. on imports. Foreign trade zones – These are special areas within the country that can be used for warehousing, packaging, inspection, labeling, exhibition, assembly, fabrication etc., of imports, without becoming subject to the country‘s tariffs. Cost of carrying inventory Transportation cost ISB&M Retail Management
  • 54. Merchandise Procurement / Sourcing 2. Contacting & Evaluating the sources of supply Contacting can be vendor initiated contact or retailer initiated contact Points to be kept in mind The target market for whom the merchandise is being purchased. The image of the retail organization & the fit between the product & the image of the retail organization. The merchandise & the prices offered. Terms & service offered by the vendor. The vendor‘s reputation & reliability. 3. Negotiating with the sources of supply The types of discounts that could be made available to the buyer Trade discounts Chain discounts Quantity discounts Seasonal discounts Cash discounts ISB&M Retail Management
  • 55. Merchandise Procurement / Sourcing 4. Establishing Vendor Relations To build & maintain strategic partnership with vendors, the buyer needs to build on: Mutual trust Open communication Common goals Credible commitments 5. Analyzing Vendor Performance The total orders placed on the vendor in a year The total returns to the vendor, the quality of the merchandise The initial markup on the products The markdowns (if any) Vendor‘s participation in various schemes & promotions Transportation expenses if borne by the retailer Cash discounts offered by the vendor The sales performance of the merchandise ISB&M Retail Management
  • 56. Category Management - A Method of Merchandise Management ISB&M Retail Management
  • 57. Category Management Category Management can be defined as “the distributor/supplier process of managing categories as SBUs, producing enhanced business results by focusing on delivering customer value”. A category is an assortment of items that a customer sees as reasonable substitutes of each other. A category management concept is a focus on a better understanding of consumer needs as the basis for retailers‘ & suppliers‘ strategies, goal, & work processes. The need to reduce costs, control inventory levels & replenish (refill) stock efficiently led to the concept of Efficient Consumer Response (ECR). Category management provides renewed opportunities for meeting consumer needs & at the same time, for achieving competitive advantage as well as lower costs through greater work process efficiencies. ISB&M Retail Management
  • 58. Category Management contd.. Category Management is now considered as the “new science of retailing” because - 1. It involves a systematic process. 2. It emphasizes decision-making based on complex analysis of consumer data & market level syndicate data. 3. It replaces the brand bias that stems from suppliers‘ interest & encourages objective view based on consumers‘ desires. Why Category Management? Consumer changes Competitive pressures Economic & efficiency considerations Advances in IT ISB&M Retail Management
  • 59. Components Category Management Performance Measurement Strategy Trading Organizational Partner Capabilities Relationships Business Process Information Technology ISB&M Retail Management
  • 60. The Category Management Business Process ISB&M Retail Management
  • 61. The Category Management Business Process Step 1: Category Definition A distinct, manageable group of products/services that consumers perceive to be interrelated/substitutable in meeting a consumer need. The category definition should be based on how the customer buys, & not on how the retailer buy. This step decides the products that represent a category, sub-category & major segmentation. At this step, the retailer assigns products to the various categories based on factors such as consumer usage & packaging. Step 2: Category Role It determines the priority & importance of each category in the overall business. It serves the basis of resource allocation. Consumer-based category roles: Destination categories – Why you as a retailer? Preferred/routine category Occasional/seasonal category Convenience category – one-stop shop ISB&M Retail Management
  • 62. The Category Management Business Process Step 3: Category Assessment – Brain Harris’s Quadrant Analysis Sleepers Winners - Identify key products within category - Continue current policies - Delist slow movers & marginal products - Be alert to adaptation of new products - Give quick movers more self space - Minimise operational problems like “out of - Optimize margin mix stock” - Optimise margin mix Market Share Questionable Opportunities - Limit product mix to core assortment & delist - Harmonise product mix with market trends marginal products - Improve price image via low prices for key - Look for price raises products - Minimise self space at category level - Maximise shelf space at category level - Transfer logistical & operational work to third - Give promotional support to key items parties Market Growth ISB&M Retail Management
  • 63. The Category Management Business Process Step 4: Category Performance Measures Sales Profits Market Share Inventory Turnover Changes in the Assortment Consumer Transaction Step 5: Category Strategies Typical category marketing strategies are: Traffic building Transaction building Turf defending Profit generating Cash generating Excitement creating Image enhancing (Areas: Price, Service, Quality & Varity) ISB&M Retail Management
  • 64. The Category Management Business Process Step 6: Category Tactics Category tactics work towards the determination of optimal category pricing, promotion, assortment & self management/presentation of the merchandise. Step 7: Category Plan Implementation What specific tasks needs to be done? When each task needs to be completed? Who will accomplish each task? Step 8: Category Review ISB&M Retail Management
  • 65. Retail Marketing Mix The Retail Marketing Mix ISB&M Retail Management
  • 66. The Retail Image Factors People Pricing Associations Presentation The Adidas Retail Store CA, USA Brand Retail Customer Promotion Service Store Image Product / Place / Merchandise Location features Shopping Experience ISB&M Retail Management
  • 67. The Retail Communication Mix Sales Promotion Public Advertising Relations Retail Communication Mix Personal Direct Selling Marketing ISB&M Retail Management
  • 68. Retail Selling Process Acquiring Product/Merchandise Knowledge Studying the Customer Approaching the Customer Presenting the Merchandise Overcoming Resistance Suggestive Selling Closing the Sale ISB&M Retail Management
  • 69. Retail Management Information System ISB&M Retail Management
  • 70. Effect of a Single Customer Transaction Marketing & Promotions Recording Inventory Merchandise Management Customer Warehouse Transaction Sales Analysis Customer Credit Card Database Payments ISB&M Retail Management
  • 71. Why IT in Retail? Scale & scope of operations Factors The HR affecting financial availability the use of resources IT available Efficient Stocking of Merchandise The nature of Collection of Data business Efficiency in Operations Helps Communication ISB&M Retail Management
  • 72. Application of IT Electronic Data Interchange (EDI) Database Management, Data Warehousing, Data Mining Radio Frequency Identification (RFID) Transaction Processing System (TPS) Decision Support System (DSS) Enterprise Resource Planning (ERP) Intranet & Internet E-Commerce or E-Trailing …… ISB&M Retail Management
  • 73. SCM in Retail ISB&M Retail Management
  • 74. The Basic Supply Chain Raw material packaging Manufacturer warehouse Supplier warehouse Manufacturer Physical Flow Finance Flow Retailer warehouse Retailer ISB&M Retail Management
  • 75. Framework for Analyzing Issues in SCM Customer Service STRATEGIC Channel Network Design Strategy STRUCTURAL Warehouse Transportation Materials Design & Management Management Operations FUNCTIONAL Organization & Information Policies & Facilities & Change Systems Procedures Equipment Management IMPLEMENTATION ISB&M Retail Management
  • 76. Servicing the Retail Customer ISB&M Retail Management
  • 77. Kill a Brand, Keep a Customer! Customer Service ―Customer service is a task, other than proactive selling, that involves interactions with customers in person or by telecommunication, mail or automated process. It is designed, performed & communicated with two goals in mind – Operational Production Customer Satisfaction Customer Service focuses on measurement of how well a firm meets the established performance standards that are viewed as important for meeting customer needs. Customer Satisfaction is how the customers measure externally the service performance of a firm. ISB&M Retail Management
  • 78. Customer Service – A USP Retail mix like Product, Price, Place, Promotion can be duplicated or copied by competitors – the total experience (image of the store, ambience, music,& level of service offered) that the customer gets in the store stay unique. Identify the key customers & listen & respond to them Define superior service & establish a service strategy Set standards & measure performance Select, train & empower employees to work for the customer Recognize & reward accomplishments ISB&M Retail Management
  • 79. Measuring Gaps in Service ISB&M Retail Management
  • 80. Customer Relationship Management (CRM) ISB&M Retail Management
  • 81. How CRM Benefits Retailer? Customer needs Retailer traditionally CRM benefits customer provides by enabling Product choice Range selection Tailored range Access Channel choice Consistent experience Support Information Enhanced service Individual treatment Customer service 1:1 relationship Value Scale efficiencies Customer defined “value” ISB&M Retail Management
  • 82. Customer Segmentation in Retail Lower Value Segment Grow able Segment Most Valued Segment Value per No. of customer customers In-store PoS Advertisement Targeted Direct Mail Merchandising Added value Tailored, cross- services learning based relationship Lower value Grow able Most Valuable segment Segment Segment ISB&M Retail Management
  • 83. Retail Store Design & Visual Merchandising ISB&M Retail Management
  • 84. Retail Store Design Retail stores needs to be designed to be more competitive, the retailer first needs to catch the customer‘s eye & then, to draw his attention away from other stores. The basic principles of store design require that the image being created in tune with the merchandise, the advertising & the service offered by the store. Retail design is primarily a specialized practice of architecture and interior design, however it also incorporates elements of interior decoration, graphic design, ergonomics, and advertising. Store Image Store Store Theme Atmosphere Elements of the Store Environment ISB&M Retail Management
  • 85. Why Retail Store Design is Important? The store design & layout tells a customer what the store is all about. The creates the image of the retail store in the minds of the customer. This image is the starting point of all marketing efforts. It make the store simple to navigate. It creates the sense to belongingness, responsibility, security, & pleasure in shopping. ISB&M Retail Management
  • 86. Elements of Retail Design Frontage & Parking Entrance Location Building Location Arch. Access Safety Store Design Store Theme Target Merchandise Customer Mix ISB&M Retail Management
  • 87. Interior Store Design Space Space Planning helps determining: Planning The location of various departments. The location of various products within the department i.e., creating planograms. The pros/cons of specific location for impulse products, destination areas, seasonal products, Atmosphere products with specific merchandising needs, Layout & Aesthetics adjacent departments etc. The relationship of space to profitability. Atmosphere & Aesthetics Fixtures Flooring & Ceiling Lighting Graphics & Signage Theme graphics Campaign graphics Promotional graphics ISB&M Retail Management
  • 88. Free-flow Layout Fixtures and merchandise are grouped into free-flowing patterns on the sales floor. ISB&M Retail Management
  • 89. Grid Layout The counters and fixtures are placed in long rows or ‗‗runs,‘‘ usually at right angles, throughout the store. ISB&M Retail Management
  • 90. Racetrack/Loop Layout A major customer aisle begins at the entrance, loops through the store— usually in the shape of a circle, square, or rectangle—and then returns the customer to the front of the store. ISB&M Retail Management
  • 91. Spine Layout A single main aisle runs from the front to the back of the store, transporting customers in both directions, and where on either side of this spine, merchandise departments using either a free-flow or grid pattern branch off toward the back side walls. ISB&M Retail Management
  • 92. Visual Merchandising An orderly, systematic, logical, & intelligent way of putting stock on the floor. ISB&M Retail Management
  • 93. Visual Merchandising contd.. It has several aspects & involves SKU planning, store windows & floor displays, signs, space design, fixtures & hardware, props & mannequins. Creating the right atmosphere in the store & presenting the merchandise in the right manner is very important. Good visual merchandise means a selling space that is neat, easy-to-see, follow & shop. Color dominance Methods of Display Coordinated Presentation presentation by price ISB&M Retail Management