Bachelor of Business Administration Semester: III - RETAIL MANAGEMENT

Bachelor of Business Administration Semester: III

RETAIL

MANAGEMENT

LEARNING OBJECTIVES

1. Understanding the theoretical foundations of retailing such as Retail Strategy, Merchandising Management, Category Management, Store Management, and Retail Pricing.

2. To acquire conceptual clarity of the various functional areas of retailing such as SCM, EDI, RFID, VMI,CPFR, HR issues in retailing, CRM, financial implications of retail decisions, retail promotions, etc.

3. To understand the various evolving formats of retailing: online and offline 4. To make sense of the evolving external environment and competitive

factors to make better strategic decisions.

5. Analysis and interpretation of the various kinds of data used to make effective decisions in retailing at an operational level.

50 Marks - ICA Internal Component Assessment Mid Term Exam - 20 Marks Presentations - 10 Marks Assignments - 10 Marks Case-studies - 10 Marks

Total Marks – 100

50 Marks - TEE Term End Exam

Case / Application based questions

EVALUATION

MODULE – I

01-10

MODULE – I

01-10

 Introduction to Retail Management

 Definition (Retail and Retailer), Functions of retailer – role in supply chain, Economic and social significance of retailing

 Introduction – Global and Indian Scenario, Growth Statistics

 Unorganized and Organized Retail, Government and Retail sector in India

 Retail Formats – Retailers Characteristics, Food Retailers, General Merchandise Retailers

 Service Retailing, Non-store retailing

 Theories of Retailing – Environmental, Cyclical: Wheel of retailing

 Retail Life cycle

 Evolution towards Multichannel Retailing

 Understanding Retail Shopping Behavior

Organized retailing, though booming, is still nascent and evolving in India. Beset with skyrocketing real estate prices and extreme shortage of skilled manpower and thin margins, it could look at catalogue showroom retailing as a retailing format that cannot only be setup fast at low cost but could also be quickly scaled up across the country. K Raheja Corp are the pioneers in organized retail in India by taking a first giant step to successfully establish a retail store know as Shopper’s Stop. In 2006, it then ventured out in a hypermarket format with HyperCity and Argos. HyperCity Argos is the brand licensed to Gateway Multi channel Retail India Ltd, a joint venture, following franchise agreements with HyperCity and with Home Retail Group (India) Private Ltd, a subsidiary of Home Retail Group in the UK which owns the Argos brand.

Argos, for the first time will offer a unique multi-channel shopping experience to consumers in Mumbai (Thane, Mulund, Airoli).This integrated multi-channel capability encompassing stores, home shopping and the Internet will give consumers a new and convenient way to shop. Customers can choose from over 4,000 products from the comfort of their home either through a Hyper-City Argos catalogue or by going online at the website. Customers have the opportunity to choose from a wide range of products, make informed decisions through product and price comparisons and above all save time.

Argos is one of the leading players of catalogue retailing in the UK. It is a unique retailer recognized for choice, value and convenience. It sells general merchandise and products for the home throughout the UK and Republic of Ireland, online and over the telephone. In the last financial year, Argos sales grew eight per cent to £4.2 billion and it employed some 34,000 people across the business.

Argos Product Mix: The products include personal care, kitchen and laundry, furniture, sound vision and electronics, garden DIY and leisure appliances, toys and games, jewelry watches and accessories, etc. It is well said, that a retailer should not play his game with just one format. It is not advisable to put all your eggs in one basket.

INTRODUCTION CASE - ARGOS

Kinds of Outlet: Catalogue stores (size 5,000-10,000 sq. ft.) and call & collect stores (size 300-500 sq. ft.). This has been created specifically for customers in India as they like to view the products before a major purchase. The catalogue store will offer customers the facility to browse through and view the products before they buy.

High involvement and high investment products across categories would be available on display. The centrally located neighborhood call & collect stores will have the option to browse through the catalogue and buy. These stores hold limited products. Customers have the option to either order and collect their product the next day, or have it home delivered. Unlike a self-serve retail store, in a catalogue showroom (store) most of the items are not displayed; customers are asked to view the products from printed or online catalogs in the store and are asked to fill out an order blank. The order is then brought to the sales counter, where an associate arranges to retrieve the items from the warehouse or if so desired by the customer assures to deliver the same at call and collect center of the customer’s choice upon receipt of payment. Thus, catalogue serves to act as an interface between the product and the customer. Stores have an advantage of allowing the customer to get the merchandise immediately after they pay and buy it. Paying up for a product online through a credit card and waiting for the product for a week or so mellows down the customer satisfaction. Indian customers are different. They want to touch, feel and smell various products like staples, apparels etc. Otherwise customers don’t get convinced about the product quality. Store shopping can be a stimulating experience for some people, providing a break from the routine and enabling them to interact with people and friends around. This experience is evidently missing in this kind of format. Argos is winding up its two year trial operations in India that includes five stores in Mumbai and telephone and internet ordering service, which it was offering in conjunction with Hyper City.

Share your observation & understanding

RETAILER

A retailer is a business that sells products and/or services to consumers for their personal or family use.

The term ‘retailing’ is derived from the old French word

‘retaillier’ meaning‘ to cut piece off’ or ‘to break the bulk’.

Firms that are retailers and wholesalers -sell to other business as well as consumers:

• Office Depot

• The Home Depot

• United Airlines

• Costco Retailers

 Walmart

 Amazon

 DMart

 BigBazaar/SmartBazaar

Source: https://fortune.com/global500

World’s Top Companies (as per revenue)

Providing Assortments

Breaking Bulk Holding Inventory

Providing Services

Functions

How Retailers Add Value -Functions

Assignment

Consider a retail company 1. History

2. Journey

3. Brands/categories under the company 4. Products under each brands

5. In house brand / private label brand 6. Finance

7. Future Eg

 Reliance

 Tata

 Raheja

 Future

 Patanjali

SOCIAL & ECONOMIC SIGNIFICANCE OF RETAILING

Retailers handle the entire gamut of roles and functions aiming at understanding customer requirements and anticipating the demand, gathering information about the market trends through strong market intelligence and making product related assortments and discovering financing opportunities.

Role in Developed Economies

Corporate Social Responsibility

Employment

EVOLUTION OF INDIAN RETAIL

Growth Drivers for Retail

Source: https://www.ibef.org/industry/retail-india/infographic

Indian Retail

RETAILERS CHARACTERISTICS

Retail Cycle Store

Types of Product /

Services

Variety &

Assortment

Level of Services Offered

Prices and the

Cost of

Offering

o Independent / single-store establishments o Corporate chains

o Franchises

TYPES OF OWNERSHIP

TYPES OF RETAILERS

• Food Retailers

• Non Food/General Merchandise Retailers

• Service Retailers

Non Store Retailer Store Retailers

 Direct Marketing

 Direct Selling

 E-Tailing

 Catalogue/Mail order

 Vending Machines

 Kiosks

 Tele-shopping

 Direct Response retailing

 Airport retailing

Food Retailers Non Food/General Merchandise Retailers

Service Retailers

Convenience stores Supermarkets Supercentres Warehouse Club

Departmental stores Discount stores Specialty stores Off-Price Retailers

Membership Club stores Factory Outlets, Drug store Cash and Carry

Personal care-Dry Cleaning, Beauty Salon, Health Centres

Entertainment/Recreation-Movie theatres, Golf Course, Clubs Discotheques

Repair-Automobiles, Electronic goods/Appliances Repair

Rented Goods services

Store Retailers

FOOD RETAILERS

Supermarkets - a self-service shop offering a wide variety of food, beverages and household products, organized into sections.

Supermarkets are differentiating their offerings by:

 Fresh Merchandise: dairy, bakery, meat, florist, produce, deli, and coffee bar

 Green Merchandise : natural, organic, and locally sourced foods

 Ethnic Merchandise : Hispanics, who now constitute 15 percent of the U.S. population, have significantly different shopping and eating patterns from general population

 Private-Label Merchandise : Conventional supermarket chains are leveraging their quality reputation to offer more private-label merchandise

 Improving the Shopping Experience : ambience and customer service

A hypermarket (sometimes called a hyperstore, supercentre or superstore) is a big-box store combining a supermarket and a department store

 Grocery

 General Merchandise

Warehouse clubs are retailers that offer a limited and irregular assortment of food and general merchandise with little service at low prices for ultimate consumers and small businesses.

Convenience stores provide a limited variety and assortment of merchandise at a convenient location

CHARACTERISTICS OF FOOD RETAILERS

GENERAL MERCHANDISE RETAILERS

NON STORE RETAILERS

Non-store retailing is the selling of goods and services outside the confines of a retail facility.

Electronic commerce

Distance selling includes mail

order

Catalogue sales Telephone solicitations

Automated

vending

SERVICES RETAILERS

Intangibility Inseparability

Variability Perishability

Services Characteristics

Service retailer refers to a retailer, whose product line is actually a service, including hotels and motels, banks, airlines, colleges, hospitals, movie theaters, tennis clubs browsing alleys, restaurants, repair services, hair salons, and dry cleaners.

Types: Full, Assorted and Self Service

 Competition between same type of retailer is called Intratype Competition Eg: One departmental store competes with another departmental store

 Competition between retailers having different formats is Intertype Competition

Eg: Food items are now provided grocery store, discount store, supercenters and also a drug store

TYPES OF COMPETITION

When retailers offer merchandise not typically

associated with their type of store such as Apparel

and Jewelry section added by Walgreens which is a

drug store, this result in Scrambled Merchandising.

THEORIES OF RETAILING

The theories developed to explain the process of retail development revolve around the importance of competitive pressure, investments in organizational capabilities and creation of sustainable competitive advantage.

Environmental Theory

Cyclical Theory – Wheel of Retailing

Retail Life Cycle

ENVIRONMENTAL THEORY

Environmental Theory has taken a “Darwinian” approach and suggest that only retailers with the most appropriate organizational structure / formats & those who adopt and adapt to change will survive (Gist 1968; Davidson et al 1983; Brown 1987)

The retail types which best adjust to their environment are the most likely to survive.

Factors:

 Changes in the consumer characteristics – demographic, social and economic factors

 Changes in technology

 Changes in competition

CYCLICAL THEORY

by Professor Malcolm P. McNair in 1958

 Entry Phase

 Trade-up Phase

 Vulnerable Phase

RETAIL LIFE CYCLE

Introduction Growth Maturity Decline

Introduction Stage:

A new organization is born.

It improves the

convenience or creates other advantages that differ from those offered by other retailers.

Growth Stage:

The retail organization faces rapid increases in sales and in a position to pre-empt the market by establishing a position of leadership.

Maturity:

The organization still grows but competitive pressures are felt acutely from newer forms of retailing that tend to arise.

Decline:

The retail organization looses its competitive edge and there is a decline.

MULTICHANNEL RETAILING

Multichannel retailing involves using more than one channel to sell and deliver merchandise and services to consumers.

01

03

05 02

04

06

^{StoreRetailing}

Internet Retailing Channels – Electronic & Mobile

Television Home Shopping Channel Catalog Channel

Direct Selling Channel

Automated Retailing (Vending Machines) Channel

MULTICHANNEL RETAILING

Benefits Provided by

Different Channels

Benefits of Multichannel Retailing

 Increased Assortments

 Low Cost

 Increased customer satisfaction & Loyalty

 Gaining insight into consumer shopping behaviour

 Expanding market presence

 Strategic advantage

Assignment 2

As a retailer critically evaluate each channel in Multi channel retailing.

RETAIL SHOPPING

BEHAVIOR

Utilitarian Needs

 Associated with work

 Shopping is deliberate and efficient

 Retailers can satisfy these needs by providing information and making shopping easy and effortless

Hedonic Needs

 Associated with recreation, emotions &

entertainment

 Desire for excitement,

 Retailers can satisfy these needs by including stimulation, social experience, adventure, power and status, self-reward, learning new trends

TYPES OF NEEDS

 Internal sources are information in a customer’s memory such as the names, images, and past experiences with different stores.

 External sources are information provided by ads and other people.

When customers feel that their internal information is inadequate, they turn to external information sources.

INFORMATION SEARCH

Evaluation of Alternatives: Multi-Attribute Attitude Model

Customer’s evaluation of a retailer, product, or service is based on

 Its performance on relevant attributes

 The importance of those attributes to the

customer

Getting into the Consideration Set

Consideration set: the set of alternatives the customer evaluates when making a selection Retailers develop programs influencing top-of-mind awareness

 Get exposure on search engines like Google

 Try to be the top of the page

 More stores in the same area (e.g., Starbucks)

 Increase Performance Beliefs of Your Store

 Decrease Performance Beliefs About Competitor

 Increase the Importance of Weight of Attributes on which You Have an Advantage

 Add a New Benefit on which You Excel

TYPES OF BUYING DECISIONS

Extended Problem Solving Limited Problem Solving Habitual Decision Making

OR

MODULE – II

11-20

MODULE – II

11-20

 Retail Strategic Planning

 Elements of Retail Strategy

 Sustainable competitive advantage

 Growth strategies, Global growth

 Strategic planning process

 Retail Location Planning

 Types of location – Free standing, Centre of Business District, Shopping centers, Non-traditional Locations

 Retail site location, Evaluating specific areas for location

 Estimating sales potential of a new store

 Huffs gravity model - only Problems

RETAIL STRATEGIC PLANNING

The retail strategy indicates how a retailer will deal effectively with its environment, customers, and competitors.

The retailer’s TARGET MARKET

A group of consumers with similar needs and a group

of retailers that satisfy those needs using a similar retail channels and

format.

The FORMAT & RESOURCES the retailer plans to use to satisfy

the target market’s needs Department Stores, Super Markets, Chain Stores, Discount

Houses, Direct Selling, Telemarketing, E-Marketing, Automatic Vending, Franchising,

Specialty Stores etc

The bases on which the retailer plans to build a

SUSTAINABLE COMPETITIVE ADVANTAGE

Building a wall around its position in a retail market,

that is, around its present and potential customers

and its competitors

RETAIL STRATEGY ELEMENTS

1. TARGET MARKET 2. FORMAT & RESOURCES

3. SUSTAINABLE COMPETITIVE ADVANTAGE

(1) building strong relationships with

customers

(2) building strong relationships with

suppliers

(3) achieving efficient internal operations

TARGET MARKET

A target market is a specific group of people with shared

characteristics that a business markets its products or services to.

Identifiable :

Retailer is able to determine which customers are in

the segment

Actionable:

Retailer should know what to do to satisfy needs of

the customers in the segment

Substantial :

segment must be larger enough or its buying power

significant to generate sufficient

profits

Reachable :

Retailer can target promotions and other elements of

the retail mix to customers in the

segment

Criteria For Selecting A Target Market

 Attractiveness – Large, Growing, Little Competition, More Profits

 Consistent with Your Competitive Advantages

COMPETITIVE ADVANTAGE

 Dropping the Price of Your Merchandise?

 Building a Store at the Best Location?

 Deciding to Sell Some Hot Merchandise?

 Increasing Your Level of Advertising?

 Attracting Better Sales Associates by Paying Higher Wages?

 Providing Better Customer Service?

Can A Retailer Develop a Sustainable Competitive

Advantage by:

 Location

 Customer Loyalty

 Customer Service

 Exclusive Merchandise/Private Labels

 Low Cost Supply Chain Management

 Information Systems

 Buying Power with Vendors

 Committed Employees

 Better Computers

 More Employees

 More Merchandise

 Greater Assortments

 Lower Prices

 More Advertising

 More Promotions

 Cleaner Stores

H IG H S u st ai n ab le LO W S u st ai n ab le

Assignment 3

Visit two stores that sell similar merchandise categories and cater to the same target segment(s).

How are their retail formats (the elements in their retail mixes) similar? Dissimilar?

On what bases do they have a sustainable competitive advantage?

Explain which you believe has stronger position.

RETAIL GROWTH STRATEGIES

Growth strategies are basically about decisions related to – Allocating resources to different target markets & formats, Transferring resources from one set of merchandise to others & Managing and nurturing a portfolio of business

1. Market Penetration

2. Market Expansion

3. Format Development

4. Diversification

Market Penetration Market Expansion Format Development Diversification Same product range but

with attractive offers, try to attract

competitors’ customers or those who come to store but do not buy merchandise

Eg: An online news website offering one month free for a subscription-based service.

HOW

 Lowering prices

 Acquiring a competitor in your market

 Revamping your marketing roadmap to increase brand awareness

A market expansion growth opportunity involves using the retailer’s existing retail format in new market segments

Eg: LOREAL Professional expands their product in new segment by targeting Men’s.

ASK

 Is the business well established in the current markets & growing?

 Is there demand in other markets or sectors that you could cover?

 What are the biggest risks of failing in the new market?

 Which existing partnerships could support your expansion efforts?

New retail format with some sort of new retail mix to the same target market

Eg: A food retailer started providing non food merchandise

Retailer introduces a new retail format directed toward a market segment that is so far not served.

Related and unrelated diversification

Apollo Health and Lifestyles (AHLL) is a 100 per cent subsidiary of the Hyderabad-based Apollo Hospitals group. The group came up with the innovative concept of setting up specialty clinics namely Apollo Clinic across the country. These clinics offer a comprehensive range of day-to-day health services under one roof. These include specialist consultation, comprehensive diagnostic services, a range of preventive health check packages and a 24-hour pharmacy. There is also a telemedicine facility, connecting patients and enabling them to seek opinions from an expert panel of doctors from Apollo Hospitals, as and when required.

Apollo decided to foray into primary healthcare after recognising the phenomenal business potential of this segment. A KSA Technopak study of SEC A and B households revealed that an urban household spent 11 per cent of its income on healthcare, of which 68 per cent was on nonhospital expenditure. The organization’s internal assessment also showed that the average healthcare expenditure per family per month was Rs. 540 on consultation and tests alone. There is a huge market opportunity in the day-to-day healthcare segment since the primary healthcare market in the country is not very organized.

GLOBAL MARKET CASE – APOLLO HEALTH & LIFESTYLE

Having set up company owned and run clinics, AHLL has now forayed into opening franchised clinics. The company already has 63 clinics operational in all the major locations of the country. It is learnt that the model is such that the franchisee has to invest in the clinic as well as manage day-to-day operations. Each clinic is set up on leased premises of approximately 4000 square feet and involves an investment of about Rs. 2 crore and will be funded on a 1 : 1 debt equity ratio, it is learnt. AHLL will provide assistance and be involved in mobilizing resources, selecting appropriate sites, site architecture and installation of medical equipment.

The Apollo Clinic is an integrated model offering consultation, preventive health checks, diagnostics in addition to the round the clock operating pharmacy under one roof. The specialty of Apollo Clinic lies in its ability to offer counseling services to patients and customers in the neighborhood of every clinic. The unique services offered by Apollo Clinics include organizing various health camps so that they would empower their customers.

GLOBAL MARKET CASE – APOLLO HEALTH & LIFESTYLE

Going International

AHLL intends to use its expertise, standards and cost competitiveness to tap this opportunity. Its plan is to leverage opportunities in the international health market, primarily through the franchise route. It is in advanced stages of discussions to set up clinics in various countries. AHLL has successfully set up two franchised clinics in the Middle East region. The organization plans to ensure consistently superior quality service in every sphere, ranging from personnel and infrastructure to equipment and operating procedures and these will be transferred to the franchisees. While the services will essentially be the same as those offered in India, there will be customization with respect to local needs and social norms as indicated by the demand studies and research. AHLL will provide its expertise; its scope of services will include providing strategic inputs in the area of business development and marketing as well as know how and technical services in recruitment, training and non-negotiable service quality standards.

The following critical success factors are looked into while establishing Apollo Clinics:

 Accredited staff and management.

 High-tech equipment and high technology usage.

 Stringent quality control of processes and procedures.

 Strong relationships with doctors, smaller hospitals and insurance companies to ensure adequate referrals.

 Extensive client base.

GLOBAL GROWTH OPPORTUNITY

Attractiveness of international opportunities

The potential size of the retail market in the country

The degree to which the country does and can support the entry of foreign retailers engaged in modern retail practices

KEY to Success in Global Market

 Globally Sustainable Competitive Advantage

 Adaptability

 Global Culture

 Financial Resources

Direct Investment Strategic Alliance

Joint Venture Franchising

En tr y St ra te gi e s

STRATEGIC RETAIL

PLANNING PROCESS

01 03

07 05

02

04

06

Define the business mission

Conduct a situation audit

Identify strategic opportunities

Evaluate strategic alternatives

Establish specific objectives and allocate resources

Develop a retail mix to implement strategy Evaluate

performance and make adjustments

In developing the mission statement, answer five questions:

(1) What business are we in?

(2) What should our business be in the future?

(3) Who are our customers?

(4) What are our capabilities?

(5) What do we want to accomplish?

01

02

Identify the More Sustainable and Less sustainable

competitive advantages of Tesco. Why did Tesco fail in US

Market? Give suggestions pertaining to the retail

strategy of Tesco.

Target Timeline Investment

Price Promotion

Place Product Presentation

Personnel

Evaluation

3-4

05 06 07

RETAIL LOCATION PLANNING

Steps to evaluate a location

1. Types of Product 2. Identifying Consumers 3. Identify Competition &

Complementary category stores

4. Evaluate Location

Convenience goods: like FMCG products, Sweets, Fruit Juice, Cigarettes Shopping goods - like apparels, fashion accessories and furniture.

Specialty goods - like specific brands or designer fashion labels.

i. How many are they?

ii. What is their age range?

iii. Where do they stay?

iv. What are their income levels and propensity to spend?

Competition intensity will define the marketing strategy &

efforts while Complementary stores will help generate pedestrian traffic for the store.

Number and types of pedestrians Number and types of vehicles Accessibility

Parking availability Regulations

i. Which type of products they consume?

ii. What are their purchase considerations for the target products?

iii. How far are they willing to travel to the store?

Location refers to the general position of a shop — a city district, a neighborhood area, along a major road or secondary street, or a shopping mall. Site refers to a shop’s specific spot. Choosing a shop location is a strategic exercise because it is a decision which has long- term implications on the retailer’s image, positioning, sales and cost.

TYPES OF RETAIL LOCATIONS

Free Standing Business Parks Shopping Centers Non Traditional Locations Home-based Retail Stores A retail store, not

located in a shopping complex with other retailers, having its own premises and parking area.

An office building, or a business park where many office buildings are grouped together, is similar to a strip mall or outdoor retail center.

Strip malls and other attached, adjoining retail locations may have as few as three units or as many as 20.

Includes airport, college campuses, sports events, concerts, stadiums, hospitals, military bases, government offices, convention centers, highway rest stops and turnpike plazas -- anywhere large

numbers of people congregate, pass through, or live.

Millions of retail businesses start in their owners' homes.

Some may eventually move to a commercial store location, while many remain in the business owner's spare room, especially if the business primarily operates online or works with distributors.

Pros

Reasonable cost Limited competition Cons

Restricted retail activities Lack of foot traffic

Pros

Low maintenance costs Professional appearance Easily accessible

Cons

Lack of foot traffic Lack of visibility

Pros

High visibility

Lower rent than malls Cons

Parking limitation Lack of modern facilities

Food is the primary industry

found in nontraditional sites. Pros Inexpensive Flexibility Cons

Regulations can restrict use of space

Limited growth

RETAIL SITE LOCATION

The best areas for locating stores are those that generate the highest long-term profits for a retailer

Site Characteristics:

 Traffic Flow and Accessibility

 Parking

 Visibility

 Adjacent Tenants

 Restrictions and Costs

Factors:

 Strategic fit with Target Market

 Economic Conditions

 Competition

 Cost of Operating Stores

ESTIMATING POTENTIAL SALES FOR A STORE SITE

Three approaches for using information about the trade area to estimate the potential sales for a store at the location are:

 The Huff gravity model

 Regression analysis

 The analog method

The regression analysis approach is based on the assumption that factors that affect the sales of existing stores in a chain will have the same impact on stores located at new sites being considered.

The Huff Model is an established theory in spatial analysis. It is based on the principle that the probability of a given consumer visiting and purchasing at a given site is a function of the distance to that site, its attractiveness, and the distance and attractiveness of competing sites.

When using the analog approach, the retailer simply describes the site and trade area characteristics for its most successful stores and attempts to find a site with similar characteristics.

HUFF GRAVITY MODEL

The model specifies two factors that assess the probability:

 The attractiveness of the store’s location

 The time it takes a consumer to travel to the store

The formula indicates that the larger the size (S j ) of the store compared with competing stores’ sizes, the greater the probability that a customer will shop at the location.

A larger size is generally more attractive in consumers’ eyes because it means more merchandise assortment and variety.

The greater the travel time or distance from the consumer, compared with that of competing locations, the lower the probability that the consumer will shop at the location.

The exponent l reflects the relative effect of travel time versus store size.

 When l is equal to 1, store size and travel time have an equal but opposite effect on the probability of a consumer’s shopping at a store location.

 When l is greater than 1, travel time has a greater effect

 When l is less than 1, store size has a greater effect.

y

This simple application assumes that the market size for drugstores in the community will remain the same at $8 million

with the addition of the new store.

HUFF GRAVITY MODEL - Exercise

MODULE – II

10/30

MODULE – II

10/30

 IT in Retail

 Strategic Advantage through efficient SCM

 Strategic Advantage through efficient EDI, RFID, VMI,CPFR

 Retail Logistics Strategic Advantage through supply chain, Logistics, Reverse Logistics

 Retail Finance: Objectives and goals, Performance Objectives and measures

 HRM: Issues in retail HRM

 Service and CRM: Customer Service approaches, CRM Process

 Retail Research

 Franchising in Retail

 Franchising in Retail- Case Study

STRATEGIC ADVANTAGE

Information Technology Supply Chain Management

INFORMATION TECHNOLOGY

in RETAIL

Information systems are the tools, hardware and software that help retailers achieve success in a dynamic environment. They serve several functions including planning, inventory control, managing budgets and sales goals, and also with point of sale transactions and logistics.

EDI – ELECTRONIC DATA INTERCHANGE

Method that retailers use to send electronic communications from business to business.

RFID – RADIO FREQUENCY IDENTIFICATION DEVICE

Is a technology that allows an object or person to be identified at a distance by means of radio waves

For example, when a retailer has an purchase order, this information is sent to the vendor's EDI solution automatically and a shipping label is generated for each carton or pallet shipped. The EDI system sends the vendor's shipment details and invoice to the retailer. Minimal human interaction is required for these transactions, which speeds up the entire process. Other benefits of retail EDI include improving inventory management and increasing

order accuracy. Benefits:

Authentication Authorization Integrity

Benefits:

Provide an accurate, real-time measure of item inventory levels Retailers can dramatically reduce inventory levels and stockouts The technology can track products throughout the supply chain

 The devices can hold more data and update the data stored.

 The data on the devices can be acquired without a visual line of sight.

 It eliminates the manual point-and-read operations.

VMI – VENDOR MANAGEMENT INVENTORY CPFR – COLLABRATIVE PLANNING, FORECASTING, & REPLENISHMENT

Sharing of forecasts and related business information &

collaborative planning between retailers and vendors to improve supply chain efficiency and product replenishment.

The Vendor Managed Inventory enables a vendor to manage lead time for supplying goods in retail stores.

Which, in turn, can help storekeepers to reduce their inventory level and stock out situations.

Benefits:

 Inventory Transparency

 Better space utilization

 Cost cutting with space management

Benefits:

 Improved efficiency

 Push system to Pull system

 Ease in New product development

 Better coordination and planning

 Better strategies

SCM – SUPPLY CHAIN MANAGEMENT in RETAIL

Supply chain management is a set of activities and techniques firms employ to efficiently & effectively manage the flow of merchandise from the vendors to the retailer’s customers.

 Fewer stockouts – One in every six consumers shopping in Grocery and household goods retailers who experience a stockout situation does not purchase a substitute product.

 Tailored Assortments – based on climate, preferences etc

 Net sales increase – less stockouts, tailored assortments

 Net profit increase – low operating expenses, low transport expenses, minimum handing

Higher Return on Assets Improved Product Availability

Information Flow

Purchase data collected at the point of sale goes into a database known as a data warehouse . The information stored in the data warehouse is accessible on various dimensions and levels

Dataware House

 Customer

 Stores

 Buyer / Planner

 Distribution center

 Vendor

RETAIL LOGISTICS

Logistics is the aspect of supply chain management that refers to “the planning, implementation, and control of the efficient flow and storage of goods, services, and related information from the point of origin to the point of consumption to meet customers’ needs.

Physical Flow of Merchandise - Logistics -

 Merchandise flows from vendor to DC

 Merchandise goes from DC to stores

 Merchandise can go from vendor directly to stores or even the customer

DISTRIBUTION CENTER

Inbound Logistics

Reverse Logistics

Outbound Logistics

A reverse logistics system processes merchandise that is returned because it is damaged, has been recalled, is no longer sold to customers because its selling season has ended, the merchandise was incorrectly sent to a store or directly to a customer, the product has been discontinued, or there is excessive inventory in stores or DCs.

Inbound logistics refers to the transportation, the storage and the receiving of goods into a warehouse or distribution center.

 Receiving and Checking

 Storing and Cross-Docking

 Getting Merchandise Floor-Ready

 Preparing to Ship Merchandise to a Store

Outbound logistics is the shipping out of finished products to customers from a warehouse or distribution center. It consists of the order fulfillment process.

 Picking

 Packing

 Shipping

 Delivery of a package

RETAIL FINANCE

STRATEGIC PROFIT MODEL is a method for summarizing the factors that affect a firm’s financial performance, as measured by return on assets. It measures the profits that a firm makes relative to the assets it possesses

Retailer 1 Profit: 1 Million Asset: 25 Millions

Retailer 2 Profit: 1 Million Asset: 10 Millions

Financial Objectives:

 Return on assets

 Upward profit margin

PROFIT MANAGEMENT PATH

The information used to examine the profit margin management path comes from the retailer’s income statement, also called the statement of operations.

The income statement summarizes a firm’s financial performance over a period of time.

Components in the Profit Management Path:

 Net Sales

 Cost of Goods Sold (COGS)

 Gross Margin

 Operating Profit Margin

Gross sales = total sales before returns, discounts, or allowances Net sales = gross sales – (returns + discounts + allowances) Gross margin = Net sales - Cost of goods sold

Operating profit margin = gross margin – (operating expenses + extraordinary (recurring) operating expenses)

Gross margin/ Net sales = Gross margin percent Operating expenses /Net sales = Operating expenses % Gross margin - Operating expenses/ Net sales = Operating income %

Macy’s operating profit margin percentage is more than three times greater than Costco’s. Thus, this component of the strategic profit model suggests that Macy’s is outperforming Costco. But the following discussion of the asset management path tells a different story.

ASSET MANAGEMENT PATH

The information used to analyze a retailer’s asset management path primarily comes from the retailer’s balance sheet. While the income statement summarizes financial performance over a period of time.

Components in the Asset Management Path:

 Net Sales

 Assets - Assets are economic resources

 Current Asset = Cash + Accounts receivable + Merchandise inventory + Other current assets

 Fixed Asset = buildings , distribution centers, fixtures and equipment

COGS /Average inventory at cost = Inventory turnover Net sales /Total assets = Asset turnover

Analyzing the Performance of the Asset Management Path

Costco’s asset turnover is more than two times greater than that of Macy’s. The difference in their asset turnovers is largely due to Costco’s higher inventory turnover. Typically, retailers like Costco that sell a limited assortment of commodity-type products have a higher inventory turnover than fashion apparel sold by retailers like Macy’s. The sales of commodity-type products are easier to forecast accurately and thus makes it easier to control inventory levels.

ANALYSIS OF FINANCIAL RISK

Cash Flow Analysis

A cash flow analysis is a method for examining how a business generates and spends money over a specific period of time.

The amount of cash coming into the business, and when it comes into the business, is crucial because the availability of cash allows retailers to continue operating in the longer term.

For example, a retailer might borrow money from a bank. The loan appears as a liability on its balance sheet. The interest on the loan, a relatively small percentage of the loan value, appears as an interest expense on the retailer’s income statement and reduces the retailer’s profits slightly. However, when the retailer is required to pay back the loan to the bank, the retailer must have a significant amount of cash available to pay for the entire

amount of the loan.

The debt-to-equity ratio is the retailer’s short- and long-term debt divided by the value of the owners’ or stockholders’ equity in the firm.

Debt-to-Equity Ratio

The debt-to-equity ratio measures how much money a company can safely borrow over long periods of time. A high ratio means the retailer faces greater risk and more potential for bankruptcy.

Generally, when retailers that have a debt-to-equity ratio of more than 40 to 50 percent, they face significant risk of financial problems.

It evaluates the retailer’s ability to pay its short- term debt obligations, such as accounts payable (payments to suppliers) and short-term loans payable to a bank, with short-term assets such as cash, accounts receivable, and inventory.

Current Ratio

The current ratio is probably the best-known and most often used measure of financial strength. The current ratio is short-term assets divided by short-term liabilities.

The quick ratio, sometimes called the acid-test ratio, is short-term assets less inventory divided by short- term liabilities. It is a more stringent test of financial strength than the current ratio because it removes inventory from the short- term assets.

Inventory is the short-term asset that takes the longest to convert into cash. Thus, if a retailer needs cash to pay its short-term liabilities, it cannot rely on inventory to provide an immediate source for cash.

Quick Ratio

SETTING AND MEASURING PERFORMANCE OBJECTIVES

Setting performance objectives is a necessary component of any firm’s strategic management process. Performance objectives should include:

 A numerical index of the performance desired against which progress may be measured.

 A time frame within which the objective is to be achieved.

 The resources needed to achieve the objective.

Measures:

 Input measures

 Output measures

 Productivity measures

Top Down Approach Bottom Up Approach

RETAIL HRM

Human resource management is the practice of recruiting, hiring, deploying and managing an organization's employees.

Objectives

Three measures that retailers frequently use to assess HRM performance are

Employee Productivity Employee Productivity

Turnover Turnover

Engagement

Engagement Engagement is an emotional commitment by an employee to the organization and its goals.

Employee productivity = Net sales/ Number of full-time equivalent employees (FTEs) Employee turnover = No. of employees voluntarily leaving their job during the year/

Number of positions

RETAIL HRM CHALLENGES

Balancing the Human Resource Triad - HR professionals, store managers, and employees

Expense Control

Part-Time Employees

Utilizing Diverse Employee Groups

International Human Resource

Issues

Managing Diversity Employment Branding

Developing Talent: Selection and Training

Motivating Talent: Aligning Goals

Keeping/Retaining Talent

Empowering Employees

Engaging Employees

Developing Policies

HR Responsibility Legal Issues in HRM

Equal Employment Opportunity Compensation Labor Relations

Employee Safety and Health

Sexual Harassment

Employee Privacy

RETAIL HRM

ORGANIZATION STRUCTURE FOR A RETAIL FIRM

The organization structure identifies the activities to be performed by specific employees and determines the lines of authority and responsibility in the firm.

Strategic Management

Administrative Management

Merchandise Management

Store Management

RETAIL ORGANIZATION

 Organization structure for a small retailer

 Organization structure of department store chain

RETAIL CRM

Customer relationship management (CRM) is a business philosophy and set of strategies, programs, and systems that focuses on identifying and building relationships with a retailer’s valued customers.

TRANSACTIONAL RELATIONSHIP

Focus Single Sale Customer Retention

Orientation Product Feature Customer Values

Shelf Life Short Time Long Time

Customer Service Little Emphasis High Emphasis

Customer Contact Limited High

Quality Concern Production Every Department

Function Involved Marketing Cross Functional

Customer External to Organization Internal to Organization

Collecting customer data.

Analyzing customer data and identifying target customers.

Developing CRM through frequent- shopper programs.

Implementing CRM programs.

CRM Process

1. Collecting customer data

Payment details

Transactions Customer contacts Customer preferences Descriptive information

Identifying the Best Customers - customer lifetime value (CLV) Retail Analytics

2. Analyzing customer data &

identifying target customers

 Market basket analysis

 Targeting promotions

 Assortment planning

4.

Implementi ng CRM programs

Lead Segment

Platinum Segment Gold Segment Iron Segment

3. Developing CRM through

frequent- shopper programs

Create tiered rewards

Treat frequent shoppers as VIPs

Incorporate charitable activities Offer choices

Reward all transactions

R: Reliability is the firm’s ability to perform the promise service accurately and dependably

A: Assurance is knowledge and courtesy of employees and their ability to inspire trust and confidence

T: Tangibles refers to physical facilities, equipment and appearance of personnel

E: Empathy is caring and individualized attention paid to customers

R: Responsiveness is the firm’s willingness to help customer and provide prompt service

SERVQUAL is a multi-dimensional research instrument designed to capture consumer expectations and perceptions of a service along five dimensions that are believed to represent service quality.

It was first published in 1985 by a team of academic researchers, A. Parasuraman, Valarie Zeithaml and Leonard L. Berry to measure quality in the service sector.

RETAIL RESEARCH

Gathering and analyzing statistical data collected for

the research.

Quantitative Studies that attempt to delve into

the consumer’s unconscious hidden motivations.

Qualitative

 Interview

 Observation

 Work-shop

 Scenario

 Prototype Qualitative Research

 Survey

 Questionnaire

 Special purpose record

 Activity sampling

 Document analysis Quantitative Research

An examination of resources and materials that had already been collected and can be of value to the research at hand

Secondary Data

Primary data is a type of data that is collected by researchers directly from main sources through interviews, surveys, experiments, etc.

Primary Data

Survey

Limited information from many respondent

Structure: Heading Classification Section / Data

Questionnaire

Limited information from many respondent

Structure:

Heading Classification Se ction / Data

Special Purpose Record

Data gathering forms decided by the analyst, not the company records.

By observation or by users

Activity Sampling

How people spend time activity wise

Process: Identify activities / Frequency &

timing / Record the result / Analyze By observation

Document Analysis

How / Who / Validated / When / Details / Stored / Timeframe

Interview

Detailed vs Time consuming

Who / Why / What / When / Where

STOP Model – Strategic / Tactical / Operational Summarize at the end &

Follow-up

Observation

In Depth vs Biased By- Formal observation / Shadowing / Protocol analysis / Ethnographic Studies (intangible aspect as culture, formal n informal power)

Work-shop

Understanding & Speed vs Time

Preparation – Objectives – stakeholders –

Structure – Technique – Venue

Brain Storming / Round Robin / Brain Writing / Sticky Notes / Stepwise / Breakout

Scenario

Clear vs Complex &

unpredictable

Process – Identify task / Identify steps / Define control condition / Identify alternatives paths

Prototyping

Clears uncertainty vs Endless iteration Simulation

FRANCHIESE

Product/Trade Name Franchising

- For example Arrow, Scullers, Tommy Hilfiger, etc

Product/Trade Name Franchising

- For example Arrow, Scullers, Tommy Hilfiger, etc

Business Format Franchising

– For example McDonalds, Bata, KFC, etc.

Business Format Franchising

– For example McDonalds, Bata, KFC, etc.

TYPES OF FRANCHISE AGREEMENTS

Master Franchising

01

03

05

02

04

Direct Franchising Format Subsidiary Franchising

Regional/Area Franchising or Multiple Franchising

Unit Franchising

KEY SUCCESS FACTORS IN FRANCHISING

 Implementation of a Pre-tested Model

 Transfer of Knowledge and Relevant Inputs by the Franchiser

 The Franchisee is the Franchiser’s Face to Customers

 Creating a Win-Win Situation by Reducing Risks

 An Attitude of Ownership and Shared Responsibilities

 Periodic Performance Review

Thank

You