RETAIL MANAGEMENT

https://www.youtube.com/watch?v=HlGzEV0Gmeg
 COURSE LEARNING OBJECTIVE
 To critically analyze the Retail process, the environment within which it operates and the functions that are
performed
 To develop knowledge and analytical skills for useful for Retail decision making
 To provide tools to make effective strategies in the areas of Supply Chain, Operations and Marketing Strategies.
 Learn different approaches to Category Management for different variety of Products.
 To evaluate the performance of Store EBITDA modeling and identify opportunities for Improvement

ASSESSMENT SCHEME AND WEIGHTAGE

Duration
Evaluation Weightage (in Open / CLO Tested
(%) Closed Book
Minutes)
End Term Exam 40 120 Closed book CLO 1

Unit of Weightag
Sl No. Evaluation Item Time CLO
Evaluation e (%)
1 Project Presentation Group 20 After session 25 - 29 CLO 2
2 Quizzes Individual 30 After Session 12 & 21 CLO 3
3 Case Analysis Individual 10 After Session 20 −−−−
INTRODUCTION TO ORGANIZED RETAILING
WHAT IS RETAILING:

Retailing is the set of business activities that adds

value to the products and services sold to
consumers for their personal or family use –
Michael Levy.

- 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.
 TRENDS IN RETAIL INDUSTRY 2020
Some Interesting facts about Retail Industry in India

• The retail market is rapidly growing at 12% per year

• 6.0% of the population is a target market for big retailers seeking to
enter in Indian retail industry
• Small stores and street stands owned 90% to 93% of the retail market
• Food & Grocery holds 60% of the retail market in India
• Consumer electronics is at 10% & Apparel is at 8% and it is predicted
to grow by 11% by 2021.
• Retail e-commerce is boosting at a steady pace of 20% year-over-year
• E-commerce sales are predicted to reach $220.billion with 530 million
shoppers by 2025.
By Mariya James|16th Jul 2020
TRENDS IN RETAIL INDUSTRY

Ravichandra M: August 25, 2020

TRENDS IN RETAIL INDUSTRY

India Brand Equity Foundation OCT 2020 – IBEF

Deloitte retail report

BCG on retail (Boston Consulting Group)

Indian retail report

Retailing in India - Wikipedia

 RETAILER ROLE IN A SUPPLY CHAIN
Example of a supply chain:

Manufacturer Wholesaler Retailer Consumer

Retailers Create Value:

- Providing Assortments
- Breaking bulk
- Holding Inventory
- Providing services
- Increasing value of products and services
 RETATIL MANAGEMENT
Retailers role in sorting process

Manufacturer
Brand A Brand A
Wholesaler customer
Manufacturer s
Brand B
Brand B
Retailer
Manufacturer customer
Brand C s
Wholesaler Brand C
Manufacturer customer
Brand D s
Brand D
customer
s
 Retailer function in Distribution
VARIETY:
Number of merchandise categories a retailer offers
Ex: Cookies – Butter / Cashew / Pistha etc..

ASSORTMENT:
Number of different items offered in a merchandise category
Ex: 50gm, 100 gm etc

So, Variety – Breadth of merchandise

Assortment – depth of merchandise
Different item of merchandise - SKU
 Retailer function in Distribution
1. Retailers often act as the contact between manufacturers, wholesalers, & customers
2. Retailers collect an assortment (variety) from various sources, buy in large quantity, & sell in small
amount. This is sorting process.
3. Retailers communicate with customers, wholesalers & manufacturers.
4. Shoppers learn about the availability & characteristics of goods & services, store hours, sales etc.,
from retailers advt., sales people & displays.
5. Manufacturers & wholesalers are informed by their retailers with regard to sales forecast, delivery
delays, customer complaints, defective items, inventory turnover and so on..
6. Many goods & services have been modified due to retailer feedback.
7. For small suppliers, retailers provide assistance by transporting, sorting, marketing, advertising, &
pre-paying for the products.
8. Retailers also complete transactions with customers i.e., having convenient locations, filling order
promptly & accurately, & processing credit purchase.
9. Some retailers also provide customer services such as gifts wrapping, delivery, & installation.
10. 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.
 Retailer function 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.
 Retailer Formats / Types of Retailers
1. Food retailers
- Walmart, Carrefour, Tesco, Reliance retailer, Big Bazaar, Hyper City, Spencer's, More
2. Supermarkets
3. Supercenters
4. Hypermarkets
5. Warehouse clubs
6. Department stores
7. Full-line Discount stores
8. Specialty stores
9. Drugstores
10. Category specialists
11. Extreme value retailers
12. Off-Price retailers
13. Services Retailing
 CLASSIFICATION OF RETAIL

Store-based retail Nonstore-based

Ownership strategy mix retail strategy mix
& nontraditional
retailing

• Food retailers
• Independent • Direct marketing
• Super market
• Chain • Direct selling
• Convenience store
• Franchise • Vending machine
• Supermarket
• Leased department • World wide web (WWW)
• Hypermarket
• Consumer cooperative
• Warehouse store
• Specialty store
• Variety store
• Department store
• Factory outlet
• Membership club
 CLASSIFICATION OF RETAIL - STRATEGY

Merchandise Category Size Price

Food Retailers General Merchandise • Discount format

Retailers • Superstore • Every-day-low-price
• Shopping Mall format
• Shopping Center or Plaza • Category killer format
Supermarkets Departmental Stores • Hypermarket • Factory outlet format
Supercenters Discount Stores • Warehouse format
Warehouse clubs Specialty Stores • Single-Price
Convenience Stores Category Specialists denomination format
Home Improvement Centers
Drugstores
Off-Price Stores
Extreme Value retailers
 SERVICE RETAILING
Difference between Service and Merchandise Retailers:

1. Intangibility
2. Simultaneous production and consumption
3. Perishability
4. Inconsistency of the offering to customers
What are you finding useful?
Merchandise Management
 RETAILING STRATEGY

Location

HR
Systems
Merchandise

Customer
Relationship
What is Merchandising?
 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
Warehouse & Logistics
Details of Purchase
Order 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:
6. The creation of the Merchandise Budget (5 parts)
7. The Assortment Plan

Merchandise
Budget

Stock Planned Planned Gross

Sales Plan
support plan reduction Purchase Margins

ISB&M Retail Management

 Merchandise Planning Process

The Merchandise hierarchy

Merchandise Merchandise Merchandise Style Price SKU (Stock

Company Department
Category Sub point Keeping Unit)
Classification Category

ISB&M Retail Management

The Buying Organization
 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

 Merchandise Forecasting
Forecasting Staple Merchandise
- Historical data
Forecasting Fashion Merchandise
- Previous sales data
- Market research
- Fashion and trend services
- Vendors
Forecasting for service retailers
 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

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
 Key KPIs in Retail
 Gross Margin = Total Sales - Cost of Goods: This is a formula to determine the difference
between an item’s cost and the price it sells for.
 Margin Percentage = (Retail Price - Cost) ÷ Retail Price: This formula determines the amount of
gross profit a business earns when it sells an item
 Contribution Margin = Total Sales - Variable Costs: This represents the difference between total
sales revenue and total variable costs. In retail, the contribution margin is the gross margin. This
formula helps you decide which products to add or remove and at what price.
 Average Inventory (Month) = (Beginning of Month Inventory + End of Month Inventory) ÷
2: This calculation involves the price of merchandise minus discounts, plus freight and taxes. Find
the average by adding the beginning cost inventory for each month in the period to the ending cost
inventory of the last month in the period. To calculate seasonal inventory, divide by 7. To calculate
annual inventory, divide by 13.
 Break-Even Analysis ($) = Fixed Costs ÷ Gross Margin Percentage: This calculation represents
the junction where sales equal expenses. There is no profit or loss for your retail business.
 Gross Margin Return on Investment (GMROI) = Gross Margin $ ÷ Average Inventory Cost: This
formula helps buyers evaluate whether they’ve earned a sufficient gross margin on the products that
customers have purchased, compared to the inventory investment they require to generate the gross
margin.
Key KPIs in Retail (Contd.)
 Cost of Goods Sold (COGS) = Beginning Inventory + Purchases - Ending Inventory: This is the
price paid for a product, plus additional costs, such as shipping and handling, to move the
merchandise into inventory and have ready to sell.
 Inventory Turnover (Stock Turn) = Net Sales ÷ Average Retail Stock: This calculates how many
times a business sells and replaces inventory in a given period of time.
 Net Sales = Gross Sales - Returns and Allowances: This means revenue minus any returns and
allowances. Net income is the income that remains after subtracting taxes, interest expenses, and
depreciation.
 Open to Buy (OTB) = Planned Sales + Planned Markdowns + Planned End-of- Month Inventory
- Planned Beginning-of-Month Inventory: This is the difference between the inventory needed and
the inventory available. It includes inventory on hand, product in transit, and outstanding orders.
 Sales per Square Foot = Total Net Sales ÷ Square Feet of Selling Space: Retail managers use
sales-per-square-foot data for planning inventory purchases. It is a rough calculation for return on
investment, and managers use it to determine a retail location’s rent. It does not include storage or
any areas where you do not display products.
 Sell-Through Rate = Units Sold ÷ Units Received: This is a formula to compare the amount of
inventory a retailer receives to inventory sold.
 Stock-to-Sales Ratio = Beginning-of-Month Stock ÷ Sales for the Month: This formula calculates
the quantitative relationship between the beginning of the month inventory and the amount sold that
month
 Merchandise Planning Process
Illustration of GMROI
  Breakfast Cereals Beverages
Sales 200000 100000
Gross margin 40000 15000
  20% 15%
average Inventory 20000 5000
     
GMROI 2 3

KEY TAKEAWAYS
Inventory Turnover = Annual Sales / Average inventory  Inventory turnover shows how many times a company
has sold and replaced inventory during a given period.
Breakfast Cereals: 10
Beverage: 20  This helps businesses make better decisions on
pricing, manufacturing, marketing, and purchasing new
inventory.
https://www.youtube.com/watch?v=HlGzEV0Gmeg  A low turnover implies weak sales and possibly excess
inventory, while a high ratio implies either strong sales
or insufficient inventory
ISB&M Retail Management
• Gross Margin Return on Inventory -GMROI-.mp4