Retail management

Retail management
Retail Industry, one of the fastest changing and vibrant industries in the world, has contributed to the economic
growth of many countries. The term 'retail' is derived from the French word retailer which means 'to cut a piece off or
to break bulk'. In simple terms, it implies a first-hand transaction with the customer.

Retailing can be defined as the buying and selling of goods and services. It can also be defined as the timely delivery of
goods and services demanded by consumers at prices that are competitive and affordable.

Retailing involves a direct interface with the customer and the coordination of business activities from end to end-
right from the concept or design stage of a product or offering, to its delivery and post-delivery service to the
customer. The industry has contributed to the economic growth of many countries and is undoubtedly one of the
fastest changing and dynamic industries in the world today.

The various processes which help the customers to procure the desired merchandise from the
retail stores for their end use refer to retail management. Retail management includes all the
steps required to bring the customers into the store and fulfill their buying needs.

Retail management saves time and ensures the customers easily locate their desired merchandise
and return home satisfied.

Retailing is a convenient, convincing and comfortable method of selling goods and services. Retailing, though as old
as business, trade and commerce has now taken new forms and shapes. This is because of new management
techniques, marketing techniques and also due to ever changing and dynamic consumer psychology.

Retail marketing is undergoing radical restructuring. This is because of increase in gross domestic product, increase
in per capita income, increase in purchasing power and also the ever changing tastes and preferences of the people.
The entry of plastic money, ATMs, credit cards and debit cards and all other consumer finances, the taste for the
branded goods also added for the evolution of retail marketing.

Retail marketing is not just buying and selling but also rendering all other personalized consumer services. With the
RM picking up it has given a new look for various fast moving capital goods (FMCG) goods. This not only increased
the demand for various goods in the market but also made retail marketing the second largest employment area, the
first being agriculture.

Importance

1. Retailing shapes the lifestyle of the people: Retailing is an integral part of the modern
society. It shapes the way of life. In the past, trading of goods was a part of a traditional society.
But in recent times, buying and selling of goods have become a brand dominated activity.

2. Retailing contributes to the economy: The importance of retail sector is reflected in its
contribution to the growth of an economy. Its contribution is much more visible in the modern
era than it was in the past. As the retail sector is linked to the significant portion of the economy,
its contribution to GDP is substantial. Retailing is the driving force of the economy. It aims at
promoting its sustained growth.

3. Retailing dominates the supply chain: Goods and service flow from manufacturers or
service providers to consumers. Where consumers are large in number and are widely
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distributed, the role of retailers becomes crucial. Retailers serve as a connecting link between the
wholesalers and consumers. Due to its dominant position in the supply chain, the retail structure
has steadily developed over the years.

Now-a-days, retailing is characterized by large multiple chains rather than small scale
independent retailers. The formalization and growing importance of retailing has made it
powerful in the distribution channel. Now, retailers are compared with manufacturers which
indicates the growing dominance of retailers within the supply chain.

Besides, the annual turnovers achieved by the retailers can be compared with the largest
companies in other service industries.

4. Retailing is interdisciplinary: The pace of growth within retailing is accelerating. Retailing

has emerged from a number of interrelated disciplines such as geography, economics,
management and marketing.

5. Retailing is acknowledged as a subject area in its own right: Potter has described the
academic study of retailing as the Cinderella of the social sciences. Retailing is an accepted
area of academic debate, such as marketing and management, developed fully as an area of
study. University research centres focus on retailing and professional appointments in retailing
have been made. Academic journals focusing on retailing are being published worldwide.

6. Retailers enjoy status as major employers: In todays society, retailers are the major
employers. It is estimated in developed countries that retail industry employs one in nine of the
workforce. Retailers employ a significant proportion of the overall workforce.

More than two thirds of the retail force are women. Also, more than half of retailing employees
are employed on a part-time basis. This, highly flexible workforce is capable of adapting to the
differing labor demands In the past, retailing employees got lower pay and had longer working
hours. But now, the retail sector is becoming more organized with better pay scale.

7. Retailers are gatekeepers within the channel of distribution: Retailers are becoming
increasingly important in their role as gatekeepers within the channel of distribution. In the past,
suppliers were dominant. Retailers supplied the merchandise that was on offer and consumers
selected from them. As retailers have become significantly powerful, they are able to influence
suppliers and stock only the brands they wish to sell. So, consumers are able to buy only what is
stocked and offered to them by the retailers. Retailers are thus considered as shaping consumer
demand.

8. Retailing has scope for expanding internationally: Retailing offers scope for shifting retail
operations outside the home market. Retailers who focus on luxury goods markets are expanding
their business internationally. Retailers are moving into more geographically and culturally
distant markets.
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Types of Retail outlets: STORE RETAIL FORMATS:

Mom and Pop Store (also called Kirana Store in India)

Mom and Pop stores are the small stores run by individuals in the nearby locality to cater to daily
needs of the consumers staying in the vicinity. They offer selected items and are not at all
organized. The size of the store would not be very big and depends on the land available to the
owner. They wouldnt offer high-end products.

These are family owned stores which provide small quantity of merchandise or goods to the customers.
They are individually run and target the smaller sections of the society. These stores provide high
standard services. They provide home delivery and credit facility without any interest to its customers.

Merchandise:
Eggs, Bread, Stationery, Toys, Cigarettes, Cereals, Pulses, Medicines

Speciality Stores

As the name suggests, Speciality store would specialize in a particular product and would not sell
anything else apart from the specific range.Speciality stores sell only selective items of one
particular brand to the consumers and primarily focus on high customer satisfaction.

Example -You will find only Reebok merchandise at Reebok store and nothing else, thus making
it a speciality store. You can never find Adidas shoes at a Reebok outlet.

Convenience Store

Convenience is offered in a lot of ways to the customers through easily accessible store locations
and small store size that allows the customers to do quick shopping and fast checkout. The
product selection offered by these retailers is very limited and the price of the products can be
high.

Supermarkets

Supermarket is another popular retail format in India. A supermarket is a grocery store which
deals in food and household goods. They offer a fairly huge range of products and self service.
People usually go to the supermarkets to buy goods in large quantities so that they can stock
those goods for later consumption. They provide products for reasonable prices and of medium
to high quality.

Department Store
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Department stores are classified as general merchandisers. Some carry a more selective product
line. For instance, while Sears carries a wide range of products from hardware to cosmetics,
Nordstrom focuses their products on clothing and personal care products.

A department store is a set-up which offers wide range of products to the end-users under one
roof. In a department store, the consumers can get almost all the products they aspire to shop at
one place only. Department stores provide a wide range of options to the consumers and thus
fulfill all their shopping needs.

Category Killers

The specialty stores are called Category Killers. These stores are specialized in their fields and
they offer only one category of products. The most popular examples of category killers include
wall-mart and electronic stores like Best Buy and sports accessories stores like Sports Authority.

Discount Stores

Discount stores offer product at lower price than market price. The main reason behind this low
price is the additional stock left over towards the end of any season. Discount stores sell their
goods at a reduced rate with an aim of drawing bargain shoppers.

Discount stores also offer a huge range of products to the end-users but at a discounted rate. The
discount stores generally offer a limited range and the quality in certain cases might be a little
inferior as compared to the department stores.

Wal-Mart currently operates more than 1300 discount stores in United States. In India Vishal
Mega Mart comes under discount store.

Mass Discounters

These are general and specialty store that provide huge discounts on their merchandise to finish
block stock and its small difference between discount stores and mass discounters is that it
provide lesser services to customers.

Warehouse Stores

These are the type of mass discounters that provide comparatively less price than the traditional
mass discounters. Moreover, these stores often requires the buyers to make the purchases in
quantities that are greater than what can be purchased at mass discount stores. These retail outlets
provide few services and product selection can be limited.

The retail design and layout is as the name suggests that is warehouse style with consumers often
selecting products off the ground from the shipping package. Some forms of warehouse stores
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called warehouse clubs require customers to purchase memberships in order to gain access to the
outlet.

Street vendors

The Street Vendors or hawkers who sell products on the streets are quite popular in India. They
try to attract the customers' attention through shouting out about their product mix. Street
vendors are found in almost every city in India and the business capital of Mumbai has a number
of shopping areas which are comprised mainly of street vendors. These hawkers not only sell just
clothes and accessories but also local food.

Kiosks

Kiosks are box-like shops which sell small and cheap items like cigarettes, toffees, newspapers
and magazines, water packets, tea and coffee. These are most commonly found on every street in
a city and target primarily to the local residents.

Hypermarkets

Hypermarkets in India are a combination of supermarket and department store. These are large
retailers that provide all kinds of groceries and general goods. Big Bazaar and Reliance Fresh are
hypermarkets that attract enormous crowds.

Malls

Malls are the largest retail format in India, These are the largest retail format in India. Malls
provide everything that a person wants to buy under one roof. From clothes and accessories to
food or cinemas, malls provide all of this, and more. Examples include Spencers Plaza in
Chennai, India, Alpha one in Amritsar and Viva collage in Jalandhar .

#Choosing a Retail Store Location

Where you choose to locate your retail business will have a major impact on everything your
shop does. The difference between selecting the wrong location and the right site could be the
difference between business failure and success.

Before choosing a retail store location, define how you see your business, both now and in the
future.

What do your customers look like?

Can you visualize your building?
Do you know what you want to sell and what you want your business to be known for?
Have you determined how much retail space, storage area, or the size of the office you
need?
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Without the answers to these basic questions, it will be hard to find the perfect location for
generating the maximum amount of profit for your retail store.

Type of Goods

Examine what kind of products you sell, as some goods will require certain types of locations.
Would your store be considered a convenience store, a specialty shop or a shopping store?

Convenience goods require easy access, allowing the customer to quickly make a purchase. A
mall would not be a good location for convenience goods. This product type is lower priced and
purchased by a wide range of customers.

Specialty goods are more unique than most products and customers generally won't mind
traveling out of the way to purchase this type of product. This type of store may also do well near
other shopping stores.

A shopping store usually sells items at a higher price which are bought infrequently by the
customer. Furniture, cars and upscale clothing are examples of goods found at a shopping store.
Because the prices of theses items are higher, this type of customer will want to compare prices
before making a purchase.

Therefore, retailers will do well to locate their store near like stores.

Population and Your Customer

If you are choosing a city or state to locate your retail store, research the area thoroughly before
making a final decision. Read local papers and speak to other small businesses in the area.
Obtain location demographics from the local library, chamber of commerce or the Census
Bureau. Any of these sources should have information on the area's population, income, and age.
You know who your customers are, so make sure you find a location where your customers live,
work and shop.

Accessibility, Visibility, and Traffic

Don't confuse a lot of traffic for a lot of customers. Retailers want to be located where there are
many shoppers but only if that shopper meets the definition of their target market. Small retail
stores may benefit from the traffic of nearby larger stores.

How many people walk or drive past the location.

Is the area served by public transportation?
Can customers and delivery trucks easily get in and out of the parking lot?
Is there adequate parking?

Depending on the type of business, it would be wise to have somewhere between 5 to 8 parking
spaces per 1,000 square feet of retail space.
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When considering visibility, look at the location from the customer's viewpoint. Can the store be
seen from the main flow of traffic? Will your sign be easily seen? In many cases, the better
visibility your retail store has, the less advertising needed. A specialty retail store located six
miles out of town in a free-standing building will need more marketing than a shopping store
located in a mall.

Signage, Zoning, and Planning

Before signing a lease, be sure you understand all the rules, policies and procedures related to
your retail store location. Contact the local city hall and zoning commission for information on
regulations regarding signage.

Ask about any restrictions that may affect your retail operation and any future planning that
could change traffic, such as highway construction.

Competition and Neighbors

Other area businesses in your prospective location can actually help or hurt your retail shop.
Determine if the types of businesses nearby are compatible you're your store. For example, a
high-end fashion boutique may not be successful next door to a discount variety store. Place it
next to a nail or hair salon and it may do much more business.

Location Costs

Besides the base rent, consider all costs involved when choosing a retail store location.

Who pays for lawn care, building maintenance, utilities, and security?
Who pays for the upkeep and repair of the heating/air units?
If the location is remote, how much additional marketing will it take for customers to find
you?
How much is the average utility bill?
Will you need to make any repairs, do any painting or remodeling to have the location fit
your needs?
Will the retailer be responsible for property taxes?

The location you can afford now and what you can afford in the future should vary. It is difficult
to create sales projects on a new business, but one way to get help in determining how much rent
you can pay is to find out what sales similar retail businesses are making and how much rent
they're paying.

Personal Factors

If you plan to work in your store, think about your personality, the distance from the shop to
home and other personal considerations. If you spend much of your time traveling to and from
work, the commute may overshadow the exhilaration of being your own boss. Also, many
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restrictions placed on a tenant by a landlord, management company or community can hamper a

retailer's independence.

Choosing a Retail Store Location

1. Connectivity and ease of traffic flow:

These are the two important issues that a retailer must consider while selecting a site. There may
be good merchandising, good customer service, and good interiors but if the man who has to visit
cannot reach the store easily, will not be a good preposition. The store sites you have short listed
should be well connected through roads, trains and means of public transport. Like Karol Bagh
in Delhi is well connected with roads and rail traffic with the neighboring cities.

2. Parking facility:

Parking today has become the most uncontrollable civic problem for not only metro / big cities
but even the small cities and towns are facing the same problem. In a store where tens to
hundreds of customers come to shop with their vehicles (two or four wheeler), require space to
accommodate their vehicles.

In absence of proper and safe parking arrangement, customers hesitate to visit the store, knowing
parking today has become the reason for public clashes, stealing and other cases of road rage.
There are several ratios that are used to determine the provision for parking lot.

For a food store, retailers throughout the globe usually apply the ratio of 3:1, which means 3 sq.ft
of parking space for every sq. ft of retail store. One thing may be remembered that no ratio is
universal in real life sense but it depends on the product to be sold and the place where your store
will be located, i.e. nearby public parking lots.

3. Cost effectiveness:

An important factor to be considered before taking the decision on a particular site is the cost
consideration. A retailer must remember that so called good site is always a costly affair and
retailer should try to go for that because ignorance to such site may be the reason for failure of
your store. Retailer may manage the funds to have such site but one thing should not be forgotten
that space cost is a combination of mortgage/rent, facilities, lease hold improvements, usual
decoration, wear and tear, insurance, security and so on. Therefore, selecting site location only
on the basis of cost factor alone may be risky.

4. Presence of competitors:

While selecting a site, it is beneficial to check the compatibility of the retail store with the other
nearby retail stores in that area. It includes analyzing the type and number of competitors, other
industrial parks, shopping complexes, franchisee chains, individual stores and other departmental
stores, setting up a new store among established competition means new store will have its
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market share from the existing ones. Further, under intense competitive area, newcomer must
come with unique merchandise, wide merchandise assortment and high level customer service.

Other factors to be considered are:

i. Visibility of the store

ii. Ease of traffic flow

iii. Local laws and regulations

iv. Amenities available in that area

v. Buy/lease arrangements

vi. State of infrastructure (water, road and electricity)

Retail management information systems

Retail management involves running a store where merchandise is sold. Retail management
information systems include the use of hardware, software and procedures to manage activities
such as planning, inventory control, financial management, logistics and point of sale
transactions. Use a retail management information system in your business when you need to
manage your store, finances and inventory from one office.

Retail management information systems support distributed stores by linking them. By allowing
the instant exchange of information, store managers can stay in contact to more effectively
control profits for the whole company. The system should support product management. It
should also enable detailed analysis of customer data. A flexible system allows managers to set
prices for variable time periods based on the store location. To meet the needs of sales and
inventory managers, retail management information systems include a mobile user interface.

Merchandising
Retail Merchandising refers to the various activities which contribute to the sale of
products to the consumers for their end use. Every retail store has its own line of
merchandise to offer to the customers. The display of the merchandise plays an important
role in attracting the customers into the store and prompting them to purchase as well.
Merchandising helps in the attractive display of the products at the store in order to
increase their sale and generate revenues for the retail store.
Merchandising helps in the sensible presentation of the products available for sale to
entice the customers and make them a brand loyalist.
The activity of promoting the sale of goods at retail.
Merchandising activities may include display techniques, free samples, on-the-spot
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demonstration, pricing, shelf talkers, special offers, and other point-of-sale methods.
According to American Marketing Association, merchandising encompasses "planning
involved in marketing the right merchandise or service at the right place, at the right time,
in the right quantities, and at the right price."

Merchandising is the promotion of goods and/or services that are available for retail sale.
Merchandising includes the determination of quantities, setting prices for goods and services, creating
display designs, developing marketing strategies, and establishing discounts or coupons.

Merchandising is everything you do to promote and sell your products once the potential
customer is in your store. When we talk about merchandise, we are talking about products
available for sale, typically in a retail setting.

Merchandising Strategies

Some of the most popular ways to entice buyers to purchase include:

Window and in-store displays

Grouping related products together
Shelf signage
In-store ads featuring the merchandise
Samples and giveaways
In-store demonstrations
Well-stocked shelves
Spotlighting promotional items

Benefits of Merchandising

Some small business owners hire professional visual merchandisers to come in and spruce up
their displays and selling floor, finding that the cost is well worth it. But merchandising goes
beyond just moving inventory around, to space planning and product staging. Effective
merchandising yields:

Higher sales
Faster inventory turnover
Buyers who spend more time in the store
More satisfied customers
Increased customer loyalty

Stores that present products that customers are frequently looking for in a pleasing display, or
tucked away neatly, will find those same customers returning for more on a regular basis.
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What is the Difference Between Sales and Merchandising?

If you're thinking of starting a retail business, two prominent terms you'll likely come across are sales
and merchandising. Both functions are part of the marketing mix, which includes product, pricing,
promotion and place, also known as channels of distribution. While the two functions are closely
related, there are some key differences to be aware of.

Merchandising

Merchandising is the process of presenting products for sale in a retail environment in ways that
influence shoppers' buying decisions. This includes determining the optimal shelf location for
each product, building eye-catching displays that attract potential buyers, and using signage to
provide pricing and other product information. Merchandising also involves the selection of the
proper product mix to carry in the store. Special pricing and promotions are another part of the
merchandising process.

Sales

Sales occur when the consumer actually selects the product and completes the purchasing
transaction. In a retail environment, stores often employ salespeople to service customers and to
facilitate the sales process. Retail salespeople help implement the store's merchandising program
by performing tasks such as executing current sales promotions. In many stores, salespeople also
perform merchandising functions like building displays and arranging products on shelves to
conform to predetermined layouts called planograms.

Relationship

Although sales and merchandising are two different functions, they are closely related. Effective
merchandising leads to sales, even without the aid of a salesperson, as it induces customers to
make purchases. For example, a prominently displayed mannequin attractively adorned in the
latest fashions can entice customers to try on and possibly purchase the clothing. The technique
of cross-merchandising, where two compatible items are displayed together, can lead to
additional purchases.

Skill Differences

While workers in a retail environment may be required to perform sales and merchandising
functions, there are some differences in the skills needed for each. The sales function requires
strong verbal presentation skills to persuade customers to make a purchase, as well as customer
service skills. Merchandising typically requires more creative skills, such as the ability to come
up with ideas for interesting displays and to make merchandise appear as attractive as possible.
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Merchandise Budget Plan: Objectives and Components

A merchandise budget plan, as the very name implies, is a forecast of particular merchandise
related activities designed for a particular period of time, say, one year or six months. Under this
plan, rather than physical control of items, stress is given towards their financial planning.

Every business works within the confines of a budget, which indicates how much it can spend on
various things. One key budget element for a retailer is merchandise. Retailers must analyze data
to create merchandise budgets that are affordable and put the business in the best position to
make a profit.

Merchandise Budget Plans usually are made for one season and then broken down into shorter
periods like monthly & weekly plans.

In an effective merchandise Budget Plan, a retailer forecasts and plans about five fundamental
variables, namely, sales level, stock levels, purchases, reductions (markdowns) and gross margin.

1. Objectives:

The primary objective of having a merchandise budget plan is that a retailer would like to
have a proper balance between:

(a) What will be paid to suppliers for purchase of merchandise and making it available to
customers; and

(b) The cash inflow that will come in the business from sales to customers.

Though in practice, there are several accounting practices that allow some flexibility (for
example extended credit terms or easy payment options), this balance is vital to maintain the
firms liquidity. For the effective accomplishment, the firms internal records, past years
experience must be carefully considered instead of relying on historical data alone that will lead
to repeating previous mistakes, including previous missed opportunities.

2. Components of Merchandise Budget Plan:

The various components of a merchandise budget plans are as follows:

(1) Planned Sales and Stock levels:

Planning sales and stock levels is the first step in preparation of a sales forecast for a particular
period (say one season) and for each month in that particular season for which a retailer wish to
prepare a budget plan. After this, retailer should determine the beginning of month (B.O.M.)
inventory in order to specify the desired rate of stock turn for each month of the season under
study.
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For example, a retailers stock sales ratio for the month of February is six and predicted sales
during February is Rs.80,000 then the planned BOM stock would be Rs.4,80,000.

Note: For the purpose of making budgeting effective, it is always suggested to calculate End-of-
Month (E.O.M. stock), which is same as B.O.M. stock for the following month. Thus in this
case, retailers EOM stock for January will be same (Rs.4,80,000) to Februarys BOM stock.

(2) Planning for Reductions:

Planning for reductions is the third step in a merchandising budget plan which involves deciding
about markdowns, employee discounts and shortages. Reducing prices is critical because the
degree of reduction will have exactly the same effect on the value of stock as an equal amount of
sales for that period. Markdown is used to push retail sales that offer particular merchandise at a
price less than the merchandise marked price (normal price).

Shortages result from pilferage (in retailing it is known as shop lifting), accounting frauds,
vendor theft and employee theft. Employee discount is also provided by some retail firms in
order to build public image and employees welfare by extra rebate and inviting them to buy
merchandise before offering to general public by the way of sales.

(3) Planning For Purchases:

After planning sales and stock levels, opening stock (BOM), closing stock (EOM) and
reductions, next step under merchandise budget plan is to plan for purchases in Rupees.

It is calculated as under:

Purchase Planning = Planned Sales + Planned Reductions + EOM BOM

Suppose for example, the planned E.O.M. stock for February was Rs 5, 60,000 and that
reductions for February were estimated to be Rs 10,000.

Therefore, planned purchase will be calculated as under:

The planned purchases figure usually is based on retail prices rather than at cost. In order to
determine the financial resources required to procure merchandise, it becomes imperative on the
part of retailer that he should determine planned purchases at cost.
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The underlying gap between planned purchases at cost and at retail denotes the initial mark up
goal for the merchandise under consideration. This objective is achieved by calculating by the
amount of operating expenses required to attain the estimated sales volume, the profit
expectations, and adding it with the reduction figure. Therefore,

Sometimes, term Open-to-Buy is used synonymously with planned purchases where forecasts
concur with actual results.

(4) Planning For Gross Margin and Operating Profit:

The gross margin usually is the initial mark up attuned for price variations, reductions, shrinkage
and other stock shortages. The gap between gross margin and expenses needed to create sales
will either contribute to profit or a net profit (i.e. profit before taxes), depending on retailers
accounting practice and the thinness of merchandise budgeting.

3. Evaluation of Merchandise Budget Plan:

Merchandise budget plan is used by retailers to determine how much money to allocate in each
month on a particular merchandise category, considering the firms sales forecast, inventory
turnover and profit margins.

After developing a merchandise budget plan, retailer purchases the inventory for the upcoming
season in advance and when season comes, retailer sells the merchandise. After the selling
season, the retailer should determine how actually the category has performed against the plan
forecasted. If the actual turnover and GMROI are greater than the forecasted, then the
performance is better than retails expectations and vice versa.

Evaluating the merchandise budget plan aims to balance the money outflows (for supplies) and
inflows (received from customers by selling merchandise) for the next financial year or
upcoming season. Is there any need to pre-order for some stock or the
budget provided was sufficient to meet customers demand, may be determined through
evaluation only.

Following issues must be answered to evaluate the retailers performance:

(i) Why the performance is better/fall short of expectations?

(ii) Is there any major discrepancy between the forecasted and actual plan? Was such deviation
under the retails control and knowledge?

(iii) Whether retailer responded quickly to marked demand by announcing a sale or by additional
purchases?
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(iv) What was the reason for deviation? Was it a part of retailers external or internal
environment?

WHO IS A MERCHANT ?
A wholesaler or retailer who buy goods from various sources for resale to anyone and everyone for
profit. A Merchant is held to a higher standard of duty of care than a non- merchant because he is
deemed to have expert knowledge about the goods he deals in.

MERCHANDISING MANAGEMENT

Merchandising management is the science of evaluating human behavior and buying habits in order to
determine the best way to stock, display, and sell goods at retail stores. It is a process where in you
arrange a group of products that highlights those that you want to sell fast or those that you want
people to get noticed.

MERCHANDISING MANAGEMENT

Therefore the increased visibility and appeal of products leads to increase in sale ability . It includes
product packaging, placement, promotion etc. Example : The ice-filled tubs of soda, next to the cash
register at the convenience store on a hot summer's day -- a merchandise manager determined that
more product would be sold by doing it.

RETAIL MERCHANDISING MGMT PROCESS

Retail merchandising management process involves analysis, planning, acquisition, handling and control
of merchandise investments of a retail operation.

#RETAIL MERCHANDISING MGMT PROCESS ANALYSIS : The retailers must be able to correctly identify
their customers before they can ascertain consumer desires & requirements for making a good buying
decision

#RETAIL MERCHANDISING MGMT PROCESS PLANNING : It is more important because merchandise to

be sold in future must be bought now. It involves marketing the right merchandise at right place at right
price in right quantities at right time.

#RETAIL MERCHANDISING MGMT PROCESS ACQUISITION : It is because the merchandise needs to be

procured from others, either distributors or manufacturers.

#RETAIL MERCHANDISING MGMT PROCESS HANDLING : It involves to see where merchandise is

needed and to be sold in a proper condition.
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#RETAIL MERCHANDISING MGMT PROCESS CONTROLLING : It is required since the

function of merchandising involves spending money. So it is necessary to control the amount
spent in this process.

The process of merchandise planning involves the following steps

Step 1 : Developing the Sales Forecast

Sales forecast is the projection of achievable sales revenue, based on historical sales data,
analysis of market surveys and trends and salespersons estimates. Sales forecast also called sales
budget, forms the basis of a business plan, since the level of sales revenue affects practically
every aspect of a business. Forecasting involves what the consumer may do under a given set of
conditions.

A sales forecast may be made by the merchandiser based on the targets given by the top
management or may be handed down by the top management itself depending on the retail
organisation. A sales forecast is the first step in determining inventory needs of the product or
category.

Forecasts are typically developed to answer the following questions

How much of each product will need to be purchased?

Should new products be added to the merchandise assortment?
What price should be charged for the product?

The process of developing sales forecasts involves the following steps :

(a) Reviewing Past Sales : A review of the past sales records is necessary to establish if there
is any pattern or trend in the sales figures. A look at the sales figure of the past year for the same
period, would give an indication of the sales in the current year, given that the conditions are
constant.

(b) Analysing the changes in the economic conditions : It is necessary to take into account
the changes happening at the economic front as this has a direct link to the consumer spending
patterns. Economic slowdowns, increase in unemployment levels etc, all affect business,

(c) Analysing the changes in the sales potential : It is now necessary to relate the
demographic changes in the market to that of the store and the products to be sold.

(d) Analyse the changes in the marketing strategies of the retail organisation and the
competition : While creating the sales forecast, it is necessary to consider the marketing strategy
to be adopted by the organisation and the competition. Is there a new line of merchandise to be
introduced, a new store to be opened or an existing store to be remodelled? All those factors are
to be considered.
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(e) Creating the sales forecast : Then, an estimate of the projected increase in sales is arrived
at. This is then applied to the various products/categories to arrive at the projected sales figures.

Step : 2 : Determining the Merchandise Requirements

Planning is essential to provide direction and serve as a basis of control for any merchandise
department. In order to be able to provide the right goods to the consumer at the right place and
time, one needs to plan a course of action. Planning in merchandise is at two levels.

(1) The creation of the merchandise budget and

(2) The Assortment Plan

There are two methods of developing a merchandise plan. They are top down planning and
bottom up planning. In top town planning, the top management works on the sales plan and this
is passed down to the merchandising team. In bottom up planning, individual department
managers work on the estimated sales projections. These are then added up to arrive at the total
sales figures.

After the sales forecasting exercise has been completed, inventory levels needs to be planned.
The merchandise budget is the first stage in the planning of merchandise. It is a financial plan
which gives an indication of how much to invest in product inventories, stated in monetary
terms.

The merchandise budget usually comprise of five parts

(a) The sales plan, i.e. how much of each product needs to be sold, this may be department
wise, division wise or store wise.

(b) The stock support plan, which tells us how much inventory or stock is needed to achieve
those sales.

(c) The planned reductions, which may need to be made in case the product does not sell.

(d) The planned purchase levels, i.e. the quantity of each product that needs to be procured
from the market.

(e) The gross margins (the difference between sales and cost of goods sold that the
department, division or store contributes to the overall profitability of the company.)

The assortment plan details the merchandise that will be sold in each product category, i.e. the
complete mix of products that will be made available to the consumer. This is the next stage,
after having determined the money available for the inventory.

Merchandise Hierarchy : Every retail organisation has a merchandise hierarchy, which is an

indicator of the manner in which product classification is done. It is a logical manner depending
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on the manner in which the customers are likely to buy the products. It is a disciplined way of
grouping the merchandise mix at different levels, starting from a high level grouping to the
lowest level of Stock Keeping Unit (SKU). The grouping may at times have even more than four
five levels.

The merchandise hierarchy forms the platform needed to create the store merchandise mix. The
merchandising vision for the store dictates the different divisions and the lower rungs that the
store must have in the hierarchy.

Building the stores merchandise mix by following the concept of merchandise hierarchy has its
advantages.

(a) One can define in terms of ratios the mix of element at each level of the hierarchy.

(b) One can analyse and drill down through the rungs of the hierarchy to the problem areas, if
any upto SKU level.

(c) One can remove or add elements following security escalations.

Step 3 : Merchandise control The Open To Buy : The purpose of the concept of Open to
Buy is twofold. First, depending on the sales for the month and the reductions, the merchandise
buying can be adjusted. Secondly, the planned relation between the stock and sales can be
maintained. When used effectively, open to buy ensures that the buyer-

(a) Limits overbuying and under buying.

(b) Prevents loss of sales due to unavailability of the required stock.

(c) Maintains purchases within the budgeted limits.

(d) Reduces markdowns which may arise due to excess buying.

When planning for any given month, the buyer will not be able to purchase the amount equal to
the planned stocks for that month. This is because there may be some inventory already on hand
or on order but not yet delivered.

Calculating the Open to Buy : The open-to-buy amount available to a buyer is calculated
using the formula which is given below :

Open-to-Buy-Planned EOM stock Projected EOM stock

EOM = End of Month Open-to-Buy is always calculated for current and future periods.

Step 4 : Assortment Planning : Assortment planning is extremely important and challenging

for retailers.
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Assortment has been defined .by Van Herpen as the combination of all products made
available in a store and a set of products offered within a product category. These products
form a set because they share similar physical characteristics. Assortment Planning involves
determining the quantities of each product that will be purchased to fit into the overall
merchandise plan. Details of colour, size, materials, brand etc. have to be specified. The main
purpose of creating an assortment plan is to create a balanced assortment of merchandise for the
customer.

Various factors affect the assortment planning process. The first among these factors is the type
of merchandise that is to be stocked in the retail store. Merchandise may be classified as basic or
staple merchandise, fashion, convenience or specialty goods.

Step 5 : The Range Plan The aim of the range plan is to create a balanced range for each
category of products that the retailer chooses to offer. The process of range planning ensures that
the goals of the merchandise plan fall into specific lines, and many a times, the SKUs. Good
range planning should essentially take care of the following

The number of items/options available to the customer should be sufficient at all times
and should be such that it helps the customer make a choice.
The range planning process should ensure that overbuying and under buying is limited.
Sufficient quantities of the product should be available, so that all the stores can be
serviced and the product should be available at all stores across various locations.

Step 6 : The Model Stock Plan : After determining the money available for buying, a decision
needs to be taken on what to buy and in what quantity. This results in the creation of the Model
Stock Plan. The model stock plan gives the precise items and quantities that need to be
purchased for each merchandise line. To arrive at the model stock plan, the buyer needs to
identify the attributes that the customer would consider in buying the product, then decide on the
levels under each attribute and finally, allocate the total money available or the units to the
respective item categories.

Factors Affecting Pricing Product: Internal Factors and External Factors

The pricing decisions for a product are affected by internal and external factors.

A. Internal Factors:

1. Cost:

While fixing the prices of a product, the firm should consider the cost involved in producing the
product. This cost includes both the variable and fixed costs. Thus, while fixing the prices, the
firm must be able to recover both the variable and fixed costs.
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2. The predetermined objectives:

While fixing the prices of the product, the marketer should consider the objectives of the firm.
For instance, if the objective of a firm is to increase return on investment, then it may charge a
higher price, and if the objective is to capture a large market share, then it may charge a lower
price.

3. Image of the firm:

The price of the product may also be determined on the basis of the image of the firm in the
market. For instance, HUL and Procter & Gamble can demand a higher price for their brands, as
they enjoy goodwill in the market.

4. Product life cycle:

The stage at which the product is in its product life cycle also affects its price. For instance,
during the introductory stage the firm may charge lower price to attract the customers, and
during the growth stage, a firm may increase the price.

5. Credit period offered:

The pricing of the product is also affected by the credit period offered by the company. Longer
the credit period, higher may be the price, and shorter the credit period, lower may be the price
of the product.

6. Promotional activity:

The promotional activity undertaken by the firm also determines the price. If the firm incurs
heavy advertising and sales promotion costs, then the pricing of the product shall be kept high in
order to recover the cost.

B. External Factors:

1. Competition:

While fixing the price of the product, the firm needs to study the degree of competition in the
market. If there is high competition, the prices may be kept low to effectively face the
competition, and if competition is low, the prices may be kept high.

2. Consumers:

The marketer should consider various consumer factors while fixing the prices. The consumer
factors that must be considered includes the price sensitivity of the buyer, purchasing power, and
so on.
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3. Government control:

Government rules and regulation must be considered while fixing the prices. In certain products,
government may announce administered prices, and therefore the marketer has to consider such
regulation while fixing the prices.

4. Economic conditions:

The marketer may also have to consider the economic condition prevailing in the market while
fixing the prices. At the time of recession, the consumer may have less money to spend, so the
marketer may reduce the prices in order to influence the buying decision of the consumers.

5. Channel intermediaries:

The marketer must consider a number of channel intermediaries and their expectations. The
longer the chain of intermediaries, the higher would be the prices of the goods.

Factors Influencing Pricing Strategy

Competition

A competitive pricing strategy, where prices for a product or service are set based primarily on
the prices of the competition, is best suited for a price-sensitive and highly competitive market.
Whether you use this type of strategy or not, you should always take your competitions pricing
into account when setting your own pricing, unless you hold a monopoly. If consumers perceive
your product and your competitions as having equal value, you could lose out in a big way if
your competitors price is lower than yours is.

Market Demand

The laws of supply and demand should always come into play when setting your pricing. If a
product is in high demand, particularly if demand exceeds supply, then the market can bear a
higher price. Conversely, if demand dwindles, consumers will not be willing to pay higher
prices. Your pricing should remain relatively stable over time, but you can put promotions in
place to discount the price when needed.

Brand Strategy

Setting your prices without a thorough grasp of your brand objectives can destroy any brand-
building efforts. Your price is a part of your brand image. Think about Walmart, which has built
its entire brand around low pricing, or Tiffany & Co., whose consumers expect high-end pricing.
If your products prices are not in line with your brand image, you will most likely confuse
consumers instead of convert them.
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Cost of Goods Sold

If you want to make a profit on the sale of your products, you must charge a higher price than
what it cost you to actually produce and transport them. The cost of goods sold almost always
plays an integral role in any pricing strategy. The exception to this is if you are promoting your
product as a loss leader. A loss leader is a product that is sold below cost as an incentive for
consumers to purchase other products at normal prices. Many mobile carriers, for example, sell
cell phones at hugely discounted rates so that consumers will sign on for one of their cell phone
service packages.

The GAP Model

The Service Quality Model, also known as the GAP Model, was developed in 1985. It highlights
the main requirements for delivering a high level of service quality by identifying five gaps' that
can lead to unsuccessful delivery of service.
Customers generally have a tendency to compare the service they 'experience' with the service
they 'expect' to receive; thus, when the experience does not match the expectation, a gap arises.
GAP 1:
Gap between consumer expectation and management perception: This gap arises when the
management or service provider does not correctly perceive what the customer wants or needs.
For instance hotel administrators may think guests want better food or in-house restaurant
facilities, but guests may be more concerned with the responsiveness of the staff or the
cleanliness of their rooms.

GAP 2 :
Gap between management perception and service quality specification: This is when the
management or service provider might correctly perceive what the customer wants, but may not
set a performance standard. An example here would be that hospital administrators may tell the
nurse to respond to a request fast', but may not specify how fast'.

GAP 3:
Gap between service quality specification and service delivery: This gap may arise in situations
pertaining to the service personnel. It could happen due to poor training, incapability or
unwillingness to meet the set service standard. An example would be when a doctor's office has
very specific standards of hygiene communicated but the hired staff may have been poorly
trained on the need to follow these strict protocols.
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GAP 4 :
Gap between service delivery and external communication: Consumer expectations are highly
influenced by statements made by company representatives and advertisements. The gap arises
when these assumed expectations are not fulfilled at the time of delivery of the service. For
example a hospital printed on its brochure may have clean and furnished rooms but in reality, it
may be poorly maintained in this case the patient's expectations are not met.

GAP 5:
Gap between expected service and experienced service: This gap arises when the consumer
misinterprets the service quality. The physician may keep visiting the patient to show and ensure
care, but the patient may interpret this as an indication that something is really wrong.

GAP 1: Gap between consumer expectation and management perception: arises when the management
or service provider does not correctly perceive what the customers wants or needs.
GAP 2 : Gap between management perception and service quality specification: this is when the
management or service provider might correctly perceive what the customer wants, but may not set a
performance standard.
GAP 3: Gap between service quality specification and service delivery: may arise pertaining to the
service personnel. This could arise due to there being poor training, incapability or unwillingness to
meet the set service standard.
GAP 4 : Gap between service delivery and external communication: consumer expectations are highly
influenced by statements made by company representatives and advertisements. The gap arises when
these assumed expectations are not fulfilled at the time of service delivery.
GAP 5: Gap between expected service and experienced service: this gap arises when the consumer
misinterprets the service quality.