Retail 2.

Gaurav Upadhyay

Test Lead

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 1 Retail formats and classifications

2 Opportunity for Improvement

3 Retail value drivers

4 Factors affecting retail strategy

5 Three aspects of retail strategy

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 6 Technology and three aspects of strategy

7 Retail processes overview

8 CPFR

9 SCM

10 Sales and Marketing

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 11 Warehouse and Inventory Management

12 Finance and Accounting

13 CRM

14 HR

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 Retail formats and Classification

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 Retail Formats and Characteristics

Specialty Grocery / Big Box

Retail Formats
Soft Private
Merchan Hard labels/ mass Warehouse Category
dise Merchandise merchants Off Price / club Discount Killer Convenience Drug Grocery
Characteristics

Seasonality High / Fashion Low Low

Velocity Low Moderate High
Category Range Narrow Broad Broad

Product
Assortment Deep Varies Deep

Heavy Design / Production Private Label,

Vertical component, some contract branded product
Integration manufacturing sourcing Private Label, branded product sourcing
Margin High Medium Low

* Radio * TJ * CVS * Kroger

Shack Maxx * Costco * * Home * 7 Eleven * *
Example * Gap * Williams- * Sears * Ross * Sams Walmart Depot * Tosco Walgree SuperV
retailers * Limited Sonoma * Macy's Stores Club * Target * Best Buy Marketing ns alu

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 Areas of opportunity
• Improve financial planning
and forecasting through top
• Improve cross-sells through down bottom up approach
multichannel integration • Reduce time-to-market
• Optimize promotions planning and through supply chain
REPRESENTATIVE
execution through an integrated management system
tool • Improve store allocation and
• Develop personalized shopping price and promotion Key areas of opportunity
though Customer Analytics optimization decisions through
• Retain customers through POS data-driven in-season Potential technology-enabled
improvements
personalized service offerings management tool
• Increase foot fall conversion thru • Integrate size pack ratio in to
135.0 multichannel retailing allocation tool
•Reduce inventory and time-to-
10.0
5.0 market through supply chain
management system
20.0 100.0 •Effective Deal-buy management
and analysis
•Buyer and supplier performance
measurement •Optimize store payroll
53.0
•Collaboration with suppliers thru costs through new
CPFR and Web-EDI productivity drivers and
47.0
improve labor forecasting
13.0 thru analytical modelling
8.0
3.5 2.5 3.0 1.5 2.0 2.0 8.5
3.0

Potential sales Lost Lost Mark- Sales COGS Gross Store labor Occu-pancyMarket-ing Other storeDistri- Merchan- Finance HR Other costsOperating
opportunity Incre- sales down profit costs costs costs costs bution dising costs Dept. Dept. costs income
mental due to loss costs costs
sales stockouts
Store costs

Source: Financials of 8 specialty retailers; McKinsey expert interviews; Team analysis

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 Retail Value Drivers

Below are the factors that create value for a retailer.

Growth
Revenue, income and cash
Stock market valuation
Shareholder returns

Retail
Value
Drive
rs
Tangible Assets Operational excellence
* Real estate Achieve speed &
flexibility
* Inventories
Minimize margin loss
*Infrastructure
investments Increase efficiency

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 Retail Strategy Formulation
Macro
Industry Trends Retail Value Drivers economic
Trends
Globalization Growth
Growth Economic Trends
• Global suppliers Operational
Operational Excellence
Excellence • Slow growth in

• Retail consolidation Risk

Risk mature markets
• Growth in
• Global supply chains emerging markets
• Global power brands • Price deflation

Retail
Consumer Offering Consumer Behavior
• Focus on service • Polarizing; time/cash
poor
• Commoditisation
• Product proliferation
Sector • Ageing consumer
• Value conscious
• Perpetual promotions • Individualistic

Technology Legislation
• Business Imperative • Environmental
pressures
• Focus on the cutting
• M&A regulation
edge • Entry barriers to
• “Webification” of new markets
business • Internet taxation
Core Business Strategies

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 Three aspects of Retail Strategy

•Expand Customer base

Drive •Increase Revenue from existing Customer
Revenue Generating Focus •Price and Campaign Management
•Diversify products, formats, services

•Drive Supply Chain Efficiencies

Maintain •Increase Store Efficiencies
•Manage Inventory Strategically
Thrust on Efficiencies
•E-enabling Supply Chain and Information
transfer

Hedge •Reduce Assets from Balance Sheet

Risk from macroeconomic factors •Shift ownership of Inventory
•Mobile ,Web as an alternative Retail Chain

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 Technical assistance in achieving the goals

Expand customer base •Customer Relationship Management

Increase revenue from existing •Analytical CRM
customers Drive S •Customer Support & Churn Analysis
•Dynamic Pricing
Price and campaign management
Diversify products, format, services U •Online Stores & mobile Commerce

C
Drive supply chain efficiencies •Advanced Planning & Scheduling
Increase store efficiencies Maintain
C •Warehouse & Transportation Mgmt.
•Loss Prevention
Manage Inventory strategically
E-enabling supply chain
E •Real time inventory visibility (RFID)
•Real time connectivity – backend & in st
and information transfer
S
Reduce assets from Balance sheet
Hedge
S •Infrastructure & Process Outsourcing
Reduce ownership of Inventory •Integrated Multi-Channel Retailing
Mobile, Web as an alternative •Vendor Managed Inventory
retail channel

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 Overview of retail processes

Site Location
Procurement
Assessment

Positioning
Strategic

Financial

Planning
Planning
Market

Store
STRATEGIC
PROCESSES

OPERATIONAL
PLAN BUY MOVE SELL PROCESSES

o t i ng
t e
t. l

gm at

n
gm ia

io
om tis
M Est
M anc

D.

SUPPORT
Pr ver
HR

al
n
Fi

Ad
Re

PROCESSES

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 Operational business processes

Demand Shelf Space Inventory

Forecasting Optimization Optimization
Planning &
Forecasting Replenishment

Merchandise Assortment Allocation Inventory

Planning Planning Optimization Planning
Product Planning
Purchase Order
Management
Procurement

Lead Time
Optimization
PLC Optimization
Transportation
Price Order Optimization
Assortment
Optimization Optimization Management
Promotion
Distribution
Optimization Store Location
Network
Merchandise Optimization
Optimization
Markdown
Optimization
Optimization
Transportation

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 Retail Operational Processes - PLAN

Planning is a systematic approach, aimed at maximizing return

on investment, through organizing business activities.

PLAN BUY MOVE SELL

Major Plan Processes

 Merchandise Financial Plan

 Assortment Plan
 Distribution Plan
 Space Plan
 Promotions and Markdown Plan
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 Key planning questions…

Who is doing the Planning?

What are we planning for?

What level of detail do I need to plan at, in terms of

merchandise, location and time?

What are the required steps in my planning process?

How do I group metrics to support my planning

process?

How do I want to present my plan information?

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 Planning

Merchandise Planning

AT AT IN TO AT

The right The right The right The right The right The right
Product Price Place Quantity Customer Time

REVENUE
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 Distribution Planning

Warehouse

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 Planning

Planning in the store

Space Planning
• Space Availability
• Return on space (Sales in Rs./Sq.ft.)
• Preview the look of a store

Assortment Planning
The Assortment Plan is based on the combination
of different varieties of merchandise to match
consumer needs

Range Planning
The Range plan is based on the range of items (the width and the depth of

merchandise) the store plans to sell

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 Planning

Promotion Planning

Centralized Promotions and Store Promotions

Based on the sales targets, vendor schemes etc.

Mark-down Planning
Based on the sell through, unsold stock, space plan, carrying
cost etc.

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 Retail Operation Process - BUY

PLAN BUY MOVE SELL

Major Buy Processes

 Vendor management
 Open-To-Buy
 Consolidation
 Replenishment
 Pricing

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 Retail Operation Process - BUY

“Great locations, great looking stores and great sales staff aren’t
worth much if the merchandise isn’t right”

There are five major areas to consider: Who

 Who buys?
 What to buy? When What
 How much to buy?
 From whom to buy?
 When to buy?
From How
Whom Much

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 Retail Operation Process - BUY

Buyer Wh
• A buyer is one who selects
merchandise and develops product
assortments.
o
When What
• Responsibilities
• Contract negotiations.
• Inventory Management. From How
• Identify risks and opportunities Whom Much
in assortments.
• Build strong vendor
relationship.
• Forecasting.
• Understand buying and fashion
trends.

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 Retail Operation Process - BUY

What to Buy
Who
Wh
The decision about what to buy
depends upon the below factors.
When
at
• What are the market trends.
• What kind of customers are you
targeting.
• What is the sales data from
previous years. From How
• What is the present available Whom Much
inventory.
• The strategy adopted by the
organization.
• Which season you are targeting.

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 Retail Operation Process - BUY

When to Buy
The decision about when to buy Who
depends upon the below factors.
Wh What
• Depends upon the inventory level.
• Depends upon the contracts with
the supplier.
en
• Depends on the season you are
targeting. From How
• Depends upon the present sales Whom Much
figures.

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 Retail Operation Process - BUY

From whom to Buy

The decision about from whom to
buy depends upon the below factors.

• Who provides the merchandise

Who
you want.
• What offers and deals are
provided to you by whom.
When What
• Where is the vendor located.
• What is the vendors performance
Fro
and image in the market.
• How suitable is the merchandise at m How
offer suitable to your business
needs. Wh Much
• How suitable is the vendors
business capabilities to your
organization.
om
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 Retail Operation Process - BUY

How much to Buy

The decision about how much to buy Who
depends upon the below factors.

• What is your present inventory. When What

• What is your sales forecast.
• How confident are you about your Ho
projections.
• Are the products perishable.
• Which category or segment the
From w
Whom
product belongs to.
• What deal is being offered from
Mu
the vendor. ch

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 Generic PO Flow

Create Order
Make Changes
Approve Order

Receive Allocation & Distribution Vendor Shipments

Archive

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 Discounts given by Vendors
• Trade discounts
Discount •
•
Quantity discounts
Invoice discounts
Pricing •
•
Cash discounts
Seasonal discounts

Clearance • Vendor gives a discount as it tends to clear

Pricing the unsold stock.

Promotional • Vendor gives a discount as it wants to

promote a new product.
Pricing
Competitive • Vendor gives a discount due to competition
of a similar product in the market.
Pricing
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 Retail Operation Process - MOVE

PLAN BUY MOVE SELL

Major Move Processes

 Receiving (Vendor Receipts &

Returns)
 Repacking
 Shipping & Transportation
 Cross-Docking
 Physical Inventory

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 Import Process Flow…

Merchants select vendors and

input vendor data in Vendor Import Finance approves vendor
System and sets up a payment method.
Merchants input item
data into Item System

Retailer’s Import team

classify items and assign
Merchants write orders tariff numbers
in Order System
Retailer communicates order data
electronically to the vendor, agent,
banks, broker and consolidator

Vendors produce goods and

deliver goods and documentation
to Consolidators
Consolidators communicate
electronically back to Retailer
Goods are transported to
the country

Brokers work with Customs &

Border Protection to clear the goods

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 Import Process Flow…

De-
Consolid
ators
Store
Distribution
Center

Store Store

Product arrives at port / airport

and is cleared by Customs &
Border Protection

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 What is a Distribution Center

DC
• A DC is a building or a group of
units where goods and distributed
based on need.
• Goods are distributed to stores or
to customers directly.
• Other business processes in a DC
are Receiving, Putaway, Picking,
Cross Docking.
• Value additions is a major activity
in a DC.
• Value addition could be due to
packaging, assembly etc.

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 Layout of Distribution Center

Doors

Storage Racks
Pull Item STORE
R
D
E
E
C
CARRIER L
E CUSTOME
Flow Item I
I (Cross Docking) R
V
V
E
I
R VENDOR
N
Y
G
Pull Item

Storage Racks
Doors Returns

Doors

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 Design of Distribution Center

Layout and Storage configuration

 Logically demarcated zones based on
 Item types, weight of item, movement frequency, Hazmat (Hazardous
Material)

 Optimization of space

 Racking to enable put-away and replenishment

 Dedicated pick and replenishment aisles

 Dedicated staging area for Cross-dock products

 Pallet layering and build-up

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 Retail Operation Process - Sell

PLAN BUY MOVE SELL

Major Sell Processes

 Store operations
 Visual Merchandising
 Point-Of-Sale
 Sales polling
 Inventory update
 Customer Relationship Management

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 Selling Process Flow

FINANCIALS
Guest
Database

Sales
CUSTOMER Polling
CRM

Scan Generate Select Tender Process

Merchandise Receipt Type Tender

Cashier
Merchandise Apply Discounts / Update Sales
Look-Up Markdowns Inventory History

ITEM Inventory
Database Database

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 POS – Point Of Sale

E POS

Barcode Scanner

Self Checkout
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 POS – Operations

Merchandise Generate Access right Discounts Journal

Sale / Billing Receipts Management / Coupons management

Customer
Credit Track account
Authorization Purchases Generate management
Purchase
Orders
Customer
Merchandis Substitute Loyalty
e Look-Up product Programs
information
Reports

Merchandis
Sales Tax Employee
Sales Rep e Returns /
Management Information
commission Exchanges
Management
setup

Shipping
Tender Clientele / Inventory charges
Management CRM Availability calculation

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 Tenders in retail
Common Tender Types

Gift Voucher Cash

Coupons

In House Cards Through Internet Discount Voucher

Debit / Credit Cards

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 Connected store environment

Enterprise
application Web channel
integration integration

Business
Enterprise integration
Web

Store Integration Framework

New POS
touch points

RFID Point of
readers sale
New
“anywhere"
Electronic Self checkout
shelf labels access points
Personal shopping
Electronic devices
scales Digital Digital multimedia
PDAs
signage displays Kiosks

store
solutions

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 Visual Merchandising

 Display to be built around fast selling items

 Display should be simple. No oversell

 VM should be timely

 VM should be built around a theme

 Proper lighting sells the display

 Change the displays regularly

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 CPFR – Collaboration, Planning, Forecast, Replenishment

• CPFR is a collective inventory management system where in the retailer shares

data/information with vendor
• CPFR is a concept that aims to strengthen the Supply Chain integration by
supporting Joint Practices.
• The data in the CPFR system can be stored in a common pool, different
stakeholders in the supply chain (i.e. multiple vendors, transportation specialists,
buyers, merchandisers, logistics specialists and store operations people) can access
this data.
• The CPFR methodology was developed by Voluntary Interindustry Commerce
Standards (‘VICS’ a US organization) and adopted by ECR Europe.
• The following data is shared
• Business Plans
• Promotion Plans
• New-Product Plans
• Inventory Data
• POS Data
• Production and Capacity Plans
• Lead time information
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 CPFR – Collaboration, Planning, Forecast, Replenishment

• Four Collaborative activities

• Strategy and Planning

• Demand and Supply Management
• Execution
• Analysis

• These four activities are further divided

into sub activities for Manufacturers and
Retailers.

• This is the framework that provides the

basis of implementing a CPFR Model.

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 SCM – Supply Chain Management
• Supply Chain Management is the integration of business processes - from the
Consumer to the Manufacturer.

• A supply chain involves participation of Retailer, Suppliers, Manufacturers,

Transporters, Warehouses / Distribution Centers and Customers too.

• A supply chain is dynamic, i.e. there is a constant flow of products, information

and funds between different stages.

• A supply chain activities start with a customer order (Demand) and ends when a
customer pays for the product (Sale).

• A supply chain covers all movements and storage of raw material, work in
progress inventory and finished goods from the point of origin to the point of
consumption.

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 SCM – Supply Chain Management

A SIMPLISTIC
VIEW OF
SUPPLY CHAIN.

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 SCM – Components
Inventory
Manageme
Warehousin nt
Information
g and
Technology
Distribution

Logistic Supply
Chain
Assem
s Management bly

Analyti Global
Procureme
cs Order nt
Manageme
nt

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 SCM – Objectives

Customer Service •Improve

Sales Revenue •Increase

Inventory Cost •Minimize

supply chain profitability •Increase

Order to Delivery Cycle Time •Reduce

On-Time Delivery •Maintain

Lead Time •Reduce

Transportation Cost •Reduce

Warehouse Cost •Reduce

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 SCM – Cycle View

CUSTOMER

Customer Order Cycle

RETAILER
Cyclic View
of
Replenishment Cycle SCM

DISTRIBUTOR

Manufacturing Cycle

MANUFACTURER

Procurement Cycle

SUPPLIER

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 t
r
e
e
SCM – Drivers
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 Retail Sales and Marketing

Internet Marketing

Types of Direct Marketing

Mouth Marketing

Marketing Public Relations Marketing

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 Retail Sales and Marketing – Internet Marketing
Advantages
Internet marketing is inexpensive when examining the ratio of cost
to the reach of the target audience

Companies can reach a wide audience for a small fraction of

traditional advertising budgets

Businesses have the advantage of appealing to consumers in a

medium that can bring results quickly

Internet marketers also have the advantage of measuring statistics

easily and inexpensively.

The advertisers can use a variety of methods, such as

pay per impression, pay per click, pay per play, and pay per action.

The results of campaigns can be measured and tracked

immediately.

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 Retail Sales and Marketing – Direct Marketing
Advantages

Flexible Targeting: Direct marketing enables you to talk directly identify,

Email isolate and communicate with well-defined target markets
Marketing

Electronic
Sending post
Media Multiple Uses: Can Also be used to test new markets, trial new
products, reward existing customers, collect information.

Cost-Effectiveness: The cost per acquisition of direct mail can be

Couponing Display adds significantly less. Benefit from highly profitable repeat sales, gained
once again through direct marketing methods

Ease of Management: Makes it easier to measure results. Makes it

Online Yellow
Mobile easier to plan, forecast and budget future direct marketing campaigns
pages

Rapid Delivery: Especially true for telemarketing. Conversation can be

logged immediately and scripts adjusted straight away to improve
results

Testing Capability: Direct marketing allows you to test, test and test
again in order to hit upon the most successful combination of direct
marketing tools.
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 Retail Sales and Marketing – Public Relations Marketing

• We’re seeing a big shift happening – a shift that will most likely continue throughout next year. Companies and
Digital First organizations are now, finally, giving digital marketing channels precedence over traditional, analog media. Of
course an integrated marketing approach remains a key, but digital comes first, both in strategy and in budget

• Content marketing is a marketing technique of creating and distributing relevant and valuable content to attract, acquire, and engage a clearly

Content Marketing defined and understood target audience - with the objective of driving profitable customer action. 2012 will be the year of content. Great content
will rule even more and advertising will still drool. PR pros need to master content marketing and take it to higher levels. It’s becoming an
important strategic weapon as traditional advertising and marketing “push” campaigns fail to get results with jaded or overwhelmed consumers

• The Newest Strategic PR Weapon: On the heels of content marketing, curation grows as an essential strategic tool. Content Curation is the
Content Curation act of discovering, gathering, and presenting digital content that surrounds specific subject matter. PR knows how to research and gather
intelligence. What we’re learning now is the potential impact of packaging, adding value to content from many sources, and presenting it

Connections Remain • PR has always been about creating and enhancing connections. Look for new people, organizations
and allies to connect with in 2012 but don’t forget to stay connected with those already closest to you
Critical

Community Building • Once you have connections, the most important role PR can play is to build substantial communities. Social media offers us so
many new ways to build community. Pick your channels, keep it simple, listen and nurture two-way organizational
Counts communication. And remember the value of old-fashioned, face-to-face communications in community building.

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 Retail Sales and Marketing – Mouth Marketing
• One of the crucial areas of your

Custome •
business
How much you value your Advantages
r Service customers will keep them talking
long after they have purchased the
product
Effectiveness of
• This includes advertising in your Recommendations: one of
Become local community newsletter or the major advantages that
church directory. word-of-mouth advertising has
Visible In The • Make people aware that you exist over other forms of marketing
Community and then they can find out what is the inherent power of
your services are recommendations. People are
conditioned to trust
Cheap Method of Marketing:
recommendations from family
Give out •
•
Give some to get some
Donating your own prize basket to
Word-of-mouth marketing is a
and friends; they tend to value
cost-effective method of
them more highly than
Samples raffles and other community events spreading information about
anything companies can say
products and services. While
through their various mediums
companies must purchase
• of advertising
Create promotional items for family most forms of marketing, e.g.
and friends to share, make a small advertisements, air time, etc.,
Hand out investment in shirts that contain word-of-mouth marketing
Promotion •
your logo requires no out-of-pocket
Give away key chains, bottle expenditure. By merely
al Items holders, cups and refrigerator providing a quality product or
magnets service, and doing so in a
customer-friendly way,
• Presentations can be given at a
Interact with friends place and by giving them
companies are banking on the
fact that their happy customers
people more free products in return. will tell their families and
• Attendees can be given free
directly coupons or trial samples.
friends about their experience

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 Warehouse and Inventory Management
WAREHOUSE AND INVENTORY MANAGEMENT IS NOTHING BUT A
CLUSTER OF ACTIVITIES PERFORMED TO ENSURE EFFICIENT
STORAGE AND MOVEMENT OF GOODS AND MATERIAL FROM AND
IN TO THE WAREHOUSE OR DISTRIBUTION CENTER.

Objectives of Warehouse Management Maximize customer service

Maximize efficiency of purchasing and production.

Minimize inventory investment

Maximize profit.

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 Warehouse and Inventory Management - Processes

Replenish Stocktaki
Receiving Putaway Allocation Kitting Picking Packing Shipping
ment ng

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 Warehouse and Inventory Management - Processes

Receiving
• This involves the intake of goods into the warehouse.
• A copy of the PO is sent to the warehouse which has the expected delivery date.
• A door in the warehouse is allocated at a particular time to receive the goods.

Putaway

• This involves placing the received goods to a specific location in the warehouse.

Allocation
• This involves allocating the goods to different stores. The allocation can be done before the arrival of goods or after.
• Allocation could be done for a new item or for a slow moving item or for clearance of goods.

Replenishment
• This involves refilling the stock once it goes down below the threshold levels.
• This is mostly done for fast moving stocks.
• This is a key feature in Vendor Managed Inventory.

Kitting
• This involves preparing kits from different kind of goods.
• For example building a kit from a table and a chair.

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 Warehouse and Inventory Management - Processes

Picking
• This involves picking the goods from there respective location and moving them to the desired location.
• Picking could be to relocate goods or to move them to the staging area to be dispatched and shipped.

Packing
• This is a value add in the DC.
• Goods are received and packed in the warehouse before being sent to the stores.

Shipping

• Shipping is loading the goods in the trailer and sending it out of the warehouse to the destination..

Stocktaking
• Stocktaking is an exercise which involves counting the number of items present in the warehouse. This is also known as cycle
counting.

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 Customer Relationship Management - Retail

Customer relationship management is a business strategy that enables

profitability and reduction in costs by maintaining cordial relationships with
customers and winning there loyalty.

CRM Process

Implement
ing CRM
Developin
programs
g CRM
Analyzing programs
customer
data and
Collecting identifying
Customer target
Data customers

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 CRM - Advantages

A big knowledge pool of customer needs

Advantag
Higher revenues

Improved customer satisfaction

Enhanced communication strategy with the customer.

es Customer Loyalty

Market Capture

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 Human Resources Management - Retail

In todays industrial and information age retail industry is one of those

industries that is still heavily dependent on Human Resources. Retailing is
Labor - Intensive

Significance of HRM:

• HRM is significant for a retailer because…

• A significant percentage of the cost incurred by the retailer

accounts to Human Resources.
• The customer experience is governed by the behavior and service
provided by the people working in stores, who help the customer by
providing information, merchandise, assistance etc.
• The edge attained by good customer service is a major contributor
to the retailers image in todays competitive market.

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 A typical Merchandising Org Structure
Chairman
Merchandise-
Oriented partner
Merchandise
Group
SVP SVP V.P.
SVP SVP
Merchandising Mgr Merchandising Mgr Planning
Merchandising Mgr Merchandising Mgr
Women’s ready-to-wear Cosmetics, shoes,
Men’s, child’s, Soft home
Outerwear jewelry, access.
intimate apparel furn., kitchen
Department

Div. merch
Div. merch Div. merch
manager Div. merch Div. merch
manager manager
Men’s suits, manager manager Div Dir.
Men’s sports- Young men’s,
slacks, dress Children’s apparel Intimate apparel Planning
wear, Polo boys’ apparel
shirts

Classification
Buyer
Buyer Buyer
Preteen Buyer Buyer Buyer Mgr.
Girls’ Girls’
accessories Toddlers’ Infants’ Little boys’ Planning
Size 7-14 Size 4-6

Category
Sportswear Dresses Swimwear Outerwear

SKU

Girls Levi jeans, sizes

5, stone washed blue,
straight leg Irwin/McGraw-Hill Levy/Weitz: Retailing Management, 3/e

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62
F
 Motivating Retail Employees

• Commissions
Incentives • Bonuses

Policies and • Written policies about what employees

Supervision should do

Organization • Set of values, tradition and custom that governs

Culture organizational behavior and guides employees.

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