competitive retail strategy for fashion merchandise new
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Competitive Retail Strategy For Fashion Merchandise New
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1. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
COMPETITIVE RETAIL STRATEGY FOR FASHION MERCHANDISE
ArunKumar Arunachalaiah - Retail Consultant Em ail –
aarun9677@hot mail.com, Mobile: 9740067765 ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 1
2. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Contents Introduction Emerging Trends in Retail Sector – India
Story Page - 01 Industry Overview – Indian Retail Sector Page 02
- 07 Oppurtunities,Threats and Risks in Indian Retail Sector Page
08 - 10 An intuitive assumption Page - 11 Need for Topic – Retail
Strategy for Fashion Merchandise Page 13 - 15 Project Objectives
and Scope Page 16 - 19 Retail Marketing Strategy Market
Penetration Page 23 - 24 Pricing Page 25 - 27 Store Location
Approach Page 28 - 29 Establishing a Retail Brand Image Page
30 - 34 Planning and Forecasting Forecasting Demand Page 35 -
36 Merchandise Planning and Category Management Page 37 -
39 Merchandise Budget Plan for Fashion Merchandise Page 40 -
41 Procurement and Inventory Management Supplier Scoring and
Assessment Page 42 - 43 Supplier Contract Administration Page
44 Vendor Management Page 45 Inventory Management Page 46
- 49 ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 2
3. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Retail Operations Management Store Layout Designing and
Visual Merchandising Page 51 - 61 Customer Service
Management Page 62 - 63 Store Facility Management and
Maintenance Page 64 Loss Prevention Page 65 - 66 Store
Operations Parameters Page 67 - 68 Supply Chain Management
Framework Page 69 - 76 Summary Report and Conclusion Page
77 Annexures Proposal Page 78 - 80 References Page 81
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 3
4. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Emerging Trends in Retail Sector – India Story It is beyond doubt
that Retailing in India is the most attractive sector of this decade.
While the retailing industry itself has been present through the
history in our country, it is only in the recent past that has
witnessed so much dynamism and growth. It’s the latest
bandwagon that has witnessed hordes of players leaping onto it.
While international retail store chains have caught the fancy of
many travellers abroad, the action was missing from the Indian
business scene, atleast till the last 5 to 7 years. The emergence
of retailing in India now has more to do with the increasing
purchasing power of buyers, especially post liberalization,
increase in product variety and the increase in economies of
scale with the aid of modern supply and distribution
management solutions. Indian Retail Scenario at a glance Ø The
contribution of retail industry to India’s GDP is more than 13%. Ø
Indian retail industry spreads over more than 6 million outlets
including organised and unorganised sectors. Ø Even with 6
million retail outlets the country sorely lacks anything that can
resemble a retailing industry in the modern sense of the
term.This presents organised retail a great oppurtunity. Ø Less
than 6% of India retail is in an organised format in year 2006. Ø
There is complete absence of Supply Chain Management
perspective in the Indian retail industry. Ø 96% of outlets in India
are less than 500sqft. India per capita retail space is the lowest
in the world with just 2sqft compared to 16sqft in USA. Ø Only
8%of India’s one billion population is engaged in retailing. Ø 60%
of sales in Retail still comes from food items in India. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 4
5. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Industry Overview – Indian Retail Sector With only about 3%
share in an estimated $320-bn Indian retail industry, we see
significant growth potential in the organized retail segment in
India. The expected growth in income levels, easy availability of
credit, increasing urbanization and favorable demographic
conditions are expected to put the Indian organized retail
industry on a rapid growth path. A CAGR of 26% is expected for
this industry over the next four years and have a positive view
on the sector. Key Growth Drivers of Retail Industry v Low
penetration The current penetration levels of organized retail are
the lowest in the world. With a massive population, the potential
of the industry in India, going forward, is tremendous. Companies
have announced plans entry into various segments in the
industry. The penetration levels are as low as 3-4% overall and
as low as 1% in segments such as food and grocery retail.
Clearly, the potential of the sector going forward is enormous.
Global retail development index Rank Country Country Risk
Market attraction 0=high 0=high 100=low 100=low 1 India 67
42 2 Russia 62 52 3 China 75 46 4 Vietnam 57 34 5 Ukraine 41
43 (Illustration 1)Source: Economic Times Intelligence group
2004 ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 5
6. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
v Favorable demographics provide enough potential for
organized retail Out of India's population of about 1 bn, the
overall target market for modern retail is Estimated at about 50
million people. With more than 50% of the population being
under the age of 25, the market looks extremely attractive for
organized retail players as this population has demanding
lifestyles. This segment forms a major portion of any retailer's
plan. Growth in urbanization is a key driver for the organized
retail industry. This is because, currently 85% of organized retail
market is concentrated in India's 8 largest cities. In India, the top
six cities currently account for about 6% of population but
contribute to 14% of GDP The population of urban areas is
expected to touch 550 million by 2021 as against 376(E)
currently. INDIA HAS THE YOUNGEST POPULATION IN THE
WORLD. IN 2020, THE AVERAGE INDIAN WILL BE ONLY 29 YEARS
OLD COMPARED WITH 37 IN CHINA AND THE US, 45 IN WEST
EUROPE AND 48 IN JAPAN. Source: (Business Line) v Easy
availability of credit The number of credit cards issued in India
has been witnessing a strong growth over the past few years.
Currently, there are 22.6 mn cards in circulation as compared to
7.1 mn in 2003. This number is expected to grow by over 30%
over the next few years. Easy avail- -ability of credit and also
easy EMI schemes being offered by the bank as well as
companies Do provide a boost to retail companies as this directly
has an impact in consumption patterns Of people. In India, less
than 1% of personal consumption happens through credit cards
as Compared to the global average of 5%. With a significant
increase in the expected usage of credit cards, the spending
patterns of consumers are expected to change further in turn
Benefiting organized retailers. THERE ARE 23MILLION CREDIT
CARDS IN CIRCULATION IN 2007 IN INDIA AGAINST 7.5MILLION
CARDS IN2003 ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 6
7. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
v Rising incomes & consumption patterns to spur growth Out of
an estimated 209 million households in India, nearly 6 million are
classified as 'rich' as Compared to 3 million in 1999-00. (Source:
E&Y). Also, about 91 million households are classified As
'Consuming' as compared to 55 million in 1999-2000. While rich
households have income levels of greater than US$4700, the
consuming class enjoys average income of US$1000-4000.Also
the average income level of high-income households has been
growing @ 20% YoY since 95-96. This growth in income brings
along with it a higher disposable income,willingness to spend and
demand for better lifestyle. As income levels rise, one tends to
spend more on lifestyle related activities and products, which is a
key driver for these segments of the retail industry. These can be
clearly observed from the statistic that discretionary spending
has been seeing a 16% rise for upper and middle classes over
the past three years. The private final consm expenditure (PFCE)
which is basically what a consumer spends on food and grocery,
apparel, medical services, savings, entertainment etc , is
estimated to grow from Rs.18.9 trillion in 2005 to Rs.53.62 trillion
in 2015 & expected to constitute 57.5% of India’s GDP.
Classification Number of Households( Millions) 2005 - 2006
annual household income) 1994 - 95 1999 - 2000 estimated Very
Rich ( > INR 215,000) 1 3 6 Consuming (INR 45000 - 215000) 29
55 75 Climbers (INR 22000 - 45000) 48 66 78 Aspirants (INR
16000 - 22000) 48 32 33 Destitutes (<INR 16000) 35 24 17
(Illustration 2)Source: The Marketing White Book, 2003-04
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 7
8. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
v Increased acceptance of "mall culture" to help growth The
organized retail boom was given a boost with the concept of
shopping malls.Currently, India has 179 operational malls and is
expected to have 412 malls by 2010.These malls attract footfalls
in ten of thousands everyday and have become family
destinations to shop, eat and for entertainment. While further
details are not available, we believe the expected growth in
shopping malls and increased acceptance of the "Mall culture"
should provide further boost to the organized retail sector. There
has been a sudden spurt in the number of malls coming up all
over the country and are attracting daily footfalls in millions. This
is attracting retailers to open stores in them. Malls provide not
only a great shopping experience but are turning out to be
places for family Outing and entertainment. This coupled with
the rise in incomes & willingness to spend is Only boosting the
growth of the industry. As of today, India has 179 operational
malls wi h t 47.4 million sqft of retail space, and is expected to
have 412 malls offering 205 million sqft Of retail space in 2010,
and by 2015 there would be more than 715 operational malls
offering 350 million sq ft of retail space and a very large chunk of
these developments would be in India’s Tier-II and Tier-III cities.
(Source: Images F&R Research) (Illustration 3)Source: ( Kotak
Securities 2007) ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 8
9. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
v Category-wise spend In India's retail industry, food, beverages
and tobacco form a substantial portion, comprising 76% of the
total industry However, it is in this sector where organized retail
penetration is the lowest, i.e. 1%.According to a McKinsey report,
the share of an Indian household's spending on food is one of the
Highest in the world, with 48% income being spent on food &
beverage. The penetration of organized retail is highest in the
footwear category at 31% followed by Apparel, books,
music/gifts, consumer durables, home décor and furnishings. The
Indian Consumer is spending most of his income on food,
groceries and beverages. Taking into Account that penetration
levels in this sector are the lowest. We can see this segment
grow Fast pace. Also, big players such as Reliance, Bharti & RPG
are all betting big on this sector. They are focused on back-end
logistics. These players are aiming to provide groceries at a low
cost compared to small neighborhood shops, street vendors who,
as of today account for most of the sales in groceries, vegetables
etc. .Even segments such as jewelry, beauty care, books are
seeing good growth, mainly propelled by the growth in malls.
Segmentwise Share in Organised Retail - 2006 40% 37% 35%
30% 25% 20% 20% 18% 15% 10% 8% 6% 6% 5% 3% 2% 0%
(Illustration 4)Source: ( Kotak Securities2007) ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 9
10. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Opportunities for India through Retail Sector In our opinion, the
growth in the retail sector can have a multiplier effect on the
economy. Some of the benefits which can accrue are: Ø Farm
income in India can increase if organized retail enhances
farmer's realizations on food items from the currently estimated
low level of 30-35% of retail price to the International norm of
over 60% of retail price. Ø The supply chain for unprocessed food
items is fairly under-developed in India. It has Many layers
leading to high wastages & a high cost of distribution. Increased
penetr- ation of organized retail into food and grocery segment
can boost farm incomes. Ø The current farm realizations for
unprocessed items are estimated at around Rs.1.2 Trillion. If this
segment shifts entirely to organized retailing the realizations of
farmers Are at levels compared to international countries (60-
65%) Ø Higher farm income can boost the purchasing power of
60% of the population adding to GDP growth through higher
economic activity. If farmers spend 80% of their incremental
Income the economy will witness an incremental spending of
around Rs.1trillion which is Equal to 3% of India’s GDP even if
economic multiplier effect is excluded. Ø Companies are
spending heavily on marketing, hence improving the growth of
the marketing sector as well. Intense competition will only
further increase advertisement and marketing expenditure. Ø
Also, logistics and supply chain companies are set to benefit
from the retail boom.Thus growth in retail can have a multiplier
effect on economy. Indian consumers will be the Largest
beneficiaries. India's middle class as well as lower income
consumers will be the ultimate gainers with multiple benefits.
Reduction of prices in typical monthly basic needs Shopping bills
may reduce by at least 10% within the next 24-30 months,
leading to generation of an equivalent amount of surplus
disposable income, Improve- -ment in quality of fresh/perishable
products in the market, Improved assortment and reliable
availability of products. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 10
11. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Threats in Retail Sector v Foreign Direct Investment in Retail
Currently, foreign direct investment in retail chain stores is
restricted in India. Prior to 1997, there were no FDI restrictions in
the domestic retail sector. Players who entered were McDonalds,
which opened in India in 1996 and Foodworld, which was hived
off as a 51:49 joint venture between Spencer & Company (RPG
Group) and Dairy Farm International. Companies that entered
prior to 1997 have been allowed to continue with their existing
foreign equity components. Drawbacks of FDI in retail would be
cut-throat competition, Promoting cartels and creating monopoly,
Increase in real estate prices, Marginalize small domestic
entrepreneurs. Displacement of unorganized players because of
financial strength of foreign companies, Unfair trade practices
like predatory pricing in case of absence of proper regulatory
guidelines v Steps being taken to protect margins Retail is a low
margin, high volume business. With the retail boom being
witnessed in the country, all companies are on an expansion
mode and adding stores at a fast pace. This expansion drive is
leading to cost pressures and biting into the margins of retailers.
In order to protect its margins and also with the aim to counter
competition in the industry companies are taking several
measures to stay competitive and also expand margins,a well as
offer best prices to the customer. Companies are setting up
massive supply chain systems , promoting private label apparels
and concentrating on their backend support by setting up
warehouses at different locations to reduce sourcing costs as
well as stocks reach the stores on time. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 11
12. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Risks and Concerns in Retail Ø Delays in mall construction may
delay launch plans of retailers Malls would account for half of the
total organized sector retail space demand in the next Five
years. However, the rising cost of retail space in India is affecting
the growth plans of Retailers. Real estate costs are hampering
their margins, which are already not very high. They are also
entering into long-term lease & revenue sharing arrangements
with mall Ø High employee costs Another major concern is staff
costs. Owing to increasing competition and new entrants in the
retail business, attrition levels for the industry have gone up
drastically resulting in high Expenses to retain and hire new
people. Staff costs have gone up by 35% since 2006. Companies
are now focusing on retaining their employees and are forced to
offer them higher Salaries and bonuses, which in turn have an
impact on the profitability. Ø Delays in mall construction may
delay launch plans of retailers Malls would account for half of the
total organized sector retail space demand in the next Five
years. However, the rising cost of retail space in India is affecting
the growth plans of Retailers. Real estate costs are hampering
their margins, which are already not very high. They are also
entering into long-term lease & revenue sharing arrangements
with mall Ø Opposition to organized retail Opposition from the
unorganized sector and any consequent political opposition can
Hamper growth plans of retailers. Also, delays in opening up the
retail sector to FDI Ø Pressure on margins Another important fact
is the pressure on margins, which the retailers will face once
Competition enters. Retailing as such is low margin business.
EBITDA margins for food & Groceries are wafer [email protected]%.
Margins in the apparel business are in the range of 8-16%. Given
the big expansion plans of retailers, net profits may have to take
a hit in order to Increase volumes. Retailers are concentrating
more and more on private labels where Margins are higher.
However, going forward, this is a key risk in this business.
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 12
13. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
An intuitive assumption on Indian Retail The Indian retail industry
leaders are very positive on the sector and believe current
players such as Pantaloon, are well positioned to take full
advantage of the growth in the sector. With the growth in
consumerism, urbanization and a young population the Retail
sector is clearly on an upswing. To protect margins, retailers
have now started to Concentrate on their supply chain and
logistics so as to ensure low cost of procurement. as such retail is
a high volume, low margin business and one which requires
sizeable Investments in working capital. With organized retail
penetration levels of 3-3.5% of the total industry, and as low as
1% in segments such as food and grocery the scope for growth is
tremendous. layers such as Reliance Retail, Aditya Birla group
are all expected to do well, going forward. Looking at the size of
the market and the potential, there is a market large enough for
several large players to co-exist. ArunKumar Arunachalaiah –
Retail Consultant, email – [email protected], Mobile -
9740067765 13
14. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Why Study Retail Strategy on Fashion Merchandise? FASHION
BUSINESS: IN-TUNE WITH RETAIL EVOLUTION India in recent
years has been the focal point of continuous growth and
development making it one of the fastest growing economies of
the world. It is the 4 largest economy in terms of Purchasing
Power Parity, after USA, China & Japan, and is rated among the
top 10 FDI desti- -nations. The Indian consumer is evolving and
driving retail growth due to increased consumptn. Private
consumption growth contributes to more than half of the GDP
growth and is growing in double digit figures. Several businesses
are reacting to this evolution positively, both through pull and
push phenomenon. Following a similar trend, the Indian textile
and apparel industry is also experiencing rapid changes and
growth. Apparel today has the largest share of the modern
organized retail in India i.e. 20% of the current market of Rs.
56,000 crore and this is expected to grow at a constant rate of
20% over the next 4 years. This report puts together some of the
recent trends being witnessed by the textile and apparel
industry. The central theme woven through these trends is the
way the consumer at various income-levels is evolving, thereby
ensuring that businesses are reacting in multiple ways. India is
the second fastest growing major economy in the world
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 14
15. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
The 'mass consumer' segment is moving from tailored clothes to
stitched apparel giving rise to discounted apparel
stores/retailers. This causes a shift from unbranded to branded
apparel. The 'middle end consumers’, already exposed to brands
is now looking to extend these brands into all aspects of their
life. Brands are thereby becoming lifestyle brands instead of
being product brands only. These consumers are also moving up
the social ladder and wish to flaunt the change in stature by
wearing affordable 'designer prêt wear'. This is prompting
designers to introduce prêt lines and corporatize their lines to
reach out to a larger audience. The 'high end Consumer' who is
exposed to international luxury brands, now demands them in
his/her vicinity. Apparel businesses are realizing this and tying up
with international brands to retail in India. These consumers are
also increasingly exposed to environmental issues and want to
use eco- friendly products (including apparel) to do their bit for
the society. Though this concept is at a very nascent stage in
India, apparel companies are reacting by 'going green' and using
natural fibers in some of their collections. As all consumers,
especially kids and the youth, are exposed to fashion and media,
they wish to associate themselves with characters and icons.
Picking on this trend, apparel companies are licensing these
characters/icons for apparel & accessories to increase their
customer base. Additionally, as consumers face hectic lifestyles,
they are looking for convenience in all aspects of life including
shopping. Fashion businesses are taking the lead from here and
taking on consumers at unconventional avenues of retailing like
airports, metro stations, cafes, beauty saloons, etc. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 15
16. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Recent Trends in Indian Fashion Retail Business è Fashion
industry is pushing to keep pace with the retail evolution
witnessed in India è Indian consumers are converting from
stitched apparel to ready-to-wear Causing a surge In discount
retailing è Factory outlets have become distinct and important
shopping destinations è Consumers now desire branded products
in all aspects of their life è Traditionally brands that offered
formal wear are now extending into Casual wear, Accessories,
footwear etc. è Brands are opening large EBOs to showcase their
expanded product range. These flagship Stores are positioned as
ultimate one-stop destinations for the latest fashion trends. è
Kids and youth are influenced by icons & characters and desire
to possess them in their everyday life è India has become an
important market for character licensing specially in apparel.
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 16
17. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Project – Objectives and Scope Successful Apparel Retailing has
always been said to be about getting nitty gritty right of
Merchandising, Forecasting, Supply Chain, Training and
Recruitment of high quality personnel and Category
Management. Building retail brands that offer value will, in future
overshadow all these areas and emerge as the dominant reason
for the success of the organized Indian Retailer. Indian Retailers
should understand that the retail experience has become a
popular Leisure activity and they are vulnerable to any new
competition for customer entertainment. Retailers must build a
brand with image to seek entertain and involve customers. It is
the Quality and value of the Retail Brands that they have sought
to establish that will determine the loyalty of the retail shopper
in future. Apparel Retailing is one of the most complex verticals
in the Retail Sector. This is because Forecasting sales for a
particular SKU is not possible as there is no sales history at the
SKU level. During every fashion season, Trends, Customer
demands, Styles and Fabrics/Colors keep changing it is
practically impossible to completely rely on previous sales data.
Forecasting Sales is much more straightforward for staples than
for Fashion merchandise as there is an established sales history
for each SKU and standard statistical techniques are used to
forecast sales. A Retailer is more vulnerable to face Stock outs,
Loss of Sales, Losing customer loyalty due to inadequate product
availability during peak season or face Excess stocks, increasing
inventory and operating costs due to excess buying exceeding
demand levels. Objective of this Project is also to carry out
extensive studies to make certain the right retail Strategy for an
apparel retailer to create a loyal and repetitive customer. The
project scope will also Include coverage of areas of establishing a
strong Retail image through Marketing Strategies, Brand
Building, Identifying the right Retail Mix, Pricing, Advertising,
Forecasting, Category Management, Retail Store Operations,
Supply Chain and usage of Information Tech- - nology
applications in Apparel specific retailing. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 17
18. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
To ensure the loyalty of the retail shopper any retailer has to
develop a strategy for long term Sustainable competitive
advantage. Few measure that a retailer takes to build
sustainable Competitive advantage Customer Loyalty Retail
Location Vendor relationship Effective and committed employees
Cost effective operations Below is an outline of Scope of this
project which will cater to accomplishing the above menti - -oned
objectives of the project to create a sustainable Competitive
advantage. • Retail Store • Financial Operations Operations
Mgmt Mgmt Information Retail System & Marketing Supply Chain
Strategy Competitive Advantage Merchandise Establishing
Planning, Retail Brand Buying, and Image Forecasting • Human •
Customer Resource Relationship Mgmt Mgmt (Illustration 5)
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 18
19. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Understanding the Retail Value Chain of Fashion Merchandise To
propose a Competitive Retail strategy it is imperative to first
understand the various functions involved in the different
channels of fashion merchandise. A brief outlook is provided
below to understand the value chain. Each function has a range
of processes for successful implementation which is described in
(Illustration 7) Marketing Consumer Planning Fashion
Merchandise Retail Outlet Design Retail Value Chain Distribution
Procurement Manufacturing (Illustration 6) Fashion Merchandise
Retail Value Chain ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 19
20. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Process functions in Fashion Merchandise Distribution Channel
We will look into greater detail into each of this process functions
in subsequent chapters • Market strategy • Demand Planning •
Product Lifecycle Mgmt • Inventory Mgmt • Segment/Target mkt
• Sales Forecasting • Product specification • Vendor Mgmt •
Retail Location • Merchandise Budget • Fashion Forecast •
Supplier Assessment • Brand Mgmt Plan • Design Trend •
Strategic Sourcing • Pricing • Buying • Product information •
EBO/MBO/Franchising Marketing Planning Design Procurement •
Manufacturing • Supply Chain Mgmt • Promotion/ Pricing •
Customer delivered execution • Transport Planning • Customer
Service Value • Quality Mgmt • Warehouse Planning •
Transactional Service • Repeat Sales • Compliant solution •
Reverse Logistics • Store Layout , Design • Word of Mouth •
Material Mgmt • Cross Docking • Operations mgmt • WIP
Tracking • Invoicing Manufacturing Distribution Retail Outlet
Consumer (Illustration 7) ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 20
21. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Retail Market Strategy A Retail Market Strategy is the statement
of identifying Ø The Retailer’s Target Market. Ø The format that
the retailer plans to use to satisfy the Target market needs. Ø
Building a sustainable advantage over competitors. Explore
Value Creation Opportunities through a appropriate
understanding of Customers – Consumers and Clients Company –
Core Strengths and advantage over market competition
Competitors – Existing and New entrant competitors in market.
Collaborators – Suppliers, Channel Partners Context –
Government Policies Choose the right Retail Mix with the 4P’s of
Marketing Mix – Product/Price/Promotion/Place v Merchandise /
Product Sold – Food/Apparel/Pharma/Auto/General Merchandise v
Pricing of the Merchandise – Differentiating factor v Customer
Service Level – Gift wrap/Home delivery/Free
parking/Entertainment v Variety/Assortment of merchandise
offered – Breadth and depth of product line. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 21
22. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
The target market segment is a market which a retailer wants to
focus all its efforts and Retail mix. Target marketing requires
marketers to take 3 important steps. S T P Segmentation Target
Market Positioning STP Strategy Market Segmentation : Dividing
a market into distinct group with distinct needs. Its is important
to determine v Who the consumer is – Demographic base of age,
economic status, residence etc. v What the consumer buys –
Products, Brands, Colors, and Flavors etc. v What kind of
shopping trip is typical – In/Out, Convenience, Destination trip
etc. v How the consumer buys – By Promotion, Price or Product
or Place v How often the consumer buys – Daily Weekly or
Monthly Target Market Selection: Once the retailer has identified
a feasible market segment opportunities it has to decide on a
targeting approach which revolves around v How many
segments to target? v Which segments to target? v Single
Segment Concentration/Market Specialization/Product
Specialization ? Positioning: Positioning is not what you do to a
product but what you to do the mind of the prospect. A position
of a brand is its perception among its customers. It is placing the
brand in the appropriate slot in the customer’s mind so that
when need is felt it pops up in the mind of consumer without
much effort as humans are selectively attentive to marketing
comm. unications and selectively retail information. Positioning is
the art of placing entire marketing mix in the customer mind and
create relevant association, emotion and attitude through power
words so as to stand apart from other competitive offerings.
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 22
23. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
We will consider a Retail Marketing Strategy for a Formal Wear
Apparel Brand to be launched by the retailer. A formal Brand is
an all season product not determined by the seasonal demand
factors. Factors to be considered to develop a formal wear retail
market strategy v Kind of Business: Medium Range Priced Formal
Wear Catering to both Men’s and Women’s segments v Future of
Business: • Uniform demand for formal wear throughout the
year. • Growing need for Services sector induces many working
professionals to be dressed in formal and professional for a
minimum of 5days per week. • Sales not determined by seasonal
demand factors. • Increased urbanization in Metro and Tier2 and
Tier 3 cities. v Target Customers: • According to a study the India
has about 14crore working professionals in the middle to junior
level executive cadres. This segment is known as “Aspiring India”
• Junior to Middle non managerial Executives Men and Women in
the age group of 22 – 35years with high spending potential. v
Long Term Goal of the Business: “To be the largest retailer of
apparel with pan India presence” ArunKumar Arunachalaiah –
Retail Consultant, email – [email protected], Mobile -
9740067765 23
24. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Situational Analysis Market Factors External Factors Competitor
Threats •Market Size-24-35yrs •Technology - Cost •Entry Barrier
- Low •Rising cost of Real •Growth Potential - high •Vendor
Bargain Estate prices Huge •Economy - Healthy power - high
•Absence of Supply •Business Cycle - Year •Regulatory - Helpful
•Competitor - chain round PeterEngland,John •Lack of trained
Player Human Resource •Scale of Economy- Achievable
Finalizing the Market Growth Strategy A Retailer has 4 options to
pursue any of the following Growth Strategies. Existing Mkt New
Mkt Market Market Current Retail Penetration Expansion Format
Strategy Strategy Retail Format New Retail Diversification
Development Strategy Format Strategy Rapid Market Penetration
Strategy An ideal growth strategy for a Formal wear fashion
merchandise business would be that ofa Rapid Market
penetration strategy which gives an edge to capture market
share quickly through Low pricing, High volumes and enhanced
and aggressive Advertising .t is used when I retailers seek larger
revenues by setting low price and selling many units Profit per
unit is low . but total profit is high. It offers growth opportunity to
target existing customers using the present retailing format. This
approach suits the target market as young middle level
executives are usually price sensitive to Formal wear and looking
for a best deal all the time. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 24
25. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Approach to Rapid Market Penetration Strategy ØConcentrated
Marketing targeting the needs of very specific defined market of
age group of 24-35year middle level cadre. ØAggressive display
of Merchandise to create impulse purchases. ØAvailability of
greater breadth of product assortment will be considered by the
consumer and hence stronger the salience as most consumers
today are time-constrained. ØAugment the depth of the Product
mix by extending the product Line into Ties, Leather Belts,
Wallets, Handkerchief, Socks, Cufflinks ØPromote the idea of
Cross selling approach to the customers by selling
Complimentary merchandise along with core merchandise. For
eg: A customer buying a Shirt would also want to buy Tie or
Cufflinks. ØProp up the point of Purchase counters with
unplanned purchase Items like Handkerchiefs or Wallets that can
comprise a significant Portion of consumers total shopping
basket size. ØOpen more stores in the Target market Area ØKeep
existing stores open for longer hours ØStimulate customers to
spend more time in the outlets on shopping Using clever tactics
such as filling up of loyalty card programs, Research
questionnaire, Superior lounges, in store entertainments to
create an enhanced Shopping experience which drives the
consumers to make repeat visits to the stores. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 25
26. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Pricing Strategy Pricing merchandise is one of the most
important activities in Retailing. Once the assortment Plan is
ready the retailer decides how to price the merchandise for
maximum sales and profit. A value of the product is determined
by the customer and not by the retailer or manufacturer. Correct
pricing decisions are a key to successful retail management. The
first step in Pricing is Identifying the costs. Only costs that will
rise or fall when price changes affect profitability of Different
pricing strategies, these are called incremental costs as they
represent increment to Cost that result from pricing decision.
Retailer must also consider Contribution for each product Sold.
Contribution margin as a % of price is the share of price that
adds to profit or reduce losses In other words the added profit or
loss due to additional sale. It is measure of leverage between a
firm’s sales volume & profit. An effective Pricing strategy
requires good understanding of value of product to the buyers.
Value refers to total savings or satisfaction customer receives
from the product. This is known as Economic Value referred as
price of customer’s best alternative plus value that differentiates
the offering from the alternative. The gap between buyer’s
willingness to pay and economic value of the product is known as
Price sensitivity of the customer. Evaluating customers on 2
dimensions of perceived value of a product’s difference and
perceived pain of price will reveal valuable value segments.
Different Groups of Buyers or Consumers • Price Buyers – High
pain of price, Low value of differentiation(Price Sensitive) •
Relationship Buyers – Low pain of price, high value of
differentiation(Brand Loyal) • Value Buyers – High Pain of price
and differentiation (Time Rich Value conscious) • Convenience
Buyers – Low pain of price and differentiation (Time Poor, Cash
rich) Goal of Pricing: • Profit maximization – Maximum revenue
leading to maximum profits. • GMROI – Target return on
Inventory Investment • ROS – Target return on Total Sale. •
Market Share – Grab a portion of competitor’s customers in
merchandise category. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 26
27. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Setting Retail Prices : • Cost oriented Pricing: (Maintained
Markup Percentage) Price determined by adding fixed % to cost
of merchandise Maintained Markup % = (Net Sales – COGS)/ Net
Sales Gross Margin = (Maintained Markup – Workroom cost –
Cash discount) / Net Sales Initial Markup =(Maintained markup +
Reductions) /(Net Sales + Reductions) • Demand Oriented
Pricing: Prices are based on what customer expects or is willing
to pay or determines the range Of price acceptable to the target
market. It assumes minimum price acceptable to the Firm to
reach a specified profit. Mostly used to estimate quantities that
customer would Buy at various prices. • Competition Oriented
Pricing: Prices are based on competition rather than cost or
demand of the product. This method Keeps a constant eye on
competitors pricing and promotion activities. • Combined Cost
Demand Competition pricing: Useful method where cost should
be basis for pricing, competition should provide insights to
market & demand orientation should be used to fine tune to
customer expectations. Implementation of Competitive Price
Strategy Pricing Strategy is not as easy as it sounds. Retailer
may have to customize strategy looking at various pricing
options. EDLP – Everyday Low Pricing and High Low Pricing
remains at the back ground and retail price is set as per Cost,
Demand and Competition consideration. Pricing Tactics Price
adjustments let retailers use price as an adaptive mechanism v
Full Price – When Retailer Sells to customer at a full retail price
when demand is high and Product is still new in the shelf of the
Retail Stores. ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 27
28. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
v Markdowns – Tool for Retailer for pricing end of lifecycle
products, seasonal inventory Markdown prices are optimized to
reduce inventory and maximize contribution margin. It is lesser
than an item’s original price to clear out shop worn out
merchandise, reduce Assortment of odds and ends and increase
customer traffic and make way for new items On shelf space. v
Discounts – A discount is a reduction of price on the list price
granted by retailer to the Consumers usually to clear of end of
season inventories, outdated packaged items and dead stock
non moving inventory. Every Retailer makes sure irrespective of
which ever method of setting retail prices will consider an a
propionate percentage of markdowns sales and discount sales
and shrinkages in the Retail price of the product to consume
losses incase of sales dip or excess inventory. Special Pricing
Tactics: v Price Lining: Retailer establish price points for entire
product line like for a range of v Shirts in different designs Rs499
,549,799,949. v Odd even Pricing : It is a means of psychological
pricing where a price ending with odd number entail Bargain and
price ending with even number imply quality. Bata - Rs.99.99 v
Price induced Sampling: Promotional pricing for a limited period
of time. Eg: Tata Sky v One Price policy – Retailer charges one
price to all customers buying a particular item In a store. For eg:
One dollar store v Price Bundling : Marketing two or more
products in a single package at a special price often used for
complimentary products such as toiletries. Retailer use this to
push slow moving items or to induce trial for new products. A
related tactic would be unbundling reducing the number of
products sold with core product. ArunKumar Arunachalaiah –
Retail Consultant, email – [email protected], Mobile -
9740067765 28
29. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Retail Store Location approach Store Location is one of the prime
considerations in a customers store choice. Location Decisions
have long term strategic importance. Location decisions are hard
to change as they involve huge investment. If a retailer moves
from one location to another the potential problems he could
face are Loyal customers and employees might be lost, New site
might not have the same traits as the old one. Store fixtures and
renovations from old site usually cannot be transferred.
Attractiveness of a Retail Site for a Fashion merchandise store
depends on below factors Traffic & Demographics Competition
Site Factors Cost Factors Access •Lifestyle •# & type of •# &
types of •Size of Site •Terms of •Income vehicles stores in area
•Parking space lease/ rent potential •access to •Key players
•Visibility of •Rent rates •Occupation store analysis store
•Operation mix •street •Location of •Entry & Exit cost •Nearby
offices congestion competitor •Building •Local taxes •mass
transit condition •membership presence •Retailers cost of
Association Association of retailers Various options available for a
retailer to choose a retail location for a fashion merchandise
Depends on target audience, investment requirement and
competition. Fashion merchandise store can be in any of the
formats according to its location EBO’s – Exclusive Brand
Outlets(Specialty Stores) Exclusive Brand Outlets is a distribution
strategy whereby a retailer sells his products in only one retail
outlet in a specific geographical area.An EBO can be suitable in a
Central Business district/Shopping centre which is the main
centre of commerce and trade in the city. Usually every Metro
city has more than one Central Business district Bangalore
popular and .In well know Central Business district is created in
Commercial Street ,Brigade Road Indiranagar, , Koramangala and
Jayanagar. It is better to have EBO’s in each of these places as it
gives a significant presence of brand due to huge customer
traffic movement and also footfalls will increase and convert
suspect customers into prospective clients. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 29
30. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Multi Brand Outlet (MBO’s) Multi Brand Outlets are retail stores
owned not by the retailer but a channel partner of the Retailer
who has made agreements with various retailers to sell their
brands in their outlets This type of MBO for fashion merchandise
is suitable in a Secondary Business District which has a shopping
area that is smaller than a central business district and revolves
around at least one variety store at a major street intersection.
These MBO’s are available in plenty in Metro cities and also quite
popular in Tier2 and Tier 3 cities. Customers in these trading
areas are not specifically brand conscious but more of Value
buyers and they prefer to shop in a store which houses a variety
of brands. Franchising Franchising is a very specific innovative
method of distributing goods and services where Franchisor
(owner of business/retail) provides product and assigns to
Franchisees the right To market and distribute the franchisors
goods and service The Business format Franchise model is the
most popular method in Apparel Franchising Franchising model
of store operations best suits the retailer when the retailer needs
to Expand his business into new geographical areas where
limited knowledge is available to Conditions for business and
market potential is not very clear. Also having own stores in new
locations attracts lot of investment and riskier. It is better to
enter new geographical areas through franchising model and
with its success the retailer can plan to expand his own market
through opening EBO’s and Flagship stores. Primary Trading Area
- 50-80% customers Central Business district - Metro cities -
EBO's Secondary Trading area - 15-25% customers Secondary
Business District - Metro & Tier2 cities - MBOs Fringe Trading
Area - 10% of customers Stores in new States, expansion mode -
Franchising Model Store Mapping for Fashion Merchandise Retail
Outlets ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 30
31. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Establishing a Retail Brand Image The emphasis here is on retail
as a brand rather than retailers selling brands. The focus should
be on branding the retail business itself. In their preparation to
face fierce competitive pressure, Indian retailers must come to
recognize the value of building their own stores as brands to
reinforce their marketing positioning, to communicate quality as
well as value for money. Sustainable competitive advantage will
be dependent on translating core values combining products,
image and reputation into a coherent retail brand strategy. Retail
branding creates a brand preference, which goes beyond the
product in itsef. What might it then mean, when branding is
applied to retailing? The issue is not of retailers selling brands
but branding the retail business itself, like the grocery
supermarket chain or the fashion store. The retailer must
attempt to brand himself differently, especially when today’s
product brands are being launched through their product brand’s
own shops.(Examples – Nike, Adidas and Reebok. Jeans segment
– Lee and Wrangler, Perfumes –Hugo Boss. ) Fundamental
characteristics of a brand (1) Recognizability: A true brand is
instantly recognized and identified. The brand name passes into
every day use (Nike’s ‘Just do it’) or (‘Make a Xerox of this
document’) (2) Meaning, story, value: This is the second
characteristic of a brand. The brand must have a value
proposition. It must stand for something and one of the most
effective ways is to have a story to transmit those values. (3)
Legitimacy: The meaning of the brand should be obviously
appropriated by the target customer group. In Retail business
Legitimacy rests on emotional authority, earned by the brand
and granted by the customers like unique shopping experience
warmth in store. (4) Consistency, alignment: A brand story
should contain no internal contradictions and should be appear
to be consistent over time, applicable across the business and
attempt at total brand integration. (5) Proximity: The brand
building process should culminate with assuring the brand’s
proximity to the consumer. The brand’s definition gets expanded
by opening stores in a number of locations to make it convenient
to the consumer. ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 31
32. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
A retail organization, like any other corporate company, will have
to ensure that its own brand includes the characteristics of
product brands detailed above. Retailers need to work on three
dimensions to achieve this: ( 1 ) Brand value: The retail brand
has to embody and transmit clear values to the customer. (Like
‘value for money’, ‘Luxury shopping redefined’). Some
companies have attempted to define this in their mission
statements but they are often too vague and not actionable.
While many Indian product brands have successfully weaved
values around their brands (Hamam on ‘trust’, Godrej on ‘quality’
and TVS on ‘service’) retailers are yet to develop a consistent
value across their businesses. (2) Brand strategy: It is imperative
that retailers have a systematic strategy on issues like whether
to develop the retail brand or corporate brand and decisions on
one product/one brand that they may be selling in their shop.
Retailers can also decide to launch high quality retailer brands
(‘own labels’) backed by promotional campaigns, reinforcing
clear personalities. Pricing policies, today position retailer brands
as good value lines or premium lines.The view that retailer
brands offer a cheaper alternative to manufacturer brand is no
longer valid. There is even scope for retailers to develop
alternative types of ‘own labels’ targeted at different consumer
groups in their outlets. An essential ingredient for success, in
such cases, must be consumer-relevant added values – not just
lower prices. Experienced consumers are no longer primarily
motivated by low prices. There is scope to attempt a retail
segmentation strategy. ( 3) Brand structure : Operational levels
of the retail business have to be held together to integrate the
whole brand proposal. At this level, marketing, human resources,
distribution, logistics, administration and sales have to work
towards a common brand value that has to be communicated to
the consumer. The retail brand’s messages must be weaved into
the every day experiences that the consumer has with the retail
brand. Brand building constitutes a way in which the main value
of the retail store shifts to what has been traditionally called an
intangible. Indian Retailing is coming of age and needs to have a
clear brand proposition to offer the discerning Indian consumer.
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 32
33. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Value of Brand Image Brands provide value to both customers
and retailers. Brands convey information to the Consumer about
nature of shopping experience, retailer’s mix. Brand image also
affect consumer confidence in decisions made to buy
merchandise from the retailer. Brands can enhance customer
satisfaction with the merchandise they buy. The value that brand
image offers the retailer is called Brand equity. A strong brand
image enables retailers to increase their margins. Retailers with
strong brand names can leverage their brand to successfully
introduce new retail concept with only a limited effort on
marketing. Building brand equity involves the following activities.
Brand Awareness Brand Awareness is the ability of a potential
customer to recognize or recall that the brand Is a type of
retailer or a product/service. Brand awareness is the strength of
the link between Brand name and type of merchandise in the
mind of the customer. Aided recall is when Consumer indicates
they know the brand when the name is presented to them. Top
of mind Recall happens when consumer mentions a brand name
when asked about a type of retailer. Retailers build top of mind
recall by having memorable names, repeatedly exposing their
Name through advertising, locations and using memorable logos.
Favorable association with the Brand Value of brand is largely
based on the association that customers make with brand
names. Eg: McDonalds link is so strong when customer thinks of
hamburgers it reminds them McDonalds Common associations
that retailer build with their brand names are • Merchandise
Category – Madura garments associates with Formalwear •
Price/Quality – Eg: Wall-mart associates itself with low prices •
Specific attributes – Retailer can link stores to attributes such as
service/convenience. • Lifestyle/Activity – Some retailers
associate their name with specific lifestyles. Reinforcement of
Brand Image Brand image is reinforced to deliver a consistent
image through retailer’s integrated Communication program
such as Advertising, Sales Promotion, Publicity, Store
Atmosphere Visual merchandising and Personal selling.
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 33
34. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Indian Retail Brand Building – the road map ahead Indian
Retailers should learn quickly to build the retail brand directly
and not look to factors like prime location, value pricing or
product assortment to build their businesses. Indian retailers, to
build a strong retail brand presence, can use the following
strategies. Relationship management to enhance in-store
shopping experience: Competition will force retailers to think
about their customers as individuals, analyze their share of
customers and calculate their customer lifetime values. Retailers
need to build data bases using in-store data collection and
launch frequent shopper rewards, carry on an interactive
communication with them, make special offers, drive traffic and
add value outside the in-store relationship.Retail brands get built
by developing personal relationships with consumers rather than
only through product and pricing. For example, staff should be
trained to recognize their V.I.P customers. ‘Soft’ rewards for V.I.P
customers include priority service, free gift wrapping, enhanced
guarantees and sales pre-notifications. ‘Hard’ benefits include
privileged rewards and extra value offers as well as straight
discounts. The quality of management of the customer is
becoming an increasingly important source towards building the
retail brand. Education and training of staff needs to be done to
enhance customer service. Local store management can be
empowered to maximize the value of each customer visit.
Analysis of customer behavior can guide store merchandising to
match the profile of their customers and even the needs of the
shoppers at different times of the day. External communication
to add value outside the store: Retailers use advertising to build
their brands and promotions to drive store traffic. Retailers have,
still not felt the concept of individual customer communication
outside the stores as a necessity. It is necessary that they seek
to add a new form of dialogue with their customers. Retail chain
Subiksha, for examples, mails a broadsheet to its customers
giving them details of the promotional offers available and price
comparisons across brands that helps its customers to take more
informed decisions. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 34
35. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Motivating the staff to volunteer value The quality of in-store
service is a key factor in differentiating the retailer and winning a
higher share of customer spend. In one survey, shoppers were
asked, would they ask for the same salesperson on their next
purchase visit; the ‘yes’ respondents were found to more likely
give the store a 8-10 rating. Staff must be trained and motivated
to recognize their best customers and to offer them superior
service. Building retail brands that offer value will, in future,
overshadow all these areas, and emerge as the dominant reason
for the success of the organized Indian retailer. Indian retailers
must build their brands with images that seek to entertain and
involve their customers. It is the quality and value of the retail
brands that they have sought to establish that will determine the
loyalty of the retail shopper in future. Community Relations The
way retailer interact with the communities around them can
have significant impact on the brand image and performance.
Engaging in community oriented actions enhance their Stature.
Some of them can be listed below v Make sure Stores are barrier
free for disabled shoppers v Showing concern for environment by
recycling trash and cleaning streets v Supporting charity and
noting that support at the company website v Running special
sales for senior citizens and other groups v Sponsoring Youth
activities v Donating money and equipment to schools and
orphanages. ArunKumar Arunachalaiah – Retail Consultant, email
– [email protected], Mobile - 9740067765 35
36. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Planning and Forecasting Retailers have a proactive approach to
respond to the fluctuations in Demand and Supply to increase
the overall profitability of the firm. Planning methodology is
adopted to manage allocation, production and distribution of
available resources and also to make trade-offs when necessary
between inventory and capacity. Forecasting Demand Every
Strategic and planning decision taken by a retailer has to be
based on Demand forecasts. Forecasting is a very important tool
which helps in taking accurate decisions. Different products have
different demand trends and are therefore difficult to forecast.
Products like milk and bread have stable demand and hence
easy to forecast whereas technology products like mobile phones
are extremely difficult to forecast. Characteristics of a Forecast: •
Forecast Error – Forecast must always include both an expected
value of forecast and a measure of forecast error (varies
between 2% to 5%) Et – Ft – Dt (Diff b/w actual forecast & actual
demand in period t) • Accuracy of forecasts – Long term
forecasts has larger standard deviation of error with respect to
mean than short term forecasts. Forecasts made for shorter lead
time products are more accurate. Aggregate forecasts have
small standard deviation of error relative to the mean and hence
are more accurate. • Information Distortion – As we move up the
supply chain the degree of information distortion increases.
Forecasting Components: • Past Demand • Lead time involved in
the product • Economy • Advertising decision and discounts
offered • Competitors ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 36
37. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Steps involved in Demand Forecasting • Forecasting Objective –
How much to sell, How much inventory to maintain, How much
discount to be allowed • Demand planning and forecasting
integration – Issues like capacity, production, promotion,
purchasing and advertising require planning to be done in
accordance with the forecast made. • Customer Segment
identification – Different customers may be grouped under
different segments to use different forecasting methods. •
Factors influencing Demand forecast – Demand, Supply and
features of product are main factors affecting forecast. Retailer
must understand what would the demand be in absence of
promotional activity. • Forecasting method determination –
Larger number of companies use multiple forecasting techniques
individually or in combination • Establishing Performance and
error measures – Actual accuracy compared with desired
accuracy and resulting gap should be called error, corrective
action is taken to reduce it. Forecasting Methods: • Qualitative
Methods – Used when there is no historical date. Expert
judgment is involved and highly subjective in nature • Time
Series – Use of historical data and past results when demand is
stable Mixed – {(L + T) x S.D}, Additive - {L + T + S.D},
Multiplicative - {L x T x S.D} Where L is Level , T is Trend, SD is
Seasonal demand. • Casual – Forecasts are correlated with
certain environmental factors like economy & market rates. •
Simulation – Methods imitate customer choices. Simulation can
be used by combining time series methods and casual methods
to arrive at a forecast. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 37
38. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Merchandise Planning and Category Management Merchandise
Management is the process where the financial goals of the
company are achieved by offering the right merchandise in the
right place at the right time in the right quantity. This
encompasses sales forecasting, buying merchandise, making the
assortment plan, pricing and determining the communication
mix. Category Management is the process of managing the retail
business with the objective of maximizing sales and profit from a
particular category. Category is the basic unit of analysis for
making merchandise decisions like Divisions in Apparel,
Electronics, Food, Department in Men’s, Ladies and Kids
segment, further category into formal, casual, sportswear and
ethnic wear. The planning for the merchandise category
culminates in an assortment plan. An assortment plan is a list of
merchandise that indicates in very general terms what should be
carried in a merchandise category like men’s formal wear
includes average number and percentage of each style/color/size
that the retailer should have in his inventory. Mission and Roles
of Category • Destination Category – Customer’s first choice of
retailer • Routine Category – Customer’s preferred retailer of
routine needs • Seasonal Category – Retailer is a major supplier
for a particular time or season. • Convenience Category –
Retailer is the supplier of fill-in products Some examples of
subcategories include • Traffic builders – Product with high
market share • Transaction builders – Products frequently
purchased on impulse. • Cash generators – Products with high
stock and margins • Image creators – Products that are
promoted with features that makes it unique. • Excitement
creators – Products with high impulse appeal. The goal of
category management is to improve operating results of a
retailer and its associate partners including manufacturers,
distributors & brokers. Category management is a strategy of
differentiation. It should drive multiple item purchase, not
selection of single SKU, should be a function of times, space and
product utilization. ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 38
39. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Focus area of Category Management: Category Management has
its roots with the landmark Efficient Customer Response industry
initiatives of 90’s developed by GMA – Grocery Manufacturers of
Amercia. ECR established best practices guidelines that have
helped guide countless category management initiatives. •
Efficient Product Introduction • Efficient Product Promotion •
Efficient Store Assortment Merchandise Planning Process
Merchandising directions are set for the company by Top
management who look at the overall merchandising strategy
which involves 1. Defining Target Market 2. Establishing
performance goal 3. Deciding on basis of trends which
merchandise division should be given emphasis 4. Studying
category past performance 5. Project assortments for their
merchandise categories for coming season Merchandise Plan
tells the buyer and planned how much to spend on each
category every month/season. Once merchandise plan is set
buyer and planner set the assortment plan. The buyer works with
vendors choosing merchandise, negotiating prices and
developing promotions. The planner breaks down overall
financial plan into how many of each item to purchase and how
to allocate to stores. Assortment Planning Process • Variety –
Number of different merchandising categories within a store or
department. Large variety means to have a good breadth.
Variety is the most important defines the retailer in the
customer’s eye • Assortment – Number of SKU’s within a product
category. Stores with large assortment is said to have good
depth. • Product availability – defines percentage of demand for
a particular SKU that is satisfied. Also referred as support level or
service level. ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 39
40. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Category Management Guide of determining Variety &
Assortment Ø Profitability of Merchandise Mix – Retailers are
always concerned with the amount of money they have to invest
in merchandise and space. Ø Corporate Strategy and Positioning
– Strategy towards assortment helps number of colors and styles
to purchase. The more diversified the stock portfolio less risk of
huge losses as on an average the category might perform well
even if a few don’t sell. With large assortment buyer runs risk of
broken sizes and hence usually take markdowns as they are hard
to sell. Ø Physical characteristics of Stores – Retailers much
consider how much space to devote to each category. The space
requirement increases with increase in assortment and colors.
The display area’s physical characteristics in terms of capacity
are also important. Retailers typically divide their chain into A, B
and C stores based on their ability to generate sale. “A” Stores
get the largest inventory allocation and assortment. Ø
Determining Product availability – Higher the product availability,
higher the amount of backup stock necessary to prevent out of
stocks on particular SKU’s. A very high level of service results in
higher inventory investment. The relation between cycle stock
and safety stock explains this better. Ø Assortment Plan –
Historical precedence is the starting point for developing
assortment plan for any season. Category manager uses
GMROI,Sales forecast and turnover ratios along with assortment
plans to develop a buying plan for the new season. It also
requires expert and subjective judgment. Ø Space Allocation - a.
Sales/Sq feet - Sales/Linear foot of shelf space which is annual
sales divided by total linear footage devoted to the product
category. b. GMROF - Gross profit per linear foot of shelf space
which is annual gross profit divided by the total linear footage
devoted to the product category. Ø Performance measures a.
GMROI – Gross Margin divided by average Inventory Investment
at retail price. b. Inventory Turnover - # of times in a year
average inventory on hand is sold. c. Direct product profitability –
Gross profit minus its direct retail cost. d. Average
sale/Transaction – total sale for day/total # of bills generated in
that day, measures customer spend per transaction and also
determines ticket size. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 40
41. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Merchandise Budget Plan for Fashion Merchandise The
merchandise budget plan aims to setup specific merchandise
objectives and to plan financial aspects of the merchandise side
of the business. It involves below steps Planning Data Ø
Assortment Plan - Historical precedence is the starting point for
developing assortment plan for any season Ø Sales Forecast – It
is a simple way to adjust past sales to make projections into the
future. Sources of information for sales forecast could be a.
Previous sales volume with which real trends are identified b.
Published sources c. Customer information – through
observation, sales people and market research d. Observing
competition e. Vendors, Distributors, Channel partners and
Expert judgments Method of forecast is mainly a. Time series -
Moving average – average of several months sale, as each new
period sale data is added the average the oldest period is
removed from total. b. Time series – Exponential Smoothing –
often used for Short range forecasting. New forecast = Old
forecast + f (Actual demand – Old forecast) where f is const b/w
0 & 1 that determine influence actual demand on the new
forecast. Ø Reductions – to have enough merchandise levels
apart from sales value of inventory may go down due to
Markdowns, Shrinkages and Discounts. Ø GMROI goal for
category is planned based on past performance of same
merchandise. Ø Inventory Turnover – when inventory turnover is
planned Gross margin is ignored as the budget plan is an
inventory plan and not a pricing or margin control plan. Ø
Average stock to sale ratio – To achieve planned inventory
turnover purchase must be kept in line with sale forecast with
the period. The average BOM Stock to sale ratio helps to do this.
Ø Monthly planned purchase - Monthly sales + Monthly
reductions + EOM Stk – BOM Stk ArunKumar Arunachalaiah –
Retail Consultant, email – [email protected], Mobile -
9740067765 41
42. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Evaluating the Merchandise Budget Plan GMROI, Inventory &
Sales Forecast are used for both planning and control as it is
based on top down planning process. After the selling process
the buyer determines how well they actually performed
compared to the plan. If actual GMROI, turnover and forecast are
greater than planned then performance is better than expected.
Questions should be answered as to why the actual performance
is above or below planned. Open to Buy Analysis OTB Analysis
starts where merchandise budget plan ends. The merchandise
budget provides a plan for purchasing merchandise to be
delivered in a particular month. The OTB keeps track of how
much is spent each month and how much left to spend. As such
OTB acts as a buyer Checkbook. The purpose of OTB is to keep
actual spending in line with the planned level of purchase to
avoid over investment and can maintain rate of inventory
turnover at planned levels. OTB is usually kept at retail price.
Steps in Buying Merchandise Ø Gathering data from Customers,
Suppliers, Sales staff, Competitors and Internet. Ø Selecting and
Interacting with Merchandise sources- Agents, Manufacturers etc
Ø Evaluating the Merchandise – Inspection, Sampling Ø
Negotiating the purchase and terms Ø Concluding Purchase Ø
Receiving and Stocking Merchandise – storing, GRN, invoice,
monitoring pilferage. Ø Reordering Merchandise – Inventory
holding vs ordering costs, turnover, cash outlay Ø Re-evaluating
on Regular basis ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 42
43. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Procurement and Inventory Management Sourcing can be
defined as the process by which companies acquire raw material,
parts, components, different products and services from various
suppliers in order to carry out their operations. Such a process is
called Procurement. The sourcing process comprises of the below
mentioned stages • Supplier selection • Supplier contracts
designing • Product design collaborations • Procurement of
material • Performance evaluation of suppliers. Supplier Scoring
and Assessment Supplier scoring and Assessment means rating
the supplier’s performance. Traditionally price was the primary
characteristic; however suppliers were ignored on other
characteristics like lead times, quality, reliability and design
capability and moreover, the impact of total costs doing business
with them. With the help of details received by supplier scoring,
Supplier selection is done to identify appropriate suppliers. Once
suppliers are identified Supplier Contracts need to be formulated
and negotiated with the suppliers. Once contracts are signed
product designs need to be prepared with the help of supplier
and in turn Product design collaboration takes place. While doing
this it is necessary to ensure that these designs are
communicated effectively to all parties involved in the
production and operations. The next stage is Procurement in
which supplier sends the products in response to the orders
placed and delivered on schedule at the lowest possible costs.
The final stage of Sourcing Planning and Assessing involves
identification of opportunities where buyers are able to decrease
overall cost of the product. Benefits of the sourcing process are •
Aggregation of orders resulting in economies of scale. •
Reduction in overall costs and distribution of risks with better co-
ordination. • Better forecasting and planning due to better
supplier relations. • Help to reduce inventories. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 43
44. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Some of the scoring points while identifying the right supplier
using Supplier Scoring and Assessment are noted below v
Replenishment lead time v Scheduled Performance v Supply
flexibility v Delivery frequency v Supply Quality v Transportation
costs v Pricing v Coordination of information v Product design
capability v Exchange rates and taxes v Supplier viability A
Sample of the Supplier Comparison Chart is illustrated below
supplier quality feature supplier 1 supplier 2 supplier 3 product
quality 2 5 3 service quality 3 4 1 ontime delivery 4 1 3
knowledge 2 2 4 reputation 2 4 3 customer focus 2 4 3 customer
service 2 4 4 responsiveness 3 4 1 average 2.5 3.5 2.8 average
2.5 3.5 supplier 1 2.8 supplier 2 3 supplier 3 responsiveness 4 1
2 customer service 4 4 2 customer focus 4 3 2 reputation 4 3 2
knowledge 2 4 4 ontime delivery 1 3 3 service quality 4 1 2
product quality 5 3 1 1.5 2 2.5 3 3.5 4 4.5 5 ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 44
45. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Supplier Contracts Administration It is very important to note
that contracts between suppliers and buyers are made keeping
in mind two basic aspects of supply chain profits and product
availability. In order to improve the overall profit of supply chain
the suppliers must design contracts that encourage retailers to
purchase in larger quantities and thereby increase the level of
product availability. But at the same time it is important for
suppliers to share some of the buyer’s demand uncertainty.
There are few types of contracts best suited for both suppliers
and buyers 1. Buy Back Contracts – This contract allows the
retailer to return the unsold goods up to a certain specified
amount at an agreed price. Allows retailer to order more number
of products resulting in higher product availability and higher
profits for both retailer and supplier, disadvantages is higher
inventory levels 2. Revenue Sharing Contracts – In this contract
buyer pays only a minimal amount for each unit purchased from
supplier but shares a fraction of the revenue for each unit sold.
This also increases the level of product availability meanwhile
increasing profits. Best suited for products having low variable
costs and higher cost of return. 3. Quantity Flexible contracts –
This contract allows buyer to modify the order within certain
limits as notified by supplier as and when the demand visibility
inches closer to the point of sale. This contract has less
information distortion than those above. This contract is suitable
for suppliers serving multiple retailers and also must possess
flexible capacity. 4. Contract for Supply chain cost co-ordination –
Quantity discount contract there is a reduction in overall cost but
lead to higher lot sizes and thus higher levels of inventory in
supply chain. 5. Two Part tariff contract – offers right incentives
for dealer to exert right amount of effort to increase supply chain
profitability 6. Threshold contract – offers the dealers an increase
in margin for sales exceeding a certain threshold limit. 7.
Performance improvement contracts – are structured at
instances where a buyer wants performance improvement from
supplier who has little incentive to do so. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 45
46. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Vendor Management The use of the following sourcing practices
makes sourcing easier and managing vendors efficiently
resulting in lower product costs and increasing the overall
profitability of firm. Ø Use of Multifunctional teams
Multifunctional groups help develop better strategies for
sourcing. It helps purchasers to stress and focus on purchase
price. Collaboration between the purchasing, manufacturing,
engineering and planning departments is much more likely to
identify correct costs. This collaboration must be continued up to
the procurement stage to realize the benefits of a good sourcing
strategy. Ø Co-ordination across regions and business units To
maximize economies of scale in purchasing and reducing
transaction cost, co- ordination of purchasing across all levels of
firm and supplier is essential Ø Evaluation of Total cost of
ownership An effective sourcing strategy should not make price
reduction its main objective. Primarily the factors that influence
total cost of ownership should be identified and used for supplier
selection. The performance of the supplier should be evaluated
and its impact on the total cost be quantified. Focusing on total
cost of ownership also allows a buyer to identify opportunities in
designing and planning in better way Ø Building long term
relationship with the suppliers Sourcing itself is essential to both
supplier and buyer working together as this generates more
opportunities for savings than the two parties working
independently. Trust should be established between the buyer
and supplier in order to maintain a long term relationship. At the
time of sourcing direct materials these capabilities are very
important and thus such relationships should be nurtured with
suppliers of critical and strategic direct material. Better
relationships result in better profitability for both supplier and
the buyer. ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 46
47. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Inventory Management Inventory is a very large and costly
investment that every stage of the supply chain needs to incur.
Every stage works independently to make supply chain
profitable. Thus it is very important that every stage of supply
chain co-ordinates and together forms the inventory policy. A
large number of firms make use of following two approaches in
combination when managing the inventory in order to meet
predictable variability. The two approaches are 1. Use of
Common components - This approach involves manufacturer to
design common components that can be used in multiple
products which have a predictably variable demand that result in
overall constant demand for the components. Eg: Buttons in a
Shirt 2. Developing Inventory for highly demanded products -
Products that are highly demanded or that have a high
predictable demand it is important to decide upon which of their
products will have highest demand and therefore build inventory
for that product in the off season because there are less chances
of fluctuation in demand for these products closer to peak
season. Need for holding inventory • Achieve Economies of Scale
• Balance demand and supply • Specialization • Protection from
uncertainty and order cycles • Act as a buffer between the
stages of the supply chain. Types of Inventory A. Cycle Inventory
Defined as average inventory that exists in the supply chain
either due to production or purchase of products in lot sizes that
are larger than those demanded by the customers. Cycle
Inventory = Lot size/2 = the average inventory = 1000 / 2 =
500pcs Average flow time = Average inventory / Average flow
rate. ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 47
48. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Average flow rate is the demand itself Average flow time
resulting from cycle inventory = cycle inventory / demand =
500/100 = 5 days EOQ – Economic order quantity = Twice the
Cycle inventory = 500x2=1000pcs. B. Safety Stock Safety
inventory can be defined as inventory carried for the purpose of
satisfying the demand that exceeds the amount forecasted for a
given period of time. Due to the uncertainty in the demand a
product shortage may result. The table below shows the
summary of alternate service levels, safety stock levels and also
the total average inventory to be maintained. Fill rate represents
the magnitude of a stock out. It represents the percentage of
units demanded that are on hand to fill the customer’s orders.
Service Level # of Std Deviations Safety Stock Average Total
Average reqd Requirement Cycle Stock Inventory 84.10% 1.0
175 500 675 90.30% 1.3 228 500 728 94.50% 1.6 280 500 780
97.70% 2.0 350 500 850 98.90% 2.3 403 500 903 99.50% 2.6
455 500 955 99.90% 3.0 525 500 1025 C. Speculative Inventory
Stock held for reasons other than satisfying current demand.
Reasons can be bulk purchases larger than demand to get bulk
discounts or because of a future price increase or future shortage
expected. D. Seasonal Inventory Form of Speculative demand
accumulation of inventory before a season begins. E. Dead Stock
Products which have no demand registered over a large period of
time. Products are obsolete and block working capital.
ArunKumar Arunachalaiah – Retail Consultant, email –
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49. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Symptoms of Poor inventory level Ø Increase in number of back
orders Ø Increase in inventory investment with back orders
remaining constant Ø High customer turnover rate Ø Lack of
sufficient space Ø Increase in number of orders being cancelled
Ø Wide variance in inventory turnover among distribution
centers and major items Ø Deteriorating relationships with
intermediaries in stages of supply chain. Inventory Holding Costs
Holding cost is estimated as the sum of the following mentioned
costs.Usually the holding cost is a percentage of the cost of the
product Ø Cost of Capital – Weighted average cost of capital on
inventory is calculated before taxes are paid. Pre Tax WACC =
Post tax WACC / (1 – t) Ø Spoilage costs Rate at which value of
product the firm stores drop following drop in market value due
to quality deterioration usually high on perishable food items Ø
Handling costs Include receiving and storage costs of products. Ø
Occupancy costs Show an incremental change in the space cost
due to the change in the cycle inventory. If a firm is charged on
# of units stored we call it direct occupancy costs. Ø
Miscellaneous costs Deal with large number of costs such as cost
due to theft, damage, tax and insurance that may be incurred by
the company. Ø Ordering costs Costs associated with placing or
receiving an extra order independent of the size of the order Ø
Transportation costs A fixed transportation cost is often incurred
by firms regardless of the size of the order. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 49
50. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Objectives of Inventory Control Avoid shortage of material
Prevent excess material Reduce costs Provide proper customer
service Selective Inventory Control v Visual Control – Examine
inventory visually to determine if addtnl inventory reqd. v Tickler
Control – Physically count small portion of inventory each day v
Click sheet Control – Record items as it is used on paper for
reorder purposes. v Stub Control – Retain a portion of price ticket
when an item is sold v Point of Sale terminal – relay information
on each item used or sold. v ABC Analysis – 20% of the items
contribute to 80% of total sales , Decision based on 80:20 rule,
A-important, B-moderate imp, C – least imp. % Sales 100% 80%
80% 80% 60% 40% % Sales 15% 15% 15% 5% 5% 5% 5% 5%
20% 0% A A B B B C C C C C v FSN Analysis – Based on speed of
movement of inventory , F- Fast, S – Slow and N – Non moving
goods v Two Bin System – Principle of reorder level physically
separates entire stock into two bins. Reorder Qty is EOQ , Second
Bin Qty = Minimum Stk + Lead time consm First bin Qty = Order
Qty – Lead time consumption. v HML Analysis – H – High priced
item, M – Medium priced item, L – Low priced items. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 50
51. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Retail Operations Management Operations Management is an
area of the business that is concerned with the production of
goods and services and involves the responsibility of ensuring
business operations are efficient and effective. It is also the
management of resources and distribution of goods and services
to customers. A typical retail operating process is focused
towards ensuring efficient attending on the customer all the time
he or she is in store. For doing this the operations department
has to work on the following steps. 1. Connect with customer:
Salesman has to be humorous, sweet, shy or confident while
interacting with customers. 2. Probe need subtly: By
communicating freely with customer & striking a humorous note,
needs of customer could be understood even if they don’t spell
out clearly. 3. Presenting Merchandise: Salesman should initiate
the trial of product by the customer and give truthful opinions at
the same time give personal space. He should not insist. 4.
Handling objections and indecisions: Customer doubts are to be
clarified by the salesperson to his or her satisfaction. 5.
Recognizing buying signals: Must respond quickly to buying
signals which may come in the form of positive statements. 6.
Closing the Sale: Preparation of cash memo and guiding the
customer to the invoice counter. To ensure this, the operations
have to carry out jobs for which the broad retail activities are
classified as below and each of these topics will be touched upon
in detail. v Store Layout and Designing / Visual Merchandising v
Customer Service Management v Store Facility Management and
Maintenance v Loss Prevention v Store Operations Parameters
ArunKumar Arunachalaiah – Retail Consultant, email –
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52. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Store Layout and Designing / Visual Merchandising Store Layout
and Designing is one of the most vital ways of communicating
and helping customers to buy. Any retailer while designing the
store layout must consider following: Ø Store atmosphere must
be consistent with the store and brand image of retailer Ø Store
designing must help influence customer’s buying decisions. Ø
Optimization of Productivity from retail space. Store Layout It
refers to planned physical location and arrangement of
merchandise, departments, displays, checkout counters and non-
selling areas. In doing this first consideration must be given to
customer convenience and then comes the retailer’s
convenience. In designing a good store layout the retailer must
consider the following 1. The layout must entice customers to
move around the store to purchase more merchandise than
planned. 2. Customers should ideally be exposed to layout
pattern that facilitates a specific traffic pattern. 3. Effective
merchandise presentation and balance between sale and
shopping space. A typical layout divides the store into four
different kinds of space Ø Selling Space – Assigned for interior
displays, product demonstrations and sales transactions. Ø
Merchandising Space – Allocated to items that are kept in
inventory for selling. Ø Personnel Space – Assigned to store staff
for lockers, lunch breaks and rest rooms. Ø Customer Space –
Assigned for comfort and conveniences of customer including
food court, dressing rooms, lounges and recreational space for
children. Once the selling to sales support ratio is known
designers can begin the planning process. The planning of store
layout consists of five distinct steps 1. Selection of layout type 2.
Division of Merchandise by department 3. Allocation of selling
space by department 4. Assignment of department location 5.
Organization of Merchandise within departments. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 52
53. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Layout Patterns The basic arrangement of the selling floor is of
primary importance, because it affects all other design decisions.
Each type of layout has inherent strengths and weaknesses
resulting from the traffic flow patterns they create. With
changing formats and increasingly sophisticated store design
research and techniques, retailers have been experimenting with
many combinations of these plans. Layouts may be categorized
into three basic types: Grid Layout: A linear design for a selling
floor where fixtures are arranged to form vertical & horizontal
aisles throughout the store. Supermarkets, discounters, grocery,
drug store and other convenience –oriented retailers, typically
use it. This layout is done for more of the store’s convenience
and the need to get a lot of product out on display. The basic
advantages of using this kind of layout can be summed up as it is
efficient in terms of space use, Allows orderly stocking, Helps
shoppers see a great number of items easily, Is simple and
predictable to navigate, Efficient to maintain, Simplify inventory
maintenance. In a self-service format, this arrangement permits
customers to shop in a quick manner. Strategic location of
departments ensures that customers are drawn through the
store and exposed to all merchandise categories. Weaknesses of
the layout include the psychological effect on customers is one of
feeling constrained and rushed, which reduces the time they
spend browsing, Not aesthetically pleasing, Contains long
gondolas of merchandise and aisles in a repetitive pattern, which
creates a monotonous effect that makes the customers feel
bored after a certain time. It is not necessarily convenient for all
consumers or the most effective selling approach. Certainly the
main aisles will get lots of exposure, but the secondary aisles are
often over looked and as a result sales are missed. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 53
54. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Free-flow Layouts - It is an asymmetrical arrangement of
merchandise that encourages an unstructured traffic flow. It is
mainly used in specialty stores and within departments of
department stores that emphasize mainly on ambiance and
personal selling. This layout is the most flexible of the three
plans. Advantages: The main advantages of this layout are:It
does not restrict the customers who do more browsing and
unplanned purchasing.It also enhances interior design, as
individual departments are more easily distinguished.Tends to
provide more relaxed atmosphere. Personal selling is
emphasized. Disadvantages: The major disadvantages of this
layout can be summed up as Its main weakness lies in the
inefficient use of space and customer disorientation. Also
requires higher labor & security expenditures. Lends itself to
higher rates of theft because of blocked vision. Setup is
expensive because the setup is custom made. Critical factor is
providing enough room between fixtures ArunKumar
Arunachalaiah – Retail Consultant, email –
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55. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Loop or Boutique or Racetrack Layouts - It exposes shoppers to a
great deal of merchandise as they follow a perimeter traffic aisle
with departments on the right and left of the circular, square,
rectangular or oval racetrack. This layout divides the selling floor
into shops within the store. This layout is employed in a discount
or a department store. This layout exposes shoppers to a great
deal of merchandise. It forces the customer to visit multiple
departments as they pass through. This loop effect facilitates
impulse buying. The newest merchandise is prominently
displayed on these main aisles. Overhead directional signs and
departmental graphics provide visual cues to the location of
other departments, helping shoppers while shopping,
Construction, interior design and security costs are substantial,
however. Soft Aisle Layout - This layout treats merchandised
walls as some of the most important sales generators in the
store. Floor fixtures are arranged into groups with a 5-foot aisle
along merchandised wall sections. Encourages customers to
shop the walls and move easily around the store. Minimal floor
Layout - Almost gallery-like in its simplicity, shows small
selections of Hand crafted or very exclusive merchandise. This
layout is used in very high-end retail stores with designer
merchandise. The products are presented dramatically on the
walls of the store much like the art objects- with a minimal use of
selling fixtures on the floor. It allows for wide-open spaces in the
center of the store. Combination floor Layout - It has best
features of several floor layouts in an overall plan that suits a
retailer’s specific strategy. It is a blend of free-flow layout in the
1st third of the store & a grid layout for a clearance department
in the rear of the store. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 55
56. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Division of Merchandise by Department Merchandise is organized
into groupings or classifications for the purpose of store layout &
design. The creation of the various merchandise departments
should be based on a logical plan that allows customers to locate
desired items and make comparisons. Criteria used to divide
merchandise by departments are: Function/usage – includes
sports goods, kitchen appliances, home entertainment products.
Customer purchase motive - Impulse items, Diet foods etc. Price
points –Bargain, moderate, and better dresses. Vendor
identification – Giorgio Armani, Gucci etc. Storage and display
considerations – frozen foods, dairy products, etc. Target
Audience – men’s, women’s and children’s clothing. Allocation of
Selling Space When designing a store layout, it is important to
have a clear analysis of the yearly sales & gross margin
contributed by each merchandise grouping. Naturally those with
the highest return per square foot of selling space will have
contributed the most to the business. Every retailer should plan
on allocating space to also highly appealing. Merchandise located
in the primary (main) traffic aisles will receive more customer
exposure and less in the secondary (other) aisles. A higher level
of customer exposure will occur at the junction of two or more
primary aisles. Certainly the performance of any merchandise
group will improve if it is moved to a prime location. However, do
not waste valuable selling space by assigning it to merchandise
that will not provide adequate gross margin dollars. Locating
Departments within the Store The value of a space varies by
location within the retail store. The best locations are on the
main floor near the entrances and escalators, as they are the
highest traffic areas. In a multi-level department store, the value
of space decreases from the 2nd to the 3rd floor, since
customers are less likely to go up another flight. Within level, the
best locations are near the main aisles. Floor space that is
located on the right of an entrance is most attractive. The major
factors that help a retailer in deciding about the location of
departments within a store can be summed up as under:-
Amount of space needed-Amount ArunKumar Arunachalaiah –
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57. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
of inventory needs to be displayed-The type of merchandise-
Profitability of the department. The amount of space needed and
the amount of inventory to be displayed are both adjustable
numbers for most retailers, but within limits. The retailers know
that certain merchandise requires specific fixtures or will need to
be displayed in a certain fashion. This will put a lower limit on the
space to be allocated. Departments requiring excessive space
are often displayed in the back of the store, eg: office furniture is
often placed in the back of the office supply store since it
requires so much space. To relegate the smaller departments to
the back of the store would result in them possibly being over
looked consumers. Presenting your store is a very strategic part
of your business. You need to have a reason for positioning every
item in your store beyond the usual… “It was the only place left
available so that’s where it ended up!” Organizing Merchandise
within the Departments A number of criteria may be used to
arrange merchandise, including brand, category, size, and price.
New or heavily advertised products often are distinguished, as
are items with particular service specifications. Retailers give
their best selling merchandise the best selling area of the stores.
The most favorable locations for merchandise are feature floor
displays, end-aisle units, eye-level positions on gondolas and wall
fixtures, and point-of- sale counter areas. Consider these
suggestions for positioning departments: High margin / High
profit - The merchandise that is highly profitable for the store
sales can afford the “high rent” district in the store. Demand
Merchandise - This is the merchandise; the customers make a
point of coming to the store to get and will hunt for it. This
should be put in a less valuable space and make them walk buy
the more impulse related items. Impulse Items - These are the
unplanned purchases customers make on a shopping trip. Items
with high impulse success get great locations in the store.
Related merchandise - Put merchandise even though it may be in
separate departments, near each other if they are coordinating
or complementary items. This will make them visible to the
customer and make shopping easier. Seasonal stock - Some
stores designate an area of the floor for merchandise that is on
hand on only a short-term basis. This makes for efficient
changeover of that area when a new season arrives. ArunKumar
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58. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
High Frequency Items - Customers want convenience; so position
items that they buy frequently in a convenient area of the store.
Department size - Smaller departments typically get better
positions in the store than a larger department in order to help
them be seen by the customer. Giving a small dept a poor
visibility area in the store is like putting the “kiss of death” on
that department. New Departments - If your trying a new
department or line of merchandise, give it best chance possible
to succeed by giving it a prime selling area. This is but obvious
through the above discussion that high margin/high profit items
go on the best shelf. Research shows that eye level and just
slightly below is the best shelves to sell from. Planogram Process
Plano gram is a computer –based technique for designating a
precise placement for every item stocked in a department. It
illustrates exactly where every SKU should be placed. These are
used by chain stores to display merchandise in the best way and
to achieve standardization across company locations. A
planogram is nothing more than a picture of how various
fixtures, shelves and walls will be presented with merchandise.
But while it is a relatively simple concept, it is a very powerful
one too. The planogram will force the retailer to consider very
carefully what products go where, why and how many. It will also
take into consideration what is known about the psychology of
consumer buying habits. The Planogram is a detailed plan that
gives store guidelines for: • Storefront, window display or
department setup. • The quantities of merchandise to be used
and how they are to be displays. • The type of fixture to use and
its placement • Price and description of the merchandise. • Signs
are to be used. Using this type of planning system provides
continuity from the storefront to the display & fixture positioning
in the store; the customer will recognize the store by its uniform
merchandise presentations and visual displays. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 58
59. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Merchandise Presentation With labor costs continually
increasing, the retailer must take advantage of every opportunity
to sell merchandise. Appropriate presentation tools placed
correctly on selling floors and dressed properly are a successful
silent sales force. A primary goal of the fashion retailer is to
create and maintain a quality fashion image. Merchandise
presented interestingly to the public can contribute greatly to
both a store’s and a department’s image. To achieve this goal, a
retailer needs to remember how the customer sees the store and
the merchandise displayed in it. Each item of merchandise,
properly arranged, is part of he image development process.
Principles of Merchandise Presentation There are certain basic
principles for each display that a retailer maintains for the store.
T 1. The merchandise should be displayed in a manner
consistent with the store’s image. 2. Consider the nature of the
product (e.g., Levis can be stacked, dresses can be hung) 3.
Packaging often dictates how the product is displayed (e.g.bulk,
self service vs. pkgd) 4. Profit potential influences display
decisions (e.g. low profit, high turnover items require less
elaborate displays.) Types of Merchandise Presentation The
different kinds of presentation techniques followed by retailers
while displaying merchandise can be summed up as under: Idea
–Oriented Presentation - It is a method of presenting
merchandise based on a specific idea or the image of the store.
E.g. Furniture displayed as room settings. In this kind of
presentation the products by one manufacturer are displayed
together. The basic idea of this presentation is to encourage
complementary purchases. Style/ Item Presentation - In this type
the organization of merchandise is done by style or item type
e.g. products in a grocery store, electrical supplies in a hardware
store. Within a specified area in this presentation style, types,
size, etc also organize the merchandise. For example, casual
cotton dresses may be offered in jumper styles, and low-waisted
styles. These should be presented on separate fixtures, or atleast
on separate arms of the same fixture. ArunKumar Arunachalaiah
– Retail Consultant, email – [email protected], Mobile -
9740067765 59
60. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Price Lining Presentation - It means organizing the merchandise
in price categories. Retailers offer a limited number of
predetermined price points within a classification. Also that the
merchandise is presented in accordance of their price line. E.g.
merchandise of same price line can be stacked together in a
display. End use Presentation - A dress department may carry
dresses for several different end uses- casual, career, evening,
and formal wear. Therefore the merchandise can be displayed on
different fixtures as per their classifications of their end use.
Fabrication Presentation - Each classification of merchandise
should also be separated by fabrication. E.g. casual jumpers may
be offered in both linen and cotton, and these fabrications must
be presented separately to give a well-designed presentation.
Color group - All fashions can be separated into one of the seven
groups of color. This is a method of display in which the
merchandise is organized into color blocks, from left to right,
from light to dark. The effect is to create a display that is visually
appealing to the customers. For example, if you were arranging
T-shirts on a hanging fixture the display would look like: Yellow-S,
M, L Blue- S, M, L Red – S, M, L Also remember that neutrals can
be presented separately or combined with any of the other color
groups. Vertical presentation - In this type of presentation
merchandise is presented vertically using walls and high
gondolas. People scan merchandise like they read: top to
bottom, left to right. Tonnage presentation - Large quantities of
merchandise are displayed together, and the merchandise is the
display in this type. E.g. cap displays of soups, soda, chips etc.
Frontal presentation - A method of displaying merchandise in
which the retailer exposes as much of the product as possible to
catch the customer’s eye. E.g. one frontal display of books with
the rest showing spines, one frontal display of an apparel item
with the rest racked. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 60
61. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Planning the Store The retailer must consider the store
personality and design the exteriors and interiors accordingly 1.
Store Personality Each retail store has a unique personality. To
the consumers a store can be warm, expensive, sterile, exciting
or dull. Store’s personality is in reality the image the consumer
has of the store. There is a multitude of factors that go into a
store image formation. Location, Merchandise, Price, service,
promotional effort and the attitude of the store personnel all
have an important role to play. Store atmosphere and store’s
physical facilities contribute heavily to the store image. 2.
Developing a central theme Many merchants effectively create a
store personality through the development of a central theme.
This can be accomplished by co-coordinating the décor and
fixtures through out the entire store. Retailer may generally
create a central theme during seasons, holidays, festivals etc to
attract customers. Such themes are temporary and will have to
be changed more often. 3. Exterior Design consideration The
images the consumers have of a store include its exterior design
as well as its parking facilities. The external character of the
store should reflect its interior character. In this way it conveys a
message to the consumers regarding the nature of merchandise
inside the store. Three important aspects of exterior design are:
Ø Store Signage – Every store should have an identifying sign
that tells the consumer the name of the store and if needed the
nature of the business. Included on the sign should be a store’s
logo. The store name or logo should be chosen with care & shd
be distinctive, easy to pronounce & remember. Ø Display
windows – Windows can be highly effective in attracting
customers into the store, especially when a high pedestrian
exists and the merchandise mix of the retailer is composed of
shopping goods. Display windows should reflect the atmosphere
and merchandise that will be found in the store Open Back –
permits customer to look directly inside the store. Closed Back –
Completely blocks the view of the store interiors Semi-Closed
back – contains partition below line of vision allowing display of
merchandise and same time to look into the store partially
ArunKumar Arunachalaiah – Retail Consultant, email –
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62. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Ø Store Entrances Customers should have an easy access to the
store. Doors should be easy to open without subjecting the
customers to a tug of war. Entrances should be wide enough so
that entering and exiting customers can pass without knocking
into each other. The entrances should be inviting enough to
induce customers to step inside. Some retailers have automatic
doors for entry/exit 4. Interiors of the Store The interior designs
of the store are of utmost importance as it gives the first
impression about the store and merchandise. Important variables
in interior designing of a retail outlet are : Ø Fixtures – To hold
and display merchandise Ø Equipments – Elevators, escalators,
air conditioners Ø Store Atmosphere – Effects of a good store
atmosphere can be as below Attention creating medium –
creative use of colors and visuals Message creating medium –
brand message, company profile, values Affect creating medium
– Slow music, slowing the shopper’s speed Sense of Smell – Good
smell attracts customers to visit & shop more. Sense of hearing –
Tinkling bells, ringing wind chimes, rock music in coffee shops,
blast of space in video game rooms Sense of touch – people
prefers to feel product before they buy. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 62
63. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Customer Service Management Customer Service is the set of
activities undertaken by the retailer to make the shopping
experience more convenient and rewarding for the consumers. It
is an integral part of store management. The retailers job is to
identify the needs and wants of every group of customers and
develop different levels and type of customer service that will
keep the customers happy. CRM in retailing have focused on
improved productivity of the consumers shopping experience.
The five C’s of consumer efficiency are v Clarity – Maintaining a
clear focus on what you offer and what consumer can expect v
Choice – Too much or too little choice can waste customer’s
time. v Control – Customers like to be in control of their shopping
dislike pushy salesguys v Communications – Methods of
communicating – Signage, Brochure, Phone, Internet v Checkout
– Inefficient handling at checkout will waste customer’s time.
Customer Service Strategies Customer service can be leveraged
as a competitive advantage. To do so, there are 2 important
tools. Standardization – involves requiring service providers to
follow a set of rules and procedures while providing service . By
strict enforcement of these procedures, inconsistencies in the
services are minimized Customization – approach encourages
service providers to tailor the service to meet each customer’s
personal needs. This approach can result in customer’s receiving
superior service. But service might be inconsistent because
service delivery depends on judgment and capability of the
service providers. Customer Evaluation of Service Often
customers use some tangible cues to judge the quality of service
of the retailer. Tangibles – store appearance, merchandise
display, appearance of salesperson Understanding customer –
provide individual attention, recognize regular customers
Security – safety in parking lot, communications/transactions
treated confidentially Credibility – reputation of honoring
commitments, trustworthiness of sales staff Information provided
to customers – explanation, infm on sale, customer assurances
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 63
64. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Courtesy – friendliness, respect and interest shown to customers
Access – Waiting time in queue, convenient operating hours,
location Responsiveness – Returning a customer’s call, customer
query answered Reliability – Billing accuracy, time conscious
service performance. Classification of Customer Service
Customer service starts well before the customer can step into
the store and extends much after he/she has left the store
premises. 1. Pre-Transactional Services – Convenient hours,
Information aids and Manuals / Brochures 2. Transactional
Services – Offering credit, Transaction time (Queuing Theory),
Layaways, Gift wrapping, Credit and debit cards acceptance,
Personal shopping (assembling an assortment of goods, selecting
a wedding gift), Merchandise availability, Personal selling. 3.
Post-Transactional services – Complaint handling, Servicing and
Repair, Home delivery. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 64
65. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Store Facility Management and Maintenance A facilities
department in retail stores is responsible to maintain all facilities
of store which include both internal as well as external facilities.
Some of the responsibilities of the facilities department are 1.
Overseeing the retail facilities service including repair,
maintenance and capital improvements 2. Supervising the retail
facilities department to maintain equipment and facilities in
stores for regular equipment maintenance, upgrades and re-
models. To ensure proper functioning of all facilities all the time
the facilities are required to be maintained properly, For this
there is a separate maintenance department which is in charge
for all types of maintenance such as alarm systems, conveyor
repairs, Tele - communications, electrical and elevator services,
Fire inspection service, Lighting, Janitorial, Gate installations,
Trash service and cleanups, Upholstery and repairs. Maintenance
Management The maintenance department is one of the greatest
levers of profitability that any capital intensive organization has.
An average of 40 – 50% of a capital intensive industry operating
budget is consumed by maintenance expenditure. With advances
today in technology this figure can be greatly reduced.
Maintenance is the single largest controllable expense. A
planned and scheduled job is executed after which we should
record what was done in order to enable analysis of potential
future problem. Some of the maintenance measures available
and followed in retail industry are: v Predictive Maintenance
(PDM) – Condition monitoring, applying corrections based on
predictions. Also known as Just in time method v Preventive
Maintenance (PM) – Systematic inspection, detection and
correction of incipient failures either before they occur or before
they develop into major defect v Corrective / Breakdown
Maintenance – conducted when an equipment ceases to function.
Mean down time = Mean wait time + Mean time to repair v Total
Productive Maintenance (TPM) – Systematic execution of
maintenance by all employees through group activities. Dual
goal of TPM is zero breakdown and zero defects. Minimizes
inventory costs associated with spare parts. ArunKumar
Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 65
66. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Loss Prevention Loss Prevention is not a very glamorous part of
retail. It is however an important element of the success
equation. Theft or Shrinkage erodes 100% pure bottom line
profit. Know what your annual inventory shrinkage / loss figures
are Shrinkage = Book Value of Inventory - Actual Inventory on
Hand Shrinkage% = Shrinkage at Retail value / Total Sales Have
a systemized procedure for doing physical counts of inventory •
Preperation – Precount any merchandise that wont be sold before
the official count • After hours – Count your inventory when the
store is closed. • Supervision – Supervise the counting process
by an Senior not from store. • Count sheets – Should be pre-
numbered printed and padded. Every count sheet must be
accounted for. Steps for Loss prevention by employee theft 1.
Basic Loss prevention steps involve good procedures in hiring,
training and supervision of employees and managers 2. Have an
employee reward system for reducing shrinkage 3. Have a
policies and procedures manual 4. Make staff aware of the
effects of shrinkage 5. Attentive sales staff: Thieves do not want
to be watched upon. Stay with your customer as much as
possible. This also improves staff’s selling skills 6. Store design to
minimize shoplifting opportunities – Blind spots, cash counter
and merchandise displays should be in such a way that at no
point customer cannot hide himself from sales staff vision 7. Use
of security system – A centrally monitored security system can
reduce shrinkages plus give reports that who was in store and at
what time. Security mirrors help eliminate blind spots 8.
Management of Keys – Limit access of keys as much as possible.
Keep record of who has the keys, use non duplicating type of
keys 9. Account all markdowns – Strict policies must be in place
to handle markdowns. 10. Spot checks – False refunds are
popular method for dishonest employees to get cash from the till
and still balance at the days end. To control this customer name,
ArunKumar Arunachalaiah – Retail Consultant, email –
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67. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
address and contact number must be recorded on special form
and signature. Spot calls to customers must be made on validity
of refund 11. Cash register – Daily audit trail gives indication of
everytime the cash drawer is opened for which reason. Ideally
drawer is opened for recording sales and if any other reason
explanation is needed 12. Entry and Exit – Back door is a prime
route for dishonest employees to get merchandise from store.
Access to and from back door must be restricted. 13. Garbage
disposal – Putting merchandise along with garbage is one of the
oldest tricks. Have second party check garbage before disposal
14. Employee checking – Hard one to implement but is a must,
physical checks on person and bags and belongings before exit
from store. 15. Reference checks on new employees – Checking
employee history with past employer and immediate supervisor
on work habits etc 16. Staff purchase program – generous staff
discount off retail price will minimize theft in stores by
employees Steps to avoid shop lifting • Fix your fixtures –
Minimize blind spots on the sales floor • Alternate clothing
hanger directions prevents thief from a quick grab from the rack
• Take receipt for all returns – Thieves steal merchandise and
return for refund hence always ask for receipt • Lock up
attractive expensive merchandise to prevent shop lifting • Be
Smart about EAS tag placement – Electronic Article Surveillance
is tagged on merchandise in hidden areas which is removed
when item is purchased, if not removed it triggers alarm when it
passes sensors near store exit • Monitor your fitting rooms –
customer must encounter staff when entering fitting room as it is
an ideal place to conceal merchandise • Signage – Correct signs
around store deter shoplifters – “ Smile- You’re on Candid
camera” even if you do not use cameras • Camera domes –
CCTV systems can be costly but very effective • Prosecute all
thieves as they will continue their practice if let off • Exceptional
customer service also can deter shoplifting by knowing who your
customers and offering assistance and attending their needs.
ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 67
68. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Store Operations Parameters Customer Transactions Customer
conversion ratio – Retailers ability to turn potential customer into
a buyer = No of transactions / Customer traffic x 100 Return to
Net Sales – indication of customer satisfaction by showing value
of returned goods and allowances as %age of net sales = Total
Returns and allowances / Net Sales x 100 Transaction per hour –
Keep track of number of transactions they carry on per hour/
day/week or season = Number of Transactions / Number of Hours
Sales per transaction – Measure to give rupee value of average
sale = Net Sales / No of transactions Hourly customer traffic
Tracks total customer traffic/ hour/day/week. Can apply to each
dept or entire store. = Customer Traffic / Number of hours Stock
Transactions Inventory Turnover – Number of times stock is sold
and replaced in a period of time = Net Sales / Average retail
value of Inventory % Inventory carrying costs – Track % age of
netsales represented by fixed inventory cost = Inventory
carrying cost / net sales x 100 Gross Margin return on Inventory –
Margin on sales with original cost value of merchandise to yield a
return on merchandise investment = Gross Margin / Average
value on inventory at retail price Markdown Goods percentage –
if ratio increases retailer need to look at merchandising practices
and pricing. Markdowns are symptoms of poor buying,
advertising, store layout = Net Sales at Markdowns / Total net
sales x 100 Shrinkage to Net Sales – To determine % of net sale
lost due to shrinkage Actual Inventory –Book inventory / Net
Sales x 100 ArunKumar Arunachalaiah – Retail Consultant, email
– [email protected], Mobile - 9740067765 68
69. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Space Transactions Occupancy cost/ Square foot selling space –
Measure of comparing performance of units at different locations
= Occupancy Cost / Square feet of selling space Gross Margin
return on Floor space (GMROF)– Gross profit per linear foot of
shelf space which is annual gross profit divided by the total linear
footage devoted to the product category. = Gross Margin / Total
linear footage devoted to a product category or entire store
Sales per square foot – Total sales value in rupee for every
square feet of retail space = Net Sales / Square feet of selling
space Stock per square foot – Use of space involving different
product lines or compare performance of different departments
or stores using common standard = Net Stock / Square feet of
selling space Employee Transactions Net Sales per full time
employee = Net Sales / Total full time employee Customers
served per full time employee = No of customers served / Total
no of full time employees Labor productivity = Total labor costs /
Net Sales Gross Margin per full time employee = Gross margin /
Total full time employees Supplier/ Quantity or value purchased
per buyer = Total suppliers / quantity or value purchased / Total
buyers ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 69
70. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Supply Chain Management Framework Supply Chain
management in retailing is the total process of planning,
implementing and coordinating all the activities required for the
movement of merchandise from manufacturer to retailer to
customer in the most timely, most effective and cost efficient
manner. SCM includes the following points which need to be
integrated and coordinated • Inventory Management •
Warehousing • Material Handling • Transportation • Customer
service • Order processing and fulfillment Goals of SCM in
retailing 1. Place and receive orders as easily, accurately as
possible 2. Minimize time between ordering and receiving
merchandise 3. Coordinate shipments from various suppliers 4.
Have enough merchandise on hand to satisfy customer demand
without having much inventory that heavy markdowns will be
necessary 5. To place merchandise on sales floor efficiently 6.
Process customer orders in smooth manner 7. Have backup plans
in case of breakdown in the system 8. Optimize cost to enable
fulfilling all activities as economically as possible Decision phases
in Supply Chain • Supply chain design Decisions regarding
configuration of supply chain based on company’s strategies like
location of warehouse, manufacturing facilities, the production,
different modes of transportation to be used and the information
systems applied are all very critical. These decisions are long
term & expensive. ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 70
71. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
• Supply Chain Planning It is the second phase on supply chain
decision process which requires decisions to be made in
considerations with the corporate time frame. Since the
configurations involves constraints it is important for careful
planning to be done in terms of forecasting demand, supplies to
be made from different locations, manufacturing decisions
whether in-house or outsourced, policies regarding inventory,
timing and size of the marketing promotions. • Supply Chain
Operations Here the time horizon is extremely short. Decisions
are based on individual customer orders. Main objective of this
phase is to handle the incoming customer’s order in the best
possible manner by allocating inventory or production capacity
to individual orders, fixing the transport and delivery schedules
of trucks and also placing replenishment orders. The Macro
Processes of Supply Chain 1. Customer Relationship
Management (CRM) – interface between firm & its customers.
Function of marketing, promotions, sales & website management
2. Internal Supply Chain Management (ISCM) – process that takes
place internally within the concerned firm 3. Supplier
Relationship Management (SRM) – Function of evaluation and
selection of suppliers, negotiation of supply terms and
communication regarding new products and orders with
suppliers CRM ISCM SRM •Market Research •Strategic Planning
•Source •Sell Products •Demand Planning •Negotiate •Call
Centres •Supply planning •Buy •Order Management •Fulfillment
•Design collaboration •Field Services •Supply collaboration
ArunKumar Arunachalaiah – Retail Consultant, email –
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72. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Achieving a Strategic fit in Supply chain strategy A retailer is said
to be strategically fit when its competitive strategy and supply
chain strategy coincide and have the same goal. Factors which
retailer has to emphasize to achieve this strategic fit are
Understanding the customer uncertainty and supply chain
uncertainty – In terms of price of product, variety of products
required, service level required, Tolerable response time,
Quantity required in each lot, Rate of product innovation Implied
demand uncertainty – uncertainty exists because of that part of
demand that a supply chain is required to fulfill. Demand
uncertainty is the uncertainty of customer demand of a particular
product whereas the implied demand uncertainty is the
uncertainty for only that part of the demand that the supply has
to fulfill keeping in view the attributes of the customer.
Understanding capabilities of supply chain – This is the spectrum
which has to be given the trade-off between the Efficiency and
Responsiveness of the supply chain in terms of Range in quantity
demanded, meet short lead times, meet high service levels,
tackle supply uncertainty and introduce innovative products.
Other issues affecting strategic fit – large number of products
and market segments, Product life cycles, time related
competitive changes. The Best strategy in terms of achieving a
strategic fit is maximizing the supply chain surplus view within
Intercompany and inter-functional scope. Suppliers Manufacturer
Distributors Retailers Customers Competitive Strategy Product
Development Strategy Supply Chain Strategy Marketing Strategy
Inter Company Inter-Functional scope of Strategic Fit
Horizontally: Supply Chain stages, Vertically: Functional
Strategies ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 72
73. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Major drivers in achieving a strategic fit in a supply chain are 1.
Facilities Facilities include those places where the material is
stored, assembled and produced. Components of facilities
decision are Location – Whether to centralize facilities to achieve
economies of scale or it needs to be more responsive by opening
more facilities closer to customers Capacity – Decide on capacity
to perform its intended function. Excess capacity allows more
flexibility to large fluctuations in demand but also increases costs
and decrease efficiency. Operations Methodology – Company
should take decisions regarding design of facility whether a
product focused facility or a function focused facility
Warehousing methodology – Warehouse design decisions
whether as a Stock keeping unit storage or a Job lot storage or
Cross docking. 2. Inventory Existence of inventory is because of
mismatch between supply and demand. Such mismatch occurs
where it is economical for firms to produce excess and stock
goods due to production constraints or in anticipation of future
demands. Components of Inventory decisions are Cycle Stock:
Average amount of inventory used to satisfy demand between
receipts of supplier shipments Safety Stock: Held incase of an
increase in demand more than expected. Seasonal Inventory –
Company builds inventory in order to counter the predictable
variability in demand Sourcing – Set of business processes
required to purchase goods and services from a single supplier or
a host of suppliers. 3. Transportation Transportation moves a
product between different stages in a supply chain and has a
great impact on the efficiency and responsiveness of the supply
chain. Quick ArunKumar Arunachalaiah – Retail Consultant, email
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74. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
transportation methods increase the responsiveness but lower
the efficiency by increasing costs. Components in transportation
decision making are: Modes of Transportation – Air, Sea, Road,
Rail, Pipeline, E-transport Selection of routes /network – Path
along which goods travel is called Route Inhouse or outsourced
transportation – owning vehicles or leasing/renting 4. Information
Information has no physical presence yet this driver plays an
important role in the supply chain. Information is collected at
each and every stage of supply chain and it helps to rectify,
reconfigure itself and maximizing supply chain profitability. The
day to day operation of any facility requires analysis of
information available so that production schedules can be made,
produce on time, maintain a good inventory and provide on time
delivery and becoming more responsive and efficient.
Components of Information decisions are Push versus Pull – If the
retailer wish to execute a push process then it needs to have
proper information on raw material requires and needs to plan on
their timely availability, incase of a pull process information
regarding actual demand of products from customers must flow
through supply chain. Forecasting and Proper Planning –
Projecting future conditions in advance with the help of
projecting techniques. Once projection is made on future
demand it is time for action to decide upon how much to produce
and plan production schedule, marketing technique and pricing
Information coordination – Every stage of supply chain must
coordinate with each other in order to fulfill the objective of
maximizing the profitability of the supply chain. If there are no
proper coordination there would be disorder as “Information is
the Life Blood of the Supply Chain” Pricing and Managing
revenue – It is vital to keep check on demand and supply info at
the time of altering the prices, analyze impact of price change on
future demands, costs incurred and market competition.
Technology – Varied technologies are used to help it work
efficiently like Electronic Data Interchange (EDI), Internet,
Enterprise resource planning, Supply chain Management
software etc. ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 74
75. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Decision Making in the Supply Chain Competitive Facilities
Strategy Efficiency / Strategic Fit Responsivenes Supply Chain s
Stragegy Inventory Supply Chain Drivers Transportatn
Information Information Technology Perspective in Supply Chain
Management IT would help retail in providing the right product at
the right place at the right time with a price tag acceptable to
customers. It provides hardware and software capabilities to
cover end to end retail / business processes/ operations and also
be critical in efficiently and effectively carrying out all the core
functions which would include global sourcing, procurement,
distribution, transportation, logistics, demand forecasting,
product innovation, merchandising, compliance, Point of sale
data management, Property management, Marketing, CRM and
loyalty management. • It can leverage sales history and
anticipated demand to create an accurate forecast of customer
demand • Simulate midterm and long term planning options,
allocate resources and make strategic sourcing decisions in a
timely fashion to best meet operational goals. • Integrate
sourcing, purchasing, production, distribution and transportation
to create a demand plan. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 75
76. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
• Create a calculated, time phased replenishment plan based on
customer demand forecasts and using automated state of the art
algorithms within the supply chain • Institute real time inventory
tracking across all channels enabling the retailers to manage and
monitor stocks and values and minimize the inventory levels
while avoiding out of stock situations. • Ensure an efficient
warehouse management system, picking and packing,
controlling logistics documents and in-bound and out-bound
monitoring. • Integrate GIS/GPS and mobile devices or RFID
technology to gain reliable, real time information about the
storage and movement of goods between warehouse locations •
Move from a product push to a customer pull approach and reap
the rewards of reduced operating costs and larger profit margins.
IT Applications: The technology perspective Applications of IT in
Retail span a very wide spectrum from store front right up to
Business intelligence tools integrated with ERP/SCM and CRM
applications and further to MPLS/VPN. The front end applications
are mainly in the form of Point of Sales Terminals and Barcode
readers for faster clearance. Then there are the SCM tools for
constraints based supply chain planning and forecasting. CRM
tools cater to trend analysis, customer usage pattern, purchase,
promotion management and lifecycle analysis. Use of data
warehousing, data reviving and BI tools has made the campaigns
and promotions associated with stores more focused to target
customers at all levels. BI Tools along with CRM have also made
it possible to offer customer loyalty programs to intend benefits
to retail and have loyal customers. E-Commerce covering
inventory visibility, on-site merchandising, cross selling, price
comparison and multi channel congruity would be the next phase
in Retail. MPLS-VPN Networks are more recent trends converting
stores of centrally networked infrastructure with 100% network
uptime would offer precise information related to merchandise,
logistics, online customers and would help in reducing the turn
around time required to take decisions. ArunKumar
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77. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Points of Sale - POS systems capture data about orders at the
POS are are frequently found in fast-food chains and grocery
stores. The POS systems provide immediate update to sales and
inventory systems and allow firms to monitor sales trends as
they happen. They also allow firms to capture customer data and
preferences and add information to their data warehouses. The
information available from POS becomes input to the financial
accounting systems which then supply data to marketing
information systems. Bar Code/ UPC - Bar code or Universal
Product code is used in point of sales systems in supermarkets
and retail stores. It is a product identifier and is made up of
series of bars and spaces which represent alphanumeric
information pertaining to product code, price etc. Barcode help
enhance accuracy in demand forecast, real time stock
management, faster checkout at POS, product tracking and
tracing and reduced labeling and administration costs. RFID -
Radio frequency identification is a wireless barcode which
provides wireless communication between objects and readers.
RFID uses embedded microchips containing information about
item, location. It has the ability to identify and track products
and equipment in real time without contact or line of sight. It
offers reading, waiting, transmitting and storing and updating
information. It can track inventory and tasks performed by
employees in store, customer profiles, transaction history &
levels of stock. VPN - Virtual private network is a secure
connection between 2 points across internet, enables private
communications to travel securely over public infrastructure. It
saves long distance communication costs. EDI - Electronic data
Interchange is the in charge of business information through
standard interfaces by using computers without requiring re-
keying information. Main benefits are saves time and data
transmission is immediate, reduced manual errors, no paper
handling. Data Warehousing and Data Mining - Retail
organizations are data rich but information poor, hence data
warehousing and data mining provides users with tools to store
summarized information from multiple heterogeneous bases in a
single repository. Data mining is an information analysis tool
involves automated discovery of patterns and relationships in
data warehouse. ArunKumar Arunachalaiah – Retail Consultant,
email – [email protected], Mobile - 9740067765 77
78. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Summary Report and Conclusion To conclude the project we can
say that the project report explains the best practices in retail
business processes that can be applied effectively in a Fashion
Merchandise Retail concept to improve the profitability and the
overall operating effectiveness of the business. The summary of
the project is listed as below • The project gives a detailed
insight into the value chain processes involved in the Fashion
Merchandise life cycle. • Market Entry - The Project describes the
best strategy for a Market entry which is the rapid Market
penetration strategy with high volume, high advertising and low
cost products. • Pricing - The pricing strategy describes effective
implementation of pricing tactics to counter competition and also
promotional pricing techniques to eliminate excess stock. •
Location – The checklist evaluation provides in depth details on
selection of a retail site for fashion merchandise retail outlets
and also describes what type of stores suit which market areas. •
Brand Image – The project outlines detailed explanation on
establishing a healthy brand image of the retailer which helps to
connect better with customers and gives a top of mind aided
brand recall. • Demand forecasting – This section provides
factors and methodologies in arriving at an accurate forecast for
buying to prevent loss of sales and excess stock in the stores •
Procurement – Detailed analysis of Supplier selection policies,
scoring, contracts while negotiating have been provided to select
the best sourcing policy for a fashion merchandise retail
strategy. • Retail Operations – explains the designing of layout,
visual merchandising concepts, merchandise presentation
techniques, store maintenance, loss prevention and customer
service management • Supply chain management – Section
outlines the importance of IT applications in retail end to end
coverage to maximize the profitability of the supply chain and
the organization ArunKumar Arunachalaiah – Retail Consultant,
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79. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Annexures - I Proposal Name of the Learner: Arun Kumar
Arunachalaiah Registration No: 200711493 Program: Post
Graduate Diploma in Retail Management Address: #291, 20th
Main, Nandini Layout, Bangalore - 560096 Title of the Project:
Competitive Retail Strategy for Fashion Merchandise Objectives:
Objective of this Project is also to carry out extensive studies to
make certain the right retail Strategy for an apparel retailer to
create a loyal and repetitive customer. The project scope will
also Include coverage of areas of establishing a strong Retail
image through Marketing Strategies, Brand Building, Identifying
the right Retail Mix, Pricing, Advertising, Forecasting, Category
Management, Retail Store Operations, Supply Chain and usage of
Information Tech-- nology applications in Apparel specific
retailing. Successful Apparel Retailing has always been said to be
about getting nutty gritty right of Merchandising, Forecasting,
Supply Chain, Training and Recruitment of high quality personnel
and Category Management. Building retail brands that offer
value will, in future overshadow all these areas and emerge as
the dominant reason for the success of the organized Indian
Retailer. ArunKumar Arunachalaiah – Retail Consultant, email –
[email protected], Mobile - 9740067765 79
80. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
Need for the Topic: India in recent years has been the focal point
of continuous growth and development making it one of the
fastest growing economies of the world. It is the 4 largest
economies in terms of Purchasing Power Parity, after USA, China
& Japan, and is rated among the top 10 FDI destinations. The
Indian consumer is evolving and driving retail growth due to
increased consumption. Private consumption growth contributes
to more than half of the GDP growth and is growing in double
digit figures. Several businesses are reacting to this evolution
positively, both through pull and push phenomenon. Following a
similar trend, the Indian textile and apparel industry is also
experiencing rapid changes and growth. Apparel today has the
largest share of the modern organized retail in India i.e. 20% of
the current market of Rs. 56,000 crore and this is expected to
grow at a constant rate of 20% over the next 4 years. This report
puts together some of the recent trends being witnessed by the
textile and apparel industry. The central theme woven through
these trends is the way the consumer at various income-levels is
evolving, thereby ensuring that businesses are reacting in
multiple ways. The 'mass consumer' segment is moving from
tailored clothes to stitched apparel giving rise to discounted
apparel stores/retailers. This causes a shift from unbranded to
branded apparel. The 'middle end consumers’, already exposed
to brands is now looking to extend these brands into all aspects
of their life. Brands are thereby becoming lifestyle brands
instead of being product brands only. These consumers are also
moving up the social ladder and wish to flaunt the change in
stature by wearing affordable 'designer prêt wear'. This is
prompting designers to introduce prêt lines and corporatize their
lines to reach out to a larger audience. The 'high end Consumer'
who is exposed to international luxury brands, now demands
them in his/her vicinity. Apparel businesses are realizing this and
tying up with international brands to retail in India. These
consumers are also increasingly exposed to environmental issues
and want to use eco-friendly products (including apparel) to do
their bit for the society. Though this concept is at a very nascent
stage in India, apparel companies are reacting by 'going green'
and using natural fibers in some of their collections. As all
consumers, especially kids and the youth, are exposed to fashion
and media, they wish to associate themselves with characters
and icons. Picking on this trend, apparel companies are licensing
these characters/icons for apparel & accessories to increase their
customer base. Additionally, as consumers face hectic lifestyles,
they are looking for convenience in all aspects of life ArunKumar
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81. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008
including shopping. Fashion businesses are taking the lead from
here and taking on consumers at unconventional avenues of
retailing like airports, metro stations, cafes, beauty saloons, etc.
Methodology: Analyzing the correct and a competitive retail
strategy for a fashion merchandise office wear brand through a
detailed study and thorough understanding of retail concepts
explained in the curriculum of the course program PGD in Retail
Management by the Symbiosis Faculty program and extensive
research conducted through various reference books and
internet links in google and various top retail organization
company websites. ArunKumar Arunachalaiah – Retail
Consultant, email – [email protected], Mobile -
9740067765 81
Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Annexures - II References • Technopak Retail Outlook • Indian Consumer Trends 2006 – The knowledge company • Wipro Technologies • Kotak Securities Limited • www.google.com • www.fibre2fashion.com • Symbiosis Institute of Retail Management • Rai – Retailers association of India • Bharatidasan Institute of Management, Trichy • Hindu Business Line • Economic times ArunKumar Arunachalaiah – Retail Consultant, email – [email protected], Mobile - 9740067765 82