Operating a Retail Business

ObjectivesObjectivesTo describe the scope of operation managementTo examine specific aspects of operating a retail

business: operations blue-print store format, size and space allocation personnel utilization store maintenance energy management and renovations inventory management store security; insurance credit management computerization outsourcing crisis management

DefinitionDefinition

Operations managementOperations management is the efficient and

effective implementation of the policies and

tasks that satisfy a retailer’s customers,

employees and management (and

stockholders, if publicly owned).

Operational DecisionsOperational Decisions What operating guidelines are used?

What is the optimal format and size of a store?

What is the relationship between shelf space,

shelf location, and sales for each item in the

store?

How can personnel be matched to customer

traffic flows? Would increased staffing improve or

reduce productivity? What impact does self-

service have on sales?

Operational Decisions (cont.)Operational Decisions (cont.)

What effect does the use of various building

materials have on store maintenance? How

can energy costs be better controlled? How

often should facilities be renovated?

How can inventory be best managed?

How can the personal safety of shoppers and

employees be ensured?

Operational Decisions (cont.)Operational Decisions (cont.)

What levels of insurance are required?

How can credit transactions be managed most effectively?

How can computer systems improve operating efficiency?

Should any aspects of operations be outsourced?

What kind of crisis management plans should be in place?

Operating A Retail Business Operations Blueprint Store Format, Size, and Space Allocation Personnel Utilization Store Maintenance, Energy Mgt.,

Renovations Inventory Management Store Security Insurance Credit Management Computerization Outsourcing Crisis Management

Operations BlueprintOperations Blueprint

• An operations blueprintoperations blueprint systematically

lists all the operating functions to be

performed, their characteristics, and their

timing.

• The retailer specifies in detail, every

operating function from the store’s opening

to closing – and those responsible for them.

An Operations Blueprint

It should be decided if productivity can be raised by:• locating in a planned shopping center rather than in an

unplanned business district• using prefabricated materials in construction• applying certain kinds of store design and layouts

With prototype storesprototype stores multiple outlets conform to relatively uniform construction, layout and operationsThey make centralized management control easier, reduce construction costs, standardize operations, facilitate the interchange of employees among outlets, allow fixtures and other materials to be bought in quantity and display a consistent chain image

Rationalized retailing programsRationalized retailing programs combine centralized management control with strict operating procedures

Store Format, Size, and Space AllocationStore Format, Size, and Space Allocation

The chains’ operations are performed in a virtually identical manner in all outlets. Rigid control and standardization make this technique easy to manage. A firm can add a significant number of stores in a short time. The stores are similar in size, layout and merchandising.

Retailers focus on allocating store space productively by: determining the amount of space placement for each product category dropping merchandise lines because they occupy too much space

With a top-down space management approachtop-down space management approach a retailer starts with its total available store space, divides space into categories, and then works on product layouts.

A bottom-up space management approachbottom-up space management approach begins planning at the individual product level and proceeds to the category, total store, and overall company levels.

Store Format, Size, and Space AllocationStore Format, Size, and Space Allocation

Measuring performance of retail store/space-1Measuring performance of retail store/space-1 GMROF A measure of retail space productivity that expresses

the relationship between gross margin and the area allotted to the product

It is calculated by dividing the gross margin by the retail selling space. (E.g. for a retailer having GM of 10,000 and shop of 500 sq.ft., GMROF is 10,000/500 = 20)

It can be increased by either increasing GM or decreasing selling space

Tells how much returns you’ve got per (selling feet) area during a specified period

Allows retailer to calculate the margins earned by various departments, various product lines

Measuring performance of retail store/space -2Measuring performance of retail store/space -2 Sales per square foot (SPSF) It is calculated by dividing total sales by total square feet of

selling space. (E.g. dept. store that generates sales of Rs. 50 lakhs per year and has 20,000 sq.ft. retail space, has SPSF of Rs. 250)

Can be calculated for departments, product lines and even SKUs

Conversion ratioWalk-ins – no. of people who enter a retail storeConversions – no. of people who actually make a purchase No. of customers who make a purchase

X 100 No. of customers entering the store

Conversion ratio =

Measuring performance of retail store/space -3Measuring performance of retail store/space -3 Average sales per transaction

Calculated by dividing total sales for the day by the number of bills generated

Indicator of how much a customer spends in the store per transaction

Varies depending on type of retailer (e.g. jewelry retailer – convenience store)

Maximizing Personnel ProductivityMaximizing Personnel Productivity

Hiring Process - by carefully screening potential employees before they are offered jobs, turnover is reduced and better performance secured

Workload Forecasts - for each time period the number and type of employees are predetermined

Job Standardization and Cross-Training – Through job standardization the tasks of personnel with similar positions in different departments are

rather uniform. With cross-training, personnel learn tasks

associated with more than one job, such as cashier, stockperson, and gift wrapper.

Maximizing Personnel Productivity (cont.)Maximizing Personnel Productivity (cont.) Employee Performance Standards -

personnel are more productive when working toward specific goals.

Cashiers are judged on transaction speed and mis-rings

Buyers on department revenues and markdowns

Senior executives on the firm’s reaching sales and profit targets

Compensation - financial remuneration, promotions, and recognition that reward good performance help to motivate employees

Maximizing Personnel Productivity (cont.)Maximizing Personnel Productivity (cont.) Self-Service - Costs are reduced with self-

service. (1) Self-service requires better displays, popular

brands, ample assortments (2) By reducing sales personnel some shoppers

may feel service is inadequate (3) There is no cross-selling (whereby customers

are encouraged to buy complementary goods they may not have been thinking about)

Length of Employment - full-time workers who have been with a firm for an extended time are more productive than those who are part-time or who have worked there for a short time

Store MaintenanceStore MaintenanceEncompasses all the activities in managing

physical facilities. Some of the facilities to be managed are: Exterior—parking lot, points of entry and exit,

outside signs and display windows, and common areas adjacent to a store (e.g., sidewalks)

Interior—windows, walls, flooring, climate control and energy use, lighting, displays and signs, fixtures, and ceilings

The quality of store maintenance affects consumer perceptions, the life span of facilities, and operating costs

Store Maintenance DecisionsStore Maintenance Decisions

waste

Energy managementEnergy managementDue to rising costs energy management is a major factor in retail operations (critical for food stores). To manage their energy resources more effectively many retailers:

▶ Use better insulation in constructing and renovating stores

▶ Adjust interior temperature levels during non-selling hours. (In summer air-conditioning is reduced at off-hours; in winter heating is lowered at off-hours)

▶ Use computerized systems to monitor temperature levels. (Some chains’ systems even allow operators to adjust the temperature, lighting, heat, and air-conditioning in multiple stores from one office)

▶ Substitute traditional lighting with high-efficiency bulbs

▶ Install special air-conditioning systems that control humidity levels in specific store areas (freezer locations—to minimize moisture condensation)

RenovationsRenovations

Retailers need decision rules regarding renovations: How often are renovations necessary?

What areas require renovations more frequently than others?

How extensive will renovations be at any one time?

Will the retailer be open for business as usual during renovations?

How much money must be set aside in anticipation of future renovations?

Will renovations result in higher revenues, lower operating costs, or both?

Inventory Management DecisionsInventory Management DecisionsHow can handling of merchandise from different suppliers be

coordinated?

How much inventory should be on the sales floor versus in a warehouse or storeroom?

How often should inventory be moved from non-selling to selling areas of a store?

What inventory functions can be done during non-store hours?

What are the trade-offs between faster supplier delivery and higher shipping costs?

What supplier support is expected in storing merchandise or setting up displays?

What level of in-store merchandise breakage is acceptable?

Which items require customer delivery? When? By whom?

Store SecurityStore Security

Uniformed security guards

Undercover personnel

Brighter lighting

TV cameras and other devices

Curfews

Limited access to backroom facilities

Frequent bank deposits

Insurance IssuesInsurance Issues

Among the types of insurance that retailers buy are workers’ compensation, product liability, fire, accident, property, and officers’ liability.

Rising premiums

Reduced scope of coverage by insurers

Fewer insurers servicing retailers

Greater need for insurance against environmental risks

Insurance Issues (cont.)Insurance Issues (cont.)

To reduce their vulnerability, retailers enacted costly programs:

no-slip carpeting, flooring, and rubber entrance mats; more frequently mopping and inspecting wet floors; doing more elevator and escalator checks; having regular fire drills; building more fire-resistant facilities; setting up separate storage areas for dangerous items; discussing safety in employee training; Keeping records showing proper maintenance activity.

Credit Management DecisionsCredit Management Decisions

What form of payment is acceptable?

Who administers the credit plan?

What are customer eligibility requirements for a checque or credit purchase?

What credit terms will be used?

How are late payments or non-payments to be handled?

ComputerizationComputerization

Many retailers have substantially improved their operations productivity through computerization.

With the continuing decline in the price of computer systems and related software, even more small firms will computerize in the near future.

The computerized checkoutcomputerized checkout is used to efficiently process transactions and monitor inventory. Firms rely on UPC-based systems.

OutsourcingOutsourcing

More retailers have turned to outsourcing for some of the operating tasks they previously performed themselves.

With outsourcingoutsourcing a retailer pays an outside party to undertake one or more of its operating functions.

The goals are to reduce the costs and employee time devoted to particular tasks.

Crisis ManagementCrisis Management

There should be contingency plans for as many different crisis situations as possible.

Essential information should be communicated to all affected parties as soon as a crisis occurs.

Cooperation – not conflict – among the parties involved is essential.

Responses should be as prompt as possible.

The chain of command should be clear with decision makers given adequate authority.