RETAIL OPERATIONS .

6. WAREHOUSE & SUPPLY CHAIN MANAGEMENT: Merchandise reorder, planning and organizing merchandise receipts, storage, transportation, information management in the supply chain. 7. LOSS (SHRINKAGE) PREVENTION: significant part of retail operations that ensures better margins for the stores. 8. CASHIERING PROCESS: front end and back end cash management including banking. 9. VISUAL MERCHANDISING AND DISPLAYS: Done at store level involving conceptualization of themes and Visual merchandising operations.

STORE OPERATING PARAMETERS

DIPSTICK PARAMETER Enables retailers to find out about the health of specific areas of operation - customers, stock, space, employee, finance etc.

CUSTOMER TRANSACTIONS

How many customers visited the store, what percentage bought, has conversion rate gone up, what is the day to day average cash memo value compared to last month or last year.
% age reflects the retailers ability to turn a potential customer to a buyer and gauges efficacy of promotional activity (No. of transactions/ Customer traffic) x 100

CUSTOMER CONVERSION RATIO

RETURN TO NET SALES

Indication of customer satisfaction not being met and quality of merchandise

(Total returns & allowances/ Net sales) x 100

STORE OPERATING PARAMETERS..

TRANSACTION PER HOUR Hourly variation in sales activity could be important in setting store hours No. of transactions/ No. of Hrs.

SALES PER TRANSACTION (AVERAGE T.O VALUE - ATV)

HOURLY CUSTOMER TRAFFIC (FOOT FALLS) STOCKS

Used to study sales trend Net sales/ no. of over time and helps to transactions determine whether between high volume sales or high rupee sales
Used for tracking total customer traffic. Automaic counting machines are required Customer traffic in/ No. of hours

Helps to find out if the store No. of SKUs x is overstocked or under purchase price stocked and in which category or SKU

STORE OPERATING PARAMETERS..

AVERAGE SELLING Total value of goods sold/ Total quantity PRICE

AVERAGE STOCK PRICE

Turning stock around efficiently yields better profits, the more the margins

Total value of goods in stock / Total quantity in stock Net sales/ Average retail value of inventory

STOCK TURN Ratio indicates how often OVER/ INVENTORY the inventory is sold and T.O RATIO replaced. Declining ratios exhibits excessive inventory PER CENT INVENTORY CARRYING COSTS

Importance has increased (Inventory carrying due to high interest rates. cost/ Net sales) x Prevents blockage of 100 working capital and also indicates obsolete stocks

STORE OPERATING PARAMETERS..

GROSS MARGIN RETURN ON INVENTORY (GMROI) MARK DOWN GOODS PERCENTAGE Compares the margin on sales with the original cost value of the merchandise. Can be altered by changing inventory When ratio increases, merchandise practices have to be seen. Can be symptoms of poor buying, advertising and store layout, Does not indicates cause of shrinkage but magnitude of the problem Critical to retailing Gross margin/ Av. value of inventory

(Net sales at mark down/ total net sales) x 100

SHRINKAGE TO NET SALES SPACE - GROSS MARGIN RETURN ON FOOTAGE (GMROF)

(Actual inventory Book Inventory)/ (Net sales) x 100 Sales per area of sq ft/ day Margins per sq ft/ day

STORE OPERATING PARAMETERS..

OCCUPANCY COST PER SQUARE FOOT SELLING SPACE Store performance is proportional to GMROF (footage) STOCK PER SQUARE FOOT For a multi unit retailer it is a helpful measure for comparing the performance of units at different locations. (Expressed in rupees) Occupancy cost/ Sq ft of selling space

This ratio will vary according Net stock/ Sq ft to type of merchandise. of selling space Compares the performance of different depts. or stores using common standard. Catalogue showrooms have little selling space, while shoe store has little non selling space Indicates employee productivity. Used for setting performance targets Selling space in sq ft/ Total space in sq ft Net sales/ Total full time employee

PERCENTAGE OF SELLING SPACE

NET SALES PER FULL TIME EMPLOYEE GMROL (labour)

STORE OPERATING PARAMETERS..

SPACE COVERED / Extensively used by large format CUSTOMER retailers like dept stores SERVED PER FULL TIME EMPLOYEE LABOUR PRODUCTIVITY GROSS MARGIN PER FULL TIME EMPLOYEE SUPPLIERS/ QUANTITY OR VALUE PURCHASED BY BUYER Tracks labour cost. Applied solely to sales employees Gauges sales employees performance Research indicates average buyers ability to make appropriate decisions about buying declines as no. of suppliers increase. This has to be looked into with no. of SKUs the average buyer handles (Total retailing space/ No. of customers served)/ Total full time employees Total labour cost/ Net sales Gross margin/ Total full time employee (Total suppliers/ Qty or value purchased)/ Total buyers

FINANCIAL PRAGMATIC COST SHEET TOWARDS PROFITABILITY

SALES & OTHER INCOME 100

COGS
SHRINKAGE OCCUPATION COST EMPLOYMENT COST ADVERTISING & PROMOTION ENERGY COST OPERATIONS & ADMINISTRATION PBIT INTEREST DEPRECIATION PBT

70
1 7 5 2 2 5 8 1 2 5
In some malls in NCR region occupation cost is 20% to 25%

STRATEGIC RESOURCE MODEL (SRM) IN RETAILING

SRM MEASURES PERFORMANCE OF THREE RESOURCES IN RETAILING 1. Gross Margin Return on Inventory (GMROI) 2. Gross Margin Return on Selling Area (GMROF) 3. Gross Margin Return on Labour (GMROL)
A price cut requires an increase in merchandise productivity (through increases conversion and buying), and space and labour productivity

SIGNIFICANCE OF RETAIL RESOURCES

Margins Gross margin is the spread between buying & selling prices. Readjustment of markdowns & shrinkage may make all the difference Optimised technology investments improve net margins Inventory High cost of holding Extremely high cost if holding the wrong kind Space People Costs 20-40% Typically 15% of operating - 40% of expense operating expense Could be a major fixed cost

5080% of 25% - 50% of Costly to get working all assets & retain capital Costs Rs.4000 Not enough 40-60% of all to Rs.10,000 people with assets per sft to right skills & build attitude

Favourably Bought

Wisely Chosen

Wisely Chosen & Utilized

Intelligently Selected & Trained

SRM SENSIVITY ANALYSIS

The SRM model suggests the retailers can develop strategies that vary on following factors 1. 2. 3. 4. Level of gross margin Level of inventory productivity Degree of merchandise intensity Degree of service (by people) intensity

STRATEGIC RESOURCE MANAGEMENT MODEL

Net sales Inventory
X X Stock turns =

Gross margin Inventory

GMROI Gross margin return on inventory

Inventory Selling feet

Merchandise intensity

Gross margin Net sales

Gross margin %

Net sales Selling feet

X

Sales per sft =

Gross margin Selling feet

GMROF Gross margin return on footage

Selling feet FT Employee = Net sales FT Employee

Service intensity

Sales per employee

Gross margin FT Employee

GMROL Gross margin return on labour

DISCUSSION QUESTION
1. What are the key factors you would consider while designing a performance program for a retail store? 2. Design a template that describes the operating financial parameters for retail store operations?

PARAMETERS FOR MEASUREMENT

1. Walk-ins and Conversion Number of people who walk into the stores within a pre-determined period of time (daily, hourly, monthly). 2. Average Transaction Value The value worth of goods purchased by the customers. 3. Display to stock ratio The amount of backroom inventory maintained as a backbone to that displayed in the store 4. Sales per sq. ft. This is a very important retail performance benchmarking ratio Indicative of the performance of the sales staff. 5. Sales per employee A motivated sales team is one of the keys to better conversion in the outlet. 6. Inventory turnover rate It is measures the number of times during a year that a company replaces its inventory. 7. Gross margin per sq. ft. Indicative of the profitability of the Retail space.

Calculate the GMROI and inventory turnover given an annual sales of Rs. 10,00,000, average inventory (at cost) of Rs.1,00,000 and a gross margin of 45%?

GMROI OF SELECTED DEPARTMENTS IN DISCOUNT STORES

Department Apparel House wares Gross Margin % 37 35 Sales-to- Stock Ratio 6.35 4.63 GMROI 235 162

Food Jewelry Furniture Health & beauty supplies Consumer electronics

20 38 31 22
21

8.75 3.24 4.09 5.14

5.05

175 123 90 113

106

Wall-Mart & Target emphasize apparel and de-emphasize furniture

MEASURING SALES TO STOCK RATIO

Retailers normally express sales-to-stock ratios (and inventory turnover) on an annual basis rather than for a part of the year. If the sales to stock ratio for a 3-month season equals 2.3 , the annual sales-to-stock ratio will be 4 times that number (9.2). Another method is to take the end-of-month inventory for several months and divide by the no. of months. Month January February End of Month Inventory at Retail Price $ 22,000 33,000

March
Total Inventory Average Inventory

38,000
93,000 31,000