Retail management, VTU

MBA@GIT http://www.mba.git.edu.
© Prof. Prasad Kulkarni, Gogte Institute of Technology, Belgaum. pvkulkarni@git.edu.
Part b:
Retailing

Retail Management
Introduction
Meaning
“Retailing consists of activities involved in
selling goods and services to ultimate
consumers for personal consumption”
cuoghan , Anderson, Louis
“Retailing is a set of business activities that
add value to the products and services sold
to consumers for their family or personal
use.”

Characteristics
1. Average amount of sales transaction is
much less than the manufacturer, so there
is a need for tightly controlling the costs,
maximizing the no. Of customers,
emphasizing more on special promotion
etc.
2. The survey shows that a large number of
buyers make impulse purchases, this
behavior indicates the value of in store
displays- the ability to forecast is difficult.

Contd..
All retailers offer an assortment of products, but
they also specialize in the assortment they offer
The bulk items shipped by the manufacturer is
offered in smaller quantities tailored to
individual customers.
Holding inventory – products are available at the
disposal of consumers so they can keep a small
inventory at home
There is direct end user interaction and retailing
increases the value of products and services.
Location is a critical factor in retailing.

Retail industry in India
Role of retailing.

Trends in Retailing.
1. Spatial convenience
2. Increased power of retailer
3. Growing Diversity of Retail formats
4. Emergence of region specific formats
5. Entry of International Players
6. Mall Development

Retail strategy
Prof. Prasad Kulkarni

Retail Strategy
An overall plan for guiding a retail firm
Influences the firm’s business activities
Influences firm’s response to market
forces

Elements of a Retail Strategy

Six Steps in Strategic Planning
1. Define the type of business
2. Set long-run and short-run objectives
3. Determine the customer market
4. Devise an overall, long-run plan
5. Implement an integrated strategy
6. Evaluate and correct

Benefits of Strategic Retail Planning
Provides thorough analysis of the
requirements for doing business for
different types of retailers
Outlines retailer goals
Allows retailer to determine how to
differentiate itself from competitors
Allows retailer to develop an offering that
appeals to a group of customers

Benefits of Strategic Retail Planning_2
Offers an analysis of the legal, economic,
and competitive environment
Provides for the coordination of the firm’s
total efforts
Encourages the anticipation and
avoidance of crises

Aspects of Target’s Strategy
Growth-oriented
objectives
Appeal to a prime
market
Distinctive company
image
Focus
Strong customer service
Multiple points of contact
Employee relations
Innovation
Commitment to technology
Community involvement
Constantly monitoring
performance

Figure 1.10 Applying the Retail
Concept
Customer Orientation
Coordinated Effort
Value driven
Goal Orientation
Retailing
Concept
Retail
Strategy

Approaches to the Study of Retailing
Institutional
Functional
Strategic

Applying the Retail Concept
Customer Orientation
Coordinated Effort
Value driven
Goal Orientation
Retailing
Concept
Retail
Strategy

Retailing in India

Ministry of statistics ( report by
PWC)

Deloitte India retail report 2013

Michel page India retail report
2013

Multi brand retailing (PWC)

Emerging trends in the
organized retailing in India

Trends ( Source: International Journal of Business
and Management Tomorrow Vol. 2 No. 10 )

Entry of International Players
With global players knocking at the door,
waiting for the government to open up the
floodgates, all the big Indian organized retail
companies are feeling the heat. The fight is
now not between Big organized retail stores
(3%) and Unorganized Kirana Shops (97%),
but its between global giants like Wal-Mart,
Tesco and Shopper’s Stop, Pantaloons

Emergence of new Retail Formats
Currently the retail sector in India is populated with the traditional
mom-and-pop stores and some 1000 odd supermarkets under
organized retail chains. A daring few ventured into the Hypermarket
segment like a big bazaar with successful results and this format is
being fast replicated by other players. This experience indicates that
the Indian consumer has matured to the next level of shopping
experience. Given the Indian conditions and the vast diversity a
single format may not be possible for the national presence, but
region specific formats may evolve. An interesting observation is
that lack of presence of organized retail chains in the rural/semi
urban centers as over 60% of Indian population is still in these
parts. An ideal “no frills” model to start with would be ideal for the
rural markets; this would help to take them to the next level of
supermarket experience.

Specialty Malls
Keeping in mind the astonishing pace with which new supply is
expected to enter the market, many mall developers, in a bid to
offer a distinctive value proposition, are planning to develop
‘specialty malls’. These niche developments shall emerge as one-
stop destinations in their chosen product categories. The Delhi-
based Aerens Group has developed Gold Souk, an exclusive
jewellery mall that is already operational in Gurgaon and has
ambitious plans to replicate the concept across the country.
Further, a number of analogous developments like a ‘Wedding Mall’
by Omaxe Group, ‘Automobile Mall’ etc are also in the offing. In line
with international trends, ‘Home Malls’ offering the entire range of
building and interior décor solutions are also coming up in various
parts of the country including Pune (‘Ishanya’ promoted by Deepak
Fertilizers and Petrochemicals Corporation Ltd), Gurgaon & Kolkata.

Wedding mall in guragoan

Price corrections
IT in retail management
Traditional retailers in mall.
Suppler retail relationship.
Innovation in transportation logistics.
Community involvement
Online retailing.

Retail Challenges
Organizing Retail in India-Challenges
Heterogeneous market
– Product offerings in different stores across the country will be very different
– No standard mode of operation across formats
– Market not mature (has to be validated)
Infrastructure will bring about logistical challenges
– Though, improvements in road networks, power supply are underway
Trained employees with understanding of retail business are inadequate compared to the needs
of organized retail
Barriers to Entry
– High taxes, bureaucratic clearance process and labour laws
High cost of real estate
– though over 600 malls are to come up all over the country by the next 4 years
Indian retailers are deeply entrenched, are expanding and building on logistics and technology
initiatives

Processes
•Complex Processes - Multiple MRP, Deals & Promotions, Forecasting & Replenishment,
Lean supply chain – JIT inventory, flow through warehouse
•Evolving processes in Supply chain & merchandising
•Global Best Practices not adopted
Consumer
Infrastructure
•High disposable income
•Changing consumer preferences
•28 states, 100+ religion, 250+ festivals
•Supply chain not reliable. Cold storage infrastructure evolving
•Outsourced transportation
•Low level automation in warehouses
Supplier/
Vendor
Current IT
•Little or no collaboration between vendor & retailer
•Low fill rates from vendors
•Highly localized assortments leading to relationship with multiple vendors
•Complex trading contracts and off invoice discounts
•Multiplicity of disparate Systems & Data Formats
•No architecture roadmap
•Base ERP and home grown POS solutions. Low investments in store systems
•No investments in planning & optimization technologies
At ground level ….

Retail formats

Drivers for Indian RetailHigh Income
Opportunities
Changing Attitude International
Exposure
Necessities to
Lifestyle
•Service Sector: creating
new jobs.
•Working Population in
2010 will 70%
•IT Industry: increasing
professional opportunities
•Rising Salary levels
•MNCs entering India and
homegrown companies
going global
•From Save to Spend
•High disposable income
family structures on a rise
•Nuclear Families
•DINKS (Double Income
No Kids)
•Multi income families
•International travel
•Exposure to global
trends
•Highest Growth in
outbound tourists in
the world
•Shift of expense
basket from basics to
lifestyle products
•Increased spend on
Apparel, personal care,
entertainment
•Easy Bank credit
boosts retail
Customer value drivers are continuing to fragment as a result of changing demographics & value systems
Consumption expenditure is 60 % of India’s GDP
Market &
Government
•Easing out on Import
barriers, Government
sponsorship taking
shape (FDI Policy, Tax
and Duty structure,
Subsidies)
•Fluid retail Segments
•M-Commerce & e-
Commerce boosts retail

Global Heavyweights in Indian
Retailing
Joint Ventures Product Range Retail Formats
Bharti-Walmart (with $2.5
Billion investment by
Bharti)
Food & grocery, electronics & appliances, clothing &
footwear, furniture & furnishing, household articles.
Hypermarkets, Supermarkets and
Convenience
Carrefour-Landmark Food and groceries, FMCG, apparel and electronics Hypermarkets
Home Retail Group plc -
Shopper's Stop Ltd and
Hypercity Retail India
Private Ltd
Franchising the Argos concept under the terms of the
arrangement, Argos will be providing its brand,
catalogue and multi-channel expertise and IT support
Multi Channel propositions
Tata-Woolworths Sourcing agreement for Consumer durables and
Foods under brand name CROMA
Multi brand retail chain
Staples Inc – Pantaloon
Retail
Global Sourcing of Office equipments across various
businesses
Cash and carry
Reliance Food & grocery, electronics & appliances, clothing &
Multi format and Multi Category
Birla Food & grocery, electronics & appliances, clothing &
Convenience and Supermarket

Format Definition
Formats Description
Key categories retailed Typical size
Sq.ft.
Example
Hyper markets
A large superstore, combining a
supermarket and departmental
store, offering full lines of
grocery and general
merchandise all under one roof
Food, groceries, apparel,
furnishings, consumer durables
15,000-100,000 Big Bazaar, Hypercity, Spencer, Star
India Bazaar, Vishal Megamart
Super markets
A large self service outlet
offering food and household
goods
Food, groceries, medicines 3,000-15,000 FoodWorld, Trinethra, Subshiksha,
Food baazar
Departmental
stores
A large self service outlet
offering a variety of
merchandise
Apparel, Jewellery, watches, fashion
accessories, footwear, furniture,
furnishings
10,000-50,000 Shopper’s Stop, Lifestyle, Pantaloon,
Westside
Category
killers
Large speciality stores focussed
on one or a few categories of
merchandise, offering a wide
selection at low prices
Electronics, office supplies, apparel
20,000-100,000 Best Buy – Circuit City, Staples
Convenience
stores
Small size, easily accessible
stores offering a quick
shopping, fast check out
experience and extended
working hours
Food, groceries, medicines 500-2,000 In&Out, Trinethra, Subhiksha,
traditional stores

Retail Organization
The term retail organization refers to the
basic format or structure of a retail
business designed to cater to the needs of
the end customer.

Classification retail units
On the basis of ownership
a. Sole proprietorship
b. Partnership:
c. Joint venture
d. Limited liability Company (public and
private)

On the basis of operational structure.
a. Independent retail unit:
b. Retail Chain
c. Franchising:
d. Leased Department or Shop-in-shop
e. Co-operative Outlets

On the basis of retail location
a. Retailers in a free-standing location
b. Retailers in a Business-associated
Location
c. Retailers in Specialized Markets
d. Airport Retailing:

Retail environment in India

Based on PWC report 2013
India’s growth has slowed to 6.5% in the
current fiscal, dragged down by a nine-year
low of 5.3% in the March quarter on account
of poor performance of the manufacturing
sector. This is due to the cascading effect of
the global slowdown that originated from
developed economies and has impacted
both China and India, the major contributors
to the world GDP. However, despite these
short-term difficulties, the medium outlook
is more positive, states an OPEC report.

A strong GDP growth, rising consumer confidence,
consumption-based behaviour, increasing
income, and a large pool of consumers provide
windows of opportunities for global retailers to
invest in the Indian market. Largely deals are
happening in the online model whether it is
pharmacy, apparel, baby care or books.
Considering that we have the youngest
population in the world, such companies are
bound to see growth, making it inevitable for
financial investors to be present in this segment.

Mergers and acquisations

Legal environment

Demographic environment

IT in retail

Information technology in retail
operation
Retail demand forecasting
Inventory management
Store management
Windows mobile based solutions in retailing
Mobile point of sale
RFID and location tracking.
Business intelligence in retail

Standard ERP/CRM tools.
POS terminals
Bar code readers.
Cloud computing
Smart operating system.

Store Location

Retail Location
Location decisions can be complex, costs
can be quite high, there is often little
flexibility once a location has been chosen
and the attribute of location have a strong
importance to retailers overall strategy.

Importance of Location Decision:
1. Location is a major cost factor because it :
 Involves large capital investment
 Affects transportation cost
 Affects human resources
2. Location is a major revenue factor because it
 Affects the amount of customer traffic
 Affect the volume of business

Levels of Location Decision and its
Determining Factors:
level of location
Decision
city Area within city site selection

Selection of a city:
Factors to be considered for selection of a city
1. Size of the city’s trading area
2. Population or population growth in the trading is
3. Total purchasing power and its distribution
4. Total retail trade potential for different lines of
trade
5. The retailer also consider, number, size, quality
of competition before selecting a city.
6. Development cost

Selection of an Area or Type of
Location within a city.
Evaluation of the following factors required
Customer attraction power of a shopping
district or a particular store (commercial
street-Bangalore, Chandni Chowk in Delhi)
Product lines carried by other stores, number
of stores in the area.
Availability of access routes- There should not
be traffic jam and congestion
Nature of zoning regulations
Direction of the spread of the city

Selection of a specific Site
1. Adequacy and potential of traffic passing
the site:.
2. The ability of the site to intercept the
traffic following past the site.
3. Complementary nature of adjacent
stores:

Type of Retail Location:
1. Free standing location :
2. Neighborhood stores.
3. Highway stores.
4. Business associated location:
This can further be classified into
two:
a) PLANNED SHOPPING
b) Unplanned business districts

Unplanned business districts
An unplanned business district is a type of retail location
where two or more retail stores locate together on
individual consideration rather than on the basis on
any long-rang collective planning. We may find 4-5
shoe stores, 3-4 medical stores in a cluster, but no
grocery store. Connaught place in New Delhi
i) Downtown or central Business District:
ii) Secondary Business District:.
iii) Neighborhood Business District:)
iv) Suburban business District:
b) Planned Shopping centers.

PLANNED SHOPPING
A planned shopping center consists of a
group of architecturally owned or
managed stores, designed and operated
as a unit, based on balanced tenancy and
surrounded by parking facilities.
1. Regional shopping center malls:.
2. Neighborhood/community Shopping
Centre:.
3. Specialized Markets.
4. Periodic Markets

Trading Area:
A trade area is a contiguous geographic area
from which a retailer draws customers that
account for the majority of a store sale. A
trade is a may a part of a city, or it can
extend beyond the city’s boundaries. A trade
area can be divided into 2 or 3 zones.
Trade Area Analysis: It is necessary to
estimate market potential, understand
consumer profile, competition etc. GIS (
Geographical Information System – combine
digitized mapping with key location data )
used for this purpose. A saturated trade area
offers customers a wide variety of
merchandise, which also ensures impressive

Site Selection Analysis
A retailer has to consider the following factors
while selecting a site.
1. The kind of products sold
2. Cost Factor in Location Decision.
3. Competitor location
4. Ease of traffic flow and accessibility
5. Parking and Major Thoroughfares
6. Market Trends
7. Visibility

Selection of a particular shopping
center or Market Area
1. Merchants’ Association
2. Responsiveness of the landlord
3. Zoning and planning
4. Leases
5. Building Layout

Location Assessment Procedures
1. Checklist Analysis
2. Analogue Analysis.
3. Financial analysis.
4. Regression Modeling
5. Retail Area Development

Store layout and space
planning

Layout
The logical arrangement of the physical
facilities of a business that contributes to
efficient operations, increased
productivity, and higher sales.

FIVE ELEMENTS OF PHYSICAL
STORE DESIGN
The physical design of a retail store is a
combination of five key
Design elements.
1. The exterior,
2. The interior space,
3. Fixtures,
4. Merchandise
5. People

The selection of layout depends on
following:
i) Nature of the product category
ii) Width and depth of the product range
iii) The fixtures and accessories utilized
iv) The physical size and shape of the retail
store

LAYOUT: EXTERNAL FACTORS
1. Size must be adequate to accommodate
business needs.
2. Appearance must create the proper image
or “personality” for the business in the
customer’s eyes.
3. Entrances must invite customers to come in.
4. Create effective window displays and
change them often; they can be powerful
sales tools.
5. Must comply with the Americans with
Disabilities Act (ADA).
6. Pay attention to the business sign, the most
direct method of reaching potential

A BUSINESS SIGN
1. Tells potential customers who you are
and what you’re selling.
2. Must comply with local sign ordinances.
3. Should be visible, simple, and clear.
4. Should be changed periodically to avoid
becoming part of the background.
5. Should be legible both day and night.
6. Must be maintained properly.

BUILDING INTERIORS
1. Ergonomics is an integral part of any
design.
2. Proper layout and design pays off in
higher productivity, efficiency, or sales.
3. Proper lighting is measured by what is
ideal for the job being done.
4. Careful selection of colors can create the
desired impressions among customers
and employees.
5. Appealing to all of the customer’s senses
can boost sales.

THREE RETAIL LAYOUT
PATTERNS
Grid
– Rectangular with parallel aisles; formal; controls
traffic flow; uses selling space efficiently.
– Supermarkets and self-service discount stores.
Free-Form
– Free-flowing; informal; creates “friendly”
environment; flexible.
– Small specialty shops.
Boutique
– Divides store into a series of individual shopping
areas, each with its own theme; unique shopping
environment.
– A small department stores.

Layout guidelines
Know your customers’ buying habits and
plan your layout accordingly.
Display merchandise as attractively as your
budget will allow.
Display complementary items together.
Recognize the value of floor space; never
waste valuable selling space with non-
selling functions.

Types of layouts
Straight Floor Plan
This is very optimal and useful store layout
that can be applied
To almost all types of retail stores. It makes
use of walls and
Fixtures to create small defined spaces
within the retail store. It
Is also a very cost efficient design.

Diagonal floor plan
A good store layout that is useful for self-
service retail outlets is
The diagonal floor plan. It offers the
advantage of outstanding
Visibility to both cashiers and customers.
This plan helps customers move easily
within the store.

Angular floor plan
The angled floor plan is often adopted by a
high - end specialist
Stores. This employs differently shaped and
curved fixtures too
Develop a luxurious store design. The soft
angles provide a more
Elegant way to move customers within the
store.

Geometric floor plan
The clothing and apparel outlets typically
use a geometric floor plan.
In this design, as shown in utilizes racks and
fixtures to develop an interesting store
design without incurring high costs.

Mixed floor Area
Such floor plans utilize the elements from
the diagonal and angular floor plans to
create a function-specific store layout.
This layout facilitates the movement of
customer traffic towards the wall and the
back of the store.
This layout generally used by stores which
stock intimate products.

Products and merchandise
management
Merchandise management is the process by
which a retailer attempts to offer the right
quantity of the right product at the right
place and time while meeting the retail
firm's financial goals.
Merchandise management is the analysis,
planning, procurement, handling and
control of the merchandise investment of
a retail operation

Component of merchandise management:
1. Analysis,
2. Planning
3. Control,
4. Acquisition,
5. Handling.

The merchandise Mix
Merchandise variety –number of different of
product lines that a retailer stocks in the
store.
Merchandise assortment refers to the number
of different product items the retailer stocks
within a particular product line.
Merchandise support deals with the planning
and control of the number of units the
retailer should have on hand to meet the
expected sales for a particular period.
Merchandise Budget is a financial tool for
planning and controlling a retailer's
merchandise inventory investment.

Merchandise Budge plan
The four important components of the merchandise
budget plan:
1. Projected sales- Expected or projected rupees
volume of sales for each merchandise.
2. Inventory plan
– Beginning of the month ratio:
BOM=planned monthly sales*desired stock/sales
ratio.
The week supply method is for determining stock
Percentage variation Method
Basic stock method

Estimated reduction
1. Markdowns
2. Discounts
3. Shortages
Estimated purchase levels
Planned purchases are calculated as follows
Planned monthly sales +planned monthly reductions+Desired
end of the month stock
=Total stock needs for the month-planned BOM stock
Planned monthly purchase

Merchandise Planning in Units
The impact of external factors on
merchandise unit plans is as follows:
1. Target market analysis:
2. Competition Analysis
3. Breadth
4. Depth
5. Consistency.

Model Stock plans:
A model stock plan is a plan for maintaining adequate
merchandise on hand. It characterizes the decisive items and
their respective quantities that should be on hand for each
merchandise line the retail business is dealing in and is
developed after the retailer decides what relative importance
will be placed on each dimension of the merchandise mix. A
model stock plan is a quantitative method, which provides
guidelines on the size, color, brand and composition of stock
that specify the exact nature of the merchandise. Model
stock planning comprises the following steps:
1 . Identify the consumer drive product service attribute
2. Identify the number of levels in each attribute identifier

CATEGORY MANAGEMENT
Category management is the process of
managing a retail business with the objective
of maximizing the sales and profits of a
category rather than the performance of
individual brands or models.
A category is an assortment of items that the
customer sees as reasonable substitutes for
each other. For example, retailers in ready to
wear segment consider female and male
clothing as one category.

Advantages of Category
Management
Increased sales
Reduced Inventory management
Improved route and warehouse efficiency.

The Essential Elements of Effective
Category Management
1. The category should be arranged as if consumers could
stock the shelf themselves
2. Category composition should be on the basis of time, space
and product benefit
3. Category management should drive multiple item purchase
4. Category management is a dynamic, proprietary set of
decision, not a standard, universal practice.
5. It is directed to create value for the consumer rather than
facilitating relations between supplier and retailer.
6. Category management plan should be based on the overall
competitive environment in a specific trading area.

VARIOUS REPLENISHMENT
POLICIES
Fixed cycle of Replenishment: Replenishment takes
place at predetermined time intervals, which are
decided jointly by the retailers and suppliers.
It is useful when:
-Predictable demand and sales pattern, high
transportation cost, Batch production with large
batch size.
Continuous Replenishment: It is decided by the
supplier and retailer. Whenever inventory dips
below the required level of purchase order is
automatically generated leading to fulfillment. It is
useful when
-Unpredictable sales pattern, goods for which
historical sales is not available

EVALUATING MERCHANDISE
PERFORMANCE
ABC Analysis:
Self –through Analysis

Storing or transmitting
information
EDI
Data warehouse
CPFR

Visual Merchandising

The Elements of a Retail Image

Atmosphere
The psychological feeling a customer gets
when visiting a retailer
– Store retailer: atmosphere refers to store’s
physical characteristics that project an image
and draw customers
– Nonstore retailer: atmosphere refers to the
physical characteristics of catalogs, vending
machines, Web sites, etc.

Visual Merchandising
Proactive, integrated atmospherics
approach to create a certain look, properly
display products, stimulate shopping
behavior, and enhance physical behavior

Visual
Merchandising
and Gap

The Elements of Atmosphere

Exterior Planning
Storefront
Marquee
Store entrances
Display windows
Exterior building height
Surrounding stores and area
Parking facilities

Alternatives in Planning a
Basic Storefront
Modular structure
Prefabricated structure
Prototype store
Recessed storefront
Unique building design

Store Entrances
How many entrances are needed?
What type of entrance is best?
How should the walkway be designed?

How a Store Entrance Can Generate Shopper
Interest

General Interior
Flooring
Colors
Lighting
Scents
Sounds
Store fixtures
Wall textures
Temperature
Aisle space
Dressing facilities
In-store transportation (elevator,
escalator, stairs)
Dead areas
Personnel
Merchandise
Price levels
Displays
Technology
Store cleanliness

Eye-Catching Displays from Toys “R” Us

Allocation of Floor Space
Selling space
Merchandise space
Personnel space
Customer space

How a Supermarket Uses a Straight (Gridiron)
Traffic Pattern

How a
Department Store
Uses a Curving
(Free-Flowing)
Traffic Pattern

Grouping Types
Functional product groupings
Purchase motivation product groupings
Market segment product groupings
Storability product groupings

Straight Traffic Pattern
Advantages
An efficient atmosphere is created
More floor space is devoted to
product displays
People can shop quickly
Inventory control and security are
simplified
Self-service is easy, thereby
reducing labor costs
Disadvantages
Impersonal atmosphere
More limited browsing by
customers
Rushed shopping behavior

Piggly Wiggly’s
Open Traffic Design

Curving Traffic Pattern
Advantages
A friendly atmosphere
Shoppers do not feel rushed
People are encouraged to walk
through in any direction
Impulse or unplanned purchases
are enhanced
Disadvantages
Possible customer confusion
Wasted floor space
Difficulties in inventory control
Higher labor intensity
Potential loitering
Displays may cost more

Approaches for Determining Space
Needs
Model Stock Approach
– Determines floor space
necessary to carry and
display a proper
merchandise
assortment
Sales-Productivity Ratio
– Assigns floor space on
the basis of sales or
profit per foot

Interior (Point-of-Purchase)
Displays
Assortment display
Theme-setting display
Ensemble display
Rack display
Case display
Cut case
Dump bin

Costco’s Online Storefront

Online Store Considerations
Advantages
Unlimited space to present product
assortments, displays, and
information
Can be customized to the individual
customer
Can be modified frequently
Can promote cross-merchandising and
impulse purchasing
Enables a shopper to enter and exit an
online store in a matter of minutes
Disadvantages
Can be slow for dialup shoppers
Can be too complex
Cannot display three-dimensional
aspects of products well
Requires constant updating
More likely to be exited without
purchase

Making the Shopping Experience More
Pleasant

The Shopping
Cart’s Role in an
Enhanced
Shopping
Experience

Community-Oriented Actions
Make sure that stores are barrier-free for disabled shoppers
Show a concern for the environment by recycling trash and cleaning streets
Supporting charities and noting that support at the company Web site
Participating in anti-drug programs
Employing area residents
Running special sales for senior citizens and other groups
Sponsoring Little League and other youth activities
Cooperating with neighborhood planning groups
Donating money and/or equipment to schools
Carefully checking IDs for purchases with age minimums

Props
Objects added that support the theme of the
display.
– Functional Props: used to physically support the
merchandise. (mannequins, stands, panels, screens,
etc)
– Decorative Props: used to establish a mood or an
attractive setting for the merchandise being featured
(ex: mirrors, flowers, seashells, surfboards, etc)
– Structural Props: used to support functional and
decorative props and change the physical makeup of
displays. (boxes, rods, stands, stairways, etc)

Signage
Includes individual letters and complete signs.
Often on some kind of holder.
Can tell a story about the goods.
Should try to answer customers questions.
Should be informative and concise.
Can include prices, sizes, department location.

Window Displays
Seen from outside of the store.
First contact with the customer.
Can have a series of windows.
Advantages of Window Displays:
– Establish and maintain an image
– Arouse curiosity
Disadvantages of Window Displays:
– Expensive to design and maintain
– Requires space
– Merchandise can get ruined (sun ,etc)
– Glare

Types of Window Displays
Enclosed windows: have a full background and
sides that completely separate the interior of
the store from the display window.
– Ramped windows: floor is higher in back than in
front
– Elevated windows: from 1 to 3 feet higher than
sidewalk
– Shadowbox windows: small, boxlike display windows

Types of Window Displays
Semi-closed windows: have a partial background
that shuts out some of the store interior from
those viewing the window
Open Windows: have no background panel and
the entire store is visible to people walking by
Island windows: four-sided display windows that
stand alone, often in lobbies.

Color
Can influence behavior
– Warm colors increase blood pressure, respiratory
rate and other physiological responses – attract
customers and gain attention but can also be
distracting
– Cool colors are relaxing, peaceful, calm and pleasant
– effective for retailers selling anxiety-causing
products

Colour Sells
Colour is what customers see first. More than
anything else, colour makes people stop and
look. For many customers colour is more
important than the size or the style of the
product.

Notice how each colour in rows 2 through 5 corresponds to the colour above it. For
example, pink, in the pastels, corresponds to the bright red in the top row; peach to
bright orange, and so on.

The round rack in the correct example features colours from just one colour group,
brights, for a harmonious colour arrangement. The incorrect example features
colours from two colour groups, brights and pastels, which don’t blend together in a
harmonious way.

The four-way fixture in the correct example features from just one colour group,
brights, combined with neutrals. The incorrect example features colours from
two colour groups, brights and pastels, which don’t blend together.

How to Maximise the Use of
Colour
 Attract the eye of the customer
 Create points of interest
 Use contrasts of colour and form
 Aim at variety
 Create a buying mood

Sound & Scent
Sound
– Music viewed as valuable marketing tool
– Often customized to customer demographics - AIE
(http://www.aeimusic.com)
– Can use volume and tempo for crowd control
Scent
– Smell has a large impact on our emotions
– Victoria Secret, The Magic Kingdom, The Knot Shop
– Can be administered through time release atomizers or
via fragrance-soaked pellets placed on light fixtures

SIGNAGE AND TICKETING
Corporate Signs: Branding signs
Product Category Signs: Direct consumers to
specific categories
Promotional Signage: Highlight specific
promotions, have short life span, based on the
stockturn of the promotion
Information Signage: Identify service + service
policies within your business
Product Signs: These educate customers about the
specific product

Product Category Signage
• The bigger the shop, the greater the need for
department signage.
• The customer should be able to enter your shop
and clearly see where the major departments are
situated.
• Keep the sign simple so it can be easily read.
• Be consistent in the style used on all department
signage.

Promotional Signage
• Only use the signs in the key, relevant areas (do not
promote roses in the herb department);
• Give the promotion a lifespan and keep to it
(customers don’t want to see dated, faded and
ripped signs);
• Use promotional material in an exciting way.
Rather than just hang up posters around your shop,
group them to catch the customer’s eye.

Floor signs

TICKETING

How well any sign works depends on how easy it is
to read and understand.
Signs should look professional. They must be
clean & unblemished.
• Theme Tickets
• Price Tickets
• Hard Sell/Soft Sell
• Known Value
• Unknown Value

Research in USA has revealed that during the same
sale period if 100 products were sold with no
signage:
Then 170 were sold when handwritten signs were
used
265 products were sold when signs were
professionally produced to sell the products.

Hard sell tickets (yellow +
red)

Here conversational copy has been rendered in a formally balanced layout
Way too wordy.
#fail

This is a bullet-point copy in an informally balanced layout

25% offselec ted fragranc es
from these top brands
sale
JUVE N AOF SWITZERLAND D ior
Elizabeth Arden

Known Value Lines
Products that are purchased on price rather than their
benefits as the consumer perceives they know the
exact price of these products.
Even a 5% increase in price is criticised by consumers
but the reverse is that a 5% reduction in price an
result in a buying frenzy, eg. cigarettes, petrol, milk,
bread…

Don’t be cheaper than anyone else on KV Lines. It will not help
your bottom line. You can match your competition, but don’t
go cheaper.
Consumers will judge your whole product price strategy based
on a few KV lines. Make sure you are aware of the price
structure adopted by your competition on these lines.
If you are more than 10% more expensive than the price
leader, you will be perceived as being too expensive in your
whole product.
Placement of KV tickets is important.

Product Signage: KV Lines
Bananas
$6.50kg
One third of sign
Two thirds of sign
When merchandising KV products, you need your
product signage to give the right message

Non-Known Value Lines
Includes 98% of products you sell where the
consumer doesn’t know the exact price. They will
have some perception of price bands, but they will
not argue over the cents. These products will
reflect your image and should be of the highest
quality.
Rely on non-known value lines to promote your
business (Box retailers rely on kv lines to promote
their image).
Promote non-known value lines when doing product-
driven promotions.

Non Known Value Lines
Pre-shaped
Hamburgers
Perfect bun size
Easy storage
Fast defrost &
microwave
6 for $2.50
Great for BBQ’s
Name of Product
3 Benefits
Price of Product
Closing Motivator

A 12 foot planogram presenting cookware

WHY CUSTOMERS NEED
IN-STORE SIGNAGE
• Identify advertised lines
• Explain hidden benefits
• Indicate value & price
• Highlight new trends & products
• Explain difference between look-
a-likes
• Remind customers to purchase
• Clarify policies
• Help customers find products

HOW TO CAPTURE
CUSTOMER INTEREST
 Catch your customer’s eye through repetition.
 Step your products to provide variation.
 Use a pyramid to sell more product.
 Try radiating displays.
 Be on lookout for ideas from elsewhere.

Disordered Pyramid
#fail

Ordered Pyramid
#win

BEST SELLERS
Located within their own classification in a
PRIME position exposed to maximum traffic
flow.
THEY MUST BE
IN STOCK.

ADVERTISED AND
SELL UP LINESMust be clearly identified and located in the spot directly
related to the sale you want from the advertised line.
Always located within their own merchandise classification.
In a PRIME SPOT if you aim to sell the line in quantity, or
If only being used to generate traffic – at the rear of the
classification area to pull
people through.

IMPULSE LINES
Close to the advertised line in PRIME location or in a
high waiting area (eg. Close to cash desk).
Must be clearly visible & in a position on the way to
the cash desk, not where it can’t be seen until
main transaction has been completed.
Merchandise attractively displayed at the aisle
line helps promote impulse sales.

SEASONAL AND TREND
ITEMS
Understand when seasonal items will sell and merchandise
accordingly. Give them every opportunity to sell at the
right time.
Use trend items to develop your competitive edge. Be the
first with a new idea, if you believe in it.
Locate the stock within its own classification & current
seasonal or trend classifications which would be at the
front of your store or dept.

BROWSE ITEMS
Items which customers don’t make a quick decision
about.
Browse items need time and above all, space.
Never place near high traffic areas, narrow or busy
area or in hot spots near cash register.
If you do, it will deter customers from stopping
and the goods won’t sell very well.

HOT SPOTS

Traditionally found on ends of gondolas, shelves
where traffic is heavy and in the main view points
around the store.
Most impulse sales will be made from these spots.
It is essential that hot spots are identified
and known to all salespeople.
HOT SPOTS

CREATING HOT SPOTS
Areas within a store to move aged, surplus stock or
specials.
Normally located in high traffic areas WITHIN their
own merchandise category.
Eliminate Dead Spots by using strong ticketing and
good displays rather than placing top sellers in the
spot.

INTERESTING STATISTIC
Research shows a well planned hot
spot can increase sales by:
229%

HOW TO MAXIMISE SALES
UTILISING HOT SPOTS
Know where to best position your hot spots.
Plan your hot spot displays.
Build your hot spots wisely
– Present items at customer eye level.
– Must have enough product for display to look FULL and
to provide impact.
– ALWAYS have a sign or you won’t maximise your return
per sq. metre.
– Wherever possible try to create a pyramidal shape to the
display. Best selling shape.

MAXIMISE VALUE OF
HOT SPOTS
Consider:
• Products being specially promoted by your store
should go on hotspots.
• Hot spot displays need to be managed – product
level NEVER to go BELOW half full.
• Display must be shoppable in the eyes of the
customer.
• Products should sell three times faster from this
display.

COLD
SPOTS

• Dead corners
• Poor lighting
• Merchandise out of reach
• Merchandise above or below eye level
• Too wide a display
• Too long a shelf
(Tip: If your staff keep saying “down the back” it
is probably a dead or cold spot)
COLD SPOTS

HOW TO FACE PRODUCTS
CORRECTLY
Face more than 3 of a product when:
• It is a trendy item.
• The product is in season.
• The item is featuring in the media.
• It is being promoted by your store.
• Suppliers are doing a major promotion.
• Compile Planograms.
• Consider Indenting.

COLES

MANAGING COUNTER
DISPLAYS
See the counter as a profit centre. Sell 2 – 3 items
from the counter only.
Select the right products at the counter.
Train the team to sell counter products.
Do not clutter the counter.
Look past the counter.
Make somebody accountable.
Introduce housekeeping standards at checkout.

Retail Fixtures

Carousels: Circular racks that
turn

Dump tables/bins:
A rimmed table or bin used to hold sale or
special merchandise on the sales floor,
especially in discount operations; it has no
formal arrangement.

Four-way rack
A fixture with four extended arms, that
permits accessibility to hanging
merchandise all the way around

Rounders
Circular racks on which garments are hung
around the entire circumference

T-stand
Freestanding, two-way stand in the shape of
a T, that holds clothes on hangers,
sometimes with one straight arm and one
waterfall.

Waterfal
A fixtures with an arm that slants
downward, that contains knobs to hole
face-forward hangers with clothing at
various levels

Store management
By Prof. Prasad Kulkarni

Store Management
Managing the Store
Store Layout, Design, and Visual Merchandising
Customer Service

Questions
What are the responsibilities of store managers?
How do store managers recruit, select, motivate, train, and
evaluate their employees?
How do store managers compensate their salespeople?
What legal and ethical issues must store managers consider in
managing their employees?
What can store managers do to increase productivity and reduce
costs?
How can store managers reduce inventory losses due to
employee theft and shoplifting?
What are retailers doing to reduce energy costs?

Buy merchandise
– Locate vendors
– Evaluate vendors
– Negotiate with vendors
– Place orders
Control merchandise inventory
– Develop merchandise
– Budget plans
– Allocate merchandise to stores
– Review open-to-buy and stock position
Price merchandise
– Set initial prices
– Adjust prices
09-
217
Merchandise Management Tasks
Performed in a Retail Firm

Recruit, hire, and train store personnel
Plan work schedules
Evaluate performance of store personnel
Maintain store facilities
Locate and display merchandise
Sell merchandise to customers
Repair and alter merchandise
Provide services
Handle customer complaints
Take physical inventory
Prevent inventory shrinkage
09-
218
Store Management Tasks

Promote the firm, its merchandise and its
services
Manage human resources
Distribute merchandise
Establish financial control
09-
219
Administrative Management Tasks

Assignment of Responsibility for
Tasks
Strategist – Top Management, Board of Directors
Merchandise Management – Merchandise Division
Store Management – Stores Division
Administrative – Corporate Specialists
09-
220

Strategic Importance
of Store Management
Opportunity to Build Strategic Advantage
– Difficult to Have Unique, Compelling
Merchandise
– Customer Loyalty Often Based on Customer
Service
Difficulty of Store Managers Job
– Managing Diverse Set of Unskilled People
– Increasing Empowerment and Responsibility
to Tailor Merchandise and Presentation to

Store Managers’
Responsibilities
Varies Dramatically By Type of Retailers
– Specialty Store vs. Department Store
Entrepreneur
– P & L Responsibility
– Manage People
Responsible for Two Critical Assets
– People Sales/Employees
– Real Estate Sales/Square Foot
© Digital Vision

Responsibilities of Store
Managers

Steps in
Employment Management Process

Recruiting and Selecting
Employees
Identify essential
activities and
determine the
qualifications of
employees
Activities to be
performed and
performance
expectations in
quantitative terms
Use employees
as talent scouts
Application forms
references, testing,
realistic job preview
Screen
Candidates
Undertake Job
Analysis
Locate
Prospective
Employees
Prepare Job
Description
Select Employees

Questions for Undertaking Job
Analysis

Interviewing Questions
Education
What were your most and least favorite subjects in college? Why?
What types of extracurricular activities did you participate in? Why did
you select those activities?
If you had the opportunity to attend school all over again, what, if
anything, would you do differently? Why?
How did you spend the summers during college?
Did you have any part-time jobs? Which of your part-time jobs did you
find most interesting? What did you find most difficult about
working and attending college at the same time? What advice
would you give to someone who wanted to work and attend college
at the same time?
What accomplishments are you most proud of?

Previous Experience
What’s your description of the ideal manager? Subordinate? Coworker?
What did you like most/least about your last job?
What kind of people do you find it difficult/easy to work with? Why?
What has been your greatest accomplishment during your career to date?
Describe a situation at your last job involving pressure. How did you handle it?
What were some duties on your last job that you found difficult?
Of all the jobs you’ve had, which did you find the most/least rewarding?
What is the most frustrating situation you’ve encountered in your career?
Why do you want to leave your present job?
What would you do if . . . ?
How would you handle . . . ?
What would you like to avoid in future jobs?

Questions that should not be asked per equal employment opportunity
guidelines
Do you have plans for having children/a family?
What are your marriage plans?
What does your husband/wife do?
What happens if your husband/wife gets transferred or needs to relocate?
Who will take care of your children while you’re at work?
(Asked of men) How would you feel about working for a woman?
How old are you?
What is your date of birth?
How would you feel working for a person younger than you?
Where were you born?
Where were your parents born?
Do you have any handicaps?

Suggestions for Questioning
Applicant
Avoid asking questions that have multiple
parts
Avoid asking leading questions like “Are you
prepared to provide good customer
service?”
Be an active listener. Evaluate the
information being presented and sort out
the important comments from the
unimportant.
– repeat or rephrase information

Orientation and Training
Employees
Orientation Program
Training Store Employees
– Structured program
– On-the-job learning experiences
– E-training
– Blended Approach
– Analyzing Successes and Failures

Motivating and Managing
Employees
Leadership
– Process by which one person attempts to
influence another to accomplish some goal or
goals
Leader Behaviors
– Task performance behaviors – planning,
organizing, motivating, evaluating,
coordinating store employees’ activities
– Group Maintenance – activities undertaken
to make sure that employees are satisfied
and work well together

Motivating and Managing
Employees
Leader decision making
– Autocratic leader
– Democratic leader
Leadership Styles
– Transformational leaders – get people to
transcend their personal needs for the sake
of the group and generate excitement

Motivating Employees
Motivating employees to perform up to their
potential may be store managers’ most
important but also frustrating task

Setting Goals or Quotas
How High?
How Easy to
Achieve?
Get Participation
of Employees
in Setting Goals
This Sears manager builds morale and motivates
her sales associates by holding “ready meetings”
before the store opens.
At this meeting, the manager is discussing
Approaches for improving customer service.

Why Set Goals?
Employee performance improves when
employees feel:
That their efforts will enable them to
achieve the goals set for them by their
managers
That they’ll receive rewards they value if
they achieve their goals

Individualized Motivation
Programs
Impact of Goals Differs Across People
Different People Seek Different Rewards
– A La Carte Reward Programs
– Selection of Compensation Plans

Maintaining Morale
Meetings before store opening to talk about new merchandise and
hear employee opinions
Educate employees about the firm’s finances, set achievable goals and
have a pizza party when goals are met
Divide charity budget and ask employees how their share should be
used
Print stickers – sandwich was “wrapped by Roger”
Give every employee a business card with the company mission
statement printed on the back

Sexual Harassment
Sexual harassment is unwelcomed sexual
advances, requests for sexual favors, and
other verbal and physical contact

Evaluating and
Providing Feedback to Employees
Evaluation
– Who, when, how often?
Feedback
– Performance outcome vs. process

Factors Used to Evaluate Sales
Associates at a Specialty Store
50%
Sales/
Customer
Relations
25%
Operations
25%
Compliance

Evaluation
Who Should Do the Evaluation?
– In large retail firms –
– System is Designed by Human Resource
Department
– Evaluation is done by immediate supervisors
How Often Should Evaluations Be Made?
– Annually or semiannually
– Feedback from evaluations is the most
effective method for improving employee

Evaluation
Format for Evaluations
– Objective measures (sales, margin, shrinkage,
etc)
– Subjective measures (supervisors’
evaluations)
Evaluation Errors

Compensating
and Rewarding Store
EmployeesExtrinsic Rewards are rewards provided by either the
employee’s manager or the firm such as compensation,
promotion and recognition
– A la carte plans: give effective employees a choice of
rewards for their good performance
Intrinsic Rewards are rewards employees get personally
from doing their job well like doing their job well
because they think it is challenging and fun
– Job enrichment: the redesign of a job to include a
greater range of tasks and responsibilities

Compensation Programs
A compensation plan is effective for
motivating and retaining employees when
the employees feel the plan is fair and
that compensation is related to their
efforts
Types
– Straight salary compensation
– Incentive compensation plans
• Straight commission
• Quota bonus plan

Designing the Compensation
Program
Two elements:
– the amount of compensation
– The percentage of compensation based on
incentives
Incentive compensation is most effective
when performance can be measured
easily and precisely
– Difficult to measure teamwork, non-selling
activities, customer service, merchandising

Costs Controlled by
Store Managers
Labor
Scheduling
Maintenance
Inventory
Shrinkage
Energy
Heating
Lighting
Controlling Costs

Reducing Inventory Shrinkage
Accounting Record – Actual Inventory
Sales
$1,500,000 - $1,236,00 = 6.2%
$4,225,000
Shrinkage =
Total shrinkage in the U.S. is estimated at $40.5 billion annually
Shrinkage is the difference between the recorded value of inventory (at retail prices)
and the value of the actual inventory (at retail prices) in stores and distribution centers
divided by retail sales during the period

Sources of Inventory Shrinkage

Organized and High Tech Retail
Theft
Concentrate in over-the-counter medications, infant
formula, health and beauty aids, electronics and
specialty clothing
Items that are easy to sell through Internet like eBay
auctions
Technology based scams
– Counterfeit bar codes at lower prices
– Gift cards
– Receipt frauds

Detecting and Preventing
Shoplifting
Store design
Merchandise Policies
Security measures
– Dye capsules, CTV cameras
– Electronic Article Surveillance (EAS)
Personnel Policies
Employee training
Prosecution

Spotting Shoplifters
Don’t assume that all shoplifters are poorly
dressed
Spot loiterers
Look for groups
Look for people with loose clothing
Watch the eyes, hands, and body

Reducing Employee Theft
Trusting, supportive work atmosphere
Employee screening
– Honesty test, extensive reference checks,
drug testing
Security policies and control systems
Employee theft is an HR problem
Total inventory shrinkage attributed to employee theft is approximately $19 billion
annually in the U.S.

Retail accounting
Financial merchandise management

Financial Merchandise
Management
A retailer specifies which products are
purchased, when products are purchased,
and how many products are purchased
– Dollar control involves planning and
monitoring a retailer’s financial investment in
merchandise over a stated period
– Unit control relates to the quantities of
merchandise a retailer handles during a stated
period

Benefits of
Financial Merchandise Plans
The value and amount of inventory in each department
and/or store unit during a given period are delineated
The amount of merchandise a buyer can purchase during
a given period is stipulated
The inventory investment in relation to planned and
actual revenues is studied
The retailer’s space requirements are partly determined
by estimating beginning-of-month and end-of-month
inventory levels

Hardware Store Profit-and-Loss Statement
Sales $417,460
Less cost of goods sold: $ 44,620
Beginning inventory (at cost) 289,400
Purchases (at cost) 2,600
Transportation charges $336,620
Merchandise available for sale 90,500
Ending inventory (at cost) $246,120
Cost of goods sold $171,340
Gross profit
Less operating expenses:
Salaries $ 70,000
Advertising 25,000
Rental 16,000
Other 26,000
Total operating expenses 137,000
Net profit before taxes $ 34,340

Benefits of
Financial Merchandise Plans
A buyer’s performance is rated. Measures
may be used to set standards
Stock shortages are determined and
bookkeeping errors and pilferage are
uncovered
Slow-moving items are classified – leading
to increased sales efforts or markdowns
A proper balance between inventory and
out-of-stock conditions is maintained

Inventory Accounting Systems
The cost accounting system values
merchandise at cost plus inbound
transportation charges
The retail accounting system values
merchandise at current retail prices

Cost Method of Accounting
The cost to the retailer of each item is
recorded on an accounting sheet and/or is
coded on a price tag or merchandise
container
Can be used with physical or book
inventories:
– Physical inventory – actual merchandise
count
– Book inventory - recordkeeping

Physical Inventory System
Ending inventory - recorded at cost – is
measured by counting the merchandise in
stock at the close of a selling period
Gross profit is not computed until ending
inventory is valued
Gross profit derived during full merchandise
count

Book Inventory System
Keeps a running total of the value of all
inventory on hand at cost at a given time
End-of-month inventory values can be
computed without a physical inventory
Frequent financial statements can be
prepared

Disadvantages of Cost-Based Inventory
Systems
Requires that a cost be assigned to each
item in stock
Do not adjust inventory values to reflect
style changes, end-of-season markdowns,
or sudden surges of demand

Figure 16.1
Applying FIFO
and LIFO
Inventory
Methods

Hardware Store Perpetual Inventory System
Date Beginning-of-Month
Inventory
Net Monthly
Purchases
Monthly Sales End-of-Month
Inventory
7/1/03 $90,500 $40,000 $ 62,400 $68,100
8/1/03 68,100 28,000 38,400 57,700
9/1/03 57,700 27,600 28,800 56,500
10/1/03 56,500 44,000 28,800 71,700
11/1/03 71,700 50,400 40,800 81,300
12/1/03 81,300 15,900 61,200 36,000
TOTAL $205,900 $260,400 (as of 12/31/03)

The Retail Method
Closing inventory is determined by
calculating the average relationship
between the cost and retail values of
merchandise available for sale during a
period

Determining Ending Inventory Value
1. Calculating the cost complement
2. Calculating deductions from retail value
3. Converting retail inventory value to cost

Hardware Store, Calculating Merchandise Available for Sale
at Cost and at Retail
At Cost At Retail
Beginning Inventory $ 90,500 $139,200
Net Purchases 205,900 340,526
Additional Markups __ 16,400
Transportation Charges 3,492 __
Total Merchandise Available $299,892 $496,126

Hardware Store, Computing Ending Retail Book Value
Merchandise available for sale (at retail) $496,126
Less deductions:
Sales $422,540
Markdowns 11,634
Employee discounts 2,400
Total deductions 436,574
Ending retail book value of inventory $ 59,552

Hardware Store, Computing Stock Shortages and Adjusting
Retail Book Value
Ending retail book value of inventory $ 59,552
Physical inventory (at retail) 56,470
Stock shortages (at retail) 3,082
Adjusted ending retail book value of inventory $ 56,470

Hardware Store, Profit-and-Loss Statement
Sales $422,540
Less cost of goods sold:
Total merchandise available for
sale
$299,892
Adjusted ending inventory 34,136
Cost of goods sold $265,756
Gross profit $156,784
Less operating expenses:
Salaries $ 70,000
Advertising 25,000
Rental 16,000
Other 28,000
Total operating expenses 139,000
Net profit before taxes $ 17,784

Advantages of the Retail Method
Valuation errors are reduced when conducting a physical
inventory since merchandise value is recorded at retail
and costs do not have to be decoded
Because the process is simpler, a physical inventory can
be completed more often
Profit-and-loss statement can be based on book inventory
Method gives an estimate of inventory throughout the
year and is accepted in insurance claims

Limitations of the Retail Method
Bookkeeping burden of recording data
Ending book inventory figures correctly computed only if the following
are accurate:
– Value of beginning inventory
– Purchases
– Shipping charges
– Markups
– Markdowns
– Employee discounts
– Transfers
– Returns
– Sales
Cost complement is an average based on the total cost of merchandise
available for sale and total retail value

The Merchandise Forecasting and Budgeting
Process: Rupee Control

Retail management, VTU

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