retail managementv1

8/8/2019 Retail Managementv1

http://slidepdf.com/reader/full/retail-managementv1 1/94

Divya Vanshika Jain

Retail Management



Presentation flowDAY TOPIC

DAY 1 Evolution of retail and retailformats

DAY 2 Basicbusiness models of retail,

Goals & Strategies of retailers,Vendor Management , Negotiations, Working capitalmanagement

DAY 3 Key Financial Metrics

DAY4 Supply chain management,people, technology +Shopper

Behaviour

DAY5 Category Management andMerchandizing

DAY6

Recap + Case Studycompetition



Learning Objective

After completing this retail managementtraining module, you should be able to….Know about the evolution of retail and retail

formats

Know the drivers of the rapid retail growth inIndia

Analyze the basic business models of keyretail formats

Understand and compute the key financialmetrics for retail

Manage inventory and cash to cash cycle

Understand and apply principles of merchandizing

Understand and apply principles of category



About the module

Is macroscopic in view

Is structured to encourage participative andexperiential learning.



Evolution of Retail

Retail is as old as the civilization. The trueevolution of retail happened after theevolution of the monetary system.

India has always been a retail and trading hub inthe pre-British era.

Current structure of retailing in India can betraced to The emergence of the neighborhood ‘Kirana’

stores catering to the convenience of theconsumers

Era of government support for rural retail:Indigenous franchise model of store chainsrun by Khadi & Village IndustriesCommission

1980s experienced slow change as India beganto open up economy.

Textiles sector with companies like BombayDyeing, Raymond's, S Kumar's and Grasimfirst saw the emergence of retail chains



Evolution of retail

Titan successfully created an organized retailingconcept and established a series of showrooms for its premium watches

The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to

Pure Retailers. For e.g. Food World, Subhiksha and Nilgiris infood and FMCG; Planet M and Music World inmusic; Crossword and Fountainhead in books.

Post 1995 onwards saw an emergence of

shopping centers,mainly in urban areas, with facilities like carparking

targeted to provide a complete destinationexperience for all segments of society

Emergence of hyper and super markets trying toprovide customer with 3 V’s - Value, Variety



India vs World

Indian retail is fragmented with over 12million outlets operating in the country.

This is in comparison to 0.9 millionoutlets in USA, catering to more than 13times of the total retail market size as

compared to IndiaIndia has the highest number of outletsper capita in the world - widely spreadretail network but with the lowest percapita retail space (@ 2 sq. ft. perperson)

Annual turnover of Wal-Mart (Sales in2001 were $219 billion) is higher thanthe size of Indian retail industry. Almost100 times more than the turnover of HUL (India's largest FMCG company).

Wal-Mart - over 4,800 stores (over 47



India vs World The sales per hour of $22 million are incomparable toany retailer in the world. Number of employees in

Wal-Mart are about 1.3 million where as the entireIndian retail industry employs about three millionpeople.

Organised retailing is less than 10% of total retailingin India in comparison to over 70% in developedcountries.

Developed economies like the U.S. employ between10 and 11 percent of their workforce in retailing(against 7 percent employed in India today).

60% of retailers in India feel that the multiple formatapproach will be successful here whereas in US 34of the fastest-growing 50 retailers have just oneformat

Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an averageinventory turns ratio of about 18. Many Indianretailers KPMG surveyed have inventory turnslevels between 4 and 10.

Global best-practice retailers can achieve more than95 percent availability of all SKUs on the retailshelves (translating into a stock-out level of lessthan 5 %).The stock-out levels among Indianretailers surveyed ranged from 5 to 15 percent.



Retail formats

Several retail formats co-exist in India vizWholesale stores- They operate on thin margins

but huge volumes .Inventory turn is very high. They are the key channel for penetration of smaller towns.

Kirana stores- They are small corner storeswhich essentially sell groceries and householdgoods. They are equally prevalent in small andlarge towns and are popular because of theservice , convenience and credit they offer.

Supermarkets- Self -service stores either standalone or part of a chain have emerged in

Metros and Tier I cities. Offer great shoppingambience, promotions and touch & feelexperience.

Hypermarts – Located on the outskirts of metros

or in malls they re 50000sq ft+ stores selling a



Retail Formats

Multi brand outlets- Basically prevalent forapparel accessories and footwear. Present inMetros only . Example-Megamart.

Departmental stores- Stores which sell high end

apparel accessories, cosmetics and otherhousehold goods typically located in malls. They operate on very high margins. ExampleShopper’s Stop, Lifestyle.

Cash and carry outlets- The wholesale format of big retail chains example-Metro and Easy Dayoutlets(Walmart)

Speciality stores : Speciality stores like KidsKemp in kids products,Planet M in music,

Crossword in books are well entrenched in



Indian retail



Socio-Economic PictureBracket 1994-95 1999-2000 2005-06

Rich( Income>USD47000) Benefit maximizers-own Carsand PCs

1million 3million 6million

Consuming( income USD10000-4700) Cost BenefitOptimizers have bulk of branded goods, 70% of twoheelers, refrigerators, washing machines

29million 55million 75million

Climbers(Income USD 5000-10000) Cash Constrainedbenefit seekers-have atleats one major durable-sewingmachine/TV/mixer

48millon 66millon 78millon

Aspirants(incomeUSD5000-3500) New entrants intoconsumption have bicycles, radios, fans

38millon 33millon 32million

Destitutes(Income< USD3500) Hand to Mouth existance-Do not buy

35millon 24millon 17millon



Inferences

The burgeoning Indian middle class isdriving the consumption and rapid retailgrowth

The ultra rich account for only a small

percentage of consumption The 40 million households in this class

consist of primarily self employedindividuals or professionals

The emphasis in buying has changed frombuying cheap to value for money.Consumers do not shy away fromexpensive items but are not beguiled by

high priced goods with little functionality.



Geographical spread



Key Drivers of Growth

Economic Growth: Economics growth at GDPgrowth rates of 8-10% has ensured soaringdisposable incomes (at least before recession!)and a booming Indian middle class whichconstitutes 22% of the Indian population.

Demographics-More than 50% of thepopulation is going to be under 25 years of age. This segment is the strongest driver of consumption patterns.

Urbanization-Indian population in moving tourban areas with urban population projected tocross 40% barrier in 2020. The income growthis maximum for this segment.

Easy credit- Against the age old habit of savingIndians are now encouraged to buy on easycredit through EMIs.A low interest rate regime

further encourages this trend . Retail loansmore than doubled to touch USD 38.7bn in



Largest Segments of Growth



Gateway to India

Franchisee agreements :Franchising is the mostpopular entry route by MNCs. Dominos hasentered India through a master franchiseeroute whereas Pizza Hut has followed aregional franchisee model.

Cash and Carry Model : Cash and carry businessentails wholesale trading. A large distributioninfrastructure is built to assist the localmanufacturers. The distribution ensures thatwholesale only deals with consumers. Metro

AG and Walmart have adopted this route of entry.

Strategic Licensing: This involves a licensingagreement between a foreign retailer and adomestic company.Mango a spanish apparelbrand has licensed Piramyd whereas SPAR has



FDI and Retail Policy

Inspite of opposition by Left UPA Government in2006 approved a major rationalization of policy to remove multiple layers and approvalsand to encourage investments in retail.

51% FDI is allowed in single brand retail . Brands

like Nokia, Adidas, Reebok etc have grownunder this regime. Retailing of multiple brandseven if manufactured by the same entity is notallowed.

FDI has been increased from 51% to 100% incash and carry business and export trading.

Government is expected to take a highlycalibrated approach to FDI policy in retail evenas the retail policy is set to change.

Although the restrictions have deterred somemajor retailers from investing, India is seen as

one of the promising markets and hence mostare ex lorin the best alternative to enter.



Summarizing Current RetailScenario in India

India is one of the few markets which seesco-existence of different retail formatswhich are otherwise predatory(large hypermarts along with small kiranas)

Tier II cities and smaller towns are stilldominated by small fragmented retail

Modern retail formats have not been equallysuccessful. Eg Subhiksha with the largest

chain of stores was shut down.Current Indian landscape dominated by

Indian players due to a cap on FDI in retail.

Indian retail policy set to change.



Case study – Kirana vs. Super-mart



Working of the retail business



DAY 2



How does a retailer makemoney?

How does any business make money?Retail is the final gateway to the consumer.

Manufacturers reach consumers eitherthrough their own retail arm or through

others.A retailer makes investments in –Fixed assets (land, store fixtures, electricity

etc)Variable costs(cost of goods sold, inventory,

packaging etc)People (salespersons, merchandisers)

And reaps his returns through the marginshe gets on sale.

By balancing margins and sales volume with



Goals and strategies of theretailer.



Decision variables for Retailers

ustomer Service

tore Design d Display

MerchandiseAssortment

Communication ix

Locationricing

etail

Strategy

iscuss the Retail trategy of Vishal

. ’egamart vs Shopper s.top vs the Kirana store

.ext to your house

ow does shopper behaviour mpact this strategy?



Defining the Decisionvariables

Customer Service-Refers to how customers areserved inside a store. Is a self service store?Or are the Customers shown everything bystore assistants.

Store display & Design-Refers to how

merchandise is displayed in store .Location-refers to where the store is located-fringes if the city/main markets/malls

Merchandise assortment-refers to the categoriesand products stocked by the store

Pricing-refers to the pricing strategy followed. Eg, Everyday Low Price, High-Low, No discountsCommunication mix-refers to the media of

communication used to attract shoppers andmake them buy



Wholesale business

A wholesaler sells the goods to retailers and otherwholesalers. Wholesalers frequently re assemblegoods, break bulk, re pack and re-distribute insmaller lots.

In a country like India wholesale is critical to drivethe distribution of products to rural markets.

A wholesaler plays on very thin margins. Even forFMCG products typical wholesale gross marginsvary between 1-3% as against retail margins of 8-15%.

On the other hand a wholesaler sales volumes arehuge and thus the inventory turns are large. Theinventory turnover for a typical wholesaler is 40 ormore.(ie inventory turns 40 times over in a month.)

Additional earnings are by way of loyalty programsoffered by lead suppliers(in FMCG)/bulk incentivesgiven .

Suppliers offer a credit of 7-15 days in grocery andbetween 15-45 days in other industries depending



Wholesale business

Since wholesalers anyway sell to retailers, theyusually pass on company promotions anddiscounts. They do not offer any additional frills.

Wholesale markets are generally located in the olderpart of a city which although is commercial , doesnot command a high rental.

Wholesale stores are small about 500-800sq ft in sizehowever their warehouse is elsewhere in thevicinity where most of the loading /unloadinghappens. Sometimes the wholesalers deliver theorder to their customers.(moving wholesalers)

A wholesaler invests chiefly in-Warehouse space (through rental/purchase)InventoryCredit

The usual credit given by a wholesaler to hiscustomer varies between 15-30 days.



Key business measures forwholesale

Key business measures for wholesale wouldbe

1.Accounts receivable turnover

2.Inventory turnover

3.Gross margin

4.Return on investment The last would derive in a large measure from

the first 3.



Kirana business

A kirana is a small corner , mom and popstore. Usually grocery stores are referredto as a kirana.

A kirana receives standard retail margins.

For instance, in a grocery store , theretailer would get standard marginsoffered by supplier typically between 8-20%.

Additional earnings are by way of displays,

promotions and bulk discounts offered bysuppliers periodically. This is usually 3-5%margin.

Almost all kiranas sell on MRP and do not

offer any discounts. Unlike big retail theydo not even offer discounts or value



Kirana Business

The inventory turnover in a kirana may be 15-20in grocery, but may be less around 8-12 inindustries like apparel.

A kiranagets a credit period from suppliersanywhere between 7-30 days depending on

the supplier.Some kiranas offer monthly credit to loyalcustomers and also home deliveries.

As kiranasare small , they usually have nobargaining power with big suppliers and haveto accept supplier terms.

Kiranas are small between 500-800 sq ft in sizeand densely packed.

The chief investments of a kirana are-InventoryAccounts receivable

K B i f



Key Business measures forkiranaKey business measures for kirana would be1.Accounts receivable turnover

2.Inventory turnover

3.Gross margin

4.Return on investment The last would derive in a large measure from

the first 3.

The kirana derives its profitability in a largemeasure from shortening the cash to cashcycle and also maximizing ROI.



Modern retail business

Modern retail stores formats comprise of asupermarket, hyper mart, departmental store,speciality stores etc.

All of these are self service format.Many of these are opened by big domestic

retailers, eg Food Bazaar, Spencers, More etc.As they are a very important channel for thesuppliers to reach the up market consumers,they command a lot of bargaining power.

Hence the margin negotiated by them is veryhigh for the same product. Eg they work on

gross margin of 18-20% even for groceryproducts.

They also negotiate marketing support,

promotions support etc with suppliers andoffer value to customers throu h discounts.



Modern retail business

Some MR are publically listed conglomerateswhile others are still privately held.

Their inventory turnover for grocery is about 8-10 while for other categories like apparel it islower.

Most produce and promote a private label. Egclean mate, Ascot, Stop. Which is veryprofitable.

Shopping ambience is great in these stores,

coupled with touch and feel experience. They follow scientific methods of store designand merchandizing and have systematicprocesses and well trained people for allaspects of business including supply chain,

sales, finance etc.



Key business measures

Like all businesses MR attempts to maximizeits ROI . However. Since their businessstructure is complex they focus on gettingROI through a slew of other measures-

SalesMargins

Liquidity

Operational efficiency

We sill study them in detail in the nextsection.



Exercise

Divide the characteristics of Kirana,wholesale and modern retail business intothe key element s of retail strategy asshown before.



Goals

Any retailer has 4 goalsGet Customer to storeGet Customer to shopGet Customer to buy the best (most

profitable) mixGet Customer to return



Goals and strategies

Retailer type GetCustomer tostore

GetCustomer toshop

Buy bestmix Getcustomer toreturn National

Retailers(Big

Bazaar/Reliance)

1.Ads in Nationalmedia.

2.Storeseverywhere.3.Sponsorships

1.Standardlayout andmerchandizi

ng.2.Touch &feelexperience3.Variety4. discounts

1.Promotion2. use of high

visibilityspots instore.

1.Loyalty programs2.Shopping

festivals(egBig Bazaar

beforeIndependenceday/Diwali)Regional

Retailers(Nilgiris/Food world)

1.Ads inregionalmedia.2.Stores inkey

markets.

Touch&feelexperience.VarietyDiscounts

Destination

PromotionsUse of highvisibilityspots

1.Loyalty programs2. Shopping

promotionscentered on

local



Goals and strategies

Retailer type

GetCustomer tostore

GetCustomer toshop

Buy bestmix

Getcustomer toreturnIndependent

s1.Ads inlocal mediaeg cable TV

, leaflets2.Located as

conveniencestores

1.Touch &feelexperience

2.Discounts

1.Promotions.2.Use of

highvisibilityspots

Loyalty programs

MassMerchants

1.LocalWOM.

2.No frillsapproach.3.Credit

1.Door-stepservice

2.Discounts3.Availability

1.Recommendation

2.Promotions

1.Customer relationship

s2.Creditterms3.Differentialdiscounts(eg



Working capital management



Working capital management

Q. What is almost as important as sales in the retailindustryA. Working capital

Working capital refers to the circular flow of funds inthe day to day or routine activities of business.

Working capital management is the administration of the current assets and current liabilities of the firm atan optimum level to maximize profits.

Working capital= Current Assets-Current Liabilities

= - Working Capital Current Assets Current Liabilities



Need for working capital

Working capital keeps the business solventIn enables the company to take purchase

decisions and buy in bulk on favourable terms

Enables payment of salaries and other routine

expenses.It may get the retailer a discount through paying

early(prompt payment discount) and hencereduce cost of purchase.

It enables the retailer to offer credit to hiscustomers.

Working capital helps the retailer in paying hisshort term liabilities and also availing creditfrom banks.

In the absence of adequate working capital even



Cash to cash cycle

The cash conversion cycle attempts tomeasure the amount of time each netinput rupee is tied up in the sales processbefore it is converted into cash through

sales to customers. This metric looks at the amount of time

needed to sell inventory, the amount of time needed to collect receivables and the

length of time the company is afforded topay its bills

All businesses would try and reduce thecycle length.



ExampleConsider a comparison between Sukhiram

store , a traditional grocer and a small MOREmodern retail outlet nearby which hasrecently opened. Sukhiram offers home

delivery and monthly credit service to hiscustomers. For the same level of sales,length of credit period and inventory holding, which would have a shorter cash to cashcycle?



Caselet

The following data is from company XYZ’sfinancial statement. Calculate the workingcapital days (or cash to cash cycle time)

Information January1 January31

Balancesheet

Accounts receivable 400 600

Finished goodsinventory

500 300

Accounts payable 300 100

P&L statement

Sales 1000

Cost of goods sold 700

Gross margins 300



Solution

Average inventory days=(((500+300)/2)/700)*31=17.7

Receivables days=((400+600)/2)/1000)*31=15.5

Payables days=(((300+100)/2)/700)*31=8.8

Hence working capital days=17.7+15.5-8.8=24.4



Accounts Payable

DPO – Days Payables Outstanding (Supplierdays)

DPO= Accounts Payable *365 days Cost of Sales

Standard supplier credit days may be 7,15,21 or 30 depending on the supplier and

the industry.Suppliers may offer greater credit limits

owing to dependency on retailer for marketaccess( Eg Walmart)

Su liers ma offer “ rom t a ment



Supplier credit

PPD- Is it a great idea?PPD may be a disguised trade discount if all

your competitors take it to reduce finalprices.

PPD adds to margins but sucks out workingcapital hence will need seriousconsideration if you are capitalconstrained.

% , ( % ,D terms are 2 for 15 net 45 ie 2 discount for payment in 15 days full pay. * %* %=pa or in rupee terms 3 65 90 2 Rs 6570= . *( / )* %=sales for 30 days 3 65 30 365 10 Rs3000

%ntribution margin was 20 ?



Inventory

Inventory is always measured in days.DIO=Days inventory outstanding =

Inventory *365 days Cost of

salesIn our example DIO=17.7 days

Both inventory and COGS are valued atcost(why?)

An average inventory number may hidewide variations. Example- Pantaloonsreported an average inventory of 81 daysin June’09 . However , it sells everything

from strawberries to televisions. An



Caselet

The following data is from company XYZ’sfinancial statement. Calculate the workingcapital days (or cash to cash cycle time)

Information January1 December 31

Balancesheet

Accounts receivable 400 600

Finished goodsinventory

500 300

Accounts payable 300 100

P&L statement

Sales 1000

Cost of goods sold 700

Gross margins 300



Average inventory=(500+300)/2=400COGS=700

Average inventory days=(((500+300)/2)/700)*365=208.57



Inventory

Pareto’s law hits hard on inventory. 20% of theproducts usually account for 80% inventory.Why?

Sophisticated inventory management tools arenow available which determine targetinventory levels.

Inventory may be stratified into various levels-from fastest moving products needing twice aweek/daily replenishment and to slowestmoving items which may be replenished oncein a month.

Challenge for the retailer is to manage theproducts mix so as to have stable inventorydays and also avoid risk of stock outs.

Seasonality may be a big determinant of inventory. EgShoppers’ Stop may enter the

season with huge inventory of a particular lineand run it down over time sellin the final



Earn &Turn

high

Book StoresApparel

ElectronicAppliances

Hardware

Low

Earn

high

Turn

Wine & Liquor

General

Merchants

Low

Why are there no businesses in the bottom left quadrant?



Inventory management

Inventory is one if the biggest costs of retail. There are several ways of inventory

management , the simplest beingContinuous Replenishment System.

The concept of continuous replenishment isillustrated next.

Most MR keep an inventory of 21 days toavoid stock outs.

However, they are also the most frequentlyserved customers. A lot of suppliers servethem directly or through separatedistributors.

The ordering tool most commonly used is



Inventory Control

S a fe ty sto ck

le ve l

O rder

re ce iv e d

O rde r

p la ce d

O rd e r po in t

.M a x

in ve n to ry

Le a d tim e

In v e n to ry

Tim e

–Safety stock level depends on the frequency of servicing. – ,Max inventory depends on seasonal factors ROI commitments

The above model is the basis for the concept of Continuous.Replenishment of Stocks



Inventory Management

The tool generates an order based on thedifference between the target inventory for aproduct and the actual inventory on shelf andin the warehouse.

It then factors in any changes like seasonality,promotion etc.

ARS is used universally in developed marketsand was introduced in India to avoid manualerrors.

Do you think the orders generated by ARS areaccurate?

Not always! Since the tool takes the systeminventory as actual inventory which may not

be the case due to “ ghost inventory”.



An exercise in CRS

Weekly averagesales ( in pcs.)

Safetystock level

Max. stocklevel

Current stocklevel (in pcs.)

Order generated

Soap 1 50 24

Soap 2 30 32

Shampoo 1 45 91

Shampoo 2 36 55Detergent 1 42 63

Detergent 2 24 20

Toothpaste 1 55 25

Toothpaste 2 75 43

.A distributor carries 8 types of SKUs and follows a CRS system Given, .that he is serviced on a weekly basis develop the norms for his CRS

=Assume safety stock 1week stock and he can stock up a maximum of two.weeks of average sale



Solution

Weekly averagesales ( in pcs.)

Safety stocklevel

Max. stocklevel

Current stocklevel (in pcs.)

Order generated

Soap 1 50 50 100 24 76

Soap 2 30 30 60 32 28

Shampoo 1 45 45 90 91 0

Shampoo 2 36 36 72 55 17

Detergent 1 42 42 84 63 21

Detergent 2 24 24 48 20 28

Toothpaste 1 55 55 110 25 85

Toothpaste 2 75 75 150 43 107

–Assumption 1 week of safety stocks given weekly servicing and 2 weeks. .of max stock



Customer Credit

DSO-Days Sales outstanding- measures thetime customers take to pay.DSO= Accounts receivable *365 days

Sales

Sales and accounts receivable are bothmeasured at sales prices

As of now most MR sells in cash(or EMI) butsmaller stores-esp kiranas/fruit andvegetable sellers/chemists /small

jewellers /service providers even in metrossell on credit.

Thus for MR it may not be an important



Working capital cycle

Putting the above 3 measures together Working capital days= DIO+DSO-DPO Working capital turn=365 days/Working

capital daysFaster the WC turns lesser cash is required to

finance the WC cycle and more efficient is theretailer.Small improvements in elements of WC can lead

to a significant overall WC improvement.Retailers with significant bargaining power eg

Walmart can operate with a negative WC. Letssay Walmart negotiates 60 days of credit fromP&G and keeps an inventory of 21 days. ThenWC=21+0-60=(-39)

It means that Walmart has 39 days worth of cash in business which it can invest/deposit forbetter returns



Summary

Working capital = Current Assets-CurrentLiabilities

Working capital is necessary to keep thebusiness solvent and meet daily

requirements.All businesses try to reduce the length of the

cash to cash cycle.

Cash to cash cycle=DIO+DSO-DPO

Inventory is one of the biggest costs of retail.

Inventory management involves managinginventories of product mix of varying

perishability.



Vendor Management



Vendor Management

To run the retail business successfully , vendormanagement is a critical and the most importantarea.

In the globalized world retailers are facing pressuresfrom all sides for example-Globalization-Retailers are expanding their footprint

in the global market yet are faced with dauntingchallenges. Even the mighty Walmart have notbeen able to make their foreign acqusitions performin line with their US stores.On the other hand thelocal retailers , chains and small mom and popstores alike are faced with the prospect of elimination by competition with the global biggies.

New consumer demands : Shoppers are increasinglydemanding customized goods and services .Theyare no longer satisfied with standard productoffering or service.

Impact of the internet – although purely web basedretailers may not be very successful, internet has

become a powerful commercial tool and is affectingthe existing store businesses.



Exercise

Enumerate 5 possible conflict areas and 5possible collaboration areas betweenSuppliers and Retailers.

Retailer Vs Supplier



R E TA ILER

W an t en ou g h m arg in to a lig n

p rice w ith

;co m p e titio n

I ca n fin d yo u r b ra n d

;everyw here ;I w a n t exclu sivity

’Id on t n ee d allyou r

’ ,sku s m y

she lve s a re n o t

;p ro d u ctive

You r in n o va tio n is

“ ” ;me too

You r pro d u ct

a v a ila b ility is a b ig

;p ro b le m

’You d on t w an t to

Supplier You erode market valuewith

;unnecessary price cuts My brand builds trust on

,performance CFR consumer;research

I want maximum sku

distribution to maximize satisfaction for every

;shopper You are boycotting

,innovation which creates;value in the market

You force us into bigger ;savings in the supply chain Producing a PL would erode

even more the market

Retailer Vs Supplier

Collaboration between Retailers



Collaboration between Retailers& Suppliers

Retailers will increasingly rely on suppliers tosucceed in the new market place.Suppliers may help by-Offering expertise on territories new to the

retailer . Although the business of the

retailer in the new area may be minisculebut if globally it’s a top customer then thesuppliers may be keen to help. Forexample, P&G collaborating with Walmartin India.

Shopper based design through joint study of shopper demand and behaviour

Target profitable segments with appropriateproducts and value added services

Helping shoppers make sense of complexnew products and helping them

Retailer’s Perspective



Retailer s Perspective

What is the customer’s businessmodel?

Total Value

/

R i

s k

S i

g n i

f i

c a

n c e

Low

H i

g h

L o w

High

BusinessModel

PurchasingFocus

IdealSupplier

OperationalExcellence(McDonald’s,Walmart)

Focus oninventory, e-com, logistics

Excellence insystems

ProductLeadership(Apple, Nike, 3M)

Supplier partnership,

low lead times

Supplier should lead in

innovation,R&D

Customer Intimacy(Oberoi’s , JetPrivilege)

Supplier’sposition in thevalue chain

Responsive,flexible, expert

.1 –Managed supplier Will always be under close,scrutiny supplier must work on value

propositions.2 –Patnered supplier Open doors and collaboration

with the supplier.3 – Welcome supplier There is an opportunity for

the supplier to win more business and be a partnered supplier

.4 ’ –Arm s length supplier Supplier called on only

in times of great need



Traditional buying / selling relationships focus on goals

which tend to drive other costs up

Mktng

upplyChain

IT

upplyChain

IT

MktngUPPL I ER

CUSTO

MER

EY ACCOUNTMANAGER

ATEGORYMANAGER

EW‘ ’LIGNMENT

MODEL

ew Model brings a joint focus ew Model brings a joint focus n n

&otal Cost Effectiveness&otal Cost Effectiveness

Logistics

IT

MktngCUSTOMER

Logistics

IT

MktngSUPPL IER

SALESMANAGER BUYER

OCUS ONVOLUME

OCUS ONMARGIN

TRADITIONAL‘ ’UYINGMODEL

Benefits of the “Diamond”



Benefits of the Diamondapproach

A collaborative approach to maximizebenefits

Efficient capacity planning

Managing product quality

Managing Research and DevelopmentBetter price negotiations

Coordinated promotion planning



Collaboration framework

Collabora/tive stra

tegic

Confronta/tional ta

ctical

Fulfill Mass

communication

DemandMeet

Targeted

communication

RELAT

IONSHIP



Level 1

Offer to shopper, item and price Retailer-Supplier r/s, Buy-sellIn store , on shelf discounts Aims to fulfill demand on bestterms through price negotiationEDLP Transactional

Choice Key areas for discussion are – Terms and discounts , margins,

new products , promotions ,supply chain

Acceptable brands at

reasonable prices

Key personnel-Buyer contact

Price focused advertising Key Success factors-streamlined process , ease of doing business



Level 2

Offer to consumer-discriminating offer based onconsumer insight

Retailer –supplier r/s-TargetingOffers that reflect the modalnature of shopper

Filling demand is still thedriving force but is metefficiently by focusing onvaluable customers

Multiple touch points Program alignment andinformation sharingFrequent shopper program

trackingBuilt on analysis of customer

base and consumer knowledgeMembership of a community-

eg jet privilege

Programmes to retain valuable

customers,increase spend fromcustomersKey personnel- buyer andcategory manager Key success factors – use of CRM technology, ease of access



Level 3

Offer to consumer- Jointdelivery of enhanced value Retailer- supplier relationship-Co-marketingTrade ups Focuses on building demand or stimulating new marketsthrough advertising

Programmes to cross sell Collaborative brand building

Security of trusted brands Programmes to build brandequity as a joint proposition,

increase value of offer not justsavings

Relevant joint offers of unique

combinations

Key personnel-multifunctional

contactEnhance value Key success factors-history of collaborative efforts on supplychain, equal investment andagreement on terms of return

on investment, extendedintegrated services,seamlesslogistics,clarity on brandingissues

Re-inforcement of a positiveshopping experience



Level 4

Offer to consumer-enhancedtotal customer experience Retailer supplier relationship-Customized products andservices

Personalized products andservices accessed uniquelythrough specific retailers

Focus on creating demand witha Joint Venture mindsetSingle integrated sales and

service experienceStrategic JV type r/s with selectretailersAugmented value Programmes to develop new

products and services,use a

variety of deliverychannels,miniminze delays inreaching customer Unique propositions Key Personnel-multiplecontacts including the BoardDialogue with supplier and

retailer Key Success factors- Closeanalysis ofshopper base,

involve shopper in design of market pool, identifying andanticipating consumer need,extending profit pool,

integrated e-commerce.

A relationship with supplier and retailer that engages withand is managed at multipletouch points



Caselets

1.Recently Big Bazaar discontinued keepingKelloggs over low margins and earlier hadsimilarly discontinued Cadbury’s as it hadnot offered an exclusive trade offer to BB.

What kind of relationship do you think thefirms have? What can both do better?

2.HUL introduced the path breaking Vijetaprogram for its wholesalers wherein

wholesalers accumulated points forpurchase and later could redeem it forvarious gifts. This raised the HUL key SKUsale in w/s by 15% . What level of relationship does HUL have with w/s andwhat all ob ectives do ou think the



Supplier relationships

Admittedly , the opportunity to partner at thethird and fourth level is going to be limited toa small number of strategic suppliers for aretailer and vice versa.

The investment required from both sides issignificant and makes sense only if it can be

amortized over sufficient volume.Equally, a supplier having secured this status is

going to win over his competitors for someperiod and is going to try and maintain thestatus.

Below example cites another Level 4relationship through collaborative businessplanning and forecasting done by Walmartwith P&G and other critical suppliers.

Even Carrefour, with its notorious emphasis on

getting the maximum margins from suppliers,works closel with P&G on su l chain and



Wal-mart’s CPFR Process

CPFR Refers to Collaborative Planning andForecastingCPFR has “blurred the lines between

supplier and customer”Suppliers buy into their program because

they have to to work with Wal-Mart, butmore importantly, because Wal-Mart’sSystems provide increased profits for Wal-Mart and their suppliers

Wal-Mart “teaches” their suppliers how tominimize shipping, inventory and othercosts by showing them their own model.

CPFR takes off from the signing of the trade

agreement with Walmart.



Bu er Buyer

Seller Seller

Goal : Link buyer and Seller Goal : Link buyer and Seller ElectronicallyElectronically

Wal-mart’s CPFR Process

GENERATE ORDER

FRONT END AGREEMENT

JOINT BUSINESS PLAN

O n

c e

Q t r .

CollaborativeCollaborative

PlanningPlanning

CREATE SALES FORECAST

IDENTIFY EXCEPTIONS

RESOLVE EXCEPTIONS

W k ,

M o CollaborativeCollaborative

ForecastingForecasting

CREATE ORDER FORECAST

IDENTIFY EXCEPTIONS

RESOLVE EXCEPTIONS

W k ,

M o CollaborativeCollaborative

ReplenishmentReplenishment



Lessons from Carrefour

The Carrefour Buyer’sTenCommandments

1.Make the salesman work for his wages, let himsweat. Never forget: in the opening hours

of negotiations, stick to an unremittingskepticism, lack of enthusiasm orindecision.

2.Always react adversely to a first offer.Expressions such as What? Or You must be joking! instantly put the burden on the

opposing team to justify their position.3.Always ask for the impossible. For one thing,your demand, excessive as it may seem toyou, may mesh perfectly with the suppliersoffer. Impossibility gives you the room tomaneuver and make minor concessions that

let your adversary feel that he has gained



Lessons from Carrefour

5.Tell them you will need to do better than that. Keeprepeating this until the supplier admits that he cando no better.

6.Always play second fiddle. At the close of negotiations,the buyer should state that a higher authority mustmake a final decision. This leaves the buyer extra

time to reject or rework an agreement.7.Be smart: Act Stupid. This behavior takes the wind out of

a salesman’s sails and gives the buyer the upperhand.

8.Use the Pareto principle. 80% of the negotiations will bemade during the last 20% of the bargaining session.Any demands at the beginning are likely to be

ignored.9.Avoid obstacles as they arise and negotiate them once a

consensus has been reached on other points.

10.The line between defending the buyers interest andmanipulating the supplier is fuzzy. It is up to thebuyer not to cross it unless he is himself the victim of manipulation.



NEGOTIATIONNEGOTIATION



Negotiation Principles

Negotiation is the most important skill of abuyer and a seller.

Small retailers do not have a big negotiatingpower or influence with Big brands or

Suppliers.However, as modern retail has grown rapidly

in India, buyers have acquired significantbargaining power with the suppliers.

Negotiation typically starts when the retailerrejects the terms offered by the supplier .

The following slides exhibit some basicnegotiating skills.



2 GOLDEN RULES2 GOLDEN RULES

1. DON’T NEGOTIATE

2. IF YOU DO NEGOTIATE,DON’T NEGOTIATE EARLY





,The act art and process for the exchange of,assets services or need satisfiers held by

,party for other assets services or need

, .satisfiers held by another party

,Mutual satisfaction a win for both parties

‘ , ’ . . .A wise solution wisely reached or‘ . .Just plain best we could do .”

DEFINITION

OUTCOME

KnowledgeKnowledge



KnowledgeKnowledge

If I was selling my car to you and I knew youwanted it, there were few others on the

market you could choose instead and I knewyou had the money in your wallet, how strongis my position? (Very Strong)

If I wasn't sure if you wanted it and I knew therewere other cars on the market (at bettervalue) and I knew you would have to borrowthe money, how strong is my position? (Not soStrong)

If I didn't know if you wanted a car, I didn't know

what was available in the market and I didn'tknow your financial situation, how strong is myposition now? (Quite Weak)

Now view this from the point of buyer. How does



BUYER TACTICS

Tactic 1 : Exposed CompetitiveInformation

The Retailer lets the seller knowwhat their competition is

offering with the intention thatthey’ll meet more demands to

get the business



Tactic 2 : Threats

The retailer threatens to take his/herbusiness elsewhere unless the sellermeet his/her demands

U Y E R TA C T IC S



Tactic 3 : ‘Salami’

The buyer asks for a lot of small

concessions, but spaces them outgradually, like thin pieces of salami,hoping that the sales negotiatordoes not notice until the whole

sausage has disappeared

U Y E R TA C T IC S



Tactic 4 : The Grievance List

The buyer introduces a list of inadequacies he has previouslyreceived from the seller. This maybe genuine, or it may be a ploy to

reduce the seller’s bargaining

power

U Y E R TA C T IC S



Tactic 5 : Hypothetical Buying The buyer asks hypotheticalquestions in order to get seller to

make a few more concessions. Oncethe seller let the buyer know howmuch they’ll concede, he’ll expect

to receive that, regardless of whether he follows through on his

end of the bargain

&U Y E R TA C T IC S H O W T O V E R C O M E T H E M



Exercise

What are the seller responses to each of these situations.

How would your negotiate with a streettrader?



Role play

You are the buyer for Paisa Vasool Chain. Yours is the biggest chain in state X. Yourcompetition Sabse Sasta Store is rampingup fast.

Shampoo Brand Sunshine has been

launched with much fan fare in the Indianmarket by the big MNC. The manager istrying to sell 100 cases to you and isasking for a premium position to display.

He is offering you a 10% margin, 15 dayscredit and Rs5000 for the display. In caseyou reject, he’s likely to make an evenbetter offer to SSS. And you want exclusivepromotions on Sunshine. Negotiate the

best possible terms with him. You can raise



Summary

1.Collaboration between retailer and supplierhas become increasingly important in aglobalized world.

2. The focus has moved from a seller-buyertransaction to a multi functional

engagement.3.Collaboration can work from a transactional

stage to offering customized services tothe shopper.

4.It is a win-win for the retailer and thesupplier.

5.Negotiation becomes important when theSupplier proposals are not acceptable tothe retailer or vice versa.



Case study

Who is the real customer?

retail managementv1

Documents