the a to z of retail management - the book

The A to Z of Retail Management

The complete guide on Retail for emerging retailers, stu-

dents, and industry observers.

The A to Z of Retail Management is based on authors experience of work-

ing in the retail industry. This is an excellent desk reference for anyone

thinking about starting a retail business or simply wants to gain knowledge

about retail business. This book covers all the aspect of Retail Management

and is a must have for any retailers bookshelf. This book covers major re-

tailing topics, including omni-channel retailing, supply chain management

in retailing, information systems, store location, retail institutions, franchis-

ing and human resource management.

Swapnil Saurav B.E., M.S., M.B.A.

Ravi Potti B.E., M.B.A.

First Edition

First Print (Nov 2013)

Exclusive rights by the authors Swapnil Saurav and Ravi Potti for

manufacture and export. No part of this publication may be reproduced or

Distributed in any form or by any means, or stored in a database or retrieval

system, without the prior written consent of the authors. Authors can be

Contacted on email ID: [email protected]

Cover Design by Shrihari Pandula

Proof Reading by Smriti

When ordering this title, use EKA

Book Code : 12.2013.001.2121

www.EkaPress.in

Price: Rs 350.00

Dedicated to my family - Swapnil Saurav

Dedicated to my family - Ravi Potti

To complete a project like this, requires help and support from many

People. We are deeply appreciative of help and support we got from many

our friends and colleagues. Our special thanks to Shrihari for designing the

cover page of the book and Smriti for doing the proof reading.

- Swapnil & Ravi

Ravi Potti (BE, MBA)

Ravi has more than 6 years' experience in the IT,

ITES, Automobile and Logistics Industries. He has

completed his MBA from Indian Institute of

Management, Indore and B.E from Vasavi College

of Engineering, Hyderabad. In his free time he likes

to spend time with family and is passionate about

cricket.

Swapnil Saurav (BE, MS, MBA)

Swapnil has more than 9 years of work experience

in IT industry with focus on Supply Chain in Retail

and Manufacturing industries. His expertise lies in

figuring out ways to do what others say can't be

done. He holds MBA from S.P. Jain Institute of

Management & Research, M.S. (BITS, Pilani) and

B.E. (Visvesvaraya Technological University).

About the Authors

Introduction to Retail Management

TABLE OF CONTENTS

UNIT 1: INTRODUCTION TO RETAILING .................................................... 3 1.1 Retailing: An Overview ......................................................................................... 3 1.2 Multi Channel Retailing ........................................................................................ 8 1.3 E-Commerce ....................................................................................................... 12 1.4 Terminologies In Retail ....................................................................................... 17 UNIT 2: RETAIL STRATEGY ....................................................................... 20 2.1 Introduction To Retail Strategy .......................................................................... 20 2.2 Marketing Strategy And Relationship Management .......................................... 23 2.3 Financial Strategy ............................................................................................... 29 2.4 Store Location And Site Evaluation .................................................................... 34 2.5 Retail Organization And Management ............................................................... 37 2.6 Role Of Signage In Retail .................................................................................... 40 2.7 Role Of Coupons In Retail ................................................................................... 41 2.8 Retail Information Systems ................................................................................ 44 2.9 Business Intelligence In Retail ............................................................................ 50 UNIT 3: SUPPLY CHAIN MANAGEMENT IN RETAIL ................................ 53 3.1 Introduction: RETAIL Supply Chain Management .............................................. 53 3.2 Inventory Management ...................................................................................... 56 3.3 Logistics in Retail ................................................................................................ 60 3.4 Sale Forecasting in Retail .................................................................................... 64 3.5 Merchandise Assortment Planning .................................................................... 67 3.6 Purchasing Systems ............................................................................................ 74 3.7 Merchandise Purchasing .................................................................................... 84 3.8 Merchandise Pricing ........................................................................................... 92 UNIT 4: IN STORE EXECUTION ................................................................. 96 4.1 Store Layout, Design and Visual Merchandising ................................................ 96 4.2 Store Management........................................................................................... 101 4.3 Managing Customer Service in Retail ............................................................... 104 4.4 Motivated Sales Associates .............................................................................. 109 4.5 Retail Sales Management ................................................................................. 114 UNIT 5: ADDITIONAL TOPICS .................................................................. 120 5.1 Changing Face Of Retail .................................................................................... 120 5.2 Ethical Issues In Retail ...................................................................................... 125 5.3 Sustainability In Retail ...................................................................................... 129 5.4 Retail Franchising Business ............................................................................... 132 5.5 Careers In Retailing .......................................................................................... 136

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UNIT 1: INTRODUCTION TO RETAILING

Retailing is a huge industry that has consistently been an incubator for new business concepts. The word "retailing" has its inceptions in the French verb "retailer", which means “to cut up”, and points to one of the basic retailing actions which is to purchase in greater amounts and offer in smaller amounts. In this section, we will look at the definition of retailing and some of the channels through which Retail business is done.

1.1 RETAILING: AN OVERVIEW

Retail is selling goods from a single point (department stores, markets, malls, online, direct to home etc) directly to the consumers for their personal use. It is transaction of goods between the seller and the end user for his direct consumption. Let's take an example, you (end consumer) want to buy a box of chocolates, so you visit a grocery store. You will find lots of varieties there which the store owner (the retailer) purchases from a wholesaler. Wholesaler, in turn buys from manufacturers. Retailer and wholesaler both of them buy in bulk. It is not the activity but the type of customer that distinguishes a retailer from wholesalers. Unlike a retailer, wholesaler sells to a retailer or other business organizations. Many businesses, like Home Depot, are both wholesalers and retailers because they sell to consumers and building contractors. Figure 1.1 depicts a typical process.

Figure 1.1: A typical supply chain actors Wholesalers and retailers act as intermediary link between the manufacturers and the consumers of goods and plays important role in the distribution channel. They help the manufacturers to reach to large population with their products and bring convenience to the customer by offering goods to a place near to the customer.

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They are also responsible for providing customers’ feedback back to manufacturers and helping improve the whole distribution process. 1.1.1 Role of Wholesalers Wholesalers act as link between the producers (from whom they purchase goods) and the retailers (to whom they sell goods). Important role of wholesalers is to reach to the retailers place in an efficient manner which not only completes the distribution network but does so in efficient manner. The wholesalers provide important services and solve the problems of both the manufacturers and the retailers. Some of the services provided by the wholesalers to the manufacturers are: • Helps manufacturer plan its production: Manufacturer can plan its production

and take benefit of the economies of scale based on the advance orders from the wholesalers.

• Transport goods to retailers: Wholesalers owns the transportation facility by carrying goods from producers to distribution center and then to retailers.

• Wholesalers perform advertising and sales promotion activities on behalf of the producers and employ expert sales representatives for the purpose.

• They provide financial accommodation to manufacturers in form of credits or cash payments for goods purchased from them.

• They keep the manufacturers updated on the trends in customers' habits, tastes, preferences and fashion.

• They also play an important role in fixation of the final prices of the goods. The benefits realized due to the efficient system can be passed on to the retailers, which in turn can pass on to the end customers.

Some of the services provided by the wholesalers to the retailers are: • Retailers 'buying agent': Wholesalers reach out to the retailers and save

retailers from the trouble of searching out and assembling goods from several manufacturers. Thus, retailers can focus on its task, which is sell goods to the end customers.

• Marketing agent: Wholesalers inform the retailers about the new products/packages, its uses and changes in their prices. They also assist the retailers in advertising and selling of the products.

• Financial assistance to retailers: Wholesalers, sometimes, sell goods on credit to retailers and thus help them to operate with small working capital.

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• Provide warehouse to small retailers: A wholesaler also acts as warehouse keeper for small retailers thus save cost for retailers on holdings large stocks of the product.

1.1.2 Role of Retailers Retailing refers to all the transactions which involve sale of goods or services to the ultimate consumers. A retailer forms the last and vital link in the channel of distribution of products because they are the ones which take the goods from the producers, by purchasing it from the wholesalers, to the end customers. They have a much stronger and personal relationship with the consumers. Some of the services provided by the retailers to the wholesalers and manufacturers are: • Reach to customers: Retailers provide selling outlets to wholesalers and

manufacturers. • Completes the distribution channel: They save the manufacturers from the

inconvenience and expenses of selling the goods in small lots to a large number of consumers.

• Help realize profits for the producers: Being the last thread in the distribution channel, they take the money from the end customers and pushes back to the producers.

• Help producers connect with their customers: Retailers communicate the needs and desires of consumers to the manufacturers.

• Stock goods for end consumers: They may also perform storage function by keeping stocks of goods for sale, without which it would be a loss of opportunity to the producers.

• Connect brands to final consumers: Retailers help consumers connect with the different brands by bringing the two together.

Some of the services provided by the retailers to the consumers are: • Fulfill consumers need and demand: Retailers anticipate the needs of

consumers and accordingly assemble different goods. Thus satisfy consumer demands and provide them a wide choice of goods.

• Convenience to the consumers: They bring goods within reach to the consumers.

• Provide options: Based on customers’ requirement, retailers help them to select the goods of their choice.

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• Advisor to consumers: They even act as an advisor and guide to the consumers by bringing new products to their notice and educating them about its diverse uses. They keep the consumers informed about the changing trends in the market about the different varieties of products.

• Other services: They also provide other services to the consumers such as free home delivery, after sale services, customer service, etc

1.1.3 The Retailing Environment Companies in this sector sell a wide range of products to consumers and businesses, from food, apparel to hardware, household goods, and office supplies. Major companies include US giants Wal-Mart, Home Depot, Kroger, Costco, Target, Carrefour (France), Metro (Germany) and Tesco (UK). Large companies, by mass merchandising, dominate some retail sectors, as their size give them advantage and help to bring down cost of purchasing, distribution and marketing. While large companies can compete on price, smaller companies can compete by offering unique goods, serving local demand, providing superior customer service and provide better overall shopping experience to their customers. Retail format can vary: gigantic superstores offer massive selections (e.g. HyperCity), while kiosks allow companies to set up scaled-down versions of retail operations in small spaces. Some retailers (like Reliance Fresh, More Supermarkets, etc) choose the size of their store based on the local population and other demographics pattern that are discussed in next section. In industries where suppliers are numerous, retailers often buy from distributors or wholesalers to simplify the buying process and reduce the lead time (time taken for goods to arrive at the store). However, retailers with multiple stores often operate their own warehouses or distribution centers to receive and store merchandise from suppliers. Some of the factors that drive customer demand are: Price: Probably the most important factor that affects demand. Products have different sensitivity to changes in price. Retailers try to negate this factor by offering unique shopping experience like customer service, etc.

Personal Income: Daily use items like bread and milk generally do not see much of impact due to change in personal income but goods like Apparel and other products’ demand increases when an individual’s income goes up. When incomes fall, individual’s ability to purchase goods and services decreases and result in decrease in the demand for most goods.

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Consumer preferences: Customer preferences for luxury watch or apparel leads to increase in demand for a particular product. Companies take help of Persuasive Advertising to cause a change or develop preferences and tastes, for their products, among consumers. When a product becomes unfashionable, demand can quickly fall away.

Competition: Producers compete with each other to take a bigger share of the market. Sometimes their strategies can be competitive and sometimes it can be complementary. They can compete by cutting their prices or by introducing a new or better version of a product. In complementary strategy, retailers try to increase their pie and try to create more customers which help all the players in the market. For example, after years of competition in urban India, Pepsi and Coca Cola decided to enter rural market. It has helped both the companies increase their customer base. 1.1.4 Success Factors for Retailers We have worked in retail domain for few years now. In all these years we have seen a few companies grow even during difficult times, and a few successful companies go bankrupt. Below is listed some of the best practices which successful retailers, across the globe, have been using over the years:

Location: For brick-and-mortar retailers (those with physical stores), location is key to driving customer traffic. Retailers want to be located closer to large number of shoppers, meeting the requirements of their target group.

Customer focus: Customer focused retail experience creates a bond and helps to make loyal customers. Loyal customers not only visit again, but also share feedbacks with other potential customers through word of mouth. Retailers have complete control here. It is not just enough to reduce the percentage of unhappy customer but also to increase the percentage of loyal customers. Loyal customers not only visit the store more often but also bring new customers, thus increasing the foot fall.

Efficient supply chain management: Having an effective supply chain management in place helps in reducing operating costs and also reduces shrinkage & pilferage. We will see more about this in chapters to follow.

Marketing: Marketing helps connect customers with brands. There are various ways of creating awareness of a brand, like digital media, telemarketing, etc. Equally important is in-store marketing. With little training to employees, they can

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connect with customers and create brand awareness. This also increases customer loyalty.

Technology innovation: Technological innovation keeps retail experience high. Mobile ecommerce, use of RFID, computer based automatic self checkouts, interactive kiosk are some of the technologies retailers are adopting to enhance customer experience.

Effective Merchandise: Retailers develop precise profiles of its customers based on demographics, buying behavior and needs. Customer survey is another way to understand the customer behavior. Such information help arrive at what customer is looking to buy when they enter a store. This helps stocking right merchandise.

Hiring right employees and training them: Employees at stores are the ones who meet customers. It’s important that they build a rapport and trust with customers. Employees need to be self motivated, that’s where putting a training plan in place increases productivity and help in gaining employees confidence.

1.2 MULTI CHANNEL RETAILING

Retail does not always have to start with a bricks and mortar presence. Sears (United States) have long been established retail giant. However, they opened their first store in 1925, only to complement their catalogue channel, launched way back in 1886. In this section, we will look at how retailers manage multi channels and the challenges they face in doing so. 1.2.1 Retail Channels and Multi Channel retailing Retail channels are ways through which a retailer sells its products. Next section lists some of the well known retail channels used by companies around the world. Most of the business is done through physical stores but other channels like online shopping and catalog sales are also important. Choosing which retail channel to be used by a channel depends on the types of service a retailer is providing and also the potential customer behavior. Currently we are seeing blurring of retail channels. A customer now has “anytime anywhere” shopping options, so it also becomes important for retailers to be present in more than one channel so as not to lose customers. In this chapter we will study about different retail channels and how companies are moving to multi-channel approach. Multi channel retailing is selling through more than one channel. This approach increases the reach of

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retailers by giving them options to satisfy larger customer base, hence do more business. 1.2.2 Different Retail Channels Different Retail Channels are listed below: Brick & Mortar Stores: The degree of specialization differentiates types of retailers. Department and general merchandise stores offer a wide range of items, while specialty retailers offer a broad selection within a product category. Some of the broad group of retailers is listed in table 1.1.

Table 1.1: Broad groups of brick & Mortar stores Discount & Club Stores Supermarket & Grocery Dept Store Chains Home, Hardware Chains Drug & Health, Beauty Care Specialty Apparel Stores Consumer Electronics Stores Convenience Stores General, Specialty Merchandise

Home Furnishings Office Products Stores Computer Stores Auto Aftermarket Stores Toy, Hobby & Craft Stores Card, Gift & Stationery Pet & Pet Supplies Book Stores Housewares, Giftware

Dollar Stores Jewelry Stores Paint & Wallpaper Stores Sporting Goods Music & Video Stores Farm & Feed Stores, Co-ops Wholesalers, Distributors & Service Merchandisers Sell to International Distributors Sell as a Direct Importer to Retail Chains

Direct Response Channels: In direct response channels, retailer initiates the contact with its potential customers and approaches them directly. It’s more personal, and conversion rates (potential to member) are higher. Internet Channels are also part of Direct Response channel. Table 1.2 lists some of the of direct response channels. Table 1.2: Direct response channel Direct Response channels

• Direct Mail (Non-catalog) • Direct Mail (Catalog) • Telephone Marketing • Home Shopping TV Shows

Internet channels • Web Site – blog or store • Web Stores – sell at your own web

stores, other company’s web stores or JV with other web sites

• On-Line Affiliate Programs • Sell on E-Bay, JV with Power Sellers • E-mail, E-books, E-Newsletters –

downloads sell well through “Click Bank”, others

There are other retail channels as well like Selling direct to the consumers, Souvenir Outlets, Institutional sellers like Restaurant Chains, etc.

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1.2.3 Multi Channel Retailing In today’s world, customers want to have “anytime anywhere” shopping experience. Advancement in technology has led to improvement in retail channels too. Technology has given rise to a new kind of business: the e-commerce. Ebay.com and Amazon.con are just two of the many successful enterprises who have succeeded by using internet. With so many retail options, customers are not confused or complaining. In fact they have become even more demanding, thus leading to the emergence of multi channel retailers.

Figure 1.2: Multi channel retail Now let us look at the benefits, challenges and impact of multi channel retailing. 1.2.4 Drivers of multi channel More than one third of shoppers use at least three retail channels to buy products and service. Like it or not, retailers have to go multi channel way. Traditional brick and mortar stores are going online. Online shopping giant, Amazon offers pick up locker. You will find Dell laptops in stores now. We see that it’s the customers who are changing how retailers do their business. Alternate channels give more options for retailers. For example, store real estate is fixed and it is expensive to expand the space of all the retail stores. So, retailers generally carry limited SKUs (Stock Keeping Unit) in store, however they can offer more options via online.

Multi channel retailing is also used by retailers as competitive strategy and opportunity to differentiate from the rest. 1.2.5 Benefits of multi channel retailing Multi-channel retailing is not a choice but a must in today’s competitive market. Multi-channel customers are the most sophisticated, demanding and time-starved. They are also the most valuable assets fo your brand. That being said, retailers are facing increasing pressure to create superior customer experience across channels because today’s customers expect their shopping experiences to be consistently

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excellent regardless of the channel. Many retailers are intimidated by the idea of creating a comprehensive and cohesive multi-channel experience and they question whether it’s worth the effort. The four benefits that make investing in multi channel strategy worthwhile include: • Improved customer perception • Increased sales • Better data collection • Enhanced productivity

These benefits make investing in the strategy worthwhile. Retailers who recognize the importance of the fundamental change in customer expectations and embrace the challenge of creating multi-channel experience excellence will remain on the competitive edge. Multi-Channel Experience Management can help you understand how each customer views his or her journey and ensure the best experiences occur at each stage to build loyalty and foster advocacy. There are a large number of organizational and customer related benefits to be gained from implementing a multi-channel strategy. Here are a few: Organizational Benefits • Increased revenue and growth opportunities – more touch points with target

market • Better responsiveness and sensitivity to changing environments • Competitive advantage over pure-plays, particularly around immediacy,

education opportunities for complex products and easy e-merchandise returns.

• Better data collection to know customer • Organizational efficiency and effectiveness opportunities through sharing of

processes, technology and information Customer Related benefits • Better and wider customer interaction with a greater variety of information

available for improved understanding of customers and identification of opportunities for increasing value per customer (business intelligence)

• Increased customer loyalty through better understanding of customers • Better customer experience reducing churn and increasing loyalty

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• Opportunity to leverage and improve brand perception Customers themselves also benefit from increased choice in interaction opportunities and the ability to switch channels as convenient.

1.2.6 Challenges and Opportunities Consumer behavior is driving multichannel growth and if retailers want to stay in touch with their customers they must adapt now. Technology is driving this change. Ease of access to internet has changed the way consumers are shopping now. Some of the characteristics of multi channel retailing are: • The heart of a multi-channel strategy is to allow the customer to interact with

the retailers the way the former wants to. • Multi-channel customers are more profitable than other customers. • Requires a seamless experience that means price across channels are same,

loyalty is rewarded through every channel, etc. • Providing a Consistent Product Range • Capture Every Possible Order • Have the Right Staff and with right knowledge • Support multi channel customer service • Integrating Back-office appropriately • Providing consistent consumer experience across the channels • Reducing or abolishing organizational boundaries to cope with new channels

1.2.7 Future of Multi Channel retailing Today’s shopping experience is increasingly mobile, social and content rich; hyper-connected consumers demand great experiences across all touch points, not just the in-store experience. E-commerce and M-commerce are the latest additions to the multichannel mix. The key benefit for retailers of multichannel is that it gives them more opportunities to showcase their product, and to customers whom they wouldn't have been able to reach with a single channel. However, it has the biggest challenge of seamlessly integrating different channels. Multi channel retailing is moving towards, what is called as, Omni channel retailing. Retailers want to connect shopping behaviors of each customer across different channels. We have covered Omni-channel retailing in detail in Unit 5 Chapter 1.

1.3 E-COMMERCE

Electronic commerce or ecommerce is a term for any type of business, or commercial transaction, which involves the transfer of information across the

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Internet. It covers a range of businesses, from consumer based retail sites, through auction or music sites, to business exchanges trading goods and services between corporations. It is currently one of the most important aspects of the Internet. Let's look at it in greater detail in this section. 1.3.1 Overview Ecommerce allows consumers to electronically exchange goods and services with no barriers of time or distance. Ecommerce has expanded rapidly over the past 10 years and continues to accelerate. Retailing industry including Fashion Retail and Grocery retailing have caught on to the bandwagon and have begun to offer E-trading or Online Shopping. Online stores have "shopping carts". Shopping cart software allows consumers to purchase goods and or services, track customers, and tie together all aspects of ecommerce into one cohesive whole. Ecommerce can be a very rewarding venture, but you cannot make money overnight. It is important to do a lot of research, ask questions, work hard and make on business decisions on facts learned from researching ecommerce. 1.3.2 E-Commerce Strategies E Commerce is growing day by day in both B2B (Business to Business) and B2C (Business to Consumer) context. All Companies have realized the need to have E -commerce strategy as a part of overall Retail Strategy. In the early 1990s we saw Companies setting up websites with very little understanding of E Commerce and Consumer behavior. Ecommerce as a model is totally different from the traditional shopping in all respect. Some of the points that a retailer should keep in mind while starting an e-commerce sites are: • Know market trends, opportunities as well as threats: Retail Strategy involves

planning for the business growth and companies will have to deal with various external factors.

• Focus has to be customer: While selling through physical traditional stores, there exists a physical experience from the Customer’s end and hence it is easier to build Customer relationship, E-Commerce platform has got to devise methods to reach out to the virtual Customer on One to One basis and build the relationship. It all begins with a nice, easy to use website which presents the information in the "right way" which will attract customers.

• Differentiate from Competition: There are so many e-commerce sites and you have to offer something better to get customers to your online store.

• Pricing: Selling and operational costs of online store are much less compared to traditional physical stores, which can encourage customers to buy in bulk.

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• Focus of logistics: The biggest challenge in running an online store is to manage the logistics cost. Retailers have to partner with multiple logistics companies to bring down the cost.

1.3.3 Challenges and Opportunities Some of the challenges faced by an e-commerce player are: • Channel integration—reach full revenue potential: Given that e-Commerce

spawned off as a separate business unit in its early days, retailers built separate e-Commerce and store systems—which now has to be integrated with other channels to realize full revenue potential.

• Impact of Social media affecting the buying behavior: Blogs, opinions, peer-reviews, Facebook and other user generated content, play an important part of the shopping process and impact the buying patterns. Online social reputation monitoring and management is more important now than ever.

• Challenges in going global: Emerging markets present the greatest growth opportunity for retailers. But there are challenges like complexities of international business laws, taxation, fulfillment, etc. Due to this, we are seeing the emergence of providers that enable international fulfillment and address the complexities of taxation, e-Commerce provides retailers an excellent platform to be able to sell internationally.

• Customer loyalty: It’s very difficult to build consumer loyalty and maintain it for online retailers. Switching to another e-commerce site for better deal is easy. Retailers go after their "high value" customers and entice them with deals and reward points, but before all this the retailer needs to identify the "high value" customers, which is a tough exercise.

• Improve conversion: Studies have shown that only 3 out of 100 visitors on the e-commerce sites actually make a purchase. Out of 97, 70 are those who abandon their purchase midway. This could be because of high total cost including shipping, complex check out process or product not available for immediate dispatch.

Companies are working to overcome above mentioned challenges. Companies are looking to develop tools which can help them address most of the challenges mentioned above. Some of the steps taken by e-commerce companies are: • Need of personalization: Companies are using the tools to capture the

behavior of an online consumer and create a personalized page or experience based on previous purchases, age, gender, location, etc

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• Availability of “on-demand” business intelligence: Companies are designing tools based on analytics to predict what a particular customer would be buying. Companies look to create targeted message board and suggestions window.

• Design effective campaigns and promotions: Promotions and campaigns continue to be an important part of a retailer’s sales/ marketing strategy. For e-Commerce, this continues to be an important way to drive traffic, conversion and eventually revenues. Companies are using advanced analytical abilities to conduct “what-if” scenarios while setting up promotions and campaigns.

• Tools for improving operational effectiveness: From a day-to-day operational perspective, a lot happens in while managing e-commerce operations—there are constant content updates, there are changes being made to items, prices, promotions—practically in real time in response to changing market conditions and dynamics. It becomes important for retailers to have tools that will help them manage all these variables with effective business tools.

• Know about yourself: Many times companies start focusing on customers neglecting their own e-commerce business. Companies need to know what competition is doing, what is the consumers view of the site and how does it perform on its key business metrics. These things are equally important. Companies constantly evaluate its Search Engine Optimization (SEO) capabilities.

1.3.4 Selling through F-Commerce The web continues to disrupt our traditional way of thinking, transforming industries and the business models. It has become very common to see groups on Facebook (www.facebook.com) created by members who sell products online starting from make-up to clothes. We see companies increasingly using Facebook for e-commerce and use it as another channel for shopping. Selling through Facebook is called F-Commerce. Figure 1.3 shows an example of a F-commerce page. F-Commerce is growing and becoming a trend as it is easy to use and doesn’t require programming skills to set up the Facebook store. Retailers are experimenting with this new channel hoping that their Facebook fans will drive up the sales. The list of software developers offering F-commerce products is growing. Many come from traditional ecommerce, offering Facebook as an extension for their clients.

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But, we personally feel that this market is oversubscribed. Facebook is place where people come to socialize and stay in touch with friends but not looking to do business. In February 2012, Bloomberg reported that GameStop, JCPenney, and Nordstrom have all closed their Facebook stores. In April 2011, Gamestop Corp. (GME) opened a store on Facebook to generate sales among the 3.5 million-plus customers who’d declared themselves “fans” of the video game retailer. Six months later, the store was quietly shuttered.

Figure 1.3: A sample F-Commerce page Many internet experts question the social nature of shopping itself, and there is considerable opinion that people visit Facebook to catch up with their Friends and not to be sold products. Another reason why people may resist buying from Facebook is the privacy concerns of the users. No doubt Facebook is a powerful service and a great marketing tool. Organizations should leverage it to get maximum benefits. There is nothing wrong in experimenting as long organizations build upon the lessons learnt.

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1.4 TERMINOLOGIES IN RETAIL

Before we get into serious business of retail, let’s learn some important retail terms which are used in the industry.

Assortment: Assortment is the number of SKUs within a category. It is also called depth.

Backup stock: Backup stock is the buffer stock or the safety stock which retailer holds to guard against stockouts, when there is a mismatch between supply and demand.

Beginning of the month inventory (BOM): This is the physical inventory with the retailer at the beginning of the month.

Buyer: Buyer is the retailers’ decision maker to decide on the products of a category to be bought and decides up on the quantity of the merchandise that should be delivered and displayed at the retail store.

Category: The category is the basic unit of analysis for making merchandising decision.

Category Captain: Category Captain is the retailer preferred vendor, who advises the retailer on a certain category of merchandise offered by them.

Cost of Goods Sold (COGS) – COGS are the costs associated with building a product to sell, including licenses and royalties.

EDLP (Everyday Low Price): A retailer policy of “no sales” and having the same price every day, pioneered by Wal-Mart.

Fad Merchandise: Fad merchandise is the merchandise items that generate a high level of sale for a short period of time.

Footfall: Footfall is the count of shoppers entering in to a retail store on a given day.

Free on board (FOB): The point when the shipping costs become the responsibility of the retailer rather than the vendor.

Gross Margin: A way to measure gross profit calculated as the difference between selling price and cost price.

Gross Margin percentage: Calculated by dividing the Gross Margin $ by the total sales $.

Gross Margin Return on Floor (GMROF) – Gross margin or profit returned per floor space usually measure in gross margin per square foot.

Gross Margin Return on Inventory Investment (GMROII): Gross Margin $ returned for every $ invested in inventory (and inventory costs).

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Guerrilla Marketing: The concept of promoting products and brands on an extremely low budget is called as Guerrilla Marketing. Guerrilla marketing does not involve huge investments and is one of the most effective ways of creating brand awareness amongst the consumers.

Impulse Buying: Any unplanned buying is called as Impulse Buying. An individual might not require a particular product but picks it up out of mere emotions and feelings.

Markdown: The difference between the original retail price and the reduced price.

Markup: The amount of money added to the wholesale price to obtain the retail price.

On Shelf Availability: One of important metric every retailer’s performance is measured is using On Shelf Availability (OSA). OSA is defined as availability of product for sale to a shopper, in the place he expects it and at the time he wants to buy it. It is impacted by a host of different factors, all along the supply chain.

Open to Buy: Open to buy or OTB is the amount budgeted for merchandise still to be purchased for a specific time period.

Out Of Stock (OOS): Also known as Stockout. It is a situation where the retailer does not physically possess a particular product category, on its shelf, to sell to the customer. It can be estimated from store inventory data.

Point of Purchase (POP): POP refers to all materials and physical setup in a retailer, in and around where the product is displayed.

Point of Sale (POS): POS refers to materials, brochures, signs at point of sale, or can refer to point of sale or cash register.

Point of Sale Activation (POSA): POSA is a process by which software becomes activated, useable, at the point of purchase.

Private Label: Private Label brands are the retailers store brands which are developed by retailers and available for sale at only that specific retailer.

Plan-O-Gram – Planogram is the detailed plan of wall, wall fixtures and layout. Planogram maps each and every item to square foot space available in the retail store. It has the mapping of the product frontage of shelf pace, wall, or hanging rack. Particular emphasis is put on placing the most profitable products in an advantageous purchasing position.

Purchase order: The actual form used for placing an order.

Radio Frequency Identification (RFID): RFID is an electronic microchip containing product information & identification. It is used to identify the products in the supply chain.

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Return on Investment (ROI): ROI is the term which indicates profit returned or remaining after accounting for all the investments (costs). The return, or rate of return, can be calculated over a single period, or where there is more than one time period, the return and rate of return over the overall period can be calculated.

For example, if you hold 100 shares, with starting price is 10 USD, then the starting value is 100 x 10 USD = 1,000 USD. If you then collect 0.50 USD per share in cash dividends, and the ending share price is 9.80 USD, then at the end you have 100 x 0.50 USD = 50 USD in cash, plus 100 x 9.80 USD = 980 USD in shares, totalling a final value of 1,030 USD. The change in value is 1,030 USD - 1,000 USD = 30 USD, so the return is 30 / 1,000 = 3%.

Sales General and Administrative Expenses (SG&A Expenses): Typically refers to a "standard" way of calculating all major costs associated with selling a product Shrinkage: It is the inventory reduction caused due to shop lifting or due to poor bookkeeping or due to damage/misplacement.

Softlines: Softlines is the retail store department or the product line which primarily consists of merchandise such as clothing, footwear, jewelry, linens and towels.

Space Management: “Management of selling space, based on consumer demand and shopping habit in order to achieve enhanced business results”.

Stock Keeping Unit: A stock keeping unit (SKU) is the smallest unit available for keeping inventory control. In soft goods retailer, for instance, a SKU usually means size, color, and style. For example, a pair of boys’ size 10, navy blue color, boot-cut Levis is one SKU. In some cases, a buyer is responsible for several classifications.

Variety: Variety is the number of different merchandising categories within a store or department. It is also called breadth.

Visual Merchandising: Visual merchandising is the art of implementing effective design ideas to increase in-store traffic and sales volume.

Weeks of Supply (WOS): WOS is defined as the how long inventory will last (in weeks) based on sell through rates. It also the reciprocal of Turns = 52 weeks divided by turns.

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the a to z of retail management - the book

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