Competitive Retail Strategy For Fashion Merchandise New

Competitive Retail Strategy For Fashion Merchandise New - Document
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1. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 COMPETITIVE
RETAIL STRATEGY FOR FASHION MERCHANDISE ArunKumar
Arunachalaiah - Retail Consultant Em ail – aarun9677@hot mail.com, Mobile:
9740067765 ArunKumar Arunachalaiah – Retail Consultant, email –
aarun9677@hotmail.com, Mobile - 9740067765 1
2. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Contents Introduction
Emerging Trends in Retail Sector – India Story Page - 01 Industry Overview –
Indian Retail Sector Page 02 - 07 Oppurtunities,Threats and Risks in Indian Retail
Sector Page 08 - 10 An intuitive assumption Page - 11 Need for Topic – Retail
Strategy for Fashion Merchandise Page 13 - 15 Project Objectives and Scope
Page 16 - 19 Retail Marketing Strategy Market Penetration Page 23 - 24 Pricing
Page 25 - 27 Store Location Approach Page 28 - 29 Establishing a Retail Brand
Image Page 30 - 34 Planning and Forecasting Forecasting Demand Page 35 - 36
Merchandise Planning and Category Management Page 37 - 39 Merchandise
Budget Plan for Fashion Merchandise Page 40 - 41 Procurement and Inventory
Management Supplier Scoring and Assessment Page 42 - 43 Supplier Contract
Administration Page 44 Vendor Management Page 45 Inventory Management
Page 46 - 49 ArunKumar Arunachalaiah – Retail Consultant, email –
3. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Retail Operations
Management Store Layout Designing and Visual Merchandising Page 51 - 61
Customer Service Management Page 62 - 63 Store Facility Management and
Maintenance Page 64 Loss Prevention Page 65 - 66 Store Operations Parameters
Page 67 - 68 Supply Chain Management Framework Page 69 - 76 Summary
Report and Conclusion Page 77 Annexures Proposal Page 78 - 80 References
Page 81 ArunKumar Arunachalaiah – Retail Consultant, email –
4. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Emerging Trends in
Retail Sector – India Story It is beyond doubt that Retailing in India is the most
attractive sector of this decade. While the retailing industry itself has been present
through the history in our country, it is only in the recent past that has witnessed
so much dynamism and growth. It’s the latest bandwagon that has witnessed
hordes of players leaping onto it. While international retail store chains have
caught the fancy of many travellers abroad, the action was missing from the
Indian business scene, atleast till the last 5 to 7 years. The emergence of retailing
in India now has more to do with the increasing purchasing power of buyers,
especially post liberalization, increase in product variety and the increase in
economies of scale with the aid of modern supply and distribution management
solutions. Indian Retail Scenario at a glance Ø The contribution of retail industry
to India’s GDP is more than 13%. Ø Indian retail industry spreads over more than
6 million outlets including organised and unorganised sectors. Ø Even with 6
million retail outlets the country sorely lacks anything that can resemble a
retailing industry in the modern sense of the term.This presents organised retail a
great oppurtunity. Ø Less than 6% of India retail is in an organised format in year
2006. Ø There is complete absence of Supply Chain Management perspective in
the Indian retail industry. Ø 96% of outlets in India are less than 500sqft. India
per capita retail space is the lowest in the world with just 2sqft compared to 16sqft
in USA. Ø Only 8%of India’s one billion population is engaged in retailing. Ø
60% of sales in Retail still comes from food items in India. ArunKumar
Arunachalaiah – Retail Consultant, email – aarun9677@hotmail.com, Mobile -
9740067765 4
5. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Industry Overview –
Indian Retail Sector With only about 3% share in an estimated $320-bn Indian
retail industry, we see significant growth potential in the organized retail segment
in India. The expected growth in income levels, easy availability of credit,
increasing urbanization and favorable demographic conditions are expected to put
the Indian organized retail industry on a rapid growth path. A CAGR of 26% is
expected for this industry over the next four years and have a positive view on the
sector. Key Growth Drivers of Retail Industry v Low penetration The current
penetration levels of organized retail are the lowest in the world. With a massive
population, the potential of the industry in India, going forward, is tremendous.
Companies have announced plans entry into various segments in the industry. The
penetration levels are as low as 3-4% overall and as low as 1% in segments such
as food and grocery retail. Clearly, the potential of the sector going forward is
enormous. Global retail development index Rank Country Country Risk Market
attraction 0=high 0=high 100=low 100=low 1 India 67 42 2 Russia 62 52 3 China
75 46 4 Vietnam 57 34 5 Ukraine 41 43 (Illustration 1)Source: Economic Times
Intelligence group 2004 ArunKumar Arunachalaiah – Retail Consultant, email –
6. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 v Favorable

demographics provide enough potential for organized retail Out of India's
population of about 1 bn, the overall target market for modern retail is Estimated
at about 50 million people. With more than 50% of the population being under the
age of 25, the market looks extremely attractive for organized retail players as this
population has demanding lifestyles. This segment forms a major portion of any
retailer's plan. Growth in urbanization is a key driver for the organized retail
industry. This is because, currently 85% of organized retail market is concentrated
in India's 8 largest cities. In India, the top six cities currently account for about
6% of population but contribute to 14% of GDP The population of urban areas is
expected to touch 550 million by 2021 as against 376(E) currently. INDIA HAS
THE YOUNGEST POPULATION IN THE WORLD. IN 2020, THE AVERAGE
INDIAN WILL BE ONLY 29 YEARS OLD COMPARED WITH 37 IN CHINA
AND THE US, 45 IN WEST EUROPE AND 48 IN JAPAN. Source: (Business
Line) v Easy availability of credit The number of credit cards issued in India has
been witnessing a strong growth over the past few years. Currently, there are 22.6
mn cards in circulation as compared to 7.1 mn in 2003. This number is expected
to grow by over 30% over the next few years. Easy avail- -ability of credit and
also easy EMI schemes being offered by the bank as well as companies Do
provide a boost to retail companies as this directly has an impact in consumption
patterns Of people. In India, less than 1% of personal consumption happens
through credit cards as Compared to the global average of 5%. With a significant
increase in the expected usage of credit cards, the spending patterns of consumers
are expected to change further in turn Benefiting organized retailers. THERE
ARE 23MILLION CREDIT CARDS IN CIRCULATION IN 2007 IN INDIA
AGAINST 7.5MILLION CARDS IN2003 ArunKumar Arunachalaiah – Retail
Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 6
7. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 v Rising incomes &
consumption patterns to spur growth Out of an estimated 209 million households
in India, nearly 6 million are classified as 'rich' as Compared to 3 million in 1999-
00. (Source: E&Y). Also, about 91 million households are classified As
'Consuming' as compared to 55 million in 1999-2000. While rich households have
income levels of greater than US$4700, the consuming class enjoys average
income of US$1000-4000.Also the average income level of high-income
households has been growing @ 20% YoY since 95-96. This growth in income
brings along with it a higher disposable income,willingness to spend and demand
for better lifestyle. As income levels rise, one tends to spend more on lifestyle
related activities and products, which is a key driver for these segments of the
retail industry. These can be clearly observed from the statistic that discretionary
spending has been seeing a 16% rise for upper and middle classes over the past
three years. The private final consm expenditure (PFCE) which is basically what a
consumer spends on food and grocery, apparel, medical services, savings,
entertainment etc , is estimated to grow from Rs.18.9 trillion in 2005 to Rs.53.62
trillion in 2015 & expected to constitute 57.5% of India’s GDP. Classification
Number of Households( Millions) 2005 - 2006 annual household income) 1994 -
95 1999 - 2000 estimated Very Rich ( > INR 215,000) 1 3 6 Consuming (INR
45000 - 215000) 29 55 75 Climbers (INR 22000 - 45000) 48 66 78 Aspirants
(INR 16000 - 22000) 48 32 33 Destitutes (<INR 16000) 35 24 17 (Illustration
2)Source: The Marketing White Book, 2003-04 ArunKumar Arunachalaiah –
Retail Consultant, email – aarun9677@hotmail.com, Mobile - 9740067765 7
8. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 v Increased

acceptance of "mall culture" to help growth The organized retail boom was given
a boost with the concept of shopping malls.Currently, India has 179 operational
malls and is expected to have 412 malls by 2010.These malls attract footfalls in
ten of thousands everyday and have become family destinations to shop, eat and
for entertainment. While further details are not available, we believe the expected
growth in shopping malls and increased acceptance of the "Mall culture" should
provide further boost to the organized retail sector. There has been a sudden spurt
in the number of malls coming up all over the country and are attracting daily
footfalls in millions. This is attracting retailers to open stores in them. Malls
provide not only a great shopping experience but are turning out to be places for
family Outing and entertainment. This coupled with the rise in incomes &
willingness to spend is Only boosting the growth of the industry. As of today,
India has 179 operational malls wi h t 47.4 million sqft of retail space, and is
expected to have 412 malls offering 205 million sqft Of retail space in 2010, and
by 2015 there would be more than 715 operational malls offering 350 million sq ft
of retail space and a very large chunk of these developments would be in India’s
Tier-II and Tier-III cities. (Source: Images F&R Research) (Illustration 3)Source:
( Kotak Securities 2007) ArunKumar Arunachalaiah – Retail Consultant, email –
9. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 v Category-wise

spend In India's retail industry, food, beverages and tobacco form a substantial
portion, comprising 76% of the total industry However, it is in this sector where
organized retail penetration is the lowest, i.e. 1%.According to a McKinsey
report, the share of an Indian household's spending on food is one of the Highest
in the world, with 48% income being spent on food & beverage. The penetration
of organized retail is highest in the footwear category at 31% followed by
Apparel, books, music/gifts, consumer durables, home décor and furnishings. The
Indian Consumer is spending most of his income on food, groceries and
beverages. Taking into Account that penetration levels in this sector are the
lowest. We can see this segment grow Fast pace. Also, big players such as
Reliance, Bharti & RPG are all betting big on this sector. They are focused on
back-end logistics. These players are aiming to provide groceries at a low cost
compared to small neighborhood shops, street vendors who, as of today account
for most of the sales in groceries, vegetables etc. .Even segments such as jewelry,
beauty care, books are seeing good growth, mainly propelled by the growth in
malls. Segmentwise Share in Organised Retail - 2006 40% 37% 35% 30% 25%
20% 20% 18% 15% 10% 8% 6% 6% 5% 3% 2% 0% (Illustration 4)Source:
( Kotak Securities2007) ArunKumar Arunachalaiah – Retail Consultant, email –
10. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Opportunities
for India through Retail Sector In our opinion, the growth in the retail sector can
have a multiplier effect on the economy. Some of the benefits which can accrue
are: Ø Farm income in India can increase if organized retail enhances farmer's
realizations on food items from the currently estimated low level of 30-35% of
retail price to the International norm of over 60% of retail price. Ø The supply
chain for unprocessed food items is fairly under-developed in India. It has Many
layers leading to high wastages & a high cost of distribution. Increased penetr-
ation of organized retail into food and grocery segment can boost farm incomes.
Ø The current farm realizations for unprocessed items are estimated at around
Rs.1.2 Trillion. If this segment shifts entirely to organized retailing the
realizations of farmers Are at levels compared to international countries (60-65%)
Ø Higher farm income can boost the purchasing power of 60% of the population
adding to GDP growth through higher economic activity. If farmers spend 80% of
their incremental Income the economy will witness an incremental spending of
around Rs.1trillion which is Equal to 3% of India’s GDP even if economic
multiplier effect is excluded. Ø Companies are spending heavily on marketing,
hence improving the growth of the marketing sector as well. Intense competition
will only further increase advertisement and marketing expenditure. Ø Also,
logistics and supply chain companies are set to benefit from the retail boom.Thus
growth in retail can have a multiplier effect on economy. Indian consumers will
be the Largest beneficiaries. India's middle class as well as lower income
consumers will be the ultimate gainers with multiple benefits. Reduction of prices
in typical monthly basic needs Shopping bills may reduce by at least 10% within
the next 24-30 months, leading to generation of an equivalent amount of surplus
disposable income, Improve- -ment in quality of fresh/perishable products in the
market, Improved assortment and reliable availability of products. ArunKumar
9740067765 10
11. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Threats in Retail
Sector v Foreign Direct Investment in Retail Currently, foreign direct investment
in retail chain stores is restricted in India. Prior to 1997, there were no FDI
restrictions in the domestic retail sector. Players who entered were McDonalds,
which opened in India in 1996 and Foodworld, which was hived off as a 51:49
joint venture between Spencer & Company (RPG Group) and Dairy Farm
International. Companies that entered prior to 1997 have been allowed to continue
with their existing foreign equity components. Drawbacks of FDI in retail would
be cut-throat competition, Promoting cartels and creating monopoly, Increase in
real estate prices, Marginalize small domestic entrepreneurs. Displacement of
unorganized players because of financial strength of foreign companies, Unfair
trade practices like predatory pricing in case of absence of proper regulatory
guidelines v Steps being taken to protect margins Retail is a low margin, high
volume business. With the retail boom being witnessed in the country, all
companies are on an expansion mode and adding stores at a fast pace. This
expansion drive is leading to cost pressures and biting into the margins of
retailers. In order to protect its margins and also with the aim to counter
competition in the industry companies are taking several measures to stay
competitive and also expand margins,a well as offer best prices to the customer.
Companies are setting up massive supply chain systems , promoting private label
apparels and concentrating on their backend support by setting up warehouses at
different locations to reduce sourcing costs as well as stocks reach the stores on
time. ArunKumar Arunachalaiah – Retail Consultant, email –
12. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Risks and
Concerns in Retail Ø Delays in mall construction may delay launch plans of
retailers Malls would account for half of the total organized sector retail space
demand in the next Five years. However, the rising cost of retail space in India is
affecting the growth plans of Retailers. Real estate costs are hampering their
margins, which are already not very high. They are also entering into long-term
lease & revenue sharing arrangements with mall Ø High employee costs Another
major concern is staff costs. Owing to increasing competition and new entrants in
the retail business, attrition levels for the industry have gone up drastically
resulting in high Expenses to retain and hire new people. Staff costs have gone up
by 35% since 2006. Companies are now focusing on retaining their employees
and are forced to offer them higher Salaries and bonuses, which in turn have an
impact on the profitability. Ø Delays in mall construction may delay launch plans
of retailers Malls would account for half of the total organized sector retail space
demand in the next Five years. However, the rising cost of retail space in India is
affecting the growth plans of Retailers. Real estate costs are hampering their
margins, which are already not very high. They are also entering into long-term
lease & revenue sharing arrangements with mall Ø Opposition to organized retail
Opposition from the unorganized sector and any consequent political opposition
can Hamper growth plans of retailers. Also, delays in opening up the retail sector
to FDI Ø Pressure on margins Another important fact is the pressure on margins,
which the retailers will face once Competition enters. Retailing as such is low
margin business. EBITDA margins for food & Groceries are wafer thin@3-3.5%.
Margins in the apparel business are in the range of 8-16%. Given the big
expansion plans of retailers, net profits may have to take a hit in order to Increase
volumes. Retailers are concentrating more and more on private labels where
Margins are higher. However, going forward, this is a key risk in this business.
ArunKumar Arunachalaiah – Retail Consultant, email –
13. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 An intuitive
assumption on Indian Retail The Indian retail industry leaders are very positive on
the sector and believe current players such as Pantaloon, are well positioned to
take full advantage of the growth in the sector. With the growth in consumerism,
urbanization and a young population the Retail sector is clearly on an upswing. To
protect margins, retailers have now started to Concentrate on their supply chain
and logistics so as to ensure low cost of procurement. as such retail is a high
volume, low margin business and one which requires sizeable Investments in
working capital. With organized retail penetration levels of 3-3.5% of the total
industry, and as low as 1% in segments such as food and grocery the scope for
growth is tremendous. layers such as Reliance Retail, Aditya Birla group are all
expected to do well, going forward. Looking at the size of the market and the
potential, there is a market large enough for several large players to co-exist.
14. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Why Study
Retail Strategy on Fashion Merchandise? FASHION BUSINESS: IN-TUNE
WITH RETAIL EVOLUTION India in recent years has been the focal point of
continuous growth and development making it one of the fastest growing
economies of the world. It is the 4 largest economy in terms of Purchasing Power
Parity, after USA, China & Japan, and is rated among the top 10 FDI desti-
-nations. The Indian consumer is evolving and driving retail growth due to
increased consumptn. Private consumption growth contributes to more than half
of the GDP growth and is growing in double digit figures. Several businesses are
reacting to this evolution positively, both through pull and push phenomenon.
Following a similar trend, the Indian textile and apparel industry is also
experiencing rapid changes and growth. Apparel today has the largest share of the
modern organized retail in India i.e. 20% of the current market of Rs. 56,000
crore and this is expected to grow at a constant rate of 20% over the next 4 years.
This report puts together some of the recent trends being witnessed by the textile
and apparel industry. The central theme woven through these trends is the way the
consumer at various income-levels is evolving, thereby ensuring that businesses
are reacting in multiple ways. India is the second fastest growing major economy
in the world ArunKumar Arunachalaiah – Retail Consultant, email –
15. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 The 'mass
consumer' segment is moving from tailored clothes to stitched apparel giving rise
to discounted apparel stores/retailers. This causes a shift from unbranded to
branded apparel. The 'middle end consumers’, already exposed to brands is now
looking to extend these brands into all aspects of their life. Brands are thereby
becoming lifestyle brands instead of being product brands only. These consumers
are also moving up the social ladder and wish to flaunt the change in stature by
wearing affordable 'designer prêt wear'. This is prompting designers to introduce
prêt lines and corporatize their lines to reach out to a larger audience. The 'high
end Consumer' who is exposed to international luxury brands, now demands them
in his/her vicinity. Apparel businesses are realizing this and tying up with
international brands to retail in India. These consumers are also increasingly
exposed to environmental issues and want to use eco- friendly products (including
apparel) to do their bit for the society. Though this concept is at a very nascent
stage in India, apparel companies are reacting by 'going green' and using natural
fibers in some of their collections. As all consumers, especially kids and the
youth, are exposed to fashion and media, they wish to associate themselves with
characters and icons. Picking on this trend, apparel companies are licensing these
characters/icons for apparel & accessories to increase their customer base.
Additionally, as consumers face hectic lifestyles, they are looking for convenience
in all aspects of life including shopping. Fashion businesses are taking the lead
from here and taking on consumers at unconventional avenues of retailing like
airports, metro stations, cafes, beauty saloons, etc. ArunKumar Arunachalaiah –
16. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Recent Trends
in Indian Fashion Retail Business è Fashion industry is pushing to keep pace with
the retail evolution witnessed in India è Indian consumers are converting from
stitched apparel to ready-to-wear Causing a surge In discount retailing è Factory
outlets have become distinct and important shopping destinations è Consumers
now desire branded products in all aspects of their life è Traditionally brands that
offered formal wear are now extending into Casual wear, Accessories, footwear
etc. è Brands are opening large EBOs to showcase their expanded product range.
These flagship Stores are positioned as ultimate one-stop destinations for the
latest fashion trends. è Kids and youth are influenced by icons & characters and
desire to possess them in their everyday life è India has become an important
market for character licensing specially in apparel. ArunKumar Arunachalaiah –
17. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Project –
Objectives and Scope Successful Apparel Retailing has always been said to be
about getting nitty gritty right of Merchandising, Forecasting, Supply Chain,
Training and Recruitment of high quality personnel and Category Management.
Building retail brands that offer value will, in future overshadow all these areas
and emerge as the dominant reason for the success of the organized Indian
Retailer. Indian Retailers should understand that the retail experience has become
a popular Leisure activity and they are vulnerable to any new competition for
customer entertainment. Retailers must build a brand with image to seek entertain
and involve customers. It is the Quality and value of the Retail Brands that they
have sought to establish that will determine the loyalty of the retail shopper in
future. Apparel Retailing is one of the most complex verticals in the Retail Sector.
This is because Forecasting sales for a particular SKU is not possible as there is
no sales history at the SKU level. During every fashion season, Trends, Customer
demands, Styles and Fabrics/Colors keep changing it is practically impossible to
completely rely on previous sales data. Forecasting Sales is much more
straightforward for staples than for Fashion merchandise as there is an established
sales history for each SKU and standard statistical techniques are used to forecast
sales. A Retailer is more vulnerable to face Stock outs, Loss of Sales, Losing
customer loyalty due to inadequate product availability during peak season or face
Excess stocks, increasing inventory and operating costs due to excess buying
exceeding demand levels. Objective of this Project is also to carry out extensive
studies to make certain the right retail Strategy for an apparel retailer to create a
loyal and repetitive customer. The project scope will also Include coverage of
areas of establishing a strong Retail image through Marketing Strategies, Brand
Building, Identifying the right Retail Mix, Pricing, Advertising, Forecasting,
Category Management, Retail Store Operations, Supply Chain and usage of
Information Tech- - nology applications in Apparel specific retailing. ArunKumar
9740067765 17
18. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 To ensure the
loyalty of the retail shopper any retailer has to develop a strategy for long term
Sustainable competitive advantage. Few measure that a retailer takes to build
sustainable Competitive advantage Customer Loyalty Retail Location Vendor
relationship Effective and committed employees Cost effective operations Below
is an outline of Scope of this project which will cater to accomplishing the above
menti - -oned objectives of the project to create a sustainable Competitive
advantage. • Retail Store • Financial Operations Operations Mgmt Mgmt
Information Retail System & Marketing Supply Chain Strategy Competitive
Advantage Merchandise Establishing Planning, Retail Brand Buying, and Image
Forecasting • Human • Customer Resource Relationship Mgmt Mgmt (Illustration
5) ArunKumar Arunachalaiah – Retail Consultant, email –
19. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Understanding
the Retail Value Chain of Fashion Merchandise To propose a Competitive Retail
strategy it is imperative to first understand the various functions involved in the
different channels of fashion merchandise. A brief outlook is provided below to
understand the value chain. Each function has a range of processes for successful
implementation which is described in (Illustration 7) Marketing Consumer
Planning Fashion Merchandise Retail Outlet Design Retail Value Chain
Distribution Procurement Manufacturing (Illustration 6) Fashion Merchandise
Retail Value Chain ArunKumar Arunachalaiah – Retail Consultant, email –
20. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Process
functions in Fashion Merchandise Distribution Channel We will look into greater
detail into each of this process functions in subsequent chapters • Market strategy
• Demand Planning • Product Lifecycle Mgmt • Inventory Mgmt •
Segment/Target mkt • Sales Forecasting • Product specification • Vendor Mgmt •
Retail Location • Merchandise Budget • Fashion Forecast • Supplier Assessment •
Brand Mgmt Plan • Design Trend • Strategic Sourcing • Pricing • Buying •
Product information • EBO/MBO/Franchising Marketing Planning Design
Procurement • Manufacturing • Supply Chain Mgmt • Promotion/ Pricing •
Customer delivered execution • Transport Planning • Customer Service Value •
Quality Mgmt • Warehouse Planning • Transactional Service • Repeat Sales •
Compliant solution • Reverse Logistics • Store Layout , Design • Word of Mouth
• Material Mgmt • Cross Docking • Operations mgmt • WIP Tracking • Invoicing
Manufacturing Distribution Retail Outlet Consumer (Illustration 7) ArunKumar
9740067765 20
21. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Retail Market
Strategy A Retail Market Strategy is the statement of identifying Ø The Retailer’s
Target Market. Ø The format that the retailer plans to use to satisfy the Target
market needs. Ø Building a sustainable advantage over competitors. Explore
Value Creation Opportunities through a appropriate understanding of Customers –
Consumers and Clients Company – Core Strengths and advantage over market
competition Competitors – Existing and New entrant competitors in market.
Collaborators – Suppliers, Channel Partners Context – Government Policies
Choose the right Retail Mix with the 4P’s of Marketing Mix –
Product/Price/Promotion/Place v Merchandise / Product Sold –
Food/Apparel/Pharma/Auto/General Merchandise v Pricing of the Merchandise –
Differentiating factor v Customer Service Level – Gift wrap/Home delivery/Free
parking/Entertainment v Variety/Assortment of merchandise offered – Breadth
and depth of product line. ArunKumar Arunachalaiah – Retail Consultant, email –
22. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 The target
market segment is a market which a retailer wants to focus all its efforts and
Retail mix. Target marketing requires marketers to take 3 important steps. S T P
Segmentation Target Market Positioning STP Strategy Market Segmentation :
Dividing a market into distinct group with distinct needs. Its is important to
determine v Who the consumer is – Demographic base of age, economic status,
residence etc. v What the consumer buys – Products, Brands, Colors, and Flavors
etc. v What kind of shopping trip is typical – In/Out, Convenience, Destination
trip etc. v How the consumer buys – By Promotion, Price or Product or Place v
How often the consumer buys – Daily Weekly or Monthly Target Market
Selection: Once the retailer has identified a feasible market segment opportunities
it has to decide on a targeting approach which revolves around v How many
segments to target? v Which segments to target? v Single Segment
Concentration/Market Specialization/Product Specialization ? Positioning:
Positioning is not what you do to a product but what you to do the mind of the
prospect. A position of a brand is its perception among its customers. It is placing
the brand in the appropriate slot in the customer’s mind so that when need is felt it
pops up in the mind of consumer without much effort as humans are selectively
attentive to marketing comm. unications and selectively retail information.
Positioning is the art of placing entire marketing mix in the customer mind and
create relevant association, emotion and attitude through power words so as to
stand apart from other competitive offerings. ArunKumar Arunachalaiah – Retail
23. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 We will
consider a Retail Marketing Strategy for a Formal Wear Apparel Brand to be
launched by the retailer. A formal Brand is an all season product not determined
by the seasonal demand factors. Factors to be considered to develop a formal wear
retail market strategy v Kind of Business: Medium Range Priced Formal Wear
Catering to both Men’s and Women’s segments v Future of Business: • Uniform
demand for formal wear throughout the year. • Growing need for Services sector
induces many working professionals to be dressed in formal and professional for a
minimum of 5days per week. • Sales not determined by seasonal demand factors.
• Increased urbanization in Metro and Tier2 and Tier 3 cities. v Target Customers:
• According to a study the India has about 14crore working professionals in the
middle to junior level executive cadres. This segment is known as “Aspiring
India” • Junior to Middle non managerial Executives Men and Women in the age
group of 22 – 35years with high spending potential. v Long Term Goal of the
Business: “To be the largest retailer of apparel with pan India presence”
24. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Situational
Analysis Market Factors External Factors Competitor Threats •Market Size-24-
35yrs •Technology - Cost •Entry Barrier - Low •Rising cost of Real •Growth
Potential - high •Vendor Bargain Estate prices Huge •Economy - Healthy power -
high •Absence of Supply •Business Cycle - Year •Regulatory - Helpful
•Competitor - chain round PeterEngland,John •Lack of trained Player Human
Resource •Scale of Economy- Achievable Finalizing the Market Growth Strategy
A Retailer has 4 options to pursue any of the following Growth Strategies.
Existing Mkt New Mkt Market Market Current Retail Penetration Expansion
Format Strategy Strategy Retail Format New Retail Diversification Development
Strategy Format Strategy Rapid Market Penetration Strategy An ideal growth
strategy for a Formal wear fashion merchandise business would be that ofa Rapid
Market penetration strategy which gives an edge to capture market share quickly
through Low pricing, High volumes and enhanced and aggressive Advertising .t is
used when I retailers seek larger revenues by setting low price and selling many
units Profit per unit is low . but total profit is high. It offers growth opportunity to
target existing customers using the present retailing format. This approach suits
the target market as young middle level executives are usually price sensitive to
Formal wear and looking for a best deal all the time. ArunKumar Arunachalaiah –
25. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Approach to
Rapid Market Penetration Strategy ØConcentrated Marketing targeting the needs
of very specific defined market of age group of 24-35year middle level cadre.
ØAggressive display of Merchandise to create impulse purchases. ØAvailability
of greater breadth of product assortment will be considered by the consumer and
hence stronger the salience as most consumers today are time-constrained.
ØAugment the depth of the Product mix by extending the product Line into Ties,
Leather Belts, Wallets, Handkerchief, Socks, Cufflinks ØPromote the idea of
Cross selling approach to the customers by selling Complimentary merchandise
along with core merchandise. For eg: A customer buying a Shirt would also want
to buy Tie or Cufflinks. ØProp up the point of Purchase counters with unplanned
purchase Items like Handkerchiefs or Wallets that can comprise a significant
Portion of consumers total shopping basket size. ØOpen more stores in the Target
market Area ØKeep existing stores open for longer hours ØStimulate customers
to spend more time in the outlets on shopping Using clever tactics such as filling
up of loyalty card programs, Research questionnaire, Superior lounges, in store
entertainments to create an enhanced Shopping experience which drives the
consumers to make repeat visits to the stores. ArunKumar Arunachalaiah – Retail
26. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Pricing Strategy
Pricing merchandise is one of the most important activities in Retailing. Once the
assortment Plan is ready the retailer decides how to price the merchandise for
maximum sales and profit. A value of the product is determined by the customer
and not by the retailer or manufacturer. Correct pricing decisions are a key to
successful retail management. The first step in Pricing is Identifying the costs.
Only costs that will rise or fall when price changes affect profitability of Different
pricing strategies, these are called incremental costs as they represent increment to
Cost that result from pricing decision. Retailer must also consider Contribution
for each product Sold. Contribution margin as a % of price is the share of price
that adds to profit or reduce losses In other words the added profit or loss due to
additional sale. It is measure of leverage between a firm’s sales volume & profit.
An effective Pricing strategy requires good understanding of value of product to
the buyers. Value refers to total savings or satisfaction customer receives from the
product. This is known as Economic Value referred as price of customer’s best
alternative plus value that differentiates the offering from the alternative. The gap
between buyer’s willingness to pay and economic value of the product is known
as Price sensitivity of the customer. Evaluating customers on 2 dimensions of
perceived value of a product’s difference and perceived pain of price will reveal
valuable value segments. Different Groups of Buyers or Consumers • Price
Buyers – High pain of price, Low value of differentiation(Price Sensitive) •
Relationship Buyers – Low pain of price, high value of differentiation(Brand
Loyal) • Value Buyers – High Pain of price and differentiation (Time Rich Value
conscious) • Convenience Buyers – Low pain of price and differentiation (Time
Poor, Cash rich) Goal of Pricing: • Profit maximization – Maximum revenue
leading to maximum profits. • GMROI – Target return on Inventory Investment •
ROS – Target return on Total Sale. • Market Share – Grab a portion of
competitor’s customers in merchandise category. ArunKumar Arunachalaiah –
27. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Setting Retail
Prices : • Cost oriented Pricing: (Maintained Markup Percentage) Price
determined by adding fixed % to cost of merchandise Maintained Markup % =
(Net Sales – COGS)/ Net Sales Gross Margin = (Maintained Markup –
Workroom cost – Cash discount) / Net Sales Initial Markup =(Maintained markup
+ Reductions) /(Net Sales + Reductions) • Demand Oriented Pricing: Prices are
based on what customer expects or is willing to pay or determines the range Of
price acceptable to the target market. It assumes minimum price acceptable to the
Firm to reach a specified profit. Mostly used to estimate quantities that customer
would Buy at various prices. • Competition Oriented Pricing: Prices are based on
competition rather than cost or demand of the product. This method Keeps a
constant eye on competitors pricing and promotion activities. • Combined Cost
Demand Competition pricing: Useful method where cost should be basis for
pricing, competition should provide insights to market & demand orientation
should be used to fine tune to customer expectations. Implementation of
Competitive Price Strategy Pricing Strategy is not as easy as it sounds. Retailer
may have to customize strategy looking at various pricing options. EDLP –
Everyday Low Pricing and High Low Pricing remains at the back ground and
retail price is set as per Cost, Demand and Competition consideration. Pricing
Tactics Price adjustments let retailers use price as an adaptive mechanism v Full
Price – When Retailer Sells to customer at a full retail price when demand is high
and Product is still new in the shelf of the Retail Stores. ArunKumar
9740067765 27
28. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 v Markdowns –
Tool for Retailer for pricing end of lifecycle products, seasonal inventory
Markdown prices are optimized to reduce inventory and maximize contribution
margin. It is lesser than an item’s original price to clear out shop worn out
merchandise, reduce Assortment of odds and ends and increase customer traffic
and make way for new items On shelf space. v Discounts – A discount is a
reduction of price on the list price granted by retailer to the Consumers usually to
clear of end of season inventories, outdated packaged items and dead stock non
moving inventory. Every Retailer makes sure irrespective of which ever method
of setting retail prices will consider an a propionate percentage of markdowns
sales and discount sales and shrinkages in the Retail price of the product to
consume losses incase of sales dip or excess inventory. Special Pricing Tactics: v
Price Lining: Retailer establish price points for entire product line like for a range
of v Shirts in different designs Rs499 ,549,799,949. v Odd even Pricing : It is a
means of psychological pricing where a price ending with odd number entail
Bargain and price ending with even number imply quality. Bata - Rs.99.99 v Price
induced Sampling: Promotional pricing for a limited period of time. Eg: Tata Sky
v One Price policy – Retailer charges one price to all customers buying a
particular item In a store. For eg: One dollar store v Price Bundling : Marketing
two or more products in a single package at a special price often used for
complimentary products such as toiletries. Retailer use this to push slow moving
items or to induce trial for new products. A related tactic would be unbundling
reducing the number of products sold with core product. ArunKumar
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29. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Retail Store
Location approach Store Location is one of the prime considerations in a
customers store choice. Location Decisions have long term strategic importance.
Location decisions are hard to change as they involve huge investment. If a
retailer moves from one location to another the potential problems he could face
are Loyal customers and employees might be lost, New site might not have the
same traits as the old one. Store fixtures and renovations from old site usually
cannot be transferred. Attractiveness of a Retail Site for a Fashion merchandise
store depends on below factors Traffic & Demographics Competition Site Factors
Cost Factors Access •Lifestyle •# & type of •# & types of •Size of Site •Terms of
•Income vehicles stores in area •Parking space lease/ rent potential •access to
•Key players •Visibility of •Rent rates •Occupation store analysis store •Operation
mix •street •Location of •Entry & Exit cost •Nearby offices congestion competitor
•Building •Local taxes •mass transit condition •membership presence •Retailers
cost of Association Association of retailers Various options available for a retailer
to choose a retail location for a fashion merchandise Depends on target audience,
investment requirement and competition. Fashion merchandise store can be in any
of the formats according to its location EBO’s – Exclusive Brand
Outlets(Specialty Stores) Exclusive Brand Outlets is a distribution strategy
whereby a retailer sells his products in only one retail outlet in a specific
geographical area.An EBO can be suitable in a Central Business district/Shopping
centre which is the main centre of commerce and trade in the city. Usually every
Metro city has more than one Central Business district Bangalore popular and .In
well know Central Business district is created in Commercial Street ,Brigade
Road Indiranagar, , Koramangala and Jayanagar. It is better to have EBO’s in
each of these places as it gives a significant presence of brand due to huge
customer traffic movement and also footfalls will increase and convert suspect
customers into prospective clients. ArunKumar Arunachalaiah – Retail
30. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Multi Brand
Outlet (MBO’s) Multi Brand Outlets are retail stores owned not by the retailer but
a channel partner of the Retailer who has made agreements with various retailers
to sell their brands in their outlets This type of MBO for fashion merchandise is
suitable in a Secondary Business District which has a shopping area that is
smaller than a central business district and revolves around at least one variety
store at a major street intersection. These MBO’s are available in plenty in Metro
cities and also quite popular in Tier2 and Tier 3 cities. Customers in these trading
areas are not specifically brand conscious but more of Value buyers and they
prefer to shop in a store which houses a variety of brands. Franchising
Franchising is a very specific innovative method of distributing goods and
services where Franchisor (owner of business/retail) provides product and assigns
to Franchisees the right To market and distribute the franchisors goods and
service The Business format Franchise model is the most popular method in
Apparel Franchising Franchising model of store operations best suits the retailer
when the retailer needs to Expand his business into new geographical areas where
limited knowledge is available to Conditions for business and market potential is
not very clear. Also having own stores in new locations attracts lot of investment
and riskier. It is better to enter new geographical areas through franchising model
and with its success the retailer can plan to expand his own market through
opening EBO’s and Flagship stores. Primary Trading Area - 50-80% customers
Central Business district - Metro cities - EBO's Secondary Trading area - 15-25%
customers Secondary Business District - Metro & Tier2 cities - MBOs Fringe
Trading Area - 10% of customers Stores in new States, expansion mode -
Franchising Model Store Mapping for Fashion Merchandise Retail Outlets
31. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Establishing a
Retail Brand Image The emphasis here is on retail as a brand rather than retailers
selling brands. The focus should be on branding the retail business itself. In their
preparation to face fierce competitive pressure, Indian retailers must come to
recognize the value of building their own stores as brands to reinforce their
marketing positioning, to communicate quality as well as value for money.
Sustainable competitive advantage will be dependent on translating core values
combining products, image and reputation into a coherent retail brand strategy.
Retail branding creates a brand preference, which goes beyond the product in
itsef. What might it then mean, when branding is applied to retailing? The issue is
not of retailers selling brands but branding the retail business itself, like the
grocery supermarket chain or the fashion store. The retailer must attempt to brand
himself differently, especially when today’s product brands are being launched
through their product brand’s own shops.(Examples – Nike, Adidas and Reebok.
Jeans segment – Lee and Wrangler, Perfumes –Hugo Boss. ) Fundamental
characteristics of a brand (1) Recognizability: A true brand is instantly recognized
and identified. The brand name passes into every day use (Nike’s ‘Just do it’) or
(‘Make a Xerox of this document’) (2) Meaning, story, value: This is the second
characteristic of a brand. The brand must have a value proposition. It must stand
for something and one of the most effective ways is to have a story to transmit
those values. (3) Legitimacy: The meaning of the brand should be obviously
appropriated by the target customer group. In Retail business Legitimacy rests on
emotional authority, earned by the brand and granted by the customers like unique
shopping experience warmth in store. (4) Consistency, alignment: A brand story
should contain no internal contradictions and should be appear to be consistent
over time, applicable across the business and attempt at total brand integration. (5)
Proximity: The brand building process should culminate with assuring the brand’s
proximity to the consumer. The brand’s definition gets expanded by opening
stores in a number of locations to make it convenient to the consumer.
32. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 A retail
organization, like any other corporate company, will have to ensure that its own
brand includes the characteristics of product brands detailed above. Retailers need
to work on three dimensions to achieve this: ( 1 ) Brand value: The retail brand
has to embody and transmit clear values to the customer. (Like ‘value for money’,
‘Luxury shopping redefined’). Some companies have attempted to define this in
their mission statements but they are often too vague and not actionable. While
many Indian product brands have successfully weaved values around their brands
(Hamam on ‘trust’, Godrej on ‘quality’ and TVS on ‘service’) retailers are yet to
develop a consistent value across their businesses. (2) Brand strategy: It is
imperative that retailers have a systematic strategy on issues like whether to
develop the retail brand or corporate brand and decisions on one product/one
brand that they may be selling in their shop. Retailers can also decide to launch
high quality retailer brands (‘own labels’) backed by promotional campaigns,
reinforcing clear personalities. Pricing policies, today position retailer brands as
good value lines or premium lines.The view that retailer brands offer a cheaper
alternative to manufacturer brand is no longer valid. There is even scope for
retailers to develop alternative types of ‘own labels’ targeted at different
consumer groups in their outlets. An essential ingredient for success, in such
cases, must be consumer-relevant added values – not just lower prices.
Experienced consumers are no longer primarily motivated by low prices. There is
scope to attempt a retail segmentation strategy. ( 3) Brand structure : Operational
levels of the retail business have to be held together to integrate the whole brand
proposal. At this level, marketing, human resources, distribution, logistics,
administration and sales have to work towards a common brand value that has to
be communicated to the consumer. The retail brand’s messages must be weaved
into the every day experiences that the consumer has with the retail brand. Brand
building constitutes a way in which the main value of the retail store shifts to
what has been traditionally called an intangible. Indian Retailing is coming of age
and needs to have a clear brand proposition to offer the discerning Indian
consumer. ArunKumar Arunachalaiah – Retail Consultant, email –
33. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Value of Brand
Image Brands provide value to both customers and retailers. Brands convey
information to the Consumer about nature of shopping experience, retailer’s mix.
Brand image also affect consumer confidence in decisions made to buy
merchandise from the retailer. Brands can enhance customer satisfaction with the
merchandise they buy. The value that brand image offers the retailer is called
Brand equity. A strong brand image enables retailers to increase their margins.
Retailers with strong brand names can leverage their brand to successfully
introduce new retail concept with only a limited effort on marketing. Building
brand equity involves the following activities. Brand Awareness Brand
Awareness is the ability of a potential customer to recognize or recall that the
brand Is a type of retailer or a product/service. Brand awareness is the strength of
the link between Brand name and type of merchandise in the mind of the
customer. Aided recall is when Consumer indicates they know the brand when the
name is presented to them. Top of mind Recall happens when consumer mentions
a brand name when asked about a type of retailer. Retailers build top of mind
recall by having memorable names, repeatedly exposing their Name through
advertising, locations and using memorable logos. Favorable association with the
Brand Value of brand is largely based on the association that customers make
with brand names. Eg: McDonalds link is so strong when customer thinks of
hamburgers it reminds them McDonalds Common associations that retailer build
with their brand names are • Merchandise Category – Madura garments associates
with Formalwear • Price/Quality – Eg: Wall-mart associates itself with low prices
• Specific attributes – Retailer can link stores to attributes such as
service/convenience. • Lifestyle/Activity – Some retailers associate their name
with specific lifestyles. Reinforcement of Brand Image Brand image is reinforced
to deliver a consistent image through retailer’s integrated Communication
program such as Advertising, Sales Promotion, Publicity, Store Atmosphere
Visual merchandising and Personal selling. ArunKumar Arunachalaiah – Retail
34. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Indian Retail
Brand Building – the road map ahead Indian Retailers should learn quickly to
build the retail brand directly and not look to factors like prime location, value
pricing or product assortment to build their businesses. Indian retailers, to build a
strong retail brand presence, can use the following strategies. Relationship
management to enhance in-store shopping experience: Competition will force
retailers to think about their customers as individuals, analyze their share of
customers and calculate their customer lifetime values. Retailers need to build
data bases using in-store data collection and launch frequent shopper rewards,
carry on an interactive communication with them, make special offers, drive
traffic and add value outside the in-store relationship.Retail brands get built by
developing personal relationships with consumers rather than only through
product and pricing. For example, staff should be trained to recognize their V.I.P
customers. ‘Soft’ rewards for V.I.P customers include priority service, free gift
wrapping, enhanced guarantees and sales pre-notifications. ‘Hard’ benefits
include privileged rewards and extra value offers as well as straight discounts.
The quality of management of the customer is becoming an increasingly
important source towards building the retail brand. Education and training of staff
needs to be done to enhance customer service. Local store management can be
empowered to maximize the value of each customer visit. Analysis of customer
behavior can guide store merchandising to match the profile of their customers
and even the needs of the shoppers at different times of the day. External
communication to add value outside the store: Retailers use advertising to build
their brands and promotions to drive store traffic. Retailers have, still not felt the
concept of individual customer communication outside the stores as a necessity. It
is necessary that they seek to add a new form of dialogue with their customers.
Retail chain Subiksha, for examples, mails a broadsheet to its customers giving
them details of the promotional offers available and price comparisons across
brands that helps its customers to take more informed decisions. ArunKumar
9740067765 34
35. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Motivating the
staff to volunteer value The quality of in-store service is a key factor in
differentiating the retailer and winning a higher share of customer spend. In one
survey, shoppers were asked, would they ask for the same salesperson on their
next purchase visit; the ‘yes’ respondents were found to more likely give the store
a 8-10 rating. Staff must be trained and motivated to recognize their best
customers and to offer them superior service. Building retail brands that offer
value will, in future, overshadow all these areas, and emerge as the dominant
reason for the success of the organized Indian retailer. Indian retailers must build
their brands with images that seek to entertain and involve their customers. It is
the quality and value of the retail brands that they have sought to establish that
will determine the loyalty of the retail shopper in future. Community Relations
The way retailer interact with the communities around them can have significant
impact on the brand image and performance. Engaging in community oriented
actions enhance their Stature. Some of them can be listed below v Make sure
Stores are barrier free for disabled shoppers v Showing concern for environment
by recycling trash and cleaning streets v Supporting charity and noting that
support at the company website v Running special sales for senior citizens and
other groups v Sponsoring Youth activities v Donating money and equipment to
schools and orphanages. ArunKumar Arunachalaiah – Retail Consultant, email –
36. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Planning and
Forecasting Retailers have a proactive approach to respond to the fluctuations in
Demand and Supply to increase the overall profitability of the firm. Planning
methodology is adopted to manage allocation, production and distribution of
available resources and also to make trade-offs when necessary between inventory
and capacity. Forecasting Demand Every Strategic and planning decision taken by
a retailer has to be based on Demand forecasts. Forecasting is a very important
tool which helps in taking accurate decisions. Different products have different
demand trends and are therefore difficult to forecast. Products like milk and bread
have stable demand and hence easy to forecast whereas technology products like
mobile phones are extremely difficult to forecast. Characteristics of a Forecast: •
Forecast Error – Forecast must always include both an expected value of forecast
and a measure of forecast error (varies between 2% to 5%) Et – Ft – Dt (Diff b/w
actual forecast & actual demand in period t) • Accuracy of forecasts – Long term
forecasts has larger standard deviation of error with respect to mean than short
term forecasts. Forecasts made for shorter lead time products are more accurate.
Aggregate forecasts have small standard deviation of error relative to the mean
and hence are more accurate. • Information Distortion – As we move up the
supply chain the degree of information distortion increases. Forecasting
Components: • Past Demand • Lead time involved in the product • Economy •
Advertising decision and discounts offered • Competitors ArunKumar
9740067765 36
37. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Steps involved
in Demand Forecasting • Forecasting Objective – How much to sell, How much
inventory to maintain, How much discount to be allowed • Demand planning and
forecasting integration – Issues like capacity, production, promotion, purchasing
and advertising require planning to be done in accordance with the forecast made.
• Customer Segment identification – Different customers may be grouped under
different segments to use different forecasting methods. • Factors influencing
Demand forecast – Demand, Supply and features of product are main factors
affecting forecast. Retailer must understand what would the demand be in absence
of promotional activity. • Forecasting method determination – Larger number of
companies use multiple forecasting techniques individually or in combination •
Establishing Performance and error measures – Actual accuracy compared with
desired accuracy and resulting gap should be called error, corrective action is
taken to reduce it. Forecasting Methods: • Qualitative Methods – Used when there
is no historical date. Expert judgment is involved and highly subjective in nature •
Time Series – Use of historical data and past results when demand is stable Mixed
– {(L + T) x S.D}, Additive - {L + T + S.D}, Multiplicative - {L x T x S.D}
Where L is Level , T is Trend, SD is Seasonal demand. • Casual – Forecasts are
correlated with certain environmental factors like economy & market rates. •
Simulation – Methods imitate customer choices. Simulation can be used by
combining time series methods and casual methods to arrive at a forecast.
38. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Merchandise
Planning and Category Management Merchandise Management is the process
where the financial goals of the company are achieved by offering the right
merchandise in the right place at the right time in the right quantity. This
encompasses sales forecasting, buying merchandise, making the assortment plan,
pricing and determining the communication mix. Category Management is the
process of managing the retail business with the objective of maximizing sales
and profit from a particular category. Category is the basic unit of analysis for
making merchandise decisions like Divisions in Apparel, Electronics, Food,
Department in Men’s, Ladies and Kids segment, further category into formal,
casual, sportswear and ethnic wear. The planning for the merchandise category
culminates in an assortment plan. An assortment plan is a list of merchandise that
indicates in very general terms what should be carried in a merchandise category
like men’s formal wear includes average number and percentage of each
style/color/size that the retailer should have in his inventory. Mission and Roles of
Category • Destination Category – Customer’s first choice of retailer • Routine
Category – Customer’s preferred retailer of routine needs • Seasonal Category –
Retailer is a major supplier for a particular time or season. • Convenience
Category – Retailer is the supplier of fill-in products Some examples of
subcategories include • Traffic builders – Product with high market share •
Transaction builders – Products frequently purchased on impulse. • Cash
generators – Products with high stock and margins • Image creators – Products
that are promoted with features that makes it unique. • Excitement creators –
Products with high impulse appeal. The goal of category management is to
improve operating results of a retailer and its associate partners including
manufacturers, distributors & brokers. Category management is a strategy of
differentiation. It should drive multiple item purchase, not selection of single
SKU, should be a function of times, space and product utilization. ArunKumar
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39. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Focus area of
Category Management: Category Management has its roots with the landmark
Efficient Customer Response industry initiatives of 90’s developed by GMA –
Grocery Manufacturers of Amercia. ECR established best practices guidelines
that have helped guide countless category management initiatives. • Efficient
Product Introduction • Efficient Product Promotion • Efficient Store Assortment
Merchandise Planning Process Merchandising directions are set for the company
by Top management who look at the overall merchandising strategy which
involves 1. Defining Target Market 2. Establishing performance goal 3. Deciding
on basis of trends which merchandise division should be given emphasis 4.
Studying category past performance 5. Project assortments for their merchandise
categories for coming season Merchandise Plan tells the buyer and planned how
much to spend on each category every month/season. Once merchandise plan is
set buyer and planner set the assortment plan. The buyer works with vendors
choosing merchandise, negotiating prices and developing promotions. The
planner breaks down overall financial plan into how many of each item to
purchase and how to allocate to stores. Assortment Planning Process • Variety –
Number of different merchandising categories within a store or department. Large
variety means to have a good breadth. Variety is the most important defines the
retailer in the customer’s eye • Assortment – Number of SKU’s within a product
category. Stores with large assortment is said to have good depth. • Product
availability – defines percentage of demand for a particular SKU that is satisfied.
Also referred as support level or service level. ArunKumar Arunachalaiah – Retail
40. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Category
Management Guide of determining Variety & Assortment Ø Profitability of
Merchandise Mix – Retailers are always concerned with the amount of money
they have to invest in merchandise and space. Ø Corporate Strategy and
Positioning – Strategy towards assortment helps number of colors and styles to
purchase. The more diversified the stock portfolio less risk of huge losses as on an
average the category might perform well even if a few don’t sell. With large
assortment buyer runs risk of broken sizes and hence usually take markdowns as
they are hard to sell. Ø Physical characteristics of Stores – Retailers much
consider how much space to devote to each category. The space requirement
increases with increase in assortment and colors. The display area’s physical
characteristics in terms of capacity are also important. Retailers typically divide
their chain into A, B and C stores based on their ability to generate sale. “A”
Stores get the largest inventory allocation and assortment. Ø Determining Product
availability – Higher the product availability, higher the amount of backup stock
necessary to prevent out of stocks on particular SKU’s. A very high level of
service results in higher inventory investment. The relation between cycle stock
and safety stock explains this better. Ø Assortment Plan – Historical precedence is
the starting point for developing assortment plan for any season. Category
manager uses GMROI,Sales forecast and turnover ratios along with assortment
plans to develop a buying plan for the new season. It also requires expert and
subjective judgment. Ø Space Allocation - a. Sales/Sq feet - Sales/Linear foot of
shelf space which is annual sales divided by total linear footage devoted to the
product category. b. GMROF - Gross profit per linear foot of shelf space which is
annual gross profit divided by the total linear footage devoted to the product
category. Ø Performance measures a. GMROI – Gross Margin divided by average
Inventory Investment at retail price. b. Inventory Turnover - # of times in a year
average inventory on hand is sold. c. Direct product profitability – Gross profit
minus its direct retail cost. d. Average sale/Transaction – total sale for day/total #
of bills generated in that day, measures customer spend per transaction and also
determines ticket size. ArunKumar Arunachalaiah – Retail Consultant, email –
Budget Plan for Fashion Merchandise The merchandise budget plan aims to setup
specific merchandise objectives and to plan financial aspects of the merchandise
side of the business. It involves below steps Planning Data Ø Assortment Plan -
Historical precedence is the starting point for developing assortment plan for any
season Ø Sales Forecast – It is a simple way to adjust past sales to make
projections into the future. Sources of information for sales forecast could be a.
Previous sales volume with which real trends are identified b. Published sources
c. Customer information – through observation, sales people and market research
d. Observing competition e. Vendors, Distributors, Channel partners and Expert
judgments Method of forecast is mainly a. Time series - Moving average –
average of several months sale, as each new period sale data is added the average
the oldest period is removed from total. b. Time series – Exponential Smoothing –
often used for Short range forecasting. New forecast = Old forecast + f (Actual
demand – Old forecast) where f is const b/w 0 & 1 that determine influence actual
demand on the new forecast. Ø Reductions – to have enough merchandise levels
apart from sales value of inventory may go down due to Markdowns, Shrinkages
and Discounts. Ø GMROI goal for category is planned based on past performance
of same merchandise. Ø Inventory Turnover – when inventory turnover is planned
Gross margin is ignored as the budget plan is an inventory plan and not a pricing
or margin control plan. Ø Average stock to sale ratio – To achieve planned
inventory turnover purchase must be kept in line with sale forecast with the
period. The average BOM Stock to sale ratio helps to do this. Ø Monthly planned
purchase - Monthly sales + Monthly reductions + EOM Stk – BOM Stk
42. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Evaluating the
Merchandise Budget Plan GMROI, Inventory & Sales Forecast are used for both
planning and control as it is based on top down planning process. After the selling
process the buyer determines how well they actually performed compared to the
plan. If actual GMROI, turnover and forecast are greater than planned then
performance is better than expected. Questions should be answered as to why the
actual performance is above or below planned. Open to Buy Analysis OTB
Analysis starts where merchandise budget plan ends. The merchandise budget
provides a plan for purchasing merchandise to be delivered in a particular month.
The OTB keeps track of how much is spent each month and how much left to
spend. As such OTB acts as a buyer Checkbook. The purpose of OTB is to keep
actual spending in line with the planned level of purchase to avoid over
investment and can maintain rate of inventory turnover at planned levels. OTB is
usually kept at retail price. Steps in Buying Merchandise Ø Gathering data from
Customers, Suppliers, Sales staff, Competitors and Internet. Ø Selecting and
Interacting with Merchandise sources- Agents, Manufacturers etc Ø Evaluating
the Merchandise – Inspection, Sampling Ø Negotiating the purchase and terms Ø
Concluding Purchase Ø Receiving and Stocking Merchandise – storing, GRN,
invoice, monitoring pilferage. Ø Reordering Merchandise – Inventory holding vs
ordering costs, turnover, cash outlay Ø Re-evaluating on Regular basis
43. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Procurement
and Inventory Management Sourcing can be defined as the process by which
companies acquire raw material, parts, components, different products and
services from various suppliers in order to carry out their operations. Such a
process is called Procurement. The sourcing process comprises of the below
mentioned stages • Supplier selection • Supplier contracts designing • Product
design collaborations • Procurement of material • Performance evaluation of
suppliers. Supplier Scoring and Assessment Supplier scoring and Assessment
means rating the supplier’s performance. Traditionally price was the primary
characteristic; however suppliers were ignored on other characteristics like lead
times, quality, reliability and design capability and moreover, the impact of total
costs doing business with them. With the help of details received by supplier
scoring, Supplier selection is done to identify appropriate suppliers. Once
suppliers are identified Supplier Contracts need to be formulated and negotiated
with the suppliers. Once contracts are signed product designs need to be prepared
with the help of supplier and in turn Product design collaboration takes place.
While doing this it is necessary to ensure that these designs are communicated
effectively to all parties involved in the production and operations. The next stage
is Procurement in which supplier sends the products in response to the orders
placed and delivered on schedule at the lowest possible costs. The final stage of
Sourcing Planning and Assessing involves identification of opportunities where
buyers are able to decrease overall cost of the product. Benefits of the sourcing
process are • Aggregation of orders resulting in economies of scale. • Reduction
in overall costs and distribution of risks with better co-ordination. • Better
forecasting and planning due to better supplier relations. • Help to reduce
inventories. ArunKumar Arunachalaiah – Retail Consultant, email –
44. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Some of the
scoring points while identifying the right supplier using Supplier Scoring and
Assessment are noted below v Replenishment lead time v Scheduled Performance
v Supply flexibility v Delivery frequency v Supply Quality v Transportation costs
v Pricing v Coordination of information v Product design capability v Exchange
rates and taxes v Supplier viability A Sample of the Supplier Comparison Chart is
illustrated below supplier quality feature supplier 1 supplier 2 supplier 3 product
quality 2 5 3 service quality 3 4 1 ontime delivery 4 1 3 knowledge 2 2 4
reputation 2 4 3 customer focus 2 4 3 customer service 2 4 4 responsiveness 3 4 1
average 2.5 3.5 2.8 average 2.5 3.5 supplier 1 2.8 supplier 2 3 supplier 3
responsiveness 4 1 2 customer service 4 4 2 customer focus 4 3 2 reputation 4 3 2
knowledge 2 4 4 ontime delivery 1 3 3 service quality 4 1 2 product quality 5 3 1
1.5 2 2.5 3 3.5 4 4.5 5 ArunKumar Arunachalaiah – Retail Consultant, email –
45. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Supplier
Contracts Administration It is very important to note that contracts between
suppliers and buyers are made keeping in mind two basic aspects of supply chain
profits and product availability. In order to improve the overall profit of supply
chain the suppliers must design contracts that encourage retailers to purchase in
larger quantities and thereby increase the level of product availability. But at the
same time it is important for suppliers to share some of the buyer’s demand
uncertainty. There are few types of contracts best suited for both suppliers and
buyers 1. Buy Back Contracts – This contract allows the retailer to return the
unsold goods up to a certain specified amount at an agreed price. Allows retailer
to order more number of products resulting in higher product availability and
higher profits for both retailer and supplier, disadvantages is higher inventory
levels 2. Revenue Sharing Contracts – In this contract buyer pays only a minimal
amount for each unit purchased from supplier but shares a fraction of the revenue
for each unit sold. This also increases the level of product availability meanwhile
increasing profits. Best suited for products having low variable costs and higher
cost of return. 3. Quantity Flexible contracts – This contract allows buyer to
modify the order within certain limits as notified by supplier as and when the
demand visibility inches closer to the point of sale. This contract has less
information distortion than those above. This contract is suitable for suppliers
serving multiple retailers and also must possess flexible capacity. 4. Contract for
Supply chain cost co-ordination – Quantity discount contract there is a reduction
in overall cost but lead to higher lot sizes and thus higher levels of inventory in
supply chain. 5. Two Part tariff contract – offers right incentives for dealer to
exert right amount of effort to increase supply chain profitability 6. Threshold
contract – offers the dealers an increase in margin for sales exceeding a certain
threshold limit. 7. Performance improvement contracts – are structured at
instances where a buyer wants performance improvement from supplier who has
little incentive to do so. ArunKumar Arunachalaiah – Retail Consultant, email –
46. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Vendor
Management The use of the following sourcing practices makes sourcing easier
and managing vendors efficiently resulting in lower product costs and increasing
the overall profitability of firm. Ø Use of Multifunctional teams Multifunctional
groups help develop better strategies for sourcing. It helps purchasers to stress and
focus on purchase price. Collaboration between the purchasing, manufacturing,
engineering and planning departments is much more likely to identify correct
costs. This collaboration must be continued up to the procurement stage to realize
the benefits of a good sourcing strategy. Ø Co-ordination across regions and
business units To maximize economies of scale in purchasing and reducing
transaction cost, coordination of purchasing across all levels of firm and supplier
is essential Ø Evaluation of Total cost of ownership An effective sourcing
strategy should not make price reduction its main objective. Primarily the factors
that influence total cost of ownership should be identified and used for supplier
selection. The performance of the supplier should be evaluated and its impact on
the total cost be quantified. Focusing on total cost of ownership also allows a
buyer to identify opportunities in designing and planning in better way Ø Building
long term relationship with the suppliers Sourcing itself is essential to both
supplier and buyer working together as this generates more opportunities for
savings than the two parties working independently. Trust should be established
between the buyer and supplier in order to maintain a long term relationship. At
the time of sourcing direct materials these capabilities are very important and thus
such relationships should be nurtured with suppliers of critical and strategic direct
material. Better relationships result in better profitability for both supplier and the
buyer. ArunKumar Arunachalaiah – Retail Consultant, email –
47. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Inventory
Management Inventory is a very large and costly investment that every stage of
the supply chain needs to incur. Every stage works independently to make supply
chain profitable. Thus it is very important that every stage of supply chain co-
ordinates and together forms the inventory policy. A large number of firms make
use of following two approaches in combination when managing the inventory in
order to meet predictable variability. The two approaches are 1. Use of Common
components - This approach involves manufacturer to design common
components that can be used in multiple products which have a predictably
variable demand that result in overall constant demand for the components. Eg:
Buttons in a Shirt 2. Developing Inventory for highly demanded products -
Products that are highly demanded or that have a high predictable demand it is
important to decide upon which of their products will have highest demand and
therefore build inventory for that product in the off season because there are less
chances of fluctuation in demand for these products closer to peak season. Need
for holding inventory • Achieve Economies of Scale • Balance demand and
supply • Specialization • Protection from uncertainty and order cycles • Act as a
buffer between the stages of the supply chain. Types of Inventory A. Cycle
Inventory Defined as average inventory that exists in the supply chain either due
to production or purchase of products in lot sizes that are larger than those
demanded by the customers. Cycle Inventory = Lot size/2 = the average inventory
= 1000 / 2 = 500pcs Average flow time = Average inventory / Average flow rate.
48. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Average flow
rate is the demand itself Average flow time resulting from cycle inventory = cycle
inventory / demand = 500/100 = 5 days EOQ – Economic order quantity = Twice
the Cycle inventory = 500x2=1000pcs. B. Safety Stock Safety inventory can be
defined as inventory carried for the purpose of satisfying the demand that exceeds
the amount forecasted for a given period of time. Due to the uncertainty in the
demand a product shortage may result. The table below shows the summary of
alternate service levels, safety stock levels and also the total average inventory to
be maintained. Fill rate represents the magnitude of a stock out. It represents the
percentage of units demanded that are on hand to fill the customer’s orders.
Service Level # of Std Deviations Safety Stock Average Total Average reqd
Requirement Cycle Stock Inventory 84.10% 1.0 175 500 675 90.30% 1.3 228 500
728 94.50% 1.6 280 500 780 97.70% 2.0 350 500 850 98.90% 2.3 403 500 903
99.50% 2.6 455 500 955 99.90% 3.0 525 500 1025 C. Speculative Inventory
Stock held for reasons other than satisfying current demand. Reasons can be bulk
purchases larger than demand to get bulk discounts or because of a future price
increase or future shortage expected. D. Seasonal Inventory Form of Speculative
demand accumulation of inventory before a season begins. E. Dead Stock
Products which have no demand registered over a large period of time. Products
are obsolete and block working capital. ArunKumar Arunachalaiah – Retail
49. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Symptoms of
Poor inventory level Ø Increase in number of back orders Ø Increase in inventory
investment with back orders remaining constant Ø High customer turnover rate Ø
Lack of sufficient space Ø Increase in number of orders being cancelled Ø Wide
variance in inventory turnover among distribution centers and major items Ø
Deteriorating relationships with intermediaries in stages of supply chain.
Inventory Holding Costs Holding cost is estimated as the sum of the following
mentioned costs.Usually the holding cost is a percentage of the cost of the product
Ø Cost of Capital – Weighted average cost of capital on inventory is calculated
before taxes are paid. Pre Tax WACC = Post tax WACC / (1 – t) Ø Spoilage costs
Rate at which value of product the firm stores drop following drop in market
value due to quality deterioration usually high on perishable food items Ø
Handling costs Include receiving and storage costs of products. Ø Occupancy
costs Show an incremental change in the space cost due to the change in the cycle
inventory. If a firm is charged on # of units stored we call it direct occupancy
costs. Ø Miscellaneous costs Deal with large number of costs such as cost due to
theft, damage, tax and insurance that may be incurred by the company. Ø
Ordering costs Costs associated with placing or receiving an extra order
independent of the size of the order Ø Transportation costs A fixed transportation
cost is often incurred by firms regardless of the size of the order. ArunKumar
9740067765 49
50. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Objectives of
Inventory Control Avoid shortage of material Prevent excess material Reduce
costs Provide proper customer service Selective Inventory Control v Visual
Control – Examine inventory visually to determine if addtnl inventory reqd. v
Tickler Control – Physically count small portion of inventory each day v Click
sheet Control – Record items as it is used on paper for reorder purposes. v Stub
Control – Retain a portion of price ticket when an item is sold v Point of Sale
terminal – relay information on each item used or sold. v ABC Analysis – 20% of
the items contribute to 80% of total sales , Decision based on 80:20 rule, A-
important, B-moderate imp, C – least imp. % Sales 100% 80% 80% 80% 60%
40% % Sales 15% 15% 15% 5% 5% 5% 5% 5% 20% 0% A A B B B C C C C C
v FSN Analysis – Based on speed of movement of inventory , F- Fast, S – Slow
and N – Non moving goods v Two Bin System – Principle of reorder level
physically separates entire stock into two bins. Reorder Qty is EOQ , Second Bin
Qty = Minimum Stk + Lead time consm First bin Qty = Order Qty – Lead time
consumption. v HML Analysis – H – High priced item, M – Medium priced item,
L – Low priced items. ArunKumar Arunachalaiah – Retail Consultant, email –
51. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Retail
Operations Management Operations Management is an area of the business that is
concerned with the production of goods and services and involves the
responsibility of ensuring business operations are efficient and effective. It is also
the management of resources and distribution of goods and services to customers.
A typical retail operating process is focused towards ensuring efficient attending
on the customer all the time he or she is in store. For doing this the operations
department has to work on the following steps. 1. Connect with customer:
Salesman has to be humorous, sweet, shy or confident while interacting with
customers. 2. Probe need subtly: By communicating freely with customer &
striking a humorous note, needs of customer could be understood even if they
don’t spell out clearly. 3. Presenting Merchandise: Salesman should initiate the
trial of product by the customer and give truthful opinions at the same time give
personal space. He should not insist. 4. Handling objections and indecisions:
Customer doubts are to be clarified by the salesperson to his or her satisfaction. 5.
Recognizing buying signals: Must respond quickly to buying signals which may
come in the form of positive statements. 6. Closing the Sale: Preparation of cash
memo and guiding the customer to the invoice counter. To ensure this, the
operations have to carry out jobs for which the broad retail activities are classified
as below and each of these topics will be touched upon in detail. v Store Layout
and Designing / Visual Merchandising v Customer Service Management v Store
Facility Management and Maintenance v Loss Prevention v Store Operations
Parameters ArunKumar Arunachalaiah – Retail Consultant, email –
52. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Store Layout
and Designing / Visual Merchandising Store Layout and Designing is one of the
most vital ways of communicating and helping customers to buy. Any retailer
while designing the store layout must consider following: Ø Store atmosphere
must be consistent with the store and brand image of retailer Ø Store designing
must help influence customer’s buying decisions. Ø Optimization of Productivity
from retail space. Store Layout It refers to planned physical location and
arrangement of merchandise, departments, displays, checkout counters and non-
selling areas. In doing this first consideration must be given to customer
convenience and then comes the retailer’s convenience. In designing a good store
layout the retailer must consider the following 1. The layout must entice
customers to move around the store to purchase more merchandise than planned.
2. Customers should ideally be exposed to layout pattern that facilitates a specific
traffic pattern. 3. Effective merchandise presentation and balance between sale
and shopping space. A typical layout divides the store into four different kinds of
space Ø Selling Space – Assigned for interior displays, product demonstrations
and sales transactions. Ø Merchandising Space – Allocated to items that are kept
in inventory for selling. Ø Personnel Space – Assigned to store staff for lockers,
lunch breaks and rest rooms. Ø Customer Space – Assigned for comfort and
conveniences of customer including food court, dressing rooms, lounges and
recreational space for children. Once the selling to sales support ratio is known
designers can begin the planning process. The planning of store layout consists of
five distinct steps 1. Selection of layout type 2. Division of Merchandise by
department 3. Allocation of selling space by department 4. Assignment of
department location 5. Organization of Merchandise within departments.
53. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Layout Patterns
The basic arrangement of the selling floor is of primary importance, because it
affects all other design decisions. Each type of layout has inherent strengths and
weaknesses resulting from the traffic flow patterns they create. With changing
formats and increasingly sophisticated store design research and techniques,
retailers have been experimenting with many combinations of these plans.
Layouts may be categorized into three basic types: Grid Layout: A linear design
for a selling floor where fixtures are arranged to form vertical & horizontal aisles
throughout the store. Supermarkets, discounters, grocery, drug store and other
convenience –oriented retailers, typically use it. This layout is done for more of
the store’s convenience and the need to get a lot of product out on display. The
basic advantages of using this kind of layout can be summed up as it is efficient in
terms of space use, Allows orderly stocking, Helps shoppers see a great number
of items easily, Is simple and predictable to navigate, Efficient to maintain,
Simplify inventory maintenance. In a self-service format, this arrangement
permits customers to shop in a quick manner. Strategic location of departments
ensures that customers are drawn through the store and exposed to all
merchandise categories. Weaknesses of the layout include the psychological
effect on customers is one of feeling constrained and rushed, which reduces the
time they spend browsing, Not aesthetically pleasing, Contains long gondolas of
merchandise and aisles in a repetitive pattern, which creates a monotonous effect
that makes the customers feel bored after a certain time. It is not necessarily
convenient for all consumers or the most effective selling approach. Certainly the
main aisles will get lots of exposure, but the secondary aisles are often over
looked and as a result sales are missed. ArunKumar Arunachalaiah – Retail
54. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Free-flow
Layouts - It is an asymmetrical arrangement of merchandise that encourages an
unstructured traffic flow. It is mainly used in specialty stores and within
departments of department stores that emphasize mainly on ambiance and
personal selling. This layout is the most flexible of the three plans. Advantages:
The main advantages of this layout are:It does not restrict the customers who do
more browsing and unplanned purchasing.It also enhances interior design, as
individual departments are more easily distinguished.Tends to provide more
relaxed atmosphere. Personal selling is emphasized. Disadvantages: The major
disadvantages of this layout can be summed up as Its main weakness lies in the
inefficient use of space and customer disorientation. Also requires higher labor &
security expenditures. Lends itself to higher rates of theft because of blocked
vision. Setup is expensive because the setup is custom made. Critical factor is
providing enough room between fixtures ArunKumar Arunachalaiah – Retail
55. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Loop or
Boutique or Racetrack Layouts - It exposes shoppers to a great deal of
merchandise as they follow a perimeter traffic aisle with departments on the right
and left of the circular, square, rectangular or oval racetrack. This layout divides
the selling floor into shops within the store. This layout is employed in a discount
or a department store. This layout exposes shoppers to a great deal of
merchandise. It forces the customer to visit multiple departments as they pass
through. This loop effect facilitates impulse buying. The newest merchandise is
prominently displayed on these main aisles. Overhead directional signs and
departmental graphics provide visual cues to the location of other departments,
helping shoppers while shopping, Construction, interior design and security costs
are substantial, however. Soft Aisle Layout - This layout treats merchandised
walls as some of the most important sales generators in the store. Floor fixtures
are arranged into groups with a 5-foot aisle along merchandised wall sections.
Encourages customers to shop the walls and move easily around the store.
Minimal floor Layout - Almost gallery-like in its simplicity, shows small
selections of Hand crafted or very exclusive merchandise. This layout is used in
very high-end retail stores with designer merchandise. The products are presented
dramatically on the walls of the store much like the art objects- with a minimal
use of selling fixtures on the floor. It allows for wide-open spaces in the center of
the store. Combination floor Layout - It has best features of several floor layouts
in an overall plan that suits a retailer’s specific strategy. It is a blend of free-flow
layout in the 1st third of the store & a grid layout for a clearance department in
the rear of the store. ArunKumar Arunachalaiah – Retail Consultant, email –
56. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Division of
Merchandise by Department Merchandise is organized into groupings or
classifications for the purpose of store layout & design. The creation of the
various merchandise departments should be based on a logical plan that allows
customers to locate desired items and make comparisons. Criteria used to divide
merchandise by departments are: Function/usage – includes sports goods, kitchen
appliances, home entertainment products. Customer purchase motive - Impulse
items, Diet foods etc. Price points –Bargain, moderate, and better dresses. Vendor
identification – Giorgio Armani, Gucci etc. Storage and display considerations –
frozen foods, dairy products, etc. Target Audience – men’s, women’s and
children’s clothing. Allocation of Selling Space When designing a store layout, it
is important to have a clear analysis of the yearly sales & gross margin
contributed by each merchandise grouping. Naturally those with the highest return
per square foot of selling space will have contributed the most to the business.
Every retailer should plan on allocating space to also highly appealing.
Merchandise located in the primary (main) traffic aisles will receive more
customer exposure and less in the secondary (other) aisles. A higher level of
customer exposure will occur at the junction of two or more primary aisles.
Certainly the performance of any merchandise group will improve if it is moved
to a prime location. However, do not waste valuable selling space by assigning it
to merchandise that will not provide adequate gross margin dollars. Locating
Departments within the Store The value of a space varies by location within the
retail store. The best locations are on the main floor near the entrances and
escalators, as they are the highest traffic areas. In a multi-level department store,
the value of space decreases from the 2nd to the 3rd floor, since customers are
less likely to go up another flight. Within level, the best locations are near the
main aisles. Floor space that is located on the right of an entrance is most
attractive. The major factors that help a retailer in deciding about the location of
departments within a store can be summed up as under:- Amount of space
needed-Amount ArunKumar Arunachalaiah – Retail Consultant, email –
57. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 of inventory
needs to be displayed-The type of merchandise- Profitability of the department.
The amount of space needed and the amount of inventory to be displayed are both
adjustable numbers for most retailers, but within limits. The retailers know that
certain merchandise requires specific fixtures or will need to be displayed in a
certain fashion. This will put a lower limit on the space to be allocated.
Departments requiring excessive space are often displayed in the back of the
store, eg: office furniture is often placed in the back of the office supply store
since it requires so much space. To relegate the smaller departments to the back of
the store would result in them possibly being over looked consumers. Presenting
your store is a very strategic part of your business. You need to have a reason for
positioning every item in your store beyond the usual… “It was the only place left
available so that’s where it ended up!” Organizing Merchandise within the
Departments A number of criteria may be used to arrange merchandise, including
brand, category, size, and price. New or heavily advertised products often are
distinguished, as are items with particular service specifications. Retailers give
their best selling merchandise the best selling area of the stores. The most
favorable locations for merchandise are feature floor displays, end-aisle units,
eye-level positions on gondolas and wall fixtures, and point-of- sale counter areas.
Consider these suggestions for positioning departments: High margin / High profit
- The merchandise that is highly profitable for the store sales can afford the “high
rent” district in the store. Demand Merchandise - This is the merchandise; the
customers make a point of coming to the store to get and will hunt for it. This
should be put in a less valuable space and make them walk buy the more impulse
related items. Impulse Items - These are the unplanned purchases customers make
on a shopping trip. Items with high impulse success get great locations in the
store. Related merchandise - Put merchandise even though it may be in separate
departments, near each other if they are coordinating or complementary items.
This will make them visible to the customer and make shopping easier. Seasonal
stock - Some stores designate an area of the floor for merchandise that is on hand
on only a short-term basis. This makes for efficient changeover of that area when
a new season arrives. ArunKumar Arunachalaiah – Retail Consultant, email –
58. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 High Frequency
Items - Customers want convenience; so position items that they buy frequently in
a convenient area of the store. Department size - Smaller departments typically
get better positions in the store than a larger department in order to help them be
seen by the customer. Giving a small dept a poor visibility area in the store is like
putting the “kiss of death” on that department. New Departments - If your trying a
new department or line of merchandise, give it best chance possible to succeed by
giving it a prime selling area. This is but obvious through the above discussion
that high margin/high profit items go on the best shelf. Research shows that eye
level and just slightly below is the best shelves to sell from. Planogram Process
Plano gram is a computer –based technique for designating a precise placement
for every item stocked in a department. It illustrates exactly where every SKU
should be placed. These are used by chain stores to display merchandise in the
best way and to achieve standardization across company locations. A planogram
is nothing more than a picture of how various fixtures, shelves and walls will be
presented with merchandise. But while it is a relatively simple concept, it is a very
powerful one too. The planogram will force the retailer to consider very carefully
what products go where, why and how many. It will also take into consideration
what is known about the psychology of consumer buying habits. The Planogram
is a detailed plan that gives store guidelines for: • Storefront, window display or
department setup. • The quantities of merchandise to be used and how they are to
be displays. • The type of fixture to use and its placement • Price and description
of the merchandise. • Signs are to be used. Using this type of planning system
provides continuity from the storefront to the display & fixture positioning in the
store; the customer will recognize the store by its uniform merchandise
presentations and visual displays. ArunKumar Arunachalaiah – Retail Consultant,
email – aarun9677@hotmail.com, Mobile - 9740067765 58
Presentation With labor costs continually increasing, the retailer must take
advantage of every opportunity to sell merchandise. Appropriate presentation
tools placed correctly on selling floors and dressed properly are a successful silent
sales force. A primary goal of the fashion retailer is to create and maintain a
quality fashion image. Merchandise presented interestingly to the public can
contribute greatly to both a store’s and a department’s image. To achieve this
goal, a retailer needs to remember how the customer sees the store and the
merchandise displayed in it. Each item of merchandise, properly arranged, is part
of he image development process. Principles of Merchandise Presentation There
are certain basic principles for each display that a retailer maintains for the store.
T 1. The merchandise should be displayed in a manner consistent with the store’s
image. 2. Consider the nature of the product (e.g., Levis can be stacked, dresses
can be hung) 3. Packaging often dictates how the product is displayed (e.g.bulk,
self service vs. pkgd) 4. Profit potential influences display decisions (e.g. low
profit, high turnover items require less elaborate displays.) Types of Merchandise
Presentation The different kinds of presentation techniques followed by retailers
while displaying merchandise can be summed up as under: Idea –Oriented
Presentation - It is a method of presenting merchandise based on a specific idea or
the image of the store. E.g. Furniture displayed as room settings. In this kind of
presentation the products by one manufacturer are displayed together. The basic
idea of this presentation is to encourage complementary purchases. Style/ Item
Presentation - In this type the organization of merchandise is done by style or item
type e.g. products in a grocery store, electrical supplies in a hardware store.
Within a specified area in this presentation style, types, size, etc also organize the
merchandise. For example, casual cotton dresses may be offered in jumper styles,
and low-waisted styles. These should be presented on separate fixtures, or atleast
on separate arms of the same fixture. ArunKumar Arunachalaiah – Retail
60. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Price Lining
Presentation - It means organizing the merchandise in price categories. Retailers
offer a limited number of predetermined price points within a classification. Also
that the merchandise is presented in accordance of their price line. E.g.
merchandise of same price line can be stacked together in a display. End use
Presentation - A dress department may carry dresses for several different end
uses- casual, career, evening, and formal wear. Therefore the merchandise can be
displayed on different fixtures as per their classifications of their end use.
Fabrication Presentation - Each classification of merchandise should also be
separated by fabrication. E.g. casual jumpers may be offered in both linen and
cotton, and these fabrications must be presented separately to give a well-
designed presentation. Color group - All fashions can be separated into one of the
seven groups of color. This is a method of display in which the merchandise is
organized into color blocks, from left to right, from light to dark. The effect is to
create a display that is visually appealing to the customers. For example, if you
were arranging T-shirts on a hanging fixture the display would look like: Yellow-
S, M, L Blue- S, M, L Red – S, M, L Also remember that neutrals can be
presented separately or combined with any of the other color groups. Vertical
presentation - In this type of presentation merchandise is presented vertically
using walls and high gondolas. People scan merchandise like they read: top to
bottom, left to right. Tonnage presentation - Large quantities of merchandise are
displayed together, and the merchandise is the display in this type. E.g. cap
displays of soups, soda, chips etc. Frontal presentation - A method of displaying
merchandise in which the retailer exposes as much of the product as possible to
catch the customer’s eye. E.g. one frontal display of books with the rest showing
spines, one frontal display of an apparel item with the rest racked. ArunKumar
9740067765 60
61. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Planning the
Store The retailer must consider the store personality and design the exteriors and
interiors accordingly 1. Store Personality Each retail store has a unique
personality. To the consumers a store can be warm, expensive, sterile, exciting or
dull. Store’s personality is in reality the image the consumer has of the store.
There is a multitude of factors that go into a store image formation. Location,
Merchandise, Price, service, promotional effort and the attitude of the store
personnel all have an important role to play. Store atmosphere and store’s
physical facilities contribute heavily to the store image. 2. Developing a central
theme Many merchants effectively create a store personality through the
development of a central theme. This can be accomplished by co-coordinating the
décor and fixtures through out the entire store. Retailer may generally create a
central theme during seasons, holidays, festivals etc to attract customers. Such
themes are temporary and will have to be changed more often. 3. Exterior Design
consideration The images the consumers have of a store include its exterior design
as well as its parking facilities. The external character of the store should reflect
its interior character. In this way it conveys a message to the consumers regarding
the nature of merchandise inside the store. Three important aspects of exterior
design are: Ø Store Signage – Every store should have an identifying sign that
tells the consumer the name of the store and if needed the nature of the business.
Included on the sign should be a store’s logo. The store name or logo should be
chosen with care & shd be distinctive, easy to pronounce & remember. Ø Display
windows – Windows can be highly effective in attracting customers into the store,
especially when a high pedestrian exists and the merchandise mix of the retailer is
composed of shopping goods. Display windows should reflect the atmosphere and
merchandise that will be found in the store Open Back – permits customer to look
directly inside the store. Closed Back – Completely blocks the view of the store
interiors Semi-Closed back – contains partition below line of vision allowing
display of merchandise and same time to look into the store partially ArunKumar
9740067765 61
62. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Ø Store
Entrances Customers should have an easy access to the store. Doors should be
easy to open without subjecting the customers to a tug of war. Entrances should
be wide enough so that entering and exiting customers can pass without knocking
into each other. The entrances should be inviting enough to induce customers to
step inside. Some retailers have automatic doors for entry/exit 4. Interiors of the
Store The interior designs of the store are of utmost importance as it gives the first
impression about the store and merchandise. Important variables in interior
designing of a retail outlet are : Ø Fixtures – To hold and display merchandise Ø
Equipments – Elevators, escalators, air conditioners Ø Store Atmosphere –
Effects of a good store atmosphere can be as below Attention creating medium –
creative use of colors and visuals Message creating medium – brand message,
company profile, values Affect creating medium – Slow music, slowing the
shopper’s speed Sense of Smell – Good smell attracts customers to visit & shop
more. Sense of hearing – Tinkling bells, ringing wind chimes, rock music in
coffee shops, blast of space in video game rooms Sense of touch – people prefers
to feel product before they buy. ArunKumar Arunachalaiah – Retail Consultant,
63. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Customer
Service Management Customer Service is the set of activities undertaken by the
retailer to make the shopping experience more convenient and rewarding for the
consumers. It is an integral part of store management. The retailers job is to
identify the needs and wants of every group of customers and develop different
levels and type of customer service that will keep the customers happy. CRM in
retailing have focused on improved productivity of the consumers shopping
experience. The five C’s of consumer efficiency are v Clarity – Maintaining a
clear focus on what you offer and what consumer can expect v Choice – Too
much or too little choice can waste customer’s time. v Control – Customers like to
be in control of their shopping dislike pushy salesguys v Communications –
Methods of communicating – Signage, Brochure, Phone, Internet v Checkout –
Inefficient handling at checkout will waste customer’s time. Customer Service
Strategies Customer service can be leveraged as a competitive advantage. To do
so, there are 2 important tools. Standardization – involves requiring service
providers to follow a set of rules and procedures while providing service . By
strict enforcement of these procedures, inconsistencies in the services are
minimized Customization – approach encourages service providers to tailor the
service to meet each customer’s personal needs. This approach can result in
customer’s receiving superior service. But service might be inconsistent because
service delivery depends on judgment and capability of the service providers.
Customer Evaluation of Service Often customers use some tangible cues to judge
the quality of service of the retailer. Tangibles – store appearance, merchandise
display, appearance of salesperson Understanding customer – provide individual
attention, recognize regular customers Security – safety in parking lot,
communications/transactions treated confidentially Credibility – reputation of
honoring commitments, trustworthiness of sales staff Information provided to
customers – explanation, infm on sale, customer assurances ArunKumar
9740067765 63
64. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Courtesy –
friendliness, respect and interest shown to customers Access – Waiting time in
queue, convenient operating hours, location Responsiveness – Returning a
customer’s call, customer query answered Reliability – Billing accuracy, time
conscious service performance. Classification of Customer Service Customer
service starts well before the customer can step into the store and extends much
after he/she has left the store premises. 1. Pre-Transactional Services –
Convenient hours, Information aids and Manuals / Brochures 2. Transactional
Services – Offering credit, Transaction time (Queuing Theory), Layaways, Gift
wrapping, Credit and debit cards acceptance, Personal shopping (assembling an
assortment of goods, selecting a wedding gift), Merchandise availability, Personal
selling. 3. Post-Transactional services – Complaint handling, Servicing and
Repair, Home delivery. ArunKumar Arunachalaiah – Retail Consultant, email –
65. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Store Facility
Management and Maintenance A facilities department in retail stores is
responsible to maintain all facilities of store which include both internal as well as
external facilities. Some of the responsibilities of the facilities department are 1.
Overseeing the retail facilities service including repair, maintenance and capital
improvements 2. Supervising the retail facilities department to maintain
equipment and facilities in stores for regular equipment maintenance, upgrades
and re-models. To ensure proper functioning of all facilities all the time the
facilities are required to be maintained properly, For this there is a separate
maintenance department which is in charge for all types of maintenance such as
alarm systems, conveyor repairs, Tele - communications, electrical and elevator
services, Fire inspection service, Lighting, Janitorial, Gate installations, Trash
service and cleanups, Upholstery and repairs. Maintenance Management The
maintenance department is one of the greatest levers of profitability that any
capital intensive organization has. An average of 40 – 50% of a capital intensive
industry operating budget is consumed by maintenance expenditure. With
advances today in technology this figure can be greatly reduced. Maintenance is
the single largest controllable expense. A planned and scheduled job is executed
after which we should record what was done in order to enable analysis of
potential future problem. Some of the maintenance measures available and
followed in retail industry are: v Predictive Maintenance (PDM) – Condition
monitoring, applying corrections based on predictions. Also known as Just in time
method v Preventive Maintenance (PM) – Systematic inspection, detection and
correction of incipient failures either before they occur or before they develop into
major defect v Corrective / Breakdown Maintenance – conducted when an
equipment ceases to function. Mean down time = Mean wait time + Mean time to
repair v Total Productive Maintenance (TPM) – Systematic execution of
maintenance by all employees through group activities. Dual goal of TPM is zero
breakdown and zero defects. Minimizes inventory costs associated with spare
parts. ArunKumar Arunachalaiah – Retail Consultant, email –
66. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Loss Prevention
Loss Prevention is not a very glamorous part of retail. It is however an important
element of the success equation. Theft or Shrinkage erodes 100% pure bottom
line profit. Know what your annual inventory shrinkage / loss figures are
Shrinkage = Book Value of Inventory - Actual Inventory on Hand Shrinkage% =
Shrinkage at Retail value / Total Sales Have a systemized procedure for doing
physical counts of inventory • Preperation – Precount any merchandise that wont
be sold before the official count • After hours – Count your inventory when the
store is closed. • Supervision – Supervise the counting process by an Senior not
from store. • Count sheets – Should be pre-numbered printed and padded. Every
count sheet must be accounted for. Steps for Loss prevention by employee theft 1.
Basic Loss prevention steps involve good procedures in hiring, training and
supervision of employees and managers 2. Have an employee reward system for
reducing shrinkage 3. Have a policies and procedures manual 4. Make staff aware
of the effects of shrinkage 5. Attentive sales staff: Thieves do not want to be
watched upon. Stay with your customer as much as possible. This also improves
staff’s selling skills 6. Store design to minimize shoplifting opportunities – Blind
spots, cash counter and merchandise displays should be in such a way that at no
point customer cannot hide himself from sales staff vision 7. Use of security
system – A centrally monitored security system can reduce shrinkages plus give
reports that who was in store and at what time. Security mirrors help eliminate
blind spots 8. Management of Keys – Limit access of keys as much as possible.
Keep record of who has the keys, use non duplicating type of keys 9. Account all
markdowns – Strict policies must be in place to handle markdowns. 10. Spot
checks – False refunds are popular method for dishonest employees to get cash
from the till and still balance at the days end. To control this customer name,
67. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 address and
contact number must be recorded on special form and signature. Spot calls to
customers must be made on validity of refund 11. Cash register – Daily audit trail
gives indication of everytime the cash drawer is opened for which reason. Ideally
drawer is opened for recording sales and if any other reason explanation is needed
12. Entry and Exit – Back door is a prime route for dishonest employees to get
merchandise from store. Access to and from back door must be restricted. 13.
Garbage disposal – Putting merchandise along with garbage is one of the oldest
tricks. Have second party check garbage before disposal 14. Employee checking –
Hard one to implement but is a must, physical checks on person and bags and
belongings before exit from store. 15. Reference checks on new employees –
Checking employee history with past employer and immediate supervisor on
work habits etc 16. Staff purchase program – generous staff discount off retail
price will minimize theft in stores by employees Steps to avoid shop lifting • Fix
your fixtures – Minimize blind spots on the sales floor • Alternate clothing hanger
directions prevents thief from a quick grab from the rack • Take receipt for all
returns – Thieves steal merchandise and return for refund hence always ask for
receipt • Lock up attractive expensive merchandise to prevent shop lifting • Be
Smart about EAS tag placement – Electronic Article Surveillance is tagged on
merchandise in hidden areas which is removed when item is purchased, if not
removed it triggers alarm when it passes sensors near store exit • Monitor your
fitting rooms – customer must encounter staff when entering fitting room as it is
an ideal place to conceal merchandise • Signage – Correct signs around store deter
shoplifters – “ Smile- You’re on Candid camera” even if you do not use cameras •
Camera domes – CCTV systems can be costly but very effective • Prosecute all
thieves as they will continue their practice if let off • Exceptional customer
service also can deter shoplifting by knowing who your customers and offering
assistance and attending their needs. ArunKumar Arunachalaiah – Retail
68. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Store
Operations Parameters Customer Transactions Customer conversion ratio –
Retailers ability to turn potential customer into a buyer = No of transactions /
Customer traffic x 100 Return to Net Sales – indication of customer satisfaction
by showing value of returned goods and allowances as %age of net sales = Total
Returns and allowances / Net Sales x 100 Transaction per hour – Keep track of
number of transactions they carry on per hour/ day/week or season = Number of
Transactions / Number of Hours Sales per transaction – Measure to give rupee
value of average sale = Net Sales / No of transactions Hourly customer traffic
Tracks total customer traffic/ hour/day/week. Can apply to each dept or entire
store. = Customer Traffic / Number of hours Stock Transactions Inventory
Turnover – Number of times stock is sold and replaced in a period of time = Net
Sales / Average retail value of Inventory % Inventory carrying costs – Track %
age of netsales represented by fixed inventory cost = Inventory carrying cost / net
sales x 100 Gross Margin return on Inventory – Margin on sales with original cost
value of merchandise to yield a return on merchandise investment = Gross Margin
/ Average value on inventory at retail price Markdown Goods percentage – if ratio
increases retailer need to look at merchandising practices and pricing. Markdowns
are symptoms of poor buying, advertising, store layout = Net Sales at Markdowns
/ Total net sales x 100 Shrinkage to Net Sales – To determine % of net sale lost
due to shrinkage Actual Inventory –Book inventory / Net Sales x 100 ArunKumar
9740067765 68
69. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Space
Transactions Occupancy cost/ Square foot selling space – Measure of comparing
performance of units at different locations = Occupancy Cost / Square feet of
selling space Gross Margin return on Floor space (GMROF)– Gross profit per
linear foot of shelf space which is annual gross profit divided by the total linear
footage devoted to the product category. = Gross Margin / Total linear footage
devoted to a product category or entire store Sales per square foot – Total sales
value in rupee for every square feet of retail space = Net Sales / Square feet of
selling space Stock per square foot – Use of space involving different product
lines or compare performance of different departments or stores using common
standard = Net Stock / Square feet of selling space Employee Transactions Net
Sales per full time employee = Net Sales / Total full time employee Customers
served per full time employee = No of customers served / Total no of full time
employees Labor productivity = Total labor costs / Net Sales Gross Margin per
full time employee = Gross margin / Total full time employees Supplier/ Quantity
or value purchased per buyer = Total suppliers / quantity or value purchased /
Total buyers ArunKumar Arunachalaiah – Retail Consultant, email –
70. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Supply Chain
Management Framework Supply Chain management in retailing is the total
process of planning, implementing and coordinating all the activities required for
the movement of merchandise from manufacturer to retailer to customer in the
most timely, most effective and cost efficient manner. SCM includes the
following points which need to be integrated and coordinated • Inventory
Management • Warehousing • Material Handling • Transportation • Customer
service • Order processing and fulfillment Goals of SCM in retailing 1. Place and
receive orders as easily, accurately as possible 2. Minimize time between ordering
and receiving merchandise 3. Coordinate shipments from various suppliers 4.
Have enough merchandise on hand to satisfy customer demand without having
much inventory that heavy markdowns will be necessary 5. To place merchandise
on sales floor efficiently 6. Process customer orders in smooth manner 7. Have
backup plans in case of breakdown in the system 8. Optimize cost to enable
fulfilling all activities as economically as possible Decision phases in Supply
Chain • Supply chain design Decisions regarding configuration of supply chain
based on company’s strategies like location of warehouse, manufacturing
facilities, the production, different modes of transportation to be used and the
information systems applied are all very critical. These decisions are long term &
expensive. ArunKumar Arunachalaiah – Retail Consultant, email –
71. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 • Supply Chain
Planning It is the second phase on supply chain decision process which requires
decisions to be made in considerations with the corporate time frame. Since the
configurations involves constraints it is important for careful planning to be done
in terms of forecasting demand, supplies to be made from different locations,
manufacturing decisions whether in-house or outsourced, policies regarding
inventory, timing and size of the marketing promotions. • Supply Chain
Operations Here the time horizon is extremely short. Decisions are based on
individual customer orders. Main objective of this phase is to handle the incoming
customer’s order in the best possible manner by allocating inventory or
production capacity to individual orders, fixing the transport and delivery
schedules of trucks and also placing replenishment orders. The Macro Processes
of Supply Chain 1. Customer Relationship Management (CRM) – interface
between firm & its customers. Function of marketing, promotions, sales &
website management 2. Internal Supply Chain Management (ISCM) – process
that takes place internally within the concerned firm 3. Supplier Relationship
Management (SRM) – Function of evaluation and selection of suppliers,
negotiation of supply terms and communication regarding new products and
orders with suppliers CRM ISCM SRM •Market Research •Strategic Planning
•Source •Sell Products •Demand Planning •Negotiate •Call Centres •Supply
planning •Buy •Order Management •Fulfillment •Design collaboration •Field
Services •Supply collaboration ArunKumar Arunachalaiah – Retail Consultant,
72. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Achieving a
Strategic fit in Supply chain strategy A retailer is said to be strategically fit when
its competitive strategy and supply chain strategy coincide and have the same
goal. Factors which retailer has to emphasize to achieve this strategic fit are
Understanding the customer uncertainty and supply chain uncertainty – In terms
of price of product, variety of products required, service level required, Tolerable
response time, Quantity required in each lot, Rate of product innovation Implied
demand uncertainty – uncertainty exists because of that part of demand that a
supply chain is required to fulfill. Demand uncertainty is the uncertainty of
customer demand of a particular product whereas the implied demand uncertainty
is the uncertainty for only that part of the demand that the supply has to fulfill
keeping in view the attributes of the customer. Understanding capabilities of
supply chain – This is the spectrum which has to be given the trade-off between
the Efficiency and Responsiveness of the supply chain in terms of Range in
quantity demanded, meet short lead times, meet high service levels, tackle supply
uncertainty and introduce innovative products. Other issues affecting strategic fit
– large number of products and market segments, Product life cycles, time related
competitive changes. The Best strategy in terms of achieving a strategic fit is
maximizing the supply chain surplus view within Intercompany and inter-
functional scope. Suppliers Manufacturer Distributors Retailers Customers
Competitive Strategy Product Development Strategy Supply Chain Strategy
Marketing Strategy Inter Company Inter-Functional scope of Strategic Fit
Horizontally: Supply Chain stages, Vertically: Functional Strategies ArunKumar
9740067765 72
73. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Major drivers in
achieving a strategic fit in a supply chain are 1. Facilities Facilities include those
places where the material is stored, assembled and produced. Components of
facilities decision are Location – Whether to centralize facilities to achieve
economies of scale or it needs to be more responsive by opening more facilities
closer to customers Capacity – Decide on capacity to perform its intended
function. Excess capacity allows more flexibility to large fluctuations in demand
but also increases costs and decrease efficiency. Operations Methodology –
Company should take decisions regarding design of facility whether a product
focused facility or a function focused facility Warehousing methodology –
Warehouse design decisions whether as a Stock keeping unit storage or a Job lot
storage or Cross docking. 2. Inventory Existence of inventory is because of
mismatch between supply and demand. Such mismatch occurs where it is
economical for firms to produce excess and stock goods due to production
constraints or in anticipation of future demands. Components of Inventory
decisions are Cycle Stock: Average amount of inventory used to satisfy demand
between receipts of supplier shipments Safety Stock: Held incase of an increase in
demand more than expected. Seasonal Inventory – Company builds inventory in
order to counter the predictable variability in demand Sourcing – Set of business
processes required to purchase goods and services from a single supplier or a host
of suppliers. 3. Transportation Transportation moves a product between different
stages in a supply chain and has a great impact on the efficiency and
responsiveness of the supply chain. Quick ArunKumar Arunachalaiah – Retail
74. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 transportation
methods increase the responsiveness but lower the efficiency by increasing costs.
Components in transportation decision making are: Modes of Transportation –
Air, Sea, Road, Rail, Pipeline, E-transport Selection of routes /network – Path
along which goods travel is called Route Inhouse or outsourced transportation –
owning vehicles or leasing/renting 4. Information Information has no physical
presence yet this driver plays an important role in the supply chain. Information is
collected at each and every stage of supply chain and it helps to rectify,
reconfigure itself and maximizing supply chain profitability. The day to day
operation of any facility requires analysis of information available so that
production schedules can be made, produce on time, maintain a good inventory
and provide on time delivery and becoming more responsive and efficient.
Components of Information decisions are Push versus Pull – If the retailer wish to
execute a push process then it needs to have proper information on raw material
requires and needs to plan on their timely availability, incase of a pull process
information regarding actual demand of products from customers must flow
through supply chain. Forecasting and Proper Planning – Projecting future
conditions in advance with the help of projecting techniques. Once projection is
made on future demand it is time for action to decide upon how much to produce
and plan production schedule, marketing technique and pricing Information
coordination – Every stage of supply chain must coordinate with each other in
order to fulfill the objective of maximizing the profitability of the supply chain. If
there are no proper coordination there would be disorder as “Information is the
Life Blood of the Supply Chain” Pricing and Managing revenue – It is vital to
keep check on demand and supply info at the time of altering the prices, analyze
impact of price change on future demands, costs incurred and market competition.
Technology – Varied technologies are used to help it work efficiently like
Electronic Data Interchange (EDI), Internet, Enterprise resource planning, Supply
chain Management software etc. ArunKumar Arunachalaiah – Retail Consultant,
75. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Decision
Making in the Supply Chain Competitive Facilities Strategy Efficiency / Strategic
Fit Responsivenes Supply Chain s Stragegy Inventory Supply Chain Drivers
Transportatn Information Information Technology Perspective in Supply Chain
Management IT would help retail in providing the right product at the right place
at the right time with a price tag acceptable to customers. It provides hardware
and software capabilities to cover end to end retail / business processes/
operations and also be critical in efficiently and effectively carrying out all the
core functions which would include global sourcing, procurement, distribution,
transportation, logistics, demand forecasting, product innovation, merchandising,
compliance, Point of sale data management, Property management, Marketing,
CRM and loyalty management. • It can leverage sales history and anticipated
demand to create an accurate forecast of customer demand • Simulate midterm
and long term planning options, allocate resources and make strategic sourcing
decisions in a timely fashion to best meet operational goals. • Integrate sourcing,
purchasing, production, distribution and transportation to create a demand plan.
76. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 • Create a
calculated, time phased replenishment plan based on customer demand forecasts
and using automated state of the art algorithms within the supply chain • Institute
real time inventory tracking across all channels enabling the retailers to manage
and monitor stocks and values and minimize the inventory levels while avoiding
out of stock situations. • Ensure an efficient warehouse management system,
picking and packing, controlling logistics documents and in-bound and out-bound
monitoring. • Integrate GIS/GPS and mobile devices or RFID technology to gain
reliable, real time information about the storage and movement of goods between
warehouse locations • Move from a product push to a customer pull approach and
reap the rewards of reduced operating costs and larger profit margins. IT
Applications: The technology perspective Applications of IT in Retail span a very
wide spectrum from store front right up to Business intelligence tools integrated
with ERP/SCM and CRM applications and further to MPLS/VPN. The front end
applications are mainly in the form of Point of Sales Terminals and Barcode
readers for faster clearance. Then there are the SCM tools for constraints based
supply chain planning and forecasting. CRM tools cater to trend analysis,
customer usage pattern, purchase, promotion management and lifecycle analysis.
Use of data warehousing, data reviving and BI tools has made the campaigns and
promotions associated with stores more focused to target customers at all levels.
BI Tools along with CRM have also made it possible to offer customer loyalty
programs to intend benefits to retail and have loyal customers. E-Commerce
covering inventory visibility, on-site merchandising, cross selling, price
comparison and multi channel congruity would be the next phase in Retail.
MPLS-VPN Networks are more recent trends converting stores of centrally
networked infrastructure with 100% network uptime would offer precise
information related to merchandise, logistics, online customers and would help in
reducing the turn around time required to take decisions. ArunKumar
9740067765 76
77. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Points of Sale -
POS systems capture data about orders at the POS are are frequently found in
fast-food chains and grocery stores. The POS systems provide immediate update
to sales and inventory systems and allow firms to monitor sales trends as they
happen. They also allow firms to capture customer data and preferences and add
information to their data warehouses. The information available from POS
becomes input to the financial accounting systems which then supply data to
marketing information systems. Bar Code/ UPC - Bar code or Universal Product
code is used in point of sales systems in supermarkets and retail stores. It is a
product identifier and is made up of series of bars and spaces which represent
alphanumeric information pertaining to product code, price etc. Barcode help
enhance accuracy in demand forecast, real time stock management, faster
checkout at POS, product tracking and tracing and reduced labeling and
administration costs. RFID - Radio frequency identification is a wireless barcode
which provides wireless communication between objects and readers. RFID uses
embedded microchips containing information about item, location. It has the
ability to identify and track products and equipment in real time without contact
or line of sight. It offers reading, waiting, transmitting and storing and updating
information. It can track inventory and tasks performed by employees in store,
customer profiles, transaction history & levels of stock. VPN - Virtual private
network is a secure connection between 2 points across internet, enables private
communications to travel securely over public infrastructure. It saves long
distance communication costs. EDI - Electronic data Interchange is the in charge
of business information through standard interfaces by using computers without
requiring re-keying information. Main benefits are saves time and data
transmission is immediate, reduced manual errors, no paper handling. Data
Warehousing and Data Mining - Retail organizations are data rich but information
poor, hence data warehousing and data mining provides users with tools to store
summarized information from multiple heterogeneous bases in a single repository.
Data mining is an information analysis tool involves automated discovery of
patterns and relationships in data warehouse. ArunKumar Arunachalaiah – Retail
78. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Summary
Report and Conclusion To conclude the project we can say that the project report
explains the best practices in retail business processes that can be applied
effectively in a Fashion Merchandise Retail concept to improve the profitability
and the overall operating effectiveness of the business. The summary of the
project is listed as below • The project gives a detailed insight into the value chain
processes involved in the Fashion Merchandise life cycle. • Market Entry - The
Project describes the best strategy for a Market entry which is the rapid Market
penetration strategy with high volume, high advertising and low cost products. •
Pricing - The pricing strategy describes effective implementation of pricing tactics
to counter competition and also promotional pricing techniques to eliminate
excess stock. • Location – The checklist evaluation provides in depth details on
selection of a retail site for fashion merchandise retail outlets and also describes
what type of stores suit which market areas. • Brand Image – The project outlines
detailed explanation on establishing a healthy brand image of the retailer which
helps to connect better with customers and gives a top of mind aided brand recall.
• Demand forecasting – This section provides factors and methodologies in
arriving at an accurate forecast for buying to prevent loss of sales and excess
stock in the stores • Procurement – Detailed analysis of Supplier selection
policies, scoring, contracts while negotiating have been provided to select the best
sourcing policy for a fashion merchandise retail strategy. • Retail Operations –
explains the designing of layout, visual merchandising concepts, merchandise
presentation techniques, store maintenance, loss prevention and customer service
management • Supply chain management – Section outlines the importance of IT
applications in retail end to end coverage to maximize the profitability of the
supply chain and the organization ArunKumar Arunachalaiah – Retail Consultant,
79. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Annexures - I
Proposal Name of the Learner: Arun Kumar Arunachalaiah Registration No:
200711493 Program: Post Graduate Diploma in Retail Management Address:
#291, 20th Main, Nandini Layout, Bangalore - 560096 Title of the Project:
Competitive Retail Strategy for Fashion Merchandise Objectives: Objective of
this Project is also to carry out extensive studies to make certain the right retail
Strategy for an apparel retailer to create a loyal and repetitive customer. The
project scope will also Include coverage of areas of establishing a strong Retail
image through Marketing Strategies, Brand Building, Identifying the right Retail
Mix, Pricing, Advertising, Forecasting, Category Management, Retail Store
Operations, Supply Chain and usage of Information Tech-- nology applications in
Apparel specific retailing. Successful Apparel Retailing has always been said to
be about getting nutty gritty right of Merchandising, Forecasting, Supply Chain,
Training and Recruitment of high quality personnel and Category Management.
Building retail brands that offer value will, in future overshadow all these areas
and emerge as the dominant reason for the success of the organized Indian
Retailer. ArunKumar Arunachalaiah – Retail Consultant, email –
80. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Need for the
Topic: India in recent years has been the focal point of continuous growth and
development making it one of the fastest growing economies of the world. It is
the 4 largest economies in terms of Purchasing Power Parity, after USA, China &
Japan, and is rated among the top 10 FDI destinations. The Indian consumer is
evolving and driving retail growth due to increased consumption. Private
consumption growth contributes to more than half of the GDP growth and is
growing in double digit figures. Several businesses are reacting to this evolution
positively, both through pull and push phenomenon. Following a similar trend, the
Indian textile and apparel industry is also experiencing rapid changes and growth.
Apparel today has the largest share of the modern organized retail in India i.e.
20% of the current market of Rs. 56,000 crore and this is expected to grow at a
constant rate of 20% over the next 4 years. This report puts together some of the
recent trends being witnessed by the textile and apparel industry. The central
theme woven through these trends is the way the consumer at various income-
levels is evolving, thereby ensuring that businesses are reacting in multiple ways.
The 'mass consumer' segment is moving from tailored clothes to stitched apparel
giving rise to discounted apparel stores/retailers. This causes a shift from
unbranded to branded apparel. The 'middle end consumers’, already exposed to
brands is now looking to extend these brands into all aspects of their life. Brands
are thereby becoming lifestyle brands instead of being product brands only. These
consumers are also moving up the social ladder and wish to flaunt the change in
stature by wearing affordable 'designer prêt wear'. This is prompting designers to
introduce prêt lines and corporatize their lines to reach out to a larger audience.
The 'high end Consumer' who is exposed to international luxury brands, now
demands them in his/her vicinity. Apparel businesses are realizing this and tying
up with international brands to retail in India. These consumers are also
increasingly exposed to environmental issues and want to use eco-friendly
products (including apparel) to do their bit for the society. Though this concept is
at a very nascent stage in India, apparel companies are reacting by 'going green'
and using natural fibers in some of their collections. As all consumers, especially
kids and the youth, are exposed to fashion and media, they wish to associate
themselves with characters and icons. Picking on this trend, apparel companies
are licensing these characters/icons for apparel & accessories to increase their
customer base. Additionally, as consumers face hectic lifestyles, they are looking
for convenience in all aspects of life ArunKumar Arunachalaiah – Retail
81. Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 including
shopping. Fashion businesses are taking the lead from here and taking on
consumers at unconventional avenues of retailing like airports, metro stations,
cafes, beauty saloons, etc. Methodology: Analyzing the correct and a competitive
retail strategy for a fashion merchandise office wear brand through a detailed
study and thorough understanding of retail concepts explained in the curriculum
of the course program PGD in Retail Management by the Symbiosis Faculty
program and extensive research conducted through various reference books and
internet links in google and various top retail organization company websites.
Jul. Competitive Retail Strategy for Fashion Merchandise 1,2008 Annexures - II
References • Technopak Retail Outlook • Indian Consumer Trends 2006 – The
knowledge company • Wipro Technologies • Kotak Securities Limited •
www.google.com • www.fibre2fashion.com • Symbiosis Institute of Retail Management
• Rai – Retailers association of India • Bharatidasan Institute of Management, Trichy •
Hindu Business Line • Economic times ArunKumar Arunachalaiah – Retail Consultant,

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