SILVER MOUNTAIN GRADUATE BUSINESS SCHOOL

RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT

SUBMITTED BY: MOHAMMED ASLAM

2012

SUBMITTED TO: MRS MOON PRADHAN (FACULTY OF RETAIL MANAGEMENT)

LAZIMPAT, KATHMANDU

RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT

Chapter 9.
1. Comment on this statement: A good location may let a retailer succeed even if its strategy mix is mediocre. Is it always true? Give examples. ANS: A good location may let a retailer succeed even if its strategy mix is mediocre. According to me, I think its the location of retailers that matters most in its business success or failure rather than its strategy. Generally a good location for a retailers considers population size, their traits, the competition, transportation access, parking availability, nature of nearby stores, property costs, the length of agreement, legal restrictions and some other factors. If the retailer has considered all these things than s/he need not to worry much about its strategy mix to run the outlet because s/he already have got the major advantage i.e. a good location for the outlet. And because of the good location it will have many customers from various areas along with it, it do not need to advertise a lot to attract its customers. For e.g. Civil Mall, Kathmandu Mall, they are situated at the heart of the Kathmandu City that joins all the transportation routes of Kathmandu, Bhaktapur and Lalitpur so whoever travels by is easily attracted towads them. Whereas talking about the poor location of the outlets, they are not going make good business due to their location even though they have the best strategy mix throughout the market because they will have very few people visiting the outlets and due to this they may not overcome their investments on the outlet. For e.g. City Centre at Kamalpokhari, its location is best only for the people living in that locality and nearby. It fails to attract its customers from other part of the city and also the way to it is one way that makes people irritating. It do not have transportation access as a result its only good to the private vehicle owners and the people living in that area. So, because of all these things I think a good location may let a retailer succeed even if its strategy mix is mediocre. But in some cases it may not be true like if an area have already got an outlet and again if the same area with similar outlet is to be opened then definitely the new outlet has to plan for its best strategy mix to do a good business because the older one have already setup its image for the customers. What is trading area overlap? Are there any advantages to a chain retailers having some overlap among its various stores? Why or why not? Ans: Trading Area Overlap: Trading Area Overlap refers to the intersection or the overlap of the two or more trading areas of the outlets or simply the same customers are being served by both the outlets and whichever they think appropriate they can go and shop there. For e.g. the distance between Batbhateni at Maharajgunj and Big Mart at Lazimpat is 3 km, approximately and suppose they have trading area of 2 km each then the trading area overlap is 1 km as shown in fig i.e. people from Panipokhari, Taalim Kendra and in between are being served by both the stores. Yes there are some advantages to a chain retailers having some overlap among its various stores because of the following reasons: Submitted by: Mohammed Aslam Page 2

RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT Sometimes there may be stock shortage in one of the store and they can immediately get some from the nearby chain stores for their customers They can have a single centralized warehouse to reduce their inventory management costs They can have the maximum number of customers coming to their stores at different locations increases the sales of the customers.

2. Use Huffs Law to compute the probability of consumers traveling from their homes to each of three shopping areas: square footage of selling space Location1, 5,000; Location 2, 8,000; Location 3, 10,000; travel time to location 1, 12 minutes; to Location 2, 18 minutes; to Location 3, 25 minutes; effect of travel time on shopping trip 2. Explain your answer. Ans: Given: Square footage of selling space location 1 (S1) = 5000 Square footage of selling space location 2 (S2) = 8000 Square footage of selling space location 3 (S3) = 10000 Travel time to location 1 (T1) = 12 min Travel time to location 2 (T2) = 18 min Travel time to location 3 (T3) = 25 min Effect of travel time (

=2

No of shopping location (n) = 3

To find, the probability of consumers travelling from their home to 3 different locations i.e. P1, P2 and P3 We have Huffs Law:

Pj =

P1 = (5000/122) / [(5000/122) + (8000/182) + (10000/252)] = 46.04% P2 = (8000/182) / [(5000/122) + (8000/182) + (10000/252)] Submitted by: Mohammed Aslam Page 3

RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT = 32.74% P3 = (10000/252) / [(5000/122) + (8000/182) + (10000/252)] = 21.22% Hence, if 100people live 12 min from location 1, 46 people will shop there. Similarly, if 100 people live 18 min from location 2, 33 people will shop there, And, if 100 people live 18 min from location 3, 21 people will shop there.

3. If a retail area is acknowledged to be saturated, what does the signify for existing retailers? For prospective retailers considering the area? Ans: If a retail area is acknowledged to be saturated, for existing retailers this signifies that there are exact or proper amount of stores in that particular area to serve to customer needs for a specific goods and services and they can earn profit. This also indicates that if they want to open another store if they are a chain store retailer than they shouldnt go for it as the existing number of stores are already suitable for that area and if they do so they might hamper other stores profit as well as own profit. And for the prospective retailers it signifies that they should go for other trading area rather than opening in that saturated trading area as the opening of their store might hamper from earning adequate profit to other stores as well as their stores.

Chapter 10.
1. From the retailers perspective, compare the advantages of locating in unplanned business districts versus planned shopping centers. Ans: Unplanned Business District Retailers can own more than one similar stores in this area Have higher flexibility No sharing of utilities bills which might make costly to the retailers like electricity, water, advertisements, etc Higher thefts rates as hardly guards are kept Submitted by: Mohammed Aslam Planned Shopping Centres They cannot own more than one similar stores as number of stores are planned Have limited flexibility sharing of utilities bills which might make costly to the retailers like electricity, water, advertisements, etc so that cost is reduced Low thefts rates as guards are kept for night Page 4

RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT for night duty No need of membership in a merchants association which may be of less or of no value. People do not value such store much so more better advertising as well as strategy mix is required duty Need of membership in a merchants association which may be of less or of no value People enjoy shopping in such centre so less cost is incurred in advertising and its strategy mix

Submitted by: Mohammed Aslam

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RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT 2. Differentiate among the central business district, the secondary business district, the neighborhood business district, and the string. Central Business District It is the hub of retailing in a city and synonymous with term downtown Exists where there is a greatest density of office building and stores Located in major and big trading areas of city Size of store is big Secondary Business District Is a unplanned shopping area in a city or town that is unusually bounded by the intersection of two major streets Exists in the intersection of two major cities Located in small trading area Size of store is comparably small than CBD but big than Neighborhood and String Provide varieties of goods and services but sells higher proportion of convenience oriented items with a little higher prices Have less access to public transportation and low pedestrian traffic than CBD Low rent and taxes than CBD and little higher ad cost Neighborhood Business District It is unplanned shopping area that appears to the convenience shopping and service needs of a single residential area Exists on the major streets of its residential area Located in lesser trading area Size of store is small than CBD and SBD String Is unplanned shopping area comparing a group of retail stores, often with similar or compatible product lines, located along a street or highway Exists in less populated area Located in least or no trading area Size of store may be bigger or smaller as per investment Provide least variety of goods and services with very hih price

Provide varieties of goods and services with varieties of prices Have higher access to public transportation and high level of pedestrian traffic Have very high rent and taxes and less advertising cost

Provide limited varieties of goods and services with high prices

Have lesser access to public transportation than CBD and SBD Have lower taxes and rent than CBD and SBD but high ad cost

Have least access to public transportation Have very low rent and taxes but highest ad costs

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RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT 3. Explain why a one-hundred percent location for Pizza Hut may not be a one-hundred percent location for a local pizza restaurant. Ans: One hundred percent for Pizza Hut may not be one hundred percent for a local pizza restaurant. This is because, for Pizza Hut, number of pedestrian traffic may be higher while for a local pizza restaurant there would be low pedestrian traffic. Similarly, for Pizza Hut vehicular traffic would be higher while the vehicular traffic would be lower to the local pizza restaurant. Also talking about the parking facilities, Pizza Hut might have less parking facility while the local pizza restaurant may have huge parking facility. Next, the Pizza Hut might be located in a place where there is easy access to public transportation but this may not need to be the same for the local pizza restaurant. Similarly for a certain trading area there might be a single Pizza Hut while there might be number of local pizza restaurants and for their easy visibility, Pizza Hut might be located at the place that could be easily visible while the local pizza restaurant might be personally owned. Hence, one hundred percent for Pizza Hut may not be one hundred percent for a local pizza restaurant.

4. How do the parking needs for a dentist, a TV repair store, and a shoe store differ? Ans: Talking about the parking needs of a dentist, s/he requires a moderate space so that his/her patient do not have problem in parking. Generally the high class and middle class would come to the dentist and they might probably have 4-wheeled or 2 wheeled vehicles. So at least s/he requires space that is capable of providing parking facility for up to 5-10 4- wheelers. Similarly, the parking needs for a TV repair store is different, it requires very few space for parking as only few customers might have 4-wheeler while most of them have 2-wheeler or no vehicles. So it require very few space. And lastly, for a shoe store it also requires less space but in comparison to the TV repair store it requires quit big space. As it has customers from generally all class of people so it need a little big space for parking. Hence, parking needs for a dentist, a TV repair store and a shoe store would differ.

Submitted by: Mohammed Aslam

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RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT

Chapter 11.
1. Cite at least five objectives a small independent furniture retailer should set when setting up its organization structure. Ans: Five objectives a small independent furniture retailer should set when setting up its organization structure can be: It should set its target market i .e. its customers, what types of customer it wants It should specify the quality of goods it is going to provide i.e. low moderate or best quality It should plan for hiring employees and their number It should plan whether to have big or small warehouse for its inventory management It should set its number of sales for a period

2. Describe the greatest similarities and differences in the organization structures of small independents, chain retailers, and diversified retailers. Ans: The greatest similarity in the organization structure of small independents, chain retailers and diversified retailers is that the overall authority of the organization is centralized i.e. all the activities of the organization is controlled by the owner or the manager of the organization. Whereas the greatest difference in the organization structure of small independent, chain retailers is that the operations within the organization i.e. the operational activity is different for all these three types of retailers.

3. Present a plan for the ongoing training of both existing lower-level and middle-management employees without making it seem punitive. Ans: In order to provide training to both existing lower-level and middle level management employees without making it seem punitive, firstly they should be thanked through speech and personally if possible before the start of the training and tell them that they all are equally responsible to bring the organization to the current position. Next they will be empowered i.e. self responsibility for the job will be given to all the employees so that they feel that they are the part of the organization. And lastly, they will be provided training showing that they are lacking these sort of skills during there empowerment and this will make them feel good and make them think that they are being noticed and cared by the organization.

Submitted by: Mohammed Aslam

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RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT

4. How would you supervise and motivate a 19-year-old super-market cashier? A 65-year-old cashier? Ans: In motivating and supervising 14-year old supermarket cashier, I would reimburse his/her college fees by some percentage of it so that s/he is motivated to work more and properly. Next I would have a list of his likes and dislikes so that sometimes I would give him surprise with some of likes when he does good job. Also I would provide a 2-3 day trip package as many youngsters love it. And for supervising I would always go for positive sentences rather than rude and negative sentences since the youngsters easily get angry. Similarly for motivating a 65-year old cashier, I would increase his/her salary. I would empower him/her with some more responsibilities so that they feel that they are being included as the member of the organization. I would also make them participate in some of the decision making of the organization. I would also remember their birthdays or anniversaries to surprise them. I would pat him/her gently as well saying that they are doing great job to make themselves proud. And for supervising him/her I would always go for positive sentences and if required I would perform the task myself to demonstrate them and motivate them that they can do better than me.

Chapter 14.
1. What are the advantages and disadvantages of a centralized buying organization? Ans: The advantages of a centralized buying organization are as follows: There is integration of effort Strict control on the merchandise Consistent image Proximity to the top management Staff support Volume discounts

The disadvantages of a centralized buying organization are as follows: Inflexibility Time delays Poor morale at local stores Excessive uniformity

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RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT 2. Under what circumstances could a retailer carry a wide range of merchandise quality without hurting its image? When should the quality of merchandise carried be quite narrow? Ans: If a retailer wants to provide satisfaction to most of his customers and provide full selection of items and also build customer loyalty then in this condition a retailer should carry a wide range of merchandise quality without hurting its image. If a retailer wants to create a specialist image for its customer or differentiate its customers then in this case the quality of merchandise carried is quite narrow.

3. What is the trade-offs in a retailers deciding how much to emphasize private brands rather than manufacturer brands? Ans: The trade-offs in a retailers decision to emphasize private brands rather than manufacturer brands could be: Line up suppliers Arrange for distribution and warehousing Arrange sponsors and ads Create displays Absorb losses from unsold items.

4. What is the basic premise of category management? Why do you think that supermarkets have been at the forefront of the movement to use category management? Ans: The basic premise of category management is that a retailer must empower specific personnel to be responsible for the financial performance of each product category. As various products are being produced by various producers and because of this there is always change in demand of the various new products and the existing products. Customers generally react with the change in product categories. So due to this a supermarket in order to build a better image it should be providing varieties of tastes to its customers. And to do this, there should be personnel to analyze the supermarkets profit and loss and other financial part of it along with space used by the products in it; inventory turnover; supply time of products and many more for the effectiveness in financial planning part of the supermarket. Hence supermarkets have been at forefront of the movement to use category management.

Submitted by: Mohammed Aslam

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RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT

Chapter 15.
1. Cite the advantages and disadvantages associated with these merchandise sources for your regular supermarket. How would your answer differ for a local deli? a. Company-owned b. Outside, regularly used c. Outside, new Ans: a. Company-owned: Advantages: Low merchandise costs and can make more profit High quality of supplies

Disadvantages: Cannot acclaim insurance as they have to bear the loss themselves Takes time to build good image in the public

b. Outside, regularly used Advantages: Can have merchandise on credit Can acclaim insurance if any losses occur

Disadvantages: Is little costly than owning self They may demand higher price due to their bargaining power c. Outside, new Advantages: Can provide merchandise in lower prices to attract retailers Retailers have bargaining power on them

Disadvantages:

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RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT Takes time to build good image in the public Quality of the merchandise may or may not be good

2. Under what circumstances should a retailer try to charge slotting allowances? How may this strategy backfire? Ans: When retailers provide self-space to its vendors than in this case they charge slotting allowances. Actually this strategy of charging slotting allowances are non-benefits to the food manufactures because it make them difficult or even impossible to get a retail exposure for new products. But for retailers they complain that if they do not charge up front as a means of self insurance, they end up holding the bag-losing money on products their customers dont want when they could have stocked the same space with something else their customer does want. This is why the strategy may backfire.

3. What are the benefits of quick response inventory planning? What do you think are the risks? Ans: Benefits of quick response inventory planning are: Reduces the amount of inventory Small space is required for the inventory Reduces inventory costs Helps the firm better match order with market conditions by replenishing stock more quickly Improve inventory turnover Better match supply and demand Retail prices could be reduced by 10%

There are some risks in using it, they are: If there is no good relationship with supplier or shipments then the inventory may not be refilled on time There might be strike or some other factor that may delay the fulfillment of the store Sometimes damaged pieces might be put on sale without knowing that there is damage Sometimes mistakes may happen in advanced ship notices.

4. Present a seven-item checklist for a retailer to use with its reverse logistics.

Submitted by: Mohammed Aslam

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RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT

Chapter 16.
1. Which retailers can best use perpetual inventory system based on the cost method? Explain your answer. Ans: For my opinion the retailers who have higher assortments of goods and high turnover of the inventory and with low average prices can best use perpetual inventory system. The retailers having departmental stores or the retailers that sell food items, clothing, furniture, etc will be more benefitted by using perpetual inventory system. As they have to sell a lot of varieties of products and this might confuse them or make some mistakes in calculation of sales or cost. So to prevent it if they use perpetual inventory system i.e. book keeping, then it would be easier for them to calculate their sales and their bearing costs. Also this will help them out to find out the stock shortages due to breakage or theft from customers or the employees so that they could be aware and implement some technologies to stop stock shortages. And also they dont need to spend their valuable time on counting their stocks to find out the number of sales they made as it will be already recorded on their record. Hence, perpetual inventory system would be beneficial to the retailers that have high assortments of goods and high inventory turnover.

2. The FIFO method seems more logical than the LIFO method, because it assumes the first merchandise purchased is the first merchandise sold. So, why do more retailers use LIFO? Ans: Actually every retailers motive is to earn huge profit. In FIFO method, more accurate pictures of the cost of goods sold is shown as well as true cost value of ending inventory can be seen. Where as talking about the LIFO method, it indicates lower profit in the profit-loss account by showing understated ending inventory value at cost, and this results to pay lower taxes to the government which means higher profit the retailers. Although FIFO method seems more accurate and logical than LIFO method, sales generally done by FIFO method so as to prevent losses on inventory but they use LIFO method in their balance sheet so as to pay lower tax as stated earlier. This is why LIFO method is more preferred by the retailers than FIFO method.

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RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT 3. A retailer has a beginning monthly inventory valued at $60,000 at retail and $35,000 at cost. Net purchases during the month are $140,000 at retail and $70,000 at cost. Transportation charges are $7,000. Sales are at $150,000. Markdowns and discounts equal $20,000. A physical inventory at the end of the month shows merchandise valued at $10,000 (at retail) on hand. Compute the following: a. Total merchandise available for sale at cost and at retail b. Cost complement c. Ending retail book value of inventory d. Stock shortages e. Adjusted ending retail book value f. Gross profit. Ans: Given, Beginning monthly inventory (at retail) Beginning monthly inventory (at cost) Net purchase during the month (at retail) Net purchase during the month (at cost) Transportation charges Sales Markdowns and discounts Physical inventory at the end of the month (at retail) A. Total merchandise available for sale: At cost $35000 70000 7000 $112000 At retail $60000 140000 $200000 = $600000 = $35000 = $140000 = $70000 = $7000 = $150000 = $20000 = $10000

Beginning inventory Net purchases Additional markups Transportation charges Total merchandise available for sale

B. Cost compliment: Cost compliment = Total cost valuation / Total retail valuation = 112000/ 200000 = 0.56 or 56%

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RETAIL MANAGEMENT END OF SEMESTER ASSIGNMENT C. Ending retail book value of inventory: Merchandise available for sale Less: Deductions:Sales Markdowns and discounts Total deductions

$200000

150000 20000 170000 $30000

Ending retail book value of inventory D. Stock shortages: Ending retail book value of inventory Physical inventory (at retail) Stock shortages (at retail) E. Adjusted ending retail book value: Adjusted ending retail book value = Physical inventory at retail = $10000 F. Gross Profit: Sales Less: Cost of goods sold Total merchandise available for sale (at cost) Adjusted ending inventory (at cost) Cost of goods sold Gross Profit 112000 10000*0.56

$30000 10000 $20000

$150000

106400 $43600

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