Chapter 2 Retail Strategic Planning and Operations Management

1. Chapter 2 Retail Strategic Planning and Operations Management

2. Learning Objectives • Explain why strategic planning is so important and be able to describe the components of strategic planning: statement of mission; goals and objectives; an analysis of strengths, weaknesses, opportunities, and threats; and strategy. • Describe the retail strategic planning and operations management model, which explains the two tasks that a retailer must perform and how they lead to high profit.

3. Components of Strategic Planning • Strategic planning - Adapting the resources of the firm to the opportunities and threats of an ever-changing retail environment. • Through the proper use of strategic planning, retailers hope to achieve and maintain a balance between resources available and opportunities ahead. LO 1

4. Components of Strategic Planning • Strategic planning consists of four components: • Development of a mission (or purpose) statement for the firm. • Definition of specific goals and objectives for the firm. • S(strengths)W(weaknesses)O(opportunities)T(threats) analysis. • Development of basic strategies that will enable the firm to reach its objectives and fulfill its mission. LO 1

5. Mission Statement • It is a basic description of the fundamental nature, rationale, and direction of the firm. • Elements of a mission statement are: • How the retailer uses or intends to use its resources. • How it expects to relate to the ever-changing environment. • The kinds of values it intends to provide in order to serve the needs and wants of the consumer. LO 1

6. Statement of Goals and Objectives • Provide: • Specific direction and guidance to the firm in the formulation of its strategy. • A control mechanism by establishing a standard against which the firm can measure and evaluate its performance. LO 1

7. Exhibit 2.2 - Retail Objectives LO 1

8. Statement of Goals and Objectives • Market performance objectives • Establish the amount of dominance the retailer seeks in the marketplace. • Market share - The retailer’s total sales divided by total market sales. LO 1

9. Statement of Goals and Objectives • Financial objectives • Profit-based objectives - Deal directly with the monetary return a retailer desires from its business. • Profit is the aggregate total of net profit after taxes— that is, the bottom line of the income statement. • Profit can be expressed as a percentage of net sales. • It can also be defined in terms of return on investment (ROI), which can be defined by—Return on assets (ROA) and Return on net worth (RONW). LO 1

10. Exhibit 2.1 - Strategic Profit Model LO 1

11. Statement of Goals and Objectives • Financial objectives • Stockouts - Products that are out of stock and therefore unavailable to customers when they want them. LO 1

12. Statement of Goals and Objectives • Financial objectives • Productivity objectives - State the sales objectives that the retailer desires for each unit of resource input. • Space productivity - Net sales divided by the total square feet of retail floor space. • Labor productivity - Net sales divided by the number of full-time–equivalent employees. • Merchandise productivity - Net sales divided by the average dollar investment in inventory. • Productivity objectives are vehicles by which a retailer can program its business for high-profit results. LO 1

13. Strategies • Are a carefully designed plan for achieving the retailer’s goals and objectives. • Retailers can operate with three strategies: • Get shoppers into your store. • Convert these shoppers into customers by having them purchase merchandise. • Implement the above two strategies at the lowest operating cost possible that is consistent with the level of service that your customers expect. LO 1

14. SWOT Analysis • Strengths: • What major competitive advantage(s) do we have? • What are we good at? • What do customers perceive as our strong points? LO 1

15. SWOT Analysis • Weaknesses • What major competitive advantage(s) do competitors have over us? • What are competitors better at than we are? • What are our major internal weaknesses? LO 1

16. SWOT Analysis • Opportunities • What favorable environmental trends may benefit our firm? • What is the competition doing in our market? • What areas of business that are closely related to ours are undeveloped? LO 1

17. SWOT Analysis • Threats • What unfortunate environmental trends may hurt our future performance? • What technology is on the horizon that may soon have an impact on our firm? LO 1

18. Strategies • Some better forms of differentiation for a retailer are: • Physical differentiation of the product • The selling process • After-purchase satisfaction • Location • Never being out of stock LO 1

19. Strategies • The retailer must develop a retail marketing strategy with strong financial elements. • A fully developed marketing strategy should address the following considerations: the specific target market, location, the specific retail mix that the retailer intends to use, and the retailer’s value proposition. LO 1

20. Strategies • Target market - Group of customers that the retailer is seeking to serve. • Location - Geographic space or cyberspace where the retailer conducts business. • Retail mix - Combination of merchandise, price, advertising and promotion, location, customer service and selling, and store layout and design. LO 1

21. Strategies • Value proposition - A clear statement of the tangible and/or intangible results a receives from shopping at and using the retailer’s products or services. LO 1

22. Exhibit 2.6 - Retail Strategic Planning and Operations Management Model LO 2

23. The Retail Strategic Planning and Operations Management Model • Operations management - Deals with activities directed at maximizing the efficiency of the retailer’s use of resources. It is frequently referred to as day-to-day management. • The need to strive for a high profit is tied to the extremely competitive nature of retailing. LO 2