Chapter 12
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Chapter 12. RETAIL MANAGEMENT: A STRATEGIC APPROACH 11th Edition BERMAN EVANS. Operations Management: Financial Dimensions. Chapter Objectives. To define operations management To discuss profit planning

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Chapter 12

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Chapter 12

Chapter 12

RETAIL

MANAGEMENT:

A STRATEGIC

APPROACH

11th Edition

BERMAN EVANS

Operations Management: Financial Dimensions

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Chapter objectives

Chapter Objectives

  • To define operations management

  • To discuss profit planning

  • To describe asset management, including the strategic profit model, other key business ratios, and financial trends in retailing

  • To look at retail budgeting

  • To examine resource allocation

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Operations management

Operations Management

Operations managementinvolves the efficient and effective implementation of the policies and tasks necessary to satisfy the firm’s customers, employees, and management (and stockholders, if a public company).

This has a major impact on both sales and profits.

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Profit planning

Profit Planning

  • Profit-and-loss (income) statement

    • Summary of a retailer’s revenues and expenses over a given period of time

    • Review of overall and specific revenues and costs for similar periods and profitability

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Major components of a profit and loss statement

Major Components of a Profit-and-Loss Statement

  • Net Sales

  • Cost of Goods Sold

  • Gross Profit (Margin)

  • Operating Expenses

  • Taxes

  • Net Profit After Taxes

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Asset management

Asset Management

  • The Balance Sheet

    • Assets

    • Liabilities

    • Net Worth

    • Net Profit Margin

    • Asset Turnover

    • Return on Assets

    • Financial Leverage

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Operations management financial dimensions

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Figure 12 1 the strategic profit model

Figure 12-1: The Strategic Profit Model

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Other key business ratios

Other Key Business Ratios

  • Quick ratio—cash plus accounts receivable divided by total current liabilities (due within one year).

  • Current ratio—total current assets divided by total current liabilities.

  • Collection period—accounts receivable divided by net sales and then multiplied by 365.

  • Accounts payable to net sales—accounts payable divided by annual net sales.

  • Overall gross profit—net sales minus the cost of goods sold and then divided by net sales.

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Financial trends in retailing

Financial Trends in Retailing

  • Slow growth in U.S. economy

  • Funding sources

  • Mergers, consolidations, spinoffs

  • Bankruptcies and liquidations

  • Questionable accounting and financial reporting practices

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Funding sources

Funding Sources

  • Mortgage refinance (due to low interest rates)

  • REIT (retail-estate investment trust) to fund construction

    • Company dedicated to owning and operating income-producing real estate

  • Initial public offering (IPO)

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Figure 12 2 the demise of linens n things

Figure 12-2: The Demise of Linens ‘n Things

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Budgeting

Budgeting

  • Budgeting outlines a retailer’s planned expenditures for a given time based on expected performance.

  • Costs are linked to satisfying target market, employee, and management goals.

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Figure 12 3 the retail budgeting process

Figure 12-3: The Retail Budgeting Process

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Benefits of budgeting

Benefits of Budgeting

  • Expenditures are related to expected performance.

  • Costs can be adjusted as goals are revised.

  • Resources are allocated to the right areas.

  • Spending is coordinated.

  • Planning is structured and integrated.

  • Cost standards are set.

  • Expenditures are monitored during a budget cycle.

  • Planned budgets versus actual budgets can be compared.

  • Costs/performance can be compared with industry averages.

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Preliminary budgeting decisions

Preliminary Budgeting Decisions

  • Specify budgeting authority

  • Define time frame

  • Determine budgeting frequency

  • Establish cost categories

  • Set level of detail

  • Prescribe budget flexibility

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Cost categories

Cost Categories

  • Capital expenditures

  • Fixed costs

  • Direct costs

  • Natural account expenses

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Ongoing budgeting process

Ongoing Budgeting Process

  • Set goals

  • Specify performance standards

  • Plan expenditures in terms of performance goals

  • Make actual expenditures

  • Monitor results

  • Adjust budget

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Cash flow

Cash Flow

  • Cash flow relates the amount and timing of revenues received to the amount and timing of expenditures for a specific time.

  • In cash flow management, the usual intention is to make sure revenues are received before expenditures are made.

  • If cash flow is weak, short-term loans may be needed or profits may be tied up in inventory and other expenses.

  • For seasonal retailers, erratic cash flow may be unavoidable.

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Table 12 6 the effects of cash flow

Table 12-6: The Effects of Cash Flow

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Resource allocation

Resource Allocation

  • Capital Expenditures

    • Long-term investments in fixed assets

  • Operating Expenditures

    • Short-term selling and administrative costs in running a business

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Enhancing productivity

Enhancing Productivity

  • A firm can improve employee performance, sales per foot of space, and other factors by upgrading training programs, increasing advertising, etc.

  • It can reduce costs by automating, having suppliers do certain tasks, etc.

Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


Operations management financial dimensions

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Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall


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