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2 nd FACE-TO-FACE MEETING PJJ. MGM 4254 JULY 2010. Overview. Step 1: investigate alternative trading areas Step 2: determine what type of location is desirable Step 3: select the general location Step 4: evaluate alternative specific store sites. Chpt 9 Trading-Area Analysis.

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  • Step 1: investigate alternative trading areas
  • Step 2: determine what type of location is desirable
  • Step 3: select the general location
  • Step 4: evaluate alternative specific store sites
chpt 9 trading area analysis
Chpt 9Trading-Area Analysis
  • To demonstrate the importance of store location for a retailer and outline the process for choosing a store location
  • To discuss the concept of a trading area and its related components
  • To show how trading areas may be delineated for existing and new stores
criteria to consider include
Criteria to consider include
  • population size and traits
  • competition
  • transportation access
  • parking availability
  • nature of nearby stores
  • property costs
  • length of agreement
  • legal restrictions
choosing a store location
Choosing a Store Location

Step 1: Evaluate alternate geographic (trading)

areas in terms of residents and existing retailers

Step 2: Determine whether to locate as an

isolated store or in a planned shopping center

Step 3: Select the location type

Step 4: Analyze alternate sites contained in the

specific retail location type

table 9 1 chief factors to consider in evaluating retail trading areas
Total size and density

Age distribution

Average educational level

Percentage of residents owning homes

Total disposable income

Per capita disposable income

Occupation distribution


Table 9.1 Chief Factors to Consider in Evaluating Retail Trading Areas

Population Size and Characteristics

chp 10 site selection
Chp 10Site Selection
  • To thoroughly examine the types of locations available to a retailer: isolated store, unplanned business district, and planned shopping center
  • To note the decisions necessary in choosing a general retail location
  • To describe the concept of one-hundred percent location
  • To discuss several criteria for evaluating general retail locations and the specific sites within them
  • To contrast alternative terms of occupancy
3 types of locations
3 Types of Locations









isolated stores

No competition

Low rental costs


Good for convenience stores

Better visibility

Adaptable facilities

Easy parking


Difficulty attracting customers

Travel distance

Lack of variety for customers

High advertising expenses

No cost sharing

Restrictive zoning laws

Isolated Stores
unplanned business districts
Unplanned Business Districts




Central Business







planned shopping centers

Well-rounded assortments

Strong suburban population

One-stop, family shopping

Cost sharing

Transportation access

Pedestrian traffic


Limited flexibility

Higher rent

Restrictions on offerings

Competitive environment

Requirements for association memberships

Too many malls

Domination by anchor stores

Planned Shopping Centers
chp 11 retail organization and human resource management
Chp 11 Retail Organization and Human Resource Management
  • To study the procedures involved in setting up a retail organization
  • To examine the various organizational arrangements utilized in retailing
  • To consider the special human resource environment of retailing
  • To describe the principles and practices involved with the human resource management process in retailing
table 11 1 principles for organizing a retail firm
Table 11.1 Principles for Organizing a Retail Firm
  • Show interest in employees
  • Monitor employee turnover, lateness, and absenteeism
  • Trace line of authority from top to bottom
  • Limit span of control
  • Empower employees
  • Delegate authority while maintaining responsibility
  • Acknowledge need for coordination and communication
  • Recognize the power of informal relationships
human resource management in retailing
Human Resource Management in Retailing
  • Recruiting
  • Selecting
  • Training
  • Compensating
  • Supervising
chp 12 operations management financial dimensions
Chp 12Operations Management: Financial Dimensions
  • 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
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
asset management
Asset Management
  • The Balance Sheet
    • Assets
    • Liabilities
    • Net Worth
    • Net Profit Margin
    • Asset Turnover
    • Return on Assets
    • Financial Leverage
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
  • 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
budget benefits
Budget Benefits
  • 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
cost categories
Cost Categories
  • Capital expenditures
  • Fixed costs
  • Direct costs
  • Natural account expenses
resource allocation
Capital Expenditures

Long-term investments in fixed assets

Operating Expenditures

Short-term selling and administrative costs in running a business

Resource Allocation
chp 13 operations management operational dimensions
Chp 13Operations Management: Operational Dimensions
  • To describe the operational scope of operations management
  • To examine several specific aspects of operating a retail business: operations blue-print; store format, size, and space allocation; personnel utilization; store maintenance, energy management, and renovations; inventory management; store security; insurance; credit management; computerization; outsourcing; and crisis management
operational decisions
Operational Decisions
  • What operating guidelines are used?
  • What is the optimal format and size of a store? What is the relationship among shelf space, shelf location, and sales for each item in the store?
  • How can personnel be matched to customer traffic flows? Would increased staffing improve or reduce productivity? What impact does self-service have on sales?
operational decisions 2
Operational Decisions_2
  • What effect does the use of various building materials have on store maintenance? How can energy costs be better controlled? How often should facilities be renovated?
  • How can inventory best be managed?
  • How can the personal safety of shoppers and employees be ensured?
operational decisions 3
Operational Decisions_3
  • What levels of insurance are required?
  • How can credit transactions be managed most effectively?
  • How can computer systems improve operating efficiency?
  • Should any aspects of operations be outsourced?
  • What kind of crisis management plans should be in place?
operating a retail business
Operating A Retail Business
  • Operations Blueprint
  • Store Format, Size, and Space Allocation
  • Personnel Utilization
  • Store Maintenance, Energy Management, and Renovations
  • Inventory Management
  • Store Security
  • Insurance
  • Credit Management
  • Computerization
  • Outsourcing
  • Crisis Management
inventory management decisions
Inventory Management Decisions
  • How can handling of merchandise from different suppliers be coordinated?
  • How much inventory should be on the sales floor versus in a warehouse or storeroom?
  • How often should inventory be moved from nonselling to selling areas of a store?
  • What inventory functions can be done during nonstore hours?
  • What are the trade-offs between faster supplier delivery and higher shipping costs?
  • What supplier support is expected in storing merchandise or setting up displays?
  • What level of in-store merchandise breakage is acceptable?
  • Which items require customer delivery? When? By whom?
credit management decisions
Credit Management Decisions
  • What form of payment is acceptable?
  • Who administers the credit plan?
  • What are customer eligibility requirements for a check or credit purchase?
  • What credit terms will be used?
  • How are late payments or nonpayments to be handled?
crisis management
Crisis Management
  • There should be contingency plans for as many different types of crisis situations as possible
  • Essential information should be communicated to all affected parties as soon as the crisis occurs
  • Cooperation – not conflict – among the involved parties is essential
  • Responses should be as swift as feasible
  • The chain of command should be clear and decision makers given adequate authority
chp 14 developing merchandise plans
Chp 14Developing Merchandise Plans
  • To demonstrate the importance of a sound merchandising philosophy
  • To study various buying organization formats and the processes they use
  • To outline the considerations in devising merchandise plans: forecasts, innovativeness, assortment, brands, timing, and allocation
  • To discuss category management and merchandising software

Activities involved in acquiring particular goods and/or services and making them available at the places, times, and prices and in the quantity that enable a retailer to reach its goals.

merchandising philosophy
Merchandising Philosophy
  • Sets the guiding principles for all the merchandise decisions that a retailer makes
  • Should reflect
    • Target market desires
    • Retailer’s institutional type
    • Market-place positioning
    • Defined value chain
    • Supplier capabilities
    • Costs
    • Competitors
    • Product trends
scope of responsibility
Scope of Responsibility
  • Full array of merchandising functions
    • Buying and selling
    • Selection, pricing, display, customer transactions
  • Focus on buying function only
functions performed
Functions Performed
  • Merchandising view
    • All buying and selling functions
      • Assortments
      • Advertising pricing
      • Point-of-sale displays
      • Employee utilization
      • Personal selling approaches
functions performed1
Functions Performed
  • Buying view
    • Buyers manage buying functions
      • Buying
      • Advertising
      • Pricing
    • In-store personnel manage other functions
      • Assortments
      • Point-of-sale displays
      • Employee utilization
      • Personal selling approaches
types of merchandise
Types of Merchandise
  • Staple merchandise
  • Assortment merchandise
  • Fashion merchandise
  • Seasonal merchandise
  • Fad merchandise
structured guidelines for pruning products
Structured Guidelines for Pruning Products
  • Select items for possible elimination on the basis of declining sales, prices, and profits, appearance of substitutes
  • Gather and analyze detailed financial and other data about these items
  • Consider nondeletion strategies such as cutting costs, revising promotion efforts, adjusting prices, and cooperating with other retailers
  • After making a deletion decision, do not overlook timing, parts and servicing, inventory, and holdover demand




(dealer or store)


chp 15 implementing merchandise plans
Chp 15Implementing Merchandise Plans
  • To describe the steps in the implementation of merchandise plans: gathering information, selecting and interacting with merchandise sources, evaluation, negotiation, concluding purchases, receiving and stocking merchandise, reordering, and re-evaluation
  • To examine the prominent roles of logistics and inventory management in the implementation of merchandise plans
selecting merchandise sources
Selecting Merchandise Sources
  • Company-owned
  • Outside, regularly used supplier
  • Outside, new supplier
concluding purchases
Concluding Purchases
  • The retailer takes title immediately on purchase
  • The retailer assumes ownership after titles are loaded onto the mode of transportation
  • The retailer takes title when a shipment is received
  • The retailer does not take title until the end of a billing cycle, when the supplier is paid
  • The retailer accepts merchandise on consignment and does not own the items. The supplier is paid after merchandise is sold
reordering merchandise
Reordering Merchandise
  • Four critical factors:
    • Order and delivery time
    • Inventory turnover
    • Financial outlays
    • Inventory versus ordering costs
performance goals
Performance Goals
  • Relate costs incurred to specific logistics activities
  • Place and receive orders as easily, accurately, and satisfactorily as possible
  • Minimize the time between ordering and receiving merchandise
  • Coordinate shipments from various suppliers
  • Have enough merchandise on hand to satisfy customer demand, without having so much inventory that heavy markdowns will be necessary
performance goals 2
Performance Goals_2
  • Place merchandise on the sales floor efficiently
  • Process customer orders efficiently and in a manner satisfactory to customers
  • Work collaboratively and communicate regularly with other supply chain members
  • Handle returns effectively and minimize damaged products
  • Monitor logistics’ performance
  • Have backup plans in case of breakdowns in the system
problems balancing inventory levels
Problems Balancing Inventory Levels
  • The retailer wants to be appealing and never lose a sale by being out of stock; it does not want to be “stuck” with excess merchandise
  • What fad merchandise and how much should be carried?
  • Customer demand is never completely predictable
  • Shelf space allocation should be linked to current revenues
chp 16 financial merchandise management
Chp 16Financial Merchandise Management
  • To describe the major aspects of financial merchandise planning and management
  • To explain the cost and retail methods of accounting
  • To study the merchandise forecasting and budgeting process
  • To examine alternative methods of inventory unit control
  • To integrate dollar and unit merchandising control concepts
financial merchandise management
Financial Merchandise Management
  • A retailer specifies which products are purchased, when products are purchased, and how many products are purchased
    • Dollar control involves planning and monitoring a retailer’s financial investment in merchandise over a stated period
    • Unit control relates to the quantities of merchandise a retailer handles during a stated period
benefits of financial merchandise plans
Benefits of Financial Merchandise Plans
  • A buyer’s performance is rated. Measures may be used to set standards
  • Stock shortages are determined and bookkeeping errors and pilferage are uncovered
  • Slow-moving items are classified – leading to increased sales efforts or markdowns
  • A proper balance between inventory and out-of-stock conditions is maintained
inventory accounting systems
Inventory Accounting Systems
  • The cost accounting system values merchandise at cost plus inbound transportation charges
  • The retail accounting system values merchandise at current retail prices
cost method of accounting
Cost Method of Accounting
  • The cost to the retailer of each item is recorded on an accounting sheet and/or is coded on a price tag or merchandise container
  • Can be used with physical or book inventories:
    • Physical inventory – actual merchandise count
    • Book inventory - recordkeeping
physical inventory system
Physical Inventory System
  • Ending inventory - recorded at cost – is measured by counting the merchandise in stock at the close of a selling period
  • Gross profit is not computed until ending inventory is valued
  • Gross profit derived during full merchandise count
book inventory system
Book Inventory System
  • Keeps a running total of the value of all inventory on hand at cost at a given time
  • End-of-month inventory values can be computed without a physical inventory
  • Frequent financial statements can be prepared
disadvantages of cost based inventory systems
Disadvantages of Cost-Based Inventory Systems
  • Requires that a cost be assigned to each item in stock
  • Do not adjust inventory values to reflect style changes, end-of-season markdowns, or sudden surges of demand
the retail method
The Retail Method
  • Closing inventory is determined by calculating the average relationship between the cost and retail values of merchandise available for sale during a period
determining ending inventory value
Determining Ending Inventory Value
  • 1. Calculating the cost complement
  • 2. Calculating deductions from retail value
  • 3. Converting retail inventory value to cost
table 16 3 handy hardware store calculating merchandise available for sale at cost and at retail
Table 16.3 Handy Hardware Store, Calculating Merchandise Available for Sale at Cost and at Retail
advantages of the retail method
Advantages of the Retail Method
  • Valuation errors are reduced when conducting a physical inventory since merchandise value is recorded at retail and costs do not have to be decoded
  • Because the process is simpler, a physical inventory can be completed more often
  • Profit-and-loss statement can be based on book inventory
  • Method gives an estimate of inventory throughout the year and is accepted in insurance claims
limitations of the retail method
Limitations of the Retail Method
  • Bookkeeping burden of recording data
  • Ending book inventory figures correctly computed only if the following are accurate:
    • Value of beginning inventory
    • Purchases
    • Shipping charges
    • Markups
    • Markdowns
    • Employee discounts
    • Transfers
    • Returns
    • Sales
  • Cost complement is an average based on the total cost of merchandise available for sale and total retail value
chp 17 pricing in retailing
Chp 17Pricing in Retailing
  • To describe the role of pricing in a retail strategy and to show that pricing decisions must be made in an integrated and adaptive manner
  • To examine the impact of consumers; government; manufacturers, wholesalers, and other suppliers; and current and potential competitors on pricing decisions
  • To present a framework for developing a retail price strategy: objectives, broad policy, basic strategy, implementation, and adjustments
pricing options for retailers
Pricing Options for Retailers
  • Discount orientation
  • At-the-market orientation
  • Upscale orientation
price strategy
Price Strategy
  • Demand-Oriented Pricing
  • Cost-Oriented Pricing
  • Competition-Oriented Pricing
demand oriented pricing
Demand-Oriented Pricing
  • Psychological pricing
    • Price-quality association
    • Prestige pricing
integration of approaches to price strategy
Integration of Approaches to Price Strategy
  • If prices are reduced, will revenues increase greatly? (Demand orientation)
  • Should different prices be charged for a product based on negotiations with customers, seasonality, and so on? (Demand orientation)
  • Will a given price level allow a traditional markup to be attained? (Cost orientation)
  • What price level is necessary for a product requiring special costs in purchasing, selling, or delivery? (Cost orientation)
  • What price levels are competitors setting? (Competitive orientation)
  • Can above-market prices be set due to a superior image? (Competitive orientation)
price strategy concepts
Customary Pricing

Everyday Low Pricing

Variable Pricing

Yield Management Pricing

One-Price Policy

Flexible Pricing

Contingency Pricing

Odd Pricing

Leader Pricing

Multiple-Unit Pricing

Price Lining

Price Strategy Concepts
price adjustments
Price Adjustments
  • Adaptive mechanism
    • Markdown
    • Additional markup
    • Employee discount
chp 18 establishing and maintaining a retail image
Chp 18Establishing and Maintaining A Retail Image
  • To show the importance of communicating with customers and examine the concept of retail image
  • To describe how a retail store image is related to the atmosphere it creates via its exterior, general interior, layout, and displays, and to look at the special case of non-store atmospherics
  • To discuss ways of encouraging customers to spend more time shopping
  • To consider the impact of community relations on a retailer’s image
exterior planning
Exterior Planning
  • Storefront
  • Marquee
  • Store entrances
  • Display windows
  • Exterior building height
  • Surrounding stores and area
  • Parking facilities
general interior





Store fixtures

Wall textures


Aisle space

Dressing facilities

In-store transportation (elevator, escalator, stairs)

Dead areas



Price levels



Store cleanliness

General Interior
allocation of floor space
Allocation of Floor Space
  • Selling space
  • Merchandise space
  • Personnel space
  • Customer space
straight traffic pattern

An efficient atmosphere is created

More floor space is devoted to product displays

People can shop quickly

Inventory control and security are simplified

Self-service is easy, thereby reducing labor costs


Impersonal atmosphere

More limited browsing by customers

Rushed shopping behavior

Straight Traffic Pattern
curving traffic pattern

A friendly atmosphere

Shoppers do not feel rushed

People are encouraged to walk through in any direction

Impulse or unplanned purchases are enhanced


Possible customer confusion

Wasted floor space

Difficulties in inventory control

Higher labor intensity

Potential loitering

Displays may cost more

Curving Traffic Pattern
approaches for determining space needs
Model Stock Approach

Determines floor space necessary to carry and display a proper merchandise assortment

Sales-Productivity Ratio

Assigns floor space on the basis of sales or profit per foot

Approaches for Determining Space Needs
interior point of purchase displays
Interior (Point-of-Purchase) Displays
  • Assortment display
  • Theme-setting display
  • Ensemble display
  • Rack display
  • Case display
  • Cut case
  • Dump bin
online store considerations

Unlimited space to present product assortments, displays, and information

Can be customized to the individual customer

Can be modified frequently

Can promote cross-merchandising and impulse purchasing

Enables a shopper to enter and exit an online store in a matter of minutes


Can be slow for dialup shoppers

Can be too complex

Cannot display three-dimensional aspects of products well

Requires constant updating

More likely to be exited without purchase

Online Store Considerations
chp 19 promotional strategy
Chp 19Promotional Strategy
  • To explore the scope of retail promotion
  • To study the elements of retail promotion: advertising, public relations, personal selling, and sales promotion
  • To discuss the strategic aspects of retail promotion: objectives, budgeting, the mix of forms, implementing the mix, and reviewing and revising the plan
advertising objectives for retailers
Advertising Objectives for Retailers
  • Lifting short-term sales
  • Increasing customer traffic
  • Developing and/or reinforcing a retail image
  • Informing customers about goods and services and/or company attributes
  • Easing the job for sales personnel
  • Developing demand for private brands
public relations objectives for retailers
Public Relations Objectives for Retailers
  • Increase awareness of the retailer and its strategy mix
  • Maintain or improve the company image
  • Show the retailer as a contributor to the public’s quality of life
  • Demonstrate innovativeness
  • Present a favorable message in a highly believable manner
  • Minimize total promotion costs
personal selling objectives for retailers
Personal Selling Objectives for Retailers
  • Persuade customers to buy
  • Stimulate sales of impulse items or products related to customers’ basic purchases
  • Complete customer transactions
  • Feed back information to company decision makers
  • Provide proper levels of customer service
  • Improve and maintain customer satisfaction
  • Create awareness of items also marketed through the Web, mail, and telemarketing
sales promotions objectives for retailers
Sales Promotions Objectives for Retailers
  • Increasing short-term sales volume
  • Maintaining customer loyalty
  • Emphasizing novelty
  • Complementing other promotion tools
promotional objectives
Promotional Objectives
  • Increase sales
  • Stimulate impulse and reminder buying
  • Raise customer traffic
  • Get leads for sales personnel
  • Present and reinforce the retailer image
  • Inform customers about goods and services
  • Popularize new stores and Web sites
  • Capitalize on manufacturer support
  • Enhance customer relations
  • Maintain customer loyalty
  • Have consumers pass along positive information to friends and others