retail chap 2

7/28/2019 Retail ChAP 2

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STORE SITE SELECTION

Unit II

Prof. Shikhar Srivastava


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General. .. Why Important.

A Retailer Can Change Merchandise Mix.

Prices, Communication, Internal Layout.

A Retailer Can Offer Better Communication.

Better Services & Promotion.

BUT Its fairly Difficult to Change Store Location.

Moving from one Location to other may result into ..

Loss of Customers & Employees.

Involve Costs.

DEPENDENT

VARIABLES.

Target Audience

Distance to Travel.

Type OfMerchandise to Be

Sold.

Convenience Store

Vs Jewellery


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Retail Store & Location

Types of Retail Location, Step involved in

choosing a Retail Location.

Merchandising, Basis of retail merchandising,

Factors affecting the Merchandising functions,

The Merchandises Role & Responsibilities.

Visual Merchandising


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Introduction

Define Store:

A store is place , real or virtual , where the shoppers

comes to buy goods & services. The sales transaction

occurs at this junction.

The location of retail store has for along time been

considered the most important P in retailing.

Locating the retail store in the right place was

considered to be adequate for success.


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Location becomes a critical decision for a retailer for

several reasons. As like;

Location is generally one of the most important factorscustomers consider while choosing a store.

A bad location may cause a retailer to fail even if itsstrategic mix is excellent.. On the other hand , a good

location may help a retailer succeed even if its strategic

mix is mediocre.

Store location is least flexible element of retailers

strategic mix due to its fixed nature, the amount of

investment, and the length of lease agreements


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Types of Retail Location

Various option are available to the retailer for choosingthe location of store.

The choice of the location of the store depends on thetarget audience and the kind of merchandise to be sold.

A retailer has to choosing among alternate types of retail

locations available . It may locate in an isolated place

and pull the customer to the store on its own strength,

such as a small grocery store or paan shop in a colony

which attracts the customers staying close by


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Typically a store location may be:

1. Freestanding /Isolated store.

2. Part of Business District/Centers (unplanned

Business Districts).

3. Part of a Shopping Center (Planned ShoppingCenters)


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Types of Locations

The Isolated store/ Free Standing Store. Located near major Traffic Artery without any Competition Around.

Low Rents.. More Facilities like Ample Parking Space.

Gas stations, convenience stores, hotels and fast food restaurants onhighways

Part of a Business District

Central Business District

A place of Commerce in the City , Peak Land rates & IntenseDevelopment.

Good Accessibility of transport from all parts of City. Fairly HighRents,Cumbersome Parking.

Connaught Place , Nariman Point , Colaba, Gurgaon.


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Secondary Business District

Evolved over a period of time with the spread of populationin the City.

Good Mix of Retailers. Unplanned Cluster of Stores.

Linking Road , Dadar Market ,Karol BaghDelhi & KamalaNagar MarketDelhi.

Neighborhood Business District

Located in Residential Neighborhoods & Serve Small

Locality. Small Trading Areas selling Convenience Products .

Goregoan Highway , Powai .


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Part of a Shopping Center

Shopping CentreA group of Retail & other Commercial

Establishments that is planned , Developed , Ownedor

Managed as a Single Property.

Mall

Typically Enclosed & Climate Controlled. A walkwayprovided between Two Strips of Stores.

Strip center.

A Row of Stores with Parking provided in the Front of theStores.


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1. Freestanding /Isolated store

Where there are no other outlets in the vicinity of the store andtherefore store depends on its own pulling power and promotionto attracts customers.

A biggest advantages for freestanding stores is that there is no

competition around.

This type of location has several advantages including nocompetition, low rent, often better visibility from the road, easy

parking and lower property .

Neighborhood Stores; colony shops serves small locality.

Highway Stores :Ebony store in Ludhiana .


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Business Associated Location: These are location where a group ofretail outlets offering a variety of merchandise work togetherto attract customers to their retail area, but also competeagainst each other for the same customers. Two types includes

in ;

1. Part of Business District/Centers (unplanned BusinessDistricts).

2. Part of a Shopping Center (Planned Shopping Centers)


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2. Part of Business District/Centers (unplanned Business

Districts).

A retail store can also be located as a part of a business district. Orwe can refer this as unplanned business centers

A business district is place of commerce in a city which developedhistorically as the center of trade and commerce in the city or town.

A business districts can be a central, secondary or a Neighborhood

business district.

A Central business District CBD is the main center of commerceand trade in the city. (high land rates , intense development)


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A CBD is the hub of retailing activity in a city.

CBD served different sections of population for Examples ofCannaught place in Delhi, Colaba in Mumbai, Commercial Streetand in Bangalore are up market CBDs.

CBDs serving the upper and upper middle class customers

across these cities like, chandani chowk in Delhi, Kalbadevi-Bhuleswar in Mumbai, Chickpet in Bangalore.

Secondary Business District are composed of unplanned clusterof store often located on a major intersection of city they acustomers from a large part of the city


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3. Part of a Shopping Center (Planned Shopping Centers)

A shopping center has been defined as a group of retail andother commercial establishments that is planned , developed,owned and managed as a single property

The basic configuration of a shopping centre is a Mall or Stripcentre.

A mall is typically enclosed and climate controlled. A walkway is

provided in front of the stores.

A strip centre is a row of stores with parking provided in thefront of the stores.


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In India we can planned shopping centre can categorize in twocategory

Regional shopping centers or Mall: Regional shopping centersor mall are the largest planned shopping centers..

Often they are anchored by two or more major departmentstores have enclosed mall serve a large trading area and have highrents. (ansal plaza,spencers plaza crossroads, DLF city inGurgaon)

Neighborhood/community/shopping centers:Neighborhood /community centers usually have a balanced mixof stores including a few grocery stores , a chemist, a verity storeand a few other stores selling convenience goods to the residentsof the neighborhood.


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Step involved in choosing a Retail Location

In order to arrive at the decision on where to locatethe retail store a retailer needs to first on the regionthat he wants to locate the store.

After identifying the region the following steps Haveto be followed ;

1. Identifying the market in which to locate the store.

2. Evaluate the demand and supply within that market.

i.e. determine the market potential.

3. Identify the most attractive sites

4. Select the best site available


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1. Market Identification:

The first step in arriving at a decision on retail location is toidentify the market attractiveness to a retailer.

This is important that retail needs to understand the marketwell.

2. Determining the market Potential:

The retailer need to take into consideration various elementsas shown in format. (features of population)

Demographic features of the population

The characteristics of the household in the area (average

household income) Competition and compatibility (Need to know compatibility &

competition in market)

Laws & regulations:( good understanding of the laws


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Determining the market Potential

Demographics ofpopulation & area

Competition

Laws & RegulationTrade areaanalysis


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Trade Area analysis

A trade area is the geographic area that generates themajority of the customers for the store.

Primary trade area: primary trading covers between 50-80% of the stores customers.

Secondary Trading Area: this area contains the additional15- to 25% of the stores customers.

Tertiary trading area covers the balance customers

These trading areas are dependent on distance and do notalways have to be concentric in nature


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Types of Trades areas.


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3 & 4Identify Alternate sites and select the site:

After taking decision on the location and market potential the

retailer has to select the site to locate the store based on these Traffic

Accessibility of the market is also a key factor

The total number of stores and the type of store that exist in the

area Amenities

To buy or to lease

The product mix to be offered by the retailer


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Measures of Financial Performance

It is critical for the success of your business to constantlywork towards improving not only the efficiency of employees,but the productivity of the store's selling space and inventoryas well. This can be achieved by using various retail math

formulas and calculations based on sales.

Performance of Selling Space

1) Sales per Square Foot : The sales per square foot data ismost commonly used for planning inventory purchases. It canalso roughly calculate return on investment and it is used todetermine rent on a retail location.


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When measuring sales per square foot, keep in mindthat selling space does not include the stock room or

any area where products are not displayed. Total Net Sales Square Feet of Selling Space =

Sales per Square Foot of Selling Space

2)Sales per Linear Foot of Shelf Space:A retail storewith wall units and other shelf space may want to usesales per linear foot of shelf space to determine aproduct or product category's allotment of space.

Total Net Sales Linear Feet of Shelving = Sales

per Linear Foot


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3) Sales by Department or Product Category: Retailersselling various categories of products will find the

sales by department tool useful in comparing productcategories within a store. For example, a Men'sclothing store can see how the sales of FormalClothing section compared with the rest of thestore's sales.

Category's Total Net Sales Store's Total Net

Sales = Category's % of Total Store Sales


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Measuring Productivity of Staff

1) Sales per Transaction: Also known as sales percustomer, the sales per transaction number tells aretailer what is the average transaction in dollars. A

store dependant on its sales clerks to make a salewill use this formula in measuring the productivityof staff.

Gross Sales Number of Transactions = Sales

per Transaction

2) S l E l Wh f i l


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2) Sales per Employee: When factoring sales peremployee, retailers need to take into considerationwhether the store has full time or part time workers.

Convert the hours worked by part-time employeesduring the period to an equivalent number of full-timeworkers. This form of measuring productivity is an

excellent tool in determining the amount of sales abusiness needs to bring in when increasing staffinglevels.

Net Sales Number of Employees = Sales perEmployee


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The strategic profit modelThe Strategic Profit Model (also know as the DuPont

Model) gives a visual view of an organization'sfinances and provides the ability to understand andanalyze financial performance and return on

investment (ROI).

The tool provides visibility to the inter-relationship

between the three major categories that contribute toROI: Margins, Asset Utilization and Capitalizationthrough combinations of debt and equity.


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Everything has an impact on ROI and the bottom line. ROIcan be improved by:

Increasing the net profit through price management,

expense control or process and productive improvements.

Increasing inventory and accounts receivable turnover.

Managing capitalization.

Merit: Strategic Profit Model is used to compare thefinancial performance of different companies in the sameindustry. Insight can be gained into business models usedand differences in strategy. I've also used the model tocompare operations of the same organization at differentpoints in time.


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The Strategic Profit Model can be used as part oftraining programs to not only show the financialrelationships, but how Functional areas and evenspecific jobs contribute to ROI.


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RETAIL PRICING

CONCEPT OF RETAIL PRICING

Integral part of retail marketing mix Source of revenue for the retailer Communicate the image of the retail store

FACTORS THAT NEED TO BE TAKEN INTO CONSIDERATION

Demand for the product and the target marketStore policies and the image to be createdCompetition for the product and the competitors priceEconomic conditions prevailing at that time

PRICING OBJECTIVE

In agreement with the mission statementIn agreement with the merchandising policies


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RETAIL PRICING

ELEMENTS OF RETAIL PRICE

1. Cost of goods : Cost of Merchandise

Expenses incurred towards transportation

Taxes, duties levies etc.

2. Expenses Incurred : Fixed expensesVariable expenses

3. Fixed Expenses : Expenses that do not vary with quantum of

business

eg. Shop rent, Head Office costs etc

4. Variable expenses : Level of sales directly effects variable expenses.

eg. Merchandise margins, product mix costs

Their Management either enhances or destroy

profitability


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RETAIL PRICING

FIXING THE RETAIL PRICE

Consideration : Profit to be earned

Profit from Merchandise planed before price fixation

Profit to be arrived at is expressed as a mark up percentage

Retail Price = Cost + Mark Up

Or Cost = Retail Price - Mark Up

Or Mark Up = Retail Price - Cost

Components of the formula can be expressed in

Rupee Term or as a percentage


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THE FOLLOWING FORMULA WOULD APPLY

Mark Up percentage can be expressed as

Percentage of retail price or as a percentage of cost price

Mark Up percent (based on Retail Price) = Mark Up in Rupees / RetailPrice

Mark Up percent (based on Cost) = Mark Up in Rupees / Cost


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ILLUSTRATION

Assume the cost of merchandise = Rs.200.00

The Mark Up is = Rs.150.00

Retail Price = 200 + 150 = 350

Mark Up % on Retail = 150 / 350 = 42.86%

Mark Up % on Cost = 150 / 200 = 75 %

Mark Up fixed is termed as Initial Mark Up

Rarely are all products sold completely at fixed prices

Reduction in price are often made and could be due to Markdowns,Employee discounts, Customer Discounts or Shrinkage


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ILLUSTRATION OF COST PLUS PRICING

Cost of fabric = Rs.150.00 per meter

Fabric consumption = 1.30 meters

Total Fabric Cost = Rs.195.00

Manufacturing Cost = Rs.100.00

Basic Cost = Rs.295.00

Packaging Cost = Rs. 50.00

Cost Price = Rs.345.00

Mark Up @ 60% = Rs.207.00

Retail Price = Rs. 552.00 Rounded Off Rs.550.00


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DEVELOPING A PRICING STRATEGY

1. Cost Oriented

2. Demand Oriented3. Competition Oriented

COST ORIENTED PRICING

Basic mark up is added to the cost of merchandise Retail price is considered to be a function of the cost and the mark up

Thus Retail Price = Cost + mark Up

Or Cost = Retail PriceMark Up

Or Mark Up = Retail Price - Cost

Difference between the selling price and cost is Mark Up

Mark up should cover for operating expenses and transportation etc


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1) DEMAND ORIENTED PRICING

Focuses on quantities the customers would buy at various prices Largely depends on perceived value attached to the product by customers

Sometimes a high priced product is perceived to be of high quality

Sometimes a low priced product is perceived to be of inferior quality

Key to demand oriented pricing

Understanding of the target market

Value based proposition that they would look for


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2) COMPETITIONORIENTED PRICING

Competition is the criteria of fixing the price

Competitors play a key role in determining price

Retailer fixes price on par with the competitors

Retailer fixes price above the competitors price

Retailer fixes price below the competitors price


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IMPORTANT TERMS USED BY RETAILERS IN PRICING

Price Lining : When retailers sell merchandise only at a given price

Price Zone or Price Range : Range of prices for a particular

merchandise line

Price Point : A specific price in that price range


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RETAIL PRICING

APPROACHES TO PRICING STRATEGY

Market Skimming

Market Penetration

Leader Pricing

Price Bundling Multi-Unit Pricing

Discount Pricing

Everyday Low Pricing

Odd Pricing


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MARKET SKIMMING

Strategy to charge a high price initially

Gradually reduce it if necessary Policy is a form of price discrimination over time

To be effective several conditions are to be considered

MARKET PENETRATION

Opposite of Market Skimming

Aim to capture a large market share by charging low price

Low prices stimulate purchases

Low prices discourages competitors from entering the market

Economies of scale is required in manufacturing or retail to be effective


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LEADER PRICING

Retailer sells few items at deep discounts

This increases traffic and sales on complementary items. The product must appeal to a large number of people

The concept should appear as a bargain

Items best suited for this type of pricing are those that are bought

frequently Example : bread, eggs, biscuit, milk etc.

PRICE BUNDLING

Retailer bundles a few products and offers them at a particular price

Price bundling helps sale of related items

Example: A PC at a fixed price including a printer and a web camera

Value Meal offered by McDonalds


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MULTI UNIT PRICING

Retailer offers discounts to customers who buy in large quantities orwho buy a product in bundle

This involves value pricing for more than one of the same item

Multi unit pricing helps move products that are slow moving

Example: Offer price of one T-shirt for Rs.255.99 and two T-shirtsfor Rs.355.99

DISCOUNT PRICING

Used as a strategy by outlet stores who offer merchandise at thelowest market prices


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EVERY DAY LOW PRICING

Popularly known as EDLP Strategy adopted by retailers who continually price their products

lower than the other retailers in the area

Example: Food Bazaar, Wal-Mart and Toys R Us regularly use

this strategy

ODD PRICING

Strategy is to set retail prices in such a manner that the price ends inodd numbers

Example: Rs.99.99, Rs.199.99 or Rs.299.99

Followed by: Bata


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Adjustments to Retail Price

Retail prices need to be many times adjusted to meet theconditions prevailing in the market. Adjustments to retail pricecan be done by way of markdowns or by way of promotions.

Markdowns are a permanent reduction in price and may betaken as a result of slow selling or as part of a systematicstrategy. They are usually taken after a determined number of

weeks in order to maintain a desired rate of sales. Timely

markdowns help improve profitability, increase turnover andincrease profit.

The markdown % is calculated as Total Markdown / Total

sales.


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Promotions on the other hand, are a temporaryreductions in the price, used to generate additional

sales during peak selling periods. Prices may bereduced by a percentage (e.g. 25% off) or to a saleprice (e.g. Rs 99). High volume items with asubstantial initial markup are usually selected forpromotional vehicles.

Promotions may include coupons, which mayreduce the retail price by an amount. With retailcoupons, the retailer absorbs the reductions inprice.

'Gross Margin Return On Investment GMROI'


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Gross Margin Return On Investment - GMROI

An inventory profitability evaluation ratio that analyzes a

firm's ability to turn inventory into cash above the cost of theinventory. It is calculated by dividing the gross margin by theaverage inventory cost and is used often in the retailindustry. To illustrate:

Gross margin return on investment is also know as the "grossmargin return on inventory investment" (GMROII).


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This is a useful measure as it helps the investor,or management, see the average amount that the

inventory returns above its cost. A ratio higherthan 1 means the firm is selling the merchandisefor more than what it costs the firm to acquire it.

The opposite is true for a ratio below 1.

For example, say a firm has a gross margin ofRs.129,500 and an average inventory cost ofRs.83,000. This firm's GMROI is 1.56, whichmeans it earns revenues of 156% of costs.

retail chap 2

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