Retail

Objectives

• Types of retailing establishments• Merchandising• Retail location theories• Assessing performance

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Major Retailer Types

• Specialty store• Department store• Supermarket• Convenience store

• Discount store• Off-price retailer• Superstore• Showroom

Non-store retail

• Direct selling• Catalogue• E-tailing

Merchandising

• Merchandising is the planning and control of the buying and selling of gods and services to help the retailer realize its objectives.

Merchandising decisions• What will be the anticipated sales for the department,

division, or store?• How much stock on hand will be needed to achieve this

sales plan, given the level of inventory turnover expected?• What reductions, if any, from the original retail price must

be made in order to dispose of all the merchandise brought into the store?

• What additional purchases must be made during the season?

• What gross margin ( the difference between sales and cost of goods sold) should the department, division, or store contribute to the overall profitability of the company?

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Retail Location Theories

• Reilly’s Law of Retail Gravitation based on Newtonian gravitational principles, explains how large urbanized areas attract customers from smaller rural communities.

Dab

d

1 +Pb

Pa

=

where Dab is the breaking point from city A, measured in miles along the road to city B;d is the distance between city A and city B along the major highway;Pa is the population of city A; andPb is the population of city B.

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Retail Location Theories• Index of Retail Saturation (IRS) is the ratio of demand for a

product (households in the geographic area multiplied by annual retail expenditures for a particular line of trade per household) divided by available supply (the square footage of retail facilities of a particular line of trade in a geographic area).

IRS = (H X RE)/RFWhere IRS is the index of retail saturation for and area; H is the number of households in the area; RE is the annual retail expenditures for a particular line of trade per household in the area; RF is the square footage of retail facilities of a particular line of trade in the area (including square footage of the proposed store).

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Retail Location Theories• Buying Power Index (BPI) is an indicator of a market’s overall

retail potential and is composed of the weighted measures of effective buying income (personal income, including all nontax payments such as social security, minus all taxes), retail sales, and population size.

BPI = 0.5(the area’s percentage of GDP)+ 0.3(the area’s percentage of national retail sales)

+ 0.2(the area’s percentage of national population)

Performance

• Net Profits & Profit Margin• Turnover / Asset Turnover• Return on Assets• Return on Net Worth• Space productivity• Labour productivity• Merchandise productivity

Zara

• Probably the most international of all clothing retailers

• Centralized design and production• Design to product cycle is 2 weeks – Industry

average is 6 months• 10,000 new designs every year – no

customization for local tastes• Pricing is different to reflect costs of transport

and management

Zara

• Primarily company owned operations• Franchises & JVs in low volume locations• Stores in high profile locations• Advertising costs are 0.2% as opposed to

industry average of 2%• Industry ave markdowns are 30% for 30% of

stock. Zara is 10% for 10%.

Wegmans

• $5 billion in revenue• 28th largest supermarket chain in US• 37000 employees• Regularly voted as the best place to work for• Never had a layoff

• Great ambiance• Wide selection• High quality private labels drive profits• Model is copied by Nugget Market