IMTS Retail (Retail operation management)

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IMTS (ISO 9001-2008 Internationally Certified) RETAIL OPERATIONS MANAGEMENT

RETAIL OPERATIONS MANAGEMENT

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RETAIL OPERATIONS MANAGEMENT CONTENTS: UNIT-I SOURCING

01-11

Structure ,Introduction ,The Sourcing Process ,Factors Affecting International Sourcing Decisions ,Factors Influencing Negotiations for Sourcing Merchandise Vendor Relationship Marketing ,Warehousing/stocking of Merchandise How Much to Order and When? ,Shrinkage ,Impact of Life Cycle on Sourcing Allocating Merchandise to Stores ,Merchandise Performance Critical Analysis of the Vendors ,Summary ,Key Words ,Self Assessment Questions Further Readings UNIT 窶的I

12-16

FINANCIAL MANAGEMENT ISSUES IN RETAILING Structure ,Introduction ,Role of Financial Management in Retailing ,Structure of Financial Accounting ,Key Issues in Financial Management ,Budget Planning ,Understanding Retail Business as Profit Centre ,Budgeting and Resource Allocation ,Strategy Planning ,Performance Measures and Audit in Retailing ,Summary ,Self Assessment Questions ,Further Readings UNIT-III

17-33

ORGANISATION STRUCTURE AND MANAGEMENT OF HUMAN RESOURCES Structure ,Introduction ,Human Resource Management in Retailing ,Strategic Objectives of Human Resource Management in Retail ,Factors Influencing Designing of Organisational Structure ,Human Resource for Indian Retail Scenario ,Human Resource Aspects in Retailing ,Human Resource Functions in Retailing ,Tasks Performed in a Retail Firm ,Organisational Charts ,Long-term and Short-term HR Planning ,Part Time Employment ,Human Resource Recruitment ,Recruitment Policy ,Role of References ,Interviews ,Sources of Job Applicants ,Orientation ,Motivation ,Summary ,Key Words ,Self Assessment Questions Further Readings

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UNIT 17

34-44

MONITORING AND CONTROLLING RETAIL OPERATIONS Structure , Introduction ,The Merchandise Decision Matrix ,Merchandise Management in Organised Retail Category Management ,Merchandise Planning The Key In Category Management ,Measuring Profitability In Retail Operations ,Monitoring,Performance In Retail Operations ,Maintaining Uniformity Across Retail Outlets ,Summary ,Self Assessment Questions ,Further Readings

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UNIT –I SOURCING Objectives After reading this unit, you should be able to: • describe the significance of sourcing as a function of retailing; • explain the process of sourcing in a stepwise manner; • explain various factors which influence the sourcing strategy of a retailer; • explain the factors affecting international sourcing decisions; and • understand the finer points of sourcing negotiation.

Structure Introduction The Sourcing Process Factors Affecting International Sourcing Decisions Factors Influencing Negotiations for Sourcing Merchandise Vendor Relationship Marketing Warehousing/stocking of Merchandise How Much to Order and When?

Shrinkage Impact of Life Cycle on Sourcing Allocating Merchandise to Stores Merchandise Performance Critical Analysis of the Vendors Summary Key Words Self Assessment Questions Further Readings INTRODUCTION When you enter a retail store to buy a commodity all the commodities displayed on the shelf have come from more than a dozen or 20 suppliers. The number of suppliers can be even more. Thus you see that at any given point of time a retailer negotiates purchase of various goods and services with many vendor. Merchandise sourcing is a complex and tedious process. The golden rule of sourcing is to buy quality merchandise at the reasonable price and then sell it 14) the customer at the reasonable profit. Without proper planning and strategy a retailer cannot be successful in this critical function of retailing. Therefore it is essential to understand the significance of sourcing of goods.

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THE SOURCING PROCESS Sourcing is a process involving several steps: Determining the Categories The retailer must first determine the categories in his store. Each category may have distinct features and therefore different points of attention from buying point of view. Categories in a bicycle store can be men's bicycles, ladies bicycle, sports and health bicycles and kids bicycle. However, you must realise that different categories of bicycles may not need so many vendors as is needed for grocery stores. Diverse categories of a supermarket or departmental store need many vendors to supply the required products. .

Using Internet to Gather Data Regarding Categories in Demand Although it is still not prevalent in India it is worth mentioning that it may become a reality in the near future. While conducting search for categories a retail outlet may definitely like to delve into the net for information. However, when we are looking onto the Internet for such information our search will be of a different type. Retailers generally post information about the prospective products/ categories on the various search engines like Yahoo, Google, etc and gauge the number of inquiries by the web surfers. On the other hand the merchandisers may' also put up information regarding such categories at various chat sites and take part in the interest amongst the customers who visit that site. Based on the feedback gathered a retailer can take decision in this regard.

Identifying the Vendors or Sources of Supply Very often, we find retailer sourcing certain categories from the authorised dealers. For instance in a supermarket, products like detergent bars, cigarettes, and similar products may be procured from authorised dealers of the respective brands. As a retailer depending upon your turnover you may also like to procure it directly from the manufacturer. On the other hand products like food grains and other edibles may be sourced from either the whole seller or directly from the food grain mandi. Coming to apparels a retailer may look into various sources of supply.

Retailers like Wal-Mart are going for global sourcing of their products. International sourcing is an area still new for India although some players have been doing it for quite a number of years. While going for International sourcing the retailer has to be very sure about the rules and regulations of foreign trade, issues related to foreign currency and transport. As a retailer once you decide to source merchandise internationally you should be confident about the credibility of the supplier and the expected return on investment.

It is worthwhile for the retailer to go through the financial statements of the various vendors.

This will help in ascertaining the financial worth of the vendors. It also helps the retailer study and visualise the financial position of all the individual vendors.

Activity 1 Make a visit to a small retail outlet and a large multibrand store in your city/ location. Try and make a study on their sourcing process. …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… ………………………………… 7 Sourcing

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FACTO AFFECTING INTERNATIONAL SOURCING DECISIONS Country of Origin Once upon a time electronic goods were sold more prominently with the Made in Japan Sign. Off late, issues related to country of origin have become very important. Swiss watches are very popular among the customers as they are marked of technology and style. Chinese products are supposed to be very cheap but very low in durability. There are many such issues which are constantly discussed in the marketplace by the retailers, customers as well as the vendors. While sourcing international products retailer must always keep in mind the reputation of the country of origin as well as the costs involved and expected perception by the customers.

Foreign Currency Fluctuations While making global sourcing decisions a retailer has to be cautious about the foreign currency fluctuations. This is one aspect which makes the product expensive or cheap depending upon the fluctuation in the market. Moreover it will be in the interest of the retailer to enter-into a deal wherein he is supposed to pay at a fixed rate of currency exchange.

Taxes There are a host of taxes levied on export and import of products which makes the product expensive or reasonable depending upon the laws of the land. With the introduction of GATT there is an effort to prevent double taxation. However this exists in various forms in different countries depending upon the laws of the respective governments. Moreover with the incoming of the WTO it still remains to be seen what will be the scenario five years from now.

Comparative Evaluation and Selection of the Suppliers/sources of Supply Once we have identified the vendors/sources of supply the next step is the critical one to evaluate and select the suppliers.

While short listing vendors and eventual selection, one must look into the following checklist: How much reliable is the supplier. Here point to be considered is his consistency Price being offered Delivery lead time Additional services provided by the supplier like credit, free transportation etc.

Honesty, ethics of the supplier Possibility of having a long term relationship Financially strength of the supplier Risk involved, if any in dealing with the supplier.

The prime consideration -in selecting the supplier is the fact that the products supplied by the vendor will be able to satisfy the needs of the customers. 1) 2) 3) 4) 5) 6) 7) 8) 8 Retail Operations

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Merchandise Examination Since the customer is ever demanding and makes efforts to get the best quality, the retailer must be cautious. While comparing various sources of merchandise one must always evaluate the quality of merchandise. A retailer should always remember that even if a single unit of bad quality product goes to the customer and is detected by him than he may face a big loss. He will not only lose one customer but many due to negative word of mouth publicity.

Price Negotiation In any business money saved means money earned. Therefore every retailer would like to say the least for the merchandise so that he can earn maximum profit. Depending upon the bargaining capacity of the retailer the financial terms and conditions of the merchandise supply is agreed upon. At all points of time a retailer would like to avail as many discounts as possible. Discounts can be of various types like: Trade Discount: This is the reduction in price of the product of supply by the manufacturer.

Such discounts are generally given to the wholesalers or retailers.

Volume Discounts: Based on the quantum per case made by the retailer discounts are given on the total amount of purchase. Such discounts are given by the manufacturer to boost their sale on an annualised basis. However one should remember that these discounts are given only if specific amount of purchase of goods is done within a specified period of time.

Cash Discount: Although such discounts are available in a very small percentage of businesses it is worth mentioning. A specific percentage of reduction is done if the retailer makes the payment within the stipulated time.

Off-season Discount: To boost sales of products when there is little and no demand for the product such discount is offered. It is offered as an incentive to the retailer for supporting the manufacturer.

Promotional Discount: Depending upon the policy of the manufacturer of fixed percentage of purchase amount of the retailer (from the specific manufacturer) is given as a promotional discount. This discount is actually an amount given to the retailer for promotion of that specific manufacturers plan. This amount comes very handy even for the manufacturer, since certain salient features of the promotional schemes can be laid down as stipulated by the manufacturer. Such promotional schemes have been explained, as schemes jointly financed by retailers and manufacturers. Please refer to unit 11 of this course.

Each retailer tries to reduce the cost of his investment in merchandise. Secondly he would also like to have easy terms and conditions for his convenience. Beside this any retailer would like to have the supplier support for early delivery of order, order cancellation and replacement of defective goods. A retailer always expects discounts, gifts, schemes etc from the supplier. This is an important stage of the sourcing process for the retailer.

All the terms and conditions are discussed and finalised at this stage. The latest in the Indian arena in the field of merchandise buying is the trend known as slotting allowance. This is the allowance paid by the supplier to the retailer to put his brand in few of the prime slots of the store. With more and more brands hitting the shelves everyday the store shelf is shrinking.

Thus the slotting allowances have become a relevant outcome of the present retail boom.

Executing the Purchase Concluding the Purchase is very important for the retailer. He has got several options at his disposal. However, it also depends upon the bargaining capacity of the supplier vis-Ă -vis the retailer. At times when the supplier's brand is very 9 Sourcing

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strong with a loyal customer base then this indispensability does not leave any option with the retailer than to just acquire it. There have been instances where despite very low or negligible margins as well as tough terms for payment the retailer is forced to stock the specific brand. Here the rationale is very simple when customers come in they come with multiple requirements. If they get their choicest brand in one of the products they are motivated to stay longer and in due course purchase something more.

While finalising the purchase some essentials aspects of the deal are to be kept in mind. The Retailer has to decide when to take the title of the goods. He has to negotiate the credit period. He also has to mount pressure at this time for old grievances if any to be redressed.

FACTORS INFLUENCING NEGOTIATION FOR SOURCING MERCHANDISE Certain factors need to be kept in mind by the retailer before entering into negotiation with the vendor.

Complete Information: A retailer or merchandise buyer should have complete information about the vendor. It is necessary for the buyer to have complete historical information about their relationship with the vendor. This at any point becomes a strong bargaining aspect.

Situation analysis of a product is to assess the ground realities in the market. Each vendor has an image in the market, which makes his products sell to the ultimate customer.

Target setting is another important issue for the retailer. While negotiating he has to keep in mind various aspects of the contract such as terms and conditions of payment, freight, transportation, delivery, terms for goods return etc. Based on his past experience a retailer while sourcing merchandise especially while negotiating with the vendor should have specific goals in is mind. This helps them to make the best deal as well as have satisfaction regarding quality of the goods, delivery in time and assurance of redressal of grievances.

Deadlines are very important while negotiating with the vendor. Deadline regarding delivery of product as well as making payments should be clarified and confirmed at the time of negotiation. A clear deadline confirmed and acknowledged by both the parties removes any chances of misunderstanding and conflict between the two parties. This is more in the interest of the retailer since any misunderstanding on such issues definitely will be loss incurring for the retailer.

No assumptions must be made by the retailer regarding any terms and conditions of sourcing at the time of negotiation. Each and every aspect of the contract should be discussed, clarified, confirmed and put in writing and duly signed by both the parties. This removes any doubt or misconception in the minds of any of the parties.

Never spoil relationships-even if the retailer is unable to reach the deal with the vendor he must not under any circumstances, spoil relationships with the vendor. It can just be possible that due to conditions of the contract or price points the vendor refuses to agree and sell merchandise to the retailer. However it in the interest of the retailer that he patiently waits for the next time to reach the deal with the vendor. In today's market everybody has become so short sighted that relationship has taken the, backseat. However, it is worth mentioning that business or no business there should not be any adverse effect on the business relationship.

A retailer or any businessman for that matter of fact should not burn bridges which at times become lifeline for the same individual. 10 Retail Operations

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VENDOR RELATIONSHIP MARKETING Retailers and vendors share a common cause. Both of them are interested in the merchandise to sell both are benefited once the customers purchase their merchandise.

Practically seeing the relationship you will find that both share the same concerns. It is in the interests of both the supplier and the retailer that they work as a team.

The retailer is in a position to share vital consumer information with the vendor. On the other hand the vendor can forward valuable assistance in terms of credit, timely delivery as well as general information of the market. At any given point of time the manufacturer does not have accurate information of the market demand in comparison to the retailer. A retailer's sales forecasts can be much more effective in a manufacturer's production planning and control than forecasts prepared on the basis of manufacturer's experience. Thus sharing of information can prove to be a boon for both the concerned parties stop.

You must appreciate that both the retailer and the manufacturer have their individual interests. Therefore, when we speak about the vendor retailer relationship we have to be a bit cautious. It measures the possible information sharing by one of the parties this time with an intention to make the other party more inclined towards the offer of the first parry.

Therefore, whenever we are looking into this sort of relationship there have to be some touchstones. These touchstones are mutual faith, common interest, selfless communication, and sincerity towards developing the relationship.

Activity 2 Visit any retail outlet in your location and try to study the strategic importance of vendor management. …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… ……………………………………………………………………

WAREHOUSING /STOCKING OF MERCHANDISE This is the last step in the sourcing of merchandise process. Receiving the merchandise and then stocking is perhaps one of the critical functions of sourcing. This involves various tasks such a receiving the goods, checking the invoice, matching the goods received with goods ordered list, adding the goods received to stocks. Finally making payment and planning for its entry in the store. At this point it is the duty of the retailer to seriously check for damaged goods, unordered goods and any deficient goods (ordered but not delivered). Since generally payments' are not made in advance the retailer has a better chance of getting his fresh grievance redressed early. In case the retailer has a chain of stores then-stocking becomes much more critical as it precedes distribution to various stores in different quantities and may by at different times too.

In store merchandise handling is an important issue which must be dealt with a lot of care and caution. Here the a retailer has to be cautious about the quality and quantity of merchandise delivered vis-à-vis the order. Chances of losses 11 Sourcing

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involving of delivery of lesser merchandise as charged for looms large. There are chances of embezzlement of existing stocks by collusion between the vendor and store staff. Such embezzlements can take place if the staff a successful and very tactfully passing some part of existing merchandise in the store as of old and damaged merchandise through the mode of conveyance used by the vendor to deliver the goods.

HOW MUCH TO ORDER AND WHEN? A retailer should always develop a mechanism in this regard, since this is a critical issue. So the focus should be on the following: 1) Average current demand for individual items. Also called SKU (stock keeping unit) Future SKU demand discounting seasonal and fashion trend variations For optimum restocking what sort of ordering policy or rules would suffice.

In order to take these three decisions we need to get some vital information for which we need to have the following: Inventory Report ⇒ This describes each SKU and summarises the inventory position.

An inventory report gives vital information from the retailer's point of view. A retailer based on' this information can calculate how much of specific merchandise should be purchased to meet customer demands for a relevant period. It also gives vital indication regarding shrinkage if any as well as the movement in the market. Based on the inventory report a retailer can always take necessary steps to clear stocks before they reach alarming levels.

Moreover, it also gives a clear picture as to what sort of assortment should the retailer order for as well as, how much of each constituent of the assortment of the ordered, so as to meet the demand.

Product Availability Report => This indicates that in a month on an average how much the product was available when required by the customer.

This report enables the retailer to understand the vital statistics regarding availability of products in the store. One of the most critical factors for the success of any store is the availability of a product as and when demanded by the customer. However, at times it is just possible that a specific product is not available in the specific size or denomination as required by the customer. Going through this report a retailer can very well apprised himself/herself about the trends in the market and consumer preferences. For instance, if a supermarket owner finds that 100 gms pack of Parle G biscuits were not available for a considerable number of times, an indication is given by these data. In this data is code related with the inventory report data regarding the same brand of biscuits, a vital clue can be derived as to which pack size is not moving vis-Ă -vis the hundred grams pack.

Reordering level => It is the amount of inventory below which the availability should not go down. At this point order is placed with the supplier.

Each supplier takes a particular time before the specific merchandise is delivered to the store. On the other hand every retailer has his limitation of space and money. Based on these two considerations retailer can fix the level of stock which, once reaches an order, of

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that merchandise will automatically be placed with the supplier. This is known as the reordering level. One more consideration SHRINKAGE It is the reduction in inventory caused by shoplifting, misplacement or damaging of merchandise. Such shrinkages can be measured by comparing purchase records with available inventory physically in the store. Depending on the shrinkage decision to source merchandise is influenced (quantity wise) Shrinkage through customer and employee theft has become an alarming problem for the majority of retailers. Stealing of merchandise from stock area as well as receiving area is common steps should be taken to minimise such happenings. A visual surveillance in such cases has been very helpful and has been prominently found in majority of the stores nowadays. A retailer has to realise that the cost of shoplifting reduces the profit in the bottom line of the organisation. Costs of shoplifting can always make the difference between the retailer earning high profits and a marginally profitable retailer. RFID has been successfully installed in the stores commonly in the West. However in India it has still not become a common phenomenon due to the exorbitant costs involved. More information about this technological product has been covered in unit 20 of this course.

When we are discussing shrinkage, we must not forget the scope of shrinkage in transit.

There have been instances that goods have disappeared while the goods where in transit in small quantities to avoid recognition in the first instance by the retailer. Here the pilferage can be between the vendor and the transporter as well as any third party and the transporter. To avoid such thefts the retailer must go for only credible transport agencies.

Moreover it is important that the vendor also shares responsibility in this regard. This however has to be communicated to the vendor at the time of executing the contract of purchase.

IMPACT OF LIFE CYCLE ON SOURCING While sourcing merchandise the buyer is sure about his decision regarding the quantum of par chase. This confidence of the decision comes from the experience the buyer has. This is due to the fact that most of the product categories generally follow the typical life cycle of a category. However variations in the life cycle stages can take place due to seasonal changes fad or fashion Speaking about that it is generally a short-term spurt in sales due to change in reference.

However, fashion exists for a much longer duration and is much more predictable than fad.

Therefore, whenever a retailer is planning for sourcing his merchandise he must take into consideration the prospect of changes in the preferences, lifestyle of the 13 Sourcing

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target customers before deciding on specific categories as well as assortment and quantities to be purchased.

It is worth understanding that all these factors of fashion and preferences will not affect the demand of staple merchandise. Stable/basic merchandise has got a continuous and consistent demand. It may just be possible however, that demand or some of the staple brands of merchandise declined over a period of time. For example a couple of decades back in majority of the households it was a tradition to buy wheat in large quantities and then ground to flour in small quantities on a monthly basis or maximum quarterly basis. This has over a period of time changed as there has been the growth in preference for ready-made flour. Interestingly this has not led to growth in demand for ready-made flour in branded packets. This may be due to the fact of a very high price differential from the flour ground from neighbourhood based flour mills.

ALLOCATING MERCHANDISE TO STORES After the merchandise is received, the next main task is to allocate the products to different stores belonging to the same chain (Assuming a chain store). While allocating merchandise to different stores retailer generally uses the historical sales information. However it is very important to pay due attention to the current supply and demand situation so as to maintain proper inventory situation. The retailer also has to keep in mind the geographic and, demographic factors influencing each of the stores. It means that due to the concentration of specific community or people of specific region in a particular area demand for the specific category type of products rises in a specific season or month due to some festival or custom.

Therefore demand for that specific category of products will be more in that particular store than the other members of the chain. One factor which plays an important role while allocating merchandise is the generation of percentage of total sales. It works like this - in case a retail chain has 10 stores in a particular area and demand for a product has suddenly risen across in all the areas. In such a case the demand for a particular product will dramatically rise however with the limited supplies the retailer has to take a decision regarding allocation of merchandise. Decision here will be taken on the basis of percentage of sales generated by individual stores. The store generating maximum amount of sales will have the authority to demand the same percentage of the product.

Each store has to keep adequate stocks to generate confidence in the customers. It has been generally felt that under stocked stores attract lesser number of customers. Under any circumstances customers must not feel that just because the store is relatively small in size or is not doing well, therefore it is not well stocked. In case the retailer wants to generate sales through a push strategy then he has to obviously keep large quantities of the stock. On the other hand if the strategy is to generate sales through pull strategy then the merchandise is distributed once the demand is generated by the customers at the store level.

MERCHANDISE PERFORMANCE Merchandise planning process is an ongoing process. Retailers must constantly examine various categories, SKUs, departments, various other aspects of the store- Regarding merchandise a retailer must continuously examine the performance of various merchandise being sourced from multiple vendors. For this a retailer can go for sales analysis whereby, he can compare their actual sales and targeted sales to determine the further strategy. The retailers can also use be complex method of weighing the vendors on a multi attribute basis.

14 Retail Operations

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CRITICAL ANALYSIS OF THE VENDORS Since merchandise forms the core of retailing due to the importance given to the sourcing process. It is just possible that for a given product category a retailer is dealing with many vendors. With the given pace of the market as well as changing consumer demands and preferences a retailer has to constantly analyse the performance and critically evaluate in the best interest of the customers and business as a whole. Following are the key areas in which the retailer ought to delve into: • Standards of quality in the merchandise supplied based on customer feedback • Comparative study of the facilities/support forwarded by the vendors • Comparative study of the various discounts given by the vendors • Total quantum of orders placed within each vendor • Differences in terms of delivery, price, product quality, any other issues which may have arose in the recent past • Sales performance of individual merchandise

Such a study is always helpful for the retailer. It not only apprises the retailer about the most valuable vendors but also gives indications for future course of action. This helps in strengthening relationship with the deserving vendors and at the same time cautions regarding the ones who do not.

SUMMARY Sourcing is a critical function of retailing. It is at the core of merchandising. This unit initially speaks about the process of sourcing. In this process it is important that we keep a checklist while short listing vendors for procurement. While short listing the quality of merchandise should carry the maximum weight. A retailer should always develop a mechanism based on his business and funds to indicate how much to order and when to order. Shrinkage is one of the risks which all the retailers are facing as of today. Once the merchandise is received the retailer must pay attention to allocating it to the store(s). Sourcing is a large scale purchase decision of a recurring nature. In case of sourcing from international destinations a retailer must be cautious about the country of origin, foreign currency fluctuations and taxes.

KEY WORDS Country of Origin: The country, which the merchandise belongs to.

Reordering Level: The level of stocks at which the retailer will order for merchandise.

Shrinkage: Reduction in stocks due to shoplifting, pilferage etc.

SKU: Stock Keeping Unit.

Sourcing: The function of purchasing goods from vendors for further selling. 15 Sourcing

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SELF ASSESSMENT QUESTIONS 1) How collecting information about the merchandise sources is a tedious task?

2) How will you explore the possibility of having long term relationship with the vendor? '

What measures can we take to minimise shrinkage?

What are the main factors which should guide allocation of merchandise to stores in case of a chain of stores?

With examples explain what points should be kept in mind before entering into a negotiation with the vendor?

In the unit certain factors have been given regarding sourcing from international destinations.

Can you add some more factors which we can keep in mind while sourcing from some specific destinations like Pakistan, Iraq etc.

FURTHER READINGS th

Berman Barry, Evans Joel R, (2002) Retail Management- A Strategic Approach 8 Ed (Prentice Hall of India) th

Dunne Patrick M, Lusch Robert F, Griffith David A, (2002) Retailing 4 Ed, (Thomson South Western). th

Levy Michael, Weitz Barton A (2001) Retailing Management, 5 Ed, (McGraw-Hill Irwin).

Sinha Piyush Kumar and Uniyal Dwarika, Retail Management - An Asian Perspective, Thomson Learning, Singapore, 2005. 3) 4) 5) 6)

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UNIT –II FINANCIAL MANAGEMENT ISSUES IN RETAILING

Objectives After going through this unit you should be able to: • explain what is Financial management in retailing; .

• comment on the role of financial management in retailing , • understand the key issues in financial planning in retailing; and • prepare financial plans for business model.

Structure Introduction Role of Financial Management in Retailing Structure of Financial Accounting Key Issues in Financial Management Budget Planning Understanding Retail Business as Profit Centre Budgeting and Resource Allocation Strategy Planning Performance Measures and Audit in Retailing Summary Self Assessment Questions Further Readings

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14.1 INTRODUCTION A mini steel plant is considering building a new furnace, an Insurance company is planning to install a computer system, the government of India is thinking of an ambitious plan to link two major rivers in India and you as a student is planning to buy a motor bike. All these situations involve a capital expenditure decisions. Capital expenditure is also referred to as capital investment.

Get Started To start with let us understand what the role of financials is in a retailing scenario. It is critical to understand these roles and plan our steps ahead based on these learning and assumptions.

Financial Management is very common-and is used by everybody. A common man like you and me does this. We plan our monthly budget according to our needs for instance, if we have to go for a festival shopping then in ideal conditions we plan our budget and control our expenses before hand in order to avoid any financial shortage.

Managing finance in retailing is by far the same as compared to individual level of financial planning; there are specifications that make it different from general finance planning. In retail the most critical aspects of managing finance revolves around factors like: • Present availability of resources based on financial parameters and data history relevant to business • Consumer issues • External factors that affect financial management Let us understand these factors one by one with the help of examples for the ease of understanding: Understanding the Factors and the Implications Let us understand these aspects based on simple examples.

Let us consider an organisation that is entering into retailing business, earlier it was a manufacturing company, to increase their turnover they are looking forward to start a retail venture. Before you start any operational activity, it is very important to understand the various aspects that make retailing different from any other business format. There can be various fields that have different ways of functioning when it comes to retailing.

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Understanding retail business and the relevant effects on financial management The key success elements of Retail Business that makes it different from any other business line are as follows: • Empathy / Service to customers (understanding consumer needs and behaviour) • Product Availability at the Retail Store • Product Quality • Product Visibility • Ordering Frequency (managing supply from suppliers in an efficient way) The functional departments in retailing which are similar to that of manufacturing are: • Human Resources • Finance management • Purchase and Procurements • Audit and Accounts • Cash Handling • IT System These are the various aspects of retailing business; we consider our focus to finance management in this unit.

Having understood the relevance of retailing and its unique implications on finance management, the next step that goes in is identifying the current position of an organisation in retailing scenario. Any company needs to identify the phase through which it is going and understand. various aspects that can affect the phase it is going or may be going through.

We can understand these phases through the following graph. 18 Retail Operations

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Phase 1 During this phase of a venture, the organisation is more of an idea. The sources to provide funds are few, but expenditure is usually high as the internal selling of the idea, developing financial plans and gathering resources for operations requires a lots of capital investment.

Phase 2 This phase comes when your organisation begins to deliver its products or services, you see losses because initial sales does not generate volumes and sufficient profits to cover initial cost and expenses.

Phase 3 This is a challenging phase but easier than the initial phase, in addition you get more rewards in this phase and the company becomes profitable and demand grows rapidly.

Activity 1 Visit a retailing company and suggest the phase that they are in currently as well as their performance since inception and develop a list of: Challenges they have and are currently facing with respect to finance Achievements they have gathered Methodology they pursued to gather these achievements Bring your output in form of a graph and recommend the various measures, give your suggestion which are critical for the company to grow. …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… ………………

Now having a fair understanding of finance management let us draw statements on the role that the entire exercise of finance management plays in retailing ROLE OF FINANCIAL MANAGEMENT IN RETAILING Role of Financial Management in retailing is very critical and we will understand the implications in this unit.

Retailing involves a lot of finance investment in terms of merchandise, real estate, infrastructure building investments, human resources which needs to be managed and optimised for the better operational efficiency and a healthy ROI (Return on Investment).

Therefore it becomes important to understand the various dimensions of finance management as played out in the retail scenario.

Thus managing your finance decides most critical aspects of business plan like: Budget planning Performance measure

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16

Resource allocation Future business estimation Analysing present business The imperatives of the role is explained in details in the following sub topics 14.3 STRUCTURE OF FINANCIAL ACCOUNTING We all will vote for the fact that seeing is believing and things which are presented in. front of you are much easier to study and analyse compared to things that are conceptual and do not have physical presence. Reading a book registers longer memory than hearing the same knowledge in dialogue.

Firstly Let us understand what does the term "structure" means in context to financial management. It is very clear to all of us that the financial of any retailing business needs to be established well before the execution. The plan of this financial should cover all the broad as well as granular details and aspects of the business. Let us understand this with an example.

Say a company "X" is opening a retail supermarket (like big bazaar). The management decides to store from financial point of view. They structure the financials of the store in a format like this: Item Value Real Estate - Land & Building Security Deposit Store for floor area

2,000,000

Security Deposit Car parking Covered

100,000

Security Deposit Office

500,000

Rent for first floor of store

8,000,000

Rent for office space

500,000

Interiors & Exteriors:

20,000,000

Civil Works Electrical Works Painting Racks & Shelves Furniture & Fixtures Signage Sum Total (All Real Estate Items)

31,100,000

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UNIT-III ORGANISATION STRUCTURE AND MANAGEMENT OF HUMAN RESOURCES

Objectives After reading this unit, you should be able to: • describe the significance of human resource management in retail; • identify different areas of retailing where Human resources play a critical role; and • explain the meaning and application of various terminologies.

Structure Introduction Human Resource Management in Retailing Strategic Objectives of Human Resource Management in Retail Factors Influencing Designing of Organisational Structure Human Resource for Indian Retail Scenario Human Resource Aspects in Retailing Human Resource Functions in Retailing Tasks Performed in a Retail Firm Organisational Charts Long-term and Short-term HR Planning Part Time Employment Human Resource Recruitment Recruitment Policy Role of References Interviews Sources of Job Applicants Orientation Motivation Summary Key Words Self Assessment Questions Further Readings

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INTRODUCTION Managing employees of an organisation was earlier termed as personnel management.

However over a period of time with the growth in consciousness amongst the employer community, employs but the status of a vital resource.

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Thus this was termed as human resource management. Humans found a vital resource for any business. As an old adage that business always runs by three M's men, money and material. Of late with the growth in the British and hazardous level of awareness and aspiration human resource management has become one of the most challenging frontiers of business management.

HUMAN RESOURCE MANAGEMENT IN RETAILING Retailing is the human centric industry. Customers come to the store not only because of the ambience or reasonable price or the quality and range of products. They value the interaction with store personnel. Moreover it is this human factor which gives valuable input to the store management about the specific requirements of the customers. A proper human resource planning saves vital financial resources in the form of prevention of embezzlement, fraud and also shoplifting. All these factors makes the human resource management an essential element of the overall retail strategy for any retail organization.

The first step in effective human resource management in retail is to look into the organization of the store. One must look into the tasks to be performed in the retail distribution channel. Thereon the tasks are to be grouped into different jobs. These jobs can be further classified into various classes. Finally one can form an organization chart and integrate various jobs therein.

Human resource functions in retailing With the growing pace of retailing in India the rate of growth of retail malls and markets may have even exceeded the population growth. However, keeping up with the pace of retail growth, no such development in the growth of training facilities for prospective retail employees has taken place. This poses the biggest challenge for the human resource management department of any retail organisation.

STRATEGIC OBJECTIVE OF HUMAN RESOURCE MANAGEMENT IN RETAIL Each human being has distinct goals in one's life; an individual's behaviour is directed by these goals and principals. Similarly each organisation has its own goals. The strategic objective of human resource management is to collectively integrate the capabilities and goals of the employees with the goals of the retail firm.

FACTORS INFLUENCING DESIGNING OF ORGANISATIONAL STRUCTURE While designing an organizational structure some important considerations need to be kept in mind as: Scope of Operations: With such difference in volume of transactions the job requirements are also different. Manpower planning accordingly changes. For larger chains it's essential that the manpower is well qualified to handle such large scale operations.

Nature of Merchandise: It is very Important constituent of the human resource planning process. The type of merchandise a store deals with has direct 34 Retail Operations

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implications on the type of skill sets needed. For instance a retailer selling ready made clothes will need people who are proficient in understanding customer's 4' clothing needs and offer the best possible alternatives. However in a leather shoes and leather accessories outlet such persons will be needed who have at least preliminary knowledge about leather especially footwear.

Type of Organisation: Depending upon the organisational structure, requirement for human resource changes. A retail organisation can have a host of departments like Sourcing, Marketing, Accounts Warehousing on a functional basis. It can also have divisions based on various products it deals with. For example The Giant at Hyderabad not only deals grocery items but also other categories like vegetables, fruits as well as casual wear and utensils to name a few. Thus they have different centres for sourcing their different products and also warehousing such varied products have specific requirements for manpower.

HUMAN RESOURCE FOR INDIAN RETAIL SCENARIO India. is dominated by a large number of small and independent retailers. The best example and perhaps the oldest one is our neighbourhood PanWala (beetle leaf shop). There can be a host of other examples such as the neighbourhood grocery shop, furniture shop, gift shop, sweetmeat shop and others. These retail outlets are owned and managed by an individual or family. Such retail stores have typically the following organisational structure.

Small stores generally employ on a contract basis or on job rate basis, lawyers, chartered accountants, income tax consultants as well as investment consultants. However that cannot be included in the organisational structure as they are not employees of the organisation.

HUMAN RESOURCE ASPECTS IN RETAILING Retailing is very different from other industries. As in any other services industry in retail human aspect is of prime importance. With technological advances there have been changes in retail environment. However this has only increased the importance of human resources. While you visit a store big or small, role of the individual who helps you buy your stuff is immense. Generally in India festival buying is one of the biggest sale earners for retail. Besides this generally sale picks up on holidays, vacations and similar occasions.

Thus the bottom line is, when everybody is enjoying the festivities or having holiday time you slog the most. More importantly in the midst of tough competition and more demanding customer a retailer has to cash in. This gives a very strong message. All the employees of retail stores should be ready to sacrifice their holidays, festivals for the sake of business.

Thus while recruiting staff one must be clear about the candidate's individual goals and temperament.

Here it's worth mentioning that character and integrity of the candidate is of great significance. In case a retailer is able to plug internal theft and embezzlement he is a big gainer. Moreover on the part of the employees it's also requited to be ever vigilant to prevent shoplifting. 35 Organisation Structure and Management of Human Resources 36 Retail Operations

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HUMAN RESOURCE FUNCTIONS IN RETAILING Human resource management has always been an issue for big retailers only. Wherever you go to the neighbourhood grocery shop or cloth merchant or say a small restaurant the owner is the chief of operations. All the employees of that establishment report to him or her. All decisions whether strategic in nature or related to day-to-day operations are taken by the owner. The need for human resource management is actually felt by big retailers like shopper's stop, pantaloons, etc.

Any typical retail organisation would commonly need the following human resource functions: • Job analysis and job design • Recruitment and selection of retail employees • Training and development • Performance management • Compensation and benefits • Labour relations • Managerial relations

Source: Adapted from C. Fisher, L.Schoenfeldt, and B. Shaw, Human Resource Management, 5th ed, (Boston: Houghton Mifflin, 2003), pp. 14-27 Job Analysis and Job Design Each retail store needs to analyse the jobs to be offered to the prospects. The job analysis involves a process of finalising the job content and based on the findings preparing a design for the job. It is the responsibility of the store to prepare the job design since, it is necessary from the new employee point of view. A well-prepared job design and job analysis helps in the recruitment process and thereon in training to achieve the required results.

Task analysis: This is one method of facilitating the listing of tasks. First the retailer or HR manager identifies tasks which are essential for the achievement of organisational goals.

Thereon it's defined that which employee positions will be responsible for those tasks.

Finally standards of performance for each position are set.

The Task Analysis Process For task analysis the first step can be termed as task identification. Here the retail manager is supposed' to list all the tasks needed to run the business. It is necessary to take a decision regarding assignment of different tasks to different members of the channels of distribution. At all points of time you should bear in mind that customer is the central focal point while taking any such decisions. Once the identification of tasks is done the next logical step is turning the different tasks into job positions.

In this step various tasks are grouped under distinct heads which can then be converted into positions or designations. For this, each task can be broken into some tasks which in turn can lead to creation of positions. This means, the set of tasks or an individual tires can be assigned to an individual person. For this we need to prepare what is known as a job description. 37 Organisation Structure and Management of Human Resources

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Job description is a document which states as to what are the exact requirements of a particular job. However in the present competitive scenario we need to keep in mind that the employees do not work with the narrow scope of job description. It is worth mentioning at this juncture because employees tend to limit their scope of work in line with the limitations of job description. We have to keep in mind that in this competitive and dynamic world our job profiles can change overnight as per the requirements of the store. Job description is an iterative process. One should keep in mind that job description is an ongoing process. Once our job descriptions are ready we must fix the standards of performance for performance appraisals and evaluation.

This is the final step in task analysis were performance standards are to be developed for the different tasks which have been mentioned in the job description. Whenever we are fixing standards we must indicate the level of proficiency required to meet the quality and quantity expectations. This in turn helps us to identify as to what can be the training needs for a new employee or an existing employee. At the same time it guides the human resource management department in giving reasonably logical feedbacks to the employees.

Training and Development New developments are always taking place in the retail scenario. With the growth in retail the consumers are maturing by the passing of everyday. In India, whatever you experienced as a customer 10 years back is very different now. Retailing is the most dynamic field of business management. With such changes in the field employees of any retail store ought to learn and train themselves to meet the new challenges. This is one of the most important profiles of any HR department. Training and development can take place in various ways. An organisation may like to give on-the-job training to the fresh incumbent whereas, the oldies may be sent for some advanced training to back up the vast experience which they already have.

Compensation and Benefits The HR department of any retail business needs to have policy guidelines regarding compensation and miscellaneous benefits to be given to the employees. For this the HR department needs to know similar policies and guidelines in similar organisations.

Benchmarking is very essential as far as compensation and benefits are concerned.

Compensation and benefits at any point of time are the best way to satisfy the employees at the lower and middle level of management.

Labour Relations The HR departments should know the rules and regulations with respect to labour relations.

A harmonious labour relation always argues the efforts of an organisation to achieve its goals. All regional organisations besides having an HR department also hire legal practitioners for consulting from time to time. This has become necessary since each state has got different set of rules for human resource management with some standard rules.

Activity 1 Visit a large store in your location/city. Try to talk to the HR. executive and study the organization structure to find how relevant it is in relation to its line of activity. …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… ………………………………… 38 Retail Operations

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TASKS PERFORMED IN A RETAIL FIRM We can broadly divide the tasks performed in a retail firm under four heads: 1) Strategic 2) Merchandising 3) Group Management 4) Administrative/Legal Strategic Management Devising and implementing a retail strategy. For devising a retail strategy the retailer must have a very clear understanding and complete information of the following: Target market Different retail formats catering the target market Present buying trends and preferences Various tasks to be performed within the organisation Accordingly designing an organisational structure Site selection, location analysis, layout details Design promotional strategy Strategic management is completely under the domain of top management. There can be circumstances where advisors or consultants are hired by the retailing firm in this regard.

Firms need highly experienced and qualified professionals to take such high level decisions.

Here it is worth mentioning that in small sized family owned retail businesses strategic decisions generally are a family affair.

Merchandising Merchandise sourcing is the prime task of every retail organisation sourcing of merchandise is the major component of merchandising process as a whole. For sourcing of merchandise a retailer has to go through the following steps: Search for vendors dealing with the specific merchandise Based on specific requirements valuate each vendor Negotiate terms and conditions with them Place orders Examine quality of goods received with negotiated specifications Communicate grievances if any/follow up Make payments After the merchandise is acquired a retailer needs to take full care since it's the single most valuable input in retail. A retailer can prepare and implement a merchandise control plan.

This process includes the following steps: Based on past experience develop a merchandise budget If it's a chain store allocate merchandise to stores

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Review stock position and merchandise off take.

1) 2) 3) 4) 5) 6) 7) 1) 2) 3) 4) 5) 6) 7) 1) 2) 3) 39 Organisation Structure and Management of Human Resources 1) 2) 3) 4) 5) 6) 7) 8) a) b) c) d) e) f) g)

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These processes need seasoned personnel with years of experience. Here the need is for an experienced person rather than high qualification.

Finally the most critical task in merchandising is pricing the merchandise. A retailer has to have complete information about existing price ranges in the market. In the present day competition is so intense that a small error in the pricing could lead to loss of sale as well as long term reputation of the firm.

A retailer may have to adjust his prices based on the market feedback. Generally the pricing task is done by the top management or by the owner himself in case of small scale or family owned retail firms. However it's worth mentioning that the shop floor level staff plays a big role here. They are in direct contact with the customers. Thus they can predict the best saleability of the merchandise at a given price. Besides this they are competent to state an ideal price for given merchandise.

Shop Management Store is the pivot for any retail store. Managing the shop involves various issues to be looked into like: Store facilities Layout and Display Selling of merchandise Customer grievances Complementary services like gift wrapping home delivery Prevent shoplifting and inventory shrinking Receive physical inventory and intimating for the procurement of the same.

Merchandise repackaging/alteration To execute all these tasks one needs to: Conduct manpower planning Prepare manpower requirement Recruit and hire store personnel Train them Plan work schedules Motivate people to perform Evaluate individual performances ORGANISATIONAL CHARTS These are charts which demarcates functional areas for various positions. Big retail chains may have scores of tasks to fulfil thus their charts are more elaborate and complex. However small retail organisations may not have such requirements. Geographically as well as demographically their scope of business is much small. Thus they may have a simple organisational chart.

Type of Organisational Charts Functional Charts: This organisational charts based on company's functional activities.

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Divisional Chart: In case the retail organisation has various divisions or business units then such a chart is required. In case the divisions are based in a region wise manner then regional charts can be made. Product/Brand based chart. If the responsibilities have been divided on the basis of various product ranges then such a chart is feasible for the firm.

LONG - TERM AND SHORT TERM HR PLANNING A retailer has to focus on overall growth of his organisation. Once the retailer is aware about his organisational growth pattern it becomes easy for him to project future growth. Company growth has got all around implications for the organisation especially human resource management. In the present day when every retailer feels the urge to expand into multiple stores or diversify into multiple products ranges. This immediately triggers the need for additional human resources. At any point of time the quality of human resources makes a big difference in the performance of the retailer. Performance here is defined by the sales volume achieved by the retailer. Very often it has happened that a retailer has not been able to expand due to lack of skilled employees or less than required number of employees. It has also been observed that if a retailer has tried to expand his business even after having this handicap. Then it has resulted in major losses. Thus under all circumstances a retailer should look into his long-term needs and have a HR plan designed accordingly.

Despite the significance of long term planning and analysis in the present context the importance of short term planning cannot be denied. Short term planning is generally of less than one year duration. India is a nation of many festivals and seasons. Market picks up and also goes down accordingly. Diwali, Dushehra, Idd and Christmas are the festivals which the retailers look upon. Similarly season and off season are two terms very close to them. All such occasions need specific short term planning. This scenario has lead to another reality.

Suddenly there is a need for part time employees.

PART TIME EMPLOYMENT This type of employment is a result of coincidence of similar needs. Youth are presently on the look out for augmenting their pocket money by doing some short term assignment or getting some exposure. On the other hand retailers do need additional staff at times but not on a permanent 10 AM to 10 PM basis. Availability of such-people helps them, greatly.

These assignments are dignified and at the same time paying. However the retailer should be cautious about making such recruitments. Point to be remembered here is that part time employment does not mean casual and irresponsible attitude on the part of the employees.

The retailer must ensure that he is hiring serious people even though they may be part time.

Activity 2 Identify two friends/persons who has taken up part time employment try to find out the reasons for the same. …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… ………………………………………………………………………………………

40 Retail Operations 41 Organisation Structure and Management of Human Resources

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HUMAN RESOURCE RECRUITMENT Recruitment means the critical function of the HRM Department. Each retail store aims for hiring employees to fit into the organisation very well.

The recruitment process aims at identifying and attracting the best potential employees.

Recruitment process can be divided into two.

Preparing a clear profile of the potential employee.

Analyse and prepare a profile of the type of potential employees desired calculate the number of employees required at present Identify potential employees who will accept the offer.

From amongst the potential employees who are likely to accept the offer shortlist those who may stick to the organisation for long.

As the first step of the recruitment process we need to prepare a clear profile of the potential employee. This can very well be done the job description which will tell you as to what are the skill sets which are needed in the prospective employee as well as his emotional quotient.

Once the profile is ready the second task is to decide on the kind of employee to be hired.

For instance if an apparel store behired employees in the front office to interact with the customers they would definitely look for a friendly, honest, sincere, and are very keen observer candidate. Thus we can clearly see the need is of self-motivated enthusiastic people that to youths. The next task is to assess and decide on the number or candidates to be hired.

Finally, to identify the potential employees who are most likely to accept the offer and join the organisation. Not only this, they need to ensure themselves to recruit such candidates who will not only accept the offer but would like to continue with the organisation for long.

This is the most critical stage of the recruitment process since, there can be very good candidates but the likelihood to continue with the organisation may be very grim.

RECRUITMENT POLICY Each retail organisation should necessarily have a recruitment policy as a part of their human resource policy. This comes in very handy to guide the HR department in finalising the recruitment process. Policy guidelines of any organisation are necessary since they, develop the culture of the organisation and at the same time maintain transparency in operations.

THE ROLE OF REFERENCES Each retail organisation while hiring and employing would like to be sure about the competency and integrity of the candidate. Therefore each organisation nowadays appreciates letters of reference from credible persons. This to some extent reduces the risk of hiring strangers without any information about their integrity or character. Retail being a human centric business it is most essential that competent and deserving candidates are given the jobs. 1) 2) 3) 4) 5) 42 Retail Operations

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INTERVIEWS This is generally the active stage of the recruitment process. It follows the preliminary stages of advertisements, short listing of candidates from the received application forms. If need be a preliminary information seeking is also done from the respective references. In present context it's very critical that only people with integrity enter the organisation as employees.

Interviews are usually one to one interaction between the applicant and retailer representatives. Here it is worth mentioning that some retail outlets in India do conduct specially designed tests for testing various aptitudes of the candidates. Such testing helps the employer to get a better picture of the potential employees. This is more helpful in the rejection process whereby the employer has to take the difficult decision of whom to hire and whom to reject. However, it is advisable, that such advance tests to be conducted with short listed candidates only.

SOURCES OF JOB APPLICANTS It is very essential that the retail organisation knows the various sources of job applicants.

For instance if a retail organisation wants to pick up youngsters mostly college graduates then it would be a wise decision to visit the college campuses. However, they have to be very sure about their own image in the market and then visit such campuses which can appreciate and associate themselves with such a store brand. A retail store has many avenues to attract prospective employees to apply. Such sources can be: • Through referrals which can be both internal and external • Competitors can be an important source on sourcing middle and upper level management personnel. This is, very effective when a particular individual is not finding opportunities of growth within his present employment.

• Former employees can be a good source for employment. It is just possible that a middle level employee in a big retail store joins his smaller store as a store manager. In future he can be targeted for a similar position in the store.

• Placement/employment agencies • Recruitment at college campuses with a focus on students with major in courses like retailing or marketing.

• Various job web sites like monster.com, Naukri.com have come into existence to further the cause of employment. These can very well be used for sourcing of prospective employees.

• Local, regional or national newspapers.

ORIENTATION It is essential that the selected candidates are not directly absorbed into the organisation.

They should be first put into a small orientation programme. Such programmes help the new employee to be comfortable and confident about his role in the firm. More importantly he/she develops an identity as member of the family and not as an-alien.

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Training With rapid advancement of latest technologies and ever changing market scenario training has become very important for the success of a retail firm: Training can be imparted in various ways based on employee requirement and firm's budget.

Supervision It involves direction from superiors. Manager has to direct the employees to ascertain the productivity of the employees. More importantly he has to ensure that the tasks are completed in time.

Evaluation Based on performance standards employees are evaluated as per their performance.

MOTIVATION Every employee of any retail organisation need motivation at all points of time. You should appreciate all those employees in any retail store working under stressful atmosphere at times working hours can be long and boring as well as mentally demanding. Each employee likes to be encouraged and motivated. The need and type of motivation differs from position to position, and person to person. Generally we can divide motivation for retail employees into monetary and non monetary (motivation) incentives. Non monetary incentives generally comprises of appreciation, awards, trips, enrolment for advanced training programmes etc.

There are several theories of motivation which have developed over a period of time. Three very important theories are: Abraham Maslow's Hierarchy of Needs Model Herzberg's two factor theory of motivation McGregor's theory X and Theory Y Maslow's model stresses that human beings have different types of needs which can be categorised at different levels. According to the theory, depending upon the satisfaction of lower levels of needs an individual moves up wards.

1) Abraham Maslow's Hierarchy of Needs Model 43 Organisation Structure and Management of Human Resources 1) 2) 3) 44 Retail Operations 2) 3)

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Physiological needs comprises of the basic needs of the human being like food shelter and clothing. This is the need which is phased by an individual in the starting of his career just out of college. At this point of time the individual looks only for the basic requirements of his life. Once such needs are satisfied an individual aims for the next levels of safety and security in his life. At this stage an individual is looking for permanency of job and some sort of settlement in life. This stage is characterised by meeting to basic necessities but .does not have a sense of security. Once, the permanency comes in an individual starts aiming for recognition and social status. At this stage an individual aims for high social status and looks forward to achieve social needs by joining clubs/associations. The last stage is where all the necessities have been met. This is the stage where money, status or any other type of need does not remain unsatisfied. We can say that an individual develops this feeling after spending a major part of his life in achieving all his goals.

In relation to the stage of life of an individual a retail store can be successful in motivating accordingly. For instance when you look forward to hire a very senior position person, you can keep in mind that, such a person may not be looking for monetary growth as. the prime factor. Therefore you have to present the opportunities of a respectable and important position for attracting such candidates. On the other hand a youngster who has just graduated and is looking forward to avenues to start his career would have totally different needs. Such an individual if not experienced, would only look for a basic subsistence level.

Herzberg's two Factor Theory of Motivation

This theory classifies the two factors of motivation as, hygiene factors which are basically the physiological and safety needs of Maslow's model. The motivators here are the esteem needs and self actualisation. According to the fury lies in tatters are extrinsic to the individual and motivators are intrinsic to the individual.

McGregor's Theory X and Theory Y

Theory X simply lays down that employees if not supervised and not motivated with negative motivation would not like to contribute to the cause of the organisation at all. On the other hand, theory Y views employees as self motivated and enjoy work but would also like to contribute to the organisation without any supervision or pressure. Another theory which was propounded on the basis of these two theories was theory Z derived from the above theories to prove that individuals need both positive as well as negative motivation depending upon the circumstances. Therefore, it can be suggested to the human resource department of a retail store to motivate their employees depending upon an individual mindset as well as the stage of his life.

These theories of motivation were propounded based on years of research. However a retail store can adopt any of them or create a hybrid from these depending, upon the ground realities.

Motivating Employees Through Job Enrichment Increasing features of a job, job contents and work experience to work planned programme is called job enrichment. The sole purpose of job enrichment is to increase work motivation

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and work satisfaction which in turn increases the productivity of an individual employee. We can look into five areas which can enrich the job.

Each task has its impact on the employees as a whole, even if in an abstract manner. By increasing the significance of the task by making it more critical for the overall success to complete the job then, we can enrich their particular assignment or task. 45 Organisation Structure and Management of Human Resources Modes of job enrichment :If regular feedback about the performance is given to individual employees and remedial steps taken thereon to help the employees achieve their targets and further reward them then, we can successfully enrich the job.

There are individuals who keeps on working yet without getting any recognition despite being hard-working and sincere. By recognising the significance of their contribution one can enrich their jobs. This can be done by bringing in more visibility to their contribution.

Every job requires certain skill to perform and execute. If one can enhance the scope of that job whereby, an individual requires additional skills to execute then the job becomes more challenging for the employee. This is due to the fact that over a period of time each job becomes monotonous and mechanical, thus reducing the efficiency. Thus by increasing the variety of skills you can very well enrich the job is to For a job to become more significant/critical it is necessary that the element of accountability is enhanced. In this regard if we can provide more autonomy to complete the job, enrichment takes place naturally.

SUMMARY Human resource is the pivot around which the complete retailing industry rotates. Being a typical service based industry human resources play a critical role. There are various factors which influence human resource management aspects in retail. These include scope of operations, nature of merchandise and type of organisation. Human resource requirements vary for large retail stores vis-Ă -vis small retail stores. Human resource needs in retailing also vary as per the tasks needed to be accomplished. Tasks can be broadly divided into strategic, merchandising, group management and administrative /legal. For proper manpower planning organisational charts are essentially needed. There are various kinds of organisational charts as per the need of the retail organisation. This unit also touches the latest issues like part time employment as well as various steps involved in human resource management in retail. 46 Retail Operations

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KEY WORDS Organisational Chart: These are charts which demarcates functional areas for various positions.

Part Time Employment: Where a retailer appoints somebody to work for a specific duration which is less than normal work duration.

Orientation Programme: The newly recruited employees are put into a small familiarisation programme to orient them before absorbing them in the mainstream of the organisation.

SELF ASSESSMENT QUESTIONS Explain how you will assess human resource requirements of a retail organisation.

Explain the relevance of organisational charts in manpower planning.

Explain the significance of orientation programme. Should each employee in a retail organisation undergo the same orientation programme?

What should be the profile of person working in the: Merchandising department, Warehousing department, Sales department, Administrative Department.

Explain why do you think so?

FURTHER READINGS Dunne Patrick M, Lusch Robert F, Griffith David A, (2002) Retailing 4th Ed, (Thomson South Western).

Levy Michael, Weitz Barton A (2001) Retailing Management, 5th Ed, (McGraw-Hill Irwin).

Sinha Piyush Kumar and Uniyal Dwarika,(2005)Retail Management - An Asian Perspective, Thomson Learning, Singapore. 1) 2) 3) 4) a) b) c) d)

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UNIT -IV MONITORING AND CONTROLLING RETAIL OPERATIONS Objectives After going through thus unit, you should be able to understand the need of controlling in retail operation; understand the concept of merchandise decision matrix; implement the merchandise matrix in different kinds of retail formats; understand the need for category management in organized retailing; analyze the importance of planning in organised retailing; understand to use the different kinds of ratios in performance analysis; measure and monitor performance of one retail outlet to another; and understand the methods of monitoring retail outlets by maintaining uniformity.

Structure Introduction The Merchandise Decision Matrix Merchandise Management in Organised Retail Category Management Merchandise Planning - The Key In Category Management Measuring Profitability In Retail Operations Monitoring Performance In Retail Operations Maintaining Uniformity Across Retail Outlets Summary Self Assessment Questions Further Readings

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INTRODUCTION As you are aware that every business needs to be closely monitored and effectively controlled for the purpose of growth and developments, this approach assumes significance in retail business as the retailer, face the challenges of increasing competition, shrinking margins, and economic slowdowns are bringing about changes in thinking and the way they do business. Some retailers are beginning to take a much more serious look at managing the top line, and are showing the benefits. Controlling is the follow-up function of retail management. This is when the actual performance is compared with planned performance to spot and evaluate deviations or corrections, if any.

The retail industry covers numerous market segments and differing business needs. But one critical point unites the retail world: high overhead and narrow profit margins make customer retention a key factor in a retailer's bottom-line performance. And because today's savvy customers demand positive, • • • • • • • •

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personalized service, choosing the right technology - at the right price - can mean the difference between business success and business failure. Looking for emerging technologies to meet their needs, successful retailers will choose to avoid the pitfalls of rigid proprietary systems - being locked in to a single IT vendor who dictates what hardware to use, what operating system (OS) to arrange, and what software to run. Of course, controlling the supply and distribution chain is critical to all retailers. As margins shrink and delivery time requirements shorten, tracking a product from consumer order to shipment is vital. The right solutions are needed to help enable retailers to maximize efficiencies and meet the extreme load demands they experience in seasonal peaks throughout the year. The success of retailing lies in providing the consumer with the right product - at the right time and at the right place.

• Clear understanding of customer needs.

• Well-run store operations.

• Seamless and efficient Supply Chain.

• Proper matching demand and supply to enable the maintenance of stocks at each location.

Shops fronts, displays and promotions are all much needed parts, but the heart of modern organized retailing is merchandise and supply chain management. In an ideal world, before the world beats a path to its door, a retailer would have a right quantity of the right merchandise in the right place, at the right time. In the world of retailing, this process is termed as merchandise management. Evident here is that there are many variables and decision points involving goods within a retail operation.

A retailer aims for two goals: • To satisfy the consumer and • To maximize financials gains at the same time.

So the key factor here to managing the goods, i.e. which implies making the decision of what to sell, hence the two major functions are supply chain management and merchandise management. Both these areas of business optimization encompass many activities and functions.

Cross Docking, a supply chain innovation which originated in the early nineties in the grocery business, would not have been possible without close co-ordination between possible merchandising and SCM teams.

Developing competence in merchandise management is a must in retail chains. Infact, globally successful retailers have tried to develop excellence in merchandising as a means to building competitive advantage.

Wal-Mart, the leading retailer in the world, which has successfully come, up with many innovations, and is considered as the storehouse of best practices in the industry, owes most of its triumphs to its policies in merchandising and supply chain management THE MERCHANDISE - DECISION MATRIX The retail manager deals with multiple supply points and sourcing points. He/she also deals with many more items than the other businesses. Best examples of this are • Leading garments and departmental stores like Shoppers' Stop and Globus, which sell about 100,000 to 1,50,000 different SKU's.

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59 Monitoring and Controlling Retail Operations 60 Retail Operations An organized retailer deals with more than 700 to 800 suppliers whereas large international retailers can have a few thousands of suppliers spread globally. Added to this the number of suppliers and items handles is the complication of shelf-life, which can be as little as one day for fresh foods or just one season for fashion garments. Dealing with such fragmented numbers on both forward and backward linkages would make the need for collaboration between the merchandiser and supply chain manager, highly important. While the retail merchandiser of a large chain has to look at the broader context of all the activities directly or indirectly associated with procuring and reselling merchandise.

So how does Merchandising Work?

Merchandising is more than just an important factors for neighborhood shops like kirana (grocery) or fabric shops. It is, infact their most critical operation. Most of such shops are very small, less than 500 square feet. These shops know that they cannot stock a broad range of merchandise large neighbourhood shop might store 800-700 SKU'S, a fraction of what an organized outlet does. The key to store the right items and to maximize-stocks turns.

In the Indian scenario, most of the retail trade is with mom-and pop stores. These follow more than basic retail practices, which may have changed only marginally since the advent of the concept of a retail outlet. For most of these stores, location is decided by default based on where the owner stays or owns property.

However, in this case because of its small-scale operations, the shop owner cannot afford to make any effort at establishing a supply chain. Most of the shops depend on vendors to knock on their door with supplies or occasional some member of the family goes to the wholesaler to buy the goods. While a small consumer durable store might use the telephone to get in touch with a company or distributor to ask for replenishments.

The new retail chains entering the Indian market in the last few years are trying to build in very different practices. These are inspired by systems followed by leading international chains. Many of these are assisted by international consultancies like AT Kearney, McKinsey, Anderson and KSA Technopak, who help transplant the best international practices to the Indian scenario. This could help Indian companies leapfrog a few stages of development into state-of-the-art practices in merchandise and supply chain management.

Activity 1 Interview a retailer in your locality to identify the decision factors he uses to analyze the merchandise in his outlet. …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… ………………………………

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MERCHANDISE MANAGEMENT IN ORGANISED RETAIL CATEGORY MANAGEMENT Most of the international players follow category management to effectively undertake their merchandising and buying functions. A category is a basic unit of analysis for making merchandising decisions. In general, category is an assortment of items that the customer sees as reasonable substitutes for each other. The fundamental of category management revolve around managing categories as Strategic Business Units.

Need for Category Management The need for category management come from the need to reduce product proliferation, to lift sales and market shares to focus on end-to-end market offering. The whole concept is a customer driven approach, with an aim to answer questions like who is the consumer, why, what, when, how much and. how he/she' is buying. The focus of this study of the customer decision-making process is on identifying the factors that are external and internal to the store, which influence the customer purchase. The idea is to use this information to tailor the offering to consumer needs. The offering is then measures in terms of sales, cost and return per square foot so as to identify the optimum time required to get the highest return and to optimize the value for the customer. The whole process is interplay between customer satisfaction and maximizing returns for the organisation.

An idea of merchandising practices can be had from Macy's, a large US based department store department store chain. Complexities increase when the store became multi-locational, and the chains tried to centralize functions, for maximum efficiency. However, with size, a simple buyer's function was not enough, and new roles developed.

The role of buyer and planner remain key to category management as well. The buyer is responsible for working with vendors, for the selection and pricing of merchandise and for coordinating promotions with advertising department and stores. The buyer's challenge is to compose an assortment that is appealing to the organization's intended customers and to obtain the best possible goods at the lowest possible prices.

The planner is also responsible for forecasting the correct quantities of each item, allocating those items to stores, monitoring sales, and suggesting markdowns. A planner projects sales and inventories based on an analysis of sales history, current market trends and organization's performance objectives. • In case of more complex organisations, there are individual category managers' for various products, who report to the buyer, while • In smaller organisations, one may have a buyer handling more than one category the merchandising process can be very inefficient for retailers who don't embrace category management.

Nature of Allocation in Category Management Another function, traditionally below the buyer, is that a distributor or an allocator, who allocates the arriving shipments of merchandise to individual stores, based on the store's capacity, current sales trends and inventory levels. They are critical link between the ,

merchandising department and the stores. Then there is a product developer, who determines which products can develop internally with the store's private label. They also establish specifications for the design, production and packaging of the goods. In the past, retail sales have been 61 Monitoring and Controlling Retail Operations

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difficult to measure and manage. Most retailers know what their sales will be, (within a level of tolerance). This projection is then used to base payroll, advertising, and many other expenses.

Division of Categories into Sub-categories The extent to which large global retailers have evolved roles is evident from the classification system evolved by American National Retail Federation. (NRF). NRF has come out with its own structure of a merchandising and planning department, which is followed by major department store chains like Federated Stores Inc, which now owns Macy's. According to this, the first level in a merchandising and planning department is the merchandise group, which is further broken into departments, with departmental heads. A number of buyers report to each departmental heads, with each buyer responsible for a particular classification of merchandise in that division. Each merchandise is the broken into categories where category managers are assigned. The category manager is the last link in the entire merchandise department and he is responsible for all SKU's in his category.

For Example: A design of this function in a category managed retail organization; consider a garment departmental store chain. This could have Menswear as a merchandise group, within which there could be various departments like formal wear, casual wear sports wear and occasional wear. These could be further broken into buying roles like buyer-suits, buyercotton shirts, buyer-blended shirts for formal wear, where each product-suit, cotton shirt, and so on- is a classification. Each buyer has various categories to manage. The category manager is responsible for the entire range of activities within that category. Thus a category manager for a plain shirt will be responsible for the procurement, manufacturer, warehousing, distribution, sales and customer service of this category. The sole objective of this one-point control is to develop seamless flow of information on that particular category within the organization so as to remove all obstacles and to measure the performance of this category. The idea is to identify the barriers at each stage and to optimize the returns from that category.

Category management also demands entering into strategic understandings with the vendors. Some internal retailers turn to one favoured vendor to help them to manager the entire category. This vendor is known as the category captain and he/she forms an alliance with the retailer to help gain consumer insight, satisfy consumer needs and improve the performance and profit potential across the entire category. This vendor also provides the retailer with a planogram, which a diagram that illustrates exactly where every SKU in the category should be placed.

MERCHANDISE PLANNING - THE KEY IN CATEGORY MANAGEMENT An effective category management starts with the assigning roles, functions and performance targets to various categories. These steps serve two key goals and they are: Positioning of the store in the market and Influencing future decision-making processes.

Formerly, assigning roles to various categories helps the retailers to establish the importance of a particular product to the store.

Four roles can be identified for categories: destination, routine, impulse and convenience. 62 Retail Operations 1) 2)

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For example, if the retailer wants his/her store to be ultimate in men's garments, all menswear becomes the destination category on the other hand, if the retailer wants the shopper to merely include menswear on their shopping trip; menswear becomes a routine category. The allocation of space, pricing, promotion and assortment all depends on the role of each category as defined by the retailer. The store management needs to identify and define all the above parameters, before planning for the category.

The identification of the category role becomes much more pertinent in the case of supermarkets, where a decision on whether a category falls into a destination, routine, convenience or impulse mode has a substantial impact on the circulation flow and allocation within the outlet. By organizing the merchandise in planned categories, the retailer can actually make the customer move through the store in predetermined fashion, which can help maximize sales.

Planning consists of two steps At the management level and At the category manager level.

The top management is concerned with forecasting of sales and the estimation of space to be allocated to each category. This is a two-pronged process, which involves forecasting for both the category and store. Targets are set for sales, gross margins, inventory turnover, discounts, mark-ups, stock levels and margins for each store and category. These annual projections and further broken into seasonal projections for these stores and the categories.

Thus the top management looks at the big merchandising direction for the company, which is called as the top-down planning.

The category manager takes a more micro approach, wherein he studies the categories' past performance and trends in market place.

Methods of Category Planning and Analysis The category manager then prepares a range or assortment plan, a procurement plan and a distribution plan.

The Assortment Plan: This deals with the merchandise mix that the category manager feels would sell in the coming year. The key factors considered while making an assortment plan are the range of prices, brands and sizes to be purchased based on the merchandise strategy of the store. The idea is to try and achieve the sales and profit per square foot target laid down by the top-level management. The physical characteristics of the store play an important role, as it size determines how much of merchandise it can store. The category manager has also to make adjustments for complementary merchandise. Assortment planning requires inputs from the various internal and external sources. The internal sources are typically past sales data, the budget for the future and the merchandising strategy of the retail organization. The various external sources are consumer and trade publications, trade associations, forecasting service providers, suppliers and consultants.

The Procurement Plan: Once the assortment plan has been prepared, the procurement plan is formulated. The procurement plan involves decisions pertaining to what, how much, when and from whom to buy. Here the product availability aspect of the assortment plan becomes vital. Procurement practices have to be different for different kinds of merchandise.

The important distinction to make is staple .vs. seasonal merchandise. In the case of staple merchandise, a more mechanical system of inventory management is used. Staple merchandise is replenished based on the amount of units sold during a typical selling period,

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the lead-time for the arrival of reorders and a safety (or base and back-up) stock. 63 Monitoring and Controlling Retail Operations 1) 2)

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There are various methods to calculate stick levels. Some of them are as follows: • Basic Stock Method: this method asserts that the stock at the beginning of a month should be equal to planned sales plus basic inventory. Thus, it is the planned sales divided by inventory turnaround ratio.

• Percentage Variation Method: this method asserts that the stock at the beginning of a month should be a percentage of the average inventory. The percentage is defined as 0.5*(1+(planed sales for month / average monthly sales) • Stock-to Sales Ratio: This method asserts that the stock at the beginning of a month should be equal to the number of times of the expected stock-to-sales ratio.

• Week of Supply Method: This method asserts that the amount of inventory required to support planned sales for a week is based on the number of weeks that an inventory will last relative to a desired turnover and planned sales. This reflects the number or days that an inventory will last if sold at the current rate of sale. Most of the merchandise in food and discount stores falls under the staple merchandise category. Here an inventory management report is prepared, which provides information on sales velocity, inventory availability, inventory turnover data, product availability, index back up stock data, forecasts and the point of order. While planning for fashion merchandise, the assortment plan provides a general outline of what types of merchandise should be carried. The procurement plan is used to determine how much money to spend in each month on a particular category of fashion merchandise, given the sales forecast and inventory turnover.

Merchandise Allocation Methods (%) Source: NRF Survey, 1998 c) The Distribution Plan: Allocation of merchandise to the stores is based on the ABC analysis, which measures individual store profiles. The basis of the ABC analysis is to maximize sales per square foot. For a particular category stores are classified as A, B, or C- based on the sales of that category in that store.

Activity 2 Design a plan for two different types of retail outlets in your city and discuss the reasons of your choice? …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… …………………………………………………………………………………………………………… ……………… 64 Retail Operations

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MEASURING PROFITABILITY IN RETAIL OPERATIONS Sample Footfalls/day Measure of Retailers Retail Outlet

Conversion (%)

Average Size

Shoppers'stop

4000

35-40

1000

Pantaloon

3500

30

850

KBN

2000

20

1500

PlanetM

3500

40

250

Ebony

3000

50

700

Meenabazaar

2000

45

1000

Nilgiris

5000

60

300

Bill

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