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In this chapter we will look at why we plan and at some of the key planning
concepts.
Bearing in mind that the objectives of merchandise planning are to meet the
needs of our customers and to deliver profitable growth, letǯs start with some
pertinent quotes.

DzA mighty maze!. But not without its plandz, said Alexander Pope in 1733

DzAssumption is the mother of all screw upsdz, said one of the villains in Under Fire
2 (1995), a Steven Seagal action movie, shortly, and iron ically, before getting
despatched by the hero he assumed was dead.

Despite the difference in the age and providence of these two quotes they teach
two important lessons. If you donǯt want to get lost in the retail maze, and if you
donǯt want to screw up, make sure you start with a plan.

What happens if we donǯt plan? Imagine, for instance, that you wanted to go on
holiday but had no idea of where to go or of what the advantages and
disadvantages of various locations were, not only that but you hadnǯt book ed any
vacation time, hadnǯt saved any money, didnǯt have any idea of how much it
would cost, how much you could afford to spend or the how much time it would
take. It is unlikely to be a very successful or pleasurable holiday. Now imagine
what would happen if a business operated in that way! It would be a very short
lived business.

More academic definitions of planning include :

Ȉ DzIntegrated decision makingdz. Mintzberg (The Rise and Fall of Strategic
Planning)

Ȉ DzDesign of a future, and of effective ways of bringing it aboutdz. Bill and Roy
Richardson (Business Planning)

Ȉ DzExplaining the past which in turn helps understand the present, which helps
with predicting the future, leading to more influence over future events and less
disturbance from the unexpecteddz Hardy (Understanding Organisations)

Planning, then, not only helps us to avoid mishaps in the future, but also, and
more importantly, enables us to coordinate the actions and to take the decisions
needed to achieve the objectives that we set based on our analysis of what is
likely to happen. In our case the broad objectives are to make a profit at the same
time as satisfying our customer needs and, regardless of anything else, we simply
wonǯt achieve them without a robust plan.

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The business cycle is the closed loop of activities shown in the following diagram.

The primary purpose of planning is to drive these activities. Planning leads to a

series of actions which are executed. The results of these actions are reviewed,
following which two things will happen. Firstly, you may need to react to
performance and take additional actions so that your original objectives can be
achieved or surpassed and secondly, you will amend future plans to t ake account
of the actual effect of the first set of plan actions. And so on, and onǥ...

c  c








Quite clearly, if a business doesnǯt have clear and measurable objectives it will be
directionless and wonǯt operate effectively. The plan specifies what these
objectives are and ensures that they are consistent across all the separate
business functions Ȃ Buying and Merchandising, Retail Operations, Marketing,
Finance etc.. At the same time, by coordinating the activities needed to achieve
the objectives, planning ensures that efforts are focussed on the tasks necessary
to achieve them.

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To use Popeǯs analogy, we may be confronted with a mighty maze but at least
with a plan we stand a chance of finding our way through it. Planning describes
the routes through the retail labyrinth and by warning us of the perils we face
and of the potential dangers ahead it ensures that : -

We do keep to the right path and that any decisions we make are fully informed,
not merely speculative.

Any risks that we take are fully understood, enabling us to follow a particular
path with a degree of confidence that the outcome will be favourable

Scarce resources are used effectively, costs are controlled and time and energy is
not wasted on inappropriate detours.

Planning also helps to make complex businesses easier to manage by breaking

the overall objectives into smaller, less challenging tasks.

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The plan is the benchmark against which we determine if performance is good or
bad.

If we didnǯt have a plan what would there be to review and how would we know
when to react? We wouldnǯt know what we were expected to achieve or by
when, if or when to take corrective actions, whether weǯd achieved what we set
out to achieve or what individual contributions to performance were.

2.1 HOW WE PLAN

We will be going into a great deal of detail on the mechanics of planning in the
following chapters but in simple terms planning is carried out using the
following process :-

The starting point is always a review, not only of current performance and future
trends but also of the existing strategy, since changes to your strategic direction
should always take place within the planning cycle so that the effects of any
changes can be properly planned and managed.

This review will lead to the creation of the plans for the business as a whole and
for each relevant level of the individual business functions. These plans are then
communicated between and within functions so that they can be properly
challenged and any potential flaws or inconsistencies identified and removed.
(Weǯll look at why this challenge stage is important later). Once any amendments
have been discussed and agreed they are incorporated into the plans, which are
then confirmed and fixed.

Needless to say this takes time. The whole planning cycle usually needs to start a
year or more before the start date of the trading cycle being planned and will
take several months to complete. At the same time, as weǯve seen earlier,
planning is part of the never-ending business cycle and as one set of plans are
being created, another set are being confirmed while another is being executed.

2.2 WHAT WE PLAN

Weǯll look at the detail of what is planned and at what level in the business in
future chapters but in principle a plan can, and should, be created where the
objective ǥ
ǥ will add value to the business if it is achieved
ǥ is specific and can be easily measured
ǥ is un-equivocal and not open to interpretation
ǥ is the responsibility of one or more specific people
ǥ could impact on the allocation of resources
ǥ does not contradict or distract from other more important objectives
Where an objective is not easily measurable or the responsibility for its delivery
is not specific it is better to leave it as a strategic goal

2.2.1 WHAT TO PLAN QUIZ

To end this weeks column hereǯs a small quiz. Weǯll give you the answers in the
next issue. Until then Happy Trading.

QUESTIONS
1. CAN I PLAN TO BE THE MOST PROFITABLE RETAILER?
2. CAN I PLAN TO DELIVER A MARGIN ON SALES GROWTH OF 25%?
3. CAN I PLAN MY SALES?
4. CAN I PLAN TO BE A FASHION LEADER?
5. CAN I PLAN TO HAVE AT LEAST 20% OF FASHIONAB LE PRODUCT ON SALE
AT ALL TIMES?
6. CAN BEING A FASHION LEADER BE A STRATEGIC GOAL?
7. CAN I PLAN TO REDUCE THE NUMBER OF SUPPLIERS BY HALF?

This week weǯll cover the answers from the last issueǯs ǮWHAT TO PLANǯ quiz.

CAN I PLAN TO BE THE MOST PROFITABLE RETAILER?

Ȉ You can plan to be the most profitable retailer since published annual accounts
will give you the data you need to benchmark your performance against your
competitors. Even unlisted companies will publish some form of trading
statement.

CAN I PLAN TO DELIVER A MARGIN ON SALES GROWTH OF 25%?

Ȉ Of course! A goal such as this is one of the fundamental outputs of the planning
process Ȃ it is specific and easily measurable, it is un-equivocal and not open to
interpretation, it the responsibility of one or more specific people (in this case
the Buying and Merchandising team and it will certainly add value to the
business if it is achieved.

CAN I PLAN MY SALES?

Ȉ Yes, but it is the factors which will affect sales, particularly stock volume and
content, that must be managed if you want to achieve your sales plan
CAN I PLAN TO BE A FASHION LEADER?

ȈThis is difficult to plan since it is very subjective Ȃ there would need to have a
robust measure of fashionability that could be monitored and against which you
could benchmark your competitors.

SO, CAN I PLAN TO HAVE AT LEAST 20% OF FASHIONABLE PRODUCT ON SALE

AT ALL TIMES?

ȈThis is possible, in the sense that 20% is a specific objective, but it will only
work if you have a clear and un-equivocal definition of what Ǯfashionǯ is in order
to classify each line and to segment your stock.

BUT BEING A FASHION LEADER COULD BE A STRATEGIC GOAL?

ȈIndeed it could Ȃ and it should be if this is the direction you want the business
to follow.

CAN I PLAN TO REDUCE THE NUMBER OF SUPPLIERS BY HALF?

ȈYou can but you must first be clear if it is essential or indeed sensible to do so.

Ȉ Letǯs say that that your true objective is to increase your Intake Margin % and
that the reduction in the number of suppliers, which would bring no benefit to
the business in itsǯ own right, is simply one of several possible actions that you
could take. If it is set as a plan then the time and effort that will be spent deciding
which suppliers to drop could easily detract from actions such as better
production planning which would have a more beneficial effect on margin. In this
example it simply isnǯt necessary, and could in fact be counter-productive, to
plan to reduce the number of suppliers.

ȈIf on the other hand there is a tangible business benefit to reducing the number
of suppliers, for instance if it would lead to savings in administrative costs, or
because you feel that it is strategically important to deal with less suppliers then,
yes, it should be planned.

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In this issue weǯll go through the four rules of planning that should be committed
to memory and followed at all times.

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The first and most important rule is that the plan should be realistic and
achievable, although it must be stressed that this doesnǯt mean the plan easy or
risk free. If you remember nothing else, remember this.
Ȉ REALISTIC means that the plan is based on solid assumptions that take into
consideration all the factors, both internal and external and no matter how
apparently trivial, that will affect it. Your understanding of what these factors are
and what their effects will be is critical.
Ȉ ACHIEVABLE means that the plans can be achieved in all foreseeable
circumstances without the need to take any unnecessary risks. Providing a plan
is realistic there is no reason why it shouldnǯt be achievable. There are very few
circumstances which are not reasonably foreseeable and for which you cannot
develop contingencies which can be activated if needed.
It is realistic and achievable to climb Mount Everest if you are well enough
prepared, although it is not easy or risk free. It is realistic providing you are fit
(or can get fit) and have the right equipment, supplies and s upport and it is
achievable providing you set off at the right time of the year, are prepared for
blizzards and other reasonably likely eventualities and make the climb at a
measured pace. Plans need to have an element of challenge and risk otherwise
the business will not move forward.

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Think of planning as being a member of a Formula One racing team. Driving the
car is relatively straightforward and although races are doubtless won by the
skills of the drivers, no driver, no matter how good, will be able to win a race
unless the car is well designed and built. The bulk of the teamsǯ efforts are
focussed on making sure that this is the case, otherwise the skills of the driver
will be wasted Ȃ the car is likely to spend too much time in the pits receiving
emergency treatment and the race will be lost.
The same is true of planning. If your plans arenǯt robust and based on good
assumptions then they arenǯt going to survive the stresses of trading. You will
spend all your time in the pits (and note how appropriate the common usage of
the phrase is) taking increasingly panicked decisions just to stay in the race.

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Planning is not an accurate science and relies as much on educated guesswork as

on scientific logic. After all, if we were able to accurately predict the future weǯd
all be lottery millionaires, and we wouldnǯt be worried about the principles of
Buying and Merchandising. Even if you do ensure that your guesses are based on
as much information as possible, you can only work with the knowledge you
have available at the time the plans are developed. It is not unusual for new
information which affects the plan to become available shortly after as a plan has
been agreed and signed off, at which point it would be impractical to revise the
plans. The best you can do when developing the plans is to accept that things are
likely to change and to have contingencies identified for when they do.

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Although you will plan sales and margin you only control stock and costs.
Although you should be able to predict what stock and costs will be fairly
accurately, your sales plan is based on your assessment of how the customer will
respond to the products on offer. It is the customer, rather annoyingly, who will
determine the outcome regardless of what you think. They will often insist on
spending their money in a completely different way to that you had anticipated.
Regardless of how well you know your customer and how good you have been in
the past at anticipating their needs there will be times when you will simply get
it wrong. There is nothing you can do to prevent this so live with it, and make
sure you are able to quickly respond to range failures when they do occur.

In the penultimate section of our overview planning weǯll look at several

guidelines you should follow.

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Following these guidelines will help you to deliver plan s that are more likely to
achieve the three measures of retail success (see chapter 1) Ȃ to become the
destination of choice, to make a profit and to deliver sustainable growth.







 
It is far too easy, as the saying goes, to forget that your objective is to drain the
swamp when you are up to your neck in crocodiles, but you have to avoid doing
this.
There are many things, especially day to day trading problems, and many of
which are actually quite trivial, which can easily distract you from planning.
These distractions may seem vitally important at the time but they are often
counter productive in the longer term. Planning is rushed, which means that the
plans arenǯt as robust as they could be, leading to in-season trading issues,
(which could have been anticipated and planned for) having to be crisis
managed, meaning there isnǯt enough time to plan the next season and so on. You
are in the DOPPI (ǮDonǯt Plan, Panic Insteadǯ) cycle Ȃ pronounced Ǯdopey, for
obvious reasons.
Needless to say, you do not want to be a DOPPI retailer. Take planning seriously
and give it around 70% of your time and effort. If you already in the cycle, break
it, not matter how hard this may be. You will improve your chances of future
success dramatically.

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Your key objective must be to ensure that your customersǯ expectations are
exceeded at all times and to offer them best possible proposition that can be
developed within your cost constraints.








Donǯt create plans that hamper your ability to improve the product offer. Setting
a markdown plan that is too low, for instance, may hamper product
development. Never forget that it is the product which primarily defines the
customerǯs relationship with your brand.


 





 

NEW! is a very powerful message and customersǯ interest is stimulated by
regular injections of newness into your outlets. This newness comes primarily
from product changes, but also from visual merchandising, marketing and from
the store environment itself. Make sure regular updates to all of these areas are
built into your plans, in particular plan sufficient markdown to regularly clear
and replace old and poor performing products.

±




It may seem self evident but always build on your successes and donǯt repeat
mistakes. Itǯs surprising how many businesses seem to follow the opposite path.



 
By all means challenge but never let emotions or personal preferences sway your
judgement. You must always look at the bigger picture and assess what is the
best for the business and the customer.

!







Measured risks will drive performance and growth . Always make sure you know
what the potential costs and benefits of the risk are, how much exposure you can
afford and what the options are if things go wrong.

"




Without a doubt, over -optimism is the single biggest cause of under-
performance, and caution and prudence are always advisable.
If you set sales plans that are excessively high, whether because they are based
on un-realistic assumptions or because of wild speculation, then you simply
wonǯt achieve them. Not only that but profits will be far lower than planned,
since you will have to liquidate the excess stock bought to sustain the planned
sales, and will be even worse if costs are incurred in anticipation of reaching the
sales plan.

#



$
 




Selling space is usually scarce and needs to be used wisely. Make sure each
product category and each product within it is contributing positively to both the
customerǯs shopping experience and to profitability in every outlet. Where you
do have excess space find alternative uses for it, donǯt be tempted to extend
existing product categories to a point where their profitability is affected.

%


 


Critical path management is an essential part of the development and execution

of a plan. Many people and functions are involved both internally and externally
and a clear understanding of the critical dependencies is essential to success. To
return to the motor racing analogy, it doesnǯt matter how well the car has been
designed, if it arrives at the race track without any wheels then weǯve lost.



It is the thinking behind a plan that is most important, so make sure you do it
well. Remember that the mechanics and the process of planning are only means
to an end Ȃ they are there to help you structure your thinking, not to do the
thinking for you.
And finally ǥ

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A reminder, just in case youǯd forgotten.
c 



We will now look at a number of planning concepts that you will need to
understand

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The strategy and the plan are both outputs of business processes that take place
throughout business cycle and which define the direction and objectives of the
business.

The main differences between the two are as follows :

& A strategy defines the longer term goal and focuses on the bigger picture for the
business as a whole and. The plan sets the shorter tem objectives that will lead to
delivery of the strategic goal for each business function

& The strategy describes the way the business will operate with relation to
outside world, dealing with such wider issues as its environmental and ethical
stance, determines the direction the company must take to thrive in its market
place and sets the overall framework within which the plans are developed.

& The strategy should be relatively stable, especially during the short term,
although it will continue to evolve following regular and thorough reviews of itsǯ
consequences. A plan is far more responsive and flexible and is developed to
reflect current trading conditions, although it will not change once it has been
agreed and fixed.

& Planning objectives are generally more specific and measurable than strategic
goals and as a result it is clear when they have been achieved. Retailers today,
however, are increasingly setting strategic goals which are measurable and can
be seen to have been achieved,examples include trading from a specific square
footage of selling space in a specified number of locations or becoming the most
environmentally sound retailer.

c  c





A plan is a fixed entity in a dynamic world which by its very nature will not
change and cannot not take into account current trading conditions.

The forecast (or projection) changes weekly to reflect the most up to date
estimate of performance given current trading conditions and trends.

Stock and intake requirements are always calculated based on the current
forecast, never on the plan.

During the planning cycle the plan will be the same as the forecast until it is
fixed, after which point only the forecast will change.
The plan therefore a Ǯsnapshotǯ of the forecast that is taken at an agreed point
prior to the start of season and which everyone agrees is the most realistic
estimate of future performance given current knowledge.

Performance forecasts are benchmarked to the plan from the point that it is
fixed.

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'
 



Top Down/ Bottom Up planning is the planning methodology that is used to

ensure firstly that performance plans are as robust as possible through an
appropriate challenge process, and secondly that there is full ownership of the
plans by the functional teams that will be expected to deliver them.

It works as follows :

1) Senior management give the strategic direction and overall ǮTop Downǯ
performance targets to the functional teams.

These targets are general rather than specific e.g. DzWe are looking for a 5%
growth in margin on sales for clothingdz rather than DzWe expect to see a sales
growth of 2.5% and a margin on sales growth of 3.6% on Menǯs Shirtsdz. These
targets would have been arrived at following consultation with the functional
teams.

In large organisations targets may be broken down to a second level by middle

managers, but again only at a general level.

2) The functional teams review the performance targets and submit detailed
ǮBottom Upǯ plans based on their specialised knowledge of their own areas.
These detailed plans will take into account knowledge that would not be
immediately accessible to senior management, and which in any case they would
be unlikely to have time to review or assimilate.

The detailed plans would not be expected to match the initial guidelines,
although since the guideline would have been bases on input from the functional
teams, significant overall discrepancies would not be expected.

3) The ǮBottom Upǯ plans are compared to the ǮTop Downǯ targets. The ǮBottom
Upǯ plans would be challenged during sign off meetings and where necessary one
or the other would be adjusted. Where there are differences between the
functional teams estimates of potential and the managements a compromise
would be reached that, ideally, satisfies both sides. At the end of this process the
reconciled plans have been properly debated and agreed at all levels and should,
as a result, be far more robust. At the same time the functional teams are Ǯbought
intoǯ the plan far more than they would have been if a target had been imposed
on them and will to be committed to its delivery.

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Outlet Classification is determined by trading status of an outlet and is used for
development of outlet planning and performance reporting

The most commonly used classifications are Like for Like (LFL), Refurbished,
New and Closed.

1) LIKE FOR LIKE (LFL)

An outlet becomes Like For Like when it has been trading in an unchanged
format for at least a year.

Like For Like outlets are the most important part of the retailerǯs outlet portfolio.
They require no significant capital investment to maintain, since this is only
made when a store is opened or refurbished, and should therefore represent the
element from which the maximum returns are generated. As a result LFL
performance is a key indicator of retail health and one which is closely
monitored, both internally and externally.

LFL performance is always planned first and then adjusted for the effect of outlet
closures, refurbishments and openings.

An LFL outlet can move to Closed or Refurbished classification

Some companies will split the LFL classification to distinguish between outlets
which are in newer formats to others.

2) NEW

A New outlet is one that has been trading for less than a year. It will become Like
for Like on the first anniversary of its opening.

3)REFURBISHED

A Refurbished outlet is one that has been trading in the refurbished format for
less than a year.
A Refurbished outlet reverts to LFL on the anniversary of its re-opening after
refurbishment.

4) CLOSED

A Closed outlet is one which has ceased trading either permanently or

temporarily as a result of refurbishment or any other reason.

The performance attributable to outlets which have closed is split out to ensure
that growth is accurately planned and reported.







  

In this chapter weǯll look in more detail at the process we will use to develop our
merchandise plans.

We know from the previous chapter why we plan. The planning process is the
mechanism that helps to make sure that we DO develop realistic and achievable
operational plans that are based on solid assumptions and which are consistent
with the business strategy.

The planning process has three main functions :

Ȉ It defines the disciplines that enable the business to create robust and effective
plans.

Ȉ It determines the tasks that everyone has to complete and specifies the outputs
from each task. In particular it links together all of the key planning activities
across Buying & Merchandising and Retail Operations, provides the framework
for plans to be properly debated and agreed, and ensures that the plans are
properly reconciled across these two functions.

Ȉ It ensures that the critical path from strategy planning to range delivery is
effectively defined and managed.

The planning process itself is part of the overall operational process for the
business shown in the following diagram.

This process starts with the business strategy that is determined by the main
board and the high level business plan that comes out of this strategy which
provide the overall direction to the business. The initial bus iness plan is the
starting point for detailed planning by the individual business functions, which
can be broadly classified as Buying and Merchandising, Retail Operations and the
Support Functions

Ȉ Buying and Merchandising develop the department, range and option plans and
are targeted with delivering product profitability.

Ȉ Retail Operations develop the outlet plans and are targeted on delivering outlet
profitability.

Ȉ Support Functions (IT, Marketing, HR, Logistics etc.) develop the resource
plans which will support the agreed Buying and Merchandising and Retail
Operations plans at an acceptable cost.

 

 

Ȉ An OPTION is a unique product line

Ȉ A DEPARTMENT is the key planning level for the business
Ȉ An OUTLET is anywhere you sell your products & could be a store, a catalogue
or an internet site

Pay particular note to the inter-dependencies between various parts of the

process and between Buying and Merchandising (indicated by the large white
arrows on the diagram. Weǯll look at these when we cover the detail of each
process step.

The detailed plans created by the separate functions are consolidated and
reconciled, after appropriate debate, into the final business plan which is the
basis for in-season management of the business, when the individual functions
attempt to achieve the plans they have set. In-season management drives actual
performance which becomes the starting point for the development of the
business plans at the start of the next planning cycle.

 

 


Many thousands of words have been devoted to strategic planning in other

textbooks so weǯll only touch on it from a retailerǯs perspective here.

Firstly letǯs look at why we need a strategy. Canǯt we just manage our business by
setting plans from one season to the next? Well, we could, but without a strategy
our plans would have no focus and would exist without reference to longer term
goals. The strategy describes the binding philosophy for the business and sets
the framework within which the short term plans are developed. The strategy, in
essence, describes the WHY while the plans determine the HOW.

A good strategy is a statement of the companyǯs principles and goals which

everyone connected to the company should, in principle, understand and com mit
to. It sets out overall, longer term objectives for the company and unites not only
the employees but also the external business partners in the delivery of these
objectives. All operational activities and decisions, starting with the plans, should
be subservient to the strategy.

For a retailer the two big drivers of the corporate strategy are itsǯ customers and
the market and environment within which it operates. Needless to say
development of a robust strategy is dependent on a thorough understanding of
these two elements and weǯll cover how we get this understanding in later
chapters. At the same time since success is so dependent on exceeding the
customerǯs expectations at all times a strategy that holds this objective at itsǯ
core is essential.

  

 


The first thing to remember is that the development of a strategy from scratch is
something that existing retailers shouldnǯt need to do. In principle, although this
isnǯt always the case, a strategy would have been developed when the business is
started and would have evolved as the business evolves and grows. As a result
strategic planning normally takes place with reference to the existing strategy
and is, in most cases, more concerned with making minor adjustments than with
making radical changes.

With this in mind the general Ǯrulesǯ for a strategy are that it should be: -

Ȉ


The strategy should be thoroughly examined and debated and must clearly
identify the opportunities, risks, constraints and issues associated with each
strategic option. A weak strategy will inevitably end up needing a full overhaul Ȃ
which will cause disruption for you and confusion for the customers.

Ȉ 


The strategy should cover the full breadth and scope of the organisation and
match the organisationǯs activities to itsǯ environment and market.

Ȉ 

A strategy should aim to create opportunities for growth by building on and

stretching the organisationǯs capabilities.

Ȉ (

A strategy should not static and must be able to evolve over time, although it
should only change after stringent review and never without good reason.
Changes will be needed, for instance if the current strategy is not delivering the
required results or to reflect changes in market conditions or the emergence of
new opportunities.

Ȉ 


The strategy should ensure that all functions of the business are working
towards consistent objectives. You cannot have a premium product offer and a
budget service proposition, for instance.

Where retailers are concerned a strategy needs to cover the three key elements
of the retail proposition Ȃ Product, Outlet and Marketing Ȃ together with the
support strategy which will enable this proposition to be delivered effectively
and efficiently. The strategy should define the target customer along with the key
competitive differentiators that will ensure that this customer is attracted and
retained.

These key elements of the strategy rather unsurprisingly fit with the three main
functions of the business, Buying and Merchandising will be responsible for
developing and delivering the Product strategy, Retail Operations the Outlet
strategy and Marketing the Marketing Strategy. Weǯll deal with the Product
strategy in more detail in the next section.
It is worth noting that regardless of what others might think it is the Buying and
Merchandising and Retail Operations strategies that are central to a retail
business. The strategies for all other functions should be focussed on supporting
these two areas.

  c


 


Before we look at the specifics of the Product Strategy a very brief word on the
strategic review process.

A formal strategic review will normally be conducted no more than once a year.
Some larger companies have separate strategic planning departments who
spend the year gathering the information needed for the strategic review. Many
others will be far less structured and will simply involve a gathering of the senior
managers to discuss and agree the direction forward.

Regardless of the method used the review would generally cover some, if not all,
of the following:

Ȉ Operational and strategic strengths and weaknesses.

Ȉ Results to date, both overall and of key strategic initiatives,compared to
expectations.
Ȉ Customer and market data
Ȉ Resource and capital utilisation & management

The review will normally have three main objectives. Firstly it will be used to
determine whether the current strategy is still valid for the coming year and
where it isnǯt to make the necessary amendments. Secondly it will be used to
identify any new risks and opportunities that will impact on the business. Finally
it will be used to determine the new initiatives and actions that are needed to
help the company achieve its strategic goals. The outputs of the review are then
communicated to the wider business and become the focus of activity for the
coming year.

  
)*
+,-./*--
012/

The business plan describes the actions by which the strategy will be delivered
and specifies the expected cost and results of those actions

The following diagram shows the process by which the business

The initial business plan, which should obviously take the strategy as its starting
point, is created with inputs from each function. This functional input is an
essential part of Ǯtop-down/ bottom upǯ planning (as discussed in Chapter 2),
indeed one of the key responsibilities of the functional heads where planning is
concerned is to consolidate the views and feedback from the functional teams
who will ultimately be responsible for the delivery of the plan. This both ensures
that the business plan is as realistic and robust as is possible and that the teams
are already Ǯbought inǯ to itsǯ objectives.

Each function will develop detailed plans based on the initial guidelines. The
business plan will then be finalised once these functional plans have been
completed and reconciled with the original expectations. Minor changes between
the initial and the final plans are common because new information can easily
emerge in the time it takes for the detailed plans to be developed but largely
because of the involvement of the functions in the development of the initial plan
the differences should not be significant.

A Business Plan will typically contain the following: -

1) The key performance targets, in total and by product group or division, for the
year including the expected value and growth in sales, trading margin and profit,
along with key trading ratios such as EBITDA, Markdown %, Sales and Margin
per Square Foot, Return on Asset and Stock Turn. Like for like performance
targets will always be stated. separately

2) The assumptions on which the planned performance is based including the

underlying economic market conditions, Outlet and space changes, marketing
initiatives, product developments etc

3) Stock objectives. These are usually intended to deliver an improvement in the

Return on Asset and to ensure working capital is more effectively used and could
include targets, set by Outlet, DC or in Total, for one or more of the foll owing
Ȉ The % year on year change in average stockholding (at cost or in total)
Ȉ Average number of weeks cover
Ȉ Stock turn
Ȉ Maximum closing stock in any week
Ȉ Availability
4) The key strategic and tactical initiatives that will be taken in the coming year

5) Resource requirements

6) Risks, constraints and contingencies

7) Source and uses of funds

8) Cash flow

 c



 
The product strategy sets the framework within which the Buying and
Merchandising function operates and is a key input into merchandise (and
outlet) planning. In bigger businesses there may be an overall product strategy
together with sub-strategies for each separate division. It would typically cover
at least three areas; your Price, Innovation and Quality positioning, the Category
Assortment and the Sourcing policy.

 c 
3
 

$ 


 

Your price, innovation and quality positioning are statements of how you want to
be perceived by your target customers with respect of these three areas. Your
positioning statement is often referenced to your competitors, e.g. DzOur prices
will be 10% below those of our competition for all comparable productsdz and
sets out the customer perception you are aiming to create to give you the best
competitive advantage in your market environment. Do you want to be seen as a
value or a premium retailer, as high or low innovators, or as providers of average
or exceptional quality products?
It is what the customer believes you represent that is key here and this is
determined more by what they see than by what they do. It is possible, for
instance, for your customerǯs to describe you as a value retailer even though you
may actually sell a high proportion of premium products. This anomaly is
achieved by careful use of the things which influence perception. The mix of
options on sale, visual merchandising, advertising, the outlet environment and
customer service all influence the way the customer will see you. In our example
the customer is happy to buy more expensive products from you because they
believe you offer better value than your competitors, even if the products
themselves may be comparable.
The way customerǯs perception can differ from reality can be found in a survey
conducted some years ago. In this survey several similar, underwear, products
from a number of High Street retailers were independently assessed for quality
and then presented to a consumer panel for their feedback. The independent
quality assessment determined that there was no discernible difference between
the products sold by retailers A and B, although the selling price of Aǯs products
was higher. Retailer A was, anecdotally, well known on the High Street for better
quality products, a perception that, historically, probably had some basis in fa ct.
When the customers were presented with the two products with the correct
labels attached (i.e. Aǯs product were labelled with Aǯs branding, Bǯs products
with Bǯs branding) then they gave product A the highest quality rating. When the
labels were swapped so that product B was labelled as retailer A, the panel gave
the product they thought was from retailer A the higher quality rating. In the
final test both products were unlabelled and the panel couldnǯt tell the difference
between the two!

 c c

 


 
A key part of the part of the product strategy is the definition of the product
categories that your customers will expect you to stock. The category assortment
specifies what these categories are and ranks them according to their
importance to the customer with respect to your outlets.
The assortment can be broadly split between essential and optional categories.
The essential categories are those that are central to your customerǯs perception
of your offer. If you do not provide an acceptable range of products within each
of the essential categories the customer will feel that your offer is lacking and is
almost likely to shop somewhere with a more comprehensive assortment. The
business needs to provide the resources to properly plan, display and manage
each of the essential categories.
The optional categories are those that are nice to have and which the customer
will consider as a Ǯbonusǯ. These categories can be provided if resources,
especially skills and space, and sourcing opportunities are available.
Which categories are essential and which are optional depends on what the
customer expects, which is itself influenced by your brand positioning. If you
position yourself as a womenǯs fashion retailer you will be expected to stock a
full range of clothing and accessories. Categories such as shoes and cosmetics
could be treated as optional. If on the other hand your brand is called ǮShirts -R-
Usǯ then the customer wouldnǯt expect to see a range of trousers.
The customerǯs expectations are also dependent to an extent on your trading
history. If, for whatever reason, you have become well known for selling a
particular category then it will be seen as essential by your customers, even
though in pure analysis it might be classified as optional. These Ǯtrademarkǯ
categories, as they might be termed, should be treated with respect if you want
to retain your existing customer base.
The category assortment is important during outlet planning since it is used to
determine how space is allocated. Space must be Ǯfoundǯ in your outlets to
display all the essential categories. Each category will have an optimum space
requirement and the sum of the category optimums determines the size of the
Ǯidealǯ outlet. Given that not all outlets will be able to prov ide each category with
the optimum space the essential categories are ranked according to their relative
importance to the customer so that space can be allocated in priority order.
Space prioritisation using the category assortment is discussed in more detail
when we cover Outlet Planning.
The category assortment also helps you prioritise your present resources and to
develop possible opportunities for the future. The bulk of current resources, in
particular people, would generally be channelled towards the essential product
categories, with those that a higher ranked getting first priority. Any Ǯspeculativeǯ
resources you have available could be used to develop optional categories, which
could deliver additional revenue to the business.

 c 



The sourcing policy outlines the principles by which your suppliers are selected
and managed and sets out the practices, such the use of child labour or unsafe
working conditions by your suppliers or the use or acceptance of bribes by your
staff, which are unacceptable. It may also set out the type of relationship you
expect to have with your suppliers, detailing the information you would expect
to share, the way you will deal with disputes etc. The sourcing policy doesnǯt
replace legal terms and conditions but is complementary to them and defines the
broad boundaries within which the formal contracts will operate.
Even though it is not binding the sourcing policy is becoming increasingly
important to the retailer both because of changes in legislation and because of
the need for retailers to be seen, both in principle and practice, as ethically and
environmentally sound. For many businesses the sourcing policy is now a public
statement of intent which is open to detailed scrutiny in the press, and which
must, more importantly, be seen to be implemented. Nowadays, any failure to
achieve the standards set out in your policy can seriously affect your brand
image.
3.3 MERCHANDISE PLANNING & MANAGEMENT
The Merchandise Planning and Management process, in other words the main focus of this book,
covers those areas that are the direct responsibility of Buying and Merchandising together with Outlet
Planning which is included because of the important interdependencies it has with Range Planning,
even though it is the responsibility of the Retail Operations team.

The diagram below highlights the process elements which make up merchandise planning and
management on the top-line process flow chart from earlier in this chapter.

The detailed activities which make up the top line process will be described next.
3.3.1 MERCHANDISE PLANNING
Merchandise planning consists of the µpre-season¶ activities which must be completed before the
season starts. The flow chart below shows these activities in the approximate order in which t hey
happen, while the table
 that follows gives brief description of each activity.
RESEARCH AND
ANALYSIS
Performance, market, trend and customer data is analysed to identify growth opportunities and
potential risks and constraints

DEPARTMENT Department and sub-department performance and stocks are planned, by season if relevant, by
PLANNING week and in total
OUTLET PLANNING Space, performance and expenses plans are set for each outlet, by total and by department

RANGE WIDTH
The optimum offer and range size for a department for each outlet is determined
PLANNING
RANGE PLANNING The range content is planned and the performance, buy and distribution of each option that is
selected as part of the range is determined
OPTION PLANNING The weekly performance, stock and intake of each option is planned

PLAN SIGN OFF

Each Plan is signed off by senior management, with each sign off taking place in line with the
planning calendar

3.1.1 IN-SEASON MANAGEMENT

In-season management includes all those activities that will, or could, be carried out once the season
has started. You don¶t, of course, go straight from planning to in -season management ± you have to get
the products to the customers and first have to ensure that the planned ranges do arrive at the right
outlet at the right time.

The activities that take place between planning and in-season management, all of which deal with
supply chain management, are shown below, again followed by a brief description. Although these
activities are shown as dependent on Option and Range Planning they usually have to start before
planning has been completed and often well before the plans are signed off
PR
C

Production schedules for each product that is manufactured µto order¶ and deli ery schedules for all
&
DELIVER
PR RMMING
products are agreed with the supplier

DISTRIBTION

Distri ution planning is part of range planning and is where the distri ution and target stock
PLANNING holdings by outlet for each line is determined

ORDERING Orders are raised in line with the Option Plan and the agreed production programme if relevant

PRODUCTION Products are produced in the quantity and to the specification on the order

PROGRESSING Each product is progressed through the supply chain from origination to delivery

DISTRIBUTION Stock is allocated and replenished to the outlets in line with the distribution plan

IN-SEASON Performance is analysed, forecasts are adjusted in line with current trends and actions are taken to
MANAGEMENT maintain or improve performance

(
TEE 
  E 

Finally in this chapter, we¶ll look at the timeline for the planning and in -season activities throughout
the year.

The following diagram shows the rough sequence and approximate duration of each of the main
merchandising activities. For sake of simplification not all the process steps or tasks are included here.
The timeline is also indicative rather than specific. On a long lead time departments, for instance,
contracting, and all the activities that precede it, may need to start much earlier than shown here to
achieve a February range launch date in the following year. It¶s not unusual for
department planning to start a year in advance of the start of the season being planned. The important
thing to note here is that planning activities take place simultaneously with in -season management. At
any point in the year you will probably find yourself managing the current season, finalising the plans
for the next season and starting the planning for the one after that. Not only that but you will start to
plan for a future season when the one on which the plans will be based has barely started ± AW 2009
planning will start not long after the AW 2008 actual season has started for example. Believe me, this
can become very confusing!

Chapter 4-The importance of knowledge

INTRODUCTION

In this chapter we will look at the lifeblood of any business ± Knowledge ± which as a wise man knows
is Power.

Without a doubt, the ability of a business to accumulate, interpret and use knowledge is one of the
cornerstones of success but what IS it.

The Oxford English Dictionary describes it as follows :

noun 1) information and skills acquired through experience or education. 2) the sum of what is known.
3) awareness or familiarity gained by experience of a fact or situation

As we can see from this definition, knowledge is more than just the gathering of information, and it
certainly isn¶t the thick tomes of analysis and reports that some peopl e mistake it for but are really just
one of its¶ many sources. Knowledge is that ephemeral something that helps us to understand and
operate within our environment. It is that seemingly in -built ability to know which fruit is edible and
which is poisonous. It increases over time and once gained never disappears. Think of it as a high
interest bank account into which you make regular deposits of new information and where every
deposit you make increases the value of the account by much more than the amount deposited ± as if
you put £100 in a real bank account and were credited with £150. Not only that but the more
information you have in your knowledge account and the more experience you have, the faster your
account grows. The best thing is that you can make as many withdrawals as you want without affecting
your capital.

In a business context knowledge is primarily concerned with helping us to thrive and prosper in a
competitive market place.
‡ It enables us to anticipate and fulfil our customer¶s needs mor e effectively and helps us to match what
they want with what it is possible to provide.
‡ It gives us competitive advantage (and for this reason, if nothing else, should be guarded well and
used wisely.)

‡ It is essential to risk management, since with it we can predict and manage market cycles and more
easily identify emerging trends, opportunities and threats. Remember that any actions that are taken
without sufficient knowledge are experiments ± and as likely to fail as they are to succeed.

‡ It is fundamental to business development, since without it we will not be aware of the best practices,
products and services that we need to continuously evolve.

4.1 GAINING KNOWLEDGE

Now that we have an idea what knowledge means let¶s look at what we have to do to get it.

Knowledge depends on a large amount of µraw¶ data which comes from many, many sources. Needless
to say, the essential starting point is good quality data. Inaccurate or incomplete data can easily lead
you towards the wrong conclusions and can cause costly mistakes.

Gathering this data is relatively easy whereas turning it into the information that you can deposit in
your knowledge bank is far less straightforward. Given the amount of data you will often have to deal
with, your first step is usually to decide what to use and what to reject.

You then need to manipulate the data into a useable form, interpret it and make your conclusions. This
is not always easy and you will be regularly confronted with questions such as ³What does it mean
when market research shows that the customers µprefer¶ black while trading reports show that they are
buying white?´

Another analogy may help to understand how knowledge is gained.

Imagine a huge, complex jigsaw which when completed will reveal a map to hi dden treasures. Data is
the pieces of this jigsaw while knowledge is the finished article. Unfortunately you have no clues as to
what the finished jigsaw will look like, there are many possible solutions and many of the pieces laid
out in front of you will not be needed, so you first have to work out which to keep and which to
discard. To add to the pressure this game is not played in isolation.

Your competitors are also trying to find the same treasure so you need to finish the map before they do.
But be careful!. Put the jigsaw together in the wrong way and you could head off in the wrong direction
or into dangerous territory. If you are new to this game success will depend as much on trial and error
as anything else, but as you gain experience the quicker you will be able to reveal the hidden map and
the more likely you will be able to get to the treasure first.

So it is with knowledge. When you start out extracting the knowledge from the data will take a lot of
hard work and analysis. You will make mistakes, although you will hopefully learn from them. You
will spend time investigating blind alleys. But stick with it, it does get easier.

Fortunately the skills you need develop quickly with practice and you will soon find yourself at the
point where you are able to see patterns in data almost by instinct.

The following are some general principles you can apply on your search for knowledge.

1) KEEP LOOKING : THE TRUTH IS OUT THERE

For those of you of a literary persuasion the word is µSERENDIPITY¶, m eaning µThe chance encounter
with something wonderful¶.

The fact is that you some of your best knowledge will come from the unlikeliest of sources so keep
your eyes and ears open at all times..

2) IDENTIFY THE COMMONALITIES

A great deal of knowledge comes from the common threads you will find within the data.

These commonalities are important because, in general, the more you hear or see evidence of
something the more likely it is to be true (or likely to become true). This rule applies equally to the
hard facts revealed by performance analysis and to the speculation of market predictions.

Where facts are concerned scientific principles apply. The more you are able to link a particular action
to a particular result the more the same action is likely t o deliver the same result in the future. In some
cases the cause and effect occur so consistently that you will be able to predict the outcome of an
action with certainty. Where the cause and effect aren¶t so predictable you need to look for other
factors that may be influencing the outcome. Let¶s take a simple example. You trial a currently
successful product in a new colour and it doesn¶t work. So far so interesting. If you then try nine other
successful products in the same colour and they also don¶t work then, since you know that there is
nothing wrong with the products themselves, it¶s safe to deduce that the customers don¶t like this
colour. If, on the other hand, the new colour had been trialled on ten new products you would first have
to assess if there was a problem with the products themselves before making a judgement on the
colour.
The same principles apply to trend data but in a slightly different way. The phrase µa self fulfilling
prophesy¶ applies here. Future trends gain their own weight the more people µsupport¶ them (or to be
more prosaic, get on the bandwagon) so the more something is talked about in the media and the
market the more it is likely it is that it will happen. Taking a new colour as our example again, if one
well know fashion pundit states that next season¶s big colour is green, soon all the designers will be
incorporating green into their collections, the press will be running µBe seen in green¶ features and the
customer will expect to see green products in the shops. If you are a fashion retailer, anticipating this
effect and ensuring that you do have green represented in your ranges helps you to maintain your
image in the market ± the trick is to know how much of a representation since there is no guarantee that
green products will actually sell. Unlike the commonalities found in hard facts, those found in trend
data can only help you to decide which actions should be considered; they cannot predict the outcome.

3) LOOK FOR EXCEPTIONS

In amongst all the commonalities there will be several things that are odd or exceptional. This could be
something such as a line that performed significantly differently to your expectations or to its¶ peer
group or a piece of market research that seems to contradict the common understanding. It is well
worth seeking these exceptions out and trying to understand what caused it since it may well reveal a
hidden opportunity, which can then be taken, or a risk, which you can then manage.

Using our example of the colour trial again lets say that one of the ten products that you trialled worked
really well. So, although there is a general problem with that colour it does work in certain
circumstances.

You look deeper and realise that the style that has worked is much more fashionable that those that
didn¶t. Depending on your current ranges, this could indicate a number of possibilities. Two of these
are the extension of the new colour across your fashion ranges; if you have them, or the introduction of
more fashionable products if your current ranges are more mainstream.

Exceptions won¶t always lead to immediate actions but they will always give you new insights into
your environment.

4) FIND THE GAPS

Finding the commonalities and exceptions in the data is one thing but that only reveals what is al ready
there. Equally important is to find the things that aren¶t. The gaps in current knowledge can help you to
find the next trend or product before it becomes obvious to anyone else.

This type of analysis is very subjective and more about observation and instinct than anything else.
Any conclusions are risky and need to be treated cautiously, although the rewards if you do get it right
can be huge. The best example of successful gap analysis is the Sony Walkman. The founder of the
company linked the fact that younger people listened to music with the fact that there was no way for
them to carry this music about with them. None of the data pointed to the need for a product to fulfil
this need but he instinctively knew that it existed. Even his company disagreed but he went ahead with
his vision and the rest is history.

There may not be many new products of the equivalent of the Walkman out there but there are plenty
of smaller gains to be made.

±) INVEST FOR THE FUTURE

No knowledge is without its use, it¶s just that sometimes its¶ use may not be immediately apparent so
hold on to it for later. Apparently useless knowledge gained today may become useful some time in the
future. The conditions you have identified as the cause of exceptional performance in the past and
which may not have been important at the time, for example, can quite easily re-appear in the future, at
which point you will be able to draw on your knowledge and know how to act.

6)STAY CURRENT

Knowledge does date and you need to make sure that yours is always as current as possible. This
means continually reviewing and updating your knowledge bank and µarchiving¶ the knowledge that is
no longer relevant ± don¶t discard it completely, since things have a way of coming around again.
You should also keep an open mind and try not to get hung up on the past. While past performance is
an extremely good indicator of what is likely to happen in the future it is not definitive and things do
change. You usually have to use your judgement decide how much account to take of history.

This is particularly true where product performance is concerned since products and markets evolve
and nothing is ever exactly the same. To explain what we mean by this let¶s say that you plan to
include a direct repeat of a previous season¶s best selling product in the current season¶s range. You
can¶t simply take the last season¶s performance and use it to extrapolate what will happen this season.
The repeated product is now part of a different range ± where there may be other lines which are more
appealing to the customer ± and is being sold in a market where your competitors may have introduced
similar products. So, while you must assess the potential performance of the best selling product in the
current season with reference to the past, you must also take account of the changed dynamics of the
present.

Needless to say the availability of accurate and timely data is critical, since the quicker you are able to
adapt to new knowledge the better. You also need to understand the context in which things happened
and it is worthwhile keeping a diary of the events, weather and trading conditions that may have
influenced performance.
Lets now look at where find knowledge.

Knowledge is found both in analysis of the past and in research into the future

The past is understood predominantly by analysing performance data, while an understanding of the
present and the future is gained from market analysis and trend prediction.

Performance analysis is, in many ways, the bedrock of our knowledge since it reveals is the
incontrovertible truths supported by the facts of performance. It tells us where we are, where we¶ve
been and where we are likely to end up if same trading conditions are repeated. It is of such importance
that we will be covering the techniques and principles used in much more detail in a separate chapter in
a later chapter.

Market analysis relies on both factual and subjective sources and helps us to understand the market
sector in which we operate and to respond to shorter term threats and opportunities and. Facts come
from competitive surveys or published statistics while a more subjective viewpoint can be gained by
analysing the comments and articles found in trade journals, in the general media and on the internet.
Trend prediction is used to give us a vision of the potential future. It is almost entirely subjective ±
often no more than an informed guess ± and relies heavily on experience. Specialist forecasting
agencies can be consulted and market and consumer research commissioned but in the end we usually
have to make our best judgement based the data available. Despite the potential for error trend
prediction is necessary since without a vision of the future the business will not evolve. In any case we
often control our own destiny more than we might believe. A wise man once said, ³All futures are
possible, we just have to chose the one we want and make it happen´.

In most businesses the jobs of performance and market analysis and trend prediction are individual
responsibilities while larger companies may devolve the responsibility for market analysis and trend
prediction to specialist teams.

4.2 MARKET KNOWLEDGE

Market knowledge comes from many sources and you will need to chose what is relevant to you. We¶ll
briefly look at the possible sources.

4.2.1 OTHER RETAILERS

You obviously cannot conduct open surveys and have to be quite circumspect when looking at the
competition but both direct competitors, i.e. those which directly compete with you fo r the same
customer in the same market sector, and indirect competitors, i.e. those which operate in the same
market sector but which do not attract the same customers, can provide useful inputs.

Things to look at in both cases include :

‡ Pricing ± particularly of competitive products.

‡ Range mix & product choice.
‡ Range developments.
‡ Markdown & promotional activity ± especially on competitive lines or ranges.
‡ Visual merchandising
‡ Availability and size support ± if size is relevant are all the core sizes in stock of all the lines.

DIRECT COMPETITION

Analysing your direct competitor¶s proposition ± its¶ product, pricing, marketing etc. ± can help you
formulate short term tactics that could help you to steal their customers, but with two importa nt
provisos. Firstly, just because the competition is doing it doesn¶t mean that it¶s working and secondly,
the fact that the competition is already doing something means that by the time you copy it it will be
too late.

INDIRECT COMPETITION

What you can learn from retailers you do not directly compete with depends on whether they are
targeted at more or less aspirational customer than you are.

If the competitor is more aspirational than you then they are generally going to be more innovative than
you are and more likely to be doing things that you may want to do in future. You could find direction
for the evolution of your proposition such as new products, improved store environment or service
proposition.

If the competitor is less aspirational than you then they may well be copying the things that you did last
year or stocking similar products to those in your ranges at cheaper prices. Where this is happening you
need to review your own proposition to ensure you are maintaining differential and to take steps to
remove any overlaps.

4.2.2 CONSUMER AND MARKET RESEARCH

While consumer research, either that which is specially commissioned or that which is generally
available, can be useful, an understanding of your customer¶s needs is gained from a mix of
performance analysis and research, not research alone.

There are a number of good market surveys, such as those provided by Mintel, which give general
insights into the market and consumer behaviour but the more specific the research is the more useful it
is likely to be. Factual research, such as wardrobe surveys, which ask µWhat did you do?¶ are more
reliable guides to action since qualitative research, which asks µWhat are you going to do?¶ is often too
subjective, especially for µemotive¶ products such as apparel, and should be treated cautiously.

The reason for this is that no matter how well a question is framed it is very difficult for anyone to
predict what their actions would really be in the future. Ask someone what they would do if they had
£100 to spend and they will give you an answer that they believe to be true. Actually give the same
person £100 and, dependent on their priorities and feelings at that time, could well do something
completely different.

4.2.3 SUPPLY BASE

Your suppliers are a very good source of knowledge, and providing you have a good relationship with
them they are usually very happy to share it. Suppliers can provide a good insight into competitive
behaviour, since they will often deal with them, and are often one of the best sources for news on
technological improvements, product, component and raw material sourcing and product trends.

4.2.4 MEDIA

The media, especially the informed comment and the factual and technical articles found in more
specialist journals or on the internet, provides good background, and in some cases detailed, knowledge
about diverse areas including new trends, the economy, product developments, technology and the
market environment. Remember that all media, especially that which is produced for mass
consumption, will be edited and targeted at specific audiences and will bias its¶ content to its¶ audience.
That said, the media, especially the µglossies¶, plays a very important role in starting and establishing
trends.
4.2.± TRADE SHOWS AND EXHIBITIONS

Every industry is well provided by trade shows and exhibitions, the bulk of the exhibitors at which, it
must be remembered, are focussed on selling products to new or existing customers. Most shows tend
to take place well in advance of the season, in fact many smaller retailers book their ranges at these
shows, and they are useful for finding new product or trend ideas and sourcing opportunities. Some
exhibitors will use the major trade shows to launch their new products, although their larger customer s
will generally be given a preview.

Trade shows have one drawback for many visitors is that they are often trade only and many exhibitors
will only allow visitors on to their stands with a formal invitation to prevent their ideas being copied.

4.2.6 DESIGNER SHOWS

Designer shows, where top models parade a fashion designer¶s unaffordable, and in many cases un-
wearable, creations to a motley audience of B-list celebrities and the occasional genuine movie star, are
exclusive to the clothing market. Despite the circus that surrounds them many designers, or rather their
contents, are often hugely influential in determining future trends they are generally not accessible to
mere mortals and we must generally rely on the many reports in the media for informatio n.

4.2.7 FORECASTING AGENCIES

Forecasting agencies are specialist companies, mostly fashion related, whose job it is to predict what
the next season¶s trends will be. They can be costly but the best agencies can save you money, time and
leg work by drawing on a wider range of sources than you might have access to. Their main drawback
is that they have multiple customers, some of whom may be competitors, all of whom will get the same
basic message This can reduce differential , although in the end it¶s up to you to interpret the
information they give you.
In addition to the traditional agencies, which are often built around personal feedback, there are also
several internet companies. These offer services ranging from a simple database facility, which allo ws
you access to trend and competitor images together with general market data, through to a full
forecasting service tailored specifically to your needs. Again what you get out of this service depends
on your interpretative skills.

4.2.8 OUTLET FEEDBACK

Feedback from your outlets can be useful since the retail operation team have daily contact with your
customers, although there are two drawbacks which can be avoided with care. The first is that the
feedback is not always objective since the store staff do sometimes colour their observations with their
own feelings and prejudices rather than reporting what they see and hear. There¶s a true story to
support this. The author was visiting a store and asked the manager which product area her customer¶s
least liked. ³Dresses´, she replied. A quick look at store performance, however, showed that the
Dresses were, in fact, the store¶s biggest sellers When asked to explain the contradiction, the manager
explained that it was because .´«. the Dress range is terribl e. I don¶t like it at all´!

The second drawback is that the customer who shouts the loudest is the one that is most likely to be
heard. You will often receive feedback from a store that on the face of it indicates that there is a major
problem or opportunity but which turns out to be based on the demands from one very vocal and
persistent customer.

Chapter 5 : Understanding your customer

± INTRODUCTION

One of the cornerstones of knowledge is a clear understanding of your current, and potential,
customer¶s needs and preferences. Without this knowledge, and without a consistent understanding of
who the customer is throughout your organisation, there is no way that you will be able to develop an
effective business strategy, let alone a suitable offer or proposition. In this chapter we will look at the
ways in which we can try to define and understand our customers and how we can apply this
knowledge.

The objective of customer analysis is to enable you to enhance your proposition, attract new customers
and improve market share. While it is doubtless useful for identifying any issues or opportunities in the
current proposition the more pertinent questions to ask are often not µWho is my customer?¶ but µWho
isn¶t?¶ or µWho do I want my customers to be?¶. While anyone who visits your outlet is a potential
customer it is your current proposition that will determine who this is likely to be. You will only be
able to grow your business if you understand the needs of the people who are not currently shopping in
your outlets.
Customers are complex creatures and while it is relatively simple to describe their current behaviour
and preferences using performance analysis and market research, predicting what they are likely to do
in future is much more tricky. People evolve, attitudes and circumstances change, and there is no
guarantee that a person will repeat past behaviour regardless of what they say they will do. No matter
how beneficial complex modelling techniques are in grouping common behaviours, ultimately, as
discussed in the last chapter, we have to rely on our abilities to make the best guess we can from the
information and data available.

Remember at all times that your customers are real people not just statistics and cannot be represented
using graphs, charts and tables of number. If you want to exceed your customer¶s expectations you
need to truly appreciate their motivations and emotions. You want to understand how they live, think
and feel, what their likes and dislikes are and, most importantly, wh at it is that influences them to make
a purchase.
±.1 THE BUYING DECISION

Let¶s start by looking at the factors involved in the buying decision ± to buy or not to buy, as it were.
While it might seem very simple the decision to buy something is often ver y complex, especially for
less essential products, and it certainly isn¶t dependent on the money you have in your pocket ± it¶s
easiest to understand the complexities involved, by the way, if you try to relate this discussion to
personal experience.

Essential purchases, such as food and some clothing, usually have to be bought regardless. Here the
customer is likely to have a minimum quality and functional requirement and will tend to shop at a
outlet that provides the item at this specification at a price that you are willing to pay. Where numerous
outlets provide a similar item at a similar specification at a similar price then you will chose the outlet
in which the other aspects of the proposition best suit your needs (e.g. convenience, customer service,
environment etc.). If an essential purchase is urgent then you are more likely to use the most
convenient, rather than your preferred outlet.
The less essential the product is the more emotional the purchase decision becomes and µwant¶ usually
has to balanced with µafford¶, where µwant¶ is determined by the desire for a product and µafford¶ is
determined by the money available. The more the you want something the less important afford
becomes and the more likely you are to justify the purchase. Not only that but you will generally be
more fulfilled when you buy something because you want to rather than because you have to. Shopping
for non-essentials is much more fun.

µExpensive¶ and µcheap¶, therefore, are not definable simply on the basis of price. Since the worth of a
product is determined by its desirability and this desirability is specific to the individual, a product
which you see as expensive may be regarded as affordable by someone else. There is still a fine
balance to be maintained. Every customer has a price limit beyond which justification of the purchase
is simply not possible and some products will be very desirable but still out of reach.

What makes a product desirable is itself difficult to quantify. Desire is very subjective ± as the saying
goes, one man¶s meat is another man¶s poison ± and based on factors which are often very difficult to
measure or to pre-determine. Many non-essential purchases are made because the purchaser feels that
the product will enhance their appearance, appeal or social standing, even if they will simply describe
the reason for the purchase as µI liked it¶. Branding is often very important in establishment of desire
and some people will be happy to pay a premium for a certain brands when equivalent products can be
bought much cheaper elsewhere. Men¶s shirts or denim jeans are good examples of this where a
designer brand label can double or triple the price of an item. Wearing a £100 pair of Armani jeans will
make some people feel better than if they were wearing a £50 pair of Levis even though the difference
between the two is difficult to see to the casual observer.
The thing to remember here is that the customer will always believe what they want to believe, often
regardless of the facts or the best efforts of th e retailer. Their perception of your product or brand is
often as, if not more, important than its¶ actual characteristics. After all, believing that a particular
product is going to improve your life makes it much easier to rationalise a buying decision or to justify
spending more that you might have planned.

The importance of perception is regularly exploited to create and enhance competitive differential
using marketing and PR. The differences between you and your competitors do not have to be real,
merely commonly held beliefs, but these beliefs can be very powerful. For many years, for instance,
Marks and Spencer were believed to sell better quality clothing, especially underwear, when in many
cases the products were no different to others available in the market. As a result customers were
willing to pay a premium for what they happily, but wrongly, believed to be a better product.

In summary then, emotion and perception play a critical part in the customer¶s buying decision. From a
retailer¶s perspective this means that in many product categories success is determined by the degree to
which they understand and are able to target the customer¶s emotional, rather than merely functional,
needs. Regardless of their target customer a clothing retailer, fo r instance, cannot simply sell good
quality, affordable, clothing, it must also be suitably stylish or fashionable. Remember this when you
are analysing performance or reviewing ranges and be sure to ask yourself µWhat does the customer
feel when they buy this product¶.
±.2 Building customer understanding

You will come to an understanding of your customer in three stages. Firstly, you need to understand
the mood of the general population, secondly you need to determine the common characteristics of the
market segments to which your customers belong, and finally you need to describe the profiles of each
of the customer types that you serve.
±.2.1 The changing customer
There will always be a number of characteristics which apply to all consumers. These emer ge as a
result of economic and societal developments and are dependent on many diverse factors, including the
increased availability of information and the changes in consumer legislation. You can usually identify
what these characteristics are through analysis of the media, since this reflects the public mood, though
specific research and analysis can be used to support your hypotheses.

The following are examples of common characteristics which are pertinent at the time of writing :
‡ Today¶s customer is much more knowledgeable and discerning. They know what they want, even if
we don¶t, and are willing to find it. For a retailer this means that the proposition must match the
promise ± there can be no compromises.

‡ Customers are fickle and will readily sh ift allegiances if they are not satisfied. They will only remain
loyal to one retailer or brand if we put in that extra bit of effort to make them feel special and wanted.

‡ Customers are time poor and will do what they can to make shopping, especially f or essential
products, easier.

‡ Buying habits and lifestyle choice are interlinked and the customer increasingly defines who they are
by what they own. A retailer can capitalise on this by linking themselves to a particular lifestyle,
although maintaining a lifestyle positioning can be involve heavy investment.

‡ The influence of media is pervasive and consumer tastes are increasingly defined by press, TV, films
etc. As much as we would like to think of ourselves as individuals our preference are often determined
by what we see and read. At the same time media and advertising create aspirational style icons whose
actions influence the general audience as well as their fans and admirers.
‡ Customers generally have minimum expectations of the quality and service that they expect, even
from budget retailers, and are less prepared to tolerate shoddy goods or poor service.
±.2.2 MARKET SEGMENTATION

The market is simply too big to describe as a whole and you must first segment the population into
manageable groups which share similar behaviour and attitudes. Using segmentation you can define
where you operate within the market in relation to the competition and to more precisely describe the
characteristics of the customers within your specific segment.

It is important that the segmentation model you use is easy to build and understand Although age and
socio-economic groupings are often used as the basis for segmentation, probably because they are easy
to specify and quantify, they are not particularly useful since they are not good indicators of behaviour
± an older person can behave in the same way as someone younger. More subjective methods of
segmentation such as lifestyle (e.g. young professional, home maker) are generally best used for
describing the customer types within each segment.

The method that I have found to been most effective uses price and service and fashion attitudes. These
are simple and understandable and attitudes tend to be consistent for each segment regardless of age,
lifestyle or socio-economic group. We¶ll use these as examples to look at how segmentation works ±
although you may use other models in practice the principles are the same.

Segmentation exercises are often supported by extensive quantitative research projects, i.e. those with
more than 1,000 respondents. Each respondent is asked a series of questions covering demographics,
attitudes, product use, behaviour etc. This data is then analysed or modelled using mathematical
techniques to create segments with similar patterns of response. Always bear in mind there are few
µblack and white¶ distinctions between different groups of people and segmentation often relies on
relative rather than absolute differences. Statements such as µGroup A is more likely to exhibit this
behaviour than group B¶ will be more common than µGroup A will exhibit this behaviour, while group
B will not¶. Likewise an individual can fall into different groups for different product sectors and while
this doesn¶t affect the groupings it can make data collection and analysis very complex.

Once each segment has been defined (and named) further, qualitative, research can be carried out with
small groups of respondents from each segment to give them colour and depth so that you can describe
the characteristics of each segment in much more detail. This is not strictly µscientific¶ and while the
definitions will be supported by research and analysis wherever possible they can also be arrived at
through informed discussion. The broad characteristics for each segment in our models are given in the
next issue of Retail Angle.
±.2.2.1 Price & Service Attitude

The customer¶s price and service attitude is defined by how sensitive they are to price, what their
service expectations are and their willingness to compromise on product or service in order to get the
price they want.

The table below shows how customers have been grouped and labelled according to these factors. A
Premium customer for instance has high service expectations, low price sensitivity and a low
willingness to compromise on product qualities. These segments are not quantified and the diagram is
not intended to show the size of each segment, merely what their attitudes are likely to be.

Note that there will always be an overlap between sectors ± the informed customer will share some
characteristics with the cash strapped and premium customers, for instance.
Price attitude is not strictly dependent on income since low income earners will be premium customers
in some product sectors, such as branded clothing, while high earners can be bargain hunters in others.
Price attitude is also aspirational. Many customers aspire above their means and will quickly change
segment as soon as their disposable inc increases, which is why clearance events are great excuses for
customers to meet their aspirational shopping needs at a price they can afford

SEGMENT DEFINITIONS

1) THE PREMIUM CUSTOMER

The premium customer shops for exclusivity, image and status and these factors are more important
that the price or the product itself. They are the type of people who always want, and can afford, the
best of everything. Inevitably they prefer to shop in a high specification environment with exceptional,
although not always assisted, service. Communications to this customer need to be as personal and as
exclusive as the products ± price will not be mentioned.

2) THE INFORMED CUSTOMER

For an informed customer µvalue¶ means a combination of price, quality, design and functionality.
They tend to be very selective in what they buy and although they will have a budget the product is
generally more important than the price. They occasionally aspire to and buy premium brands,
especially for special occasions, and will always visit premium stores during clearance events.
The informed customer expects a comprehensive range of products, efficient, informed service with
assisted selection when needed and prefer to shop in a well designed but un-threatening environment.
Communications to this customer tend to focus on information or image rather than price.

3) THE CASH STRAPPED CUSTOMER

The cash strapped customer has a limited budget but is still discriminating when it comes to product
choice. They will compromise to a certain extent but not will always expect keen pricing to make this
compromise. They will expect a good choice of product which is within their budget and although they
are less concerned about service and store environment than the informed customer they will still
expect an efficient point of sale. Communications will tend to concentrate on pricing although other
factors, such as fashionability will also need be emphasised.

4) THE BARGAIN HUNTER

Bargain hunters are totally driven by price to the extent that they sometimes appear to be more
interested in the µbargain¶ than in the product itself. They are major markdown shoppers and will
always seek out the best possible offer. Service and environment are rarely considerations. These
customers are willing to queue and are happy in a pile it high sell it cheap environment. Seconds and
special buy products are gratefully accepted if the price is right. Remember though that although
wealth is not always a factor most bargain hunters are not in this segment by choice. Most will have
higher aspirations which they will act on as soon as their financial circumstances change.
±.2.2.2 FASHION ATTITUDE

Fashion attitude is defined by the customer¶s attitude to innovation and their willingness to take risks.
Despite its¶ name fashion attitude applies equally to all product areas.

The table below shows the customer groupings based on these factors. Again the diagram is not
representative of the size of each segment and the differences between the groups are relative. A
fashion neutral customer will be less interested in innovation and less likely to take risks than a fashion
follower, for instance.

As with price attitude, fashion attitudes can vary by product type and a person could be more of a
fashion leader for apparel but more fashion neutral for high tech products. Fashion attitude can also be
affected by disposable income and a person might aspire to be a fashion leader in all sectors but can
only afford to satisfy this aspiration in one. As a result you have to b e very careful when carrying out
research to ask questions that cover the full range of products you stock and not to base your
segmentation on a single response. As a result of this price sensitivity a person¶s fashion attitude can
appear to change over time when all that has happened is that a latent desire has been released.

SEGMENT DEFINITIONS

1) FASHION NEUTRAL

Innovation passes the fashion neutral customer by and they only become aware of it when it knocks on
their door and tells them things have changed. They tend to be more conservative or classic in their
choices and are more likely to stay with what they know than to experiment ± these are the customers
who will, if they can, only ever drive one brand of car. They will have preferred styles, bra nds and
even outlets, to which they will be loyal for as long as their needs are met . They prefer anonymity to
visibility and will always chose evolution over revolution, changing only when they have to. Fashion
neutrals need safe environments where they feel reassured and unthreatened.

2) FASHION FOLLOWER

The fashion follower is the core customer for many retailers. They are willing to experiment, but will
do so with caution, and while they want to see innovations they are generally one or two seasons
behind the innovators and will only buy the latest items when they become more widely accepted. At
the same time, while they like continuity they don¶t do boring and want a good mix of classic and up to
date products that enable them to reflect their own personality. Fashion followers need stimulating and
entertaining environments that help and direct them to make their own choices.
3) FASHION LEADER

Fashion leaders (or victims?) are the innovators. They always wants to be the first with the new
products and while they are willing to pay a premium to achieve this, they are equally happy searching
out these products from little known and unusual sources. Image and, to an extent, the type or branding
is very important and regardless of the outlet or the presentation the fashion leader expects the product
offer to be exciting. Fashion leaders tend to be influential on fashion followers since their use of a new
product helps to extend its acceptance into the mainstream.

It¶s worthwhile noting that µFashion Leadership¶ often works at a personal level, since there is usually
at least one person in each peer group who is their elected in self-appointed fashion leader and who will
affect the purchases of the rest of the group.

±.2.2.3 THE SEGMENTATION GRID

Using price and service and fashion attitudes as axes you can now create a market segmentation grid
which can then be used to plot your current, and desired, price and fashion positioning in the market
relative to your competitors.

This grid plays an important role in the development of your overall business and product strategies
since it enables you to quickly see where you are, where you want to be and, from your understanding
of each segment, to define what you need to do to get there and what the implicat ions of this journey
will be. If, for instance, your current market position is as shown above and you decide that you want
to service a higher proportion of Fashion Leaders you know, from your definitions, that your product
ranges are going to have to become more innovative than they are at present.
±.2.3 CUSTOMER PROFILING

Customer profiling is used to more precisely define your customers and focus your proposition. Each
customer profile retains the characteristics of the overall market segment to which they belong but has
specific needs which to be met.

Profiling creates a composite picture of each type of customer which helps you to understand what they
will want to buy and how they will want to buy it. It can describe where they work, how they entertain
themselves, what they read, watch and listen to, what their likes an d dislikes are, what they are likely to
earn, where they are likely to live, which products and brands they are likely to use and what their
purchase drivers are and so on and so on. Visual cues, quotes from customers and other aids should be
used wherever possible to build a µstoryboard¶ of each profile. You should also plot the distinctions and
similarities between each profile, showing, if appropriate, the customer evolves from one to another.

Each profile can be as detailed or as sketchy as you want although it should be easy to interpret and act
on as you don¶t want it to contain excessive amounts of superfluous detail which might distract or
confuse. Knowing that your customer has strong views on the political situation in the Lesser Antilles
isn¶t likely to be much use when all you want to do is sell them a pair of socks.

As with the overall segmentation customer profiling is developed using a mixture of analysis, research
and observation. There will be no right or wrong answers and you will probably have to go through the
profiling process several times before you are happy with your definitions. It helps if you give each
profile a name that helps you to visualise its characteristics. Since customer profiles are for internal use
you could even name each profile after the real or fictional person that it most closely exemplifies.
Hence µJames¶ (as in Bond) could be the suave, sophisticated male, while µMadonna¶ could be the
older but still trendy and active woman.

Another example of customer profiling is to use µlife stage¶ which describes whether a customer is
single or married, studying, working or retired, with or without children etc. This method is useful
since discretionary spending is heavily influenced by life stage. People who have recently married are
likely to spend a larger proportion of their income on setting up their home than single people for
instance, while people with children will have different proprieties to those that don¶t. At the same time
a persons life stage tends to change over time, from single to married or from studying to working for
example, and developing a broad proposition that satisfies their needs over a number of life stages can
be a way of retaining customers.

The number of profiles you need and how you define them depends on the type of market you operate
in and the complexity of your product offer ± it is much harder for a department store offering a wide
range of products to define the profiles of its¶ customers than it is for a branded sportswear
manufacturer. Each customer can have many facets and it is not unusual to need sub-profiles based on
the type of products they are shopping for. µJames¶, for instance, could be µSporty James¶ at one time
and µParty James¶ at another. Once again there are no right or wrong answers and you need to develop
profiles that are applicable and meaningful to you.

±.2.3.1 CUSTOMER PROFILING EXAMPLE

This example gives an idea of the type of things that would be covered in a profiling exercise although
they aren¶t as extensive or as detailed as they would be in reality.

The example uses a man¶s clothing retailer operating predominantly in the Informed Fashion Follower
sector with customers ranging from young college goers through to older executives. Life stage has
been used as the basis for profiling and three main profiles; College Slacker, Young Executive and
Family Man have been defined. A profile comparison, together with a story board for the College
Slacker is shown.

Note that the statements made in real profiles as well as in this example are intended be indicative
 rather than definitive ± every Family Man will not drive a Volvo Estate and read the Guardian for
instance, but we would expect them to drive a similar type of car and be interested in µserious¶ news.
COLLEGE SLACKER STORYBOARD

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The Shopping Mission & Purchase Drivers

Two more concepts relevant to your understanding of the customer are the µSHOPPING MISSION¶
and µPURCHASE DRIVERS¶. These are defined, as with everything else about the customer, using a
mixture common sense and analysis and are the starting points for determining the hierarchical
structure of performance data, for planning and buying ranges and for planning the layout of an outlet
and. In addition the process of defining what the Shopping Missions and Purchase Drivers are will
often reveal issues and opportunities with the current ranges as well as possible range developments.

±.2.4 The Shopping Mission

A shopping mission is the general or specific purchase objective a customer has in mind when they
visit an outlet which can be very general, for instance, µI want to buy some clothes¶ or very specific, for
instance, µI want to buy the latest Madonna CD¶. We aren¶t including general browsing here ± the
intent of a Shopping Mission is to actually buy something.

The shopping mission influences which retailers a customer will visit since they will only go to those
that are specific to their mission and which meet some other pre -determined criteria such as
affordability, convenience or choice. They are not likely to visit a furniture retailer to buy clothing, for
example, or to visit a high price designer store if they are on a tight budget.

Once they are in an outlet the shopping mission will determine how the customer will shop it. The
more general the mission the more likely they are to browse before buying rather than heading straight
to a specific department looking for a particular product.

A retailer¶s job is to ensure that each shopping mission that a customer is lik ely to have when they visit
one of their outlets can be successfully completed as quickly and as easily as possible. This means that
the outlet should be easy to navigate with clear groupings of complimentary products. Each product
range should be wide enough to give the customer a reasonable chance of buying the product they are
looking for and should be displayed and should be organised in a way that makes selection simple and
intuitive.
How these principles are applied depends on the product category. Where a shopping mission is likely
to be very specific, as in the case of Madonna¶s latest CD, then the retailer must ensure that the specific
product is available in an obvious location. In this example that might be at the front of the shop or at
least in the µPop Music¶ section alphabetically filed under µM¶. If a shopping mission is more likely to
be a little bit vague, as is often the case with clothing, then the retailer needs to organise the ranges in a
way that is logical to the customer, e.g. to gen der and then product type, and to ensure that they contain
sufficient variants of each product type to enable the potential purchaser to make a choice. Although
the key season¶s looks and colours need to be represented there is unlikely to be a specific product that
must be available in the range and there is no one way that the ranges need to be displayed. The
customer will expect, however, each product to have a full size set available and displayed in a logical
order.

±.2.± Purchase Drivers

A purchase driver is any attribute of a product, such as its¶ brand, colour, fabric, fashionability,
functionality, price, style etc., which influences a customer¶s purchase decision. Think of purchase
drivers as a check list of attributes that are ranked, in the cus tomer¶s mind, from essential to optional. If
a customer is not able to find a product with the required variation of an essential attribute then they
will not buy. If their essential requirements are covered, however, they will be happy to compromise on
the more optional factors.

As an example let¶s say the purchase drivers for a customer buying a shirt are fabric (e.g. cotton,
polyester), colour, design (stripe, plain, check), style (plain or button down collar) and price. This
particular customer will only ever wear cotton, prefers blue or green and has no preference regarding
design or style. If your range contains no cotton shirts then you will almost certainly lose this customer
± they simply will not be willing to compromise and buy a polyester shirt . If you do stock cotton shirts
in a variety of designs and styles but only in lilac and white colour ways then there is still a chance that
the customer will make a purchase since the desire for blue or green is only a preference rather than an
absolute requirement. If you stock a full colour range of cotton shirts even if it is only in button down
collar stripes then the customer is likely to be satisfied.

In order to maximise sales (and customer satisfaction) it should be clear from this example that yo u
need to identify what the purchase drivers for each product type are and then to ensure that an
appropriately wide set of variations of each of these attributes are covered in each range. To satisfy the
maximum number of shirt customers, for instance the range would need to include a variety of options
in different fabrics, colours, designs and styles, not just to contain striped button -down collar cotton
shirts in blue. You cannot, however, cover all possible variations of all purchase drivers as the ran ge
would be far too large ± imagine trying to stock every possible colour ± and you need to concentrate on
the most important variations of the purchase drivers that the bulk of your customers considers most
essential.

For more details on attributes see chapter 6.

±.2.6 Defining the Shopping Mission and The Purchase Drivers

Defining the shopping mission and the purchase drivers involves no more than an open discussion
between interested parties. Buying and merchandising, retail operations, marketing and the customers
themselves can be involved. You will need a facilitator and, probably, a chairman to cast the deciding
vote in the case of disputes but beyond that its just as case of sitting down together and working
through the process below.

‡ The first stage is to define the primary mission a customer is likely to have when they visit your
outlets (actual or proposed). These are usually self evident and there can be one or more depending on
the type of retailer that you are ± if you are clothing retailer then the primary mission is to buy clothing,
if you are a department store the primary objectives could be to buy any of the categories you stock.

‡ You then take each primary mission and break it down into its components, bearing in mind your
market segment and target customer. Think in terms of the way that that the bulk of customers will
expect to shop your outlet they visit it. The components of a shopping mission for clothing, for
example, could be gender (e.g. man¶s, women¶s) or product type (e.g. denim, t-shirts, dresses) but most
people would expect the offer to be split by gender. A man shopping for himself will expect to visit the
menswear area and then to look for a particular product type, rather than to visit a generic µT -Shirt¶
area and then look for men¶s T-Shirts.

‡ Each branch of the mission should represent the specific and unequivocal route by which the
customer will fulfil their mission. A Menswear customer looking for a shirt will not fulfil this mission
by buying a pair of trousers, for instance. At some stage you will reach a point where there are a
number of possible choice that the customer could make to satisfy their mission. The shirt customer
could chose a shirt based on its¶ style, colour, fabric or functionality, for example. These are your
purchase drivers and each one should be listed, regardless of its¶ importance.

‡ Each shopping mission can branch according to different criteria. You may decide for example that
the secondary objective of Men¶s Clothing shopping mission is product type, while that for Women¶s
Clothing is . end use (e.g. Formal or Casual). How you break down each mission depends, in the end,
on your understanding of your customer.

‡ All branches of each mission should be explored right down to product.

‡ Shopping missions and their associated purchase drivers are best represented in an hierarchical table,
as is shown in the example below.

±.3 USING CUSTOMER KNOWLEDGE

As we said in the introduction the knowledge you have gained on your customer, whether through a
segmentation exercise, through your understanding of their shopping missions and purchase drivers or
through other research and analysis, is used to both to evolve and improve an existing proposition to
better match the needs of current customers or to attract new ones and to develop a new proposition
that will meet the needs of a new target customer. The principles in both instances are more or less the
same but we¶ll look at them separately and then discuss how we measure the results below.

The main advantage for a retailer is that it is relatively easy to trial something such as a new store
layout or a new product range in a sample of outlets before committing to it across the whole business.
As a result you can often (although obviously not always) implement changes quickly, cheaply and at
low risk. The retailers who use this ability are, unsurprisingly, likely to be the most successful.
±.3.1 EVOLVING AN EXISTING PROPOSITION

The degree of change you need to make to an existing proposition depends on the gaps or opportunities
that have been revealed, and on your objectives.

‡ If you are happy with your existing customer base you will only need to revitali se those aspects of the
proposition, such as brand image or store environment, which have been identified as missing or
unsatisfactory . Changes can be as subtle or as radical as required ± the store environment could need a
complete overhaul or nothing more only a lick of paint and new signage for example.

‡ If you want to build market penetration you will need make whatever changes are necessary to attract
new customers or to take a greater share of discretionary spending from your existing customers. This
usually involves amending or extend the category assortment or launching a new sub-brand under the
main brand umbrella but could also involve changes to the store environment, the service proposition
or the marketing message.

‡ Having determined the objectives the changes should be costed and financial and other targets, such
as the should be set. These would commonly include the additional sales and the expected changes to
the customer base margin that the changes need to deliver to be deemed successful.

‡ Nothing remains other than to execute the changes and measure the results.

±.3.2 DEVELOPING A NEW PROPOSITION

The following applies regardless of whether you are new entrant into the sector or an existing retailer
developing a new concept that targets a different segment of the market to that which they already
serve.

‡ Chose the market sector, e.g. clothing, and the market segment, e.g. informed fashion follower, that
you will operate in and decide on the specific customer profiles, e.g. µCollege Slacker¶, that you want
your proposition to attract.

‡ Quantify the size of the segment and determine the commercial factors involved in serving the chosen
customer profiles in this segment. The µInformed Fashion Follower College Slacker Clothing¶ segment
is likely to be fairly large and although it will only deliver low to average margins because of potential
price sensitivity of this customer this could be offset by relatively low set up and maintenance costs.

‡ Develop and cost the proposition that will appeal to the target customer. In this instance everything
will have to be done from scratch (although you may chose to µlearn¶ from existing operators in the
sector). You will need to decide on the type of outlet category assortment, set the price posi tioning,
design the outlet, environment and service, create the tone of voice for communications and marketing
etc.

‡ Based on your expected share of the market and on the projected costs determine the financial
expectations.

‡ Once more all that now needs to be done is launch the proposition and to measure the results.

±.3.3 MEASURING THE RESULTS

The following flow chart shows the broad steps in developing a new or amended proposition. We¶ve
already looked at the first three steps and are now going to look at what happens after the proposition
has been launched or the changes have been executed.
Once the customer has had chance to react to the new or changed proposition we can measure the
financial performance and look at who the actual customer is compared to our target.

This is where it gets interesting. Let¶s look at the new proposition we used as an example above.
Unless you have got it very, very wrong it is likely that the bulk of your are, as expected, informed
fashion followers. However it is quite possible that instead of a µCollege Slacker¶ the proposition
appears to have attracted a µFamily Man¶. What do you do?

Some people would straightaway wail that the launch had been a failure and that proposition needed to
be changed. But before you can deem anything a failure you must firs look at performance. If results
are good and the targets have been achieved or exceeded then you simply have to change the definition
of your target customer to µFamily Man¶. Only if results are poor will you need to revisit the
proposition.

The fact is that it is better to rate the success of a new or changed proposition on the on the basis of
performance rather than on its ability to attract a specific type of customer. Even though the store
environment, product offer, marketing etc. are all designed according to what you think is required by a
particular customer profile, who cares if the end result attracts a different profile so long as the outlet is
successful.

±.4 UNDERSTANDING YOUR CUSTOMER : SOME FIN AL WORDS

We may think we know our customers but unfortunately serving their needs can be as much about trial
and error as science. History is scattered with examples of how the customer has confounded
expectations and not behaved as we have expected, with both good and bad results. Sometimes we
succeed and sometimes we fail regardless and doubtless there are many examples buried in the
archives of retailers and the memories of their managers. It¶s not just in retailing that this happens and
brands and manufacturers can make equal and often more damaging errors in their assumptions about
the customer ± look up the Ford Edsel or New Coke on the internet by way of example. The lesson is
that regardless of how much you think you understand your customer they¶ll always, and with
complete disregard for the facts, prove you wrong.
CHAPTER 6: ORGANIZING INFORMATION - HIERARCHIES AND ATTRIBUTES

6 INTRODUCTION

In the next few chapters we will be looking at performance analysis, but before we can cover the main
topic we need to understand how the performance data we will use should be organised. It may seem
self evident, but it is essential that this data is structured, and readily available, in a way that helps,
rather than hinders, performance analysis. Where this isn¶t the case, and it isn¶t in a surprising number
of businesses, performance analysis is less efficient and rigorous than it should be and the actions that
derive from it aren¶t as effective.. At the same time, our ability to succeed is made significantly easier
if data is organised in a way that helps us to identify and anticipate our customer¶s needs. What we
don¶t want is for the data user (that would be you) to have to spend more of their time wrangling the
data into a useable form than they do actually analysing it.

Problems can easily be avoided if some fairly simple concepts are understood and some basic rules
followed. Performance data predominantly comes from product transactions captured in a variety of
outlets over time (conveniently corresponding to the µRight Product, Right Place, Right Time¶ rule) and
in this chapter we are going to look at how HIERARCHIES and ATTRIBUTES can be used organise
this data in a way which is both customer focussed and supportive of effective and efficient
performance analysis.

6.1 DEFINITIONS

6.1.1 HIERARCHIES

The information hierarchy is a strict one parent, many children structure. Each parent can have one or
more children while each child can only have one parent. Each child is in turn the parent of children in
the hierarchy level below, while each child has a relationship with all levels above them in the
hierarchy. The hierarchical relationships are shown in the following diagram.

A retail organisation will need three hierarchies to organise its data, one f or Product, one for Outlet and
one for Time.
The product and outlet hierarchies can have as many levels, branches and members in each level as
required but need to be consistent with the actual organisational structure so that performance can be
attributed to the individuals responsible for delivering it.

Different µmembership rules¶ can be applied to each branch of the these hierarchies to accommodate
business needs. The first branch of the product hierarchy for a clothing retailer, for example, could be
gender (Men, Women) while the next branch could use end use (Formal, Casual) for Menswear and
Product Type (Dresses, Skirts etc.) for Womenswear.

There is less flexibility with the Time hierarchy since it is governed by clock and calendar although
you will need to make sure it supports both merchandising and financial requirements.

6.1.2 ATTRIBUTES

An attribute is any characteristic of a product, an outlet or a period of time, such as the material from
which a product is made, the geographical region to which a outlet belongs or the annual event that
falls on a specific date.

Attributes µbelong¶ to the members of the lowest level in a hierarchy, usually the SKU in the product
hierarchy and the outlet in the Outlet hierarchy. There are usually systems constraints on the number of
attributes you can use.

Attributes are primarily used for Range and Outlet analysis, although they are also used to provide data
for other business functions such as Finance. They provide a more flexible way of consolidating data
than the hierarchies and can be used to analyse data within and across the hierarchical structure. You
could analyse the µCotton¶ sales for the business regardless of whether the product was Men¶s or
Women¶s. Attribute analysis tends to be produced as required and for varying parameters rather than as
part of any regular set of reports.

Attributes are also used to trigger certain actions, most commonly at the point of sale or in the
Distribution Centre. A µVAT Code¶ attribute will determine whether VAT is applicable to a
transaction, for instance, while a µDC Stock Location¶ attribute can be used to automatically direct a
product to a particular storage location in the DC.
6.1.3 CAPTURING AND REPORTING DATA

Performance data is collected for each transaction and referenced to the lowest level in each hierarchy,
usually SKU or Unique Product Code in the Product hierarchy, the outlet in the Outlet hierarchy and
the hour in the Time hierarchy. Performance data is always owned by its originating transacti on and
cannot be transferred ± a sale always belongs to the product in one outlet where it took place. You can,
however, move a child to a new parent in which case, in most systems, the performance history owned
by the child and all hierarchy levels below it will also move.

Stock data is owned by the lowest level members of the outlet hierarchy and can be freely transferred
between members at that level e.g. from one outlet to another. The stock file is updated at the time of
the transfer and history is not moved.

Performance is reported either within the hierarchy structure, so that each child performance is a sub-
set of a parent, or across the hierarchy using attributes. It should, in principle (some systems don¶t
make it easy) be possible to analyse performance for any level of one hierarchy at any level of the two
others, for example the hourly sales of a specific product for a outlet hierarchy member, or the monthly
sales in a specific outlet for a particular product hierarchy member.
6.2 PRODUCT

6.2.1 THE PRODUCT HIERARCHY

The Product hierarchy determines how product information is structured and extends from the
company down to SKU or Unique Product Code with the number of levels between depending on the
size, type and complexity of the business.
The product hierarchy must organise information in a way that enables you to plan, buy and manage
product ranges that meet the needs of your target customers and must, therefore, be consistent with the
customer¶s Shopping Mission.

The key level of the Product hierarchy is the department. A department will be a fundamental
component of the Shopping Mission and while its¶ name may be different in different companies, is
always the main performance reporting level for the business and the level which µowns¶ merchandise
planning and management.

Hierarchy levels above department will represent a more general component of the shopping mission or
are µreporting levels¶ set up to match a management tier in the buying and merchandising organisation.
To maintain data integrity it is usual to prevent p and forecasts from being entered or manipulated at
any level other than department. Higher levels will be able to view plan and forecast data but will not
be able to directly change it.

Below department there may be a sub-department (and in some cases an extra layer below this) which
represents the PRIMARY PURCHASE DRIVER for that department. This the purchase driver for that
most influences the customer when they are buying products from that department. The sub-department
designation is specific to the department and can be different even for departments in the same
hierarchy branch. The sub-department could be µFabric¶ for the Shirt department, for example, and
µStyle¶ for the Trouser department.
6.2.2 DEFINITIONS : PRODUCT, OPTION, SKU AND UPC

‡ A Plain Short Sleeve Cotton Shirt with contrasting collar and sleeve is a PRODUCT.

‡ A Plain Short Sleeve Cotton Shirt with contrasting collar and sleeve in Blue, Green or Red is an
OPTION

‡ A Blue Plain Short Sleeve Cotton Shirt with contrasting collar and sleeve in size µM¶ is a SKU.

Below SKU you can also have a Unique Product Code (UPC) which is represents a time specific
occurrence of a particular SKU. The UPC is created according to the date that the SKU was delivered
or to an entered field such as µSell By Date¶. Most systems create a UPC automatically but it is
generally only used for analysis for time critical products, particularly food. Most non -food retailers
will never need to look below SKU.

The Option or SKU s the primary planning and reporting level for product management. Option will be
the primary level when the cost and original selling price of all SKUs which belong to it are the same,
for example in clothing. SKU will be the primary level wh en either there is a single SKU per option, or
when each size variation of a specific colour has a different cost and original selling price, as would be
the case with curtains or bedding.

6.2.3 PRODUCT ATTRIBUTES

Product attributes are primarily used for range planning. As a minimum you would want to set up
attributes to identify all purchase drivers together with any other product characteristics that are vital
for range planning or to other functions such as sourcing, distribution or logistics. In addition you
would need attributes that identify the age and seasonality of the product. Regardless of what your
system allows don¶t get carried away and only specify an attributes if you are really going to need it.
Remember each attribute has to be attached to each SKU and if you have too many product set up will
be a pain.

EXAMPLE PRODUCT ATTRIBUTES

PURCHASE DRIVERS Price Band, Colour, Style , Fabric, Functionality, Brand, Fashionability, Innovation (New/
Old), Risk, Size

OTHER RANGE PLANNING Country of Origin, Supplier, Purchase Method, Distribution Profile (determines which
AND DISTRIBUTION outlets should receive the item), Tax Code, Range Name
Catalogue or internet retailers will also need attributes such as Page, Page Count etc.
SEASONALITY AND AGE On-Sale Date, Off-Sale Date, Identity (e.g. Spring/ Summer, Autumn/ Winter,
Discontinued), Season Code (e.g. SS08, AW08), Status (e.g. Full Price, Clearance,
Promotional)
OTHERS Item Dimensions, Item Weight, Packaging Type, Storage Method, Shipment Method,
Regional Code
Not all attributes used will be applicable to all product types e.g. µFabric¶ will not be relevant to an
Electrical department.

Product attributes are attached at the relevant component or the product and will apply to all subsidiary
components . Size, for instance, is set for each SKU, while Colour and Identity are set for an Option
and will apply to all SKUs belonging to it. Most will become fixed once an option has been created
although some can be changed by the user or will change automatically. An option¶s Identity, for
instance, will change automatically once the season to which it applies has ended and the product is
discontinued, while the Store Profile to which a product belongs will be amended as needed.

It should be possible to identify a product solely by its¶ attributes. You will find this very useful when
looking for product duplication when planning your ranges ± if two products have exactly the same
attributes the chances are they are, as far as the customer is concerned, t he same.

EXAMPLE
ATTRIBUTE PRODUCT TYPE PRICE FABRIC FEATURE DESIGN COLOUR

VARIANT Shirt £30 Cotton Button Down Collar Stripe Blue

It may seem like a very straightforward task but you would be surprised at how long it can take to
define and agree the product hierarchy and the product attributes. Many of the decisions are very
subjective and therefore open to personal bias and there can be a great deal of debate before agreement
is reached. Regardless of the difficulties you might face in defining the h ierarchy it is essential that the
finished article is robust and customer focussed ± if it isn¶t you are much less likely to be able to
exceed your customer¶s needs.

The Product hierarchy is developed top down. The starting point, if you haven¶t already done so, is to
map out every one of your target customer¶s shopping missions and define all of the purchase drivers
for each mission as described in the last chapter.

The department level would usually set as the last unequivocal component of each shopping mission ±
Men¶s Shirts in the example we used ± although you also need to follow the hierarchy µrules¶ given
below.

If relevant, decide which is the primary purchase driver for each department ± remember this can be
different for each department ± determine the important variants of this purchase driver and set them as
the sub-departments. You can use hybrid sub-departments which combine multiple purchase drivers
where appropriate. Instead of simply using Fabric for the sub-department for instance you could use a
combination of Fabric and Design e.g. Cotton Plain, Cotton Stripe, Polyester Plain, Polyester Stripe
etc. Below sub-department will always be product through to SKU.

Add additional reporting levels above department as required.

PRODUCT HIERARCHY EXAMPLE

To show how the shopping mission translates to a product hierarchy let¶s look at the clothing example
we used in the previous chapter.

As you can see the product hierarchy is almost complete. The department level is always the level
above the purchase drivers so all we need to do is determine the primary purchase driver for each
department (e.g. Design for Men¶s Shirts and Product Type for Women¶s Formal Wear and to add any
additional reporting levels we need above the department level.

The resulting hierarchy could look like this :

All of the components of the shopping mission have been matched to a hierarchy level. In addition a
reporting level µProduct Group¶ has been added to split Men¶s Wear into Outerwear and Accessories.
This doesn¶t represent part of the Shopping Mission and has probably been done because there are
separate managers for each of these two area. Note that although there is not a similar split in Women¶s
clothing there still needs to be a Women¶s Wear product group (which is no different to the Women¶s
Wear division) to comply with the hierarchy rules.

6.2.± PRODUCT HIERARCHY RULES

These rules must be applied wherever possible to the hierarchy to make it workable. Where there is a
conflict between a rule and the µpure¶ interpretation of the shopping mission use common sense to
agree on the most sensible solution.

1) THERE SHOULD BE NO AMBIGUITY IN HIERARCHY MEMBERSHIP

The branch of the hierarchy that a product belongs to should, ideally, not be questionable. Where it is,
and a product can belong to more than one branch of the hierarchy, then there is the risk of duplication,
since similar products could be planned by different branches of the hierarchy, or the possibility of
conflict over which branch of a hierarchy should manage a product. In the worst case this ambiguity
can confuse the customer and cause them to abandon their shopping mission.

It may be impossible to avoid some ambiguity, particularly if the shopping mission branches according
to subjective rather than absolute criteria. In the hierarchy example above, for instance, it is quite clear
that a Man¶s Plain Shirt belongs in to the Plains Sub-Department of the Shirt Department in Men¶s
Outerwear whereas in the Women¶s hierarchy a Plain Blouse could belong to the Blouse sub-
department of either the Formal or the Casual departments. Where you do have ambiguity problems
can usually be avoided by careful management. In our example you would need to adhere to precise
definitions of what was Casual and what was Formal, covering the style, fabric colour etc, to determine
which department a particular Blouse should belong to.

2) THERE SHOULD BE CONTINUITY IN THE STRUCTURE

In order to be able to develop your plans based on a consistent history a department or a sub-
department should represent a component of the shopping mission that will continue to be relevant for
several seasons. The rule is most applicable at sub-department level where the importance of each
variant of some purchase drivers, such as colour, can fluctuate significantly from one season to the
next. While it is unlikely that these will be the primary purchase drivers in any case always check that
you are not building a hierarchy that is only relevant to the current season.

3) THERE MUST BE THE SAME NUMBER OF LEVELS IN ALL BRANCHES THE

HIERARCHY

Each branch of the hierarchy must have the same number of levels. This can be a problem when you
need to add a reporting level to one branch that is not strictly required in another or when one shopping
mission is far simpler than others. The problem is easily fixed by adding a µdummy¶ component to the
branched that need it, as was demonstrated in the example above.

4) THE HIERARCHY SHOULD BE CONSISTENT WITH BUSINESS REPORTING AND

OUTLET PLANNING NEEDS

The department is a principle reporting level for the business and if the main trading reports end up
containing too low a level of detail because there are too many departments then they will not be fit for
purpose ± which is usually to provide a summary of performance. Bear this in mind (in conjunction
with Rule 6) when developing the hierarchy. It is also useful, although not essential, if the hierarchy
aligns with the way that market data is reported since this enables market share to be more easily
assessed.

At the same time the department is used outlet space planning and management. For this to be effective
the bulk of a department¶s products need to be displayed as a single continuous whole in each outlet.
Where this isn¶t the case and whole ranges are, validly, displayed in more than one location then two
departments are needed and there is a probably a flaw in the shopping mission which you need to
resolve.

±) THE BUYING AND MERCHANDISING STRUCTURE SHOULD BE SUBSERVIENT TO

THE HIERARCHY, NOT VICE VERSA

While the buying and merchandising structure and product hierarchy must be consistent the overriding
objective is to service your customer¶s shopping mission and y should never base the hierarchy on the
organisation unless you are certain this objective is met. It is far better to develop the product hierarchy
using the principles outlined above and then to bring the organisational structure in line.

6) THE DEPARTMENT SHOULD BE A SENSIBLE SIZE

You need to consider three sizing issues when defining a department; is the department manageable, is
the department productive and does the department¶s size represent any risk.

Whether a department is manageable depends on how many products it contains and on how
µautomated¶ planning, ordering and replenishment is ± the less manual intervention that is required the
more products can be managed. If you think a department will be unmanageable with the current
resources it has available (usually people) then you will need to allocate more resources or to create
additional departments that are not strictly consistent with the shopping mission.

If a department contains too few products relative to its turnover then it is unlikely to be productive.
Although the effort to run the department will be relatively small, the resource cost per product is likely
to be high (assuming each department requires a department to run it) and the contribution per product,
therefore, to be low. This situation often happens when Rule 5 is ignored and the hierarchy is made to
fit the existing people organisation ± this happened in a catalogue retailer who wanted to create a
department for vacuum cleaners which contained only 8 products because there was an incumbent
buyer for this area. It can be easily remedied (bearing in mind Rule ) either by creating the department
at a higher level in the shopping mission for this branch of the hierarchy or by creating a Product
Group managed by a single team.

The higher the contribution of a department the bigger the risk to the business if it department under-
performs and it may be better to split the department between separate teams to reduce this risk. This
isn¶t always practical or desirable. The department may contain relatively few products which could
not be separated, for instance, or may represent such a definitive component of the shopping mission
that to split it would be likely to create more problems than it solved. The important thing is to examine
the alternatives carefully and if you have no choice but to leave the department as it is to make sure
your best team is looking after it.
6.3 OUTLET

6.3.1 THE OUTLET HIERARCHY

The Outlet hierarchy determines how outlet information is structured. An outlet can be any unique
location from which a product is sold, such as a µbricks and mortar¶ shop, a catalogue or an internet site
or a storage only location such as a distribution centre. The Outlet itself is the main planning and
reporting level in the outlet hierarchy and is the equivalent of the department in the planning hierarchy.

The Outlet hierarchy is built bottom up from the outlet, with outlets being grouped according to
commonalities such as geographical location or publication. It is easier to match the location hierarchy
to the retail operations organisation since the customer is only really interested in the outlet itself not in
how they are managed. While all levels above outlet in the location hierarchy are usually reporting
levels you will still have to follow Rule 3 and there must be the same number of levels in each br anch
of the hierarchy.

Additional hierarchy levels below outlet will be used as required. A catalogue or internet retailer will
probably need a µchapter¶ or page level, for example, while large format retailer may need floor or
floor zone. If the outlets hold physical stock it is good practice to have a hierarchy level at the very
bottom of the hierarchy to monitor stock condition and status i.e. to show whether the stock held is
free, reserved or faulty stock.

EXAMPLE
6.3.2 OUTLET ATTRIBUTES

Outlet attributes are used for outlet planning and operations, performance analysis and for distribution
management. Attributes which identify the age, type and status of the outlet are generally supported
and automatically maintained by most systems although others may not be. Examples of Outlet
attributes include :

‡ Opening Date ± the date the outlet first opened

‡ Opening Hours, School Holiday Start & End etc.

‡ Outlet Status ± New, Closed, Like for Like, Modernised etc.

‡ Outlet Type ± Normal, Franchise, Clearance etc.

‡Language, Time Zone etc. ± attributes required by multi-national businesses.

‡ TV & Marketing Region ± used to measure advertising & marketing effectiveness.

‡ Distribution Profile ± corresponds to the distribution profile attribute set for a product or option.
Outlets will only receive those items which have a matching distribution profile.

‡ Promotion Profile ± set to determine which promotional campaigns the outlet will participate in.

‡ Trial Outlet ± Set to flag that the outlet is used for trialling new products.
6.4 TIME

6.4.1 THE TIME HIERARCHY

The time hierarchy defines the way performance is planned and analysed in the time dimension and
extends from hour to year. While the day, and even the hour, are used in many companies for
performance reporting the key level planning and performance reporting level is usually the week.

The time hierarchy is strictly defined by clock and calendar but must support both merchandising and
finance calendars, the structure of which is shown in the following diagram. Note that a branching
hierarchy is needed for Phase and Season.
DAY

The trading day

WEEK

The trading week and the principle time dimension for planning and performance analysis for buying
and merchandising. The trading week commonly starts at start of business on Sunday or Monday and
ends at close of business on the following Saturday or Sunday.

PERIOD, MERCHANDISE QUARTER, MERCHANDISE HALF, MERCHANDISE YEAR

A period comprises four or five weeks which broadly align with a calendar month and is used for
merchandise planning and analysis. A merchandise quarter, half and year comprise respectively three
periods, six and twelve periods. The merchandise half always covers the main selling period for a
specific season¶s merchandise and is the principle time dimension for outlet planning.

Every fourth year the merchandise year needs to contain 53 trading weeks to realign it with the true
calendar. This extra week falls into the final period in the year. There can sometimes be confusion if
the financial reporting systems treat the first and last week of the calendar year as part weeks. Where
this happens the last few days of the old year will be reported as Week 53 and the first few days of the
new year as Week 1. Sensible retailers avoid this confusion by reporting weekly performance
according to the merchandise calendar.

MONTH, FINANCIAL QUARTER, FINANCIAL HALF, FINANCIAL YEAR

The calendar month is the principle time dimension for financial planning, since most payments fall
due on a monthly cycle. The financial quarter, half and year comprise respectively three, six and twelve
calendar months.

SEASON

The season (or full selling period) is used to manage product seasonality and is the principle time
dimension for range planning. Each season covers the weeks during which merchandise with the
corresponding seasonal Identity (see Product Attributes above) is on sale, from the first time any of
those products are available in any outlet to the point when the product is finally reclassified as
discontinued. We will look at how the season is used in more detail in the chapter on Product
Seasonality.

The season can start at any time and usually finishes at the end of the related merchandise half but in
some cases can extend into the new merchandise half to allow the residual performance of seasonal
product in the new half to be measured and included in the seasonal total.
Each calendar year will contain at least two seasons, Spring/ Summer and Autumn Winter, both of
which will be between 26 and 40 weeks long and which overlap both each other and the start and end
of the merchandise year.

PHASE

Each season can have between two and four phases which identify the weeks when specific ranges or
collections will be on sale. Phases are mostly used by clothing retailers to manage range renewal and to
maintain freshness in their offer.

6.4.3 TIME HIERARCHY RELATIONSHIPS

The following diagram shows the relationships between the various elements in the Time hierarchy.

6.4.4 TIME ATTRIBUTES

Time attributes are used to analyse performance in the time dimension for non-hierarchical periods and
special events. Examples include Trading Period (Morning, Afternoon, Evening) and Holiday Dates
(Easter etc.). Not all systems support time attributes.
±
42/-256.7/
2664.+,6*-

Transaction attributes are attached to each separate product on each transaction

enable us to analyse particular transaction Ǯeventsǯ, such as a promotion or
customer returns, across the product, location and time hierarchies. Transaction
attributes are either entered at the point of sale or applied automatically if
certain conditions, such as a product belonging to a promotion, are met.
Authorisation is often required to complete a transaction which requires a
transaction attribute to be entered.

The level to which transaction attributes are supported depends on your Point of
Sale system.

The three commonest transaction attributes are :

Ȉ Returns Code Ȃ Identifies the reason why a customer has returned an item.

Ȉ Promotion Code Ȃ identifies the promotional scheme that an item belongs to

(whether or not the promotion was activated for that item).

Ȉ Adjustment Code Ȃ identifies the reason for a stock adjustment.

Ȉ Discount Code Ȃ identifies the reason why an additional discount has been
given.

Chapter 7 Performance Metrics

INTRODUCTION

In this chapter you will find a brief definition of the most common performance metrics you are likely
to encounter. Although these definitions are fairly standard throughout the industry, there are variations
and it is always worth confirming what your own company uses. These metrics are divided into those
that are captured for each transaction, either a sale or a stock movement, and those that are calculated
from this captured data.

NOTES

‡ Each metric can have a number of µdimensions¶ depending on its¶ source, the most common of which
are Actual, Forecast, Target, Last Year and Plan. A combination of the Actual and Forecast figures,
referred to, curiously enough as Actual/ Forecast, is often used for analysis and planning. This
particularly relevant where the current or last year period concerned is not yet complete but you will
often see µActual/ Forecast¶ figures that refer to actual data.

‡ During the planning cycle many performance metrics are entered by the user and as a result the
calculations shown below do not apply. Planning metrics are discussed in the relevant chapters.

7.1 TRANSACTION METRICS

7.1.1 SALES

The quantity, value or cost of goods sold net of any customer returns.
Sales value is the actual cash paid, inclusive or exclusive of tax, for the items after any promotional
costs and other discounts that can be captured on the system have been deducted.

Note that because the selling price of an item can differ by time or by outlet the value of a transaction
for the same number of units of the same item can be different at a different times and in different
outlets
Sales at cost is recorded at the average cost price of the item at the time of the transaction excluding
tax.

7.1.2 CUSTOMER RETURNS

The quantity, value or cost of goods returned by the customer, either in good or faulty condition.

When a return is recorded sales and stock are adjusted as follows :

‡ If the return is in good (saleable) condition) sales are decreased and stock is increased by the amount
returned.

‡If the return is faulty or un-saleable then sales are decreased and faulty stock is increased by the
amount returned.

Returns value is recorded at the price paid when the items were originally sold i.e. the cash value of the
return to the customer.

Returns at cost is recorded at the average cost price of the item at the time of the transaction.

7.1.3 PROMOTIONAL COST VALUE

Promotional Cost value captures the value of discounts given during promotional events and is the
difference between the sales value that would have been achieved if an item had been sold at its¶
current selling price, and the sales value that was actually realised after the value of the promotional
benefits has been deducted.

Note that the promotional benefit will only be given to the customer if the conditions of the
promotional scheme are met and as a result not all transactions for items which are part of a promotion
will attract a benefit.

Promotional Cost has no effect on the stock value.

Promotional cost and promotional benefits are discussed in more detail in the chapter on Promotions
and Other Events.

7.1.4 DISCOUNTS VALUE

Discounts are any additional reductions in the price paid by the customer over and above any
promotional benefit they may be due including staff discounts, discretionary discounts given by the
store manager and discounts given to loyalty club members.

Discounts can be entered manually or calculated automatically based on eligibility criteria (e.g.
swiping a staff discount card) are deducted at the point of sale and are usually governed by some
authorisation rules to prevent abuse. Discounts need to be recorded separately since they although they
affect margin delivery and impact on intake requirements in the same way as promotional cost and
must be planned they are not usually within the control of the buying and merchandising team and
therefore not a key performance measure.

The point of sale system you use will determine how discounts are captured.

7.1.± STOCK

The quantity, value or cost value of stock held by the business.

Stock units, value and at cost are all rolling balances where :
CLOSING STOCK = OPENING STOCK + INTAKE ± SALES ± OTHER ADJUSTMENTS.

7.1.6 INTAKE

The quantity, value or cost of goods received from a supplier by an outlet.

Intake value is recorded at the plan selling price.

Intake at cost is recorded at the cost price applicable to each delivery.

A return to a supplier may by shown as negative intake or as separate metric.

7.1.7 STOCK ADJUSTMENTS

 The quantity, value or cost adjustments made to the stock file as a result of write offs or other stock
movements not otherwise recorded. Stock adjustments are often used as µbalancing items¶ when a
product¶s status or stock identity changes.

7.1.8 SHRINKAGE

Shrinkage or Stock Loss is used as a measure of operational efficiency and is the difference between
the stock counted during a stock take and the system stock at that time. Shrinkage can be caused by
theft, breakages and errors in recording sales or intake and is usually recorded as a Stock Adjustment,
with the relevant reason and authorisation code, at the time of the stock take.

Shrinkage % is usually stated as a percentage of the intake units or intake value for the merchandise
half.
7.2 CALCULATED METRICS

7.2.1 INTAKE MARGIN %

The Intake Margin % is the margin percentage you will achieve when a product sells at its¶ original
selling price.

CALCULATING INTAKE MARGIN FOR AN OPTION

OPTION INTAKE MARGIN % = (ORIGINAL SELLING PRICE LESS TAX ± DELIVERED COST
PRICE) ÷ ORIGINAL SELLING P RICE LESS TAX
EXAMPLE CALCULATION RESULT

ORIGINAL SELLING PRICE 20.00

ORIGINAL SELLING PRICE LESS TAX 20.00 ÷ 1.175 17.02

COST PRICE 8.00

INTAKE MARGIN % (17.02 - 8.00) ÷ 17.02 ±3.0%

CALCULATING INTAKE MARGIN FOR A HIERARCHY LEVEL

INTAKE MARGIN % = (INTAKE VALUE LESS TAX ± COST OF INTAKE) ÷ INTAKE VALUE
LESS TAX
EXAMPLE CALCULATION RESULT

INTAKE VALUE 5,000

INTAKE VALUE LESS TAX 5,000 ÷ 1.175 4,255

INTAKE AT COST 1,800

INTAKE MARGIN % (4,255 ± 1,800) ÷ 4,255 ±7.7%

7.2.2 MARGIN ON SALES VALUE

Margin on Sales is the margin value or percentage that will be achieved after Markdown, Promotional
and other Discounts and Stock Adjustments have been taken into account

CALCULATING MARGIN ON SALES FOR AN INDIVIDUAL OPTION

OPTION MARGIN ON SALES = ACTUAL SELLING PRICE LESS TAX ± DELIVERED COST
PRICE
OPTION MARGIN ON SALES % = OPTION MARGIN ON SALES ÷ ACTUAL SELLING PRICE
LESS TAX
EXAMPLE CALCULATION RESULT

ACTUAL SELLING PRICE 16.00

ACTUAL SELLING PRICE LESS TAX 16.00 ÷ 1.175 13.62

COST PRICE 8.00

MARGIN ON SALES VALUE 13.62 ± 8.00 5.62

MARGIN ON SALES % (13.62 - 8.00) ÷ 13.62 41.3%

CALCULATING MARGIN ON SALES FOR A HIERARCHY LEVEL

MARGIN ON SALES VALUE = SALES VALUE LESS TAX ± SALES AT COST ± STOCK
ADJUSTMENTS AT COST
MARGIN ON SALES % = MARGIN ON SALES VALUE ÷ SALES VALUE LESS TAX
EXAMPLE CALCULATION RESULT

SALES VALUE 10,000

SALES VALUE LESS TAX 10,000 ÷ 1.175 8,510

SALES AT COST 4,500

MARGIN ON SALES VALUE 8,510 ± 4,500 4,010

MARGIN ON SALES % 4,010 ÷ 8,510 47.1%

Note that some companies calculate Margin on Sales % on the VAT inclusive sales value
7.2.3 MARKDOWN

Markdown is the difference in the value of stock before and after a permanent price change. It is
always reported in the week in which the price changes are actioned. Although a Markdown will
decrease the value of the stock holding it is, by convention shown as a positive value. If there is a net
increase in the value of stock due to price increases then a negative Markdown is reported.

MARKDOWN VALUE = (CURRENT SELLING PRICE ± NEW SELLING PRICE) X OPENING

STOCK
EXAMPLE CALCULATION RESULT

CURRENT SELLING PRICE 20.0

NEW SELLING PRICE 15.0

PRICE CHANGE PER ITEM ±.0

OPENING STOCK UNITS 1,000

MARKDOWN VALUE 5.0 X 1,000 ±,000

Where there is undelivered commitment of products which are being marked down this commitment is
brought in to the business at the original selling price and an immediate markdown is taken at the time
of intake.

7.2.4 MARKDOWN %

Markdown % shows the ratio of Markdown to Sales.

MARKDOWN % = MARKDOWN VALUE ÷ SALES VALUE

EXAMPLE CALCULATION RESULT

SALES VALUE 10,000

MARKDOWN VALUE 1,250

MARKDOWN % 12.±%

Markdown % is conventionally only reported for the merchandise half or season so that the full effects
of the price changes on performance are taken into account.

7.2.± DEPTH OF MARKDOWN %

Depth of Markdown % is the percentage reduction in the current selling price of the option that is made
in a single markdown event.
EXAMPLE CALCULATION RESULT

CURRENT SELLING PRICE £20

NEW SELLING PRICE £16

PRICE REDUCTION £4

DEPTH OF MARKDOWN % 4 ÷ 20 20%

7.2.6 AVERAGE DEPTH OF MARKDOWN %

The Average Depth of Markdown % is the average percentage reduction in the original selling price
that is made over multiple markdown events.

The Average Depth of Markdown % is calculated by dividing the stock value immediately prior to the
first event by the total markdown taken during all event.
EXAMPLE CALCULATION RESULT

OPENING STOCK VALUE 20,000

MARKDOWN VALUE FIRST EVENT 4,000

MARKDOWN VALUE SECOND EVENT 3,600

TOTAL MARKDOWN VALUE 4,000 + 3,600 7,600

AVERAGE DEPTH OF MARKDOWN % 7,600 ÷ 20,000 38.0%

7.2.7 PROMOTIONAL COST %

Promotional Cost % shows the promotional cost value as a percentage of the sales value that would
have been achieved if all items sold during a promotional event, whether they were included in the
promotion or not, has been sold at full price. At option le vel, or when measured for promoted lines
only, the Promotional Cost % shows the true percentage discount that was given during the
promotional event, as opposed to the headline discount that is offered to the customer.

PROMOTIONAL COST % = PROMOTIONAL COST VALUE ÷ (SALES VALUE +

PROMOTIONAL COST VALUE + DISCOUNTS VALUE) %
EXAMPLE CALCULATION RESULT

SALES VALUE 850

PROMOTIONAL COST VALUE 100

DISCOUNTS VALUE 50

SALES VALUE BEFORE PROMOTIONAL COST AND

850 + 100 + 50 1,000
DISCOUNTS

PROMOTIONAL COST % 100 ÷ (850 + 100 + 50) 10.0%

7.2.8 DISCOUNTS %

Discounts % shows the percentage reduction in the price that is given to the customers on top of any
promotional benefit.

DISCOUNTS % = DISCOUNTS VALUE ÷ (SALES VALUE + DISCOUNTS VALUE) %

EXAMPLE CALCULATION RESULT

SALES VALUE 850

DISCOUNTS 50

SALES VALUE BEFORE DISCOUNTS 850 + 50 900

DISCOUNTS % 50 ÷ (850 + 50) ±.6%

7.2.9 WEEKS COVER

Weeks Cover is the ratio of stock to sales at the end of a single week and shows how many weeks the
same level of sales could be maintained if there was no further intake. Weeks Cover is also a very
useful measure of relative demand. and. Some retailers, especially those with a very fast stock turn
such as grocers will use Days Cover.
Cover is calculated differently depending on whether you are using Units or Value, although the result
will be the same.

UNIT WEEKS COVER = CLOSING STOCK UNITS ÷ SALES UNITS

VALUE WEEKS COVER = CLOSING STOCK VALUE ÷ (SALES VALUE + PROMOTIONAL

COST + DISCOUNTS)
EXAMPLE CALCULATION UNITS VALUE

SALES 100 850

PROMOTIONAL COST 100

DISCOUNTS 50

CLOSING STOCK 1,000 10,000

WEEKS COVER (UNITS) 1,000 ÷ 100 10.0

WEEKS COVER (VALUE) 10,000 ÷ (850 + 100 + 50) 10.0

7.2.10 AVERAGE WEEKS COVER

The Average Weeks Cover for a period longer than a week (or day) is calculated using the total sales
and the sum of the weekly closing stocks for the period. Average Weeks Cover is mostly used to show
relative demand over the period concerned.
EXAMPLE CALCULATION RESULT

CLOSING STOCK WEEK 1 + CLOSING

SUM OF CLOSING STOCK 12,000
STOCK WEEK 2 ETC.

PERIOD SALES 2,500

AVERAGE WEEKS COVER 12,000 ÷ 2,500 4.8

7.2.11 STOCK TURN

Stock Turn measures the number of times throughout the year that stock is completely replaced in the
outlets. It is a critical measure of business health since it reflects the speed at which the business turns
its assets into cash.

It can be calculated in two ways. The result is the same.

STOCK TURN = 52 X (ANNUAL SALES ÷ SUM OF CLOSING STOCKS )

STOCK TURN = 52 ÷ AVERAGE WEEKS COVER

EXAMPLE CALCULATION RESULT

CLOSING STOCK WEEK 1 + «. CLOSING

SUM OF CLOSING STOCK FOR YEAR 33,800
STOCK WEEK 52

ANNUAL SALES 2,600

STOCK TURN (METHOD 1) 52 X (2,600 ÷ 33,800) 4.0

AVERAGE WEEKS COVER 33,800 ÷ 2,600 13.0

STOCK TURN (METHOD 2) 52 ÷ 13.0 4.0

Method 2 can be used to calculate the prevailing annual Stock Turn using the data for ANY period

7.2.12 FORWARD COVER

Forward Cover is used in conjunction with Weeks Cover to determine if the business is holding
sufficient stock.

It can be calculated using units or value and shows :

‡ The number of weeks of future actual or forecast Sales Value, Markdown, Promotional Cost,
Discounts and Stock Adjustments Value that can be covered by the Closing Stock Value at the end of a
week.

‡ The number of weeks of future actual or forecast Sales Units and Stock Adjustments Units that can be
covered by the Closing Stock Units at the end of a week.
EXAMPLE WEEK 1 WEEK 2 WEEK 3 WEEK 4

SALES UNITS 200 200 250 300

CLOSING STOCK UNITS 750 550 100 280

FORWARD COVER WEEKS 3.0 2.0 ETC.

The Closing Stock of 750 units will cover sales performance for 3 more weeks on the basis of the forecast performance for those
weeks

Since the Forward Cover calculation looks at future performance which can be both actual or forecast it
must always be calculated retrospectively and can change until all the future weeks it covers are actual
performances. The Forward Cover of 3.0 in week 1 above will only be the µtrue¶ figure, for example, if
weeks 2 to 4 are the actual performances.

7.2.13 TERMINAL STOCK

Terminal stock is the value or unit stock remaining of a specific stock identity at the end of the
corresponding season or merchandise half. It is usually represented either as a percentage of that
season¶s sales or as a percentage of the total closing stock in the µterminal week¶

TERMINAL STOCK % = (IDENTITY CLOSING STOCK ÷ IDENTITY SALES) %

TERMINAL STOCK % = (IDENTITY CLOSING STOCK AT LAST WEEK OF SEASON ÷ TOTAL

CLOSING STOCK AT LAST WEEK OF SEASON) %
7.2.14 RATE OF SALE

Rate of Sale is the average unit sales per option per outlet per week for all outlets stocking the option.
Since it removes the effects of distribution it is a better measure of option and product performance
than absolute sales.

RATE OF SALE = SALES UNITS ÷ OUTLETS WITH STOCK ÷ WEEKS ON SALE

EXAMPLE WEEK 1 WEEK 2 WEEK 3 AVERAGE

SALES UNITS 200 200 250 650

OUTLETS WITH STOCK 100 80 100 280

CALCULATION 200 ÷ 100 ÷ 1 200 ÷ 80 ÷ 1 250 ÷ 100 ÷ 1 650 ÷ 280 ÷ 3

RATE OF SALE 2.00 2.±0 2.±0 2.32

For the purposes of calculating the Rate of Sale an Outlet is deemed to have stock even if it is only
holding a single unit.

This calculation works even if there are multiple options since the Outlets with Stock shows how many
instances there are of an Option in an Outlet.
EXAMPLE WEEK 1 WEEK 2 WEEK 3 AVERAGE

SALES UNITS OPTION 1 200 200 250 650

OUTLETS WITH STOCK OPTION 2 100 80 100 280

SALES UNITS OPTION 1 100 120 130 350

OUTLETS WITH STOCK OPTION 2 75 75 75 225

TOTAL SALES UNITS 300 320 380 1,000

TOTAL OUTLETS 17± 1±± 17± ±0±

CALCULATION 300 ÷ 175 ÷ 1 320 ÷ 155 ÷ 1 380 ÷ 175 ÷ 1 1,000 ÷ 505 ÷ 3

RATE OF SALE 1.71 2.06 2.17 1.98

7.2.1± FULL PRICE SELL THROUGH %

Full Price Sell Through % shows the proportion of the Total Buy Units sold at full or promotional price
during the full season. Full Price Sell Through % has a direct relationship with Markdown % - the
lower the former the higher the latter.

FULL PRICE SELL THROUGH % = (FULL PRICE SALES UNITS + PROMOTIONAL SALES
UNITS) ÷ TOTAL BUY UNITS
EXAMPLE CALCULATION RESULT
TOTAL BUY UNITS 10,000

FULL PRICE SALES UNITS 7,200

FULL PRICE SELL THROUGH % 7,200 ÷ 10,000 72.0%

7.2.16 AVERAGE SELLING PRICE

The average original, full price, promotional, markdown and net selling prices.

AVERAGE ORIGINAL SELLING PRICE = TOTAL INTAKE VALUE ÷ TOTAL INTAKE UNITS

AVERAGE FULL PRICE SELLING PRICE = FULL PRICE SALES VAL UE ÷ FULL PRICE
SALES UNITS

AVERAGE PROMOTIONAL PRICE= PROMOTIONAL SALES VALUE ÷ PROMOTIONAL

SALES UNITS

AVERAGE MARKDOWN PRICE = MARKDOWN SALES VALUE ÷ MARKDOWN SALES

UNITS

AVERAGE NET SELLING PRICE = TOTAL SALES VALUE ÷ TOTAL SALES UNITS

Note that Sales Values are recorded after Other Discounts have been deducted. The average price is
therefore that which was actually paid by the customer.
EXAMPLE VALUE UNITS CALCULATION RESULT

INTAKE 30,000 3,000 ORIGINAL S.P. 30,000 ÷ 3,000 £10.00

FULL PRICE SALES 19,000 2,000 FULL PRICE S.P. 19,000 ÷ 2,000 £9.±0

MARKDOWN SALES 7,000 1,000 MARKDOWN S.P 7,000 ÷ 1,000 £7.00

TOTAL SALES 26,000 3,000 NET S.P. 26,000 ÷ 3,000 £8.67

7.2.17 AVAILABILITY

Availability is used to measure distribution effectiveness and to identify the possible causes of under-
performance or missed potential.

There are two availability measures, Stock Availability % which shows whether the core sizes of an
option are in-stock throughout its¶ primary lifecycle, and Option Availability %, which shows whether
an outlet is holding the planned number of options.

STOCK AVAILABILITY % = (ACTUAL STOCK UNITS ÷ TARGET STOCK UNITS)%

EXAMPLE WEEK 1 WEEK 2 AVERAGE

ACTUAL STOCK UNITS 750 1,100 1,850

TARGET STOCK UNITS 1,000 1,000 2000

CALCULATION 750 ÷ 1,000 1,100 ÷ 1,000 1,850 ÷ 2,000

STOCK AVAILABILITY % 7±% 110% 92.±%

The stock availability immediately prior to a clearance event is sometimes known as the Final
Availability and is a measure of risk ± if it is too low full price sales may not have been potentialised.
Final Availability is the inverse of the Full Price Sell Through %

OPTION AVAILABILITY % = ACTUAL OPTIONS IN STOCK ÷ PLANNED OPTIONS IN

STOCK

An option is µin stock¶ if the stock held is above a specified minimum

7.2.18 SALES AND MARGIN PER SQUARE FOOT

The sales or margin realised per square foot or square metre of selling space per week and used to
monitor outlet productivity, and of the productivity of individual categories within the outlet.. Sales
and margin per foot are only measurable at the level at which floor space is allocated, usually
Department level or above

SALES (MARGIN) PER SQUARE FOOT = SALES (MARGIN) ÷ SQUARE FOOTAGE ÷ WEEKS

7.2.19 OUTLET TRADING SURPLUS

Outlet Trading Surplus is the margin delivered by each outlet after direct costs and is used in some
businesses to monitor the outlet contribution.

OUTLET TRADING SURPLUS = MARGIN ON SALES ± OUTLET COSTS

7.2.20 VARIANCE %

Variance are used for many performance metrics to show the percentage difference between two
performance elements or periods, e.g. Actual performance compared to Last Year or Actual
performance compared to plan.

VARIANCE % = ((A ÷ B) ± 1) %, where A is the measure you want to compare to B

EXAMPLE CALCULATION RESULT

THIS YEAR ACTUAL SALES VALUE 1,000

LAST YEAR ACTUAL SALES VALUE 800

ACTUAL VARIANCE TO LAST YEAR % ((1000 ÷ 800) ± 1) % 2±.0%

7.2.21 PARTICIPATION %

Variance are used for many performance metrics to show the percentage participation of a child within
its¶ parent or grandparent e.g. Departmental Sales as a percentage of Company sales.

PARTICIPATION % = (CHILD VALUE ÷ PARENT VALUE) %

EXAMPLE CALCULATION RESULT

DEPARTMENT SALES 750

COMPANY SALES 10,000

DEPARTMENTAL PARTICIPATION % (750 ÷ 10,000) % 7.±%

7.3 PERFORMANCE MEASURES SPECIFIC TO CATALOGUE RETAILERS

7.3.1 GROSS DEMAND

The quantity or value of goods ordered by the customer but not yet accepted for processing.
7.3.2 NET DEMAND

The quantity, value or cost of goods ordered by the customer that have been accepted after credit
checks.

7.3.4 GROSS DISPATCHES

The quantity, value or cost of goods dispatched to the customer.

7.3.± HELD ORDERS

The quantity, value or cost of goods which will be dispatched to the customer as soon as stock is
available.

7.3.6 RETURNS

The quantity, value or cost of goods dispatched to the customer and subsequently returned.

7.3.7 NET DISPATCHES (SALES)

The quantity, value or cost of goods dispatched to the customer which have not been returned and for
which payment will be taken.