Operating a Retail Business

Objectives
To describe the scope of operation management To examine specific aspects of operating a retail business:

operations blue-print store format, size and space allocation personnel utilization store maintenance energy management and renovations inventory management store security; insurance credit management

computerization outsourcing crisis management

Definition
Operations management is the efficient and effective
implementation of the policies and tasks that satisfy a retailers customers, employees and management (and stockholders, if publicly owned).

Operational Decisions
What operating guidelines are used?

What is the optimal format and size of a store? What

is the relationship between shelf space, shelf location, and sales for each item in the store?
How can personnel be matched to customer traffic

flows? Would increased staffing improve or reduce

productivity? What impact does self-service have on sales?

Operational Decisions (cont.)

What effect does the use of various building materials

have on store maintenance? How can energy costs be

better controlled? How often should facilities be renovated?
How can inventory be best managed?

How can the personal safety of shoppers and

employees be ensured?

Operational Decisions (cont.)

What levels of insurance are required? How can credit transactions be managed most

effectively?
How can computer systems improve operating

efficiency?
Should any aspects of operations be outsourced?

What kind of crisis management plans should be in

place?

Operating A Retail Business

Operations Blueprint Store Format, Size, and Space Allocation Personnel Utilization Store Maintenance, Energy Mgt., Renovations Inventory Management Store Security Insurance Credit Management Computerization Outsourcing Crisis Management

Operations Blueprint
An operations blueprint systematically lists all the operating functions to be performed, their characteristics, and their timing. The retailer specifies in detail, every operating function from the stores opening to closing and those responsible for them.

An Operations Blueprint

Store Format, Size, and Space Allocation

It should be decided if productivity can be raised by: locating in a planned shopping center rather than in an unplanned business district using prefabricated materials in construction applying certain kinds of store design and layouts With prototype stores multiple outlets conform to relatively uniform construction, layout and operations They make centralized management control easier, reduce construction costs, standardize operations, facilitate the interchange of employees among outlets, allow fixtures and other materials to be bought in quantity and display a consistent chain image Rationalized retailing programs combine centralized management control with strict operating procedures

The chains operations are performed in a virtually identical manner in all outlets. Rigid control and standardization make this technique easy to manage. A firm can add a significant number of stores in a short time. The stores are similar in size, layout and merchandising.

Store Format, Size, and Space Allocation

Retailers focus on allocating store space productively by: determining the amount of space placement for each product category dropping merchandise lines because they occupy too much space With a top-down space management approach a retailer starts with its total available store space, divides space into categories, and then works on product layouts. A bottom-up space management approach begins planning at the individual product level and proceeds to the category, total store, and overall company levels.

Measuring performance of retail store/space-1

GMROF

A measure of retail space productivity that expresses the relationship between gross margin and the area allotted to the product It is calculated by dividing the gross margin by the retail selling space. (E.g. for a retailer having GM of 10,000 and shop of 500 sq.ft., GMROF is 10,000/500 = 20) It can be increased by either increasing GM or decreasing selling space

Tells how much returns youve got per (selling feet) area during a specified period
Allows retailer to calculate the margins earned by various departments, various product lines

Measuring performance of retail store/space -2

Sales per square foot (SPSF)

It is calculated by dividing total sales by total square feet of selling space. (E.g. dept. store that generates sales of Rs. 50 lakhs per year and has 20,000 sq.ft. retail space, has SPSF of Rs. 250) Can be calculated for departments, product lines and even SKUs

Conversion ratio

Walk-ins no. of people who enter a retail store Conversions no. of people who actually make a purchase No. of customers who make a purchase X 100 Conversion ratio = No. of customers entering the store

Measuring performance of retail store/space -3

Average sales per transaction

Calculated by dividing total sales for the day by the number of bills generated Indicator of how much a customer spends in the store per transaction Varies depending on type of retailer (e.g. jewelry retailer convenience store)

Maximizing Personnel Productivity

Hiring Process - by carefully screening potential

employees before they are offered jobs, turnover is reduced and better performance secured
Workload Forecasts - for each time period the number

and type of employees are predetermined

Job Standardization and Cross-Training Through job standardization the tasks of personnel with similar positions in different departments are rather uniform. With cross-training, personnel learn tasks associated with more than one job, such as cashier, stockperson, and gift wrapper.

Maximizing Personnel Productivity (cont.)

Employee Performance Standards - personnel

are more productive when working toward specific goals.

Cashiers are judged on transaction speed and mis-

rings Buyers on department revenues and markdowns Senior executives on the firms reaching sales and profit targets

Compensation - financial remuneration,

promotions, and recognition that reward good performance help to motivate employees

Maximizing Personnel Productivity (cont.)

Self-Service - Costs are reduced with self-service. (1) Self-service requires better displays, popular brands, ample assortments (2) By reducing sales personnel some shoppers may feel service is inadequate (3) There is no cross-selling (whereby customers are encouraged to buy complementary goods they may not have been thinking about) Length of Employment - full-time workers who have

been with a firm for an extended time are more productive than those who are part-time or who have worked there for a short time

Store Maintenance
Encompasses all the activities in managing physical

facilities. Some of the facilities to be managed are:

Exteriorparking lot, points of entry and exit, outside

signs and display windows, and common areas adjacent to a store (e.g., sidewalks) Interiorwindows, walls, flooring, climate control and energy use, lighting, displays and signs, fixtures, and ceilings

The quality of store maintenance affects consumer

perceptions, the life span of facilities, and operating costs

Store Maintenance Decisions

waste

Energy management
Due to rising costs energy management is a major factor in retail operations (critical for food stores). To manage their energy resources more effectively many retailers:
Use better insulation in constructing and renovating stores
Adjust interior temperature levels during non-selling hours. (In summer air-conditioning is reduced at off-hours; in winter heating is lowered at offhours) Use computerized systems to monitor temperature levels. (Some chains systems even allow operators to adjust the temperature, lighting, heat, and air-conditioning in multiple stores from one office) Substitute traditional lighting with high-efficiency bulbs Install special air-conditioning systems that control humidity levels in specific store areas (freezer locationsto minimize moisture condensation)

Renovations
Retailers need decision rules regarding renovations: How often are renovations necessary?
What areas require renovations more frequently than

others?
How extensive will renovations be at any one time? Will the retailer be open for business as usual during

renovations?
How much money must be set aside in anticipation of

future renovations?

Will renovations result in higher revenues, lower

operating costs, or both?

Inventory Management Decisions

How can handling of merchandise from different suppliers be

coordinated?
How much inventory should be on the sales floor versus in a warehouse

or storeroom?
How often should inventory be moved from non-selling to selling areas

of a store?
What inventory functions can be done during non-store hours? What are the trade-offs between faster supplier delivery and higher

shipping costs?
What supplier support is expected in storing merchandise or setting up

displays?
What level of in-store merchandise breakage is acceptable?

Which items require customer delivery? When? By whom?

Store Security
Uniformed security guards Undercover personnel

Brighter lighting
TV cameras and other devices

Curfews
Limited access to backroom facilities Frequent bank deposits

Insurance Issues
Among the types of insurance that retailers buy are workers compensation, product liability, fire, accident, property, and officers liability.
Rising premiums Reduced scope of coverage by insurers Fewer insurers servicing retailers

Greater need for insurance against environmental risks

Insurance Issues (cont.)

To reduce their vulnerability, retailers enacted costly programs:
no-slip carpeting, flooring, and rubber entrance mats; more frequently mopping and inspecting wet floors; doing more elevator and escalator checks;

having regular fire drills;

building more fire-resistant facilities; setting up separate storage areas for dangerous items; discussing safety in employee training; Keeping records showing proper maintenance activity.

Credit Management Decisions

What form of payment is acceptable? Who administers the credit plan? What are customer eligibility requirements for a

checque or credit purchase?

What credit terms will be used? How are late payments or non-payments to be

handled?

Computerization
Many retailers have substantially improved their

operations productivity through computerization.

With the continuing decline in the price of computer

systems and related software, even more small firms will computerize in the near future.
The computerized checkout is used to efficiently

process transactions and monitor inventory. Firms rely on UPC-based systems.

Outsourcing
More retailers have turned to outsourcing for some of the operating tasks they previously performed themselves. With outsourcing a retailer pays an outside party to undertake one or more of its operating functions. The goals are to reduce the costs and employee time devoted to particular tasks.

Crisis Management
There should be contingency plans for as many different

crisis situations as possible.

Essential information should be communicated to all

affected parties as soon as a crisis occurs.

Cooperation not conflict among the parties involved is

essential.
Responses should be as prompt as possible. The chain of command should be clear with decision

makers given adequate authority.