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Objectives and
Goals
First step in the strategic planning process involves
articulating the retailers objectives and the scope of
activities it plans to undertake.
These objectives guide the development of the retailers
Strategy.
Three types of objectives retailer might have are:
1) Financial objectives
2) Societal objectives
3) Personal Objectives
Financial
Objectives
Most people focus on profit to assess the financial
performance and this is not RIGHT!!!
It is not profits it is RETURN ON INVESTMENT (ROI)
Aiming for profit
Amount of money
Invested
ROI
Performanc
e
Rs 100,000
Rs 500,000
20% Excellent
Rs 100,000
Rs 2,000,000
5%
Poor
Societal
Objectives
Societal objectives are related to broader issues about
providing benefits to society-Making the world better
place to live.
Examples: retailers might be concerned about
providing employment opportunities etc.
Performance with respect to societal objectives is
more difficult to measure than financial objectives.
We rely on percentages for example percentage of women
Employed in the retailer Business.
Personal
Objectives
Many retailers especially owners of small business
have personal objectives such as self-gratification,
status, and respect
Strategic Profit
Model
The strategic profit model is a method for summarizing the factors that affect a firms
financial performance by ROA.
The model decomposes ROA into two components:
1) Net profit margin and
2) Asset turnover
The net profit margin is simply how much profit (after tax) a firm
Makes divided by its net sales.
It reflects the profits generated from each Rupees of sales .
Strategic Profit
Model
6-25
100
40
Cost of
Goods
Sold
Net Profit
Net Profit
Margin
15
15%
6-26
Sales
Total
Expenses
100
25
60
Income Statement
Net Sales: refers to the total revenue received by
a retailer after all refunds have been paid to
customers for a returned merchandise.
Sales are an important measure of performance
because they indicate the activity level of the
merchandising function.
6-27
5
Sales
Asset
Turnover
100
Current
Assets
10
2.5
Accounts
Receivabl
e
Total Assets
40
6-28
Fixed
Assets
Other
Current
Assets
30
Gross Margin
Net
Sales
COGS
6-29
Operating Expenses
Operating Expenses = Operating Expenses %
Net sales
6-30
Types of Retail
Operating Expenses
Selling expenses
Commissions +
General expenses
Miscellaneous
Rent + Utilities +
expenses
Administrative expenses
other than
salespeople + Operations of
buying
offices + Other
administrative expenses
6-31
Net Profit
Net Profit = Net Profit %
Net sales
6-32
Inventory Turnover
Cost of Goods =
Average inventory
6-33
Inventory Turnover
Asset Turnover
Net Sales = Asset Turnover
Total Assets
6-34
Return on Assets
Net Profit Margin x Asset Turnover = Return on Assets
6-35
6-36
= Operating Expenses %
$250,000
$700,000
GiftstoGo.com: $150,000
$440,000
6-37
35.7%
34.1%
6-38
Stores:
$ 59,800
$700,000
8.5%
GiftstoGo.com:
$ 45,500
$440,000
10.3%
Cost of
goods sold
Gross
margin
Variable
expenses
+
Fixed
expenses
Total
expenses
Profit Management
Net profit
Net profit
margin
Net Sales
x
Inventory
Net sales
+
Accounts
receivable
+
6-39
Other current
assets
Total
current
assets
Fixed assets
Return on
assets
Asset
turnover
Total assets
Asset Management
6-40
Category, Departments
and sales associates
implement strategy
6-41
Bottom Up Planning
Buyers and Store
managers estimate
what they can
achieve
6-42
Operation managers
must be involved in
objective setting
process
Financial Performance of
Retailers
Outputs Inputs Used by
Performance
Retailers
Sales
Inventory (Rs.)
Profits
Real Estate (sq.
Cash flow
ft.)
Growth in sales, Employees (#)
profits Same
Overhead
store sales growth (Corporate Staff
and Expenses)
Advertising
Energy Costs
6-43
6-44
Benchmarks
Performance of retailer over time retailer can
compare its recent performance to its performance
in the preceding months, quarters or years.
Performance of a retailer compared to its
competitors
6-45
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