Retail Strategic Planning and Operations Management

1. Retail Strategic Planning and Operations Management Chapter 2

2. Learning Objectives • Explain why strategic planning is so important and be able to describe the components of strategic planning: statement of mission; goals and objectives; an analysis of strengths, weaknesses, opportunities, and threats; and strategy. • Describe the text’s retail strategic planning and operation management model, which explains the two tasks that a retailer must perform and how they lead to high profit.

3. Components of Strategic Planning LO 1 • Planning Is the anticipation and organization of what needs to be done to reach on objective. • Strategic Planning Involves adapting the resources of the firm to the opportunities and threats of an ever changing retail environment.

4. Components of Strategic Planning LO 1 • Mission Statement • Statement of Goals and Objectives • Strategies • SWOT Analysis

5. Components of Strategic Planning LO 1 • Mission Statement is a basic description of the fundamental nature, rationale, and direction of the firm.

6. Elements of a Mission Statement LO 1 the kinds of values it intends to offer to serve the needs and wants of the consumers how it expects to relate to the ever-changing environment how the retailer uses or intends to use its resources

7. Components of Strategic Planning LO 1 • Goals and Objectives Are the performance results intended to be brought about through the execution of a strategy.

8. Goals and Objectives LO 1 Market Performance Objectives Financial Performance Objectives Societal Objectives Personal Objectives

9. Statement of Goals and Objectives LO 1 • Market Performance Objectives represents how a retailer desires to be compared to its competitors.

10. Importance of Planning - Sam’s View LO 1 Sam M. Walton May 4, 1998 Chairman and Chief Executive Officer Dear Bob: I am replying to your letter of the 19th concerning the Wal-Mart monopoly of communities. I have realized for some time and, I suspect, many folks have in the company, as well, how fortunate we are to have very little competition in some of the larger communities in the country. That hasn’t always been the case, as you well know. The history of our company has been that we have had more competition early on than most any regional discounter in the United States. However, one by one, our competitors weakened, were mis-managed, and have fallen out in many of the cities that we practically no have to ourselves. That has been the case generally with Howard’s, TG&Y, Gibson, Kuhn’s, Magic Mart, and certainly some of the variety chains which were once active in this area. These competitors, plus Alco, Pamida, and the group in Indiana, are on the ropes now and I don’t choose to believe those companies disappeared because of our effectiveness. Rather, I choose to believe, for the most part, they were mis-managed and, had they been managed well, there could and would have been enough business in their areas for them and for us….

11. Market Performance Objectives LO 1 • Sales Volume • Market Share Is the retailer’s total sales divided by total market sales.

12. Statement of Goals and Objectives LO 1 • Financial Performance Objectives Represent the profit and economic performance a retailer desires.

13. Financial Performance Objectives: Profitability LO 1 • Net Profit Margin • Asset Turnover • Return on Assets • Financial Leverage • Return on Net Worth

14. Financial Performance Objectives: Profitability LO 1 • Net Profit Margin Is the ratio of net profit (after taxes) to total sales and shows how much profit a retailer makes on each dollar of sales after all expenses and taxes have been met.

15. Financial Performance Objectives: Profitability LO 1 • Asset Turnover Is the total assets and shows how many dollars of sales a retailer can generate on an annual basis with each dollar invested in assests.

16. Financial Performance Objectives: Profitability LO 1 • Return on Assets (ROA) Is net profit (after taxes) divided by total assets.

17. Financial Performance Objectives: Profitability LO 1 • Financial Leverage Is total assets divided by net worth or owners’ equity and shows how aggressive the retailer is in its use of debt.

18. Financial Performance Objectives: Profitability LO 1 • Return on Net Worth (RONW) Is net profit (after taxes) divided by owners’ equity.

19. Strategic Profit Model LO 1: Exhibit 2.1 Net Profit Margin Net Profit*  Total Sales Return on Assets Financial Leverage Return on Net Worth x = x = Net Profit*  Total Assets Total Assets  Net Worth Net Profit*  Net Worth Asset Turnover Total Sales  Total Assets *Net profit after taxes

20. Financial Performance Objectives: Productivity LO 1 • Productivity Objectives: State the sales objective that the retailer desires for each unit of resource input: floor space, labor, and inventory investment.

21. Financial Performance Objectives: Productivity LO 1 • Space Productivity Annual net sales divided by the total square feet of retail floor space.

22. Financial Performance Objectives: Productivity LO 1 • Labor Productivity Annual net sales divided by the number of full-time-equivalent employees.

23. Financial Performance Objectives: Productivity LO 1 • Merchandise Productivity Annual net sales divided by the average dollar investment in inventory.

24. Statement of Goals and Objectives LO 1 • Societal Objectives Reflects the retailer’s desire to help society fulfill some of its needs. • Employment objectives • Payment of taxes • Consumer choice • Equity • Benefactor

25. Statement of Goals and Objectives LO 1 • Personal Objectives Reflects the retailer’s desire to help individuals employed in retails fulfill some of their needs. • Self-gratification • Status and respect • Power and authority

26. Retail Objectives LO 1: Exhibit 2.2 Sales Volume Profitability Market Performance Objectives Financial Performance Objectives Market Share Productivity Retail Mission Employment Self- Gratification Personal Objectives Societal Objectives Taxes Power and Authority Consumer Choice Status and Respect Equity Benefactor

27. Strategies LO 1 • Strategy Is a carefully designed plan for achieving the retailer’s goals and objectives.

28. Minimal Retail Strategies LO 1 • Get shoppers into your store. • Convert these consumers into customers by having them purchase merchandise. • Do this at the lowest operating cost possible that is consistent with the level of service that your customers expect.

29. Question to Ponder • How should a retailer determine the proportion and the number of market performance, financial performance, societal, and personal objectives?

30. Strategies LO 1 • SWOT Analysis Is the identification and analysis of a retailer’s strengths, weaknesses, opportunities and threats a firm faces.

31. SWOT Analysis LO 1 • Strengths? • Weaknesses? • Opportunities? • Threats?

32. Strategies LO 1 • Target Market Is the group or groups of customers that the retailer is seeking to serve. • Location Is the geographic space or cyberspace where the retailer conducts business • Retail mix Is the combination of merchandise, assortment, price, promotion, customer service, and store layout that best serves the segments targeted by the retailer

33. Service Retailing • Even though many flyers tried JetBlue for the first time because of its low fares, the airline’s customer service won them over.

34. Retail Planning and Management LO 2 Strategic Planning Administration High- Profit Retailing Operations Management

35. Retail Planning and Management LO 2 • Strategic Planning Is a plan of action detailing how the retailer will respond to the environment in an effort to establish a long-term course of action to follow.

36. Retail Strategic Planning and Operations Management Model LO 2: Exhibit 2.4 Competitive Environment: Behavior of Consumers, Competition and Channel Members Strategic Planning SWOT Strengths Weaknesses Opportunities Threats Goals and Objectives Mission Social and Legal Environment: Socioeconomic Environment, State of Technology, Legal System, Ethical Behavior

37. Retail Strategic Planning and Operations Management Model LO 2: Exhibit 2.4 Competitive Environment: Behavior of Consumers, Competition and Channel Members Retail Marketing Strategy Target Market(s) Location(s) Retail Mix Merchandise Pricing Advertising & Promotion Customer Service & Selling Store Layout & Design Operations Management Buying & Handling Merchandise Pricing Advertising & Promotion Customer Services & Selling Facilities High-Profit Performance Retailing Social and Legal Environment: Socioeconomic Environment, State of Technology, Legal System, Ethical Behavior

38. Retail Planning and Management LO 2 • Operations Management Deals with activities directed at maximizing the efficiency of the retailer’s use of resources. It is frequently referred to as day-to-day planning.

39. Retail Planning and Management LO 2 • Administration Involves the acquisition, maintenance, and control of resources that are necessary to carry out the retailer’s strategy.

40. Retail Planning and Management LO 2 • High-Profit Retailing To be a high profit retailer, the retailer needs good strategic planning coupled with strong operations management.

41. End Zone End Zone End Zone 50 50 50 End Zone End Zone End Zone Square Feet of Retail Space LO 2 Supercenters 80,000 - 100,000 sq ft. Example: 108,000 sq ft. Football Field 54,000 sq ft. 120 yards 360 ft. 50 yards 150 ft.

42. The SPM for Some of the Country’s Top Retailers LO 2: Exhibit 2.5