Retail Management

UNIT –III

Merchandise Management and Price:

Definition to Merchandise: Household, personal use, or commercial goods, wares,
commodities, bought and sold in wholesale and retail.
Meaning of Merchandising: The activity of promoting the sale of goods at retail.
Merchandising activities may include display techniques, free samples, on-the-spot
demonstration, pricing, shelf talkers, special offers, and other point-of-sale methods.
According to American Marketing Association, merchandising encompasses "planning
involved in marketing the right merchandise or service at the right place, at the right time, in
the right quantities, and at the right price."
Definition: In the broadest sense, merchandising is any practice which contributes to the sale
of products to a retail consumer. At a retail in-store level, merchandising refers to the variety
of products available for sale and the display of those products in such a way that it stimulates
interest and entices customers to make a purchase.
Merchandising Philosophy: Businesses use many tactics to compel customers to buy their
products. Sales, promotions, giveaways and hosting events are just a few methods. However,
companies also use tactics in accordance with their merchandising philosophies. Such tactics
are noticeable the moment the consumer enters the store or flips through the company's
catalogue: Product layout, design, packaging and customer service are all expressions of this
philosophy. Understanding merchandising philosophy enables businesses to better target
consumers.
Merchandising philosophy is that guide all merchandise decisions a retailer makes including:
Target market, store type, competitive advantage, costs, competitors and product trends.
The only means by which the value of display merchandising can be measured is sales
increases. The only force behind sales increases or decreases is the retail customer. Retail
customers buy those products which appeal to their sense of utility--people buy things they can
use. That sense of utility can be swayed up or down by price, position, understanding of the
product, availability of the product, and/or ease of purchase. As the sense of utility increases,
the perceived value of the product increases. People buy the things that they perceive as good
values. Any single factor affecting the sense of utility can therefore push sales higher or lower.
Display merchandising must therefore positively effect those factors that are within its realm;
position, consumer understanding of the product, availability of the product, and ease of
purchase. If display merchandising negatively impacts any factor of utility, the net value of the
merchandising is negative. If the net value of merchandising is negative, there is no reason to
execute display merchandising.

Retail Management UNIT 3 1

Introduction to Merchandise Management
Indian retailing is under going a process of evolution and is poised to undergo dramatic
transformation. The retail sector employs over 8 percent of national work force. But it
characterized by a high degree of fragmentation with over 5 million outlets. 96 per cent of
whom are very small with an area of less than 50 m2. The retail universe more than doubled
between 1978 and 1996 the number of outlets per 1000 people at an all India level, increased
from 3.7 in 1978 to 5.6 in 1996 .For the urban sector alone , The shop density increased from
4 per 1000 people in 1978 to 7.6 per 1000 people in 1996. Because of their small size, the
Indian retailer have very little bargaining power with manufacturer and perform only a few of
flows in marketing channels unlike in case of retailer in developed country. The corner grocer
or =kirana‘ store is a key element in retail in India due to the house wife‘s unwillingness to go
long distance for purchasing daily needs. An empirical study was carried out by sinha et
al(2002) to identify factors that influenced consumer‘s choice of a store. Although convenience
and merchandise were the two most important reasons for choosing a store, the choice criteria
varied across product categories. Convenience was indicated by consumer as the most
important reason in the choice of groceries and fruit outlet, chemists and life style item while
merchandise was indicated as most of important in durables, books and apparel.
The success of any retail operation is largely based on the retailer‘s ability to provide the right
goods to the consumer, at the right place, at the right time and at the right price. The entire
process of creating or procuring a product or serve needed by the consumer and ensuring that
it reaches the place where a consumer can buy it, is integral to the existence of any retail
organization. Merchandise management can be termed as the analysis, planning, acquisition,
handling and control of the merchandise investments of a retail operation. The process of
merchandise management includes the developing of strategies to ensure that the right product
is bought at the right price and I available at the right place, at the right time, in the right
amount, in order to satisfy the needs of the target customer. No one in retail can completely
avoid any contact with merchandising activities. Merchandising is the day-to-day business of
all retailers. As inventory is sold, new stock needs to be purchased, displayed and sold. Hence,
merchandising is often said to be at the core of retail management. Merchandising traces its
growth to the rise of organized retail in the world. Initially, as the retailers operated only one
or two stores, the function of buying the merchandise, pricing it, etc., were much simpler. In
many cases, the retailer did it himself. However, as retailers started adding stores and
categories, the workload on the buyers increased significantly. Often, buyers had little
information or time and they ended up using approximations based on sales volumes, to
allocate merchandise between stores. This sometimes, resulted in stores exchanging
merchandise among them! In order to overcome this limitation, the function of a planner came
into being. The planner‘s job was to act as a link between the stores and the buyer. The de-
linking of the function of planning and buying allowed better interaction with the stores.
Planners were able to devote more time to collecting and studying store level data, the buyers
on the other hand, were able to spend more time with the vendors.

Retail Management UNIT 3 2

Factors Affecting the Merchandising Function
Merchandising does not function in isolation. It is affected by various factors, like the
organization structure, the size of the retail organization and the merchandise to be carried. As
in every retailing endeavor, the most fundamental activities are buying merchandise and re-
selling it to its customers. The owner or the manager, whomay be assisted by the sales person,
may perform the buying function in the case of a single store. As the single store grows in terms
of business, it may add departments. Functional departmentalization may occur and the number
of persons involved in the buying process may increase.
In the case of a chain store, the buying function may be centralized or decentralized
geographically, depending on the retail organization. Thus, the nature of the organizations is
an important factor affecting the function of merchandising. The merchandise to be carried by
a retailer largely determines
responsibilities of the merchandiser. The buying for basic merchandise is fairly different from
the buying of fashion merchandise. Basic are those products or items, which their retailer will
always keep in stock. This primarily because these products are always in demand and the sales
variance is minimal from year to year. Example of basics would betimes like white shirts in
clothing or items or items like pulses, oil, etc. Fashion products on the other hand, are products,
which may sell very well in one season or year and may not have any demand in the next
season.
A merchandiser, who is handling fashion products, will need to spend more time in the market,
looking for products, which will suit the needs of the store‘s consumers. He will also need to
be aware of the fashion forecasts and the trends in the international markets.The organization
structure that the retail organization adopts also affects the merchandising function. Some
organizations may demarcate the role f the buyer and the role of a merchandiser as separate
functions, which in a smaller organization, one person may carry out the all the duties.

Functions of a Merchandise Manager

The merchandise manager is responsible for particular lines of merchandise. For example, in
department store, there may be separate merchandise managers for menswear, women‘s wear,
children‘s wear, etc. They would be in charge of a group of buyers and their basic duties could
be divided into four areas; planning, directing, coordinating and controlling.
1. Planning: Through the merchandise managers may not directly be involved in the actual
purchase of the merchandise, they formulate the policies for the areas for which they are
responsible. Forecasting the sales for the forthcoming budget period is required and this
involves the estimating of the consumer demand and the impact of the changes occurring in
the retail environment. The sales forecasts are then translated into budgets, to help the buyers
work within the financial guidelines.
2. Organizing: It involves the establishment of an intentional structure of roles through
determination and enumeration of the activities required to achieve the goals of an enterprise
and each part of it. The grouping of these activities , the assignment of such groups of activities
, the delegation of authority to carry them out ,and provision for coordination of authority and

Retail Management UNIT 3 3

informational relationship horizontally and vertically to be carried out by the merchandise
manager.
3. Directing: Guiding and training buyers as and when the need arises, is also a function of the
merchandise manager. Many a times, the buyers have to be guided to take additional
markdowns for products, which may not be doing too well in the stores. Inspiring commitment
and performance on the part of the buyers is necessary.
4. Controlling: Assessing not only the merchandise performance, but also the buyer‘s
performance, is a part of the merchandise manager‘s job. Buying performance may be
evaluated on the basis of the net sales, mark up percentage, the gross margin percentages and
the stock turn. This is necessary to provide controls and maintain high performance results.
5. Co-ordinating: Usually, merchandise managers supervise the work of more than one buyer,
hence, they need to co-ordinate the buying effort in terms of how well it fits in with the store‘s
image and with the other product s being bought by the other buyers. The structure of the
merchandise department largely depends on the organization structure adopted by the retail
organization. Retail snapshot 6/1 illustrates the function of buying and merchandising at one
such retail organization in India – shopper‘s stop. This organizat ion has defined the trading
manager and the buyer as the persons who will look after the merchandising function.

Functions of Merchandisers
Inventory-level management
Achieving sales &profit margins
Plan merchandise
Availability management, as per range plan
Merchandising strategy & planning
Processing of purchase orders
Analysis of data & sales budgeting
Profitability Target & expense control
Vendor/supplier relations for both, in house products as well as for brands.
While good merchandise management does not guarantee success, bad merchandise
management will almost certainly result in failure.

Merchandise Planning
Retail businesses, like all other businesses, exist with the aim of making a profit. The function
revolves around planning and control. Planning is of great importance, because it takes time to
buy merchandise, have it delivered, record the delivery in the company‘s records and then, to
send the merchandise to the right stores. Analysis is the starting point of merchandising

Retail Management UNIT 3 4

planning. The person who is to take the buying decisions for a retail organization, must be
aware of the consumer needs and wants. An understanding of the consumer buying process is
necessary. A part from this, a clear understanding is also necessary of what products are
actually selling and where. Information on this can be obtained from sale records. An
interaction with the sales staff is also needed, as they can offer valuable insights into conducted,
magazine and trade publications and trade associations are other sources of information. The
information thus gathered, needs to be analyzed. This analysis forms the basis of the sales
forecast. The first stage in merchandise planning is developing the sales forecast.
Step I: Process of Planning Sales Forecast: Forecasting involves predicting as to what
consumers may do under a given set of conditions. A sales forecast may be made by the
merchandiser, based on the targets given by the top management or may be handed down by
the top management itself, depending on the retail organization. A sales forecast is the first step
in determining the inventory needs of the product or category. Forecasts are typically
developed to answer the following questions: How much of each product will need to be
purchased? Should new products be added to the merchandise assortment? What price should
be charged for the product? A sales forecast is usually made for a specific period of time, this
may be weeks or a season or a year. A forecast may be a short term—i.e., up to one year, or a
long term—i.e., for a period of more than a year. The person who is to make the forecast for
the product group or category, needs to be aware of the changes in the tastes and attitudes of
the consumers, the size of the target market and the changes in their spending patterns.
The process of developing sales forecast involves the following steps:
1. Identifying Past Sales: A review of the past sales records is necessary to establish if there is
any pattern or trend in the sales figures. A look at the sales figures of the past year, for the same
period, would give an indication of the sales in the current year, given that the conditions tare
constant.
2. Reviewing the Changes in the Economic Conditions: It is necessary to take into account the
changes happening at the economic front, as this has a direct link to the consumer spending
patterns. Economic slowdowns, increase in unemployment levels, etc., all affect business.
3. Analyzing the changes in the sales potential: It is now necessary to relate the demographic
changes in the market to that of the store and the products to be sold.
4. Finding the changes in the marketing strategies of the retail organization and the completion
While creating the sales forecast, it is necessary to take into consideration, the marketing
strategy to be adopted by the organization and that of the competition. Is there a new line of
merchandise to be introduced, a new store to be opened or an existing store to be remoulded?
All these factors need to be taken into consideration.
5. Creating the Sales Forecast: After taking into consideration the abovementioned points and
estimate of the projected increase in the sales, is arrived at. This is then applied to various
products/ categories, to arrive at the projected sales figures. A sales forecast is thus, an outline
of what amount of sales need to be achieved, it tells us what amount of sales are targeted and
what revenues are expected from those targets. However, it does not give there merchandiser
any idea of the inventory levels that are required. This brings us to the second stage, which
involves the planning of the quantities of merchandise that would be required to achieve the
sales forecasted in Stage

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Step II: Identifying the Requirements: Planning is essential to provide direction and to serve as
a basis of control for any merchandise department. In order to be able to provide the right goods
to the consumers, at the right place and time, one needs to plan a course of action. Planning in
merchandising is at two levels.
1. The creation of the Merchandise Budget, and
2. The Assortment Plan.
There are two methods of developing a merchandise plan. They are top down planning and
bottom up planning. In top down planning, the top management words on the sales plan and
this is passed down to the merchandising team. On the other hand, in bottom up planning,
individual department managers work on the estimated sales projections. These are then added
up to arrive at the total sales figures. After the sales forecasting exercise has been completed,
inventory levels need to be planned. The merchandise budget is the first stage in the planning
of merchandise. It is a financial plan, which gives an indication of how much to invest in
product inventories, stated in monetary terms. The merchandise budget usually comprises five
parts:
1. The sales plan, i.e., how much of each product needs to be sold; this may be department
wise, division wise or store wise.
2. The stock support plan, which tells us how much inventory or stock, is needed to achieve
those sales.
3. The planned reduction, which may need to be made in case the product, does not sell.
4. The planned purchase levels, i.e., the quantity of each product that needs to be procured from
the market.
5. The gross margins (the difference between sales and cost of goods sold,) the department,
division or store contributes to the overall profitability of the company.
Methods of Inventory Planning: In order to be able to proceed with merchandise planning, the
method of inventory planning needs to be finalised. Any one of the four methods given below
can be used for planning the inventory levels needed.
1. The Basic Stock Method
2. The percentage Variation Method
3. The week‘s Supply Method, and
4. The Stock/ Sales Ratio Method.
The Basic Stock Method: This method of inventory planning is used when the retailer believes
that it is necessary to have a given level of inventory on hand, at all times. Basic stock is the
minimum amount of inventory that needs to be maintained for a product, category or store,
even during times of low sales.
It is calculated as under:
Basic Stock = Average stock for the season – Average monthly sales for the season,

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where,
Average monthly sales for the season = Total planned sales for the season ÷ Number of months
in the season
Average Stock for the Season = Total Planned Sales for the season÷Estimated Inventory
Turnover Rate for the Season
Beginning of Month ( BOM) Stock = Planned Monthly Sales + Basic Stock
Illustration: Using the basic stock method, calculate BOM inventory for the month of January,
given the following information:
Planned sales for the month of January : 40,000
Average Monthly Sales : 50,000
Average monthly inventory : 60,000
Basic stock = 60,000-50,000 = 10,000
BOM stock = 40,000+10,000 = 50,000
The Percentage Variation Method: This method is normally used when the stock turnover rate
is more than six times a year. The basic premise behind this method of inventory planning is
that the inventory levels should reflect the actual sales. It is calculated as under:
BOM Stock = Average Stock for season X ½ (1+ (Planned sales for the month / Average
Monthly sales)]
Illustration: Using the Percentage Variation Method, calculate the BOM inventory
for the month of January, given the following information.
Planned Sales for the month of January : 40,000
Average monthly Sales : 50,000
Average monthly inventory : 60,000
BOM Stock = Average Stock for season X ½ [1+( Planned Sales for the month / Average
Monthly Sales)]
BOM Stock = 60,000 X ½ X(1+ 40,000/50,000)
= 60,000 X ½ X (1+1.2)
= 60,000 X 1.1 = 66,000
Week‟s Supply Method Retailers such as grocers, who plan; inventories on a weekly, and not
on a monthly basis, and whose sales do not fluctuate substantially, largely follow the Week‘s
Supply Method. It is calculated as under:
Number of Weeks to be Stocked = The Number in Weeks in the period/stock turnover Rate for
the period

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Average Weekly Sales = Estimated Total Sales for the Period/The Number of Weeks in the
Period
BOM Stock = Average Weekly Sales X Number of Weeks to be Stocked
Stock to Sales Ratio Method: This is very easy to use, but it requires the retailer to have a
beginning of the month stock/sales ratio. It involves the maintaining of the inventory levels at
a specific ratio to the sales. This ratio tells the retailer how much inventory is needed at the
beginning of the month, to support the month‘s estimated sales.
Stock-Sales Ratio = Value of inventory/Actual Sales
Planned BOM Inventory = Stock Sales Ratio X Planned Sales.
Illustration : Using the Stock to sales Ratio Method, Calculate the BOM inventory for the
month of January, given the following information.
Stock to sales Ratio = 1.4
Planned Sales for the month of January : 50,000
Planned BOM inventory = 1.4 X 50,000
= 70,000
The Stock Turnover Rate An effective measure of the speed with which products or
merchandise moves in and out of a retail store for a given period, is the Stock Turnover Rate.
It is a measure of efficiency and is usually calculated for a period, of six months or a year. It is
calculated using the following formula:
Planned sales (for a period)÷ Planned Average Inventory (for the period) = Stock turnover
The stock turnover rate is a measure of efficiently. Every department usually, ahs its own stock
turnover rate, as different merchandise need different speeds of selling. Typically, for grocery
products, the stock turnover rates needed would be much higher, as compared to those needed
for products, the stock turn over rates needed would be much higher, as compared to those
needed for products like apparel or toys., From the management‘s perspective, the stock
turnover indicates the level of capital usage, i.e., turning money to inventory, inventory to
money and then repeating the process again.
Step III: Merchandise Control: The purpose of Open-to-buy is twofold. First, depending on the
sales for the month and the reductions, the merchandise buying can be adjusted. Secondly, the
planned relation Between the stock and sales can be maintained. When used effectively. Open
to buy Ensures that the buyer:
1. Limits overbuying and under buying,
2. Prevents loss of sale due to unavailability of the required stock,
3. Maintains purchases within the budgeted limits, and
4. Reduces markdowns, which may arise due to excess buying.

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When planning for any given month, the buyer will not be able to purchase the amount equal
to the planned stocks for the month. This is because there may be some inventory already on
hand or on order, but not yet delivered.
Calculating the Open-to-buy The open-to-buy amount available to a buyer, is Calculated using
the simple formula stated below:
Open-to-buy = Planned EOM Stock – Projected EOM Stock
Open-to-buy is always calculated for the current and future periods. Continuing further with
the same example that we took for calculating the Six Month Merchandise Budget, we would
arrive at the Open-to-Buy for various months, in the following manner. One makes an
assumption here that we are now in the month of February, and hence, that additional data in
the form of the actual sales and the reductions for the month of January, is now available to us.
Thus, the merchandise budget would appear with new
Step IV: Assortment Planning: Assortment Planning involves a determination of the quantities
of each product that will be purchased so as to fit into the overall merchandise plan. Details of
color, Size, brand, materials, etc., have to be specified. The main purpose of creating an
assortment plan is to create a balanced assortment of merchandise for the customer. Various
factors affect the assortment planning process. The first among these factors is the type; of
merchandise that is to be stocked in the retail store. Merchandise may be classified into basic
or staple merchandise, fashion, convenience or specialty goods. Fashion Merchandise: this type
of merchandise has a high demand for a relatively short period of time. Buying the right
quantities at the right time is of great importance for this category of products, as the demand
for the product exists for a limited time. Excess buying may result in heavy markdowns at the
end of the season or when the product goes out of style. Examples of such products include
various cuts in jeans, which may be in style for a season, short lengths in kurtas, etc., Basic
Merchandise these are products which consumers buy year in and year out.
The store would usually require these products, to be in stock at all times. Example of products,
which may be classified as staples are: men‘s white shirts, socks, handkerchiefs, stationery,
etc, Buying staple merchandise is relatively easier, it can be easily done by analyzing the past
sales records. Seasonal staples are those products, which are in demand only at a particular
time of the year, every year. For example, decorative divas sold during Diwali in India, or
decorative ornaments for Christmas, umbrellas and raincoats/rainy shoes in the rainy season.
The retailer‘s policies wit h respect to the type of brands stocked and the level of exclusivity to
be maintained in the store, also affect the merchandise buying decisions. Thus, after arriving
at the amount of money available for investing in the inventory, a merchandiser would have to
determine the variety of the merchandise. Let us take the example of a merchandiser who is
working towards the assortment plan for the menswear department for a large retail store. He
would start by determining the product line, which is under consideration. A product line is a
broad category of products having similar characteristics and uses. Thus, in menswear, product
lines could be shirts, trousers, accessories, shoes, etc. He would then have to determine the
breadth and depth to be offered under the said product line the breadth refers to the number of
brands carried within each product classification.

Retail Management UNIT 3 9

While a merchandiser always works towards creating an optimal merchandise mix, various
factors would affect his/her decision. These would be the amount of money actually available
for buying, the targets set by the management for merchandise turnover, the space actually
available within the stores for stocking the merchandise and the market constraints. Working
under these constraints, a buyer works towards creating an optimal merchandise plan.

Assortment Plan: After determining the money available for buying, a decision needs to be
taken on what to buy and in what quantity to buy it. This results in the creation of a the Model
Stock Plan. The model stock plan gives the precise items and quantities that need to be
purchased for each merchandise line. To arrive at the model stock plan, they buyer needs to
identify the attributes that the customer would consider while buying the product, then decide
on the lees under each attribute and finally, allocate the total money available, or the units, to
the respective item categories.The following example illustrate the steps involved in preparing
a Model Stock Plan:

A retailer has allocated Rs.10 lakhs to the buying of shirts. Assuming that the purchase price
of each shirt is Rs.100, he will be able to stock 10,000 shirts in the store.

Step 1: The first thing that the retailer needs to do is to identify which factors affect the
customer‘s buying decision. Let us assume that he identifies them as type of shirt, color, size,
style, fabric and sleeve length.

Step 2: Identify the number of levels under each attribute. In the given illustration, let ;us
assume that he identifies the following levels.
1. Type of shirt (Dress, Casual Formal, Sport)
2. Size (Small, Medium, Large, Extra Large)

Retail Management UNIT 3 10

3. Sleeve Length (Full Sleeves, Short Sleeves)
4. Collar Type (Saville, Button Down)
5. Color (White, Blue, Cream, Grey)
6. Fabric (Cotton, Cotton Blend)

Step 3: The third step is to allocate the total units to the respective item categories. Thus, the
units that are recommended for each item are in direct proportion to the estimated demand
patterns.

Retail Software

Retail management helps specialty, general merchandise and hard goods retailers streamline
processes, integrate channels, and inspire customers, to maximize profitability. The Retail
management software for retailers comprising integrated POS systems, mobility, eCommerce,
customer relationship management, cross-channel selling, merchandise/assortment planning,
sourcing, merchandising, inventory management, audit and operations management, business
intelligence, and financial management.
Retail Software anticipates the information needs of retail managers; collects, organizes and
stores relevant data on a continuous basis; directs the flow of information to the proper decision
makers.
For years large retailers have used retail software programs to help manage their businesses
and now, small retailers can utilize the same retail software to run their operations for more
profitability.
Retail software is computer software typically installed on PC type computers or more recently
(past 2005) delivered via the Internet (a.k.a. cloud-based). Traditionally this software was
delivered via physical data storage media sold to end consumer but very few companies still
provide their software using physical media. The software is typically sold under restricted
licenses (e.g. EULAs) or in the case of cloud-based software sold as Software-as-a-Service
(SaaS) model.

1. Save money on inventory: Reducing inventory costs is vital for every retail business. Retail
software programs can save on inventory costs through tighter controls and smart ordering. For
example: Smart replenishment: A computer system can make it so much easier to re-order.
This means that replenishment can be done in smaller quantities and more frequently, reducing
stock holding and exposure to risk. Knowing the ups and downs: A computer system keeps
tabs on all products sold and when they were sold, allowing the owner to identify trends easily
and stock up or down accordingly.

2. Stocking products that customers want: Major chain stores divide their product portfolio
into “departments” and “categories”. For example they may have a “Toys” department and a
“Baby” category. They do this to monitor which products are over and underperforming. This
same analysis is available to independents through the use of retail software. Some experts
suggest using no more than 10 departments and 10 categories within each department (giving
a maximum of 100 categories). If more than 100 categories are used there can be too many
insignificant categories representing less than as 1% of the business. Even large companies like
Wal-Mart successfully manage their inventory by using a small number of categories.

3. Develop better marketing initiatives: Many marketing initiatives rely on sales, discounts,
bundles and twofers (two for the price of one). Giving away profit is essential at times to move

Retail Management UNIT 3 11

old stock or possibly to generate more traffic, but it is also very costly. For example, on a
product marked up by 1.6, then put on sale at 20% discount, twice as many products need to
be sold to maintain the level of profitability. So, it is important to track which marketing
initiatives work. Repeating ineffective promotions loses money. Big stores closely track the
performance of their marketing activity by looking at; a) the rate of take-up for sale items, b)
changes in the number of customer purchases and c) average customer spend during the
promotion. Independents can do the same with a retail software system. The result will be more
successful marketing campaigns and less wasted money on unproductive discounts.

4. Increase margins by negotiating better deals with suppliers: Reducing the cost of a
product can increase profit margins in one of two ways; a) maintain the price of the item and
deliver more profit from reduced costs, or b) use the reduced costs to lower prices and increase
demand. The way retail software is used to achieve lower costs is through “evidence based
supplier negotiations”. For example, a supplier’s products may be underperforming in a
category or may be less profitable compared to others. Using a retail software system to give
precise evidence provides excellent negotiation material.

Cost and Productivity Benefits

Efficiency of time/transaction speed increases
Reduced queuing times
Operating cost reductions
Increased accuracy of all aspects of the sales transaction
Improved inventory management
Reductions in stock outs and stock holdings

Marketing Benefits
Improved data-effectiveness of promotions, forecast of sales
Ability to incorporate faster responses to changing market conditions
Consumer benefits from operational efficiencies –e.g. shorter queues
Can lead to building of loyalty
Additional selling space coz of reduced stockholdings
Electronic Point-of-Sale Systems (EPOS): The place where a retail transaction occurs is
called a point of sale e.g. checkout counter at departmental stores, kiosks, shops etc. A point-
of-sale system combines hardware and software to enable a retail transaction to take place. The
hardware components in a POS system include credit card devices, bar code scanners, invoice
printers etc. The software component is the application that integrates various hardware
components during a sale transaction. It includes point-of-sale tasks as well as integrated
accounting, CRM and inventory management solutions. The POS application also includes
invoicing features to generate bills and invoices. The invoicing feature includes items and
prices in a sale and also handles taxes, discounts and various payment options .
Electronic Funds Transfer at Point of Sale (EFTPOS)

History of Retail Software

An important historical event that led to the expansion of the market for retail software was the
Open Letter to Hobbyists by Bill Gates in 1976.
Until the 2000s with emergence of the Internet, retail software represented the vast majority of
all end consumer software used and was referred to as shrink ware because software almost
always ships in a shrink-wrapped box.
Retail Management UNIT 3 12
The most famous examples of retail software are the products offered on the IBM PC and
clones in the 1980s and 90s, including famous programs like Lotus 123, Word Perfect and the
various parts that make up Microsoft Office. Microsoft Windows is also shrink ware, but is
most often pre-installed on the computer.
The rise of the Internet and software licensing schemes has dramatically changed the retail
software market e.g. by Digital Distribution. Users are capable of finding shareware, freeware
and free software products or use Web services as easily as retail.[1] Producers of proprietary
software have shifted to providing much of their software and services via the Internet,
including Google, Microsoft, Yahoo!, and Apple Inc.. Software is also becoming available as
part of an integrated device, as well.
In 2011 Apple declared the discontinuation of many of its boxed retail software products

Applications of Software & IT in Retailing Business

1. Automating Processes: Electronic Point of Sales (EPOS), Inventory Planning,
Ordering and Management
2. Collecting Data About Customers: Purchasing patterns of customers, segmentation,
personalization, customization of offers, loyalty programmes, store design and product
placements
3. Feedback on Marketing Decisions: EPOS data to study effects of promotions, prices,
new products and packaging changes
4. Communications: With suppliers, customers, internal
5. Tools to Plan the Business: Software to plan, budget, forecast.
6. Adding Value to Retail Transactions: IT-assisted transactions (ATMs) may be
preferred by some customers, self-scanning, in-store kiosks for product and info.
search.
7. Technologically-enabled Shopping: Internet shopping

Areas where Retail Software is required

The Universal Product Code (UPC) or Barcode:

a) First 3 digits: Country code
b) Next 4 digits: Company code
c) Next 4 digits: Product code
d) Last digit: Check digit
Electronic data Interchange (EDI): With EDI, retailers and suppliers regularly exchange
information through their computers with regard to inventory levels, delivery times, unit sales
etc of particular items. Both parties enhance their decision-making capabilities, better control
inventory and are more responsive to demand.
Quick-Response (QR) Replenishment Systems: When EPOS are combined with EDI,
retailers are in effect adopting just-in-time or quick response (QR) replenishment methods.
Reduces stock outs and inventory levels, hence improving service to customers and reducing
costs for retailers.
Data-Base Management: Procedure a retailer uses to gather, integrate, apply and store
information related to a specific subject area. Involves use of customer data bases, vendor data
bases, product category data bases etc.
Data Bases:
a) Customer data bases-Purchase frequency, items bought, average. purchase, demographics,
payment methods etc.
Retail Management UNIT 3 13
b) Vendor data bases- total retailer purchases per period, total sales to customer per period,
most popular items, retailer profit margins, average. delivery time and service quality
c) Product Category Data Bases: Total category sales per period, retailer profit margins,
percentage of items discounted etc.

Types of Information Systems

1. Transaction Processing Systems (TPS) : Used to facilitate customer transactions and other
routine business processes (e.g. EPOS systems, payroll and employee record keeping). Critical
to operations. Forms major input into other systems

2. Management Information Systems (MIS): To assist middle managers in their monitoring,

controlling and decision-making activities.

- Provide routine summary or exception reports (usually from transaction data from TPS
indicating firm’s current performance) either in the form of a report or online access.
-Usually involve pre-specified questions, simple summaries and comparisons.

3. Decision Support Systems (DSS): IS designed to assist manager in non-routine semi-

structured or unstructured decisions.
-Allows user to conduct a ‘what-if’ analyses by changing the assumptions underlying various
components of the decision

4. Executive Support Systems : Designed to support senior managers responsible for making
strategic decisions- non-routine and require information about trends in the external
environment as well as internally.
- Incorporates information both from MIS and DSS and external data about economic,
competitive and regulatory environment etc.

Software for Merchandise, Logistics and inventory Management and Implementation

a) Just Enough (Retail CIO Outlook): I n today’s fast-evolving digital landscape, convincing
a customer to visit and purchase from a retail store requires more than just traditional ways of
promotion. Every retail store should stay on top of merchandising concepts, trends and have
its own style of merchandising to entice the customers. Modern day retail merchandising is not
just about advertisements, logos and displaying organization’s name on complementary
products, but to establish a powerful, personal, and long-lasting experience between brand and
the consumer. A merchandiser needs to maximize the sale of products by offering eyecatching
packages, distinctive pricing, and promotional schemes. For this, the companies are venturing
into omnichannel retailing and trying in-store marketing solutions such as beacons to enrich
the shopping experience. In addition, retailers are leveraging social media and mobile platforms
to engage users and influence their decisions. Also, the cloud-based point of sale systems in
stores add to the performance, functionality, and looks.
Today’s consumers are always connected, armed with mobile devices and more information
than ever before. They expect a seamless shopping experience across channels that delivers
optimal assortments and flexible fulfilment options. Consumers quickly 'channel hop'
throughout their shopping journeys and 'retailer-hop' if not finding what they want. This makes
it difficult for retailers to merchandise assortments and maximize product inventory across
physical and digital channels so products are available when and where shoppers want them.

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The company’s end-to-end retail planning solution supports a best practice merchandising
process which starts with setting financial targets that drive all downstream planning processes.
“Retailers using Just Enough automatically reconcile their plans back to these targets and avoid
straying away from them as they move forward with pre-, in- and postseason plans,” says Leith.
Just Enough also empowers retailers to track inventory investment within any time period or
any part of the product and channel hierarchy. Having the appropriate level of visibility to the
open-to-buy enables retailers to track the amount available to spend on additional receipts or
to cut back on receipts not necessary within the organization’s merchandise plan. “For ease of
use, the open-to-buy capability works hand-in-hand with the merchandise financial planning
and assortment planning processes,” added Leith. In addition, the Just Enough clustering
engine quickly clusters customers and locations based on multiple performance, demographic
and space metrics. Retailers using clustering can more accurately target assortments to the right
customers.
Just Enough plans to stay focused on continually enhancing and adding to its retail planning
solution suite. Through this focus on innovation and partnership with leading retailers, Just
Enough will continue to keep ahead of retail trends and to provide the best possible retail
planning experience available in the market today.

b) Merchandise Business Operations Management (Symphony Gold): GOLD

Merchandise Management gives retailers accurate master data and unified product information
to respond quickly to issues, support strategic decisions and execute change. Merchandise
business operations management is focused on effectively managing assortments, purchasing,
pricing, promotions, imports and inventory valuation – integrating the core retailer business
processes.
Vendor, product and store assortment management
Support Multi-way relationships – from manufacturer to customer – for purchasing and
fulfilment
Robust cost and deal management, Deals, Rebates, Promotions, Opportunistic Buys
Purchase order management and ability to leverage consolidated purchase order buys
Retail and wholesale price management and execution
Promotion management including Plan development, promotional buys and executing
promotion activity
Promotions Process integrated with Buying Conditions
Global Available to Promise
Centralized analysis of business performance with alerts and just-in-time information

c) Revel iPad Point of Sale: Revel Systems POS is the premier partner for Intuit QuickBooks
integration. The Revel POS System is an award-winning iPad Point-of-Sale Solution, for any
businesses, with one location, or with multiple locations. The Revel POS is a quick, intuitive
& secure Point-of-Sale system. Revel Systems POS software offers a feature-rich POS solution
for any restaurant, retail, with integrated payroll, inventory tracking, customer relationship
management. The Revel POS System works in all 50 States in the United States, most of
Canada, Mexico, South America, Europe, Africa, Asia & Australia.

d) iVend Retail: With thousands of stores in over 45 countries, iVend suite of Retail
Applications manages every aspect of retail operation. Starting from the front-end cash register/
POS, back-office systems, Fulfillment Systems, Customer Loyalty System, eCommerce,
Mobility Solutions, Retail Business Intelligence, Inventory Management to Planning Engine;

Retail Management UNIT 3 15

every part of successful retailing is well integrated within iVend Retail Suite. Integrated with
SAP Retail (ECC6.0), SAP Business One and other ERPs.

e) Windward System Five: Windward System Five has what it takes for a small retail shop to
be successful. Being a fully integrated package, it's easy to keep track of every transaction in
your store from sales, stock movements, taxes and gross profit, barcodes and label printing,
right through to staff actions and even customer details.

f) Snappii Mobile Apps: Snappii is a codeless mobile app and mobile forms development
platform. Snappii offers many mobile apps for Retail as a convenient and easy-to-use mobile
solution that will increase your productivity by organizing your product information, having a
total control over it, tracking statuses of all items you offer to your customers and enabling
mobile payment. Display product catalogs and interact with your back end systems to adjust
inventory with a single mobile app.

g) Aralco Retail Systems: Since 1982, leading North American retailers have relied on
Aralco's powerful, user-friendly Point of Sale software, merchant POS and Retail Inventory
Management systems to grow their businesses and integrate essential front and back office
systems. With Aralco's retail POS software you can maintain complete control over sales and
inventory while providing customers and staff an easy and fast retail pos software checkout
solution.

h) Rental Software: Rent It Biz 4.0 is a Multi-Platform Cloud POS for Recreational
Equipment Rentals, Tours, and Retail including online reservations. Great for Bicycle,
Segways, Boat, Snow Ski, Small Tool, Medical, plus many other rental products.

i) Enterprise Retail Suite: Cybex Systems Enterprise Retail Suite provides a complete and
comprehensive solution specifically designed for the specialty retailer with 5 to 500 stores. Our
system includes advanced features such as forecasting, statistical analysis, and analytics
combined with latest proven technology offer an intuitive, feature-rich head office retail control
system.

k) InvSys Retail Management System: Windows based retail management software that
enables expansion from a single store setup to a multi-stores operation.

l) Realtime POS: Retail Management System. Cloud or on-premise - two very flexible options
to manage your retail organization in real time. (Hybrid option available also). Operates even
if disconnected in offline mode. Enterprise, service-oriented architecture, point-of-sale (POS)
product. Our combined 50 years experience with retail management software will ensure a
smooth transition for your company yielding a successful & efficient retail organization.

m) RetailGraph: Softworld (India) Pvt. Ltd., an ISO 9001:2008 company based at Jaipur, is
pioneer in the field of software solution for healthcare & retail segments since 1994. Its a team
of experienced and highly skilled professional providing best software services to its clients to
simplify their business processes , increase efficiency in operation and improve performance.
Advanced technology, well designed products, latest features , excellent services and above all
Ease of Use .

n) Retail Anywhere: provides complete retail management systems. Our solutions include;
POS, inventory, analytics, eCommerce, CRM and more. Certified ARTS Data Model

Retail Management UNIT 3 16

conformant and leveraging Microsoft's .NET and SQL technologies, Retail Anywhere
solutions provide the tools and insights retailers need to optimize operations and improve
profitability while delivering an enhanced customer experience across channels. Customers:
Sanrio, DvF, Peek Aren't You Curious & Rocky Mountain Chocolate Factory.

Financial Merchandise Management

Financial Planning is the process of estimating the capital required and determining it’s
competition. It is the process of framing financial policies in relation to procurement,
investment and administration of funds of an enterprise.

Objectives of Financial Planning

1. Financial Planning has got many objectives to look forward to:
2. Determining capital requirements- This will depend upon factors like cost of current
and fixed assets, promotional expenses and long- range planning. Capital requirements
have to be looked with both aspects: short- term and long- term requirements.
3. Determining capital structure- The capital structure is the composition of capital, i.e.,
the relative kind and proportion of capital required in the business. This includes
decisions of debt- equity ratio- both short-term and long- term.
4. Framing financial policies with regards to cash control, lending, borrowings, etc.
5. A finance manager ensures that the scarce financial resources are maximally utilized in
the best possible manner at least cost in order to get maximum returns on investment.

Importance of Financial Planning

Financial Planning is process of framing objectives, policies, procedures, programmes and
budgets regarding the financial activities of a concern. This ensures effective and adequate
financial and investment policies. The importance can be outlined as-
1. Adequate funds have to be ensured.
2. Financial Planning helps in ensuring a reasonable balance between outflow and inflow
of funds so that stability is maintained.
3. Financial Planning ensures that the suppliers of funds are easily investing in companies
which exercise financial planning.
4. Financial Planning helps in making growth and expansion programmes which helps in
long-run survival of the company.
5. Financial Planning reduces uncertainties with regards to changing market trends which
can be faced easily through enough funds.
6. Financial Planning helps in reducing the uncertainties which can be a hindrance to
growth of the company. This helps in ensuring stability and profitability in concern.

Financial Merchandise Management: occurs when retailer specifies which products (goods or
services) are purchased, when products are purchased and how many products are purchased.
Dollar control involves planning and monitoring a retailer's investment in merchandise over
a stated period.
Unit control relates to the quantities of goods a retailer handles during a stated period.

Benefits of Financial Merchandise Plans

It includes:
1. The value and amount of inventory in each department and/or store unit during a given
period are delineated.
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 2. The amount of merchandise a buyer can purchase during a given period is stipulated.
3. The inventory investment in relation to planned and actual revenues is studied.
4. The retailer's space requirements are partly determined by estimating beginning-of-
month and end-of-month inventory levels.
5. A buyer's performance is rated. Measures may be used to set standards.
6. Stock shortages are determined and bookkeeping errors and pilferage are uncovered.
7. Slow-moving items are classified, leading to increased sales efforts or markdowns.
8. A proper balance between inventory and out-of-stock conditions is maintained.

Inventory Accounting Systems

a) Cost accounting system- values merchandise at cost plus inbound transportation charges
b) Retail accounting system- values merchandise at current retail prices

Example

COGS: equals cost of merchandise available for sale - cost value of ending inventory ex) beg
inventory at cost, purchases, transportation, merchandise available for sale, ending inventory.
gross profit: sales - cogs
Net profit gross profit - retail operating expenses ex) operating expenses: salaries, ads, rent

Retail Management UNIT 3 18

Cost Method of Accounting
The cost to the retailer of each item is recorded on an accounting sheet and/or is coded on a
price tag or merchandise container.
Can be used with physical or book inventories:
Physical inventory - actual merchandise count
Book inventory - recordkeeping

Physical Inventory System

Ending inventory - recorded at cost. Is measured by counting the merchandise in stock at the
close of a selling period.
Gross profit is not computed until ending inventory is valued.
Gross profit is derived during full merchandise count.

Book Inventory System

Keeps a running total of the value of all inventory on hand and at cost at any given time.
End-of-month inventory values can be computed without a physical inventory.
Frequent financial statements can be prepared.

FIFO(First in, first out) Method

Under book inventory sys. logistically assumes old merchandise is sold first, while newer items
remain in inventory. Matches inventory value w/ current cost structure - goods in inventory are
ones bought most recently.
LIFO (last in, first out) Method
Assumes new merchandise is sold first, while older stock remains in inventory. Matches current
sales w/ current cost structure- goods sold first are ones bought most recently. When inventory
values rise, this method offers retailers a tax advantage bc lower profits are shown.

Retail Management UNIT 3 19

Fig: FIFO (First in, first out) Method & LIFO (last in, first out) Method

The Retail Method of Accounting

In this method, closing inventory is determined by calculating the average relationship between
the cost and retail values of merchandise available for sale during a period. 3 basic steps to
determine ending inventory by this method:
1. Calculating the cost complement
2. Calculating deductions from retail value
3. Converting retail inventory value to cost

Advantages of the Retail Method: It include

Valuation errors are reduced when conducting a physical inventory since merchandise value
is recorded at retail and costs do not have to be decoded.
Because the process is simpler, a physical inventory can be completed more often.
Profit-and-loss statement can be based on book inventory.
Method gives an estimate of inventory throughout the year and is accepted in insurance
claims.
Merchandise Forecasting and Budgeting: Dollar Control
Entails planning and monitoring a firm's inventory investment over time.

Retail Management UNIT 3 20

 There is a six-step dollar control process, which should be followed sequentially.
If a sales forecast is too low, a firm may run out of items because it does not plan to have
enough merchandise during a selling season. Planned purchases will also be too low.

Steps in Merchandise Forecasting and Budgeting Process: Dollar Control

Steps include:
1. Designing control units: step in merchandise forecasting and budgeting process requires the
selection of control units, the merchandise categories for which data are gathered. Such
classification must be narrow enough to isolate opportunities and problems w/ specific
merchandise lines. Retailer wishing to control goods w/in depts must record data on dollar
allotments separately for each category.
2. Sales forecasting: step in merchandise forecasting and budgeting process retailer estimates
its expected future revs for a given period. May be co. wide, dept wide, and individual
merchandise classifications. most important step in financial merchandise planning is having
it be accurate.
3. Inventory level planning: step in merchandise forecasting and budgeting process when
retailer plans its inventory. level must be sufficient to meet sales expectations, allowing a
margin for error. techniques to plan inventory levels are basic stock, % variation, weeks'
supply, and stock to sales methods.
a) basic stock method
b) percentage variation method
4. Reduction planning: Under inventory level planning used when retailer carries more items
than it expects to sell over specified period. cushion if sales more than anticipated, shipments
are delayed, or customers want to select from variety of items. Best when inventory t/o low or
sales erratic over year.
5. Planning purchases: Under inventory level planning beg of month planned inventory during
any month differs from planned average monthly stock by only one half of that month's
variation from estimated average sales. this method is recommended if stock t/o is more than
6 times a year or relatively stable since it results in planned inventory’s closer to monthly
average than other techniques.
6. Planning profit margins: It include
a) Open to Buy: Under planned purchases Know how to calculate!! difference between planned
purchases and purchase commitments already made by a buyer for given period often a month.
It represents amt buyer has left to spend for that month and is reduced each time a purchase is
made. = planned purchases for month - purchase commitments for that month
b) Unit control systems include: - physical inventory system - perpetual inventory system

Retail Management UNIT 3 21

c) Perpetual inventory system: Unit control system keeps running total of number units handled
by retailer thru record keeping entries that adjust for sales, returns, transfers to other depts or
stores, receipt of shipments, and other transactions.
- POS system- some use UPC - dominant format for coding data onto merchandise.
d) Economic order quantity: quantity per order in units that minimizes total costs of processing
orders, and holding inventory. order processing costs include computer time, order forms,
labor, and handling new goods. holding costs include warehousing, inventory investment,
insurance, taxes, depreciation, deterioration, and pilferage. Can be done by large or small firms.
= sq root 2DS/IC
D = annual demand
S = costs to place order
I= % of annual carrying cost to unit cost
C= unit cost of an item

Retail Management UNIT 3 22