Retail Management

Unit 2
Operational Dimensions in Retailing

Retaining: Operations Blue Print

Operations blueprint systematically lists all operating functions to be performed, their char-
acteristics, and their timing. When developing a blueprint, the retailer specifies, in detail, every
operating function from the store’s opening to closing—and those responsible for them. For
example, who opens the store? When? What are the steps (turning off the alarm, turning on
power, setting up the computer, etc.)? The performance of these tasks must not be left to chance.
A large or diversified retailer may use multiple blueprints and have separate blueprints for such
areas as store maintenance, inventory management, credit management, and store displays.
When a retailer modifies its store format or operating procedures (such as relying more on self-
service), it must also adjust the operations blueprint(s).
The figure outlines an operations blueprint for a quick-oil-change firm. It identifies employee
and customer tasks (in order) and expected performance times for each activity. Advantages of
this blueprint—and others—are that it standardizes activities (in a location and between loca-
tions), isolates points at which operations may be weak or prone to fail (Do employees actually
check transmission, brake, and power-steering fluids in one minute?), outlines a plan that can be
evaluated for completeness (Should customers be offered different grades of oil?), shows person-
nel needs (Should one person change oil and another wash the windshield?), and helps identify
productivity improvements (Should the customer or an employee drive a car into and out of the
service bay?).

Retail Operations
Retail store operations is daily execution of plans and policies, from the receiving of new
merchandise to following up on the customer’s purchase. It also includes the management of the
store premises, product display and pricing and the ensuring the courteous staff.

To ensure that the course of all the retail operations runs smoothly, it is vital that the
management clearly defines all the policies of the organization and the processes to be performed
and have the resources to implement them. All retail organizations have their operations manual
which entail the processes and all the details of the tasks to be performed including the
responsibility of the personnel and the time frame in which the action needs to be performed.

Key Components of Retail Operations

1. Employee Management
2. Merchandize Management
3. Customer Management
4. Inventory Management
4. Store Management

Employee Management

Employees are the real assets of any business organization. The success and failure of any
business is dependent upon the quality and quantity of its employees. Employee management is
the attempt to facilitate employees does their best work every day in order to achieve the larger
goals of the organization. The following tasks are performed under employee management:

1) Selection
2) Monitoring
3) Communication
4) Training
5) Incentives
6) Discipline
1) Selection - Selection involves finding and appointing the right candidates to fill vacant
positions to keep an organization running smoothly. The eligibility and number of employees
required to effectively run a retail business is dependent on several factors such as:

 Size of the retail store

 Number of customers in the store
 Level of assistance required by the customers
 Financial resources available for payroll
 The need for product security
 The timing of the store and the working hours of the employees

2) Monitoring - Monitoring involves the continuous performance evaluation of an employee.

3) Communication – It includes various aspects such as staff meetings, memos, and meeting
with the entrepreneur to communicate job expectations, company culture, feedback etc. The
entrepreneur or store manager should be available to answer questions, discuss problems and
suggest solutions when the employees require support and guidance.
4) Training – Training is very necessary to apprise the employees on the methods of the
particular business. Whether the task is assisting a customer, processing shipments, arranging
merchandise or operating a computer, there should be a systematic procedure to be followed.
Many companies develop employee procedures manual which enlists business policies and
procedures. Some companies on the other hand teach employees the principle and give them
plenty of freedom to develop. The aim in training employee is to guide them fairly, constantly,
and discreetly. Employees should know what is expected and how they are performing. Regular
employee reviews help communicate this information.

5) Incentives – This aspect of employee management involves rewards given to the employees
to provide the consistent motivation needed to exhibit high performance. Incentives given by the
organization should not be restricted to cash prizes and may include other forms such as
recognition, bonus, an item from stock as a reward or a special merchandise discount.
Merchandise discounts are mutually beneficial because they encourage the sales person to
purchase and wear merchandise carried by the business. Salespersons are, in essence, walking
advertisements for the company.

6) Discipline – Finally, discipline includes all the procedures that manager implement to advance
low performance, correct mistakes and implement company policies. These measures could be as
simple as one-on-one meetings, or they could be as serious as termination or legal action.
Employee/HR Management Challenges in Retail

1. Attracting and retaining employees

Attracting and retaining workers has been one of the major retail HR challenges in the past years.
According to a report from the U.S. Bureau of Labor Statistics, the retail industry has the second-
largest number of vacant positions of all sectors, and openings have reached a high of over 10
million. A survey by Zipline found that a staggering 42% of retail associates are either
considering or planning to leave the industry. Zipline’s CEO Melissa Wong suggests this is
largely due to a disconnect in communication between HQ and front-line workers on the shop
floor, leading to employees feeling unheard, disengaged, and disconnected from the company.
Thus, HR need to create innovative ways to attract and retain employees in a volatile industry,
which should include:

 boosting employee engagement,

 rewarding good work,
 increasing salaries and benefits,
 offering consistent schedules and guaranteed hours,
 and conducting more thorough exit interviews to understand challenges and what
employees are actively seeking in an employer.
Many retailers are already increasing their efforts to attract and retain employees. For example,
global athletic apparel and footwear giant Nike offers employees generous benefits such as
health insurance, discounts, paid time off, and a retirement plan. U.S. grocery chain Sam’s
Club offers stock purchasing plans, parental leave, and assistance with college
tuition. Lululemon raised its hourly wage for store and customer service employees to $15-$17
as an “appreciation for its workforce” and to recognize their good work.

2. Health and wellbeing matters

The American Psychological Association reports that 78% of retail workers are experiencing
significant stress. This manifests itself in the rise of substance abuse, domestic violence, and
suicides driven by the psychological impacts of the recent covid pandemic. Many companies are
paying attention and beginning to prioritize their employee’s mental health by adding a Director
of Wellbeing role and offering health-related benefits to grant relief during challenging times.

3. Employee safety

The Bureau of Labor Statistics data shows that the retail industry added 135,000 jobs in
December 2020 but lost 38,000 jobs in January 2021 due to covid. This has brought employee
safety into question. Employee safety will remain one of the top-of-mind retail challenges in the
years to come. HR has the task of conducting regular research and implementing new
and updated safety measures accordingly to protect both employees’ and customers’ health and
wellbeing. This includes basic measures such as regularly cleaning all workspaces, ensuring
employees have all the cleaning products they need during their shift and operating the business
in a way that eliminates or reduces contact.

3. Scheduling and workforce planning

Although the retail industry is not as seasonally affected as the hospitality industry, it still
experiences natural highs and lows in traffic and unexpected surges and dips throughout the year.
This makes it difficult to know how many customers will be in any store at any given time.
There is the challenge of balancing the number of staff needed to meet demand with business
costs. Here, HR can play an integral role. Using data to track customer traffic and analyzing this
data can help the organization plan more effectively and reduce costs without disrupting service.

4. Redefining the role of HR within the business

HR teams are becoming an integral part of all organizations and a strategic partner to businesses.
However, one of the significant retail HR challenges is that HR business partners (HRBPs) are
often quite reactive in their approach, waiting for instructions from the management. Instead,
need to work on becoming more proactive by coming up with solutions based on data. For HR
professionals to achieve this, they should focus on becoming T-shaped. This means they have
mastered the four core HR competencies (digital proficiency, business acumen, people advocacy,
and data literacy) with at least one functional HR competency such as talent acquisition or L&D.

In this way, they will stay relevant in an ever-evolving business landscape, and help their
organization meet business objectives by continually driving value that boosts the bottom line.

5. Access to earned income

Employers have already found that offering on-demand pay leads to a 50% reduction in turnover,
a 49% increase in productivity, and a 26% reduction in absenteeism. In addition, a majority of
employees have stated that early wage access has helped reduce their financial stress. It has also
eliminated the need for them to take out loans or use their overdraft and motivates them to go to
work. This benefit can also lead to an increase in job applicants and shorter time to fill vacancies.
To implement earned wage access, HR must begin to seek technological solutions that allow
organizations to offer this to employees.
6. Enabling digital employee experience

A 2021 workplace survey by YOOBIC found that 76% of retail employees believe digitized
processes would increase their productivity. Employees now expect a positive digital employee
experience, but HR professionals must be digitally proficient themselves to offer this. This helps
employees feel heard, connected to the organization, and valued. The retail industry is rapidly
changing due to technological advances. The pandemic has forced this change into action more
quickly than many expected. Employers must think carefully about what new skills employees
will need to undertake different responsibilities and tasks. For example, using scheduling and
time management platforms, mobile messaging applications, pay on-demand platforms, and
L&D platforms. In addition, offering extensive training and development reassures anxious
employees that their future in the company is not at risk. Kroger—the largest grocery retailer in
the U.S.—recently partnered with employee training firm Axonify to launch its personalized
training program designed to support employee engagement and retention. Through an easy-to-
navigate and engaging app, workers can access training throughout their shift that is tailored to
their specific needs.

7. Building a diverse and inclusive workplace

Although retail is one of the most diverse industries, the workplace has struggled to reflect this,
particularly at top executive levels. The EEOC reports that just 14% of top-level executive
employees in retail are from underrepresented groups. This is almost 10% lower than the
accommodation and food services industry. A McKinsey survey found that 39% of participants
didn’t take a job because they perceived the organization did not have an inclusive culture. In
addition, a survey by Harvard Business Review found that a staggering 75% of participants don’t
feel any effects of diversity policies unless there’s a commitment from leadership to drive
change. One of the biggest retail HR challenges is to move from promising a diverse and
inclusive workplace and delivering. Tech-driven HR tools like behavioural assessments and pre-
employment testing can be leveraged to evaluate talent and help build a more inclusive
environment. Removing personal details within such tests can also help HR professionals
make unbiased hiring decisions.

Merchandise Management
Merchandise means “Goods to be bought and sold”.

According to American Marketing Association – “Merchandise Management is defined as

“Planning involved in marketing right merchandise, at right place at right time in the right
quantities at the right price”.

The management of the merchandise is done by the merchandise manager, category manager as
well as the other assisting staff. Operational procedures need to be defined and established for
receiving, recording, inspecting, marking and preparing merchandise for the sales floor. Cost,
accuracy and time efficiency are the vital goals for the entrepreneur when addressing receiving
and ticketing of merchandise. For example; if a t-shirt style that sells out is ticketed with an
incorrect style number, the manager may reorder the wrong t-shirt and if it takes five days to
receive, ticket and send a shipment of dresses for the sales floor, there is a lost week of five days
on this order.

The merchandise management operation involves the following tasks:

1) Preparing a merchandise plan - A merchandise plan is based on demands and specialty of

the store. Micro details such as type of products, brands, cost etc. should be planned. The basis of
such plan is past sales records, consumption habits and change in fashion. While making such
plan, the manager must also consider the financial implication of investment on merchandise to
meet the profit targets.

2) Selection of the vendor - Merchandiser has to select vendors or suppliers who meet his
requirements in terms of price, quality, delivery and reliability. He has to search the list of
suppliers available locally or at regional or international level depending on his need and select
the supplies who meets his demands. Merchandiser has to negotiate with the vendor the terms of
buying price, terms of delivery, payment base.

3) Receiving products from the vendor – The purchase order is a document that depicts when
the merchandise was shipped. The completion date is the last day authorized by the buyer to the
vendor to ship the merchandise. On receipt of goods, the purchase order is checked, and it is the
buyer’s decision whether to accept or return the merchandise shipped past the cancellation date.
Sometimes, in case of late shipment, instead of returning the merchandise, the buyer negotiates
for reduced price with the vendor. If the completion date is acceptable, the invoice is checked
against the purchase order and the goods are examined for colour, style, size, price and number
of units. In the case of most large retailers, using a hand-held scanner, the merchandise is
scanned and the system is updated for the stocks received. When the paperwork provided by the
vendor has been reconciled with the purchase order, the merchandise is checked into inventory.
Any discrepancies, such as shortages or overages, are noted on the purchase order for
adjustments by the employee responsible for accounting.

4) Marking goods – after the merchandise is checked in, tickets with the necessary information
are prepared and attached to the products. Ticketing can be done by ticket-making machines,
computer software, or by hand.

5) Merchandise display – After ticketing, the merchandise is folded or hung, steamed or

pressed, and transported to the sales floor. Product placement is a key to sales and security. The
best merchandise may lie unsold if it is not displayed in a manner that is appealing and
accessible to the customer. At the same time, the placement of products and fixtures may
encourage or discourage shoplifting.
In general, the following guidelines are followed for effective merchandise display in a fashion
retail store:

 New merchandise is usually displayed at the front of the store to gain customer’s
attention. The manager may also decide to display new merchandise in windows and on
mannequins and key fixtures.

 In any fashion retail outlet, the cut sizes (those garments for which the entire set of
sizes/colours have been sold out) are kept at the lower level. The newly arrived styles are
kept at the eye level and the less demanded products are kept at high level of shelves.

 In case the fashion retail store is running any theme promotion, sale or campaign, the
products on offer need to be displayed correctly, and replenished once sold.

 On-the-fly-purchased products such as socks, handkerchiefs, waist belts, etc. are placed
near payment counters.

 To ensure safety of the products, the inventory and displays should be designed in a
manner that employees are able to monitor all sections of the sales floor.

Merchandise Receiving

Merchandise sourcing/receiving is the prime task of every retail organisation. For sourcing of
merchandise, a retailer has to go through the following steps:

1. Search for vendors dealing with the specific merchandise

2. Based on specific requirements valuate each vendor
3. Negotiate terms and conditions with them
4. Place orders
5. Examine quality of goods received with negotiated specifications
6. Communicate grievances if any/follow up
7. Make payments

Merchandise Display

Merchandise displays are special presentations of a store’s products or services to the buying
public. The nature of these displays may range somewhat from industry to industry, but all
merchandise displays are predicated on basic principles designed to increase product purchases.
Indeed, merchandise displays are an integral element of the overall merchandising concept,
which seeks to promote product sales by coordinating marketing, advertising, and sales
strategies.
Merchandise displays generally take one of several basic forms:

1. Storefront Window Displays: These typically open on to a street or shopping mall walk or
courtyard and are intended to attract passerby that might not otherwise enter the store.

2. Showcase Displays: These typically feature items that (1) are deemed to be too valuable for
display in storefront set-ups, or (2) are niche items of high interest to the business’s primary
clientele. These display centres are usually located in high traffic areas and typically feature
multiple tiers for product display and a sliding door on the clerk’s side for access.

3. “Found-Space” Displays: This term refers to product presentations that utilize small but
nonetheless usable areas of the store, such as the tops of product carousels or available wall
space.

Storefront window displays and “found space” displays are particularly popular tools for
publicizing and selling sale items.

4. Cross Merchandising Display

Cross merchandising is simply grouping related products together. There are a few methods that
can be used to accomplish this technique in an online setting. Let’s take a look at the
possibilities:

1. Create gift baskets or sets that include multiple related items, such as a skincare basket
with a moisturizer, cleanser, toner, and an eye cream. A Writer’s Dream set could include a
hardbound journal, notebooks for everyday use, stationery with matching envelopes, a selection
of note cards, and a nice pen.
2. Group similar items on the same web page. A customer who plans to purchase a game
console would be a prime candidate for buyig games as well. This approach is similar tom the
gift basket idea, yet products are sold individually.

3. Another popular method used by many stores, such as Victoria Secret, offers a related
product once an item has been added to the customer’s cart. For example, when a customer
adds a pair of pajamas to their cart, an offer for matching slippers appears – either on the
shopping cart page or through a pop-up.

Cross merchandising is a viable merchandising solution for e-commerce stores. Customers tend
to spend more money when cross merchandise presentation strategies are used. Cross
Merchandising in an offline retail store is presented below:

Successful Merchandise Display

Trudy Ralston and Eric Foster, authors of How to Display It: A Practical Guide to
Professional Merchandise Display, cited several key components of successful merchandise
display that are particularly relevant for small business owners:

First, displays should be economical, utilizing only space, materials, and products that are
already available.

Second, displays should be versatile, able to “fit almost anywhere, exhibit almost any
merchandise, and convey almost any message.

Third, merchandise displays have to be effective.

The ideal display, said Ralston and Foster, “is readily visible to any passerby and [should be
arranged so that] there is no time or space lag between when a potential buyer sees the design
and when he or she can react to it. [The ideal display] also shows the customer what the product
actually looks like, not some flat and intangible picture of it. Few other forms of promotion can
give such a vivid presentation of both the merchandise and character of a store.”

The effectiveness of these cornerstones of merchandising display strategy can be increased

by remembering several other tips as well, including the following:

1. Allocate merchandise display space and expenditures appropriately in recognition of customer

demographics. If the bulk of your business’s customers are males between the ages of 20 and 40,
the bulk of your displays should probably be shaped to catch their interest.

2. Be careful of pursuing merchandise display designs that sacrifice effectiveness for the sake of
originality.

3. Make certain that the cleanliness and neatness of the display is maintained.

4. Do not overcrowd a display. Customers tend to pass over messy, busy-looking displays.
Instead, Ralston and Foster affirm that a display should feature a single item or point of
interest…. Every primary article [in a display] must interact with every other so that they all
come together as a group. If they don’t it will look as if there is not one design, but several.

5. Combine products that are used together in displays. For example, pairing ski goggles with
other outdoor apparel is apt to be more effective than placing it alone or with some other product
that is only tangentially related to skiing.

6. Small items should be displayed so that would-be customers can get a good look at them
without having to solicit the help of a member of the staff.

7. Pay attention to details when constructing and arranging display backgrounds. For example,
Foster and Ralston counsel business owners to “avoid dark backgrounds when customers will
be looking through a window, since this makes the glass behave as a giant mirror.”

8. Merchandise displays can sometimes be utilized to educate customers. A well-conceived

display could, for example, illustrate a product use that may not have occurred to most
customers. “In addition to selling actual merchandise, display can be used to introduce a new
product, a fashion trend, and a new ‘look’ or idea,” explained Martin Pegler in Visual
Merchandising and Display. “Display can be used to educate the consumer concerning what
the new item is, how it can be worn or used, and how it can be accessorized. The display may
also supply pertinent information, the price, and other special features.”
Customer Management
Customer service is the core component of retail store operations. Operational design must be
formulated for the consistent and efficient management and interaction with customers. In order
to build a friendly relationship with the customer, well defined procedures should be developed
for approaching and assisting the customer, ringing up a sale, processing a return or exchange,
follow-up on purchase, and attending the consumer grievances. All these attempts on part of the
retailer boost the confidence of sales personnel and in generating repeat business. Customer
service in a retail store can be broken down into five categories:

1) Approaching and assisting the customer

2) Transaction flow system
3) Handling returns and exchanges
4) Following up on sales
5) Dealing with consumers’ grievances

1) Approaching and assisting the customer – Every retail business has its own selling strategy
that has been imbibed into their sales personnel. Employees must be informed about the sales
policies and procedures of the strategic activities and how to promote them. For example, some
businesses develop customer shopping programs like complimentary alterations and purchase
deliveries, and invitation to exclusive fashion events. There may be variations of this actual plan.
In all variations, however, the technique for selling is usually the same.

According to most strategy the ten steps to sell a merchandise are as follows:

1. Approaching the customer, and gain his/her attention.

2. Build a rapport
3. Identify the customer’s need through patient listening
4. Provide the merchandise he/she looking for by emphasizing its benefits.
5. Deal with customer concerns, gain commitment, and close the sale.
6. Make the “extra sale” of an accessory or an additional service by suggestive selling.
7. Ring up the sale, and package the merchandise.
8. Reinforce the purchase decision, and thank the customer.
9. Walk the customer to door, invite him /her to return soon, and follow up on the sale.
10. The sales personnel should be well trained to operate all these steps to ensure
sales of the merchandise and customer return.

2) Transaction flow system - An important facet which influences a customer’s perception of

the retail store is the experience that he has while billing the products purchased by him. Most
business now-a –days operate on a computerized system. A customer transaction is a cash or
credit sale, a bank transfer, or a mobile payment. Long queues may result in some disgruntled
customers. Store operations need to be geared to handle such a situation. All sort of transactions
requires different policies and procedures. The organization must clearly define these, before the
company actually opens for business. Cash transactions are the simplest. The customer’s
purchase is entered into the computer, and a cash receipt is generated. If the business accepts
credit cards, the procedure must be clearly explained to the cash manager by a representative of
the bank providing the service to the business. The appropriate forms along with telephone
contact numbers and an employer identification number are tools that the sales associate must
have to make the transaction run smoothly.

Retail transaction flow continues to evolve with advances in technology. The consumer can now
also purchase goods and services remotely without physical presence at the point-of-sales (POS),
such as via the Internet (example- through various shopping applications like Amazon shopping,
Flipkart, Jabong etc.) or a telephone/mobile phone. Payment instruments for retail purchases of
goods and services have expanded beyond traditional vehicles (i.e., cash, checks, and credit and
debit cards) to prepaid cards, contactless debit and credit cards, and other contactless devices
such as key fobs, mobile phones. In addition, merchants may convert checks to electronic
form at the POS, and use the ACH (Automated clearing house) system for clearing and
settlement. ACH is a way to move money between banks without using paper checks, wire
transfers, credit card networks, or cash for fast transaction flow, many retailers have also
introduced express check outs for customers who have bought a limited number of products.
This ensures that a customer who needs to buy only one or two products does not have to wait in
the same queue as a person buying a large number of items.

3) Handling returns and exchanges – The retailer must define the return policy for the business
organization. Such policy should entail aspects such as who will be authorized to accept returns,
specify the acceptable circumstances under which the merchandise can be accepted for return.
For example: time limit (Hush puppies clearly specifies 15 days’ time for return or exchange of
goods, from any of their store), whether a receipt will be required, whether the item must have
the tag attached, and whether the return goods are redeemable for cash or a company credit. In
today’s fast competitive scenario, a retailer does not want to lose out their customers to other
organizations. Therefore, most retail organizations are formulating liberal return policies as
expected by most customers. For example – a customer brings a child’s dress she purchased back
to the retail store because the hemline frayed when the garment was laundered. Rather than
immediately refunding the customer’s money, the retail manager might offer to have the garment
repaired. The repair would cost as much as the shipping fee to return the garment to the
manufacturer.

4) Following up on sales – In today’s competitive world, it is very important for a retailer to

entice new customers and keep them happy to ensure customer’s loyalty. Otherwise, it is very
certain that a dissatisfied customer may purchase similar goods from other retail stores, or
through Internet. A follow-up call can help generate repeat business and encourage word-of
mouth promotion. Another method of following up on the sale is maintain a client file. Such file
contains information about the customer, contact data, size, brand, past purchases etc. Such
information enables the sales personnel to contact the customer on arrival of new merchandise or
at the time of discount sales for an early look at the items. For example – Shoppers Stop sends a
SMS alert to all of their ‘First Citizen Membership’ card holders for an early view at the items at
the time of sales and also offer additional discount on selected merchandise of the store. Another
example of use of such information is to send gifts to the customer on their birthday or on
wedding anniversary. In general, this strategy encourages the sales of the retail store and ensures
the customer loyalty.

5) Dealing with consumers’ grievances – Employees should be trained on how to handle

grievances. The retailer should inform employee to whom to approach in case they feel that they
cannot resolve the complaints themselves. All sorts of complaints including personnel,
merchandise, and general business needs to be communicated clearly to the manager by the staff
for resolving it quickly and efficiently.

Inventory Management
Inventory refers to the merchandise stocked in a retail store for future use. Every retail
organization has its own warehouse to stock the products to replenish the existing merchandise in
the store.

Inventory Management is a system of recording how much stock is in the store, which vendors
have delivered their order, what is the re-order level, purchases made by the customers (on time
basis), buffer stock available, retuned goods, defective items, inventory quality analysis (six
sigma limits verification) and availability of sufficient inventory on the sales floor.

In general, following points should be considered by a retailer while managing inventory:

 The retailer must keep the track of all the merchandise on the sales floor.
 While managing inventory, he should also prepare himself for situations which are
beyond control like transport strikes, curfews etc. The retailer should have ample stock as
a result of judicious inventory management even at the time of crisis.

Importance of Inventory Management

Careful inventory management is very important in a successful retail business. This is because,
on the one hand, each piece of inventory, whether on the sales floor or in the stockroom,
represents money that has been spent and losing value due to perishable nature of fashion goods.
On the other hand, if there is an inadequate amount of inventory, the retailer may lose his
customer. In today’s fast-moving world with growing competition, a retailer cannot afford to
lose his customer on account of non-availability of merchandise. In order to succeed, the retailer
must make sure that each customer leaves his store with a smile. Unavailability of merchandise,
empty shelves leave a negative impression on the customers and they are reluctant to visit the
store in near future. Inventory management prevents such a situation.

Just-In-Time Inventory Management System

Maintaining the right amount of inventory is a balancing act. Information is the key to finding
the correct balance. One of the most common methods of inventory management in a fashion
business is ‘Just-in-time system’. Just-in-time inventory control is dependent upon the vendor-
retailer relationship and appropriate communication system. Under this system, inventory is
shipped as it is sold. It is used to increase efficiency. The process involves ordering and receiving
inventory for customer sales only as it is needed and not before. This type of inventory
management provides many benefits, but relies heavily on factors such as a strong, fast and
efficient network of suppliers. For example – Hanes offer just-in-time inventory management
system. The retailer provides sales data to Hanes as soon as the merchandise is sold, usually
through computer. Because the retailer has developed a model stock with vendor, vendors can
automatically fill-ins for sold merchandise. As a result, inventory is maintained, customer
receives what they want and buyer does not have to spend time recording and tracking inventory
and placing reorders.

ABC Inventory Analysis Model

ABC inventory is a well-managed inventory that helps businesses to clearly understand the products that
are high performing and the products which are not up to expectations. All these products are adequately
stocked in the A, B and C categories as follows:
Pareto principle

The Pareto principle is also known as the 80/20 rule. ABC analysis is based on this principle. The rule
means that the top 20% of the items represent 80% of the sales volume. So, the class A items are lesser in
comparison to class B in which the items are a little higher and C goods have the majority of items.

Important terminologies used in Inventory management

1) Stock Keeping Unit (SKU) – refers to a unique code assigned to every product available at
the store. It helps in the identification and tracking of the products at the retail store. The retailer
feeds each and every SKU in the master computer and can easily track the product in the stock
just by entering the SKU Number.

For example, SKU for a “Numero Uno” shirt will be ‘NU – M-38-FL-W.

Where:
NU stands for Numero Uno
M - Men
38 - Collar Size
FL - Full Sleeves
W - White (Colour of the shirt)
Simply typing ‘NU–M–38-FL-W’ would let the retailer know whether the particular
merchandise is available with him or not.

2) New Old Stock (NOS) - The merchandise which is never been sold by the retailer and
now not even being manufactured encompasses the new old stock. Such products do not have
customers and may not be manufactured anymore.
3) Stock out - refers to a situation when the retailer fails to fulfil the customer’s requirement
due to lack of availability of the merchandise in the inventory.

4) Physical inventory count – refers to formal, item-by-item analysis of the operation’s stock
on hand. The selling price of each merchandise and, possibly, the vendor and style numbers are
recorded, and then all prices are totalled to create a physical price inventory dollar valuation.

5) Book inventory – The financial record of the stock.

6) Shrinkage/ Shortage – If the physical inventory is less than the book inventory, the
difference is referred to a shortage. Shortages may be caused by theft and book keeping errors,
such as not recording employee discounts or markdowns. Following are few ways to prevent the
steal of merchandise:

 Checking the bags of the employees before they leave the store.
 Avoid multiple exits for the customers as well as the employees
 Checking garbage before dumping.
 Keep proper and correct record of the inventory.

Other Ways to Control Shrinkage

Some shrinkage may be unavoidable, but a majority of the loss is preventable. Whether the issue
is sloppy record keeping or neighbourhood hooligans taking a “five-finger discount,” take the
following steps to minimize shortages:
_ Record merchandise as soon as it arrives.
_ Properly mark, price, and identify merchandise before moving it to the selling floor.
_ Record all price changes.
_ Record each transaction.
_ Change records before transferring goods or returning them to the vendor.
_ Take precaution against theft, as discussed in the following sections.

Strengthening Store Security is crucial to control shrinkage

A secure store is a store that is experiencing less shrinkage than its competitors. Security may be
costly, but so is shrinkage. Often the mere appearance of security, to both your customers and
your employees, is enough to do the trick. Here are some timely tips for strengthening your
store’s security:

1. Equip the store with a security alarm system hooked up to a central service company. Give
each employee his or her own code so you can monitor who comes and goes.
2. Use locked trash dumpsters to decrease the risk of merchandise being thrown into the
dumpster and retrieved later.
3. Do not permit personnel to park near loading docks or exit doors. A longer walk to stash
or transport items can be a real deterrent to employee theft.
4. Strictly enforce inventory control and tracking procedures.
5. Follow up on all references when hiring any new employee.
6. Implement an anonymous tip program that motivates employees to report theft, drug
abuse, and other business abuses by both coworkers and outsiders.
7. Keep a close tab on customers who spend a lot of time in your store. The closer you watch,
the less likely a shoplifter is to target your store.
8. Place observation cameras at strategic locations.

7) Overage - If the physical inventory is more than the book inventory, the difference is referred
to overage. An overage indicates that there are clerical errors in one of the accounting functions,
such as recording receipts, posting markdowns, or returning goods to the vendor.

Retail Inventory Management Techniques

Inventory management involves tracking, storing, and replenishing goods to ensure that
customers can buy what they’re seeking. Below are six techniques retailers use to effectively
manage their inventories.

1. Inventory valuation, as the name suggests, is the process by which retailers assign a
monetary value to their inventory. This value is based on the cost of manufacturing and
obtaining the items in stock, including anticipated discounts, taxes, and storage fees. This
valuation is used for tax accounting and reporting purposes.
 2. Regular reconciliation is a process retailers use to compare inventory counts held in
different systems against actual physical counts. This process helps ensure that inventory
records are accurate and up to date.
3. Physical inventory counts involve counting all inventory items across all warehouses,
stores, and locations and comparing the tallies to inventory and accounting records. These
counts are time-consuming and labor-intensive and typically disrupt operations for the
duration of the count—for this reason, they’re often performed annually before the next
financial year begins to reconcile discrepancies between records.
4. Cycle counts are counts of samples or sections of inventory taken throughout the year to
ensure that everything is counted over time. Because cycle counts involve regular—often
daily—counting of a small percentage of inventory at any given time, they’re less
disruptive than physical counts and can uncover problems throughout the year, rather
than all at once.
5. ABC analysis is a method of ranking products in inventory from A to C, based on their
financial importance to the business, with “class A” items being the most valuable in
terms of sales, risk, demand, and cost. This method helps retailers decide which items to
prioritize for cycle count frequency.
6. Spot checks are like a scaled-down cycle count, whereby retailers randomly select items
from inventory and check them against records in the accounting system. This process
helps to identify any discrepancies in inventory records.

Store Management
In retail operations, the first and foremost thing is to examine the facility from an internal
perspective, beginning with actual space – whether brick-and-mortar or an Internet click site.
There are a number of operational issues that relate directly to the actual location of the business.
These include:

1) Store layout and design

2) Store procedures and
3) Premises maintenance

1) Store layout and design - The retail store being the fundamental source of revenue and the
place of customer interaction, is vital to the retailer. The success of a retail store is influenced by
its layout design and the ambience (atmosphere) created by the retailers. The basic functional
principle of a retail store is to display the products and sell the product. Both these activities
require a space to accommodate products, services and people. The space within a brick-and-
mortar retail operation can be divided into four types of space:

i) The sales floor – space that contains merchandise for the sales
ii) The customer service area – includes dressing rooms, lounges, rest rooms, coffee and juice
bars, credit departments, merchandise return & exchange stations and checkout stations.

iii) The merchandise warehousing and handling zone – include receiving areas, space that
holds merchandise off the sales floor, and alteration departments.

iv) The staff personnel area – include offices, lunchrooms, conference rooms, and training
areas.

Not all retail business needs every kind of listed space allocations. On of the key managerial duty
of the retail store manager is to determine, first, which operation actually need space and second,
how much space to allocate for these operations. The amount of square footage to be allotted for
showing and storing merchandise to be sold is referred to as selling space. The remaining areas
are called no selling space. Estimating how much selling and non-selling space to allocate is a
major decision to be taken by the entrepreneur. In general, a store dedicates 65% -85% of its
space to the actual selling of merchandise.

Apart from space allocation, the space design and layout are the two most important aspects of
the store administration. A well-planned store layout allows a retailer to maximize the sales for
each foot of the allocated selling space within the store. It is important for a retailer to consider
the smooth mobility of the customer while designing a store layout. Customer mobility is the
ability of customers to enter the outlet, move around the store and find the product they are
seeking. It is also about accessibility for customer with physical limitations. It is the store
manager’s responsibility to ensure that the customers with physical restrictions can move
through the aisles, comfortably use a dressing room or rest room and move to the cash counter
with ease. To ensure smooth mobility, store layout should have circulation plan. Circulation is
an invisible force which revolves around the customers so that they cover the entire range of
merchandise under display leading to maximize the purchase. The main aisles should be wide
enough to avoid cramping during peak shopping seasons. Care should also be taken to ensure
that the furniture has no sharp edges and the flooring is not slippery.

Another important aspect to be considered while designing the space layout is to accommodate
the duties of the staff in order to make the operation run smoothly. For example, if the trial
rooms are located far from the sales floor, the sales associate has run a marathon by the time the
workday is over. Similarly, if the merchandise is congested on the selling floor, then the sales
associate cannot monitor the inventory, leading to episodes of theft.
2) Store procedures – The store procedures are as important as the retail store itself. Managing
the operations of a retail store starts by determining how the tasks pertaining to the premises are
to be performed. Managing procedures includes the following tasks:
i) Determining hours of operation: It majorly depends upon the target audience, retailed
merchandise, and store location. For example, a grocery store near residential area should open
earlier than a fashion store. An early morning opening of a fashion store will unlikely to elicit
much customer traffic. Also, a solitary store can be open as long as the owner wants to but a
store in a mall has to adhere to working hours set by the mall management.

ii) Managing store security: Security of the premises and the merchandise is very important.
The level of security required for a business operation is dependent upon the size of store, the
product, and the location of store. A small retail store may not require security operations while a
large retail outlet may require high level of security. Protecting the facility may include a
security system, or a security guard. Also, procedures for operating the security system need to
be developed for personnel who open and close the business.

The security of a merchandise helps in avoiding inventory shrinkage. To ensure the security of
merchandise, a large number of retailers across the world use specially designed electronic tags
attached to products. These tags are sensed by the specially designed electronic devices to
detect them at store entrance and exits. If an attempt is made to take the product out of the store
without removing these tags, an alarm goes off, thus alerting the store personnel. Another device
used for monitoring the movement of staff and customers is video cameras. Some retailers also
provide separate entry and exit for personnel so that they can be checked each time they leave
and enter the store premises.

To avoid inventory shrinkage following policies should may also be adopted:

 Not to display the merchandise at the entrance or exit of the store.
 Expensive products like watches, jeweller, precious stones, mobile handsets and so on
must be kept in locked cabinets.
 Customers should be asked to deposit their carry bags at the entrance itself.
 Customers should not be allowed to carry more than three dresses at one time to the trial
room.

3) Premises maintenance - With growing demands for retail outlet and chains, maintenance is
becoming important issue for retailers. Premises maintenance deals with various aspects like the
cleanliness of the store premises, maintenance of the store façade and the display windows etc.
The retailers can check the products entered into the retail store and arrange products in an
appropriate place. Segment the products into different categories and put the products as per
nature. Also, the retailer should estimate and anticipate various other operational costs such as
water, electricity etc. for financial plan. He may want to identify measures to control these
expenses. For example – light and temperature controls set to turn off when the business is
closed, can reduce the cost of utilities. All maintenance expenses thus must be incorporated into
the monthly financial plan.
Evaluating Store Performance

KPI is short for Key Performance Indicator- a term used to denote quantifiable performance
measurement. KPIs for evaluating retail store performance are as follows:

1. Footfall - The term footfall is used to describe the number of people in a shop or store, in
any given period of time. Footfall counters have come a long way since their inception, and
are now capable of functioning in an autonomous manner. When in conjunction with video
analytics tools such as Isarsoft Perception, they are most likely to be security cameras -
configured to count people.

2. Conversion Rate - When assessing the performance of a retail outlet, conversation rate is
one of the primary metrics used by analysts. It is the ratio of the number of conversions to the
number of visitors.

3. Marketing Efficiency Ratio (MER) - Marketing Efficiency Ratio (MER) is a metric used
to measure how efficient the retail business’ marketing efforts are at driving sales. MER is
calculated by dividing the total sales revenue by total marketing spend. When investing a
marketing budget of Xmarketing, the sales revenue is X marketing * MER. A continuous
measurement of MER helps to better estimate and understand the marketing budget needed
to hit a given sales target.

4. Average Transaction Value - Average Transaction Value (ATV) refers to the average
amount a consumer spends on a single purchase. The calculation is done using a simple
formula wherein the store's total revenue for a given period is divided by the total number of
transactions in the same period. If the ATV for every customer can be systematically
increased then the ROI on marketing and sales endeavours is largely enhanced.

5. Sales per Square Foot - Sales per square foot is a calculation of the average revenue
earned per square foot of your retail space. For years, this metric has been a critical measure
of success in the brick-and-mortar retailing industry.

6. Average Wait Time – It is the average amount of time a given customer in a queue has to
wait in order to be able to make his or her purchase. Video analytics can be used to monitor
queue lengths in different parts of the store, to give retailers an overview of the people flow
rate, wait times, and infrastructure efficiency, By using wait/dwell time as a relevant KPI,
retailers can make decisions about the number of registers required to optimize the flow of
customers from point of purchase (POP) to point of sale (POS). It can also be used to deploy
floor staff more efficiently, and reduce congestion caused by ill-managed queues within the
store.
7. Customer Intelligence - refers to the process of gathering and analyzing information
about customers to gain insights into their needs, preferences, behaviors, and feedback. It
involves collecting and processing data from various sources such as sales records, customer
interactions, surveys, social media, and other customer touchpoints to understand their
buying habits, motivations, and expectations.

8. Customer Retention - statistics or, the number of repeat customers a store gets, is an
important KPI for retailers. This data is crucial in assessing customer satisfaction and loyalty,
and whether customers wish to repurchase the product or service being offered.

9. Customer Path Analysis - Path analysis, as a metric, is used to monitor the movement of
customers in the store and analyze their trajectories as they move through the aisles, making
their purchases. Path analysis provides an insight into factors such as the efficacy of product
placement, popular products, and popular areas within the store.