Chapter 2

Retail Strategic Planning and Operations Management

Retailing, 6th Edition. Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved.

Learning Objectives

1. Explain why strategic planning is so important and be able to describe the components of strategic planning: statement of mission; goals and objectives; an analysis of strengths, weaknesses, opportunities, and threats; and strategy.

2. Describe the text’s retail strategic planning and operation management model, which explains the two tasks that a retailer must perform and how they lead to high profit.

Components of Strategic Planning

Mission Statement Statement of Goals and Objectives SWOT Analysis Strategies

LO 1

Components of Strategic Planning

Planning:

Is the anticipation and organization of what needs to be done to reach on objective.

LO 1

Components of Strategic Planning

Strategic Planning:

Involves adapting the resources of the firm to the opportunities and threats of an ever-changing retail environment.

LO 1

Components of Strategic Planning

Mission Statement:

Is a basic description of the fundamental nature, rationale, and direction of the firm.

LO 1

Elements of a Mission Statement

How the retailer uses or intends to use its resources.

How it expects to relate to the ever-changing environment.

The kinds of values it intends to provide in order to serve the needs and wants of the consumer.

LO 1

Statement of Goals and Objectives

Goals and Objectives:

Are the performance results intended to be brought about through the execution of a strategy.

LO 1

Statement of Goals and Objectives

Market Performance Objective Financial Performance Objective Societal Objectives Personal Objectives

LO 1

Statement of Goals and Objectives

Market Performance:

Represents how a retailer desires to be compared to its competitors.

LO 1

Statement of Goals and Objectives

Financial Performance:

Represents the profit and economic performance a retailer desires.

LO 1

Market Performance Objectives

Market performance objectives establish the amount of dominance the retailer has in the marketplace.

LO 1

Market Performance Objectives

Market Share:

Is the retailer’s total sales divided by total market sales.

LO 1

Financial Objectives

Profitability Objectives:

Objectives that deal directly with monetary return a retailer desires from its business.

LO 1

Profitability Objectives

Net Profit Margin Asset Turnover Return on Assets Financial Leverage Return on Net Worth

LO 1

Profitability Objectives

Net Profit Margin:

Is the ratio of net profit (after taxes) to total sales and shows how much profit a retailer makes on each dollar of sales after all expenses and taxes have been met.

LO 1

Profitability Objectives

Asset Turnover:

Is the total sales divided by total assets and shows how many dollars of sales a retailer can generate on an annual basis with each dollar invested in assets.

LO 1

Strategic Profit Model

Exhibit 2.1 LO 1

Profitability Objectives

Return on Assets (ROA):

Is net profit (after taxes) divided by total assets.

LO 1

Profitability Objectives

Financial Leverage:

Is total assets divided by net worth or owners’ equity and shows how aggressive the retailer is in its use of debt.

LO 1

Profitability Objectives

Return on Net Worth (RONW):

Is net profit (after taxes) divided by owners’ equity.

LO 1

Profitability Objectives

Gross Margin Percentage:

A measure of profitability derived by dividing gross margin by net sales.

LO 1

Productivity Objectives

Productivity Objectives:

State the sales objective that the retailer desires for each unit of resource input: floor space, labor, and inventory investment.

LO 1

Productivity Objectives

Space Productivity:

Annual net sales divided by the total square feet of retail floor space.

LO 1

Productivity Objectives

Yield Management:

The understanding, anticipating, and reacting to changing customer needs in order to maximize the revenue from a fixed capacity of available services.

LO 1

Productivity Objectives

Labor Productivity:

Annual net sales divided by the number of full-time-equivalent employees.

LO 1

Productivity Objectives

Merchandise Productivity:

Annual net sales divided by the average dollar investment in inventory. (Sales-to-Stock Ratio)

LO 1

Productivity Objectives

RASM:

The revenue per available seat mile calculation used by airlines.

LO 1

Societal Objectives

Societal Objectives:

Reflect the retailers’ desire to help society fulfill some of its needs.

LO 1

Societal Objectives

Employment objectives Payment of taxes Consumer choice Equity Benefactor

LO 1

Personal Objectives

Personal Objectives:

Reflect the retailers’ desire to help individuals employed in retailing fulfill some of their needs.

LO 1

Personal Objectives

Self-gratification Status and respect Power and authority

LO 1

Retail Objectives

Exhibit 2.2

Personal Objectives

Societal Objectives

Profitability

LO 1

Strategies

Strategy:

Is a carefully designed plan for achieving the retailer’s goals and objectives.

LO 1

Minimal Retail Strategies

Get shoppers into your store.

Convert these shoppers into customers by having them purchase merchandise.

Do this at the lowest operating cost possible that is consistent with the level of service that your customers expect.

LO 1

More Retail Strategies

Physical differentiation of the product. The selling process. After-purchase satisfaction. Location. Never being out of stock.

LO 1

Strategies

SWOT Analysis:

Is the identification and analysis of a retailer’s strengths, weaknesses, opportunities, and threats a firm faces.

LO 1

SWOT Analysis

Strengths? Weaknesses? Opportunities? Threats?

LO 1

Strategies

Target Market:

Is the group or groups of customers that the retailer is seeking to serve.

LO 1

Strategies

Location:

Is the geographic space or cyberspace where the retailer conducts business.

LO 1

Features Offered by Best Buy to Meet the Needs of Its Various Customer Types

Exhibit 2.3 LO 1

Strategies

Retail mix:

Is the combination of merchandise, assortment, price, promotion, customer service, and store layout that best serves the segments targeted by the retailer.

LO 1

Retail Mix

Exhibit 2.4 LO 1

Strategies

Value Proposition:

A clear statement of the tangible and/or intangible results a customer receives from shopping at and using the retailer’s products or services.

LO 1

Retail Strategic Planning and Operations Management Model

Strategic Planning Operations Management High-Profit Retailing

LO 2

Retail Strategic Planning and Operations Management Model

Strategic Planning:

Is a plan of action detailing how the retailer will respond to the environment in an effort to establish a long-term course of action to follow.

LO 2

Retail Strategic Planning and Operations Management Model

Exhibit 2.5 LO 2

Retail Strategic Planning and Operations Management Model

Operations Management:

Deals with activities directed at maximizing the efficiency of the retailer’s use of resources. It is frequently referred to as day-to-day planning.

LO 2

Retail Strategic Planning and Operations Management Model

High-Profit Retailing:

To be a high profit retailer, the retailer needs good strategic planning coupled with strong operations management.

LO 2

Strategic Profit Model for Some of the Country’s Leading Retailers

Exhibit 2.6 LO 2

Additional Slides

Elements of a Mission Statement

How the retailer uses or intends to use its resources

How the retailer expects to relate to the ever-changing environment

The values intended to offer to serve the needs and wants of consumers

LO 1

Goals and Objectives

MarketPerformance

Objectives

FinancialPerformanceObjectives

SocietalObjectives

PersonalObjectives

LO 1

Retail Planning and Management

Strategic Planning

Operations Management

High-profit Retailing

LO 2