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Retail Strategic Planning and Operations ManagementRetail Strategic Planning and Operations Management

Chapter 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.

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Learning ObjectivesLearning Objectives

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

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

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Components of Strategic PlanningComponents of Strategic Planning

Planning

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

LO 1

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Components of Strategic PlanningComponents 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

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Components of Strategic PlanningComponents of Strategic Planning

• Mission Statement

• Statement of Goals and Objectives

• Strategies

• SWOT Analysis

LO 1

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Components of Strategic PlanningComponents of Strategic Planning

Mission Statement

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

LO 1

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Elements of a Mission StatementElements 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

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Components of Strategic PlanningComponents of Strategic Planning

Goals and Objectives

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

LO 1

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Statement of Goals and ObjectivesStatement of Goals and Objectives

• Market Performance Objective

• Financial Performance Objective

• Societal Objectives

• Personal Objectives

LO 1

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Statement of Goals and ObjectivesStatement of Goals and Objectives

Market Performance Objectives

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

LO 1

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Importance of Planning - Sam’s ViewImportance of Planning - Sam’s View

Sam M. Walton May 4, 1998

Chairman and Chief Executive Officer

Dear Bob:

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

LO 1

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Market Performance ObjectivesMarket Performance Objectives

• Sales Volume

• Market Share

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

LO 1

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Statement of Goals and ObjectivesStatement of Goals and Objectives

Financial Performance Objectives

Represent the profit and economic performance a retailer desires.

LO 1

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Financial Performance Objectives: ProfitabilityFinancial Performance Objectives: Profitability

• Net Profit Margin

• Asset Turnover

• Return on Assets

• Financial Leverage

• Return on Net Worth

LO 1

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Financial Performance Objectives: ProfitabilityFinancial Performance Objectives: Profitability

• 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

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Financial Performance Objectives: ProfitabilityFinancial Performance Objectives: Profitability

• Asset Turnover

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

LO 1

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Financial Performance Objectives: ProfitabilityFinancial Performance Objectives: Profitability

• Return on Assets (ROA)

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

LO 1

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Financial Performance Objectives: ProfitabilityFinancial Performance Objectives: Profitability

• 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

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Financial Performance Objectives: ProfitabilityFinancial Performance Objectives: Profitability

• Return on Net Worth (RONW)

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

LO 1

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Strategic Profit ModelStrategic Profit Model

LO 1: Exhibit 2.1

Net Profit Margin

Net Profit*

Total Sales

Asset Turnover

Total Sales

Total Assets

x

*Net profit after taxes

=

Return on Assets

Net Profit*

Total Assets

Financial Leverage

Total Assets

Net Worth

Return on Net Worth

Net Profit*

Net Worth

x =

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Financial Performance Objectives: ProductivityFinancial Performance Objectives: Productivity

• Productivity Objectives:

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

LO 1

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Financial Performance Objectives: ProductivityFinancial Performance Objectives: Productivity

• Space Productivity

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

LO 1

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Financial Performance Objectives: ProductivityFinancial Performance Objectives: Productivity

• Labor Productivity

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

LO 1

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Financial Performance Objectives: ProductivityFinancial Performance Objectives: Productivity

• Merchandise Productivity

Annual net sales divided by the average dollar investment in inventory.

LO 1

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Statement of Goals and ObjectivesStatement of Goals and Objectives

Societal Objectives

Reflects the retailer’s desire to help society fulfill some of its needs.

• Employment objectives

• Payment of taxes

• Consumer choice

• Equity

• Benefactor

LO 1

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Statement of Goals and ObjectivesStatement of Goals and Objectives

Personal Objectives

Reflects the retailer’s desire to help individuals employed in retails fulfill some of their needs.

• Self-gratification

• Status and respect

• Power and authority

LO 1

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Retail ObjectivesRetail Objectives

LO 1: Exhibit 2.2

Retail Mission

Market Performance Objectives

Financial Performance Objectives

Personal Objectives

Societal Objectives

Sales Volume

Market Share

Self-

Gratification

Power and Authority

Status and

Respect Benefactor

Equity

Consumer

Choice

Taxes

Employment

Productivity

Profitability

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StrategiesStrategies

Strategy

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

LO 1

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Minimal Retail StrategiesMinimal Retail Strategies

Get shoppers into your store.Convert these consumers into customers

by having them purchase merchandise.Do this at the lowest operating cost

possible that is consistent with the

level of service that your customers expect.

LO 1

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Question to PonderQuestion to Ponder

• How should a retailer determine the proportion and the number of market performance, financial performance, societal, and personal objectives?

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StrategiesStrategies

SWOT Analysis

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

LO 1

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SWOT Analysis: Outback RestaurantSWOT Analysis: Outback Restaurant

Strengths?Weaknesses?Opportunities?Threats?

LO 1

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StrategiesStrategies

Target Market

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

LO 1

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StrategiesStrategies

Location

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

LO 1

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StrategiesStrategies

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

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Service RetailingService Retailing

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

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Retail Planning and ManagementRetail Planning and Management

• Strategic Planning

• Operations Management

• Administration

• High-Profit Retailing

LO 2

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Retail Planning and ManagementRetail Planning and Management

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

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Retail Strategic Planning and Operations Management ModelRetail Strategic Planning and Operations Management Model

LO 2: Exhibit 2.4

MissionGoals and Objectives

SWOT

Strengths Weaknesses Opportunities

Threats

Strategic Planning

Social and Legal Environment:Socioeconomic Environment, State of Technology, Legal System, Ethical Behavior

Competitive Environment:Behavior of Consumers, Competition and Channel Members

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Retail Strategic Planning and Operations Management ModelRetail Strategic Planning and Operations Management Model

LO 2: Exhibit 2.4

Competitive Environment:Behavior of Consumers, Competition and Channel Members

Social and Legal Environment:Socioeconomic Environment, State of Technology, Legal System, Ethical Behavior

Retail Marketing Strategy

Target Market(s) Location(s) Retail Mix Merchandise Pricing Advertising & Promotion Customer Service & Selling Store Layout & Design

Operations Management

Buying & Handling Merchandise

Pricing Advertising &

Promotion Customer Services

& Selling Facilities

High-Profit Performance

Retailing

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Retailing TruismRetailing Truism

Good execution can never overcome bad planning.

LO 2

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Retail Planning and ManagementRetail Planning and Management

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

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Retail Planning and ManagementRetail Planning and Management

Administration

Involves the acquisition, maintenance, and control of resources that are necessary to carry out the retailer’s strategy.

LO 2

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Retail Planning and ManagementRetail Planning and Management

High-Profit Retailing

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

LO 2

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Square Feet of Retail SpaceSquare Feet of Retail Space

LO 2

120 yards360 ft.

50 yards150 ft.

Football Field54,000 sq ft.

End Zone

End Zone

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Supercenters80,000 - 100,000 sq ft.

Example: 108,000 sq ft.

End Zone

End Zone

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End Zone

End Zone

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The SPM for Some of the Country’s Top RetailersThe SPM for Some of the Country’s Top Retailers

LO 2: Exhibit 2.5

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Additional SlidesAdditional Slides

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Elements of a Mission StatementElements of a Mission Statement

LO 1

how the retaileruses or intends to use its resources

how it expects torelate to theever-changing environment

the kinds of valesit intends to offer to serve

the needs and wants ofthe consumers

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Goals and ObjectivesGoals and Objectives

LO 1

MarketPerformance

Objectives

FinancialPerformanceObjectives

SocietalObjectives

PersonalObjectives

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Retail Planning and ManagementRetail Planning and Management

LO 2

StrategicPlanning Administration

OperationsManagement

High-Profit Retailing