Chapter 2 Retail Strategic Planning and Operations Management

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives  Explain why strategic planning is so important and be able to describe the components of strategic planning: statement of mission; goals and objectives; an analysis of strengths, weaknesses, opportunities, and threats; and strategy.  Describe the retail strategic planning and operations management model, which explains the two tasks that a retailer must perform and how they lead to high profit.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Components of Strategic Planning  Strategic planning - Adapting the resources of the firm to the opportunities and threats of an ever-changing retail environment.  Through the proper use of strategic planning, retailers hope to achieve and maintain a balance between resources available and opportunities ahead. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Components of Strategic Planning  Strategic planning consists of four components:  Development of a mission (or purpose) statement for the firm.  Definition of specific goals and objectives for the firm.  S(strengths)W(weaknesses)O(opportunities)T(threats) analysis.  Development of basic strategies that will enable the firm to reach its objectives and fulfill its mission. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MissionMission StatementStatement  It is a basic description of the fundamental nature, rationale, and direction of the firm.  Elements of a mission statement are:  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

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Statement of Goals and Objectives  Provide:  Specific direction and guidance to the firm in the formulation of its strategy.  A control mechanism by establishing a standard against which the firm can measure and evaluate its performance. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Retail Objectives LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Statement of Goals and Objectives  Market performance objectives  Establish the amount of dominance the retailer seeks in the marketplace.  Market share - The retailer’s total sales divided by total market sales. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Statement of Goals and Objectives  Financial objectives  Profit-based objectives - Deal directly with the monetary return a retailer desires from its business.  Profit is the aggregate total of net profit after taxes — that is, the bottom line of the income statement.  Profit can be expressed as a percentage of net sales.  It can also be defined in terms of return on investment (ROI), which can be defined by — Return on assets (ROA) and Return on net worth (RONW). LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Strategic Profit Model LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Statement of Goals and Objectives  Financial objectives  Stockouts - Products that are out of stock and therefore unavailable to customers when they want them. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Statement of Goals and Objectives  Financial objectives  Productivity objectives - State the sales objectives that the retailer desires for each unit of resource input.objectives  Space productivity - Net sales divided by the total square feet of retail floor space.  Labor productivity - Net sales divided by the number of full- time–equivalent employees.  Merchandise productivity - Net sales divided by the average dollar investment in inventory.  Productivity objectives are vehicles by which a retailer can program its business for high-profit results. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Open or acquire on store over the next four years  Remodel one existing store every three years  Increase operating profit margin in each story by.25 percent for each six-month period  Increase clothing sales in existing stores by 10 percent over the preceding year

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategies  Are a carefully designed plan for achieving the retailer’s goals and objectives.  Retailers can operate with three strategies: Retailersoperate  Get shoppers into your store.shoppers  Convert these shoppers into customers by having them purchase merchandise.  Implement the above two strategies at the lowest operating cost possible that is consistent with the level of service that your customers expect. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. SWOT Analysis  Strengths:  What major competitive advantage(s) do we have?  What are we good at?  What do customers perceive as our strong points?  Ikea  Target Target  McDonald's LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. SWOT Analysis  Weaknesses  What major competitive advantage(s) do competitors have over us?  What are competitors better at than we are?  What are our major internal weaknesses?  Ikea  Target Target  McDonald's LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. SWOTSWOT AnalysisAnalysis  Opportunities  What favorable environmental trends may benefit our firm?  What is the competition doing in our market?  What areas of business that are closely related to ours are undeveloped?  Ikea  Target  McDonald's LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. SWOT Analysis  Threats  What unfortunate environmental trends may hurt our future performance?  What technology is on the horizon that may soon have an impact on our firm? LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Building competitive advantage  Physical differentiation Physicaldifferentiation  The selling processprocess  After-purchase satisfactionsatisfaction  Location Location  Never being out of stockstock

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategies  The retailer must develop a retail marketing strategy with strong financial elements.  A fully developed marketing strategy should address the following considerations: the specific target market, location, the specific retail mix that the retailer intends to use, and the retailer’s value proposition. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategies  Target market - Group of customers that the retailer is seeking to serve.  Location - Geographic space or cyberspace where the retailer conducts business.  Retail mix - Combination of merchandise, price, advertising and promotion, location, customer service and selling, and store layout and design. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategies  Value proposition - A clear statement of the tangible and/or intangible results a receives from shopping at and using the retailer’s products or services. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Retail Strategic Planning and Operations Management Model LO 2

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The 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 management.  The need to strive for a high profit is tied to the extremely competitive nature of retailing. LO 2