Introduction to REM

Course Outline
• Course Objectives:

• To understand the variables that drive these new formats of Retailing, namely Modern
Retailing and E tailing.

• To understand the interplay of these formats in driving Value for the consumer.

• To study the evolution of Strategic forces, their linkages and possible playouts.

• The course is structured around the following Modules:

a. Introduction to Retail
b. Retail Market Strategies
c. Strategic Frameworks in Retail
d. Some Key Strategic Retail Decisions
e. Putting the pieces together + Retail Project
 Course Evaluation
S.No. Particulars Percentage

1 Group presentations of Classroom Cases + 20

Submissions

2 Quiz(es) 20

3 Group Project in Retail Design – 30

submissions + Presentation

4 End Term Exam 30

Total 100
 Groups and Group Work
• CLASSROOM CASES:
 
• The course contains 8 cases and the class is to be divided into 16 Groups for this purpose and the
Group Project.

• Each classroom case will feature Group presentations on the case by 2 Groups in turn for 15 to
20 mins each followed by a submission by these groups.

• The cases are:

– Metro Cash & Carry in India

– GameStop
– Walmart in India
– Eddie Bauer
– Westside
– Zara
– Nordstrom
– Pizza Hut 
 
 Groups and Group Work
• GROUP PROJECT:
 
• The Group Project is to design a Retail Brand from scratch – it can be Retail or Etail or a Hybrid model. It may
be similar to what is available in the market but not identical to it.

• This will include choosing the Retail format and crafting the Retail Concept, Value proposition, Store Ebitda
model and other Key metrics.

•  There will be 2 Submissions, as under:

a. Submission 1:
i. One pager on Global Trends in Retail
ii. One pager on Indian Trends in Retail
iii. The Retail Concept.
 
b. Submission 2
i. Pentagon & Triangle elements
ii. Key Differentiation Strategies derived from the above elements
iii. Store ebitda model (with benchmarks)
iv. SPM/ SRM models (with benchmarks)
• 3 years P &L and Balance Sheet for the business
Introduction to Retailing

Kannan Dasaratharaman
 What do you understand by Retailing?
• Reaching the customers
• Easily available product
• Selling items/ Distributing products / daily usable productsto end consumers
• Supplying in small quantities and large and loose items
• Satisfying the customers
• Includes small vendors
• Meeting the needs of the customers
• Providing a service
• B2C marketplace
• Small Mom & Pop stores – handy
• Bridging the Gap between Manf and customer
• Establishing Loyalty thru WOM
• Direct Marketing
• Sells goods from a single point
• Discounts
• Accumulation of different brands of the same Category at one place
 What do you understand by Retailing?
• Last mile transaction with the end consumer/
customer/ shopper
• In the B2C space ( as opposed to B2B)
• Study of the “ process of exchange of Value”
 What do you understand by Retailing?
• Last mile transaction with the end consumer/
customer/ shopper
• In the B2C space ( as opposed to B2B)
• Study of the “ process of exchange of Value”

Retailer STORE Shopper

 What is Shopping?
• Case A:
• You go to the store and are looking for Colgate Active Salt
toothpaste.
• You do not find your SKU but find many other SKUS of Colgate
• Was the Shopping trip successful?

• Case B:
• You find the SKU you are looking for but you had to stand in
queue for 30 mins to Check out.
• Was the Shopping trip successful?
What is Shopping and what are its
Objectives?
 Retailing : A Shoppers perspective
• What are the 2 things that need to be satisfied
in a successful Shopping trip?
 Retailing : A Shoppers perspective
• What are the 2 things that need to be satisfied in a successful Shopping trip?

• You get the Product you were looking for:

– Right Quantity/ sku
– Right Quality
– Right Price
– Right Place

• You had a good Shopping experience

– Ease of shopping / access
– Ease of Check out
– Service : during and after Purchase

• Shopping = Product + Experience

• Retailing = Study of How to give the Shopper the Product + Experience they Expect!

• Why We Buy – The Science of Shopping by Paco Underhill = The Experience of Shopping
 Taxonomy of Retail
• What are the different types of Retail ?
 Taxonomy of Retail
Total Retail

Specialty
F&G Retail
Retail

Brick & Brick &

Online Retail Online Retail
Mortar Retail Mortar Retail

Modern
Modern Traditional Retail
Retail Retail
Traditional
retail
 Some Retail Terms
• Range ?
• Assortment?
• Gondolas?
• End Caps?
• Aisles? Power aisles ? ( pronounced ‘ailes’)
• Check out counters?
• Bagging?
 Some Retail Terms
• Range ?
– The number of different kinds of Articles ( Categories and Sub
Categories available in the Store....eg ( Oral care, Hair care, electronics,
jewellery..etc....)

• Assortment?
– The number of Shopper choices within any one Sub category
– Eg. Different brands and varieties in Soap or Toothpaste
SUB Sub Sub Sub
• Range = WIDTH Cat 1 Cat 2 Cat 3 Cat 4
• Assortment = DEPTH SKU1
SKU2
SKU3
SKU4
SKU5
 Some Retail Terms
• Gondolas? = Shelves ( where products are displayed)

• End Caps?= Shelf ends ( which are leased out to Brands for a fee)

• Aisles? Power aisles ? ( walkways within the store through which

shoppers traverse....)

• Check out counters? (counters where the billing and bagging takes
place)

• Bagging ? ( The activity of stuffing your purchases post billing into

‘carry bags’)
 Types of F & G Retail
• Really governed by Size and what that correlates to: ( differs from country to country…..)

– Daily / Convenience stores ( 2000 – 4000 Sqft)

– Super markets ( 5000 – 12000 sq ft)
– Hyper Markets ( 15000- 50000sqft)

• Obviously the more the space , the wider the selection of goods in the store..........

– Gourmet Foods
– Fruit and Vegetables
– Fish and Meat
– Wine and Spirits
– Live Bakery

• The Hypermarket range Plus

– Apparels
– Electronics
– Other White Goods
– Jewellery
– Home
– Furniture
– etc
 Types of Specialty Retail ?
• Apparels
• Jewellery
• Medical / Pharmacies/ Diagnostic centres
• Electronics
• Sports goods
• Furniture
• Personal care
• Hardware
• Music
• Automobile
• Books
• Gadgets
• Service stores
• Salons
• Hospitality
• Banking
• Restaurants
• Education
• Petrol pumps
• Hospitals
• Cinema halls
• Toys / Gifts
• Pet stores
• Astrology stores
• Tour & travel
• Mishti dukaan
• QSR/ Cake shops
• Marble/ tiles
 Types of Specialty Retail
• Apparels
• Electronics (CDIT)
• Jewellery
• Footwear
• Watches
• Eye wear
• Pharmacy
• Accessories
• Sports goods
•
•
Furnishings
Automobiles
What is NOT Retail?
• F&B
• QSR
• Health care
• Hospitality
• Retail Banking
• Agri Inputs
• Education ?
• Etc...........
 Types of Specialty Retail
• Apparels
•
What is NOT Retail?
Electronics (CDIT)
• Jewellery
• Footwear
• Watches
•
•
Eye wear
Pharmacy
• B2B
• Accessories
• Sports goods
• Furnishings • Personal Selling (Eureka
• Automobiles
• F&B Forbes) + Urban Ladder
• QSR
• Health care
•
•
Hospitality
Retail Banking
• Multi level Mktg ( Amway,
•
•
Agri Inputs
Education ?
Tupperware)
• Etc...........
 As a Shopper what are the differences you would spot
between F&G and Specialty Retail ?
( eg Big Bazaar vs Titan stores)
Food & Grocery Retail Specialty Retail
• Wide range = more space • Focussed range even Luxury
• Quantity of purchase is High • Low range + High assortment
• Impulse buying is more • More style in the décor ambience
• • More intensive Service
Offered more discounts
• Frequency of visit = Low
• Bundling of Products and
• Look for style / fashion
offers
• Fewer stores per type
• Wide clientele
• Higher margins
• Frequent replenishments • Brand / Image Management
• Inventory management • Customisation
• Loose products
 Business Size

F &G Vs Specialty Retail

3

2.5

Investment
1.5

0.5

0
0 0.5 1 1.5 2 2.5 3

Profitability
Sociological Evolution of Retail
 Sociological History of Retail
• Where did Retail start?
 Sociological History of Retail
Family Trade Routes Monetisation

Tribe Locomotion Credit

Specialisation Market Place Communication

Surplus Barter Online

 Old Market places ( Haats / Melas) vs
Modern Day Malls
• What do Shoppers/ consumers/ customers
look for in a Mall?

• What did/ do they look for in a Haat/Mela ?

 Old Market places ( Haats / Melas) vs
Modern Day Malls
• Customers look for the same things:
– Shopping
– Food
– Entertainment
 Sociological Impact of Modern Retailing:

• The Virtuous cycles

• The flip side effects:

 The Virtuous Cycle -1
Growth of
Modern Retail

Better
Adoption of
Modern Retail Value For
Money

Increased
Satisfaction
AND / OR
Increased Savings
 The Virtuous Cycle -2
Growth of
Modern Retail

Adoption of More
Modern Retail Employment

Increased Wages
AND
Increased Savings
The Flip side effects:
 The Flip side effects:
• Mom & Pop stores / Traditional Retailers
• OAE trends
• Small producers
• Artisan Products
• Farm sector: Beet sugar vs Cane sugar
• Change consumer preferences: Mexican Rice
 Retailing

India Backgrounder
 India: the land of dispersion…….
Population Range No of Towns % Population
Urban

> 10 million 3

1 -10 million 50
22%
100K – 1million 415

< 100 K 5698 10%

Total Urban 6166 32 %

Rural ~ 630,000 68%

Census Of India : 2011

 India … the land of shopkeepers
Country No. of Retail outlets No. of Retail
(millions) outlets / million
Popn.
UK 0.30 4900

USA 0.95 3150

Japan 1.00 7300

Brazil 1.20 6200
Indonesia 2.70 11500

China 4.50 3500

India Estd.15.0 12000

Source: Euromonitor, 2007 with extrapolation

 Upgrading of the Consuming Class will be the
next inflection point
• Middle class to swell from 5% of population in 2005 to 41% of population by 2025
• The heart of the Diamond will look for Quality versus just Price driven by needs
of Fashion, Convenience, Durability & Experience

High
Income

583 Million
50 Million 318 Million (41%)
Middle Middle Income
(5%) (27%)
Income

Low Income

2005 2015 2025

Source : McKinsey Global Institute

Market Place & BHPC’s Vision

FDI In Retail
2016
• Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in
online retail of goods and services through the automatic route, thereby providing
clarity on the existing businesses of e-commerce companies operating in India.
 FDI in Retail
• Why is FDI Good?
• Retail Industry is investment heavy due to store fit outs and
purchase/ lease.
• Retail Industry has long gestation periods.
• Firms have to sustain losses in the interim

• How does FDI solve the above?

• FDI brings with it a lot of Capital
• FDI capital generally is long term
• FDI coupon rates are low and can sustain long gestation periods
 Policy Guidelines
• FDI has to be Approved by both Centre and
State.

• Reservation for towns in Populations of 1 lac

and below for Traditional Trade

• Single Brand FDI comes with a 30% local

sourcing rule
What do you see in this picture?
Customer Centricity

K. Dasaratharaman
Every day, Sam Hill, a greeter at the Center for Advanced
Medicine in Chicago, welcomes hundreds of patients who
are very ill or afraid of what their test results may uncover.
He remembers an elderly woman leaving the building late
one rainy night.

“There weren’t any cabs at the taxi stand, so I ran all the
way down the street to hail one. I practically stood in the
middle of the road. This woman was so appreciative that
she offered me a tip, but I just smiled and said I couldn’t
accept any money.

“I was just so glad I could help in some small way.”

 Customer Service
• List down 1 example of Good customer
service from your experience.

(The examples can be from your experience as a

Customer in a retail store)
 Perspectives……..
• What is common to the examples shared?

• Why was good customer service delivered?

• What are the objectives of Customer service?

 Happy Customer

Repeat Customer

Good Word of Mouth

It is not the employer who pays the wages.
Employers only handle the money. It is the
customer who pays the wages.

Henry Ford
A customer is the most important visitor on our
premises, he is not dependent on us. We are dependent
on him. He is not an interruption in our work. He is the
purpose of it. He is not an outsider in our business. He is
part of it. We are not doing him a favour by serving him.
He is doing us a favour by giving us an opportunity to
do so.

Mahatma Gandhi
Spend a lot of time talking to customers face to
face. You’d be amazed how many companies don’t
listen to their customers.

Ross Perot, Businessman and twice US Presidential

candidate

Customers don’t expect you to be perfect. They do

expect you to fix things when they go wrong.

Donald Porter, V.P. British Airways

 Retaining existing customers
• 96% of unhappy customers don’t complain – they just
walk away! Therefore every feedback is worth 25
customers………….. [Bain & Co.]

• A good customer experience is told to 16 others while

a bad one is told to 64 others……….. [Tarp]

• 55% of customers would pay extra to guarantee a

better service…………… [Defaqto res]

• It costs 6 to 7 times more to acquire a new customer

than retaining an existing one………………. [Bain & Co]
Customer Lifetime Value
 Customer Lifetime Value

What's Customer Lifetime Value?

 Customer Lifetime Value

What's Customer Lifetime Value?

Customer Lifetime Value (CLV) is defined as the present value of

the total profit you will realize, in monetary terms, from your
average customer during the entire period that customer does
business with you.

In other words, customer lifetime value is the present value of

the potential contribution of your customers to your business
over a period of time.
 Lifetime Value of customers
• Spend of the customer in the
category over their lifetime less
the Cost to acquire and serve……..
• Key events:
– Purchase of 1st car
– Value Add features
– Servicing
– Spare parts
– Car upgrades + exchange
– 2nd car…..
– Ambassordial value
 Motor Cars : CLV
• Consider a young man of 25 buying his 1st car
• Let us assume that he will change his car
every 5 years
• Age of customer 25. Will buy new car upto 55
= 6 new cars.
• Somewhere along the way he will also buy his
2nd car – a bigger car.
• He will service his car every year, change
spares, choose Value add Ons and new
features etc like any other car owner…..
 Motor Car - CLV
• List down the activities that you will spend on,
during your Lifetime with ownership of Cars:
EVENT FREQUENCY NO OF SPEND / TOTAL
YEARS EVENT SPEND
1st Car

Exchange
cars
Value Add
Ons
Servicing

Spare parts

New
features
2nd Car

TOTAL
SPEND
EVENT FREQUENCY NO OF SPEND / TOTAL
YEARS EVENT SPEND
1st Car 1 time nil 3.00 3.00

Exchange Once in 5 30 years = 6 5.00 30.00

cars years cars
Value Add Once for For 7 cars 10,000 0.70
Ons each car
Servicing Once a year 30 years = 10,000 3.00
30 servicing
Spare parts Once a year 30 years = 10,000 3.00
so times
New Once / car 7 cars = 7 15,000 1.05
features times
2nd Car Once 1 time 12.00 12.00

TOTAL 50.05
SPEND
How to Profile High CLV customers?
• KYC Factors:
 How to Profile High CLV customers?
• KYC Factors:
• Age
• Education
• Occupation
• Family size and ages of children
• Holiday preferences
• Own house vs Rented house
• Joint family vs Nuclear family
• 1st car vs Replacement car vs 2nd car
 Exercise:
• Calculate the CLV for a Food & Grocery cum
Apparel business of a Young couple, man
aged 30, woman aged 25, both working , no
children as yet, each with a Gross income of Rs
50,000 per month.
– Assume their life till 80 years.
– Assume margins at 40% flat.
– Calculate the CLV for the next 5 years at a time
 Exercise:
Years
Man Woman Children Home Total

2020 – 2025

2025- 2030

2030-2035

2035-2040

2040-2045

2045-2050
How does Zara keep CLV as a Focus?
How does Nordstrom keep CLV as a
Focus?
Customer Delight
 Satisfaction and Delight
• What is Customer Delight?

• How is Customer Delight different from

Customer Satisfaction?

• How to measure Satisfaction and Delight?

 DELIGHT

Immediate Happiness /
Satisfaction

Not Unhappy /
Neither Happy nor Unhappy

Not satisfied / Unhappy / disappointed

 Kano Model

The Factors that

contribute to Basic,
Performance and DELIGHT
are DIFFERENT !!
 Characteristics HYGIENE FACTORS PERFORMANCE DELIGHT FACTORS
FACTORS
Consumer Basic features of a Features & services Attractive features
perception Product/service that have potential not expected by,
without which no to increase and causes surprise
performance of customer in customers
basic functions satisfaction

Basis of Taken for granted Satisfaction = Unexpected events

Satisfaction/ meeting = surprise
delight expectations experience

Consequences of Fulfilment Fulfilment = Fulfilment =

fulfilling
requirements
≠ Satisfaction Satisfaction DELIGHT

Consequences of Dis - satisfaction Maybe some No lack of

Not fulfilling Dis – satisfaction if Satisfaction ( since
requirements v.poor performance not expected)

WOM (Word of If Poor = Negative If Good = maybe If Good =Positive

Mouth) WOM; If Good = Positive WOM: if WOM = Brand
NO WOM Poor = Negative Ambassador
WOM If Not = No WOM
 What is Customer Delight?
• List down those Factors in your Store which
cause Hygiene?

• List down those Factors which cause

Performance?

• List down those Factors which cause

DELIGHT?
Hygiene , Performance and DELIGHT Factors
HYGIENE FACTORS PERFORMANCE DELIGHT FACTORS
FACTORS
 What causes Customer Delight?
• Tidy Operations
• Beyond the Ordinary service
• Exceeding expectations
• Engagement with customer
• Quick responses
• Courtesy
• Acts of kindness.

Any action that touches an emotional chord with the

customer or is an act beyond the customers expectation
causes DELIGHT and HUGELY Positive WOM
What can we learn from the Zara case on
Customer Centricity?
What can we learn from the Nordstrom case
on Customer Centricity?
 Customer Retention Strategies
• Reducing Attrition
• Sell and sell again
• Bring back the “lost sheep”
• Frequent communications calendar
• Extraordinary customer service
• Courtesy service
• Product / service Integrity
• Measure Lifetime Value
• A complaint is a Gift.
Customer Centric Teams
The value of culture is emphasized from the moment new employees come to
work for the company. The one-day orientation for new employees begins with a
copy of the employee handbook that is a 5 and ½ inch by 7 and ½ inch card.

One side of the card reads:

Welcome to Nordstrom. We are glad to have you with

our company. Our number one goal is to provide
‘outstanding customer service’. Set both your personal
and professional goals high. We have great confidence
in your ability to achieve them. So our employee
handbook is very simple.

We have only one rule.

The other side of the card reads

Our only rule.

Use good judgment in all situations

 The Nine Management Principles of America’s #1 Customer
Service Company – Nordstrom

• Provide your customers with choices— of products, services and service channels.
• Create an inviting place for your customers—in person, online and on the phone.
• Sell the relationship: Service your clients through the products and services you
offer.

• Hire nice, motivated people ( hire the smile, train the skills!)
• Empower employees to take ownership…by minimizing the rules.
• Sustain the people on the front-lines through a culture of support and mentorship.
• Nurture a service culture through recognition and praise.
• Advocate teamwork through internal customer service.
You need to be humble to do service”
• Commit 100% to customer service. says Eric Nordstrom. “If you are really
looking to the customer, if you are
“You can’t teach culture. You have to sensitive to the customer and sensitive to
live it. You have to experience it. You the people on the front-line, you are
have to share it. You have to show it.” aware of your shortcomings. That keeps
- Brent Harris – National Merchandise us focused on the things that are
Manager for Shoes necessary in order to give customer
service.”
 Good practices
• Be honest with your customers – do not sell them something they
don’t need! [there will always be another time and occasion -
customers will respect you for it……]

• Cultivate the practice of “keeping in touch with your customers” –

find out the best ways to do so!

• Develop the ability to LISTEN and Listen carefully to your

customer!!

• Empathize with your customer – this will throw up the road blocks /
opportunities.

• Look at customers as their Life Time Value……

“Synergy is almost as if a group collectively
agrees to subordinate old scripts and to write a
new one. The more genuine the involvement,
the more sincere and sustained the
participation in analyzing and solving problems,
the greater the release of everyone’s creativity,
and of their commitment to what they create.”

Stephen Covey - The Seven Habits of Highly

Successful People
Tortoise and the Rabbit Video

Team Work Video

Team Work and You Video

It is not the strongest of the species that
survive, nor the most intelligent, it is
those most responsive to change
Charles Darwin
Thank you

K. Dasaratharaman
kdraman2000@gmail.com
 Retailing

Kannan Dasaratharaman
 Agenda
• Context of Retail in India
• Some basic terms
• A Framework to evaluate Retail
• E tailing and its impact
 What do you understand by Retailing?
• Selling for public consumption
• Last link in the supply chain facing the consumer
• Directly selling to consumer – goods and services
• Largest sector of the economy
• Small ticket size
• Brand building and awareness
• Physical entity where a person is involved in sales
• Product experience
• Satisfying consumer needs
 What do you understand by Retailing?
• Last mile transaction with the end consumer/
customer/ shopper
• In the B2C space ( as opposed to B2B)
• Study of the “ process of exchange of Value”
 What do you understand by Retailing?
• Last mile transaction with the end consumer/
customer/ shopper
• In the B2C space ( as opposed to B2B)
• Study of the “ process of exchange of Value”

Retailer STORE Shopper

 What is Shopping?
• Case A:

• You go to the store and are looking for Colgate Active Salt toothpaste.
• You do not find your SKU but find many other SKUS of Colgate
• Was the Shopping trip successful?

• Case B:

• You find the SKU you are looking for but you had to stand in queue for
30 mins to Check out.
• Was the Shopping trip successful?
 Retailing : A Shoppers perspective
• What are the 2 things that need to be satisfied
in a successful Shopping trip?
 Retailing : A Shoppers perspective
• What are the 2 things that need to be satisfied in a successful Shopping trip?

• You get the Product you were looking for:

– Right Quantity/ sku
– Right Quality
– Right Price
– Right Place

• You had a good Shopping experience

– Ease of shopping / access
– Ease of Check out
– Service : during and after Purchase

• Shopping = Product + Experience

• Retailing = Study of How to give the Shopper the Product + Experience they Expect!

• Why We Buy – The Science of Shopping by Paco Underhill = The Experience of Shopping
 Taxonomy of Retail
• What are the different types of Retail ?
 Taxonomy of Retail
Total Retail

Specialty
F&G Retail
Retail

Brick & Brick &

Online Retail Online Retail
Mortar Retail Mortar Retail

Modern
Modern Traditional Retail
Retail Retail
Traditional
retail
 Upgrading of the Consuming Class will be the
next inflection point
• Middle class to swell from 5% of population in 2005 to 41% of population by 2025
• The heart of the Diamond will look for Quality versus just Price driven by needs
of Fashion, Convenience, Durability & Experience

High
Income

583 Million
50 Million 318 Million (41%)
Middle Middle Income
(5%) (27%)
Income

Low Income

2005 2015 2025

Source : McKinsey Global Institute

Market Place & BHPC’s Vision

 Some basic Retail Terminology
• Generic outlet is called a Store
• Range and Assortment (width vs Depth)
• Generic customer is called Shopper
• Generic shelf is called Gondola
• Shelf ends are called Gondola – ends or End – Caps and
are assets that are rented out.....so are many other spots
on the shelf / in the store......
• Billing is done at the Cash till
• All %ages are calculated on Top line ( i.e. % to Sales /
Revenue)
Aisles and Shelves
End Caps
Shelf Talkers
8 Ways to Win in Retailing

K. Dasaratharaman
Where to start?
 The Retail Concept
• This is the answer to the Question “ what Retail business
are we in?”

• It defines:
• The Target Group ( Whose needs are we addressing?)
• The Categories and Sub Cats ( What needs are we
addressing?)
• The Price level ( has to be in sync with the TG definition.....)
• The Value Proposition ( What Value do we deliver to our TG
and how do we do it better than Competition?)
Value Proposition
 8 Ways to Win in Retail:
The Pentagon & Triangle Model
Place (Size, Location , Layout & Design)

Systems

Communication Product
- Positional - Style & Fashion
- Promotional - Intensity
- Range
- Assortment

Logistics Suppliers

Value (Price, Quality) People ( Service, Knowledge, Climate)

 Retail is a Catchment Business….
• Catchment Radius α Uniqueness of Concept
Luxury brands
Titan/ Fab India
F&G
Bata stores

Undifferentiated Concept vs Highly Differentiated Concept

 Place
• Size = F{

• Location = F {

• Layout

• Design
 Place
• Size = F{ Retail concept, Merchandise Range and
Assortment, Rental/ costs and viability, Availability

• Location = F { Retail concept, cost and viability,

Availability

• Layout = F { Retail concept , Shopping behaviour

assumptions,

• Design
Grid layout
Race Track Layout
Boutique Design
 Product
• Range = F{

• Assortment= F{

• Style & Fashion = F {

• Intensity = F {
 Range Vs Assortment
• In a Shelf that has place for 100 SKUs , we could have any combination
of Range and Assortment:
• E.g.

No. Range Assortment Total

Store A 20 5 100

Store B 5 20 100

Store C 10 10 100

• How to decide what mix to go with?

 Product
• Range = F{ Concept, Size , Location

• Assortment= F{ Concept, Size, Location

• Style & Fashion = F { Concept, Competition

• Intensity = F { All of the above.....

 Merchandise Intensity
• Depends on the following:

• Category ( Candies vs Furniture vs Shoes)

• Price level ( Baggit vs Hidesign vs Louis Vuitton) /

(Woodland vs Bata vs Local Brand)

• Service requirement (Candies vs Washing machines

vs Cars)
 People
• Service = F {

• Knowledge = F {

• Climate

• Service Intensity 1/α Merchandise Intensity

(i.e. If one is High the other will be Low)
Moments of Truth
A ‘Moment of Truth’ is any episode in which the customer comes into contact with
some aspect of your organization and gets an impression of the quality of its service.
Jan Carlzon, former President of Scandinavian Airlines has this to say:

“At SAS, we used to think of ourselves as the sum total of our aircraft, our maintenance
bases, our offices, and our administrative procedures. But, if you ask our customers
about SAS, they won’t tell you about our planes or our offices or the way we finance our
capital investments. Instead, they’ll talk about their experiences with the people at SAS.
SAS is not a collection of material assets but the quality of the contact between an
individual customer and the SAS employees who serve the customer directly.

Last year, each of the 10 million customers came in contact with approximately five
SAS employees and this contact lasted an average of 15 seconds at a time. Thus, SAS is
‘created’ 50 million times a year, 15 seconds at a time. These 50 million ‘moments of
truth’ are the moments that ultimately determine whether SAS will succeed or fail as a
company. They are the moments when we must prove to our customers that SAS is their
best alternative.”

Source: Moments of Truth - Jan Carlzon, President, Scandinavian Airlines

“People don’t want to communicate with an organization or a computer. They want to talk to
a real, live, responsive, responsible person who will listen and help them get satisfaction.” -
Theo Michelson
 Security
She
walks in
•Smile She pauses at
through
•Wish the entrance
the door
•Assist in before
baggage proceeding
POP
CSA/CSS

1.Smiles & 1. New Releases

Wishes She goes 2. Current offers
2. May I Help to a 3. New genres
You / Looking Section 4. Forthcoming
for events
something? 5. Store layout map
3. Gives a
basket

IF YES She is
interested
IF NO in 1. Smiles
something 2. Commends
particular her choice

Smiles and
3.Takes her to CSA/CSS
the section
says 4.Talks about
“ I’ll be CSA/CSS the music /
around in album
case you
need any
help”
 Value
• Price

• Quality
Determinants of Customer Delivered Value
 Communication
• Positional

• Promotional

Johnny the Bagger….. Communication at its best

Pentagon elements - Place , Product, People,
Value and Communication

• These are aspects that are external facing for the Retailer
• These are the aspects that are Experienced by the Consumer.
• These are the aspects that will get compared by the Consumer
• These are all connected to Strategic Design of the Retail
format.
• Pentagon elements “ differentiate” the Retail format from
competitors.
• Need to DESIGN the strategies that will differentiate the Retail
Brand.
 Pentagon elements at Work
• Apple Store in NYC ( Apple Layouts)

• Abercrombie & Fitch store in NYC (Video)

• Amazon Go
Apple store
Apple store - Kolkata
Abercrombie & Fitch
 Amazon Go
• The future is here…….
 Triangle elements – Systems , Logistics and
Suppliers
• These are aspects that are Internal facing for the
Retailer
• These are the aspects that have great impact on the
Pentagon aspects but are not seen by the Consumer.
• How well these aspects are designed and managed
result in Consumer experience and retail success.
• Triangle elements result in Cost Leadership
• These are all connected to Strategic Design of the
Retail format.
The Key questions for a New Retail brand

• Pentagon elements :
– What are our strategies?
– How Differentiated are they?
– How Sustainable are they?
– What COMPETENCIES do we need to Win?

• Triangle elements:
– What are our strategies?
– What COMPETENCIES do we need?
– How to make it sustainable?
 The 5 Key questions for each Pentagon and
Triangle Corner – for an ongoing Retail brand

• Do we Win?
• By How much? (a little or a lot)?
• Is it getting Better or Worse (direction )?
• Does anybody Care?
• Is it Sustainable?
Store Ebitda and other Retail
Metrics
K. Dasaratharaman
 The Basic Terms
• FF = Footfalls = the number of persons who have entered
the store (in a given time frame)

• NOB = Number of Bills (generated from POS in a given

time frame)

• Conversion % = No. of Customers who have bought (for

every 100 customers who have entered the store)
– Conversion % = No. of customers who have billed / Total FF
–Conversion % = NOB / FF
–Therefore FF * Conversion % = NOB

• ABV = Average Bill Value = Total Sales Value / NOB

 The Composition of Sales
NOB * ABV = Sales

FF * Conversion = NOB

FF*Conversion * ABV = Sales

Which type of store will have the highest FF?

• Daily store
• Hyper
• Specialty store

• WHY?
 Which type of store will have the highest
Conversion %?
• Daily store
• Hyper
• Specialty store

• WHY?
 Which type of store will have the highest
ABV?
• Daily store
• Hyper
• Specialty store

• WHY?
 Look at the Metrics together as under:
There is merit in looking at FF, Conversions and ABV together as
under:

• Segregate the Stores / Departments / Categories into the

following

– Categories where FF is LOW:

– Categories where FF is OK , but NOB (Conversion) is LOW:

– Categories where FF and NOB is OK , but ABV is LOW / ABV is generally

LOW:
 Fans data – Diagnosis : Low FF
• What can be the reasons if FF is Low (in a
particular Department / Category) ?

• What could be happening with Customers

that they do not want to go to a particular
Store/Dept / Cat (in large numbers) ?
 Fans data – Diagnosis : Low FF
• What can you (as the store manager) do about
this?
• What needs to be corrected and why?

• What are the Immediate and Medium term

measures?
Fans data – Diagnosis : Low Conversion

• What can be the reason for High FF but Low

NOBs / Conversion %?

• What is happening with Customers that they

are Browsing but not Buying (in large enough
numbers) ?
Fans data – Diagnosis : Low Conversion

• What needs to be corrected to enable the

“browsers “to become “buyers”?

• What are the Immediate and Medium Term

measures?
 Fans data – Diagnosis : Low ABV
• What can be the reason for Low ABV ? ( this
becomes even more important if there is High
FF and High NOB / Conversions)

• What is happening at the customer level?

 Fans data – Diagnosis : Low ABV
• What needs to be examined and corrected to
push up ABV ?

• What are the Immediate and Medium term

measures?
Store Ebitda model and other
Retail metrics
K. Dasaratharaman
 Why store profitability ?
• Retail is a front end business.
• Each store creates Value for customers and
Profit for the retail co.
• The mechanism to drive profitability is to drive
profit at the store level.
• The profit from the stores pays for post store
debits (Regional and corporate expenses) and
then delivers profit for the retail co.
 Retail Profitability
• The business profitability has 2 sides to it :
– The P & L side : revenue and costs
– The Balance Sheet side : assets and liabilities

• The P & L side is split into the following:

– The store P&L – which is the Operating P&L
– Post store debits leading to the Co P &L along with
Scale of operations
 Store Ebitda – the operating P & L
• Comprises of the following main line items:
– Revenue (Nett Sales ) :
– Retained margin :
– Opex:
• Rent
• Salary / Wages
• Power
• Other Opex
• Total Opex :
– Store Ebitda :
 Store ebitda
Rs Lacs / mth

Trading Area 2000

Revenue 30.0

Retained Margin 9.0

Retained Margin % 30%

Store Opex 4.0

Store ebitda 5.0

Store ebitda % 16.6%

 Store ebitda – Exercise 1
Rs Lacs / mth
Trading Area 30,000 sqft

Net Sales 300.0

Retained Margin 48.0

Retained Margin % ?

Store Opex 25.0

Store ebitda ?

Store ebitda % ?
 Store ebitda – Exercise 2
Rs Lacs / mth
Trading Area 3,000 sqft

Net Sales ?

Retained Margin ?

Retained Margin % 15 %

Store Opex 4.0

Store ebitda ?

Store ebitda % 7%
 Store Breakeven
• At Break even point, store ebitda = 0

• Therefore , Retained Margin = Opex

• Breakeven is therefore at a combination of a

Particular Revenue(Nett Sales) & GM %
delivering the Break even Retained Margin. ( this
is because Revenue * GM % = Retained Margin)
Store ebitda - breakeven
Rs Lacs / mth At Breakeven

Trading Area 2000 2000

Revenue 30.0 ?

Retained 9.0
Margin
Retained 30% 25%
Margin %
Store Opex 4.0 4.0

Store ebitda 5.0

Store ebitda % 16.6%

 Diagnostics process

• Look at the 3 lines ( and maybe any other data / facts you
know) – separately & in combination to ascertain WHAT is
happening?

• Generate “ Hypotheses “ by answering the Question,

WHY?

• Look for other Data / facts to validate your Hypotheses……

• This validated Hypothesis is your Diagnosis

Store Diagnosis – Exercise -2
TEMPLATE Store
(Rs / sqft/ mth) (Rs / sqft/ mth)

Trading Area 3000 2800

Net Sales 1400 1200

Retained Margin 280 ?

Retain Margin % 20 % 22%

Opex 160 200

Store ebitda 120 ?

Store ebitda % 8.6 % ?

 Determinants of store ebitda
Item Determinants Linkages

Trading Area Size of store Location, Competition, role

of store
Nett Revenue Catchment and Footfalls, Conversion , ABV
Competition Marketing, Promotion,
Break up by Categories.
Retained Margin % Product Mix , Catchment, Sales Mix by Categories,
Pricing, Discounts Upselling, Deals,
Opex – Rent Location , Size, Negotiation Brand /Store concept,
Competition
Opex – Salary / Wages Nature of business, Labour Longevity of employees
market, HR practices
Opex – Others Design and Fit outs, Service Store concept
Standards.
Total Opex

Store Ebitda Driver of profitability Template model

Other Retail Metrics : Getting the
Merchandise correct………..
 KVC/ KVI / OPP/ Price Laddering
• KVCs are categories that Consumers use to
“position the Brand” in terms of Value for Money

• KVIs are Items within these categories …….

• OPPs are “ opening price points” that consumers

use to get a sense of the VFM positioning.
 SKU management
Inventory Stocking Norms Visibility Norms Reorder Norms
Category

NO OOS – High High Visibility – in

STARS Hot Spots & Cat High Frequency
Stock Levels Shelf

NICHES Med Stock Levels Med Visibility in Med Frequency

Cat Shelf

High Visibility in
TRAFFIC NO OOS – High Hot Spots & Cat High Frequency
BUILDERS Stock Levels Shelf

Stock Levels Low Visibility in Low Frequency /

DOGS depend on Shelf
Space Availability Cat Shelf Consider Delisting
 

OTHER FACTORS

DECIDING THE LEVEL OF

INVENTORY

208
 FACTORS DECIDING THE LEVEL OF INVENTORY

For each question below, which scenario will lead to higher inventory?

Question 1:
Scenario 1: Company “A” is ordering from the suppliers in the lot size of 1000
units

Scenario 2: company “B” is ordering in the lot size of 200 units

Question 2:
Scenario 1: Average monthly demand for Item X is 100 units, the demand is
more or less constant and predictable.

Scenario 2: Average monthly demand for Item X is 100 units, but the demand
fluctuate widely between 20 to 250 units and also highly unpredictable. 209
209
 FACTORS DECIDING THE LEVEL OF INVENTORY

For each question below, which scenario will lead to higher inventory?

Question 3:

Scenario 1: Supplier “S1” always deliver the ordered quantities on time

Scenario 2: Supplier “S2”delays on the delivery frequently

Question 4:

Scenario 1: Lead time for procurement for Item “A” is 1 week..

Scenario 2: Lead time for procurement for Item “B” is 1 month..

210
210
 FACTORS DECIDING THE LEVEL OF INVENTORY

For each question below, which scenario will lead to higher inventory?

Question 5:

Scenario 1: Company “A” has very good information systems. The data and
the reports on Sales, Inventory, Inventory-in-transit etc are available live to
the company managers and also the suppliers

Scenario 2: Company “B” has very poor information systems. The data and
the reports on Sales, Inventory, Inventory-in-transit etc are not available live
to the company managers and not to the suppliers

211
211
 OTHER FACTORS DECIDING THE LEVEL OF INVENTORY

Inventory is directly proportional to:

•Lot size

•Demand Uncertainties

•Supply Uncertainties

•Lead Time

•Poor Information Systems

212
212
 Type 1 and Type 2 Errors

TYPE 1 Error Type 2 Error

DEMAND No Yes

SUPPLY Yes No
 Churning the Merchandise
– No. of SKUs with Zero Sales in last 3 months as % of Total =
“LONG TAIL management”

– No. of SKUs that contribute to 80 % of Sales as % of Total No.

of SKUs = ABC Analyses

– No of SKUs that contribute to 80 % of Sales vs No. of SKUs

that contribute to 80 % of Inventory = Inventory Balancing

– Avg. Rev/ Unit vs Avg. Inventory Price / Unit = Price Mix

Balancing
Footfalls, Conversions, NOB and ABV
 The Basic Terms
• FF = Footfalls = the number of persons who have entered
the store (in a given time frame)

• NOB = Number of Bills (generated from POS in a given

time frame)

• Conversion % = No. of Customers who have bought (for

every 100 customers who have entered the store)
– Conversion % = No. of customers who have billed / Total FF
–Conversion % = NOB / FF
–Therefore FF * Conversion % = NOB

• ABV = Average Bill Value = Total Sales Value / NOB

 The Composition of Sales

NOB * ABV = Sales

FF * Conversion = NOB

FF*Conversion * ABV = Sales

Which type of store will have the highest FF?

• Daily store
• Hyper
• Specialty store

• WHY?
 Which type of store will have the highest
Conversion %?
• Daily store
• Hyper
• Specialty store

• WHY?
 Which type of store will have the highest
ABV?
• Daily store
• Hyper
• Specialty store

• WHY?
 SKU types : FF, Conversion and ABV
FF Conversion NOBs ABV

STARS HIGH HIGH HIGH HIGH

TRAFFIC HIGH HIGH HIGH LOW – MED

BUILDERS

NICHES LOW MED - HIGH LOW - MED MED – HIGH

DOGS LOW LOW LOW LOW

 Look at the Metrics together as
under:
There is merit in looking at FF, Conversions and ABV
together as under:

• Segregate the Stores / Departments / Categories into

the following

– Categories where FF is LOW:

– Categories where FF is OK , but NOB (Conversion) is LOW:

– Categories where FF and NOB is OK , but ABV is LOW / ABV is

generally LOW:
 Fans data – Diagnosis : Low FF
• What can be the reasons if FF is Low (in a
particular Department / Category) ?

• What could be happening with Customers

that they do not want to go to a particular
Store/Dept / Cat (in large numbers) ?
 Fans data – Diagnosis : Low FF
• What can you (as the store manager) do about
this?
• What needs to be corrected and why?

• What are the Immediate and Medium term

measures?
 Determinants of Store FF
• Awareness of Store = Local + Other Media
• Value proposition of Store = Retail Concept
• Convenience of Access = Location
• Options to buy = Merchandise Quality / Range
• Value for Money = Pricing , Discounts, deals
• Awareness of Merchandise and Promotions =
Local Marketing
• Good service = Customer orientation
• WOM = Loyal customers
Fans data – Diagnosis : Low Conversion

• What can be the reason for High FF but Low

NOBs / Conversion %?

• What is happening with Customers that they

are Browsing but not Buying (in large enough
numbers) ?
Fans data – Diagnosis : Low Conversion

• What needs to be corrected to enable the

“browsers “to become “buyers”?

• What are the Immediate and Medium Term

measures?
 Determinants of Conversion
• Store Layout and Markers
• Quality of Merchandise (Range, Assortment,
OPPs, Deals)
• Merchandise Presentation & Display
• Customer Service in locating / selecting SKUs
• Problem Resolution (if any)
• Previous Experience (if any)
 Fans data – Diagnosis : Low ABV
• What can be the reason for Low ABV ? ( this
becomes even more important if there is High
FF and High NOB / Conversions)

• What is happening at the customer level?

 Fans data – Diagnosis : Low ABV
• What needs to be examined and corrected to
push up ABV ?

• What are the Immediate and Medium term

measures?
 Determinants of ABV
• Quality of Merchandise (range, assortment, quality)
• VFM of Merchandise
• Adjacencies
• Planogram
• Upselling and Cross selling
• Shelf talkers
• Stock Availability in shelf
• Price and Offer Markers
• Why we Buy
– The Science of Shopping
By Paco Underhill
Store Ebitda model and other
Retail metrics
K. Dasaratharaman
 Why store profitability ?
• Retail is a front end business.
• Each store creates Value for customers and
Profit for the retail co.
• The mechanism to drive profitability is to drive
profit at the store level.
• The profit from the stores pays for post store
debits (Regional and corporate expenses) and
then delivers profit for the retail co.
 Retail Profitability
• The business profitability has 2 sides to it :
– The P & L side : revenue and costs
– The Balance Sheet side : assets and liabilities

• The P & L side is split into the following:

– The store P&L – which is the Operating P&L
– Post store debits leading to the Co P &L along with
Scale of operations
 Store Ebitda – the operating P & L
• Comprises of the following main line items:
– Revenue (Nett Sales ) :
– Retained margin :
– Opex:
• Rent
• Salary / Wages
• Power
• Other Opex
• Total Opex :
– Store Ebitda :
 Store ebitda
Rs Lacs / mth

Trading Area 2000

Nett Revenue 30.0

Retained Margin 9.0

Retained Margin % 30%

Store Opex 4.0

Store ebitda 5.0

Store ebitda % 16.6%

 Store ebitda – Exercise 1
Rs Lacs / mth
Trading Area 30,000 sqft

Net Sales 300.0

Retained Margin 48.0

Retained Margin % ?

Store Opex 25.0

Store ebitda ?

Store ebitda % ?
 Store ebitda – Exercise 2
Rs Lacs / mth Rs Lacs/ mth
Store A Store B
Trading Area 3,000 sqft 2500 sqft

Net Sales 50 40

Retained Margin 7.5 6.4

Retained Margin % 15 % 16%

Store Opex 4.0 3.6

Store ebitda 3.5 2.8

Store ebitda % 7% 7%
 Store Breakeven
• At Break even point, store ebitda = 0

• Therefore , Retained Margin = Opex

• Breakeven is therefore at a combination of a

Particular Revenue(Nett Sales) & GM %
delivering the Break even Retained Margin. ( this
is because Revenue * GM % = Retained Margin)
 The PSFT metric
• Often there is a need to compare across stores.
• All Revenues and Costs are related to Size of
store.
• PSFT creates a common denominator for
comparison.
• It also creates benchmarks for external
comparison.
• Helps spread best practices
 Store ebitda / sqft
Rs Lacs / mth Rs / sqft/ mth

Trading Area 2000 2000

Revenue 30.0 1500

Retained Margin 9.0 450

Retained Margin % 30% 30%

Store Opex 4.0 200

Store ebitda 5.0 250

Store ebitda % 16.6% 16.6%

Store ebitda – PSFT Exercise 3
Rs / Sqft/ mth

Trading Area 3200

Net Sales 1200

Retained Margin ?

Retained Margin % 18%

Store Opex ?

Store ebitda 80

Store ebitda % ?
Store ebitda – PSFT Exercise 4
Rs / Sqft/ mth

Trading Area 2800

Net Sales ?

Retained Margin ?

Retained Margin % 20%

Store Opex 200

Store ebitda ?

Store ebitda % 7.5%

 Format comparisons(Rs / Sqft)
SPENCERS HYPER MUSIC WORLD AU BON PAIN
(Rs / sqft/ mth) ( Rs / sqft/ mth) ( Rs / sqft/ mth)

Trading Area 30000 1500 1000

Revenue 1200 1500 800

Retained Margin 240 450 400

Retain Margin % 20% 30% 50%

Opex 160 250 240

Store ebitda 80 200 160

Store ebitda % 6.7% 14 % 20%

 Store comparisons(Rs / Sqft)
Store 1 Store 2 Store 3
(Rs / sqft/ mth) ( Rs / sqft/ mth) ( Rs / sqft/ mth)
Trading Area 2000 1500 3000

Revenue 1500 1200 1500

Retained Margin 450 420 450

Retain Margin % 30% 35% 30%

Opex 200 200 270

Store ebitda 250 220 180

Store ebitda % 16.6% 18.3% 12%

 Template model
• Benchmarks against the Industry
• Aligns with the Business Model
• Provides a tool to diagnose problems and
create solutions.
 Using the Template - Store Diagnostics
Store 1 (Rs / sqft/ TEMPLATE ( Rs / Store 2 ( Rs /
mth) sqft/ mth) sqft/ mth)
Trading Area 1500 2000 3000

Revenue 1500 1250 900

Retained Margin 450 450 315

Retain Margin % 30% 36% 35%

Opex 250 200 180

Store ebitda 200 250 135

Store ebitda % 13.3% 20.0% 15%

Store Diagnosis – Exercise -2
TEMPLATE Store
(Rs / sqft/ mth) (Rs / sqft/ mth)

Trading Area 3000 2800

Net Sales 1400 1200

Retained Margin 280 ?

Retain Margin % 20 % 22%

Opex 160 200

Store ebitda 120 ?

Store ebitda % 8.6 % ?

Store Diagnosis – Exercise -3
TEMPLATE Store
( Rs / sqft/ mth) ( Rs / sqft/ mth)

Trading Area 32000 30000

Net Sales 1400 1500

Retained Margin 280 ?

Retain Margin % 20 % 16%

Opex 160 200

Store ebitda 120 ?

Store ebitda % 8.6 % ?

 Store Diagnosis – Exercise -4
TEMPLATE ( Rs / Store ( Rs / sqft/
sqft/ mth) mth)

Trading Area 3000 2500

Net Sales 1400 1600

Retained Margin 280 256

Retain Margin % 20 % ?

Opex 160 ?

Store ebitda 120 76

Store ebitda % 8.6 % ?

BRAND WOODLAND BATA Local Brand

Trading Area 1000 1500 700

Net Revenue / sqft 1200 1200 1000
NOB * ABV = Daily Sales 30 *1300 = 39000 80* 700 = 120 * 200= 24000
56000
GM% 40 % 30 % 22 %
Retained GM / sqft 480 360 220
OPEX ( Rs / sqft )
Rent / Sqft 180 100 30
People 100 80 40
Power 20 20 10
Other Opex 30 30 10
Total Opex / sqft 330 230 90
Store Ebitda / sqft 150 130 130
Ebitda % 12 % 10.83 % 13 %
 Determinants of store ebitda
Item Determinants Linkages

Trading Area Size of store Location, Competition, role

of store
Nett Revenue Catchment and Footfalls, Conversion , ABV
Competition Marketing, Promotion,
Break up by Categories.
Retained Margin % Product Mix , Catchment, Sales Mix by Categories,
Pricing, Discounts Upselling, Deals,
Opex – Rent Location , Size, Negotiation Brand /Store concept,
Competition
Opex – Salary / Wages Nature of business, Labour Longevity of employees
market, HR practices
Opex – Others Design and Fit outs, Service Store concept
Standards.
Total Opex

Store Ebitda Driver of profitability Template model

Category Management : Getting the
Merchandise correct………..
 What is Quality of Merchandise
Saleability
• Physical Quality
• Right Price vs Other Merchandise (within and
other stores)
• Service
• Display
• Communication ( Actual vs the Promise)
• Promotion
 Type 1 and Type 2 Errors

TYPE 1 Error Type 2 Error

DEMAND No Yes

SUPPLY Yes No
 KVC/ KVI / OPP/ Price Laddering
• KVCs are categories that Consumers use to
“position the Brand” in terms of Value for Money

• KVIs are Items within these categories …….

• OPPs are “ opening price points” that consumers

use to get a sense of the VFM positioning.
 SKUs: Sales Diagnosis/ Analyses
• Not all Skus in a Category will be doing well at all times
• Diagnosis is to find out which SKUs are doing well and
which SKUs are not.

• What are the 2 most important parameters to ascertain

whether a particular sku is doing well or not?

Diagnosis metrics:

• How many people are buying ?

• How much are they buying?
• How much Profit do I earn ?
 Category / SKU:
Roles /Classification + Diagnosis
High Sales Value / GMROF

Niches Stars

Low Bill High Bill

Penetration Penetration

Traffic
Dogs Builder
s

Low Sales Value/ GMROF

 Inventory Classification
the GMROF imperative
High GMROF

Niches Stars

Low Bill Pen High Bill Pen

Traffic
Dogs Builder
s

Low GMROF
 SKU management
Inventory Stocking Norms Visibility Norms Reorder Norms
Category

NO OOS – High High Visibility – in

STARS Hot Spots & Cat High Frequency
Stock Levels Shelf

NICHES Med Stock Levels Med Visibility in Med Frequency

Cat Shelf

High Visibility in
TRAFFIC NO OOS – High Hot Spots & Cat High Frequency
BUILDERS Stock Levels Shelf

Stock Levels Low Visibility in Low Frequency /

DOGS depend on Shelf
Space Availability Cat Shelf Consider Delisting
 Churning the Merchandise
– No. of SKUs with Zero Sales in last 3 months as % of Total =
“LONG TAIL management”

– No. of SKUs that contribute to 80 % of Sales as % of Total No.

of SKUs = ABC Analyses

– No of SKUs that contribute to 80 % of Sales vs No. of SKUs

that contribute to 80 % of Inventory = Inventory Balancing

– Avg. Rev/ Unit vs Avg. Inventory Price / Unit = Price Mix

Balancing
 

OTHER FACTORS

DECIDING THE LEVEL OF

INVENTORY

268
 FACTORS DECIDING THE LEVEL OF INVENTORY

For each question below, which scenario will lead to higher inventory?

Question 1:
Scenario 1: Company “A” is ordering from the suppliers in the lot size of 1000
units

Scenario 2: company “B” is ordering in the lot size of 200 units

Question 2:
Scenario 1: Average monthly demand for Item X is 100 units, the demand is
more or less constant and predictable.

Scenario 2: Average monthly demand for Item X is 100 units, but the demand
fluctuate widely between 20 to 250 units and also highly unpredictable. 269
269
 FACTORS DECIDING THE LEVEL OF INVENTORY

For each question below, which scenario will lead to higher inventory?

Question 3:

Scenario 1: Supplier “S1” always deliver the ordered quantities on time

Scenario 2: Supplier “S2”delays on the delivery frequently

Question 4:

Scenario 1: Lead time for procurement for Item “A” is 1 week..

Scenario 2: Lead time for procurement for Item “B” is 1 month..

270
270
 FACTORS DECIDING THE LEVEL OF INVENTORY

For each question below, which scenario will lead to higher inventory?

Question 5:

Scenario 1: Company “A” has very good information systems. The data and
the reports on Sales, Inventory, Inventory-in-transit etc are available live to
the company managers and also the suppliers

Scenario 2: Company “B” has very poor information systems. The data and
the reports on Sales, Inventory, Inventory-in-transit etc are not available live
to the company managers and not to the suppliers

271
271
 OTHER FACTORS DECIDING THE LEVEL OF INVENTORY

Inventory is directly proportional to:

•Lot size

•Demand Uncertainties

•Supply Uncertainties

•Lead Time

•Poor Information Systems

272
272
 E - tailing

Class discussion
 E Tailing vs B&M Retailing
E Tailing B & M Retailing
 E Tailing vs B&M Retailing
E Tailing B & M Retailing
• Anytime Shopping • Location Specific
• Anywhere Shopping • Touch & Feel
• Variance • What you see is what you get
• Wait for Delivery • Instant Gratification
• Multiple payment methods • Range / Asst limited by space
• Access to very large Range &
• Good for Fast moving
Assortment = Choice
categories / SKUs
• Excellent for Long tail categories
(like Books and Music) • Service aspect is defined
• Better Prices better ( white goods/ returns
etc)
 B&M vs E - tailing : Ebitda
Item B&M Retailing E Tailing

Revenue Medium High

GM

GM % Medium Low ( sometimes Negative)

Opex:

Rent Med – High Low

Salaries Med Low

Logistics NA Medium – High

IT costs Negligible Medium

Inventory costs / NWC High ? Low ?

 Value proposition of an E tailer
Values they deliver: Issues they face:
 Value proposition of an E tailer
Values they deliver: Issues they face:
• Anytime , anywhere • What you see may not
shopping be what you get.......
•Wide Range and • Lack of “touch & feel”
Assortment • Delivery limited to
•Personalisation and coverage of fulfilment
customisation partners + Cost
•High on Offers and • Returns process
promotions
• Focus on VFM ?
•Many payment options
 As a Customer:
In what Situations / Categories will you prefer Etailing to B & M retailing?

• Situations:

• Categories:
 As a Customer:
In what situations will you prefer E -tailing to
B & M retailing?

• Covid 19
• Time pressure
• Gifting

Routine purchases – where there isn’t much involvement / decisions / service (Commodities or Strong brands.......Colgate, Dettol, Lux etc)

• In categories where there is No service : Packaged categories – Food / Non Food

• In categories with longer Shelf Life in Food ……..
• In categories where no need for Refrigeration

• In categories where there is Service :

More in those which are Box type categories ( Mobile phones, earphones / other accessories, costume jewellery, watches, footwear,
eyewear etc)

• Emerging categories:
–Apparel
–Home linen
–Furniture
–Financial services
–Education
 Trends in E tailing in India
• Categories that are trending well:
– Apparel
– Electronics (Mobile phones)
– Jewellery (lower end), footwear, eye wear, footwear, sport wear
– Food & Grocery (huge growth post Covid 19)

• Growth on the back of COD

• Growth on the back of Mobile Apps

• Growth from Tier 2 /3/4 towns with expansion in Delivery

Reach
 India: Potential of E tailing
• Goldman Sachs report of April 2015
• India will grow from $ 20 Billion $ 300
Billion by 2030.
• At that time India will be the 2nd largest
e - commerce market after China.
• E commerce will then be = 2.5 % of GDP
• E commerce evolving into a “Hyper- Local
On – demand market”.
 Online ticketing constituting 65% of the overall revenues.

INDUSTRY SNAP SHOT

283
283
 Online Market Place: Size
and Growth

•An online marketplace as a website which facilities commercial

transactions between buyers and sellers of a product/ service.

•Examples include eBay, Quikr, Snapdeal, Indiatimes, Rediff,

Homeshop18, Flipkart and Olx among others.

• This segment has a high failure rate as not many companies would be
able to attract sellers across regions selling diverse and quality products
to its customers.
284
284
ONLINE MARKET PLACE: OVERVIEW

285
285
 Online marketplace segment to witness highest growth due to entry
of players like Amazon and Flipkart

GROWTH COMPARISON OF DIFFERENT E-COMMERCE SEGMENTS

287
287
BUSINESS MODELS IN ONLINE RETAILING
Fulfillment Models in E tailing

288
288
 3 sourcing and stocking models in e-commerce: Drop
shipping model, On-demand
Fulfillment Modelssourcing model, Stocking
in E tailing
model.
Drop Shipping Model
•In this model, the retailer ties up with different manufacturers to display
their products on its website.
•After the customer places an order on the website, the retailer intimates the
•manufacturer/supplier for that product and the products are shipped by the
manufacturer.
•The online retailer does not incur any inventory holding costs.

On-demand Sourcing Model

•In the on-demand sourcing model, the retailer, on receiving an order from the
customer, gets the products from the manufacturer to its packaging center.
•Here, a quality check on the products is done and the products are packaged
uniformly and shipped to the customer.

Stocking Model
•In the stocking model, the retailer maintains warehouses and stocks all the
products displayed on its website.
•On receiving orders, the products are shipped immediately to the customer.
291
291
 Hybrid model balance the service quality and investment
requirements.

HYBRID MODEL OF FULFILLMENT

•In the real world, online retailers follow hybrid models consisting of
stocking for fast moving products and on demand sourcing for the
other products.
•For instance, in the case of books, an online retailer will maintain an
inventory of best sellers .
•Although, obscure titles may be displayed on the website, the retailer
would source them from the distributor/publisher only when an
order is received.
•Hybrid models thus ensure a balance between the service quality
offered and the quantum of investments required.
•The retailer would increase the percentage of stocking to improve
292
service quality
292 as the business grows.
 Growth Imperatives for an E tailer
• Build strong brand and connect by:
– Quality products
– Right price
– Deliver on Promise of service – delivery, installation, returns, feedback....etc
– Constant engagement

• Expand delivery footprint

• Expand payment options
• Expand range / assortment

• Run some CRM activity all the time /Remind your customer often:
– Analyse which consumer behaves in which manner and responds to which
trigger ???
 Hybrid models of Consumer Service and
Business
• Consumer Service models:
– Click and collect
– Try on at store
– My Fit
– “Hot or Not” Poll
– Deliver to home

• Business Models:

– How can Online be a partner to the other channels ?

– How can Online aid in the consumer decision making process?

– How can Online help in consumer connect ?

 The Click & Mortar Model
• Hybrid model:
• Takes a look at the customer Decision Making
process.
• Figures out how can the customer be best served
(in each step of the process) – In person / online
• Uses an optimal Mix of Online + Physical
engagement:
– E.g. Tesco
Tesco Models

OrderingOnline

Self + Store
Picking
Staff
Store Staff

Door
Self- Pick up
Delivery
Delivery
from Local
from Local
store
store
Why Mobile App-only?

298
Why mobile-app only?

• Advancement in new applications for APP

• Many new and advanced features are being developed for app. It will be difficult and
costly to provide the same features in websites.
• Most e-commerce companies (like Amazon) first develop new applications for their app
and then adapt it to website. Over a period of time this will increase cost

•Exclusivity of customer information

• If the customer is in the web, his browsing information is accessible to other companies but
not so in mobile-app

• Customers cannot compare the company’s offerings with that of others

299
 Some other matters……..
• Social media Marketing

• The Valuation game…..

• Retail Consolidation

• BOP models

• Omni channel approach

 Social media Marketing
• Is this the next paradigm?

• Is this an option or an imperative?

• The Media is a Double edged knife –which

cuts both ways.

• United breaks Guitars

 Jabong – ET 7th May 2015
Item 2013 2014

Sales (GMV) Rs Cr 511.4 1320.6

Revenue ? ( Rs Cr) 344 811
Money burnt to get Re 1.00 of 1.68 1.55
sales
COGS 578 1265
Ebitda loss ( Rs Cr) 234 454
Loss ? ( Rs Cr) 32 160
No of Orders ( NOB) in 2.6 5.9
Millions
ABV (Rs) 1966 2238

Flipkart acquired Jabong through Myntra at an Enterprise valuation of $70 Million ( Rs 500Cr
in 2016
 Consolidation: Bharti Retail – Big Bazaar
merger
• Bharti Retail splits from Walmart
• Bharti Retail Valued at Rs 500 Cr (+ 1800 Cr
accumulated losses + Zero Debt)
• Bharti’s Mittal to get 9 % of Merged entity now +
debentures to take up to 15 % in Future Retail (valued
at Rs 5000 Cr)
• What does Big Bazaar get:
– 1.4 Million sqft of front end retail
– 200 stores across 77 New cities
– Turnover of Rs 2000 Cr
– 1200 stores to market the Airtel brand
 Walmart & Flipkart merge……
• Flipkart said its wholesale unit will acquire parent Walmart’s loss-
ridden cash-and-carry business in India, Best Price, marking a
consolidation of the American major’s entire retail portfolio in the
country. The deal, announced on Thursday, clears the decks for
Flipkart to expand its business-to-business vertical and take the fight
to rivals Amazon and Reliance JioMart in the race to woo the legions
of small retailers across the country.

Bengaluru-headquartered Flipkart-- which was acquired by Walmart

for $16 Billion in 2018……..

• September 2020
 The battleground of the Future : Offline + Online

• Bharti
Merge • Reliance
Retail • Bharti BB • Amazon
• Big Bazaar • Reliance

Merge Talks

Buys
• Flipkart into • Flipkart
• Myntra • Walmart • Best Price
• Jabong • Flipkart
Buys
Merge
into
 BOP & Rural Models
• Issues:
– Lack of infrastructure to stock and sell
– Lack of investment to stock
– Lack of trust of New people
– Needs are different and scattered (density of
demand is low)
– Back freight is very expensive = Needs to be 1st
time correct
 First Online Haat bazaar; Internet connected Kiosk support:
For Rural consumers to do Online shopping with the ease of Product deliveries
• Retails white / brown goods ( TVs, Refrigerators, Air-conditioners, mobiles etc) in rural markets of
Population < 25000.

• Appoints an Agent in each village. Agent is equipped with a KIOSK which contians a computer,
connectivity, registered ID & PW and an e wallet facility.

• Products are all displayed on the website for consumers to see and choose from. The site is a
B2B2C site which transacts with registered Agents only.

• Agent places order on website:

– Places order (on behalf of the consumer with address etc) when there is a concrete demand from the
consumer
– When the consumer has paid an advance / in full
– Dealer pays through an e wallet in full

• Merahaat recovers full payment including freight in advance before shipment.

• Shipment made to Agent who collects and does the “last mile” (delivery , installation, warranty,
etc)for the margin he receives from merahaat.
 The solution
Issue Solution / work around
Lack of infrastructure to stock Online shopping by consumer
and sell
Lack of investment to stock Virtual inventory
Lack of trust towards outsiders Local Agent is the front end
and stands guarantee
Back freight is expensive Order sent only after payment

Freight is expensive Freight is charged for

Needs are scattered Website suits this low density
 Closing perspectives…..
• Omni Channel retailing is here to stay.

• The use of AR/ VR/ AI in retailing will only

increase

• To use these channels & technologies to

augment / differentiate/ segment the offering
will be the imperative…….
Franchising
 Franchising
• What is Franchising?

• How many parties are involved?

 Franchising
• What is Franchising?
• The licensing of the Brand and Business system to unrelated parties for
mutual profit....

• How many parties are involved?

• FranchiSOR ( the entity that gives the Franchise)

• FranchiSEE ( the entity that gets the Franchise)

• Types of Franchising:
– Master Franchise
• Sub Franchise
– Franchise
 Why Franchising
• Franchisor:
• Aggressive Growth mind set
• Lower finance requirement
• Willing to explore unknown geographies

• Franchisee:
• Lower Risk of business and brand
• More stable returns (although a bit lower)
• Prestige and Status
 Prerequisites:

• Franchisor:
• Established Brand and Business system
• Growing business
• SOPs in all areas
• Adequate Ebitda to share

• Franchisee:
• Good Location
• Local contacts
• Finance
• Management Band width
 Franchise Agreements
• Geographic Limitation
• Time Limitation
• Development schedule

• Rights of the Franchisor:

• Data and systems
• Inspection
• Brand and usage

• Fees:
• One time Franchise Fee
• Store opening Fee
• Royalty ( 4 -8%)
• Marketing fund contribution ( 1-3 %)
• Transfer Pricing
 Types of Franchising
• COCO = Company Owned Company Operated
• COFO
• FOCO
• FOFO = Franchisee Owned Franchisee Operated
• Tenant mix refers to the combination of
business establishments occupying space in a
shopping mall to form a platform that
produces optimum sales, rents, service to the
community and ability to finance the
shopping mall venture