Fashion Retail Management

INDEX
Introduction : FRM Page # 1
Store Page # 51
Retailing Strategy Page # 97
Merchandise Planning Page # 118
Retail Maths Page # 168
Loss Prevention Page # 185
RFID Page # 206
FDI in Retail Page # 226

vasantkothari@gmail.com 1

Retail

Retail is derived from the French
word retaillier, meaning to cut
a piece off or to break bulk.


Retailing
All the business activities
necessary to sell goods and
services to the final consumer.
The final stage in the flow of
merchandise from producer to
consumer.

Global Retail Scene - Snapshot
Global retail market est. at US$ 7 trillion
US employs 22 million and is worth US 3 trillion
Country Organized Unorganized Size
% % (in US$)
India 3.50 96.50 200 bil
China 15.00 85.00 325 bil
Indonesia 30.00 70.00 75 bil
Thailand 60.00 40.00 32 bil


Top 10 Retailers World Wide


Prominent Players - International
Walmart - USA Sears-Kmart - USA
Target - USA JC Penny - USA
Carrefour - France IKEA - Sweden
Kroger - USA H&M - Sweden
Tesco - UK M&S - UK
Ahold - Netherland McDonald’s - USA
Sainsbury - UK Zara - Spain
Metro - Germany 7 Eleven - USA


Indian Retail Market
Total retail market est. at Rs.1,000,000 cr. ’05
Employs over 8% of national workforce
Organized retail contributes only 3.5 % or
Rs.35,000 cr.
Estimated to grow to Rs.110,000 cr by 2010
Investment in retail sector to touch Rs.15,000 cr
Total outlets 55,00,000
Per capita retail space 2.5 sft
96 % outlets are <500sft
Online Shopping grown to Rs.1180 cr in ’05

Prominent Players - lndian
Big Bazaar Westside
Giant Bata
Foodworld Bennetton
Food Bazaar Adidas
Pantaloon Barista
Shoppers Stop Café Coffee Day
Lifestyle Planet M
Musicworld


Where is it Happening ?
Delhi/NCR by 2007 50 Malls 22 mil sft
Mumbai by 2007 42 Malls 19 mil sft
B’lore by 2007 14 Malls 6 mil sft
Kolkata by 2007 13 Malls 4 mil sft
Chennai
Chandigarh
Hyderabad


Retail Environment in India
Absence of proper Town Planning
Poor infrastructure – water, roads, power,
communication, waste
Multiple mandatory / govt agencies to cope with
Real estate market exhorbitant & not organized
Poor national supply chain – quality ,
commitments , productivity, temperature, ancient
practices
Shortage of skilled manpower at all levels.


TEXTILE
BOMBAY DYEING
S KUMARS
RAYMOND
GRASIM


FOOD
FOODWORLD
NILGIRIS
SUBIKSHA
HALDIRAM’s


MUSIC
PLANET M
MUSIC WORLD
FAST FORWARD
GROOVE


BOOKS
CROSSWORD
HIGGINBOTHAMS
SAPNA
GANGARAMS
NAVNEET


CONSUMER DURABLES
VGP
VIVEKS
GIRIA’S
PAI
NEXT


GARMENTS
SHOPPERS STOP
LIFESTYLE
PLANET FASHION
PANTALOONS
GLOBUS


SPORTSWEAR
NIKE
REEBOK
BATA
ADIDAS


KEY INSIGHTS
6 million retail establishments in India
6.6 % urban adults are shop owners
8-10% adults employed in retailing
15-20% of work force employed in retail sector
Total retail trade in india-7 lakh crore to 8 lakh
crore or $180 billion
Organised retailing – 13,300 crore growing by
28% per annum.


THE INDIAN CONSUMER
India’s GDP among highest
Purchasing power parity- 4th largest economy
Second populous nation
I/6th of the gobal population is in india
Increased house hold incomes
Socio-economic classification-
70-80% lies in low, middle class
20-30% account for the high purchasing
power

URBANISATION
Towns with population of 10 lakh + increased
Traffic congestion/parking
One stop shop -choice


CONSUMERISM
Media-cable TV
Exposure to new ideas/desires fuel consumer
demand
Aspirations of consumers


BRAND PROFUSION
Explosion of brands in each sector
Size variations of packs
Many respectable brands in world has operations
in India
Need for shelf space to accommodate –growth of
retail


TIME USAGE
< 2 hrs per week
Women spend more time
Socialising-liesure time-clubs
17% non-grocery shoppers eat out
24% grocery shoppers do grocery shopping side
by side
43% meet friends for going non-grocery shopping


RETAILING FORMAT IN INDIA
Malls:
Ranges from 60,000 sq ft to 7,00,000 sq ft
and above. Examples include Shoppers Stop,
Pantaloon.
Specialty Stores:
Chains such as the Bangalore based Kids
Kemp, the Mumbai books retailer Crossword,
RPG's Music World and the Times Group's music
chain Planet M.

Discount Stores:
As the name suggests, discount stores or factory
outlets, offer discounts on the MRP through selling in
bulk reaching economies of scale or excess stock left
over at the season.
Department Stores:
Large stores ranging from 20000-50000 sq. ft, catering
to a variety of consumer needs. Further classified into
localized departments such as clothing, toys, home,
groceries, etc.


Hyper marts/Supermarkets:
Large self-service outlets, catering to varied
shopper needs are termed as Supermarkets. These
are located in or near residential high streets.
Convenience Stores:
These are relatively small stores 400-2,000 sq.
feet located near residential areas.
MBO’s:
Multi Brand outlets, also known as Category
Killers, offer several brands across a single product
category. These usually do well in busy market
places and Metros.

Wheel of Retailing - Evolution
Starts with low price & service
Attempt to attract additional TG, raise prices,
change product / pricing mix & format, better
locations, makeover & refixturing
Trading up leads to higher cost higher price
New low price retailers enter & threatens
existence


Achieved Target:-
Successfully reestablished its place in the
market, with opening 22 stores.
Higher development – In fact the highest of
all segments and categories.
Enhanced brand image from small to huge
format flagship.


Wishes
People should enhance living standard, moving to
mono-brand from multi-brand outlets.
Excellent training and salaries to sales staff and be
more mass-oriented.
Expand in 5 lakh plus towns, providing similar buying
experience.
Looking for continues support from the consumers
and to emerge as fastest evolving brand.
To enhance team’s performance in coming years.


Achieved targets:-
Take a lead in the dress-up segment that
features dressing for occasion, success etc in
trousers, and also in men's suits.
Concentrated on top around 70 MBOs and
trying to deliver better.
Enhancing perform of team – planning to
establish systems to make them more
productive and glad.


Wishes:-
To implement system for on-time deliveries.
To put scissors on product assortment in
terms of the number of styles – which will led
company to serve better to fewer customers.
Excellent outsourcing with making dedicated
team to take care of it.


Achieved Targets:-
In a span of less than two years, Daks brand
has been successful to hit the Indian market
despite of being a foreign brand.
Managed tie-up arrangements for
manufacturing Daks brand in India and Central
Europe.
Also signed agreements for Trussardi and
Savile Row.


Wishes:-
To be a front runner in the Indian apparel
market.
To add 25 more stores.
Allure entire high-end women class to wear
Trussardi.
Enhance sales staff performance.


Achieved Targets:-
Signed agreement with Reliance
Signed license agreement for its kidswear
brand ‘Levi's Sykes’.
Increased production capacities at Daman
and Baddi.


Wishes:-
To get recognition as global brand in the
international market.
To create a different brand identity for all in
related segments.
Establish entire lifestyle stores for kids,
under the brand Gini & Jony
Pull down custom duties on accessories and
fabrics etc.


Achieved Targets:-
Expanded product assortment mix and added
knits, which was entirely woven product base
before.
Arranged tie-ups with some global brands,
such as J Jill, Tommy Hilfiger, Hugo Boss and
Marks & Spencer.
Increased capacity to attain a 40% growth
rate comparing to the previous year.


Wishes:-
To work close with fashion institutes like NIFT
to revise and develop fashion trends.
To introduce a brand, which is competitive,
enduring and reliable product.
To introduce specialized product assortment,
featuring all-weather conditioner and change
character consequently to match the consumer
demands.
To develop a stage where high-tech technology
is available to small and medium scale producers
so that they can enhance quality standards.

Achieved Targets
Started Asset Management Companies.
Launched Big Bazaars in remote towns like Sangli.
Wishes:-
Reaching a target business of two and a half
thousand crores in 2006-07 fiscal.
Identify and present the consumers’ fashion
requirement.
Dominate the in all fashion segments like
lifestyle, premium and value.
Introduce or acquire new brands in fashion.
To rope-in best fashion industry veterans.

Achieved Targets:-
Emerged steadily in the market – launched
stores at Ahmedabad and Ludhiana, and
planning three more in coming months.
Introduced new brand “Trumart” with three
stores in Mumbai and four in Pune.
The IPO got oversubscribed by nearly 12
times that generated about Rs 108 crore.


Wishes:-
To Launch FDI for least lifestyle retail, this will lead
Indian fashion designers to think globally.
Create enhanced retail space for high-end retail.
To make Fashion Alliance more practical and a reality
to make sure that it gains momentum.
To make fashion more affordable with a better
ambience.


Achieved Targets:-
Launched EBOs for all brands.
Successfully introduced new product
assortment such as non-iron shirt in Park
Avenue and new suit ranges to uphold brand
image.
Also introduced the womenswear and
kidswear collection


Wishes:-
To launch a magazine on fashion.
Begin a fashion week.
Expand in US market.
To launch a website that talks about lifestyle
and fashion.


Sports Station
Achieved Targets:-
Successfully introduced two brands: H2O Plus
and CPS Clothing.
In a move to concentrate on expansion and
new concepts for brands, the company has
signed agreements with global brands such as
Nike and Levi's.
Launched MBO for leather shoes “Shoe Tree.”


Sports Station
Wishes:-
To present new concept, where both international
and local brands can be presented under single roof.
Expand product assortment in luxury, premium and
affordable segments.
Duty validation, especially in footwear which is at a
12.5 % as compared to apparel which is at only 4 %.
Validating countervailing duty (CVD) which is at of 60
%.


Store Location
The three keys to retail success --
location,
location &
location


Store Location
The location of stores is a key concern to any
retail organization ... whether it's your first store
or your one hundredth.
Spending time and money wisely in the process
of site selection is critical.
Newcomers to retail often open shop in a
location simply because it is the only vacant space
within a stone’s throw of their home or office.


How does one go about selecting a
location for a store?
What kind of store are you planning?
What kind of merchandise will you be selling, at
what prices and to whom?
What is the store offering customers in price,
service, and convenience?
What are the company's financial capabilities?
Understanding company's image and restraints
will be helpful in limiting the number of site
choices.

Store Location
Options
High Street
Destination Location
Convenience Location
Carts
Kiosks
Retail Merchandising Units.
Tall Wall Units


Selecting A Retail Location
Developing the location plan requires a careful
study of potential markets.
Market assessment begins by examining all
regions or metropolitan areas, then choosing the
one that appears to offer the greatest potential.
Such a process is known as market selection.


Choices must then be made within the selected
region or city.
An analysis of the different sub-areas, or trading
areas, of a city is then conducted.
Finally, separate site analyses and evaluations
must be made.
At this stage, management assesses the cost of
land or rents, construction costs, traffic flow, etc.
Note that each step in this process is a
refinement of the previous one.


Market Analysis

Trading Area Analysis

Site Analysis


Market Analysis
During the process of market selection,
management evaluates a variety of fact ors in the
target regions.
These include demographics, economic
characteristics, the competitive environment, and
the overall potential of the area.
Population Characteristics
Total size
Age and income distribution
Growth trends
Education levels 59
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Market Analysis
Labour Availability
Availability of management candidates
Wage levels
Unions
Media Mix Issues
Type of media coverage
Media overlap
Costs


Market Analysis
Economic Characteristics
Number and types of industry
Dominant industry
Growth projections
Financial base
Competitive Characteristics
Saturation level
Number and size of competition
Competitive growth trends

Market Analysis
Location Characteristics
Number and type of locations
Costs
Access to customers
Regulation Characteristics
Taxes
Licensing
Zoning restrictions


Index of Retail Saturation (IRS)
One of the more commonly used measures of
market attractiveness is the Index of Retail
Saturation (IRS).
This index is based on the assumption that if a
market has a low level of retail saturation, the
likelihood of success is higher.
In the following formula, a higher IRS indicates a
lower level of saturation, thereby increasing the
likelihood of retail success.


The trading area analysis takes place after
management has selected a specific geographic
region or section of a city as a possible retail
location.
“Trading area” refers to the local geography
from which a store attracts the majority of its
customers.


This territory is sometimes broken down into the
“primary trading area”, which includes the
majority of customers living within a certain range
of the store and having the highest per capita
sales; and the “secondary trading area”, which
includes almost all of the customers situated
outside the primary area.
A typical shopping center may have a primary
area that includes 75,000 customers within a five
minute drive, and a secondary area housing
150,000 customers within 30 minutes.

License Plate Analysis
One of the most common methods of measuring
a trading area with comparable stores is called
auto license plate analysis.
The license plate numbers of cars in the area
under consideration are recorded and cross-
referenced with public records to get their
registration addresses.
By plotting these addresses on a map, you can
get a good feel for the general nature of the area.


Population Characteristics
Population characteristics are even more critical
when evaluating a trading area.
As in the larger market analysis, you must
understand such features as the population profile,
density and growth trends in the target area.
Variables such as gender, occupation, education,
age, family size and ethnic breakdown are also
important.
If you sell young children's clothes, you’ll want to
know the number of local preschoolers.
A craft store, on the other hand, will want
information about seniors. 67

Potential Sales In A Trading Area
With the right data, you can forecast your
potential sales in the trading area. Use this
formula:
Number of households in the trading area X Dollars
per household spent on your product category
= Total market size
Total market size X Your % share of the market
= Your potential sales


Site Analysis
Site analysis and evaluation is the third and final
step in the selection of a retail location. As a
retailer, you have three basic choices for a site:
Shopping centers/malls
Downtown core
Free-standing location
The following chart highlights the strengths and
weaknesses of these sites.
Location Type
Potential Advantage
Potential Disadvantage 69

Choosing A Shopping Center
Sales Per Square Foot
Total Rent
Cost Per Shopper Analysis
Responsiveness of the Landlord


Sales Per Square Foot
Most shopping centers require tenants to report
monthly sales figures.
This valuable data makes it easier to compare
malls and their rents.
It also allows you to make more accurate sales
forecasts.
For example, let’s say a mall’s average sales for
women’s wear are $300 per square foot and you
are contemplating renting a 1000 square foot
location. If you perform to the average, you would
expect to attain a sales level of $300,000 per year.

Total Rent
Traditionally, malls will charge a minimum rent
per square foot or a percentage of sales
(whichever is greatest), plus a pro-rated common
area and maintenance charge (CAM) per square
foot leased.
CAM expenses are the developer's total cost of
maintaining the mall divided by the total
allowable space for rent.
They usually include the mall's expenses for
insurance, real estate taxes, snow removal,
maintenance staff wages, garbage removal,
promotions, etc. 73

The landlord is asking $30 per square foot, or 6%
of sales, plus CAM charges of $15 per square foot.
Answer the following:
What would the minimum rent be for a
1000 square foot store?
What level of sales would you have to
achieve before you start paying the 6%
overage?
As a percentage of sales, what is your
occupancy cost for a store that does
$300,000 in this example?


What would the minimum rent be for a 1000
square foot store?

Rent Per Year = (Base rent + CAM Charges) x Sq.
Feet
= ($30 + $15) x 1000
= $45,000


What level of sales would you have to
achieve before you start paying the 6%
overage?
This is known as the “break point”.
Break point = Base rent x Square footage
Overage percent
= $30.00 x 1000
6%
= $500,000


As a percentage of sales, what is your
occupancy cost for a store that does $300,000
in this example?

Occupancy % = Total Yearly Rent
Total Yearly Sales
= $45,000
$300,000
= 15%


How Much Rent Can You Afford To Pay?


Based on the above table of occupancy cost, we
see that a typical fashion store with an ending
gross margin of 40% to 50% of sales should have a
maximum rent threshold of 14%.
This means that, with annual sales of $300,000,
the most it should pay for rent is $42,000 per year
($300,000 x 14%). To stay within budget,
management must therefore negotiate a base rent
of $27 per sq. ft.
Base Rent = $42,000 - $15,000
Base Rent = $42,000sq.$15,000 CAM = $27 per sq. ft.
CAM = $27 per - ft.
1000 sq. ft. 1000 sq. ft.


Cost Per Shopper Analysis
One approach to determining the true “cost” of
a location is to calculate the “cost per shopper”.
The key here is to determine whether the traffic
created at a particular site consists of your target
customers or a more general customer base.


Location “A” “B”
Fixed rent per year $17,000 $45,000
+ Overhead $ 1,000 $ 2,000
+ Advertising $ 9,000 $ 3,000
Total Costs $27,000 $50,000
Traffic per Year 150,000 600,000
Cost per shopper $0.18 $0.083

As you can see in this example, even though the
rent at Location B is considerably higher than
Location A, it is significantly more efficient.


Responsiveness of the Landlord
Directly related to the appearance of a retail
location is the responsiveness of the landlord to
the individual merchant’s needs.
Unfortunately, some landlords actually hinder
the operation of their tenants' business by
restricting the placement and size of signs, renting
adjacent spaces to incompatible or directly
competing stores, and forgoing maintenance and
repairs.
By these actions, landlords can cripple a
retailer’s attempts to increase business.

Store Format
Conventional supermarkets
Self service food store
Groceries, meat, other products
Limited health, beauty, general merchandise
Low ad cost
Every day low pricing


Store Format
Convenience store
3000-8000 sq ft
Limited variety / assortment of general
merchandise
Prices higher than super markets
For convenience/
Quick purchases


Store Format
Big box food retailers
Super stores
Large super markets
20,000 to 50,000 sq ft
Combination stores
Food based retailers
30,000 to 100,000 sq ft
Non food items like flowers, health care,
beauty aids, utensils, etc., Account for 25%
sales

Store Format
Warehouse type stores
Discount food retailers
No- frills environment
Low prices
Less / no service / ambience
Merchandise is bought at special deals
One size and one brand per item
Same size and brand may not be available
next time

International General
Merchandise Retailing
Specialty Stores
Department Stores
Specialty Department Stores
Discount Stores


Specialty Stores
Concentrates on limited no. Of merchandise
High level of service
Area less than 8000 sq ft
Better selection
Sales expertise
Niche markets-wider assortment


Department Stores
Broad variety deeper assortment
Organised separate departments
Considerable service
Sales person to assist
Point of sales terminal to transact
Higher priced due to –
High costs of fashionable merchandise
High level of service
Personel selling
Major tenants of malls
Liberal spending on visual merchandising

Specialty Department Stores
Department store format
Focus mainly on apparel
Promotion stores
speciality department stores that sells
substantial portion of its merchandise on
weekly promotions
Concessionaires
Leased area in department stores


Discount Stores
Full line discounter
Category specialists
Home improvement centres
Warehouse clubs
Off price retailers
Catalogue showrooms


A successful retail store is nothing
more than a series of well
connected and thought out plans,
ideas and processes.


Creating Strategy
The retail marketplace has fast become the
domain of those who know how to use core
strengths to dominate. Successful retail strategies
are based on four primary areas:
1) Product Selection
2) Convenience
3) Shopping Experience
4) Price


Product Selection
To dominate marketplace based on Product
Selection, one must have either the largest and
widest selection of a product category imaginable
(think Home Depot), or merchandise that is so
unique people will seek you out (think Build-A-
Bear Workshop).
The reality is that very few retailers have the
resources to dominate the market based on a vast
product assortment.


It requires a tremendous amount of retail space,
and even more financial resources. As well, the
market continues to sub-divide and become more
specialized.
You need to determine where your product
selection fits on this scale:

Convenient Competitive Dominant

If the majority of consumers think of your store
first when they’re interested in your product
category, then you are the dominant player based
on Product Selection.

Convenience
Many retailers establish their position in the
market based primarily on their Convenience
(think of convenience stores and many
pharmacies).
Convenience is achieved predominantly through
one of three avenues:
Location
Hours
Mass Assortment


Shopping Experience
Let’s face it ... most retail shopping experiences
are boring.
This strategy involves the creation of a shopping
experience that is not only positive, but (more
importantly) memorable.
It encourages word-of-mouth marketing.
Numerous retailers have created successful
concepts based on Shopping Experience.


Shopping Experience
Your Shopping Experience strategy will be
driven by two important factors:
A unique, exciting and inspiring store
environment.
Staff that provide exceptional entertainment
and service.


Price
It’s pretty tough to achieve dominance in this
area, but being the price leader is still a valid
strategy.
However, don’t just think about being the low-
price leader. The other end of the pricing
spectrum also presents an opportunity (albeit a
narrow and risky one).

Low-price leader High End


Product, Convenience, Shopping Experience and
Price ... in your marketplace, are you the very
best in one of these areas?
If you don’t dominate at least one and perform
well in another, you probably aren’t having the
success you need or want.
Let’s examine the components of store’s
strategy and discuss how you can become a store
“worth shopping at”.


Location
Store location is an essential element of
retailing strategy. For years, experts argued that
the three most aspects of any retail business
were:
Location
Location
Location


Merchandising
Merchandising drives the core retail business.
If you don't have a handle on merchandising
strategy, then you're out of the game already.
To quickly summarize strategy options, consider
the following choices:
Low-price leader versus Higher prices.
Narrow, highly specialized product focus
versus Broader, more general assortment.
Basic, standard items versus Unique, leading
edge selection.


Pricing
All retailers have a basic philosophy about how
to price their products.
What is more important is that they create and
stick to a pricing strategy that conveys a clear
message to the consumer.
The market has certainly developed a need for
all retailers (even those at the higher end) to
become more value-oriented.


Pricing
Here are some examples of value-pricing
strategies:
Frequent Shopper programs
Regular pricing, frequently "on sale"
Added values
Value lines
Everyday low price
Price guarantees


Personnel
Retail is a business that is built on the skills,
abilities, attitudes, commitment and dreams of
people.
Personnel strategy will greatly influence success
in this area.
Training is always a key issue, but it rarely gets
the attention it deserves.
Pay and incentives play a major role in your
personnel strategy.
In developing competitive strategy, remember
that one must strive to maximize sales and profits
every area of business.

Promotion
Running the advertising and promotion element
just by seating is a route to disaster.
By developing a proper and well thought out
promotion strategy, you can begin to gain control
over your marketplace and the message you are
sending to your target customers.


Service
You must determine the level of personal
service you want to provide in your business. Here
are your options:
Are you a full service store where the
customer is pampered?
Are you a completely self-serve store where
customers are left to fend for themselves?
Or, are you somewhere in between?


Setting Goals
People are goal-driven creatures. Give them an
objective they can identify with and want to
achieve, then stand back and watch them work.
This is equally true in the retail world.
In setting goals for retail business, one should
consider the following:
The Owner’s Personal Quality of Life
Sales
Profits
Customer Satisfaction
Suppliers
Employees
Image and Positioning

Defining Target Customer
Trying to satisfy the entire marketplace results
in no one group ever being truly satisfied.
One need to determine who is "best" customer
group. This is known as Target Customer.
That is not to say you won't have secondary
consumer markets you will sell to, but rather that
you need to build your store around your target
customer profile.
In the absence of such a target customer,
strategies become weak, misguided and ultimately
fail. 115

Watching The Trends
Uncontrollable trends do affect Retail business
and there is nothing any one can do about them.
However, what one can do is be aware of them
and make plans for any changes they may create.
By keeping an eye on these external events,
anyone can often discover new opportunities
ahead of the competition, or at least avoid
significant economic loss from negative
consequences.
Consumers Government Policy
Technology Competition
Industry Economy

The Internet And Retail
Retailers are currently using the internet for a
variety of functions, including:
Communication with suppliers.
Communication with customers.
Banking/electronic funds transfer.
Purchasing goods and services online.
Selling goods and services online.


Merchandise Planning is "A
systematic approach. It is aimed at
maximising return on investment,
through planning sales and
inventory in order to increase
profitability. It does this by
maximising sales potential and
minimising losses from mark -
downs and stock - outs."

It is a "systematic approach" in many
ways.
Need the systems to ensure that one
must have the right people, the right
processes and the right computerised
support.


It is "aimed at maximising return on
investment“.
Most obviously we are talking about a
financial outlay in stock, but less evidently
there is also considerable financial
investment in retail space, people and
corporate infrastructure.


Achieve the goals "through planning sales
and inventory".
These two elements are inextricably
linked and finding an optimum balance is
the key to retail success. We need to
balance carefully the requirement to
support sales with the constraints and
tensions imposed by store layouts and
warehousing and transportation issues.


We put the effort into Merchandise Planning
"in order to increase profitability".
Profitability is the key driver of most
businesses. Effective merchandise planning
delivers margin increases directly to the
bottom line.


We achieve the increase in profitability "by
maximising sales potential and minimising
losses from mark - downs and stock - outs".
There are two major areas of profit
leakage in retail. Firstly lost sales resulting
from lack of stock and secondly forced
margin reductions due to excessive stock.


A typical retail clothing business will lose about
15% of its turnover in markdown and perhaps 10%
due to lost sales.
If we assume a turnover of $100 million, then
we are looking at a loss of $25 million here.
Reducing each of these figures by 1%, adds $2
million to the bottom line.
What is equally important it that this profit
increase can be delivered in a sustained way.
That is "Merchandise Planning".


In creating a holistic system it is helpful to
realise that we can split the planning process into
four logical sections
Review
Merchandise planning
Range planning
Space planning


Review
The review process consists of two separate
activities.
Firstly carry out a Pre-Season Review of
performance history to identify opportunities and
problems.
Secondly "normalise" it. Normalisation is the
process of looking at history and ironing out the
"bumps" to make it useful as a basis for planning.


Merchandise Planning
The first element in the merchandise plan is the
Strategic Plan.
This is normally high level, with perhaps a five
year timescale.
It is used to set the critical success factors for
merchandising in terms of sales, margins & stocks.
Next is to create a Channel Sales Budget. This
would allow us to take into account the effect of
new channels, new stores, closures and refits.


Merchandise Planning
Once complete we would create a Category
Level Margin Plan.
Here we are creating a weekly version of the
strategic plan at category level for sales, margins
and markdowns.


Range Planning
In Assortment Plan, break down the goals of the
merchandise plan into specific lines, or sometimes
SKUs.
In Distribution Planning, the lines that are
planed are given a distribution profile. From this
we should be able to see both which stores a line
is ranged to, and which lines a given store will
receive. The link between available physical space
and ranging done here is a key determinant of
merchandise performance.

Space Planning
Space planning systems can be split into two
types - numeric and visual.
Numeric planning systems simply allow users to
take account of space available and to calculate
ratios like return on space.
Visual systems allow users to create 3
dimensional walk-through models of the stores and
to preview the look of a store once ranging
decisions have been made.


Open to Buy
An Open to Buy control system uses planned
sales forecasts and stock turn requirements to
determine the optimum level of stock required.
In fact, given the extended lead times between
order and receipt in fashion merchandise, this
might more properly have been called an Open to
Receive, as it really shows the amount of
merchandise still required for intake in the given
period.


The stock turn requirement is normally
expressed in terms of Weeks Forward Sales Cover.
Weeks Forward Sales Cover means the number
of weeks' future sales that we need to keep in
stock.
There is a direct link between Weeks Cover and
Annual Stock-turn.
For example 26 weeks cover is equal to an
Annual Stock-turn of 2 in a 52 week year.
As some systems are based on periodic or
monthly data one must see the terms Periods
Cover or Months Cover used.

Open to Buy systems normally operate using a
flow calculation. This is also known as a "ladder
plan".
This is shown in the following simple, unit-
based, example where the Closing Stock for the
first period is a result of adding the Opening
Stock, On Order and Open to Buy, and then
subtracting the Forecast Sales.
This closing stock then becomes the opening
stock for period two and so on.


Period 1 2 3 4 5 6
Opening
Stock 200 500 450 350 300 300
Forecast
Sales 100 150 200 150 100 100
Periods
Forward 3 3 3 3 3 3
Cover
Closing
Stock 500 450 350 300 300 300
Reqd
Intake
Reqd 400 100 100 100 100 100
On Order 200 100
OTB
Remaining 200 0 100 100 100 100
Closing
Stock 500 450 350 300 300 300


Dollar Plan
or
6 month
Merchandising Plan


The goal of a business plan is to minimise the
use of capital and maximise profits. The
merchandise plan is one of the most important
“tools” to support this effort.
The merchandise plan consists of 2 major
elements.
An estimate of merchandise needed.
A control method to regulate stock levels.


Larger the organisation, greater the need to plan.
Dollar Plan is also known as 6 months
merchandise plans. This is because we generally do
merchandise planning for 2 different periods.
Feb to July
Aug to Jan.

These periods are divided in this way because
each of these period contains 2 major related
seasons – Spring, Summer & Autumn, Winter


Dollar Plan & Control
Dollar plan is actually a budget which balances
planned sales and planned stocks in terms of
dollars. It also includes standards, if achieved,
which would result in a planned profit”
“ The Control feature is known as the open-to-
buy i.e. the dollars that a buyer may spend for
delivery of good within a period.


Dollar Plan & Control
Dollar Planning and Control consists of:
A prediction of customer demand for each
month of the plan.
An estimate of the inventory need for each
month of the plan.
The maintenance of planned inventory levels
by means of a control feature.


Elements of the Dollar Plan
Planned Sales – estimates for each month and
the period.
Planned Stock – estimated inventory need at the
beginning of each month.
Planned Markdowns – estimated inventory
reductions for each month
Planned Purchases – estimated purchase budget
to be spent during a given period.


Since a plan is also a set of financial goals.
It may include planned figures for:
Workroom Cost – cost of alterations and repairs
of garments that are charged to a department.
Cash discounts – percentage of the period’s cost
purchases (discounts earned through early or
prepayment of accounts payable) the ratio is a
percentage of net sales.
Season Stock Turnover – net sakes divided by the
average inventory.

Shortage – Difference between book inventory at
retail and physical inventory in terms of retail
values. The shortage ( or overage ) is expressed as
a percentage of net sales.
Average Stock – beginning of the moth
inventories divided by the number of months of
the period.
Markdown – Dollar reductions from originally set
retail prices of merchandise, a percentage of net
sales.


Percentage of initial Markon – difference
between costs and first retail prices, expressed as
a percentage.
Newspaper Advertising – shown in dollars or as a
percentage of net sales, or both.
Gross Margin Percentage – difference between
the cost of goods and the amount of sales,
expressed as a percentage.


In preparing the six month merchandising plan,
larger retail chains will build from the bottom up.
Starting at the class level, each class of
merchandise will have its own plan.
Combining entire subclasses will give us the
strategy for each department.
Taking that one step further, the amalgamation
of all department strategies will give the total
company plan.

Completing Six Month Merchandise Plan
Step #1: Assemble Last Year’s Figures
Assemble and fill in last year’s results.
Unless operation is computerized, however,
getting most of the monthly data for plan will
be impossible.
In such cases, simply begin with six month or
even annual figures, then divide by the
relevant number of months.
Or just take an educated guess.


Step #2: Planned Sales
Sales planning is the most difficult step in
the whole process.
In the real world, however, start by
reviewing last year’s figures and trying to
determine what might affect performance this
year. Some things to consider are:
Sales Performance Coming Into The
Season
Monthly Promotions
How is Customer Changing?
Economic Factors

Step #3: Planned Reductions
Markdowns, employee discounts and
inventory shrinkage come under the heading of
planned reductions.
These three figures affect ending gross
margin, so they must be considered when
calculating department and class profitability.
Since they also affect inventory levels, they
must be projected to ensure enough
merchandise is on hand to attain forecasted
sales levels.


Step #4: B.O.M. & E.O.M. Planned Inventory
Levels
Planning End-of-Month (E.O.M.) or Beginning-
of-Month (B.O.M.) inventory levels (one
month’s “ending” is the next month’s
“beginning”) is another important element of
the six month merchandise plan.
Inventory is by far the number one dollar
asset within the company, and careful planning
is required to ensure an adequate return on
investment is attained.


Stock-to-Sales Method
The Stock-to-Sales Method is a popular way
to forecast how much inventory is required to
attain monthly sales projections.
Stock-to-sales (S/S) is a ratio of the amount
of inventory on hand at a particular date to the
sales for the same period, and is calculated as
follows:

S/S ratio = Stock on hand E.O.M (at retail value)
Sales for the same month


When using the S/S method for planning stock
levels, the buyer selects the S/S ratios he desires
each month.
Desired S/S ratios are usually obtained by
referencing previous seasons.
The selected ratio is then multiplied by the
projected period sales to get the desired E.O.M
inventory level.
For example, the E.O.M. chart on the following
page is from the sample six month plan:


The Stock-to-Sales Ratio also provides with an
estimate of what Inventory Turnover will be.

If S/S Ratio is Estimated Annual
Inventory Turnover is
1 12
2 6
3 4
4 3


Step #5: Inventory Stock Turns
Inventory stock turns measure the rate at
which merchandise is sold from store compared
to the inventory level on hand.
The higher the rate, the more profit the
buyer brings to the company and the better
cash flow will be.
Stock turns are calculated by dividing the
total sales for the season by the season’s
average ending inventory (at retail value).


Using the sample six month merchandise plan,
the season’s average inventory and stock turn rate
is calculated in the following way:
Season Average Inventory
= Sum of E.O.M. Inventory
Months in Season
= $110,000 + 140,000 + 150,000 + 170,000 + 140,000+90,000
6
= $800,000
6
= $133,000


Stock turn rate = Total sales for season
Season average inventory
= $310,000
$133,000
= 2.33 times for the 6 month
season


Step #6: Gross Margin Return On Inventory
Investment (GMROII)
While the standard Inventory Turnover ratio
tells you how efficiently you are moving your
inventory, it ignores the profitability of this
inventory movement.
For example, an item with a low gross margin
and high sales will show a higher turnover rate.
However, this is obviously not as desirable as
moving inventory with higher (or even average)
gross margins. Basically, it produces a lot of
activity, but with fewer financial results.

Gross Margin Return On Inventory Investment
has become the standard inventory statistic for
many retailers because it reflects the movement
of inventory relative to profitability, rather than
to sales.
This is a better measure of inventory
performance because retailers are more
interested in profitability than sales.
A savings bond that pays 8% is better than one
that pays only 3%. Similarly, inventory that
provides you with a higher rate of return is more
desirable.

If we were to look only at Inventory Turnover rates,
we would say both departments perform equally.
However, as soon as you calculate GMROII, you can
clearly see how clothing outperforms bikes.
The minimum standard for GMROII in most retail
operations is 200%. Anything less is considered to be
unprofitable. 161

Step #7: Planned Purchases
Once sales projections, stock reductions and
stock levels have been established, retailers can
calculate planned purchases. The planned
purchase figure is also the buyer’s first "open-o-
buy" estimate. Using the August figures from the
sample six month plan, the formula for planned
purchases is as follows:
Planned Purchases = EOM Inventory + Sales
+ Reductions - BOM Inventory
= $110,000 + $35,000 +
($1750+ $350 + $700) - $50,000
= $97,800

Step #8. Planned Markup
After calculating how much inventory to
purchase, retailers must determine the initial
markup for these goods.
This may fluctuate between different classes of
goods within a department. The original markup
must allow for a final profit after paying all
operating costs, reductions, cost of goods, etc.
Most retailers have a target markup they want
to start with. This markup percentage is
calculated by dividing the markup in dollars by the
retail price.

Markup dollars is the difference between the
cost price and the selling price. i.e. Our shoe store
buys men's slippers for $10 and follows the
manufacturer's suggested retail of $20 which is a
50% markup percentage, otherwise known as gross
margin.
Markup dollars = Selling price - Cost price
= $20 - $10
= $10.
Markup percent = Markup dollars / Retail Price
= $10.00 / $20.00
= 50%

Step #9: Gross Margin
Gross margin is the difference between the
selling price and the cost of the product, less
reductions for markdowns, shrinkage and
employee discounts.
To determine the gross margin for each month,
all purchases and inventories must be converted to
cost price.
To calculate cost price, multiply the inventories
and purchases by the original markup percent (in
this case 50%).


Example: Using the month of August from the
six month plan, we must first convert to cost
figures by multiplying opening/closing inventories
and purchases by 50%.
Next, we calculate Cost of Goods Sold
(C.O.G.S.) as follows:
C.O.G.S.= B.O.M. Inventory + Purchases -
E.O.M. Inventory.
= $25,000 + $48,900 - $55,000
= $18,900


Finally, we determine Planned Gross Margin like
this:
Planned Gross Margin = Period sales - C.O.G.S.
Period sales
= $35,000 - $18,900
$35,000
= 46%


Retail Maths
There is dispute among segments of the retail
industry as to the retail math terminology and
calculations used in the business.
There is definitely a need for a "common
language" for the industry as it pertains to
calculations and terms!
Retail math is considered an integral part of a
good retail manager's skill set.
It can be found on some companies pre-
employment screening tests.


$ Cost = $ Retail x (100% - Markup %)

Example: $100 retail item with 56% markup has
a cost of $44
(100% - 56% = 44%)
$100 retail X .44 = $44.
Note: This retail math formula is useful for
calculating the most you can pay for an item you
need to retail at $100, but want a markup of 56%.
Use this retail math formula in cost negotiations
with vendors.


Cost of Goods Sold (COGS) = Beginning Inventory
+ Purchases - End Inventory

Inventory at beginning of year +
Purchases or additions during the year
= Goods available for sale -
Inventory at end of year
= COGS


Inventory @ cost Beginning of year = $1,000,000.
Purchases @ cost + freight During year = $550,000.
Total available ($1,000,000. + $550,000.) =
$1,550,000.
Inventory On Hand end of year @ cost = $900,000.
Cost of Goods Sold
=($1,550,000 - $900,000)
= $600,000.


$ Retail = $ Cost / (100% - markup %)

Example: Cost on an item is $44. Desired
markup is 56%. 100% - 56% = 44% cost complement
to the retail markup. Cost $ of $44 is divided by
cost complement of .44 to arrive at target retail
price of $100. ($44 divided by .44 = $100)
Note: This retail math formula is used to
determine the retail price to mark an item, when
the cost and the desired markup % is known.


$ Markdown = Original retail price - lower retail price

Example: Original retail price $100.
New lower price $80.
The markdown is $20.
This 20% discount becomes an markdown
expense of 25% because the $20 must be divided
by the $80 sale to be expressed as a % to sales,
the way other expenses are expressed as a % to
sales.


GMROI (Gross Margin Return on Investment)
= Gross Margin $ / average inventory at cost.

Annual Gross Margin $ of $400,000 with an
average inventory cost of $150,000 would have a
GMROI of $2.67; in other words, for each dollar
invested in inventory on average, the $1 invested
returned $2.67. ($400,000 divided by $150,000.)
This is a particularly important retail math
formula. Most retailers do not pay enough
attention to GMROI).


(Gross Margin% / (100% - Gross Margin %)) x Annual
Stockturn

In simple terms it shows how many times over a year
we get every penny we invest in stock at cost returned
as profit.
So if Product Group A has a gross margin of 60% and
an annual stock turn of 1.8 this would give us a
G.M.R.O.I of 2.7. (60/40 x 1.8 = 2.7)
If we compare this with Product Group B which has a
gross margin of 40% but an annual Stockturn of 4.0 we
see that the G.M.R.O.I. is also 2.7. (40/60 x 4.0 = 2.7)
Product Group C has the same Gross Margin and the
same Stock Turn as Product Group B, but is driving
through only half the sales value.

Product Product Product
Group A Group B Group C

Selling Price $10.00 $10.00 $10.00
Sale Units 180 200 100
Sales 1,800 2,000 1,000
Gross Margin % 60.0% 40.0% 40.0%
Gross Profit 1,080 800 400
Average Stock - Retail 1000 500 250
Annual Stock Turns 1.8 4.0 4.0
GMROI 2.7 2.7 2.7


GMROII = GM% x (Sales / Avg. Inventory)

Example: Assume that the store's net sales over
a period of 12 months is 24M and during this time
it carries an average inventory of 6M. Then:
GMROII % (Gross Margin Return on Inventory
Investment (GMROII):
= 39.94 x (24 / 6)
= 159.76%


Gross Margin = Sales - cost of good sold

Margin % = ($ Retail - $ Cost) / $ Retail

Markdown % = $ Markdown / $ Net Sales


Percent Change In Sales =
This Period Of Sales - Last Period Of Sales
Last Period Of Sales

Example: This period sales = $1,000,000. Last
period sales = $900,000.
Percent Change in Sales
Increase of $100,000 divided by last period
sales of $900,000 = 11.1% increase.


Stock Sales Ratio =
B.O.M. $ Stock / Sales For Period

Example: As in example above, a B.O.M. stock
of $400,000 retail divided by that month's sales of
$100,000 = a stock to sales ratio of 4.0 to 1.
($400,000 divided by $100,000).
B.O.M = beginning of month inventory. This is
one retail math formula which can vary – many
companies look at cost inventory- not retail, when
computing turns.


Planned Stock =
Planned Monthly Sales X Stock Sales Ratio

Example: Planned monthly sales of $100,000 X
planned stock to sales ratio of 4.0
= a planned first of (planned) month
inventory of $400,000.
Averaging a 4 to 1 stock to sales ratio each
month (4 months supply on hand) will result in
achieving retail inventory turns of 3 per year.


Shrinkage = Difference Between Book And Physical Inventory


Breakeven =
Fixed Costs $
(Net Sales - Contribution Margin %)

The Contribution Margin % (CM) is the sum of the
Variable Expense % + Cost of Goods Sold % after
the impact of markdowns.
Breakeven Analysis: Simply stated, this formula
indicates how much sales volume must be
accomplished in order to cover all costs (fixed and
variable), and begin generating a profit. In other
words, it is the point in sales volume at which you
have no profit and no loss.

Loss Prevention
"Loss Prevention" is not a very glamorous part of
retail.
It is, however, an extremely important element
of the success equation.
Call it theft or shrinkage is all lost dollars ...
and each one of these dollars would otherwise be
100% pure bottom-line profit.


Facts
General Shrink
Breakdown:
38% Customer
33 % Employee
21% Admin. &
Paperwork
8% Vendor


Facts
1 in 12 people in the US is a shoplifter and a
shoplifter will commit an average of 50 thefts
before being caught.
What is worse for retailers is that this
represents close a 5 Billion dollar loss to shrink.


Shrinkage Rates by Retail Sector


Shrinkage
The loss that results from shoplifting and
employee theft.
Shrinkage is reduction in physical count of
inventory as compared to accounted value.


Assume that an employee takes a pop, chips,
and a candy bar from the bookstore without
paying for their products:
Cost to bookstore of Markup of items to
items taken: Cover Shrinkage
Pop 0.93 Pop 0.32
Candy 0.33 Candy 0.17
Chips 0.27 Chips 0.13
Total $1.53
WE WOULD HAVE TO SELL
3 Pops
2 Candy
2 Chips

Shoplifting - Employees
3% steal every day
8% steal every week
20% steal 12 times a year
42% of all retail employees steal
80% of shoplifting involved senior store
management


Solution
Specific responsibility
Less staff handling cash
Staff integrity test
Covert work force to security force
Frisking & restricting personal cash to Rs 100
only


Types of Shoplifters
Addictive shoplifters
Professional shoplifters
The needy shoplifters
The thrill seeking shoplifters
Shoplifters who are drug addicts
The absent minded shoplifters


Psychological Reasons
Temptation
Most of the people have inside them the
desire of getting something more than the basic
needs that is desire for luxury items. The basic
desire is to get something extra without giving
something in return for it.
Justification
Most of the shoplifters do not consider
themselves to be criminals and shoplifting as
crime. Generally in order to justify their act
they frame their own set of values that suit
their act.

“One will miss the things I took.”
“It is ok to shoplift sometimes as I have also give
much money in the past for my purchases.”
“The queue for the billing is very long and I don’t
have much time for it.”
“Retailer has put the price quite high than the
normal prices.”
“There are many people unlike me who shoplift.”
“It is my right to possess good things and it is not
necessary that I pay for it everytime.”
The above list justifications are just the tip of the
iceberg of excuses shoplifters give forstealing.

Motivation
Motivation leads to action. The primary
motivation for stealing is that no one is
watching them and they are not hurting anyone
and this act of them will not lead to negative
result. They are under the impression that the
retail store can easily afford the loss due to
shoplifting and thus their stealing has no effect
on the shopkeeper and society. Also believe
that it is a harmless activity.


Recognize The Shoplifter
They spend less time for shopping and more
time observing the cashier or salesman.
Their dressings is huge and wear heavy clothes
like blazer or overcoat even when it is hot.
Watch out for their body language that is they
tend to walk awkwardly with short steps which
denotes that, they are trying to hide something.
They take many items in the trial room and
when they come out have only one item with
them.

Recognize The Shoplifter
Sometimes such people become too self-
conscious and nervous. They shop without interest
and pick up the items randomly.
There visit to the shop is quite frequent but do
not make any purchases.
Sometimes shoplifters enter the store/mall in
groups especially the teenagers. One of them
strikes heated conversation without any relevance
in order to distract attention from other members
of their group.

Calculations

Shrinkage $ = Book Value of Inventory
- Actual Inventory on Hand

Shrinkage % = Shrinkage $ at Retail Values
Total Sales


From the above information, calculate the dollar shrink
figures for each department and the % shrink figures this
represents. What department has the biggest shrink
problem?


Mark Ups
Let's say you received some earrings from a supplier
and originally put them into inventory at $10.
You received 15 pairs, so you added $150 to your
inventory level.
Now, you realize that the earrings should have been
priced at $12.
You have to change your tickets to reflect the new
price.
As well, you must post your mark up of $30 (15 pairs
increased by $2/pair) to your inventory. So the value of
your inventory just increased by $30.
That's a mark up calculation and recording.

Markdowns
You have two ways to record markdowns.
First, you can record them when the
merchandise is sold. So, if you reduced the price
of a handbag from $30 to $25, you would record a
$5 markdown when the bag was sold.
The second recording method is what we call a
“one time markdown." If you were reducing the
same handbag from $30 to $25 and you had 10
bags in stock, you would record an immediate
markdown of $50 (10 bags reduced by $5 each).


Introduction
Radio frequency Identification (RFID has been
around since World War II).
The technology used in RFID has actually been
around since the early 1920’s.
A much more related technology, the IFF
transponder, went into operation in 1939 and was
routinely used by the British in the World War II to
identify airplanes as friend and foe.
RFID became reality after 3 years of advances in
many different fields.

In simple, RFID tags consist of silicon chips and
an antenna that can transmit data to a wireless
receiver.
Therefore the radio Id tags do not receive line-
of-sight for reading that is the RFID tagged
product need not be held close to the scanner to
read the data of a RFID tag.
Within the field of a wireless reading device, it
is possible to automatically read hundred of tags a
second.


RFID
Radio Frequency Identification (RFID), the
technology of the future, has long established
itself in our everyday lives.
It is already deployed in various areas ranging
from efficient inventory management and road toll
collection through to timing the performance of
individual participants in mass sporting events.
With its enormous potential it is only right that
RFID is on everyone's lips.


RFID technology builds a bridge between the
physical world of a product and the virtual world
of digital data.
The technology thus meets the demands of
companies cooperating in a closely knit value
chain and is being deployed promisingly in all
sectors of the economy.
RFID will soon be considered an indispensable
part of the chain.


RFID - An Overview
RFID or Radio Frequency Identification is a
system that uses radio waves to transmit an
object's identity.
There are several methods of identifying objects
using RFID, but the most common is to store an ID
or serial number that identifies a specific product
along with other information, on a tag, which is a
small microchip attached to an antenna.
The antenna enables the chip to transmit
whatever identification information it contains to
a reader.

The reader converts the radio waves from the
RFID tag into digital information that software
systems can use for processing.
Typically, when a reader reads a tag, it passes
three things to a host computer system: the tag
ID, the reader's own ID, and the time the tag was
read.
By knowing which readers are in which
locations, companies can know where a product is,
as well as what it is, and by tracking the tag data
by time, they can know everywhere it's been.


Until recently, a bar coded item used to sit on a
retail shelf and did not generate any data until it
was scanned by a bar code reader. And then the
data was read only once.
RFID, on the other hand, is a passive technology
that does not require human interaction to scan.
A reader can extract location and product
description data from a tagged item every 250
milliseconds.
Some readers are capable of reading data from
200 tags per second.


Classification
RFID tags can be classified into
Passive tags
Active tags.


Passive Tags
Passive tags do not have their own power supply.
The minute electrical current is induced in the
antennas by the incoming radio frequency scan
provides enough power for the tag to send a response.
Due to power and cost concerns. The response of a
passive RFID tag is brief – typically just an ID number.
The smallest such devices commercially available
measured 0.4mm x 0.4mm, which is thinner than a
sheet of paper; such devices are practically invisible.
Passive tags have practical read ranges that vary
from about 10mm up to about 6 meters.


Active Tags
Active RFID tags, on the other hand, must have
a power source and may have longer ranges and
larger memories than passive tags as well as the
ability to store additional information sent by the
transceiver.
At present, the smallest active tags are about
the size of a coin.
Many active tags have practical ranges of tens of
meters and a battery life of up to several years


How different RFID is from Barcode??
Many retailers and manufacturers have been
using bar codes. These are scanned manually and
read individually.
In the case of RFID tags, it is a small object
similar to adhesive sticker and is attached to or
incorporated in the product.
RFID tags work better and more data can be
collected and stored in the RFID micro chip.
Further RFID tags cold identify exactly which
box it is, which is lacking in barcode system.

Benefits of RFID
Product security and Quality
Real time inventory visibility (a check can be
seen an unwanted qauntitities)
Exhaustive information about product and
Better mans of accountability


Adverse Factors
Factors Adverse for the adoption of RFID
Technology
Expensive technology: RFID tags at present costs
between $1 and $10. Specialized tags costs still
more may be $100. Passive tags are available at 30
cents to $1.
Uncertainty about standards
Read errors due to technology.
Lack of awareness
Technology issues


Adverse Factors
Environmental /process related factors include:
Active /Passive,
Frequency; low/high frequency tags,
Mental proximity reverts the radio frequency,
Liquid items tend to absorb the radio
frequencies thus making it impossible for the
reader to comprehend them,
read range depends on the power of the
antenna and read accuracy,
Level of security, Size, Anti- clone/ Anti
collision functionality, Humidity and
temperature, Interference.

Adverse Factors
The use of RFID technology has engendered
considerable controversy and even product
boycotts. The four main privacy concerns
regarding RFID are :
The purchase of an item will not necessarily be
aware of the presence of the tag or be able to
remove it.
The tag can be read at a distance without the
knowledge of the individuals,


Adverse Factors
If a tagged item is paid for by the credit card or
in conjunction with the use of loyalty card, then it
would be possible to the unique ID of that item to
the identity of the purchase,
The EPC global System of tags create or are
proposed to create, globally unique serial numbers
for all products though this creates privacy
problems and is completely unnecessary for most
applications.


Strategies for the rapid adoptions of RFID
Big retail formats are growing in India and hence
RFID technology can be used for reaping the
advantages identified in the above pages.
During March 2005, wireless planning and
coordinating wing, Ministry Of Communications
and Information Technology, Govt of India had
issued a notification for the use of wireless
equipment in the band 865-867 MHz.
As per the notice, no license is required to
establish, maintain, work, and possess the tags
and their uses.

Research is going on the substitution of cheap or
cost effective material to make the technology,
for example, use of nanotechnology makes the
RFID technology cheaper.
Govt. of India should bring a policy to make the
use of the technology compulsorily in certain
sectors namely,
Education sector; universities and institutions
should use the technology on the certificates
by recording the basic details of that student
hence it becomes easy for verification and
there is no scope for manipulation. 224


Pharma sector; to avoid fake medicine
brands standard companies can use this
technology.
Election Commission to issue voter ID cards,
to avoid others to vote, this technology is very
much useful.
For very expensive goods such as jewelry,
costly wrist watches, diamonds etc also, the
manufacturers can use this technology, to
avoid duplication in the market.


WHAT IS FDI?
FDI is defined as a firm based in one country
(the 'home country') owning 10 percent or more of
the stock of a company located in a foreign
country (the 'host country') -- this amount of stock
is generally enough to give the home country firm
significant control rights over the host country
firm.
Investment made by a foreign individual or
company in productive capacity of another
country for example, the purchase or construction
of a factory.

Investing in India

Prior Permission
Automatic Route
(FIPB)

General Rule By Exception
No prior permission Prior Government
required Approval needed.
Inform Reserve Bank Decision generally
within 30 days of
within 4-6 weeks
inflow/issue of shares


Retailing: An overview
Retailing
World’s largest private industry
US$ 7 trillion sales annually
Indian retailing
Contributing 14% to national GDP
Largest employer after agriculture - 8% of
population
Highest outlet density in world
Around 12 mn outlets
Still evolving as an industry
Long way to go

Indian Retail: “The Sunrise Sector”

Total retail market : 10 lac crores
Organized retail market: 3.5 % or 35,000 Crores
Estimated to grow to Rs 1,10,000 crores by 2010
Total outlets – 55 lacs
Per capita retail space- 2.5 sq feet.
(96 % outlets are < 500 sq ft)


The Changing Indian Consumer
Greater per capita income
Increase in disposable income of middle class
households
20.9%* growth in real disposable income in ’99-
’03.
Growing high and middle income population
Growing at a pace of over 10%* per annum over
last decade
Affordability growth
Falling interest rates
Easier consumer credit
Greater variety and quality at all price points

The Changing Indian Consumer
The urban consumer
Getting exposed to international lifestyles
Inclined to acquiring asset
More discerning and demanding than ever
No longer need-based shopping
Shopping is a family experience
Changing Mindset
Increasing tendency to spend
Post Liberalization children coming of age
100 mn 17-21 year olds. Tend to spend freely.
Greater levels of education


Anticipated Growth
Market size
Current market size is roughly US$ 286 bn
96% of the 12 Million stores are less than 500 Sq.
ft.
Forecast Growth rate for the retailing industry is
roughly 8.3% for 2003-2008
Sales from large format stores would rise by 24-
49%
Formal and modern format retailing would enjoy
rapid growth


Industry Dynamics
Low domestic competition
Because of fragmented nature of industry
Lack of exposure to global best practices
Low entry barriers for unorganized retailing
Moderate entry barriers for organized retailing
Wholesale system under-invested leading to 20-40%
wastage
Non level playing field issues
Wide differences in treatment of small and large
retailers


India As An Investment Option
India ranked 5th in the Global A.T Kearney Retail
Development Index
Second only to China (from 30 emergent markets)
Least saturated of all global markets studied
The least competitive of all global markets
studied
Implies lower barriers of entry for global
players
Considering tremendous market size,
excellent potential for foreign players


FDI in Indian Retailing
Current Indian FDI Regime
FDI not permitted in retail trade sector, except
in:
Private labels
Hi-Tech items / items requiring specialized
after sales service
Medical and diagnostic items
Items sourced from the Indian small sector
(manufactured with technology provided by the
foreign collaborator)
For 2 year test marketing (simultaneous
commencement of investment in manufacturing
facility required)

Entry Routes To FDI In Retail
Present FDI Regime and Entry Routes.
The Central Government in 1997 had taken a
careful policy decision of keeping FDI in Retail at
bay. But the present policy allows India to have a
presence of international brands, through different
routes as follows:
Franchise
Joint Venture
Manufacturing
Distribution
Cash & Carry (100%)

International Retailers in India: Strategies

Franchise :Mc Donalds
International company gives name and
technology to local partner. Gets royalty in
return
In case master franchise is appointed for
region or country, he has right to appoint local
franchisees
Nike, Pizza Hut, Tommy Hilfiger, Marks
and Spencer, Mango



Manufacturing
Company sets up Indian arm for product
Bata India. It also has right to retail in India
Joint Ventures:
Foodworld :51:49 JV between RPG and Dairy
Farm International


Distribution
International company sets up local
distribution office
Supply products to Indian retailers to sell
Also set up franchised outlets for brand
Swarovski, Hugo Boss
Wholesale trading
Cash and Carry operations
100% FDI permitted
Metro Cash n Carry

FDI : How??
FDI should be allowed in stages
Initial stages: 26% FDI
Establishment Phase: 49% FDI
Mature Phase: 100% FDI
FDI policy
No incentives needed to attract FDI
Market size and potential are sufficient inducers
No need for costly tax breaks, import duty
exemptions, land and power subsidies, and other
enticements.

FDI: Concerns
Foreign players would displace the unorganized
retailers because of their superior financial
strengths
Induce unfair trade practices like Predatory
Pricing, in the absence of proper regulatory
guidelines
Create Monopoly and promote cartels
Give rise to cut-throat competition rather than
promoting incremental business
Increase in real estate prices and marginalize
domestic entrepreneurs

FDI : Benefits
By allowing FDI in retail trade, India will become
more integrated with regional and global
economies in terms of quality standards and
consumer expectations
Greater level of exports due to increased
sourcing by major players
Provides access to global markets for Indian
producer
The international experience and skills that may
come with FDI would provide the confidence and
capital 243

FDI : Benefits

Investment in technology
Cold storage chains solve the perennial
problem of wastage.
Greater investment in the food processing
sector technology
Better operations in production cycle and
distribution


FDI : Benefits
Better lifestyle
Greater level of wages paid by international
players usually
More product variety
Newer product categories
Economies of scale to help lower consumer price
Increased purchasing capacity of consumers
They can lay down better and tighter quality
standards and ensure that manufacturers adhere to
them.


FDI : Benefits
Manpower and skill development
Through retail training and
Greater managerial talent inflow from other
countries
Tourism Development
A strong retailing sector boosts tourism as seen
from the experience of Singapore and Dubai
Investment in whole supply chain
Improved product basket from India for exports
Long term benefits
Up-gradation of agriculture
Development of efficient small and medium size
industries

Benefits To The Government

Greater Consumer
Greater Per
Spending due to
Capita Income
economic boom
GDP Growth

Employ Benefits Greater
ment to Govt. Exports
Increasing Greater
Tax Paying Sourcing
Increased Tax
Population From India
Revenues

Reduced Tax
Evasion


Benefits To The Government
Increase employment levels
FDI would result in market growth and
expansion
Employment generated at various levels
Increased consumer demand implies
employment generation across the value chain


Vendors will be benefited through long-term
contracts & associations, introduction of best
practices in production, designing, labor
conditions, waste/effluence management,
volumes and export possibilities, better quality of
life for rural masses through direct contract
farming.


Infrastructures such as roads, power, sewerage,
garbage disposal, public parking lots, real estate,
cold chains, logistics & warehousing, flow of
funds-public and private, import & exports.
The environment is likely to be impacted first
owing to global best practices by these brands who
are likely to come over the nest few years.

Hence, it will lead to overall economic growth and
create benchmarks.


Case study : Chinese retailing
FDI permitted in 1992. 40 foreign retailers have
secured approval
Retail sales have grown@13.5% since FDI was
permitted
FDI initially restricted to 6 major cities (including
Beijing, Shanghai and Guangzhou and SEZs)
Foreign ownership initially restricted to 49%
US$ 22 bn of FDI attracted, 3.6% of total FDI
In 2003, FDI in wholesale and retail was US$
1.1 bn (Around 30% of our total FDI in 2003)
Current restrictions on FDI will be phased out over
5 years as condition of WTO entry

China: The effect of FDI
Type No. of stores in No. of stores in
1996 2001
Traditional 1,920,604 2,565,028
Supermarkets 13,079 152,194
Convenience 18,091
Hypermarkets 593


Employment In Retailing Is Increasing
Employment in Retailing

60 8.00%
7.00%

% of Total Labor
50
w holesale (M n)
Em ploym ent in

6.00%
Retail and

40 5.00%

force
30 4.00%
3.00%
20
2.00%
10 1.00%
0 0.00%
90 91 92 93 94 95 96 97 98 99 00 01
Y ear

Employment %


Case Study : Chinese Retailing
Wal-Mart
Entered Chinese market in 1996
Has 43 stores in 19 cities as on date
Had sales of US$ 704 mn in 2003
Has employed more than 20,000 people
Has paid taxes of US$ 111 mn in total*
Carrefour
Has 54 stores as on date
Had sales of US$ 1.6 bn in 2003*

Lessons from China
Strong evidence in favor of FDI
FDI improves the entire size of the industry
Retailing in China has grown at a compound
rate of 15% per annum after FDI inflow
Employment growth
Evolution of modern formats
Local players can survive and even beat
foreign competition
Need for a strong retailing industry in India
Scale is the key to success for local retailers

Recommendations
Grant industry status to retail.
Permit FDI in Retail in phases.
Invest in supply chain infrastructure.
Organize market for real estate
Ensure flexibility of labor laws
FDI should be gradually allowed first in
relatively less sensitive sectors – garments,
lifestyle products, houseware, entertainment etc.


Fashion Retail Management

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