basicretailprinciplespmamembers[1]

8/7/2019 BasicRetailPrinciplesPMAmembers[1]

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BASIC RETAIL PRINCIPLES

Prepared for : PMA Members


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Category ManagementThe principles outlined in the category management section are based on many years experience in retailing and proven

fundamentals. They are presented in a format to encourage you the retailer to work on these principles within your business. Bythe very nature of retailing, markets and customers will change over time. Retailers must understand and mange this informationthrough category management. Due to the limited amount of time available in the review, the principles will be limited in therescope to generic retail principles.

Managing your retail business through category management improves your knowledge and ability to react quicker to thecustomerswants and needs. As a retail owner you need to have at least 15 categories based on product groupings withinyour store. You can also break down each category into sub categories for further analysis. The categories that you establish will bethe basis of ongoing management across key performance indicators (KPIs) that you want to manage within your business.

The categories you chose should be based on product types or groupings. If you are in food for example your categories would beyour menu offer for example: sandwiches, cold drinks, coffee, cakes, salads, donuts. If you are in home wares categories like:gadgets, dinnerware, saucepans, kitchen ware, and glass ware are some examples.

How good is your collection of data? To collect information on categories you need to ensure that you have a suitable cash registeror point of sale program that will show the various indicators of the business.

By defining your categories you are laying the foundations on which to build your retail business.

These principles reflect my own views and does not necessarily reflect the views of any other entity or company. The principlesprovided in this document may not produce positive results. Therefore you must make your own assessment of the principles. Anycommercial decision by you to implementthe principles is at your risk and not any other entity or company.

Ken TickleAstanda Pty Ltd

[email protected]

www.mfp.net.au

Mobile0419 419 634
mailto:[email protected]://www.mfp.net.au/http://www.mfp.net.au/http://www.mfp.net.au/http://www.mfp.net.au/http://www.mfp.net.au/http://www.mfp.net.au/http://www.mfp.net.au/http://www.mfp.net.au/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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The 10 Basic Principles Embrace category management Build product family trees/ product mix Implement sound Information Technology Understand Key Performance Indicators Develop forward Open To Buy budgeting each month Quantify your Profit and loss outcomes Set a cash flow budget Build the business equity Manage the outcomes monthly Build a partnership with your suppliers

KLE


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Who is Your Customer?

Understanding who your customers are is critical ingetting your product offer right in your store.Successful retailers will agree that they fully understandtheir target customers wants and needs. A retailer mustidentify the top five customer attributes and type ofcustomers that visit the store. Profiling the customer inyour store needs to be ongoing.Steps to Complete;1. Market research on customer buying behavior andprofiling.2.Identify your target customer.3.Develop the relationship with your customer throughcustomer service and selling skills.

Attached are some ways of getting information on yourcustomer:

EXIT POLLS: as per questionnaire attached.

POINT OF SALE INFORMATION: Captures informationat time of purchase e.g. post codes, average purchase,number of units and other relevant information.

CONVERSION RATE: the % of customers who enter thestore and purchase.

The Principle:

The retail principles should be read in conjunction with the attached consultants report.

YOUR CUSTOMERS:

AGE OF PRIMARY CUSTOMER:

Female %

Male %TYPE OF CUSTOMER:

TYPE 1 %

TYPE 2: %

TYPE 3 %

SPENDING PROFILE: low medium high

SHOPPING PATTERNS WEEK DAYS:

10am-12pm %12pm-2pm %

2pm-4pm %

4pm-close %

AVERAGE SPEND: $

SHOPPING PATTERNS ON WEEKENDS:

Comments:

Ken Tickle


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Exit Poll a sample for you to use in your businessQuestions Very Good Good Poor

Where our staff friendly?

Did they know about ourproducts?

What do you think about ourproduct range?

How do our prices compare?

How do you rate the cleanlinessof our shop?

Was it easy to move around inour shop?

How convenient are ourshopping hours?

What is your overall opinion ofour shop?

Will you shop with us again?

Ken Tickle

YES NO



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POINT OF SALE

Ken Tickle

Postcode

Male/

Female

Age

Under 25

Age

Under 35

Age

Under 45

Age

Under 55

Age

Under 65

Senior

Citizen

Product

Category

AverageSpend $

a sample for you to use in your business



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What are your

Sales categories?

Category management is an important tool required inyour retail business to maximise the sales and profitmargins of a category or group of categories.

A category is an assortment ofSKUs (stock keeping unitsthat the customer sees as reasonable substitutes for eachother.

An analysis of categories through POS systems or manualcash registers is a fundamental requirement for the retailmanager .

Identifying growth categories, declining categories and

stable categories is part of this analysis.

The Principle:

YOUR CATEGORIES:

Ken Tickle

Category Sales

%

Growth, Stable,

Declining



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A basic form to collect sales by category

Ken Tickle The retail principles should be read in conjunction with the attached consultants report.


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How does this link to your stock and floor space?

Category Sales per year % Stock level at retail % Floor space %

Notes:

Ken Tickle



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What is your

promotional plan?

Promotions need to be designed to bring more

customers into your store and to keep them coming back

to see your new products or offer.

Some promotions do not work therefore it is important to

plan and measure the results of all promotions to learn

for the future.

The promotion needs to be focused on core customers.

In general you should run promotions for no longer than

2 weeks. They can educate customers about your

products, market new items and provide a means to

market your business within your retail precinct .

It is a good principle to have a promotions calendar to

identify your major events.

Your point of difference to other retailers should be part

of the promotion e.g. service, range, warranty.

The Principle:

YOUR PROMOTIONAL PLAN:

Ken Tickle

Event Examples Point ofDifference

New Lines

Loyalty

Major Events

All Year

Mega Sales

Special events

Trends



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PROMOTIONAL CALENDARO: MONTH EVENT/T

ITLE

SERVICE OR PRODUCT FOCUS METHODS/MEDIUM TOTAL PRODUCTION COST STAFF ADVISED REMARKS ON PROMOTION

THEME SUBCATEGORY EMPHASISDISPLAY/POS/TIC

KETINGPLANNED ACTUAL

START

FINISH

1

START

FINISH

2

START

FINISH

3

Ken Tickle The retail principles should be read in conjunction with the attached consultants report.


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What are yourKey PerformanceIndicators?

Key Performance Indicators (KPIs) enable you as a retailer to understandwhat is happening within your categories and business each day. It is veryimportant to have information collected and summarized across a range ofKPIs by category. This can be done through your POS or cash register.

These KPIs are detailed on the right and are the most important forsuccessful retail management. There are many other KPIs that you will alsoneed to monitor.

Your accountant can help you in quantifying all of these within yourbusiness. It is important to work with your accountant to maintain goodfinancial controls in your business.

If you have a POS system, talk to your software provider to ensure reportsare available from the system that can deliver KPIs by category.

The Principle:

Ken Tickle

First Margin %

Markdowns %

Shrinkage %

Final Achieved GP %

Stock Turn Average

Breakeven Sales $

Orders Committed $

Conversion Rate %

YOUR KPIs:



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Cost Base

$100

$100

$100

$100

$100

$100

$100$100

$100

$100

Mark up %

On Cost Base

20%

25%

33%

40%

50%

75%

100%125%

150%

200%

Recommend

Retail Price RRP

=Cost+MUP$$120

$125

$133

$140

$150

$175

$200$225

$250

$300

Potential

$ Profit

$20

$25

$33

$40

$50

$75

$100$125

$150

$200

Buying Margin

Profit/RRP %

16.6%

20.0%

24.8%

28.6%

33.3%

42.9%

50.0%55.5%

60.0%

66.7%

BUYING MARGIN(The First Margin / Prime Margin )

Mark on Cost to achieve BuyingMargin Profit divided by Cost$50 / $100 = 100%

Potential Buying MarginProfit divided by RRP$50 / $150 = 33.3%

KLE


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What is

your buying plan?

All retailers must go into the market with a shopping list

to buy for their customers.

The shopping list must be planned in advance to ensure

that the product offer is well thought through. This is

important in making sure that you are never out of

wanted products for your customer.

In the supermarket industry it has been quantified that

about 3% of total turnover is lost to out of stocks.

The retailer should develop efficient means by which

they can manage the replenishment process.

PRODUCT RANGE PLAN:

The attached product range plan is a model used to

identify core products within each category. It focuses

the retailer on buying for the target customers.

Retailers need to develop a range plan in each category

of the business.

The Principle:

Ken Tickle

CATEGORY CORE ITEMSYour Best Sellers



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What is Merchandise Financial

Planning?

A buying plan is a living and breathing plan

put in place by retailers to manage inventory levels

at category level by using key KPIs from the informationbase.

The MFP uses retail inventory (retail prices) rather thancost. This means all KPIs are planned at retail.

Improvement in inventory management impacts onprofitability, cash flow product mix , visual presentationand customer relationship.

KLE


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1STPRODUCT FEATURE

CUSTOMER PROFILE:

GENDER:

AGE:

SPENDING PATTERN:

PRODUCT FEATURES

AND BENEFITS:

Ken Tickle

YOUR PRODUCT RANGE PLAN2ND PRODUCT FEATURE 3RD PRODUCT FEATURECATEGORY:

%

%

%

%

%

%

%

%%%

%%

Category



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ess

6: 1: 5 Principle

GP $

Actual Sales $925,000

Rent 462 psm

$277,500

ess

otal

$ 29,650ess

ess

ess Depreciation $50,000 / 5 Years

Wages & on Costs

Interest 8.0% $145,000

Other

Expenses $190,000

$ 87,500quals EBT (Earnings before tax)

KLE

$ 11,600

$ 10,000

$ 46,250

$ 92,500

$980,500

$304,500

$180,500

$124,000

UP 1%to 31%

UP 6%

- 5%

UP 42%


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Building the net worth of the retail businessMerchandise

Financial Planning

- Open to Buy-

Setting retail goalsacross categories

Stock turn

Cash flow

implications

BUILDING A STRONG

BALANCE SHEET

Sales Categories

Product & RangePlanning

Customer profiles

Category action plans

Promotional Plans

BUILDING A STRONG

PRODUCT OFFER

Shrinkage

Retail InventoryManagement

Sales Planning

Buying Margin

Markdowns

Reporting controls

Gross Profit

BUILDING A STRONG

PROFIT MARGIN

Profitabilityoutcomes

Product family tree

KLE


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ACTION PLAN category

managementIDENTIFY ISSUE ACTION TO COMPLETE PERSON IN CHARGE DUE DATE COMMENTS


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Disclaimer- Astanda Pty Ltd

This disclaimer has been provided on the following basis:

A person who relies upon the category management information contained in this document does so at their own risk.

In accordance with our normal practice, we emphasise that the recommendations contained in this document are based

on industry sources. However, as no independent verification is possible, neither the firm nor any employee of the firm takes

responsibility for any errors that may occur, however caused. The accuracy of those assumptions cannot be and is not,

guaranteed. As the document involves recommendations which can be influenced by a number of unforeseen events or by the

management decisions affecting the project or implementation, no warranty can be given that the recommendations contained

will achieve the desired outcome. No officer, employee or agent of Astanda Pty Ltd has the authority to waive or modify

this Disclaimer In any respect in any way whatsoever.

Astanda Pty Ltd des not represent or warrant that the figures will necessarily apply with respect to the operation ofindividual operators.

This report may not be reproduced or used in part or in whole , without prior consent of Astanda Pty Ltd.

All images in this document are positional only and require image rights approval prior to marketing and use.


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RETAILFINANCIALDISCIPLINESUnderstandingyourretailbusinesstomanagefuturechallenges.Intodaysretailenvironmentitiscriticalthatretailersfacethefactsandstartmanagingtheirbusinessintothe

futurewithaparticularfocusonretailfinancialdisciplines.

Retailingisafastchangingindustryinwhichyoumustbeabletoquantifyimportantfinancialinformation.Both

todayandinthefuturethiswillhelpyoubuildasustainablewinningproductofferforyourcustomer.Theresult

businessgrowthandthefreedomtopursuenewdirectionsandinnovationsasyourcustomersexpectationschange

andasnewcompetitorsenterthemarket.

Thesedisciplineswillalsoresultinahigherqualityvisualoffering. Asretailers,whenforcedtoplantheproduct

range,willthinkaboutspacemanagement,hotspots,visualmerchandisingandtrafficflowswithinthestore.

Closeenoughisnotgoodenoughandgutfeelretailingwillnotworkeffectivelyforyoutomaximisethe

potentialoftheretailbusinessandthereturnonyoursubstantialinvestment.Itisthereforeimportantthatyouhave

themanagementculturerequiredandhavepeoplebiggerthanthejobthatwilltakeownershipoftheplanning

methodologyrequiredinretailfinancialdisciplines.

Whataretheretailfinancialmanagementstepsthatwillenableyoutomanagethischallenge?

1. Embracecategorymanagement:Allretailersmustensuresuperbcategorymanagementprinciplesarepresent.Thisenablesyoutomicromanagethebusinessacrossthecategoriesandallowsfurtherdrill

downtosubcategories.Itwillalsofocusyouoncategorystrategiestoimprovestoretrafficflow,increase

transactionsize,andincreasegrossprofit.

2. Productfamilytrees/productmix:Retailersmustbuildtheirproductrangefortheircustomer.Thefamilytreeisamethodthatallowsthescopeofthemixtobedeterminedwellinadvanceofthepurchasing

decision.Thisisoftenreferredtoasbuildingabuyingplannotaspendingplan.Thefactsarethatlessis

moreinretailing.Thismeansthat80%ofsaleswillcomefrom20%oftheproductrange thereforehowto

plantoensurethatthe20%isconstantlyontheshelvesisanongoingissueformanyretailers.

3. ImplementationofInformationTechnology:Intodayshightechworldthereisnoexcusefornothavinguptodateinformationonyourbusinessperformance.Inventoryisyourbiggestassetandnottounderstand

bestsellers,worstsellers,inventoryvaluesandimportantlyyourfuturepurchaseorderswillresultin

reactivemanagementratherthanproactivemanagement.

4. UnderstandingKeyPerformanceIndicators(KPIs):TherearemanyKPIsinretailingbutquantifyingyourbuyingmargin,sales,inventorylevels,markdowns,stockturn,purchaseorders,finalGP,andshrinkageby

categoryarebasicrequirementsthatmustbeunderstoodbytheyourmanagementteam. Tohaveaculture

thattalksaboutsellingheaps,lotsandplentyisnotindustrybestpractice.

5. MerchandiseFinancialPlanning(MFP):ThisisoftenreferredtoasOpentoBuy(OTB)andwithoutdoubtisthesinglemostimportantretailfinancialmethodologythatretailersmustembrace.Thisinvolvesplanning

yourinventorylevels(andthereforerange)bycategorybyfuturemonthsusingtheretailKPIs.Thisprovides

awonderfulunderstandingofthedirectionofthebusinessandallowsyoutogointothemarketwith

confidencetopurchasetoapredeterminebudget.Itwillallowyoutoseewhatifscenarioswellin

advance.Fromthisbuyingplanashoppinglistofproductisdevelopedbymonthbycategory.


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6. Profitandlossoutcomes:RetailersmustputinplaceadequatemonthlyProfitandLosscontrolsthatallowconfirmationoftheactualNetProfitofthebusiness.Thismustincludeaccuratestockonhandinformation

(fromthePOS)sothatconfirmationoffinalGPandexpensesareinaformatthatcanbereviewedongoing.

Relyingonyouraccountantsyearlyaccountsafterthefinancialyearclosesmaynotbesufficienttoallow

youtoreacttotradingtrendsduringtheyear. TheMFPisthemethodologythatallowstheProfitandloss

outcomestobeplannedwellinadvance.

7. CashFlowmanagement: Adetailedunderstandingofyourcashflowneedsispartoftheplanningrequiredinretailing.Onceadetailedbuyingplanisinplaceandyouunderstandtheprofitoutcomesfromthisplan,aforwardcashflowcanbepreparedtoensureadequatecapitalisavailabletofundtheplan.

8. Businessequity:Businessownersneedtoensurethatthebusinessbuildsretainearningstofundgrowthandallowforpossiblepassiveinvestmentactivitiestotakeplacee.g.purchaseofabuilding,superannuation

and/orinvestmentinshares.Puttinginplaceadequateplanningandmanagementcontrolswillprovidean

improvedfocusonthenetassetsofthebusiness.Thisalsoallowsyoutoquantifyyourreturnonthe

investmentinthebusiness.

9. Managementoftheoutcomes:Ongoing(monthly)reviewofyourbusinessKPIsacrosscategoriesprovidesawonderfulfocusforthemanagementteam.Takingaproactiveapproachinbothunderandover

performanceofcategoriesandthebusinesswillmeanyouapproachthemarketwithmuchmore

informationthatresultsinimproveddecisionmaking.Rememberthatknowledgeispower.

10.Negotiationwithsuppliers:Thisfinalstepalsomustbeongoing.Itisnotgoodenoughtoallowyoursupplierstodictaterange,purchaseordersand/orplacementofproductwithoutyourinput.Youmustgoto

thesupplierwellbriefedonyourrequirementsandthereforebuildapartnershipwiththesupplier.They

mustunderstandyourrequirementsforstockturn,yourrequirementsformargingrowthandyour

requirementsforproductrange.

These10stepswillallowownerstoimprovethewellbeinganddirectionoftheirbusiness,willleadtoasustainable

winningproductofferandwillensurethatretailershavecontrolofbasicretailprinciples.Businesseswillcontinueto

getintotroublebutbyhavingawellthoughtthroughplanriskswillbeminimisedandopportunitiescapitalisedon.

Preparedby:KenTickle BComm,FCPA

[email protected]

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