Category: Retail management

After the size and shape of alternative trading areas are determined, the characteristics of those areas are studied. Of special interest are the attributes of residents and how well they match the firm’s definition of its target market. An auto repair franchisee may compare opportunities in sev­eral locales by reviewing the number of car registrations; a hearing aid retailer may evaluate the percentage of the population 60 years of age or older; and a bookstore retailer may be concerned with residents’ education level.

Among the trading-area factors that should be studied by most retailers are the population size and characteristics, availability of labor, closeness to sources of supply, promotion facilities, economic base, competition, availability of locations, and regulations. The economic base is an area’s industrial and commercial structure—the companies and industries that residents depend on to earn a living. The dominant industry (company) in an area is important because its drastic decline may have adverse effects on a large segment of residents. An area with a diverse economic base, where residents work for a variety of nonrelated industries, is more secure than an area with one major industry. Table 9-1 summarizes a number of factors to consider in evaluating retail trading areas.

Much of the data needed to describe an area can be obtained from the U.S. Bureau of the Census, the American Community Survey, Editor & Publisher Market Guide, Standard Rate & Data Service, regional planning boards, public utilities, chambers of commerce, local govern­ment offices, shopping-center owners, and renting agents. In addition, GIS software shows data on potential buying power in an area, the location of competitors, and highway access. Both demographic and lifestyle information may also be included in this software.

Although the yardsticks in Table 9-1 are not equally important in all location decisions, each should be considered. The most important yardsticks should be “knockout” factors: If a location does not meet minimum standards on key measures, it should be immediately dropped from further consideration.

These are examples of desirable trading-area attributes, according to these two retailers:

• Duluth Trading Company (www.duluthtrading.com), the Wisconsin-based omnichannel retailer of inventive and functional workwear for men and women, has evolved from a small mail­order business to a national retailer with nine stores and two outlets, and is expanding to other states. Duluth Trading analyzes dozens of markets to identify those with the strongest network potential based on trading-area analysis, customer segmentation, and proprietary retail mod­eling. Requirements for a Duluth store include a 10,000- to 15,000-square-foot space with a prominent interstate in the vicinity as well as access and visibility from a freeway, preferably near other male-oriented stores, with ample and convenient parking. Furthermore, to support its positioning that shopping at Duluth is an experience not just a purchase, it seeks “special, char­acter-filled places and spaces, including downtown heritage locations suitable for renovation.”¹⁴ 
• Texas-based Container Store (www.containerstore.com) sells high-end storage and organiza­tion products. It notes that one bad store location imposes “costs for 5 to 15 years” and oppor­tunity losses of almost five good stores. It uses predictive analytics with cutting-edge location intelligence data to identify optimal locations for stores. Location intelligence leverages data from multiple sources relevant to Container Store customers and its lines of business (e.g., number of people in a geographic area who drink wine or donate to charity). In addition, it uses census-based data GIS (incomes, demographics in a neighborhood, etc.); information from consumer credit-card transactions (for example, annual spending in various product cat­egories in an area); social-media information from LinkedIn (jobs and skills within an area) and Facebook (opinions of businesses in the area); mobile beacon data from telecommunica­tions companies on when and how often consumers visit stores in a neighborhood; and traffic density information (how long customers may sit in traffic) to evaluate prospective sites. The retailer may decide not to invest in real estate at all and instead develop an online strategy.¹⁵

1. Characteristics of the Population

Knowledge about population attributes can be gained from secondary sources. They offer data on population size, households, income distribution, education, age distribution, and more. Since Census of Population and other public sources are so valuable, we briefly discuss them next.

CENSUS OF POPULATION The Census of Population supplies a wide range of demographic data for all U.S. cities and surrounding vicinities. Data are organized geographically, starting with blocks and continuing to census tracts, cities, counties, states, and regions. There are less data for blocks and tracts than for larger units due to privacy issues. The major advantage of census data is the data on small geographic units. After trading-area boundaries are set, a firm can look at data by geographic unit in an area and study aggregate data. There are also data categories helpful for retailers wanting market segmentation—including racial and ethnic data, small-area income data, and commuting patterns. Data come in many formats, including online.

The U.S. Census Bureau’s TIGER computerized database contains extremely detailed physi­cal breakdowns of areas in the United States. The database has digital descriptions of geographic areas (area boundaries and codes, latitude and longitude coordinates, and address ranges). Because TIGER data must be used in conjunction with population and other data, GIS software is necessary. As noted earlier in this chapter, private firms have devised location analysis pro­grams, based largely on TIGER. These firms also usually project data to the present and into the future.

Major drawbacks of the Census of Population are that it is done only once every 10 years and all data are not immediately available. The last full set of U.S. census data is the 2010 Census of Population, with data released in phases from 2011 through 2013. Thus, census material can be dated and inaccurate. Other sources, such as municipal building departments or utilities, state governments, other Census reports (such as the Current Population Survey), and projections by private firms such as Dun & Bradstreet must be used to update Census of Population data.

The value of the Census of Population’s actual 2010 census tract data can be shown by an illustration of Long Beach, New York, which is 30 miles east of New York City on Long Island’s south shore. Long Beach includes the six census tracts highlighted in Figure 9-8: 4164, 4165, 4166, 4167.01, 4167.02, and 4168. Although tract 4163 is contiguous with Long Beach, it represents another community. Table 9-2 shows various population statistics for each Long Beach census tract. Overall, Long Beach is above average in most demographics. However, resident attributes in each tract do differ; thus, a retailer may locate in one or more tracts but not in others.

Suppose a local bookstore wants to evaluate two potential trading areas based on the demo­graphic data of the census tracts described in Table 9-2. Trading-area A corresponds with tracts 4164 and 4166. Area B corresponds to tracts 4167.01 and 4168. Population data for these areas (extracted from Table 9-2) are presented in Table 9-3. Area A is somewhat different from Area B, despite their proximity:

• The population in Area B is 20 percent larger.
• Although the population in both areas fell from 2000 to 2010, Area B dropped by a smaller percentage.
• In Areas A and B, the percentage aged 25 and older with college degrees is about equal.
• The annual median income and the proportion of workers who are managers or professionals are a bit higher for Area B.

The bookstore would have a tough time selecting between the areas because they are so similar. Thus, the firm might also consider the location of the sites available in Area A and Area B, relative to the locations of its existing stores, before making a final decision. It should also consider the differences between the census tracts in each proposed location. For example, in Area A, a much lower percentage of people are college graduates in tract 4164 than tract 4166.

OTHER PUBLIC SOURCES There are many other useful, easily accessible public sources for cur­rent population information, in addition to the Census of Population—especially on a city or county basis. These sources typically update their data annually. They also provide some data not available from the Census of Population—total annual retail sales by area, annual retail sales for specific product categories, and population projections. The biggest disadvantage of these sources is their use of geographic territories that are often much larger than a store’s trading area and that cannot be broken down easily.

One newer national source of annual population data is the American Community Survey, which provides “demographic, social, economic, and housing data” for about 1,000 geographical areas. The survey has an excellent, user-friendly Web site (www.census.gov/acs/www). On the state and local levels, public data sources include planning commissions, research centers at public universities, county offices, and many other institutions.

Let us demonstrate the usefulness of public sources through the following example. (Note: We obtained all of the information for our example on the Internet—free!)

Suppose a prospective new car dealer investigates three counties near Chicago: DuPage, Kane, and Lake. The dealer decides to focus on one source of data available in print and online versions: Northern Illinois Market Facts (prepared by the Center for Government Studies, North­ern Illinois University). Table 9-4 lists selected population and retail sales data for these counties.

What can the dealer learn? DuPage is by far the largest county; Kane is the smallest. Yet, the population growth rate from 2000 to 2010 was much higher for Kane. Lake has the highest median household income; DuPage has more adult college graduates. Per capita, DuPage residents account for 60 percent more retail sales than Kane residents and 21 percent more than Lake’s. Lake and DuPage residents both allot more than one-fifth of spending to autos and gas stations; Kane residents account for the highest percentage of retail spending at apparel and food stores.

A Cadillac dealer using the data might select DuPage or Lake; a Ford dealer might choose Kane. But because the data are broad, several subsections of Kane may really be better choices to subsections in DuPage or Lake for the Cadillac dealer. Competition in each area also must be noted.

A location decision for a fast-food franchise often requires less data than for a bookstore or an auto dealer. Fast-food franchisors often seek communities with many people who live or work within three or four miles of their stores. But bookstore owners and auto dealers cannot locate merely based population density; they must consider a more complex set of population factors.

ECONOMIC BASE CHARACTERISTICS

The economic base reflects a community’s commercial and industrial infrastructure and residents’ sources of income. A firm seeking stability normally prefers an area with a diversified economic base (a large number of nonrelated industries) to one with an economic base keyed to a single major industry. The latter area is more affected by a strike, declining demand for an industry, and cyclical fluctuations.

In assessing a trading area’s economic base, a retailer should investigate the percentage of the labor force in each industry, transportation, banking facilities, the impact of economic fluc­tuations, and the future of individual industries (firms). Data can be obtained from such sources as Easy Analytic Software, Editor & Publisher Market Guide, regional planning commissions, industrial development organizations, and chambers of commerce.

Easy Analytic Software (www.easidemographics.com) offers several inexpensive economic reports. It also produces “Census 2010 Reports” that can be downloaded free (after a simple sign-in), including Quick Reports, Quick Tables, Quick Maps, Site Analysis, Rank Analysis, and Profile Analysis.

Editor & Publisher Market Guide offers annual economic base data for cities, including employment sources, transportation networks, financial institutions, auto registrations, newspaper circulation, and shopping centers. It also has data on population size and total households. The data in this guide cover broad geographic areas. The bookstore noted earlier might find the data on shopping centers to be helpful. The auto dealer would find the information on the transportation network, the availability of financial institutions, and the number of passenger cars to be useful. Editor & Publisher Market Guide is best used to supplement other sources.

2. The Nature of Competition and the Level of Saturation

A trading area may have residents who match desired characteristics of the desired market and a strong economic base, yet be a poor site for a new store if competition is too intense. A locale with a small population and a narrow economic base may be a good place if competi­tion is less.

When examining competition, these factors should be analyzed: the number of existing stores, the size distribution of existing stores, the rate of new store openings, the strengths and weaknesses of all stores, the short-run and long-run trends, and the level of saturation.

Over the past 30 years, more U.S. retailers have entered foreign markets due to not as much competition. That is why Walmart is now in 28 countries, including Argentina, Brazil, China, Mexico, and Nigeria; Home Depot is in Canada, Guam, Mexico, and the Virgin Islands; and Baskin-Robbins has stores in Australia, Greece, Indonesia, Malaysia, Russia, and Thailand. Yet, in the future, even these locales may become oversaturated due to all the new stores. Furthermore, although the Northeast population in the United States has been declining relative to the South­east and the Southwest—and is often considered to be saturated with stores—its high population density (the number of persons per square mile) is crucial for retailers. According to the 2010 U.S. Census, in New Jersey, there were 1,196 people per square mile; in Massachusetts, 840; in Florida, 351; in Louisiana, 105; in Arizona, 57; and in Utah, 34.

An understored trading area has too few stores selling a specific good or service to satisfy the needs of its population. An overstored trading area has so many stores selling a specific good or service that some retailers cannot earn an adequate profit. A saturated trading area has the proper amount of stores to satisfy the needs of its population for a specific good or service, and to enable retailers to prosper.

Despite the large number of areas in the United States that are overstored, there still remain plentiful opportunities in understored communities. In some product categories, such as furniture, there can be a devastating plunge in sales and store closings in many areas during a housing reces­sion. An economic recovery, low interest rates, improving employment, and rising home sales can stoke demand for household furniture. Today, new furniture stores are opening at an unprec­edented rate in understored areas due to 83 million Millennials at their peak spending age and 76 million Baby Boomers who need new furniture appropriate for downsized homes and lifestyles.¹⁶

MEASURING TRADING-AREA SATURATION Because any trading area can support only a given number of stores or square feet of selling space per goods/service category, these ratios can help quantify retail store saturation:

Number of persons per retail establishment

• Average sales per retail store
• Average sales per retail store category
• Average store sales per capita or household
• Average sales per square foot of selling area
• Average sales per employee

The saturation level in a trading area can be measured against a goal or compared with other trading areas. An auto accessory chain could find that its current trading area is saturated by com­puting the ratio of residents to auto accessory stores. On the basis of this calculation, the owner could then decide to expand into a nearby locale with a lower ratio rather than to add another store in its present trading area.

Data for saturation ratios can be obtained from retailer records on its performance, city and state records, phone directories, surveys, economic census data, Editor & Publisher Market Guide, County Business Patterns, trade publications, and other sources. Sales by category, population size, and number of households per market area can be found with other sources.

When investigating an area’s saturation for a specific good or service, ratios must be inter­preted carefully. Differences among areas are not always reliable indicators of saturation. For instance, car sales per capita are different for a suburban area than an urban area because sub­urbanites have a much greater need for cars. Each area’s level of saturation should be evaluated against distinct standards—based on optimum per-capita sales figures in that area.

In calculating saturation based on sales per square foot, a new or growing retailer must take its proposed store into account. If that store is not part of the calculation, the relative value of each trading area is distorted. Sales per square foot decline most if new outlets are added in small com­munities. The retailer should also consider if a new store will expand the total consumer market for a good or service category in a trading area or just increase its market share in that area without expanding the total market.

Next are three examples of how retailers factor trading-area saturation into their decisions:

• Urban Outfitters (www.urbn.com) is an omnichannel lifestyle specialty retailer that operates Urban Outfitters (average store 9,000 square feet); Free People (average store 1,800 square feet); Anthropologie, Terrain, and BHLDN (average store 7,000 square feet); as well as E-commerce Web sites, mobile applications, and catalogs. It competes with online and offline stores, including those that sell its wholesale Free People products and chain fashion specialty and department stores in competitive domestic and international markets. Declines in discretionary spending on fashion, overstored U.S. retail space (where there is five times more space per person compared to that of Great Britain, France, and Japan),¹⁷ and more comparison shopping online can force markdowns—a promotional sales environ- ment—that negatively affect profit margins.

• The retail drugstore industry is highly competitive. Prescription drug sales account for more than half of sales revenues in the industry, but profit margins are low due to insurers and Medicare/Medicaid. Rite Aid (riteaid.com), the third-largest drugstore chain (with 4,560 stores) competes with other retail drugstore chains, independently owned drugstores, supermarkets, mass merchandisers, discount stores, wellness offerings, dollar stores, and mail-order pharmacies. Consolidation in the drugstore industry, the aggressive discounting of generic drugs by supermarkets and mass merchandisers (e.g., Walmart), and the increase of promotional incentives to drive prescription sales further increase competitive pressures. To expand overall profitability and higher market share, Rite Aid acquired pharmacy benefit manager (PBM) Envision Rx to access prescription files to see what are likely to be customer generators for higher margin “front-end” (e.g., nonprescription) goods and services (such as photo printing) and mini-clinics in stores. Rite Aid is rebuilding its real-estate portfolio by adding stores to fill out understored trading areas, in addition to store remodels and relocations.¹⁸
• Marketing Guidebook (www.marketingguidebook.com) has data for retailers selling food—including population size, number of households, total food store sales, number of food stores by type of retailer (such as supermarkets versus membership clubs), and more—that can be used to measure the level of saturation by U.S. city and community.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

There are three different location types: isolated store, unplanned business district, and planned shopping center. Each has its own attributes as to the composition of competitors, parking, near­ness to nonretail institutions (such as office buildings), and other factors. Step 2 in the location process is to determine which type of location to use.

1. The Isolated Store

An isolated store is a freestanding retail outlet located on either a highway or a street. There are no adjacent retailers with which this type of store shares traffic. The advantages of this type of retail location are many:

• There is no competition in close proximity.
• Rental costs are relatively low.
• There is flexibility; no group rules affect operations, and larger space may be obtained.
• Isolation is good for stores involved in one-stop or convenience shopping.
• Better road and traffic visibility is possible.
• Facilities can be adapted to individual specifications.
• Easy parking can be arranged.
• Cost reductions are possible, leading to lower prices.

There are also various disadvantages to this retail location type:

• Initial customers may be difficult to attract.
• Many people will not travel very far to get to one store on a continuous basis.
• Most people like variety in shopping.
• Advertising expenses may be high.
• Costs such as outside lighting, security, grounds maintenance, and trash collection are not shared.
• Other retailers and community zoning laws may restrict access to desirable locations.
• A store must often be built rather than rented.
• As a rule, unplanned business districts and planned shopping centers are much more popular among consumers; they generate most of retail sales.

Large-store formats (such as Walmart supercenters and Costco membership clubs) and convenience-oriented retailers (such as 7-Eleven) are usually the retailers best suited to isolated locations due to the challenge of attracting a target market. A small specialty store would prob­ably be unable to develop a customer following; people would be unwilling to travel to a store that does not have a large assortment of products or a strong image for merchandise and/or prices.

Years ago, numerous shopping centers forbade discounters because discounting was frowned on by anchor retailers. This forced discounters to seek isolated sites or to build their own centers; and they have been successful. Today, diverse retailers are in isolated locales as well as at business district and shopping center sites. Retailers using a mixed-location strategy include McDonald’s, Target, Sears, Starbucks, Toys “R” Us, Walmart, and 7-Eleven. Some retailers, including many gas stations and convenience stores, still emphasize isolated locations. See Figure 10-1.

2. The Unplanned Business District

An unplanned business district is a type of retail location where two or more stores situate together (or in close proximity) in such a way that the total arrangement or mix of stores is not due to prior long-range planning. Stores locate based on what is best for them, not the district. For example, four shoe stores may exist in an area with no pharmacy. There are four kinds of unplanned business districts: central business district, secondary business district, neighborhood business district, and string. A discussion of each follows.

CENTRAL BUSINESS DISTRICT A central business district (CBD) is the hub of retailing in a city. It is synonymous with the term downtown. The CBD exists where there is the greatest density of office buildings and stores. Both vehicular and pedestrian traffic are very high. The core of a CBD is often no more than a square mile, with cultural and entertainment facilities surrounding it. Shoppers are drawn from the whole urban area and include all ethnic groups and all classes of people. The central business district has at least one major department store and a number of specialty and convenience stores. The arrangement of stores follows no pre-set format; it depends on history (first come, first located), retail trends, and luck.

Here are some strengths that allow central business districts to draw a large number of shoppers:

• Excellent goods/service assortment
• Access to public transportation
• Variety of store types and positioning strategies within one area
• Wide range of prices
• Variety of customer services
• High level of pedestrian traffic (see Figure 10-2)
• Nearness to commercial and social facilities
• In addition, chain headquarters stores are often situated in central business districts.
• These are some of the inherent weaknesses of the CBD:
• Inadequate parking, as well as traffic and delivery congestion Travel time for those living in the suburbs
• Frail condition of some cities—such as aging stores—compared with their suburbs
• Relatively poor image of central cities to some potential consumers
• High rents and taxes for the most popular sites
• Movement of some popular downtown stores to suburban shopping centers
• Discontinuity of offerings (such as four shoe stores and no pharmacy)

The central business district remains a major retailing force, although its share of overall sales has fallen over the years, as compared with the planned shopping center. Besides the weaknesses cited, much of the drop-off of business is due to suburbanization. In the first half of the twentieth century, most urban workers lived near their jobs. Gradually, many people moved to suburbs— where they are often served by planned shopping centers.

A number of CBDs are doing well, however, and many others are striving to return to their prior stature. They use such tactics as modernizing storefronts and equipment, forming merchants’ associations, modernizing sidewalks and adding brighter lighting, building vertical malls (with several floors of stores), improving transportation networks, closing streets to vehicular traffic (sometimes with disappointing results), bringing in “razzmatazz” retailers such as Apple stores, and integrating a commercial and residential environment known as mixed-use facilities. The renewed popularity of living in urban areas by Millennials and Baby Boomers creates retail needs that go beyond those of the transient daytime population. Vibrant urban shopping districts with mixed-use properties, access to public transport, and entertainment districts appeal to diverse lifestyles and are a competitive advantage for cities.⁵

A good example of the value of a revitalized CBD is Philadelphia, where there has been a strong long-term effort under way to make the central city more competitive with suburban shopping centers. Consider these facts about Philadelphia’s central business district: $1.5 billion is being spent in streetscape, facade, and public-area improvements to construct 5.5 million square feet of leasable space. Also, some 27,000 new housing units will be added by 2019, convert­ing vacant office buildings, factories, and empty lots into condos, apartments, and single-family housing. This will result in a transformation of neighborhoods, an increase in population, and revitalized retail development. Empty Nesters and Millennials, who make up 40 percent of Phila­delphia’s center city population, work and live in the city; and the average household income has been rising. The influx of such retailers as high-end furniture maker Thos. Moser, Vince, Under Armor, Lululemon, Nordstrom Rack, and Bloomingdale’s Outlet is extending the area to nearby neighborhoods and ancillary corridors. Many successful E-commerce sites, including Warby Parker, Bonobos, and Athleta, are establishing brick-and-mortar stores here.

Boston’s Faneuil Hall is another long-term CBD renovation success. When developer James Rouse took over the site originally called Quincy Market, it had three 150-year-old, block-long for­mer food warehouses that were abandoned for nearly a decade. Rouse used landscaping, fountains, banners, open-air courts, street performers, and colorful graphics to enable Faneuil Hall “America’s First Open Marketplace” to capture a festive spirit. Faneuil Hall now combines shopping, eating, and entertainment. Today, it has 100 shops and Bull Market pushcart vendors, 13 full-service restaurants, 35 food stalls, and regular events and entertainment. It attracts 18 million shoppers and visitors yearly.⁷

Other major CBD revitalization projects have included Annapolis Town Centre (Maryland), Branson Landing (Missouri), City Center District (Dallas), Harborplace Baltimore, Peabody Place (Memphis), Pioneer Place (Portland, Oregon), Grand Central Terminal (New York City), Tower City Center (Cleveland), and Union Station (Washington, D.C.).

SECONDARY BUSINESS DISTRICT A secondary business district (SBD) is an unplanned shopping area in a city or town that is usually bounded by the intersection of two major streets. Cities— particularly larger ones—often have multiple SBDs, each with at least a junior department store (a branch of a traditional department store or a full-line discount store) and/or some larger spe­cialty stores, besides many smaller stores. This format is now more important because cities have “sprawled” over larger geographic areas.

The kinds of goods and services sold in an SBD mirror those in the CBD. However, a sec­ondary business district has smaller stores, less width and depth of merchandise assortment, and a smaller trading area (consumers will not travel as far), and it sells a higher proportion of convenience-oriented items.

The SBD’s major strengths include a good product selection, access to thoroughfares and public transportation, less crowding and more personal service than in a central business district, and placement nearer to residential areas than a CBD. The SBD’s major weaknesses include the discontinuity of offerings, the sometimes high rent and taxes (but not as high as in a CBD), traffic and delivery congestion, aging facilities, parking difficulties, and fewer chain outlets than in the CBD. These weaknesses have generally not affected the SBD as much as the CBD—and parking problems, travel time, and congestion are less for the SBD.

NEIGHBORHOOD BUSINESS DISTRICT A neighborhood business district (NBD) is an unplanned shopping area that appeals to the convenience shopping and service needs of a single residential area. An NBD contains several small stores, such as a dry cleaner, a stationery store, a barber shop and/or a beauty salon, a liquor store, and a restaurant. The leading retailer tends to be a supermarket or a large drugstore. This type of business district is situated on the major street(s) of its residential area.

A neighborhood business district offers a good location, long store hours, good parking, and a less hectic atmosphere than a central business district or secondary business district. On the other hand, there is a more limited selection of goods and services, and prices tend to be higher because competition is less than in a CBD or SBD.

STRING A string is an unplanned shopping area comprising a group of retail stores, often with similar or compatible product lines, located along a street or highway. There is little extension of shopping onto perpendicular streets. A string may start with an isolated store, success then breeding competitors. Car dealers, antique stores, and apparel retailers often situate in strings.

A string location has many of the advantages of an isolated store site (lower rent, more flexibility, better road visibility and parking, and lower operating costs), along with some disadvan­tages (less product variety, increased travel for many consumers, higher advertising costs, zoning restrictions, and the need to build premises). Unlike an isolated store, a string store has competition at its location. This draws more people to the area and allows for some sharing of common costs. It also means less control over prices and less loyalty toward each outlet. An individual store’s increased traffic flow, due to being in a string rather than an isolated site, may be greater than the customers lost to competitors. This explains why four gas stations locate on opposing corners.

Figure 10-3 shows a map with various unplanned business districts and isolated locations.

3. The Planned Shopping Center

A planned shopping center consists of a group of architecturally unified commercial establish­ments on a site that is centrally owned or managed, designed and operated as a unit, based on balanced tenancy, and accompanied by parking facilities. Its location, size, and mix of stores are related to the trading area served. Through balanced tenancy, the stores in a planned shopping center complement each other as to the quality and variety of their product offerings, and the kind and number of stores are linked to overall population needs. To ensure balanced tenancy, management of a planned center usually specifies the proportion of total space for each kind of retailer, limits product lines that can be sold by every store, and stipulates what kinds of firms can acquire unexpired leases. At a well-run center, a coordinated and cooperative long-run retailing strategy is followed by all stores.

The planned shopping center has several positive attributes:

• Well-rounded assortments of goods and services based on long-range planning
• Strong suburban population
• Interest in one-stop, family shopping
• Cooperative planning and sharing of common costs
• Creation of distinctive, but unified, shopping center images
• Maximization of pedestrian traffic for individual stores
• Access to highways and availability of parking for consumers
• More appealing than city shopping for some people
• Generally lower rent and taxes than CBDs (except for enclosed regional malls)
• Generally lower theft rates than CBDs
• Popularity of malls—both open(shopping area off-limits to vehicles) and closed(shopping area off-limits to vehicles and all stores in a temperature-controlled facility)
• Growth of discount malls and other newer types of shopping centers

There are also some limitations associated with the planned shopping center:

• Landlord regulations that reduce each retailer’s flexibility, such as required hours
• Generally higher rent than an isolated store
• Restrictions on the goods/services that can be sold by each store
• A competitive environment within the center
• Required payments for items that may be of little or no value to an individual retailer, such as membership in a merchants’ association
• Too many malls in a number of areas (“the malling of America”)
• Rising consumer boredom with and disinterest in shopping as an activity
• Aging facilities of some older centers
• Domination by large anchor stores

There are 115,000 U.S. shopping centers (including convenience, power, lifestyle, and theme centers, as well as airport retailing); 1,000 centers are enclosed malls. Shopping center revenues exceed $2.4 trillion annually and account for nearly one-half of U.S. retail-store sales (including autos and gasoline). About 12.5 million people work in shopping centers. Eighty-five percent of Americans over age 18 visit some type of shopping center in an average month. Nordstrom, Macy’s, Foot Locker, Gap, Sephora, and Hallmark are among the vast number of chains with a strong presence at shopping centers. Some big retailers have also been involved in shopping-center development. Sears has participated in the construction of dozens of shopping centers, and Publix Supermarkets operates centers with hundreds of small tenants. Each year, numerous new centers of all kinds and sizes are built, and retail space is added to existing centers.⁸ See Figure 10-4.

To sustain their long-term growth, shopping centers are engaging in these practices:

• Several older centers have been renovated, expanded, and/or repositioned. Cherry Hill Mall in Philadelphia; Hamilton Place Mall in Chattanooga; Kentucky Oaks Mall in Paducah, Kentucky; McCain Mall in Little Rock, Arkansas; Westfield Trumbull Shopping Center in Trumbull, Connecticut; and Yorkdale Shopping Centre Mall in Toronto, Canada, have all been revitalized. Visit our blog (www.bermanevansretail.com) for information on shopping centers.
• Certain derivative types of centers foster consumer interest and enthusiasm. Three of these— megamalls, lifestyle centers, and power centers—are discussed a little later in this chapter.
• Shopping centers are responding to shifting lifestyles. They have made parking easier; added ramps for baby strollers and wheelchairs; and included distinctive retailers such as the Apple Store, Apricot Lane, BCBG Max Azria, Juicy Couture, MaxMara, Michael Kors, Rue 21, and Zumiez. They have also introduced more information booths and center directories.
• The retailer mix has broadened at many centers to attract people wanting one-stop shopping. More centers now include banks, stockbrokers, dentists, doctors, beauty salons, TV repair outlets, and/or car rental offices. Centers may also include “temporary tenants” (retailers that lease space, often in mall aisles or walkways, and sell from booths or moving carts). Tenants benefit from the lower rent and short-term commitment; centers benefit by creating more shopping excitement and diversity. Consumers then discover new vendors in unexpected places.
• Open-air malls are gaining popularity because they are less expensive to build, which means lower rents and common-area costs. Many people also like the outdoor shopping experience. A popular example is the Mall at Partridge Creek, an open-air regional center in Clinton Township, Michigan. It is anchored by Nordstrom, Carson’s, and a 14-screen cinema. The center has 90 stores and restaurants. What gives it a special flair? “Partridge Creek has ameni­ties unique to malls in Michigan, including: Bocce ball courts, free Wi-Fi, pop-jet fountains, a TV court, and a 30-foot fireplace.”⁹ Free events—including concerts, Wellness Wednesdays, and walking clubs—create community involvement and offer retailers opportunities to engage with shoppers.
• More center developers are striving to build their own brand loyalty. Simon and Westfield are among those that have spent millions of dollars to boost their images by promoting their own names—with the Simon Mall name prominently featured at its shopping centers. Simon (www.simon.com) owns and/or manages 230 properties in North America, Europe, and Asia.¹⁰
• Some shopping centers use frequent-shopper programs to retain customers and track spend­ing. Simon Insiders earn VIP parking spots and invitations to private mall events in addition to cash back when they spend more than $1,000 in a month at Simon Property Group malls.

There are three types of planned shopping centers: regional, community, and neighborhood.

Their characteristics are noted in Table 10-1, and they are described next.

REGIONAL SHOPPING CENTER A regional shopping center is a large, planned shopping facility appealing to a geographically dispersed market. It has at least one or two department stores (each with at least 100,000 square feet) and 40 to 125 or more smaller retailers. A regional center offers a very broad and deep assortment of shopping-oriented goods and services intended to enhance the consumer’s visit. The market is 100,000+ people who live or work up to a 30-minute drive away. On average, people travel under 20 minutes. A significant trend among regional shopping centers is to add category killers as anchor tenants to replace closed department stores. General Growth Properties has filled 79 of 83 vacant department store locations with such tenants as H&M, Dick’s Sporting Goods, and Wegman’s Food Markets.¹²

The regional center is the result of a planned effort to re-create the shopping variety of a central city in suburbia. Some regional centers have become the social, cultural, and vocational focal point of a suburban area. They may be used as a town plaza, a meeting place, a concert hall, and a place for a brisk indoor walk. Despite the declining overall interest in shopping, on a typi­cal visit to a regional shopping center, many people spend an average of an hour or more there.

The first outdoor regional shopping center opened in 1950 in Seattle, anchored by a branch of Bon Marche, then a leading downtown department store. Southdale Center (outside Minne­apolis), built in 1956 for Target Corporation (then Dayton Hudson), was the first fully enclosed, climate-controlled mall. Today, there are about 1,250 U.S. regional centers of various kinds, and this format has popped up around the world (where small stores still remain the dominant force) from Australia to Brazil to India to Malaysia.

One type of regional center is the megamall, an enormous planned shopping center with 800,000+ square feet of retail space, multiple anchor stores, up to several hundred specialty stores, food courts, entertainment facilities, and a trade area size of up to 25 miles. It seeks to heighten interest in shopping and expand the trading area. There are 625 U.S. megamalls in the United States.¹³ The largest is the Mall of America (www.mallofamerica.com) in Bloomington, Minnesota. It has three anchors (Macy’s, Nordstrom, and Sears), 520 specialty stores, a 14-screen movie theater, a health club, 50 restaurants, a Nickelodeon Universe indoor amusement park, an aquarium, and 12,550 parking spaces—with 4.2 million square feet of building space. The mall has stores for every budget, attracts between 35 to 40 million visitors yearly (40 percent of visi­tors are tourists). Beijing, China’s Jinyuan Yansha shopping center (nicknamed the “Great Mall of China”) is the largest megamall in the world. It is 1.5 times the size of Mall of America, with over 1,000 shops and 6 million square feet of space. See Figure 10-5 for another leading megamall.

COMMUNITY SHOPPING CENTER A community shopping center is a moderate-sized, planned shopping facility with a branch department store (traditional or discount) and/or a category killer store, as well as several smaller stores (similar to those in a neighborhood center). It offers a moderate assortment of shopping- and convenience-oriented goods and services to consumers from one or more nearby, well-populated, residential areas. About 20,000 to 100,000 people who live or work within a 10- to 20-minute drive are served by this location. There are 10,000 com­munity shopping centers in the United States.

Better long-range planning occurs for a community shopping center than a neighborhood shopping center. Balanced tenancy is usually enforced, and cooperative promotion is more prob­able. Store composition and the center’s image are kept pretty consistent with pre-set goals.

Two noteworthy variations of the community center (not included in Table 10-1) are the power center and the lifestyle center. A power center is a shopping site with (1) up to a half-dozen or so category-killer stores and a mix of smaller stores or (2) several complementary stores spe­cializing in one product category. A power center usually occupies 200,000 to 600,000 square feet on a major highway or road intersection. It seeks to be quite distinctive to draw shoppers and better compete with regional centers. There are 2,250 U.S. power centers.¹⁴ An example of a power center is 280 Metro Center in Colma, California. The center’s tenants include such category-killer retailers as Marshalls, Nordstrom Rack, Old Navy, David’s Bridal, and Pier 1 Imports.

A lifestyle center is an open-air shopping site that typically includes 150,000 to 500,000 square feet of space dedicated to upscale, well-known specialty stores as well as dining and enter­tainment. The focus is often on apparel, home products, books, music, and restaurants. Popular stores at lifestyle centers include Ann Taylor, Banana Republic, Bath & Body Works, Gap, Pottery Barn, Talbots, Victoria’s Secret, and Williams-Sonoma. Examples of lifestyle shopping centers include Aspen Grove in Littleton, Colorado; Deer Park Town Center in Illinois; Rookwood Com­mons in Cincinnati, Ohio; and CocoWalk in Coconut Grove, Florida. At present, there are about 460 such centers in the United States.¹⁵

NEIGHBORHOOD SHOPPING CENTER A neighborhood shopping center is a planned shopping facility, with the largest store being a supermarket or a drugstore. Other retailers often include a bakery, laundry, dry cleaner, stationery store, barbershop or beauty parlor, hardware store, restau­rant, liquor store, and gas station. This center focuses on convenience-oriented goods and services for people living or working nearby. It serves 3,000 to 50,000 people who are within a 15-minute drive (usually less than 10 minutes). See Figure 10-6.

A neighborhood center is usually arranged in a strip. Initially, it is carefully planned and tenants are balanced. Over time, the planned aspects may lessen and newcomers may face fewer restrictions. Thus, a liquor store might replace a barbershop—leaving a void. A center’s ability to maintain bal­ance depends on its attractiveness to potential tenants (expressed by the extent of store vacancies). In number, but not in selling space or sales, neighborhood centers account for 75 percent of all U.S. regional, community, and other shopping centers.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

The last part of Step 2 in location planning requires a retailer to select a locational format: isolated, unplanned district, or planned center. The decision depends on the firm’s strategy and a careful evaluation of the advantages and disadvantages of each alternative.

Next, in Step 3, the retailer chooses a broadly defined site. Two decisions are needed here. First, the specific kind of isolated store, unplanned business district, or planned shopping cen­ter location is selected. If a firm wants an isolated store, it must decide on a highway or side street. Should it desire an unplanned business area, it must decide on a central business district, a secondary business district, a neighborhood business district, or a string. A retailer seeking a planned area must choose a regional, community, or neighborhood shopping center—and decide whether to use a derivative form such as a megamall or power center. Here are the preferences of two retailers:

• Guitar Center, privately owned by CNL-KKR, operates more than 260 Guitar Center stores in 44 states and 120 Music & Arts stores in 19 states. Among the Guitar Center stores, 62 percent are primary format units, 33 percent are secondary format units, and 5 percent are tertiary format units. The retailer selects the store format based on the size of the market in which it is located. Primary format stores range in size from 13,000 to 30,000 square feet and serve major metropolitan population centers. Secondary format stores range from 8,000 to 14,000 square feet and serve metropolitan areas not served by primary format stores. Tertiary market stores of 5,000 square feet serve smaller populations.¹⁶
• Apple Stores are usually located at high-traffic locations in premium shopping malls and urban shopping districts in about a dozen countries, including the United States. Apple owns and operates 400 of its own stores, thereby attracting new customers by ensuring a high- quality buying experience. Stores are designed to simplify and enhance the presentation and marketing of Apple products and related items. Store configurations of various sizes have evolved to address market-specific demands.¹⁷

The second decision is that a firm must select its general store placement. For an isolated store, this means choosing a specific highway or side street. For an unplanned district or planned center, this means selecting a specific district (e.g., downtown Los Angeles) or center (e.g., La Gran Plaza in Fort Worth, Texas).

In Step 3, the retailer narrows down the decisions made in the first two steps and then chooses a general location. Step 4 requires the firm to evaluate specific alternative sites, including their position on a block (or in a center), the side of the street, and the terms of tenancy. Factors to be considered in assessing and choosing a general location and a specific site within that location are described together in the next section because many strategic decisions are similar for these two steps.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

Assessment of general locations and the specific sites within them requires extensive analysis. In any area, the optimum site for a particular store is called the one-hundred percent location. Because different retailers need different kinds of sites, a location labeled as 100 percent for one firm may be less desirable for another. An upscale ladies’ apparel shop would seek a location unlike one sought by a convenience store. The apparel shop would benefit from pedestrian traffic, closeness to major department stores, and proximity to other specialty stores. The convenience store would rather be in an area with ample parking and vehicular traffic. It does not need to be near other stores.

Figure 10-7 has a location/site evaluation checklist. A retailer should rate each alternative location (and specific site) on all the criteria and develop overall ratings for them. Two firms may rate the same site differently. This figure should be used in conjunction with the trading-area data in Chapter 9, not instead of them.

1. Pedestrian Traffic

The most crucial measures of a location’s and site’s value are the number and type of people pass­ing by. Other things being equal, a site with the most pedestrian traffic is often best.

Not everyone passing a location or site is a good prospect for all types of stores, so many firms use selective counting procedures, such as counting only those with shopping bags. Otherwise, pedestrian traffic totals may include many nonshoppers. It would be improper for an appliance retailer to count as prospective shoppers all people passing a downtown site on the way to work. Much downtown pedestrian traffic may be from those who are there for nonretailing activities.

A proper pedestrian traffic count should encompass these four elements:

• Separation of the count by age and gender (with very young children not counted).
• Division of the count by time (this allows the study of peaks, low points, and changes in the gender of the people passing by the hour).
• Pedestrian interviews (to find out the proportion of potential shoppers).
• Spot analysis of shopping trips (to verify the stores actually visited).

2. Vehicular Traffic

The quantity and characteristics of vehicular traffic are very important for retailers that appeal to customers who drive there. Convenience stores, outlets in regional shopping centers, and car washes are retailers that rely on heavy vehicular traffic. Automotive traffic studies are essential in suburban areas, where pedestrian traffic is often limited.

As with pedestrian traffic, adjustments to the raw count of vehicular traffic must be made. Some retailers count only homeward-bound traffic, some exclude vehicles on the other side of a divided highway, and some omit out-of-state cars. Data may be available from the state highway department, the county engineer, or the regional planning commission.

Besides traffic counts, the retailer should study the extent and timing of congestion (from traffic, detours, and poor roads). People normally avoid congested areas and shop where driving time and driving difficulties are minimized.

3. Parking Facilities

Many U.S. retail stores include some provision for nearby off-street parking. In many business districts, parking is provided by individual stores, arrangements among stores, and local govern­ment. In planned shopping centers, parking is shared by all stores there. The number and quality of parking spots, their distances from stores, and the availability of employee parking should all be evaluated. See Figure 10-8.

The need for retailer parking facilities depends on the store’s trading area, the type of store, the proportion of shoppers using a car, the existence of other parking, the turnover of spaces (which depend on the length of a shopping trip), the flow of shoppers, and parking by nonshop­pers. A shopping center normally needs 4 to 5 parking spaces per 1,000 square feet of gross floor area, a supermarket 10 to 15 spaces, and a furniture store 3 or 4 spaces.

Free parking sometimes creates problems. Commuters and employees of nearby businesses may park in spaces intended for shoppers. This problem can be lessened by validating shoppers’ parking stubs and requiring payment from nonshoppers. Another problem may occur if the selling space at a location increases due to new stores or the expansion of current ones. Existing parking may then be inadequate. Double-deck parking or parking tiers save land and shorten the distance from a parked car to a store—a key factor because customers at a regional shopping center may be unwilling to walk more than a few hundred feet from their cars to the center.

4. Transportation

Mass transit, access from major highways, and ease of deliveries must be examined. For example, in a downtown area, closeness to mass transit is important for people who do not own cars, who commute to work, or who would not otherwise shop in an area with traffic congestion. The avail­ability of buses, taxis, subways, trains, and other kinds of public transit is a must for any area not readily accessible by vehicular traffic.

Locations dependent on vehicular traffic should be rated on nearness to major thoroughfares. Driving time is a consideration for many people. Also, drivers heading eastbound on a highway often do not like to make a U-turn to get to a store on the westbound side of that highway.

The transportation network should be studied for delivery truck access. Some thoroughfares are excellent for cars but ban large trucks or cannot bear their weight.

5. Store Composition

The number and size of stores should be consistent with the type of location. A retailer in an isolated site wants no stores nearby; a retailer in a neighborhood business district wants an area with 10 to 15 small stores; and a retailer in a regional shopping center wants a location with many stores, including large department stores (to generate customer traffic).

If the stores at a given location (be it an unplanned district or a planned center) complement, blend, and cooperate with one another, and each benefits from the others’ presence, affinity exists. When affinity is strong, the sales of each store are greater, due to the high customer traffic, than if the stores are apart. The practice of similar or complementary stores locating near each other is based on two factors: First, customers like to compare the prices, styles, selections, and services of similar stores. Second, customers like one-stop shopping and like to purchase at different stores on the same trip. Affinities can exist among competing stores as well as among complementary stores. More people travel to shopping areas with large selections than to convenience-oriented areas, so the sales of all stores are enhanced.

One measure of compatibility is the degree to which stores exchange customers. Stores in these categories are very compatible with each other and have high customer interchange:

• Supermarket, drugstore, bakery, fruit-and-vegetable store, meat store
• Department store, apparel store, hosiery store, lingerie shop, shoe store, jewelry store

Retail balance, the mix of stores within a district or shopping center, should also be con­sidered. (1) Proper balance occurs when the number of store facilities for each merchandise or service classification is equal to the location’s market potential, (2) a range of goods and services is provided to foster one-stop shopping, (3) there is an adequate assortment within any category, and (4) there is a proper mix of store types (balanced tenancy).

6. Specific Site

Selecting the specific site for the retail store depends on visibility; placement in the location, size, and shape of the lot; size and shape of the building; and condition and age of the lot and building.

Visibility is a site’s ability to be seen by pedestrian or vehicular traffic. A site on a side street or at the end of a shopping center is not as visible as one on a major road or at the center’s entrance. High visibility increases store awareness.

Placement in the location is a site’s relative position in the district or center. A corner location may be desirable because it is situated at the intersection of two streets and has “corner influence.” It is usually more expensive because of the greater pedestrian and vehicular passersby due to traffic flows from two streets, increased window display area, and less traffic congestion through multiple entrances. Corner influence is greatest in high-volume locations. That is why some Pier 1 stores, Starbucks restaurants, and other retailers seek corner sites. See Figure 10-9.

A convenience-oriented firm, such as a stationery store, is very concerned about the side of the street, the location relative to other convenience-oriented stores, nearness to parking, access to a bus stop, and the distance from residences. A shopping-oriented retailer, such as a furniture store, is more interested in a corner site to increase window display space, proximity to wallpaper and other related retailers, the accessibility of its pick-up platform to consumers, and the ease of deliveries to the store.

When a retailer buys or rents an existing building, its size and shape should be noted. Condi­tion and age of the lot and the building should be studied, as well. A department store, of course, requires much more space than a boutique. It may desire a square site, whereas the boutique might prefer a rectangular one. Any site should be viewed in terms of total space needs: parking, walkways, selling, nonselling, and so on.

Due to the saturation of many desirable locations and the lack of available spots in oth­ers, some firms have turned to nontraditional sites—often to complement their existing stores. T.G.I. Friday’s, Staples, and Bally have airport stores. Subway has outlets in many Walmarts, and Subway and some other fast-food retailers share facilities to provide more variety and to share costs.

7. Terms of Occupancy

Terms of occupancy—ownership versus leasing, type of lease, operations and maintenance costs, taxes, zoning restrictions, and voluntary regulations—must be evaluated for each prospective site.

OWNERSHIP VERSUS LEASING A retailer with adequate funding can either own or lease premises. Ownership is more common in small stores, in small communities, or at inexpensive locations. It has several advantages. There is no chance that a property owner will not renew a lease or double the rent when a lease expires. Monthly mortgage payments are stable. Operations are flexible; a retailer can engage in scrambled merchandising and break down walls. It is also likely that prop­erty value will appreciate over time, resulting in a financial gain if the business is sold. Ownership disadvantages are high initial costs, long-term commitment, and inability to readily change sites. Home Depot owns about 90 percent of its store properties.¹⁸

If a retailer chooses ownership, the next decision is whether to construct a new facility or buy an existing building. Considerations include purchase price and maintenance costs, zoning restrictions, age and condition of existing facilities, adaptability of existing facilities, and time to erect a new building. To encourage building rehabilitation in towns with 5,000 to 50,000 people, Congress enacted the Main Street America program (www.mainstreet.org) of the National Trust for Historic Preservation. It has a network of statewide, citywide, and regional programs actively serving more than 2,000 towns, which benefit from planning support, tax credits, and low-interest loans.

The great majority of stores in central business districts and regional shopping centers are leased (with Home Depot sometimes being one of the exceptions), mostly due to the high invest­ment for ownership. Department stores tend to have renewable 20- to 30-year leases, supermarkets usually have renewable 15- to 20-year leases, and specialty stores often have 5- to 10-year leases with options to extend. Some leases give the retailer the right to end an agreement before the expiration date—under given circumstances and for a specified retailer payment.

Leasing minimizes initial investment, reduces risk, provides access to prime sites that cannot add more stores, leads to immediate occupancy and traffic, and reduces long-term commitment. Many retailers feel they can open more stores or spend more on their strategies by leasing. Firms that lease accept limits on operating flexibility, restrictions on subletting and selling the business, possible nonrenewal problems, rent increases, and not gaining from rising real-estate values.

Through a sale-leaseback, some large retailers build stores and then sell them to real-estate investors who lease the property back to the retailers on a long-term basis. Retailers using sale-leasebacks build stores to their specifications and have bargaining power in leasing—while lowering capital expenditures.

TYPES OF LEASES Property owners do not rely solely on constant rent leases, partly due to their concern about interest rates and the related rise in operating costs. Terms can be quite complicated.¹⁹

The simplest, most direct arrangement is the straight lease—a retailer pays a fixed dollar amount per month over the life of the lease. Rent usually ranges from $1 to $75 annually per square foot, depending on the site’s desirability and store traffic. At some sites, rents can be much higher. On New York’s Fifth Avenue, the average yearly rental rate ranges up to $3,500 per square foot! This is the world’s highest retail rental rate.²⁰

A percentage lease stipulates that rent is related to sales or profits. This differs from a straight lease, which requires constant payments. A percentage lease protects a property owner against inflation and lets it benefit if a store is successful; it also allows a tenant to view the lease as a variable cost—rent is lower when its performance is weak and higher when performance is good. The percentage rate varies by type of shopping district or center and by type of store.

Percentage leases have variations. With a specified minimum, low sales are assumed to be partly the retailer’s responsibility; the property owner receives minimum payments (as in a straight lease) no matter what the sales or profits. With a specified maximum, it is assumed that a very successful retailer should not pay more than a maximum rent. Superior merchandising, promo­tion, and pricing should reward the retailer. Another variation is a sliding scale: The ratio of rent to sales changes as sales rise. A sliding-down scale has a retailer pay a lower percentage as sales go up and is an incentive to the retailer.

A graduated lease calls for precise rent increases over a stated period of time. Monthly rent may be $4,800 for the first 10 years and $5,600 for the last 10 years of a lease. Rent is known in advance by the retailer and the property owner; it is based on expected sales and cost increases. There is no need to audit sales or profits, as with percentage leases. This lease is often used with small retailers.

A maintenance-increase-recoupment lease has a provision allowing rent to increase if a property owner’s taxes, heating bills, insurance, or other expenses rise beyond a certain point. This provision most often supplements a straight rental lease agreement.

A net lease calls for all maintenance costs (such as heating, electricity, insurance, and interior repair) to be paid by the retailer. It frees the property owner from managing the facility and gives the retailer control over store maintenance. It supplements a straight lease or a percentage lease.

OTHER CONSIDERATIONS After assessing ownership and leasing opportunities, a retailer must look at the costs of operations and maintenance. The age and condition of a facility may cause a retailer to have high monthly costs, even though the mortgage or rent is low. Furthermore, the costs of extensive renovations should be calculated.

Differences in sales taxes (those that customers pay) and business taxes (those that retailers pay) among alternative sites must be weighed. Business taxes should be broken down into real- estate and income categories. The highest statewide sales taxes are in California (7.5 percent) and in Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee (7 percent); Alaska, Delaware, Montana, New Hampshire, and Oregon have no state sales tax.

There may be zoning restrictions as to the kind of stores allowed, store size, building height, type of merchandise carried, and other factors that have to be hurdled (or another site chosen). For example, many communities believe their local retail economies can handle only so many new stores without causing some existing firms to fail. Thus, they have passed zoning regulations or store size caps that forbid retail stores from exceeding a given size. This helps local communities sustain the vitality of small, pedestrian-oriented business districts, keep commercial retail space affordable, and nurture local retailers. Size caps can prevent traffic congestion and overburdened public infrastructure. They require all retailers, including retail chains such as Walmart, to build stores that are properly sized for the community. Cities that have adopted size caps find that, in some cases, retailers that typically build larger stores will opt not to open; in other cases, they will design smaller stores. Size caps also ensure that retail space is affordable for local business. ²¹

Voluntary restrictions are prevalent in planned shopping centers and may include required membership in merchant groups, uniform hours, and shared security forces. Leases in regional centers have had clauses protecting anchor tenants from too much competition from discounters. Clauses may also involve limits on product lines, fees for common services, and so on. Anchors are protected because developers need long-term commitments to finance the centers. The Federal Trade Commission discourages “exclusives,” whereby only a certain retailer can carry specified merchandise, and “radius clauses,” whereby a tenant agrees not to have another store within a certain distance.

Because of overbuilding, some retailers are in a good position to bargain over the terms of occupancy. This differs from city to city and from shopping location to shopping location.

8. Overall Rating

The last task in choosing a store location is to compute overall ratings:

1. Each location under consideration is given an overall rating based on the criteria in Figure 10-7.
2. The overall ratings of alternative locations are compared, and the best location is chosen.
3. The same procedure is used to evaluate the alternative sites within the location.

It is often difficult to compile and compare composite evaluations because some attributes may be positive whereas others are negative. The general location may be a good shopping center, but the site in the center may be poor, or an area may have excellent potential but it takes 2 years to build a store. The attributes in Figure 10-7 should be weighted according to their importance. An overall rating should also include knockout factors—those that preclude consideration of a site. Possible knockout factors are a short lease, little or no evening or weekend pedestrian traffic, and poor tenant relations with the landlord.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

As the grocery industry diversifies, whose lunch will get eaten? The first 365 formatted stores from Whole Foods Market opened in mid-2016. Kroger opened the first Main & Vine in February 2016. Fresh Formats, an Ahold company, debuted bfresh stores in fall 2015; and Fresh Thyme Farmer’s Market, which opened its first store in 2014, is on course to operate 60 units by 2019. Each of these concepts operates in smaller footprint settings. There’s an emphasis on fresh foods (especially a large selection of produce), along with organic items and artisanal specialties, and price points are rooted in value.

Google Express launched in 2016 by offering same-day delivery of fruit, vegetables, meat, and more in select San Fran­cisco and Los Angeles neighborhoods; Whole Foods invested in Instacart; and Kroger is expanding online ordering and in-store pick-up. Amazon’s Prime Pantry and AmazonFresh initiatives are taking a bite out of the food retailing apple, and a grow­ing number of subscription services—including Blue Apron, Plated, and HelloFresh—are angling for a slice of the pie by offering meal-in-a-box solutions.

With numerous competitors eating off every section of their plate, could traditional supermarkets be in real danger? The consensus among supermarket industry experts is “no”— but it comes with a caveat. “If you define traditional supermar­kets in terms of Kroger, then they look quite well,” says John Rand, senior vice-president of retail insights for Kantar Retail. “If you define it in terms of some other chains, then they look less well. Some of the top supermarkets in the country are super regionals, chains such as Publix, H-E-B, and Wegmans. These guys are growing faster than average, so they’re doing just fine.” Steven Pinder, retail strategist at Kurt Salmon, says consum­ers “are shifting and changing . . . spending habits across the plat­forms available to us, but we’re not doing so in grocery nearly as quickly or as much as in other formats. Consumers’ adoption of technology and omnichannel shopping behavior is not taking off in this segment the way those things have in others.”

Not everyone, however, is optimistic about the fate of the 45,000-square-foot supermarket, with its predictable fresh perim­eter and center store setup featuring aisles of packaged and canned items, frozen foods, and household essentials. “The conventional supermarket is a dinosaur,” says Phil Lempert, a food industry analyst. “It doesn’t serve the needs of today’s shopper who is looking for more exciting offerings.” Lempert identifies two types of food stores that are clicking with shoppers: small stores con­centrating on fresh items, and “grocerants”—stores that blend grocery and restaurant. Operators providing sit-down restaurants on premises “are also on the rise. Stores like Hy-Vee or Wegmans are saying, ‘We’re all things food — sit down and eat a meal now, then take home some fresh items to make dinner tomorrow.”’ Against the backdrop of a fast-changing marketplace, some legacy banners are ceding share to smaller, more nimble entrants. Others, such as Walmart and Kroger, the two biggest in terms of supermarket sales, are refusing to let others eat their lunch. AlthoughWalmart has pulled the plug on its 12,000-square-foot Walmart Express food and merchandise pilot stores, it is com­mitted to the food-dominant, 40,000-square-foot Neighborhood Market format. Along with the Main & Vine project, Kroger operates Turkey Hill Markets and Mariano’s.

Experts say it’s incumbent on retailers to choose a niche. Rand divides supermarkets into three segments: premium, mainstream, and value. Premium supermarkets are projected to pull in about 19 percent of grocery sales from 2015 to 2020; mainstream will account for nearly 33 percent, and the value segment will be the largest at nearly 48 percent.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

To get closer to its customers, American Eagle Outfitters (AEO) conducted several site assessments that factored in its customer population, order profiles, transportation, and labor costs. Chris­tine Miller, the firm’s director of operations, says AEO estab­lished a strategy based on what its road map would look like for the next 5 years: A second fulfillment center with omnichannel capabilities was needed to support AEO’s continued growth, as well as to get physically closer to customers. “Most of our customer base, online and in stores, is on the East Coast,” Miller says, “and we needed to be closer to our customers.”

The firm also needed to improve direct-to-consumer fulfill­ment time. With the Kansas facility in the middle of the coun­try, getting to either coast took too long: On average, Miller says AEO took anywhere from 5 to 7 days to deliver an order. “Reducing that time was definitely something that was a goal for us and a challenge, just based on having that one facility in the middle of the country,” she says.

After securing the Hazleton, Pennsylania location, AEO selected the Vargo Solutions company to design the opera­tions of the 1 million-square-foot facility—everything from processes to equipment. Vargo synchronizes operations in ful­fillment centers with its continuous order-fulfillment system. Carlos Ysasi, Vargo’s vice-president of systems engineering, says the key to efficiency was creating “channel-immune” dis­tribution centers that use one inventory, one workforce, and one fulfillment engine to meet the inventory needs of physical stores and E-commerce. “Having separate distribution centers for the channels doubles your costs.”

Before, workers unloaded incoming trailers to build, move, and reorganize pallets, which Ysasi says “required everything to be touched multiple times,” and every process had a buffer sys­tem that needed a lot of space. The new system lets cartons be quickly placed on the conveyor and “pulled” anywhere needed in the facility. The facility is also free of mobile equipment. There is no need for pallet storage or for pallets to move in the center. Material handling maximizes up-time and optimizes energy efficiency.

Vargo’s continuous order fulfillment enterprise system extends functionality beyond traditional warehouse execution systems. The system can control all work resources, including machinery and associates, and organize, optimize, sequence, and synchronize everything across the work process.

All inventory at the Hazleton facility is loaded directly onto conveyors in the receiving mezzanine and sent to two sorters with automatic variable-speed controls that adjust the through­put demands. The sorters can automatically detect surges or declines in flows and adjust speed to more efficiently accom­modate activity. Inventory is then routed to pick modules in a four-level, 400-foot-long picking structure in a 288,000-square- foot section of the facility. Operators pull products from the conveyors using a radio frequency picking process. Along the entire route, conveyors are controlled by photo eyes that sense totes, so the conveyor remains off when a product doesn’t need to move anywhere.

Sections of motorized roller conveyors are divided into small zones that can be independently powered and operated, creating an on-demand system that increases energy savings and decreases noise. Miller says the system also saves space and is easier to use. “There’s not a big motor hanging from the conveyors every 10 feet,” she says. “We were able to lower them and there’s a big ergonomic benefit for the workers. There’s also less maintenance, and they’re efficient because they only run when needed.”

With the new distribution center, 90 percent of direct orders are fulfilled in 2 to 3 days.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

If you ask online retailers what methods of payment they accept, most would say credit cards. But a study of global E-commerce payments found that in many parts of the world, credit cards account for a very small portion of payments made online. The conclusion? Retailers need to expand significantly the number of payment options they accept if they want to compete success­fully in the global market.

“The 2015 Global E-Commerce Payments Guide,” by pay­ments company Adyen, found that cross-border E-commerce is growing at a rate more than double that of domestic E-com­merce; the global market is expected to reach more than $2 trillion by 2017. Yet, credit cards won’t be used to pay for many online purchases. The study found that in China, 1 percent of online shoppers pay with international credit-card brands; in Germany, only 25 percent use credit cards in making an online purchase.

“The main payment method differs a lot around the world, and, in order, for a retailer to support a global customer base, it must be able to accept a wide range of payment options,” says Adyen’s chief commercial officer Roelant Prins. It is not always easy for retailers to accept a wide range of pay­ments because each form comes with its own technical and security concerns. “You need for multiple people inside your organization—from technology support to customer support to marketing—to be aware of differences in payment options and how they work. There is a huge mindset that people pay by credit card. But if you want to expand internationally, that is not always the case. You must be prepared for alternative systems.”

For example, China is the largest retail E-commerce mar­ket in the world. Yet, with just 1 percent of online purchases made via international credit cards, Asian payment com­pany Alipay has about a 48 percent market share; interbank network UnionPay accounts for about 14 percent. Tenpay, a mobile payment program, accounts for 19 percent of the market.

China isn’t the only market with a growing interest in mobile shopping. The rate of online payments using mobile devices continues to rise around the world, according to Ady- en’s Mobile Payments Index, which now accounts for more than 25 percent of all online payments made during the first quarter of this year.

Europe leads the world in adopting mobile payments; 29 percent of online purchases are made via a mobile device. The United States showed considerable growth as well, increas­ing nearly 5 percentage points to 27 percent over one 6-month period in 2015 alone. During 2015, Asian markets saw more than 20 percent of online transactions conducted on mobile devices for the first time.

To deal with the complexity, Prins recommends retailers hire a payments firm with global expertise. Even retailers that do not want to leave their current payments processors can use existing processors for domestic payments and use a global spe­cialist for foreign sales. In Europe, for example, consumers are often directed to a separate site to make payments rather than pay directly to the retailer. Settlement can also be different in the speed at which retailers receive money and the costs they pay to settle a transaction.

Fraud is also a concern, as online sales from certain parts of the world represent a much greater payment fraud threat than transactions from other areas. Retailers need help in assessing and mitigating fraud risk from various foreign transactions.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

There’s an evolution from the existing physical and technical warehouse management infrastructure to capabilities offering multiple methods to store, pick, and process orders. Dan Grimm, solution strategist at JDA, sees progress in a number of areas of warehouse management systems (WMS), including value-added services (VAS), food safety, the use of voice, and mobile tech­nology. A VAS (and food safety) example Grimm provides is capturing temperature in the nose, middle, and tail of a trailer to be sure it’s in the range for refrigerated or frozen food, and indi­cating whether products can go to the store, require more testing, or are rejected. This means standard methods are followed. One warehouse trend is the use of voice to replace paper and RF (radio frequency) technology, giving retailers better productivity.

Mobility, Grimm notes, has given warehouse supervisors the abilities to do their job and be on the floor. “The new mobile technology lets them have real-time visibility, make changes from a tablet device, and be on the floor with employees, all at once.” Trends he anticipates are omnichannel fulfillment and multiple methods to store, pick, and process orders; warehouse optimiza­tion by having better visibility of demand within the network; and in-store logistics in which retailers adapt WMS to be used in stores.

Eric Lamphier, a senior director at Manhattan Associates, says labor management (LM) issues have been addressed by his firm by embedding an LM module inside the WMS solution and making the module part of every conversation, including sales, implementation, support, and upgrades. Food retailers’ “pioneer­ing efforts in this area have paid off. Our focal point has been tablet capabilities delivered via a hybrid mobile app that provides distri­bution center managers with real-time data about the operation.”

Reducing total cost of ownership is an ongoing chal­lenge, according to Lamphier, who says Manhattan Associ­ates is continuing to advance its Management Center module, which handles installation, cloning, monitoring, patching, and synchronization for all platform solutions. “These capabilities have been shown to lower implementation times and costs so our customers can realize benefits more rapidly.”

Lamphier notes that E-commerce order-fulfillment expec­tations, approaches, and standard operating procedures have evolved rapidly over the past decade and require sophisticated, nonstop integration between warehouse management and the Enterprise Order Management suite. “We expect the future to be full of these projects as investments go mainstream, and upgrade and replacement cycles transpire.”

At HighJump, territory manager Roger Falkenstein says online firms meet the E-commerce challenge by turning the store environment into a distribution center, resulting in such new requirements as supporting consumer-grade devices, dis­playing product images to help locate mixed-SKU item loca­tions, enabling workflows for item substitutions, handling variable-weight and -temperature items, and fostering interac­tion between store associates and customers to manage special needs, exceptions, and various delivery methods. “We’ve taken our traditional warehouse platform and built applications to support store requirements and to drive efficiency, control, and visibility throughout the in-store fulfillment process.”

A remaining challenge, as Falkenstein sees it, is the train­ing of high-turnover staff. Driving efficiency is a priority, and grocers are looking for user-friendly tools to train employees quickly. “HighJump’s philosophy is to have simple instructions, “directing users step by step with optimized workflows and minimized walk times. This helps keep the learning curve low and labor costs at a profitable level.”

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

1. Introduction

When it comes to food, today’s consumers are more sophisti­cated and knowledgeable than ever. For a truly rewarding gro­cery store experience, shoppers want freshness, diversity, and authenticity. In response, grocery retailers have “upped” their games in those areas, even some value/price operators.

2. Food City Overview

A case in point is Food City, the 47-unit Mexicentric banner owned by Chandler, Arizona-based Bashas’ Family of Stores. Its latest remodel—in South Tucson, where the store shares a bustling shopping center on Interstate 19 with Target, Home Depot, and others—reflects Food City’s commitment to fresh­ness, authenticity, and, as evidenced by the mariachi band ser­enading shoppers, a fun community experience.

From food to experience to outreach, Food City lives up to its Spanish headline of Autenticidad en Accion, which translates as “authenticity in action.” Food City has “a colorful new look that we have been rolling out in our store remodels since 2014,” explains Mike Solis, the banner’s director of operations. “Along with the refreshed decor, we have emphasized the areas that dif­ferentiate Food City from the rest of the market and best meet the needs of our customers.”

Authenticity and connection to community have been on display from the start. When the remodel of the North Tuc­son store was formally unveiled in December 2015, shop­pers enjoyed food samples along with performances by Ballet Folklorico Tapatio dancers and music, including Tuc­son’s acclaimed mariachi vocalist Monica Trevino.

The store’s signature offerings include the deli depart­ment’s Cocina (literally, “kitchen”), offering authentic Mexican dishes to eat in or to take home; a bakery with the traditional pan dulce (sweet bread) and other ethnic selections; a tortilleria, with on-site production of corn and flour torti­llas; and a full-service meat department with authentic cuts, value-added offerings, and seafood. The remodel also deliv­ered a reconfigured center store for more shopper-friendly navigation.

“Our strategy is to reinvest in our stores by upgrading and remodeling them to better serve the needs of our customers,” Solis says. “We completed 10 Food City store remodels in 2014 and an additional 12 store remodels in 2015. We had even more store remodels planned for 2016.”

3. Fresh, Fresh, Fresh

Changes at the Irvington Road store are evident at the front door, with the produce department pulled forward to a more prominent position. “We moved it right to the entrance,” Solis explains. “It’s a huge draw to drive traffic. Our attention at the entrance is fresh, fresh, fresh.” A wide variety of colorful produce is joined by a wall of spices offering a vast array of authentic selections.

Some shoppers think the store is bigger than it is, Solis notes. “The color package for the remodel is more open and vibrant.” We’ve gotten comments like ‘Have you made the store larger?”’ That visibility extends to the revamped deli and prepared food area, the aforementioned Cocina. Solis says the Cocina area used to be framed by a “hacienda-type fixture” that is being removed in the ongoing remodelings. “It has really opened things up,” he says. “Right from the entrance, you can see these departments and the bright colors.”

Further enhancing the visibility in the store was the con­solidation of the seating in a larger fixed dining area, rather than spread around the deli department; the new configura­tion allows visitors an unobstructed view through produce to the deli and bakery. “It’s become a destination to stay and eat a meal,” Solis says of the dining area, noting that “a lot of people do take food home.” The Cocina offers daily breakfast and lunch specials as well as family meal deals. On Sundays mornings, it hosts a three-hour live mariachi performance.

Authenticity is on full display in the Cocina. “We’re known for our authentic Mexican foods, offered daily,” Solis declares. On the menu on the day of Progressive Grocer’s visit were red and green chilies, carnitas (pork), caldos (Mexican soup), menudo (tripe soup), tamales, burritos, and carne asada (con­sidered by certain locals as the best in town).

“Our chicken category is a substantial part of our busi­ness,” Solis says. The Cocina offers several varieties—fried, grilled, and rotisserie, plus pollo ranchero (peppers and toma­toes) and pollo chipotle (pepper cream sauce). Seafood includes ceviche (citrus-cured seafood), shrimp cocktail, and camaron aguachiles (shrimp in lime and chiles), the last of which Solis says is “very unique and very authentic.”

A dedicated case offers fresh salsas, pico de gallo, and guacamole, some items made in house. Another huge draw for the deli is aguas frescas—icy house-made fruit beverages in fla­vors such as cantaloupe, lemonade, pineapple, and watermelon, plus horchata, a creamy rice-milk beverage. “We really hang our hat on the authenticity of our aguas frescas,” Solis says. “It definitely sets us apart from the others.” The beverage lineup also includes champurrado, a popular Hispanic hot chocolate, available ready to drink in the deli; there’s also a do-it-yourself mix sold in the center of the store.

4. Sweet Showcase

Authenticity continues into the store’s scratch-bakery selec­tions. “We do doughnuts, but it’s on a much smaller scale. Here, it’s all about the pan dulce,” Solis says, referring to tra­ditional Mexican sweet bread. It’s offered in many varieties, including shell-shaped conchas, sweet and savory empanadas, telleras (sandwich rolls), and bollilos (crusty bread rolls). There are also cortadillos (sliced cakes in dozens of variet­ies) and mantecadas, which Solis describes as “like a cupcake without any icing, but so moist, a unique flavor. It’s a great item for us.”

Full-size and single-serve cakes come in traditional tres leches, strawberry, chocolate, fan (custard), and chocoflan— the last of which delivers rich custard over a chocolate-cake base. The bakery’s signature cakes are in such flavors as dulce de leche, cappuccino, pina colada, strawberry, and cookies and cream— all topped with huge strawberries. Parfait cups and gelatin with fruit round out the sweet selections.

As in the Cocina, the bakery’s kitchen is on full display. “That’s one of the things we’ve been focusing on,” Solis says of that enhanced visibility for shoppers. The redesign flip-flopped the positions of the self-serve and service bakery counters to further open up the kitchen, which also put the cake-decorating station at the front counter. Solis notes, “It’s a showcase for people to see the works of art we do on our cakes.”

The in-store tortilleria, or tortilla bakery, has been a part of Food City stores for many years. “We run 19 of these machines throughout the company,” Solis says of the mini production plant. “Our flour tortillas are head and shoulders above any­thing else in the market.”

With a 10-day shelf life, the tortillas come in assorted sizes and thicknesses for tacos, burritos, and other applications. The store also makes tortillas with manteca (lard) in the flour for a more traditional flavor profile. Meanwhile, corn tortillas come in different varieties for table use and frying. The store also makes tortilla chips for sale and serving in the Cocina.

Speaking of corn, Food City is into masa (corn flour) in a big way, as it is used widely in the local Hispanic community in preparing tamales and menudo. These dishes are made more often for the fall and winter holidays, so masa sales double, and even sometimes triple, during these periods, Solis notes. The store performs regular demonstrations on the sales floor to show uses and applications for different varieties of the masa. “We sell a lot of it,” Solis says. “This is one of the top-selling stores for masa out of all of the units that we have.”

For shoppers going that extra mile toward authenticity at home, Food City also sells nixtamal, the corn kernels that are ground to make the masa, which are also used to make menudo and posole (meat stew with hominy).

5. Consistency and Variety

There’s more authenticity on display in the meat department, which offers a full-service butcher counter, seafood, a wide selec­tion of Mexican cheeses, the store’s signature chorizo (Mexican sausage), and marinated beef and chicken ready for the grill.

The service counter will cut meat to any thickness, but as Solis observes, “Our customers like thinner-cut meat.” That’s evidenced by the many cased offerings under the Food City label, like beef flaps for carne asada, merchandised alongside shrink-wrapped trays of cut vegetables for fajitas.

Cuts more familiar to folks outside the Hispanic commu­nity are joined by local favorites such as oxtails, beef shanks, and beef short ribs, which Solis says are popular for making soups during colder months, along with neck bones, hearts and cheek meat.

The butcher counter also features a “phenomenal” vari­ety of Mexican cheeses, Solis notes, offering samples of queso fresco, panela, cotija, and Oaxaca, the last a popular melting cheese (named for the Mexican province) used to make que- sadillas. Of the value-added chorizo (sausage), Solis says, “It’s our in-house recipe, a real signature item.”

Seafood selections—expected to get an annual boost dur­ing Lent—include tilapia, catfish, swai, cod, red snapper, and shrimp. “Tilapia is by far our best-selling seafood, whole or fillets,” Solis says.

Fresh chicken cuts are joined by pre-cooked breaded chicken wings, nuggets, and patties. “Chicken is a big category for us,” Solis reiterates, noting Food City’s “consistency and variety.” Solis points out the $19.99 value pack, which offers select cuts of beef, pork, and chicken, plus ground beef, valued at up to $25. “Our prices really address the price-conscious consumer throughout the entire store,” he says. Meanwhile, a coffin freezer offers “menudo packs”—bags of beef tripe or beef and pig feet, ready for use by folks making the traditional Mexican dish at home.

The remodel allowed for a larger meat department, Solis notes. “Based on the volume of sales at this store, we shifted down” farther along the perimeter, he says. “It definitely helped with our pork and chicken sections.”

6. Improving Shopability

The center of the store was reconfigured as part of the remodel, which Solis says required a period of adjustment as shoppers and associates got used to the new order of things. “We really changed the flow of the categories,” he says, explaining that this has helped to enhance “shopability around the perimeter.”

Among the key shifts: The beer and salty snack aisles were moved to the far end of the store for placement with the carbon­ated soft drinks. Additionally, the store got rid of its warehouse shelving in favor of standard gondolas. End-of-aisle displays are massively merchandised. “We have a limited variety of SKUs in the center of the store, but we have what our consum­ers like, and at a great value,” Solis says.

The store’s Hispanic aisle offers “groupings of our Mex­ican-branded products in several different categories,” Solis explains. This row features everything from canned goods to crackers to religious figurines. There are myriad varieties of pepper — “a strong category for us,” Solis affirms—along with chili pastes and powders. There are also aloe vera drinks and coconut waters, which he notes “have exploded in popularity.” And for those who don’t want to buy authentic ingredients or pick some up ready to eat from the Cocina, there’s even canned menudo.

Cross-merchandising efforts throughout the store include store-brand bread with peanut butter and jelly on one end, and mayo and mustard on the other, and jarred nopalitos (cactus) displayed near the eggs, a pairing popular among Hispanics for Lent, Solis notes. Prominently displayed atop cases around the perimeter are 40-quart stockpots used for making menudo and tamales.

“The most rewarding part of the grand reopening has to be the excitement of our members [employees] and custom­ers, who are enjoying the new look and feel of the store,” Solis declares. Associates’ excitement is no doubt increased by their ability to deliver the real deal to those who know the difference. “We really give the authenticity to the Hispanic consumer,” Solis says. “They can have all their needs met here.”

Figure 1 shows the supermarket grid layout that highlights the remodeling.

7. More about the Food City Chain

Arizona’s Food City is a low-price format supermarket chain offering a full range of ethnic and Hispanic food varieties along with traditional grocery store items. The community-focused grocery store chain is known for holding car-seat and water- safety events, mobile dental clinics, back-to-school immuniza­tions, backpack giveaways, and other cultural celebrations that are very important to the Hispanic community.

Investing heavily in the neighborhoods that it serves, Food City also holds annual signature events such as the Copa Food City Soccer Tournament and the Food City Tamale Festival. In addition, the banner supports many holidays and special events important to its shoppers, including Mexican concerts, Three

Kings Day, Children’s Day, Mexico’s Independence Day (Sep­tember 16), and Dia de los Muertos (Day of the Dead).

Dating back more than 60 years, Food City was acquired in 1993 by Bashas’ Grocery Store, which has since grown the brand from a single store to 47 locations, many of which are in metro Phoenix and southern Arizona, home to a significant Hispanic community.

Striving to hire people from its surrounding communities, Food City has saved and created thousands of jobs in many eco­nomically challenged neighborhoods. Its diverse employee base allows it to serve consumers in their native language, creating a gratifying family shopping experience.

Visit the chain at www.myfoodcity.com.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

Through a retail organization, a firm structures and assigns tasks (functions), policies, resources, authority, responsibilities, and rewards to efficiently and effectively satisfy the needs of its target market, employees, and management. Figure 11-1 shows various needs that should be taken into account when planning and assessing an organization’s structure.

As a rule, a firm cannot survive unless its organization structure satisfies the target market, no matter how well employee and management needs are met. A structure that reduces costs via centralized buying but leads to a firm’s insensitivity to geographic differences in customer preferences will lose market share. Although many retailers perform similar tasks (buying, pric­ing, displaying, and wrapping merchandise), there are many ways of organizing to conduct these functions. The process of setting up a retail organization, shown in Figure 11-2, is described next.

1. Specifying Tasks to Be Performed

The tasks in a distribution channel must be enumerated and then keyed to the chosen strategy mix for effective retailing to occur:

• Buying merchandise on behalf of the retailer
• Shipping merchandise to the retailer
• Receiving merchandise and checking incoming shipments
• Setting prices and marking merchandise
• Inventory storage and control
• Preparing merchandise and window displays
• Facilities maintenance (e.g., keeping the store clean)
• Customer research and exchanging information
• Customer contact (e.g., Web site, personal selling)
• Facilitating shopping (e.g., convenient location, short checkout lines)
• Customer follow-up and complaint handling
• Personnel management
• Repairs and alteration of merchandise
• Billing customers and credit operations Handling receipts and financial records Gift wrapping
• Delivery to customers (e.g., multichannel or omnichannel retailing)
• Returning unsold or damaged merchandise to vendors
• Sales forecasting and budgeting Coordination
• Coordination

2. Dividing Tasks among Channel Members and Customers

Although the preceding tasks are typically performed in a distribution channel, they do not all have to be done by a retailer. Some can be completed by the manufacturer, wholesaler, specialist, or consumer. Figure 11-3 shows the types of activities that could be carried out by each party. Following are some criteria to consider in allocating the functions related to consumer credit.

• A task should be done by the person who is most competent, and it should be carried out only if desired by the target market.
• For some retailers, liberal credit policies may provide significant advantages over competitors. For others, a cash-only policy may reduce their overhead and lead to lower prices.
• Credit collection may require a legal staff and detailed digitized records—most affordable by medium or large retailers. Smaller retailers are likely to rely on bank credit cards.
• There is a loss of control when an activity is delegated. A credit collection agency, pressing for past-due payments, may antagonize customers.
• The retailer’s institutional framework can affect task allocation. Franchisees are readily able to get together to have their own private-label brands. Independents cannot do this as easily.
• Task allocation depends on the savings gained by sharing or shifting tasks. The credit function is better performed by an outside credit bureau if it has expert personnel and ongoing access to financial data, uses tailored computer software, pays lower rent (due to an out-of-the-way site), and so on. Many retailers cannot attain these savings themselves.

3. Grouping Tasks into Jobs

After the retailer decides which tasks to perform, they are grouped into jobs. The jobs must be clearly structured. Here are examples of grouping tasks into jobs:

While grouping tasks into jobs, specialization should be considered so each employee is responsible for a limited range of functions (as opposed to performing many diverse tasks). Spe­cialization has the advantages of clearly defined tasks, greater expertise, reduced training, and hiring people with narrow education and experience. Problems can result due to extreme special­ization: poor morale (boredom), people not being aware of their jobs’ importance, and the need for more employees. Specialization means assigning explicit duties to individuals so a job position encompasses a homogeneous cluster of tasks.

Once tasks are grouped, job descriptions are constructed. These outline the job titles, objec­tives, duties, and responsibilities for every position. They are used as a hiring, supervision, and evaluation tool. Figure 11-4 contains a job description for a store manager.

4. Classifying Jobs

Jobs are then broadly grouped into functional, product, geographic, or combination classifications. Functional classification divides jobs by task—such as sales promotion, buying, Web design, and store operations. Expert knowledge is used. Product classification divides jobs on a goods or ser­vice basis. A department store hires different personnel for clothing, furniture, appliances, and so forth. This classification recognizes differences in personnel requirements for different products.

Geographic classification is useful for chains operating in different areas. Employees are adapted to local conditions, and they are supervised by branch managers. Some firms, especially larger ones, use a combination classification. If a branch unit of a chain hires its selling staff, but buying personnel for each product line are hired by headquarters, the functional, product, and geographic formats are combined.

5. Developing an Organization Chart

The format of a retail organization must be designed in an integrated, coordinated way. Planning leaders in the organization need to clearly articulate accountability and decision-making author­ity for each position or role on the organizational chart, span of control (number of subordinates under a manager’s direct control) for each position, and lateral relationships between positions. Aligning individual employee goals with organizational goals and communicating to employees how the organizational structure will meet strategic objectives and goals and create sustained economic value is key. Managers and their direct reports must jointly identify common goals, define each individual’s responsibilities and expectations, and understand how they will be evalu­ated. Joint goal setting and shared responsibility toward achieving them will increase employee motivation and perceived empowerment, and provide a common direction toward achievement of organizational goals.

The hierarchy of authority outlines the job interactions within a company by describing the reporting relationships among employees (from lowest level to highest level). Coordination and control are provided by this hierarchy. A firm with many workers reporting to one manager has a flat organization. Its benefits are good communication, quicker problem handling, and better employee identification with a job. The major problem tends to be the number of people reporting to one manager. A tall organization has several management levels, resulting in close supervision and fewer workers reporting to each manager. Problems include a long communication chan­nel, the impersonal impression given to workers regarding access to upper-level personnel, and inflexible rules.

With these factors in mind, a retailer devises an organization chart, which graphically dis­plays its hierarchical relationships. Table 11-1 lists the principles to consider in establishing an organization chart. Figure 11-5 shows examples of basic organization charts.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

An independent retailer has a simple organization. It operates only one store, the owner/manager usually supervises all employees, and workers have access to the owner/manager if there are prob­lems. In contrast, a chain must specify how tasks are delegated, coordinate multiple stores, and set common policies for employees. As examples, the organizational arrangements used by inde­pendent retailers, department stores, chain retailers, and diversified retailers are discussed next.

1. Organizational Arrangements Used by Small Independent Retailers

Small independents use uncomplicated arrangements with only two or three levels of personnel (owner/manager and employees), and the owner/manager personally runs the firm and oversees workers. There are few employees, little specialization, and no branch units. This does not mean fewer activities must be performed but that many tasks are performed relative to the number of workers. Each employee must allot part of his or her time to several duties.

Figure 11-6 shows the organizations of two small firms. In A, a boutique is organized by func­tion. Merchandising personnel buy and sell goods and services, plan assortments, set up displays, and prepare ads. Operations personnel are involved with store maintenance and operations. In B, a furniture store is organized on a product-oriented basis, with personnel in each category respon­sible for selected activities. All products get proper attention, and some expertise is developed. This is important because different skills are necessary to buy and sell each type of furniture.

2. Organizational Arrangements Used by Department Stores

Many department stores continue to use an organizational arrangement that is an adaptation of the Mazur plan, which divides all retail activities into four functional areas.² In twenty-first century terms, these are store management, communications, merchandising, and financial accounting. Figure 11-7 shows the modern version of the Mazur plan, as devised by the authors of this book:

1. Store management: Operations, customer service, human resources, inventory, “backroom” activities, and store maintenance
2. Communications: Public relations, advertising, window and interior displays, promotions, and online efforts
3. Merchandising: Buying, selling, stock planning and forecasting, and product-positioning (image-related) with regard to the mix of goods and services offered by the retailer
4. Financial accounting (overseen by controller): Accounting, inventory control, credit, and auditing

These areas are organized into line (direct authority and responsibility) and staff (advisory and support) components. Thus, in Figure 11-7, the omnichannel manager reports directly to the general manager and is a staff person; and a controller and a communications manager often staff services for merchandisers; but in their disciplines, personnel are organized on a line basis.

The merchandising division is responsible for buying and selling. It is headed by a merchandising manager, who is often viewed as the most important of the area executives. She or he supervises buyers, devises financial goals for each department, coordinates merchandise plans (so there is a consistent image among departments), and interprets the effects of economic data. In some cases, divisional merchandise managers are utilized, so the number of buyers reporting to a single manager does not become unwieldy.

In the basic Mazur plan, the buyer has complete accountability for expenses and profit goals within a department. Duties include preparing preliminary budgets, studying trends, negotiat­ing with vendors over price, planning the number of salespeople, and informing sales personnel about the merchandise purchased. Grouping buying and selling activities into one job (buyer) may present a problem. Because buyers are not constantly on the selling floor, training, scheduling, and supervising personnel may suffer.

Branch store growth has led to three Mazur plan derivatives: main store control, by which headquarters executives oversee and operate branches; separate store organization, by which each branch has buying responsibilities; and equal store organization, by which buying is centralized and branches become sales units with equal operational status. The latter is the most popular format.

In the main store control format, most authority remains at headquarters. Merchandise planning and buying, advertising, financial controls, store hours, and other tasks are centrally managed to standardize the performance. Branch store managers hire and supervise employees, but daily opera­tions conform to company policies. This works well if there are few branches and the preferences of customers are similar to those at the main store. As branch stores increase, buyers, the advertising manager, and others may be overworked and give little attention to branches. Because headquarters personnel are not at the branches, differences in customer preferences may be overlooked.

The separate store format places merchandise managers in branches, which have autonomy for merchandising and operations. Customer needs are quickly noted, but task duplication is pos­sible. Coordination can also be a problem. Transferring goods between branches is more complex and costly. This format is best if stores are large, branches are dispersed, and/or local customer tastes vary widely.

In the equal store format, the benefits of both centralization and decentralization are sought. Buying—forecasting, planning, purchasing, pricing, distribution to branches, and promotion—is centralized. Selling—presenting merchandise, selling, customer services, and operations—is man­aged locally. All stores, including headquarters, are treated alike. Buyers are freed from managing so many workers. Data gathering is critical since buyers have less customer contact.

3. Organizational Arrangements Used by Chain Retailers

Various chain retailers use a version of the equal store organization, as depicted in Figure 11-8. Although chains’ organizations may differ, they generally have these attributes:

• There are many functional divisions, such as merchandise management, distribution, omnichannel, operations, real-estate, personnel, information systems, and sales promotion.
• Overall authority is centralized. Store managers have selling responsibility.
• Many operations are standardized (fixtures, store layout, building design, merchandise lines, credit policy, and store service).
• An elaborate control system keeps management informed.
• Some decentralization lets branches adapt to locales and increases store manager responsibili­ties. Although large chains standardize most items their outlets carry, store managers often fine-tune the rest of the strategy mix for the local market. This empowers the store manager.

4. Organizational Arrangements Used by Diversified Retailers

A diversified retailer is a multi-line firm operating under central ownership. Like other chains, a diversified retailer operates multiple stores; unlike typical chains, a diversified firm is involved with different types of retail operations. Here are two examples:

• Kroger Co. (www.kroger.com) operates supermarkets, warehouse stores, supercenters, con­venience stores, and jewelry stores; it also has a manufacturing group. The firm owns multiple store chains in each of its retail categories. See Figure 11-9.
• Japan’s Aeon Co. (www.aeon.info/en) comprises superstores, supermarkets, discount stores, home centers, specialty stores, convenience stores, financial services stores, restaurants, and more. Besides Japan, Aeon has facilities in numerous other countries. It is also a shopping center developer.

Due to multiple strategy mixes, diversified retailers face complex organizational consider­ations. Interdivision control is needed, with operating procedures and goals clearly communicated. For example, (1) interdivision competition must be coordinated, (2) resources must be divided among divisions, (3) potential image and advertising conflicts must be avoided, and (4) manage­ment skills must adapt to different operations.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

Human resource management involves recruiting, selecting, training, compensating, and super­vising personnel in a manner consistent with the retailer’s organization structure and strategy mix. Personnel practices depend on the line of business, number of employees, store location, and other factors. Because good personnel are needed to develop and carry out strategies, and labor costs can amount to 50 percent or more of expenses, the value of human resource management is clear.

Retailing in the United States employs 25 million people. Thus, there is a constant need to attract new employees—and retain existing ones. For example, as many as 2 million fast-food workers are aged 16 to 20, and they stay in their jobs for short periods. In general, retailers need to reduce the turnover rate; when workers quickly exit a firm, the results can be disastrous. See Table 11-2. Turnover in retail averages around 66 percent for part-time hourly, whereas it drops to 27 percent for full-time employees with benefits such as health insurance.³

Consider the approaches of Target, Zappos, and Wegmans Food Markets:

• Target is committed to employee development and retention. Target challenges employees to innovate, collaborate, and efficiently and intelligently provide the best possible shopping experience to customers. It believes empowering and training employees and providing them with opportunities for professional growth will help its business stay competitive. Every entry- level employee, whether hourly or full time, is mentored by the store team leader. Campus recruits are encouraged to join the summer internship program in Minneapolis where they are trained in leadership skills as well as their functional area (planning, software training, etc.) to be a successful member of a Target store/distribution center, corporate, or technology leadership team. Company benefits include health coverage, a pension, a 401(K) plan, tuition reimbursement, life insurance, a paid vacation, and an annual bonus.
• Zappos, an online retailer of shoes, apparel, and accessories (owned by Amazon.com Inc. since 2009) says its goal is to be the online service leader. Employees call themselves “Zap- ponians” and claim they “Live to Deliver WOW” in support of the first core value of the firm. Employees get benefits such as vacation and sick days, a retirement plan, life and disability insurance, medical and dental coverage, maternity and paternity leave, tuition reimbursement, discounts (40%) on Zappos merchandise, and free shipping. Zappos helps employees stay fit by having an on-site fitness center, a yoga studio, weight management programs, and fitness challenges. To help employees achieve a work-life balance, Zappos pays for dry cleaning, car washes, and oil changes; it even has an on-site library and life coach, health screening, and a nap room! Company happy hours, fun events, and healthy on-site catering build team and family spirit.⁵
• Wegmans Food Markets is the only retailer on the Forbes “100 Best Companies to Work For” list every year since 1998.⁶ It offers health insurance to part-timers, telecommuting, job sharing and compressed work weeks, tuition reimbursement, paid vacations, and substantial training. Full-time employee turnover is low. Wegmans has multiple paths to career success via lateral learning, cross-training, internships, and management training. Wegmans cares about the well-being of employees and empowers them to make decisions that customers and the company.⁷

1. The Special Human Resource Environment of Retailing

Retailers face a human resource environment characterized by a large number of inexperienced workers, long hours, highly visible employees, a diverse work force, many part-time workers, and variable customer demands. These factors complicate employee hiring, staffing, and supervision.

The need for a large retail labor force often means hiring those with little or no prior experi­ence. Sometimes, a position in retailing represents a person’s first “real job.” People are attracted to retailing because they find jobs near to home, and retail positions (such as cashiers, stock clerks, and some types of sales personnel) may require limited education, training, and skill. Also, the low wages paid for some positions result in the hiring of inexperienced people. Thus, high employee turnover and cases of poor performance, lateness, and absenteeism may result.

The long working hours in retailing, which may include weekends, turn off certain prospec­tive employees. Many retailers now have longer hours because more shoppers want to shop during evenings and weekends. Accordingly, some retailers require at least two shifts of full-time employees.

Retailing employees are highly visible to the customer. Thus, when personnel are selected and trained, special care must be taken as to their manners and appearance. Some small retailers do not place enough emphasis on employee appearance (neat grooming and appropriate attire).

It is common for retailers to have a diverse labor force, with regard to age, work experience, gender, race, and other factors. This means that firms must train and supervise their workers so they interact well with one another—and are sensitive to the perspectives and needs of each other. Home Depot’s recruitment strategy includes partnerships with several national nonprofit, govern­ment, and educational organizations to reach out to the communities it serves and to attract a broad range of qualified candidates with diverse backgrounds, including AARP, NAACP, National Urban League, National Society of Hispanic MBAs, National Black MBA Association Inc., and several U.S. military groups. In addition, Home Depot provides resources to help recruits succeed through Associate Resource groups and online tools such as “Military Skills Translator” to help veterans identify positions and job descriptions that leverage skills acquired in the military.⁸

Due to long operating hours, retailers regularly hire part-time workers. In many supermarkets, more than half the workers are part-time, and problems may arise. Some part-time employees are more lackadaisical, late, absent, or likely to quit than full-time employees. They must be closely monitored. Like other firms, retailers hire a large number of Millennials. Although this group is generally technologically advanced, Millennials often have different work values than older employees. A recent Gallup Poll found that Millennials are the least engaged group in the work force.⁹ Here are a number of ways to better motivate Millennials:¹⁰

• Show the firm’s commitment to society and respected charities by supporting volunteerism.
• Train managers to communicate frequently and openly with Millennials.
• Get Millennials actively involved in solving important problems.
• Provide Millennials with mentors.
• Accommodate Millennials’ needs with flexible hours.

Variations in customer demand by day, time period, or season may cause difficulties. A number of U.S. shoppers make major supermarket trips on Saturday or Sunday. So, how many employees should there be Monday through Friday and how many on Saturday and Sunday? Differences by time of day (morning, afternoon, evening), season, and holidays also affect planning. When stores are very busy, even administrative and clerical employees may be needed on the sales floor.

As a rule, retailers should consider these points:

• Recruitment and selection procedures must efficiently generate sufficient applicants.
• Some training must be short because workers are inexperienced and temporary.
• Compensation must be perceived as “fair” by employees.
• Advancement opportunities must be available to employees who view retailing as a career.
• Employee appearance and work habits must be explained and reviewed.
• Diverse workers must be taught to work together well and amicably.
• Morale problems may result from high turnover and the many part-time workers.
• Full- and part-time workers may conflict, especially if some full-timers are replaced.

Various retail career opportunities are available to women and minorities. There is still some room for improvement, however.

WOMEN IN RETAILING Retailers have made a lot of progress in career advancement for women. According to the “2020 Women on Boards,” Ann Inc., Avon, Chico’s, Children’s Place, Estee Lauder, HSN (Home Shopping Network), Macy’s, Ulta, and Williams-Sonoma Inc. are among the U.S. public firms with 40 percent or more of corporate officers who are women.¹¹ The “2013 Catalyst Census: Fortune 500 Women’s Representation by NAICS Industry” report notes that retailing has the highest percentage of women as corporate officers among the 18 industry groups.

Women have more career options in retailing than ever before, as the following examples show. Mary Kay Ash (Mary Kay cosmetics), Debbi Fields (Mrs. Fields’ Cookies), and Lillian Vernon (the direct marketer) have founded retailing empires. As of 2016, women were chief executive officers in 21 of Fortune 500 companies overall and/or chairpersons of the board of such U.S.-based retailers as Enterprise, Home Shopping Network, Ross Stores, Sam’s Club, and Victoria’s Secret.¹² Let’s look at a brief profile of two of these.

Rosalind Brewer is president and CEO of Sam’s Club. She started her career with Walmart in 2006 as regional vice-president of operations. She then was promoted to division president of Walmart Southeast, and then president of Walmart East. In 2012, Brewer was named president and CEO of Sam’s Club. She earned her bachelor’s degree in chemistry from Spelman College. In 2015, Forbes referred to Rosalind Brewer as one of the “World’s 100 Most Powerful Women.”¹³

At Enterprise Holdings Inc., the parent company of Enterprise, Alamo, and National car- rental service providers with more than $19 billion in annual revenues, Pamela Nicholson has been president and CEO since 2013. She is the highest-ranking woman among the world’s largest travel companies and has been named to Fortune’s list of “America’s 50 Most Powerful Women in Business” every year since 2007. Nicholson graduated from the University of Missouri with a bachelor of arts degree and began her career with Enterprise Rent-A-Car in 1981 as a management trainee. She has grown the U.S. and international businesses and has been working on a deal with Nissan for a car-sharing businesses for students at 90 college campuses.¹⁴

Despite recent progress, women still account for a small percentage of corporate officers at publicly owned retailers. These initiatives can help to increase the number of female executives:

• Meaningful training programs
• Advancement opportunities
• Telecommuting and flex time—the ability of employees to adapt their work hours
• Job sharing among two or more employees who each work less than full-time
• Onsite child care

MINORITIES AND DIVERSITY IN RETAILING Fortune’s 2016 “100 Best Companies to Work For” study listed the top companies’ minority statistics. Among retailers with a high percent of minori­ties are Ikea (52 percent minorities), Nordstrom (50 percent), Whole Foods (43 percent), CarMax (41 percent), Nugget Market (40 percent), Build-A-Bear (35 percent), Container Store (30 percent), Wegmans Food Markets (21 percent), and REI (17 percent).¹⁵

As with women, retailers have done many good things in the area of minority employment, but there is still more to be accomplished. Consider these positive examples:

• CarMax strongly believes in having a diverse work force—and not just because it wants to be a good corporate citizen. CarMax knows that employee diversity contributes to its already strong competitive advantages. Through such diversity, CarMax has a broader view of the marketplace and attracts a greater range of customers. It continuously strives to treat every job applicant, employee, customer, and supplier with respect and fairness—regardless of gender, race, sexual orientation, age, and various other factors.¹⁶
• Walmart is committed to embracing diversity on all aspects of its organization; from its associates to its supplier partners. Through its Supplier Diversity Program,¹⁷ Walmart works with over 3,000 suppliers owned and operated by minorities, women, veterans, and disabled people. In fiscal 2016, Walmart purchased $14.7 billion from women and minority-owned businesses.
• Walgreens shows its commitment to diversity as part of a multipronged effort. It includes dealing with a minimum of 8 percent certified minority business firms and 2 percent other certified diversified businesses; and it encourages prime suppliers to use diverse suppliers.¹⁸

The following list suggests some ways for retailers to even better address the needs of minority workers:

• Have clear policy statements from top management as to the value of employee diversity.
• Engage in active recruitment programs to stimulate minority applications.

• Offer meaningful training programs.
• Provide advancement opportunities.
• Have zero tolerance for insensitive workplace behavior.

2. The Human Resource Management Process in Retailing

The human resource management process consists of these interrelated personnel activities: recruitment, selection, training, compensation, and supervision. The goals are to obtain, develop, and retain employees. When applying the process, diversity, labor laws, and privacy should be reflected.

Diversity involves two premises: (1) employees must be hired and promoted in a fair and open way, without regard to gender, ethnic background, and other related factors; and (2) in a diverse society, the workplace should be representative of such diversity.

There are several aspects of labor laws for retailers to satisfy:

• Do not hire underage workers.
• Do not pay workers “off the books” (“under the table”).
• Do not require workers to engage in illegal acts (such as bait-and-switch selling).
• Do not discriminate in hiring or promoting workers.
• Do not violate worker safety regulations.
• Do not disobey the Americans with Disabilities Act.
• Do not deal with suppliers that disobey labor laws.

Retailers must also be careful not to violate employees’ privacy rights. Only necessary data about workers should be gathered and stored, and such information should not be freely disseminated.

We now discuss each human resource management activity for sales and middle-management jobs. For further insights, go to our blog (www.bermanevansretail.com).

RECRUITING RETAIL PERSONNEL Recruitment is the activity whereby a retailer generates a list of job applicants. Table 11-3 indicates the features of several key recruitment sources. In addition to these sources, the Web now plays a bigger role in recruitment. Many retailers have a career or job section at their Web site, and some sections are as elaborate as the overall sites. Visit Target’s Web site (www.target.com), for example. Scroll down to the bottom of the home page and click on “more” and then “careers.”

With entry-level sales jobs, retailers rely on educational institutions, ads, walk-ins (or write- ins), Web sites (including social media), and employee referrals. With middle-management posi­tions, retailers rely on employment agencies, competitors, ads, and employee referrals. A retailer’s usual goal is to generate a list of potential employees, which is reduced during selection. Firms that accept applications only from those meeting minimum standards save a lot of time and money.

SELECTING RETAIL PERSONNEL The company next selects new employees by matching the traits of potential employees with specific job requirements. Job analysis and description, the applica­tion blank, interviewing, testing (optional), references, and a physical exam (optional) are tools in the process; they should be integrated.

In job analysis, information is amassed on each job’s functions and requirements: duties, responsibilities, aptitude, interest, education, experience, and physical tasks. It is used to select personnel, set performance standards, and assign salaries. Thus, department managers often act as the main sales associates for their areas, oversee other sales associates, have some administra­tive duties, report to the store manager, are eligible for bonuses, and receive $25,000 to $45,000+ annually.

Job analysis should lead to written job descriptions. A traditional job description contains a position’s title, relationships (superior and subordinate), and specific roles and tasks. Figure 11-4 showed a store manager description. Yet, using a traditional description alone has been criticized. It may limit a job’s scope, as well as its authority and responsibility; not let a person grow; limit activities to those listed; and not describe how jobs are coordinated. To complement a traditional description, a goal-oriented job description enumerates basic functions, the relationship of each job to overall goals, the interdependence of positions, and information flows. See Figure 11-10.

An application blank is usually the first tool used to screen applicants; it provides data on education, experience, health, reasons for leaving prior jobs, outside activities, hobbies, and references. It is usually short, requires little interpretation, and can be used as the basis for prob­ing in an interview. With a weighted application blank, factors having a high relationship with job success are given more weight than others. Retailers using such a form analyze current and past employee performance and determine the criteria (education, experience, etc.) best correlated with job success (as measured by longer tenure, better performance, etc.). After weighted scores are awarded to all job applicants (based on data they provide), a minimum total score becomes a cutoff point for hiring. An effective application blank aids retailers in lessening turnover and selecting high achievers.

An application blank should be used along with a job description. Those meeting minimum job requirements are processed further; others are immediately rejected. In this way, the applica­tion blank provides a quick and inexpensive method of screening.

The interview seeks information that can be amassed only by personal questioning and obser­vation. It lets an employer determine a candidate’s verbal ability, note his or her appearance, ask questions keyed to the application, and probe career goals. Interviewing decisions must be made about the level of formality, the number and length of interviews, the location, the person(s) to do the interviewing, and the interview structure. These decisions often depend on the interviewer’s ability and the job’s requirements.

Small firms tend to hire applicants based on their performance during interviews. Large firms may have multiple stages: candidates who excel at the interview stage may then be required to take psychological tests (to measure personality, intelligence, interest, and leadership), and/or achievement tests (to measure learned knowledge).¹⁹

Tests must be administered by qualified people. Standardized exams should not be used unless proven effective in predicting job performance. Achievement tests deal with specific skills or information (such as the ability to make a sales presentation), are easier to interpret than psycho­logical tests, and show direct relationships between knowledge and ability. In administering tests, firms must not violate federal, state, and local laws. The federal Employee Polygraph Protection Act bars firms from using lie detector tests in most hiring situations (drugstores are exempt).

To save time and operate more efficiently, some retailers—large and small—use computer ized application blanks and testing. Advance Auto Parts, Babies “R” Us, Best Buy, CVS, Family Tree, Lowe’s, and PetSmart are among those with in-store kiosks that allow people to apply for jobs, complete applications, and answer questions. This speeds the process and attracts applicants.

Many retailers get references from applicants that can be checked either before or after an interview. References are contacted to see how enthusiastically they recommend an applicant, check the applicant’s honesty, and ask why an applicant left a prior job. Mail and phone checks are inexpensive, fast, and easy.

Some firms require a physical exam because of the physical activity, long hours, and tensions involved in many retailing positions. A clean bill of health means the candidate is offered a job. Again, federal, state, and local laws must be followed.

Each step in the selection process complements the others; together they give the retailer a good information package for choosing personnel. As a rule, retailers should use job descriptions, application blanks, interviews, and reference checks. Follow-up interviews, psychological and achievement tests, and physical exams depend on the retailer and the position. Inexpensive tools (such as application blanks) are used in the early screening stages; more costly, in-depth tools (such as interviews) are used after reducing the applicant pool. Equal opportunity, nondiscrimina­tory practices must be followed.

TRAINING RETAIL PERSONNEL Every new employee should receive pre-training, an indoctrina­tion on the firm’s history, culture, and policies, job orientation on hours, compensation, the chain of command, and job duties. The term onboarding describes the process of integrating new employees into an organization and its culture, and understanding the expectations of their new job. New employees should be introduced to co-workers; encouraged to build relationships with a diverse network of colleagues; and provided with tools, resources, and knowledge to become successful and productive. A well-designed onboarding process may evolve over an entire year— from new employee orientation to continuous improvement. It should be modified for specific job roles and locations and make the employee feel welcome.²⁰

Training programs teach new (and existing) personnel how best to perform their jobs or how to improve themselves. Training can range from 1-day sessions on operating a computerized cash register, personal selling techniques, or compliance with affirmative action programs to 2-year programs for executive trainees on all aspects of the retailer and its operations:

• For each new employee, Container Store provides extensive formal training, which includes understanding its “Employee First Culture,” systems training, and classes on how to perform multiple jobs. Each first-year, full-time employee receives about 260 hours of training. The New Store Trainer program has three phases: pre-training (3 weeks prior to opening), post­support (week of and after grand opening), and post-training (a few weeks after post-support). The training ensures that employees are knowledgeable and empowered to offer the customer service the retailer is known for in the industry.²¹
• Best Buy uses an online “Learning Lounge” (www.bestbuylearninglounge.com) to facilitate employee training for new and continuing workers, to keep employees current on the firm’s best practices, and to let employees easily communicate with one another. The password­protected portal is under the auspices of Best Buy’s Retail Training & Development group, whose slogan is “grow. perform. succeed.”

Training should be an ongoing activity. New equipment, legal changes, new product lines, job promotions, low employee morale, and employee turnover necessitate not only training but also retraining. Macy’s has a program called “Clienteling,” which tutors sales associates on how to have better long-term relations with specific repeat customers. Core vendors of Macy’s teach sales associates about the features and benefits of new merchandise when it is introduced.²²

There are several training decisions, as shown in Figure 11-11. They can be divided into three categories: identifying needs, devising appropriate training methods, and evaluation.

Short-term training needs can be identified by measuring the gap between the skills that workers already have and the skills desired by the firm (for each job). This training should prepare employees for possible job rotation, promotions, and changes in the company. A longer training plan lets a firm identify future needs and train workers appropriately.

There are many training methods for retailers: lectures, demonstrations, videos, programmed instruction, conferences, sensitivity training, case studies, role-playing, behavior modeling, and competency-based instruction. Some techniques may be computerized, as evidenced by more and more firms.. The attributes of the various training methods are noted in Table 11-4. Retailers often use more than one technique to reduce employee boredom and to cover the material better.

Computer-based training software is available from a variety of vendors. For example, TiERl Performance Solutions has numerous modules that have been used to train retail employees in such areas as point-of-sales systems, labor scheduling, customer service, manager training, store operations, merchandise management, and more. Among its many clients are CDW, Kroger, Macy’s, McDonald’s, Petco, and Wendy’s.

For training to succeed, a conducive environment is needed, based on several principles:

• All people can learn if taught well; there should be a sense of achievement.
• A person learns better when motivated; intelligence alone is not sufficient.
• Learning should be goal-oriented.
• A trainee learns more when he or she participates and is not a passive listener.
• The teacher must provide guidance, as well as adapt to the learner and to the situation.
• Learning should be approached as a series of steps rather than a one-time occurrence.
• Learning should be spread out over a reasonable period of time rather than be compressed.
• The learner should be encouraged to do homework or otherwise practice.
• Different methods of learning should be combined.
• Performance standards should be set and good performance recognized.

A training program must be regularly evaluated. Comparisons can be made between the performance of those who receive training and those who do not, as well as among employees receiving different types of training for the same job. Evaluations should always be made in rela­tion to stated training goals. In addition, training effects should be measured over different time intervals (such as immediately, 30 days later, and 6 months later), and proper records maintained.

COMPENSATING RETAIL PERSONNEL Total compensation—direct monetary payments (salaries, commissions, and bonuses) and indirect payments (paid vacations, health and life insurance, and retirement plans)—should be fair to both the retailer and its employees. To better motivate employees, some firms also have a profit-sharing plan. Smaller retailers often pay salaries, commissions, and/or bonuses and have fewer fringe benefits. Bigger ones generally pay salaries, commissions, and/ or bonuses and offer more fringe benefits.

Although the hourly federal minimum wage has been $7.25 since July 2009, 45 states have their own laws—29 are higher than the federal minimum and two are lower. In 2016, the highest minimum wage was in Washington, D.C. ($11.50), and in these states: California and Massachu­setts ($10.00); Alaska, ($9.75); and Connecticut, Rhode Island, and Vermont ($9.60). Some states and cities are phasing in a minimum wage as high as $15.00 per hour. The minimum wage has the most impact on retailers hiring entry-level, part-time workers. Full-time, career-track retailing jobs are typically paid an attractive market rate; to attract part-time workers in good economic times, retailers must often pay salaries above the minimum.

At some firms, compensation for certain positions is set through collective bargaining. According to the U.S. Bureau of Labor Statistics, 825,000 retail employees are represented by labor unions. Yet, union membership varies greatly. Unionized grocery stores account for more than one-half of total U.S. supermarket sales, whereas independent supermarkets are not usually unionized.

With a straight salary, a worker is paid a fixed amount per hour, week, month, or year. Advan­tages are retailer control, employee security, and known expenses. Disadvantages are retailer inflexibility, the limited productivity incentive, and fixed costs. Clerks and cashiers are usu­ally paid salaries. With a straight commission, earnings are directly tied to productivity (such as sales volume). Advantages are retailer flexibility, the link to worker productivity, no fixed costs, and employee incentive. Disadvantages are the retailer’s potential lack of control over the tasks performed, the risk of low earnings to employees, cost variability, and the lack of limits on worker earnings. Sales personnel for autos, real-estate, furniture, jewelry, and other expensive items are often paid a straight commission—as are direct-selling personnel.

To combine the attributes of salary and commission plans, retailers may pay employees a salary plus commission. Shoe salespeople, major appliance salespeople, and some management personnel are among those paid this way. Sometimes, bonuses supplement salary and/or commis­sion, usually for outstanding performance. At Finish Line footwear and apparel stores, regional, district, and store managers receive salaries and earn bonuses based on sales, payroll size, and theft goals. In certain cases, executives are paid via a “compensation cafeteria” and choose their own combination of salary, bonus, fringe benefits, life insurance, stock, and retirement benefits.

A thorny issue facing retailers today involves the benefits portion of employee compensa­tion, especially as related to pensions and health care. It is a challenging time due to intense price competition, the use of part-time workers, and escalating medical costs as retailers try to balance their employees’ needs with company financial needs.

SUPERVISING RETAIL PERSONNEL Supervision is the manner of providing a job environment that encourages employee accomplishment. The goals are to oversee personnel, attain good perfor­mance, maintain morale, motivate people, control costs, communicate, and resolve problems. Supervision is provided by personal contact, meetings, and reports.

Every firm wants to continually motivate employees so as to harness their energy on behalf of the retailer and achieve its goals. Job motivation is the drive within people to attain work- related goals. It may be positive or negative. These questions can be used to help predict employee behavior, based on their motivation:

• Do you like the work you do? Does it give you a sense of accomplishment?
• Are you proud to say you work with us?
• Does the work expected from you influence your overall job attitude? How?
• Do physical working conditions influence your overall job attitude? How?
• Does the way you are treated by your boss affect your job attitude?
• Do you understand the firm’s strategy?
• Do you see a connection between your work and the firm’s strategic goals?²³

Employee motivation should be approached from two perspectives: What job-related factors cause employees to be satisfied or dissatisfied with their positions? What supervision style is best for both the retailer and its employees? See Figure 11-12.

Each employee looks at job satisfaction in terms of minimum expectations (“dissatisfi- ers”) and desired goals (“satisfiers”). A motivated employee requires fulfillment of both factors.

Minimum expectations relate mostly to the job environment, including a safe workplace; equi­table treatment for those with the same jobs; some flexibility in company policies (such as not docking pay if a person is 10 minutes late); an even-tempered boss; some freedom in attire; a fair compensation package; basic fringe benefits (such as vacation time and medical coverage); clear communications; and job security. These elements can generally influence motivation in only one way—negatively. If minimum expectations are not met, an employee will be unhappy. If these expectations are met, they are taken for granted and do little to motivate the person to go “above and beyond.”

Desired goals relate more to the job than to the work environment. They are based on whether an employee likes the job, is recognized for good performance, feels a sense of achievement, is empowered to make decisions, is trusted, has a defined career path, receives extra compensation when performance is exceptional, and is given the chance to learn and grow. These elements can have a huge impact on job satisfaction and motivate a person to go “above and beyond.” Nonethe­less, if minimum expectations are not met, an employee might still be dissatisfied enough to leave, even if the job is quite rewarding.

There are three basic styles of supervising retail employees:

• Management assumes that employees must be closely supervised and controlled and that only economic inducements really motivate. Management further believes that the average worker lacks ambition, dislikes responsibility, and prefers to be led. This is the traditional view of motivation and has been applied to lower-level retail positions.
• Management assumes employees can be self-managers and assigned authority, motivation is social and psychological, and supervision can be decentralized and participatory. Manage­ment also thinks that motivation, the capacity for assuming responsibility, and a readiness to achieve company goals exist in people. The critical supervisory task is to create an environ­ment so people achieve their goals by attaining company objectives. This is a more modern view and applies to all levels of personnel.
• Management applies a self-management approach and also advocates more employee involve­ment in defining jobs and sharing overall decision making. There is mutual loyalty between the firm and its workers, and both parties enthusiastically cooperate for the long-term benefit of each. This is also a modern view and applies to all levels of personnel.

It is imperative to motivate employees in a manner that yields job satisfaction, low turn­over, low absenteeism, and high productivity. Research in organizational behavior on employee motivation suggests that trade-offs among command, autonomy, respect for employees’ need for self-determination and economic incentives can improve employee intrinsic motivation and performance. Some suggestions include: (1) Empower employees to solve problems. (2) Ask employees for their input. (3) Regularly communicate with employees about how they are doing. (4) Delegate tasks. (5) Encourage new ideas from employees. (6) Let employees learn from their mistakes without being unduly harsh. (7) Show employees what is needed for promotions. (8) Provide public recognition of good performance. (9) Seek employee input on company goals and how to achieve them.²⁴

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

A profit-and-loss (income) statement is a summary of a retailer’s revenues and expenses over a given period of time, usually a month, quarter, or year. It lets the firm review overall and specific revenues and costs for similar periods (such as January 1, 2016, to December 31, 2016, versus January 1, 2015, to December 31, 2015) and analyze profits. With frequent statements, a firm can monitor progress on goals, update performance estimates, and revise strategies and tactics.

In comparing profit-and-loss performance over time, it is crucial that the same time periods be used (such as the third quarter of 2016 compared with the third quarter of 2015) due to sea­sonality. Some fiscal years may have an unequal number of weeks (53 weeks one year versus 51 weeks another). Retailers that open new stores or expand existing stores between accounting periods should also take into account the larger facilities. Yearly results should reflect total revenue growth and the rise in same-store sales.

A profit-and-loss statement consists of several major components:

• Net sales The revenues received by a retailer during a given period after deducting customer returns, markdowns, and employee discounts.
• Cost of goods sold The amount a retailer pays to acquire the merchandise sold during a given time period. It is based on purchase prices and freight charges, less all discounts (such as quantity, cash, and promotion).
• Gross profit (margin) The difference between net sales and the cost of goods sold. It consists of operating expenses plus net profit.
• Operating expenses The cost of running a retail business.
• Taxes The portion of revenues turned over to the federal, state, and/or local government.
• Net profit after taxes The profit earned after all costs and taxes have been deducted.

Table 12-1 shows the most recent annual profit-and-loss statement for Donna’s Gift Shop, an independent retailer. The firm uses a fiscal year (September 1 to August 31) rather than a calendar year in preparing its accounting reports. These observations can be drawn from the table:

• Annual net sales were $330,000—after deducting returns, markdowns on the items sold, and employee discounts from total sales.
• The cost of goods sold was $ 180,000, computed by taking the total purchases for merchandise sold, adding freight, and subtracting quantity, cash, and promotion discounts.
• Gross profit was $150,000, calculated by subtracting the cost of goods sold from net sales. This went for operating and other expenses, taxes, and profit.
• Operating expenses totaled $95,250, including salaries, advertising, supplies, shipping, insur­ance, maintenance, and other expenses.
• Unassigned costs were $20,000.
• Net profit before taxes was $34,750, computed by deducting total costs from gross profit. The tax bill was $15,500, leaving a net profit after taxes of $19,250.

Overall, fiscal 2016 was pretty good for Donna; her personal salary was $43,000 and the store’s after-tax profit was $19,250. A further analysis of Donna’s Gift Shop’s profit-and-loss statement appears in the budgeting section of this chapter.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

Each retailer has assets to manage and liabilities to control. This section covers the balance sheet, the strategic profit model, and other ratios. A balance sheet itemizes a retailer’s assets, liabilities, and net worth at a specific time—based on the principle that Assets = Liabilities + Net worth. Table 12-2 has a balance sheet for Donna’s Gift Shop.

Assets are any items a retailer owns with a monetary value. Current assets are cash on hand (or in the bank) and items readily converted to cash, such as inventory on hand and accounts receivable (amounts owed to the firm). Fixed assets are property, buildings (a store, warehouse, etc.), fixtures, and equipment such as cash registers and trucks; these are used for a long period. The major fixed asset for many retailers is real-estate. Unlike current assets, which are recorded at cost, fixed assets are recorded at cost less accumulated depreciation. Thus, records may not reflect the true value of these assets. Many retailing analysts use the term hidden assets to describe depreciated assets, such as buildings and warehouses, that are noted on a retail balance sheet at low values relative to their actual worth.

Liabilities are financial obligations a retailer incurs in operating a business. Current liabili­ties are payroll expenses payable, taxes payable, accounts payable (amounts owed to suppliers), and short-term loans; these must be paid in the coming year. Fixed liabilities comprise mort­gages and long-term loans; these are generally repaid over several years.

A retailer’s net worth is computed as assets minus liabilities. It is also called owner’s equity and represents the value of a business after deducting all financial obligations.

In operations management, the retailer’s goal is to use its assets in the manner providing the best results possible. There are three basic ways to measure those results: net profit margin, asset turnover, and financial leverage. Each component is discussed next.

Net profit margin is a performance measure based on a retailer’s net profit and net sales:

At Donna’s Gift Shop, fiscal year 2016 net profit margin was 5.83 percent—a very good percent­age for a gift shop. To enhance its net profit margin, a retailer must either raise gross profit as a percentage of sales or reduce expenses as a percentage of sales.¹ It could lift gross profit by pur­chasing opportunistically, selling exclusive products, avoiding price competition through excel­lent service, and adding items with higher margins. It could reduce operating costs by stressing self-service, lowering labor costs, refinancing the mortgage, cutting energy costs, and so on. The firm must be careful not to lessen customer service to the extent that sales and profit would decline.

Asset turnover is a performance measure based on a retailer’s net sales and total assets:

Donna’s Gift Shop had a very low asset turnover, 1.0143—meaning it averaged $1.01 in sales per dollar of total assets. To improve the asset turnover ratio, a firm must generate increased sales from the same level of assets or keep the same sales with fewer assets. A firm might increase sales by having longer hours, accepting online orders, training employees to sell additional products, or stocking better-known brands. None of these tactics requires expanding the asset base. Or a firm might maintain its sales on a lower asset base by moving to a smaller store, simplifying fixtures (or having suppliers install fixtures), keeping a lower inventory, and negotiating for the property owner to pay part of the costs of a renovation.

By looking at the relationship between net profit margin and asset turnover, return on assets (ROA) can be computed:

Donna’s Gift Shop had an ROA of 5.9 percent (0.0583 X 1.0143 = 0.059). This return is below average for gift stores; the good net profit margin does not adequately offset low asset turnover.

Financial leverage is a performance measure based on the relationship between a retailer’s total assets and net worth:

Donna’s Gift Shop’s financial leverage ratio was 1.9314. Assets were just under twice the net worth, and total liabilities and net worth were almost equal. This ratio was slightly lower than the average for gift stores (a conservative group). The store is in no danger.

A retailer with a high financial leverage ratio has substantial debt. A ratio of 1 means it has no debt—assets equal net worth. If the ratio is too high, there may be an excessive focus on cost­cutting and short-run sales so as to make interest payments, net profit margins may suffer, and a firm may be forced into bankruptcy if debts cannot be paid. When financial leverage is low, a retailer may be overly conservative—limiting its ability to renovate and expand existing stores and to enter new markets. Leverage is too low if the owner’s equity is relatively high; equity could be partly replaced by increasing short- and long-term loans and/or accounts payable. Some equity funds could be taken out of a business by the owner (stockholders, if a public firm).

1. The Strategic Profit Model

The relationship among net profit margin, asset turnover, and financial leverage is expressed by the strategic profit model, which reflects a performance measure known as return on net worth (RONW). See Figure 12-1. The strategic profit model can be used to plan and/or control assets. Thus, a retailer could learn the major cause of its poor return on net worth is weak asset turnover or financial leverage that is too low. A firm can raise its return on net worth by lifting the net profit margin, asset turnover, or financial leverage. Because these measures are multiplied to determine return on net worth, doubling any of them would double the return on net worth.

This is how the strategic profit model can be applied to Donna’s Gift Shop:

Overall, Donna’s return on net worth was above average for gift stores.

Table 12-3 applies the strategic profit model to various retailers. It is best to compare firms within given retail categories. For example, net profit margins of general merchandise retail­ers have historically been higher than those of food retailers. Because financial performance differs each year, caution is advised in studying these data. Furthermore, the individual compo­nents of the strategic profit model must be analyzed, not just the return on net worth. For example,

• TJX had the highest return on net worth among all 17 retailers shown in Table 12-3. Its net profit margin was slightly lower than Gap, Inc., but its asset turnover was quite strong. TJX was also slightly more financially leveraged than Gap, Inc.
• Sears Holdings (including Sears and Kmart) had a very weak return on net worth. Its financial leverage and profit margin were especially weak.
• Staples outperformed Office Depot. It had a stronger profit margin and was not as leveraged.

2. Other Key Business Ratios

Additional ratios can also measure retailer success or failure in reaching performance goals. Here are several key business ratios—besides those covered in the preceding discussion:

• Quick ratio: Cash plus accounts receivable divided by total current liabilities, those due within one year. A ratio above 1-to-1 means the firm is liquid and can cover short-term debt.
• Current ratio: Total current assets (cash, accounts receivable, inventories, and marketable securities) divided by total current liabilities. A ratio of 2-to-1 or more is good.
• Collection period:Acounts receivable divided by net sales and then multiplied by 365. If most sales are on credit, a collection period one-third or more over normal terms (such as 40.0 for a store with 30-day credit terms) means slow-turning receivables.
• Accounts payable to net sales: Accounts payable divided by annual net sales. This compares how a retailer pays suppliers relative to volume transacted. A figure above the industry aver­age indicates that a firm relies on suppliers to finance operations.
• Overall gross profit:Net sales minus the cost of goods sold and then divided by net sales. This companywide average includes markdowns, discounts, and shortages.²

For any retailer, large or small, the goal is to do as well as possible on these key business ratios. Areas of weakness must be identified and corrected for the firm to enhance its long-term results—and to avoid negative financial results. Table 12-4 describes ways to improve perfor­mance for each of the preceding ratios, as well as asset turnover and return on net worth.

3. Financial Trends in Retailing

Several trends relating to asset management merit discussion: the state of the economy; funding sources (including initial public offerings); mergers, consolidations, and spin-offs; bankruptcies and liquidations; and questionable accounting and financial reporting practices.

Many retailers are affected by the strength or weakness of the economy. During a strong economy, high consumer demand may mask retailer weaknesses. But when the economy is weak, sales stagnate, cash flow problems may occur, heavy markdowns may be needed (which cut profit margins), consumers are more reluctant to buy big-ticket items, and public firms may see their stock prices adversely affected.

The housing recession in 2008 and the shallow economic recovery that followed saw deep discounting by retailers to lure customers to stores and malls in order to increase revenues, which hurt profitability. It also conditioned shoppers to expect discounts every time they purchased or they would not shop at all. Many people have remained frugal despite the recovery and continue to trade down to lower-priced retailers, online retailing, and off-price and discount stores.³ The disruptive effect of online retailing has further eroded retailer profitability. To stay competitive, many retailers are making investments in upgraded supply chains, digital marketing, information technology (both in-store and systemwide), and logistics to implement omnichannel strategies.⁴ Margins remain under pressure from discounting, free shipping, price matching, greater expenses for ads, the high level of online returns, and expanded store hours.

Three sources offunding are important to retailers. First, because interest rates have remained low, many firms have sought to refinance their mortgages and leases—which can dramatically decrease their monthly payments. Even though funding has sometimes been tight, due to the tougher restrictions imposed by the financial markets, retailers retained some leverage. The weak economy led to many retail store vacancies and the rental marketplace has still not fully bounced back. Further, prior to the recession, retail developers overbuilt, which created even more vacan­cies. Although commercial property prices have been steadily increasing since 2008, they have now started to plateau despite tight supply.⁵

Second, shopping center developers often use a retail real-estate investment trust (REIT) to fund construction. With this strategy, investors buy shares in a REIT as they would a stock. Until the 2008 recession, investors favored REITs because property had historically been a good invest­ment. Then, during the worst of the economic decline, many REITs struggled and their value fell. Nonetheless, the long-term forecast for REITs is good. Most REITS own strip malls and suburban shopping centers that fare better during recessions than tied to apartments or office space, and they typically have higher returns when domestic consumer spending rise. The limited supply of shopping center space in choice areas, the ability to raise rents, and the safe and relatively high yields of 2 to 4 percent that a typical REIT investor gets make them a desired investment vehicle.⁶

Third, a funding source that has gained retailing acceptance over the past 30 years is the ini­tial public offering (IPO), whereby a privately-owned firm raises money by becoming public and selling stock. An IPO is typically used to fund expansion. What do investors look for in an IPO? Retailers with sustained high growth rates or profitability or preferably both, with unique goods or services, in markets with high barriers to entry are more likely to succeed. Retailers preparing to go public need to weigh the risks of public scrutiny of strategies, actions, and security regulations versus the rewards of such a move. In considering an IPO, retailers need to look beyond the cur­rent business landscape and evaluate the long-term profitability of being publicly traded. Despite a lackluster IPO market in 2015, retail IPOs performed better than the market average with such firms as Duluth Holdings, Etsy, Ollie’s Bargain Outlet Holdings, Shopify, and Xcel going public.⁷

Mergers and consolidations represent a way for retailers to add to their asset base without building new facilities or waiting for new business units to turn a profit. They also present a way for weak retailers to receive financial transfusions. For example, in the last several years, Dick’s Sporting Goods acquired Gaylan’s, TD Bank acquired Commerce Bancorp, Dollar Tree acquired Family Dollar, and Foot Locker acquired Foot Action. These deals were driven by the relative weakness of the acquired firms. Typically, mergers and consolidations lead to some stores being shut, particularly those with trading-area overlap, and cutbacks among management personnel.

The leveraged buyout (LBO) is a type of acquisition in which a retail ownership change is mostly financed by loans from banks, investors, and others. The LBO phenomenon has had a big effect on retail budgeting and cash flow. At times, because debts incurred with LBOs can be high, some well-known retailers have had to focus more on paying interest on their debts than on investing in their businesses, run sales to generate enough cash to cover operating costs and buy new goods, and sell store units to pay off debt. Two major retailers involved with LBOs were weakened: Toys “R” Us and Barneys New York.

Retailers sometimes consolidate their businesses to streamline operations and improve profits. Winn-Dixie, Eddie Bauer, Kmart, Macy’s, Pier 1, Michaels, Sears, and many others have shut underperforming stores. Other times, retailers use spin-offs to generate more money or to sell a division that no longer meets expectations. Many retailers (Macy’s, Life Time Fitness, etc.) and restaurant chains (Darden, Bob Evans, etc.) spin off their real-estate to REITs or external investors and then lease them back.⁸ Retailers may spin off a division for strategic reasons. For example, eBay spun off PayPal, its online payments division, because technology advances, growth oppor­tunities, and challenges for the two business had diverged. As two standalone firms, each is now able to compete more effectively in its respective market.⁹ Unlike a retail-estate spin-off, a business unit spin-off or split does not generate additional funds.¹⁰ Hot Topic, a popular national
retailer that sells music and pop culture-inspired clothes and accessories for young women spun off Torrid, which sells plus-size goth, rave, and punk clothing.¹¹ Supervalu, the grocery retailer is spinning off its discount retail chain Save-A-Lot.¹²

To safeguard against mounting debts, as well as to continue in business, faltering retailers may seek bankruptcy protection under Chapter 11 of the Federal Bankruptcy Code (which was toughened in 2005). In November 2006, when the economy was quite strong, only 3.8 percent of the large retailers tracked by a turnaround consulting firm were facing a high possibility of bankruptcy or financial distress. By November 2008, the figure had risen to 25.8 percent.¹³ Today, the figure is much lower (closer to pre-recession percentages), but rising in the retail sector.¹⁴

With bankruptcy protection, retailers can renegotiate bills, get out of leases, and work with creditors to plan for the future. Declaring bankruptcy has major ramifications: disruptions in sup­ply (cash payment for stock purchased 20 days prior to bankruptcy); loss of key executives and demoralization of those who stay; short time frame to reorganize or sell stores; emergency liquida­tion of stock in stores that are trimmed; and the legal and financial advisory fees of bankruptcy protection. Chapter 11 bankruptcy fends off creditors and lets firms pay off debt and survive what may be a temporary upheaval. More than half of large store-based retailers who filed for bank­ruptcy since 2006 have been liquidated.¹⁵ See Figure 12-2.

Since 2008, several large retailers have declared bankruptcy, with some ultimately going out of business. These include American Apparel (2015), Circuit City (2008), Linens ‘n Things (2008), A&P (2015), Radio Shack (2015), Blockbuster (2010), Borders (2011), Sbarro (2011 and 2014), Friedman’s (2008), Brookstone (2014), and Quiksilver (2015).¹⁶

American Apparel entered into a bankruptcy in which its secured lenders would receive shares in the reformed company in exchange for the bonds they held. Extra financing was also obtained from participating bondholders to enable American Apparel to keep its manufacturing operations functioning and its 130 U.S. stores open. The reorganization would wipe out the holdings of exist­ing American Apparel stockholders.

Some retailers that focus on teenage consumers have recently struggled. In 2014, for exam­ple, Wet Seal, Bed Shops, Delia’s, and Body Central declared bankruptcy. Many teenagers have switched to shopping with H&M, Zara, and other “fast-fashion” retailers that can quickly stock fast-selling fashion items from Asian suppliers.¹⁷

When a retailer goes out of business, it is painful for all parties: the owner/stockholders, employees, creditors, landlords (who then have vacant store sites), and customers. See Figure 12-3.

As with other sectors of business, over the last few years, some retailers have been heavily criti­cized for questionable accounting and financial practices. Sometimes, the practices have been illegal. For example, Sterling—which owns the Kay, Zales, Jared, and Signet jewelry chains—has been under scrutiny because it receives more revenue for sales made with extended-credit servicing plans pro­vided by its own in-house facility. This may overstate revenues and profits and misleads investors.¹⁸

To avoid questionable or illegal practices, many larger retailers have enacted formal policies. At Home Depot, for example, there is a detailed “Code of Ethics for Senior Financial Officers,” as shown here. The code applies to Home Depot’s chief executive, chief financial officer, and other high-ranking personnel. Each of these executives must adhere to such practices as the following:

Act in all financial and accounting matters in a way that shows honesty, integrity, and fairness.

• Do not let personal interests override company interests; and avoid conflicts of interest.
• Report data that have been recorded inaccurately.
• Be sure that all activities are lawful, accurate, complete, and not intended to mislead.
• Be proactive in promoting ethical behavior.
• Responsibly use company resources.¹⁹

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

Budgeting outlines a retailer’s planned expenditures for a given time based on expected per­formance. Costs are linked to satisfying target market, employee, and management goals. What should labor costs be to attain a certain level of customer service? What compensation will moti­vate salespeople? What operating expenses will reach intended revenue and profit goals?

There are several benefits from a retailer’s meticulously preparing a budget:

• Expenditures are clearly related to expected performance, and costs can be adjusted as goals are revised. This enhances productivity.
• Resources are allocated to the right departments, product categories, and so on.
• Spending for various departments, product categories, and so on is coordinated.
• Because planning is structured and integrated, the goal of efficiency is prominent.
• Cost standards are set, such as advertising equals 5 percent of sales.
• A firm prepares for the future rather than reacts to it.
• Expenditures are monitored during a budget cycle. If a firm allots $50,000 to buy new mer­chandise, and it has spent $33,000 halfway through a cycle, it has $17,000 remaining.
• A firm can analyze planned budgets versus actual budgets.
• Costs and performance can be compared with industry averages.

A retailer should be aware of the effort involved in the budgeting process, recognize that forecasts may not be fully accurate (due to unexpected demand, competitors’ tactics, and so on), and modify plans as needed. The process should not be too conservative (or inflexible) or simply add a percentage to each expense category to arrive at the next budget, such as increasing spend­ing by 3 percent across the board based on anticipated sales growth of 3 percent. The budgeting process is shown in Figure 12-4 and described next.

1. Preliminary Budgeting Decisions

There are six preliminary decisions. First, budgeting authority is specified. In top-down budget­ing, senior executives make centralized financial decisions and communicate them down the line to succeeding levels of managers. In bottom-up budgeting, lower-level executives develop departmental budget requests; these requests are assembled and a company budget is designed. Bottom-up budgeting includes varied perspectives, holds managers more accountable, and enhances employee morale. Many firms combine aspects of the two approaches.

Second, the time frame is defined. Most firms have budgets with yearly, quarterly, and monthly components. Annual spending is planned, and costs and performance are regularly reviewed. This responds to seasonal or other fluctuations. Sometimes, the time frame is longer than a year; other times it’s shorter than a month. When a firm opens new stores over a 5-year period, it sets construction costs for the entire period. When a supermarket orders perishables, it has weekly budgets for each item.

Third, budgeting frequency is determined. Many firms review budgets on an ongoing basis, but most plan them yearly. In some firms, several months may be set aside each year for the bud­geting process; this lets all participants have time to gather data and facilitates taking the budgets through several drafts.

Fourth, cost categories are established:

• Capital expenditures are long-term investments in land, buildings, fixtures, and equipment. Operating expenditures are the short-term expenses of running a business.
• Fixed costs, such as store security, remain constant for the budget period regardless of the retailer’s performance. Variable costs, such as sales commissions, are based on performance. If performance is good, these expenses often rise. Figure 12-5 shows that the clock is always ticking with regard to the timing of costs.
• Direct costs are incurred by specific departments, product categories, and so on, such as the earnings of department-based salespeople. Indirect costs, such as centralized cashiers, are shared by multiple departments, product categories, and so on.
• Natural account expenses are reported by the names of the costs, such as salaries, and not assigned by purpose. Functional account expenses are classified on the basis of the purpose or activity for which expenditures are made, such as cashier salaries.

Fifth, the level of detail is set. Should spending be assigned by department (produce), product category (fresh fruit), product subcategory (apples), and/or product item (McIntosh apples)? With a very detailed budget, every expense subcategory must be adequately covered.

Sixth, budget flexibility is prescribed. A budget should be strict enough to guide planned spending and link costs to goals. Yet, a budget that is too inflexible may not let a retailer adapt to changing market conditions, capitalize on new opportunities, or modify a poor strategy (if fur­ther spending is needed to improve matters). Budget flexibility is often expressed in quantitative terms, such as allowing a buyer to increase a quarterly budget by a certain maximum percentage if demand is higher than anticipated.

2. Ongoing Budgeting Process

After making preliminary budgeting decisions, the retailer engages in the ongoing budgeting process shown in Figure 12-4:

• Goals are set based on customer, employee, and management needs.
• Performance standards are specified, including customer-service levels, the compensation needed to motivate employees, and the sales and profits needed to satisfy management. Typi­cally, the budget is related to a sales forecast, which projects revenues for the next period. Forecasts are usually broken down by department or product category.
• Expenditures are planned in terms of performance goals. In zero-based budgeting, a firm starts each new budget from scratch and outlines the expenditures needed to reach that period’s goals.
• All costs are justified each time a budget is done. With incremental budgeting, a firm uses cur­rent and past budgets as guides and adds to or subtracts from them to arrive at the coming period’s spending. Most firms use incremental budgeting; it is easier, less time-consuming, and not as risky. Actual expenditures are made. The retailer pays rent and employee salaries, buys merchan­dise, places ads, and so on.
• Results are monitored: (1) Actual expenditures are compared with planned spending for each expense category, and reasons for any deviations are reviewed. (2) The firm learns if perfor­mance standards have been met and tries to explain deviations.
• The budget is adjusted. Revisions are major or minor, depending on how closely a firm has come to reaching its goals. The funds allotted to some expense categories may be reduced, while greater funds may be provided to other categories.

Table 12-5 compares budgeted and actual revenues, expenses, and profits for Donna’s Gift Shop during fiscal 2016. The actual data come from Table 12-1. The variance figures compare expected and actual results for each profit-and-loss item. Variances are positive if performance is better than expected and negative if it is worse.

As Table 12-5 indicates, in dollar terms, net profit after taxes was $7,250 higher than bud­geted. Sales were $30,000 higher than expected; thus, the cost of goods sold was $15,000 higher. Actual operating expenses were $750 lower than expected, while other costs were $2,000 higher. Table 12-5 also shows results in percentage terms. This lets a firm evaluate budgeted ver­sus actual performance on a percent-of-sales basis. In Donna’s case, actual net profit after taxes was 5.83 percent of sales—better than planned. The higher net profit was mostly due to the actual operating costs percentage being lower than planned.

A firm must closely monitor cash flow, which relates the amount and timing of revenues received to the amount and timing of expenditures for a specific time. In cash flow management, the usual goal is to make sure revenues are received before expenditures are paid.²⁰ Otherwise, short-term loans may be needed or profits may be tied up in inventory and other expenses. For seasonal retailers, this may be unavoidable. Underestimating costs and overestimating revenues, both of which affect cash flow, are leading causes of new business failures. Table 12-6 has cash flow examples.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

In allotting financial resources, the magnitude of various costs as well as productivity should be examined. Each has significance for asset management and budgeting.

1. The Magnitude of Various Costs

As noted before, spending can be divided into two categories. Capital expenditures are long-term investments in fixed assets. Operating expenditures are short-term selling and administrative costs in running a business. It is vital to have a sense of the magnitude of various capital and operating costs.

These are a rough average of capital expenditures (for the basic building shell; heating, ven­tilation, and air conditioning; interior lighting; flooring; display fixtures; ceilings; interior and exterior signage; and roofing) for erecting the following single freestanding store for these retailers: big-box stores (including department stores), $5.65 million; supermarkets, $5.0 million; home centers, $2.7 million; and convenience stores—$685,000. Thus, a typical home center chain must be prepared to invest $2.7 million to build each new store (which averages more than 44,000 square feet industrywide), not including land and merchandise costs; the total could be higher if a bigger store is built.²¹

Remodeling can also be expensive. It is prompted by competitive pressures, mergers and acquisitions, consumer trends, the requirement of complying with the Americans with Disabilities Act, environmental concerns, and other factors.

To reduce their investments, some retailers insist that real-estate developers help pay for building, renovating, and fixture costs. These tenant demands reflect some areas’ oversaturation, the amount of retail space available due to the liquidation of some retailers and mergers, and the interest of developers in gaining tenants that generate consumer traffic (such as category killers).

Operating expenses, usually expressed as a percentage of sales, range from 20 percent or so in supermarkets to more than 40 percent in some specialty stores. To succeed, these costs must be in line with competitors’ costs. Costco has an edge over many rivals due to lower SGA (selling, general, and administrative costs as a percentage of sales): Costco, 10 percent; Walmart, 20 percent; Target, 20 percent; Kohl’s, 23 percent; Dillard’s, 25 percent; and Macy’s, Inc., 30 percent.²²

Resource allocation must also take into account opportunity costs—possible benefits a retailer forgoes if it invests in one opportunity rather than another. If a chain renovates 15 existing stores at a total cost of $3.5 million, it cannot open a new outlet requiring a $3.5 million invest­ment. Financial resources are finite; consequently, firms often face either/or decisions.

2. Productivity

Due to erratic sales revenues, mixed economic growth, high labor costs, intense competition, and other factors, many retailers place great priority on their productivity, the efficiency with which a retail strategy is carried out. Productivity can be described in terms of costs as a percentage of sales, the time it takes a cashier to complete a transaction, profit margins, sales per square foot, inventory turnover, and so forth. The key question is: How can sales and profit goals be reached while keeping control over costs?

Because different retail strategy mixes have distinct resource needs as to store location, fix­tures, personnel, and other elements, productivity must be based on norms for each type of strategy mix (such as department stores versus full-line discount stores). Sales growth should also be measured on the basis of comparable seasons, using the same stores. Otherwise, the data will be affected by seasonality and/or the increased square footage of stores.

There are two ways to enhance productivity: (1) A firm can improve employee performance, sales per foot of space, and other factors by upgrading training programs, increasing advertising, and so forth. (2) It can reduce costs by automating, having suppliers do certain tasks, and so forth. A retailer could use a small core of full-time workers during nonpeak times, supplemented with part-timers in peak periods.

Productivity must not be measured from a cost-cutting perspective alone. This may under­mine customer loyalty. One of the more complex dilemmas omnichannel retailers face is how to handle online purchases returned to the store. To control the higher costs associated with pro­cessing online purchases in stores, some retailers have decided not to allow online purchases to be returned at their stores. This policy has upset a lot of customers and resulted in most of these firms changing their policies.

Here are two examples of strategies that diverse retailers have used to raise productivity:

• Many firms are using computer software to improve their allocation of shelf space to be more productive per square foot. The Winn-Dixie and ShopKo supermarket chains are among those that utilize SAS Retail Space Management software.
• Department store retailer Macy’s, which also owns Bloomingdale’s and BlueMercury, is rely­ing on cost efficiencies and a flatter, more agile organizational structure to pursue growth and regain market share in its core omnichannel businesses. Measures include reducing the store portfolio and reinvesting resources online and with stores having the highest sales potential. Savings in labor costs will come through a 2 percent reduction in store personnel, back­office staff, and voluntary separation options for senior executives. Consolidating Macy’s Inc. credit and consumer service facilities and reducing budgets for meetings and travel will further reduce costs.²³

It is vital that retailers, in their quest to become more productive, not alienate their customers and diminish the shopping experience. Increasing sales productivity by reducing costs is common, but the true challenge in a retailer’s performance is to build productivity profitably.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

We now look at the operations blueprint: store format, size, and space allocation; personnel uti­lization; store maintenance, energy management, and renovations; inventory management; store security; insurance; credit management; computerization; outsourcing; and crisis management.

1. Operations Blueprint

An operations blueprint systematically lists all operating functions to be performed, their char­acteristics, and their timing. When developing a blueprint, the retailer specifies, in detail, every operating function from the store’s opening to closing—and those responsible for them.³ For example, who opens the store? When? What are the steps (turning off the alarm, turning on power, setting up the computer, etc.)? The performance of these tasks must not be left to chance.

A large or diversified retailer may use multiple blueprints and have separate blueprints for such areas as store maintenance, inventory management, credit management, and store displays. When a retailer modifies its store format or operating procedures (such as relying more on self­service), it must also adjust the operations blueprint(s).

Figure 13-1 has an operations blueprint for a quick-oil-change firm. It identifies employee and customer tasks (in order) and expected performance times for each activity. Advantages of this blueprint—and others—are that it standardizes activities (in a location and between loca­tions), isolates points at which operations may be weak or prone to fail (Do employees actually check transmission, brake, and power-steering fluids in one minute?), outlines a plan that can be evaluated for completeness (Should customers be offered different grades of oil?), shows person­nel needs (Should one person change oil and another wash the windshield?), and helps identify productivity improvements (Should the customer or an employee drive a car into and out of the service bay?).

2. Store Format, Size, and Space Allocation

Store format decisions include site planning (such as a planned shopping center rather than an unplanned business district), construction choices (such as prefabricated materials), store size, store design, and store layouts. Some leading retailers use differentiated formats to align assortments to specific consumers and segments, to optimize space profitability, and to create a better customer destination. Multiformat apparel and accessories retailer Inditex has Massimo Dutti stores (personalized service for affluent men and women); Bershka (targeting a younger market with a store resembling a social meeting place); and its core brand Zara (targeting the mid-market, age group 20 to 35 with “cheap and chic” offerings). Some firms, including Target and Walmart (such as Walmart to Go) are using smaller format stores with lower operating costs (for rent, inventory, and lighting) and better access to locations in urban areas—in addition to their larger facilities.

A key store format decision for chain retailers is whether to use prototype stores, whereby multiple outlets conform to relatively uniform construction, layout, and operations standards. They make centralized management control easier, reduce construction costs, standardize operations, facilitate the interchange of employees among outlets, allow bulk purchases of fixtures and other materials, and convey a consistent chain image. Yet, a strict reliance on prototypes may lead to inflexibility, failure to adapt to or capitalize on local customer needs, and too little creativity. McDonald’s, Pep Boys, Starbucks, and most supermarket chains have prototype stores.

Together with prototype stores, some chains use rationalized retailing programs to com­bine a high degree of centralized management control with strict operating procedures for every phase of business at all of their outlets. Rigid control and standardization make this technique easy to enact and manage, and a firm can add a significant number of stores in a short time. See Figure 13-2. Dunkin’ Donuts, Old Navy, Toys “R” Us, and many major supermarket chains use rationalized retailing. They operate many stores that are similar in size, layout, and merchandis­ing. Rationalized retailing also enables consumers to locate merchandise and to feel comfortable when visiting a new store.

Many retailers use one or both of two contrasting store-size approaches to be distinctive and to deal with high rents in some metropolitan markets. Home Depot, Barnes & Noble, Sta­ples, Best Buy, and Dick’s Sporting Goods have category-killer stores with huge assortments that try to dominate smaller stores. Food-based warehouse stores and large discount-oriented stores often situate in secondary sites, where rents are low and confidence is high that they can draw customers. Cub Foods (a warehouse chain) and Walmart engage in this approach. At the same time, some retailers believe large stores are not efficient in serving saturated (or small) markets; they have been opening smaller stores or downsizing existing ones because of high rents.

Getting the right store and shelf-space management strategy is key to driving traffic, retail sales revenues, and profitability. Retailers have to understand consumer needs, preferences, and purchase behavior across online and offline channels to better “curate” assortments and to opti­mize their space and assortments. They can use facilities productively by identifying the right amount of space, the right number of brands, and the placement of each product category to most profitably meet retailer and customer needs. Sometimes, retailers drop merchandise lines because they occupy too much space relative to sales, margins, and/or turnover. Today, many department stores focus more on apparel and cosmetics and less on electronics, appliances, and home furnish­ings (such as carpeting and window treatments).

The growth in cross-channel shopping allows retailers to leverage their Web sites as an “end­less aisle” opportunity to extend their offerings without expanding physical space while lowering operating costs. This can support sales of long-tail SKUs (odd sizes, last season’s colors, and so on) at full price, without sacrificing shelf space in stores. To ensure cross-channel coordination, Gap has been testing an “order-in-store” option in several locations, where store customers can place online orders from within the shops with free shipping—if the customer picks up from the store at a later date. This presents opportunities for additional purchases and cross-selling. At Bonobos stores, a men’s clothing retailer, customers can purchase items, but they do not leave with merchandise in-hand; rather, it is shipped to them days later.

With a top-down space management approach, a retailer starts with its total available store space (by outlet and the overall firm, if a chain), divides space into categories, and then works on product layouts. In contrast, a bottom-up space management approach begins plan­ning at the individual product level and then proceeds to category, total store, and overall com­pany levels.

Measures by some retailers to improve store space productivity include vertical displays, which occupy less room and hang on walls and/or from ceilings. Formerly free space may have small point-of-sale displays and vending machines; sometimes, product displays are in front of stores. Open doorways, mirrored walls, and vaulted ceilings give small stores a larger appear­ance. Up to 75 percent or more of total space may be used for selling; the rest is for storage, rest rooms, and so on. Scrambled merchandising (with high-profit, high-turnover items) occupies more space in stores and at Web sites than before. By having longer hours, retailers can also use space better.

3. Personnel Utilization

According to the U.S. Bureau of Labor Statistics, millions of people work in retailing as salesper­sons, clerks, customer service representatives, cashiers, and other positions. From an operations perspective, efficiently utilizing retail personnel is vital:

1. Labor costs are high—the largest category of controllable, nonmerchandise costs for most retailers, with wages and benefits accounting for up to one-half of operating costs. Forthcom­ing state and city legislation to raise minimum wages will further lift labor costs.
2. High employee turnover means increased recruitment, training, and management costs.
3. Poor-performing personnel may have poor sales skills, mistreat shoppers, mis-ring transac­tions, and make other errors.
4. Productivity gains in technology have exceeded those in labor; yet some retailers are still labor intensive.
5. Labor scheduling is often subject to unanticipated demand. Retailers know they must increase staff in peak periods and reduce it in slow ones, but they may still be over- or understaffed if weather changes, competitors run specials, or suppliers increase promotions.
6. There is less flexibility for firms with unionized employees. Working conditions, compensa­tion, tasks, overtime pay, performance measures, termination procedures, seniority rights, and promotion criteria are generally specified in union contracts.

Because online and mobile shopping account for a larger portion of sales revenues, the role of in-store sales personnel has evolved in response to shoppers’ in-store expectations. Retailers are increasingly equipping in-store personnel with tablets and smartphones, as well as giving them access to customer accounts so they can update data on preferences and anticipated future purchases to enhance cross-selling efforts. Instead of resisting showrooming in their stores, some sales staff help customers find products, check product reviews, and compare prices using the retailers’ mobile apps; order stockouts or irregular-sized products via the retailers’ internal Web sites; and process payment using mobile POS on their tablets. All of this is may be done instead of shoppers lining up at the cashier. Increasingly, customer service personnel are expected to engage with, respond to, and solve customer concerns expressed on blogs, social media, and customer review Web sites.

Tactics to maximize personnel productivity include the following:

• Hiring process. By very carefully screening potential employees before they are offered jobs, turnover is reduced and better performance secured.

• Workload forecasts. For each time period, the number and type of employees are prede­termined. A drugstore may have one pharmacist, one cashier, and one stockperson from 2:00 P.M. to 5:00 P.M. on weekdays and add a pharmacist and a cashier from 5:00 P.M. to 7:30 P.M. (to accommodate those shopping after work). In workload forecasts, costs must be balanced against the possibilities of lost sales if customer waiting time is excessive. The key is to be both efficient (cost-oriented) and effective (service-oriented). Many retailers use software in employee scheduling. Firms such as Invision (www.invisionwfm.com) have devised software to aid retailers in workload forecasting.
• Job standardization and cross-training. Through job standardization, the tasks of person­nel with similar positions in different departments, such as cashiers in clothing and candy departments, are rather uniform. With cross-training, personnel learn tasks associated with more than one job, such as cashier, stockperson, and gift wrapper. A firm increases personnel flexibility, reduces employee boredom and the number of employees needed at any time by job standardization and cross-training. If one department is slow, a cashier could be assigned to a busy one; and a salesperson could process transactions, set up displays, and handle complaints. As consumers increasingly turn to mobile devices, in-store employees need to be trained to use mobile technology to enhance consumer experiences and improve purchase conversion and basket size.
• Good communications. Employees work best when they are clear about their responsibilities and well informed about policies and current company news. See Figure 13-3.
• Employee performance standards. Each worker is given clear goals and is accountable for them. Cashiers are judged on transaction speed and mis-rings, buyers on department revenues and markdowns, and senior executives on the firm’s reaching sales and profit targets. Person­nel are more productive when working toward specific goals.
• Compensation. Financial remuneration, promotions, and recognition that reward good perfor­mance will help motivate employees. A salesperson is motivated to “cross-sell” goods (ties and shirts with the purchase of a suit) if there is a bonus for related-item selling. Retailers using commission-based or two-tier compensation policies (low base pay plus commission on sales) may need to update their compensation policies to credit employees who persuade in-store shoppers to purchase from the retailer’s Web site as more consumers engage in cross­channel shopping and in-store showrooming. For example, salespeople at Home Depot stores have an incentive to help customers learn how to use the Home Depot mobile app—a mobile- enabled sale anywhere within the ZIP code of their Home Depot store is credited to that store. Self-service. Self-service reduces personnel costs; however, there is less opportunity for cross­selling (whereby customers are encouraged to buy complementary goods they may not have been thinking about) and some shoppers may feel service is inadequate. Self-service requires investments in better displays, popular brands, ample assortments, and products with clear labels describing their specifications and features.
• Length of employment. Generally, full-time workers who have been with a firm for an extended time are more productive than those who are part-time or who have worked there for a short time. They are often more knowledgeable, are more anxious to see the firm succeed, need less supervision, are popular with customers, can be promoted, and adapt to the work environment. The superior productivity of these workers normally far outweighs their higher compensation.

4. Store Maintenance, Energy Management, and Renovations

Store maintenance encompasses all activities in managing physical facilities, including exterior (parking lot, points of entry and exit, outside signs and display windows, and common areas adjacent to a store [e.g., sidewalks] and interior (windows, walls, flooring, climate control and energy use, lighting, displays and signs, fixtures, and ceilings). See Figure 13-4.

The quality of store maintenance affects consumer perceptions, the life span of facilities, and operating costs. Consumers do not like poorly maintained stores. This means promptly replacing burned-out lamps and periodically repainting room surfaces. Thorough, ongoing maintenance may extend current facilities for a longer period before having to invest in new ones. At home centers, the heating, ventilation, and air-conditioning equipment last an average of 15 years; display fix­tures an average of 12 years; and interior signs an average of 7 years. Maintenance is costly.⁴ In a typical year, a home center spends $15,000 on floor maintenance alone.

Retail companies spend almost $20 billion on energy every year; however, they have the potential to save $3 billion of that amount through effective energy management programs. A typical 50,000 square foot retail building in the United States spends around $90,000 each year on energy. On average, a store uses 14.3 kilowatt hours of electricity per year, resulting in a cost of $1.47 per square foot. Cutting energy costs by just 10 percent can result in a 1.2 to 1.6 percent increase in profit margins. The same reduction in an average supermarket would result in a 16 percent increase in net profit margins. The U.S. Environmental Protection Agency estimates that $1 in energy savings is equivalent to increasing sales by $59.⁵

Due to rising costs over the last 45-plus years, energy management is a major factor in retail operations. For firms with special needs, such as food stores, it is especially critical. To manage their energy resources more effectively, many retailers use a combination of short-term managerial practices and strategic, long-term decisions.

Shorter-term managerial actions include:

• Turning things off. Every kilowatt saved immediately increases profitability.
• Using temperature control devices.Adjust the interior temperature during nonselling hours.
• Indoor lighting upgrades.Replace fluorescent lights with LEDs or CFLs (which use only 20 to 25 percent of the energy of older fluorescents).
• Parking lots.Use lower wattage lighting in parking lots—but security may be an issue.
• Changing HVAC filters regularly.Old filters overwork equipment and use more energy.
• Using sensor lighting.Only utilize lighting when someone is in the room.
• Using reflective paint on roof. This keeps a building cool.
• Cleaning and maintaining refrigerators.This helps machinery operate more efficiently.

Strategic longer-term decisions include:

• Structurally changing buildings.This involves such as actions as energy-efficient windows and using glass instead of walls for natural light (which will also reduce cooling costs).
• Air conditioning/heating. Replace old systems with new energy-efficient units. Install special air-conditioning systems that control humidity levels in specific store areas, such as freezer locations. to minimize moisture condensation.
• Installing computerized systems to monitor and coordinate temperature and lighting levels. Some chains’ systems even allow designated personnel to adjust the temperature, lighting, heat, and air conditioning in multiple stores from one office.
• Insulating. Through better insulation in constructing and renovating stores, heat and cool air are more efficiently controlled.
• Demand-controlled ventilating.Such a system senses carbon dioxide levels, detects how many people are in the store, and saves energy by adjusting ventilation accordingly.
• Adding a building management system (BMS).This system automatically controls and moni­tors building service performance and makes changes accordingly.
• Energy auditing.This entails partnering with an energy expert to assess current usage and implement a plan for savings.
• Installing solar panels.This involves an alternative form of energy.
• Purchasing Energy Star-approved appliances.These include energy-efficient refrigerators, air conditioning, vending machines, hot food cabinets, and so on.

This example shows how seriously some retailers take energy management: Lighting is a crucial, if seldom noticed, element in the selling atmosphere for LVMH (the parent company of Louis Vuitton, Fendi, Christian Dior, Donna Karan, Marc Jacobs, Bulgari, Sephora, and many others), which occupies nearly 11 million square feet of retail space. Seventy percent of its energy usage goes into stores, not factories or shipping. Optimal, directional lighting has a powerful visual impact that spotlights the aesthetics of luxury products. LVMH’s lighting needs are so complex that the firm researched the best options for hue and those least likely to damage wines, and then signed agreements with 20 LED lighting suppliers. After measuring the energy used by escalators, air conditioning, lighting, and other uses, LVMH realized that computer and digital display screens were devouring almost as much as what the company was saving with the utiliza­tion of LED lightbulbs.⁶

Besides everyday maintenance and energy management, retailers need decision rules for renovations: How often are renovations necessary? What areas require renovations more frequently than others? How extensive will renovations be at any one time? Will the retailer be open for busi­ness as usual during renovations? How much money must be set aside in anticipation of future renovations? Will renovations result in higher revenues, lower operating costs, or both?

5. Inventory Management

Retailers use inventory management to maintain proper merchandise assortment while ensur­ing that operations are efficient and effective. See Figure 13-5. Channel boundaries are blurring for shoppers; they are demanding cross-channel service options such as ordering online with in-store pick-up, personalization of products, endless assortments and inventory, and no-cost returns across all channels. Most online-only retailers have optimized the location and number of distribution centers to be able to offer free 3-day delivery; however, many national retailers can leverage their network of stores to offer same-day pick-up if they modernize their inventory and logistics for cross-channel visibility and transfers to prevent stockouts. The item is then likely to be closer to the customer so shipping from stores can be more cost-effective than single-item, direct-to-customer orders from distribution centers accustomed to larger orders bound for stores. Although the role of inventory management in merchandising is covered in Chapter 15, these are some operational issues to consider:

• How can the handling of merchandise from different suppliers be coordinated? In what situ­ations is cross-docking suitable?
• Should drop shipping be employed (wherein manufacturers or wholesalers ship goods directly to consumers based on orders taken at a retail store or Web site)?
• How much inventory should be on the sales floor versus in a warehouse or storeroom?
• How often should inventory be moved from nonselling to selling areas of a store?
• What inventory functions can be done during nonstore hours?
• What are the trade-offs between faster supplier delivery and higher shipping costs?
• What supplier support is expected in storing merchandise or setting up displays?
• What level of in-store merchandise breakage is acceptable?
• Which items require customer delivery? When? By whom?

6. Store Security

Store security relates to two basic issues: personal security and merchandise security. Personal security is examined in this chapter. Merchandise security is covered in Chapter 15. Many shoppers and employees feel less safe at retail shopping locations than before. That is why companies such as ADT offer security support to retailers, including smaller ones (www.adt .com/business).

These are among the practices that retailers are utilizing to address this issue:

• Uniformed security guards provide a visible presence to reassure customers and employees, and they are a warning to potential thieves and muggers. Some shopping areas have horse- mounted guards or guards who patrol on motorized Segway Personal Transporters. As one security expert noted, “Standard practice is for guards to walk the floor to provide a visual reminder that they are there, and report unusual behavior to superiors or to police.”⁷
• Undercover personnel are used to complement uniformed guards.
• Brighter lighting is used in parking lots, which are also patrolled more frequently by guards. These guards more often work in teams.
• TV cameras and other devices scan areas frequented by shoppers and employees.⁸ See Figure 13-6. 7-Eleven stores have an in-store cable TVs and alarm monitoring systems, complete with audio.
• Some shopping areas have curfews for teenagers. This is a controversial tactic.
• Access to store backroom facilities (such as storage rooms) is tightened.
• Bank deposits are made more frequently—often by armed security guards.

7. Insurance

Among the types of insurance that retailers buy are workers’ compensation; product liability; fire, accident, property (covering buildings, fixtures. and inventory); liability due to accidents on the premises; business interruption insurance (to cover lost earnings due to fire, floods, etc.); and crime (due to employees stealing cash and goods [inventory shrinkage]). Many firms also offer health insurance to full-time employees, but contributions to premiums differ across retail­ers. The Affordable Care Act requires employers with 50 or more employees to offer or assist in purchases of health insurance for those working more than 30 hours per week. Some firms still provide insurance coverage to eligible part-time employees, but others—such as Walmart and Target—have discontinued some coverage.

Insurance decisions can have a big impact on a retailer: (1) In recent years, premiums have risen dramatically. (2) Several insurers have reduced the scope of their coverage; they now require higher deductibles or do not provide coverage on all aspects of operations (such as the professional liability of pharmacists). (3) There are fewer insurers servicing retailers today than a decade ago; this limits the choice of carrier. (4) Insurance against environmental risks (such as leaking oil tanks) are more important due to government rules.

To protect themselves financially, retailers have often enacted costly programs aimed at less­ening their vulnerability to employee and customer insurance claims from unsafe conditions, as well as to hold down premiums. These programs include no-slip carpeting, flooring, and rubber entrance mats; more frequent inspection of and mopping wet floors; doing more elevator and esca­lator checks; having regular fire drills; building more fire-resistant facilities; setting up separate storage areas for dangerous items; discussing safety in employee training; and keeping records showing proper maintenance activity.

8. Credit Management

Operational decisions must be made in the area of credit management—for example:

• What form of payment is acceptable? A retailer may accept cash only, cash and personal checks, cash and credit card(s), cash and debit cards, mobile pay, or all of these.
• Who administers the credit plan? The firm can have its own credit system and/or accept major credit cards (such as Visa, MasterCard, American Express, and Discover). It may also work with PayPal, Apple Pay, and Google Checkout for store and online payments. One major innovation in credit management is the availability of free mobile payment apps and portable readers such as Square that plug into an iPod, iTouch, iPhone, or iPad that sales staff or consumers can use to reduce checkout lines at the cashier terminals.⁹ Another possibility is Touch ID that uses fingerprints in instead of credit cards on selected iPhones and iPads.

• What are customer eligibility requirements for a check or credit purchase? With a check purchase, a photo ID might be sufficient. To open a new credit account, a customer must meet age, employ­ment, income, and other conditions; an existing customer would be evaluated in terms of the out­standing balance and credit limit. Credit reports can be obtained from such firms as Transunion, Equifax, and Experian. These firms consolidate a consumer’s credit risk using a FICO score.
• What credit terms will be used? A retailer with its own plan must determine when interest charges begin to accrue, the rate of interest, and minimum monthly payments.
• How are late payments or nonpayments to be handled? Some retailers with their own credit plans rely on outside collection agencies to follow up on past-due accounts.

The retailer must weigh the ability of credit to increase revenues against the costs of pro­cessing payments—screening, transaction, and collection costs, as well as bad debts. If a retailer completes credit functions itself, it incurs these costs; if outside parties (such as Visa) are used, the retailer covers the costs by its fees to the credit organization.

In the United States, there are 185 million credit-card holders. Total retail use of credit and debit cards exceeds $2 trillion. According to U.S. data from CardWeb.com, the average person has three bank-issued cards, four retail credit cards, and one debit card. Based on a survey by the American Bankers Association and Dove Consulting, payments by credit or debit card now account for 53 percent of purchases, versus 43 percent in 1999.

Credit-card fees paid by retailers typically range from 1.5 percent to 5.0 percent of sales for Visa, MasterCard, Discover, and American Express, depending on volume and card provider.¹⁰ There may also be transaction and monthly fees. With retailers’ own credit operations, they incur all the processing costs; but they also get to collect the interest on unpaid balances. Walmart and Sears seek to lower transaction fees by promoting consumer use of debit cards, which are less costly for retailers. Debit-card transactions now account for 29 percent of retail card activity versus 17 percent in 1999 according to the Nilson Report.¹¹

Merchants need to monitor consumer preference for various payment methods—cash, debit, credit, check, mobile, and so forth—across generation and income levels. A Federal Reserve study from the Diary of Consumer Payment Choice found that the largest share of consumer transaction activity is payment by cash (40 percent), debit-card transactions (29 percent), and credit-card transactions at 17 percent.¹² Paper checks have become an antiquated form of payment. Younger consumers and seniors prefer cash or debit cards.

As just noted, many retailers—of all types—now place great emphasis on a debit-card system, whereby the purchase price is immediately deducted from a consumer’s bank account and entered into a retailer’s account by a computer terminal. The retailer’s risk of nonpayment is eliminated, and costs are reduced with debit rather than credit transactions. The pre-paid gift card, a form of debit card, is also popular. For traditional credit cards, monthly billing is employed; with debit cards, monetary account transfers are made at the time of purchase. There is some resistance to debit transactions by those who like the delayed-payment benefit of conventional credit cards. As the payment landscape evolves, new operational issues must be addressed:

• Retailers have more payment options. Online retailers offer many payment choices.¹³ At store- based retailers, training cashiers is more complex due to all the payment formats, such as cash, third-party and retailer credit and debit cards, personal checks, gift cards, and more. Mobile payment systems introduce more complexity into the process.
• Visa and MasterCard have settled a lawsuit requiring retailers to accept both credit and debit cards, and charging higher interchange fees from retailers for debit cards.
• Nonstore retailers have less legal protection against credit-card fraud than store retailers that secure written authorization. By law, U.S. store retailers were required to update their POS terminals to accept chip-based credit and debit cards by October 1, 2015, or risk assuming liability for counterfeit cards and lost-and-stolen point-of-sale data.¹⁴
• Credit-card transactions on the Web must instantly take into account different sales tax rates and currencies (for global sales).

9. Technology and Computerization

CUSTOMER-FACING TECHNOLOGIES Large and small retailers can use a computerized checkout to efficiently process transactions and monitor inventory. These UPC-based scanning systems and computerized registers instantly record and display sales, provide detailed receipts, and retain inventory data. They lower costs by shortening transaction time, employee training, mis- rings, and the need for item pricing. Retailers also have better inventory control, reduced spoilage, and improved ordering. They get item-by-item data, which aid in determining store layout and merchandise plans, shelf space, and inventory replenishment.

Recent technological developments include wireless scanners that let workers scan heavy items without lifting them, radio frequency identification tags (RFID) that emit a radio frequency code when placed near a receiver (which is faster than UPC codes and better for harsh climates), speech recognition (that can tally an order on the basis of a clerk’s verbal command), and portable card readers. See Figure 13-7.

Retailers face two potential problems with computerized checkouts. First, UPC-based systems do not reach peak efficiency unless all suppliers attach UPC labels to merchandise; otherwise, retailers incur labeling costs. Second, because UPC symbols are unreadable by humans, some states have laws that require price labeling on individual items. This lessens the labor savings of posting only shelf prices.

Many retailers have upgraded to an electronic point-of-sale system, which performs all the tasks of a computerized checkout and verifies check and charge transactions, provides instantaneous sales reports, monitors and changes prices, sends intra- and inter-store messages, evaluates personnel and profitability, and stores data. A point-of-sale system is often used along with a retail information system. Point-of-sale terminals can stand alone or be integrated with an in-store or a headquarters computer. As noted in Chapter 2, another scanning option with retailer interest is self-scanning, whereby the consumer himself or herself scans items being purchased at a checkout counter , uses a portable retailer-provided barcode scanner (e.g., for gift registry), or uses the retailer’s mobile app

on a smartphone, and then pays by credit or debit card, and bags items. A potential problem with self-scanning involves the possibility for consumer theft by their leaving more expensive items in the shopping cart and scanning lower-priced items, or scanning items with the barcode covered by one’s hand. Store personnel need to be alert to these and other consumer actions.¹⁵

Retailers are increasingly using telecommunications to aid operations via low-cost, secure, in-store transmissions. Retailers use beacon-based technology and applications to push targeted geo-tagged and time-sensitive notifications and promotions to mobile phones of customers in malls to encourage store visits and purchases. Many stores offer free Wi-Fi so customers may scan a barcode for checkout or to check inventory at a nearby location or retailer Web site when the item they are looking for is not in stock. Target’s Cartwheel app allows customers to locate and page the nearest sales associate for help.

SUPPLY CHAIN MANAGEMENT TECHNOLOGIES Depending on a retailer’s market size and geography, omnichannel fulfillment can a daunting operation, particularly when customers (not the retailer) decide where and how they would like to receive their purchases among the options offered by the retailer. See Figure 13-8. Sometimes, a linear, pallet-based supply chain (customarily used for large orders bound for stores) can no longer be restricted to a distribution center. Sales associates and store cashiers need authority to send single-line, multiple-category, direct-to- consumer orders from demand-driven supply chains that provide store-shelf collaboration with store backrooms, distribution centers, and a supplier network. When using Amazon’s DRS tech­nology, customers can click Dash tags to order from various manufacturers and specialty retail partners with a simple button.¹⁶

Leading store-centric omnichannel retailers such as Lowes recognize the importance of demand-driven supply chains that increase product availability and inventory turnover while reduc­ing cash-to-cash cycle times and costs to serve.¹⁷ The focus is on meeting individual consumer demand across channels and on collaborating with suppliers to meet that demand cost effectively.

Cloud (or SaaS) inventory control and order-tracking services that enhance visibility in sup­ply chains are making real-time product fulfillment possible for small and mid-sized retailers. For example, ADC’s InterScale Scales Manager is a fully integrated software application that man­ages produce and fresh foods in supermarkets and convenience stores. The application identifies the true cost of goods sold and provides hourly forecasts and production plans in real time, thus reducing waste. It can accurately forecast demand for bakery and deli items, hot foods, seafood, produce, dairy, meat, frozen food, floral items, and more.¹⁸

Retailers such as Home Depot, Walmart, and J. C. Penney use videoconferencing. This lets them link store employees with central headquarters, as well as interact with vendors. Video­conferencing can be done via satellite technology and by computer (with special hardware and software). Audio/video communications can be used to train workers, spread news, stimulate worker morale, and so on. Polycom, with its SpectraLink product line, is one of the firms mar­keting lightweight phones so workers can talk to each other anywhere in a store. Polycom clients have included Barnes & Noble, Giant Food, Ikea, Kmart, Neiman Marcus, Rite Aid, and Toys “R” Us.

10. Outsourcing

More retailers have turned to outsourcing for some of the operating tasks they previously per­formed themselves. With outsourcing, a retailer pays an outside party to undertake one or more of its operating functions. The goals are to reduce the costs and employee time devoted to particular tasks. For example, Limited Brands uses outside firms to oversee its energy use and facilities maintenance. Crate & Barrel outsources the management of its E-mail programs. Apple Stores, Payless Shoes, and Sports Chalet outsource their information technology services. Kmart uses logistics firms to consolidate small shipments and to process returned merchandise; it also out­sources electronic data interchange tasks. Home Depot outsources most trucking operations. Retailers also outsource Web design, product delivery, processing of foreign currency transac­tions, and completion of tariff paperwork to specialized service providers.

Outsourcing delivers operational competences and the ability to quickly respond to customer needs. To combat low margins and commoditization, high-performance retailers leverage out­sourcing to increase operational effectiveness and lower costs. Outsourcing can range from IT infrastructure to business process applications. Many firms see outsourcing as a phased process, beginning with infrastructure and ending with business processes managed by a third party. The outsourcer can bring industrywide experience, along with specialist knowledge. Economies of scale drive down unit costs, as do shared resources. Unpredictable capital costs are replaced with variable operational costs.¹⁹

11. Crisis Management

Despite the best intentions, retailers may sometimes be faced with crisis situations that need to be managed as smoothly as feasible. Consumer responses to crises depend on the “locus of control”—whether they perceive the causes to be within or outside of the retailer’s control.

Examples of crises brought on by factors outside a retailer’s control include a storm that knocks out store power, unexpectedly high or low consumer demand for a good or service, a bur­glary, a sudden illness of the owner or a key employee, a sudden increase in a supplier’s prices, or a natural disaster such as a flood or an earthquake. These can be addressed by good marketing communications. However, crises perceived to be within a retailer’s control—such as an in-store fire or broken water pipe (poor maintenance), access to a store being partially blocked due to picketing by striking workers (poor employee relations), a car accident in the retailer’s parking lot, or an in-store data breach compromising customer credit data—can lead to legal and financial penalties, undermine consumer trust, and damage a retailer’s image.

Although many crises can be anticipated, and some adverse effects may occur regardless of retailer efforts, these principles are important:

1. There should be contingency plans for as many different types of crisis situations as possible. That is why retailers buy insurance, install backup generators, and prepare management succession plans. A firm can have a checklist to follow if there is an incident such as a store fire or a parking-lot accident.
2. A clear chain of command for decision making and external communications must be estab­lished and updated.
3. Essential information should be communicated to all affected parties, such as the fire or police department, employees, customers, and the media, as soon as a crisis occurs.
4. Cooperation—not conflict—among the involved parties is essential.
5. Responses should be as swift as feasible; indecisiveness may worsen the situation.
6. The firm needs to assess the need for appropriate insurance.

Crisis management is a key task for both small and large retailers. Hence, a thorough con­tingency plan for responding to a multitude of potential events can mitigate the reputational and financial risks of a crisis.²⁰

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

Recently, a national discount apparel store chain posted a job listing for Assistant Store Manager. The applicant chosen would work in Oregon. Here is the position description placed at the National Retail Federation Job Board.

The Assistant Store Manager (ASM) is responsible for the management and supervision of all assigned departments and all nonexempt employees [non-managerial] in the store. The ASM will assist in managing and controlling store operations to ensure that all company standards and expectations are consis­tently met. The ASM will also supervise areas assigned by the Store Manager and follow the firm’s philosophy and policies in regard to customers, store associates, and merchandising. The ASM is responsible for learning all phases of store operations. In the absence of the Store Manager, the Assistant Manager is responsible for the entire store operation and will execute the business plan and the associated programs that will deliver the desired sales and profit results, while maintaining good quality customer service.

These are the essential functions for the ASM: Execute customer service programs and merchandise presentation pro­grams through store associates’ training and program supervi­sion. Supervise and coach retail associates in providing efficient and friendly service at the registers, the customer service desk, fitting rooms, the sales floor, and so on. Monitor the main­tenance of customer service, sizing, and markdowns to reach corporate goals. Oversee merchandise processing, in-store marketing, and store appearance. Urgently approach process­ing merchandise to the selling floor within the company time frame. Ensure that merchandise is presented and organized utilizing the company’s clear merchandising philosophy and guidelines. Ensure that markdowns are processed according to policy on an accurate and timely basis. Maintain a high standard of housekeeping with the help of contracted maintenance per­sonnel and store associates. Manage store recovery to ensure a clean, neat, easy to shop environment.

In addition, the ASM will: Monitor inventory shortage programs in the store and ensure compliance with company policies. Understand company and store inventory results and goals. Assist in leading the annual inventory process, includ­ing preparation and execution of inventory guidelines. Assist with training store associates on loss prevention awareness and store shortage goals. Monitor the out-of-stock policy to ensure proper administration. Assist in analyzing monthly store reports to evaluate controllable expenses and overall store performance. Communicate any variances to company standards to the Store Manager. Ensure proper scheduling of employees to meet business objectives. Ensure that all associates understand and can execute emergency operating procedures. Accept special assignments as directed by management.

Finally, the ASM will: Assist in recruiting, hiring, training, and developing nonexempt store associates. Ensure compliance with personnel policies. Assist with employee relations issues by communicating any incidents to the Store Manager or District Managers. Maintain adherence to safety policies and ensure the safety of store associates and customers. Assist in facilitating monthly safety meetings. Ensure compliance with all government regulations. Assist in the management and con­tinuous monitoring of actual spending to be within budget. Con­trol payroll hours to plan and well as adjust to current business trends.

The ASM must meet several physical requirements, as well: Be able to stand for prolonged periods (up to 8 hours daily). Be able to raise or lower objects weighing up to 25 pounds, from one level to another (including upward). Be able to regularly bend, stoop, or crouch (varying per daily business need).

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

Recently, a major global retail chain posted a job listing for the position of Manager of Training and Development. The applicant chosen would work in New Jersey. Following is the position description placed at the National Retail Federation Job Board.

The Manager of Training and Development (MTD) is responsible for designing, implementing, and sustaining best- in-class, innovative training and leadership programs that sup­port and develop the company’s talent within the Distribution Centers and within the Field/Store Leadership environment. The organizational development and learning team is high energy, creative, dynamic, and collaborative; it oversees talent development across the three business units of our company: retail, distribution, and global. The team is charged with pro­viding training to develop and support high-performing, highly engaged diverse teams. The MTD reports to the Executive Director, Organizational Development and Learning.

Key responsibilities include: Lead, manage, create, and execute training that meets the strategic needs of the business within the field leadership environment. Oversee the design, development, and delivery of training programs, including new- hire training, leadership training, customer service, management skills, and operational training. Ensure high-quality training curriculum and instruction. Consult with line-of-business lead­ers to identify performance needs for talent enhancement in relation to attainment of business goals. Evaluate effectiveness of learning and development programs, and providing direction. Assess, select, and manage vendor relationships. Translate iden­tified needs into training design and development of solutions to address performance gaps. Collaborate with colleagues and subject-matter experts to share best practices involving vari­ous learning programs, skills, and technologies. Select proper instructional approaches and delivery platforms, and tailor the learning modalities to maximize learning opportunities.

In addition, the MTD would: Facilitate group interactions such as meetings, seminars, workshops, and team meetings, and lead classroom and distance-learning sessions. Use technol­ogy to deliver and track training solutions. Produce metrics and evaluations for the global resource center in terms of learning and development. Consistently seek out cutting-edge training methodologies and best practices to implement.

The successful MTD will have: A bachelor’s degree. A graduate/advanced degree preferred. At least 7 years of work experience with solid career progression, including at least 3 years in learning program management, business, adult educa­tion, and/or consulting. Significant experience in developing, managing, delivering, and improving high-quality learning programs, including curriculum and materials design and pro­gram assessment tool. Effective problem-solving skills, an understanding of group and corporate dynamics, integrity, and the ability to employ sound judgment in complex situations. Excellent interpersonal and public communication and facilita­tion skills. Ability to work effectively with diverse clients at all levels in a large, complex, nonhierarchical firm, as well as ability to work with senior leaders in a corporate environment. Ability to influence leadership and work in a fast-pace envi­ronment. Demonstrate verbal and written communication skills and conflict resolution skills. Adaptability to changing priori­ties. Willingness to embrace creativity and new ideas. Strong project management experience with superb follow-up skills. Ability to design technology-based learning, self-study, virtual classrooms, and portal design. Reputation for commitment to building a high-performance culture.

Physical job requirements include: Most time spent sit­ting comfortably, with a frequent opportunity to move about. Occasionally requires walking for extended periods in the store and distribution center environment. Light lifting requirements. Requires overnight travel up to 20 percent of time.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

Recently, a cosmetics firm posted a job listing for the position of Senior Manager of Digital Operations. This firm sells online, operates its own boutiques, and distributes via other retailers.

The applicant chosen would work in San Francisco. Here is the job description placed at the National Retail Federation Job Board. Reporting to the Vice-President of Digital Strategy, the Senior Manager of Digital Operations (SMDO) acts as an oper­ational manager on the firm’s Global Digital team, overseeing the team budget and spending, vendor selection, and contracts and renewals.

These are the SMDO’s main duties and responsibilities: Stay in close partnership with other company executives. Develop and present an annual budget. Understand changes in the digital landscape that drive new investments, and provide analysis. Actively seek and identify ways to spend the team’s money more wisely. Manage the digital budget on a monthly basis. Oversee the monthly digital P&L and report monthly on variances. Partner with project managers to approve any cost overruns and track underspends, revising and reallocating between expenses as needed to achieve overall goals. Develop charge-back guidance for geographic markets annually. Work with finance to ensure market charge-backs are processed in a timely and accurate manner. Create visibility on overall digital and project budgets for executives on the digital team.

He or she will also be involved with these activities: Assess new digital ideas, vendors, and potential solutions. Proactively identify areas where new solutions can support business objec­tives. Research and propose areas for operational savings based on knowledge of the digital landscape. Develop vendor score­cards and implement a process for improving the business per­formance of operational vendors, by leading vendor reviews with appropriate project managers. Provide proactive coaching and feedback on vendor performance, in order to drive quality and value from our business partners.

Last, the SMDO will do these tasks: Act as business owner for all team contracts, partnering with legal and purchasing departments. Work with project managers and purchasing to devise project request for proposals (RFPs), ensuring busi­ness and project needs are met. Identify optimal vendors for each job, given budget constraints and priorities. Work with project managers and purchasing to define vendor selection criteria for each major project. Partner with discipline leads to accurately reflect project scope and protect the business. Work with legal, bringing digital-specific savvy. Initiate timely renewal quotes and negotiations (in partnership with purchasing for larger contracts). Support other departments that sign digital-oriented contracts with advice about vendors and business terms based on experience. Document critical operational processes and practices across the digital team, including E-commerce, Web operations, customer service, etc. Substantiate business continuity procedures, manage vendor lists and communications, streamline emergency protocols, and participate in planning on behalf of the team to reduce business risk.

Job requirements include: Experience in operations man­agement at a digital or high-tech company—or experience managing budgets and working in a project management role. 3 + years of experience managing a digital, tech, or agency budget and P&L. 3 + years of experience as a key reviewer/ negotiator on statements of work and change orders. High level of familiarity with digital master agreements. Understanding and experience with these types of digital projects: photog- raphy/video production, Web or application development, E-commerce systems, or software licensing. Strong spreadsheet skills and excellent communication skills. Proactive, detail ori­ented, with drive for fiscal responsibility and operational dis­cipline. Bachelor’s degree or equivalent experience preferred. Successfully pass an E-Verify check.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.