Setting Up a Retail Organization

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.

1 thoughts on “Setting Up a Retail Organization

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