Post on 19-Jan-2016
Retail OverviewOracle Retail Sales TrainingJuly, 2004
2© Accenture 2004. All Rights Reserved.
Agenda
• Introduce Accenture Retail Practice and Capabilities
• Conduct a Retail Overview
– Retail Definition
– Retail Value Chain
– Major Segments of Retail
– Retail Organization
– Retail Math and Terms
• Retail Industry Trends
• Accenture’s View of High Performance Retailing
• Accenture’s Retail Offerings Driving High Performance
• Case Studies
• Joint Opportunities
3© Accenture 2004. All Rights Reserved.
Retail involves the sale and logistical processes that bring goods and services to consumers.
Retailing includes all business activities that involve the sale of goods and services to consumers for personal, family, or household use.
Sources: Accenture Analysis; Standard & Poors Industry Surveys – Retail (General and Specialty); About.com Retail Industry Profile, U.S. Census Bureau
Key Retail Facts
Definition
• $3.8T high volume/low margin industry comprising 33% of U.S. GDP
• Employs 15MM people in U.S. or 11.7% of work force
• Single-store businesses account for over 95 percent of all U.S. retailers, but generate less than 50 percent of all retail store sales
– Top 10 Retailers account for 52% of Top 100 Retailer sales in U.S.
Key Retail Statistics
• Break-bulk
• Provide assortment
• Convenience of location/distribution breadth
• Promotion
• Value-added services
Key Purposes of Retailers in Value Chain
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The U.S. retail industry is comprised of four major segments.
• Store Based General Merchandisers: Retail stores selling general, non-food merchandise (e.g., Wal-Mart, Sears, The Gap, and Best Buy) Typically categorized by the following:
– Variety of product categories offered
– Assortment or depth of products offered
– Level of service offered
– Price range
• Food Retailers: Retail stores selling food products, typically categorized as convenience stores, supermarkets, and “big box” or superstores (e.g., Kroger, Albertson’s)
• Drug Retailers: Retail stores that are a form of specialty stores concentrating on health related merchandise (e.g., Walgreen)
• Non-Store Retailers: Retailers selling through non-traditional methods including catalog and direct mail retailing, e-Commerce, TV home shopping, and direct selling (e.g., Spiegel and Amazon.com)
Major Retail Segments
Sources: Accenture Analysis; U.S. Department of Commerce
5© Accenture 2004. All Rights Reserved.
Retail Value Chain
• Within all major retail segments, key processes must take place to get the product to the customer
– How these processes are executed varies widely across different companies
• These operational processes within an organization make up the value chain- the actual steps a company must go through to get the right product at the right time to the customer
• We will review the value chain from the merchant’s perspective to understand each step as it relates to a Retail organization
Retail Value Chain
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Plan Merchandise
Plan Merchandise
Source Product
Create Market Demand
Deliver Product
Sell Merchandise
Manage In- Season
Planning provides a structured process for the deployment of a merchant’s two biggest assets: inventory and space, as well as a process for operationalizing the merchandise strategy.
Retail Value Chain
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Source Product
Plan Merchandise
Source Product
Create Market Demand
Deliver Product
Sell Merchandise
Manage In- Season
The Source Product phase, when properly executed, affords the retailer increased profit margin and sales, by having the right product, right quality and right retail price to satisfy the consumer.
Retail Value Chain
8© Accenture 2004. All Rights Reserved.
Create Market Demand
Plan Merchandise
Source Product
Create Market Demand
Deliver Product
Sell Merchandise
Manage In- Season
Creating market demand lies in the effectiveness of the marketing strategy. Retailers can have the best product at the best price, but if the customer is unaware or ill-informed, sales and profits will be suboptimal.
Retail Value Chain
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Deliver Product
Plan Merchandise
Source Product
Create Market Demand
Deliver Product
Sell Merchandise
Manage In- Season
The most successful retailers carefully manage their inbound and outbound transportation. The best retailers choose vendors that have a mutual interest in developing a strategic partnership, who not only manufacture products that customers perceive to be of good value, but also provide them with a high level of logistics service.
Retail Value Chain
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Sell Merchandise
Plan Merchandise
Source Product
Create Market Demand
Deliver Product
Sell Merchandise
Manage In- Season
At its core, retail is a “relationship” or “people” business and the interactions that customers have with associates can leave lasting impressions with customers, both positive and negative. This difficulty of providing consistent high quality service provides an opportunity for a retailer to develop a sustainable competitive advantage.
Retail Value Chain
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Manage In-Season
Plan Merchandise
Source Product
Create Market Demand
Deliver Product
Sell Merchandise
Manage In- Season
This is truly where the customer “votes” for what they like or don’t like. Based on customer response, this is where the “business of retailing” comes into play; placing re-orders, canceling back-up orders on slow sellers, re-assorting the offering based on color or style trends, monitoring open to buy (OTB) and accelerating markdowns. This process relies heavily on strong merchandising systems and reports that give the buyer the right information to make quick, fact-based decisions.
Retail Value Chain
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Product Types
BASIC SEASONAL/ PROMOTIONAL PERISHABLE
Very predictable selling cadence
Long lifecycles
Not subject to volatility
Examples include light bulbs, white athletic socks, canned soup, some types of candy, etc.
Short lifecycle
An "in and out business," which means there are certain demand periods that must be managed aggressively
Examples include holiday decorations, swimsuits, suntan lotion, snow shovels, skis, patio furniture, etc.
Shortest lifecycles
In essence, become obsolete in days
Examples include fruit, meat, dairy products, etc.
FASHION
Longer lifecycle than seasonal and is very trend driven
Interpretation of a fashion product varies from retailer to retailer based on where it fits on the "trend" curve
Examples include low rise jeans, capri pants, three-quarter sleeve tops, high-tech electronics, etc.
Merchants execute the key processes of the value chain differently depending on the type of product they are managing
Retail Value Chain
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Critical Buyer Touchpoints
• "Plan Merchandise" and "Manage in Season" warrant most of the buyer's attention
• The actions taken in these two processes determine the overall success or failure of the business: poor planning and execution results in poor business performance results
Retail Value Chain
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Challenges for the Merchant
Six months from today:
STRATEGIC
Three months from today:
TACTICAL
Today:
REACTIVE
• Decisions that take time to implement, but will result in a competitive advantage
• Key questions include:
– What businesses should I grow, shrink or maintain?
– What product categories should I grow, shrink or maintain?
– Is the customer responding to the product offering? What adjustments need to be made to increase market share?
• Prioritized set of action steps that need to be implemented in order to:
–Improve or exploit the business opportunities
–identify the adjustments needed to improve results
• “Taking action now" as a response to business events or conditions
• The buyer's focus is to manage all three timeframes together
• This results in the need to perform the following tasks everyday:
–Manage the mix and local market optimization
–Track and control profitability and productivity
–Manage inventory
–Monitor performance
Retail Value Chain
15© Accenture 2004. All Rights Reserved.
Industry Segments Overview
Store Based General Merchandisers • Discounters/Department Stores: Companies engaged in the retail sale of a diverse
mix of merchandise emphasizing fashion apparel and accessories, home furnishings, electronics, and cosmetics. For example, JC Penney, Target, Wal-Mart.
• Hardlines: Companies engaged in the selling of sporting goods, toy, jewelry, music, consumer electronics, and office products retailers. For example, Best Buy, Staples.
• Apparel (Softlines): Companies engaged in the retail sale of men's, women's, and/or children's clothing, shoes, and accessories. For example, Nordstrom, The Gap.
• Do-It Yourself (Home Improvement): Companies primarily engaged in the selling of lumber, paint, glass, wallpaper, hardware, lawnmowers, outdoor furniture, and floor tile. For example, Home Depot, Lowes.
Food Retailers
• Grocery: Companies engaged in the retail sale of groceries, including dry goods, meat, produce, frozen foods, dairy products, seafood, deli/bakery, and nonfood items. For example, Albertson’s, Kroger, Safeway.
• Convenience: Companies engaged in selling such items as beverages, tobacco products, and in some cases gasoline. For example, Seven Eleven.
16© Accenture 2004. All Rights Reserved.
Drug Retailers• Drugstores: Companies engaged in the retail sale of prescription drugs and patent
medicines, as well as a number of related lines such as cosmetics, toiletries, and novelty merchandise. For example, Walgreens, CVS.
Non-store Retailers
• Internet/Catalog/Mail Order: Companies engaged in the sale of products by television, catalog, and mail order. For example, Amazon.com, LL Bean.
Industry Segments Overview
17© Accenture 2004. All Rights Reserved.
Store based general merchandisers’ offerings span a wide spectrum of variety, assortment, and service; however, the basic product flow is relatively constant.
Type Variety Assortment Service Location Top U.S. Players
Department Stores Broad Deep to Average Average to High Regional Malls Downtown
Areas
Federated J.C. Penney Saks
Specialty Stores Narrow Deep High Regional Malls Main Street
The Gap Abercrombie & Fitch
General Merchandise Discount Stores
Broad Average to Shallow Low Stand Alone Strip Malls
Wal-Mart Sears Holding Co. Target
Category Killers Narrow Very Deep Low Stand Alone Strip Malls
Circuit City Best Buy Staples
Off-Price Retailers Average Deep But Varying Low Stand Alone Outlet Malls
• Dollar General• Dollar Tree
Sources: Accenture Analysis; Standard & Poors Industry Surveys – Retail (General and Specialty)
Store Based General Merchandisers
VendorDC
RetailDC
Store
Direct Store Delivery (DSD)
Cosmetics
Accessories
Apparel
Soft Home Furnishings
Typical General Merchandiser Forward Product Flow
18© Accenture 2004. All Rights Reserved.
Segment Overview:
Top 5 US Chains:
Dominated by a few national and international retailers: Department store space has seen heavy consolidation in recent years
Discounters usually have higher metrics such as sales per square foot, inventory turnover and ROIC when compared with Department Stores
Department Stores tend to have higher margins as a function of carrying more upscale product lines
Discounters/Department stores often operate more than one store format
Ones to watch:
• Target (TGT)
• JC Penney (JCP)
Trends:• Discounters are steadily expanding scope to
steal share in Groceries, Electronics & Housewares
• Discounters and Department stores are focusing on developing and expanding private label assortments to increase margins
• Discounters and Department stores are also licensing designers and labels to provide exclusive products & increase customer loyalty
Store Based General Merchandisers Sub-Segment Cheat Sheet: Discount/Department
Chain (Ticker) Sales USD Store Count
Wal*Mart (WMT) 228.6B 3,710
Target Corp (TGT) 45.68B 1,308
Sears Holding Co (SHLD)* 44.6B 2,650
Costco (COST) 39.0B 324
J.C. Penney (JCP) 19.5B 1,039
US
D B
illio
ns
109 122139
157174
194216
239263
26 29 33 3741
46 51 55 6035 36 35 30 22 19 18 17 18
$100
$200
$300
1999 2000 2001 2002 2003 2004 2005E 2006E 2007E
Wal-Mart Target Kmart
Total Big 3 Discounter Sales 1999- 2007E
19© Accenture 2004. All Rights Reserved.
Large national players are increasingly dominant, stealing share and driving more regional chains into extinction
Hardlines sub-segments, such as CE and Office Superstores, are near saturation; opportunities for US store footprint expansion are limited
Short product life cycles and downward price pressure
Retailers are rapidly building private label brands and/or increasing the percentage of private label merchandise in the overall assortment
Hardlines retailers are sourcing more product from Asia; industry leaders are rapidly building direct sourcing capabilities, especially in regards to private label brands
Competitors are increasingly offering services (installation, repair, delivery) as a means to drive top line sales
Digital technologies are driving topline growth, especially in the Consumer Electronics space
Segment Overview:
Top 5 US Chains:
Ones to watch:
Chain (Ticker) Sales USD Store Count
Best Buy (BBY) 24.6B 694
Staples (SPLS) 10.8 1184
Office Depot (ODP) 10.4 936
Circuit City (CC) 10.0B 617
Bed, Bath & Beyond (BBBY) 5.5B 721
• Best Buy (BBY)
CE Household Penetration Rates: Jan 2005 Est.
Trends:
Store Based General Merchandisers Sub-Segment Cheat Sheet: Hardlines
20© Accenture 2004. All Rights Reserved.
Segment Overview:
Top 5 US Chains:
Ones to watch:
Chain (Ticker) Sales USD Store Count
The Gap (GPS) 13.5B 2,561
TJX Companies (TJX) 12.5B 1,852
The Limited (LTD) 9.5B 3,779
Nordstroms (JWN) 7.13B 148
Footlocker (FL) 5.3B 3,845
Trends:
Slow growth within the segment; downward pricing pressure
Sales are driven by ‘hitting the trend’: ever more fickle fashion trends award short product development cycles and brand equity
Product life cycles are typically 2-6 months, low frequency of store replenishment
Variety of value chain ownership models across competitors
Consumer channel preference tends to change with age
• Abercrombie & Fitch (ANF)• Urban Outfitters (URBN)• Chico’s (CHS)
• Successful apparel retailers are selling a ‘lifestyle’: integrating unique brand promises into all facets of their customer presentation (product, atmosphere, store employees)
• Consumers have shown an increasing preference for ‘luxury’ and are willing to pay a premium price. Retailer have responded by creating upscale brands to complement traditional private labels
US APPAREL SALES, 2000-2007e (billions)*
$240 $239 $244 $249$258
$268$279
$290
$155$148$142$136$130$125$121$120
$0
$50
$100
$150
$200
$250
$300
$350
2000 2001 2002 2003 2004 2005e 2006e 2007e
TOTAL SALES - ALL RETAIL FORMATS TOTAL SALES - SPECIALITY APPAREL RETAILERS
Store Based General Merchandisers Sub-Segment Cheat Sheet: Apparel (Softlines)
21© Accenture 2004. All Rights Reserved.
Segment Overview:
Top 5 US Chains:
Ones to watch: • Home Depot (HD)• Lowes (LOW)
Trends:
Intense competition dominated by two major players
Home Depot & Lowes fight to come up with new ideas to drive same-store sales growth and explore new, yet-to-be penetrated markets for expansion such as inner cities and more rural markets
Downward pricing pressure
Cannibalization - some markets may be over-saturated for the price of market dominance
• More direct-sourcing opportunities from overseas to wring out more margin dollars
• Product breadth extensions to grow business and trends
• Customer service initiatives
• Tailoring of stores to be more female-friendly
• Direct correlation to housing sales
• Home Depot eyeing international expansion
18.822.1
26.530.8
36.542.5
48.655.2
42.849.8
54.259.7
66.172.2
79.787.3
0
10
20
30
40
50
60
70
80
90
100
2000 2001 2002 2003 2004 2005E 2006E 2007E
Lowe's Home Depot
00-04 CAGR
04-07E CAGR
Lowe's 18.0% 14.8%Home Depot 11.5% 9.7%
DIY Chain US Retail Sales: ’99-’07E
Chain (Ticker) Sales USD Store Count
Home Depot (HD) 66.1 1,720
Lowes (LOW) 36.5 1,087
Menards 5.6 195
84 Lumber Company 2.6 450
Payless Cashways (PCSH) 1.5 128
Store Based General Merchandisers Sub-Segment Cheat Sheet: Do-It-Yourself
22© Accenture 2004. All Rights Reserved.
Food retailers must build superior supply chain capabilities to deal with “high velocity” products.
Type Variety Assortment Service Top U.S. Players
Convenience Stores Narrow Shallow Average 7-Eleven
Convenience Supermarkets
Average Average Average Kroger Ahold
Superstores, Combination Stores, Supercenters
Broad Deep Low Albertson's Safeway
Warehouse Supermarkets, Wholesale Clubs
Broad Shallow Low Costco Sam’s Club
Sources: Accenture Analysis; Standard & Poors Industry Surveys – Retail (General and Specialty)
Typical Food Retailer Forward Product Flow
Vendor Direct Store Delivery
Vendor RetailDC
Store
Meat
Produce
Wholesale DC
Beverage
Dry Goods
Frozen Food
Tobacco
Beauty
Frozen Food
SubstitutesWholesale Direct Store Delivery
Consolidator DC
Food Retailers
23© Accenture 2004. All Rights Reserved.
Segment Overview:
Top 5 US Chains:
Ones to watch: • Whole Foods (WFMI)
Trends:
Grocery Chain US Retail Sales: ’00-’08E
• Ultra thin Operating Margins
• Highly Regional
• Fragmented but consolidating- large conglomerates operating under several regional ‘banners’
• Supercenter expansion poses a direct threat to the traditional grocers that currently serve the market
Chain (Ticker) Sales USD Store Count
Kroger (KR) 55B 3,764
Albertsons (ABS) 40B 2,492
Safeway (SWY) 31B 1,583
AHold USA 27B 1,507
Publix (Push.OB) 18B 850
• Retailers are expanding Preferred shopper & Loyalty card programs, with the best in class utilizing the data gleaned from programs to make merchandising and promotion decisions
• Diversification of product offerings by adding organic, ethnic, and ready-to-eat selections to their assortments
• Increasing investments in pricing and promotional optimization technologies
• Consumers are making fewer shopping trips and spending more per trip
US
D B
illio
ns
Food Retailers Sub-Segment Cheat Sheet: Grocers
24© Accenture 2004. All Rights Reserved.
Segment Overview:
Top 5 US Chains (Non Petrol Cos.):
Convenience Store US Retail Sales: ’01-03E
Chain (Ticker) Sales USD Store Count
7-Eleven (SE) 11.7B 5,788
The Pantry, Inc (PTRY) 3.8B 1,361
Casey General Stores (CASY)
2B 1,290
Kroger (KR) 1.6B 795
Trends:
• Overall sales in 2003 reached $335.3 billion for the industry, an increase of 13.9%.
• Motor fuel sales, which account for 65% of the total, drove the C-store sector’s sales increase, jumping by 19.6% to $218.8 billion for 2003.
• The remaining 35% of sales came from in-store categories, including merchandise and foodservice; these sales increased by 4.6% to $116.5 billion.
• In 2003 the total number of convenience stores decreased by 1.3%, ending the year with 130,659 units in operation.
• Motor-fuels sales continue to dominate overall revenues
• Foodservice sales lead in-store sales growth. Foodservice jumped up 13.3 percent to reach a record $15.2 billion, making it the number-two in-store category.
• Credit Card fees continue to rise. As a percent of gross profit, fees jumped 20.8 percent in 2003, and now equal 5.8 percent of gross profit.
Total Convenience Store Sales
113.5 111.3 116.5173.7 182.9
218.8
287.3 294.3335.3
0
100
200
300
400
2001 2002 2003
In-Store Sales Motor Fuel Sales Total Sales
Food Retailers Sub-Segment Cheat Sheet: Convenience
25© Accenture 2004. All Rights Reserved.
Drug retailers are being faced with a number of competitive challenges from major general merchandisers (e.g., Wal-Mart) who also sell pharmaceuticals.
Sources: Accenture Analysis; Standard & Poors Industry Surveys – Retail (General and Specialty)
Typical Drug Store Forward Product Flow
Vendor RetailDC
Store
Vendor DSD
Beverage
Pharmacy
Wholesale DC
Beauty
Dry Goods
Tobacco
Wholesale DSD
Consolidator DC
Type Variety Assortment Service Top U.S. Players
Drug Stores Average Shallow to Average
Average Walgreen’s CVS Rite-Aid Corporation
Drug Retailers
26© Accenture 2004. All Rights Reserved.
Segment Overview:
Top 5 US Chains:
Ones to watch:
Chain (Ticker) Sales USD Store Count
Walgreens (WAG) 36.4 B 4,579
CVS (CVS) 32.2B 5,375
Rite-Aid (RAD) 16.9B 3,385
Jean Couteau 9.9B 1,878
Albertsons (ABS) 7.4B 2,492
• Walgreens (WAG)• CVS (CVS)
Trends:
Sales and foot traffic are driven by the ‘back end’ (Pharmacy), which account for 60-70% of total chain sales. Stores look to drive profit with add-on purchases of higher margin ‘front end’ (Consumer Goods) items
High regional density and high store counts (largest chains have ~5,000 stores). No single chain has a true nationwide presence YET.
Supply Chain Complexity: Front end carries a wide assortment of product, most of which is ‘slow-turn’ product
• Aging of the Baby Boomers and innovation in disease treatment are fueling long term revenue and traffic growth
• Pharmaceutical market share is increasingly under pressure from discounters and Pharmacy Benefit Mangers (mail order pharmacies)
• Walgreens and CVS continue to aggressively open stores as the become increasingly ‘national’ chains
17.2
0.9
19.4
20.5
14.5
1.0
21.4 23
.8
15.2
1.3
23.1
27.7
15.8
1.8
25.4
31.5
16.6
1.8
36.4
16.9
9.9
34.0
17.5
10.6
36.7
48.9
18.1
11.5
40.0
56.2
18.7
12.4
13.4
17.6
32.2
42.4
0
10
20
30
40
50
60
CVS Walgreens Rite Aid Jean Coutu
1999 2000 2001 2002 2003 2004E 2005E 2006E 2007E
Chain Drug US Retail Sales: ’99-’07E
CAGR '99-'04E CAGR '04E-'07E
CVS 5.8% 5.3%
Walgreens 10.3% 11.0%
Rite Aid 1.1% 0.1%
Jean Coutu 54.7% 4.5%
Drug RetailersSub-Segment Cheat Sheet: Drugstores
27© Accenture 2004. All Rights Reserved.
Non-store retailers are growing and leveraging multiple channels successfully while store-based merchandisers actively sell through this channel as well.
Sources: Accenture Analysis; Standard & Poors Industry Surveys – Retail (General and Specialty)
Typical Non-Store Retailer Forward Product Flow
Type Medium for messaging
Medium for ordering
Amount of information available about merchandise
Degree of information availability “on demand”
Degree to which information is tailored to customer
Top U.S. Players
Catalog / Direct Mail
Print MailTelephone
Low High Low LL Bean
TV Home Shopping
TV Telephone Low Low Low Home Shopping Network
QVC
Direct Selling Interpersonal Interpersonal High Medium High Avon Amway
Corporation
Internet (Pure-play)
Interactive / electronic through computer or cable television
Interactive / electronic through computer or cable television
High High High Amazon.com, Inc. Travelocity.com
DCVendor ConsumerAssorted Products
Non-Store Retailers
28© Accenture 2004. All Rights Reserved.
Segment Overview:
Top 5 US E-Retailers (non-store):
Ones to watch:
Company (Ticker) Sales USD Store Count
Amazon (AMZN) 6.9B N/A
Dell (DELL) 3.2B N/A
Hewlett Packard (HPQ) 2.7B N/A
SonyStyle.com (Sony- SNE) 1.6B N/A
CDW (CDWC) 1.5B N/A
• Overstock.com (OSTK)
Trends:
Online Retail Spending: 2000-2007
Non-Store RetailersSub-Segment Cheat Sheet: Internet/Catalog/Mail Order
• Industry shakeout: only the strong survive after the dot-com bust
• Top Net retailers operate ‘best in-class’ fulfillment systems
• Wider Consumer acceptance: Online spending in 2004 for non-travel retail rose almost 26% to $70.2B from $56.0B in 2003
• With U.S. Internet retailing sales historically growing at an average 20% to 25% annually, the industry is on track to achieve total sales of at least $106 billion in 2005.
• Retailers are increasingly leveraging their banner’s brand equity to build their own e-commerce channels. Many retailers offer an expanded assortment online and offer home or in-store pick-up
• Multichannel consumers are spending more (They spent 53% more during the 2003 holiday shopping season)
• Fulfillment costs per order rose to $9.80 in 2003
• Marketing costs per order have fallen, partially due to the trend towards keyword search advertising
29© Accenture 2004. All Rights Reserved.
Most retailers today are organized based on the four major types of tasks critical to their organization’s success
Typical Retail Organizational Structure
StrategicManagement
MerchandiseManagement
StoreManagement
AdministrativeManagement
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Key Functions
• Develop a Retail Strategy
• Identify the Target Market
• Determine the Retail Format
• Design Organizational Structure
• Select Locations
• Merchandise Management
• Store Management
• Administrative Management (operations)
Typical Job Titles
CEOPresidentCOOHead of Corporate Strategy
StrategicManagemen
t
MerchandiseManagement
StoreManagement
AdministrativeManagement
Typical Retail Organizational Structure
Top Of Mind
Increase Competitive/Strategic Positioning
Grow Top Line Sales
Improve Operating Profit
Improve Capital Productivity
Reduce Costs
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Key Functions
• Buy Merchandise
– Locate, evaluate and negotiate with vendors, Place orders
• Control merchandise inventory
– Develop merchandise budget plans
– Allocate merchandise to stores
– Review open-to-buy and stock position
• Price Merchandise
– Set initial price, Adjust prices
Typical Job Titles
VP Merchandising
VP Store Design and Visual Merchandising
General Merchandise Manager
Divisional Merchandise Manager
Senior Buyer, Buyer, Assistant Buyer
Replenish (Inventory) Manager
Replenish (Inventory) Analyst
StrategicManagemen
t
MerchandiseManagement
StoreManagement
AdministrativeManagement
Typical Retail Organizational Structure
Top Of Mind
Grow Top Line Sales
Improve Margin
Increase Inventory Turnover
Improve In-Stock Position
Increase Advertising Productivity
32© Accenture 2004. All Rights Reserved.
Key Functions
• Recruit, hire, train store personnel
• Plan work schedules
• Evaluate performance of store personnel
• Maintain store facilities
• Locate and display merchandise
• Sell merchandise to customers
• Repair and alter merchandise
• Provide services such as gift wrapping and delivery
• Handle customer complaints
• Take physical inventory
• Prevent inventory shrinkage
Typical Job Titles
Director of stores
Store manager
Assistant store manager - operations
Assistant store manager - human resources
Assistant store manager - selling and merchandise
Sales personnel
StrategicManagemen
t
MerchandiseManagement
StoreManagement
AdministrativeManagement
Typical Retail Organizational Structure
Top Of Mind
Improve Labor Productivity
Improve Return on In-Store Space
Reduce Inventory Shrink
33© Accenture 2004. All Rights Reserved.
Typical Job TitlesVP Marketing
VP Human Resources
VP Distribution
VP Finance
VP Information Systems
Key Functions• Promote the firm, its merchandise, and services
- Plan communication programs
- Develop communication budget
- Select media
- Plan special promotions
• Manage Human Resources
- Develop policies for managing store personnel
- Recruit, hire, train managers
- Plan career paths
• Distribute Merchandise
- Locate warehouses
- Receive merchandise
- Mark and label merchandise
• Establish Financial Control
- Provide timely information on financial performance
- Forecast sales, cash flow, profits
- Raise capital from vendors
StrategicManagemen
t
MerchandiseManagement
StoreManagement
AdministrativeManagement
Typical Retail Organizational Structure
Top Of MindIncrease Brand Strength
Increase Marketing ROI (Sale, Margin, Units)
Drive Operational Excellence
– Efficient supply chain
– Low cost of goods sold
– High employee productivity
Maintain Capital Discipline
– Inventory reduction
– Capital productivity
34© Accenture 2004. All Rights Reserved.
Retail Math
*Represented in millions
1995 1996 1997 1998 1999 Average Annual Growth Trend
(Base Year 1995)
Net Sales Revenue $10,395 $11,778 $13,363 $15,306 $17,838 14.3% , Steady Upwardly Trend
Cost of Goods Sold (COGS) 7,482 8,514 9,68 11,139 12,978 14.7%, Slight increase
Gross Margin (GM) 2,912 3,263 3,681 4,167 4,860 13.4% Increasing
SG&A Expense 2,392 2,659 2,972 3,332 3,844 12.1%
Operating Profit (EBIT) 523 606 712 877 1,027 19.2% Trending Positively
Interest Expense 1.0 2.0 1.6 1.1 0.4 -12.0%
Profit Before Taxes 522 604 710 876 1,026 19.3%
Taxes on Profit 202 235 276 339 403 19.7%
Net Profit 320 371 436 510 624 18.9%
Example Income Statement
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*Refer to handout for complete list of Retail math calculations.
Working Capital Ratios
• Inventory Turnover
• Weeks of Supply
• Days Receivable
• Days Payable
Retail Math
Cost of Goods Sold (COGS)
Cost vs. Retail Accounting
Shareholder Value Analysis (SVA)
Asset Ratios
• Gross Margin Return on Inventory (GMROI)
• Gross Margin Return on Space (GMROS)
• Sales Per Square Foot
Select Retailer Metrics*
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Cost of Goods Sold (COGS)
• COGS is the cost directly related to selling a product during an operating period
• COGS is calculated by adding total product cost (after cash discounts), transportation charges, and merchandise preparation costs
• When COGS is subtracted from the sales revenue, you get Gross Profit Margin (GM). – Do not confuse cost with price, which is what the company charges its customers
for products or services
• Since COGS has a direct impact on sales and gross margin, it is important to understand if the cost of goods is trending up or down
• Many items impact COGS and can be examined to understand if value can be created– Vendor terms and discounts, rebates, rush orders, drop shipments and shrinkage
are a few examples of items that can impact cost
Retail Math: Cost of Goods Sold (COGS)
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Inventory turnover (or "turnover" or "turn") is the number of times, within a given period, that the average inventory is sold and replaced
• Inventory turnover is very important to retailers
• Turnover shows whether customers are buying items while they are still desirable
• Inventory turnover can help you diagnose the overall health of a product or business and point you in the direction of other business drivers.
Retail Math: Working Capital Ratios
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Weeks of supply is the average number of weeks' worth of inventory that is on hand at a given time
• Understanding weeks of supply helps you to understand if purchasing is in line with sales
• Generally, it is desirable for a company to carry fewer weeks of supply
Retail Math: Working Capital Ratios
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Days receivable is a measure of the average time a company's customers take to pay for purchases
• Understanding days receivable and what is influencing it can help the client improve its cash position
• A lower ratio indicates that a company is receiving payment for goods soon after they are purchased.
Retail Math: Working Capital Ratios
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Days payable is a measure of the average time a company takes to pay suppliers
• A higher days payable ratio means that a company has more time to pay for goods/services that they have purchased from others
• The days payable number depends on a company’s contract with its suppliers
Retail Math: Working Capital Ratios
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Gross margin return on inventory (GMROI) is a statistic indicating the amount of gross margin dollars returned for every dollar invested in merchandise inventory
• Looking at GMROI will provide you with some insights into whether the client is carrying a profitable assortment
• The higher the GMROI, the better. An increasing GMROI trend means that gross margin is increasing at a rate higher than average inventory.
Retail Math: Working Capital Ratios
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Sales per square foot is represented by net sales divided by square feet of selling space
• Sales per square foot can help a client make strategic decisions regarding store layout, overall assortment, as well as resources allocated to specific departments and products.
Retail Math: Asset Ratios
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Gross Margin Return on Space (GMROS) combines the margin the store operates at and the selling space available for that particular store. This ratio will allow you to understand how many margin dollars are being driven by each square foot of selling space—and if a department is over—or underperforming its space allocation
• Although sales per square foot is also a valuable indicator of selling efficiency, GMROS shows profit per square foot, and is a more accurate statistic to use when allocating retail space
• You can calculate this ratio to compare one store to another or to compare one department to another within the same store.
Retail Math: Asset Ratios
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• Retail Inventory Method- Valuing inventory at the retail selling price of items. The method, in effect, revalues goods for inventory purposes whenever the sale price is lowered.
• Cost Method- Valuing inventory at the purchase price of items. Because the constant flow of inventory at different costs complicates tracking, a weighted average of the cost is used.
Retail Inventory Method Cost Method
• Estimated cost based on cost compliment (purchase markup) based on inventory and purchases
• Actual cost based on weighted average cost (WAC) by item, location based off sales and margin
• Department level margins mask success and failures of product performance (i.e., promo, vendor)
• Item level margins provide ability to measure margin of specific decisions and plans
• Markdowns impact inventory and planned margins when taken
• Price changes impact margins only when the item is sold; encourages timely action to increase rate of sales
• Finance and merchandising managing and planning at different levels of information
• Consistency of information across company (i.e., ties inventory to AP and company asset leverage)
Retail Math: Cost vs. Retail Accounting
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Retail Math: Measuring Shareholder Value
Shareholder Value Analysis (SVA) measures the amount of value a company has created for its shareholders, given the amount of capital employed and the average cost of that capital. SVA = NOPAT - (Cost of Capital * Capital)
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Key Retail Terms*
• SKU (Stock Keeping Unit) - A way to measure merchandise by item to assist in inventory management. A SKU represents the smallest unit for which sales and stock records are maintained. Sometimes referred to as a SKN (Stock Keeping Number)
• Assortment - The number, brand representation and selection of SKUs within a merchandise category
• Planogram - A diagram created from photographs, computer output, or artists’ renderings that illustrates exactly where every SKU should be placed.
• Conversion Rate - The percentage of customers or browsers that purchase merchandise (i.e., browsers that are converted into buyers)
• Shrink/Shortage - Any loss to the company calculated by the difference between the recorded value of inventory (at retail) based on merchandise bought and received and the value of actual inventory in stores and distribution centers divided by retail sales during a time period. Shrink is caused by employee theft, customer shoplifting, shipping or receiving errors, mis-keyed transactions and merchandise being misplaced, damaged or mispriced.
*Refer to handout for complete list of Retail terms.
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• Retail Resource Organizations
– National Retail Foundation (NRF)
– Retail Industry Leaders Association (RILA)
• Online Retail magazines
– www.chainstoreage.com
– www.retailwire.com
– www.retailtechnology.co.uk
– www.wwd.com/tech
– www.risnews.com/CSS/index.shtml
• Industry Research Resources
– NPD
– AC Nielsen
– Information Resources, Inc. (IRI)
• Books
– Why We Buy by Paco Underhill
– Call of the Mall by Paco Underhill
Select Retail Industry Resources