Transcript bm0208c.pbworks.com

CHAPTER 6
2
1
Financial Strategy
CHAPTER 6
Retailing Management 8e
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Retailing Strategy
CHAPTER 6
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Retail Market Strategy
Financial Strategy
Retail Locations
Retail Site Location
Human Resource Management
Information Systems and Supply Chain Management
Customer Relationship Management
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Questions
CHAPTER 6
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• How is a retail strategy reflected in retailers’ financial
objectives?
• How do retailers need to evaluate their performance?
• What is the strategic profit model, and how is it used?
• What measures do retailers use to assess their
performance?
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Objectives and Goals
CHAPTER 6
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• Financial – not necessarily profits, but return on
investment (ROI) – primary focus
• Societal – helping to improve the world around us
• Personal – self-gratification, status, respect
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Components of the
Strategic Profit Model
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CHAPTER 6
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The Strategic Profit Model:
An Overview
CHAPTER 6
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Profit Margin x
Asset turnover
= Return on assets
Net profit
x
Net sales (crossed out)
Net sales (crossed out) = Net profit
Total assets
Total assets
Net Profit Margin: reflects the profits generated from each dollar of sales
Asset Turnover: assesses the productivity of a firm’s investment in its assets
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Profit Margin Management Path
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• Net Sales = Gross Sales + Promotional
Allowances - Return
• Cost of Good Sold (COGs)
• Gross Margin (GM) = Net Sales - COGs
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Profit Margin Management Path
CHAPTER 6
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• Operating Expense
• Variable (e.g.. sales commissions)
• Fixed (rent, depreciation, staff salaries)
• Selling, general, and administrative (SG&A) expenses
• Operating profit margin
• Operating profit margin = Gross margin - Operating expenses –
Extraordinary (recurring) operating expenses
• Net profit margin = Operating profit margin - Taxes - Interest Extraordinary nonrecurring expenses
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Profit Margin Management Path
CHAPTER 6
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• Gross margin percentage is gross margin divided by net
sales.
• Retailers use to compare
• the performance of various types of merchandise
• their own performance with that of other retailers
with higher or lower levels of sales.
Gross margin
Net sales
Retailing Management 8e
= Gross margin %
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Profit Margin Management Path
CHAPTER 6
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• SG & A or operating expenses can be expressed as a
percentage of net sales to facilitate comparisons across
items, stores, and merchandise categories within and
between firms.
Operating expenses
Net sales
Retailing Management 8e
= Operating expenses %
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Profit Margin Management Path
CHAPTER 6
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• Net operating profit percentage is gross margin minus
operating expenses divided by net sales
Gross margin - Operating expenses
Net sales
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= Net operating profit %
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Asset Management Path
CHAPTER 6
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• Assets:
• Economic Resources (e.g., inventory, buildings,
computers, store fixtures) owned or controlled by a
firm
• Current Asset and Fixed Asset
• Current Assets = Cash + Account Receivable +
Inventory + Other current assets
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Asset Management Path
CHAPTER 6
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• Accounts receivable are primarily the monies owed to
the retailer by customers that have bought merchandise
on credit.
• Fixed Assets = Fixture, Stores (owned)
• Asset Turnover = Sales/Total Assets
Net sales
Total assets
= Asset turnover
• Inventory Turnover = COGS/Avg. Inventory (cost)
Cost of goods sold
Average inventory at cost
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= Inventory turnover
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Inventory Turnover
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• A Measure of the Productivity of Inventory:
• It is used to evaluate how effectively retailers utilize
their investment in inventory
• Shows how many times, on average, inventory cycles
through the store during a specific period of time
(usually a year)
Inventory Turnover = COGS/avg inventory (cost)
Inventory Turnover = Sales/ avg inventory (retail)
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Analysis of Financial Strength
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• Cash-Flow Analysis
• Debt-Equity Ratio
• Current Ratio
• Quick Ratio
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Setting and
Measuring Performance Objectives
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• Retailers will be better able to gauge performance if it
has specific objectives in mind to compare performance.
• Should include:
• numerical index of performance desired
• time frame for performance
• necessary resources to achieve objectives
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Setting Objectives
in Large Retail Organizations
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Top-Down Planning
Corporate Developmental Strategy
Category, Departments
and sales associates
implement strategy
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Setting Objectives
in Large Retail Organizations
CHAPTER 6
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Corporate
Bottom-Up Planning
Buyers and Store
managers estimate
what they can
achieve
Retailing Management 8e
Operation managers
must be involved in
objective setting
process
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Productivity Measures
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Input Measures – assess the amount of resources or
money used by the retailer to achieve outputs such as
sales
Output measures – asses the results of a retailer’s
investment decisions
Productivity measure – determines how effectively
retailers use their resource – what return (e.g., profits)
they get on their investments (e.g., expenses)
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Financial Performance of Retailers
Outputs – Performance
Inputs Used by Retailers
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Sales
Profits
Cash flow
Growth in sales, profits
Same store sales growth
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CHAPTER 6
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Inventory ($)
Real Estate (sq. ft.)
Employees (#)
Overhead (Corporate Staff
and Expenses)
• Advertising
• Energy Costs
• MIS expenses
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Examples of Performance
Measures Used by Retailers
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Assessing Performance
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• Growth in Stockholder Value – Stock Price
• Accounting Measures – ROA (Risk adjusted)
• Benchmark
• Performance Over Time
• Compare performance indicator for three years
• Performance Compared to Competitors
• Compare performance indicators with major competitors for
one year, most recent
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