4th

4 big social factors shape what they buy

1. The Economy

What people think or expect about the economy can matter more than the actual financial situation.

Example: During tough times, people may still buy small luxuries like lipstick ("lipstick effect").

The strength of a country's economy compared to others also affects buying behavior.

2. Family

Decisions can be made by the whole family or just one person.

Having children changes buying choices—like where to eat or go on vacation.

3. Reference Groups

These are people we look to when deciding what to believe, feel, or do.

They shape buying by giving advice, setting trends, or boosting our self-image.

4. Culture

Culture shapes what people believe is right or wrong, important or unimportant.

These shared values and beliefs deeply influence what and how people buy.

Core Elements of Retail Strategy. A retail strategy identifies:

1. Target Market

This is the specific group of people the store wants to sell to.

(For example, younger trend-followers or budget-conscious families.)

2. Retail Format (Retail Mix)

This means the way the store presents itself—through merchandise, pricing, promotion, design, service, location.

3. Sustainable Competitive Advantage

This is something special the store does that's hard for others to copy and keeps it successful over time.

Building Sustainable Competitive Advantage. Three key approaches:

1. Strong Customer Relationships

Keep customers loyal by building trust, offering great service, and making them feel valued.

2. Strong Supplier Relationships

Work closely with suppliers to get reliable, quality products—often at better prices or with better support.

3. Efficient Internal Operations

Run the business smoothly and cost-effectively, so it can offer better prices or faster service than competitors.

How to Build Loyalty:

Brand Image - How people see and feel about the brand.

Positioning - How the brand stands out in the market (e.g., luxury vs. budget, fashion-forward vs. traditional).

Unique Merchandise - Offering exclusive or private-label items no one else has.

Customer Service - Treating customers well builds trust and satisfaction.

CRM/Loyalty Programs - Reward systems that give perks to repeat customers.

Retail Communities - Creating a sense of belonging, like Xiaomi's "Fan-iverse" shown in the slide.

Growth strategy Table

1. Market Penetration

→ Same customers, same format

Increase sales to current customers.

Tactics: open more stores, extend store hours, or encourage customers to buy more (cross-selling).

2. Market Expansion

→ New customers, same format

Attract new customer groups using the existing business model.

Example: Expanding to a new region or age group.

3. Retail Format Development

→ Same customers, new format

Offer a new kind of store or service to existing customers.

Example: A large store launching a smaller convenience version (like Tesco Express).

4. Diversification

→ New customers, new format

Entering completely new markets with new types of offerings.

Can be:

Related (some connection to the current business)

Unrelated (completely different business)

May involve vertical integration (taking over parts of the supply chain)

Or even downsizing if things don't work out

7-step strategic retail planning process

The 7 Steps:

1. Define Mission

→ What is the business trying to achieve?

2. Conduct SWOT Analysis

→ Understand strengths, weaknesses, opportunities, and threats.

3. Identify Opportunities

→ Spot areas for growth or improvement.

4. Evaluate Opportunities

→ Decide which ones are worth pursuing.

5. Set Objectives & Allocate Resources

→ Set clear goals and assign people, money, or time where needed.

6. Develop Retail Mix

→ Plan out the right products, prices, promotions, locations, and services.

7. Evaluate & Adjust

→ Review what's working or not—and make changes as needed.

SPM formula

ROA=Net Profit Margin * Asset Turnover

What That Means:

1. Net Profit Margin

→ How much profit is made from each dollar of sales.

(Example: If you sell something for $1 and keep $0.10 as profit, your margin is 10%.)

2. Asset Turnover

→ How many sales you make for each dollar of assets you own.

(High turnover means you're using your stuff efficiently to generate sales.)

Key Insight:

Different retailers can achieve the same ROA in different ways:

1. Some may focus on higher profit margins (selling fewer but more profitable items).

2. Others may focus on higher turnover (selling more items quickly, even if profit per item is lower).

Profit Margin Management Path Key components:

Key Components:

1. Net Sales → Total revenue after returns or discounts.

2 COGS (Cost of Goods Sold) → What it cost to make or buy the products sold.

3 Gross Margin → Net Sales - COGS (This shows how much is left after covering product costs.)

4 Operating Expenses (SG&A) → Costs to run the business: salaries, rent, ads, etc.

5 Operating Profit Margin → Gross Margin - Operating Expenses (Shows profit from operations before taxes/interest.)

6 Net Profit Margin → What's left after all expenses, taxes, and interest are paid.

Asset Turnover Management Path Key components:

1 Current Assets → Includes things like cash, inventory, and accounts receivable (money owed to the company).

2 Merchandise Inventory → A core asset for retailers—it's what they're selling, so managing it well is crucial.

3 Inventory Turnover → Formula: COGS ÷ Average Inventory → Tells how often the inventory is sold and replaced.

◦ Walmart: 8.89x

◦ Target: 6.10x (Walmart moves inventory faster.)

4 Noncurrent Assets → Includes long-term items like equipment, buildings, or brand value.

5 Asset Turnover → Formula: Net Sales ÷ Total Assets → Measures how efficiently all assets generate sales.

◦ Walmart: 2.20x

◦ Target: 1.80x

Two planning approaches

Retailers use different planning methods to set goals:

1. Top-down planning: Company leaders set the goals.

2. Bottom-up planning: Store-level staff estimate what they can realistically achieve.

Once goals are set, people are evaluated based on what they can control:

1. Corporate teams are judged by big financial metrics like:

Asset turnover (how well assets are used to generate sales)

Sales per square foot (how efficiently space is used)

2. Buyers (merchandise managers) are measured by:

Gross margin % (how much profit is made after product costs)

Markdowns (discounts that lower profit)

Example: A buyer gets 100 products at €100 each, sells 50 at full price, discounts the rest to €50, and sells 38 more. Their performance is judged on how well they handled pricing and sales to maximize profit.

3. Store managers are evaluated based on:

Labor cost % (staffing expenses)

Shrinkage (loss from theft, damage, or errors)