CHAPTER FOUR

Retail Organization Management

Managing a retail business comprises three steps: setting up an organization structure,
managing human resource and managing operations.

Setting up a retail organization structure

An organization is a formal structure of roles and positions put in place to achieve some
specific goals. The structure of a retail organization defines the role of employees and the
way in which the organization functions.

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 target market, employees and management.

As a rule, a firm cannot survive unless its organizational structure satisfies the target
market regardless of how well the employees and management needs are met.
Target market needs
Are there sufficient personnel to provide appropriate customer service?

Are personnel knowledgeable and courteous?

Are store facilities well maintained?

Are the specific needs of branch store customers met?

Are changing needs promptly addressed?

Employee needs
Are roles in the position clearly described?

Is there an orderly promotion program from within?

Is the employee able to participate in the decision making?

Are the channels of communication clear and open?

Is the authority-responsibility relationship clear?

Is each employee treated fairly?

Is good performance rewarded?

Management needs
Is it relatively easy to obtain and retain competent personnel?

Are personnel procedures clearly defined?

Does each worker report to only one supervisor?

Can each manager properly supervise all of the workers reporting to him?

Do operating departments have adequate support staff (e.g. marketing research?)

Are employees motivated?

Is absenteeism low?
The steps to set up a retail organization structure
In order to set up a retail organization structure, the following steps are necessary:

Specifying tasks to be performed , Dividing tasks among channel members and consumers,
grouping tasks into jobs, classifying jobs and developing an organization chart.
Specifying tasks to be performed
The tasks in the distribution channel must be enumerated then keyed to the chosen
strategy mix for effective retailing to occur.
Buying merchandises for the retailer
Shipping merchandise to the retailer

Receiving merchandise and checking incoming shipments

Setting prices
 Inventory storage and control

Marketing communication

Packaging

Sales forecasting and budgeting

Repair and alteration of merchandises, etc

Dividing the tasks among channel members and consumers
Although the preceding tasks are typically performed in a distribution channel, they do not
have to be done only by the retailer. Manufacturers, wholesalers, retailers and consumers
take their part.
A task 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.
A task should be done by a channel member with the best competence.
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 & an
ongoing access to financial data, uses tailored computer software, and pays lower rent & so
on.
Grouping tasks into job position
After the retailer decided which tasks to perform, the tasks have to be grouped into jobs.
The jobs must be clearly structured.

Tasks Jobs

Displaying merchandise, customer contact, gift wrapping, customer follow- Sales personnel
up

Solicit suppliers, preparing a bid, selecting and buying merchandises Merchandising personnel

Entering transaction data, handling cash and credit purchases Cashier

Receiving merchandise, checking incoming shipments, inventory storage &Inventory personnel

Tasks Jobs

control

Undertaking consumer research, marketing intelligence, internal data MIS personnel

organization, data analysis

Cleaning store, replacing old fixtures Janitorial personnel

While grouping tasks into jobs, specialization should be considered, so each employee is
responsible for a limited range of functions. Once tasks are grouped, job descriptions are
constructed. These outline the job title, objectives, duties and responsibilities for every
position.

For example:

Job title: store manager for 34th street branch of a chain store

Position reports to: senior vice president

Positions reporting to the store manager: all personnel in the 34 th street store

Objectives: to properly staff and operate the 34th street store

Duties and responsibilities:

Sales forecasting and budgeting

Personnel recruitment, selection, training, motivation and evaluation

Merchandise display, inventory management and inventory reorders

Transferring merchandise among stores

Managing store fixture and cleaning

Handling store receipts, preparing bank transactions, opening & closing store, etc
Classifying jobs

Jobs are then broadly grouped into functional, product, geographic or combination.
Functional classification divides jobs by tasks such as sales promotion, buying and store
operations. Product classification divides jobs on a goods or services basis. A department
store hires different personnel for clothing, furniture, other appliances and so on.

Geographic classification is useful for chains operating in many areas. Employees are
adapted to local conditions and they are supervised by branch managers.

Fig.4.1. Functional retail organizational chart

Fig. 4.2. Product organization chart

Fig. 4.3. Geographic organization chart

Fig.4.4. Combination organization chart

*Note: Manager LA = Manager for location A, B

Developing an organizational chart

The format of a retail organization must be designed in an integrated and coordinated way.
Jobs must be defined and distinct; yet, interrelationships among positions must be clear.
The hierarchy of authority outlines the job interactions within a firm by describing the
reporting relationships among employees from the lowest to the highest level. A firm with
many workers reporting to one manager (flat organization) has the benefit of good
communication, quicker handling of problems, and better employee identification with a
job. A tall organization (several management levels), results in close supervision and fewer
employees reporting to each manager. However, there exist long channel of
communication, impersonal impression given to workers regarding access to upper level
personnel and inflexible rules.

The greater the number of organizational levels, the longer the time for communication to
travel and the greater the coordination problems.
Principles for organizing a retail firm
An organization should show interest in its employees. Job rotation, promotion from
within, participatory management, recognition, job enhancement and so forth improve
worker morale.

Employee turnover, lateness, and absenteeism should be monitored as they indicate

personnel problems.

The line of authority should be traceable from the highest to the lowest positions. In this way,
employees know to whom they report and who reports to them (chain of command)

A subordinate should report only to one direct supervisor (unity of command) this avoids
the problem of workers receiving conflicting orders.

There is a limit to a number of employees a manager can directly supervise (span of control)

A person responsible for a given objective needs the power to achieve it.

Although a supervisor can delegate authority he is still responsible for subordinates.

Human resource management in retailing

The special human resource environment of retailing
Retailers face a human resource environment characterized by a large number of inexperienced
workers, long working hours, highly visible employees, a diverse workforce, many part-time workers and
variable customer demand (many peak and off-peak demand periods). These factors complicate
employee hiring, staffing and supervision. The need for a large retail labor force often means hiring
persons with little or no prior experience.

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, and many retailers now have longer hours since 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 customers so that selecting and training them requires care
with regard to their manners and appearance. Due to their long working hours, retailers regularly hire
part-time workers.

Human resource management process in retailing

Human resource management involves recruiting, selecting, training, compensating, supervising and
evaluating personnel in a manner consistent with the retailer’s organization structure and strategy mix.
The goal of this process is to obtain, develop & retain employees.
Recruiting retail personnel
Recruitment is the activity whereby a retailer generates a list of job applicants from various sources.

Generally, there are two types of recruitment sources: outside the retail institution (educational
institutions, other channel members, advertisements, employment agencies,
references/recommendations, unsolicited applicants) and within the retail institution (promotion and
employee recommendations).

For entry-level sales jobs, retailers rely on educational institutions, ads, write-ins (unsolicited
applications), websites, and employee recommendations. For middle management positions, retailers
rely on employment agencies, and current employee referrals.

In order to complete recruitment, the retailer has to:

Prepare the job description and job specification

Identify sources of recruitment and methods of communication

Design an effective application form and preparing a short list

Selecting retail personnel

The firm next selects new employees by matching the traits of potential employees with job
requirements. Details filled in the application, interviewing, written testing, references, physical exam
are tools in the selection process. Those evaluation mechanisms should be integrated.
Training retail personnel
Every new employee should receive indoctrination on the firm’s history and policies, as well as a job
orientation on hours, compensation, the chain of command and job duties. New employees should also
be introduced to co-workers. Effective orientation inspires recruits and provides information that they
do not know about their jobs and the retailer.

Training programs teach new and/or existing personnel how best to perform their jobs or how to
improve themselves. Training can range from few days’ sessions to years long programs for executive
trainees on all aspects of the retailer and its operations.

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.

Training decisions contain three steps: identifying needs, devise appropriate training methods and
evaluation. Training contents may focus on the product lines, customer service, market development,
application of new technologies, etc.

Training methods may be lecture, demonstration, conferences, role-playing, etc.

Compensating retail personnel
Total compensation includes direct monetary payment (salaries, commissions and bonuses) and indirect
payments (paid vacation, health and life insurance, and retirement plans). Compensation should be fair
to both the retailer and its employees. To better motivate employees, some retail firms consider profit
sharing.

With straight salary compensation, a worker is paid a fixed amount per specified time. Advantages of
this method are retailer control, employee security and known expenses. Disadvantages are retailer
inflexibility, the limited productivity incentive, and fixed costs. With a straight commission, earnings are
directly tied to productivity/sales or customer service. Advantages are retailer flexibility, the link to
worker productivity, no fixed costs, and employee incentive. Disadvantages are the retailer’s lack of
control over the tasks performed, the risk of low earnings to employees, cost variability, and the lack of
limits on worker earnings.

Another method combines a fixed salary and commission in which the sales person is paid a fixed
amount of money per a specific time plus a commission depending on meeting or exceeding assigned
goals.

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. A manager motivates by creating an organizational
environment/climate in which employees can perform to the best of their ability. Employee motivation
is affected by: the work itself, a sense of achievement received from performing the work, recognition
received for work performed, the possibility of advancement and growth, and a sense of trust and
responsibility.

Supervision may be provided by personal contact, meeting and/or reporting.

The two basic styles of supervising retail employees:

Management assumes that employees must be closely supervised and controlled; and only
economic inducements really motivate employees. Management further believes that the
average worker lacks ambition; dislikes responsibility; and prefer to be led. This is the
traditional view of motivation and has been applied to lower level positions.
Management assumes that employees can be self-managers and assign 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 the retailer’s goal, exist in people. The critical
supervisory task is to create an environment where people can achieve the goals.
Management advocates more employee involvement in defining jobs and sharing overall
decision making. There is a mutual loyalty b/n the retailer and its employees.
Evaluating retail personnel
The evaluation phase of the management process comprises setting performance standards (qualitative
and quantitative performance standards), recording actual performances, comparing actual
performance against predetermined standards then taking corrective actions if necessary.

Operations management in a retail firm

Financial dimensions
After devising an organizational structure & a human resource plan, a retailer concentrates on the
efficient and effective implementation of policies and tasks necessary to satisfy the firm’s customers,
employees and management and stakeholders for public company. High inventory levels, long working
hours, expensive store fixtures, extensive customer services, and widespread marketing communication
may lead to higher revenues. But at what cost? If a store pays night – shift workers a 25% premium; is
being open 24 hours per day; do higher sales justify the costs and add to overall profit?

Budgeting decisions for a retail firm

Establishing a budget and sticking to it is not easy, but it’s the best way to be in control of your finances
and make sure your money is going toward the expenses that matter most to you. Budgeting outlines a
retailer’s planned expenditures for a given time based on expected performance.

There are several benefits from 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 can be coordinated
A firm prepares for the future rather than reacts to it
Expenditures are monitored during the 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 performances can be compared with industry averages
A retailer should be aware of the efforts in the budgeting process, recognizing that forecasts may not be
fully accurate, and modify plans as needed. It should not be too conservative (inflexible) or simply add a
percentage to each expense category to arrive at the next budget.

Budgeting decisions involve the following:

Deciding who develops the budget
Identifying sources of funds
Determine budgeting time frame
Identify cost categories
Determine the level of detail
Deciding upon the flexibility of the budget
Setting goals based on the needs of customers, employees and management
Setting performance standards like customer service levels, the compensation needed to
motivate employees, sales and profit levels are set.
Making actual expenditures i.e. paying rent & employee salaries, buying merchandising,
advertising & so on
Monitoring results i.e. comparing actual expenditures with plans and identify reasons for
any deviation
Adjusting the budget
Income statement
A profit and loss statement/income statement is a summary of a retailer’s revenues and expenditures
over a given period of time, a month, quarter or year.

Balance sheet
The balance sheet of a retailer itemizes its assets, liabilities and net worth at a specific time based on the
principle that asset = liability + net worth.

Assets are any items that a retailer owns in cash and in kind. Liabilities are financial obligations a retailer
incurs in operating a business.

Operations management (non-financial dimensions)

Store operations concern all of the activities that keep a store functioning well each day. In the best-run
stores, everything is carefully considered, planned, and executed. Operations include many aspects,
such as store design, display placement, customer service, shoplifting prevention, premises
maintenance, inventory optimization.

More detailed overview of responsibilities that may fall under the field of retail store operations are
dealt with:

Design

Customer service

Fraud, and internal controls

Inventory management

Managing the premises

Design

Design and aesthetics are a major part of the shopping experience. Here are aspects of design that fall
under retail operations.

Store location: Visibility and customer traffic patterns play a key role in a store’s success.
People will travel off the beaten path for something special, but it’s generally harder to
build that business.

Store layout: The store’s exterior and interior design sets the tone for the shopping
experience. Design can signal a clean, well-organized, well-stocked store. Another
consideration is the display layout. Racks, shelves, or displays can be arranged straight, at
angles, or in a geometric pattern to create visual interest in addition to organization.
Similarly, traffic patterns for customers can be gridded, almost like streets, looping or
curving, or more free flowing. Changes in these patterns can affect what customers see
and what they purchase.

Creating departments within a store: This is important for item findability in a store, as
well as for delivering tailored customer service. By creating specialty areas, such as
jewelry, shoes, sporting goods, and house wares, retail professionals create “stores within
stores” and have specialty employees who are better able to serve customers.
 Visual merchandising: Create attractive displays of products to set a tone and an
expectation. Sometimes, you aren’t just selling a product - you’re selling an experience.
A pleasing display of merchandise sends a message to the would-be buyer, and so does a
sloppy, unkempt table. Even the height at which items are placed can make a big
difference. Some professionals use a retail planogram, a type of diagram to detail the
placement of items in a store.

Store atmosphere: Lighting, music, and consistent overall store maintenance create a
pleasant atmosphere that makes customers want to shop there. Unpleasant factors like
clutter, odors, inadequate air conditioning, or unserviced restrooms can turn off
customers.

Signage: Posting signs, both outside and inside, help to direct customers and make them
aware of products/services. Without good signage, a store can be difficult to navigate,
and customers might not see what store managers want them to see.

Store space management: Avoid clutter and disorganization by managing space well in the
store. Make items easily accessible and use out-of-the-way space for storage.

Customer services

The following questions address elements of customer service:

How are customers greeted when they enter the store?

Is there a familiarity with repeat customers?

Is personal service offered? At what point?

If the store doesn’t have what the customer wants, how does the store handle that? Is it willing to say
who else might have the item?

Does the store offer helpful guidance - after really listening to the customer?

Is loyalty rewarded, such as through loyalty programs?

If the customer has a problem or concern, how does the store handle it?
How returns and refunds are treated? A store buys faith and loyalty with customers when it handles
returns easily and without hassle.

Customers may not always be right, but they’re always the customer, representing a potential sale and
potential review.

Fraud and internal controls

Shoplifting and fraud prevention: Stores devote significant resources (both people and technology) to
deter shoplifting and fraud. Some keep it behind the scenes so as not to interrupt the customer
experience. Others may be more upfront, as in the case of having a guard at a jewelry store entrance.
Security cameras, monitoring, and product scanners are also common.

Internal controls: Stores develop and maintain internal controls, or standard operating procedures, to
prevent problems with shoplifting, and fraud. These controls help to prevent money or inventory theft.
They include cross-checks, only a certain level of employees have access to certain items or parts of the
store. It’s also vital to have different levels of employees sign off on others’ work, so no one employee
can operate in secret. Without these controls, a store could be at the mercy of theft or fraud by
employees, customers, or suppliers.
Safety and security: Stores try to ensure that their employees and customers are safe.

Inventory management

Stores do their best to balance supply and demand for products in a constant cycle of selling and
restocking. The retailer has to identify late and quick turnover items.

Ordering merchandise: Buyers place orders for products, trying to anticipate the demands
of consumers. To be efficient and cost-conscious, retailers don’t want to order too much.
In an automated system, the inventory needs are forecasted, so stock replenishment is
automated. Another factor to consider is the merchandise mix. Stores want to ensure
that the customer has a variety of products, sizes, colors, and other features to choose
from, at appropriate price points.
Receiving stock: Stores receive shipments from suppliers and distributors. They carefully
track and record it all, and make sure it’s handled properly and is in good condition.

Using an inventory system: The three main types are perpetual inventory, physical
inventory, and combined. With perpetual inventory, the counts are updated upon each
sale with today’s computerized Point of sale systems. With physical inventory
accounting, the business physically counts its inventory. With a combined system, both
 methods are used, where the physical count provides a cross-check of the computerized
system.

For optimum return from the retailer’s inventory, LIFO and FIFO principles have to receive due emphasis
when necessary.