Page 106 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Unit 5: Managing Retailing in Good Times and Bad

inflation. Thus, the commonly followed interest rate is actually the nominal interest rate. Notes
Nevertheless, there are literally hundreds of nominal interest rates. Examples include: savings
account rate, six-month certificate of deposit rate, 15-year mortgage rate, variable mortgage
rate, 30-year Treasury bond rate, 10-year General Motors bond rate, and commercial bank prime
lending rate. One can see from these examples that the nominal interest rate has two key
attributes—the duration of lending/borrowing involved and the identity of the borrower.
Fortunately, while the hundreds of interest rates that one encounters may appear baffling, they
are closely linked to each other. Two characteristics that account for this linkage are the risk
worthiness of the borrower and the maturity of the loan involved. So, for example, the interest
rate on a 6-month Treasury bill is related to that on a 30-year Treasury bond, as bonds/loans of
different maturity levels command different rates. Also, a 30-year General Motors bond will
carry a higher interest rate than a 30-year Treasury bond, since a General Motors (GM) bond is
riskier than a Treasury bond.

Finally, one should note that the nominal interest rate does not represent the real cost of
borrowing or the real return on lending. To understand the real cost or return, one must consider
the inflation-adjusted nominal rate, called the real interest rate.

Did u know? Tax and other considerations also influence the real cost or return.
Nevertheless, the real interest rate is a very important concept in understanding the main
incentives behind borrowing or lending.
5.3 Managing Fluctuations in Retail Industry

The best way to manage seasonal fluctuations, and maintain positive cash flows throughout the
year, is to develop detailed sales and inventory plans before the season begins, use those plans
to guide your merchandise purchases, and as benchmarks in-season to guide your progress,
according to Ted Hurlbut, the principal of Hurlbut & Associates, a merchandising and inventory
management consulting firm based in Foxboro, Massachusetts.

Did u know? “Planning takes time — time you may not think you have — but invariably
those independent retailers that take the time to carefully plan their sales and inventory
are far more profitable than those that don’t,” Hurlbut says.
Before you begin the planning process, you will need to know what you’ve sold in the past, and
how much inventory you had on-hand to generate those sales. That means using your point-of-
sale (POS) system as a resource. “While effective planning goes far beyond merely what you did
last year, this information is an important reference point,” Hurlbut says. “You will need to
extract that data from your POS system, by category and month. Unfortunately, many POS
systems do not maintain a history of monthly inventory levels, so all you may be able to extract
is sales data.”
Second, you will need to determine the unit of measure that you will plan with. The two
primary options are to plan in units or in retail dollar value. “In almost all instances, I recommend
planning in retail dollars,” Hurlbut says. “If you are going to do your planning in units, be clear
in your own mind why units are the way to go in your particular business, and planning in retail
dollars is inappropriate.”

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