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Retail Business Environment

Notes When sales start to fall behind plan, it’s very tempting to think that you’ll make up the sales later
in the season. But when sales fall behind plan, inventories begin to back up as well. When
inventories back up, pressure builds on prices, which, if not addressed, can lead to steep
markdowns that decimate margins. The first thing to do is adjust future receipts to get inventories
back in line, but it usually doesn’t end there.
“When sales are soft, the weakest of your items or categories will usually suffer
disproportionately,” Hurlbut says. “They simply aren’t as desirable at their full retail price.” As
soon as you identify these items, mark them down. A 25 percent markdown, for instance, taken
immediately, will accelerate their rate of sale and get you out of that inventory, he adds. But if
you wait until clearance time, when everything is marked down, it may take 50 percent to 75
percent to clear the inventory.

Look behind the sales to understand why you are taking markdowns. “You have to be aware
and smart. Don’t just say, ‘It’s not moving fast enough,’” Butler says. “Why is it not selling? Do
customers not like it? Or are they not seeing it?” Make sure that you are pricing the items right
to begin with, particularly in this economic climate. “You want to be very sensitive about how
you price merchandise,” Butler says. “The customer is not looking for everything to be marked
down. They’re looking for good values, and there is a balance between value and price.”

Self Assessment

Fill in the blanks:

1. The pre-season commit percentage is the percentage of the season’s receipt plan that you
commit to before the ………………begins.”
2. A discount, just like a sale, …………………the retail value of your inventory on hand.”

3. “Inventory is the ‘active’ asset, which generates the business’s…………………….”
4. Without careful planning, …………………………can easily get out of line, resulting in
heavy markdowns due to overstocks and, ultimately, serious cash flow problems.”

5. Butler says, “For many retailers, …………………………. has becomes the second busiest
day of the week.”
6. Rather than relying on current ………………………trends, it is important for retailers to
continue to focus on the customer to succeed in today’s marketplace.
7. Baby boomers and Generation ……………………are often cited as responsible for the shift
in consumption patterns.

8. Rising ……………………and …………………….and transportation costs are capturing a
larger portion of the consumer dollar.

5.4 Dealing with Recession in Retail Industry

The current slowdown in the Indian economy notwithstanding, the retail segment in the country
seems to be in for a big time expansion led by most major Indian business majors and global
players. Even though the CB Richard Ellis report released in April 2008, placed India at a dismal
number 44 in the list of preferred destinations for global retailers looking to expand, fresh
announcements in the media belie this fact. However, going through these years of learning
nearly all stake holders in the industry are reconsidering their retail plans. A need for
consolidation in retail business is evident and to give it effect many have hit the drawing boards
again – not necessarily means that there is any down turn in the industry. In spite of the fast track
growth of the retail industry, India is still undergoing through the initial development phase of
modern retail.

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