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Societal Objectives
Societal objectives are related to the broader issues about providing benefits to society making the world a better place to live. Other societal objectives might include offering people unique merchandise, such as environmentally sensitive products, providing an innovative service to improve personal health, such as weight reduction programs, or sponsoring community events. Performance with respect to societal objectives is more difficult to measure than financial objectives. But explicit societal goals can be set, such as the percentage of executives or store managers that are women or minorities or the percentage of profit s donated to worthy charities.
Personal Objectives
Many retailers, particularly owners of small, independent businesses, have important personal objectives, including self-gratification, status, and respect. By operating a popular store, a retailer might be recognized as a well-respected business leader in the community. Whereas societal and personal objectives are important to some retailers, financial objectives should be the primary focus of managers of publicly held retailers retailers whose stocks are listed on the bought through stock market. Investors in publicly held companies must have the same objectives as the investors. Therefore, the remaining sections of this chapter focus on financial objectives and the factors affecting a retailers ability to achieve financial goals.
their investment in inventory and reflects the cost of goods sold from the income statement divided by the average inventory level from the balance sheet. Cost of Goods/Average inventory = Inventory Turnover Inventory turnover is a measure of the productivity of inventory. It shows how many times, on average, inventory cycles through the store during a specific period of time (usually a year). Fixed Assets Fixed assets are those assets that require more than a year to convert to cash. o In retailing, the principle fixed assets are buildings (if store property is owned rather than leased), fixtures (such as display racks), equipment (such as computers or delivery trucks), and other long-term investments such as stock in other supplier firms. Fixed assets are more difficult to manage than current assets such as inventory. Net Sales/Fixed Assets = Fixed Asset Turnover Asset Turnover Asset turnover is a overall performance measure from the asset management component in the strategic profit model. Net Sales/Total Assets = Asset Turnover
Return on Assets
Net Profit Margin * Asset Turnover = Return on Assets 1. Retailers and investors need to consider both net profit margin and asset turnover when evaluating their financial performance. Firms can achieve high performance (high ROA) by effectively managing both net profit margins and asset turnover. 2. Retailers need to consider the implications of strategic decisions on both components of the strategic profit model.
Accountability
At each level of the retail organization, the business unit and its manager should be held accountable only for the revenues, expenses, and contribution to ROA that they can control. Thus, expenses that affect several levels of the organization (such as the labor and capital expenses associated with operating a corporate headquarters) shouldnt be arbitrarily assigned to lower levels. Performance objectives and measure are used to pinpoint problem areas. Reasons performance may be above or below planned levels must be examined. Actual performance may be different than the plan predicts due to circumstances beyond the managers control.
Types of Measures
Input measures asses the amount of resources or money used by the retailer to achieve output such as sales. Output measures assess the results of a retailers investment decisions. A productivity measure (the ratio of an output to an input) determines how defectively retailers use their resource what return they get on their investments. In general, since productivity measures are a ratio of outputs to inputs, they are very useful for comparing the performance of different business units. Corporate Performance At a corporate level, retail executive have three critical resources (inputs) merchandise inventory, store space, and employees that they can manage to generate sales and profits (output). Thus, effective productivity measures of the utilization of these assets are asset and inventory turnover, sales per square foot of selling space, and sales per employee. ROA is an overall productivity measure combining the profit margin percentage and asset turnover management. o Another commonly used measure of overall performance is same store sales growth, or the growth in stores that have been open for over one year. Merchandise Management Measures The critical resource (input) controlled by merchandise mangers is merchandise inventory. Merchandise managers also have authority to set initial prices and lower prices when merchandise is not selling (take a markdown). Finally, they negotiate with vendors on the price paid for merchandise. Inventory turnover is a productivity measure of the management of inventory; higher turnover means greater inventory management productivity. Gross margin percentage indicates the performance of merchandise managers in negotiating with vendors and buying merchandise that can generate a profit. Store Operations Measures The critical assets controlled by store managers are the use of the store space and the management of the stores employees. Thus, measures of store operations productivity include sales per square foot and sales per employee. Store management is also responsible for controlling theft by employees and customers, store maintenance, and energy costs.
Performance over Time One useful approach for assessing a retailers performance is to compare its recent performance with its performance in preceding months, quarters, or years. Performance Compared to Competitors A second approach for assessing a retailers performance is to compare it with its competitors.