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Teaching Notes
Case A16: Retailing in China
Synopsis: The case is based on the experiences of the authors, who spent several weeks in the
Shanghai Suzhou area of China in summer, 1995. During this time, they met with the
managers of several department stores in the area. The First Department Store is an actual
store in Suzhou, but the name has been changed. Suzhou is considered to be a secondary
market in China, meaning that the local authorities and individual entrepreneurs
determine business conditions. In contrast, a city such as Shanghai is considered to be
first tier economic area, and receives extensive support from the central government to
develop its economy and stimulate business.
Use: Chapter 4 Discusses the relationship between consumer values, needs, and demographics and
the retailing industry satisfying those needs.
Chapter 5 Illustrates the development and implementation of a retail strategy in another
country.
Discussion Questions:
1. What are some of the unique aspects and challenges of doing business in China, which Sarah
Harrison has encountered?
Sarah Harrison has run into some of the common challenges that confront all North American
business-people when they go to China. First, there is the issue of fatigue as a result of the long flight
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Finally, Sarah has noticed that the store staff was not very open when she met with them to find out
more about the day-to-day operations at the store. This is a typical reaction. Below the managerial
level, lower-level employees in China are extremely guarded in what they say, particularly to
foreigners. The common North American practice of speaking to the people closest to the consumer is
not always effective in China.
2. What are the problems facing the store?
Many of the problems facing the store are those endemic to most Chinese retailers. They include
3. What should Sarah recommend to the management of First Department Store. Why?
Student suggestions can focus on the ways to improve merchandising, to introduce more financial and
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4. What other information should Sarah have that would help her in making recommendations to
the store management?
Students can suggest several statistical measures of store efficiency and productivity that would be
useful, but it seems clear that these data are currently unavailable at the store. Sara may be able to get
Ancillary Cases and Teaching Notes
Case A17: To Move or Not To Move
Professor David Ehrlich, Marymount University
Background Information
You own a successful junior boutique on Wisconsin Avenue in Georgetown, which you started three
years ago. Your business has grown steadily, and you have developed a loyal clientele. Your store has
1000 square feet, and lies out well, although you wish it were a bit wider. Sales last year, your third year
in business, were $450,000, an increase of 15 percent over the previous year. Sales to date this year are
running about 10 percent ahead.
Rent for this space would be $60 a square foot, and overage rent would be 8 percent on sales over your
present $450,000.
You feel that the Georgetown Park location will enable you to realize sales considerably higher than at
your present store, although it may take some time before your present customers find their way to the
new location. You recognize also that you won’t have to spend anything on advertising because the mall
itself will draw crowds of shoppers.
Discussion Question
What would you do and why?
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Teaching Notes
Case A17: To Move Or Not To Move
Synopsis: Owner of a boutique is confronted with a decision to sign a new lease in his present
location or consider a new location.
Use: Chapter 7 Illustrate the evaluation of lease terms.
Illustrate issues in retail location decisions.
Analysis:
The rental payments and various sales levels are shown below:
Present Lease—$27,000/square foot + 4% overage after $300,000
Sales Volume
$450,000
$500,000
$550,000
$600,000
Sq. Ft.
2,700
2,700
2,700
2,700
Overage
6,000
8,000
10,000
12,000
Sales Volume
Sq. Ft.
Overage
5,000
10,000
Sales Volume
$450,000
$500,000
$550,000
$600,000
Sq. Ft.
6,000
6,000
6,000
6,000
Overage
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Case A18: Winn-Dixie and Dillard: Comparing Strategic Profit Models
Ellis Jackson works in the finance Department of Winn-Dixie Stores, Inc., a major food retailer with
1,159 stores in 13 southeastern and southwestern states and the Bahama Islands. Winn-Dixie has
divisions in Jacksonville, Greenville, Montgomery, Tampa, Atlanta, Raleigh, Louisville, New Orleans,
Charlotte, Orlando, Miami, and Fort Worth. It also has 12 subsidiaries.
Discussion Questions
1. Construct strategic profit models using Exhibit 3 for Winn-Dixie and Dillard using data from the
3. Assess which chain has better overall financial performance.
E X H I B I T 1
Income Statements for Winn-Dixie Stores, Inc., and Dillard Department Stores, Inc.
6/30/99) 1/30/99)
Net sales and other income $14,255,369 $8,011,724
Less: Cost of goods sold 10,335,590 5,218,095
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E X H I B I T 2
Balance Sheet Information for Winn-Dixie Stores, Inc.,
and Dillard Department Stores, Inc.
6/30/99) 1/30/99)
Assets
Current assets
Accounts receivable $ 188,314 $1,192,572
Merchandise inventory 1,425,098 2,157,010
Cash 24,746 72,401
EXHIBIT 3 STRATEGIC PROFIT MODEL
Return on
Assets
Asset
Turnover
Total Assets
Inventory
Accounts
Receivable
Fixed
Expenses
)
+
+
+
x
Net Profit
Margin
Net Profit
Net Sales
Gross
Margin
Total
Expenses
Net Sales
Cost of
Goods Sold
Variable
Expenses
)
+
Ancillary Cases and Teaching Notes
Teaching Notes
Case A18: Winn-Dixie Stores, Inc. and Dillard Department Stores, Inc.:
Comparing Strategic Profit Models
Synopsis: Winn Dixie, a supermarket chain, and Dillard’s, a regional department store chain, have
different retail strategies that result in the firms having different financial performance
standards.
This case is designed to be used with the Strategic Profit Model section of the Online
Learning Center.
Use: Chapter 5 Relate the retail market and financial strategies.
Chapter 6 Illustrate the construction and interpretation of the strategic profit model. Compare
the financial performance and results of two different retail formats.
Discussion Questions
1. Construct strategic profit models for Winn-Dixie and Dillard using data from the abbreviated
income statements and balance sheets in Exhibits 1 and 2.
• Profit Margin Models for Winn-Dixie Stores, Inc., and Dillard Department Stores:
Winn-Dixie
Dillard
Net sales and other income
$14,255,369
$8,011,724
Less: Cost of goods sold
10,335,590
5,218,095
Gross margin
3,919,779
2,793,629
Less: Operating expense
3,593,651
2,377,865
Less: Interest expense
29,648
196,680
Total expense
3,623,299
2,574,545
Net profit, pretax
296,480
219,084
Less: Taxes
114,145
83,825
Tax rate
38.50%
38.26%
Net profit after tax
$182,335
$135,259
Inventory turnover
10.00
3.71
Asset turnover
4.53
0.98
Return on assets
5.79%
1.65%
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2. Explain, from a marketing perspective, why you would expect gross margin percentage,
expense-to-sales ratio, net profit margin, inventory turnover, and asset turnover to be different
for a grocery store chain versus a department store chain. Assess which chain has better overall
financial performance.
• It is difficult to compare the performance of retailers with different operating characteristics such
as a supermarket and a department store. Below are explanations describing why the two stores
Grocery Stores typically have lower margins than those of department stores do because many
grocery products are commodities. High customer knowledge of such products and prices coupled
with competitive markets in many areas force low gross margins. Despite efforts that many grocery
stores may make to boost their gross margins such as adding specialty products, they will still lag
behind profitable department stores in this category.
Expense-to–Sales Ratio
Winn-Dixie – 25%
Dillard – 32%
A grocery store chain may have higher total expenses than a department store chain, but as a
percentage of sales a grocery store’s expenses will generally be much lower. This is due to several
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Grocery stores typically have a much higher inventory turnover than department stores. First, many
grocery products are perishable and must sell quickly. Second, grocery stores are very price-
competitive which results in rapid turnover. Third, grocery stores carry a simpler stock selection than
Grocery stores will typically have a higher asset turnover than department stores. Department stores
usually have much more expensive fixed assets such as fixtures, lighting, mannequins, etc. than do
grocery stores, which lowers their asset turnover. Also, since the inventory turnover for grocery stores
are typically higher than department stores, and inventory is an important component of all retailers’
asset structure, one would expect the asset turnover to be higher as well.
Ancillary Cases and Teaching Notes
Case A19: The Computer Shoppe: Database Retailing
It was July 1, 2000, as Mr. Fred Webster sat at his desk in the back room of his Computer Shoppe
franchise. On his lap was a thick printout of five years worth of customer information concerning past
computer system purchasers. Although sales had picked up since he had moved into his new location
within the mall, there was still much room for growth. Since Computer Shoppe franchisees had a lot of
autonomy in the running of their local operations, Fred was wondering how he could leverage the data he
had collected to increase sales.
The Computer Shoppe
Computer Shoppe’s parent company, Heathcliff, operated a number of computer product companies, of
which the Computer Shoppe chain had the most outlets. The Computer Shoppe franchisee agreement
gave the store owner a great deal of autonomy and flexibility. Heathcliff did run a distributor, Micro
Distributors, from which Computer Shoppe stores purchased most of their merchandise. However,
they were not limited to buying from Micro Distributors and could potentially purchase as much as
they pleased from any other distributor. In most cases, however, Micro Distributors offered the most
competitive prices and the best support; thus it was in the store’s best interest to deal exclusively
with them. The franchisee was free to set prices for all products with the caveat that he or she was
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Calgary’s Computer Market
The retail computer market had been traditionally divided into two types of establishments: brand-name
resellers and private-label clone (PLC) dealers. The brand-name resellers included retailers such as
Direct competitors to the Computer Shoppe in the Calgary market were currently Future Shop, Business
Depot, and Electronics Boutique. Both Future Shop and Business Depot carried very similar lines of
products to the Computer Shoppe, including hardware, software, and computer-related accessories.
However, only Electronics Boutique, a software-only retailer, could match Computer Shoppe’s breadth of
computer and game system software. Computer Shoppe and Electronics Boutique were strictly located
within malls and shopping centers, while Future Shop and Business Depot were big box retailers.
Fred’s Data Collection
Exhibit 1 shows the data entry screen for a typical computer system sale. Only during computer purchases
did a screen come up allowing all purchaser information to be entered. Once customer information had
been entered, the program had to be told to save the information to a customer database file, which each
employee was told to do for computer purchases. Otherwise the customer information was included in the
invoices database. For software or accessory sales, a name would be entered only if payment was by
credit card. An address was never entered and there was no option to save the information into the
customer database. For this reason, only computer system information was kept. The customer database
file contained all the fields seen in Exhibit 1 and could be sorted or parsed accordingly. There were over
400 system purchases in his database.
Fred’s Computer Shoppe
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Future Marketing Possibilities
Fred felt there was a lot of room for growth within his business and wondered if he could somehow utilize
this customer database to achieve that growth. His primary goals were to increase profitability and sales.
Traffic creation was not a main concern for Fred since that was one of the responsibilities of the mall. He
was positioned well in a high-traffic area near the food court. Since the business was currently profitable,
EXHIBIT 1: Sample of Customer Information Screen
Date: 05/06/00 Time: 13:42:00 Invoice #: A4584
________________________________________________________________________________
Qty: SKU: Description: Price: Total:
1 453452 Compaq 526 CDs $2499.99 $2499.99
1 324999 Canon BJ-200 $ 299.88 $ 299.88
Ancillary Cases and Teaching Notes
Discussion Questions
1. What would you recommend Fred do?
Source: Matt Brudzynski, Loretta Lo, and Patrick Spence prepared this case under the supervision of
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Teaching Notes
Case A19 – The Computer Shoppe: Database Retailing
Synopsis: The Computer Shoppe sells personal computers, peripherals, TV games, software,
calculators, and accessories. This Canadian chain of retailers offers post sales technical
support and services that are second to none in Canada. Since individual franchises have
a lot of autonomy in running their local operations, Fred Webster, a franchise owner, is
taking it upon himself to leverage a database that he has created to increase his sales.
Use: Chapter 10 Illustrates how retailers can use data warehouses to develop a more loyal customer
relationship.
Chapter 11 Understand the various elements in a customer relationship program.
Chapter 16 Illustrates the factors that retailers should consider when designing promotional
programs, and how they may use the different elements in the
promotional mix to alter customers’ decision-making processes.
Discussion Questions
1. What would you recommend Fred do?
Fred should continue to build and enhance his data warehouse. A data warehouse is purchase data
collected at the point of sale and data collected outside of the enterprise that is entered into an
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Case A20: Neiman Marcus’s Preferred Customer Program
Dallas-based department store retailer Neiman Marcus (NM) began the first preferred customer program,
InCircle, in 1984. In such a program, purchases can only be completed with either the Neiman Marcus
credit card, American Express Card, cash, or check. This retailer utilizes its own card to reward and
provide incentives for its customers.
The rewards for InCircle membership include invitations to exclusive shopping events, a quarterly
newsletter, free gift wrapping for purchases of $25 or more, and double points on birthdays. All InCircle
customers are invited to private shopping parties where they generally earn double points for their
purchases. These dates, times, and locations are printed in the newsletter.
The Platinum Card is offered to InCircle members who have accumulated 3,000 or more points. The $500
annual fee allows a customer to earn double points for the first $30,000 in purchases each year. Charter
Platinum status is maintained by those who earn a minimum of 100,000 points yearly. Special gifts are
available only to platinum members. They include restaurant gift certificates to exclusive establishments,
such as Charlie Trotter’s in Chicago. American Airlines travel certificates and unlimited Four Season’s
Hotel upgrades are also part of the platinum perks.
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Discussion Questions
1. How does InCircle build loyalty for Neiman Marcus versus other upscale retailers like Saks and
Lord & Taylor?
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Teaching Notes
Case A20 – Neiman Marcus’s Preferred Customer Program
Synopsis: The case describes Neiman Marcus’s loyalty program, known as Incircle and evaluates if
it has been effective in developing customer loyalty.
Use: Chapter 11 Discussion of the operation and effectiveness of a customer loyalty program at an
upscale department store.
Discussion Questions
1. How does InCircle build loyalty for Neiman Marcus versus other upscale retailers like Saks
and Lord & Taylor?
Customer loyalty involves building customer commitment to purchasing merchandise and services
2. How effective is the InCircle program in developing customer loyalty?
As the retailing view 11.1 within the text notes, “the 160,00 InCircle members account for over $1.6
3. Should Neiman Marcus emphasize hard or soft benefits?
They should probably do both. The answer to Question 2 references the concept of having different
levels in a loyalty program. At the same time, it is also important to target loyalty programs to
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Case A21: Merchandise Planning Problems
1. Clothes for Men casuals has $20 million net sales. Average inventory at retail is $17 million.
What is Clothes for Men’s inventory turnover?
2. What is the inventory turnover of a pet shop chain with annual sales of $20 million, average
inventory at cost of $6 million, and a gross margin of 40 percent?
3. What is the GMROI for each of the following merchandise categories in a bookstore?
Textbooks General Reference Newspapers
Reading Books Magazines
4. What is the annual inventory turnover for a retailer with the following monthly sales levels?
Month
Sales
BOM Inventory at
Cost
January
$14,000
$40,000
March
39,000
June
38,500
5. What are the retail and cost inventory values of Sound Music at the end of the month of October
based on the following accounting information?
a. BOM inventory worth $200,000 at cost and $300,000 at retail.