DBB3121: Store Operations and Job Knowledge Manipal University Jaipur (MUJ)

BACHELOR OF BUSINESS ADMINISTRATION

SEMESTER 5

DBB3121
STORE OPERATIONS AND JOB
KNOWLEDGE

Unit 6: Inventory Management in Retail 1

DBB3121: Store Operations and Job Knowledge Manipal University Jaipur (MUJ)

Unit 6
Inventory Management in Retail
Table of Contents

SL Fig No / Table SAQ /

Topic Page No
No / Graph Activity
1 Introduction - -
3
1.1 Learning objectives - -
2 Inventory Management - 1,I
2.1 Important Terminologies in Inventory - -
Management
2.2 Importance of Inventory Management in -
-
Retail
2.3 Stock Check - - 4 - 17

2.4 Negative Inventory - -

2.5 Movement of Inventory from Warehouse -
-
to Retail
2.6 Unloading of Inventory - -
3 Product Repair System-Customer Interface - - 18
4 Vendor Interface - 2 , II 19
5 Returning Merchandise to Vendor 1, 2 3 , III 20 – 21
6 Retail Merchandising - -
6.1 Evolution of Merchandising - -
6.2 Merchandise Management - - 22 - 29
6.3 Role and Responsibilities of - -
Merchandiser
6.4 Merchandise Procurement - -
7 Summary - - 30 -31
8 Glossary - - 32
9 Terminal Questions - - 32
10 Answers - - 33 - 34
11 Suggested Books and e-References - - 35

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1. INTRODUCTION
In the previous unit, you studied about the functions of a retail store and the importance of
visual merchandising in store operations. Another important aspect of retail store operation
is inventory management, wherein the stocks of a retail are managed in the best manner to
prevent any such situation which may bring losses and customer dissatisfaction.

Inventory is crucial for the success of any retail store. And it is more important to keep a tab
in the movement of inventory, so that the adequate inventory levels can be maintained and
the conditions like stock out, theft, pilferage and damage can be prevented. Through effective
inventory management, a retailer can maintain continuous supply of products even in
uncertain situations, such as transportation strikes, curfews, adverse climatic conditions,
and demand fluctuations.

In this unit, you will learn about inventory management in depth. You will also study about
the use of customer interface for product repair system. Then, you will learn about the
vendor interface and the procedure of returning products to vendor. Finally, you will study
about retail merchandising and related concepts.

1.1 Learning Objectives

After studying this unit, you should be able to:

❖ Define the concept of inventory management.

❖ Explain the concept of customer interface and its role in product repair system during
customer interface.
❖ Evaluate the process of vendor interface.
❖ Elaborate the process of returning merchandise to vendor.
❖ Discuss the concept of retail merchandising.

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2. INVENTORY MANAGEMENT

In retail, inventory plays a significant role in satisfying customer needs. Retailers store
products in their stores, warehouses, and distribution centres, from where they get products
on customer demand. Therefore, retailers need a systematic inventory management to keep
the supply of products in retail stores.

Inventory management involves the processes and activities related to managing and
controlling a company's inventory. The primary functions of inventory management include:

• Demand Forecasting: Accurately estimating future demand for products is crucial for
inventory management. It involves analyzing historical sales data, market trends,
customer behavior, and other factors to predict the demand for different products.
• Stock Replenishment: Determining when and how much inventory should be
replenished is another key function. It involves calculating reorder points and reorder
quantities to ensure that inventory levels are maintained at optimal levels, avoiding
stockouts or excessive inventory.
• Inventory Classification: Inventory items can be classified based on various criteria
such as value, demand, lead time, or criticality. Classifying inventory helps in setting
appropriate inventory policies, identifying fast-moving or slow-moving items, and
allocating resources effectively.
• Inventory Tracking and Monitoring: Keeping track of inventory levels, movements, and
locations is essential for efficient management. This includes real-time monitoring of
stock levels, tracking items as they move through the supply chain, and using inventory
management systems or software to maintain accurate records.
• Safety Stock Management: Safety stock refers to extra inventory maintained as a buffer
to mitigate uncertainties such as unexpected demand spikes or supply disruptions.
Determining appropriate safety stock levels is crucial to prevent stockouts and meet
customer demands in unforeseen situations.
• Order Fulfillment: Inventory management plays a critical role in ensuring timely order
fulfillment. It involves coordinating inventory availability with customer orders,

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managing backorders or substitutions, and optimizing order picking and packing

processes.
• Inventory Analysis and Optimization: Regular analysis of inventory data helps identify
patterns, trends, and opportunities for improvement. Optimization techniques such as
ABC analysis, economic order quantity (EOQ), or just-in-time (JIT) inventory
management can be applied to optimize inventory levels, reduce carrying costs, and
streamline operations.
• Inventory Accuracy and Auditing: Maintaining accurate inventory records is crucial to
avoid discrepancies and improve overall efficiency. Regular physical inventory counts,
cycle counting, and periodic audits help identify discrepancies between physical stock
and recorded quantities and enable corrective actions.
• Cost Management: Inventory carries costs such as storage, insurance, obsolescence,
and opportunity costs. Effective inventory management aims to minimize these costs
by optimizing order quantities, reducing excess inventory, improving storage and
handling processes, and implementing efficient inventory control practices.
• Supplier Management and Collaboration: Collaboration with suppliers is essential for
efficient inventory management. This includes maintaining strong relationships with
suppliers, sharing demand forecasts and inventory data, implementing vendor-
managed inventory (VMI) systems, and coordinating replenishment activities to ensure
timely and reliable supply.

By performing these functions effectively, inventory management helps businesses achieve

optimal inventory levels, reduce costs, improve customer service levels, and enhance overall
operational efficiency.

Inventory management involves ordering, preserving, and keeping a check on the stocks of
a company. Here, inventory includes goods kept by a company in their warehouses for sale
or distribution in the future. Generally, inventory can be classified into:

• Raw Materials: Raw materials are the basic materials and components that are used in
the production process. They are typically purchased from suppliers and are converted
into finished goods through manufacturing or assembly processes.

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• Work-in-Progress (WIP): Work-in-progress inventory includes items that are

currently being processed or undergoing various stages of production. These items
have started the production process but are not yet completed.
• Finished Goods: Finished goods are the final products that are ready for sale or
distribution to customers. They have completed the manufacturing or production
process and are in a sellable state.
• Maintenance, Repair, and Operations (MRO) Inventory: MRO inventory consists of
items and supplies that are necessary for the maintenance, repair, and operations of a
company's facilities, machinery, and equipment. These items can include spare parts,
tools, lubricants, and other consumables.
• Packaging and Packing Materials: Packaging and packing materials are used to protect
and present products during storage, transportation, and sale. These materials can
include boxes, containers, labels, tapes, and other packaging components.
• Goods in Transit: Goods in transit refer to inventory that is in the process of being
transported from one location to another. This can include items being shipped from
suppliers to the company's warehouse or from the warehouse to customers or retail
locations.
• Safety Stock: Safety stock is an extra inventory buffer maintained to mitigate
uncertainties such as unexpected demand spikes or supply disruptions. It acts as a
cushion to ensure that there is sufficient inventory available to meet customer
demands during unforeseen circumstances.
• Consignment Inventory: Consignment inventory is inventory that is owned by a
supplier but is held by a retailer or distributor. The supplier retains ownership until
the items are sold to the end customers. This arrangement allows the supplier to have
their products available for sale without actually transferring ownership until a sale
occurs.
• Seasonal Inventory: Seasonal inventory refers to products that are specifically stocked
to meet the increased demand during certain seasons or specific periods. It allows
businesses to cater to seasonal fluctuations in customer demand and maximize sales
opportunities.

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• Obsolete or Excess Inventory: Obsolete or excess inventory includes items that are no
longer in demand or are in excess of current or anticipated demand. These items may
have become outdated, expired, or have been replaced by newer versions. Managing
and disposing of obsolete inventory is essential to free up storage space and minimize
holding costs.

These types of inventory can vary across different industries and businesses. Effective
management of inventory types is crucial to ensure optimal levels, minimize costs, and meet
customer demands efficiently.

Inventory management in the retail sector is crucial for ensuring smooth operations,
meeting customer demands, and maximizing profitability. Here are some key aspects of
inventory management in the retail sector:

Demand Forecasting: Accurate demand forecasting is essential for retailers to plan their
inventory levels effectively. It involves analyzing historical sales data, market trends,
promotional activities, and seasonal variations to predict customer demand for different
products.

Optimal Stock Levels: Determining optimal stock levels is vital to balance the costs
associated with carrying inventory and the risk of stockouts. Retailers need to consider
factors such as lead time, sales velocity, seasonality, and economic order quantities to
determine the right amount of inventory to hold.

Supplier Management: Maintaining strong relationships with suppliers is critical in the retail
sector. Retailers need to collaborate with suppliers to ensure reliable and timely deliveries,
negotiate favorable pricing and terms, and share demand forecasts to align production and
replenishment activities.

Just-in-Time (JIT) Inventory: JIT inventory management focuses on minimizing inventory

holding costs by receiving goods from suppliers just in time to fulfill customer orders. It
requires close coordination with suppliers, efficient logistics, and streamlined processes to
ensure that products arrive when needed, reducing excess inventory.

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Inventory Turnover: Inventory turnover ratio measures how quickly inventory is sold and
replenished. Higher inventory turnover indicates efficient inventory management and a
shorter cash-to-cash cycle. Retailers need to monitor and optimize inventory turnover to
avoid overstocking or stockouts and improve cash flow.

ABC Analysis: Applying ABC analysis helps categorize products based on their contribution
to sales or profit. Retailers can allocate more attention and resources to high-value or high-
demand items (A-category), while maintaining less strict controls for low-value or low-
demand items (C-category).

Promotions and Markdown Management: Retailers often run promotions and markdowns
to stimulate sales and manage inventory. Effective inventory management involves planning
and forecasting for promotional periods, managing the impact on demand, and optimizing
pricing and discount strategies to minimize excess inventory.

Store Replenishment: Retailers with multiple physical stores need efficient store
replenishment processes to ensure that each store has the right products at the right time.
Store-level inventory management systems, automated reorder triggers, and regular
communication with store managers are essential to maintain optimal stock levels.

E-commerce and Omni-channel Integration: With the growth of e-commerce and omni-
channel retailing, inventory management becomes more complex. Retailers need to
integrate inventory systems across multiple channels, track inventory in real-time, and
implement effective order management processes to ensure accurate inventory allocation
and fulfillment.

Returns and Reverse Logistics: Managing product returns and reverse logistics is an
important aspect of inventory management in the retail sector. Retailers need to establish
efficient processes for handling returns, assessing product condition, restocking or
refurbishing returned items, and managing the associated inventory and costs.

Inventory management helps retail stores to prevent the stock-out and over-stocking
situations, which otherwise may to bring huge losses. It is required of all retailers to check
their inventory at regular intervals and plan the restocking in accordance with the

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movement of the products. For effective management of inventory, many retailers

implement different inventory management techniques and software. Materials
Requirement Planning helps in planning inventory management in effective and efficient
manner to improves productivity This method is used to forecast sales and helps in accurate
planning of inventory

2.1. Important Terminologies In Inventory Management

Now that you understand the importance of inventory management, it is necessary for you
to know about the terms that are frequently used in inventory management. Following are
the terms which are commonly used in inventory management:

• Average inventory: It refers to the inventory available at a given period. Average

inventory is calculated as (BI+ EI)/2.
• Back order (BO): BO is an order which cannot be fulfilled at present due to being out
of stock.
• Barcode scanner: It is a device used to digitally scan unique codes on products.
• Beginning inventory (BI): BI is the value of inventory available at the beginning of a
period
• Carrying costs: The total costs incurred on carrying and storing of inventory at a
distribution centre of warehouse.
• Cost of goods sold: Costs involved in the manufacturing/producing of goods sold.
• Dead stock: Inventory that remain at a warehouse unsold for a long time and is
deemed as expired or out of use.
• Ending inventory (EI): EI is the value of inventory available at the end of a period.
• First-in first-out: A valuation method wherein it is assumed that the stock that arrived
first would be sold first.
• Inventory count: A process of taking physical count of inventory.
• Inventory shrinkage: It is an accounting system to identify the reduction in inventory
due to theft, damage, or loss during transit.
• Inventory valuation: A process of assigning monetary value to the unsold inventory
in financial records of a company.

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• Last-in first-out: A valuation method wherein it is assumed that the stock that arrived
last would be sold first.
• Lead time: It is the time taken by a supplier to deliver the ordered items to a specific
location after the purchase order is issued.
• Multichannel: A retail model, wherein products are sold at multiple places through
different channels, such as website and markets.
• Omnichannel: A retail model, wherein all the channels including both online and
offline are integrated to offer a unified customer experience.
• Order fulfilment: The process undertaken by a retailer when it receives an order till
it gets delivered to customer.
• Overselling: A situation where a retailer takes order for the out-of-stock products.
• Pipeline inventory: It refers to the inventory that has not reached a retail store and is
in some phase of supply chain, like shipping or manufacturing.
• Purchase order (PO): PO is a formal document created by a business including the
details of quantity and price of products to be delivered by a supplier.
• Sales order (SO): SO is a formal document issued by a seller to a buyer mentioning the
details of the product’s quantity and price at the time of sale of goods.
• Stock keeping unit (SKU): SKU is a unique scannable code applied on products for
identifying and tracking inventories during their movement.
• Third party logistics (3PL): 3PL refers to the use of third party in a business for
outsourcing operations in a supply chain.

2.2. Importance Of Inventory Management In Retail

A retail business would be rendered ineffective if inventory management is effective.

Managing inventory effectively helps a retail store to enhance customer experience by
always making the product available. The importance of inventory management in retail can
be understood through the following points:

MAINTENANCE OF OPTIMUM INVENTORY LEVELS

Through inventory management, a retailer can easily store right levels of inventory, where
both stock-outs and excessive inventory storage can be avoided. Effective inventory

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management helps retailers to stock adequate level of inventory and replenish only when
needed.

MAINTENANCE OF CASH FLOWS

When a retailer stores huge amount inventory, he/she invests lot of amounts, which may
affect the cash flow of his/her stores. Thus, by investing in adequate inventory management,
a retailer can maintain adequate cash flow by facilitating continuous supply of products for
sale.

OFFER LARGE VARIETY OF PRODUCTS

Through effective inventory management, retailers can store a greater assortment of

merchandise and offer them to customers. The availability of variety of products under single
roof would only bring more customers to a retail store; thereby also increasing its
profitability.

ENHANCED CUSTOMER SATISFACTION

No customer likes to wait for the products desired by him/her. Moreover, this impacts
negatively on the image of a retail store. Through adequate inventory management,
customers get their desired products without any waiting, which pleases them. Thus,
retailers can achieve increased customer satisfaction through inventory management.

2.3. Stock Check

Stock check is conducted to inspect the condition and volume of products being stored by a
retail store in its storeroom or stock room. It is also known as stock taking and involves
checking a retail store’s inventory on hand. It is mainly carried out to keep a tab on the
physical stock of a retail store. By physically counting the stock and comparing it with the
records and reports, retailers can easily find discrepancies in inventory.

To conduct stock check, various techniques are used by retailers. Let’s now discuss these
techniques in detail:

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• Periodic stock count: This can be conducted at regular intervals on monthly,

quarterly, or half-yearly basis. This may take up one or two days to check the entire
stock based on its quantity. All the items in the stock are checked physically and the
count is either recorded on stock sheets or scanned for comparison with the stock
validation report. Generally expensive items or stock with sell-by-dates are checked
more frequently than inexpensive items.
• Continuous or perpetual count: In this stock checking technique, stocks are counted
throughout a year as per a pre-defined plan of action. For instance, if a retailer has three
items A, B, and C, A items would have to be checked every month, B items would have
to be counted every fortnight and C items would have to be counted every day. Through
continuous count, retailers can easily find discrepancies throughout an entire year.
This provides a detailed analysis of the stock condition and final accounts can be
developed on time. Moreover, continuous count can be conducted without creating any
disruptions in the regular operations.
• Pick accuracy: This technique involves checking the items at the time of receiving
them from suppliers or when products are issued to customer or stores. This is mainly
done by storekeeper for the owners’ satisfaction and is not really a formal process.
• Annual stocktaking: It involves checking the inventory at the end of a financial year.
During annual stocktaking, businesses are closed for few days till the stock checking is
complete. The business also stops receipts and invoices till the stocktaking gets over.
Such a method is ideal for small and medium retail businesses.

No matter which stock checking method is employed by a retailer, it helps the organisation
to retrieve crucial information related to:

• the performance of business and gross profit

• identification of stock problems
• accurate count of the stock on hand
• product sales performance
• ways to reduce stock levels and increase cash flow

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In simple terms, stock checks provide valuable insight on the profits and losses. Additionally,
stock checks enable retailers to identify obsolete products, employee thefts and shoplifting.
Following are the steps which are performed in a regular stock check:

1. The storage area is divided into fragments based on the items present there. This enables
an auditor to identify the sections, which, generally experience over stocking or product
expiration compared to the others.
2. The items in each fragment are counted to get the accurate inventory numbers.
3. The number and type of all items are recorded through electronic scanning systems and
tracking worksheets. However, small retailers use traditional paper and pens, and
calculators, to count the items.
4. The count results are compared with the purchase and sales reports.
5. Based on the comparison results, the outdated or expired items are discarded. Some
retailers may have insurance or return options to cover these items.

2.4. Negative Inventory

The situation of negative inventory occurs when there is no item present in the stock for
which the order has been taken. For instance, you place an order at a retail store for a pair of
shoes and the retailer asks you to come next day to get the product. However, after taking
the order, the retailer goes in the storeroom to get the ordered pair and discovers that the
pair is not there. Such a situation is referred to as negative inventory.

Negative inventory refers to a situation where the recorded inventory levels in a company's
accounting system indicate a quantity of goods or products that is less than zero. In other
words, it suggests that the company has sold or committed to sell more items than it
currently has in stock.

Negative inventory can occur due to various reasons, including:

• System glitches or errors: Accounting or inventory management systems can

sometimes encounter errors or glitches that result in incorrect inventory calculations.
This can lead to negative inventory if sales or order entries are not properly
synchronized with inventory updates.

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• Inaccurate tracking: If a company doesn't have robust inventory tracking processes in

place or fails to accurately record sales and stock adjustments, it may end up with
negative inventory.
• Overselling or backorders: Companies may oversell products or accept orders without
verifying stock availability. This can happen when there is a high demand for a
particular item and the company doesn't update its inventory records in real-time. As
a result, more products are sold than physically available.

Negative inventory can have several implications, including:

• Financial inaccuracies: Negative inventory can distort financial statements and

misrepresent the company's financial position. It can lead to inaccurate profit
calculations and affect financial ratios.
• Operational inefficiencies: Negative inventory indicates a lack of control over stock
levels. It can lead to delays in fulfilling customer orders, backorders, and customer
dissatisfaction. Inefficient inventory management can also result in increased carrying
costs and potential stockouts.
• Auditing and compliance issues: Negative inventory may raise concerns during audits
or regulatory compliance checks. It is important for companies to maintain accurate
and transparent inventory records for compliance purposes.

Resolving negative inventory involves investigating the underlying causes and

implementing appropriate measures, such as:

• Regular inventory reconciliations: Conducting regular reconciliations between physical

inventory counts and recorded inventory levels helps identify and rectify discrepancies.
• Real-time inventory tracking: Implementing a robust inventory management system
that accurately tracks sales, order fulfillment, and stock adjustments in real-time can
minimize the chances of negative inventory.
• Improved processes and controls: Reviewing and enhancing inventory management
processes, including order processing, stock updates, and quality control, can help
prevent negative inventory situations.

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It is crucial for companies to address negative inventory promptly to maintain accurate

financial records, enhance operational efficiency, and ensure customer satisfaction

There can be many reasons for the occurrence of negative inventory. Some of these are:

• Erroneous billing at the counter

• Incorrect punching of products due to missing barcode
• Errors in stock checking at the time of its receiving or continuous checking
• Failing to feed the information about product replenishments and moving the stock to
shelves and racks

The best way to prevent the condition of negative stock is to monitor the stock and its
movement closely and carefully.

2.5. Movement Of Inventory From Warehouse To Retail

An important aspect of inventory management in retail operations is the movement of

inventory from warehouse to retail. Inefficient management of the transfer of inventory may
lead to inventory shrinkage due to pilferage, theft, or inadequate storage. In retail, there are
two points from which the movement of inventory from warehouse can be accessed and
controlled. These include movement of inventory from warehouse and receipt of inventory
by a store. Let’s understand how the transfer takes place in these two points.

MOVEMENT OF INVENTORY FROM WAREHOUSE

As the stock gets dispatched from a warehouse, it must be accompanied with certain
documents, including stock transfer order (STO), packaging slip, and invoice copies along
with gate pass and challan. Apart from this, there should be outer pack barcode labels which
must provide the details associated with merchandise division, location, packing date,
cartons number, warehouse and department number and transfer number. At the
warehouse, there should be security in-charge at the time of loading of merchandise. After
the loading, the security in-charge should seal the transport vehicle.

RECEIPT OF INVENTORY BY A STORE

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At the time of receiving inventory at a store, some responsible officials should be present. It
could be store manager, assistant store manager, security in-charge, or administrative head.
Ideally, two of the abovementioned officials should be present to administer the entire
unloading process.

2.6. Unloading Of Inventory

The unloading of inventory should be done carefully, so that the products reach the
storeroom in right condition. To unload the inventory, following steps are taken at a retail
store:

1. The challan and other related documents should be collected and verified. This is done
by the security in-charge to ascertain that the vehicle has reached the right destination.
After that he/she should check if all the seals are intact. In case of any damage or
tampered seal, he/she should report the matter to distribution centre manager and
area/zonal store head.
2. The intact seals should be broken in the presence of sales staff at the retail store and
all the merchandise should be inspected.
3. The merchandise should be unloaded and placed in the receiving area till all the
package numbers are verified. In case of any discrepancy, the matter should be
communicated to the related warehouse and a copy should be sent to the area/regional
head.
4. All the items should be physically checked and scanned, and the related information
must be fed in the inventory management system. Later, the merchandise should be
sent to their respective storage areas.
5. The sales manager should check the package slip by matching the details mentioned on
it with the actual merchandise and then sign it. The same slip should be signed by the
floor manager/head too.
6. All the package slips should be then collected and reconciled with STO and further fed
into electronic data processing system (EDP) by EDP manager. In case of any
discrepancy, the merchandise should not be placed on shelves for sale, until the issue
is resolved.

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7. The packaging slips and transfer notes should be maintained by the distribution centre
head in the distribution centre receiving register. Later, the distribution centre head
should provide acknowledgement on invoice.

SELF-ASSESSMENT QUESTIONS - 1
1. ________________ include the items which are in the process of production
2. An order which cannot be fulfilled at present due to being out of stock is called
________________.
3. In which valuation method, is it assumed that the stock that arrived first would
be sold first?
4. The availability of variety of products under single roof would only bring more
customers to a retail store. (True/False)
5. ______________ can be conducted at regular intervals on monthly, quarterly, or
half-yearly basis.
6. Erroneous billing at the counter can be a reason for negative stock.
(True/False)

Activity I
Assume that you are the inventory manager at a retail store. List the steps you
would take to prevent the situation of negative stock from arising at your retail
store.

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3. PRODUCT REPAIR SYSTEM-CUSTOMER INTERFACE

In the present scenario, retail business cannot survive if they fail to provide customer
satisfaction. Customer satisfaction is not just limited to the sale of products. It is inclusive of
delivering after sales service, such as installation, ease of exchange, returns and refunds, and
repairs. Thus, it is necessary to build a customer interface that ease the communication
between customers and retailers even after the sale has taken place.

By customer interface, we refer to the points where a retailer can connect with customers. If
a retailer has strong customer interface, it will help in resolving issued faced by customers
during and after a transaction takes place. This interface become even more significant in
case a customer come to seek product repair. In such a case, following points should be
considered by a retailer:

1. If a customer comes to a store to get a product, he/she bought recently, for repair, the
store representative first should ask for purchase invoice and check the details of the
product. Based on the invoice details the representative can verify the product details
in the store’s system.
2. If the product does not fall in the category of returns/exchange and cannot be repaired,
the representative should politely inform about the same to the customer. If the
product is viable for exchange, the customer should be shown other products. If the
product can be repaired, the customer should be informed about the repair costs and
time required.
3. The repair details should be filled by the representative in the goods receipt challan
(GRC) slip and a copy should be handed over to the customer. Generally, a GRC is
created in three colours:
o white colour GRC for customer
o yellow colour GRC to be kept along the merchandise
o blue colour GRC to be kept in the repair and maintenance register at the distribution
centre

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4. VENDOR INTERFACE

Now that you have understood the customer interface, let’s study about the vendor interface.
It is the point of connection between retailers and vendors. While dealing with vendors for
product repair received from a customer, retailers should follow the guidelines given below:

• When a product is received at a retail store for repair, it should be sent to the
concerned vendor for repair. The product can be either sent through courier or the
vendor can come and collect the same from the store.
• There should be a returnable gate pass created by the store representative for the
product. The pass should be approved by the store head.
• The copy of the pass should be handed over to the vendor along with the product to be
repaired.
• After the product is repaired, the vendor should generate the invoice for the same and
the product should be delivered back at the store to be collected by the customer.

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5. RETURNING MERCHANDISE TO VENDOR

You have understood the procedure for the repair of a product at vendor site and product
exchange. Now, you must be wondering about the process for returning a merchandise to
vendor. This generally happens in case of defective merchandise.

Returning merchandise: Introduction

1. As established process, return to vendor means when a user or retailers arranges the
return of items to a vendor.
2. The retailer then forwards the product back to the vendor.
3. Or the user may receive a shipment label that directs the items and product to the
vendor instead of retailer.
4. This generally happens in case of defective merchandise.

Following are the steps taken by a retailer to return such merchandise to a vendor:

1. At first, the defective merchandise is identified on daily bases for all the sections in a
store. After the identification, respective floor managers are informed about the
defective products.
2. The manufacturing defects of the defective products are inspected by assistant store
head and the merchandise is removed from the floor and taken back to the defective
inventory.
3. The stock room in-charge then enters the details of the defective products in returning
register and sends an email to the vendor placing a return request. The vendor then
verifies the defects and issues an acknowledgement receipt.
4. Once the approval from the vendor is received, a return entry is fed in the inventory
software and a non-returnable gate pass is created and given to the vendor by the stock
room in-charge. The vendor acknowledgement copy is kept by the stock room in-
charge for its records.

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SELF-ASSESSMENT QUESTIONS - 2
7. Which interface becomes more significant in case a customer comes to seek
product repair?
8. If the product can be repaired, the customer should be informed about the
___________and time required.
9. When a product is received at a retail store for repair, it should be sent to the
concerned distribution centre for repair. (True/False)
10. The manufacturing defects of the defective products are inspected by
________________.

Activity II
Using the internet, find out how big retail stores deal with customers and vendors
and prepare a report on it.

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6. RETAIL MERCHANDISING

Retail merchandising is the process of acquiring and arranging merchandise in a way which
appeals to customers and induces them to buy products. In simple terms, it encompasses
various processes, including acquiring, categorising, pricing, and supplying the products to
different retail stores.

Through merchandising, a retailer aims to achieve the following:

• provide enriching customer experience

• increase return on investment (ROI)
• manage inventory effectively
• reduce losses due to stockouts
• increase sales volume
• A merchandiser maximizes the sale of the product by following process:

Attractive packaging: The packaging of merchandise goes a long way in enhancing the
brand value of the products and items.

Impressive presentation of the product: The display of the product at the retail store
must attract the customer

Unique Pricing- attractive prices, discounts also bring customer to the store

Promotional schemes, gifts- Coupons and attractive gifts make shopping a pleasurable
experience for the customers.

Retail merchandising, if done correctly, would benefit both customers and retailers. With
visually appealing and proper merchandising, customers can easily locate the products they
desire and don’t face hassles in buying products. On the other hand, retailers can display
their products neatly and beautifully which attracts the attention of customers and improve
inventory turnover. Let’s now discuss how merchandising evolved over a period.

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6.1. Evolution Of Merchandising

The retail industry has undergone significant evolution throughout history, driven by
advancements in technology, changes in consumer behavior, and shifts in market dynamics.
Here is an overview of the major stages in the evolution of retail:

• Traditional Retail: Traditional retail refers to the early forms of retailing, where
customers would physically visit brick-and-mortar stores to make purchases. This
model dominated for centuries, with small shops and local markets being the primary
places for buying goods.
• Department Stores: In the 19th century, department stores emerged, offering a wide
range of products under one roof. These large-scale stores introduced various
departments, such as clothing, furniture, and cosmetics, providing customers with a
convenient one-stop shopping experience.
• Supermarkets and Mass Retail: In the mid-20th century, the rise of supermarkets
transformed the retail landscape. Supermarkets offered a broad selection of groceries
and household items at competitive prices. This format allowed customers to self-
select items and introduced the concept of self-service.
• Rise of Specialty Retail: With the expansion of mass retail, specialty stores gained
prominence by focusing on specific product categories or niche markets. Specialty
retailers offered a curated selection of products and provided a unique shopping
experience, catering to specific customer interests and preferences.
• Catalog and Mail-Order Retail: Catalog and mail-order retail became popular in the late
19th and early 20th centuries, allowing customers to browse products through printed
catalogs and place orders via mail. This form of retailing expanded access to goods for
customers in remote areas and laid the foundation for modern distance-selling models.
• E-commerce and Online Retail: The advent of the internet and the rise of e-commerce
revolutionized the retail industry. Online retailers enabled customers to browse and
purchase products through websites and online marketplaces, offering convenience,
wider product selections, and competitive pricing. E-commerce has continued to grow
rapidly, shaping consumer habits and forcing traditional retailers to adapt their
strategies.

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• Omnichannel Retail: In response to the growing influence of e-commerce, retailers

embraced an omnichannel approach, integrating online and offline channels. This
strategy allows customers to seamlessly shop across multiple touchpoints, including
physical stores, websites, mobile apps, and social media platforms. Omnichannel retail
aims to provide a cohesive and personalized shopping experience.
• Mobile Commerce and Digital Innovations: The proliferation of smartphones and
mobile devices has given rise to mobile commerce or m-commerce. Consumers can
now make purchases using mobile apps, mobile-optimized websites, and digital
wallets. Additionally, digital innovations like augmented reality (AR), virtual reality
(VR), and voice-activated assistants have started to shape the future of retail
experiences.
• Sustainability and Ethical Retail: In recent years, there has been a growing emphasis
on sustainability and ethical practices in retail. Consumers are increasingly demanding
transparency, environmentally friendly products, fair trade, and responsible sourcing.
Retailers are responding by adopting sustainable practices, reducing waste, and
offering eco-friendly options.

The retail industry continues to evolve rapidly, driven by technological advancements,

changing consumer expectations, and external factors like economic conditions and global
events. Successful retailers must stay agile, embrace innovation, and adapt to these evolving
trends to meet the needs of modern consumers.

The global retail industry experienced significant challenges and changes in 2021 due to the
COVID-19 pandemic. Lockdowns, restrictions, and consumer behavior shifts had a profound
impact on the sector. However, as vaccination efforts expanded and restrictions were lifted
in many regions, there were signs of recovery and adaptation within the industry.

In 2021, the retail industry saw an accelerated growth in e-commerce and online shopping.
Consumers turned to digital channels for their purchases, leading to a surge in online retail
sales. This trend forced many brick-and-mortar retailers to invest heavily in their e-
commerce capabilities or adopt omnichannel strategies to remain competitive.

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Additionally, certain retail segments experienced varying levels of performance. Essential

goods, such as groceries and household items, generally fared well as consumers prioritized
these items during the pandemic. However, sectors heavily reliant on in-person shopping,
such as fashion and apparel, faced challenges as foot traffic declined and consumer spending
patterns shifted.

Looking ahead to 2022 and beyond, the trajectory of the global retail industry will depend
on several factors, including the ongoing management of the COVID-19 pandemic, economic
recovery, and evolving consumer preferences. Retailers will need to continue adapting to
changing consumer behaviors, investing in e-commerce capabilities, and providing
personalized and convenient shopping experiences to remain competitive.

It's important to note that the retail industry can vary significantly across different regions
and countries, and the performance of individual retailers may also differ. For the most up-
to-date and specific information on the global retail industry in 2022, it is recommended to
refer to industry reports, market analyses, and news sources.

6.2. Merchandise Management

Merchandise management can be defined as the process of getting right products and
achieve financial objectives. It involves long term planning at retailers’ side for goals related
to sales, inventory, and prices. Merchandise management is mainly comprised of four
components as shown in Fig. 2:

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Merchandise evaluation

Components of Merchandise Management

Merchandise planning

Review and control

Distribution

Merchandise acquisition

Fig. 2: Components of Merchandise Management

Let’s discuss these components.

• Merchandise evaluation encompasses identification of customer needs and plan the

buying of products accordingly.
• Merchandise planning encompasses defining performance objectives and guidelines
for buying products and selling them. The main decisions taken in merchandise planning
are related to merchandise mix, budget and finance, merchandise assortment.
• Review and control involves defining and developing policies and processes to attain
the pre-defined merchandising goals and objectives
• Distribution is related to the effective transport of merchandise from one location to
destination.
• Merchandise acquisition encompasses getting merchandise from suppliers,
wholesalers, distributors, and manufacturers.

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6.3. Role And Responsibilities Of Merchandiser

The functions related to merchandising are performed by a merchandiser. He/she is

responsible for making arrangements for acquiring the right assortment of products and
plan their display in a way which is in stores and customers’ interests. The main roles and
responsibilities of retail merchandiser are listed below:

• Create merchandising strategies that develop a balance between customer expectations

and retailer’s goals.
• Evaluate past sales, latest trends in the retail sector, and customer responses to
anticipate demand and create merchandising plans accordingly.
• Coordinate with different parties, such as vendors, buyers, suppliers, and distributors to
make negotiations related to price, quantities, and timelines.
• Plan merchandise display in a way that improve sales volume and customer ease
• Forecast and develop budgets and sales targets
• Administer the movement of inventory and create promotions
• Build positive relationships with customers and channels to make successful deals

6.4. Merchandise Procurement

The most important component of merchandising is procurement of variety of products

from different places, manufacturers, and distributors. The process of merchandise
procurement begins with the identification of quantity and quality to products to be brought
to a store and displayed. In simple terms, merchandise procurement is all about making
decisions related to buying products and plan their display to increase sales.

With time, outsourcing has turned into a significant factor in merchandise procurement. This
is mainly due to the shrinking of global borders. Due to significant development in
technology and trade, merchandisers need to be updated about the customer responses and
latest retail trends followed in retail sector across the globe and make decisions accordingly.
Apart from this, a merchandiser need to consider both national/regional and private label
brands while making merchandise procurement related decisions.

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Apart from the brands, another important aspect to be considered while procuring
merchandise includes cost of procurement. Moreover, vendor for merchandise supply
should be selected carefully. Through effective merchandise procurement can a retailer
achieve its goals of customer satisfaction and high profitability?

SELF-ASSESSMENT QUESTIONS - 3
11. ____________encompasses various processes, including acquiring, categorising,
pricing, and supplying the products to different retail stores.
12. Through unplanned merchandising, customer can easily explore for the right
products and get them in lesser time with ease. (True/False)
13. _____________ encompasses getting merchandise from suppliers, wholesalers,
distributors, and manufacturers.
14. The process of _____________begins with the identification of quantity and quality
to products to be brought to a store and displayed.
15. Who plans merchandise display in a way that improve sales volume and
customer ease?

Activity III
Assume that you are the merchandise manager at a jewellery store. List the steps
you would take to plan and display merchandise at the store.

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Inventory
Management

Product Repair
Services Provided Retail
System-Customer Vendor Interface
by Retailers Merchandising
Interface

Fig: 3: Concept Map

• A concept map is a graphical tool used to organize and represent knowledge or

ideas. It typically consists of a set of interconnected nodes or boxes, each
representing a concept, idea, or topic, and lines or arrows linking them to indicate
the relationships between them. This concept map shows the factors that are related
to the inventory management process. The factors include product repair system-
customer interface , vendor interface, services provided by retailers and retail
merchandising. The product repair system-customer interface refers to the
interaction between a retailer's product repair system and their customers. When a
customer purchases a product from a retailer, they expect that the product will be
of good quality and will function as intended. However, sometimes products may
become damaged or defective over time, which can lead to customer dissatisfaction.
Vendor interface: This refers to the communication and coordination between the
retailer and their suppliers or vendors. Maintaining strong relationships with
vendors is important for managing inventory levels, ensuring timely deliveries, and
negotiating favourable terms. Services provided by retailers includes any additional
services or offerings provided by the retailer to customers, such as installation,
repair, or customization. These services can impact inventory levels and require
careful planning to ensure that adequate resources are available to support
them.Retail merchandising refers to the strategic placement and presentation of
products in the store to maximize sales and minimize stockouts.

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7. SUMMARY

• Inventory management involves ordering, preserving, and keeping a check on the

inventory of a company. Here, inventory includes goods kept by a company in their
warehouses for sale or distribution in the future.
• Inventory management helps retail stores to prevent the stock-out and over-stocking
situations, which otherwise may to bring huge losses.
• A retail business would be rendered ineffective if inventory management is effective.
Managing inventory effectively helps a retail store to enhance customer experience by
always making the product available.
• Through effective inventory management, retailers can store a greater assortment of
merchandise and offer them to customers. The availability of variety of products under
single roof would only bring more customers to a retail store; thereby also increasing
its profitability.
• Stock check is conducted to inspect the condition and volume of products being stored
by a retail store in its storeroom or stock room. It is also known as stock taking and
involves checking a retail store’s inventory on hand.
• Stock checks provide valuable insight on the profits and losses. Additionally, stock
checks enable retailers identify obsolete products, employee thefts and shoplifting.
• The situation of negative inventory occurs when there is no item present in the stock
for which the order has been taken. The best way to prevent the condition of negative
stock is to monitor the stock and its movement closely and carefully.
• In retail, there are two points from which the movement of inventory from warehouse
can be accessed and controlled. These include movement of inventory from warehouse
and receipt of inventory by a store.
• The unloading of inventory should be done carefully, so that the products reach the
storeroom in right condition.
• By customer interface, we refer to the points where a retailer can connect with
customers. If a retailer has strong customer interface, it will help in resolving issued
faced by customers during and after a transaction takes place.
• Vendor interface is the point of connection between retailers and vendors.

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• Retail merchandising is the process of acquiring and arranging merchandise in a way

which appeals to customers and induces them to buy products.
• Through planned merchandising, customer can easily explore for the right products
and get them in lesser time with ease.
• Merchandise management can be defined as the process of getting right products and
achieve financial objectives. It involves long term planning at retailers’ side for goals
related to sales, inventory, and prices.
• A merchandiser is responsible for making arrangements for acquiring the right
assortment of products and plan their display in a way which is in stores and
customers’ interests.
• The process of merchandise procurement begins with the identification of quantity and
quality to products to be brought to a store and displayed.

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8. GLOSSARY

• Electronic data processing: Refers to automated methods applied to process the

business-related data
• Goods receipt challan: It is the acknowledgement of receipt of goods
• Stock taking: It is the process of counting items in an inventory physically
• Stock transfer order: It is a purchase order to instruct a warehouse or manufacturing
plant to move products to some other place

9. TERMINAL QUESTIONS
Q1. What do you understand by inventory management? Explain its importance in retail.

Q2. Discuss the various techniques used in stock checking.

Q3. Explain the process of unloading of inventory.

Q4. Write a note on product repair system-customer interface.

Q5. Mention the guidelines for retailer while dealing with vendors.

Q6. Describe the process of merchandise return to vendor.

Q7. What is retail merchandising? Discuss the main components of merchandise

management.

Q8. State the responsibilities of merchandiser.

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10. ANSWERS

SELF ASSESSMENT QUESTIONS

1. Work-in-progress
2. Back order
3. First-in first-out
4. True
5. Periodic stock count
6. True
7. Customer interface
8. Repair costs
9. False
10. Assistant store head
11. Retail merchandising
12. False
13. Merchandise acquisition
14. Merchandise procurement
15. Merchandiser

TERMINAL QUESTIONS

1. Inventory management involves ordering, preserving and keeping a check on the stocks
of a company. Refer to the section 6.2, Inventory Management.
2. Stock check is mainly carried out to keep a tab on the physical stock of a retail store.
Refer to the section 6.2, Inventory Management.
3. At first, the challan and other related documents should be collected and verified. Refer
to the section 6.2, Inventory Management.
4. If a retailer has strong customer interface, it will help in resolving issued faced by
customers during and after a transaction takes place. Refer to the section 6.3, Product
Repair System-Customer Interface
5. While dealing with vendors for product repair, retailers send the item to the concerned
vendor. Refer to the section 6.4, Vendor Interface.

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6. At first, the defective merchandise is identified on daily bases for all the sections in a
store. Refer to the section 6.5, Returning Merchandise to Vendor.
7. Retail merchandising encompasses various processes, including acquiring, categorising,
pricing and supplying the products to different retail stores. Refer to the section 6.6,
Retail Merchandising.
8. A merchandiser creates merchandising strategies which develop a balance between
customer expectations and retailer’s goals. Refer to the section 6.6, Retail
Merchandising.

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11. SUGGESTED BOOKS AND E-REFERENCES

BOOKS

• Bajaj, C., Tuli, R., & Srivastava, N. (2010). Retail management. Delhi, India: Oxford
University Press.
• Segel, R. (2008). Retail Business Kit for Dummies. Hoboken, NJ: Wiley.

E- REFERENCES

• Different Stocktaking Techniques. Rgis.co.uk. (2021). Retrieved 7 July 2021, from

https://www.rgis.co.uk/tips-insights/different-stocktaking-techniques#.
• Stocktaking Methods [2019 Complete Guide] | ASP Microcomputers. ASP
Microcomputers. (2021). Retrieved 7 July 2021, from https://www.asp.com.au/all-
about-stocktaking-methods/.
• Study.com. (2021). Retrieved 7 July 2021, from
https://study.com/academy/lesson/merchandise-management-in-retail-definition-
components-categories.html.
• The Benefits and Importance of Managing Inventory - Dotcom Distribution. Dotcom
Distribution. (2021). Retrieved 7 July 2021, from https://dotcomdist.com/the-
benefits-and-importance-of-managing-inventory/.
• Veeqo.com. (2021). Retrieved 7 July 2021, from https://www.veeqo.com/wp-
content/uploads/pdf/inventory-management/inventory-management-pdf.pdf.

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