Lesson 6
Organization structure in Retailing
Objective: After reading this lesson you will be able to know:
- Meaning and significance of Retail organization structure,
- Considerations in organizational designing,
- Retail organization structure, store level and corporate level functions,
- Design issues and improving the appreciation of retail stores.
Structure:
6.1. Meaning and significance
6.2. Organization Design Considerations
6.3 Retail Organization Structures
6.4. Corporate Organization of a Regional Department Store Chain
6.4.1. Corporate Functions
6.5. Organization Structures of Other Types of Retailers
6.6. Retail organization design issues
6.6.1. Centralization versus Decentralization
6.6.2. Coordinating Merchandise and Store Management
The retail organization describes a firm structure and assigned functions, policies, resources, authority, responsibilities, and rewards so as to efficiently and effectively satisfy the needs of its target markets, employees, and management.
6.1. Meaning and significance:
The organization structure identifies the activities to be performed by specific employees and determines the line of authority and responsibility in the firm. The first step in developing an organization structure is to determine the tasks that must be performed.
These tasks are divided into four major categories: strategic management, administrative management (operations), merchandise management, and store management. The organization of this text book is based on these tasks and managers who perform them.
The strategic market and finance decisions are under taken primarily by senior management: the CEO, COO, Vice presidents, and the board of directors representing shareholders in publicly held firms. Administrative tasks are performed by corporate staff employees who have specialized skills in human resources management, finance, accounting, real estate, distribution, and management information systems. People in these administrative functions develop plans, procedures, and information to assist operating managers in implementing the retailer’s strategy.
In retail firms, the primary operating or line managers are involved in merchandise management and store management. These operating managers implement the strategic plans with the assistance of administrative personnel. They make the day-to-day decisions that directly affect the retailer’s performance.
6.2. Organization Design Considerations
Once the tasks have been identified, the retailer groups them into jobs to be assigned to specific individuals and determines the reporting relationships.
Specialization Rather than performing, individual employees are typically responsible for only one or two tasks. Specialization, focusing employees to develop expertise and increase productivity. Employees may become bored if they’re assigned a narrow set of task, such as putting price tags on merchandise all day long, every day. Also, extreme specialization may increase labor costs.
Responsibility and Authority Productivity and authority conflict with benefits of specialization.
Reporting Relationships After assigning tasks to employees, the final step in designing the organization structure is determining the reporting relationships. Productivity can decrease when too many or too few employees report to a supervisor. The effectiveness of supervisors decreases when they have too many employees reporting to them. On the other hand, if managers are supervising very few employees, the number of managers increases and costs go up.
The appropriate number of subordinates ranges from 4 to 12, depending on the nature of their tasks, skills, and location. The number of subordinates is greater when they perform simple standardized tasks, when they’re will trained and competent, and when they perform tasks at the same location as the supervisors. Under these conditions, supervision isn’t as difficult, and the supervisor can effectively manage more people.
Matching Organizations Structure to Retail Strategy: The design of the organization structure needs to match the firm’s retail strategy. On the other hand high-fashion clothing customers often aren’t very price-sensitive and tastes vary across the country. Retailers targeting these segments tend to have more managers and decision making at the local store level. By having more decisions made at the local store level, human resource costs are higher, but sales also increase since merchandise and services are tailored to meet the needs of local markets.
6.3 Retail Organization Structures:
Retail organization structures differ according to the type of retailer and the size of the firm. For example, a retailer with a single store will have an organization structure quite different form a national chain.
Organization of a Single-Store Retailer:
Owner-managers of a single store may be the entire organization. When they go to lunch or go home, the store closes. As sales grow, the owner-manager hires to employees. Coordinating and controlling employee activities is easier in a small store than in a large changing of stores. The owner-manager simply assign tasks to each employee and watches to see that these tasks are performed properly. Since the number of employees is limited, single-store retailers have little specialization. Each employee must perform a wide range of activities, and the owner-manager us responsible for all management tasks.
As sales increase, specialization in management may occur when the owner-manager hires additional management employees.
Organization structure of a small retailer:
Source: Michael Levy, Barton A Weitz; Retail management; Fifth Edition; Tata Mc Graw-Hill Publishing Company Limited. p.no.282
Organization of Regional Department Stores:
In contrast to the management of a single store, retail chain management is complex. Managers must supervise units that are geographically distant from each other.
Traditionally, department stores were family-owned and managed. Organization of these firms was governed by family circumstances. Executive positions were designed to accommodate family members involved in the business. Then, in 1927, Paul Mazur proposed a functional organization plan that has been adopted by most retailers. The organization structures of retail chains, including Richs, continue to reflect principles of the Mazur plan, such as separating buying and store management tasks into separate divisions. Most manages and employees in the stores division work in stores located throughout the geographic region. Merchandise, planning, marketing, finance, visual merchandising, and human resource managers and employees work at corporate headquarters.
Organization structure of Regional Department stores:
Source: Michael Levy, Barton A Weitz; Retail management; Fifth Edition; Tata Mc Graw-Hill Publishing Company Limited. p.no.282
6.4. Corporate Organization of a Regional Department Store Chain
The decisions made at the corporate office involve activities that set strategic directions and increase productivity by coordination the regional chains’ activities. For example, having one corporate management information system and one private-brand merchandise program is much more efficient and effective than having separate systems and programs in each regional chain.
6.4.1. Corporate Functions: Activities performed at corporate office include
- Corporate: Support services cover tax, audit, accounting, cash management and finance, internal audit, planning, insurance, economic forecasting, law, corporate communications, purchasing, store design/construction, and real estate.
- Merchandising and product development: This function develops merchandising strategies, coordinates relationships with vendors, designs and sources private-label merchandise, and manages marketing programs for private-brand merchandise.
- Financial, Administrative, and Credit Services Group: This group provides proprietary cards and services for each regional department store chain. The group is also is responsible for payroll and benefits processing.
- Federated systems Group: This division designs, installs, and managers the information system used by all divisions.
- Federated Logistics and Operations: Logistics coordinates and manages the logistics and distribution functions as well as accounts payable, purchasing, store planning, vendor technology, and energy management and expense control.
6.5. Organization Structures of Other Types of Retailers
Most retail chains have an organization structure structure very similar to Rich’s structure with people in charge of the merchandising, store management, and administrative tasks reporting to the CEO and COO. Only corporations that operate several different chains, such as Target, The Limited, and The Gap, have the overarching corporate structure. Large supermarket chains such as Safeway and Kroger are often organized geographically, like Federated Department Stores, with each region operation as a semi independent unit having its own merchandise and store management staff.
The primary difference between the organization structure of a department store and other retail formats is the numbers of people and management levels in the merchandising and store management areas. Many national retailers such as the merchandising and store management area. These national retailers have many more stores than a regional department store chain like Rich’s; thus, they have more managers and management levels in the stores division.
6.6. Retail organization design issues
Two important issues in the design of retail organizations are (1) the degree to which decision making is centralized or decentralized and (2) approaches used to coordinate merchandise and store management. In the context of Federated Department Stores, the first issue translates into whether the decisions concerning activities such as merchandise management, information and distributions systems, and human resource management are made by the regional department stores or the corporate headquarters. The second issue arises because retailers divide the merchandise and store management activities into different organization within the firm. Thus, they need to develop ways for coordinating theses interdependent activities.
6.6.1. Centralization versus Decentralization
Centralization is when authority for retailing decisions is delegated to corporate managers rather than to geographically dispersed regional, district, and store managers; whereas decentralization is when authority for retail decisions is assigned to lower levels in the organization. Many retailing decisions are made y the regional department store chains, not by corporate managers.
Retailers reduce costs when decision making is centralized in corporate management.
First, overhead falls because fewer managers are required to make the merchandise, human resource, marketing, and financial decisions. Centralized retail organizations can similarly reduce personnel in administrative functions such as marketing and human resources.
Secondly, by coordinating buying across geographically dispersed stores, the company achieves lower prices from suppliers. The retailer can negotiate better purchasing terms by placing one large order rather a number of smaller orders.
Third, centralization provides and opportunities to have the best people make decisions for the entire corporation.
Finally, centralization increases efficiency. Standard operating policies are used for store and personnel management.
While centralization has advantages in reducing costs, the disadvantages of centralization that it makes it more difficult of a retailer to adapt to local market conditions. In addition to problems with tailoring merchandise to local needs, the centralized retailer also may have difficulty responding to local competition and labor markets. Since pricing is established centrally, individual stores may not be able to respond quickly to competition in their market. Finally, centralized personnel policies can make it hard for local managers to pay competitive wages in their area or to hire appropriate types of salespeople. Large retailers are using their information systems to make more and more merchandise and operations decisions at corporate headquarters.
6.6.2. Coordinating Merchandise and Store Management
Small independent retailers have little difficulty coordinating their stores buying and selling activities. Owner managers typically buy the merchandise and work with their salespeople to sell it. Being in close contact with customers, the owner-managers know what their customers want.
On the other hand, large retail firms organize the buying and selling functions into separate divisions. Buyers specialize in buying merchandise and have limited contact with the store management responsible for selling it. While this specialization increases buyers’ skills and expertise, it makes it harder for them to understand customers needs. Four approaches large retailers use to coordinated buying and selling are (1) improving buyers appreciation for store environment, (2) making store visits, (3) assigning employees to coordinating roles, and (4) involving store managers in the buying decisions.
Improving Appreciation for Store Environment: Fashion-oriented retailers use several methods to increase buyers contact with customers and to improve informal commutation between buyers and store personnel who sell the merchandise they buy. Management trainees, who eventually become buyers, are required by most retailers to work in the sores before they enter the buying office. During this 6-10 month training period, prospective buyers gain appreciation for the activities performed in the stores, the problems sales-people and department managers’ encounter, and the needs of customers.
Making Store Visits Another approach to increasing customer contract and communication is to have buyers visit the stores and work with the departments. Face-to-face communication provides managers with a richer view of store and customer needs than they can get from impersonal sales reports from the company’s management information system. Spending time in the stores improves buyers understanding o customer needs but this system is costly because it reduces the time the buyer has to review sales patterns, plan promotions, manage inventory, and located new sources of merchandise.
Assigning Employees to Coordinating Roles: Some retails, like Rich’s have people in the merchandise division (the planners who work with buyers). And the stores (the managers of sales and merchandise who work for the store managers) who are responsible for coordinating buying and selling activities. Many national retail chains have regional end even district staff personnel to coordinated buying and selling activities.
Involving Store Management in Buying Decisions: Another way to improve coordination between buying and selling activities is to increase store employees involvement in the buying process. Besides developing an organization structure, human resource management undertake a number of activities to improve employee performance, build commitments in employees, and reduce turnover.
6.7. Summary:
The retail organization describes a firm structure and assigned functions, policies, resources, authority, responsibilities, and rewards so as to efficiently and effectively satisfy the needs of its target markets, employees, and management. The organization structure identifies the activities to be performed by specific employees and determines the line of authority and responsibility in the firm. In designing the organization structure the retail managers consider the three major factors include Specialization Responsibility and Authority Matching Organizations Structure to Retail Strategy. Retail organization structures differ according to the type of retailer and the size of the firm. The major basic types of organizations can be identified as Single-Store Retailer and Regional Department Stores. The overall performance of any retail organization is rely on the corporate organizational activities viz., Support services cover tax, audit, accounting, cash management and finance, internal audit, planning, insurance, economic forecasting, law, corporate communications, purchasing, store design/construction, and real estate. Finally, in this lesson the design issues were also considered in terms of Centralization versus Decentralization Coordinating Merchandise and Store Management, Improving Appreciation for Store Environment Assigning Employees to Coordinating Roles Involving Store Management in Buying Decisions.
6.8. Key terms:
Organization structure: A plan that identifies the activities to be performed by specific employees and determines the lines of authority and responsibility in the firm.
Retail Organization chart: A graphical representation that displays the reporting relationships within a retail firm.
Centralization: the degree to which authority for making retail decisions is delegated to corporate managers rather than to geographically dispersed regional, district, and store management.
Decentralization: When authority for retail decisions is made at lower levels in the organization.
6.9. Questions
1. What considerations the retail manager considers in designing the retail organization structure? Explain them with suitable examples.
2. Explain how the corporate level functions helpful in store level achievements.
3. Elucidate the design issues in structuring retail organizations.
4. Explain the mechanism of regional departmental stores.
6.10 References:
Michael Levy, Barton A Weitz; Retail management; Fifth Edition; Tata Mc Graw-Hill Publishing Company Limited.
Barry Berman, Joel R. Evans; Retail management; Eighth Edition; Pearson Education Asia.
