Examination 2
MAR 3231 Introduction to Retail Systems and Management
Spring 2008 Section 2324
Grading Key
This exam is open notes. There are 80 points on the exam plus 5 points are extra credit
(50 points) Answer all 25 questions. Your score for these questions is two point for each correct answer. Circle the best answer for each question.
1. A supermarket chain that specializes in organic groceries is evaluating potential locations for new stores. Which of the following site characteristics is the most important factors it should consider?
A. Occupancy cost
B. Pedestrian traffic
C. Automobile traffic
D. Visibility from the road
E. Demographics of population living within a ten mile drive
2. Retail distribution centers use cross docking primarily to:
A. reduce the chances that hazardous materials will spill on people
B. give the retailer a chance to go through the carton to make sure that everything is there
C. enable inbound shipments to be stored easily in the warehouse
D. lower the cost of distributing merchandise to stores
E. make sure that all trucks going to stores are full
3. Typically asset turnover will decrease when:
A. the variety of merchandise decreases
B. the number of SKUs increases
C. the depth of assortment decreases
D. prices decrease
E. retailers and vendor coordinate their supply chain
4. CRM is based on the philosophy that retailers can increase their profitability by
A. providing better assortments
B. expanding their services
C. extending hours of operation
D. building relationships with their better customers
E. building better relationships with vendors
5. If you owned a retail store, which of the following financial results would you rather have:
A. asset turnover of 15 and net profit margin of 2%
B. asset turnover of 3 and net profit margin of 12%
C. asset turnover of 5 and net profit margin of 5%
D. asset turnover of 7 and net profit margin of 4%
E. asset turnover of 9 and net profit margin of 3%
6. The advantage from the retailer’s perspective of a stand alone store location compared to an enclosed shopping mall is:
A. greater convenience for customers
B. greater attraction of potential customers to the general location
C. larger trading areas
D. more pedestrian traffic
E. none of the above
7. Which of the following retailers has the largest trading area?
A. supermarket
B. car dealer selling high performance cars like Porsche. Ferrari, etc
C. convenience stores
D. general merchandise discount store
E. warehouse club store
8. Which of the following is a benefit of an efficient supply chain management system?
A. reduces fixed costs
B. increases inventory levels
C. decreases stockouts
D. lengthens delivery time
E. all of above
9. Wal-Mart supercenters attract customers from a wide geographic area; therefore, the primary consideration for selecting a site for a super center is:
A. occupancy cost
B. pedestrian traffic
C. automobile traffic
D. visibility from the road
E. demographics of population living within a two mile drive
10. If a U.S. retailer wants to conform to the European policies concerning how customer information is collected, it should adopt which type of policy:
A. Opt in.
B. Opt out.
C. Opt private.
D. Opt EC.
E. it should not have a policy.
11.What factor(s) affect the size of retailer store’s trading area?
A. The uniqueness of the retailer’s offering
B. The attractiveness of the other store’s located in the same area
C. The roads and highway near the store’s location
D. The traffic congestion in the area near the store
E. All of the above
12. Human resource management in retailing is challenging because of
A. the need to use part-time employees
B. the change in demographics in the workforce
C. problems in dealing with employees at many different locations
D. emphasis on expense control
E. all of the above
13. EDI is:
A. an technique for developing a retail strategy
B. a new type of retail location
C. an approach for selecting merchandise
D. a method for sending data and purchase orders to suppliers
E. a new brand for men’s sports shirts
14. In retail firms, separate divisions within the firm are responsible for buying merchandise and selling merchandise in stores. The separation of these activities reduces the coordination needed to effectively perform these interrelated activities. To improve coordination between these activities, retail firm typically:
A. improve the buyer’s appreciation for store environment by asking them to spend time shopping the competition.
B. have store mangers to go headquarters and visit with buyers.
C. Retailers assign employees to coordinate roles like planners who work with the store managers in allocating merchandise.
D. have store managers responsible for buying merchandise for their stores
E. retail firms do all of the above
15. What is the most important factor in choosing a location for an apparel specialty store like Abercrombie & Fitch?
A. The demographic characteristics of the trade within a 60 minute drive time to the locations.
B. The amount of traffic driving by and the accessibility to the location.
C. The number of parking spots
D. The nature of the other retailers located near or at the site.
E. Visibility form the road
16. Using RFID on shipping cartons sent to distribution centers:
A. Is hazardous to the environment
B. Reducing handling of cartons by employees
C. Increase transportation costs
D. Increase inventory loss due to employee theft
E. Is inexpensive
17. Which of the following is an advantage of the centralized buying of merchandise:
A. coordinate buying and store management better
B. better tailor merchandise to the needs of local customers
C. use more buyers
D. get merchandise at lower costs from suppliers
E. increase diversity in buying organization
18. Why is managing diversity beneficial to a company?
A. It leads to a more homogenized workforce.
B. It is the law.
C. Retailers can better understand and respond to the needs of their customers.
D. U.S. demographics reveal a more homogeneous population and companies should follow suit.
E. All of the above
19. Which of the following is an advantage of using distribution centers (DC) over direct store delivery?
A. The DCs can always deliver faster than a vendor.
B. The DCs have the advantage of keeping backup stock in the store.
C. The DCs enable the retailer to carry less merchandise in the system.
D. The DCs increases inventory in the system.
E. There are no advantages of DCs over direct store delivery
20. Customer needs and preferences for grocery products are the same across the U.S. What organization form would you suggest for a national supermarket chain?
A. centralization
B. Mazur structure
C. decentralization
D. organic
E. hierarchical
21. The average sales per square foot of department stores in the U.S. is approximately:
A. $2
B. $20
C. $200
D. $2,000
E. $20,000
22. Organization cultures are developed and maintained through:
A. employee specialization
B. extensive interactions with customers
C. stories and symbols
D. high salaries
E. advertising campaigns
23. When assessing the performance of a retailer, productivity measures are often more useful than absolute measures like sales and net profits because:
A. Productivity measures are not based on information in a retailer’s financial statements
B. Productivity measures are unrelated to ROA
C. Productivity are unaffected by economic conditions
D. Productivity measures can be used to compare the performance of companies with different sizes and levels of sales
E. Productivity measures are easy to find or calculate
24. An efficient supply chain increases a retailer’s ROA primarily by:
A. increasing gross margin
B. decreasing gross margin
C. decreasing operating expenses
D. increasing asset turnover
E. decreasing asset turnover
25. When a retailer responds to an economic downturn by putting a freeze on salaries, laying off sales associates, and hiring more part-time workers, it’s employees tend to respond with
A. Higher levels of job satisfaction
B. Provision of better customer service
C. More motivation and effort
D. None of the above
E. all of the above (A through C)
Part II (30 points)
A. (5 points) What is Lifetime Value (LTV) of a customer and what factors are used to estimate it?
. Lifetime customer value (LTV) is the expected contribution from the customer to the retailer’s profits over his or her entire relationship with the retailer. Basically it is the aanticipated future profits from the customer for the retailer
B. (12 points) Madonna Jones, a specialty store apparel retailer whose customers include Hollywood movie, wants to apply the strategic profit model to better understand his business. His financial information is as follows:
Income Statement Information
Net Sales $1,800,000
Cost of Goods Sold 1,200,000
Total Expenses 300,000
Net profit 300,000
Balance Sheet Information
Average Inventory 400,000
Other Current Assets 200,000
Fixed Assets 300,000
Total assets 900,000
Calculate the following and show all work for partial credit
(a) (3) gross margin %
(1,800,000 – 1,200,000)/ 1,800,000 = 33%
(b) (3) net profit %
(1,800,000 – 1,200,000 - $300,000)/ 1,800,000 = 16.67%
(c ) (3) asset turnover
$1,800,000/($400,000 + $200,000 + $300,000) = 2.0
(d) (3) return on assets
16.7 x 2 =33.3%
Or
$300,000 profit / total assets $900,000 = 33.3%
C. (8 points) State the two retailers you examined in the comparative shopping exercise and indication how you would expect the financial performance measures for these two retailers to differ and why? Specifically consider: gross margin percent, expenses as a percent of sales, net profit margin, asset turnover, and return on assets.
Retailers: ______
A retailer that sells more fashionable merchandise and/or exclusive brands (private labels) will typically have higher gross margin percent, higher net profit percent, lower inventory turnover, more expenses as a percent of sales ( generally have more salespeople)
Retailers that focus on lower cost and prices have lower gross margin and net profit margin percent, lower expenses (self-serve), higher asset turnover, and higher sales per square foot and sales per employee
Gross margin % (2)______
Expense as % of sales (2)______
Inventory turnover (2)
Sales per square foot (2)
D. (5 points) In an enclosed mall, Abercrombie & Fitch is considering a location near American Eagle and another location quite a distance from American Eagle? Which site would you commend and why?
While locating near each other enables customers to easily compare offerings and potential rake sales from each other, the principle of cumulative attraction suggests that by locating near each other more potential customers will be drawn to the area and both stores will benefit by in effect splitting a bigger pier.
E. Extra Credit ( 5 Points) Bob Machen has an entrepreneurial idea. He has developed a unique writing pen than makes writing more comfortable. He has received a patent for the design. He plans to sell the pen for $10 each. To sell the pens, is going to mail out brochures describing the pen and its features with an order form. It will cost him $3 to make each pen and fulfill each his cost for each mailing is $0.50 and he estimates he will get one order for each 10 mailings. Finally his fixed costs for developing the brochure and salaries of his employees is $300,000. What is his breakeven point? In other words how many orders does he need to receive to breakeven – not make or lose money? Show all work for partial credit.order. In addition to the cost to make the pens,
Breakeven = fixed cost / (gross margin % - variable cost)
= 300,000 /(.7 – 10 x .5) = 1,500,000
Gross margin % = (10 – 3) 10 = .7
Note that the variable cost per order is $5 because it takes 10 mailings to get one order.
3 points for getting everything but the variable cost as $5 versus .50
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