Friday, July 20, 2012

Retail Plan for “Birdbrain Bird Shop”

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Retail Strategy

Birdbrain Bird Shop (Birdbrain), a fictional business, will be organized as a Sole Proprietorship operating in the state of Oregon. Specifically the business will be located in Oregon City. It will be a new retail business.

The retail strategy of the business is

• The target customer for Birdbrain is primarily middle to upper-middle income females between the ages of 5 and 65 interested in wild birds. Additionally, predominately the target customer is either a homeowner or the renter of a home. To some degree this will affect the choice of locations for the business.


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• The merchandise offered by Birdbrain will be birdhouses and feeders, birdfeed, and unique yard decor products. The merchandise will come from a variety of vendors, with product source both locally and imported.

• To build a competitive advantage, Birdbrain will be unique in its product offering and store layout when compared to other retailers located within its geographic area. The business will also advertise in local papers, coupon flyers, and maintain an informational web site. Birdbrain will be open to the public from 8 a.m. to 8 p.m. Monday through Saturday and 8 a.m. to 6 p.m. Sunday. These hours should be convenient for virtually all of the proposed target market, more so than most of the competing retailers.

• Based on the initial success of Birdbrain, there should be significant opportunities to expand into additional geographic markets. These additional locations could be organized as franchises.

According to the U.S. Census Bureau , as of 17 there were 41 establishments in Oregon offering lawn and garden equipment (the closest description to bird products available). The NAICS Code for this industry is 444.  

Within Fred Meyer Inc., one of the major competitors within this retail segment, bird and yard decor related merchandise is currently a significant growth category, although it is limited by the space it occupies. Birdbrain will be able to maintain a competitive advantage over Fred Meyer and other retailers primarily by offering a more diverse assortment and better customer service. Employee’s product knowledge within the primary assortment will allow Birdbrain to stand out as the primary destination for true “birders”. This type of service does not exist to any significant degree within the geographic area Birdbrain will be targeting.

Variety at Birdbrain Bird Shop will be limited to SKUs relating directly or indirectly to the care and feeding of wild birds, and to a much small extent to decorative yard products. The primary categories of merchandise will be Feeders, Birdhouses (both functional and decorative), Bird food, Birdbaths, Hummingbird, Reference Materials (books and magazines), bird watching products, and decor merchandise.

The focus category will be the bird food, as it is consumable and offers the target customer the most incentive to visit the retailer. The assortment within this category will be diverse, but limited to the primary indigenous birds within the local geographic area. There are several local vendors who offer both a wide assortment and significant experience to retailers wishing to purchase bird related products.

Electronic Retailing

In addition to their store location, Birdbrain will develop an internet site http//www.birdbrainbirdshop.com/ is currently available). Initially the site will be informational only, with the opportunity for e-shoppers to communicate with the store owner via e-mail. By building the web site in this manner Birdbrain can maintain a presence on the web for their customers who need information, while at the same time avoiding the expense and risk of e-retailing. If the company finds that there is significant interest from consumers within the their product offering, the site can later be modified and expanded to offer products for sale via the internet. Additional staff will be required for this expansion, not only for the labor necessary for shipping and handling, but also to keep the site up-to-date with the current available product offering and to track customer’s purchases and buying patterns. Birdbrain will not offer a printed catalog for direct mail purposes.

Customers

The generational cohorts targeted by Birdbrain will primarily be baby boomers, and to a lesser degree seniors and generation x’ers. Baby boomers will be attracted to birdbrain because of the unique product offering. This will appeal to their tendency to be individualistic. Service is another key requirement of this cohort, and Birdbrain will be there to serve both their desire to create a relaxing backyard environment, and the baby boomers need to know they are purchasing a product that will fit the function they are trying to accomplish. Seniors, the second most sought after group by Birdbrain, tend to have time to devote to wild bird appreciation and study. Birdbrain will offer them products to fill those needs (such as books and binoculars) and the expertise to keep them coming back.

One predominate feature of the target market is income. The assortment at birdbrain will appeal to several income groups. There will be a limited assortment geared toward the upscale customer, a wide selection for the middle-income customer, and even a small selection geared toward the lower-income birder. Another feature Birdbrain will keep in mind both in their store layout and in their product assortment is the gender of the shopper. Women will be the target customer for this business. Women make the majority of purchasing decisions, and influence most of the rest.

Customer Buying Behavior

Most of the buying decisions customers will make at Birdbrain involve limited problem solving. While the purchase of bird food might become habitual over time, decisions relating to the rest of Birdbrain’s assortment require the customer to examine the products being offered and make some comparisons. In some cases the size and style of the birdhouse or feeder can solve a specific need the customer wishes to satisfy. Price will also be a significant factor for some shoppers. To encourage the customer to visualize the benefit of birding, the overall “feel” of the interior will suggest out-of-doors. The customer will be treated to the sounds of wild birds (by use of a recording devise) as well as the sounds of nature and waterfalls.

Mission Statement

The mission of Birdbrain Bird Shop is to be the leading retailer of wild bird related products in the Oregon City/Southeast Suburban area, and to provide a yearly income of $70,000 for the owner.

Financial Strategy

The initial funding for Birdbrain will be a combination of owner’s cash and long-term bank financing. The initial owner’s investment will be $50,000 combined with a 10 year note payable for $100,000. Based on this funding level here is an estimated income statement and other significant financial data for the first three years of the business

Net Sales 400,000 440,000 484,000

Less COG Sold 40,000 64,000 0,400

Gross Margin 160,000 176,000 1,600

Less Operating Expense  4,00 47,10

Less Interest Expense 6,640 6,640 6,640

Total Expense 65,640 6,540 7,80

Net profit, pretax 4,60 106,460 11,770

Less Taxes 5,857 40,455 45,51

Tax Rate 8.00% 8.00% 8.00%

Net profit after tax 58,50 66,005 74,57

Net Profit Margin 14.6% 15.0% 15.%

Return on Assets .40% 6.40% .70%

(on initial $50,000)

Average Inventory 10000 10000 10000

Inventory Turnover   4 .7

Location

There are several important considerations for the location of Birdbrain Bird Shop. Most of the merchandise will be purchased by customers with a yard, therefore a central business district would seem inappropriate for the shop. Additionally, the predominate category for the store will be bird food, with the most commonly purchased sizes. This makes some mall locations less practical for the target customer (5-65 female). The ideal location would be strip mall with a well established anchor store.

Site Selection

Oregon City is located within the Metropolitan Statistical Area for Portland and Salem . The population of the city as of 001 was 6,680, almost double the population of 180 .

Additionally, much of the surrounding county (population 45,150) must travel through Oregon City to reach Portland, the largest metropolitan city in the area. The trade area of Birdbrain would be around 16 to 5 square miles, encompassing the square mile of Oregon City as well as the unincorporated suburban and rural areas within 4 to five miles from the shop.

Oregon City has at least two locations which would be suitable for this. Berry Hill Mall would be the first choice based on growth in the area and the number of new and existing homes within a mile radius of the mall. It features an Albertsons and a K-Mart as anchors, as well as several restaurants and other established businesses. Parking is ample and convenient for all the specialty shops. Southridge Shopping Center would be the next best alternative, but based on the condition of the housing in the area and limited area for new housing starts it would have to offer some significant advantages in terms of lease payments. Birdbrain would probably not do well as a freestanding business. The startup costs would be significantly higher while traffic to the store (in the Oregon City area) would probably be substantially lower.

In the case of the Berry Hill Mall there would be some competition from both anchor stores, as well as a Fred Meyer Store and Thriftway (both stores are located around ¾ of a mile from the proposed site). Despite this, the Berry Hill location still offers better accessibility and adequate customer traffic. There is a major intersection located adjacent to the mall which offers stores located in Berry Hill more convenience and accessibility than all of the possible competition (except the two anchor stores). The optimal location within the mall would be next to one of the two hair salons. One of them shares virtually the same target market with Birdbrain and would help increase traffic.

Organizational Structure and Human Resources Management

As a small business, the organizational structure of Birdbrain would be somewhat limited. All of the management functions - strategic, merchandise, store, and administrative - would be performed by the sole proprietor. Initially the company would employ part time employees, primarily for weekend help. The remainder of the duties would be performed by the owner of the company. The initial screening process for prospective employees should determine the aptitude and product knowledge of the applicant with regard to the products being offered by Birdbrain. Training would be the job of the owner. Wages for all employees would be at an hourly rate, with regular reviews and wages increases based employee’s performance and length of service with the shop. The goal for the owner of Birdbrain should be to create a family oriented organizational culture. Employees should be encouraged to offer their opinions and insights on the operation of the business. Even if all their suggestions aren’t acted upon, employees should still feel their input is important to the success of the business. As much as possible employees should be given authority to make decisions for the owner in his absence. Above all else employees should recognize that customers are never an interruption for an employee; customers are the only reason the employee is there. Birdbrain should strive to be as diverse in its workforce as the community it serves is diverse.

Information Systems and Supply Chain Management

Due to the expected sales volume for Birdbrain, most orders for new goods should be placed by the owner at a time he feels is appropriate. Inventory will be tracked via a computer connected to the point of sale terminals. Where possible the company should take advantage of using EDI systems with vendors. Birdbrain will not use an automated replenishment system during its first year in business, and will evaluate the feasibility of adding that to individual categories after that time.

In an effort to improve customer service and increase customer loyalty, Birdbrain will offer customers the opportunity to receive a quarterly newsletter via the internet or direct mail. The newsletter will offer suggestions for ways customers can enhance their bird watching experience, as well as coupons for discounts on specific merchandise. Customers signing up for the newsletter will be added to a data warehouse so that Birdbrain can refine their target area and the way it spends its advertising budget.

Planning Merchandise Assortments

As mentioned previously in the retail strategy, the major categories for Birdbrain will be Bird food, Feeders, Birdhouses, Birdbaths, Hummingbird, Reference Materials, bird watching products, and decor merchandise. In some respects each category will be managed as a separate business. Because of the limited size of the company, the two primary levels to assortment planning will be category and SKU; separate classification or departments should not be necessary. With the scale of the business being relatively small many of the reporting tools used by larger retailers become less meaningful. However, Birdbrain should still be concerned with evaluating inventory and sales of categories and SKUs on a regular basis. Initial assortments will be chosen based on an allocation of resources toward each category. Of the $10,000 devoted to initial inventory, bird food will receive 5%, feeders 15%, houses 15%, Birdbaths 5%, hummingbird 10%, Reference materials 7%, bird watching products 1%, and d�cor merchandise 1%. Each category and SKU will be reviewed quarterly to determine its overall contribution to sales and gross margin. As trends develop over time allocations to inventory dollars can be adjusted to take advantage of customer demand. Not all categories will perform at the same level. Some will tend to dominate while others may break even or even lose money. The goal for Birdbrain will be to balance the assortment to maximize profits while providing an adequate number of SKUs in each category to allow the customer to feel confident their wild bird needs will be met each time they visit the store.

Product availability will vary somewhat depending on the category of merchandise. Birdbrain will target a 5-100% service level for its core SKUs of bird food. Much of the remainder of their product mix will be more fashion related and change regularly. With the exception of the bird food category, customers will expect to see a constantly changing assortment. Many of the purchases Birdbrain will make will be one-time buys. As it relates to product availability, the depth of the assortment is more important than most of the specific SKUs offered for this company. Customers want to see new and different products each time they shop with Birdbrain.

Buying Systems

Although inventory dollars overall will stay fairly static, inventory by category will change based on the seasonal sales patterns. For this reason inventory within categories will need to be adjusted monthly to anticipate the future demand for that category. For example the winter months tend to have a higher percentage of sales for feed, while sales of bird watching products bird baths, and to a lesser extent bird houses will go down. Purchases then in September and October should be adjusted to anticipate this change. As the company develops historical data in its data warehouse it can further refine buying decisions by category in advance of the seasonal changes in selling.

Analysis of each SKU carried by Birdbrain will be performed on a monthly or quarterly basis, depending on the season and category. Each basic (non-fashion) SKU will be ranked based on it contribution margin (net sales - COG sold - other variable expenses) and evaluated to determine if it should continue to be stocked. Fashion SKUs will be evaluated based on inventory level, time on the shelf, and sales contribution by category.

Buying Merchandise

For the most part, brand names are not important in the bird business. There are quality differences within certain brands of bird seed (some germinate and some don’t), but there is virtually no brand recognition for bird products. The most important aspect of buying seed is price and having an adequate depth of assortment for the geographic area the business supports. Almost all seed sold in the U.S. is manufactured here as well. Birdbrain’s decision then for buying seed will depend on their contacts with local vendors and manufacturers.  

Most other products available in the shop’s mix will be available either domestically or as imports. Because of the size and nature of the business, most products purchased by Birdbrain will be sourced from local vendors, and to a lesser degree from local manufactures and craftsmen. Birdbrain simply does not have the resources to shop globally for their merchandise. Vendors on the other hand are able to devote more money and time to develop international sources. Birdbrain can take advantage of vendor’s contacts by allowing the vendors to do the importing. Admittedly this service can significantly raise the cost of the merchandise, but in many cases it will still be less expensive than sourcing the product from domestic manufacturers. Birdbrain’s owner will also attend trade shows to shop for new products.

Pricing and Retail Communication Mix

Birdbrain will primarily use a high/low pricing strategy. With the possible exception of a few core SKUs, Birdbrain could not possibly hope to compete chain store’s prices. Because or their unique assortment and expertise in their field, Birdbrain will not use price to achieve its competitive advantage. Also, with few exceptions, most merchandise within their offering is unique enough that it is difficult for customers to compare based on price. Birdbrain will generally use the keystone method for pricing their goods (double the cost). Exceptions to this might be some seed, which may be slightly lower than double, and some higher-end products which will be more than double.

Pricing will be done using shelf labels where possible, or tags on the merchandise when needed. All merchandise will have a UPC label and will be scannable by the POS system. Although this may add to the cost of operations, it is vital to be able to accurately track sales and inventory.

In the income statement (above) Birdbrain has built in 10% to the cost of goods for markdowns. This will allow Birdbrain to advertise their merchandise and still maintain their expected gross margin. It should also be sufficient to close out unproductive SKUs, again without seriously impacting projected profits.

Birdbrain will run either weekly or biweekly ads in the local newspapers as well participating in a local monthly coupon flyer promotion. 10% of the company’s operating budget will be devoted to these methods of advertising. Birdbrain will also sponsor (in part) local bird enthusiasts clubs and the local community college. The expenses for these are minimal, while the public relation value may be substantial.

Managing the Store

Most of the decision making, and all of the leadership, for Birdbrain Bird Shop will come from the owner. As much as possible the owner will employ a democratic method of leadership. Although there aren’t many decisions employees within the company can truly make on their own, their input and feedback should be important to the owner. The ability of the owner to make the employees feel valuable to the business will have a major impact on employee turnover and ultimately to sales. Employees will be evaluated on a regular basis; after few days when hired, and then every 6 months. The evaluations will be primarily to encourage the employees and to ensure they are satisfied with their position. Initially there will be little opportunity for growth within the company, so small but regular raises will be one method the owner can use to let the employees know they are valued.

Shrinkage is generally not a significant problem for this type of business; however, Birdbrain will conduct at least semi-annual physical inventories to insure it does not become a problem. The most common form of shrinkage for a company like this is errors in paperwork. Performing regular inventories allow the retailer to catch mistakes and follow proper accounting practices.

Store Layout, Design, and Visual Merchandising

The entire layout for Birdbrain Bird Shop will occupy around some square feet. The overall feel of the store should remind the customer of nature and the out doors. The colors used for the store will be natural earth-tones, primarily browns, beige, and greens. Fixtures will be wood (cedar or redwood) when possible. Seed will be placed on a standard gondola with wood trim on the back wall of the store to encourage customers to travel the full depth of the store. Houses and feeders will use specialty racks located throughout the store. Birdbaths will be located on raised wooden platforms. At least fountains will be running at all times to provide sound and atmosphere. One of the additional categories of merchandise, reference materials, will include CDs of nature sounds. One of these will be playing continuously. The cash register will be located near the door to ensure each customer is greeted as they enter (and to make sure they pay before they leave). The two most popular seed products will also be presented near the checkout on pallet promotions. Signing in the store will be minimal. The merchandise will provide the majority of information the customer needs. Sale signs will be either dark red or moss green to tie into the overall color scheme. Shelf Labels will be 1” x 5/8” and beige in color. Lighting should be bright and inviting.

Customer Service

Retailing is by nature dependant on superior customer service, and even more so with a company like Birdbrain Bird Shop. Employees, including the owner, will wear a brown or green apron with the name of the company stenciled on the front to let the customer know at a glance who they can go to for assistance. The return policy for Birdbrain will be “if we sell (or sold it), we’ll take it back.” Where possible we will encourage customers to accept an exchange for other merchandise, but all employees will be able to offer a cash refund to customers without approval of the owner. Each customer will be greeted with a smile and “hello, anything I can help you find?” Every customer will receive a “thanks for coming in” when then leave, whether they purchase something or not. If the customer asks for something the shop does not carry the employee will note it on a list next to the cash register, and when possible direct the customer to a competitor, if the employee can’t first recommend a substitute item the shop does carry. The employee will offer to contact the competitor for the customer if the customer would like them to. All customer complaints will be handled on the spot if possible. All employees will have the authority to offer small discounts or gift certificates if they believe the customer perceives the shop as having disappointing the customer in any way. Customers should know by the time they leave Birdbrain bird Shop for the first time that they are the reason the shop exists. Each customer should feel as if they are the most important customer who shops at the store every time they come in.



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