MBA : Retail management , Merchandising and E-commerce

1. Course Introduction: If you've ever been to a supermarket, you may have realized that you end up purchasing more than, what do we actually mean? Well, that's because they provide you an amazing shopper experience. And they also use these powerful retail strategy to make sure that you spend more money and more buying in that specific retail store. Hey, my name is not deep. I'm an MBA graduate and have good experience in building retail and e-commerce brand. This is the full MBA course in retail management, e-commerce, and merchandise planning. Whether you wanted to start your own retail business or an eCommerce brand, or even wanting to work in retail giant Walmart and Target as a retail manager, then this is the right course for you, whether you are an absolute beginner or have some de-centered understanding about retail business. This course is for everyone. Now first section is all about building a very strong foundation. So obviously in this section we will only cover some very basic concepts like your four P's of marketing, swot analysis, STP analysis, and the B6, the French between variety and assortment. In the second section, we will talk about the store layout, the different format of retail store, and the basic omnichannel and multichannel strategies. And we will understand how exactly can you choose the best location for your retail store with the help of data? Then we will talk about customer relationship management because obviously it's super important to make sure that you have good relations with your customer because 80% of your revenue comes from 20% of your customer. And that's why we will make sure that we are using all the marketing strategies like your RFM analysis, which is your recency, frequency, and monetary. Then we will understand how exactly you can increase the store revenue with the help of market basket analysis. And then we will design our own store layout with the help of lift. And the concept of lift is very interesting and we will understand that specific concept in this course. Finally, we will understand some basics of finance and accounting. I know finance and accounting sounds boring to a lot of people, but I'll try to make it as simple as I can. And believe me, after watching this course, you will have a very good understanding of finance and accounting principle, specially for managing or retail store. We will talk about your gross margin, your profits, your inventory turnover ratio, and all of these complex topic in a very simplified way. In short, this is the most diverse and the practical course about reading management on the Internet. Now to make sure that you are applying all of these concepts that we're learning in this course. I will also give you a couple of assignments and Excel sheets. In short, I can bet you that this is the most affordable and one of the best course about retail management and e-commerce on the Internet. I've covered almost everything that you need to understand in a retail business. 2. What is Retail Management?: So hey, everyone. This is the first video on retail management. And in this video, I'm going to give you an overview of all the concepts that we'll be covering in this course. The main purpose of this course is to help you understand each and every small detail about running and operating a retail store. So if you're planning to join as a retail manager or you're working in a retail company, then understanding all of these topic becomes super important for you. So first in the Section one, we'll start by understanding some basic concept about retail management and how the retail value chain actually works. After that, I'm going to give you a small introduction about how a retail store targets the different kind of audience in different areas. Then we'll talk about retail format, channels and trading areas. Format means if it is a hypermarket, supermarket, or just a retail store. Channel means, are you selling it online, offline, and trading area means how much of area or population does each retail store covers? Then we'll talk about assortment versus merchandise, which means what kind of product you'll be carrying in your retail store and how deep you want to go in that specific segment. After that, in fifth section, we'll talk about pricing and promotion and how you do it right in your retail store. Then we'll talk about inventory and how do you replenish the inventory? What's the cost of holding inventory? How do you calculate it? We'll talk everything about inventory and replenishment as well. After that, we'll move towards store layout and experience. And how do you create a efficient layout that doesn't create bottleneck inside the retail store so that people can move efficiently, and then they can come to the counter and get their billing done. After that, we're going to discuss a bit about Omnichannel. Omnichannel simply means that you are selling your product online and through retail store. So people might search about your product online and then they'll buy it from the retail store. That's your omni channel. After that, we'll talk about data, CRM and loyalty program. So we'll talk about Cosco loyalty program, how it was actually developed, and how it creates good amount of revenue, and how they use a large amount of data to power these kind of loyalty programs. In the end, I'm going to give you some retail math and some finance related metric to understand how much revenue can you generate from per square feet? What is your gross merchandise return on investment? So we will talk about all the fancy financial metric that are important in a retail store. So let's start with our first concept about retail management, the retail value chain. I mean, why do we need retailers at the first place? So imagine you are walking into a grocery store on Sunday morning and you can see that all the shelves are full of apple, milk, bread, and soap, and maybe a few thousand other items. I'm talking about a normal grocery retail store that we all see around us. But if you carefully observe, this retail store is not manufacturing any of these item. They are just buying these items from suppliers and distributor. So if we talk about the job of a retailer, their primary job is to buy the right product from their suppliers and distributor in bulk quantity, then they break down these product into smaller convenient pack so that a customer like me and you can purchase it. And they make a tiny cut out of that whole purchase, and they make super convenient for a customer to purchase variety of item just from a single shop so that they don't really have to go to ten different shop to buy 20 different items. So a retailer simply bridge a gap between a buyer and a manufacturer, and that's the primary job of a retailer. So consider a grocery store like the last link of a big chain. So when you go into the supply chain, let's look at a strawberry farmer who actually supplied strawberry to a retail store. So a farmer or a factory actually grow any product that you buy from a retail store, then they sell it to a distributor who store these product in large quantity, and I'm talking about huge warehouses where they actually store all of these goods that are produced by factories or farmer. Then these distributor with the help of supplier ship these product to retailers and finally, a customer like you and me pick these product in small quantity and consume it. So a retailer job is to buy these product from a supplier or distributor, store them in their retail store and sell it to the end user. Anywhere in the hale supply chain, if something breaks in between, the retailer has to suffer. Let's say if the farmer is on strike or the factory is not producing enough product, in that case, distributor and supplier cannot really supply you anything, and the retailer will face the problem. The whole supply chain breaks if you just remove any of these parties in between. If I have to give you some real world example to understand about retail store, let me give you some example of some supermarket or hypermarket. I'm using this term loosely like supermarket and hypermarket, but in reality, both of them are different. Let's talk about a big retail store or a supermarket hypermarket like Walmart, Big Bazaar, or Costco. Let's talk about these. So if you look at Walmart as an example, it's a hypermarket that actually store a variety of product. So they source different kind of product from different supplier, things like rice, soap, cloth, and electronic item. And they source these from different manufacturer and supplier, probably a few thousand. Then they negotiate the prices because Walmart always purchase in bulk quantity. So they purchase millions of quantity at once, and that's how they get the cheapest price possible. Then they also try to curate a variety because Walmart always try to target a specific set of audience. So they try to create a variety which targets a common household. They don't really buy super expensive luxury item. They always buy a variety of product that caters towards a normal family. Then they ensure that they are maintaining trust, quality, service, return, and they guarantee all of these things. Now, just imagine for a second, if tomorrow Wolma doesn't exist as a retail chain, you would be directly talking to farmer or soft factory or some clothing tailor to buy all of these products separately. And it's super annoying to just buy ten product from 20 different people. It's frustrating. And that is why the retail stores are important, and that's the value that they create in our day to day life. Now when we talk about a retail store, they don't just sell us the product. They also add value on the top of that. Let me give you some example so that you understand it better. So just look at Apple Store or Starbucks. Whenever you go to both of these store, you'll find everything under a single roof. Like in case of Apple store, you'll find all the apple product under a single retail store. In case of Starbucks, you'll find different variety of coffee and snacks at a single location. That's your convenience. They also give you choices. You can choose from different variety of product, and they have also built trust where you feel that these two store are going to give us really good quality. They have super good policies, and they assure us with warranties. And when you look carefully, they also have really good ambience. So you feel like paying something extra as a service fees or as a loyalty points. So they are not just shop to try out or buy a certain product, they also make you feel good. Same goes with Starbucks. They don't just sell coffee. They also sell you experience. So you can just have a small meeting, you can go with your family, and you can have a good coffee. So retailer don't just sell the product. They sell you ambience, trust, and comfort. 3. Understanding the Retail Consumer: So now we will understand why your shopper matters the most, like why a customer is so important for a retail store. Let me give you some examples so that you understand it better. So a retail store obviously doesn't exist without the shopper. And when you think carefully, it's not about what you want to sell it to the shopper. It's about what exactly a customer want. For example, if your value proposition of your retail store is selling fresh fruits and vegetable, in that case, a shopper will decide what stays on your shelf and what gets remote. So the starting point is that the customer is always right. For example, let's say a store me wanting to stock some fancy cheese. But if the local neighborhood only buy bread and milk, then those cheese will not move out of shelf. They'll just stay there and occupy the space. So understanding what the shopper wanted to purchase from your retail store is important. So let's go to the basic and understand about the shopper first. So when you talk about a shopper, we are talking about different kind of people buying different things from a retail store. For example, when you look at the basic need of human being, let's say one person just wanted to buy rice for dinner from a retail store. Another person wanted to buy some ice cream for dessert. That's the want. And kids usually do impulse purchase. So if they see some chocolate or something, then they simply buy these things on discount. So you have needs, wants, and impulse. So usually when your parents goes to the supermarket, they may plan to buy some essentials like milk, vegetables. But when you look at a kid, they may simply just go for snacks at the checkout or chocolates. Let's understand this with the help of simple example. It's not just about shopper, but it is also about your brand proposition. Let's understand this with the help of two simple brand Target and ADs. Target is popular in the US. They have a wide variety of product. They sell affordable items, and they serve customer on the basis of convenience and lifestyle. So when I was in the US, I used to order from Target from DoorDash, and Target sells you affordable items. And they also sell some convenience lifestyle items as well. For normal household, these are not super luxurious items. But when you look at A's, which is very popular in Europe and in the US, they are focused on assortment. They sell you at a low price, but they are super focused about one category. So the value proposition of a store is also important. So a retail store like Hole food has positioned themselves as a great place for fresh fruits and vegetables and organic item, then people will buy from there instead of going to some other cheaper alternative. So same kind of grocery store can have different shopper with different strategy. So let's understand a little about shoppers. And how these different retail store use a large amount of data and observation to understand more about shoppers. The first thing that they do is they try to create loyalty card. And this is super popular in case of Costco. Costco, I mean, you cannot buy anything from Costco without a loyalty card, and Costco actually generates a large amount of revenue with the help of loyalty card. So if you have been to the Costco in the US, they sell you a large batch of items like if you wanted to buy Coca Cola, you literally have to buy 40, 50, 60 pack. So if you have been to the Costco in the US, they don't sell you a single item. They always try to sell you a large bundle of a product. For example, they'll have offers like buy 50, get five pack free. So they sell you 50, 60 can of Coca Cola instead of one or two, and they sell you at the most affordable price, and you have to have the Costco membership to buy from it. Then these retail store try to understand the consumer behavior by doing a market basket analysis. A super simple example is whenever you go to a retail store, you'll find bread and eggs together. The reason is that if a person is purchasing bread or eggs, they'll likely purchase the other item. So that's possible with the help of market basket analysis. We'll understand more about this topic in the upcoming videos. Third one is simple observation. They try to understand what exactly a customer need, what are their expectation in a specific area, and they try to sell that category of product. For example, a supermarket generally places diaper next to the BB wipe and formula because they know that the parent who is buying a diaper may go for wipes or other baby formula as well. So perfect. In the next video, we'll talk about formats and trading area, and this is important. So when I talk about format, I'm talking about different types of retail store, like a convenience store, a boutique, a supermarket, a hypermarket. I'm talking about different retail store that targets different kind of audience and need. We'll also talk about trading area. Like if one retail store has a presence over here, they have to have some target area. They will say, Hey, the area around the retail store for up to two to three mile belongs to this. They'll op on a different retail store maybe over here. Over here that covered this much. That's your retail trading area. They'll also look at other store. Let's say if there is another hypermarket or supermarket just over here, they will try opening their retail store here. They'll go over here. They'll look at trading area as well, and we'll discuss about all of these concepts in the upcoming video. 4. Format and Channels in Retail: So, hey, everyone. Now we will discuss about different format and channels of retail store. So let's first understand why store format matters. So when we look into shoppers, they have different mission. Let's look at different people in a family. Let's say a family wanted to buy groceries for the week. They will go to a supermarket or a hypermarket. But when you look at a student, they just wanted to grab some items on the way from the college or from the office. On the flip side, when you look at a busy professional, well they don't really have time to go to a hypermarket, supermarket or a retail store, and they might simply use app to buy groceries at their doorstep. And that's why retail and that's why retailers don't look at all these people the same way that we normally see them. They design different retail format and channels that fit them the best. So let's talk about common retail format, and what exactly do they target? The first example is supermarket and hypermarket. These are big store that has wide variety of product, and people usually shop once a week. Few examples are Walmart, Costco, Big Bazaar. That's your supermarket or hypermarket. The second retail format is convenience store. These are small store where you can quickly grab a item, and these are very closer to where people live. A good example of convenience store is 711 or Reliance Smart Point, or maybe any store that you see at a gas station. The third is Department Store. Now, these are multi category store under one roof. The main purpose is that you will see department store in a shopping mall or where people just usually go out for dinner or lunch. A good example is Macy's or Shopper Store. Then you have specialty store, which just focuses on one single category. So in specialty store, you will find a specialists. So you'll find a specialty store for makeup and beauty product. You'll find speciality store for sports item and equipment, things like Decathlon, Sephora. These are the example of speciality store. Now, if you think for a second, each and every kind of retail format targets a specific segment of customer and their need. For example, if I wanted to buy groceries for my family, I might go to a supermarket or hypermarket. But if I'm inviting my friends, and in that case, I need to grab some snacks or some soda for them, I'll go to a convenience store in case if I'm going for a movie and if I wanted to buy a t shirt or something, then I might go to a department store. In case if my girlfriend or a friend wanted to buy something from a speciality store, they'll go to Decathlon. Each and every kind of so you buy your weekly groceries from a supermarket, but you run into convenience store if you need milk. You will buy your grocery store from a supermarket, but you will run into convenience store if you need products like milk at the night. Now let's talk about trading area and location. So your format is super important. It matters the most in deciding what exactly you wanted to put in your retail store and what kind of audience you wanted to target. But location also decides the success, you cannot open the similar kind of retail store in one single area. You have to define the retail trading area, and then only you should open the retail store. The first thing that you need to look into is the residential neighborhood. If you're opening a supermarket for daily needs, you have to make sure that you have enough people buying these product from your retail store. And there is an exercise in this course that we'll be doing to understand how much potential buyer can we expect in our retail store from a specific retail trading area. Then you have transit hubs and highways. So if you are opening a small convenience store, in that case, footfall is very important, like how many people are passing by that street so that you can actually drive some sale. Third is downtown Moon. If you're opening a department store or a flagship store, you need think how many people are just coming to that area with their family as a couple so that they can actually buy something from your retail store. And this super simple exercise is usually performed by all retail store like Starbucks or 711 or Taco Bell, they try to understand how many people are actually walking by in this area and what's the potential sale that we can expect from this location. Like when you look at a Starbucks, they always try to open their store near to office where you have a morning rush and people wanted to grab a coffee. In fact, you will see Starbucks a lot often on the airport where people don't really want to miss their flight, and that's why they go for a coffee. In fact, you will always see Starbucks near highways where people just stop for a long road trip. So you have same brand, but different location strategy depending on the location. Let me give you some real world examples so that you understand it better. Now, one good example I can think of is Walmart. They have a huge hypermarket. They have a wide assortment of product at low prices and people usually go there for weekly purchase. Then you have 711, which is global. People usually grab a few items like snacks or some cold drink whenever they are passing by. Both of them target the same audience but have different retail strategy. Their format and location is super important. Now, after this, we're going to talk about a very important concept of assortment and variety. Let me give you a super simple example. Let's say you are selling watches shorts, t shirts, hat, and shoes in your retail store. Now, when you're selling five different item, you can only maintain a limited variety within each category. This is the breadth, how much variety do you maintain in your retail store? And the variation of a product like watches, shorts, t shirt, hat, and shoes, let's say you have 15, 20, 30, or even 100 different variations of product. This is depth. So we'll talk about variety which is breadth and assortment which is depth. So this is assortment, which means how deep can you go in one specific product category, and this is your variety. Love how wide you are. And it depends on the kind of retail format, if your mean value proposition of your retail store is that you only sell fashion, in that case, you can go super deep. But let's say if you are talking about Walmart, they may have a limited assortment, but a large variety. So we'll talk about this specific concept a little later in the course. But the big question that the retailer need to ask that what product should I stock and how much should I arrange them. We'll talk about assortment and merchandising a little later in the course. 5. Variety vs Assortment: Now if you wanted to start your own e-commerce brand or retail store, or let's say you're working for some 3D company, then you will have so many different types of challenges. So in this video, we're going to talk about all of those challenges that you will face in the future in case if you wanted to start your own retail brand, or if you will work for companies like Amazon, Walmart, or Target or any big multinational company that is mainly intended reading domain. So let's look at all of the challenges that you will face. The number one challenge is inventory. So having too much of inventory is going to affect the reputation and the unit economics of your business. So you have to make sure that you're balancing out your inventory. We will do some exercises on inventory. I have acting out 34 different types of exercises and assignments on inventory. And we're going to cover that specific exercise and assignment in the coming videos about inventory, how exactly you can maintain inventory in different situation. Then you have your working capital. Welcome capitalists, the amount of capital that you will need to run your day-to-day business. And we will understand how exactly you will not give credit to a lot of people. Because if you have a lot of debt in your business and your working capital cycle is very long, then it will become a difficult task for you to manage your business on databases. Let's say you're selling something and you're getting payment after two or three month, then your money is locked four to three months and you do not have regular cashflow to run your business. And we will understand how exactly you can optimize the working capital cycle. Normally, companies have a walking MapReduce cycle of 15, 20, or 30 days. Recently, I have seen some companies with a negative working capital cycle. That means people will be in advance in the form of subscription. We're going to understand this working capital example with the help of one B2C brand that I'm going to explain in the coming videos. Then you have your omnichannel experience. Omni-channel means you are providing an overall amazing expedience bought to the customer who are purchasing online and offline. And then you're connecting both of those customers together. If you look at companies like H&M, I mean, they also have offline store and they also have an online e-commerce store. And if you login through your mobile number or your meal ID, then they will have a very omni-channel experience that they will give you some online offers as wells and offline offers as well. The connect all of your is together and then they will provide some omnichannel experience. I guess all of the recent reading, brands in spectacles, in cosmetics, all of these grants are creating some amazing omnichannel experience. We're going to talk about that in the coming videos, where we will talk about omni-channel, multi-channel of and I think cross-channel of expedience to connect customer. Then reading also have a very big challenge of optimizing logistics and supply chain. And in this part we will talk about the shipment cost. So let's say if you wanted to start your own e-commerce brand, obviously you cannot ship all of your product by yourself. So you have to look for some logistic partner, like FedEx or R. And then you have to look for those logistic partner to ship your product. Then you also have to make sure that your argue rate is low. Audio is returned to the origin. So if a lot of customers are sending back your product, then you have to be twice the logistic cost and that's bad for business. So how exactly you can minimize audio, you can create efficient delivery and you can maybe give some offers to make sure that you have less RTO In that case. So that's one of the big problem. Now let's reduced our WTO by understanding our foster biggest problem, which is inventory. Now to minimize inventory, you first have to understand the basic difference between variety and assortment of your product. Now, variety and assortment have a lot to do with the kind of free deal format that you will be setting up for your retail store. And let's quickly understand this with the help of an example. Let's say you wanted to open our retail store in electronics. Let's say you wanted to sell electronic gadget. So you always have two choices. Either you will look for Brecht of MOOC and dice, or you will look for depth of merchandise. But what do I mean by variety and assortment? Let's understand this with the help of example. Let's say you wanted to send icon as a product. So if you open a store where you will have all of these different types of smartphone along with iPhone, That's a variety of product. So if you go to Walmart, you may find maybe 20 different or smartphone brands or let's say 20 different types of electronic gadget that seed variety of product. You will have different types of electronic brands from smartphone to your dv du, your All the ReadSpeaker do your any gadget that you can imagine from your laptop of different company. But if you go to an Apple store, that's the assortment, That's the depth of motor nice deck beams. You will just have Apple products, almost all of the Apple product from smart bone to airpower to laptop, you will just have Apple product. So you will take very small segment and you will go as deep as you can in that specific segment or brand. In case of Apple Store, it's the brain. They are going very deep into brands. So desktop, milk and ice. In case of Walmart or any other normal electronic store, you will have variety of product, red dot guys. So you will have smartphone to TV, to speaker, two different types of gadget. So you will have a breadth of milk and ice. Same goes with your genes. So let's say you wanted to purchase a jeans if you go to any retail store, Let's say Walmart again, you may have different types of bloods from genes to be sure to fuse to anything that you can imagine, let's say for both meals and immune. But if you go to Levis, then chances are they will have much more options for genes than Walmart. That's the assortment. So that's the basic difference between variety and assortment. Let's really understand this. So variety is the breadth of merchandise of you can have a wide variety kind of retail store or a narrow variety kind of retail store. So if you look at a retail store, can have a computer address, a necklace. You can have a wide variety of product in your retail store. On the other side, you can have a depth of merchandise which is deep or shallow. And you can have just one category. Let's say if you just wanted to set smart phone or in your retail store, well, that's the assortment that you're looking for. So that's the basic difference between variety and assortment. The reason I'm covering this topic is because when you will try to maintain inventory in your store, the new had to take these, these hard decision. So let's say you wanted to open electronic store. Then how many SparkFun can you please in your store? Then you have to look out for all dots smartphone, which are moving out of your shelf as fast as possible. Let's see if you look for examples like if you wanted to have iPhone Pro in your retail store of you may have all of the four dummy DCIS. What, what kind of iPhone you have to maintain with the maximum inventory? Let's see if people are, let's say, 80 percent customer about choosing the green variant of iPhone, then you have to maintain more inventory for that specific color or design or variety of product. And then you have to minimize the inventory for other product. We will do some exercises on minimizing and maximizing the most selling and the least selling product in your. But right now we're just building a strong foundation and we are just working on understanding some basic concept of 3D. So in the next video, so the next video we will talk about the different types of detailed format. So you will have your dollar store, your grocery store. 6. Why Pricing Matters in Retail: So perfect. Now we will discuss about pricing and promotion. But let's first understand why pricing is important. Even if the store has the right kind of product and layout and merchandising, customer always think about finding the right deal. So they flip the label and see if the product is worth it or not. Now, pricing doesn't mean that you can start selling cheap. You have to signal the value. Do you want to signal a cheap, premium or fair that you have to decide based on your retail strategy? For example, in a convenience store, you might sell premium or fair value. You may not be able to sell cheap, but in Costco, your value proposition is cheap. Then if you try to set wrong price, then obviously, if you set it too high, customer may not buy it. If you set it too low, then you won't be profitable. So you have to create so you have to price your product in a smarter way to build trust and loyalty. So there are a few products that you should always sell cheaper to attract customer, and then you make money from other products. For example, there is a famous theory that if you wanted to attract a lot of customer to your retail store, in that case, you start selling these six items and they will automatically get attracted, and then obviously they'll buy something else where you can make more money. So if you sell five of these item affordable or cheap in your retail store, obviously signaling a good quality or maybe you bundle it really well. In that case, you would be able to attract so many users. You have to bundle your milk, egg, butter, and a few other product really well for the customer, and make things look more attractive, they will eventually purchase these items from you, and sometimes they'll also buy a few more things. So retailers use different approach as a pricing strategy. Like if I give you some example like Walmart has everyday low pricing, where they try to maintain a consistent low prices of all product. Then you have high and low prices, like certain brand don't really sell at a lower price, but on certain festival like Black Friday or New Year's Sale, they have frequent discounts on weekend, and Msys and Big Bazaar are those two brand who sell it at a normal price, but they always have some sort of discount going on. And then you have Stan brand that try to sell you at a premium because that's their value proposition. Hole foods and Apple store, you'll rarely find a discount or a deal on any of their product because they sell a really good premium brand and they don't really want to compromise on the branding. 7. Types of retail store based on format: Hey everyone, In the last video we were discussing about the difference between variety and assortment. In this video, we're gonna talk about the different types of retail store based on the format and location. So based on the format, you have all of these different types of retail store. You have your club store, your mass modernize, your dollar store, your traditional grocery store, and your organic or natural grocery store. These from the perineal area, you have all of these three different format. You have your solitary side, your plant shopping area, unplanned shopping area. Now the meaning of this video is not talked about the different types of retail store, but just to cover some very basic concept about the different 3D format so that you can understand them better. Because the more if you start working in a club store, then your strategy will be very different than the strategy which is used by a dollar store. To the meaning of this video is to understand some basic concept. And in the coming videos, we'll do some exercises and assignments on retail trading area. Now bringing your cotton ball club store, we're talking about Blob stores like Costco or Sam's Club. These are big warehouse where you will get all of your product. But in bulk quantity. When we talk about mass merchandise, you will also purchase all of your different product or enlarge number of quantity. And we are talking about companies like Walmart and Target. These companies have mass merchandise store. Then we have Dollar Store. I think all of the product or I would say the majority of the product are close to around a dollar. And then you have your oldies, your gender, and your Dollar Tree, all of these columns under Dollar Store category, then you have your traditional grocery store. So any normal grocery store that you can see around yourself that comes under this specific category. Then you have your natural and grocery store. So companies like Whole Foods sprouts, people who are running these organic grocery store. In the end you have your doorstep delivery. So companies like instruct our blue upper arm. These companies are doing the doorstep delivery and that's also a type of retail format. I know that's an online format. It comes under e-commerce and last-mile delivery, but we're still covering this specific type of retail format because it's really trending and we have to get over the different types of crime. And if you want me to cover all of these six different types of retail store or reading format. I can do that, but that's one of the eastern lot of your time. That's why in this video, we're gonna take a couple of example to understand all of these different OK store in a much better way. Now let's quickly understand how exactly Costco and Sam's Club made money. If you're not from us, then Costco and Sam's Club are two big reteaching or I would say kind of a warehouse team. They have such a big warehouse where you can purchase the product in bulk quantity. So clubs and warehouse kind of retail store like Costco and Sam's Club usually offer lowest price of the product, but they have limited shortening and you have to purchase all of those products in bulk quantity. Let's quickly understand that with the help of an example. Let's say you wanted to purchase granola bar from Costco or Sam's Club? And let's say you have two situation. Let's say in Costco, maybe you have a 49 individual pack of granola bar and that specific pack size is gonna cause to around $14.79, same. And the per unit price of one granola bar is around ¢0.302. On the other side, if you purchase the SIM granola bar from a grocery store, then they will have backoff six granola bar. And then the reading price of that specific pack is around 20 dollar and 79 percent, then you will have a per unit price of $0.46, which means all of these Colombian warehouse paint off reading format, we'll say You all of these products in bulk quantity. And that's why the per unit price of the product is very less, but they don't really provide you a wide assortment. That's why a lot of people go to these kind of globin warehouse, retail store and the repurchase, all of the product of their choice in bulk quantity. Not because they are having a very limited or shortening or depth of the product. They are saving a lot more on logistic and inventory holding cost. 8. Types of retail store based on trading area: Hey everyone, My name is Nadine. And in this video we're going to talk about retail location and site selection. Now, obviously, if you're opening a new store or your retail brand, then you have to make sure that you're looking at competition and how many people you can serve from that specific retail store. And that's why we will cover this topic where we will understand how exactly you can look at retail location and how you can select a good site. You can start your retail store. One business location is a unique factor, or I would say, competitive advantage, which cannot be copied by any of your competitors, are, if you look at companies like McDonald's, McDonald's is not just a fast food company. It's a brilliant Jodi Boolean real estate company. And there is a beautiful article that you can find out about McDonald's and how they were purchasing the best quality retail or species back in 2010, 2013, and how they are real estate company, apart from being the fast food or a fast food chain kind of business. So purchasing the right kind of free deal acid at the right price at the right time. It's super important because if you have that, obviously it will increase in value. And then you will then also generate profit from that specific real estate property, apart from the traditional business that McDonald's is doing right now. Now how the 3D location will give you a very strong competitive advantage. So if you select a good retail location, or it could be a really good decision in the long gone. Because obviously, you will generate some good profit from your brand. And the property that you have purchased for your reading store will also increase in value. But nowadays, a lot of these retail chain usually leads these properties for, let's say five years, seven years or 10 years. But both choosing them at the right price at the right frame can also be very beneficial then of purchasing a reading property can be a long-term investment because obviously you can't really bulges one piece of property somewhere and then even sided after few years, you have to establish your readings store. You have to build your brand around that specific retail store. And that's why it's a very long-term capital investment. Also. If you're Reagan store is located at the right location, it will also attract a lot more customer. Because Exxon EDS, you have a specific gene of retail store. And if you have your retail store around that specific area, let's say you're opening your retail store or let's say your restaurant around the food court. Or in that situation, that's a very good location because a lot of people are coming to that specific area just to eat food and having a good location can also change the customer's buying habit. Now to understand how exactly you will decide on choosing the right kind of location for your specific restaurant. We will understand that creating area cost. If you look at this diagram, you can see that at the center you have your retail store. And around that same though, the first circle is your primary trading area. The second circle is your second rotating area. The third concentric circle is your fringe trading area. And then you have your customer. So almost 70 to 80 percent of your customer will be there in this primary grading area. Around 15 to 20 percent of your customer will be there in the secondary trading area. And around five to 10 percent of your customer will be there in the French trading area. So your primary focus should always be on capturing majority of the customer in this primary printing area. When I'm saying primary trading area for some retail store, this can be our own, maybe, let's say five miles or 10 miles for other readings stored, this can be around 15 or 20 miles depending on the type of retail store. So let's say if you are planning to let say expand Wal-Mart, let's say if you're working as a retail manager in Walmart and you wanted to start a new store. In that situation, you will always take our 3D creating a the operon 15 to 25 miles, something like that. But you got the idea. So let's understand the benefit of doing the trading analysis or the training area analysis. Now, obviously, before opening a retail store, you will examine your customer, their demographics, their social, economic profile. And you will also focus on some of the promotional activities. Then you will evaluate whether your grading area is overlapping with our different retail store or not. And then you will give the iron competition because you have to make sure that you do not have any competition, at least in the primary grading area. Then you will always make sure that you have optimal number of store in a specific geographical area. Now let's quickly have a look at the different types of retail store that you can establish a different reading area. Then we will do some exercise to understand how can you accept the optimizer trading area and how you can choose the right kind of grading area. And we will do that by understanding released law and Hoff's law. And we will do a couple of exercises on release low and hostile. But before that, let's understand the different types of retail options based on trading area. So fast you have your solid tree site. So these are single freestanding shops or outlets which isolated from other retailers. And these are normal mom-and-pop store. And if you look at the advantage of these kind of store, are these we have a low occupancy cost because obviously the rent of the store will be less because they are located in some other area where you have less number of people and they also have less number of competition. But the disadvantages are because you have less number of people, you will always have lower footfall, or so-called low visibility. Then you have your unplanned shopping areas. Now these are there in developing countries like India, China, and probably might not be there in developed countries like the United State, UK, or Australia. But these are basically some location which evolved over time because you have more number of people into that specific area. So the advantage of these kind of unplanned shopping areas is because they have high visibility and a lot of people are coming to these kind of random market. But the disadvantage is you do not have any security, you do not have any parking facility. So it'll be super difficult for customers to purchase from these unplanned shopping areas. Then you have your plants up in areas. So all of your shopping malls will come under this category. So these are large retail brands or so-called anchor stores. Which basically elevates the customer interest of if you look at the advantage of these kind of blend shopping areas, you have your high visibility, you have more number of customer and they have excellent parking space. In terms of disadvantage, they need a high cost to maintain the security. And you always have to be a very high rank to get one shop in the shopping mall. So I hope you got a fair understanding of all the different types of retail store based on format and different type of retail store based on trading area. So I hope you'll be 600 a strong. Remember, the main purpose of making the last few videos is not to D2, any technical topic, but to build up a strong foundation because once you have a decent understanding of what do you mean by club store or mass merchandise store or Dollar Store, or how exactly are solitary side work? What are the disadvantage and advantage of these kind of site? In the coming videos, we will understand how exactly when to calculate probability. How many people will come to your store, the radial creating area, the distance between two retail store, the time between two retail store. And all of those complex exercises on Excel sheet. So we have so many at once problems to solve and we're going to talk about that in the coming videos. So in the last video, we were talking about all of these different types of retail store based on their format and grading area. So in this video we will continue. All of those are retail store by understanding all of the factors that will undermine the retail location. Let's quickly understand all of these factors and then we will start doing some exercises or some moderns and all. So the marketing team or the management team of your company have to analyze a 3D location by understanding all of these factors. Obviously, the cost factor is the size of catchment area. So if you have more number of people into any specific area, chances of your retail store becoming successful is very high because you have more number of people coming into your store. Also the occupancy cost or the brain of your retail store in super-important, you have to establish a retail store where you have less rent or less occupancy cost are then you have number of people in the vicinity on disposable income of all of those people. Customer traffic or footfall or so-called visibility of your retail store. If you're a retail store is located area where you have more number of people coming to a retail store. Obviously you will have more number of sales down the line if you have the right kind of product. Also the convenience of the location. If you're reading stories located in such an area where it's super easy to commute. I mean, if people can gun by the guard their bus, or public transport, if they have all of these facility, then that's a good location as well, then parking capacity because a lot of people need that nowadays. And diamond distance from other store. A lot of times I've seen a lot of people doing 34 stuff at the same plane. Let's see. Probably if you're going out with your family members and then you may end up purchasing 3, 4 product in just one go. So you need to make sure that your retail store is located nearby to other retail store so that people can plan for 34 different types of bridges. And if you want to get rid of mine at vD trading area, you have so many different types of mortar. So the first model is a very simple analog model where you will understand the revenue from the similar store. So let's say if you have one more similar store in the same media, you can understand how much revenue that specific stories shouldn't rating. And based on that revenue, you can take that are new as a reference point. Same with the level of competition. You can do some very subjective analysis on how many stores are there on that specific area, and then even expect your market share. So if you already have 23 store, you can expect a market share of around 20, 30% in the future. And then you then analyze the size of the area and the basic population density are these are the basic analog model that you can follow in case if you wanted to understand that we deal creating area. But we also have some pretty advanced, more blue like Rayleigh's law of gravitation. 9. Reilly's Law of Retail Gravitation : Hey everyone, Welcome to this video of understanding the retail creating media. I know from past so many videos, you guys are asking me for some technical concept that you wanted to understand and you can use that technical concept in your real life. And that's why in this video we're going to understand release of gravitation and this library help you understand that how much distance people can travel and come to your reading store. Now this law is based on a premise that people will be attracted to large assemblies or large retail store like Walmart or Target. And they will travel and the Gantt drought, almost 10 to 15 miles of distance to reach to your store. And the probability of people coming to your store will be based on the time and the distance they have to travel to reach to your store. So you'll be using a mathematical formula to understand if you're opening a retail store, how much ADR in terms of kilometers you can cover in good that specific city. And we'll be using this formula. Dab is equal to D divided by one plus under root of BB VBA. And here dB is the limit of locality. Let say if you are opening a store in locality a, and you also have one storing, look at it, dB, how much distance you can cover with the store that you're opening in locality a, let's say you have a and B are separated by, let's say toric kilometers. If you have to store, store a and store B. And he wanted to understand how much area I can cover with this store a, then DAB is the amount of distance that you can cover from store a. When you are also having a store B into the same vicinity or area or city. Now V is the total amount of distance that you have the green-blue store. So let's say the green store a and store B, how much distance you have, that's D. Then PV is the population of locality a and B, a is depopulation of locality. So basically we have two different retail store, retail store a and store B. And then we will understand if a retail store, eax have a population of this much, and if a retail store we will have a population of that much, how much distance we can cover with the retail store 8903 is very confusing. So let's really understand this topic with the help of an example. Let's say you have two different location, 3D location a and location B. And both of these locations are separated by a distance of 75 kilometers. And at a retail location a, you have a population of both of the 1000 people. At location B, you have a population of around a 100 thousand people. Now you have to calculate that. How much area does retail store, EEG and occupied? Now you have to calculate the breaking boundary or the weedy area that we didn't store IQ and occupy. And you have to get glued the outer edge of that specific retail trading area. What's the maximum distance that we didn't store EEG and occupy. In the previous few videos we were discussing about the primary area, the second area. So what is the maximum area or what is the outgoing edge of that specific area that we didn't store EEG and occupied. Let's understand that. So I'm going to put all of these on details that I have. I have the distance between these two different retail store, which is 75 kilometers. I also have the population of CTE and so DB, which is 250 thousand people and a 100 thousand people. Once I put all of these values, I will divide 75 divided by one hundred, ten hundred divided by 250 thousand people. I will have a value of 45.9 kilometers. That means we will store a, will have an ADL 45.9 kilometers. And we didn't store B will have a reading tweeting AT off bernie 9.1 kilometers. That means if you start a retail store a in a different city and you will have 250 thousand people. So the maximum distance from which your customer is coming to your retail store a will be 45.9 kilometers. And similarly, 29.1 kilometers is the maximum distance from which your customer will becoming to retail store number B. That's the simple concept that you can do in case if you wanted to calculate the retail creating area just by understanding important number, population of that specific area and the distance between blue retail store. Obviously we are not considering any other assumptions like the type of retail store, the kind of merchandise you have in your retail store, what date of default which are there in that specific area? How much disposable income they have, what is the amount of revenue that you can generate? We will understand all of these advanced topic or advanced problem. Or I would say we will do these multifactors or might be variable or calculation in the coming videos. But the main purpose of understanding Rayleigh's law of gravitation is to understand just the two important parameters, which is your population of a specific city and the distance traveled by people in the different retail store or girls, two different city. 10. Huff Gravity Model: So hey everyone, In the last video we were discussing about release well, three-day gravitation, where we calculated the 3D area in terms of distance that you can cover if you know, depopulation and the distance between two different store or city. In that case, we had a CDA and Cdb, which had a population at a certain distance. And then we were able to calculate the area of that specific retail store, like your retail store located at the VA or sub db. So now in this video we're going to talk about hops gravity marble, or hops love shoppers attraction. But why we are doing that? The problem is the size of the median store. In the last video, we were discussing about the population of a particular city and the distance between two different retail store or between two different cities. Because if you have a bigger retail store, chances of people coming to a bigger retail store of a bigger size is very high. That's the decent people have a lot of chances of coming to Walmart or Target. Obviously the stance is the major factor and that's why you have distance decay. So if you increase the size between two different retail store or between two different location, the amount of activities between two different retail store will decrease. That means we will consider distance and the size of retail store. Two halfs gravity Morgan. So let's understand that with the help of the example. So you have two different retail store, retail store I or widowed store Gee, you can take it as retail store a or a and store B. And then you have two different customer, customer number e and customer number B. Now, what will be the probability of customer a going to retail store I, if he knows the size of the retail store and the distance of the retail store. That's what we want to calculate using hubs gravity model. And similarly for customer B, if he knows that distance between retail store I and retail store G and the size of both of these retail store, what will be the probability of customer B? And do retail store j or retail store ai, based on only two assumptions, the size of the retail store and the distance between those two retail store. But remember, the probability of customer going to any of the store will depend directly on the size of the store, which means probability of customer going to NAD the in-store is directly proportional to the size of the detail store and the probability of a customer going to any of these retail store is inversely proportional to the distance of DDT and store. So if you have high permeability, because the size of the retail store is higher. Let's say if you have a customer at this black point and these two stores are separated by a distance of 75 kilometers. And let's say this customer is located at 37.5 kilometers from location a. Now you wanted to calculate the probability of this specific customer going to location a and the probability of this specific customer going to location B if you have the size of the store a and store B. So the size of store a is 250 thousand square feet or footage, whatever you call it. And the size of location B is a 100 thousand square footage. So let's say you wanted to calculate this probability. Bce, PA is the size of this specific retail store, a RDAs, the distance from this customer, or I would say 37.5 kilometers, and then the summation of the total distance and the total retail store size. So you have your 250 thousand square feet divided by 37.5 kilometers, which is the distance of this customer to location a. And this is divided by the total summation of the complete distance, which is 37.5 plus 37.5, plus your complete or size of bodies retail store, which is 250 thousand square feet plus 100 thousand square feet. And then the probability of this customer going to read in store a is 0.71. So if you subtract the probability of this customer going to store a, which is 0.71 from one, which is the total probability, then you will have 0.29. So the probability of customer going to store a is 0.71 and the probability of the same customer going to store B is 0.29. If you add 0.71 with zero-point due 9, you will have one as your probability, or you can also consider this as a person needs. So there are 71 percent chance that this customer will go to store a, and there are 29% chance that this customer will go to store B. If you only have two factors like the size of the store and the distance of the store. So in the last video, we had a discussion about if you have the population of a specific area and the distance between those two areas. In this video, we had a discussion about if you have the size of a location a, and the distance between both of those magician. And what will be the probability of a customer going to location a or store a or maybe store B. That's what we had a discussion about the hubs gravity model. Now obviously these things sounds super simple in the presentation. But in the next video we're going to do a super complicated problem, a real life problem of a retail store. And then we will calculate the probability that we deal trading area. And in the coming videos, I'm also going to give you one assignment. So in the next video, we will do one problem in Excel sheet. And then I'm going to give you one assignment that you have to do by yourself. Remember, the main purpose of creating this retail management course is to make sure that you are doing all of these assignments by yourself because that's how you will understand all of these concept. So please do all of these assignment. If you are stuck somewhere, please refer to the FAQ or the comment section below. And I'm also going to attach the solution as well. But these Excel sheet problems will really help you solve these complex problem. Because I feel in the presentation I didn't cover. So Dean topic I can cover electron more theory. But these excellent seat will be a very strong foundation or will help you understand these topic, this topic in a much better way. In the end, apart from hops gravity model, there are so many components that you also have to consider while you are calculating the probability or that retail trading area, lake. We already had a discussion about the catchment area. What we now had a discussion about the occupancy cost, or rent of a retail store, which is a major deciding factor. The disposable income of the people, the parking capacity, and the competition. Now, in the coming videos, I think I'm also going to take all of these things under consideration. So now we're going to do one problem in the Excel sheet where we will take the competition on the parking space, the occupancy cost, and couple of more factors like working capital and all of those. So in the coming videos, we will take all of these factors because in the past videos we just took our factors like population, distance and the size of the beat in store. But we also have to consider competition on disposable income that went off that specific retail store. And we will do couple of exercises in the coming videos because I feel if I will cover all of these 3D law or retaliatory, it's not going to add value to your carrier. So I feel it's better to solve problems, or I would say use cases or assignment to understand these concepts. 11. What is Omnichannel retail strategy: So now in this video, we'll talk about omni channel retail. In Omnichannel retail strategy, a company will try to create multiple channel to create a consistent seamless experience. For example, you can order grocery online using Walmart and Target and you can also go to the retail store and buy the grocery. That's your Omnichannel. And not just grocery store. If you wanted to buy spectacles, then you can just go to A Lenscart or Vo Be Parker to buy your spectacles and you can also get them online as well if you know your par. So the main idea is that in omnichannel retail, you can experience or get to experience both in retail and in online. And they try to provide you a consistent experience. And generally shoppers sometimes research online about a certain product, but they don't really know the quality and the feel, and that's why they go to a offline store so that they can touch and feel the product, and that's where they purchase it. And this can happen other way around as well. Let's say they go to a retail store, simply touch and feel the product, and if they feel that they are getting some good deal online, they also buy it. And sometimes people get a little confused. Now you can always sell a product cheaper online. On the flip side, if you open a retail store, you now have to pay rent, salaries, you have to stock all of those item in multiple retail store. Isn't the cost going up for a retail store? The answer is yes. But as a brand, you still have to price your product consistently both offline and online channel so that people don't feel that, hey, we got a bad deal in a retail store, but online, it was cheaper. So they try to maintain the experience consistent, including the price, but sometimes they also simply just lose the context and give more discount online. But the two important term that you need to understand in Omni channel is web rooming and showrooming. Let me help you understand this with the help of some example. So in webrooming, you browse online, but you buy that product in store. That's your web rooming. So let's say you look at a laptop online on a ecommerce website, but then you feel like that, Hey, I wanted to go into a retail store, wanted to use the laptop for some time, and then I want to take a decision if the price is the same. So that's the example of webrooming. Then you have show rooming where you actually size the product in store, and then you buy it online. Now, there could be multiple reason. Let's say you might be getting a good discount online or you want it to get a delivery of a certain product at your doorstep, or you simply want to gift someone. In that case, you go with showrooming. That experience is known as showrooming. Retailers must prepare for both the kind of experience and you need to maintain a consistent price, and you need to maintain a consistent experience. And that's why omni channel is important. But why Omni channel is so important? Why do you need to maintain multiple channel like online retail store selling through third party? Why do you actually just create more problems? Well, the simple answer is that different people need different product at different point in time using different channel. For example, you may want a coffee, but you don't really have time to go to a coffee shop. In that case, you will use a food delivery app. Sometime convenience is one factor where people want it to order online and they want it to pick up from a retail shop. Sometimes they just wanted to order online and expect a delivery on their doorstep. Convenience is one factor why brand usually go for Omni channel presence, where they create a app, try to sell the product online if they can, and they also have retail locations so that they can build more trust, provide a better experience, and people can actually feel the experience around the product. Third one is loyalty. If you are giving some loyalty points to some users, you need to make sure that they are able to use these loyalty points everywhere, whether they go to a retail store or they buy it online. A really good example is Starbucks. Their app will give you loyalty points that you can earn and redeem both online using their mobile app and even in a retail location. When you look at any of the retail store or retail chain or in fact a DTC brand, they have online presence, and some are more online, less offline, while some are less offline, more online. It depends on the retail mix. Like when we talk about a DTC brand, they cross their first five to ten millions of revenue online by selling on Amazon, Ebay or any other ecommerce store. And once they have a strong online presence, then they try to open a few offline store at some popular places where they can actually make sure that people are able to touch and feel the product and it builds trust and also drive sales. Now let me give you some example of brands that has to have a omni channel strategy, it becomes compulsion for them. One good example is verbi Parker and one Asian example is LensCart. When you try to sell spectacles online, it's difficult because as an individual, I honestly don't know what my e par is and that's why I left with no option, but to walk into a retail store who can measure my IPR and then they can just suggest me a good spectacle. So they have to have offline presence so that people can walk in, choose a frame, then they can get their eye test it, and then these spectacles would get delivered at your doorstep. So they don't manufacture anything inside the retail store. They have a centralized manufacturing, but the retail location is there so that you can pick a frame, get your eye tested, and the product will be delivered at your doorstep. Now, once your eye is tested, your par remains same for at least one to two years if you are below 25-years-old, and above 25, I think mostly your par remains same up to seven to 80 years. So once you know your par and this platform knows that, hey, your eye par is this, you don't really have to walk in into our retail store. You can simply pick online, and yeah, we'll deliver it at your doorstep. That's one advantage. Another example is Nike. Like, Nike sells all of their shoes online, but you still love going to their retail store and you want it to try out the shoes because you just wanted to touch and feel the product. Another example is Walmart. So you can order groceries online using Walmart App or you can also go inside the Walmart store, and you can simply, you know, buy all of the stuff. Then you have Sipora. So all of these brand has an omnichannel presence. They try to maintain consistent price and experience, and some actually uses offline retail channel so that you can touch and feel the product. So that's the main idea of omnichannel strategy. 12. Webrooming vs Showrooming: Hey everyone, welcome to the new video. In the last couple of videos, we were discussing a lot more about traditional retail brands, like your Walmart, dog ate, and a lot more franchisee brand. But if you look at 21st century, we are currently living in 2022. And you may see a lot more demand of e-commerce brand, B2C brand, all of this internet 3D. And that's why we're going to talk about the modern e-commerce, B2C, and internet retail with the help of this specific topic, which is omni-channel strategy. Now before jumping into Omni-channel and multi-channel and understanding the modern e-commerce. We didn't strategy. We first have to strengthen our basics by understanding the difference between showrooming or webrooming. Believe you're not. E-commerce is important of DTC brands are very important. But on the flip side, retail is here to stay. Retail will grow in the future. You will still see a lot of franchisees we deal Ben's opening up in your place and both of these things will go hand in hand. That's why we're going to understand the difference between showrooming and webrooming. But before that, let's understand the advantage and disadvantage of opening and we didn't store. And same with the e-commerce brain. Now let's look at the advantage of opening our retail store. The first advantage is obviously touch and be. A lot of people can walk in into your retail store and they can touch all of these product, specially if you look at beauty bar x or let's see all of your plots. In all of these kind of product, you always need this touch and feel kind of element. And people still don't prefer buying these things online, like a beauty product, your lipstick or growths, and all of the stock. Also, you may not have a personal touch or a personal service and you can always reduce down the risk. Because when you purchase online, although the securities super strong gravities and privacy is also very good. A lot of these e-commerce rent are producting your data, but still you have a very minor chance of some form of security and privacy risks are then you will also get immediate gratification. The time you use a lipstick, you can instantly see the result. For eCommerce brand, you have to purchase it, then it's going to take some time to reach to your doorstep, then you will try it. So that may not give you instant gratification, this radial stork and give you instant gratification. Also the entertainment and the social experience. Because chances are that if you are visiting a retail store, you may have your friend, your boyfriend, your husband with you. I know you don't really enjoy it that much with your boyfriend, husband if you're purchasing a lipstick. But you got the point. You always have some form of entertainment and social experience in that part. Then browsing experience, you will look around for 10 grindy, totally different types of lipstick with different sort of seeds. I was not really aware that being to have so many different types of sheets like hot pink and I guess there are 20 different types of shades within the pink. I'm still confused between red and pink. But that's a different thing, but you will have a good browsing experience. The process to jogger also be using cash. I think that's not that important nowadays. If you look at the issues which are their ingredients store, you will have a limited reach on because if you are opening a retail store, you can just call it 10, 15, or 20 miles of distance, That's all. Then you also have limited assortment and variety and that's the most important factors. That's the reason why all of these e-commerce rent or super successful. They can provide you thousands and thousands of different products with different shades, different size, different color, or different flavors. So that's the variety and assortment. I hope you already have a good understanding about the difference between variety and assortment, where IT is the breadth of the product and assortment is the depth of the product. Then you have your high operation cost. Obviously, if you're opening a store, you have to pay your rent, you have to be or some operational goals like your salary, running a store, electricity, furniture, and all of the interior. Then also you can't really use information or destroyed by people. And because you have a very limited timeframe, if a purchasing online you can give rating, you can pass on feedback. You can choose multiple options. And that's going to give a lot more feedback from the people. Let's look at the advantage of having an online e-commerce Ren, and let's look at a disadvantage. The first advantage is obviously look and see. People can look around maybe too grindy, totally different types of product without being judged. Nobody's going to ask that why you are asking for so many different types of product. Also, you will have a personalization, Dutch. Now, the element of personalization is super important. Let's see, intermediate story. You can only maintain 10, 20, 30 different types of inventory. But in online you can maintain maybe, let's say ten thousand, fifteen thousand different types of fossilization element in a centralized warehouse for the whole country. But for retail store, you can't really have that personalization touch. Then you have a broader and deeper assortment. I think we already had a good understanding about this, where IT is basically how broad categories assortment is, how deep your category is. So that's the benefit of having an online store. Also, the time information. I mean, online app is open 24, 7. You can purchase it in the morning, in the evening anytime you want. Also, they provide you a greater reach if they're opening up online e-commerce store. Obviously, you can dab on all the people are on the wall in your own country at any location, then they have a lower cost structure. It's just going to take cost to around 25, $30 to open an online e-commerce friend and you can start selling all of your product or different customer. Let's look at a disadvantage of having an online e-commerce spring. One of the disadvantageous high security and privacy concern. I think that's not a disadvantage anymore. Our recently, if you use a third party channels like Shopify weeks, WooCommerce, I think the data is quite productive. And that's not an issue nowadays, but previously it was a big issue back then. Then you also have a higher returns then store. And this is a very big problem. I think go, I've seen are returned to origin or RTO rate of 20 percent. When I was working for 1D to see brand almost 23 years back, I scale when B2C brand from 0 to a million dollars in revenue. And when I was working, I've seen 20, 30% of product coming back to our beer house. And when the product is coming back, you are incurring the logistic cost, both the forward logistic cost and reverse logistics cost. And that's a very big of being in the wrong part of your body. I mean, you just being the fees just to ship the product and if the customer is sending back to the product, you're also paying the fees. Very, very bad stuff. Then you also have a lack of trust on this issue is somewhat also resort because of the legal compliances. Almost all countries have very strict rules and regulations. In Greece, offeror in case of something bad happens to the customer. Now let's understand the difference between showrooming or webrooming. This is super-important. So let's say you always have two options. Let's say you wanted to purchase a dress from H&M. Are you always have two options. You can either go to their website and then purchase the product. Or maybe you visit a nearby store, lookout for that specific dress. And if you find that there is a price difference between what's their own internet and what's there on the retail store, then you will come back home and purchase that from your smartphone. So you always have astronomy. Showrooming means you browse on in the store, you look out for that specific product and you will purchase online. For webrooming, you will browse, I mean, you will browse, you browse on the Internet. And then you look out for a good product. And then you will go to that specific brand, retail brand, and then you will purchase these products. Now, webrooming and showrooming have advantage and disadvantage as well. One of the biggest disadvantage webrooming and showrooming half is price inconsistency. Obviously, to run our retail store, it's going to be super expensive. You have to pay rent, you have to pay salary, you have to maintain inventory. You have to make sure that you have enough furniture, electricity bill, and all of the stock so that we automatically inflate the price of the product. On the other side, if you're running an e-commerce store, you just have to maintain a centralized inventory in a warehouse. And then you can ship all of your product from that warehouse to all the people around the world. So technically the cost will be less in the e-commerce keys, but because people are doing showrooming or webrooming, it's super difficult for a retailer to maintain price consistency. Nowadays they're doing it because customer, it's super smart and they have to align with the customer. But that's a problem that we are still tagging. So as a retail manager, if tomorrow we will walk for any multinational company like Amazon, Walmart, Target. And you also have to make sure that you have the price consistency across all the channels, your e-commerce, your retail store, or anywhere. Let's understand some research study that was done in showrooming or webrooming. So let's look at the showrooming or webrooming part. So let's look at webrooming. 78 percent of customer have researched their product online before this doc purchasing physical store, which means hinder out of 78 customer accepted that they use to look out for product own lane before the repurchase those product offline. That means webrooming as important and you should consider webrooming. Seemed it's showing me almost 72 percent people have visited some form of store before they start purchasing that product online. That means showrooming is also important. That means you have to focus on webrooming aswell shortcoming as well. One of the major factor which influence this webrooming and shortening stuff is price. You have to maintain consistent price. Or let's say if you don't want to maintain consistent price, then don't start the retail store until and unless if you have other factors like your personal dodge, your personal feed. All of those factors which also influence customer behavior. Let's say if you're selling your product at an extra 5% rate and then providing touch and feel of your product, then it's not a big deal. But if you're selling something which doesn't need a lot of personal touch, feel and experience. So by conclude this video, if you're working for some company, you have to ask questions like, why do you maintain price consistency at both the places? What's the reason behind that? Thus, price consistency will increase the crust, or does your product have some Dutch field and comfort shorter element which will push people do come to your retail store and then only purchased the product. Also, if you are opening a retail store and if they're also selling your product online, how do you manage inventory cost, and working capital? For a retail store, it's super difficult to maintain a very large number of inventory. Because obviously you have very limited space in retail store. And obviously if you're dealing with some distributors, suppliers, then you also have a working capital cycle. So let's say if a supplier is taking product from your retail store, he may transfer money after one week or after a month. So you're working capital is like a month or a week and you may not have a proper cash flow. So how will you manage that part? And in the end, how will you decide what's the soft point between variety and assortment? Let's say if you wanted to maintain a variety of Ben, different types of shoes in your retail store. How exactly will you decide that rich shoes you have to maintain? For this purpose, we will be doing some exercises in the coming videos where we will understand three different category of product. You always have passed moving product, medium moving product, and slow moving product. We will understand how exactly you will balance out the inventory level between a fast-moving and a slow moving product inside your retail store. We will understand those kind of scenarios in the coming videos. But if I conclude the video, you will have to have both of these offline and online channels. Because the benefit of having online channel is because you can push customer gluteal people cheese if a customer already have a good level of understanding about your brand, about your product, then chances are that that person is going to purchase all of your product online. That's a repeat purchase. Almost all eCommerce brand have a very high level of repeat purchase because of the comfort and ease of purchase. We want to talk about that in the coming case study where we will discuss about Warby Parker. That's a omni-channel brand in US for IVR and spectacles. So we will understand how exactly those people started that business as an offline retail store. But then they started realizing that they can also sell spectacles online, which will increase the repeat purchase in the future and reduce down their costs, their inventory and working capital, and sales per square foot in the retail store. That's a different topic. Also online, it's super attractive to the people from the age group of 18 years to 40 years. If you are a very young other kind of person, chances are that you will use all of these eCommerce brand and retail store. Also, you can maintain unlimited inventory in the online e-commerce plan, you can have a standardized product. And there are so many things. But we deal store are super important if you wanted to give offline touch points. Now when I'm saying offline touch points, that means any product that require a touch, feel, comfort, and a social element in it, like purchasing a lipstick, purchasing your clothes, or are having a meal, anything that require a personal touch. So these offline retail store will act as a personal touch to build a strong brand, to build a very high level of trust. Then the age group of retail store is closed around 40 to 50 years. I mean, I'm not saying that young people don't go to a retail store, but people with the age group of 40 to 50 years, they don't really trust these eCommerce brand and that's why every single time they go to the z-table store and they only purchased from these retail store. And they usually our DC commerce man. I might be wrong as well. In some countries you will have very smart people from this age group. But the majority of the cases people may not prefer purchasing all of these product online. Then you have your touch and feel element, which is there in these retail store. 13. Warby Parker Case Study Intro: Hey everyone, In the last video we were discussing about the omni-channel strategy of Walmart. Walmart was using the omni-channel strategy. In this video, we will do a small case study of Warby Parker. We will understand their omni-channel strategy and how they were able to build a very strong brand by focusing on the omni-channel strategy. Omni-channel strategy is really by which your product or your service reach to consumer wherever they are present. Let's save your consumer is present in the offline market. Then you will open a store. If a consumer is browsing through Internet, then you will start your own website or your own e-commerce store. That's the strategy of capturing your customer at almost all the touch points will be your online store or you're offline store wherever your customer is present. But remember, if you're not from United States, you will have all of these other brands as well. If you're from India, then you will have companies like length Scott. If you are from UK, you have companies like specks where all of these companies are doing exactly the same thing. But because these companies are presented in different countries, different geography, then you may have different names of all of these brands. The main purpose is exactly the same. Build the omni-channel strategy for eyewear or spectacles or whatever you call it. So let's quickly understand Warby Parker, omni-channel strategy and lead strategies are applicable to every single brand irrespective of the country or geography that they are serving. Let's understand the first successful strategy which was used by Warby Parker to make sure that people are having the best customer experience. Now there is a reason why people spend a lot of money in buying these spectacles. I've seen so many people going to different optometrist and then get all of their intestine and then they will purchase all of these expensive spectacles. Now let's understand how exactly this home try-on program of Warby Parker works. Let's say you will go to the e-commerce website and then you will choose five of your best frame. And then they will deliver all of those five best scream at your doorstep. And then you will try all of these five frames. Maybe you will capture a photograph and post that photograph on Instagram. And then you will choose one frame out of these five frames. And then Warby Parker will deliver that specific frame at your doorstep with whatever power you have. So that was the strategy which was used by Verbit partner to make sure that the customer have the best experience. And even after sending all of these five different types of spectacles, if you do not like any of these spectacles, you can send the complete parcel back to Warby Parker. That's the strategy which was used by Warby Parker in their home try-on program. Apart from this, or they also have a full omnichannel retail experience. They also have these amazing retail store where you can visit these retail store and then you can move around. Maybe I've seen some people who did not really, like try on these five spectacles are glasses. And they wanted to try maybe 304050 different types of frames to choose the best one. And that's why they have opened all of these retail store to make sure that instead of trying to just five spectacles now you can try 50 spectacles on your fees or 50 frames on your fees. Also, they have integrated their online and the offline omnichannel retail experience. That means you can probably purchase all of your spectacles online with their EIM and algorithm. So you just have to rotate your face and it will take the 3D mapping of your fees, and then it will start showing your different frames. We just need to swipe right or left. And it will show different frames on your fees. As soon as you choose your frame, then you can quickly go to the nearby Warby Parker store and you can request them to make that specific frame for you and then you can pick up that specific spectacles in the next day itself. That's the kind of integrated offline and online omni-channel experience where we partner provide to the customer. Because the half absorbed at 75% of people were coming to their website, but they were not really checking out because they were not having that physical touch, especially in IVR. And that's why these guys started opening all of their offline retail store. Remember, in eyewear, in spectacles, post-purchase always happens in the retail store. That is also a form of touch point. So you always acquire a customer from these retail store. And once you have customer trust and the customer, then the customer would style start using your in e-commerce website, your online app or whatever. That's the strategy that almost all of these eCommerce brand is following. So no matter you have your warbyparker, your lens scarred, your spec savor. All of these friends are following this omni-channel strategy, where their main purpose is to acquire customer using a retail store. Because in retail store you have different types of frame. You have all of the smartest people who can guide you, who can educate you on the types of frames or lenses you can choose. And once you have all of that sort of experience about a specific brand, then they will push you to purchase all of these products online because they have your part. They have the different types of lenses that you like. And now you can browse through maybe a millions of different types of frame in their website or in the mobile app. Now let's understand the different types of metrics that Warby Parker needs to track in both their online e-commerce store and in their retail store as well. Let's understand specifically for retail store, The first one is obviously the very new. Now revenue is the total amount of seeds that are retail store is trend reading. The second is the channel mix, which means how many customers are purchasing the product online and how many approaches in that specific product offline the mix of online and offline purchase, then you have your growth and retention. Because obviously if you are driving a customer in your own store, you are incurring a massive amount of cost. You have to make sure that whatever customer that are purchasing from your offline store, you have to read in them. You have to make sure that all those costumer are purchasing the product again and again. That's the repeat purchase and retention that you need to focus on. Now in the coming videos, we have couple of strategy to make sure that you are retaining the customer. We have RFM analysis to do that. Then you have your four Walmart or not. These are also known as your average sales per square foot. So let's say if you have a storage size with specific square foot area, then you will calculate how much sales that you're generating from every single square feet. I mean, that's an allergy. But if you have a bigger store and then you have to generate more amount of revenue or more sales. If you have a smaller store, you have to generate less than a month of revenue or then you have your contribution margin. And we will talk about that a little later in the course when we will discuss about the retail accounting and finance. Please don't get scared with finance and accounting. I'm going to make it super simple for you. 14. Warby parker Retail Finance Metrics: Now let's quickly have a look at the case study of Warby Parker. And meanwhile in this case study, we will also understand couple of these metrics as well. Warby Parker started the journey back in 2010 when they fulfilled their first-order. Then they started selling sunglasses. They built up their own e-commerce website. Then they started opening all of these retail store. They started having in-house optical labs and they study scaling retail are after 2014 and now they have omnichannel strategy, which means now they have both online e-commerce app and e-commerce website and the retail store. And the main purpose of Warby Parker is obviously to offer the high-quality and uniquely designed glasses for a reasonable price point. And obviously the point of difference of Warby Parker is to offer high-quality and uniquely designed glasses at a reasonable price. And they have home try-on programs. They also offer outstanding customer service, and they also have omni-channel presence, which means they have the online e-commerce website, mobile app, and they also have retail store. And both of these things are very much connected to each other. So the main purpose of Warby Parker is to make sure that they are not focusing on brick and mortar store, but they are converting brick and mortar to click and brick kind of store. We will understand that in the next couple of slides. So let's understand the amount of revenue that they're generating from their retail store when compared with their mobile app, more than half of their revenue is coming from the retail store. You can see that with this specific diagram, you can see that in 2018, the Channel Mixer, which is the contribution of their online sale with the offline see, you can see that you have your e-commerce sales and your retail store city. In putting it in the retail store sales were at 62%. And in 2020, majority of their sales is coming from their e-commerce website, but they also have a good contribution of sale that is coming from their offline retail store. What does that mean? This means that the kind of retail store that they have started back in 2018, majority of the first seal that happened in all of these retail store, but then customers started purchasing all of their IVR or spectacles online. That means your first purchase or your first touch point is always the offline retail store. Now let's understand the contribution of revenue from their retail store and their online e-commerce website or mobile app. More than half of the revenue is coming from the retail store. That means majority of the porches happens in the retail store. And once costumer have porches, the product from the retail store, then they will start purchasing the product online or maybe using mobile lab. You can see purely from this diagram, in 2018, 38% of their sales was coming from online e-commerce store or mobile app, and 62% it was coming from retail store. But in 2020, that number decreased down by almost 40%. That means 40% of their sales were coming from retail store and 60% from e-commerce store. What does this diagrams shown? This means that the first touch point of the customer or the customer acquisition channel is always the retail store. Customers started purchasing all of their spectacles back in 2018 from the retail store. But once they have purchased the product from this specific brand or Warby Parker, then they got a good understanding about the product, and then they started purchasing online. You first open all of these retail store to make sure that you are giving best customer experience. And once a customer has a specific perception about your brand, then they will start purchasing all of these products online. Retail store will act as a first touch point for all of these customer. And then they will do repeat purchases from mobile app because mobile app have millions of frame and retail store will just have maybe 5070 or a 100 different types of frame. Now this means that stores are the key to the growth or for this specific company, you can see the number of store count in 2018, the number of store count where 88 in 2021, the number of store count is 145. So where we Parker is progressively increasing the number of store count because this really fuels off the growth. Now store count might be difficult to open because obviously you have to have a very high capital expenditure in the shorter term, if you open a new store, you have to invest capital in space, in furniture and interior, then you have to be certainly do all of those employees. But once people start purchasing from that specific store, it will reduce down the expenditure in the longer run, because a customer normally box in inside the store, he will have a good experience from that specific brand, and then he will start purchasing online. Based on the above trend, you can see that the store count will increase and it may increase your capital expenditure for a while. But after maybe four or five years, you will see that capex going down because now customers started purchasing online because of convenience. Now apart from your offline store, your e-commerce website, you also need to focus on retention. And retention is one of the most important matrix that you need to track. Seven times more difficult to acquire a new customer than to retain the existing customer. And that's why retention is the most important metrics as a retail manager you need to focus on. You can see that they have 24% around twenty-five percent retention in the fascial months. You'll have it on 50% retention in the first two ears and then you have your around 75% retention in first three years and around maybe 9798% retention in phosphor years. Now the reason behind that is obviously people don't really purchase leads spectacle stat often. Like normally I purchase my spectacles in around two years. So you will have a good amount of retention in 24 months. Now the retention cohorts is amazing. I feel this specific number is little inflated from the very bankers side because it's super difficult to get a 9790% retention. Normally, if you are amazing brand, if you have amazing customer service, you can reach to a figure of around 8590%. But that much of retention, It's luckily inflated, I guess. 15. Basics of Income Statement: That's all about the retention. Now to understand the cost structure of Warby Parker, we first have to understand the basics of income statement. So if you're someone who have 0 idea about finance or accounting, I'm going to make income statements super simple for you to understand. And believe me, just give me five minutes and I'm pretty much sure that you can understand this specific diagram and probably how exactly income statement looks like. So at the top you have your net sales. Net sales is the total amount of revenue that you will generate. Let's say if you are selling product, then you just need to multiply your total number of product with the price at which you are selling those products. And that's your total revenue or corporate sales. So you have your total sales at the top, then you have your COGS. Now COGS is your cost of goods sold. That means, what is the cost that you need to incur to produce a specific product? Let's say if you're selling spectacles, then what is the cost that you require? Manufacturer that specific spectacles? That's your COGS. If you're selling a spectacles at, let's say a $100 and the cost required to produce TTX spectacles is like, let's say $30, then COGS is $30, your net sales is a $100, then you have your gross profit. So if you subtract your neck seals are your total revenue, then you have your gross profit. For gross profit, you just need to subtract your COGS, which is cost of goods sold from your neck revenue or net sales, that's your gross profit. Remember, gross profit is not your net profit. Gross profit is basically subtracting the manufacturing cost from your total revenue. Then you have your operating expense. Operating expenses, nothing but your salary of the employees. Store, rent, your furniture, your electricity calls, your administration cost. These are all the operating costs which are required to run a specific business. Now, then you may have some other costs like your furniture, your administration, your electricity, your marketing, your paid promotion, all of these are other costs. So if you combine your operating cost with other costs, you have your total cost. And if you subtract this specific total calls from your gross profit, then you will have appetite. Appetite is you're owning before interest, tax and a amortization. That's your avatar, which is your net profit before tax. Then you also have to pay some form of taxis to different governments. That the reason we are having a beta here because obviously if you are running a company, you may have some form of data as well. You have to pay debt. For that specific debt, you have to be some form of interest. Then you have to pay taxes to the front governments. And finally, whatever property or whatever story you have, you may also have some form of, some form of PR or damage onto that specific property or acid. Then you will subtract your taxes. And finally, you will have your net profit. So that's the structure of an income statement for any company. Now this is the oversimplified version of an income statement. Obviously, with more figures, this will become very confusing. But for any company, this is the basic income statement. You have your net sales at the top, then you will subtract your manufacturing costs from your neck sales, you will have your gross profit. Then from gross profit, you will subtract all of your expenses like your salary, your administration calls your store or ramp, or maybe let's say your electricity calls to a furniture costs, all of these costs or expenses. And then you will have your avatar appetite is you're owning before interest, tax and amortization. Abby dot, which is also known as your net profit before tax. And then you'll subtract your texts, your interest, whatever. And finally, you will have your net profit after-tax, so-called your net profit. That's the basic flow of income statement. Now once we have a good understanding of income statement, let's understand the contribution margin and they have a really strong contribution margin. 16. Warby Parker Contribution Margin: In this video, we will understand the most important part, which is the contribution margin. But before understanding contribution margin per customer, we have to understand all of the cost that is there while you're selling product or different customer. You have your average revenue per customer at the top. In 2018, the average revenue per customer was $188. In 2020, the average revenue per customer is $218. If you wanted to calculate average revenue, you just need to divide your total revenue by your total customer. So if you have, let's say, a million dollars in revenue and you have a million customer, then your average revenue per customer is $1. Let's look at all of these cost structure. At the top you have your cost of goods sold, which is your COGS. Let me quickly take a highlighter and this is your cost of goods sold. Now obviously in COGS, you have your product cost, you have your fulfillment cost, because obviously you will be fulfilling all of these products at customer doorstep. Then you have your salary, you have your store, and you have your depreciation. Depreciation is when your store assets are depreciating over time, they're losing their value. Let's say you have brought some furniture. If you resell that specific furniture after two or three years, obviously there will be some sort of price reduction. That's your appreciation. And that happens in almost every single asset, from your furniture to your lightings, to your glass, every single asset will depreciate over time. So that's your COGS, which is cost of goods sold. What is the cost that you are incurring to sell one specific product to customer, then you have your acquisition cost. This is your ad spend. So let's say if we are running Google ads or Facebook ads or any form of advertisement, or if you are doing any paid promotion, What is the money that you're spending to acquire one single customer? For example, let's say if you are running Google ads and you're spending $100, and then you are able to acquire, let's say, a 100 customer than $10 is your customer acquisition cost, $1000 divided by hinder customer that you have acquired. By running that specific ad campaign, you're acquiring a customer intent dollar. Then you have your service and sales cost. Obviously, if you're running offline or a retail store, then you have to pay salary. Then you also have to provide them all of these financial services. Then you have to accept payment. Then you also have to provide customer expedience, which includes having a right kind of gadget in the store, like an iPad or maybe package all of these products to customers in different sort of packaging. So if you closely have a look at all of these cost structure, the cost of goods sold in 2018 was at $75 per customer, and this was around 14% of the average revenue per customer in 2022. This number increased from $75 to $90, and this is 41% of the average revenue per customer. Similarly, in customer acquisition cost in 2018, the customer acquisition cost was just $26, which is 14% of the total revenue. In 2020, the customer acquisition cost got increased from $26 to $40, which is along 19% of the revenue. And this might be a problem for Warby Parker because now you have enough competition, now you have different players in the market. They literally have to spend more money to acquire the same customer. But they somehow can solve this problem by retaining the existing costumer. Then you have your selling and service costs. In 2018, it was around $39. In 2020, it is at around $43. There is a slight decrease in this. You have your 21% of total sales in 2018, and now you have 20% of total sales in 2020, sorry, it was 21%. There is a slight decrease in this. So you have your thirty-nine dollar, which is 21% of the total revenue. And this code, the crease down by 1%. In 2020, they have 20% of this cost, which is a percentage of revenue. Then they have the contribution margin per customer. They had twenty-five percent contribution margin back in 2018. And this year they have 21% contribution margin, which is a slight drop off around 4%. And this happened because of the customer acquisition cost. There is a slight decrease in the contribution margin from 25% to 21% in 2020. And this happened because of the higher customer acquisition cost that got increased from $26 back in 2018 to $40 in 2022. Because of this contribution margin, obviously this is also affecting their avatar and that's why their EBITDA margins are tight. So appetite is you're earning before interest, UX, depreciation and amortization. So you can see that in 2018, they had a habit of around 3.2% in 2019, that got increased from 3.25%.9. And in 2020 this again got decreased by 1.9%. I think this also happened because of COVID. But in 2021 we will see the same trend on the EBITDA margin will go up once the pandemic and all of the lockdown stuff is over. I think it's already all in 2022. Right now you're making this video. But in 2022 as of now, they have already had the EBITDA margins. 17. Customer Relationship Management: Hey everyone. In the last video we had a discussion about Warby Parker and we had a good description about the different types of omni-channel strategy that Warby Parker was using to integrate their offline channels, which is their retail store, and the online channel, which is their e-commerce website and the mobile app. What one of the most important element that you have to consider if you wanted to build brands like Warby Parker is your customer relationship management. But before that, let's understand what do you mean by CRM. So when I'm saying customer relationship management, these are the set of practices, strategies, and technologies that you will use to improve the customer experience, retention, and the lifecycle. Now I know that a couple of complex trauma in this specific definition. So let's break down all of these terms one-by-one. So you have your customer experience, your customer retention, and your customer life cycle. When I talk about customer experience, one of the ways by which we can increase the customer experience is buy market basket analysis. We will understand how exactly in a retail store you can put all of these similar products together. Let's say you have your milk, your bed, your egg, and your butter. All of these products are very similar. So how exactly you can find the similar products and then you can put all of those similar products together in a store. To understand retention we will do when RFM analysis recommends your recency, frequency, and monetary. In the coming videos, we will do an RFM analysis to understand how exactly you can create different buckets of your customer. And then you can assign a score and you can give them some loyalty card or something, which can help you read in your top 20 customer. And the customer life cycle we will understand about the planogram. And there are a couple of more retail concept. That's how we can manage our customer. Now that's the advanced way to manage all of your customer. But before that we have to understand some very basic concept. Now if you're aware of Pareto principle, it's applicable at almost every single place. Almost 80% of your sales comes from 20% of your clients. Almost 80% of your profits comes from 20% of your product and services. And similarly, 80% of decision in a meeting are made in 20% of your time. And not only about meetings, sales, or services. Better TO principle is there at almost every single place at. But why we are discussing about Betty TO or pattern TO, I don't know how you pronounce it. Principle in this specific video. Well, the reason is 80% of the retail business comes from 20% of your customer. And we have to make sure that this 20% of our customer is on loyal customer. So we have to make sure that we are making strategy to make sure that these people are purchasing our product over and over again, we have to change our strategy from product centric book, customer centric, because customer will never produce the product. Customer will always pushes the brand. And that's why we have to leave this product centric or sales centric approach. And we have to focus on customer centric approach. And that's what we will understand in customer relationship management video. But before that, let's understand the different components of CRM. So I'm sure that you have used any of these CRM softwares. So hey everyone, In this video, we will understand the different components of customer relationship management. The time a customer visit on your website to the time he will check out. There are so many touch points that a customer will have and you have to break down all of those touch points. And then we will understand how exactly you can use all of these different types of software to make sure that your costumer have the best experience. Let's start with our first one, marketing automation. No marketing automation. Email tools of very common. So let's say if you sign up for any product, you will receive a confirmation mail. And after that, those specific websites have sorting e-mail triggers. So let's say every two hours or let's say after two hours you will get an email saying that we are offering you 5% off on a phosphatase or let's say maybe $5 of discount. Maybe after six hours you will get one more meal. After two days, you will get one more meeting. So all of these emails are nothing but email finance, they have a specific time trigger or let's say an action trigger. The time you visit the website you will receive the mean from the same product that you have visited. And all of these different types of trigger. That is nothing but marketing automation. You can use different types of tool. You have HubSpot, you have fresh work, you have Zoho. All of these are marketing automation tool. Then you have sales force automation. Now, we will understand about all of these factors are components in the coming videos. But I'm just giving you a basic overview. Then you have your contact center automation. So if you go to any e-commerce website. You can see that those websites have jet boats or maybe IVR. So let's say if you're always getting delayed and you wanted to call someone, then they will provide you some toll-free number. That's nothing but an IVR. And if you call that specific IVR, it will help you navigate through the status of your order if you wanted to change the payment option or let's say if you wanted to cancel that specific order, all of that is done using IVR and checkbox. Then you have your geolocation technology or so-called geo fencing. So let's say if you wanted to set up product in a specific country or in a specific state or in a specific geography, then you can put geo fencing as restriction and then people of that specific location may not be able to order from your website. Then you have your workflow automation. And workflow automation is normally used in warehousing and maybe streamlining the basic work that you have in your company. Now there are so many use cases that goes inside the workflow automation, but we will discuss about that a little later in the course. Then you have your lead management software, and these are very basic shot off software that anyone can use. So let's say if you wanted to run a Google ad campaign or a Facebook campaign, or let's say a Snapchat campaign or Tiktok tamping, you will need a software where you can manage all of your customer who are coming as a lead from that specific campaign. And then you can create all your e-mail triggers. Then you can maybe drop some message or whatever. That's nothing but a lead management software. You can use HubSpot, intercom fresh work. There are more than a million lead management SAS best product out there in the market. You can watch my course video if you want to understand more about all of these different types of SAS software, I have a full 78 hour course on Software as a Service, also known as SAS. So all of these software products that they are in the market, I have a complete course on how exactly these things work. Then you have your human resource management or let's say you can use your workday or DOM in books kind of software to manage your resource of so-called your employees internally. Then you have your analytics for your customer and you can use Capillary Technology and capillary inside kind of product to see the status of your customer. If I summarize the customer relationship management or with the help of all these different types of tool, you will manage your customer and you will make sure that you have the complete history of your customer, which includes the purchase date. So at what did the customer is purchasing any specific product? How much price that customers have Betas. So let's say if they are using any offline channel or online channel, you have to have the customer data in case if you wanted to make any of the strategy, then you have to have the data of the SKU, which is your stock keeping unit, or the different types of products that he's purchasing, then you have to understand whether that customer is purchasing products from some sort of promotion which was given by u, or that's an organic porches. Then you also need to have all the data about the different touch points. So let's say if you have maybe a couple of retail store and a website as well, then you have to understand that whether the PO2s happened at the online store or a BD deal store. You have to have customer data in case if you wanted to manage them. Now there's so much opportunity that I can cover in customer relationship management. But personally, I feel totally is going to be used a lot of your time. I'm personally not a big fan of covering a lot more authority in any of the concept. And that's why in the coming videos, we will directly jump inside the concept and the different models that we will use to make sure that customer have the best experience without discovering a lot of theory. There's a lot of theory that is there in customer relationship management, like how will you analyze different types of customer, what data to collect, how to filter out the data. But I guess based on all of your important time and that's why in the coming videos, we will directly understand the different types of strategy that you will use to make sure that your customer have the best experience. Let's quickly have a look. We will use three different techniques, or I would say these are the most important techniques that are used in retail management to analyze customer data and make sure that you are providing the best customer experience. The first strategy is identifying the right customer segment. And to identify the right kind of customer segment, we will do RFM analysis, which is your recency, frequency and monetary analysis with the help of next model or next strategy, we will understand the different ways by which you can identify the best costumer. To identify a best costumer, we will use CLV analysis, which is your customer lifetime value and to increase the share of wallet. Or I would see the ticket size or the revenue per customer. We will use market basket analysis and we will understand how exactly you can increase the lift off different products with the help of market basket analysis. 18. RFM analysis (Recency, Frequency and Monetary): Hey everyone. In this video we're gonna talk about RFM analysis. Rfm is also known as recency, frequency and monetary analysis. In the last video, we were discussing about the different ways by which you can make sure that your customer have the best experience. And we were talking about the Customer Relationship Management. What in this video, we will understand the first strategy or technique or analysis by which you can make sure that you are giving the right kind of offers or promotions to the right customer. Remember, 80% of your revenue comes from 20% of your customer. And identifying this 20% segment is the most important part of your retail management. And that's what we're going to do. We will identify this 20% customer using RFM analysis. Let's dive in. So before jumping into RFM, let's understand what are we going to do with RFM analysis. Let's say we have a 100 different customer. And out of these hetero different customer, we have to identify top 20 customer. Now, what do we mean by top 20 customer? These block 20 customers are purchasing from us very frequently. These 20 customer have a very high ticket size, or let's say a high average revenue per user or average revenue per user. And these 20% customer have Bolchoz recently. These are playing them customer, these 20% are at the top of this specific triangle. We have to identify different segments like and probably we can also give them a loyalty card. Let's say we will give a loyalty card reflecting them loyalty card to 20, 20% percent customer. We will give a gore or loyalty card to around other top 20% customer. And same with other short of customer as well. So you have to divide all of your customer into loyalty buckets. So obviously our main focus is to maximize profit. Customer which are there in the lead or in the item segment. These are the least profitable customer and we have to focus on top 20 customer, which is our plutonium, and probably let's say gold customer as well. Now, plutonium customer are the most loyal customer because they are least price sensitive. Even if your brand will increase the price, these customer will still purchase from your brand because these are loyal video brand that really liked the experience because they are purchasing products from your brand very regularly. Then you have your goal sort of segment. Now, these are next, best to loyal. And then you have your iron, which is that these customer doesn't dissolve that much of attention and then you have your leg. Now recency will help you understand how recently the customer have purchased your product, whether your customer had purchased the product yesterday or day before yesterday, or maybe in the last week or in the last month. Recency will help you understand how rethink the porches force, then you have your frequency. Obviously, frequency is the number of transaction that the customer have done with your brand. Let's say how many times the customer is engaging or purchasing your product. Let's say in last seventies, the customer have both used your product, let's say twice, the frequency is two, then you have monetary. Monetary will show you the average ticket size or the transaction size of your customer. So let's say in one Bagchi is the customer has paid you, let's say a $100. And another purchase the customer has paid you, let's say $120. That's the monetary size or the transaction size of that specific customer. What is these bolts using power or spending power of that specific customer? Now let's quickly understand this with the help of one example. Let's say in this table, let me quickly take a highlighter. Let's say in this table you have your customer data. These different customer have some very unique ID. So let's say customer one have a unique ID of 123. So these are your customer ID. This can be a five-digit or a six digit customer ID. This can be anything just to see the number, then you have the recency. That means from today, how recently the customer have purchased the product. Now here one means that the customer have purchased the product yesterday itself. Means the customer have purchased the product day before yesterday. Party means that the customer have purchased the correct almost a month back. Now obviously, this will come in the form of date, but we have changed the format from D to today's state. Then you need to apply a sort function and then you have to rank it out based on the specific ranking criteria. Let's say the customer 12 hypotenuse to a product yesterday itself. So the rank of this specific customer in terms of recency score is one. Customer number 11, have purchased your product day before yesterday. That recency was three. And you have to rank this specific customer at number two. And same goes with all of this data. This customer have purchased your product almost 50 days back, and that's why you give him a rankled 15. And this is your rank. So you will first short out all of your data by recency. Then you will rank all of these customer based on that specific recency knob. You have to assign a score from one to five. Now you will split out all of these customer into five different segment, and then you will assign it a score or a decency score from one to five, where one means the lowest reasons z-score. So if a customer has purchased the product way back, let's say one or two months back. Then you give it at recency score of one. But if a customer have purchased your product just recently, let say yesterday or day before yesterday, then you have to give them a recency score of five. You can assign a recency score from one to five based on how recently they have purchased the product. Let's say two top 20 customer, we will assign the recency score of five. And to the bottom 20 customer, we can assign the reason z-score of one. You can see that you have your 555 recency score. Then you have your four for four weeks and z score, then you have your 332. We have divided all of these customers into five differential top 20% with $0.50 score because these customers have porches very recently and bottom three have purchased way back. These have the recency score of one. This is all about the reason z-score in RFM analysis. Now we also have to calculate the frequency score and the monetary score in the same manner. So let's quickly do that. You have all of your customer, then you have to calculate the frequency score and the monetary score. Let's understand it. When I'm saying frequency, that means how many times a customer is purchasing any specific product. So let's say customer number 9.5, a maximum frequency of 15. This customer is purchasing 15 times from your brand. This customer will have a frequency score of five. This customer is purchasing 11 times from your brand, so you will have a frequency score of five. Now please do not get worried about this specific data. We will use multiple different types of datasheet and we will do exactly the same exercise in XLS way. The main reason of doing this in presentation is because you can understand this much better than other people. That's why I'm doing this specific exercise in the presentation, but we will do the exactly same exercise in excel sheet as well. So let's say you have your data after customer. So customer number 3.5, both chest just once. And that's why you have a frequency score of one. You can also assign five as a frequency score to all of those customers who are purchasing for the maximum number of times, you can assign one as a frequency score to all of that customer who are purchasing the least number of times. And similarly, you will also assign the monetary score. You will short all of these customer by frequency, and then you can assign a frequency score of five top 20 customer. And similarly, you also have to assign the monetary score. Now when I'm saying monetary score, this is the ticket size. Obviously, you can use dollar or maybe let's say euro or any currency that you want. If you closely have a look at this specific data, because customer number nine is purchasing for the maximum number of times. That's why customer number 9.5, the maximum monetary value, which is 263 $0 or euro, or whatever currency that you are using. Customer number 12 is purchasing for almost ten times. And that's why this customer also have a ticket size or the total revenue of 1510. And similarly, you will also assign a monetary score. So if you have top 20% of your customer who are giving you maximum amount of revenue, you will give a monetary score of 55 to all of those top 20 customer. And you will assign a monetary score of one to the bottom 20 customer. Let's say customer number 15 is just giving you $25 in revenue. And customer number 15 and approaches just once from your brand. And that's why you gave him a monetary score of one. Now if you could click on mine all of these three diagrams, you will have this specific diagram from one to 15. You have all of these 15 different types of customer. And if you get all of their recency, frequency, and monetary score, you have this specific kind of score. So costly. Customer number 1.5, recently score of five, of frequency score of four, and a monetary score of four. Customer number, let's say 15.5, or recency score of four, frequency score of one and a monetary score of one. And you will average out all of these three value, let's say five plus four plus four divided by three. Similarly, four plus five plus four divided by three. If you average out the RFM score and then you will find the average of this RFM cell. So to find the average, you have to add all of these three numbers and then you have to divide these numbers by three. You have to add five plus four plus four. And then you have to divide this specific number by three. You will have a RFM score of 4.3. Similarly, you will add one plus one plus one divided by three. You will have an RFM score of money. Similarly, you will add this specific number, five plus four plus four, and you will have a different score of 4.3. Now you have to see that all of those RFM score, which are very close to five, these are the most important customer for you because these customers are purchasing from your brain very decently because they have high recency score. They are purchasing from your brand very frequently because they also have a very A high frequency score, and they also have very large ticket size or after this transaction value. And that's why we have a very high monetary score. That means all those customers who have higher RFM score, these are the most important customer. If you closely have a look at the customer number 12, this customer have a recency score of five, of frequency score of five, and a monetary score of five. This means that this customer is purchasing from your brand very recently, very frequently, and with the higher ticket size. And that's why you have to focus on customer number 12 or maybe customer number 11, because this customer also have a good RFM score, five for four. And maybe customer number 12. And that's how you are able to understand the RFM analysis. Finally, if we come back to our same point, RFM analysis will help you identify the best customer. Rfm analysis will also help you identify all of those customers who will soon John, or who will soon leave your brand. So if you look at customer number three, This customer is having a very bad RFM score of one. This customer may stop using your brand in the future. Then isotherm analysis will also help you identify the potential of your valuable customer. Let's say all of the customer which are having a good RFM score like this one, customer number nine. Now this customer had a very bad recency score, but this customer have a good frequency and monetary score. So probably you have to give him a little more promotion so that he can start by choosing from your brand or written more recently. Or maybe the recency will become higher if you do some sort of promotional offer. But this specific type of customer, I'm short after understanding this outcome analysis, You have a good understanding of different techniques that you can use to identify the best customer segment for your brand. And how exactly you can maybe do a couple of add promotions are a couple of offers to make sure that those customers are purchasing from your brand very decently. Now this one problem with RFM analysis is it fair to average out the recency, frequency, and monetary score for almost all of the retail format? Well, not really. If you look at brands like consumer durable business, the monetary value by transaction is very high. Let's say if somebody is buying a fridge or a refrigerator or let's say air conditioner. Then though, transaction size or the ticket size is very high, but that customer may not purchase from your brand every single month or let's say every single year. So the monitory value for that specific transaction is high. But the reason c value is very less or very low because the customer may not purchase that specific product from your brand every single month. Well, let's say every single year, you have a very bad frequency of very bad recency, but you have a good monetary score. In fact, if you look at other products like your fashion and cosmetic products like a t-shirt or a lipstick or a foundation. These products have very high recency score and frequency score, but they do not have a high monetary score. Let's say if I'm purchasing a five or $10 t-shirt every two months, then my recency and frequency score is very high, but my monetary score is very less. So in that situation, how exactly you can balance out the recency, frequency, and monetary. Just taking their fair average value doesn't make sense in that situation. You will just combine the recency, frequency, and monetary score. This is your original data. So you have a list of all of these customer. You have the recency score, their frequency score, and their monetary score, which is the total amount of money that they're spending with your brand. And then you will assign a reason z-score of frequency score and monetary score. Instead of just averaging them out, you will just put them next to each other. Let's say one-to-one, one, two, three, four, two, one, two, one, one, and one for three. And all of those customer who have a high RFM score, not the average score, but the total score. These are the most valuable customer here, four to one, which is a recently score of 421. Here we have prioritized the recency. If you wanted to prioritize the frequency, then you take frequency on the phosphite, and then you can prioritize frequency based on your prioritization matrix. So let's say this refrigerator air conditioner business wanted to prioritize them monetary aspect. So they have to put em at the first-place, then they have to put maybe recency and frequency. And based on that specific score, they will understand whether which customer is much more valuable to them. Still, it's a very subjective decision that you have to take. And that's why RFM score have multiple dimensions to it. You have to understand in which retail business we are currently in. And then you can find out your recency, frequency, and monetary score. In the next video, we will do a small exercise and we can understand this topic in a much better way. In that video. I will also give you assignment so that you can also practice this RFM analysis for your specific retail brand. 19. RFM Analysis Excel Exercise: Hey everyone. And this specific video, we will do one RFM analysis. Because we know that 80% of our revenue comes from 20% of our customer. And it's super important to identify these 20% of our customer. And one of the way you can identify top 20% of your customer is by doing the RFM analysis. Remember, our farm stands for recency frequency and monetary. Ideal customer have a high recency, high frequency and high monetary score. The main purpose of RFM analysis is to identify the different segment of customer based on their recency, frequency, and monetary. And then it's up to you whether you want it to give them a loyalty card. You wanted to send a small gift ampere or a thank you note, or let's say when, if you wanted to drop a medial or let's say three different men to all of these three different customer segment. That's the main purpose of doing this RFM analysis. You have these 10 thousand transaction and these 10 thousand transaction will have these number of customers. You will also have your customer ID. This is your customer ID 41841011. I think you have a customer from one to 5 thousand, I guess, yes. Then you have your transaction data from one to 10 thousand. So let's look at the data. So you have your 10 thousand transaction data, and these 10 thousand transaction data is there for these customer. You also have your customer ID, Customer ID or 18436571011. This is the unique customer ID that will repeat all the time because obviously these specific customer from one to 5 thousand are doing 10 thousand different transaction. Then you also have the gate of this specific transaction. And then you also have the amount of this specific transaction. Transaction number one was around $30. And similarly, you have all of these different types of transaction. Now we need to calculate the RFM score for all of these different types of customer. Obviously, we will use a pivot table fast. So I will hit control shift, right arrow and down arrow. Now I have all selected all of my data inside this specific. So you go to Insert tab. I will choose the pivot table and I will create a pivot table into a new sheet, which is your sheet number two. Now I have all of my data inside the pivot table. Now first I will drag my customer column inside my role. Now I have all of these different types of customer. Now once I had all of my customer now I will create how many transaction, which is the frequency of transaction these customers are doing. It'll go to the value setting that. And instead of doing the sum of all of these different transaction, I will do the count of all of these different types of transaction. So now I have now I have count. So customer number one is 2015 transaction. Customer number two is telling 20 transaction. Now these transactions are happening over a period of pi. So obviously, now we need to calculate the recency of RFM score. Now remember, recent see shows you how recently a customer had purchased the product. Now this one problem, we just have one specific cell, which is our dataset. You don't have phosphate and phosphate. The main purpose of calculating recency is why subtracting your phosphate from your last date. So for phosphate and last week, we will change this from our max values. Then we will change this from general to the date format. Now this is our last state. We will do the same exercise for phosphate as well. We will change this from value to the minimum. This time we are calculating the last date will change the format. We have our phosphate and our last tweet. Now we need to calculate the difference between all of these dates, and we will do that in the coming video. But we also need one more thing we have to replenish. See, we also got recency this time. We also need monetary to find. The monetary will drag and drop amount and we will sum it up. Now we got our recency frequency and monetary. Customer number one, specific customer had purchased 15 times in total. And he approaches these products first time in 2015, which is your 2015105. And the last time this specific customer have porches or product is in 201886. So the total amount of money that he'd spending on our retail store, remember, this is the total amount of money over 15 transaction, that is 947. Let's quickly copy the specific table or data. So we will hit Control Shift right arrow and down arrow. And maybe we don't want this N value, which is the summation. I will hit Control C and we will paste this specific data table over here. And instead of pasting the complete table, I know only the values because if you paste the complete pivot table, then you will start getting pivoted our hair, which we don't want, we just want values. So now we have all of our data. So you have your total number of transaction, which is the total transaction done by all of these customer over a period of time, then you have your most recent transaction and you're starting a transaction and you have your monetary value, which is. Overall amount of money that a customer has spent in your retail store. Now we need to calculate how many, for how many years this customer is purchasing products from our bed. Obviously about the best way to do that is to subtract your most recent transaction minus your starting date. And then you will divide this specific number by 365, which is your number of days in a year. You will have your 3.586. Let me reduce it down. So this customer is purchasing from your brand from last 3.58 years. Now obviously, we need to calculate this circuit. Double-click on this specific part. You can see that now we have the d dog, all of these different types of customers who are purchasing from your brand. This customer is purchasing from these many ears. So now you can see this specific data. Now we need to calculate the frequency score. Now we already have the frequency score or the total number of times a customer is purchasing from your brand. That is our total transaction that a customer is doing. But we need to calculate the frequency for every single ear. That means, if this customer has purchased the product 15 times, how many times this customer had purchased in a single ear. Obviously, we will divide our total number of transaction by total number of ears. Doc is this specific customer had purchased 4.18 times in one single ear. Double-click on it. Now you can see the data. These are the number of transaction that is happening in one single ear. Now I need to calculate the recency rank. So obviously, in item analysis you will decorate your recency rank or frequency rank and your monetary rank. Then you will combine all of these links together in RFM. And finally, we will calculate your RFM score, will use a simple rank function. Now I need to calculate the rank of, now i, now let's calculate the RFM score. Obviously, before calculating the IFM score, we first have to calculate rank, and then you will divide different ranks. Before calculating the RFM score, we first have to calculate the recency, frequency and monetary rank. Let's say we thank recency frequency and monetary from one to 5 thousand. So let's quickly calculate Frank Foster and then we will assign the recency score. I will use a rank AVG function. So obviously I had to create or find a recency score from this specific number, from this specific data table. So I'll hit control shift now and I have to freeze it and I'm looking for ascending order. And obviously I have to freeze this specific data because this data will remain constant over time. And only this cell will change when we will drag and drop this function, hit Enter. And if I double-click on this, you can see that now I got my bank. I have 677 rank 27, 406th string. You can see that I have my recency link. Now I need to calculate my frequency. Then I will usually use the scene rank function rank AVG. Now I have this specific frequency. I will calculate the frequency from this specific data Control Shift down. I'm looking for ascending order to freeze this specific data because this will remain constant over time, I will hit Enter. Similarly, I will also calculate the rank for monetary theories or rank AVG, monetary, have this monetary score. I have to find rank descending order. Then I put freeze this specific data because this will remain calm and overtime. Then I have to close this bracket. Now I have this, now I have the frank of my recency, frequency and monetary values. Now I have to segment all of this rank in a recency score ranging from one to five. And then we will combine this recency score to calculate our RFM score, and then we will divide the segment. So let's say if you wanted to give a platinum or a goal loyalty card to, let's say, top 5% of our customer, we can do that. Well, let's say you wanted to send a meal or a gift or anything to 5% of your loyal customers, you can do that. Now I think before calculating the RFM score, I did it all. I think this monetary rank that I've calculated, this is from the overall monetary values that I have to calculate, the amount of money customer is spending every single year. This is the total amount of money that customer is spending. So up to insert a new cell. And then I will create, Let's see, amount per year. How much among though our customer is spending every single year. So obviously, do that. I will divide this specific monetary score divided by number of years. Drag and drop. And now I'm good to go. And I also have to change the value. Now I have to change the value from L5 to maybe or five. So I will change this value to all five. And even from L5 to maybe 550 volt to four. Let me also change this. Then I will double-click on this, and yes, I have my rank. Now I need to calculate B recent z-score. We will use a Q function. So if, so, if this specific value, which is my, this one, is less than 10000, then I will segment this specific customer with recent C1. So obviously from a ranking of one to 5 thousand, which is we have 5 thousand customer. We have divided the rent into five different segments. In segment one, you have customer from one to 10 thousand. In segment two, you have customer from 1000 to 2 thousand. And similarly in segment number five, we have customer from 1000 to 5 thousand to all of these segment. We will give them a reason to score from one to five, and we will do the same exercise for frequency and monetary as well. If P50 value is less than 1000, we will give them a recency score of one. And similarly, if the P50 value, which is this one, is less than equal to 1000, we will give them a recent Z-score of two. Similarly, if P50 value is again less than, it will do 3 thousand, we will give them recency score of three. If P50 value is again, less than equal to 4 thousand, will give them a reason to score of four. And finally, if it is more than 4 thousand, we will give them a reason to score of five, and then we will close this specific table. You have a recency score of four because the recency values more than 3 thousand, but it is less than 4 thousand. I will hit and drop. And you can see that now you have a recency score from one to five. Now we need to complete the frequency score as well. The frequency score we'll do the same exercise, can see that if this specific frequency score is less than equal to 10000, we will give them a frequency score of one. If it is less than equal to 2 thousand, will give them a frequency score of two. If it is less than 3 thousand, then three if 4,004. And finally, if this between 4,005% will give them a frequency score of five. We will also drag and drop this specific number. And now we have to calculate the monetary score in the same manner. Now we have the similarly the monetary score if it is less than 100001, if it is less than two thousand and two thousand three. And similarly we will hit Enter and we will drag and drop. You can see that we have our decency score, our frequency score, and monetary score from the last video. Now we have to calculate our total RFM score. Now there are two ways by which you can calculate the RFM score. Either you can use the mean RFM score, which is your recency is much more important than frequency. And frequency is more important than monetary, then you have to be significant, catenate these functions all you can find out the average RFM score. And then you can rearrange these numbers and give whatever benefits you wanted to repeat your customer, let's say a loyalty card to talk 5% or an email that you wanted to draw based on these RFM score? Well, let's say you wanted to send some gift Pampers or whatever. I'm thankful. Thank you. Message. So let's quickly use our fast-twitch concatenate function. We will concatenate. All of these values are this value, this value, and this value. We will concatenate these three values. And apart from concatenating these three values, we can also create an RFM score. And this will be our average RFM score. And then we will calculate a mean or an average of these numbers. Have to go this way. And to calculate the RFM mean average, remember, the use of this RFM is also very important. So if you are using this RFA analytical analysis in a store where recency doesn't matter. All of these three values are really important, or I would say equally important. Let's say if you are running a retail store which is selling practices iterator, which is a seasonal product. That sense your frequency and recency doesn't matter. You want, we expect matters a lot. But let's calculate the average RFM score. Average this number. And now you can find out the top 5% of the bracket. I will apply a short function. And then you can basically apply a short function on this. And maybe you can rearrange this on ascending or descending order. And then you can take 5% of your customer, or 10%, or 15%, or 20%, whatever number that you have in your mind. And then you can give them a loyalty card. Or maybe you can send a email to them. Or maybe you can saying a tank full message or whatever activity or a promotional coupons or a discount on the next product, or whatever a new load product loss that you are doing in your retail store. And that's how you can calculate the RFM score of five per cent of your customer just by having the data of transaction Customer ID, the transaction date and the amount of money that they're spending or that specific transaction. 20. Market Basket Analysis: Hey everyone. In the last video we have discussion about RFM analysis, which is your recency, frequency and monetary. And we have discussion about different customer segment. Let us say there is a customer segment which is purchasing very recently from a brand. The frequency of that specific customer segment is also very high. And they are also spending a lot more money. So the average transaction is also very high. So we categorize that specific customer segment and we'll give them a higher recency, frequency, and monetary score. Now in this video, we're going to talk about market basket analysis. And market basket analysis is super important even if you're working for an e-commerce brand or a B2C brand, or if you wanted to open your normal retail store. Now let's understand why we are doing market basket analysis. Let you closely look at all of these three products. These three products are always pleased close to each other. But what's the reason behind that? Based on the retail data, these three products are always purchased together. And that's why retailer will always put all of these three products as close as they can, because that's how people will end up purchasing all of these three products together. That's the purpose of doing market basket analysis. With the help of market basket analysis, we can list on of these three products together so that they will become part of this specific bucket or boss Pete. And that's why we call this as market basket analysis. So if you look at the definition of market basket analysis, market basket analysis is a data mining technique which is used by different retailers, will increase the size of the purchase and to understand the porches pattern of different types of customer. And this can be done by analyzing a very large dataset. In the coming videos, we will take very small dataset of, let's say five transaction, ten different transactions to understand market basket analysis. But in real life situation, you normally have a dataset of, let's say 1 million transaction or let's say 10 million transaction. Based off that specific dataset, we will understand the purchase history, the different product groups, and how exactly we can increase the lift or the purchase of closely related product. And that's what we're gonna do in the coming videos. So let's understand the real light use case of market basket analysis. If you closely look at platforms like Amazon, 35% of sales that comes to Amazon is driven by their recommendation system. This codify, or percent of sales is close to only be 5060, $70 billion for Amazon. So if you have ever purchased any product from Amazon, you may have seen this specific type of recommendation engine that these three products are frequently brought together. So let's say if you purchase any camera from Amazon will also suggest you to purchase memory card or let's see, our lithium ion by three. And the main reason behind that is to increase your average revenue per user or your gross merchandise value. Amazon is increasing your average revenue per user. Amazon is also making sure that they have high gross merchandise value. And that's how Amazon is cross-selling and up-selling you the product. This specific recommendation engine is the help of all of these different types of algorithm or formula or models. We will not go that deep into all of these different types of algorithms because that will require me to run a Python script with the help of Pandas and NumPy of you have your SET EM algorithm, your FP Growth, your AIS, all of these different types of algorithm will not jump into all of these different types of complex algorithm, but rather we will understand the basic type of market basket analysis. So why do we need market basket analysis? Obviously, the main reason is to figure out the different products which are brought together. Also, we have to understand the different cross-selling strategy of the product. Let's say if a customer is purchasing one type of product, we can cross on him, or different types of product based on the different transaction that happened in the past. Then we can also optimize the store layout. So let's say if we have two products which are very frequently bought, brought together by different customer, we can purchase those two products as close as we can. That's one of the way to optimize the shelf layout. Then we can also bundle all of these DO products together with the help of product modeling. Then we can also do couple of promotions. We can also plan discounts. We can also maybe optimize the storage space, which is a very big constraint for majority of the retailers, they may not have that much of store space. And based on the market basket analysis, and not only market basket analysis, whatever we will do in this video, we will also, we can also use these kind of concept in understanding the medical symptoms or let's say maybe financial drain because we will understand about lift, confidence and support in this video. And you can also use the same kind of concept in maybe predicting different types of disease in human body. Let's say if you have cancer, then you may also have these kind of issues. Let's say if you are a diabetic patient, you may also have some heart related issues. And you can also create association confidence and lift. Obviously, we will not use this specific concept in medical or finance as of now. But let's quickly understand how exactly you can use market basket analysis to find association confidence and lift between different products. 21. Association and Support (Market Basket Analysis): So let's quickly start a video by understanding our first concept, which is association or support. If you have some basic understanding of math, then you can easily understand this topic of association and support. Let's see, these are all different types of transaction and these are the different types of items that approaches in that specific transaction. In transaction number 100, the customer had purchased beer, diaper, chocolate, and cheese. In transaction number 101, the customer have purchased milk, chocolate, and shampoo. Similarly in other sort of transaction, these are all different types of products that a customer half poetry is. Technically if a customer is purchasing a diaper, you can see that a customer is also purchasing the B or let me quickly take this highlighter. I can show you that if a customer is purchasing the diaper, the customer is also approaches in the video. Similarly, if the customer have diaper in their transaction, chances are that they also have B or similarly, you can have diaper beer, diaper beer. Now this is a very small dataset. Obviously in real life situation, you will have a dataset with 1 million transaction or let's say 10 million transaction. But if it closely have a look at couple of friends in this specific dataset, you can find that in every transaction, if a customer is purchasing beer, he also have diaper. You can see that in transaction number 101, you have your beer and diaper. In transaction number 103, you have your beer and diaper. Similarly in 104, you have your diaper and beer. You can see that if a customer is purchasing diaper, chances are that that customer will also purchase beer. And similarly, if a customer is having beer and diaper in his purchase, chances are he will also approaches Gs and chocolate. You can see that you have beer, diaper it, and choose diaper, Gs and chocolate. So the first way to identify any sort of association or linkage between two different products is by understanding this support, the formula of support is the frequency of product X and Y, both Gs together divided by total number of transaction. So here let's say we wanted to find out the support between diaper and beer in three transaction, diaper and beer, both are there and total number of transactions are five. So the support of beer and diaper in this specific dataset is 0.60 or 60% for the support of diaper, which is leading to the porches of VR is three divided by five, which is 0.60 or 60% of transaction contains both these items. Let you dig deep into this small dataset. You can find that all the transaction diaper, we'll have beer. But there is one transaction would be that doesn't have any diaper. And this is very interesting and we'll talk about that in a minute. If I summarize association or support rule, you have sorting type of dataset which will lead to the purchase of other type of dataset. Let's say if a customer is purchasing diaper and b before, chances are that that specific customer will also purchase beer and coffee. But the problem is if a person is purchasing of beer, his purchasing task specific product because of diaper or because of baby food, or let's say the person is splotches in coffee, that specific coffee purchase is done because of diaper or B before. So to understand that specific concept, we will understand about confidence. Confidence will help us answer this specific question. Is beer leading to the diaper approaches or diaper leading to the b approaches. Let's understand about the confidence in the next video. 22. Confidence (Market Basket Analysis): Let's say you have the same kind of dataset and you have all of these transaction. Remember, this is a smaller dataset that we are taking in real life situation, you have a dataset with 10000 or 1 million or let's say 10 million transaction. And we will deal with the real data in the coming videos. We will do one assignment with the help of Excel sheet. So confidence is basically a major of percentage of times item is purchased given the product x is purchased. Let's understand what do you mean by x and y over here. With the help of support, we had a good understanding about product X and Y, both Gs together. And then we have divided that specific or association or support by total number of transaction. In the previous video, we had a discussion about diaper and beer board diaper and beer was purchased three out of five times. So we have divided three divided by five, we have 0.6 or 16% of association or support. Let's understand confidence. Confidence is the frequency of product X and Y purchased together divided by frequency of any specific product. Let's say you wanted to understand the confidence of maybe beer leading to the porches of typer. In all of these transaction, beer and diaper approaches three times and beer is purchased. It seems that means if you divide three by four, you have 0.75 in 75% of transaction. If a customer is purchasing beer, he will also purchase diaper. If you closely Have a look 1234 in all of these for transaction, out of these four transaction in three transaction, if a person is purchasing a beer, even also purchase on paper, that is 75% confidence. That means in 75 transaction, if a person will purchase a beer, he will also purchase a diaper. Now let's understand the confidence of diaper to be. And that means if a person is purchasing a diaper, you have a 100% chance that the person will also purchase a beer diaper to be erased three by three, which is 0.10 or a 100%. Similarly for beer diaper, you have three by four. So out of these four transaction, if you look at the confidence of beer to diaper, that is three by four, is bocce is the likelihood of paper. Both cheeses is 75%. And this will help us understand that a diaper is leading to the apologies of beer because diaper to be your confidence level is a 100%, while the beer to diaper confidence level is 75%. That means people are purchasing beer because they are purchasing diaper. Diaper is leading to the purchase of beer, not the other way around. We'll look at the confidence score. The confidence score of diaper leading to the porches of beer is three-by-three. The confidence score of P are leading to the approaches of diaper is three by four, which is seventy-five percent. Finally, diaper is leading to the porches of beer, not the beer is leading to the purchase of typer. And we will understand more about the confidence score in the coming videos. So far, we had a good understanding about support and confidence. If we have an example like we have hinder customer and out of these hetero customer, ten of them have brought milk, it brought butter and six plot on both of them. Then if you calculate the support between milk and bottom six people have purchased milk and water bought out of Hendra transaction. The support is 0.06, which is 6%. If we look at confidence, confidence is nothing but support divided by the confidence of that specific product. Let's say we wanted to calculate the confidence of butter. Support is 0.06 divided by 0.08, which is 75% confidence. Similarly, you can also calculate lift in the coming videos. In the next video, we will understand how exactly you can calculate left S squared. But if I summarize the video of support and confidence, if in a list of transaction you have different types of products and you wanted to understand the support between two different products that are both cheese together, you just have to take all of these transaction which have those two product common and the new divide that specific number of transactions by total number of transaction. And then you can have your support score. To calculate the confidence score, you have to take the transaction which have both of those two products divided by total number of transaction that will have that specific product. Let's say for beer and diaper. For transaction will have beer and diaper. And let us say out of ten transaction, five transactions have B or you wanted to calculate confidence for beer, so four divided by five. Similarly, if you wanted to calculate confidence for diaper than four divided by whatever number of transaction that will have diaper as a product. And that's how you can calculate confidence. In the next video, let's understand the lift score. And finally, after that, we can calculate your market basket analysis. 23. Lift (Market Basket Analysis): Let us quickly understand lift. So unlike in confidence, lift doesn't have any specific direction. Lift means if you are purchasing one product, what is the probability of you also purchasing the other product? But in confidence of we were discussing about the direction of tech specific purchase. Let's see if a customer is purchasing beer. The beer is leading to the porches of typer or dipole is leading to the purchase of beer. We were discussing Locke, all of these different types of direction in confidence. But Lyft doesn't have any direction at such, which means the lift of BR2 diaper is always equal to the left of diaper to be. In the next exercise we will take 11 different transaction and then we will calculate some form of lift. Let's say if you wanted to calculate the lift of butter and bread, that specific lift is also equal to the left of bread and butter. In the next video, we will take 11 different types of transactions and then we will understand the lift. So obviously this is the formula that we were discussing. In the last video. We had a discussion about support confidence. And in this video we will understand about Lyft. If you don't have a basic understanding about support and confidence, let me revise your concept. If you have two different products In a list of transaction, if you divide the number of transaction that will have those two different product, let's say maybe diaper and beer. And you have ten different transaction. And in five transaction you have your diaper and beer. So five divided by ten. That's your support. And let's say if you wanted to calculate confidence for one product, let's say B or VO2 diaper. Then you will take all of the transaction which will have diaper and beaver beer, and then you divide that specific number of transaction by all of those transactions that we'll have beer, then you will have your confidence. In this video, we will calculate about lift. Left pays nothing but your support, your overall support divided by your support of X and your support AAC. Why? The liftoff bread and butter is equal to the lift off butter and bread. This doesn't have any specific direction, just like confidence. If you need to calculate the lift off bread and butter, you just need to calculate the overall support of bread and bottle divided by the individual support of bread and butter. Let's say you have 11 different transaction of these, 11 different transaction. In three transaction you have your bread and butter. And in seven transaction you only have your butter and in three transaction you just have your bread. So if you calculate the lift of bread and bottom, you have your three divided by 11, then you will divide three divided by 11 multiplied by seven divided by 11. So if you divide three by 11, you have 0.27. Similarly, if you divide seven by 11, you will have 0.636. That means the lift of bread and butter is 1.571 and that's a positive lift out of 11 different transaction, three transactions, butter and breeding them and just 321 section just have bothering them and seven transaction have bred in them. And if we assume that the relation between bread and butter as independent relationship, then the butter is occurring independently in twenty-seven percent transaction, which is three divided by 11. And bread is occurring in 63% transaction which is seven divided by 11 number of orders. Let's say there is no relationship between them. Let's say these two products doesn't have any form of relationship between them, then we would expect both of them to show up together in the same order, 17.35% of the time. This 17.35% games by multiplying your 0.27 by 0.7 in three-sixths. So if you multiply your 27.2% by 63.6%, you will have this specific 17.35%. So if I summarize the left, if you have a lift-off one, this implies that you have no relationship between product x and y. But if you haven't left off more than one, that means you have a positive relationship between Product X and Product Y. If I summarize the video, if you haven't left off one, that means you do not have any relationship between Product X and Product Y. But if you have a liftoff more than one, that means you will have a positive relationship between Product X and Product Y. On the other side, if you have a liftoff less than one, that means you will have a negative relationship between Product X and Product Y. And Product X and Product Y will occur less often than random. But if you have a liftoff more than y, then these two products will occur together more often than random. In our previous example, we saw that don't lift off bread and butter is 1.7 times more than random. We can conclude that there is a positive relationship between that and bottom. So let's replace, summarize all of these three concepts. In the previous video, we had a discussion about support and confidence. And now we are discussing about lift. Let us quickly revise the concept by understanding lift, confidence and support with the help of this example, assume that they are a 100 customer. Then of those entered customer have plot milk, eat of those entered customer have brought bottle and six OK, toss customer have brought both of them, both milk and order. If you wanted to understand the support of milk and butter in six different transaction, you have both of them milk and bottle out of these Android transaction, the support of milk and butter is six divided by 100, which is 0.7 in six or 6%. Let's calculate confidence. So the, the formula of confidence, it's support divided by the confidence of that specific product. Whether water is leading to the purchase of milk or milk, leading to the budgets of butter. Let's say we wanted to understand the confidence of butter. We have support divided by the confidence of butter. So you have a support of 0.06 and then the confidence of butter, which is 0.08, you have a confidence level of 75%. That means if a pollster is purchasing a butter, there are 75% chance that, that specific transaction will also have milk in it. Then you have a left, which is it by dividing 0.750.10, which is 7.5. That's a positive lift. That means chances of people purchasing bread and butter is 7.5 times more than random. That is all about support, confidence and lift. I know a couple of you are still confused with couple of few concepts. In the coming videos. We will do one or excellent exercise, and then we will understand all of these three different concept with the help of Excel sheet. And probably then you can understand these products in a much better way. 24. Name manager and Indirect function: Hey everyone, My name is now deep in the last few videos we were discussing about association, confidence and lift. And we had a good discussion about different concept by which you can increase the lift of the product. In case if you're not sure about market basket analysis and lift or the concept of market basket analysis and lift is also applicable if you're building an e-commerce website or an e-commerce store like Amazon or any other e-commerce website. The main purpose here is to make sure that people are purchasing more and more different types of product. Main purpose of calculating lift and doing this market basket analysis is to understand which two products we can place together so that we can increase the overall sales. Whether we can put milk and fruits together or fruits and DVDs together, or let's say BB products and DVDs together. So if someone is purchasing BB product, chances of ten purchasing DVDs will become higher. Or let's say if somebody's purchasing fruits, chances of those people purchasing DVDs will be compared to calculate how closely these two products are related to each other. We are looking at the positive. Remember, we are using the past to eat off any retail store. Let's say if you're working for Walmart, you can look at the positive rate of, let's say a last one week or last one month, or even last one ear. Now this is a simple data with 20 different transaction. Mean data can be a 1000 transaction long, or it may contains even a million transaction. We are just taking a very small dataset so that understanding the concept will become easier if you look at all of these different transaction, these transactions have a dB. So on which date of the week the product is purchased. And in this specific transaction, you also have these different types of products. Remember, one means that the customer had purchased the product, and 0 means the customer haven't purchased that specific product in that specific transaction. So if you look at transaction number one, this customer have porches visible in the transaction and milk and Depot and meat products in the transaction. If you look at transaction number to this specific transaction contains vegetable, baby product, fruit book, and it doesn't contain some DVDs and meat. You can closely have a look at all of these 20 different transaction. And this transaction contains all of these different types of products. Now this is a practical exercise to calculate liftoff, all of these different types of products. So all those products which have a liftoff more than one, we replace all of those two products together in admittance store. Let's say in a retail store you have 1520 different types of shelf. And all those products which have a liftoff, more than one, we will please both of those products together. So here you can see that you have all of these different columns. So you have column C, column D, column E, F, G, and H. And all of these columns contains different items. Now to perform this calculation or to calculate the lift, you need to have a basic understanding of Microsoft excellent. If you're new to the XO, I would highly recommend you to go to YouTube and just watch couple of videos that you have a basic understanding of Microsoft x. But again, still new to the team. Do not worry about that. I'm going to explain you all of these actual function in this video. And that's why this video might be a little longer than a normal video. This video might be at 2030 minute video because I have to explain you all of these Excel function first. And then we will use these actual function to calculate the lift of the product. Now the first function that we need to understand is the Name Manager. If you closely have a look at all of these different types of columns, you can see that you have column C, Column D, and these column contains all of this dataset. Now if you want to add all of the values in a specific column, you can just put the sum function. So let's say you can apply the sum function. So you can type is equal to some and you can hit Tab to select this function. And then you can maybe manually that all of these numbers. And then you can close this specific function and then you can hit Enter and you will have the sum of all the data. Very basic, nothing complex. But instead of selecting this dataset every single time, you can also name this specific dataset. Let's say I'm going to select this dataset. And over here I will name this dataset is where g is, it is already named by me. Similarly, I can also name this specific dataset. Swelling. Obviously doing that for all of these different types of columns will take a lot of time. One of the better way to do that is by selecting all of this dataset. Then you have to go to the Name Manager and then you can create from selection. And then you can see that it will ask us whether we wanted to create the column name inside the Name Manager with the help of all of these different types of headers, I will hit okay? And then you can see that you have all of these different types of names. You have your vegetable for this specific column. You have your Vd for this specific column, fruit for this specific column, milk DVDs and meter. If you wanted to calculate sum. Now you can see that you just need to type milk and then you have to hit Tab to select this and down, you just need to hit Enter. And you can see that we have are some of the milk. Similarly, you can do for anything that you want. This is our Name Manager, which means we can assign a name to any specific column and then we can directly pulled that name to refer to this specific column instead of manually selecting the column. Because otherwise you have to manually select the dataset every single time you have to use it. It's always advisable to assign a column, a specific name inside the Name Manager. So if you go inside the Name Manager, now that's one of the way by which you can assign a name to a specific column. Now let's delete all of this because this is a sample dataset. In the next sheet we have the mean dataset. So I'm going to delete this. I hope you got out understanding about how exactly you can rename all of these columns with a specific name so that reference, that name will allow. You do have all of these data inside that specific function. Let's look at the indirect function. Now if you're not familiar with indirect function, indirect function is basically allow you to refer the mean dataset from a specific cell. So it works like a hyperlink. Let's see. I wanted to calculate what's there in D1. You can see that v1 is this cell. I wanted to know what's there in D1. So I will simply write in direct, hit that, and then I will put this specific cell and I will hit Enter. You can see that it is showing me that in D1 BB is there. So you can see that in D1 BB or the mean reason we are using indirect function is to allow us to use these values dynamically. Let's say if I write anything else apart from v1, let's see if I write y1, you can see that this baby will automatically change. This is automatically changed to the fruit. That's the main purpose of using indirect function. Remember, this index function is using the value inside this specific cell. And this specific cell is referring to the value which is over here into the mean dataset. That's the mean function of using indirect function. We can also use our indirect function inside of the function. So let's say if I wanted to calculate the sum of cell D2 to D5. So you can see that D2 to D5, I wanted to calculate some of the specific dataset, or let's say calculate the sum of datasets from D2 to D21. Let's rename this to D21. And now I wanted to calculate the sum is equal to some. You will have to hit Tab to select this function. Then you have to type in direct function because we wanted to refer it to a specific cell, which we'll refer to the specific data. So we will select the indirect function, and then we have to select this specific number. And then we have to hit Enter. And you can see that the sum is three. Same thing goes with vegetables and BB product I sweat and they wanted to use the indirect function and then you need to calculate. Obviously in the last video, we deleted all of the name that we have assigned to all of these different types of columns. So let me quickly assign the name again. I will go and select all of this dataset, and then I will create the name of all of these different columns inside the Name Manager from the Hadoop. These are all of your header. That's why I've selected this option top row. Now I have all of my name. I need to calculate the sum of all of these ready tables by using indirect function. And then I will use this specific setting. Remember, the main purpose of indirect function is to use a specific cell in which we'll refer to the mean dataset. That's our primary purpose. I will hit Enter. 25. Market Basket Analysis: This is the mean sheet. This contains almost 3 thousand transaction. So we first have to calculate how many transaction it contains, and then we will calculate how many of these transaction contains vegetables, baby product. And then we will take any of these two products and we will calculate the lift. And finally, the next video maybe we will arrange different types of products into different shelf in a retail store. But in this video, we will understand which to product have a liftoff more than one. Remember if you have a liftoff more than one or let's say close to one. That means those two product will be purchased by different customer in one single transaction. Probability of those two products, both just in a single transaction is higher. That's the main idea behind calculating left. So we have to calculate lift for all of these different types of products into this data table. And then we will understand which two combination have the maximum lift or a lift-off more than one, which is a positive left or positive correlation. Now let's quickly calculate the total number of transaction. So it's simply use the count function. And I will simply put my cursor over here. I'll hit Control Shift down and I will hit Enter. And you can see there are total 2928 number of transaction into this specific dataset. Now I have to calculate how many of these transaction only contains which tables. Now in simply use COUNTIF function count if these transaction contains vegetables, and instead of using the mean value, I will refer that specific value to this specific cell. I will use indirect function inside the COUNTIF function. Very simple. So you will use countif function and the indirect function. I will refer to this specific value. So I have to count out of this specific dataset how many of them contains vegetables? If I have to close this and if any transaction contains vegetable, it will contain one. You will have this specific value. That means out of 2928 transaction one hundred seven hundred seventy six transaction contains vegetables. I'll do the same thing for baby products as well. I will apply COUNTIF function. Then I will refer to this specific cell, which is done by using indirect function. Then I will refer to this specific cell. I will close the indirect function. I'm looking for one which is a successful transaction. I will close the bracket and you will have 794 transaction. And if you drag it forward, you can see that you will have all of these different types of transactions. Now I have to calculate the probability of vegetables out of total transaction. Now to calculate the probability, I just have to divide this specific number divided by the total transaction. You will have a probability of 0.61, which means 61% transaction contains vegetables. Very simple. So out of 2928 transaction, 1776 transaction, which is 0.6161%, transaction contains vegetables. That's the probability. If you wanted to find probability with a quick efficient way to do that, let's do with the boring base. So you have to divide this with total number of transaction and you will have a probability of 0.27. There is a probability of 0.27 if you take some random transaction and you have to find out. But at this transaction contains very products are not. Let me quickly delete it. I have a faster way to do that. I will freeze the cell L1 because this cell will remain constant, the total number of transaction will remain constant. Then I will move horizontally. So you just have to drag it this way. And you will have the probability of all of these different types of products out of this specific total number of transactions. Very simple. There's nothing complex in that if you just understand the basics of excellent. Now, we have two different products. Now we have to calculate lift. Remember, the mean approach of doing market basket analysis is to take two different types of product and understand whether they are positively correlated or not. If the lift is more than one, answers of people purchasing both those products together will be higher. And that's why we will put all of those to product as close as we can in a retail store so that people will visit a retail store and they will purchase both of those products together. That's the main idea of doing market basket analysis. Let's take any of these two products. I'll take vegetables in baby product. First I have to find out the probability which is already there. Instead of just writing it manually, I will use an edge lookup function. So it's simply use an edge local functions. And I'm looking for vegetable value in this data, or this is my data. And my probability of this wedge table value is present in the third row index, I will write three, and then I will write the exact match, which is false. Then I will hit Enter. So the probability is 0.6 months. Remember, repeat this function again in case if you're not familiar with HLookup and VLookup, we look, lookup is used when you are moving into the vertical dataset and HLookup is fused if you're moving into the horizontal dataset. So basically, we are looking for this specific value into this table array. And we are looking for probability of this specific value. So we're looking for probability which is present in the third row index. So you have your pattern in the row index one, you have your counting row index two, and you have your probability in row index number three. And then we are looking for the exact match or 0 or whatever you call it. I will hit tab and then I will close this. And you can see that. The probability 0.27. Perfect. Now we have to find the number of transaction which contains both vegetables and BB product because our main aim is to find the lift of these two products. If the lift is greater than one, we will put all of these two products together. Otherwise, we will look for some other alternatives which haven't if more than one. So we will first count all of the transaction that contains both vegetables and BB product. I will use count its function. So I will use COUNTIFS function. First we have to write vegetables. So we already know because at this specific column have one, that means people apologies Reggie tables. But not only that, we also have to make sure that the same transaction also contains baby because we are looking for a transaction that contains both of these two products. So obviously I'm looking for BB, the current worksheet. Obviously I have multiple worksheets so you can ignore the spot in your worksheet. You may not have this specific sort of problem. I will close this. And you can see that that means for 64 transaction contains both vegetables and maybe product. Now, I need to calculate the probability. So obviously you have to divide this by our total number of transaction. And the probability is 0.15. Obviously, we will use values dynamically over here. So that's why only the county functions may not work. So we have to use the index function to refer to the specific value, and then these value will refer to the mean dataset. I will use indirect function inside the count, its function. So indirect function, I will refer to this specific cell and I have to find out whether one value is pleasant or not. Then I will again use one more indirect function. And now this time I'm referring to BB, but obviously this BB or shut off cell is wrapping to this dataset and I need to find whether it contains one or not. You have to put comma. Then I have to close it. Same number is steel, so forth. 64 transaction contains both item a and item B. Remember if we change value dynamically over here, we are using the indirect function. And that's why we can see the changes. In case of probability, we can to just divide this by this specific number. You can see we have the same probability of 0.15847. Now this is the most important part. Now we have to calculate lift. Remember the main purpose is to find out whether we can please both of these products together or not. To calculate the lift we are using this specific formula. This is a very simple formula. You have to calculate the probability of people purchasing a and B product divided by the probability of people purchasing product a and product B. Obviously the probability of people purchasing vegetables and BB is 0.15 divided by the probability of people purchasing vegetable is 0.61 and people purchasing pV product is 0.27. So we just need to divide this specific number divided by, I'll take a Blackett. And then I will put the probability of this multiplied by the probability of this. That is simple. And we will have a liftoff 0.96. That means there are very high chance that people who purchase vegetable will also produce pV product. Remember, this number is not more than one. We will always take the number which is more than one, but it is very close to one. So we may or may not consider it. It's confusing. At least one more scenario. If a transaction contains seem kind of product or if a transaction contains the similar kind of product, the lift is always one. So the lift of vegetable to vegetable is the lift of baby to Bobby product is one. I will use a simple IF function. If a transaction which is item one is equal to your item number two, then write one. Otherwise, write whatever value that is coming on the left part, which is your key 14. And then you will close this and you will hit Enter. Right now I have pseudo 0.96. Now this is the difficult, or I would say the interesting part. You will, we will be using the data table function to fill up this Theta. Now remember, vegetable to vegetable lift will be one, baby to be belief will be one fruit to float left field. We want all the values that will come in this way will always be one. So this value, this, sorry, I have to use this. These values will always be one because meat to meet value will be one degree two. Dvd lift value will be one. So I have to delete this. I'll be using the data table function. So in case if you don't have this data table function, you can search for add-ons, Add-ins, and then you can checkmark the data table function and maybe dot solver writing functions. You can also go into the file and maybe the option, and then you can find the same atoms. Now we have to use this data table function inside the data. I'll be using what if this data table is there under What-If Analysis? And I have to put all of these, this value in the row input. This value I have to put in column input cell, I will hit Okay? And now you can see that I have all of these different types of values. You can see that lift to vegetable, to which degree? Lift this one, BB to baby lift this one fruit to float. Lift is one, milliliter is one. So all of these have the lift number one. Obviously, you can also color it. Let's say if I'll go to the conditional formatting, if I wanted to color the dataset. Can find that. If I color it, then you can see that all the products which have a liftoff more than one, these products are closely deleted. You can see that lift off DVDs to be baby is 2.769. Liftoff me to DVDs is three. So all the products that have a positive lift off more than one, you can put all of those products together. 26. Customer Life time Value: Hey everyone. In the last two videos, we had a discussion about RFM analysis and the market basket analysis. In this video, we're gonna talk about customer lifetime value and that's the best way to understand your customer in terms of monetary aspect. In this video, we will understand about customer lifetime value. Customer lifetime value is the total amount of profit that you can generate from your average customer over the span of their lifetime. To calculate customer lifetime value, you have to consider so many different types of factors, like the COGS of the product. Obviously, if you make any product, that specific product have some manufacturing costs, which is your cost of goods sold. Then you also have your customer acquisition cost. Because obviously if you are acquiring any customer, you have to acquire that specific customer with the help of paid medium or let's say online marketing, that is your customer acquisition cost. Then you also have marketing expenses AND operation expenses. If I'd give you two formula to understand the customer lifetime value or the lifetime value in general. These are the two formulas that we will be using in this video to calculate the customer lifetime value. If you closely have a look at this specific formula, your customer lifetime value is equal to your lifetime value multiplied by your profit margins. Now the lifetime value of any specific customer will depends on the average transaction value or the average ticket size of your customer, so-called average value of sale, multiplied by the number of transaction that specific customer is doing, multiplied by the retention rate. Let's quickly take an example and understand this customer lifetime value in a much better way. Let us say you are a clothing retailer and you're running a retail store. Let's say you have an average sale of $50 per customer. One customer is shopping from your retail store three times every single year, and that customer will last for almost two years. Video retail brand. So if you calculate the lifetime value of your customer, obviously you have an average ticket size as $50. That customer will purchase three times in a year. And that customer will read in with your brand for two years. So 50 multiplied by three, multiplied by two, you have $300 as the lifetime value of task specific customer. Obviously, to acquire this customer, you have to have some Cost of Goods Sold, overhead, marketing expenses, administration expenses. And finally, you end up with a profit margin of, let's say, 20% of $300, which is your overall revenue or your lifetime value of that specific customer. You have a profit margin of 20%. If you multiply the complete number by 0.20, you have $60 as your customer lifetime value. Remember $300 is your lifetime value and $60 is your customer lifetime value. Customer lifetime value is also equal to the amount of profit you can generate from one single customer. Now, let me quickly give you one assignment on customer lifetime value. Obviously in the coming videos, we will understand customer lifetime value with the help of Excel sheet. And I'll be giving you one very complex problem where you will have so many different moving parts. And then you will calculate customer lifetime value of task specific problem. But let's quickly start with a very small problem. 27. Customer Lifetime Value Assignment: Let's say you have a total revenue of $10 thousand. You have total number of customers. You have to calculate average revenue per user by using this formula. The total number of transaction one user is doing with your brand is ten. Then you also have a chunk of 20%, which means 20% customer will stop using your product after a year. If you wanted to calculate retention, you can use this formula, which is one divided by customer churn rate, then you have a profit margin of 20%. So if you remove your administration expenses, your operational goals to your overhead, you will have 20% as your profit margin. Now you need to calculate the lifetime value of this specific customer, and then you need to calculate the customer lifetime value of this specific customer. Now obviously you can ignore this gross margin or profit margin formula because we already have that specific number with us. And you can directly plugging all of these values and then you can calculate customer lifetime value of this specific customer. Now apart from this, I have one interesting calculator for you. So if you wanted to calculate the customer lifetime value, you can hit Alt and you can just go to this specific link and then you can calculate the customer lifetime value of any customer. 28. Types of Store Layout: Hey everyone. In this video we're gonna talk about planogram. Now, planogram is the centerpiece of store design and visual merchandise. And it is super important, especially for retail store, because with the help of planogram, you can design your store layout. You can optimize the store porches and you can place product at different location so that you can make sure that your consumer are having the best experience. And you're also increasing sales per square foot. This is the store layout of a successful retail store, and we will also design. So let's quickly understand why we are using planogram and how exactly you can use store layout as a strategic tool to influence the customer expedience. Venogram have two main components, your store design and your customer flow. If you look at store design, you have to consider a strategic floor plan. Then you have to make sure that you're optimizing your space really well. You're increasing your sales per square feet. And then you have to make sure that you are using the right kind of furniture, display or lighting. And not only in offline retail store, if you are starting online e-commerce store, user experience and user design. Ux and UI are the two main components that you have to understand. If we are building an online e-commerce website. Obviously we will understand about e-commerce or little later in the course once we have a basic understanding of the detailed format, similar thing scores with consumer flow. With consumer flow, you will also need to make sure that you are opening the right kind of retail store, targeting the right kind of segment. Geographic location is also really important. Then you need to find out all the different types of products that you can bundle together. And then you also need to make sure that you're opening your retail store with the right size of a building, then you can use some advanced video analytics tool like sharper analytics, heatmap inside your retail store so that you can make sure that which kind of flow your retail stories having an e-commerce website, normally companies use cash and cookies to make sure that they are giving best customer experience to all of their consumer. If you visit any website, your browser usually store all of these cash and cookies. And these things will really help your browser to Lord Foster, all of these images that you see on different e-commerce website. While these are, these are cached by your browser so that they can load these images faster for you. Now let's understand a step-by-step guide to plan your store layout and maximize your storage space, also known as your sales per square feet. The number one step to design your store layout is to target the first floor. There are so many research studies that have indicated that the customer will always prefer navigating to the ground floor. They don't really like walking up and down using stringers or elevators or escalators. And it really affects the consumer behavior. Second step is you identify your customer flow. And to identify our customer flow, you can use video recordings or video analytics or heatmap analysis. And this will help you understand which specific idiot doesn't have visibility or customer flow. Then you need to focus on the design of your ads. Whereas customer will enter into your store, they always pick right down. And then they will continue to navigate in the counterclockwise direction inside a store. And finally, you have to remove the narrow eyes because customer never prefer going to these narrow eyes in the retail store. And let's quickly understand the different types of retail store layout. And there are different types of 3D layouts that you can refer to. But in this video, I will cover almost four to five different types of retail layout. But there are more than 20 total different types of store layout. And it's super difficult to cover all of them. I think it doesn't make sense for you guys as well, because in the coming videos, we will do when exercise in excel sheet and we will do all of the store layout with the help of that specific x and shoot. So do not worry about that. We will build our own reading store, our own planogram. These different types of layouts may not make much more sense for you. Let's understand the first one. That is your forced part store layout. And this kind of layout is very famous in ITIL. That's the forced part store layout. And it will expose you to all the merchandise that are offered by debt, specifically dealer. You can have that specific type of retail layout. There are so many different types of strategy behind this that we will not cover in this video. Obviously, we can discuss about those kind of strategy in the coming videos. Then you have your grid store layout. And this will allow all of your customer to move quickly, efficiently in your floor space. You can see that you have your exit and entry on one side. And this is very famous for pharmacy or maybe some normal retail store, or I would say a general store. You have your plotting, your electronics, your bakery, fruits, vegetable, and then you have your checkout. This is a very common technique that is used by all of these different retail store or pharmacy store. Then you have your loop store layout and loops totally out is very famous if you're opening a fashion store or a beauty product storm. If you have something which is actually very attractive and you want your customer to see everything. This is the best store layout that you can imagine. Then you have your strip store layout. And this is very famous if you are opening a liquor store or a convenience store. Because indeed store, you have very high traffic in the P cars and you want your customer to move as fast as they can, because often this area is somewhat hidden. A lot of customers don't really go in this specific area. And majority of the approaches always happens in this specific area, maybe in this area as well, and some parts of these areas. So it's ready famous among our liquor store in convenience store, this type of layout can be used by all of those retail store, like a liquor store and your convenience store. Now these are just for example, there are so many different types of retail store layout that you can refer to. And probably you can think about all of these different types of layout. But remember, layouts are not important. In the coming videos, we will do an exercise and then we will design our own planogram. Or maybe we will put our own product based on left. And then we will put products into different shelf. And we will understand about that in the coming video. 29. Goal of Store Design: But let's understand the most important question, why we are designing the store layout? I mean, we know that planogram is the centerpiece of store design and visual merchandise. But why we are doing it? I mean, we know that the anagram can boost our sales. It can reduce down our costs. It can also increase our customer experience. But what's the main reason behind it? Well, if you closely look at the customer, the customer always have a very less attention span and a very less time. Then you have to grab all of the attention of this specific customer. And you need to make sure that the costumer will put j is much more than he has in his mind as a human being. We always have sought in line sport, if some productive stayed at the top, that product will consider overrides. If some product is there in front of your eyes, That's your eye height. But if the product is present in the lower shelf, that's your underwrite. And below that you have low and on the ground. And the maximum purchase will always happen in the under I and II height. It will never happen in overlays or low or on the ground height. Not only that people are really influenced by the window, the manic paints, the floor design, the color, the promotional language are different types of lighting studies. They're in a retail store. All of these factors really affect the overall consumer expedience and how much you can say, well, one single customer, if you are going to a retail store which have really nice mannequins from outside. You'll really like the floor design, the promotional campaign, the different types of store arrangement or product arrangement, the different variety and assortment of the product. And you really like the music as well. In fact, music plays a very important role in a retail store. But the main purpose of planogram or building ultimate store design is that you have a maximum visual appeal. So if you been to any of the retail store, you may have seen this specific visual appeal from Snickers, which is your happy Halloween. Then you have to also make sure that you are increasing the cross-sell of that specifically then store and you're optimizing sales per square feet. That means you will make sure that if you have a bigger store, you are generating more revenue. If you have a smaller store, you're generating under the less revenue. So you will have to optimize your sales per square foot. Also, you have to restock more efficiently. That means whatever product that is theory in a retail store that will move out of shelf as fast as you can. Don't really want to store inventory in your retail store, you will always put all of those products in your retail store that are moving very fast, that customer purchasing very fast. You don't really want to hold inventory in your retail store because holding inventory is the worst thing you can do with your retail store. In the coming videos, we will do couple of exercises about left about planogram. And we will also use a very small tool to design our own store layout or planogram. That's not very effective. But remember, the main purpose of this course is not to give you a very deep understanding of weeded management, but to prepare you with all of these basic strategy and concept, once you have a basic understanding of all the strategies and concepts, you can use the same strategy if you are working in a retail store or let's say in an e-commerce brand and sales marketing, if you're working with different distributor, reseller or manufacturers, all of these strategies will be important. That's the main purpose of this course. In the coming videos, obviously, we will also talk about e-commerce, DDC, brand mark. For now we're just covering the retail strategy. 30. Store Layout Excel Exercise: Hey everyone, my name is not deep. And in this video we're going to talk about how exactly you can design your store layout. But before this video, let me go back and revise the concept of market basket analysis. Remember, in a retail store, our main purpose is to make sure that we place all of those products together which have a higher lift. The course finally, we want to sell more and more number of products, a different customer, and that's our aim. If you remember from our previous exercise, we calculated the left between two different products. So you can see that there is a lift between bread and cookies and meet. This is the left between bright and cookies and meet. And that's how we calculated the left between all of the six different products in this specific table. Now using this February, we will now put these different products together in a retail store. Let's assume that our story is pretty small. So let's take a hypothetical retail store which only had two roles. You have your row number a and row number B. And all of these two rows have three different shelf. In row number a, you have your shell number one, shell number E2, and shift number A3. Similarly in row number B, you have your chef V1, V2, and V3. Also, you can take very complex retail store. But just to make things a little simple, I'm just taking two different rows and three different shelf. In a normal retail store, you have 20 or 30 different roles, or maybe 200 or 300 different types of shelf. But that will make this specific exercise already more complicated. That's why I'm taking only two rows and three different shelf, and this is your entry and the exit point in a retail store. Now let's quickly duplicate this specific design of this retail store on a table. In this table you have your two rows, row number e and row number B. And you have your three shelf, shelf one shelf and shelf Three. Let's place all of these six different products. So remember, in a normal retail store, you can have $100 and say 2 thousand different types of products. But right now we just have six different types of products because we wanted to understand the concept. So let's say you have three different shelf and you have two different rows. We will place all of these six different products in a very random fashion. You can place in whatever sequence you want that's in shelf. Even you have your product number one In shelf, A2, you have product number two in shelf, E3, you have product number five in Shelf be when you have your product number six in Chef B12, you have your product number four. In shed B3, you have your product number three. Now let's quickly calculate the lift between different products in a specific sentence. So let's come back to this specific data or store design. If you place a product in A1, that specific product will have a lift influence from B1 and A2. So if you place a product in A1, we will calculate the lift between A1 and B1 and A1 and A2, because this specific product will have influenced from a, B2 and B1. If you place a product in E2, this specific product will have a lift influence from B2, A1, and A3. Similarly, if you place a product in A3, we will calculate the lift between the product in A3 with the B3 and E2. And that's why it to calculate the lift off even product, you have to calculate the lift between A1 and A2 and A1 and B1. Similarly, if you wanted to calculate the lift off the shelf B1, you have to calculate the lift off shelf B1, B2, and then V1 will be one. Similarly, if you wanted to calculate the lift off shell shelf E2, then you have to calculate the lift of shelf E2 with Avon product, E2 and E3 product and E2 with P2P product. Let's quickly do that in case you get confused with this product A1, we will calculate the lift of product E1, E2, and E1 with b1. Let's quickly do that. We will use are actually look a function for this. So we will apply our edge lookup function. So I will type, actually look up and then I will hit Tab. Now I went to calculate the lift of this specific product with this product and this product. So let's quickly take the specific product from this specific table. Now we wanted to calculate the lift of A1 with b1. Because we have these two specific row at the top as a header, we will type plus two. We are looking for exact match. This is our first Swift. Now we also need to calculate one more Lift between product A1 and obviously your E2. Remember, the product in A1 will have influence of lift from B1 and A2. Similarly, product in E2 will have infants from A1, A3, and V2. Similarly in products in E3 will have an influence from. V3 and A2. Now we're calculating the second lift. Obviously this product will have influence from this specific shelf as well. So we will take the same table array. And obviously now we need to calculate the lift between A1 and A2. And because e2 is present and you have two rows at the top in the header, we will type plus two any product number two is your daily. We are calculating the left between your product number one, which is your produce. So remember in this specific example, the products in A1, which is your one, we are calculating the left between produce any product number six, which is your bread and cookies, the lift between produce and your dairy product. We are calculating lift between produce, barren cookies and produce and dairy products. Let me quickly apply the exact function and let me close this. And you can see that you have a total liftoff 2.15. We will do the same calculation with a2. With A2, we are calculating the left between A2 to A1 product, E2, A2, A3 product, and E2 with B2B products. So let's quickly do that. This time we will apply three edge lookup function. Let's quickly apply first HLookup function. So obviously we are calculating for E2. We are looking at this specific product into this table array. And obviously let's quickly start off with A1. So obviously with E2. So let's say an E2, you have your product number two, which is your dairy product. We are calculating the left between didi and soft drink, which is your we do. So if you go back to this specific table, you can understand that we are calculating the left between A2, B2 plus a2 with E1 plus E2 with A3. The ghost of products in E2 will have influenced from E1, E3, and V2. I hope you understand that we are calculating the left between a2 with A1. And obviously we will add two because we'll have your header at the top and then we will close it. Similarly this time. Similarly, we will add one more edge lookup function. This time we will calculate the left between this specific product from the same table array. I hope we forgot to write the exact match in the previous one. So we'll come back to this one. And obviously we are taking the same table array. This time we will calculate the left between E2 and V2. And we will add plus two because you have your two header at the top. And we're looking for exact match. We will close this. Now we also have to take, actually look a function one more time. Look a function. And this time we are looking for the lift between E2, which is your N5 right now from the same table array. And we are calculating the left between E2 and E3 this time, obviously we will take this specific data and we will add plus two. We're looking for exact match. And then we will close it. And you can see that we have a lift of 3.6. Similarly, we will calculate the liftoff a3. So obviously the products and E3 will have a lift influence from V3 and a2. Obviously, we will calculate the lift between a3 and b3 and A3 and A2. Let's quickly do that. We will again apply the edge lookup function. I know this is a boarding exercise. We don't have any choice either. We will calculate the liftoff. Products in A3 will use the memtable array. So obviously we are calculating the left between a3 and b3. So let's quickly take B3 fast. Let's add plus two. We're looking for exact match. Let's close it. Let us take look up function one more time. And this time we are calculating the left between this specific cell, this specific shelf from this table array. And we are calculating the left between this one and this one. And obviously we will have plus two because we have two roles as hello, looking for exact match, we will close this. And then you can see that you have a lift of 2.5. Similarly, we will calculate the lift of products and shall v1, the products in sheriff B1 will have an influence from A1 and A2, B2. And that's why we will calculate the lift between V1 and A1 plus B1 and B2. All the products in V1 will have a lift between products in A1 and B2. Let us quickly apply h local function. You have your B1, which is this one looking from this table array. And then we're looking between this specific product. We will add plus two because you have your two had two rows in a huddle. And then we're looking for the exact match. We will close. This will take actually come function one more time. This time you are calculating the left between this specific product and this one. So we are looking for M6 from the same table array. Looking for this time we will add plus two because we have two rows in our header. Exact match. Here you go. So you have 2.35. Obviously the ferry more than one because we are adding lift off two different products into different shelf. So it will be obviously more than one. You have your B12. So let's quickly take a look at function one more time. So V2 this time we have to find the gift of this specific product from the same table array. Obviously this bee products and B2 will have influenced from A2, A1, and A3. So let's start off with this one subclass to looking for exact match. I'm doing it really fast. So sonify end up making some mistake on this. So products over here, looking from the same table array. Now let's do that with this one plus two. We are looking for exact match. Let's do this one more time. So you have your HLookup. This time we are calculating lift off specific product from the same table array. And we're looking left between this specific product on this one. Let's take this one this time and let's say plus two and we are looking for exact match. And then we will close this edge lookup function. And you can see that there's a lift of 3.2. Let's do that. Do that for this one as well. So our products and b2, b3 will have a lift influence from A3 and A2, sorry, products and V3 will have a lift influence from e3 and B12. That's why Let's do this. Actually look up of V3, which is this one looking from this table array. And obviously we will calculate the left between products and B3 with a3. And let's add plus two. We're looking for the exact match. We will close this. We will take that to call function one more time. This one, we're looking from the same table array. This time we will calculate the lift between products in B3, B2, and we will add plus two. We are looking for exact match. We will close this. And then you can see that you have a liftoff 2.5. So let's quickly calculate the sum of all these different types of lifting, all of these different shelf. And you got a leftOp 16.30 mean aim is to maximize this specific lift. Because if you have more and more lift, you allow people to produce more and more number of products because you have please delay kind of combination in your medium store. Main aim is to maximize this specific setup. Now, we have to maximize this specific cell by changing the sequence of all of these products into all of these shelf. Let's say we have placed all of these products randomly. So you'll have your 125643 into all of these shelf. So you have your product one in A1 to A2, product number five in A3, product number six and B1, correct number four in V2 and product number three in V3, we have randomly placed all of these products into all of the CEF. But we have to maximize this. We will use a solver. And if you don't have Solver in your Excel, just go to Add-ins, click on Add-ins, and then you can click on this and you can add the solver. You can also add the data going pack and all of that thing. If you want. You go inside our data, we'll open our solver. Now let me, let, let me quickly tell you how exactly the solver work this solver. So we will set the objective using the solver that we have to maximize this specific cell with a specific constraint. And you give me the maximum data that you can give me in this specific area by randomly calculating or readjusting the numbers or values in this specific area. Let's quickly do that. We have to maximize this specific cell. So I will take this specific cell, we have to maximize our objective is to make sure that we have to maximize this specific cell, which is our total lift or overall lift, by changing the values in this specific area, which is the sequence of product that you can place inside your shelf. But we have to add couple of constraints. What is the first constraint? Obviously, whatever data that will go inside this specific cell should be less than equal to six, because obviously we can, we just have six different products. One more thing that we have to add, whatever data that will go inside all of the shelf should be greater than equal to one because we don't have any product less than one. Also, we want to please unique numbers. Whatever number that you will rearrange from this specific cell should be different and we will add it. Now. We have to maximize this specific data by rearranging all of these numbers from one to six. And reputation is not allowed because we have put all of these constraints. Now we will use Evolutionary Solver. Now there are multiple techniques that you can use in this specific solver, and we will maximize this specific cell. Let me quickly hit solve. Let me quickly check. Everything is fine. Let me hit solid. Now it is doing multiple combinations and permutations to find the best number which has the maximum lift. By readjusting all of the sequence, you can see that 125643 is the sequence. It will change as soon as you get the maximum lift in this specific area. It is doing multiple permutation combination. It may also end up crashing my system because it's very system having a process. You can see that it is, it has solved, maybe taught in thousand combinations or whatever cell objective. You can see that it has rearranged all of these different numbers. And now I have a leftOp 16.90. You can see that my lift gotta increase from 16.30216.90. And now this specific of Lyft have rearranged all of these different products into different shelf. Now this is the best possible option. So this is the best possible option of all of these different products into all of these different shelf to get the maximum lift top 16.90. A big store like Walmart, you will have a very complex calculation to calculate this number. That's the simplified v in the Excel sheet because we wanted to understand the core ideology of a concept so that you can use this specific concept in real-time if you join a retail company or an e-commerce NumPy. And remember, all of these concepts are also applicable. If you start working in an e-commerce company, you'll do the same calculation, but with your e-commerce website, you have, let's say, all of these different position in your e-commerce website, you have your recommendation engine. And let's say we are building your recommendation engine. You can use all of the strategy to build a new and efficient recommendation system for your e-commerce store. Let me get say you and I will be sharing the shoot with you. 31. Introduction to Retail Finance: Hey everyone, My name is now deep and welcome to the finance and the accounting portion of this course. I know this portion may sound boring to a lot of people, but I will try my best to make accounting and finance as simple as possible. And in this video, we will start understanding about some basics of retail finance and accounting. And in the coming videos, we will understand couple of strategy by which you can minimize your inventory and you can maximize your sales. And we will understand how exactly different retailers and e-commerce store. And I'm assuming that majority of you have 0 or understanding about finance. I'm starting finance and accounting from very B6 so that I can build a very strong foundation. If you're someone who already have a decent understanding about finance and accounting, you can skip this video. But if you have 0 idea about finance and accounting, then you can still watch this video because I'm gonna start finance and accounting from scratch so that even of new person can also understand that I'm focusing on building a strong foundation. In this video, we will understand the basic difference between the annual report and we will understand about the balance sheet, the income statement, and the cash flow statement. Remember, this is just an introductory video and I'm just gonna cover some very basic concepts about finance. If you already have a decent understanding, bleed script this video and watch the next video or maybe next to the next video. But if you have 0 idea, you can continue watching the video. Let's talk about the balance sheet. Balance sheet basically shows you the financial position of any company. This balance sheet will have things like your cash, your current assets. So let's say if you are opening a retail store, you need to have some cash in your account and you need to maintain some form of inventory or asset, and then you need to rent out a property, then you need to have some employees in that specific property, then you need to take some loan. In balance sheet. We basically have things like your caching balance, your current asset or daughter lesser your current liabilities. We will dig deep into all of these individual terms in the coming videos. And then you have your income statement. Now income statement will basically help you understand about your revenue, your sales, or your cost of goods sold, your earnings before tax. And what is the net profit that you are generating from that specific readings store income statement will help you understand the basic difference between profit and loss in your balance sheet. Then you have your cash flow statement. And cash flow statement will help you understand your gash that is coming from your operating activities, from your financing activities and from your investing activities. Your cashflow and income statement, Both are the subset of your balance sheet and whatever data that you will get in your cash flow statement and income statement. All of that data will feed back to the balance sheet. That's the basic introduction of finance. Let's dig deep and expand all of these different types of financial statement. So let's start with a balance sheet, which is at the center of your financial statement. In the balance sheet at the top, you have your cash in the bank account. Let's say if you are running a retail chain or if you want to start your own e-commerce brand, you need to have some form of capital. Now obviously this can be a bootstrap startup, or you may have this song palm of capital from some angel investors or venture capitalists. That's your cash in the bank, then you have your debt. So let's say if you have taken some form of loan from some bank, then you can also put that specific number. Then you have your current assets. So let's say if you own a property or if you're renting out a property, or if you have some form of inventory or let's say chair furniture, all of that is your current asset. And then you have your fixed assets, which is the subset of your current asset. And then you have your creditors, your interest that you will pay to that specific bank. If you have taken some form of loan, that dividend, if you're a public company and if you have listed yourself into the stock market, then you have to be some form of dividend to investor, that's optional, then you have your current liabilities. So let's see if you have taken any form of debt from some supplier, from some bank, then you have your total liabilities and we will break down all of these things further in the coming videos. Then you have your cash-flow statement. And cash flow statement will help you understand how much gas you're business is generating. I think we will straight away go to the next video and we will break down all of these three different types of statements in the coming videos. So let's start off with our balance sheet. So obviously in the balance sheet, this is the complete overview of your balance sheet. I think this is the oversimplified version of the balance sheet. Now if you look at any business, you have some form of acid and some form of liabilities. If you subtract your liabilities from all of your assets, you have net worth of an individually. Let's say if you're starting a retail store and you have your retail store, your inventory, your cash in the bank. All of these are acid. And if you have taken any form of loan, that's your liability. And if you subtract your liabilities from your interest, That's the owner's equity or net worth. This is the total number of assets you have. And if you subtract liabilities from this asset, you have your owner's equity. So let's understand what all will cover under acid. Acid is anything that holds a monetary value in the retail store. Any items, any machine, any inventory that is there in your retail store. That's your sweet. Even if you have some cash in the bank, that also comes under the acid. Let's see if you have to receive some form of cash from your distributor, from your supplier, that is also a form of asset because that's a money which will come in the future. That's the acid. And obviously your furniture, your equipment, your property, or whatever it is there, That's some form of acid. Obviously this asset will depreciate over time. So let's say if you have purchased any furniture, that furniture will decrease down in value in the coming future. So that's a depreciation that you have to subtract from all of that assets. So your property furniture, you're whatever, you have porches to set up a store, then you have your liabilities. Liabilities are basically or debt or your loan that you have taken from different banks. So obviously if you are running a retail store, you have to take some form of loan to establish a retail store. And once that retail store will generate revenue profits, then you will repeat that specific loan to the bank. In libraries you have your period, all your texts variables. Let's say if you have to pay some form of money to some supplier and you will pay that after a certain period of time, then your accounts payable are short-term loans are all your liabilities. And if you subtract these libraries from all of your assets, you have your networks or owners equity that will somehow also determine how much money that you have, or let's say how much worth you have in your company. This is the basic overview of balance sheet. You also have so many different moving parts that we are not going to discuss in this video. If you want me to make separate course for finance and accounting, I can do that. But that's not my expertise or not someone who have core competency in finance. But the main purpose of this course is to cover some basic concepts about finance. Like basic concept about balance sheet, your income statement or profit loss statement. And then jump directly into the concept that you need to understand. Because obviously, the main purpose of including finance and accounting part in this course is because some of you may become some financial analysts in a retail company, let's say online e-commerce store or let's say Walmart or Target or any reading management brand. Having that sort of perspective is also very important because I believe Within retail management, you have 20 different types of job. You can become a store manager, you can become a financial analyst, you can become a marketing manager. You have 20 different types of flaw in retail management. And that's why understanding the roles and responsibility of every single role is also very important. And that's why I have covered this specific module in this course. Now, let's come back to our same spot. So we have a basic understanding of balance sheet. In balance sheet you have different types of assets and you have different types of liabilities. And if you subtract all of these libraries from your asset, you have your total equity or your total worth of your company. 32. Income Statement and Cash flow statement: Now let's jump into the income statement. So I think we already have a dissenter understanding about income statement. Income statement will help you understand the total amount of profit and loss. Your business is strong rating because obviously you need to have a basic understanding of it. All elements that are generating profits for you. And if you have some form of losses, how exactly you can minimize that specific loss in your business. Let's understand the basics of income statement. At the top you have your net sales. Net sales is the total amount of revenue that you are generating. Whatever product that you're selling in your business. If you multiply that with the amount of money that you're making, let's say number of products multiplied by the price of the product, you will have your total revenue that we're generating from your business. Then you have your cost of goods sold, which is also known as your COGS. Obviously, if you are selling some product, they will have some form of manufacturing costs. And that's your COGS. If you subtract your neck or your COGS from your neck sales, you will have your gross margin. If you subtract $180 thousand from $330 thousand, you will have $150 thousand as your gross margin. Then you have your operating expense. Now these operating expense can be the length of your store, this can be the salary of your employees. This can be anything. And if you subtract or and then you have other expenses. If you subtract your total expenses from your operating expense, you have your appetite, also known as your earnings before interest, tax and amortization, if you subtract your total expenses from your gross margin, you will have your appetite or net profit before tax. And after being texts, you will have net profit after tax. Now obviously instead of profit, you can also have loss. You have your COGS, which is the total amount of money that you need to spend to manufacturer certain product or to acquire a certain merchandise, then you have your gross profit, which is the difference between your neck sales and cost of goods sold. Then you have your operating expense, which is the total amount of money that you need to spend to run a business, and then you have to pay tax. And finally, you have net profit after-tax. Once you pay everything, then you will have your net profit after tax. That's the basics of income statement. Remember, in the balance sheet, we were subtracting all of our liabilities from all of our assets. And in the end we will have some form of owner's equity or maybe not total net worth of the individual. Similarly, in income statement, we are calculating the net profit or net loss after subtracting all of the expenses from all of the revenue or gross profit that we are generating. At the top we have revenue. Then we were subtracting cost of goods sold, the total expenses that we have like salary, running a store, rent, all of that. And then we were subtracting taxes in depreciation or amortization. And finally, we will have some form of loss or profit, whatever the business is making. And then we will feed that specific data inside the balance sheet. And then we will show cash in the bank. So let's say if you are generating some profit, obviously you will back that specific profit or in your bank account. And if you're generating some losses, then this will happen other way around in the coming videos, let's understand the cashflow statement. Hey everyone, In this video we will understand about the cashflow statement. So this is the basic structure of cashflow statement. Let's quickly understand all the components which are there in the cashflow statement. One of the components, or I would say cashflow statement usually have three components. The first one is the cashflow from operating activities. Obviously, if you are opening different retail store, if you're running those retail store, how much cash that specific business is generating, that is your cashflow from operating activities. Let's say if you are generating some form of sales from those retail store, that is obviously the cash from the operating activities. If you have some form of payments coming in or going out for different suppliers or distributors. That is also the cash that you are generating from your operating activities. Let's say if you have some salaries to pay or some form of wages, that is also a form of cash that you are generating. Or you're receiving audio, sending, whatever you're doing, then you are being some form of rank. And that is also a form of cash that they are generating from operating activities. But this cash flow can be positive or this can be negative as well. But that's the amount of cash that you are generating from all of these different types of operating activities, then you have gas from your investing activities. Obviously, if you're running a retail store, chances are that you will be using some form of cash into different types of investment. So let's say you might be acquiring some smaller retail chains or some small e-commerce website if you're running an Internet company, or let's say if you are purchasing a new property or a new location, or if you're opening a new retail store, these are all the cash that you are generating by investing something or maybe let's say selling something. So let's say if you're selling a property or a retail store, that's the gas that you're generating from investment activities. And finally, you have some form of cash that we're generating from financing activities. Let's say if you are taking any form of loan from any bank, well, that's the cash that you're generating from financing activities. Or let's say you're being sampled dividend from all of these different banks or your shareholders or anything. That's the cash that you're generating from financing activities. Remember, this cash can be positive or negative. You might be generating positive cash flow or negative cash flow. You might be profitable in this sense. Or let's say, when I'm saying profitable, that means you're generating positive cash flow, negative gas. I mean, cash is going out of your business or it is coming into your business, but that's the cashflow that you, that you saw in your cashflow statement. If I summarize this video bought income statement and our cashflow statement, they are both feeding out this data into the balance sheet. And that's how we have a basic understanding about financial management in retail store or any retail company. This cashflow statement is pumping back all of this data back to the balance sheet. And that's how we have the basic understanding of all of this data. This is your delta or change in the cash flow. And then you will pump back this same data into this balance sheet. That's how we understand whether the company is financially stable or not. 33. Asset and Margin Management: Hey everyone, In the last video we were discussing about the income statement, the cash flow statement, and the balance sheet. And how exactly your income statement and your cash flow statement is pumping back the data into the balance sheet. Now in this video, we will understand the difference between asset management and margin management. If you're running a retail store, obviously you have different types of inventory and finding up perfect balance between your acid that you have inside the retail store and the amount of profit that you can generate in that retail store. It's super important. Let's say if you're generating some amount of profit, then obviously you can porches different types of products, but finding a specific balance between purchasing new different types of inventory versus making profits. That's super important because if you end up using more of different types of products, then chances are you will have higher inventory holding cost, and then your profit would go down. Finding a perfect balance between generating more amount of profit and also holding more inventory or more asset. It's super important. We will be using some data. You can go to the Walmart's website and you can download this annual report and then you can read through it. You can do your analysis by your offset. But we will be using some dummy data, will not be using the actual data of Walmart's report 2021. This is the link to the Walmarts report 2021. You can download this presentation and then you can check out this specific financial document of Walmart, this project document, you can find the balance sheet, cash flow statement, the income statement of Walmart, and that's at 2021 financial statement. But we will be using some sample data of brands like Walmart are definitely or target. And we'll be doing couple of analysis or we will be understanding few metrics to understand all of these financial terms, Let's quickly start a video by understanding margin management. So obviously, if you are starting a retail store, The main aim should always be to maximize this specific profit. Whatever sales that you are generating or revenue that we're generating from your retail store. You have to subtract your COGS, then you will have your cross margin. And once we have the gross margin, then you need to subtract your total expense, which is your operating expense and your other expense from this gross margin. Then you will have your net profit before tax and then you will subtract your texts. And finally, you will have your net profit after-tax. This will look something like this. You have a total sales of, let's imagine a $100. And you have your COGS of $60. If you subtract your COGS from your neck sales, you will have your gross margin, which is $40. And let's say if your total expenses twenty-five dollar, then you will subtract your total expenses from your gross margin. So 14, so 40 minus 25 is $315. This is your net profit. If you divide your net profit by your sales, and if you multiply that specific number by 100, you will have your net profit margin. That means out of a $100 in sales, this business is generating a net profit of $15, which is 15%. That's the basic of margin management. Now let's understand the asset management. Obviously in the retail store, you have to optimize your profit. But on the other side, you also need to manage your acid. So let's say if you're running any retail store, you chances are that you will be maintaining some form of inventory of different product. Let's say you're maintaining our inventory of $5 and then you will have some account receivable. Account receivable is the total amount of money that you have to receive from all of your distributor, but you haven't received so far. That's your accounts receivable, which is your $4. And then you have your current asset like your furniture, your fan, all of your infrastructure that is supporting your retail store. And if you combine all of these current assets, like your inventory, accounts receivable, and your current assets, you will have $10 as your current assets. Then you will also have your fixed asset, like your property, your rent, your employees, these are all of your fixed asset. If you combine your current assets with your fixed asset, you will have your total acid. And if it divide your total sales or total revenue that you're generating from your retail store, or let's say from all of your retail store. And you divide that specific revenue or sales by total asset, you will have your asset turnover ratio. If you have more asset turnover ratio, that means you have very values your assets to generate more amount of sales. 34. Strategic Profit Model in Retail Management: Previously we had a good understanding about profit margin or margin management. And we were discussing about the net margin or the profit margin that we are generating from our Business. In this video, we had a good understanding about asset turnover, which shows how much sales or revenue that you can generate from your existing assets that you have, which includes your inventory, your accounts receivable, your fixed asset. And if you are able to generate more sales from a specific number of acid, you have a good asset turnover ratio. And if you combine all of these two things, your asset turnover and your net profit margin together, you will have the most important matrix in the retail management that is written on your asset. In net profit margin, you will subtract your cost of goods sold from your neck sales, and then you will have your gross margin. And if you subtract your total expense, which is your variable expenses plus your fixed expense from your gross margin, then you will have your net profit. And if you divide this net profit by your neck sales, you will have your net profit margin. And we saw that we had a net profit margin of around 15% because we were generating $15 in profit out of hinder dollars in revenue. So this is our net profit margin at the top. Let's calculate our asset turnover. So we had some inventory that we were maintaining inside a retail store, inventories the stock that you are maintaining insider retail store. We had some accounts receivable because we had some distributors, some supplier, and we have to receive the money from them, but we haven't received the money. That's the accounts receivable. And if you combine all of these three numbers, we will have a total current assets. And if we add our fixed asset with this total current asset, then we will have our total assets. And if you divide your neck sales by your total assets, you will have your asset turnover ratio. And if you have more asset turnover, that means you are able to generate more revenue in more sales from the existing acid. That means, even after maintaining a small amount of inventory, even after maintaining a small accounts receivable, you are able to generate more sales. That's the positive side of your business. And if you multiply this net profit margin by your asset turnover, you will have return on assets. And return on asset is the most important retail finance matrix that you will understand in the coming videos. So let's quickly take a sample dataset and let's understand the complete calculation with the same sample dataset. This is a sample dataset. Let's say we had a net sales of around a $100. We were generating revenue of around a $100. Our cost of goods sold was around at $60. If you subtract out cost of goods sold from our net sales. Now crosstalk gold salts is basically your manufacturing costs. And if you subtract your manufacturing cost from your neck sales or net revenue, you will have your gross margin. We had a gross margin of around $40. Now let's plug in a couple of numbers and let's understand this beautiful diagram. Because if you are able to understand this specific diagram, then things will become very simple for you in the coming videos. In the previous video, we had net sales or net revenue of around a $100. And I took these numbers just to make things easy for you. We can use complicated numbers in millions, but that will complicate things. That's why I'm taking 16040, these kind of simple numbers to simplify this specific diagram, strategic profit model. We had a total revenue or total sales of around a $100. We were having a cost of goods sold or COGS, which is the total amount of money that is required to manufacture a product or sell a product or purchase a mocking base of around $62. And if you subtract this COGS from your net sales revenue, then you will have a gross margin of around $40. And then we had couple of expenditure like your operating expense, your other experience. And if you subtract this total expenditure from your gross margin, you will have your net profit. If you divide this net profit by your sales, you will have your net profit margin of around 15%. Net profit margin is your net profit divided by net sales. Similarly, in acetone over, we were maintaining an inventory of $5. Now inventory is the total amount of product or the vault of the product that we are maintaining inside a retail store. So let's say if you are maintaining five different products and all of them have a price of $1. We are maintaining a $5 of inventory or stock in a retail store, then you have your accounts receivable. This is the money that we will get in the future from all of our retailers, distributors, suppliers, but we haven't got this specific money from them. Then we have some other current assets. And if you add all of these things, you will have your current asset and then you also have your fixed assets, like your lens, your rank, your salary, all of these topics tested. And if you combine your current assets and your fixed assets, you will have your total assets. And if you divide your total sales by your total asset, you will have your asset turnover ratio. Remember, if you have more acetone over, that means you are able to generate more revenue or more sales from a very limited acid because that just maintaining a small inventory, you're just having a couple of account receivable from some distributors, some supplier, but you are still generating M Assume amount of Cs, more asset turnover is always good. If you multiply this, you will have written on asset of 37.5%. And that's a very good number. We will be focusing on this specific matrix in the coming videos. If I summarize this complete video, your profit margin is your net profit by your neck sales. Your asset turnover is your neck sales by total assets. And obviously you can cross out next sales with net sales, you will have your net profit by your total assets. Return on assets is your net profit by your total assets. That's the formula. But remember, you can have less net profit and more asset turnover, or you can have more asset turnover. Let's, let's understand that with the help of example. Let's say you have a big restore and a jewelry store. Obviously in a bakery store, your profit margins are always less, but you have more acetone over. That means by maintaining a very minimal inventory or acid, you can generate more revenue. So if you look at your total return on asset, you still have a 10% return on asset with asset turnover of ten times and the net profit model of just 1%. With jewelry, you can have more net profit margin, but your asset turnover is less. That means maintaining a very large inventory and you're selling it very slow. But because your profit margins are high, you can have a written on asset of 10%. You can see that with different retail format, you can have a different asset turnover. You can have a different profit margin. But the most important matrix is written on acid. And the coming videos, we will focus on this specific matrix. 35. Walmart and Tiffany Financial Statement: Hey everyone, In the last video we were discussing about this specific diagram. And we had a good discussion about margin management and asset management. In the last video, we were discussing about the net profit margin and asset turnover ratio. If you have a good asset turnover ratio, if you have a higher number or in asset turnover ratio, that means you can generate more sales with lower acid and that's a good thing. Similarly, you need to have a good profit margin in your specific retail chain or retail store. And if you multiply your net profit margin with your asset turnover, you will have return on asset. And return on asset is the most important metrics in retail management. Now in this video, let's use this specific example in the real life. And for that, I'm gonna take an example of Walmart and definitely this is the balance sheet of Walmart and Tiffany. On this side, you have all of your assets in balance sheet. You have your asset and liability. And if you subtract your liabilities from your assets, you will have your owner's equity or your net worth of that specific company start-up or founder, you have all of your current assets. Accounts receivable is the amount of money that you will receive from all of your suppliers or distributors, then you have your merchandise inventory. So obviously if you are running a retail store, you will be maintaining some sort of inventory and that's your merchandise inventory. Then you also have your cash in hand. So you need to maintain some cash of running a retail store and then you have your other current asset. And if you combine all of these things together, you have your total current assets. Then you have your fixed assets. Fixed asset will includes your building, accurate comments or other fixed assets. And obviously you need to subtract depreciation as well. And then you will have your total assets. You have your current assets and fixed assets of Walmart on this specific column. And same goes with definite in this specific column. Similarly, you have your liabilities, you have your current liabilities, long-term liabilities. So obviously if you have taken any form of debt or loan from any specific bank, that will goes on the liability side. And finally, we will use this specific diagram. And then you can see that you can calculate the asset turnover ratio of both of these two brands. This dark blue color is your Walmart and this black color is you're definitely, you can see that you'd have to calculate the asset turnover ratio. And obviously if you need to calculate asset turnover ratio, you need to have things like your total assets, fixed asset, and then you will divide your total asset from net sales and then you can have your asset turnover. You have your accounts receivable as 2 thousand for Walmart and $99 for Tiffany. Similarly, for merchandise inventory, you have 22,164 for Walmart and 602 for Tiffany. These numbers are in millions. That's why we have our scale it down to ten thousandths and then you can multiply this by millions. Same goes with gash, other current asset. And you can get all of this data from the income statement, or I would say the financial statement of every single public company in the United States, all the public company released their income statement balance sheet and their cashflow statement every single quarter. And that's how you can visit their website and you can pull out all of this data that is there in their income statement, balance sheet and cash flow statement. Obviously, you will get all of this data if you started working in finance department of any company. And then you can arrange all of this data and then you can understand the asset turnover ratio. Obviously in the coming videos, we will understand how can you optimize this asset turnover ratio? If the asset turnover ratio is less, you have to minimize your inventory and you have to maximize your sales. If your sales is not going up. If you have more inventory, obviously you have to change the store layout, then you also have to work on the left. How can you increase the market basket analysis? And then all of that specific strategy will come in. But this is a finance video. In this video, let's understand other sort of things. So let's say you also need to calculate inventory to acid ratio. If you need to calculate inventory to asset ratio, you have to divide your inventory by your total assets. This is your inventory, 22164, and this is your total assets. To calculate inventory to acid ratio for Walmart and Tiffany, you just need to divide their inventory with your total assets. Same goes with definitely, but why we are calculating inventory to asset ratio? If you are holding a lot of inventory and that inventory holds the majority of your total asset. Because obviously apart from inventory, you also have other assets like. Gosh is one of your acid of stories, one of your assets, property people, all of these are your assets. If inventory holds a major portion of your asset, that's a bad thing. Your inventory should be as less as possible. And that's why this ratio should be as less as possible. Obviously, if you are running a traditional retail store or a grocery store, you have to make sure that your inventory to asset ratio is very less. So I think we had a discussion about inventory turnover. And to calculate this, you just have to divide your neck sales with your average inventory. So obviously, if you are having more revenue and less inventory, or let's say you're generating more sales with less inventory. That's a positive thing. You always need to have more and more inventory turnover ratio. You have to maximize inventory turnover ratio and you have to minimize inventory to acid ratio. We will understand how exactly will you do that in the coming videos. We have three different types of inventory. If I covered that specific concept in this video, you have your fast-flowing inventory, you have your slow moving inventory, and then you have your average morning inventory. You need to make sure that with the help of data, you are storing the fast-moving inventory. And you will make sure that you have less and less slow moving and maybe our average morning inventory. So almost 80% of your sales comes from 20% of your product. You always need to make sure that you have the maximum stock of debt burning percent stock, which contributes to 80% of your sales. And that's our primary aim. If we have that specific Briney percent, then our inventory to asset ratio will be less. And similarly, inventory turnover will be higher. And that's what we have to optimize. Even in this case. Now you may have different output. There is a reason I haven't mentioned the number because I think that is something which is irrelevant for this case because we are taking hypothetical figure. Well, it may not give you a right kind of picture. If I summarize the asset turnover ratio. Asset turnover ratio will show you the efficiency of a company who is using their assets to generate sales or revenue. If you look at the formula of asset turnover, you just have to divide your neck says with your total assets. So let's imagine two different scenario you're running. Let's say you have two different types of store, antique cabinet and plywood cabinet. For these two different types of store, you have different asset turnover ratio. Now obviously we consider higher asset turnover ratio as a good thing. What does it really applicable to every single situation? Well, the answer is no. All the product which will have low margins are low profit margins usually have high acid turnover ratio. But on the flip side, if you're selling something which is premium, which will have more margin, normally they have the low asset turnover ratio. Remember, if you go back to the same formula, asset turnover ratio doesn't really matter that much. You also need to focus on net profit margin because our primary aim is always on maximizing the return on asset. Not only the asset turnover ratio, asset turnover ratio is important obviously, but if the profit margins are really good and you have an average asset turnover ratio. And if you multiply all of these two figures, you will still have a good return on asset. So our primary focus should always be on written on acid. And this will only be maximized with the help of asset turnover and net profit margin. Similarly, you can also calculate return on assets for the same problem. And this is an assignment for you. You have to download this presentation or ppt file, and then you can plug in all of these values. You just have to plug in the net profit margin value and asset turnover value. So obviously your net profit margin is your net profit divided by net sales. And your asset turnover is your net sales divided by total assets. And then you can plug in all of these values and then you can help me understand what is the ROA or return on assets of Walmart and Tiffany in this case. You can go back into the same presentation and you can look at all of the numbers that you have. And then you can maybe fill in this assignment in the next short video. And then you can just do this assignment not just like return on asset or maybe inventory turnover. You have 20 different types of business ratios, but I guess those are not very important. And you can read about those ratios in case if you have a very specific financial analyst or business analyst role in retail company or an e-commerce company. You have your quick ratio in which you will have your cash plus accounts receivable and then you have to divide that with your total liabilities. Then you will have your current ratio where you have to divide your total current asset with your total current liabilities, then you have your collection periods. So you have to divide your account receivable by net sales and then you have to multiply that specific number by 365. Then you have your account payable to net sales, overall gross profit, financial leverage, and so many different types of business ratios. Remember, these are important business ratios. But to cover all of these business ratios, we have to make 56 different videos, which may not make sense for everyone. So you can maybe just Google it out or maybe if you're specifically in the finance department of a retail management. Now if I summarize this specific retail finance video, you have your written on network. So you have to multiply your net profit margin with the asset turnover ratio and then the financial leverage. And then you will have your written on network. 36. Retail Finance Assignment: Hey everyone, this is the assignment video. And in this video you have to calculate all of these different types of ratios or margins with the help of this sample dataset, let's consider these two as your dream company. So you have your dream company, one dream company too. You obviously you can change the stream company wanted to with any name that you want. You have your net sales at the top. You have your cost of goods sold. You have your gross margin, your total expense, your net profit before tax or avatar on in before interest, tax and amortization. Then you have your taxes, then you have your tax rate, and then you have your net profit after tax. Obviously, you first have to calculate the gross margin, which is right there. This is your income statement and you also have balance sheet of your dream company. Obviously for your dream company 12, you have your assets, your liabilities, your owner's equity. This is the balance sheet. This is the income statement. So obviously, if you wanted to calculate the owner's equity, you have to subtract your liabilities from your total assets. And that's how you can calculate your owner's equity. You can quickly download this presentation file and you have to help me understand all of these ratios. So first of all, you have to calculate your total expense by your neck sales ratio. So you have to divide your total expense by your net sales. Then you have to calculate your net profit margin. So you have to divide your net profit by your net sales. Then you have to calculate the inventory turnover ratio. You have to divide your net sales by your average inventory and you have to calculate the asset turnover ratio. You have to divide your net sales by your total assets. So that's your task. Please complete this assignment. I'm gonna give you all of the resources with this video. You can find this attachment with this specific video, and then you can download this specific ppt file and you can complete this assignment. In the next video, we will understand why we are doing all of these different types of metrics, ratios, or calculation. What is the main idea of doing all of this retail finance and calculation in the coming video. 37. Financial metrics Conclusion: Hey everyone. In the past few videos we had a discussion about all of these different types of retail finance matrix. This video, we will understand why we are measuring all of these metrics and the phosphorylase and who needs all of these financial metrics? Let's start off our journey by understanding ROE, which is your return on equity. We all know that if you subtract your liabilities or all of your debts from acid, you will have your owner's equity, also known as your total net worth. And we had a discussion about this specific topic in the balance sheet video. In balance sheet, you have your owner's equity, your assets, and your liabilities. And if you subtract all of your liabilities, your lawns, your debt from the asset, you will have your owner's equity or net worth. If it divide net profit by owner's equity, you will have your return on equity. Which means if you have more and more assets, you can generate more profit. And then you will have a higher ARPU, ie, That's a corporate level matrix. Normally ROE is measured by the CEO because this ROE matrix will define how much return you can generate from the specific equity that this business have. Then you have your merchandise matrix. For that, you have your GMR, which is your gross margin return on inventory. That means how efficiently you can manage all of your merchandise inventory. We all know that gross margin can be calculated by subtracting your cost of goods sold from your total revenue, and that's your gross margin. And if you have less inventory and higher gross margin, your GMR or I will be higher. That means if somebody have the access of GMR or a matrix, they can inform you about deep management of inventory. Now this means a good G MROI will significantly help you understand how well our retail store is managing their inventory. Then you have your store data matrix, which will help you understand how value somebody's managing a specific retail store. And to do that, you just have to divide your net sales by your square foot. Now this will help you understand how much sales we are generating per square feet of area. We all know that if you have a larger retail store, you have the potential to generate more amount of revenue. If you have a smaller retail store, obviously that we distort and generate less revenue. So this specific matrix, which is your sales per square feet, will help you understand how much sales or revenue you can join rate per square foot of area. You just need to divide your neck sales by your square foot. This specific matrix will help you understand how every single store is being managed by different store manager or director of store. 38. Introduction to Category Management: So here the one in the last few videos, we had a discussion about different types of merchandise inventory management and how effectively you can manage the store. But the problem is we have 0 idea about inventory optimization. So how do we exactly know that? How much inventory we can manage, what all different types of inventory we have in our store and how exactly you can optimize these inventory to make sure that you're generating more sales and revenue. And you also have a fast-moving inventory in your store which can generate more sales and how exactly you can manage all of these smoke. And I use that idea of product and the depth of the product. That's why in this course or in this video, we will understand about merchandise management. Inventories, one of the biggest cost for any retailers. And retailers will always make sure that the inventory is translating into sales. Because obviously 80% of your sales comes from 20% of your inventory. And you have to make sure that you're not storing anything which is not moving fast in your retail store. In fact, you may have seen these kind of store, these small retailers will always make sure that they have a specific kind of inventory which is moving from the shelf very fast. That's why these retailers will always avoid accepting new brands, new product. They will always put all of those products which are very familiar. Or if the customer is very familiar with those specific product. Merchandise management is a process by which retail operators the correct quantity of merchandise in the right place at the right time to meet the company's financial goal. Now this person's mean m is to put all of those different types of product which will move out of shelf very fast because it has to make sure that all of these different people are purchasing these different products so that he can purchase new stock and you can, again cell that specific stock and generate more amount of revenue. If your sales cycle or inventory cycle is fast, this person can meet more money. Because storing inventory is one of the biggest headache you can have. Interbreeding. And that's why to manage this merchandise, these retailers will always maintain a portfolio. And before maintaining a portfolio, they will always analyze how much dollar they wanted to invest in this specific inventory. And this can better be managed by working capital. Let's say if you have free cashflow of every $10 thousand out of that $10 thousand, how much inventory you need to buy? What are the different types of inventory unit to mind? And this guy will make sure that he's investing 80% of the money into the Hotmail conveys. Now hot merchandise is a specific type of product which is moving very fast, or let's say 80% of sales is coming from this 20% of hot mocking base. These products are selling very fast and he also need to make sure that he is also open to buy it. So let's save some huge discount is coming in the market in the future or let say some good sales is going on from the retailers or supplier side, this person can quickly purchase some extra product. And then if you have a certain level of stock in his store, he also needs to maintain a portfolio. He also needs to monitor the stock. Let's say if 20 pieces are remaining in the store, when will he refill that specific product in the store? Let's say some product is not selling very fast. What kind of discount or price he can offer the different customer. So we need to maintain all of these different factors inside a retail store. Now this is a small retail store. If you look at bigger companies like Walmart or Target, those people have very specific set of buying process. And you will have different people involved in different buying process. Let's say if you are working in Walmart, you may have seen this specific kind of buying process if the monitor to start a new category or a new format of retail store or lets a new type of product line in a retail store. At the top you have your merchandise group. This will be managed by senior VP or merchandise manager. Then you will have different types of departments. So let's say if you're opening a new retail store, you have 45 different types of department or division of product or different types of merchandise strategy. And this will be managed by divisional merchandise manager. And then you have different types of classification. Let's say if you have women fashion as a category and then you will classify that specific woman fraction into, let's see. Let's say a person is targeting just a child segment and that specific category of the person who is targeting each group of, let's say ten years to put in five years. And another person who is managing the age group of maybe 30 plus years to for 50 years. And then you have different classification. And then finally you have different categories. So let's say within the retail store, if you have clothing, then you will have different types of categories. Inside clothing's, you will have sportswear dream, we're swim, we are out of here. And normally these different categories are managed by category managers. Then you have your SKU, which is your stock keeping units. So what all different types of products you wanted to purchase in that specific category? You have your different types of variation, colors, flavors, styles. These are managed by all of these category managers at SKU level. This is the typical buying process in different, or I would say in big retail chain. But let's focus on one specific topic which is most important because majority of you will be joining as academy manager in a specific video gym or e-commerce store. Let's understand what do you mean by category management. Category management is the managing of a retail business with the objective of maximizing sales and profits of that specific category, not just the complete brand. They will give you one specific category in a retail store, let's say daily product or building as a category, or let's say nutritional supplement as a category. And then you have to make sure that you have all of these different types of product. You are managing inventory, you're optimizing it. You are forecasting demand. You are making sure that you will have that fast-moving inventory in your retail store. But on the flip side, you also have a mix of slow moving and different variety and assortment of products. The purpose of assigning this specific category to category manager is to make sure that he understands the consumer behavior. And he will come up with a plan which will have proper variety and assortment of different products so that they can satisfy the customer need. They will also make sure that they are improving the profitability of this specific category. Here everyone on now let's quickly understand the different types of merchandise management system. Inside the retail store, you have two different types of merchandise. You have your staple modernize, and you have your fashion merchandise. Now step up merchandise have a valid, predictable demand. Obviously, you can predict the demand of bread, butter, and egg every single day. Because you know that from past these many years, this is the sales number that we have these product relatively accurate forecasting, because you exactly know that these many people will be both choosing these many products. And this is the amount of sales we can generate every single day. Well, let's say every single week. And this weekend store will continuously replenish the stock of deed staple merchandise. Your bread, butter, egg, G is whatever that is used by people on day-to-day basis. These are stapled merchandise. Remember they have a low shelf life, and that's why these mock Mondays will be replaced by all of these retail store every single day or probably every single week. On the other side, you have your fashion merchandise and you will always have unpredictable demand of these fashion merchandise. Because obviously if you have some festival coming in, you have some special occasion or season coming in, then you will solve people purchasing a lot of these fashion merchandise. So the demand is always unpredictable, or I would say semi or partially predictable. And sometime a lot of seasonal variation are also there. So let's say if you have a sudden spike in temperature or a sudden drop in temperature within a week, you will see that there is an increase in the demand of all of these fashion merchandise. And because of that, it is super difficult to forecast sales. And that's why many of these retailers will show open to buying process where they will quickly purchase all of these different types of merchandise as soon as they see some sort of demand. In this specific category. 39. ROI and GMROI: In future, if you will become a merchandise manager, then you have to control what all merchandise that you have to buy for that specific retail store, at what price you will be purchasing that specific mock Mondays. And obviously you also have to make sure that you're always selling at a higher price. And then you also need to maintain the cost of merchandise, so-called your COGS, cost of goods sold. But you may not be controlling factors like operating expense, human resource, real estate, Supply Chain Management Information System. All of these things will be maintained from your central headquarter. And these people will decide how many new retail store the monitor to open, or how many people they wanted to deploy in those retail store. How can they optimize their supply chain and operation management? As a merchandise manager, your main responsibilities is to buy a specific merchandise of that specific category at a cheaper price. And you need to make sure that you are generating more amount of profit by selling them at a higher price and also maintaining optimal inventory and minimizing the slow moving product. That's your primary aim as a merchandise manager. To maximize your GI MROI, which is your gross margin Britain on inventory. But the problem is how exactly will you calculate this G MROI? In the next video, we will understand your ROI, which is written on inventory, and your GM ROI, which is your gross margin return on inventory. This will help you understand how productive your assets are. When I'm saying acids, it includes everything, your inventory, your cache, all of the equipments you have, these are all your assets. As a merchandise manager, your main focus should always be on optimizing these two matrix. So let's quickly understand these two matrix. So let's start off with that. Gmr. Gmr is the multiplication of your gross margin percentage and your sales to stock ratio. We all know that the gross margin percentage is your gross margin divided by your net sales. And sales to stop ratio is your net sales divided by average inventory at cost at that particular time. So obviously you can cross your neck sales by net sales and your GMR ROI is your gross margin divided by average inventory at cost. We all know that gross margin can be calculated by subtracting your cost of goods sold, COGS from your net revenue or net sales. And average inventory at cost is your inventory at a particular period of time, is your beginning inventory and your ending inventory. And then you have to divide that by two, which is your average inventory at cost. This is your GM ROM. You can calculate your inventory turnover by subtracting your gross margin percentage from one. And then you can multiply the same number with your sales to stop ratio. Now apart from this GMR, why you also need to focus on higher management now GMR, why is the modernize management microbes? So as a mechanized manager will be optimizing just GMR. You also have strategic corporate level matrix, which is your return on asset. Whatever assets you have in your company. How much of revenue concentrate from that specific acid. Now in G MROI, you just have your gross margin divided by your average inventory. You're not managing any other acid. So previously I have explained that as an open brace manager, your primary responsibility should always be on optimizing inventory and gross margin, and that's your primary responsibility. But as a strategic cooperation, you also need to optimize number of employees, your furniture, rank of retail store, the building of the small expenses. And that's why Return on Asset is also important. If you have less number of people in your retail store, you're maintaining very less inventory. You also have very minimal expense and then you can generate more profit. That's your return on asset. As a merchandise manager or as a category manager, your primary focus is on optimizing GM ROI, which is you're optimizing inventory and increasing the gross margin. But at the corporate level, strategic corporate level, your primary aim, or I would see your North Star metric should always be on optimizing return on asset. You have to maintain minimum amount of acid and you have to increase the net profit of that specific company. Then you have your merchandise management level, which is your Finally, one of the metrics that you can also measure in this is your sales to stoke ratio. So obviously you have your neck since at the top, and then you have your average inventory at cost. How much sales you can generate from the existing inventory. This is one of the supporting metrics that you can also calculate. Your quarterly sales to stock ratio is 2.3. You can multiply this by four and you will have your LLC is to stroke ratio as 9.2. 40. ABC Analysis for Inventory Management: Hey everyone, my instant deep in the last couple of videos, or I would say in the last 56 videos we were discussing about inventory. Inventory. Inventory. What I know a lot of you are confused that why this guy is talking so much about inventory and not helping us understand how exactly we can optimize inventory. And that's why in this video, we will perform an ABC analysis. Now this is a technique by which you can understand which inventory or which category of product is creating maximum revenue or profit or students for your company. And then you can purchase the maximum amount of that specific product or category of product. Let's understand this ABC analysis in this video. And the reason why we are doing this ABC analysis is because 80% of your sales gets generated from 20% of your product. You need to make sure that you are having more of these 20% product in your retail store so that you can generate more and more seeds and you can reduce down your inventory. Before jumping into inventory, let's understand how exactly you will analyze your merchandise and how exactly you can manage it. So there are two ways by which you can manage your merchandise. First one is obviously your cell through analysis. Let's say you are having hindered different types of t-shirt. And you are able to sell 20 t-shirts in the month of April. Sell-through rate is 20 divided by a 100 multiplied by n grid. Yourself through rate for the month of April is 20%. That means you can sell 20% of your product in one single month. And based on that, you can basically store more and more number of products. And second way by which you can manage your inventory is by increasing your sell-through rate, which includes bundling different types of products. Let's say you have three different types of Nestle Maggie in your retail store. And let's say if a normal Maggie is purchased by people very frequently, then you can also bundle these two products together. Let us see our odds Maggie and a normal Maggie. And then you can give some form of discount so that you can increase the ticket size of people. You have your sell-through rate. With the help of that, you can understand which product is selling really fast. And then you can bundle the slow moving products by giving some discount with the fast-moving product. Now let's not go deep into this specific types of analysis that you can use too many of your mountain dies. And let's perform an ABC analysis. Let's understand what are we going to do in this ABC analysis. In the ABC analysis, we will identify the performance of individual SKU in the assortment plan. We will do that by ranking all of these merchandise based on their performance and which I don't, is generating more and more sales. If you look at this specific diagram on x-axis, you have percentage of item in your inventory. In your y-axis you have percentage of revenue. Item number a is 20% of your total SKU, which is your stock keeping unit or your inventory. Item a is representing 80% of your sales. Item B is having 30% of your SKUs or inventory, but this is generating 15% of your sales. Item C, which is the slow moving products we have. This is occupying 50% of our inventory or SKU, and this is generating just 5% of sales. This is not an optimized retail store because you have more of item C, which is generating less of sales or revenue. And you have desktop item a, which is generating more of revenue or more of sales. We are not sure about profits as of now. Now let's perform this ABC analysis in a furniture store. In a furniture store, you have all of these different types of products. So you have your products like your bed, your chair, your coffee table, and your dining table, your bookcases. These are all the different types of products you have in that specific furniture store. On the second column, you have your annual sales, let's say 5 thousand beds are being sold by this specific retail store in a year. Similarly, 1500 chairs are being sold by this specific retail store in the ear. And similarly, you have this annual sales on this specific column. Then you'll have your cost per unit. Let's say one bag is costing $80.1, chair is costing customer $20. This is your cost per unit for this specific type of product. And this is your annual revenue or your annual sales, whatever you call it, or n will usage. If you multiply this specific number of items which are being sold with this cost per unit, you will have your annual sales. The first step is to multiply your annual sales with the price of the product and you will have your annual revenue or animal uses value of that specific product. After that, in the second step, you will apply a short function in the envelope revenue or in the animal uses value and bad, which is having the maximum amount of revenue in the ear is at the top. And bookcases, which is generating the least amount of revenue in the ear is at the bottom. The step number three. It will add all of the individual revenue, and now we will have a total revenue of 70 seventy one hundred, ten hundred dollars. And then we also have the total number of products which are being sold in that specific retail store. And in step number four, we will find the cumulative percentage of products that are being solved along with the percentage of annual consumption value. So let's say this specific bag, which have the angle number of items sold as 5 thousand. This 5 thousand is 23% of this 20 thousand, which is the total number of items or index specific ear. These office chair, which is 10 thousand, which are being sold in that specific year. This 10 thousand is 47.61 percentage of this 20 thousand. This is our percentage of annual unit sold. So bad is 23% of total sales. Opposite year is 47.61% of total sales. Dining table is 3.33% of total, since this is the individual contribution of that specific product in total sales in terms of units, not in terms of revenue. Then you will calculate the percentage of annual revenue contributed by a single product. Not bad individually contributes 52% in total revenue, which is your 7071, $1000. Your office chair contributes to 27% of your total revenue. And you can see that you're bad contributes 23.8% individually in the envelope units sold. But on the flip side, it contributes the maximum amount of revenue, which is 52% of your total revenue. After this specific calculation, you can split this specific data into three different categories. You have your category a, B, and C, because 80% of your sales is coming from beds and office chair, 13% of your sales is coming from dining table, chair and desk. And just 8% of your sales is coming from your coffee table, drops, computer cabinet, your bookcases. You can see that you have to optimize this specific category in case if you wanted to generate maximum amount of revenue. But on the flip side, you also need to maintain the inventory of other two categories. Mean conclusion of this video is that category a is generating 80% of sales. Category B is generating protein per cent, and Category C is generating 8% of revenue. Your primary focus should always be on maximizing the inventory or the variety and the assortment of category a because that is generating the maximum amount of revenue for you. But being a retailer, you also need to have a variety of different types of products. And that's why you also need a little bit of variety in dining table chairs and desks squared. But when it comes to coffee table, what drops or computer cabinet or all of these different types of products, you have to have the least variety of product, because that's your category C, which is generating the least amount of revenue. You need to increase the variety in beds and office chair, and you need to reduce down the variety in your coffee table, what drops and computer cabinet, because these are generating the least amount of sales for your business. Now this is the oversimplified version of this ABC analysis. In the coming videos, we will do the ABC analysis in execute. And then you can understand this specific type of analysis in a much better way. Let's conclude this video by understanding this ABC analysis. Now category number a and help you precisely and exactly estimate the amount of inventory that you will need in the future. Because obviously, category is generating maximum amount of revenue and you can always store more of this specific inventory because this will end up generating more revenue for your brand. Because category a is generating 80% of revenue and this is the most important category in your retail store or in your retail chain. You will always assign this specific category to some senior manager who is professional and who is having a good amount of experience. Because that's the primary revenue-generating category. Because category a is your primary revenue-generating category, you require a very strict degree of control in this purchase specific category. Similarly, in category B, you can partially estimate the amount of inventory or stock that you need to store for the coming year. And you can assign this specific category to some mid-level professional manager. Because this is some reading around 13 to 15% of your revenue. And this required a moderate level of control. And categories see is generating minimum amount of inventory. And you can't really estimate how much revenue this category will generate in the future. And that's why you can assign this specific category of products to some senior and junior staff, some junior manager, or some inexperienced people. Because this is not your primary focus. You do not need any sort of control in this specific category. 41. D2C (Direct to consumer) Business Model: Hey everyone. In this video we're gonna talk about the B2C business model, also known as your direct-to-consumer business model. Let's quickly understand the difference between B2C business mortar and traditional retail business model. And in the next slide, we will understand how companies are shifting towards the B2C business model nowadays, instead of choosing the traditional retail business model. Let us understand this. First, let's understand that traditional retail business, how exactly our traditional retail business work. And after that we will understand B2C business node. So in a traditional retail, you have your manufacturer, then you have your wholesaler, then you have your distributor, retailer, and finally, the end consumer. Any product that you purchased from all these retailers, they follow this traditional retail business model. Let's take an example of a wallet. Let's say I have this wallet. Now this wallet was manufactured by all of these manufacturers. Then these manufacturers will supply all of these wallets to all of these wholesaler. Then these wholesaler will supply all of their products through distributor. The distributor will supply these products to retailer. And finally, retailer will sell all these products to the end consumer. Now you have so many different parties. Let's look at B2C business model, which is direct-to-consumer. That means these manufacturers will directly sell all of their products to consumer. Or maybe you have one single retailer or one single campy or startup is just purchasing all of these products from manufacturers and directly selling it to and consumer. Let's quickly have a look. You have your manufacturers. So obviously if you are selling any product, you at least need some manufacturer who can manufacture these products. Then you have your brand. Let's say this brand can be a startup or this sprint can be accompany or a retailer. And these people will be selling all of their products directly to the end consumer. Now, anytime you skip any of these parties from the supply chain, basically you are just saving on the commission because these people might be taking a small margin out of the complete transaction. I think we had a discussion about the exact same thing when we were discussing about the Amazon's business model. How Amazon was connecting all of these wholesaler, finally to the end consumer. And that's how they were able to sell all of their products at a cheaper cost, standard traditional retail supply chain. That's the main purpose of the B2C business model. In the next slide, Let's understand all these friends who are using this B2C business model. So you have some very famous company who are using B2C business model. I would say all the internet companies or all the e-commerce plan that you will see around yourself. All of these companies are using this B2C business model. Now, I've taken some very famous brand. I'm not sure whether you are aware of these plants are not. You have your Gymshark, which is a thickness rank of us. You have your golden nutrition, which is also a thickness range of us. Gymshark is also there in UK and other countries. Then you have JVs bought a normal heart. All these companies are following the B2C business model. That means these companies or die people choosing all of their products from some manufacturers. And then they are directly selling to the end consumer. And then they are shipping product with the help of some logistic providers. All these companies have some form of partnership with all these logistic companies like FedEx and all these columns. So if I device the concept, the main purpose of DTC brand direct to consumer brand is to make sure that they are directly shipping the product from the manufacturer to the end consumer with the help of some logistic partner. And that's how they're able to sell the product at a cheaper price, and they can also generate much more revenue. Now let's understand this B2C business model with the help of this example. And we had a good understanding about this specific example in the Amazon's marketplace business model. But I'm still discussing this again so that things are very clear. In reference to B2C business model. If you look at the traditional supply chain, in a traditional supply chain you have your manufacturer, then you have your wholesaler, then you have your distributor, then you have your retailer. And finally your end consumer say, we are talking about shoes. A manufacturer is manufacturing the shoes in $99. Then the wholesaler is purchasing all of the tools from manufacturer in 10, $5. Then obviously wholesaler also have to Ansar lot of money. Then distributor is purchasing seems used from wholesaler in $110. Then distributor also have to make some money. Then finally, the retailer is purchasing all of the tools from distributor. And then we dealer is selling all of the tools to the end consumer. You can see that the cost of this US got increased from $99 to $135. Now companies like Amazon or any e-commerce company that is there in your country. These companies will directly take products from wholesaler and select to the end consumer. So let's take an example of Amazon, because Amazon is a very famous, famous e-commerce company. Amazon will take all of these product from the wholesaler. They will take temporal $10 as their profit. And let's say it will take extra $5 to ship this product to the end consumer. Amazon might be using their own logistic arm, or they might be using a third-party logistic arm like blue dot in some countries, let's say the logistic cost is $5. Amazon will invest $50. Finally, if you add $15, which is ten plus five to this 10, $5, this end consumer will get exactly the same product in just $120. You can see that with the e-commerce suit or with a B2C rule, this consumer was able to get the same product in $120 with the traditional supply chain, this customer was getting exactly the same product in $135. And that's the beauty of B2C business model. If I summarize the video and highlight the benefits of B2C business model. In B2C business model, you have nominal men if you do not have any middlemen like wholesaler or distributor or retailer. So if you do not have any middlemen, the company can have more profit. So all of these B2C brand who are selling the product directly from manufacturer to the end consumer. They can easily maximize their profits because they do not have to pass on a specific amount of that profit to all of these middlemen. Second benefit is they can easily gain access to the more targeted customer data. Now, because all of these B2C companies are directly selling their product to the end consumer. They can have a much debated customer data when compared with the traditional retail business model. Let's say if I'm purchasing ten different products online from ten different companies, those companies have access to my data. Let's say they have details like my name, my please, my mobile number, how many products am I purchasing from that brand? And it does spend half that specific data. They can quickly tweak on the product based on my specific requirement. They can understand it. They can quickly take a feedback because they are directly interacting with the customer. They had a much more targeted customer data. Third one is higher degree of personalization. And this is one of the most important point because if you look at traditional supply chain, the biggest problem in the traditional supply chain is the inventory holding cost. Let's see, you are making these wallets. And let's say instead of just five different types of older, you can quickly make 20 different types of wallet. And then you can directly ship all these wallets to the customer. Now the problem with the traditional retail supply chain is the inventory holding cost. Nobody in this supply chain wants to hold the inventory, the extra inventory. Let's see. If you have 20 different wallet. You can just buy, let's say, maybe 1 million piece of every single wallet. And then you can hold inventory In your manufacturer can hold inventory. And anytime you have a sudden boost or a certain supply of all of your products, people can directly purchase it. The problem with traditional retail, wholesaler will only purchase the quantity that he can sell to a distributor. Distributor will only Bolchoz as hotel level of quantity that he can sell it to a retailer. And retailer wants to sell the product as fast as possible. They don't really want to hold a specific inventory in their shelf because they have a limited stories capacity. And that's why B2C business model have a, have a high degree of personalization because they have an inventory less plasmas, mortar. They don't really hold inventory or any of these parties hold inventory. Let's see. Tomorrow you end up shipping a million pieces to your distributor and your retailer. And both of these people were not able to sell those products. Then these people have to send you back the product, and then you have to receive those products. Technically, the product is going in the forward logistic. You are just incurring some sort of cost in shipping those product to these people. And then these people are sending back the products because they are not able to salute inventory holding cost is a big pain in the traditional retail. And when you have high inventory, then you can have less personalization. 42. Private labels and white labels: Hi everyone, My name is now leap. And in this video we're going to talk about private label business model or white-label business more group. And this business model is widely used by B2C brand, which is direct to consumer brand. Because if we wanted to start your own e-commerce company or B2C brand, then it's really difficult for you do manufacturer your own product. And if you cannot manufacturer your own product, then you have to take the help of contract manufacturer. And that's why in this video we're gonna talk about private label and y label brand. Let's quickly understand the meaning of private label and y label Foster. A private label and y label products are manufactured by contract manufacturer, also known as third-party manufacturer. And you can send all of those product under your own dynein. That's even if the doc private label and y label brands or products. Let's understand this. If you wanted to start your own e-commerce website where you can sell supplements or nutrition or any product with your own brand name. The new hat to be held from all these contract manufacturer. And that's why you'll be contacting them for white label and private label branding. Let's say you wanted to start a website where you can sell your own supplements, your own wallet, or any product. You will reach out to all these manufacturer will manufacture products for you and they will paste our logo on DOD specific product. Let's say I will reach out to, let's say if I wanted to start my own eCommerce brand for supplements or nutrition, I will reach out to any of the manufacturer or contact manufacturer who is manufacturing deed supplement. I will request him to paste my brand or my label on these products, and then I will purchase these products in bulk quantity. Now obviously you have to purchase all of these products with sorting MOQ, minimum order quantity. And then I will convince these people, do let's say manufacturer 5 thousand quantity of this product for me and then paste my label on this product. And then I will settle all of these products using my e-commerce website. Then I will ship all of these products with the help of some logistic partner. That's how the private label and the white-label business model work. Let's understand this with the help of an example. Let's say I am a fitness influencer and I wanted to start up fitness plan where I can sell all of these supplements like we're protein multivitamins omega-3. So let's understand how exactly IV execute this ramp. Or I would say I will start this eCommerce brand or supplement and Nutrition. First of all, I have to find a list of five to ten different contract manufacturer and I have to do an initial consultation with those contract manufacturer. At this stage, we will discuss about how many units we want for this specific product. Let's say they will give me a price quotation for 10 thousand borders of this multivitamin. So let's say 5 thousand boxes of a specific VIP protein. They will ask me about the flavor, the quantity, the minimum order quantity, the price, the quality standard, and all of these details. And then they will give me sodium price. So if you asked me about the price difference between the final price of any specific product, whether it's a supplement brand, multivitamin, omega-3, or any product manufacturer can give you all of these products at 20% price, then the final products. Let's say if I am purchasing as a customer, if I'm purchasing any of these products like a multivitamin protein band or anything like $10, the manufacturing cost of all these product is 20% of final price. So if you are purchasing this supplement brand or this multivitamin, let us say $10 than that manufacturing cluster of this product is just two or $3. And the remaining goals will goes to logistic, to marketing, to branding, and you as a prophet and sway. Then after I have finalized what I have done, the initial consultation, then I have to select a product which I wanted to sell. Let's say I'm choosing three different products, like a VIP protein or omega3 or a multivitamin. Once I'm done with choosing all of these three products, then I have to do some blending and licensing with those people that have to finalize a logo. I have to finalize our label. And then those people will stick my label on their product and that's how then I have to go for approval. Almost all these countries you have. So the food license, drug license and storage license that you have to take from your specific government. Then finally, you can start selling all of these product using your e-commerce website. Let's define a conclusion. If I summarize the video. If you wanted to sell your own VIII protein, your own ME, omega3, your own multivitamin or any product, even your own wallet. Then you have to talk to these contract manufacturer. These contract manufacturer will give you the minimum order quantity that you have to purchase at least. And then they will give you a price Cartesian. 43. How to start your own Private Label: Now once you understand the complete process, let's understand how exactly we implement the same process in case of private label and white label brand. Let's say you are a fitness influencer or let's say any influence or forsake. You have good number of subscribers on YouTube and you have good followers. Let's say you had a fitness influencer. If you have a 100 thousand subscribers on YouTube and let's say a 100 thousand followers on Instagram. You have a good audience. Now you can build your own bike label and private label brand. And then you can sell all of your products to all these people. And then you can generate profits. You first have to decide which all product you have to launch for that specific audience. Remember if you are a fitness influencer, chances are that all those people who are into thickness, they might be following you. If you are a beauty influencer or I would say a fashionable influencer, then all those people who are very frequent in purchasing new dresses, new fashion. I mean, they're trying their hands on new fashion. Those people are following you. You have to choose product based on the type of audience you have. Once you choose those products, then you have to go through a special legal compliances. So let's say if you wanted to sell nutrition or supplement, then you have to take a drug license of food license because you are selling food to people. But on the other side, if you are a fashion influencer or if you're selling clothes or let's say beauty products. And you have to give a normal automatic license or a drug license. And then you have to do some basic taxation and legal compliances. You can take help from some legal advisor if you want. After that, you have to contact all of these contract manufacturer and then you have to pick a price quotation. Let say if you wanted, if you wanted to sell the lipstick, or let's say any, any other product and you have to find all those contract manufacturer what manufacturing lipstick or different brands. Once you find all those people, then you have to take a price quotation from all those contract manufacturer for a specific lipstick. And then you have to ask for minimum order quantity. Then they will see you that we can manufacturer at least or the minimum of 5 thousand quantity. And then you have to ask them for the processing time. How much time we do need to manufacture these products from me. Now, obviously they will paste your brand logo, your level and everything. You have to ask for processing time as sweat. Finally, then you have to list all of your products on your own personal website. Let's say if you also wanted to sell your products on Amazon or maybe some other e-commerce website, then you will take some nice photo or some nice pictures. Maybe do some influencer marketing and maybe then list out all of those products on Amazon, you're on the website or maybe any other website that you can imagine. Finally, this is the time you have to focus on sales and marketing. So if you have a good personal brand on YouTube, on Instagram, then you can sell these products to your own influencer, your own follower. But on the other side, maybe you can also tie up a couple of more influencers. Let's say, you know, 34 good influencers who have a very genuine, engaging audience. You can reach out to them. You can pay them some amount of money and then they can maybe do some sort of sponsorship of your product. If you are launching a new product, you may have some early mover advantage. Then you can sell your products on Amazon or maybe to your own audience. If you have a very unique product which is not there in the market, then people do not have any choice because in case of supplements like the protein multivitamins, omega-3, people help maybe 1000 different choices. But if I'm launching a very unique product, people may not have choices and then they might end up choosing your product. Now, once you have done a specific initial sales of your product or your brand, let's say you gave an order of 5 thousand quantity to all of these contract manufacturer. And after three to four months, you are able to sell all of these products to different customer. Now you have to find a way to scale all of these plants. If you look at some successful startups like Kylie Cosmetics from Kylie Jenner, those people were able to scale their brand. Now those people are blocking and revenue of three hundred, four hundred million dollars every single year. That's the scale we are looking for. Now to scale your brand. Now you have to invest in good team, good people, good partnership, good products, good research and development. And now you have to attract some investment from all of these venture capitalists or angel investor. Let's quickly summarize the video by understanding the difference between private label and white label. There is a very small or a slight difference between these two terms. But let's really understand this. So private label products are manufactured exclusively for retail brand, while white label products are manufactured for multiple retailers. So if you look at big companies who are purchasing products in millions of quantity, all of these contract manufacturers usually manufacturer product for them, which have some exclusive flavors, some exclusive fragments, or some exclusive content. And that is something called as private label. You are privately manufacturing all of your products or some brand. While on the other side, white-label products are open for, open to everyone. Let's say you have a small audience on YouTube and Instagram, and you don't, and you can't really purchase those products in millions of quantity. In that situation, you will reach out to all of these white label people. And then you can ask for, let's say, a thousand pieces of any product or let's say maybe 2 thousand or 10 thousand PCs. And in that situation, they may not customize that product based on a specific flavor or fragments, and they will directly give it to you by putting your own label, your own branding in the private label. As usual, retailers have the ability to modify the products. And obviously these manufacturer will develop a unique product for them. But in case of white-label, retailers do not have any flexibility or the economic request. All of these white labeled manufacturer to customize or to rebrand couple of things for themselves. But if you're just starting on your journey with startup entrepreneurship, you have to go through the flight labeling and then you have to enter into the market, sell couple of videos of different products. You have to test them and then you have to somehow find the V2, sell your product to a specific niche. And that's the basic difference between white label in private label. These two tones are some board saying. They can also be used interchangeably, but there are a couple of differences between white label and private label. So apart from white table brand and private label brand, you also have one very unique dome core contract manufacturing. This contract manufacturing is used by Apple, not even Apple. Even if you look at any smartphone that you have in your hand, every single smartphone have more than 11000 components. And it is nearly impossible for a single brand to make all these one hundred, ten hundred components. And that's why all of these smartphone manufacturer with the help of contract manufacturing, Let's stick to iPhone for this specific video. If you take iPhone it as an example, your iPhone is assembled by Foxconn, withdrawn and positron, and all the components in your iPhone or manufactured by all of these companies. The camera which is steered in your iPhone, the camera and the camera sensor in your icon is made by Sony in Japan. The OLED display, which is there in your iPhone. That oleg display is made by Samsung. The binding check, which is there in your iPhone, that Bionic chip is made by DSMC, which is Taiwan Semiconductor Manufacturing Company and now on, recently acquired by n video. But I'm also mixed binding chip for iPhone, I think 118 and buy a new chip was made by r. Then the batteries in your iPhone are made by Samsung. The flash memory, or I would say the memory chip, the storage chip in your iPhone is made by Samsung and both fever. That's why your iPhone is not made by Apple. The majority of the component in your iPhone is made by some other companies. Apple is just assembling all of these companies, maintaining the quality standard and making sure that the software is really nice. And Apple, that's the main work of Apple. They're using this contract manufacturing, not only Apple, every single smartphone company is taking help from some other company in manufacturing their product. I think Samsung mix majority of the component, but they still did components from Qualcomm, from some other companies. But Samsung is the only compete, which means around 80 to 85% of all their own components. And the only big health from other manufacturer for 15% of their components. 44. Demand Management: If you look at a normal business, a normal business may have these different demand variation. Because of manufacturer. The number one factor is your seasonality. So there are some products that you are able to sell only at some specific season. If we look at umbrella or maybe ice cream, all of these products are seasonal. You can only sell these products in a specific season. Then you have some more factors that can cause demand variation like fashion. So all of these fashion items or, and have a specific trend that is going on in the market. And that is why we Blackboard using these specific fashion product. Another cause of demand variation is the change in the customer income. Now obviously this doesn't happen overnight. But let's say if a stock market of a specific countries growing, then people will also make a little more money than normal because their money that was there in the stock market is also growing. And that may also cause our demand variation because now people have more money to spend on the other side, if your stock market is crashing, then all of your stock that you have purchased or in the losses, and then you may not have more money to spend in the market, then you have global changes. So let's say if you have a Create Board that is going on between United States or China, if there is a COVID-19 situation in the world, or let's say there is a war between your grain or Russia that is going on. So all of these global changes can cause a trade crisis and that can also lead to the demand variation. Another cause of demand variation is marketing drive or promotion. Anytime you have some variation in your demand, you may have a stock-out situation. And that is why you have to understand all of the factors that can cause the variation in the demand. The mean purpose of making this video is to make sure that you understand all of these factor so that you can plan these things forward. And we'll be solving all of these problems with the help of some forecasting model in the coming videos. Now in this video, let's understand about the external and the internal demand management. As a business, you always need to make sure that you will have a stable demand over time. And that is why you will always avoid all those situation where you will have fluctuation in the demand. Because if the demand fluctuate so much, either you will have a stock-out situation or even if you're ordering so many products in the first place, you may have inventory holding cost. Now remember, all of these different businesses manage the demand in their own personal v. So if you look at aviation as an industry, those people will reduce down fluctuation in the demand by increasing the price of a flight ticket. If you are booking that, let's say few days before the actual flight or even a few weeks before the actual flight. But on the other side, if you are booking a flight almost a month before, in that case, the price will be way less. On the other side, a normal retail store or reduced on the demand fluctuation by not giving enough promotion, or let's say by reducing down the percentage of promotion that they are giving. And let's say an e-commerce giant like Amazon, or incentivize regular order or subscription of a specific product so that they can reduce down the fluctuation in the demand. So let's say if you're ordering a specific product that you need every single month. So instead of going to Amazon and buying that specific product on the phospho off every single month. You can also start at regular subscription, and Amazon will automatically ship that product in the next month. To avoid the demand fluctuation saw that Amazon will have a predictable demand. Let's say if 2 thousand people are ordering a specific product, amazon will know that we have to ship 2 thousand products in the next month. They have at least some level of data to stabilize a specific demand. Another way to reduce down the demand fluctuation is by maintaining transparency between vendor or distributor and planning these things properly so that you can avoid the bullwhip effect. And I think we had a discussion about bullwhip effect. And in that video we took an example of sanitizer and toilet paper. Then another way you can reduce down the fluctuation in your demand is by reducing down the lead time. Lead time is very subjective. I think it depends on the kind of business that you are doing. The best way to reduce down your lead time is lead customization. You have to ask your customer what they want, the default please, so that they did not give you a small customization in the end because otherwise it will hold your complete assembly line. And in this video we will see all the different component of the demand management. Like you may have seen these different types of charts. If you look at a normal chart, a normal chart will look something like this. And it may have these random moment. These random moment can be because of Black Friday sale or let's say a Christmas tree or maybe some other small events that are happening. And this specific chart may have a specific cycle as well. So let's say if you are selling some cyclic product or if you have a cyclic business, you may have this specific type of chart in your business. Suddenly you may have a higher demand in a specific season and in off season you may have a lower demand, then suddenly you may have a higher demand in the next season and a lower demand in the off-season. Then you have these seasonal patterns. Then you also have these specific type of chart which are growing over time. This is an uptrend chart. If you look at the demand over a period of time, you have this original time series data. And if you break down this time series data into a trend component, into a seasonality component, and into a noise. If you combine all of these three things together, you will have these fluctuation in a specific chart. Let's say if you're selling a product and that specific product is growing over time, let's a specific trend that you are following in the market, that people are liking this product and you're going with a specific uptrend in the market, then you also have some seasonality. Let's say you have designed a beautiful umbrella or a smart umbrella. And you're selling that specific umbrella in the market. Obviously because we are selling an umbrella in the market, you may have these seasonality component. Now obviously it depends how much seasonality you have in the market. Then you also have some form of noise or residue. Let's say a small class of society really liked your product. You may have DDS, sudden spike in a small timespan. Let's say you have a bulk code, you got a bulk order from some supplier. You may have these noise and residual, all these noise and that it says it will cause these random movements. If you combine your noise, you're seasonality component and your print component, you will have an original time series data. Now I know these things sounds confusing to you right now, but please wait because in the next video, we will understand time series or exponential smoothing or moving average with the help of Microsoft. Excellent. 45. Forecasting and Prediction: Hey everyone, In this video we will understand about forecasting. Forecasting is the process of making prediction based on the past and the present data. And then you have to combine your own understanding or your own expedience with that past or present data. And then you have to compare your forecasting that you have done for the last few months so that you can tweak your forecasting a bit when it comes to a halt costing, some people have a slight confusion between forecasting and prediction. So if you look at forecasting, forecasting is the use of previous event that was combined with the V St, a trend that is going on in the market. And then you have to come up with the future outcome with your own understanding. And the best example of forecasting is your weather forecasting. Where you look at the past data or the temperature or the present data that you have new. And you will combine all of those information with the help of your own understanding. And then you will come at a confusion that you will have rain tomorrow or you will have at this specific temperature tomorrow. You will also tweet that data as you go forward. Let's say if I have called costed something for tomorrow, I can treat the data maybe after 34 hours based on the current data that I have. Then if you look at prediction, prediction is something that will happen in the future without you having Brian information about that specific event. Now before going deep into forecasting and prediction, we first have to build a strong foundation. That is why before he went to understanding these training model dataset and all of that, we first have to understand some very basic forecasting technique like moving average, exponential smoothing or weighted moving average. And then we will understand about regression, ANOVA and all of these techniques. And after that, we will understand about these concepts. Now one question that you may have in mind that not be, why are you teaching forecasting to us a default, please? I mean, what's the use case of forecasting in the real life? If you look at forecasting, forecasting model is there in almost every place that you can imagine. If you're using ride-hailing company like Uber, of the fear calculation of your Uber app is done with the help of regression model. And those people use multiple linear regression for that purpose. If you're watching a movie on Netflix, then the Netflix recommendation engine is powered by the regression. If you're using Amazon.com, the Amazon's recommendation engine is powered by lift. Lift as a concept in retail. And I think if you go to my profile, I have a complete course about reading management. In that specific course, you can understand how exactly the recommendation engine of Amazon work and how they use lift to power that specific recommendation engine. And not only in retail or let's say in technology, you can use forecasting in the supply chain as well. So let's say if you wanted to have a better utilization of resources, you can do an inventory forecasting. Let's say if you wanted to enhance the quality of management, then you can forecast the staff requirement that you need for a specific festival season like Christmas or Black Friday or any other festival that is there in your specific country, then you can always add that specific product in your portfolio and you can increase your revenue. Forecasting have so many important use case. And now this is a simple forecasting model that you can use. Now let's understand the step-by-step process of forecasting. And once we understand about all these different types of forecasting technique moving forward, then you can understand this concept in a much better BE fast, you have problem identification. The reason we will be doing forecasting is because we may had some stock-out situation or excess inventory in our specific warehouse or retail store in the past. And that is why we want to avoid that kind of situation. And that is why we will be doing a forecasting. You have to identify a problem, then you have to gather the data for that specific problem. So let's say if you wanted to have a demand planning, you wanted to calculate how much product we need to order for the next month. In that case, you have to get the past data for at least a year or two. Then you have to do a preliminary analysis to get a specific insight from that specific data. That is there any seasonal fluctuation in the data? Or how much or what is a growth rate? What is the marketing span that we have and all the possible seasonality or noise or fluctuation you can have in your specific data, then you have to use a specific approach. And here you can use moving average or simple moving average or weighted moving average or exponential smoothing. You can use all of these different types of forecasting technique. And we will understand about all these different forecasting technique in the coming video. And then you can use any of these forecasting technique. And you also have to tweet this forecasting technique over time because that's an ongoing process from forecasting sales in the next month to forecasting how much gold can be expecting a call center, you have to solve this problem step-by-step. In the first step, you will go with problem identification, then gathering information, then exploited research, then choosing a specific model that you can use for forecasting and finally forecasting using tags specific molecule. Now when we talk about demand planning or demand fluctuation, apart from forecasting, you can also do scenario and backcasting. Forecasting will predict the most likely future. So let's say if you're in the present and you have to forecast how much demand will you have in the future after a specific period of time, then you can use forecasting. But let's say if you have multiple options or let's see how many products will be there in the future or what will be demand of DOS product in the future. Then you now have multiple scenario. And then you also have backcasting variable compare your previous result after a saltine lapse of time. 46. Quantitative and Qualitative forecasting: Now when we talk about supply chain forecasting, supply chain forecasting is the combination of your quantitative forecasting and qualitative forecasting. But one question you may have in mind that nobody, why do we need qualitative forecasting? So if you look at every business, every business is also influenced by economy. The trend that is going on in the market, the infrastructure that you have Bill. And that is why you also need a qualitative angle where instead of just playing around with data, you need to do survey interviews. You need to have industry benchmark, competitor analysis, the growth rate of that specific industry. And that is why we do this qualitative forecasting apart from just playing with numbers. So if you look at a quantitative forecasting where we use historical data to determine the future. You have all of these different types of technique, from exponential smoothing to adaptive smoothing, to moving average, to regression analysis, to lifecycle modelling. And we will understand about all of these different forecasting technique in the coming video. But if you look at qualitative forecasting, you have market research, Delphi method, and historical analysis. And these are very subjective decision that you have to take by yourself. These are not backed by data, so you have to use your own brain, your own understanding. You have to talk to some industry expert to make sure that you're coming up with the right kind of prediction or forecasting. Let's say if you wanted to start an EV company in a country where you do not have enough data or enough sales data, so that you can forecast how much demand will be there in the future. In that case, you need to talk to these expert. In that case, you need to have we need to do survey or interview to make sure that you understand what's going on in the mind of the people and how fast can you move in developing new technology. And that is why we use qualitative and quantitative forecasting methods. In qualitative, you'll have expert opinion market research focus group, historical analogy, Delphi method, panel consensus, and use method in quantitative we have moving average, exponential smoothing, regression analysis, adaptive smoothing, graphical method, econometric modelling and lifecycle modeling. We will understand about both of these techniques in the coming video. Now let's start with qualitative forecasting, which is not backed by data, but still you have to give a very large contribution to qualitative forecasting if you're starting a business in a new industry, well, let's see If you do not really have enough data to backup your hypothesis. In that case, you use qualitative forecasting, which is based on your judgment and opinion that you have. The first one is the jury of execution, where you take an opinion from higher-level executive because those people are working in your industry from so many years, if not decades, and they have a very good understanding about a specific industry, then you have your sales-force composite. In this, you have to talk to your sales individual because those people are interacting with your customer on day-to-day basis and they have a better understanding about the product or what exactly a customer wound, then you have your consumer market survey. And doing a consumer market survey can be expensive some time, and it is also difficult to apply. Then you have a Delphi method where you establish a panel of expert which have knowledge from a specific domain like finance, marketing or production or technology. And then you will take their opinion apart from doing quantitative forecasting. And finally then you have your quantitative forecasting, which include your moving average or exponential smoothing regression, linear moving average, and all of these different models that will help you forecast a specific day doubt with the help of previous and the present data that you have, whether you want to do of forecasts the stock price or the better condition or the electricity consumption or the heart rate monitoring, or our total sales in a store. You can use previous and the present data to forecast the price or the demand of a specific product. Let's understand about demand forecasting. For demand forecasting is art and science. The reason we are calling it as artists because it also need, because in case of art you need experience and value system. And in case of science, you need data so that you can forecast the future demand. When it comes to quantitative forecasting, you can use time series forecasting so that you can look at the past data to forecast the demand in the future. Let's say you can forecast gasoline demand by looking at the past data. And then you can use associative forecasting by looking at the relationship between these different variables. In that case, we'll be using regression. So in that case, you can forecast the gasoline price by looking at the vehicle sales. Here we are taking all of these different variable and then we are finding a relationship between these valuable that whether the price of gasoline is decided by the vehicle sales or not. And if so, how much? 47. Introduction to Simple & Weighted moving average: Hey everyone. In this video, we will understand about simple moving average. And the reason we aren't covering all of these concepts like simple moving average, weighted moving average, or exponential smoothing, because we wanted to calculate demand in the coming future, also known as your demand forecasting. Because if you are a retailer or a distributor, and let's say APOE choosing these products directly from manufacturer or a wholesaler, then you have to forecast these demand. Let's say if you wanted to place an order for the next month, you need to have some level of demand forecasting. Demand forecasting will become a very big problem or a very huge problem. Especially if you're working for some e-commerce company or some retail giant. But there are a couple of advanced software and these advanced technique to do demand forecasting. But we will build a strong foundation and we will understand the difference between simple moving average weighted moving average, exponential smoothing, Exponential Smoothing, or three-way exponential smoothing. And then we will understand about all of these different forecasting technique. But if I can give you a very high level overview of all these different forecasting technique on an accuracy scale or will be going from low accuracy in forecasting to very high accuracy a costume. Let's start by understanding the naive approach or the naive method of forecasting. Use the previous period to forecast the next video. Why the simple average calculates the overall average? Let me help you understand this with the help of this simple example. From day one to day ten, this is your actual demand or actual sales that you have. In the naive approach, you are just taking the demand of the previous day as the forecast for the next street. And it is pretty simple. You have demand then on day one, and you're just taking that as a forecast for next week and so on and so forth. This is the naive approach. Now this is the most basic approach that you can use in your business. Then you have your simple average. Now if you wanted to calculate the simple moving average for three days, You just have to add these three numbers and you have to divide them by 314 plus 1226 plus 1036. If you divide 36 by three, you have 12 as your simple moving average. And you can take that as your forecasting. Then other techniques that are there in case of demand forecasting is your weighted moving average and exponential moving average. Let me oversimplify. These are different types of forecasting technique by understanding their formula, please do not worry about any of these formulas. We will execute this formula or this forecasting model in the same video, where we will Of calculate all of these things with the help of Microsoft. Excellent. If I talk about simple moving average, in simple moving average, you will take all of the data points of the previous state. So let's say if you wanted to calculate three dates, simple moving average, you will simply take the value of yesterday, day before yesterday, and it told last week. And you will divide that by three. And that's how you will have three dates, simple moving average. If we have simple moving average as a concept, then why do we need weighted moving average? Now to understand that, we have to understand these three important characteristic of any forecasting technique on model. The first one is granularity rule. So if you have more accurate data for your forecast, you can have more accurate prediction. And this is because aggregated data have lesser radiance and less than noise. The second is your frequency rule. That means if you wanted to calculate the price of, let's say gasoline, then you have to have the data for every single factor that is affecting the price of the gasoline, like the number of cars that are sold into the market, how much disposable income that specific country have? What is the tax rate in that specific country? How the economy will grow in the coming future. And every single data, 0.2 is your frequency sleep. You're updating your data more frequently. And if you have the latest information, then your forecast would be much more accurate for last week, not for this week. In situation number one, you have the price of the last six days of gasoline, and now you need to forecast the price of the gasoline on the seventh day. In situation number two, you have the price of the gasoline data for the previous week, and that is why you will use this for print suitable. Third one is the horizon rule. If you have a knowledge of setup data point, let's say instead of having a dataset of last one week versus a having a dataset of last one month. Obviously, the dataset of last one month can give you a much more accurate result. When we talk about moving average, we are giving equal contribution to all these three days. Let's say we wanted to forecast the temperature for the next state. Let's say in on Monday it was around 50 degree Fahrenheit on Tuesday, 53 degree Fahrenheit on Wednesday, 55 on toaster if 54. Now we need to calculate the temperature on Friday. So obviously we will give more contribution to the temperature on Thursday instead of giving equal contribution in case of moving average. And that is why we use weighted moving average. We ever give more weight or more contribution to the last data point. And then it will also give a very little contribution or weightage to the day before yesterday, or let's say to the Tuesday. So let's say instead of giving them three value, or instead of finding the average of all these three value, we will do 80% to toasty, or maybe 10% to Wednesday, and we read 10% to Tuesday. And that's how we can calculate the weighted moving average, so-called forecast of the temperature that will be there on Friday. And it's up to you how much percentage we wanted to give. You can also give 60% tutor stay or 30% to Wednesday or let's say 10% to Tuesday, It's up to you. It depends on you how much weightage you want it to give to that specific situation or use case. Let's understand moving average and weighted moving average with the help of an example. 48. Simple and weighted moving average exercise: Now let's understand about moving average or the concept of moving average is super simple. And you can also understand that with this specific formula, you are taking the average of last three actual sales figure or the actual demand of last three months. And then you are averaging it out in the fourth month. That is your moving average. I just need to type equal to and I need to find the average of the last three months, which is my January, February, and March. And I just need to divide this by three, and that is my average. Moving average is very simple. I will simply drag this specific formula and I will have my moving average. This is the moving average. Very simple. If you quickly plot a simple chart or with the actual sales and moving sales, I'll go to the Insert tab. And I will simply plot a chart which will show me my actual sales versus moving. You can see that my actual sales is fluctuating so much that is there in this blue line. But with the help of moving average, I have normalized my demand so that I can consistently order these products from some supplier or distributor. That I do not really have to store a lot of inventory in my warehouse. The simple concept of moving average is to make sure that you will normalize the fluctuation in your actual demand so that you can place the order to avoid stock-out or excess inventory in your store. Remember, ordering a lot of quantity will increase your inventory holding cost. And ordering very less quantity in your warehouse can cause you up stock-out. But there's one problem with simple moving average. We're giving equal contribution to these three last month, that is our January, February, and March. But in reality, we give maximum contribution to the last month, that is our March. And that's why we need to understand about the weighted moving average. In weighted moving average, we will give a contribution of 80% to the last month, 10% to the second last month, and 10% to the third last month. And it all depends on your business. You can also give 20% to the second last month, or maybe let's say 10% to the third last month, or you can give 70% to the last month. It's up to you. You can give whatever weight to this weighted moving average based on your business. To forecast to sail with weighted moving average technique, I just have to multiply the actual sales figure with the weight that I've given to this specific data. And then I will have a weighted moving average is simply equal to, I'll take a bracket and I just need to multiplied this specific data point with 80%, that is your 0.8. And I need to then add, and I need to multiply this specific data point with 0.1, that is your 10% weightage. And then I need to multiply this specific data point with 0.1%. Remember, I'm giving 80% to the last month and 10, 10% to the second and the third last month. And then I just need to close the bracket. And if I hit Enter, I will have the weighted moving average for aspirin. I just need to drag this formula and I will have a baited moving average. Let me quickly plot all of this in a chart so that you can understand this visually. So I'll go to the Insert tab and I will simply plot a chart. And this is not super interesting to understand. Let me increase the size of this chart. And now this is very interesting. You can see that the actual sales of your data is fluctuating so much. And you were able to normalize the sales with the help of simple moving average, which was a great concept. But now you have given the maximum contribution to the last month when compared with the second audit heard last month. But if you closely look at this specific chart, you will realize that the data point in the weighted moving average is very close to the actual sales. Let's understand that with the help of this diagram, this red color is our simple moving average, and this yellow color is our weighted moving average. Now the idea here is not to tell you which technique is good for your business because some business also use simple moving average. Some business also use weighted moving average. It depends on your business. If you have a business where the average of last three months, I can give you a better prediction or a better forecasting, then you should use simple moving average. But if you are running a business where the sales of the last month is very important, and I guess majority of the business, the last month's sales as the immediate contribution of their next month's sales. In that case, you can use weighted moving average in majority of the business. Weighted moving average gives you a better forecasting or a better result when compared with simple moving average. But again, it's up to you. You can use whatever technique that you want. If you closely look at weighted moving average or simple moving average, you will see a lot of fluctuation in the demand. In the next video, let's understand how can we normalize this further with the help of exponential smoothing. 49. Exponential Smoothing Excel Exercise: If you look at the chart of any product or any equity or anything that you have, you always have a trend component. You have a seasonality component, and you have a noise and residue. And to reduce down this noise and residue who take as much data as you can. So when we talk about forecasting, remember the three most important rule that you have to understand when it comes to forecasting. You have your granularity rule. That means you have to collect as many data points or as manufacturers as you can, then you have the frequency rule. That means you quickly have to update your forecasting model so that you can get the accurate forecast for the coming days are coming week. So the coming month, then you have horizon rule. So you have to take a very long horizon of data point or let's say dataset, so that you can minimize all the different fluctuation or seasonal component that you have in your data. Now if I look at this specific time series data that we have, the first component is your level. Now the first one is the level. And level are all those different components that will add baseline to this specific time series. Then you have a trend component. And trend it's something that will increase or decrease over time. If you have a famous product or let's say if you are growing as a company, you may have an upside or a downside trend, then you have seasonality. Seasonality we'll define a specific pattern that will repeat over time. So let's say if you're selling a specific vaccine for seasonal flu or let's say if you're selling umbrella or all these seasonal product, you may have the seasonality component which is affecting the complete original time series data, then you have a cyclicity which will repeat over a fixed interval. Some businesses may have some business cycle and the sales or the demand will fluctuate in those business psyche. In the end we have noise. And noise are all these random fluctuation that happens in data. You may have a noise because of promotional offer that you have given. You may have a noise because of some festival season that was there. And there are so many micro factors that are there behind this specific noise. Let's understand about the most important topic, that is your time series forecasting. Now in simple average, you just take the simple average of last three days and then you will calculate the forecasting for the next street and invaded moving average. You give more weight to the most recent data and you give lesser and lesser great, because in majority of the use case, the forecasting for the next day will depend on the actual sales of the previous tree. And that is why we have to use these Exponential Smoothing, which will normalize the fluctuation that is there in your business. And it is widely used as the forecasting technique for the univariate time series. When we talk about forecasting, you have simple exponential smoothing, double exponential smoothing, and triple exponential smoothing. To understand simple exponential smoothing, you have this specific formula that the reason exponential smoothing, it's so special when compared with simple moving average or weighted moving average is because exponential smoothing gives the importance to the previous data in the previous forecasts. If you wanted to calculate the forecast for month number seven, then you have to take the previous or the actual sales of month number six and the forecasted value of month number six. And then you have to multiply that with alpha and one minus Alpha. We will talk about Alpha when we will do simple exponential smoothing with the help of Excel sheet. Here everyone In this video we will understand about exponential smoothing. The main purpose here is to normalize the fluctuation that was there in case of moving average or weighted moving average. And that is why we'll be using exponential smoothing to forecast the future seal. And to understand the exponential smoothing. I hope you got a good understanding about alpha. If you have more dynamic environment, you can increase the value of Alpha. If you have less dynamic environment, you can decrease down the value of alpha. This is our simple moving average, and now we need to calculate the exponential moving average. Simple moving average will give you a forecast that is not very accurate, is also fluctuating a lot. And that is why in exponential moving average, we have to normalize this fluctuation will be using exponential smoothing so that we can have a consistent demand throughout the year instead of having the sudden peak in simple moving average or weighted moving average. But the reason we will be using exponential smoothing is because exponential smoothing pick the actual data and the forecasts to date of the last month, and then it will predict the next month value. If you look at the formula for exponential smoothing, the forecast of the next month will be calculated by multiplying your alpha with the actual sales of the previous month. And then you need to add one minus alpha multiplied by the forecasted sales for the last month. So exponential smoothing is taking the actual sales of the last month before costume sales of the last month. And that is why it will give you a much better result. Now let's quickly apply this formula. So we have to take the alpha, that is your 0.3 and we have to multiply this alpha with the actual sales of the last month. And the actual sales over the last month is 10 thousand units. Then we have to add one minus Alpha, that is your 0.7. And then we have to multiply this with the forecasted sales of the last month. And the forecasted sales of the last month is your simple moving average of the last three months. And then you need to simply find the value. Now I need to fix couple of values. I need to fix the alpha. That's why I will press F4 to fix this value. And I also need to fix our D7, which is one minus Alpha. And this S5 value in D5 value will constantly move as I drag this value forward, and this is your exponential moving average. So let me quickly plot all of these forecasted value in a single line chart. And this is now remember, the mean reason why we are understanding all of these techniques is because we need to go from low accuracy to high accuracy when it comes to forecasting. A simple moving average will give you a very low accurate result. But exponential smoothing, double exponential smoothing or triple exponential smoothing will give you a very high accuracy. And that is why we are using all of these forecasting technique. When it comes to demand planning, can look at this orange color chart. This is the actual sales. And actual sales is having so many fluctuation. We have normalized this actual sales by using simple moving average and weighted moving average. Now you can look at this gray color line to understand the simple moving average and this yellow color line to understand the weighted moving average. But if you look at exponential smoothing, exponential smoothing is giving you a very nice curve, this blue color curve. And that is why we are using exponential smoothing to make sure that we're not ordering all of our product in large quantity. Because if you order product in large quantity, you have to be your inventory holding cost. But if you are ordering them in less number of quantity, you will have a stock-out situation and both of them are bad for your business. Now, again, the main purpose of this video is not to tell you which forecasting technique is good or bad. You have to find out the right forecasting technique for your business. If you feel that simple moving average is doing a good job for your business, you can use simple moving average. You can use weighted moving average if you have a lot of fluctuation in the data because of the last few months, you can give a contribution to the last month a little more than the contribution in the second or the third last month. And then you can also use exponential smoothing by just changing the value of Alpha. So if you have stable environment, you can use a lower value of alpha, that is 11.3 or 0.2. So if you have situations like COVID-19 or Russian invasion or something like that is happening in the economy. You can use a dynamic environment with higher value of alpha. And if I continue this video, this is our actual sales and this is our forecasted sales. And if you just plot these two numbers on a specific chart, you will see that your actual sales may fluctuate a lot. But you can normalize the forecast with the help of all these forecasting model so that you can avoid stock-out and excess inventory at the same time. 50. Double and Triple Exponential Smoothing: I hope from the last video you got a good understanding about these simple exponential smoothing. In that simple exponential smoothing, we took the actual data of the previous month and the forecasted the dog the previous month. And then you have more deployed that specific data with alpha and one minus alpha. But if you talk about exponential smoothing, we have not still covered the trend and the seasonality and the noise component. And that is why we have a double exponential smoothing, which consider the trend of a specific cities. If you look at the forecasting with the help of double exponential smoothing, we can also take trend as the component really takes simple exponential smoothing and we will add trend component to that simple exponential smoothing so that we can have a double exponential smoothing. If you look at the FIT, that is your forecast including trend for time period t. You have to take a forecast for time period t. Then you have to calculate forecast for time period t. And then you have to add the trend for that specific time period. The formula will look something like this, but please do not get scared with this formula. This is super-simple and we will understand about this specific formula directly inside the Excel sheet. And I'll make it super simple for every single person to understand. As we all know, Alpha is the smoothing coefficient of forecasting and Beta is the smoothing coefficient of trend forecasting for time period t in simple exponential smoothing is your smoothing coefficient of forecasting. That is your alpha multiplied by the actual sale on time period t minus one, then you have to add one minus alpha multiplied by the previous forecasted sale for time period t minus one. And that is your simple exponential smoothing. Now if you add, if you add tank to this specific equation, you will have a double exponential smoothing forecasting, including trend FIP for a time period p, that is your small d. If you look at the trend, trend is made up of your Beta, which is the smoothing coefficient of print. If you wanted to calculate praying for time t, then you have to multiply Beta, which is the smoothing coefficient of print with the forecast for time period t minus the forecast of time period t minus one plus one minus beta multiplied by T, which is your trend in time period, t minus one. And if you combine both of these equation, you will have your double exponential smoothing. We will understand this specific equation in the Excel sheet, just like double exponential smoothing, you can also have a triple exponential smoothing where you will take seasonality component test when we have level that at the basic component to the time series, then you have trend, then you have seasonality, and finally you will have noise. So if you look at triple exponential smoothing, you have your level plus trend plus seasonality. 51. Why Inventory matters in Retail Management: So perfect. In this video, we'll talk about inventory and replenishment. So what is inventory? Inventory is the product or the stock that is sitting idle in your store or in the warehouse, waiting for a customer or supplier to purchase. But why is inventory so important? The problem is that if you have too little of inventory, then your shelves will be empty and shoppers will leave unhappy. But if you have too much of inventory, your product will expire, they are gathering dust, and you're losing money on them. Because the time you buy a certain product, that money is blocked until you sell the product to the user. The sweet spot is that you have just enough stock to meet the demand. A good example of inventory is that in a grocery store, you're running out of bread on Sunday morning. In that case, it's bad for you because you will see people going out of store angry because they are not able to get a necessary item that they actually need. Remember those five, six inventory, milk, bread, butter, and maybe some veggies. Those are important and they are attracted and that's the reason people came to your retail store. So what is replenishment? And how do you replenish the inventory? To tackle the problem of inventory, you have to strike the right balance with replenishment. Replenishment is the art of refilling shelf at the right time. So there are certain category of product that are fast mover like milk, bread, snacks, you have to replenish them every single day. Sometimes you have to do it twice a day. But then you have slow moving items like exotics or seasonal item that you might have to simply replenish every single week or sometime even a month, and then you have some item in between. The main idea is that you have to replenish it so that you can avoid out of stock situation for your user, and your goal should be to balance availability and cost. Good example of replenishment is that a store orders milk every morning because it is a high demand product with low shelf life. But in case of chocolate sauce, they just place the order once a month because very less people actually purchase this item. So let me help you understand a little about inventory cost. Because remember, in the last slide, we discussed that if you haul too much, you're blocking too much of cash. If you haul too little, you might have a risk of stockout. So what are the three kind of costs you need to keep in mind when it comes to inventory? The first one is carrying cost. So anytime you store inventory, it might go bad. The second cost is a stockout cost. Imagine a customer walked into your retail store and because you don't have two or three most common item, he'll say, Hey, man, you don't really have bread and milk and I'm not interested in other product. I'll go somewhere else and buy all my item. That's your stockout cost. And then you have ordering cost. So every time you order inventory, there is a procurement team that actually placed the order. So inventory contains the carrying cost, the stockout cost, and the ordering cost. So ordering milk every single day in a retail store is costly because you are storing 500 liters of milk, and if you're not able to sell it in just one or two days, it might go bad. So that's your inventory cost. Now, we will go deep and understand each and every small topic in the upcoming video, but I'm just giving you a high level overview so that you understand everything about the concept. So perfect. If I give you some example to understand inventory, you have Amazon Fresh that uses data to predict the demand, and then they restock the inventory automatically. In fact, let me explain you this diagram on how exactly inventory is maintained, stored, and being sold to the consumer. At first, every single retail location use a POS data or point of sale data. Like how much product are they selling every single day or every single week. Now they look at the seals. Now they do seals analysis, they look at the shrinkage tracking. So they will see the market data, how much are they selling every single day, how much potentially they can sell in the coming future and based on that they forecast, place the order in advance to the supplier, once they receive the goods, then they check if the goods are damaged or not, and then they store the inventory, count them, fit it back into the system, and then keep replenishing them based on the quantity that is needed every single month. Now, in the coming video, we will discuss about concepts like economic order quantity, and at what time you need to actually place the order. But we'll talk more about that. But whether it's a retail location or ecommerce brand, they try to maintain optimal level of inventory to avoid the stockout, and I'll be giving you so many assignments and exercise so that you understand these concepts better. 52. Why Store layout matters in Retail: So perfect. Now we will discuss about store layout and experience. So store layout is more about user journey and experience. And this is not just about shelf and product. The reason store layout is very important is because a good layout makes the shopping more smooth, fast, and enjoyable. I'll give you example to understand it better. If you have a bad layout, it will cause frustration, you will loss sale, and you might have unhappy customer, and it can act as a bottleneck and you might see a lot of people being crowded at the wrong place. Layout is important. It decides how long you want to customer to stay in your retail store, and it depends on the different retail strategy as well. I'll give you a really good store layout for a store like Ikea. Like when you go to a Ikea, you can enter from one side, and the exit is also closer to the entrance, just a little far away. But they make you visit the whole Ikea so that you go through a complete layout, look at each and every corner, and then came out through almost the same door, and I'll show you one picture to understand it better. But let's first understand the different types of store layout and why they are so important. So if you go inside a retail store, let's say the exit and entrance is over here. Usually the exit and entrance could be different. Like exit is mostly over here. Sorry, entrance is mostly over here and exit is over here next to the checkout. So people usually enter at this location, they go to the vegetable section, fruit section, bakery, electronics, and they usually just take a full circle and then just come out to the checkout and then just take exit from here. So this is a proper simplest usual layout that you see in many retail store. This is a really good example of grid layout where you have neat aisle, they are efficient and it's quite common in grocery store. Then you have free flow layout, which is mostly popular in boutique. Now, I don't really have a picture now, but in the coming videos, I'm going to show you different kind of layout that these different retail store usually implement to solve different use cases. And I'm going to explain more about this topic as we go along. And the third kind is loop or racket track layout. Now, this one is more popular in Ikea, and I'm going to show you this layout in a minute. But if you look at a grocery store, but if you look at a supermarket or a grocery store, they usually use a grid layout where a customer usually go through all of the section and they can, in fact, let's say, if you just wanted to buy vegetables and fruits, then you can simply go from this and then come back here. You don't really have to visit this area. Same goes with let's say you wanted to buy clothing item, you can just go from here, just pick some item and come back to the checkout. That's your grid layout. Now there is a psychology behind different layout. So if you have a smart design, you're basically influencing people and shoppers to buy more. You have to have some decompression zone where the entrance space is quite free so that the user can decide in which direction they wanted to go. You need to have high level shelves so that it is easier for everybody to see what's in the shelf. Average height for a female is less than a male, so the eye level shelf for a male item or a female item could be different. You have to have some impulse zone or section near to checkout where they mostly place gum, magazine, chocolates for kids because the kids are spending most of their time near the shelf with the parents and they usually grab something from the shelf. Then you have some power aisle, which is the main area where you store most of your seasonal promoted items. And let me give you a real world example so that you understand why store layout is super important. This is the store layout of Ikea, and this is common worldwide. Whether you visit Ikea in India, in Europe or in US, you'll find a similar kind of layout. So over here in this Ikea, this is the entrance of Ikea. Now, I have been to Ikea a couple of times in Herbad and it was beautiful. It was huge, big space, but it was amazing. So if you look at the store layout of Ikea, you usually enter at this location and you almost exit in the same area with a little bit of distance. So you normally enter at this point, you go through the different kinds of living room that they have where they have placed all of their item. For example, in this area, you might have seven or ten different types of living room with different items being placed in the living room. Then you go through the living room storage, the workspace room, the kitchen, the dining, the bedroom, the bedroom storage, the children's section, and then you will have a cafe. In fact, in case if you don't know about Ikea, 30% of Ika revenue just come from the cafe and the restaurant. Because once you go through the Joy of Ikea, this is approximately 1.5 kilometers. If you walk this much, you obviously need food, and then you end up with this location and then you actually take exit. That's why you will see that Ikea obviously have a restaurant cafe at the end so that you can at least eat and drink something and that contributes to a large amount of revenue, even if you don't buy anything. So you have different layout like Apple store has a minimalistic layout in their retail store. Sephora shows open display with tester product because it's a beauty store. You have Starbucks, which you will often see a warm sitting space, aroma of coffee, and it makes you feel that, Hey, you need to drink coffee. And then you have Costco, which has a tracer hunt kind of layout with limited signs, and you'll find new surprises in every visit. So different store have different layout because it is targeting different customer and they have a different strategy.