CRA Retail Strategic Analysis 2 — Questions and Answers
Question 1: A retailer's gross margin is 42% and its operating expense ratio is 38%. What is its operating margin?
- 4% (Correct answer)
- 80%
- 6%
- 2%
Correct answer: 4%
Operating margin equals gross margin minus operating expense ratio: 42% - 38% = 4%.
Question 2: Which competitive strategy focuses on a retailer dominating a narrow customer segment rather than the broad market?
- Cost leadership
- Differentiation
- Focus strategy (Correct answer)
- Blue ocean strategy
Correct answer: Focus strategy
Porter's focus strategy concentrates resources on a specific niche segment to achieve competitive advantage within that segment.
Question 3: A retailer's sales per square foot declined 15% year-over-year while total sales increased 5%. What most likely explains this?
- Improved inventory turnover
- Significant store expansion increasing total floor space (Correct answer)
- Higher average transaction value
- Reduced promotional activity
Correct answer: Significant store expansion increasing total floor space
If total sales rise but sales per square foot fall, the denominator (total square footage) must have grown faster than sales, indicating store expansion.
Question 4: What does a retailer's 'private label penetration rate' measure?
- Percentage of SKUs that are exclusive brands
- Percentage of total sales generated by store-brand products (Correct answer)
- Ratio of private label to national brand margins
- Number of private label products per category
Correct answer: Percentage of total sales generated by store-brand products
Private label penetration rate is the share of total net sales attributable to the retailer's own store brands.
Question 5: In SWOT analysis, a major competitor closing stores in your trade area would be classified as:
- Strength
- Weakness
- Opportunity (Correct answer)
- Threat
Correct answer: Opportunity
An external positive development—such as a competitor's exit—represents an opportunity that the retailer can capitalize on.
Question 6: A retailer uses a 'hub-and-spoke' distribution model. What is the primary strategic benefit?
- Eliminates the need for safety stock
- Centralizes inventory and reduces per-unit distribution costs (Correct answer)
- Allows direct vendor shipment to every store
- Maximizes store-level autonomy in ordering
Correct answer: Centralizes inventory and reduces per-unit distribution costs
Hub-and-spoke consolidates inventory at central distribution centers, enabling bulk purchasing and efficient last-mile delivery to stores.
Question 7: Which metric best measures how efficiently a retailer converts customer visits into purchases?
- Average transaction value
- Conversion rate (Correct answer)
- Basket size
- Traffic index
Correct answer: Conversion rate
Conversion rate is the percentage of store visitors who complete a purchase, directly measuring sales effectiveness per visit.
CRA Retail Strategic Analysis 2
A retailer's gross margin is 42% and its operating expense ratio is 38%.
What is its operating margin?