2 basics of retailing 2

8/13/2019 2 Basics of Retailing 2

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BASICS OF RETAILING

RETAIL LIFE CYCLE

EVALUATION CRITERIA / RATIOS FOR RETAIL

EFFORT


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RETAIL LIFE CYCLE Changes or up-gradation of retail formats in the course of

their operations are referred as Retail Life Cycle Over the past few decades, retail formats have changed

radically worldwide

The basic department stores and co-opertives of the early 20thcentury have transformed into mass

merchandisers (Wal-Mart)

hypermarkets (Carrefour)

Warehouse Clubs (SamsClub, Makro)

Category Killers (Toys RUs)

Discounters (Aldi) Convenience Stores (7Eleven)


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RetailingThree Phases Retailers decide on the category and quality of products and

services, differentiating them from other retailers. Retailformats in this phase are typically supermarkets, department

stores and specialty stores.

During the second phase, retailers carve a niche for

themselves based on a product category and price.Competition intensifies because the products and services on

offer become virtually standardized and price becomes the

main selling point. This phase normally gives way to discount

stores.

The third phase arrives when competition peaks. This is when

hypermarketsbegin to evolve. Hypermarkets usually compete

on price and a wider product range, but they normally lack

product depth and service components.


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GLOBAL RETAILING TRENDS Cross-border Movement: Retailers are expanding their businesses outside their

home markets, leading to emergence of global retailers. Geo-politicaldevelopments, trade pacts etc are making easier to move goods and businesses

across borders.

Consolidation: Rapid pace of mergers and acquisitions is another emerging trend.

Recently Wal-Mart acquired Asda in the UK. Carrefour and Promodes were merged

in France.. On the Indian side, Trinetra has been acquired by More and Wipro is

planning acquisition of Subiksha as of now. Migration of Formats: Retailers are matching their formats to the respective

customer segments. Britains Tesco operates supermarkets, hypermarkets,

neighborhood stores, convenience stores, mail order, department stores and even

e-stores.

Fishing where water is: Sticking to one single format does not make good businesssense. This is getting recognized very fast among the retailers. Identify the

different customer segments, and targeting the most appropriate format

addressing those customers is the order of the day.


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FINANCIAL DIMENSIONS

Profit Planning

Asset Management

Budgeting

Resource Allocation
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PROFIT PLANNING

Changes between two periods in Profit and

Loss Statement

The measure of square footage, number of

branches and number of weeks be given proper

care in comparison

P & L A/c componentsNet Sales, Cost ofgoods sold, Gross Profit, Operating Expenses,

Net Profit before taxes
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ASSET MANAGEMENT

Hidden Values of Assetstakeovers

Current Assets

Fixed Assets Current Liabilities

Fixed Liabilities
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PUTTING ASSETS TO BEST USE

Ratios that help

Net Profit Margin= Net Profit / Net Sales

Increase GP by opportunistic purchases

Selling exclusive product lines

Avoid price competition by excellent customer

service

Minimize discounts and selling a mix of goods with

high margins Operating costs reduction (cutting energy costs,

refinancing a mortgage for lesser interest etc)


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Asset Turnover

Net Sales / Total Assets

Generate increased sales from same level of assets

Resort to longer business hours

Accept orders on Web site

Cross-sell additional products

Move to a smaller store

Simplify fixtures

Smaller inventory

Negotiate with property owners for part payment ofrenovation costs


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Return on Assets

Net Profit / Total Assets

Optimization of assets to increase profitability

Rapid receivable cycle Rapid stock turnover


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Financial Leverage

Relationship between retailers total assets and networth

Total assets / Net worth

High financial leverage indicates substantial debt

Ratio 1, means assets are equal to net worth andthere is no debt

High ratio means stress on cost-cutting to meetinterest payment commitments

Low ratio means conservative and limits expansionrenovation
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Strategic Profit Model

SPM reflects performance measure known as

net worth

Relationship of Profit Margin->Asset Turnover-

>Financial leverage

Raising net profit margin can raise return on

net worth, asset turnover or financial leverage Contd.
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Other Key Business Ratios

Quick Ratio:

Ratio >1 means firm is liquid able to cover short-term liabilities

Current Ratio:

Ratio


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Key ratios contd..

Collection Period: Debtors x 365

Sales

Measures quality of debtors Indicates speed of debtors collection

Shorter the average collection period, the

better quality of debtors


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Key ratios contd..

Overall Gross Profit:

Net Salescost of goods sold

Net Sales Covers both operation costs and net profit

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