Retail Management

Handouts of Sessions
From - 05/8/2022 to 9/9/2022

Siva Rangaswamy

• Consumer Perspectives
– All in one shopping
– Larger Variety, Better Brands/Prices/Service/Better policies

• Political Perspectives
– FDI in Retail in India
• 100% in Single Brand - Adidas, Nike, M&S, Zara
• 51% Multi Brand (B2C) – Walmart, Tesco, Metro – not yet come to India as Retail
• 100% Wholesale / Cash & Carry / B2B – not referred as Retail – Best Price, Metro (currently in India)
– Subclauses (local sourcing, supply chain investment, min population)
– FDI in Online Retail
• 100% allowed for e-commerce (as marketplace, not Retail) – Flipkart, Amazon
• Not allowed for e-commerce with inventory model (i.e. retail)
– Political & Industry opposition – MSME Traders impact & Competition

• Industry Perspectives
– Size of Indian Retail - 800 Bill. USD (1 Bill. USD = ₹ 7500 crores approx.)
– Share of Organized v/s Unorganized (approx. 15% organized)
– Large Indian Players (Reliance, Tatas, Aditya Birla….)
– Current MNC players (M&S, Zara, Adidas, Nike, Decathlon..) – all single-brand !!!
– More MNC players expected (IF multi-brand retail opens up 100%, Walmart, Tesco, Metro…)
– Current Profitability Challenges (Future Group, Shoppers Stop !)

• Professional/Job perspectives
– New Stores, New Entrants leading to new jobs
– Mostly in Store Operations (for Marketing background)
– Some in Analytics (for Finance background)

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 Retail Skills v/s Market Needs

Skills Industry Sectors

Store Operations Modern Retail
Merchandise Mgmt Apparel/Fashion Brands
Supply Chain Mgmt FMCG
Branding & Marketing IT Services & IT Product
Analytics BPO / KPO
Retail IT Real Estate
BPO (CRM, SCM,…) Banking & Capital
Training & Education Markets
… Education
Opps for ...
freshers
Opps over medium term (2-5 years) Opps over long-term (5-10 years)
within the Retail sector into other industry sectors

• ONLINE RETAILING
– Categories that are moving online rapidly..
– Other categories steadily moving
– Threat to Offline Retail.. (US trends & examples)
– Consistent losses v/s Funds flow
– Cases of funding issues leading to closures of some players
– Exit Strategies for Investors in Online
– Contrarian views on Online Business Models
– Marketplace models v/s Inventory models

• Reliance & Tata group forays in e-commerce retail

• Flipkart v/s Snapdeal v/s Amazon
• Zomato (food delivery) - IPO
• Zerodha (stock broking)
• Views of Rakesh Jhunjhunwala / Raamdeo Agrawal (Motilal Oswal)

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 Define Retailing

Retail Types & Retail Channels

Benefits to Customer, Retailer and Manufacturer

Store Classifications

Important factors that contribute to Retailing Success

Define Marketing v/s Retailing

Marketing is the process of planning & executing the

conception, pricing, promotion and distribution of ideas,
goods & services to create exchanges that satisfy
individual and organizational objectives.

Retailing is defined as the activities involved in the sale of

goods & services to consumers for their personal, family
and household use

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5 P’s of Retailing

Product

Price

Place

Promotion

People

Benefits of Retailing

To Consumer
Bulk Breaking
Ready Assortment Selection
Storing/Availability
Information (Advertising/Promotions etc)

To Retailer
Markup (Profits)

To Manufacturer
Distribution Channel
Product performance feedback

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Different Types of Retailing

Department Stores
Many sections (i.e. Departments)
Fashion (in vogue) Merchandise
Higher Prices Product the key USP here
Better Customer Service People (service) also imp.
Multi Storeyed (in USA at least)

Discount Stores
Many sections (i.e. Departments)
General Merchandise
Lower Prices Price the key USP here
Lower Customer Service

Different Types of Retailing (Contd.)

Specialty Stores
One or Few Departments Product the key USP here
Deep (High) Assortment

Supermarkets Product/Price/Place
One or Few Departments
Deep (High) Assortment

Convenience Stores
General Merchandise Place (Location) the key USP here
Low Assortment
Higher Prices

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 Retail Formats

Regular Croma v/s Airport Croma

(Specialty v/s Convenience)

Big Bazaar v/s Food Bazaar

(Hypermarket v/s Supermarket)

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Service Retailing

Rental Agencies
Repair Services
Hair Saloons
Dry Cleaning
Banks
…..

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Retail Channels

Brick & Mortar (or Physical Stores)

Telemarketing (via Phone)
Teleshopping (via TV)
Door to Door (or MLM)
Vending Machines
Kiosks
Internet (www)
Mobile App
E-Commerce
Understanding of Multi-Channel v/s Omni-Channel

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Major Factors lending Strategic Advantage in Retail

Operations

Purchase & Logistics

Market Research

Technology

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Trends in Retailing Today

Global Trends What it means to

in Retail the Retailer
Consolidation Get Big with a clear Brand
Identity

Globalization Strategy to counter entry of

other MNCs

Global Sourcing Invest, if reqd, in supplier’s

internal efficiencies

Supply Chain efficiencies Leverage technology for

internal efficiencies &
external integration.

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Partnership Strategies in Retail

BACK-ROOM FRONT-END OUT-OF-THE-BOX

PARTNERSHIPS ALLIANCES RELATIONSHIPS

Multichannel Brand
Liaisons Megabrand
Logistics Procurement Alliances
Umbrellas
Cross -
Promotions
Technical Information Creative Retail /
Infrastructure Assets Collaborating Teaming for Non-Retail
on Content Service Solutions Relationships

PERFORM ADD MORE OWN MORE

BETTER SERVICES SHARE OF LIFE

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 Consumer Behaviour

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Customer Behaviour Analysis – Demographics

Race / Ethnicity

Age

Household Composition

Education

Occupation

Income Levels / Savings Potential

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Customer Behaviour Analysis – Purchase Decision Process

WHAT to Buy

WHERE to Buy

HOW to Buy

WHEN to Buy

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Types of Buying Decisions

Extended Problem Solving
Where high value/risk of purchase
Extensive Research Based
Google, People, Facebook etc
Returns Policy, Warranty etc

Limited Problem Solving

Moderate value/risk of purchase
Personal knowledge based
Impulse / Unplanned purchases

Habitual Decision Making

Little / No conscious effort
Familiar merchandise / regular brands
Brand loyalties high
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 Retail Finance

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Business Financial Model

Share Capital Loan Capital Retained Profits

(or Reserves)
Source of Funds

Facilities / Equipment Products / Services

Fixed Assets Use of Funds Working Capital

Sales, Direct Costs, Gross Profit, Sales

OpEx, PBIT, PBT, PAT all expressed Minus
as %age of Sales Direct Costs Product/Service Costs
Gross Margin/Gross Profit

Operating Expenses Minus

Taxes typically around 30% of PBT Indirect Costs
EBITDA
Minus
Depreciation Depreciation
PBIT / Operating Profit

Interest Minus
Interest&Taxes PBT

Tax Minus
Earnings/Net Profit/PAT/Net Income/Bottom Line

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Dividend Retained Profits

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 Profitability Ratios
To Measure Biz Efficiency

• Gross Profit
= Gross Profit / Sales

• Operating Profit
= PBIT / Sales

• Net Profit / Net Income / Earnings / Bottom Line

= PAT / Sales

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Typical Profitability Ratios in Retail

Department/Specialty Stores?
Gross Profitability? 40-60%
Net Profitability? 6-8%

Discount/Hypermarkets/Supermarkets?
Gross Profitability? 10-20%
Net Profitability? 2-3%

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 SALES
Minus
DIRECT COSTS or COGS or Limited Ability to Control
VARIABLE COSTS

Is Equal To
GROSS MARGIN
Minus
INDIRECT COSTS or FIXED/ Higher Ability to Control
OPERATIONAL EXPENSES

Is Equal To
NET MARGIN How to Maximize ?
Only objective of Biz.

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Retail Profit Margin Accelerators

4 key accelerators

Increase in Unit Volume

Increase in Unit Price

Decrease in Cost of Goods Sold

Decrease in Expenses

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 Retail Profit/Margin Impact
(5% change in Accelerators -> Profit Impact)
Base Increase Unit Increase Decrease Decrease
Position Volume (5%) Price (5%) COGS (5%) Expenses
(5%)
Sales 10,00,000 10,50,000 10,50,000 10,00,000 10,00,000

COGS 7,00,000 7,35,000 7,00,000 6,65,000 7,00,000

GM 3,00,000 3,15,000 3,50,000 3,35,000 3,00,000

Total Expenses 2,80,000 2,80,000 2,80,000 2,80,000 2,66,000

Profit 20,000 35,000 70,000 55,000 34,000

Profit Increase NA 15,000 50,000 35,000 14,000

(INR)
Profit Increase NA 75% 250% 175% 70%
(%age)

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Retail Profit/Margin Impact

(25% Increase in Profit -> Change in Accelerators)
Base Change in Change in Change in Change in
Position Unit Volume Price COGS Expenses
Sales 10,00,000 10,16,666 10,05,000 10,00,000 10,00,000

COGS 7,00,000 7,11,666 7,00,000 6,95,000 7,00,000

GM 3,00,000 3,05,000 3,05,000 3,05,000 3,00,000

Total Expenses 2,80,000 2,80,000 2,80,000 2,80,000 2,75,000

Profit 20,000 25,000 25,000 25,000 25,000

Change in NA 16,666 5,000 5,000 5,000

Accerating
Factor (INR)
Change in NA 1.6% 0.5% 0.7% 1.78%
Accerating
Factor (&age)

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 Operating Expenses in Retail
Typical Benchmarks (International)
Expenses Description Low Levels High Levels
(Discount/Food) (Dept / Luxury)
Store Labour 8% of Sales 14% of Sales
Occupancy (Rental) Cost 8% of Sales 10% of Sales
Distribution (warehouse / transport) 4% of Sales 4% of Sales
Marketing (+ Advertising) 3% of Sales 6% of Sales
IT 0.5% of Sales 2% of Sales

Typical Benchmarks (India)

Expenses Description Modern Retail Modern Retail (Kirana) Organized Single
(Discount/Food) (Dept / Store (Apparel /
Luxury) Specialty)

Store Labour ?? ?? ?? 15-20 % of Sales

Occupancy (Rental) Cost ?? ?? ?? 20+ % of Sales
Distribution (warehouse / ?? ?? ?? 2-3 % of Sales
transport)
Marketing (+ Advertising) ?? ?? ?? 1-1.5 % of Sales
IT ?? ?? ?? 0.25 % of Sales

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Gross Margin Profitability

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Gross Margin Types

Gross Margin Return on Inventory (GMROI)

GMROI == GM / Avg.Inventory Cost

Gross Margin Return on Space (GMROS)

GMROS == GM / Sales Sq.Ft

Gross Margin Return on Labor (GMROL)

GMROL == GM / Empl.Payroll

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Dept Selling Area Net Sales Gross Avg. Inv. @ Payroll

(Sqft) Margin Cost
Men’s Wear 2,000 4,00,000 38% 50,000 44,000

Women’s Wear 2,500 3,00,000 41% 60,000 15,000

Kid’s Wear 3,500 3,00,000 41% 60,000 15,000

Cosmetics 3,000 8,00,000 40% 48,000 96,000

Electronics 1,000 2,80,000 30% 1,00,000 28,000

Appliances 1,500 4,50,000 22% 1,40,000 45,000

GMROI, GMROS, GMROL for each ?

Recommendations ?

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 Stock Turn - Example
(Bread v/s Diamond Necklace)

Reliance Fresh,
Shoppers Stop
Tanishq
D-Mart

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Inventory Control OR Stock Turn Ratio

Stock Turn Ratio = Net Yearly Sales / Avg. OnHand Inv.

------
Annual Stock Turn at Retail
= (Net Yearly Sales at Retail / Avg. OH Inv. calc. at Retail)

Annual Stock Turn at Cost

= (Net Yearly Sales at Cost / Avg. OH Inv. calc. at Cost)

Annual Stock Turn in Units (Qty)

= (Net Yearly Sale Units/ Avg. OH Inv. Units)
------

Note: Nominator and Denominator should always have similar units

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Typical Stock Turns (Per Year) For:

Department Stores ? 4-6

Luxury Retail ? 1-2

Supermarkets ? 10-12+

Discount/Hypermarkets ? 8-10

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Thank You

Siva.Rangaswamy@gmail.com
98505 50568 (WhatsApp)

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