Concepts & Understanding

Retail
 Unorganized

 Organized
In India, organized retail is set up in two ways
 Store Based
 Non-store Based

Store based Non Store Based

Product Online

Price Direct

Ownership Catalogue

Service TV retail
Store-based Retail (1/2)

 Product
 General Merchandise (Mom & Pop store)
 Food products (Food Bazar)
 Durables (Croma store)
 Arts (Crossword, Landmark)

 Price
 Factory outlets (Brand factory)
 Single Price outlet (Dollar store)
Store-based Retail (2/2)

 Ownership
 Corporate Retail (Company’s flagship store)
 Franchisee (Not operated by company)
 Independent Retail (General Shops)

 Service
 Full service (Beauty parlor)
 Self service (Automated grocery store)
 Vending Machines (Self ticketing machine at metro)
Doors | Stores Classification

 EBOs | Exclusive Brand Outlets

 Company owned
 Franchisee

 MBOs | Multi Brand Outlets

 Capsons, Kalyan Silks, Seematti, Naidu Hall, Amarsons, Pothy’s etc.

 Key Accounts/Shop in Shop

 Shoppers Stop, Lifestyle, Central

 Departmental
 Debenhams

 Specialty Retail
 Next, Club America
Terminologies in Retail (1/2)

 Footfalls/Walk-ins
 Conversion
 Sales
 ATV
 ABS
 Backlog
 Topline
 Bottomline
 Sales per square foot
 Operating costs as percent of net sales
 Inventory turnover
 Carpet area & wall area
 Planogram
Terminologies in Retail (2/2)

 Stock on hand
 Stock on order
 Average stock
 BOM & EOM
 Inventory Valuation (CP or SP as the base)
 Physical Inventory
 Quick ratio
 Sell-through rate
 Stock to sales ratio
 Shrinkage
 Open to Buy (OTB)
 Margins
 Visual Merchandising
Retail Math Levels

 Basics

 Intermediate

 Advanced
Basics
Customers Count
Footfalls/Walk-ins

Total number of customers entering the store

* Individual count, Group count or Mixed

Conversion
Number of customers who end up purchasing a product

* Conversion Rate =Total number of Transactions / Footfalls

No. of transactions/No. of bills = 20

Footfalls = 35
Conversion Rate = 20/35 = 57.14 %
Store Matrix (1/2)

 ASP |Average Selling Price

 Total Sales/Sales Quantity

 ATV | Average Transaction Value or ABV | Average Bill Value

 Total Sales/Number of Bills

 ABS | Average Basket Size or UPT | Unit Per Transaction

 Sales Quantity/Number of bills
Example

ATV or ABV
100,000/40 = 2500

Total Sales = 100,000

ASP
Total No of Bills = 40
100,000/80 = 1250
Sales Quantity = 80

ABS or UPT
80/40 = 2
Store Matrix (2/2)
 Built-up area
 Total area of the store including walls, staircases
and other common usage areas

 Carpet area
 The net usable area available for a store for retail
purpose - the area that can be ‘carpeted’

 Visual Merchandizing: A blend of Math and Art

 ART: A visual plan showing the physical allocation and display of products within a store
 MATH: Brand and category wise allotment of merchandise within the store

 Silent Salesman
Visual Merchandising: Tools

Fixtures
Interior store design Lighting
Fascia Design
Proper lighting: guiding the customer’s
Window & Entrance Door
eyes revealing the color, tailoring details,
Flooring & Ceiling
style etc. of the merchandise
Display Systems
Furniture

Props
Signage
Items used for display purposes
Promotional
Mannequins
Informational
Theme based products
Location
Visual Planogram
Visual Merchandising (1/2)
Visual Merchandising (2/2)

S
h
e T
l a
f b
l
T e
a
l T
k o
e p
r
s
 Planogram Snapshot Example

Space Allocation for Options : Category Wise

OPTIONS

per Wall Feet Floor Fixture per CDU running feet Depth per option Total Options Total Quantity

2 6 5 4 168 672

Wall Feet: 50…………………………100

Floor fixtures: 3…………………….18 Same calculation for
CDU feet: 10………………………….50 every category/brand in
TOTAL…………………………………….168 the store
Intermediate
 Sales Floor Performance (1/3)

 Sell-Through Rate
 Expressed as the percentage comparing the amount of inventory a retailer
receives against what is actually sold to the customer
Received: 1000 pieces
Sold: 650 pieces
 Sales per square foot Sell-through Rate = 650/1000 = 65%

 Net Sales/Area in Square Foot

 Calculated on carpet area

Sales for a day = 1,00,000
 SPSFPD: Sales Per Square Foot Per Day Area = 3000 square foot
SPSFPD = 1,00,000/3000 = 33.33
 Calculated day and month wise
Sales Floor Performance (2/3)

 Stock-to-sales ratio
 To determine right amount of inventory on hand to sell a set quantity

 Month of Stock Cover

 Determined as: Beginning of month stock/Sales for the month

 Net Week Cover can also be calculated

For a particular month:

Inventory at the start of month: 4200

Sales for the month: 1600

Stock-to-sales ratio: 4200/1600 = 2.625

Sales

 Like To Like Growth (LTL)

 Also known as Same Store Growth
 Measure of retailer’s current trading performance
 Compared with sales figure for the same period in the previous years
 Store wise, Region wise
Sales for a particular month
2013: 30,00,000
2014: 35,00,000
LTL Growth: (35-30)/30 = 16.67 %

 Backlog
 Difference in the target and the achieved sales for the particular month
 Cumulative addition for the subsequent periods

Target for the month = 25,00,000

Achieved = 20,00,000
Backlog = 20,00,000 – 25,00,000 = (5,00,000)
Inventory
 Stock on hand
 Floor stock and backroom stock combined

 Stock on order
 Stock that has been ordered

 BOM & EOM

 Beginning of month and End of Month Stock

 Average stock
 (BOM + EOM)/2

 Shrinkage
 Damaged or pilferage merchandise

 Inventory Valuation
 The total value of the stocks present in the store taking selling price as the base

 Inventory Turnover
 It is a is a way of measuring how many times a business sells its stock of inventory in a
given time period
Inventory E X A M P L E

For a particular month

Stock on hand at any point of time = 3200
BOM = 4000 As per the quantity shown in the store software (Voyager)
EOM = 3000
Average = 3500

Inventory Turnover

Inventory Valuation It is equal to Cost of Goods Sold divided by

Total value of the stock on hand as per MRP the Average Inventory (monetary value)

Stock 1 * Price * Quantity 1 For a particular month,

Stock 2 * Price * Quantity 2 COGS = 50,000
Total
Average Inventory value = 25,000
Eg. 10,000,000 INR
Inventory Turnover = 50,000/25,000 = 2
Sales Models

 Sale Or Return (SOR)

 An arrangement by which a retailer pays only for goods sold, returning those that
are unsold to the wholesaler or manufacturer

 Buy and Sell

 An arrangement where retailer pays for the goods and cannot return it back even if
it is not sold

 Consignment
 An arrangement where the goods are sent to an agent for sale, with title being
held by the consignor until a sale is made

Open to Buy (OTB)

It relates directly to retail merchandise, is structured specifically to address the
needs of retailers, and is a tool designed to assist retailers manage and replenish
their most significant asset, their inventory investment
Advanced
Accounting

Financial Accounting Managerial Accounting

Investors, creditors, and other users Managers, employees, and decision
external to the organization makers internal to the organization

Focus on historical information with Many projections and estimates;

some predictions historical information also presented

Store Level (Front-end): Managerial Accounting

Mock Store (1/4)

Store

Sales Total Expenses Performance

Sales Report  Operating  Like for Like Growth

 Daily  Selling  KPIs: ABV, ATV, ABS
 Weekly  Others  Retail Efficiency
 Monthly
 Yearly
Mock Store (2/4)
Sales
 Gross Sales
 It is determined by deducting discounts from MRP
 Net Sales
 It is determined by deducting VAT from gross sales
 Sample Daily Sales Report (DSR) Components

Element 1st May 14 2nd May 14 3rd May 14 4th May 14

Sales Quantity

Sales Value

No of Bills

ASP

ABV

ABS

Footfalls

Conversion
Mock Store (3/4)
Operating Expenses

General & Administrative Expenses Selling Expenses

 Rent  Manpower Cost

 Electricity  Incentive
 Security Charges  Advertising Expense
 Housekeeping  Backroom Cost
 Telephone  Packing Materials
 Commissions  Royalty
 Hoarding License  Staff Welfare
 Stock Shrinkage  Sample Cost
 Repairs & Maintenance
 Alteration Expenses
 Printing & Stationery
 Others
Mock Store (4/4)
Performance
 Like To Like Growth
 Key Performance Indicators
 Retail Efficiency
 It is calculated as Sales divided by the total number of walk-ins

Sales for a particular day = 15,00,000 Walk-in Model

Walk-ins or Footfalls = 2000

Retail Efficiency = 15,00,000/2000 = 750 Conversion Model

Number of Transactions = 1000

ATV * Conversion
Conversion = 1000/2000 = 50%
2000 * 50% = 1000
ATV = 2000
Income Statement (1/2)

 Components
 Gross Sales
 Net Sales
 Cost of Goods Sold (COGS)
 Gross Profit/Income
 Total Operating Expenses

 Depreciation & Interest Expense

 Income before tax (Pre-tax income)

 Taxes

 Net Profit/Income
Income Statement (2/2)

MRP Discounts Gross Sales

Gross Sales VAT Net Sales

Net Sales COGS Gross Profit

Gross Profit Operating Expenses Operating Income

Operating Income Other Income/Expenses Pre-tax Income

Pre-tax Income Taxes Net Income

CAPEX, Depreciation & Amortization

 CAPEX: Capital expenditures are expenditures creating future benefits

 A capital expenditure is incurred when a business spends money either to
buy fixed assets or to add to the value of an existing fixed asset

 Depreciation refers to prorating a tangible asset's cost over that asset's

life

 Amortization usually refers to spreading an intangible asset's cost over

that asset's useful life
 Store Income Statement
Gross Sales…………………………………………………………………………………..……………12,25,000
VAT…...................……………………………………….......................................................25,000
Net Sales…………………………………………………………………………..……………………….12,00,000
COGS…………………………………………………………………………………………………………...5,00,000
Gross Profit………………………………………………....................................................7,00,000
Operating Expenses
Selling Expenses
Manpower Cost………………………………..50,000
Incentive………………………………………….10,000
Advertising Expense………………………….5,000
Packing Materials……………………………..1,000
Royalty……………………………………………..5,000
Staff Welfare…………………………………….2,000
Sample Cost……………………………………..5,000
Total…………………………………………………78,000
General & Administrative Expenses
Rent………………………………………………1,00,000
Electricity…………………………………………20,000
Security Charges………………………………20,000
Housekeeping………………………………….10,000
Telephone………………………………………....1,000
Commissions……………………………………..3,000
Hoarding License……………………………....3,000
Stock Shrinkage……………………………….…2,000
Repairs & Maintenance……………………..3,000
Alteration Expenses……………………..….10,000
Printing & Stationery……………………….…5,000
Others………………………………………………..2,000
TOTAL……………………………………………..1,79,000
Total Operating Expenses………………………....2,57,000..................................2,57,000
Operating Profit………………………………………………………………………………………..4,43,000
Depreciation………………………………………………………………………………………..........20,000
Interest Expense…………………………………………………………………………………………….3,000
Pre tax Income..............................................................................................4,20,000
Taxes…………………………………………………………………………………………………………....60,000
NET INCOME………………………………………………………………………………………………3,60,000
Some Important Numbers

 Topline
 The net sales done by a company

 Bottom line
 The profits made by a business

 Margin
 Difference between Net Sales Value (NSV) and Cost of the product

 EBITDA
 Earning before Interest, Taxes, Depreciation and Amortization

 ROCE | Return on Capital Employed

 A financial ratio that measures a company's profitability and the efficiency with
which its capital is employed
Example
MRP 13,00,000
Discounts (75,000)
Gross Sales 12,25,000
VAT (25,000)
Net Sales 12,00,000 TOPLINE
Cost of Goods Sold (5,00,000)
Gross Income 7,00,000
Operating Expenses (2,57,000)
Operating Income 4,43,000 EBITDA
Depreciation (20,000)
EBIT 4,23,000 EBIT
Interest Expense (3,000)
Pretax Income 4,20,000
Taxes (60,000)
Net Income 3,60,000 BOTTOMLINE
 Retail Efficiency
 ROCE (Return on Capital Employed)

ROCE = EBIT/Total Capital Employed If Capital employed = 50,00,000, then

Capital Employed = Total assets – Current liabilities ROCE = 4,23,000/50,00,000 = 8.4%

 Operating Margin
 This ratio shows the efficiency of a company’s management
 An operating margin of 12% indicates that company makes 0.12 Rs. (before interest and
taxes) for every 1 Rs. of sales

Using figures from previous slide

Operating Margin = Operating

Income/Net Sales

 4,23,000/12,00,000 = 35.2%
Thank You