Presentation1 raja sir 25.8.2012

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MODERN RETAIL IS CHANGING THE MARKETING LANDSCAPE RAPIDLY. THERE WILL BE FAR REACHING CHANGES IN THE WAY WE DO BUSINESS

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Presentation1 raja sir 25.8.2012

  1. 1. Modern Retail : A Businessman’s view Any fool can establish a business when there is boom, but it is during a period of challenges that one’s ability to establish and run a business is tested. G. D. BIRLA Modern Retail : A Businessman’s view
  2. 2.  WAY BACK IN 2001, 3 UPSTART INDIVIDUALS WITH 20 YEARS CORPORATE EXPERIENCE EACH JUMPED IN TO START : “MARKET MOVERS (INDIA)” AS A DISTRIBUTION HOUSE.  THUS STARTED A PROCESS OF LEARNING AND UN-LEARNING.  A LITTLE HELP TO LG TO MAKE THEM UNDERSTAND SHOP CENSUS RESULTED IN LG DISTRIBUTION.  VERY EARLY WE REALISED THAT WE HAVE TO BE DIFFERENT & UNIQUE TO ESTABLISH OURSELVES. Modern Retail : A Businessman’s view
  3. 3. THINK OUT OF THE BOX AND BE DIFFERENT IN YOUR STYLE. Modern Retail : A Businessman’s view
  4. 4. LG Distribution success story Strong network of 300 dealers Other brands such as Godrej, Samsung & Hitachi joined hands for Distribution. High turnover, low margins, divide & rule, many wholesalers. Lost LG distribution, Samsung left us. Natural calamities blocked Rs. 24 lacs. LG blocked Rs. 26 lacs for a year. Modern Retail : A Businessman’s view Period 2001 to 2006
  5. 5. Highly competitive markets make fickle business relationships. Modern Retail : A Businessman’s view
  6. 6. For a distributor, it is important to nurture the dealer network to remain in business. Modern Retail : A Businessman’s view
  7. 7. . Period 2006-2010 Lost LG, Samsung but gained Philips, Videocon, TCL, Haier & MEPL. Got in to dishtv DTH distribution. Entry of modern retail, expansion of regional chain stores. Death of medium sized dealers. 50% market shifts to modern trade. Entry of brand shops. Modern Retail : A Businessman’s view
  8. 8. To be successful, more than the ability, perseverance pays. Modern Retail : A Businessman’s view
  9. 9. In a fast changing market, adaptability and proactive changes are important. Modern Retail : A Businessman’s view
  10. 10. Period 2010-2012 Got back in to LG distribution. Limited distribution to LG, Videocon, Godrej. Product mix includes ref. LCD TVS & washers. Introduction of distribution management systems & theory of constraints. Entered in to adidas sportswear brand shops. Modern retail and brand shops contribute 65% of the business. Modern Retail : A Businessman’s view
  11. 11. Days of selling in are over. Days of selling out are beginning. Corporations look for stable relationship with professional distributors. Do not put all eggs in to one basket. Modern Retail : A Businessman’s view
  12. 12. Future  The market will grow more than 100% in 5 years.  Value chain going up with increasing income levels.  Major chunk of the business will go to modern retail and brand shops.  Business from pop & mom shops will be 20% of the market.  Introduction of ABC categorization, safety stock and reorder point.  Radical changes after introduction of GST. Distributors will become mega distributors.  Modern retail will progressively loose price leverage.  Distinct brand marketing at the floor level. Modern Retail : A Businessman’s view
  13. 13. Challenges to small dealers Competitive edge with modern retail. Low buying capacity. Absence of modern retail tools. Traditional thought process. Tunnel vision. Bad floor management. Poor visual merchandising. Risk aversion. Modern Retail : A Businessman’s view
  14. 14. Opportunities to pop & mom shops Learn modern methods of visual merchandising. Join hands and create a sizable business entity to scale up. More personalized service to customers. Better cost management than modern retail. Bigger market even with less contribution from small dealers. Many net based retailers will use small dealers’ service to reach the last mile. Modern Retail : A Businessman’s view
  15. 15. Challenges to distributors  Small distributors will not survive.  Traditional distribution methods will not work.  The network may shrink limiting potential for small distributors.  Operating margins under pressure.  Brands will not be loyal to distributors.  Churning.  Atmosphere of distrust. Modern Retail : A Businessman’s view
  16. 16. Opportunities to distributors  Death of wholesalers will guarantee protection to distribution margin.  Can become a mega distributor and get economies of scale.  DMS will be on I.T. platform to improve data management and logistics.  With introduction of GST, many interim operational levels will vanish.  Professional approach & improvement in network management. Modern Retail : A Businessman’s view
  17. 17. Life style products offer 25% to 45%. Consumer electronics & home appliance products offer 10% to 15%. Telecom & I.T. products offer 4% to 8%. FMCG offers 15%. Retail Margins Modern Retail : A Businessman’s view
  18. 18. Modern Retail : A Businessman’s view Which business is most lucrative & profitable?
  19. 19. Modern Retail : A Businessman’s view Operating margins alone do not define profitability. We must know the contribution of full price sale through. (FPST) Lesser working capital rotation, higher operating margins. Profits have direct relationship with fixed cost.
  20. 20. • In life style products, the working capital rotates between 1.8 to 3.5 times. Funds deployment is high. • In CE & HA business the working capital rotates between 10 to 12 times. • In I.T. & telecom products, the working capital rotates between 25 to 30 times. • Full price sales through (FPST)is high in life style products, whereas it is low in CE & HA business. • FPST is highest in FMCG products. Some thumb rules in retail Modern Retail : A Businessman’s view
  21. 21.  in life style products, it is 10% to 15%.  in consumer durables it is 4% to 6%.  in telecom & I.T. it is 2% to 4%.  in FMCG, it is 8% to 12%. Distribution margins Modern Retail : A Businessman’s view
  22. 22. Modern Retail : A Businessman’s view WHICH IS THE MOST LUCRATIVE DISTRIBUTION BUSINESS?
  23. 23.  No direct relationship between margins & profits.  Single largest cost in distribution is interest cost.  It is not only the value of stock, even the volume decides the ware housing cost.  Volumetric products increase the transport cost substantially.  Managing stock and sundry debtors require tight rope walking. General rule 1/3rd stock & 2/3rd outstanding.  Strong brands can give better Working Capital Rotations. THUMB RULES IN DISTRIBUTION Modern Retail : A Businessman’s view
  24. 24. Modern Retail : A Businessman’s view Distribution Challenges
  25. 25. o In Mumbai warehousing rentals are phenomenally high. o Volumetric products have high storage cost. o The sub dealer demands better service from a distributor than his principals. o Cash discount is not easy to implement. Dealers take it for granted. o Brands look for maximum reach increasing our risk and market outstanding. o High level of check bouncing. Legal recourse under section 138 is a time consuming process. o Managing the brand share at the dealer counter requires constant watch. Modern Retail : A Businessman’s view
  26. 26.  Rule for CE & HA distribution: 1% warehousing and transportation, 1% manpower, 0.5% office administration, 2.2% on interest. (of turnover)  Rule for adidas brand shop: 5% manpower, 7% interest, 13% rentals, 1% misc.  We reduced warehouses from 3 to 1 to avoid buying under pressure from principals.  The sales team works on weekly targets & incentives. We do not have 30th syndrome.  Proper product mix of volumetric and small sized products to reduce warehousing cost.- HOW DO WE MANAGE FIXED COST? Modern Retail : A Businessman’s view
  27. 27. Modern Retail : A Businessman’s view Managing fixed cost: my experience
  28. 28. 1. In a trading operation, we have standard fixed costs such as LEASE RENTALS, SALARY, INTEREST, ELECTRICITY, TRANSPORT, TRAVEL, COMMUNICATION, OFFICE COST, DEPRECIATION, INTEREST & OTHER MISC. 2. Fixed cost generally should remain within 50% of your operating profit. 3. Every fixed cost is manageable. Both in absolute terms as well as relative terms. 4. The ratio of fixed cost to turnover will vary based on the nature of trade. In distribution it is generally between 3.5% to 6% Modern Retail : A Businessman’s view
  29. 29.  Intelligent route planning to optimize efficient delivery management. All next day’s orders are booked and processed in the evening.  Sales team salaries converted in to direct costs by way of commission & incentives.  Stocks value at any given time has to be less than the sales value of the month.  Highest commission on collections and not on sales.  Spread risk not concentrate it with few dealers. Continued……. Modern Retail : A Businessman’s view
  30. 30. Modern Retail : A Businessman’s view Managing fixed cost: brand shops
  31. 31.  lease rentals is the single largest cost. New trend is to convert part of it in to direct cost.  Managing floor space to get the best returns per square feet.  We have 35% display of footwear & 65% display of apparels.  Manage electricity expenses by judicious use of air-conditioners.  Inventory beyond 7 months requires quick liquidation. Modern Retail : A Businessman’s view
  32. 32. Modern Retail : A Businessman’s view Important lessons
  33. 33. 1. Money is earned by prudent buying. 2. Penny saved is penny earned. 3. Adapt & excel in your core business. 4. Always keep a larger picture. 5. Managing fixed cost is a key to profit. Modern Retail : A Businessman’s view
  34. 34. Best wishes Raja Malushte. Market Movers (India) www.rajamalushte.co.in rajendra@marketmoversindia.com Modern Retail : A Businessman’s view

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