FINANCIAL STRATEGY OF RETAIL STORE

Presented By; Srikanta biswal Adyasa Das Sonam Subhadarsini Sikta Panigrahi Sudhansu Sekhar Jena Sanjaya Behera 1

Retailing Strategy
Retail Market Strategy Financial Strategy Retail Locations

Retail Site Location

Human Resource Management

Information Systems and Supply Chain Management

Customer Relationship Management

Objectives and Goals

O Financial not necessarily profits, but

return on investment (ROI) primary focus

O Societal helping to improve the world

around us
O Personal self-gratification, status,

respect

Components of the Strategic Profit Model

The Strategic Profit Model: An Overview

Profit Margin x Net profit x Net sales (crossed out) Asset turnover = Return on assets Net sales (crossed out) = Net profit Total assets Total assets

Net Profit Margin: reflects the profits generated from each dollar of sales Asset Turnover: assesses the productivity of a firms investment in its assets

Profit Margin Management Path

O Net Sales = Gross Sales + Promotional

Allowances - Return O Cost of Good Sold (COGs) O Gross Margin (GM) = Net Sales - COGs

Profit Margin Management Path

O Operating Expense
O Variable (e.g.. sales commissions) O Fixed (rent, depreciation, staff salaries)

O Selling, general, and administrative

(SG&A) expenses

Profit Margin Management Path

O Operating profit margin
O Operating profit margin = Gross margin -

Operating expenses - Extraordinary (recurring) operating expenses O Net profit margin = Operating profit margin - Taxes - Interest - Extraordinary nonrecurring expenses

Profit Margin Management Path

O Gross margin percentage is gross margin

divided by net sales. O Retailers use to compare

O the performance of various types of

Gross margin Net sales

merchandise O their own performance with that of other retailers with higher or lower levels of sales.
= Gross margin %

Profit Margin Management Path

O SG & A or operating expenses can be

expressed as a percentage of net sales to facilitate comparisons across items, stores, and merchandise categories within and between firms.
Operating expenses Net sales
= Operating expenses %

Profit Margin Management Path

O Net operating profit percentage is gross

margin minus operating expenses divided by net sales

Gross margin - Operating expenses Net sales
= Net operating profit %

Asset Management Path

O Assets:
O Economic Resources (e.g., inventory,

buildings, computers, store fixtures) owned or controlled by a firm

O Current Asset and Fixed Asset
O Current Assets = Cash + Account

Receivable + Inventory + Other current assets

Asset Management Path

O Accounts receivable are primarily the

monies owed to the retailer by customers that have bought merchandise on credit. O Fixed Assets = Fixture, Stores (owned) O Asset Turnover = Sales/Total Assets
Net sales Total assets = Asset turnover

O Inventory Turnover = COGS/Avg.

Inventory (cost)
Cost of goods sold Average inventory at cost

= Inventory turnover

Inventory Turnover
O A Measure of the Productivity of Inventory:
O It is used to evaluate how effectively

retailers utilize their investment in inventory

O Shows how many times, on average,

inventory cycles through the store during a specific period of time (usually a year)

Inventory Turnover = COGS/avg inventory (cost) Inventory Turnover = Sales/ avg inventory (retail)

Analysis of Financial Strength

O Cash-Flow Analysis
O Retailers need cash to meet their

obligations i.e., salary, rent, vendors, etc. O Cash flow is calculated by making adjustments to net profit involving adding or subtracting differences in revenue and expenses that occur from one period to the next.

Analysis of Financial Strength

O Debt-Equity Ratio
O The retailers short- and long-term debt

divided by the value of the owners or stockholders equity.

O Current Ratio
O The is short-term assets divided by short-

term liabilities, it evaluates the retailers ability to pay its short-term debt obligations.

Analysis of Financial Strength

O Quick Ratio
O acid-test ratio O More stringent test because it removes

inventory from the short-term assets. O If a retailer needs cash to pay its shortterm liabilities, it cannot rely on inventory to provide an immediate source for cash.

O Retailers will be better able to gauge

Setting and Measuring Performance Objectives

performance if it has specific objectives in mind to compare performance.

O Should include:
O numerical index of performance desired O time frame for performance O necessary resources to achieve objectives

Setting Objectives in Large Retail Organizations

Top-Down Planning Corporate Developmental Strategy

Category, Departments and sales associates implement strategy

Setting Objectives in Large Retail Organizations

Corporate

Bottom-Up Planning Buyers and Store managers estimate what they can achieve

Operation managers must be involved in objective setting process

Productivity Measures
Input Measures assess the amount of resources or money used by the retailer to achieve outputs such as sales Output measures asses the results of a retailers investment decisions
Productivity measure determines how effectively retailers use their resource what return (e.g., profits) they get on their investments (e.g., expenses)

Outputs Performance
O Sales O Profits

Financial Performance of Retailers

Inputs Used by Retailers
O Inventory ($) O Real Estate (sq. ft.) O Employees (#) O Overhead (Corporate

O Cash flow
O Growth in sales, profits O Same store sales

growth

Staff and Expenses) O Advertising O Energy Costs O MIS expenses

Examples of Performance Measures Used by Retailers

Assessing Performance
O Growth in Stockholder Value Stock Price
O Accounting Measures ROA (Risk

adjusted)
O Benchmark
O Performance Over Time
O Compare performance indicator for three

years
O Performance Compared to Competitors
O Compare performance indicators with major

competitors for one year, most recent

THANK YOU
25