Retail Economics

There are two basic indicators of evaluating the Retail performance

1. The Income statement or the Profit and Loss statement.
2. The Balance sheet.

The income statement is a record of the revenues earned by the organization and the expenses incurred. It is a snapshot of the company’s operational performance for a particular period of time. It is commonly known as the Profit & Loss statement.

It helps the management and investors to understand the direction in which the company is running its business and gives an indication of the possible dividends to shareholders. The net profit can also be reinvested for further improvement of business.

Comparison of the P & L statement of the organization with similar industry’s P&L ,is likely to assess the marketing strategy for the future


Chief components of an Income Statement:

1. Sales
2. Cost of goods sold
3. Gross Margin ( NET SALES – COST OF GOODS SOLD)
4. The operating expenses and
5. The net profit

PBDIT…. Profit before tax and Depreciation
PAT …..Profit after tax or also known as cash profit


The Balance Sheet

Investors use the balance sheet to study the turnover and study the company’s assets and liabilities at a particular point of time.

The data shown in a balance sheet can be interpreted in two halves. The first half indicates the money being used in the business, ie the net assets. The second half shows the capital employed or from where the money has been secured. The value of the two halves needs to be the same and hence the name Balance Sheet.

Common Elements of a Balance sheet:

Fixed assets…. Building, property, machinery, Fixed deposits

Current assets : Stock, cash in hand

Long term liabilities: Court litigation on financial or non financial issues

Short term liabilities: Investment risks ( investment on equities), fines and penalties

Net worth: Total assets less liabilities

Dangers : High stock and High receivables.


Efficient Store operation depends on

Customer Management
Inventory Management
People Management

Three areas important for the measurement of retail performance

People
Merchandise
Store and retail space

Key method to understand the performance is Ratio Analysis

Profitability Ratios, Gross and net profit margin, ROI, ROT
Liquidity ratios- Mainly used for short term solvency of the firm.-

CURRENT RATIO
( Current assets/current liabilities)

QUICK RATIO
( Cash + accounts receivable/ Current liabilities)

Debt/equity ratio – 2:1- for Long term solvency
PE ratio –Market price of share/ earning per share
Divident Yield – latest dividend per share/ current market price per share x 100


Key performance in merchandise

GMROI ( generally valued at Retail prices)
Inventory turnover ratio

Key performance of Retail Store and space performance.
GMROF: Gross margin return on footage. Increase margin or reduce space.
Sales per SQUARE FOOT . Storeise , category wise, productwise, brandwise
The conversion ratio walkin Vs buyers
Average ticket size, transaction value addition.
Sales per employee, Margin per employee