Presentation1 raja sir 25.8.2012

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


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.


THINK OUT OF THE BOX AND BE DIFFERENT IN YOUR STYLE.


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.


Period 2001 to 2006

Highly competitive markets make fickle business relationships.


For a distributor, it is important to nurture the dealer network to remain in business.


.

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.


To be successful, more than the ability, perseverance pays.


In a fast changing market, adaptability and proactive changes are important.


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.


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.


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.


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.


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.


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.


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.


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



Which business is most lucrative & profitable?


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.

• 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


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



WHICH IS THE MOST LUCRATIVE DISTRIBUTION BUSINESS?

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



Distribution Challenges

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.


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?



Managing fixed cost: my experience

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

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…….



Managing fixed cost: brand shops

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.



Important lessons

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.


Best wishesRaja Malushte.

Market Movers (India)

www.rajamalushte.co.in

[email protected]
