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

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.  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. THINK OUT OF THE BOX AND BE DIFFERENT IN YOUR STYLE.
Modern Retail : A Businessman’s view

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. Highly competitive markets make fickle business relationships.
Modern Retail : A Businessman’s view

6. For a distributor, it is important to nurture the dealer network to
remain in business.
Modern Retail : A Businessman’s view

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. To be successful, more than the ability, perseverance pays.
Modern Retail : A Businessman’s view

9. In a fast changing market, adaptability and proactive changes
are important.
Modern Retail : A Businessman’s view

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. 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. 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. 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. 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. 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. 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. 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. Modern Retail : A Businessman’s view
Which business is most lucrative & profitable?

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. • 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.  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. Modern Retail : A Businessman’s view
WHICH IS THE MOST LUCRATIVE DISTRIBUTION BUSINESS?

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. Modern Retail : A Businessman’s view
Distribution Challenges

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.  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. Modern Retail : A Businessman’s view
Managing fixed cost: my experience

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.  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. Modern Retail : A Businessman’s view
Managing fixed cost: brand shops

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. Modern Retail : A Businessman’s view
Important lessons

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. Best wishes
Raja Malushte.
Market Movers (India)
www.rajamalushte.co.in
rajendra@marketmoversindia.com
Modern Retail : A Businessman’s view