In this presentation, we will help you to understand the suitable finance strategies and favorable location strategies for retail segment. We will cover strategic profit model, profit path, turnover path, activity based costing and return on assets for retailers. We will also talk about setting goal performance and performance measures that retailers should adopt. To know more about Welingkar School’s Distance Learning Program and courses offered, visit: http://www.welingkaronline.org/distance-learning/online-mba.html

1. Chapter 1
Finance and Location Strategies for
Retailing

2. Learning Objectives
Working on the ‘Strategic Profit Model’
Activity based costing (ABC)
Setting objectives for performance by
retailers
Factors influencing retailer’s choice of
location
Retail location strategies
Points to remember

3. Strategic Profit Model
The aim of every retailer is to be
successful financially, which is usually
measured in terms of high return on
assets
Return on assets = Net Profit x Net Sales
Net Sales Total Assets
= Net Profit
Total assets

4. Utility of the Strategic Profit
Model
Profit margin in management and asset
management
Return on assets
Evaluate financial implications of new
strategic decisions before they are
implemented

5. Profit Path
Net Sales = Gross amount of sales –
customer returns –customer allowances
Total expenses = Total expenses/ Net
Sales ration
Net profit = Gross Margin- Expenses
Net profit margin = Net profit/Net
Sales

6. Turnover Path
Current assets
Accounts receivables
Inventory turnover
Cash
Fixed assets
Asset turnover
Current liabilities

7. Turnover Path
Long term liabilities
Owner’s equity
Other current assets

8. Fig 1.1. The Strategic Profit
Model

9. Activity Based Costing
Activity based costing is a financial
management tool which is being used by
retailers worldwide.
Within a const centre all major activities are
identified and the cost of performing each are
worked out
The resulting costs are then identified into
costs objects such as stores, product lines

10. Advantages - Activity Based
Costing
It uses the general ledge data and then
assigns all expenses-sales, marketing,
administrative, financing and operating
costs.
In other methods elaborate
identification of various costs usually is
not looked into

11. Activity Based Costing- 5
Steps
1. Summarize the resources
2. Define key activities
3. Define the resource drivers
4. Specify the cost objects
5. Identify the activity drivers

12. Setting Objectives for
Performance by Retailers
The performance desired, including a
numerical goal which is to be achieved
The time period within which the goal is
to be achieved
The resources required to achieve the
objectives

13. Three types of retailers;
performance measures
Input measures
i.e. amount of money or resources used by
the retailer to generate sales and profit
Output measures
i.e. sales revenue
Productivity Measure
Ratio of input to output

14. Factors Influencing Retailer’s
Choice Of Location
Consumers’ choice
To gain competitive advantage
Understanding of the structural and
social changes
Long term financial implications
Government formalities

15. New Markets – Up country
Better connectivity via a network of
national highways
Attraction and migration of job seekers
into such up country towns from
villages

16. Types of Location Site and
Retail
Solitary site
The unplanned shopping area site
The Planed shopping area site
Merchandise kiosks

17. Retail Location Strategies
Department Stores
Specialty Apparel stores
Category specialists
Grocery stores
Food stores

18. Summary
The strategic profit model combines two
decision making areas- profit margin
management and asset management
ABC provides a means of improving the
retailer's financial analysis
While setting performance e objectives
retailers have to consider performance
goal expressed in numerical terms

19. Summary
The retail while taking decisions
regarding the location of a store has to
keep in mind consumer preference
Usually retailer make a choice of
location site from solitary site,
unplanned shopping area site and
planned shopping area site

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