Profit in Retail

Discussion in 'Growing and Managing a Business' started by sheetal, Sep 8, 2011.

  1. sheetal

    sheetal
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    Hi All, I am too happy to find this forum. I am desperately looking for some business advice. I am very new to business world.

    I am from Mumbai, India.

    I many time thought of opening retail shop. But many questions which came to my mind stopped me.
    How people having a shop can earn profit?
    For instance a T-shirt retail shop can max sell 10 shirts a day if the shop is at prime location.
    Each shirt can max give 25 Rs profit. (10*25=250 Rs a day i.e. 7500 a month assuming all day open).
    I need to pay the shop rent (7000 Rs Approx)+electricity bill+ the helper wages.
    Then how one can make profit?

    Even though the sell increases the profit margins will not be high. Also during the down season (rains) the sale will further go down. Yes, during festival time it would be high but not to give much profit.

    But still I have seen many shops running for a long, even the small margin shops. How they manage?
    I am missing on some important concept, can you help.
    Are there any books which will clear my concepts?
     
    #1 sheetal, Sep 8, 2011
    Last edited: Sep 8, 2011
  2. ArcSine

    ArcSine
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    Greetings, Sheetal.

    Your approach in analyzing the potential is generally on track. You've got three key components which must be forecast as accurately as possible.

    • Operating expenses. Usually one of the easy ones to pin down. Rent, utilities, insurance, wages....With some adequate research you'll be able to forecast these numbers within a small margin of error. But be conservative and try to anticipate every possible expense. Talking with similar retailers who've been in business for a while could be quite valuable.
    • Profit margin per item. Another pretty easy one. Your selling price for each item you carry will probably be determined largely by the going price for such items in the market. And the other piece of this equation--your cost per item--you can probably get from competitive quotes from a handful of selected vendors.
    • Sales volume. This is the tough one. You've really got to spend time on this one and do whatever research is necessary to get a quality forecast on expected sales volume.

    In the first two there is room for small gains here and there, but they're limited. Yeah, you shop for the most cost-effective insurance coverage, you negotiate your best lease deal with the landlord, and you take advantage of volume discounts with your suppliers, but in the end the largest determinant of your net profit is how many items you sell each month on average.

    So start with your sales projections. Research similar shops, talk with other retailers. Find an accountant who has similar retailers in her clientele, and take her to lunch. She might be forthcoming with some general statistics if she feels she might be gaining a new client (you) in the process. Just a couple of ideas, and you'll come up with many more.

    If, after doing all this homework, the forecast numbers don't add up to a profitable venture, consider how you might change the ingredients for a better outcome: different product mix, open more / less hours per week, better advertising, etc. But there aren't any magic secrets. Those other shops you're seeing are either (1) making a profit, based on those three factors above; or (2) just making enough to keep the lights turned on; or (3) losing money and it's only a matter of time before their bank account runs dry and they shut the doors.

    Best of luck with it, Sheetal, and check back in for more discussions with the members here.
     
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  3. sheetal

    sheetal
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    Hi ArcSine,Thanks for the valuable information provided.I will definitely consider your inputs while doing the initial analysis.
     
  4. Shahrier

    Shahrier
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    I realize you are coming from a 3rd world country where stores are just randomly on the street. In this case then yes, you won't make much profit from it. But, If you can somehow find the money to open a big store in a good location with not many big stores you will make a lot of money. I've visited my 3rd world country that my parents come from. This is from my experience.
     
  5. James Greg

    James Greg
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    I've never been to India but from the documentaries and all the information I see that operating a business is quite tough out there as there are no rules out there. The government plays little or no role but charge heavy taxes upon any business working out there. I think it would largely depend upon the quality of your stuff, if it's good quality then I see that people would be flocking to buy it. Charging a profit of Rs.25 is way too low to be a running business as the currency is not so strong there. I think you would need to find a way to make a profit of Rs.100 to survive. Its true that there's no magic recipe to boost your sales but it all depends on the quality, decoration of the shop and your marketing.

    Have a friendly chat with the others already in the business but I'm sure many would give the concept that sales are not what it used to be the market is dying out, but don't be deluged by their negative comments about the market, be positive about yourself and do not make a decision until you have done enough research which would make you feel comfortable. Hope you get positive response in your research.
     
  6. sigma

    sigma
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    if the case as you mentioned, the shop is losing money. In fact, they might sell more than 10 units per day or they are getting higher profit like Rs.50 per unit if they are getting directly from the manufacturer with lower cost
     

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