Margin Turnover Model

Ronald R. Gistl “Suggested a conceptual frame work, using margin and turnover, for understanding the retail structure and evolving a retail strategy.”

Successful retail operations depend largely on two main dimensions: margin and turnover. How far a retail enterprise can reach in margin and turnover depends essentially on the type of business (product lines) and the style and scale of the operations.

Margin is defined as the percentage mark tip at which the inventory in the store is sold and turnover is the number of times the average inventory is sold in a year. Below is a diagrammatic representation of the frame work and can be applied to almost any type of retail business.

Depending upon the, combination of the two parameters, a retail business will fall into one of the four quadrants. For instance L-L signifies a position which is low on both margin and turnover; whereas, H-L indicates high margin and low turnover.

Low Margin High Turnover Stores

Such an operation assumes that low price is the most significant determinant of customer patronage. The stores in this category price their products below the market level. Marketing communication focuses mainly on price. They provide very few services; if any, and they normally entail an extra charge whenever they do. The merchandise in these stores are generally pre-sold or self-sold. This means that the customers buy the product, rather than the store selling them.

These stores are typically located in isolated locations and usually stock a wide range of fast moving goods in several merchandise lines. The inventory consists of well-known brands for which a consumer pull is created by the manufacturer through national advertising. Local promotion focuses on low price. Wal-Mart in the United States is an example and Pantaloon Chain in India is examples of such stores.

High Margin Low Turnover

This operation is based on the premise that distinctive merchandise, service and sales approach are the most important factors for attracting customers. Stores in this category price their products higher than those in the market, but not necessarily higher than those in similar outlets. The focus in marketing communication is on product quality and uniqueness.

Merchandise is primarily sold in store and not pre-sold. These stores provide a large number of services and sell select, categories of products. They do not stock national brands which are nationally advertised. Typically, a store in this category is located in a down town area or a major shopping center. Sales depend largely on salesmanship and image of the outlet.

High Margin High Turnover Stores

These stores generally stock a narrow line of products with turnover of reasonably high frequency. They could be situated in a noncommercial area but not too far from a major thoroughfare. Their locational advantage allows them to charge a higher price. High overhead costs and, low volumes also necessitate a higher price.

Low Margin-Low Turnover Stores

Retail enterprises in this category are pushed to maintain low margins because of price wars. Compounding this problem is the low volume of sales, which is probably a result of poor management, unsuitable location etc. such businesses, normally get wiped out over a period of time.

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