Small Retailers take on Modern Retail Chains

untitled2.jpg I read this article in a business newspaper about retailers in Kochi joining together to take on the modern retail chains. This is a great move and I appreciate their positive attitude.

Some pointers on what these retailers should do, as they wage their battle.

Optimize inventory levels to free up working capital:
Analyze the sales data and decide on the inventory levels for each sku.

The inventory level for a sku depends on;

  • frequency of visit of the salesperson
  • reliability of the salesperson [how reliable is th salesman’s coverage, does he sometime skip a visit]
  • number of pieces sold between visits of the salesperson
  • is there a difference in sales between weeks of the month and during festive seasons

The inventory levels should be such that the sku should not be out-of-stock

Buying when there are discounts or ‘schemes’
When buying on schemes ensure that the financials are favourable.

What this means is that the quantity of stocks you buy depends

  • the discount given
  • cost of the working capital
  • opportunity cost
  • probability of expiry, damage or obsolescence

Assuming a cost of capital of ~ 3%-4% per month for every 4% discount the retailer could buy 1 month extra inventory.

Review the assortment and get rid of the ‘dog’ skus
Review the sku assortment regularly.

Analyze what skus has not sold or moved for the last 3 months. Stop buying those skus. Return the unsold skus to the salesperson.

This releases working capital to invest on fast moving skus.

For these analysis to happen the shop should have a PC and billing done on it. Else, it is difficult to even gather the data, let alone analyze the data.

FIFO to give customers fresh products
Follow FIFO [ First-in,First out]. This reduces the probability of damages and obsolescence.

Organize the backroom
Stocks should be kept where they can be reached easily if a customer asks for it. At he same time it should be arranged so that stocks do not get damaged and remain hidden till they become obsolete.

Stock counts to reduce shrinkage
The store should take steps to reduce shrinkage. Typically shrinkage losses are ~1% of COGS. This can be done by doing daily stocks counts of 20-30 high value or A skus, chosen at random.

Home delivery
This is a big advantage for small retailers since the modern retail chains cannot provide this service.

For families with both husband and wife working and the pressure on time, home delivery is a valuable service that small retailers can provide.To ensure that they capture this advantage they should have a strong and reliable process to deliver timely and accurately . At the time of taking the order, they should be able to share details like MRP and whether the sku is available or not.

Quick and Efficient Billing
The store should provide a decent customer experience. Billing should be quick and efficient. The stores should accept credit cards and coupons.

Phone Orders

Phone calls should be answered within 3 rings.

Store Ambience
The store should be clean, stocks neatly arranged, dusted and brightly lit. Soft music would be a big plus!

To summarize, the retailers should follow some of the good and efficient practices [ optimal levels of inventory, efficient assortment, pleasant ambience] that modern retail chains follow and at the same time leverage their unique strengths[ like home delivery and knowing their customers very well].

In all fighting,
the direct method may be used for joining battle,
but indirect methods will be needed in order to secure victory.

Sun Tzu “Art of War”


One thought on “Small Retailers take on Modern Retail Chains

  1. Thanks for the helpful suggestions. I’m an MBA student working on project about Retail in India. What are the average margins that small retailers can expect for FMCG’s and also small consumer durables? And how can small retailers compete with the larger chains?


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