Achieving efficiencies in Retail operations

Achieving efficiencies in retail operations is another crucial part of retailing. The framework on retail structure in measuring efficiencies in retail operations is given as under.

Using these parameters, the retail enterprise must measure the efficiencies in respect of the following:

1. Margin-turnover position.
2. Investment productivity.
3. Space productivity.
4. Employee productivity.
5. Average size of transactions.

Investment productivity:

Investment productivity refers to retailing productivity relative to investment. It is one important measure of efficiency in retail operations. The efficiency should be measured as a ratio of net margin to total capital employed.

Space productivity (per sq ft of shop area):

Productivity per sq ft of shop area, or net return per sq ft of shop area employed, is another useful measure of retailing productivity. This is commonly referred to as location/space productivity. It makes sense to insist on space productivity, when the cost of shop space (shelf space/floor space) including all facilities, happens to be the single largest cost element in many retail operations. After all, shop space / location is unique asset of a retailer. Return per sq ft of shop area naturally becomes important. Though this is reflected in the ratio of net margin to total capital employed, it is good to know about it separately also.

According to a recent survey carried out by international real estate consultants, Healey & Baker, Mumbai is one of the world’s most expensive cities in the matter of rent per sq ft of shop space. Healey & Baker have placed Mumbai at number 36 in the rank list with an estimated average rent $582 per sq m per year. The survey monitored 193 locations in 39 countri0es across the world. Madison Avenue in New York and Hong Kong’s Causeway Bay are the most expensive locations in the world, according to the survey.

Employee productivity (sales per employee):

Some retailers look at sales per employee as a critical measure of retailing efficiency. In other words, they are looking for labor/employee productivity in their retailing activity. This becomes significant in cases where manpower costs form a significant part in relation to total operations.

Average size of transactions:

Average size of transactions can be yet another control factor; it indicates the productivity of merchandising at the outlet.

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