Margin – Turnover framework

Low margin-high Turnover Stores:

The low-margin / high-turnover operation assumes that low price is the most important patronage determinant. The stores in this category price their products below the market. In all their marketing communications, they emphasize price. They provide very few services; and wherever they do so, they are usually optional and are provided at an extra charge. The merchandise in these stores is pre-sold or self-sold. Here customers ‘buy’ products, rather than the store ‘selling’ them.

Typically these stores are located in isolated locations and stock a wide variety of fastest-moving items in several merchandise lines. The merchandise is often confined to well-known brands, which are pre-sold by the manufacturer through national advertising. Local promotion is mostly about the low price. A discount store like Wal-Mart in the US is an example. The Subhiksha chain, the Pantaloon Big Bazaar chain and the Escorts-Nanz ‘Lobill’ chain are apt Indian examples.

Subhisha can be considered as a special version of a discount store chain as its stores in the chain are not located at isolated places but in the neighborhood of every consumer cluster. It suits the Indian conditions.

High margin-Low turnover Stores:

The high-margin / low-turnover operation assumes that service, distinctive merchandise and sales approach, are the most important patronage determinants. The stores in this category price their products above the market. Prices, however, are not higher than those at similar outlets. In all their marketing communications, these enterprises emphasize merchandise strength.

While customers ‘bought’ in low-margin / high-turnover stores, customers are ‘sold’ by the store in high-margin / low-turnover stores. Merchandise is often sold in-store, not pre-sold. In other words, these outlets do not sell national brands that are nationally advertised, as is the case with low margin-high turnover stores. These stores provide many services and sell select categories of products. Promotion is institutional and also merchandise oriented. A store in this category is typically located in a download area or a major shopping centre in a good cluster, in proximity to other institutions. Sales occur on the basis of the expertise of the salesmen and the reputation of the outlet.

High margin-High turnover Stores:

These stores stock a narrow line of items, which turn over rapidly. Typically, they are located in a non-commercial location, but in proximity to a major thoroughfare. Because of location convenience, they can charge above market prices. Overhead costs may be high because of the long hours the store is open. Moreover, the lack of large volume requires that the store charge above market prices to ensure profitability. The convenience food outlet is an example.

Low margin-Low turnover Stores:

Outlets in this category are the ones that have been forced by price competition to maintain low margins. At the same time, they do not sell a high volume, may be because of poor location, or incompetent management, or undercapitalization. The turnover also will be poor here. As a combined result of the low margin and the low turnover, this type of outlet is a candidate for bankruptcy.

The margin-turnover framework can assist managers in planning and developing retailing strategy and in stimulating alternative retailing models and choosing the best. The framework shows that in retailing, profitability can be achieved by different combinations of margin and turnover, and that different combinations can yield similar levels of profitability.