How to structure and analyse finance heavy retail cases

Question

I want to understand how to approach case studies about retail/e-commerce that are very quantitative. For example, If you know that the client is selling different product ranges and you're required to find out by how much they can improve sales revenues, what are the main factors to think about? What are the main calculations being done and how would you structure them?

Answer 1

Hello there,

The approach could be different depending on the nature of the client. Are they the brand owner (e.g. Zara) or the platform (e.g. department store or e-commerce sites).

The revenue streams and cost structure would differs greatly between these two.
This is something which would need to be clarified immediately after the introduction of the case.

After that, it is important to pay attention to the main objective of the case. Is it to improve profitability, introducing a new product line, product rationalization, and so on.

To answer your question regarding a very quantitative case, most likely the objetive would involves bottom-line improvement, which in this case relates to the profitability of the client.

As such, utilizing the profitability approach as your overarching framework would be a great start - which is further divided into revenue streams and cost structure.

In considering both sections, it is advisable to use another structure which looks at the qualitative aspect of the business, from the customer segments, market size, product lines and the dynamics of each (needs fulfilled, price range and customer's sensitivity, distribution channel preferences), company's capabilities, competitive landscape, as well as industrial regulations and lifecycle.

In the example of a brand owner, the structure might go like this:

Revenue streams

Product sales
Brand licensing

Cost drivers

COGS
Marketing costs
Distribution expenses (transport fleet, warehouses, inventory costs, etc)
SG&A

For platform / store owners (non-brand owners), the structure might be as follow:

Revenue streams

Profit sharing from product sales
Product placement fees
Advertisement fees (e.g. brandings plastered on the wall, ads placed on the online sites, etc)
Real estate value gain
Loyalty membership fees

Cost drivers

Distribution expenses (transport fleet, warehouses, inventory costs, etc)
IT costs (hostings, domain, servers, payment gateway license, etc)
Marketing costs
PP&E costs
SG&A
COGS (only for white label or self-produced brands)

Next steps are about quantifying each of the relevant elements and come out with the bottom-line number.

Hope it helps.

Kind regards,
Nathan