Quantitative Research on Retail Trade Business

2021-06-17 11:06:21
5 pages
1319 words
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University of Richmond
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Introduction

The retail trade business is a significant part of the U.S. economy, with employment surpassing that in manufacturing. Review of productivity increase in retail trade is exceptionally challenging because it involves determining what output is for the enterprise and various ideas can be applied. This retailer called Urban Outfitters should consider the comprehensive measure of productivity called multifactor productivity this procedure compares the output to an index of all the inputs used in its generation. Multifactor productivity change covers the collective impacts on the economic growth of technological evolution, returns to scale, efficiency improvements, and other factors.

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The second and most obvious measure of productivity this retailer should consider is labor productivity, which is defined commonly as output per hour. Labor productivity measures are designed and used more broadly than multifactor measures because data required for inputs other than labor are not ready on a quarterly basis and are not measured accurately for many industries.

On January 5 Retailer begins work on a cash flow projection for the next 12 months. The company starts by putting the $4,000,000 it has in its bank account in the 'Beginning of the Month' column for January. In its 'Cash coming in' section, it includes its cash sales (which are about 70% of its sales) and its credit sales (about 20% of her sales) on separate lines. It totals in all of the cash transactions, but that is just 80% of its credit sales since some percentage of its loan customers regularly take more than 30 days to pay. In the "Cash Going Out" section, Retailer includes its changeable and fixed costs, putting the yearly insurance premium the retailer is about to pay in the January column rather than spreading it over 12 months.

Urban Outfitters Cash Flow Analysis

January February March April May June July
Beginning of the Month 4,000,000 3,340,000 3,080,000 2,220,000 1,960,000 1,700,000 -740,000

Cash Coming In

January February March April May June July
Sales Paid (70%) 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 6,000,000 6,000,000
Collections of Credit Sales 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 1,600,000 1,600,000
Loans & transfers 0 0 0 0 0 0 0
Total Cash In 9,500,000 9,500,000 9,500,000 9,500,000 9,500,000 7,600,000 7,600,000

Cash Going Out

January February March April May June July
Inventory 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000
Rent 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
Wages 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000
Utilities 100,000 100,000 100,000 100,000 100,000 100,000 100,000
Phone 30000 30000 30000 30000 30000 30000 30000
Insurance 1,200,000 0 0 0 0 0 0
Ads 200000 0 0 0 0 280 0
Accounting 130,000 130,000 130,000 130,000 130,000 130,000 130,000
Miscellaneous 0 0 600,000 0 0 0 0
Loan payments 0 0 0 0 0 0 0

Taxes

January February March April May June July
Total Cash Out 11,160,000 9,760,000 10,360,000 9,760,000 9,760,000 10,040,000 9,760,000
Cash at End of Month 3,340,000 3,080,000 2,220,000 1,960,000 1,700,000 -740,000 -2,900,000

Urban Outfitters Cash Flow Analysis (part 2)

August September October November December
Cash at Start of Month 2,900,000 6,410,000 4,770,000 5,030,000 5,290,000

Cash Coming In

August September October November December
Sales Paid (70%) 5,250,000 9,000,000 7,500,000 7,500,000 11,250,000
Collections of Credit Sales 1,400,000 2,400,000 2,000,000 2,000,000 3,000,000
Loans & transfers 0 0 0 0 0
Total Cash In 6,650,000 11,400,000 9,500,000 9,500,000 14,250,000

Cash Going Out

August September October November December
Inventory 4,500,000 4,500,000 4,500,000 4,500,000 4,500,000
Rent 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000
Utilities 100,000 100,000 100,000 100,000 100,000
Phone 30000 30000 30000 30000 30000
Insurance 0 0 0 0 0
Ads 0 0 0 0 0
Accounting 130000 130000 130000 130000 130000
Miscellaneous 400000 0 0 0 200000
Loan payments 0 0 0 0 0

Taxes

August September October November December
Total Cash Out 10,160,000 9,760,000 9,760,000 9,760,000 9,960,000
Cash at End of Month -6,410,000 -4,770,000 -5,030,000 -5,290,000 -1,000,000

After filling in the cash flow forecast, the Retailer understands that its account will go significantly negative in the slow summer months. It may not even be back in December which is its highest sales month since it has predicted that about $500,000 per month in payments on credit sales will be late. Though if it eventually gets caught up collecting her accounts receivable, it will be effective for the year. Some customers will always pay late. Therefore the retailer knows that if it can't reduce its costs in some way, it will need some cash to drag itself over in some months, especially during the summer. Because it has already cut its pay in half and scraped other expenses to the bone, it will have to bring in money from extra sales, provide additional services, or get a loan from colleagues, family, or a bank line of credit.

Date Purchase Issues Inventory

Units $/Units $ Total Units $/Units $ Total Units $/Units $ Total

Jan 1 5 50 250 5 50 250

Jan 5 2 50 100 3 50 150

Jan 10 1 50 50 2 50 100

Jan 15 5 70 350 5 70 350

Jan 15 7 450

Jan 25 2 50 100 1 70 70 4 70 280

From the above information, the inventory cost under the FIFO method correlates to the cost of the newest purchases, i.e. $70. Each time purchase or sale happens, they are written in their corresponding ledger accounts. However, inventory is considered independently from sales and purchases through a single change at the end of the year. Apparently, the cost of inventory sold could be defined in two methods. One is the conventional way in which purchases during the period are changed for progress in inventory. The second way could be to modify sales and purchases of inventory in the inventory ledger itself.

LIFO estimates those products which earned their means to inventory and they are later traded first, and those which are produced early and are sold last. Thus LIFO indicates the cost of current inventory to cost of products sold and cost of former inventory to ending inventory account. This method is precisely opposite to FIFO method.

Date Purchase Issues Inventory

Units $/Units $ Total Units $/Units $ Total Units $/Units $ Total

Jan 1 5 50 250 5 50 250

Jan 5 2 50 100 3 50 150

Jan 10 1 50 50 2 50 100

Jan 15 5 70 350 5 70 350

Jan 15 7 450

Jan 25 3 70 210 2 50 100

2 70 140

4 240

The above information shows us that, LIFO approach allocates cost on the grounds of the newest purchases first. And after the inventory from earlier purchases has been issued exclusively, then the following purchases are allocated. Therefore the value of inventory using LIFO will be based on outdated prices.

We know that a sound pricing plan helps you decide the price point at which you can maximize gains on sales of your services or products. When establishing prices, a retailer needs to examine a broad range of determinants including competitor prices, positioning tactics, distribution and production costs, and the business target customer base. This retailer is using the following approaches to ensure that the company is serving its customers and also making some profit. First, loss-leading pricing in here they are trying to attract customers with a lovely product at an extremely desirable valuation, and then profit from the extra purchases that customers will make while they are in their store. Second, is the product bundling technique where this retailer sells at a unique and competitive price that cant be replicated by anyone, this approach basically attempts to improve the value perception in the eyes of the customers (Davies, G., & Harris, 1990). For firms to gain market share and stay consistent, they need to think of efficient types of marketing tactics. To meet the demands of investors, the retailer has to prompt consumers to buy using liquidations, coupons, discounts, and sales events. Every time a different product is created, customers have to be given a reason to want to purchase the product in future. Getting your customers talking about your services and products is essential to increasing awareness for your business. Organizing events is an excellent way to drive sales. Customers usually require a reason to shop, and events can regularly offer the ideal reason.

Conclusion

Keeping a positive cash flow is quite difficult, but that does not imply retail businesses have to surrender. For every difficulty, there must be a viable solution. Operating cash flow as a retailer requires reducing expenses and installing a budget. Adhering to a budget can be hard, but its essential to evade going too deeply into debt. Today, website optimization and online marketing are vital to a retail business's success. Creating a powerful, user-friendly online presence is not simple; it needs expert knowledge and perhaps even the guidance of a digital marketing professional.

References

Davies, G., & Harris, K. (1990). The Independent Retailer. Small Business, 1-15. doi:10.1007/978-1-349-20599-8_1

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