Retailing Trends

I came across this excellent McKinsey China podcast on e-tailing trends and thought would share the highlights and the links with my readers. I have also added my insights into the blog post:

The super-charged growth of online retail is changing this dynamic and creating incremental consumption. Millions of newly minted shoppers can now log on and purchase goods they could only dream of acquiring just a few years ago. By 2020, China’s e-tailing market may reach $420 billion-$650 billion in sales and add 4-7 percent to the nation’s private consumption. – McKinsey China

Retailing moving from location based to occasion based: With real estate getting more and more expensive, retailing has pivoted its focus from location driven business operations to occasions-based business focused on weddings, birthdays, etc etc.

Logistics & Delivery centers: With the growing e-commerce retailing space and upcoming smaller players in the market, the logistics and delivery centers market has a lot of potential for growth.

Payment gateways: Newer payment gateways need to be introduced for different market sets. Regional or Country-driven systems would emerge and then hook up with the global payment gateways. The importance of foreign exchange management and treasury operations would rise.

Mobile based solutions: With mobile penetration growing in developing countries as well, there would be a higher need for mobile based solutions for retail sales, advertising, consumer need assessment and market reach.

E-commerce platforms: More and more players would emerge, smaller ones of which would focus on niche markets with product differentiation as their key to growth.

Supply Chain Management professionals and solutions: There is going to be more need of supply chain management professionals who would likely have a degree in language as well. A good chunk of products would manufacture in China and knowing Chinese would create a definite connection with the suppliers. Also, more organized supply chain solutions would need to emerge, systems catering to the SME end of the market, not just the big players.

Less jobs for women in retailing; more jobs in logistics (mostly for men): Since traditionally, retail has been a major employer of people, especially women, there will be a decrease in jobs in the traditional retailing sector as companies reduce their square footage of retail space. This could lead to growing number of women entrepreneurs in this vertical with the requisite experience, but energies would need to be channeled in accordingly for that to happen.

Lifestyle change from routine jobs to unstructured enterprises: The nature of work would change for a vast majority of people who would now not expect to work in the safe, secure 9-5 shifts that are time-focused, but instead work on a flexible, results-based (efforts-focused) working model.

Clearly, the retailing landscape will drastically change in the next 15 years with several new names emerging and leading the show.


Assumptions Assumptions…


MS Excel is a fairly powerful tool that is very commonly used by professionals ranging from data entry staff, to analysts, to corporate executives right up to the C-level. It is ironic, however, that most of those who use MS Excel in one way or another quite regularly don’t know the power of the language. According to an estimate, only around 20% of the users actually realize the functionality and power of this software.

Assumptions Make a Difference

In proforma financial models, where linkages are spread all across the various sheets in order to make sense of the numbers in the end, one of the most important things to check first are: Assumptions.

Sometimes, these are integrated within different sheets in the model in a hap-hazard fashion, however, most properly-built models have a separate tab for Assumptions. I have seen people commit three major blunders as far as model assumptions are concerned:

Ignoring or undermining the importance of assumptions and trying to concentrate on the numbers instead: I have seen executives that just want the numbers in place. These are the kind that are often lost in the numbers, forgetting the logic behind them. They feel that by looking at the numbers hard enough, they can realize how the situation would be like in the coming years and when they want some number changed, for instance sales, they just ask to change it without realizing that if they don’t look into and change the assumptions, someone else under them would.

Being too involved in some assumptions and not caring about most: These executives often have a hard time figuring out which areas to concentrate on. Pressed for time, they just want to look into some assumptions and leave the rest. The problem, however, comes up when they get too much involved in one particular assumption to the extent that they lose sight of the big picture. For example, the amount of Capital Expenditure (CapEx) to be done in the fifth year of projection to be increased by 20% rather than 15% YoY basis. This is problematic, as all this does is to lose the connection with the overall big picture of the model.

Not carefully checking the model linkages to the assumptions: As simple as it sounds, few analysts, bankers and evaluators forget to check model assumptions’ linkages to the actual model. I have often encountered cases where certain assumptions listed in the model are not actually linked anywhere in the financial model. For analysts, that is where they need to remain careful and make sure there is no such error because in certain cases, the implications for such a loophole could mean a disaster in decision making.

So, make sure you don’t fall prey to these basic flaws when you’re handling proforma models.

It’s not about the lowest cost anymore


When Michael Porter came up with Generic strategies, it was really a change in thinking. It seemed to be a different viewpoint compelling enough to be considered on its merit. The idea that any business can use one or more of the three core generic strategies (cost, differentiation and focus) came up as a revolutionary concept that consultants often focus on even today.

I often find people coming in asking how they can become the lowest cost provider in their domain of operation and seeking tips to achieve that end. I end up asking them about their businesses only to advise them not to invest their energies to becoming even lower cost provider as it’s not about the lowest cost anymore.

People often intuitively find it difficult to understand that low cost is relative and I keep quoting this example:

Suppose you have a German-educated and trained engineer working in an automotive plant who charges you 200 euros per hour and you also have another engineer from some place like Somalia, who is willing to work at 20 euros. Which one of them is the lower-cost provider?

The answer, my friends, is that you can’t ascertain yes. Most of the people get to the decision before analyzing the question, and say the Somalian engineer is the one, however, I have given no suggestion as to the creativity, productivity and skill set of the engineers yet.

Consider this additional information: If the German engineer finished work on 10 cars per hour, and the Somalian engineer needs 3 hours to finish only one car, how would the answer change now?

The German engineer is averaging you 20 euros per car, whereas the Somalian engineer costs you 60 euros per car. The latter ends up being thrice as costly as the former! Eye opening? Yes.

Moreover, we have not even considered yet the learning curve benefits, incremental quality improvements due to expertise, creativity, long-term relationship development factor, etc. that might accrue as a result of the right choice.

Please note that reference made in the above example was just illustrative and does not imply in any way superiority/inferiority of any person, place or education.

So even if you want the lowest cost, think out-of-the-box to figure out if that’s really the lowest cost solution for you.

Happy Value Buying!

Doc, Gimme a break!


Some renowned psychologist, Dr. Dorothy Rowe, said Angelina Jolie’s behavior would lead to her child’s insecure adulthood. Are you really serious? I mean, yes, it came as a shock to the poor fellow but it is all right to be shocked every once in a while. Look at it this way, the lad’s mother just taught her an important lesson in life: Don’t always believe what you see. This could be life-changing for sure, but in a positive way perhaps.

I remember we were taught at how statisticians sometimes fall prey to the trap of linking correlated data as being a case of causality, meaning to say that not always do correlations imply causal relationships. This is one such case where there could possibly be such an affirmation based on correlations but being insecure has a lot more to do with the overall upbringing and individual personality, not only with one incident such as this one.

More than anything else, the news item resembles a PR gimmick for the book of this “distinguished” author. Marketing practitioners often quote “there is nothing such as bad publicity” and this article seems to be following suit to that idea.

I would, however, credit Tim Walker for the interestingly curious title to the article. I clicked it saying “what shit!?” but the point is I clicked.

The Big Picture in financial writing

When you think about creative writing, you think about fancy writing and imaginative use of vocabulary and language to make wonderful masterpieces, but when it comes to financial writing, you don’t need to be a Shakespeare!

What is important is that you make a connection with the reader in a way that the latter doesn’t need to read everything to understand what you are saying. Let me elaborate. When you’re writing a financial report, it usually has an audience that are busy people working in corporations, investors, investment houses, portfolio managers and common people who are not very well-versed in finance. So, you have to convey your point through illustrative means, i.e. pictures, charts and graphs and make it a point to use language that could be understood by others who don’t have a finance background.

The beauty of an analyst report comes when a reader is able to read through the high points of the entire text in less than 2 minutes discerning what is important for the company and finally deciding to read further or not. That essentially is the success of that analyst. You don’t have to come out with a “BUY” or “SELL” recommendation every time you write a report, however, you must be sure about what you are talking. Once you convey things and perspectives on the company in an easy language, but also include further information for the technical/sophisticated investors, you can be expected to be doing a reasonable job. This work could turn into an outstanding one only in the case when there is quality and forethought behind your assumptions.  So always be careful on what you assume, because the results come out of your assumptions only. The assumptions should make sense when you look at the big picture for the business model of the company you’re writing about. Link the assumptions to the big picture to see if those are reasonable.