AN ANALYTICAL APPROACH TO EVALUATE THE PERFORMANCE OF

RETAIL SECTOR
(A Case Study of Mysore retail industry)

Dr. Satish Chandra Rangaswamy*

Dr. B. Sowmya Satish. **

ABSTRACT

The purpose of this study is to evaluate the performance of the retail sector in Mysore
city. This study was raised from differing perceptions of the comparative performance of
Mysore retail sector.

Discussion on “retail performance” in general terms conceals the real tension that exists
between economic approaches to the measurement of performance within the retail sector
is potentially problematic. Thus, this paper seeks to reflect a complex and ambiguous
problems: the definition, measurement and analysis of “retail performance” in the way
that are relevant and meaningful to the various interested topics involved. It is therefore, a
hybrid, multi-layered study, seeking to integrate different perspectives towards the
measurement of comparative performance of retail market. Further the study on retail
performance of different retail shops in Mysore city will help the retail industries to
bloom. What would be the future retail perspectives and what the opportunities are? and
what are the challenges faced regarding the performance of retail industries?

* Dr. R. Satish chandra, Ph.D B.Sc., MDP., MFAMM., PGDEP., DCP., DISM., ADJP., DSTT. Asst. Professor
and Researcher, Dept of Management Studies, AMC Engg. College, Visvesvaraya Technological
University, 18 KM Bannergatta Road, Bangalore, Karnataka, INDIA. E-mail:satish_ch_in@yahoo.com,
Ph: +919972087704. +91 080 26423600

** Dr. B. Sowmya Satish, Ph.D. B.Com. MFAMM. Asst. Professor and Researcher, South East Asia
College of Engg. and technology, Visveswaraya Technoglogical University, Ektanagar, Basavana
pura(K.R.Puram), Virgonagar, Bangalore-49, Karnataka, INDIA. E-mail:sowmyasbs24@yahoo.com
Ph: +919880803255, +91 080 26423600
 AN ANALYTICAL APPROACH TO EVALUATE THE PERFORMANCE OF
RETAIL SECTOR
(A Case Study of Mysore retail industry)

Dr. Satish Chandra Rangaswamy*

Miss. Sowmya Shankar. B**
INTRODUCTION

The tension described above is not peculiar to retailing. The recent studies into
productivity and performance made it clear that “the performance debate in the major
cities has fragmented into disciplinary and lobbying silos”. It was observed that the
narrowness of the technical debate on performance and noted that “any study that is
going to make a contribution that addresses, wider economic issues have to take a
broader approach to performance.” It is well know that retailing contributes to Mysore
economy, society and environment in many ways.

There is constant tension between the exact model of efficiency and what is actually
attractive to the customer. High performance is necessary, but not sufficient condition for
high efficiency, as individual productive factors may not be combined in an optimal
manner. Similarly, high efficiency is necessary but not sufficient condition for high
effectiveness, as the efficient combination may be directed to less than optimal goals.

Historically, retailers were regarded as mere ciphers in the distribution channel, working
as intermediaries just to enable the flow of goods and services between suppliers and
consumers. In general, retailers does two things: (a) provide readily identifiable locations
where final consumers enter into the transactions by which they acquire goods and
services; and (b) facilitate and encourage such transactions by providing variable support
services, including displays, stocks, cash and credit facilities. Then it became clearer that
in practice, retailers were able to become much more active agents in their own right
within the value chain than had perhaps been realized.

With this background, present research paper aims to answers the following research
questions;
RQ1: How efficiently the labour, space and capital are performing in retail
industry?

RQ2: What are the indicators that are use to evaluate the performance of retail
sector?

Based on the above research question following objectives were articulated,

• To analyze the labour efficiency in retailing.
• To find per space efficiency in retailing.
• To estimate the capital efficiency in retailing.

To analyze the efficiency of retail industries, this study combines a critical assessment of
existing ‘top-down’ studies of performance, with an assessment of the utility of key
productivity and performance indicators employed. The data were gathered to structured
questionnaires. This is undertaken by a mixture of interviews with retailers (industry
participants) in Mysore city. That includes the leading retailers and retail analysts in
Mysore. Alongside a specially created database of the performance of over 100 retail
companies, representing both a wide spectrum of multiple retailing.

BACKGROUND OF THE STUDY

Retailers are of-course entitled to a view on the relevance of performance as seen by

economists. The reason behind this is that the aggregated view of performance as
espoused by economic theory does help retailers to gain practical insights into their own
efficiency. In there opinion, performance research is, so mired in theory that it has lost the
assessing the performance. Retailers’ prefer, instead, of managing the productivity of the
various elements of business like, labour and space in particular – via cost controls,
which then allows for further aggregation of the relevant information into financial
performance metrics.

It was argued that the care needed at the aggregate level in interpreting the data available
also applies to care at the level of the individual firm. 5 per cent of retailers, almost
without exception, define high performance as achievement of integrated targets in the
following areas: sales, product range, service levels, availability, customer satisfaction
(price-value-service-convenience components), employee contribution (often measured
in terms of labour turnover) and operating and financial performance.

Further, financial performance metrics are communicated to the various stakeholder

groups and serve as the foundation for assessment of the retailers’ success. It is important
to realise that the retailers are very operationally focussed in their measurement of retail
performance.

The third element is information technology – using the efficient systems, in stores in
particular transaction processing and so on. This statement suggests productivity is about
the skills of the labour force, use of technology and how this two are combined.
Economists, has suggested a multitude of Key Performance Indicators (KPIs) which can
be used to analyze the performance of retail sector. Those related to efficiency can be
broadly summarized in the areas of labour, space and capital.

Labour key performance indicators includes; Labour cost budgets (weekly/monthly) for
each store, Overall labour costs (including as percentage of sales), Sales/profit per
employee, Sales/profit per hour worked, Gross margin return on labour (GMOL), Units
sold per hour worked, Till throughput (Items per hour going through the checkout till),
Efficiency ratio (the ratio of hours required to run the store efficiently, According to the
model, to the actual hours used), Staff turnover, and Various customer satisfaction
measures.

Among space key performance indicators includes; Sales/profit density (sometimes in

units per square foot), Stock availability (closely relates to and determines space
productivity), Ratio of selling vs. non-selling space, Linear density (in an experimental
stage for many), Trading intensity, or balance of customer traffic, and physical limitations
of stores, Sometimes, no measures of space efficiency are used. Instead, the emphasis is
put on reaching the optimal configuration of the selling space among the categories.

In capital key performance indicators, ROCE and its variations, Economic profit or EVA,
Payback period, DCF-based (Discounted Cash Flow) metrics, Cost of maintaining the
capital base (store base), Depreciation as percentage of sales. Many scholars has argued
that these 21 commonly-employed KPIs that are identified as being used by retailers are
suitable for exhaustive measures for studying retail performance, it is certainly believe
that they capture important aspects of performance from the viewpoint of the agents
responsible for bottom-up productivity improvements.

FINDING AND DISCUSSION OF THE STUDY

To find the labour key performance index following analysis were done first the Labour
cost budget; labour cost budget allocated by the various retail stores are highlighted in the
table - 1. From the table it was inferred that, of 100 samples collected, the total labour
costs that are allocated approximately Rs. 4,17,5 per head. Hyper market along contribute
Rs. 8,000 per head towards the labour costs in the retail industries. Following hyper
market, supper market contributes Rs, 6,000 per head and departmental stores with 1,500
per head and finally in Specialty stores it is allocates to Rs. 1,200. The total labour cost
can be divided in to two types one is direct cost and other indirect costs. The table reveals
the breakup labour costs, of which major position of the labour cost is going to director
costs like salary according to study hyper market spend Rs. 1, 25, 000 as average salary
for the labour in a month where as in super market it was Rs. 80,000 followed by Rs.
27,500 and Rs. 22,000 in departmental stores and in specialty stores respectively. But it
also found that in all retail market some wage will be paid for days not worked.
Labour cost for full time employee in retail store for a month of Mysore Retail
Stores
Total Hyper Supper Department Specialty
Particulars
(N=100) Market Market Stores stores
No. of full – time
employees covered by 100 25 25 25 25
the survey
4,17,50
Total labour costs 2,00,000 1,50,000 37,500 30,000
0
Direct costs 254500 1,25,000 80,000 27,500 22,000
Of which:
Payment for days not
2000 1000 750 650 650
worked
Indirect costs 160,000 73,000 68,500 9,000 7,000
Of which:
Salaries in kind 1000 1000 750 350 350
Employers’ social
0 0 0 0 0
contributions
Source: Survey conducted during 2007
Unit labor cost
The unit labor cost is nothing but the cost of labor input required to produce one unit of
output. Unit labor costs for each industry are computed based on dividing an index of
industry labor compensation by the index of industry output. Compensation is a measure
of the cost to the employer of securing the services of labor. It is defined as payroll plus
supplemental payments. Payroll includes salaries, wages, commissions, dismissal pay,
bonuses, vacation and sick leave pay, and compensation in kind. Supplemental payments
are divided into legally required expenditures and payments for voluntary programs. The
legally required expenditures include employers’ contributions to social security,
unemployment insurance taxes, and workers’ compensation. Payments for voluntary
programs include all programs not specifically required by legislation, such as the
employer portion of private health insurance and pension plans.

The unit labour computed for Mysore retails store are tabulated as follows,
Annual per cent of output per hour and related series, 2006-07
Percent output per hour
2007 employee
Retail stores Output per
N=100 Output Hours
hour
Hyper market 25 2.0 4.3 2.3
Super market 25 6.0 6.3 0.3
Department stores 25 1.3 2.9 1.6
Specialty stores 25 -0.3 -0.1 0.1
Total 100 2.25 3.35 1.07
Source: Computed on the bases of output per hour and primary data
Above table reveals the output per hour of a labour. From the table it can infer that the
output per hour in hyper market is only 2.0 per cent while in super market it is 6.0 per
cent where as for department stores it is only 1.3 per cent. In case of specialty stores the
output per hour was -0.3 as in specialty stores the in flow is very limited. Similarly the
output of the super market stand high as it was 6.3 compared to hyper market it only 4.3
and on the other hand the output in department stores and specialty stores it is low of 2.9
and -0.1 this show that both the departmental stores its output is low compared to super
market and in case of specialty stores it was negative. That mean the super market is has
high output per hour compared to other stores inferring the efficiency of supper market is
more.
Annual percent of compensation, output, and unit labor costs, for the year 2007
Annual Percent of total
2007 employee
Retail stores compensation
N=100
Compensation Output Costs
Hyper market 25 4.8 0.4 3.7
Super market 25 0.2 1.4 -1.2
Department stores 25 3.8 1.3 2.5
Specialty stores 25 -4.0 7.6 -10.8
Total 100 1.2 2.6 -1.45
Source: Computed on the bases of output per hour and primary data
From the above table it can be observed that the percentage of total compensation, output
and labour costs, hyper market offer high compensation with 4.8 per cent and the out put
of 0.4 per cent and the labour costs was found to be about 3.7 per cent. Whereas, in case
of super market the compensation was only 0.2 per cent which was below departmental
stores with 3.8 per cent. Specialty stores with low compensation of -4.0 per cent.
Similarly, output of super market has 1.4 per cent and the departmental stores with 1.3
per cent and 7.6 per cent in specialty stores. But in case of labour costs in hyper market
was found to be highest with 3.7 per cent followed by departmental stores 2.5 per cent
and the lowest was found in specialty stores. In general in retail stores the unit labour cost
is -1.45 per cent, compensation is 1.2 per cent and the out is 2.6 per cent.
Sales/profit per employee
When factoring sales per employee, retailers need to take into consideration whether the
store has full time or part time workers. Convert the hours worked by part-time
employees during the period to an equivalent number of full-time workers. This form of
measuring is an excellent tool in determining the amount of sales a business needs to
bring in when increasing staffing levels.
These are just a few of the ways to measure a retail store's performance. As retailers track
these numbers month after month and year after year, it becomes easier to understand
where the sales are generated, by which employees and how the store's merchandising
can maximize sales growth.
Show the sales per employee
Average Sales per employee per day
No. of
Retail stores Total sales per Sales per
employees
day employee
per store
Hyper market 800000 25 0.4
Super market 600000 14 0.5
Department stores 400000 7 0.7
Specialty stores 200000 3 0.8
Source: computed based on the retail survey conducted for the year 2007

The average sales per employee show that in hyper market the sales per employee is high
with 0.4 where as in case of super market it is 0.4 and in case of department stores it is
0.7 finally in case of specialty stores it is only 0.8. This means that per employee sales
when we compute with the sales per square foot the average sales of the employee shows
0.4 in hyper market the average employee, 0.5 in case of super market, 0.7 in
departmental stores and in specialty stores it was estimated to 0.8. From this it can be
inferred that the sales per employee ranges from 0.4 to 0.8.

Sales/profit per hour

The average sales per hour show that in hyper market the sale per sq feet per hour is high
with 0.5 where as in case of super market it is 0.3. While, in department stores and

Show the sales per hour

 Average Sales per employee per week
Retail stores Total sales Sales per Average sales
per day hour per hour
Hyper market 800000 50,000 0.5
Super market 600000 35,000 0.3
Department stores 400000 16,000 0.1
Specialty stores 200000 6,500 0.1
Source: computed based on the retail survey conducted for the year 2007

specialty stores it was 0.1 respectively. Implying per hour sales when we compute with
the sales per square foot the average sales per hour shows that in hyper market the
average sales per hour is Rs. 50,000 and the estimated sales per week is about Rs. 8,
00,000. Similarly, in super market it was about Rs. 6, 00,000, Rs. 4, 00,000 in case of
departmental stores and Rs. 2, 00,000 in specialty stores. From this it can be inferred that
in the sales per hour ranges from 0.1 to 0.5 in Mysore city.

Gross margin return on labour

Gross margin return on labour is obtained by subtracting the cost of goods sold from the
total operating revenues. The ratio is expressed as a percentage of the total operating
revenues.
Percentage of gross margin return per labour

Particulars Hyper Supper Department Specialty

Market Market Stores stores
Total net sales 100.0 100.0
100.0% 100.0%
% %
Cost of goods sold 72.3% 84..5% 86.5% 90.8%
Gross margin 27.7% 15.5% 13.3% 9.2%
Source: computed based on the retail survey conducted for the year 2007

The gross margin per labour is calculated on the base of data obtain from the survey and
the data reveals that in super market which has a high margin return per labour as it
shows that gross margin of 27.7 per cent were as in case of supper market it is 15.5 per
cent and incase of department stores it is 13.3 per cent and 9.2 per cent in case of
specialty stores. Thus, it can infer that in Mysore the gross margin return per labour is
high incase of hyper market as the target to be achieved by the hyper market is high and
the labour productivity is high thus it gross margin is high compared to other retail
market.
Units sold per hour worked
Percentage of unit sold per hour
Particulars Hyper Supper Department Specialty
Market Market Stores stores
Total sales (estimated) 100.0 100.0
100.0% 100.0%
% %
Unit sold per hour 60.8% 58.9% 61.7% 55.5%
Source: computed based on the retail survey conducted for the year 2007
The data reveals that department stores has high percentage of sales per hour is 61.7 per
cent, in hyper market the unit sold per hour is 60.8 per cent, in super market it is 58.9 per
cent and specialty stores 55.5 per cent of sales in a hour. Thus, the unit sold per hour is
high in department store where as in specialty stores it less.
Till throughput
Average outlet throughput by type of retail industry

Percentage of unit sold per hour

Hyper Supper Department Specialty
Market Market Stores stores
1.64 1.59 2.36 1.83
Source: computed based on the retail survey conducted
for the year 2007

‘Increased Customers’ Throughput (the whole time) is the number of customers

throughput at till lanes. It was found that there it as increased by more than 25% in all
retail shops, thereby increase in customer satisfaction and bottom-line profitability.
Throughput accounting allocate costs to products and services. It can be viewed as profit
maximization. The conceptually throughput seeks to increase the velocity at which
products move through an retail by eliminating bottlenecks within the retail stores. Hence
the throughput rate is given in the above table where the sales revenues is less the cost of
the raw material the throughput contributs and similarities to the concept of contribution
in marginal costing which is sales revenues less variable cost the units. The throughout is
deterimined for various retails stores are; 1.64 in Hyper market, 1.59 in super market 2.36
for departmental stores and in speciality stores it is 1.83 units.
Efficiency ratio
Efficiency ration in retail markets in Mysore City
Hyper Supper
Particulars Marke Marke Department Stores Specialty stores
t t
per capita Revenue 12,000 9,000 7,500 5,500
Per capita Expenes 3500 4300 2750 2000
Operating costs 11000 8500 6000 4000
Efficiency ratio 68.9 69.5 63.7 59.3
Source: computed based on the retail survey conducted for the year 2007

The efficiency ratio of a retail business is expenses as a percentage of revenue (expenses

/ revenue) with a few variations. A lower percentage is better since that means expenses
are low and earnings are big. It's the "reverse" operating leverage: revenue/expenses.
From the above table it can be infered that the efficiency ratio is low in case of specialty
stores as it is only 59.3 per cent and where as in hyper market the efficency ratio is high
with 68.9 per cent as the survey reveals that in hyper market the per capita revenue and
the expenses is high on the other hand in case of super market the efficiency ratio is 69.5
per cent and in department stores it 63.7 per cent. The sumary of the efficiency ratio in
specialty stores is low and hence it is better that means expenses are low and earning are
big. Where as in hyper market the expenses are high and earning is big and in case of
super and departmental stores it is once again the same situation where the expenses are
quit high and earning are big.
Staff turnover
The staff turnover of the retail stores in Mysore city is shown in the above table. The
highest was found in specialty stores with 33 per cent. While in other retail outlets like,
department stores it is 20 per cent, 14 per cent in case of super market and 12 per cent of
staff turnover in hyper market. Thus the staff turnover is low in Mysore retail business
this may be due to employee is strict on to one particular retail outlet.
Staff turnover in retail market of Mysore city
Hyper Super
Department Specialty
Particulars Marke Marke
Stores Stores
t t
Employee departures 3 2 1 1
Staff members employed 25 14 5 3
Staff turnover 12 14 20 33
Source: computed based on the retail survey conducted for the year 2007

Customer satisfaction
Product and services supplied by the retailer meet or surpass customer expectation. In a
competitive retail market where business competes for customers, customer satisfaction
is seen as a key differentiator and increasingly has become a key element of business
strategy.
Customer satisfaction on retail market in Mysore city
Hyper Super
Department Specialty
Particulars Marke Marke
Stores stores
t t
Quality of a product 95 98 88 100
Business relationship 97 89 75 75
Price-performance 93 92 89 65
Customer satisfaction
95 93 84 80
Index
Source: computed based on the retail survey conducted for the year 2007
Customer satisfaction is flat according to the survey conducted for the year 2007 for
Mysore retailers the customer satisfaction Index (CSI). The CSI aggregate score remains
88 for 2007. The of retail break up shows that the CSI for hyper market is 95, 93 for
super market, departmental stores is 84 and the specialty stores is 80. Thus, CSI predicts
future consumer spending in retail stores and portend little change in spending growth.
Higher level of buyer satisfaction suggests higher spending, but consumers’ inclination to
spending is always tempered by the availability of cash.

B) Space Key Performance Index’s

Sales/profit density:

Sales/profit density of retail market in Mysore city

Particulars Hyper Super Department Specialty
 Market Market Stores stores
Net selling area in Sq ft 3663 2406 200 15
Estimated Gross sales/ 237000 215000
126000 68400
month 0 0
Sales/profit density 647 893 630 456
Source: computed based on the retail survey conducted for the year 2007

The sales or profit density of retail markets are calculated by dividing net selling per
square feet into gross sales per month. The computed sales density shows; 647
sales/profit density in hyper market, 630 in department stores and specialty stores with
456. But the sale density in super market is high as it projects 893 sales/profit density.
Thus, it can be inferred that Mysore city, super market has a high profit density compared
to other stores. Means the prospect for super market with proper selling area is more
profitable compare to other stores in Mysore.
Stock availability (closely relates to and determines space productivity): The sales
per square foot data is most commonly used for planning inventory purchases. It can also
calculate return on investment and it is used to determine rent on a retail location. When
measuring sales per square foot, on should keep in mind that selling space does not
include the stock room or any area where products are not displayed.
Stock availability of retail market in Mysore city
Hyper Super
Department Specialty
Particulars Marke Marke
Stores stores
t t
MBQ 65% 60% 75% 45%
Return on investment 85% 84% 90% 60%
Sales per square foot 36630 24060 2000 150
Source: computed based on the retail survey conducted for the year 2007

The stock availability of retail market in Mysore city shows Department stores has high
percentage (75%) of Minimum Base Quantity (MBQ) as the products are sold in the
market are replace day by day this means the stock availability in the department stores is
quite high as the market is having good and tradition supply chain. Hyper market has
65% of MBQ, 60% of MBQ of super market. And low of 45% of MBQ in specialty
stores because of low merchandise of product as the sale is quite low and in small
quantity.

The return on investment also reveals that the 90% of returns for department stores as
these stores has high margin and the margin is obtain from small quality of sales. Where
as in case of specialty stores where the return to investment is 60% may be due to lack of
proper storage facilities. While in case of super and hyper market it was 84% and 85%
respectively.
The sale per square foot for hyper market is Rs. 36630; Rs. 24060 in super markets,
Rs. 2000 in department stores and in specialty stores it was Rs. 150. These variations was
due to the quantity sold at hyper, super market and department stores the sales per square
foot should be high but in these stores product sold is in small quantity.
Ratio of selling vs. non-selling space
The ratio of selling vs. non-selling space of retail market in Mysore city reveals that there
is high selling space in case of hyper market. As data reveals that the space meant for
selling of goods in hyper market and non-selling purpose like, chart center, put
advertisement, to establish showcase etc., is high. There is ample space for the partnering
company can utilized those space where there can earn extra profit by selling that space.
The data shows the ratio between selling and non-selling space is 2:8 for hyper market.
Ratio of selling and non selling space of retail market in Mysore city
Hyper Super Department Specialty
Particulars
Market Market Stores stores
Selling space in Per cent 20% 10% 2% 1%
Non selling space in per cent 80% 90% 98% 99%
Ratio 4 9 48 99
Source: computed based on the retail survey conducted for the year 2007

When we talk about percentage-wise super market has 10% and 90% of selling and non
selling space implying a ratio of 1:9. This again 90% of total area of the shopping space
is utilized by the shop itself and very few space is meant for the other purpose. On the
other hand department stores and specialty stores, the ratio is quite high with 1: 48 that
mean all most all space is occupied by the shop only and incase of specialty store it is
1: 99 mean no space is available for sales.

Linear density
The linear density of the retail store in Mysore city is given in the table. Retail facilities
are given side by side along the roads are high in hyper markets and super markets as
there is ample space to provide. The linear density in hyper and super markets is high
Linear density of retail market in Mysore city
Hyper Super Department Specialty
Particulars
Market Market Stores stores
Linear density Nil Medium High High
Retail = 0 Retail = 1 Retail = 1 Retail = 1
Value
Retail= 0 Retail= 0 Retail= 1 Retail= 1
Cases 1 15 19 30
Source: computed based on the retail survey conducted for the year 2007

On the other hand department stores which is having medium linear density implying
there is a mixture of retail and non retail land use as it is found in super markets. This
means there is a scope for other trading shops which can be opened along the side of the
shops. Where as the non – retail land use like parking lane, recreation space for children,
and some charting space with sit out space in fount of super market. Thus medium linear
density of retailing is nothing but the mixture of retail and non-retailing land use.

In hyper markets, where there is no retailing around it, means in most of the hyper market
or like malls where the structure is huge and the space for parking and most of the land is
utilized by the hyper market itself and the land use may be for parking of vehicles,
recreation and playground for children.

Trading intensity
The trading intensity of retail market in Mysore city reveals that hyper market has high
value of trading intensity per day as it is 14 units compared to retailers. Super market has
its trading intensity of 10, where as department stores and specialty stores has its trading
intensity of 1 and 0.1
Trading intensity of retail market in Mysore city
Hyper Super Department Specialty
Particulars
Market Market Stores stores
No. of customer per day 250 250 200 150
Total sells space 3663 2406 200 15
Trading intensity 14 10 1 0.1
Source: computed based on the retail survey conducted for the year 2007
Data reveals that trading intensity of hyper market is high as the total sells space is large
and the number of customer per day is also high (foot fall) that it has an average of 250
customer per day (week days excluding weekend) with a total sells space of 3663 this
give a trading intensity of 14. Where as for super market it is 250 customers per day with
a total selling space of 2406 and the trading intensity is computed to 10. In department
stores and specialty stores, the number of customer is 200 and 150 respectively. But the
sell space is too small and the trading intensity with respect to space is 1 and 0.1. Thus it
can be assumed that the scope for hyper market is high in Mysore city with super market
also has a quite high trading intensity.

ROCE (Return On Capital Employed)

ROCE for retail market in Mysore city
Hyper Super Department Specialty
Particulars
Market Market Stores stores
EBIT 160 120 97 65
Total asset –
8 9 8 6
current liabilities
ROCE 20 13 11 10
Source: computed based on the retail survey conducted for the year 2007
Ratio that indicates the efficiency and profitability of a company's capital investments,
ROCE should always be higher than the rate at which the company borrows; otherwise
any increase in borrowing will reduce shareholders' earnings.

A variation of this ratio is return on average capital employed (ROACE), which takes the
average of opening and closing capital employed for the time period. The above data
reveals that the ROCE for hyper market is 20 per cent were as for super market is 13 per
cent and for department stores is 11 per cent and in specialty stores is 10 per cent. Thus
the return on capital employed for the retail market in Mysore city reveals that the EBIT
that is Earning Before Interest and Tax which includes all profits from operations, before
interest and income taxes are deducted. It was estimated that the values for the total asset
and current liabilities of hyper market and the department stores are equal where as for
super market it is 9 and for specialty stores it is 6. The EBIT is calculated bases on the
operating revenue and operating expenses and Nonoperating income. From the table it
was found that it is 160 for hyper market; 120 for super market; 97 for department stores
and specialty stores it is 65.
Economic profit or EVA (Economic Value Added)
EVA is the monetary value of an entity at the end of a time period minus the monetary
value of that same entity at the beginning of that time period therefore EVA is a tool that
measures how much more valuable a retail has during a given period.
EVA for retail market in Mysore city
Hyper Super Department Specialty
Particulars
Market Market Stores stores
NOPAT 4,00,000 3,00,000 3,50,000 1,50,000
Capital X the
399750 299700 349740 149845
cost capital
EVA 250 300 260 155
Source: computed based on the retail survey conducted for the year 2007
Note: NOPAT = Operating Profit x (1 - Tax Rate)
The table shows the Economic value added values in retail market. From table it can be
inferred that the EVA for hyper market is 250 where as for super market it is 300,
department store it is 260 and specialty stores it is 155. That is the EVA has high in hyper
market as in hyper market the sales take place only on the value addition as the product
has to under go certain value addition hence, the value of NOPAT which can be
calculated by using Operating profit and tax rate. On the other hand the product of capital
and the cost capital can be easily calculated. As the above table shows that it is almost
equal to NOPAT with slight changes.

Finally the EVA for the retail stores in Mysore city is the good indicator and it can be
used to asses the performance of the retail industry in the study area.

Payback period (PP)

The payback period is perhaps the simplest method of looking at one or more investment
ideas. The payback period method focuses on recovering the cost of investments. The
payback period represents the amount of time that it takes for a capital to recover its
initial cost.
Payback period for retail market in Mysore city
Hyper Super Department Specialty
Particulars
Market Market Stores stores
Investment 10.2 Cr 6.5 Cr 0.6 Cr 0.3 Cr
Annual cash flow 2.5 Cr 1.6 Cr 0.2 Cr 0.05 Cr
Payback period
4 4 3 6
in years
Source: computed based on the retail survey conducted for the year 2007
Note: The figures that are considered are estimated figure. It was very difficult to
collect accurate investment data from the shop owner/company so it was
calculated on the bases of approximated investment figure it was quoted while
interviewing the shop/retailer for the year 2007.

From table it can be seen that in specialty stores the calculated payback period is quit
long of 6 years as its investment is low. Hence its annual cash flow is also low. While in
department stores the payback period is less as these shores will get their returns in a
 short period, because its investment is less and the cash flow is high. Hence the PP for
department stores is approximately 3 years. Hyper market and super market both market
has a PP of 4 years period.

DCF-based (Discounted Cash Flow) metrics

The Discounted cash flow (DCF) is an approach that describes the method to calculate
the value of a project or an entire company using the concept of the time value of money.
All future cash flows are estimated and discounted to give them a present value. The
discount rate used is generally the appropriate cost of capital, and incorporates judgments
of the uncertainty of the future cash flows.
Estimated DCF of retail Market in Mysore city (Values in crores)
Hyper Market Super Market Department stores Specialty stores
Discount Discount Discount Discount
to present to present to present to present
Particulars
Projected value @ Projected value @ Projected value @ Projected value @
20% over 20% 5 20% 5 20% 5
5 years years years years
Cash
10 4 8 3 6 1 -- --
flows
Residual
40 10 20 8 10 4 -- --
value
DCF 14 11 5
Source: computed based on the retail survey conducted for the year 2007
The estimated DCF for retail markets in Mysore city is show in the above table. It was
found to be difficult to estimate the accurate DCF for retail sector but it was assumed the
approximate value of cash flow and approximate residual value were use to calculate the
DCF. The DCF for specialty stores was not able to calculate as its cash flow is more
fluctuating. Hence, its DCF was not able to calculate. In hypermarket, super market and
department store were calculated using an estimated value of residual value. The analysis
found that hyper market has 14 crores of DCF, super market 11 crores and departmental
stores is 5 crores for the period of five year. Thus, the highest DCF lie in hyper market
compare to other three markets.

Summary:
Thus, the study assesses the performance of the Mysore retail sector. Since the study
arises from various angles of the comparative performance of the retailing in relation to
retailing in other markets. A discussion on “retail productivity” was the real tension that
exists between economic approaches to the measurement of productivity within the retail
sector. The potentially problematic, efficiency and effectiveness of these retail firms was
to assess. Thus, this paper reflects the complex and ambiguous problems that are raised
during the study.

This study on performance makes clear that, some of the retailers like departmental stores
in developing economy has contributed a noticeable share both in terms of providing
employment and service to the consumers. It was observed the narrowness of the
technical debate on performance and noted that any study that is going to make a
contribution that addresses, wider economic issues have to take a broader approach to
performance.
Historically, retailers were regarded as mere ciphers in the distribution channel, working
as intermediaries just to enable the flow of goods and services between suppliers and
consumers. Very little value was added, save perhaps through additional convenience to
the end consumer. Finally from the above indicators, the study reveals that supper
market’s performance is quite good as its over-all performance is found to be efficient
when compare to other retail out lets. Though departmental stores which is traditional
because of its services it can not compete with modern market. Specialty stores and hyper
market which is performance is low as these stores are not so popularized.
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