Managing A Branch Of A Retail Store Chain In A 3rd World Country

Contents

Introduction
Current practices by most supermarket businesses in the third world.
CASE STUDY:-Nigeria in the 1980s.
Practices foreign based parent companies of retail outlets must employ to remain profitable.
Essential requirements for businesses retailing across political and economic zones.
Conclusion

Introduction

Retailing is a very important segment of any economy. In the many countries, a large proportion is carried out in malls which accommodate retail outlet chains such as department and hardware stores, supermarkets, etc.

Smaller neighborhood stores also bring the retail activities closer to the consumers.
Open space markets are also patronized by many in search of bargains where surplus items from the bigger chains are usually available.

Evidently, a large portion of the manufactured goods in the more advanced economies reach the consumers through the activities of these department store chains,
while a growing proportion is being offered online.

In most third world countries however, the proportion of goods reaching the consumers through this store chain medium is still very small, catering only for only a few of the urban dwellers.
Most items reach the consumers through markets constructed in many towns and cities.

In many rural areas, these are organized in open spaces at specific days of the week, or at regular intervals.
Items on display, include farm produces, in addition to the few manufactured items usually available in a third world economy.

Street and roadside traders and hawkers complement the retail industry in the bigger cities.
The few department stores and supermarkets available however, stock, in addition to the locally manufactured items, various other goods imported from many other countries. The result is a range of items limited to the manufacturing activity of the country and capacity to import in economic quantities.

This is not to say that there had not been efforts to integrate foreign department store chains into third world economies.
Before Nigeria's independence and for several years after, for example, department stores have thrived, taking advantage of a central supply chain usually based in their countries of origin, and the inherent economics of scale to stock the third world subsidiary at very competitive prices.

After independence, protectionist policies, exchange controls and subsequent exchange rate shocks, reduced their operating capacities, which eventually led to their exit.
The imposing buildings and malls which once accommodated them were later sold and converted to offices.

Retailing has since continued at a different scale and mode. Some individuals, former employees and local corporate bodies have operated in their own way, mainly supermarkets, small stores and shops as a result of limited capital, with some degree of success.

The objective of this topic therefore, is to discuss the possibilities and strategies required to operate this important segment of any economy profitably, particularly in the third world countries, and to exploit the profit potentials of an emerging economy.

It cannot be over emphasized that any business without a foothold in emerging markets may not expect spectacular growth, except for new products.

Current practices by most supermarket businesses in the third world.

A third world supermarket for example obtains supplies by four broad means:

1. Goods manufactured locally within the economic borders of the country.
In this instance, the supermarkets retail the same items as those in the many open markets whose overhead is just the rental of the market stalls whose prices consequently undercut those of the supermarkets.

To differentiate the retail outlet, the supermarket must offer some other goods, such as:

1. Goods supplied by traders or wholesalers in the import business.
   A number of wholesalers import a range of goods to sell to retailers. The minimum orders demanded by the foreign based manufacturers for such sole distributors or agents is substantial, and as a consequence the range of goods imported is restricted to the capital available.


2. Goods purchased for the supermarket during one of the proprietors' (usually female) many trips abroad, to coincide with seasonal clearance sales, or from markets.
   This is a major source of goods for most boutiques and shops in the third world.


3. Goods supplied by casual importers who spot an opportunity during a foreign trip.
   Retailers usually display them on a sale or return arrangement thereby reducing risks and working capital outlay.

In all these cases, the retailer does not have any direct contact with the manufacturers, and as such, cannot be part of the immediate supply chain management. Retailers rely on educated guesses or gut feelings to estimate the type and quantity of goods to retail, which may be subject to sentiments.

Managing the supply chain in such environment therefore presents some peculiar challenges as the manufacturers (and others in the supply chain), too, do not get any direct feed back capable of influencing their production, or sales destination from these set of retailers.

Production is often planned from the expectation of fulfillment of minimum orders or quotas from sole regional agents or distributors who discount slow moving items whenever the retention of such threatens their ability to fulfill these minimum orders, thereby depressing prices.

Some Governments subsidize some products to achieve some objectives. For example, a Government may subsidize energy saving bulbs with the expectation that continued use may reduce energy consumption.
A real life example is that of a casual importer, who finds a packet of ten such bulbs on the shelf retailed for one pound sterling takes them home for retailing at the equivalent of about six pounds for the packet, making a gross profit of up to 500% before transportation costs.

These activities give rise to a gray market, whereby consumers from another region, covered by another sole distributor or agent, take advantage of the depressed prices from another region.

Another good example of this is the telephone handset market, where a manufacturer appoints agents in countries such as Spain and the United Kingdom and then, only one to cover Africa and the Middle East.
Nigeria, a country in Africa, alone has 60 million active mobile phone users as at September 2009, whereas, United Kingdom's total population in year 2008 was 61 million.

Clearly, a handset manufacturer with this type of franchise spread is out of touch with the realities of the market.
Demand from Nigeria will inevitably create a gray market for discounted models from, for example, United Kingdom.

The Africa/Middle east agent will, therefore find it difficult to sell the models in its domain. It is not unusual for department store chains to have sections on hardware or departments which retail telecoms products.

CASE STUDY:-Nigeria in the 1980s.

In the early part of 1980s, the Nigerian naira exchanged for US$0.65 ($1.34 for one naira). Then, it was boom time, and practically anything imported into the country sold like hot cake. As the decade progressed, the country's foreign reserves was under a lot of pressure as the level of imports could no longer be stustained. An import license was introduced as a requirement for virtually all imports.

The size of the list of firms approved for import licenses steadily reduced and the parallel market blossomed. By mid 1980, the Nigerian Government approached the International Monetary Fund (IMF) for assistance, who demanded for some reforms, the most notable was a devaluation of the Nigerian naira.

The debate went on nationally for a while, (as if the then Government had an option) until the third quarter of 1986, when foreign currencies were freely auctioned in what was referred to as the “Second Tier Foreign Exchange Market” (SFEM), which eventually became the Foreign Exchange Market (FEM).
The naira (Nigerian Currency) exchanged for about US$0.27, a devaluation of about 80%.

Nigerian retailers tried to adjust the goods in their stock to reflect, as much as possible, the new value of the local currency. While some were eventually sold at the new prices, some remained on the shelf for a very long time.
In all these cases, the retailers incurred losses as some goods have already been sold at the old prices.

These retailers (and those in the supply chain) however had a sufficiently long warning of the impending devaluation.
Their readiness and the preparations made for this determined the extent of their losses.

Practices foreign based parent companies of retail outlets must employ to remain profitable.

The objective of a successful management of remote retailing outfit should be to ensure profitability through the following methods:-

1. Economics of scale through a large purchase of goods.
   Goods ordered for the various branches may be quite large, giving the retailer an advantage during negotiation. Large discounts can be negotiated, which in effect, gives some latitude in pricing.
   Many store chains even order some goods under their own brand name. They must however be able to manage the supply chain of such goods effectively, as an error may be very costly.


2. Economics of scale through management overhead.
   Management may centralize gathering of data. This can be done remotely. Auditing routines should include verification of these data which can then be processed through data mining tools.
   This should reveal opportunities and customer behavior which may be of value to management. A centralized shipping and logistics system should save shipping costs per unit of stock item.


3. Increased revenues through sales.
   The more the number of branches worldwide, the more the sales outlets, and the greater the volume of sales.

These in turn can be achieved through the following methods:-

1. Flexible decision making process for the remote outlet.
   Management must be able to act promptly and decisively when a pattern is observed in any branch. The implications, if any, must be studied in relationship to the other branches.


2. A clear and unambiguous reporting system
   This implies that orders can be placed, or canceled promptly if the need arises, without hurting suppliers, once the system reveals a pattern associated with the need to make such decision.


3. Reduction of inventory costs through an efficient management of the supply chain logistics.

Just as a decision is made to move out slow moving products especially those with a shelf life by slashing prices, (sales), opportunities for very fast moving items must be explored.

It is not unusual for competitors to envisage a price increase, as a result of exchange rate, commodity price shocks, or any other factor that may lead to speculative or panic buying.
They then buy up of existing stock for resale.
When this is observed in stock movements, the management may either raise prices, or repackage the items as part of a conditional sale bundle, aimed at moving slower moving stock.

Trends or patterns might be observed in a foreign branch which may eventually predict the sales pattern of another branch, or even prices.
The benefits derived from a prompt action after such observation may result in more profits for the group.
This may inform the type of goods to be displayed in anticipation of a vacation or holiday period, or an event, where customers from another location may be expected.

Store chains usually shift goods between branches to overcome inertia in sales.

Another issue may be a conflict with an entrenched local importer. A store chain may consign certain goods to a branch which is located in a region covered by a sole distributor for the same goods for which the chain has a franchise.
Head office management must sort this out with the manufacturers.

Essential requirements for businesses retailing across political and economic zones.

1. They must have a foreign exchange shock strategy in place.
   They must be ready to purchase promising local goods which in turn can be marketed in the foreign home branch. Foreign exchange variations therefore should not work in only one direction.


2. They must be ready to take advantage of free trade zones and concessions within economic communities.
   A sudden exchange rate movement between two trading partners may not affect a third, in terms of severity. Retailers must therefore be able to decide whether to pass on the full effect of the foreign exchange shock to customers and risk stagnating sales, or to shift the goods to another branch located in another currency regime.


3. There should also be a buffer foreign exchange reserve to cushion the effect of sharp and sudden shocks.
   This reserve is kept so that profits considered high, made when the currency of a location is strong enough to encourage imports, is credited here while charges, which may be necessary when exchange rate shocks affect the products already in stock, are passed on to the account.
   Management should identify local goods or businesses that can serve as a safe haven from the immediate effects of the exchange rate shocks.

Conclusion:

Supermarket and Department Store chains should explore the possibilities of returning or setting up branches in the third world to in pursuit of spectacular growth. The chain can even be an agent of environmentally friendly policies by ensuring compliance by the producer.
The population distribution is witnessing an unprecedented rural urban migration with a dire shortage of modern retail outlets and department store chains. This should present great opportunities for its owners and managers.

A parallel can be drawn between the telecoms industry in Nigeria and a possible re introduction of the department store chains.
Before the auctioning of the licenses in 2001, there was a heavily subsidized Government owned NITEL and a few private operators, who rarely operated outside of Lagos. During the auction for the licenses, many industry giants stayed away, with very little optimism for the emerging industry.

Not only has it provided a big market for telecoms equipment and products, it is estimated that the industry is the third largest contributor to Nigeria's Gross Domestic Product (GDP).

Nigeria's department store industry today is similarly underdeveloped, awaiting opportunities.