All Day I Dream About Sports

The Retail Models

Read this article in the economic times.

It talks about how the top executive of Adidas made a bad management decision, being fuelled by ambitions, which lead to the sudden expansion of the outlets with lesser margins and finally loss making units. Under the given circumstances, these are the strategy that should have been taken:

  1. Roll Out Method – It is a safe bet to roll out a few outlets in a group, assess their profit margins, and then further roll outs should have been made

Figure 1: About closing the outlets

This schema tells us about the modus operandi of closing the outlets.

Let us assume that Tier I is expected to make a huge profit margin, while a Tier II outlet makes is expected to make a moderate profit margin. The Profit Margins in reality gives the actual loss and profit.

Clearly then, the first quadrant outlet and the third quadrant outlet stays with the company.

But, Quadrant four outlets are shut down, while Quadrant two outlets are kept under observation, till the next quarter.

  1. The model should run on more dependency in a franchise rather than the partnership model for the company. There are basically three models that work out in general. Minimum guarantee model or MG, Buy-and-Sell Model, and the Hybrid Model. Generally, the MG model works out in the starting phase which generally rolls out to the next two models.

Figure 2: MG Model

(Courtesy: Economic Times)

This is the MG Model. As shown the store profit or loss is borne by the company.

However, at this stage, Buy-and-Sell Model or the Hybrid Model or the new model works out fine.

Figure: How Buy-and-Sell Model works

(Courtesy: Economic Times)

  1. Currently the new model works out fine. It is implied here:

Figure 4 : Incentive based Model

This model is incentive based store margins. Instead of considering to shut down an outlet suddenly. For greater sales, the margins are also high. This will act as an incentive for the franchises, as well as help in selecting franchises that needs to be disconnected from the company.

  1. Instead of gross margins taken during the franchise, SKU based margins can be taken, which implies that the best-selling item will have the highest store margin.

Figure 5: SKU based incentive

These are the models that Adidas can apply.

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