Profit Warning and Competition

04 January 2008 |


Definition : An announcement made by a public company in advance of its earnings announcement indicating that profits will fall short of previously expected levels.

A recent news item

The owner of Currys and PC World, UK , DSG International, has issued a profit warning after poor Christmas trading. DSG said it had seen lower demand for laptops, and profit margins had been hit after it cut prices to drive sales of flat panel televisions and other electrical goods.

"Profit margins remain pressured via a combination of increased promotional activity and consumers' growing addiction to sale prices." Read more

In Christmas, when you look around in UK, you will find stores offering discount like upto 50%, buy one get one free, buy one get one half price and special prices only for two days. The online prices are comparatively cheaper than the in-store price.



Christmas Sales

The rules are changing and ever evolving:
  • Sales prices drives the shoppers to buy
  • Latest technology products are priced at premium
  • Products become obselete faster. So cannot stay on the shelf longer
  • Sourcing and manufacturing : Made in China/India/Vietnam/Thailand/Bangladesh to manufacture at cheapest possible costs.
  • Focus on online sales that bring down costs of sales
  • Investments in IT infrastructure
  • Government investments on infrastructure conducive to the business.
The role of management accountants has changed with the change in business. Helping and advising the business by analysis in one of the objective. The best possible product mix or products giving maximum contribution etc. UK has a mature market and the retailers have a robust information system with enchanced focus on management accounting.

India is a developing market. Since the market is not competitive, the benefits are not passed on to the customers. Since the choices are limited, you buy what you get. The mindset so far has been to shops with mom and pop store who make profits themselves and cheats on taxes.

The limited competition or seller applies to white goods. Take for eg. Eureka Forbes Vacuum Cleaner is Rs 7,390 (£ 95.00) whereas a Electrolux vacuum cleaner is £ 49.99 in UK. The best ones are priced at over £ 100. Consumers can visit websites like www.pricerunner.co.uk or Kelkoo and find out which retailer is selling at the lowest possible price.

Current trend for organised retailing is a good indicator of growth. People have the impression that it will drive the prices high. With a healthy competition, the prices will be contained. The price of Van Heusen shirt is same at Shopper Stop and a small retail outlet. Look who is making more profit. The consumer gets a good retail experience in Shopper Stop and government gets its share of taxes.

In India, management accountants have to widen their scope from being focussed on "Cost Audit" to playing an active role in upcoming industries and helping the business. As the market becomes mature, you will find in India, companies are going to issue "profit warning".

Any questions or comments, I am happy to answer on the blog

Regards,

Santosh Puthran

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PS: There is a remark in one of my post on "India's Retail Policy Attacked" - Share your thoughts

"You are looking forward only for few years, less than 5 years. Here by looking up to 25 - 30 years the impact will be highly dangerous. I will point out :-

1. The selling price will be competitive at the earlier stage this is to attract the consumers to the store. they will even give 25 -30 % discounts on all products. surely they will attain their major goal. after attaining the organizational goal, the real game started, ie. by the factor of time, all other retail organisation may be packed up or may be under pressure, this time the dragon arrives and hike their prices as per the management policies!! it may be 50% may be 60% , This time consumers will be in hands of ultimate dragon, couldnt able to purchase even primary articles. For a comment some will say what Govt for?, still no fixed polices are there in India, to regulate the prices.

This time the fixed income & agricultural sector people will be under pressure. rest u can decide!! "

You may also like to read

  1. India's retail policy attacked
  2. Organic Growth - Yes or No
  3. Organised Retailing - Manu's Blog

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