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Retail Finance

What is retail?

Retail is the industry involved in selling goods and services to consumers in order to generate profits. Those involved in retail are involved in a supply chain whereby they can meet the demands of their consumers. There are many different financial considerations to take into account when working in or running a retail business.

What are some of the different types of retail ownership?

1) Independent Retailer: This type of retailer owns their business personally, and has built and grown the business themselves from the start. This may involve hiring staff and consultants, however, the main responsibility for business creation and development lies with the owner(s).

2) Franchise: A franchise is a retail business that has bought the right to operate under the name and brand of another retail business. The franchise will follow the business model of the company they have associated with and represent, in a general sense, the parent company's values.

3) Dealership: A dealership combines elements of a franchise and an independent retailer. They sell products of the parent company, having the right to do so. It is also probable that the dealership sells products of other companies. The most common type of dealership is a car or lorry dealership.

4) Network Marketing: This type of retail business, also known as multi-level marketing, relies on selling products with people in the network. There is no need to have a specific location for network marketing retailers.

5) Member Network: A member network is a retail business that is connected to a larger retail brand, and has special purchasing power with this brand. Although affiliated, there are few constraints that are imposed upon a member network by the larger company.

What are the important types of financial model used in the retail industry?

There are a wealth of financial models that are used by those in the retail industry. These help to forecast and plan the future financials that retailers are likely to come across, some of which include:

-Discounted Cash Flow (DCF): This financial model is used by retailers to understand the value of a future project / investment. This allows the retail business to weigh up new strategies and enter new markets.

-Comparable Comps Analysis: This helps to value your own retail business, by comparing its metrics with similar companies in the industry.

-Profit and Loss Statement (P&L): This is useful for those within the retail industry as they can see their incomings and outgoings for a particular period. This is used to detail where expenditures were made, and how they were converted into revenue. It then records how this revenue translates into net profit. P&L statements are particularly important for owners and potential investors, when evaluating the retail business in question.

If you would like to find out more about the retail industry, and its relationship with finance, please use the links provided here:

Find out what the top types of retail ownership are

Learn about financial models in relation to the retail sector

Definition and explanation of Discounted Cash Flow (DCF)

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