Perspectives of Unique Retail Store - Assignment Example

Unique Retail Store Introduction Retail business is growing across the Middle East. Thanks to the growing population and people’s ever increasing knowledge and understanding about the use and importance of retail shopping. More specifically, Qatar population is increasing as the recent population statistics indicates that the country is experiencing phenomenal growth rate over these years; at the end of September 2014, Qatar’s population crossed the mark of 2,187,326 and this is first time in the history of the country (Walker, 2014). Additionally, recent population estimate forecasts that the country will continue the similar growth rate and trend in the current year by maintaining 15 per cent annual growth (Khatri, 2013). Graph 01: GNI per capita of Qatar Source: (World Bank, 2015). Increase in population has various positive effects on the businesses as well. This rise directly affects demand and supply of various goods and services including food and clothing as they are very basic in nature and required by everyone. In this regard, it is important to mention that the purchasing power of ordinary Qataris is considerably strong and sound as well; the recent estimates reflect that per capita income of ordinary Qatari is $88,000 in 2010 and this country has been identified as among the world’s richest countries (Greenfield, 2012; World Bank, 2015). Based on these fundamental economic indicators, it can be easily deduced that Qatar is ideal country for the purpose of investment as the country has all those basic economic and infrastructural factors that are highly needed for every investor. More clearly, the country has ideal business climate where stable currency exchange rate, low or no crime rate and investment friendly policies of the government, above all the absence of terror threats are some of those indicators that catch the eye of every investors. Keeping these healthy and attractive factors in mind, it is highly reasonable to open small scale retail shop in the country with the following basic accounting and budgetary allocations and estimations. “UNIQUE” Retail Store Unique will be name given to this new retail store as this retail store will be located at the centre of Doha city. This location has been chosen for various reasons. First, this city is commercial hub of the country where trade and other commercial activities are carried out; additionally, Doha is highly populated area in the entire country. At the same time, the city is undergoing a faster pace of urbanization which further attracts investment and migrants from under developed areas of the country (Kovessy, 2014). And the government’s current investment policies are to attract more expatriate and foreigners for investing in the country (Cadene and Dumortier, 2013). In other words, the growing population offers provides an opportunity for new retail stores as the demand for both clothing and food items will be largely required and will be fastly growing as well. Keeping these facts in mind, the entrepreneur has decided to primarily focus on investing in two important areas of retail business (clothing and fast food items). Clothing is a basic human need. Doha is a city inhibiting the highest number of people living in the whole country. Since this city is highly populated and the birth rate is constantly increasing over the past many years, it will be highly reasonable and productive to invest in the clothing segment of the retail business; this preference is mainly supported by the nature of clothing which signifies that the demand for clothing including fashion design items for both man and woman is constantly growing. Moreover, Doha has become a modern and moderate city where inclination towards sober and decent clothing is already high. Keeping this view in mind, a variety of clothing items for man, woman and children with different stylish design and look will be offered and provided to the local population of this city. Initially, investment of 100,000 QR will be made on the purchase of clothing from different international brand manufacturers. The entrepreneur will make direct contact with the clothing manufacturers and will place direct purchase orders to manufacturers. In this regard, it is important to highlight that before going to make final purchase orders, price quotations will be obtained from the international clothing firms. Subsequently, price quotations from different manufacturers will be highly useful as it will enable the entrepreneur to consider all those factors that provide less expensive and economical purchases. Through comparing the price quotations along with other factors, such as transportation cost, transit insurance, will also be compared between the suppliers. In this regard, it is important to mention that trading policies of clothing manufacturers will also be taken into account. At the same time, independent feedback from the existing clients of the international clothing manufacturers will also be collected. This feedback will be highly significant as it will highlight the business dealings and terms and conditions that exist between purchaser and seller of clothing manufacturers will be of crucial importance. Food quality will not be compromised under any condition. Along with offering clothes, the entrepreneur will also invest 200,000 QR in food items as well. Bakery items, a variety of biscuits and snacks and different soft drinks will also be provided to customers. Before going to decide whether prepare bakery items in-house or it should be outsourced, relevant information from different sources will be collected. For collecting this information, the entrepreneur will personally visit to three small stores having in-house bakery cooking areas and three stores receiving bakery items from the outsourced suppliers will be made. While visiting and collecting the relevant information, the entrepreneur will be keen to obtain information pertaining to cost of running in-house bakery and its cost and benefit analysis in which human resource factor, quality factor, storage and heating factor will also be taken into account. Consequently, if the cost of installing and maintaining the in-house bakery is higher than the cost of outsourcing, the entrepreneur will prefer to outsource the bakery items. Thereby, this would be a key assumption which will decide the subsequent course of action. Human resource is an important pillar for retail business. In order to smoothly start and run the retail business, the entrepreneur has decided to hire two employees. Both will work and coordinate with the entrepreneur throughout the day operations. In the initial six month phase, the entrepreneur will assess the performance of retail business. And it is assumed that the business will perform better by generating the expected level of sales on daily basis. Additionally, for serving the customers, two employees will be required to provide assistance to the customers. They will be required to perform their duties from 10 am to 8 pm. And during this period, they will be given food and other necessities as per the local employment law. Initially, each will be offered 4000 Qatari riyals and other benefits mentioned in the local hiring laws. At the same time, the store will be opened except government approved week holidays. In order to run business, administrative expenses will incur and will be paid. Certain assumptions have been made which reflect the expected expenses in the coming days. For example, it is assumed that lighting expenditure of 500 will incur every month and retail store rent of 2000 will also be paid by the business. These assumptions are important as they provide basic knowledge and understanding essential for budgeting the expected type and level of expenses for running smooth business operations. Proforma income statement Description Amount Revenue (42,000X12) 504000 Cost of sales (20000x12) (240000) Gross profit 264000 Administrative Expenses (144000) Lighting (60000) Financial expenses (35000) Rent (2000X 12) (24000) Operating profit 1000 Sources: Bank 400000 Venture capitalist 300000 Mark-up 5% Start-up budget It is expected that a Total budget 700,000 will be collected for commencing the retail business operations. This amount will be collected from bank and venture capitalist as they will provide 400,000 and 300,000 respectively. And it is expected 5 percent mark-up is expected from both financiers. And it is assumed that business registration cost, installation and fixture will cost 150000 and; food (200,000) and clothing merchandise (100,000) and the remaining amount will be reserved for salary, lighting and rent payments. Two commercial sources of funding Bank and venture capitalist will be two main sources for providing the financial resources for this start-up. A local bank will be approached and asked for providing the loan facility of 400000 and the remaining 300000 will be provided by the local venture capitalist. For providing guarantee and other bank and regulatory requirements, required assistance has already been availed. For obtaining loan from the bank, it is expected that the bank will take 21 days to process the loan whereas the venture capitalist is willing to forward the payment within 2 days. Bank overdraft facility remains the major advantage from this source. In business operations, overdraft is an important short term loan facility sufficient enough to satisfy business requirement without any delay. Additionally, this bank facility is easy and timely access to funds which can save considerable cost for businesses like retail. Interest charge remains the main disadvantage when obtaining loan from bank. It is normally observed that bank charges higher interest rate when it is compared with other sources. And for this, they provide the rationale that the banks primarily rely on this source for meeting their all expenses. For obtaining loan from banks, various regulatory formalities are needed and the loan seeker is required to satisfy them. Some banks take two months for fulfilling the financing requirements and others require three to four weeks for processing the loan. Consequently, they become problem for a new entrepreneur as opportunity cost of this delay is considerably higher for them. Venture capitalist is the most easy and convenient way for obtaining loan. In this type of financing, a wealthy individual extends loan facility to new entrepreneurs and determines terms of engagement for processing the loan. In this type of funding, quick and easy access to loan remains the most significant benefit as less paper work is required to complete the transaction and conclude the deal. In other words, this source is highly useful as the new entrepreneur can easily access to funds and commence the business operations. However, there are certain drawbacks of this method as well. For example, personal reputation and acquaintance between venture capitalist and loan seeker plays central role for turning this personal relation into a business relationship. And this is most challenging as it is not easy to convince the venture capitalist about the success of the business. At the same time, the venture capitalist may require guarantees which can be used for covering the expected loss in case the business becomes a miserable experience for the new entrepreneur. References Cadene, P., Dumortier, B. (2013). Atlas of the Gulf States. Miami: Koninklijke Brill. Greenfield, B. (2012). The World’s Richest Countries. Forbes, Retrieved: http://www.forbes.com/sites/bethgreenfield/2012/02/22/the-worlds-richest-countries/ Khatri, S.S. (2013). Official: Qatar’s population could grow another 15 percent by 2015. Doha News. Retrieved: http://dohanews.co/official-qatars-population-could-grow-another-15-percent-by-2015/ Kovessy, P. (2014). Study: Instead of heating Doha up, urbanization cooling city down. Doha News. Retrieved: http://dohanews.co/study-instead-heating-doha-urbanization-cooling-city/ Walker, L. (2014). Qatar’s population reaches all-time high, rate of growth slowing. Doha News. Retrieved: http://dohanews.co/qatars-population-reaches-time-high-rate-growth-slowing/ World Bank, (2015). GNI per capita, Atlas method (current US$). World Bank, Retrieved: http://data.worldbank.org/indicator/NY.GNP.PCAP.CD/countries/QA--XR?display=graph Appendix Proforma income statement Description Amount Revenue (42,000X12) 504000 Cost of sales (20000x12) (240000) Gross profit 264000 Administrative Expenses (144000) Lighting (60000) Financial expenses (35000) Rent (2000X 12) (24000) Operating profit 1000 Sources: Bank 400000 Venture capitalist 300000 Mark-up 5% Read More