Operating margin is the percentage of sales left after subtracting production, marketing and other expenses. A healthy operating margin is required for a company to be able to pay for its fixed costs such as interest on debt.
The growing margins suggest that the belt tightening is paying off. For example, the margins of Pantaloon Retail, the country's largest listed retailer, have gone up from 9.2 per cent in June last year to 10.6 per cent in June 2009 (the latest numbers available). Others such as the Raheja-owned Shoppers Stop and Tata Group's Trent, Reliance Retail and Spencer's Retail aren’t far behind.
Kishore Biyani, managing director of Pantaloon Retail says, "We are taking a number of steps to reduce costs in the areas such as office space, employee costs, rents and so on. Consumer sentiment has also picked up, and that helped.”
Pantaloon's employee costs have dropped 133 basis points and operating costs 178 basis points year-on-year after the company adopted tight cost control measures over the last one year. Pantaloon has also pared its expansion — compared with 2.8 million square feet of space it added in 2007-08, it added just 1.8 million sq ft in FY 2009.Retailers have also rationalised warehousing and logistics costs, consolidated real estate requirements. Hence, their costs did not go up as a percentage of sales and profitability improved.”
No comments:
Post a Comment