Risk classification categorised into high, medium and low results in producing certain levels of safety for businesses. Retail shoe market in Albania states that business risk is associated with product, promotion, distribution and price. The company made a complete assessment of domestic market, overseas market and social factors such as total population, income level and requirement of quality shoes for all age groups.
In this case of twinkletoes, the company is at financial risk which carries a high degree of risk, secondly, there is a reputation risk or shoe brand of twinketoes is at risk which also carries a high degree of risk. Risk rating = severity x likelihood and the low risk is marked as 1, medium risk is marked as 2 and high risk is marked as 3. This is the rating matrix of risk. For any risk assessment and risk rating, the first task should be to check for hazards if any, the second task should be to check who are the people who are likely affected with the risk viz., company, retailers, staff, debtors, creditors. The third task should be rating of risk as low, medium and high and after identification of risk category, the next step would be to eliminate the hazards, adopt less risk approach, more implementative techniques and methods which carry high yield of profits and returns and also introduce preventive strategies that help the company to make more sale. Retail shoe company in Albania has collected every bit of information pertaining to overseas market and domestic market before making an entry into the market and the company has thoroughly checked the pricing strategy. A thorough survey has been made to assess the risk and also to identify potential market of consumers for selling shoes. Therefore, risk assessment along with clear and updated information is the key source to prevent risk and also to rate the risk.
In the first category of small retail shops which accounts to 2/3rd of account on the ledger of twinkle toes, the company receives a large portion of sales and revenue from this category. Some of the customers make prompt payment whereas others make the payment very late.
In this category the risk of receiving late payment from retailers has to be dealt with such that, a credit of 15-30 days must be provided. It is also stated here, retail shoe shops carry on business all through the working days except Sundays and the business on an average should be doing well.
If the retailers are making prompt payments, this indicates that sales are good and business is active. Similarly, if the retailers are not clearing the payment, this indicates that either twinkletoes shoes are not getting sold in the market or retailers are facing some other business problem. In any case, this affects twinkletoes and this is high risk with the fact, late payments slows down business.
Therefore, in this case, twinkletoes must move more volumes to retailers who are making prompt payments, as there is no risk here and for the retailers who are making slow payment, the company must arrange meetings to discuss and negotiate with the problems faced by retail shops. Further twinkletoes must make every effort, to regularize the payment section from retailers. This means, the problems of retailers are the problems of twinkletoes which must be dealt with strategically to solve the problems and to improve the business of shoes. No business is without risk whereas risk must be handled in a proper method to prevent any sum of losses in the business.
In the second category of large retail shoe shops where the turnover of business would be in large numbers and the risk is medium in this category with the fact that the customer flow in the large retail shoe shops is more as compared with any shoe shopping mall. The customers have wide choice of shoes at affordable prices.
Twinkletoes faced risk in this category as there was much payment outstanding from overseas clients and it is very important for twinkletoes to make an assessment as to why payments are being held up. Especially when large amounts are held up, the business functioning of manufacturing and production becomes very difficult without funds being received from debtors.
This situation of overdue and long outstanding payments make the business financial position very difficult and often management has to seek for extra borrowings to run the production of the products. At times, debts may turnout to be bad debts which cannot be recovered from debts and this loss has to be borne by the company, such as these debt problems put the company into a great trouble and in order to prevent such situations of bad financial position, the company must monitor with large retailers on a constant basis, that is monthly or quarterly to review the situation of sales and marketing. An assessment has to be made, whether the retailer is making a good business and is placed in a healthy financial position.
Twinkletoes must contact and communicate with each and every retailer on a constant basis, to review the sales and marketing position which figures out the turnover position of the retailer and twinkletoes can easily make an assessment about retailer business. Further proper guidance and advice must be provided to the retailer in order to sell more volume of shoes. If properly managed, there is plenty of scope for twinkletoes to tap overseas market for marketing its shoes.
In the third category of chains of discounts shops wherein there is a large pool of customers as compared to any other shoe shopping mall, there is more scope for high volume of business turnover as a specified percentage of discount is offered on shoes and discount sale often catches the interest of customers.
Especially elderly people, who mostly stay at home require shoes that are more comfortable and less priced. People who retire and live on pensions and savings, cannot spend large amounts on shoes and discount sale for elderly people is an attractive scheme to increase the volume of sales.
The risk in this category is very low whereas twinkletoes did not receive payments from discount sale chain stores, with the fact, that the company did not follow-up with the chains to identify the performance of business sale. An assessment and finding the reasons as to why, the payments are being held up would certainly yield good results for twinkletoes.
Proper identification of resources is important to sell shoes in the market and discount sale chains must be made attractive and incentive for customers to visit chain stores to purchase shoes.
Mostly in discount sale, there is an offer “buy one and take one free” which means one pair of shoes is free with the purchase of one shoe pair. Schemes such as these always enable customers to pick up shoes.
Marketing techniques have to be quite practical and acceptable to the consumers which are focused in the interest area of customers in order to make a good business sale of twinkletoes shoes.
The fourth category of mail order companies play a very safe role and the risk in this category is very low with the fact that, the order is mailed to twinkletoes only after receipt of orders-on-hand. Without having orders for shoes, clients do not take the risk of placing bulk orders to twinkletoes.
In this pattern of business, the lifting of inventory might be less in quantity or more in quantity as it differs from time to time depending on the demand of the market. Therefore, although this is a very safe way of business performance with regular flow of orders and payment, there is no assurance of large volume of business turnover. In this scenario, twinkletoes have to negotiate in entering with new partnerships, new dealers and especially shoe marketing which consists of a wide variety of customers viz., children, young boys, girls, men, women and elderly, many shoe companies concentrate on wide customer base such as Nike, Sportstar, Adidas and Reebok. Twinkletoes has been focusing only the elderly as its potential customer and therefore, the customer area is limited only to the extent of elderly people.
However, risk management when implemented with extra care endeavoring towards more efficient and quality shoes, efficient marketing strategies, supply chain management, financial systems, negotiating with new dealers such as these management methods would certainly lower the risk impact on the twinkletoes. This is also required even when twinkletoes is tapping overseas market with other marketing strategies.
Risk can be avoided, prevented, managed and transferred depending on the risk level.
Business Modeling for Risk Management
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Results of the survey on Retail Shoe Market in Albania
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Risk management: what should be, what is and what could be
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Romanda Haynes, Operations Management
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