Disrupting accounting principles
“Could Finance & Accounting ever get disrupted in a business environment wherein no two days are similar?”.
What are the future trends in accounting that would challenge its current practices?
We all are living in a world where the laws of doing business keep evolving and also are being challenged & regularly debated.
We all know that Finance & Accounts are like a backbone for any business and is a discipline that can make or break your business model.
Ever wondered, how the pop-up shops of big luxury brands in the main atriums of the malls manage even to recover their build-up costs, not to mention the mall’s high rentals for short durations.
Most of my retail fraternity members would answer that luxury brands use their marketing budget for promoting their products and image.
This answer is partly correct but let me highlight a different aspect which is quite revolutionary in its thought process and creating a disruption in the finance & accounting arena.
Disrupting Accounting -Store rentals are no longer expense
Let’s take a case of store rentals, it falls under the rent expense header in P&L.
There are few successful companies that don’t consider their store rents as an expense but as a customer acquisition cost.
They take into account the impact of their store’s physical presence and its contribution to their overall brand image and on its distribution channels.
A Gucci store in a mall also helps its distribution or export sales team in opening new doors for the brand in hi-end & upmarket channel partnered stores.
P&L statement reflects store rentals as “customer acquisition cost” which is a long term perspective.
Most of you would argue, that by changing the nomenclature of the expense header, the actual expense won’t change.
Yes, you are right that expense would remain an expense but your perspective to look at an expense would change.
Change in your perspective would free your mind to look at expenses in a more holistic manner.
The probable result, You may then be able to tackle it in some innovative ways.
Most of the Finance & accounting departments feel that Innovation is the responsibility of R&D (research and development) teams and they remain isolated and get labeled as a support function in the corporate world.
However, Reality is completely different.
To validate my above reasoning let me share a couple of case studies from Luxury brands who are disrupting accounting practices.
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Case study: the Luxury trend is NOT TO SELL
Dolce & Gabbana opened a “cultural hub” in Soho, New York.
One can shop there during the day, but the space is also the first luxurious Instagrammable clubhouse for the youths.
It also hosts monthly events, like a concert featuring up-and-coming bands, or a “drink and draws” night.
Hermès, the most exclusive brand opened “Carré Club” (carré means “scarf”) pop-ups in the fashion capitals of the world.
Guests are given free admission & they could get photos taken, sing karaoke (sorry, Carré-Ok), enjoy complimentary refreshments from a café, and watch artists and designers work in an on-set atelier.
Moreover, Scarves are also available to purchase, but they are in no way the main focus of the event.
Disrupting accounting here- change in the thought process and the way of doing retail business in the future?
These brands are investing in physical spaces and events without any expectations.
There are no expectations in terms of sales returns, so there is a disruption in the thought process to look at P&L from a different perspective.
Driving Brand Image.
These events help create the perception of a product or retailer as a purveyor of valuable goods.
Hermès Carré Club, clearly educated visitors about the brand’s heritage in an accessible, entertaining way.
Driving social media engagement.
Most importantly, the goal of these experiences is to generate social media content. The content gets millions of impressions at a fraction of the cost.
I am hoping that this article of mine would act as an eye-opener to business owners and retail leaders.
A question to self-introspect,
“Is your brand using disruptive accounting techniques to spearhead innovation?”
Please reply by commenting below in the comment section.
My retail fraternity members can reach out to me on email@example.com if required.
About the author:
Ritesh Mohan is a passionate retail professional with over 20 years in the Retail sector, handling some of the biggest brands in the beauty, fashion, and fragrances retail & FMCG sector.
He has been instrumental in the growth of some of the regional brands as well in the Middle East region.
Ritesh specializes in Retail management, Product development, and Brand Management, Retail Operations, Sales Management, and Franchising & Business Management.
He strongly believes in empowering business owners with his wisdom & experience of around two decades in the industry.