To continue with the systems thinking perspective I had started in the previous post, this is how the causal loops look for Mirza.
There are several loops here - both reinforcing as well as balancing and this is what makes it a dynamic complexity problem. This is by no means an exhaustive model but just the entities that should carry a bulk of the freight.
Sales is positively influenced by discounts, brand equity and choices for the customer and also by having more stores/salespersons.
Discounts is low-hanging fruit that can influence sales in the short-term but in the long-term can have detrimental consequences. Discounts negatively impact brand equity and profits. Psychologically as well, returning customers expect more discounts than the last time.
Brand equity is the magic-potion for sustaining sales in the long-term. It needs more ad spend which positively influences brand equity.
Choices and product quality are paramount for the customer to be interested in the product and this means maintaining an exhaustive SKU and inventory - Something that short-term investors will frown at - as it impacts the WC debt and until the optimum inventory turns and consequently the capital turns are achieved, this is walking on thin ice.
Maintaining optimum inventory means reinvesting the profits in WC and also probably taking in more WC debt but interest on debt will impact profits and can cripple future expansion or even sustenance if the churn of the causal loops isn’t respected.
Reinvestments is not just in WC but also in stores (I have missed drawing the link). In the case of Mirza, investment in a store is primarily investment in the inventory for the store.
Profits is obviously positively influenced by sales but negatively influenced by discounts, expenses per store, ad spend and interest.
A company that masters these causal loops should think both in terms of the short (discounts) and the long-term (brand equity) at varied proportions as it matures. Probably starting with more discounts and then reinvesting the profits in growth - until market saturation (optimal number of stores) is reached and then focusing solely on the brand equity for sales sustenance and same store sales growth.
I presume Mirza has set out on this path and I am curious to see how things turn out more than anything else.