Retail Chain

A retail chain has experienced declining profits over the past year and has engaged EY-Parthenon to diagnose the root cause and recommend corrective action. This is a classic profitability case — the kind EY-Parthenon uses to test a candidate's ability to decompose a financial problem, ask targeted diagnostic questions, interpret data, and prioritise interventions. The case rewards candidates who resist the temptation to jump to solutions before identifying the root cause through structured questioning.

About the Client A multi-store retail chain experiencing a year-on-year profit decline The decline has emerged in the last 12 months — not a chronic trend The client sells across multiple product categories and operates both physical stores and an online channel The client's management team cannot clearly explain the source of the decline The Profit Equation Profit = Revenue − Costs. The first analytical step is to isolate whether the problem is primarily revenue-driven, cost-driven, or both. This determines the entire direction of the analysis. Revenue Decomposition Price: Have average selling prices changed? Any new discounting or promotional activity? Volume: Has footfall declined? Are fewer units being sold per transaction or per store? Mix: Has the product mix shifted toward lower-margin categories? Has an underperforming category grown as a share of revenue? Channel: Has the online/in-store split changed? Online often carries a different (frequently lower) margin profile. Cost Decomposition COGS: Have input costs risen — supplier prices, raw materials, logistics costs? Gross margin: Has gross margin compressed even if revenue is flat? Operating costs: Labour (minimum wage changes, headcount growth), rent (lease renewals), utilities (energy prices). One-off items: Any write-downs, inventory impairments, restructuring charges, or exceptional costs?

Profits have declined materially over 12 months. The client needs to understand: (1) whether this is a structural issue (the business model is fundamentally weakened) or a cyclical/operational issue (fixable with targeted interventions), (2) what the specific root causes are, and (3) which actions will have the fastest and largest impact on restoring profitability.

Structure before solving State your framework at the outset: 'I'll start by decomposing the profit decline into revenue and cost components, then isolate the root cause within whichever dimension is most significant, before moving to recommendations.' This signals structured thinking before any data is shared. Ask targeted diagnostic questions — do not spray The biggest mistake in this case type is asking broad questions like 'what happened to revenue?' Ask instead: 'Has revenue declined year-on-year in absolute terms?' Then: 'Was the decline driven by price or volume?' Then: 'Was the volume decline uniform across categories?' Each answer closes off branches of the issue tree. Prioritise the highest-impact levers Short term (0–90 days): Address the highest-magnitude driver immediately — typically either repricing (if margin compression is the issue) or a targeted cost reduction in the largest cost line. Medium term (3–12 months): Restructure product mix, renegotiate supplier contracts, optimise promotional cadence. Long term (12+ months): Build structural competitive moat — loyalty programme, private label, digital capability. Flag second-order effects A strong candidate notes that cost cuts can damage customer experience (e.g., reducing staff hours increases wait times → further footfall decline). Recommendations must consider these feedback loops.