Almost every retail business we are invited into arrives with the same opening sentence: sales are up. It is usually true. What is also usually true is that the category is not contributing any more money than it did two years ago, and nobody can say precisely where the difference went.
Growth hides leakage. A rising top line absorbs a great deal of margin erosion before anyone notices, because the absolute rupee contribution keeps moving in the right direction even as the percentage quietly slips.
The five leaks
Mix. The fastest-growing lines are frequently the lowest-margin ones. Entry price packs, promotional SKUs and traffic builders do the volume work, and the blended margin follows them down. This is a decision, not an accident — but it is rarely a conscious one.
Promotional depth. Schemes are added to protect share and almost never withdrawn. Over three or four cycles the baseline resets: the promoted price becomes the expected price, and the margin that funded the promotion never returns.
Shrinkage and markdown. Assortment expands faster than the shelf and the supply chain can support it. Slow lines age, get marked down, and the write-off lands in a different line of the P&L from the one that caused it.
Cost-to-serve. Channel-level costs — listing fees, fill-rate penalties, last-mile, returns — are almost never allocated back to the category that incurs them. Gross margin looks stable while contribution quietly turns negative.
Terms drift. Supplier terms are negotiated at a point in time and reviewed rarely. As volume grows, the terms that were fair at the old scale become expensive at the new one.
How to find them
Build one view: contribution by category, by channel, after all directly attributable costs. Not gross margin — contribution. Most businesses do not have this view, and building it for the first time is the single highest-return week of analytical work available to a retail leadership team.
Then compare this year against last year, line by line, in percentage terms and in rupees. The leaks announce themselves. What follows is negotiation, discipline and sequencing — but you cannot fix what the reporting will not show you.