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MARKET WATCH
by: DARRELL WISBEY
www.darrellwisbey-retailadviser.com
Darrel Wisbey is a chief mentor and retail
adviser who has 30 years of retail experience
and has built a reputation for being a leader
who interprets the market accurately, define
strategic direction and deliver success by
motivating, developing and inspiring teams
to achieve continual improvement
Retailers are continually striving to grow their business and the
common measurement of success is typically gauged through increased
sales and profit. Over the decades that I have been involved in the retail
industry, retailers have been chasing this objective by way of transition
through a number of retail initiatives.
This diagram is not all inclusive but simply illustrates three of the
retail frontiers that have been crossed in the chase for greater success,
(measured by increased sales and profit).
Funds invested (OTB) and stock to sales ration must be controlled as
maximizing sales because there are overstocks is not the easy answer if
ROI is to be maximized. OTB management is critical to deliver the highest
possible levels of gross margin return on inventory, (GMROI is the applicable
KPI).
GROWTH ACTIONS
Same stores with actions
to increase sales and profit
CURRENT
BUSINESS
Grow sales and profit
by increasing the
number of sales
ADJUST PRICE MATRIX: a retailer can complete market segment price
reviews to identify items that are under the broader market position (too
competitive) to raise retail shelf price.
EXPANDED
BUSINESS
Increase business size
by entering into new
business entities
In this article we explore the first and most
basic ACTIONS
of these growth actions
GROWTH
and that is how to improve both sales and profit in the existing store(s).
Before a retailer moves to open new stores or to enter new retail markets
and formats it is critical the existing business
is sound
as a robust
Same stores
with actions
increase sales and
profit
foundation is fundamental to support all to expansion
initiatives.
From
observations overtime
it can
be seen that ACTION
growth from
the existing store(s) is
GROWTH
ACTIONS
OPPORTUNITIES
in itself a significant challenge.
CURRENT
Grow sales and profit
EXPANDED
by increasing
the
with from
actions existing • Increase
Increased sales Same
and stores
profit
retail
stores:
product
options and ranges
to increase BUSINESS
sales and profit
The best retailers apply resources and planning tools to improve
demand forecasting (buying plans) in an effort to have “the right
product” available in “the right quantity” in “the right stores” at
“the right time” to maximise the full sales potential.
INITIATE PROMOTIONAL PROGRAMS: retailers use events to stimulate
market activity and force short-term demand higher by way of special
offers, price reductions, bonus add-ons, exclusive offers etc. The intention
is to attract both existing and new customers with the motivation of “this
offer is available within a specified period of time” such as a “3 day sale” or
“ until stock is sold out”. The intent is to provide a demand advantage over
the competitors and shift the customer shopping pattern to increase store
traffic and hopefully steal market-share whilst increasing customer loyalty.
NEGOTIATE IMPROVED BUYING PRICE: when the buying team can
negotiate a reduction from the supplier in the product price this savings can
be managed in one of two ways:
a.) pass the savings on to the customer by way of a reduced shelf price and
drive greater demand through an improved market retail price position.
With this action it is important the unit sales quantity increases sufficiently
to deliver as a minimum the same profit but ideally the uptake is increased
sufficiently to generate greater achieved profit.
BUSINESS
number of sales
• Improve stock availability
pricing
matrix
When I started working in Australian retail • • Adjust
in the
early
70’s, retail expansion
Initiate promotional programs
was fundamentally based on improving performance
in purchase
the existing
b.) maintain the existing retail price which increases the achieved margin
business
size
• Increase
Negotiate
improved
prices
store(s). Budgets were developed and approved
by into
merchandise
increasing profitability because same sales x higher margin = increased item
by entering
new
• Increase
rebates
and other income structure CURRENT
CURRENT
business
entities
• Reduce
operation
costs
x store in sales and profit then financial performance
outcomes
would
profitability.
BUSINESS
be subsequently measured also in terms of sales and profit growth with
improvement shown in comparison to the previous trading year.
BUSINESS
Methods applied to build the growth would include such action initiatives
as shown in the following diagram:
GROWTH ACTIONS
Same stores with actions
to increase sales and profit
CURRENT
BUSINESS
ACTION OPPORTUNITIES
•
•
•
•
•
•
•
Increase product options and ranges
Improve stock availability
Adjust pricing matrix
Initiate promotional programs
Negotiate improved purchase prices
Increase rebates and other income
Reduce operation costs
INCREASE REBATES AND OTHER INCOME: the merchandise team can
negotiate increased support form their suppliers by way of rebates (short
and long-term quantity/volume incentives) and this can be recorded against
the product or the supplier profitability. Suppliers can also contribute “other
income” to secure shelf space and/or promotional activity
and this contribution will also contribute to the overall
trading profit.
CURRENT
BUSINESS
REDUCED OPERATION COSTS: the retailer examines
methods to reduce the running costs of the retail
operations because if as a minimum the same sales and
product margin are achieved with retailer spending less
money to run the business then the bottom line profit
will increase. Methods of reducing operating costs can
include reduced rentals, better efficiencies in electrical
costs, use of technology, improved manpower planning
and application.
The Conclusion:
INCREASE PRODUCT OPTIONS AND RANGES: the merchandisers and
buyers explore opportunities to adjust range product options to improve
market relevance and recognition of customer market demand. This
could include new product segments and new items as well as the
revision of individual existing items in options e.g. sizes and colours. Space
management is an integral component of range delivery and gross margin
return on space utilised is a critical profit KPI. When retailers address all of the above it is possible the sales and
subsequent profit return in the same store(s) will increase. The aim is to
always increase performance greater than the market average as this will
indicate an increase in market-share, (taking business from the competitors).
The best retailers strive to grow profit at a faster rate than sales growth. This
is particularly important in public companies as investors and shareholders
demand improved dividends on their private investment.
IMPROVE STOCK AVAILABILITY: retailers can lose sales and profit when
stock on the shelves is insufficient to meet the customer demand. This
happens all too often not because the demand experiences an unexpected
spike but because there is inadequate accuracy in the forecast planning. The Challenge:
Are you maximising both sales and profit in your existing store(s)? For
retailers this is often neglected in the rush to open new stores and/
or enter into new markets but the strongest retailers around the world
are underpinned by the foundation of same store(s) growth in sales and
profitability.
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