By: Darrell Wisbey
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).
In this article we explore the first and most basic of these growth actions 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 foundation is fundamental to support all expansion initiatives. From observations overtime it can be seen that growth from the existing store(s) is in itself a significant challenge.
Increased sales and profit from existing retail stores:
When I started working in Australian retail in the early 70’s, retail expansion was fundamentally based on improving performance in the existing store(s). Budgets were developed and approved by merchandise structure x store in sales and profit then financial performance outcomes would be subsequently measured also in terms of sales and profit growth with improvement shown in comparison to the previous trading year.
Methods applied to build the growth would include such action initiatives as shown in the following diagram:
- 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.
- 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 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. 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).
- 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.
- 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:
- 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.
- maintain the existing retail price which increases the achieved margin increasing profitability because same sales x higher margin = increased item profitability.
- 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.
- 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.
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.
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.
About the Author:
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.
Learn more at: www.darrellwisbey retailadviser.com.
*First published on Philippine Retailing newsletter 2018 Q2 issue.