Friday, September 13, 2013

Retail Store Management: Secrets of Success


Among the reasons why many retail stores are facing ever increasing challenges today is  rapidly changing consumer buying practices, a very dynamic and evolving marketplace and often the “fundamentals” of running a retail business get overlooked.

Industry analysts find there are specific management initiatives that are vital to success in retailing, which includes all types of stores.  Some are obvious, and some are not so obvious.  When one has a firm grip on these techniques, chances for success are greatly improved.

It may be that only one or two of the areas need your immediate attention, but putting these challenges high on your list of priorities can mean many dollars of increased cash flow back to the institution!

EXPENSE MANAGEMENT.  This is frequently a major area of concern.  One should know precisely what the expense allocations should be for each line of your operating expense report.  Operating expenses must be planned, not left to chance.  Expenses must be viewed as a percentage of total sales so as the business “ebbs and flows”, you are still in line with margins goals. A monthly expense spending review of all expenditures is vital and should be administered with a disciplined hand.  Compare actual expenses against planned expenses.  A review every three months can be risky, every six months can be dangerous and once a year can be terminal.

MERCHANDISE PLANNING MANAGEMENT.  The development of a sound merchandise planning and open-to-buy program is crucial to the profitability of any retail operation.  Forecasting and planning must be based on a sound evaluation of current and forecasted sales and inventory figures.  In your merchandise planning program, the development of trends by type and end-use of merchandise is essential.  This is known as classification merchandising.  Growth must not only be planned but must be planned in a manner that will insure profitable growth.  The economy can go down as well as up.  One must be prepared to use brakes as well as power.  Willy-nilly budgeting today for a 5% to 10% increase is not viable in today’s business environment.  Planning and buying merchandise in the right amounts, at the right time and in the right selections is key.  Proper timing of deliveries is essential for control of cash flow and to maximize revenues.

INVENTORY MANAGEMENT.  Managing inventories to yield their highest earning potential is a serious undertaking.  It is essential to continually measure the life cycle of merchandise and to make sound judgments as to whether each item of merchandise is an asset or a liability.  Keeping a handle on the weight of the inventory with regard to vendors, styles, colors, sizes and balanced selections is all important.

Many retailers have been known to have an unacceptably high percentage of their existing inventory in stock for over 180 days.  In that scenario, all that could be achieved is a two time inventory turn, at best.  This old merchandise is most likely out of season.  How much in earnings will be lost on these old goods? Even if the merchandise can be charged back to the vendor, there are the operational and freight costs to consider.

Our inventories are one of the most important assets we have as retailers.  Respect and treat inventories like real dollars because that is what they are.  Inventories that are aged beyond a normal selling period and carried forward steal from net earnings.

MARKDOWN MANAGEMENT.  Timely and well managed markdowns are a necessary part of any retailers profit strategies. There are situations were some markdowns are healthy but excessive markdown can bleed off additional contribution dollars.  It isn’t what sold that counts, but also what hasn’t sold.  Every slow selling or non selling items is a drag on earning potential.  What is an acceptable markdown as a percent of sales?  The saleability of inventories must be evaluated on a regular basis.

Excessive markdowns are a result of little or no planning, overbuying and poor inventory management. 

VISUAL MERCHANDISING MANAGEMENT.  Visual merchandising is the “silent salesperson” in any retail operation.  It is the presentation of properly displayed merchandise, well planned advertising and good housekeeping that portrays store image.  First impressions are important. They influence the customer’s conscious and subconscious decision-making process.  This merchandising technique is essential to attract new business and ensure repeat business.  The effective use of color, design and quality projects the store’s attitude and image.  The object of visual merchandising is to be pleasing to the eye and to suggest satisfaction of customers’ need or wants.

CUSTOMER SERVICE MANAGEMENT.  Thousands or even millions of dollars invested in retail inventory isn’t an uncommon occurrence for both “brick and  mortar” and e-commerce businesses.  It has been observed that without the support of a well trained, enthusiastic sales staff and an effective customer service philosophy the earning potential of a retail operation may very well be hindered.  It is critical for management to develop training programs for their employees.  Training is not a one-shot type of program.  It should be an effective ongoing program with specific objectives to reinforce employee development and company philosophy. The goal is too always improve the customer’s shopping experience and exceed their expectations.

Customers are the most important people ever, either in person or on-line.  They are not dependent on us; we are dependent on them.  We are not doing them a favor by serving them, rather they are doing us a favor by giving us an opportunity to do so.  Arguments are never won with customers. It is twice as hard to get dis-satisfied customers back into your store and often that customer will tell others, making your loss even greater. Develop strategies to attract and retain new customers as there is always attrition in your customer base even with the best customer programs in place. Customers are individuals who bring us their needs and wants.  It’s our job to satisfy those needs and wants by providing value and uncompromising service.

CUSTOMER ANALYSIS MANAGEMENT.  Customer turnover is an inherent part of any retailer’s business.  Customers can move away or leave for many other reasons. For effective customer analysis management we must discover and implement the answers to the following questions:  How do we build our customer base and loyalty recognizing that the customers are constantly changing?  What competitors have enticed our customers away and why?  How do we retrieve customers?  Periodically review your customer’s expectations to see if it has changed and you have not! You may have to change in order to attract the potential customers now represented in your community.  The majority of customers spend their money differently now than they did 5 or 10 years ago.  And this could change again in a few years!

MARKETING. Customer’s buying patterns having been changing rapidly over the last few years. “Consumers don’t think in terms of channels, they simply shop – in stores, online, on their mobile phones, etc. Retailers on the other hand are organized and optimized for channel-efficiency. Over the past decade stores have borne the brunt of this buyer-seller disconnect, a trend only accentuated by the value-consciousness of shoppers following the worst economic recession of our times”.
In the five-year period from January 2008 to January 2013, retail store sales have grown 8.5% (quoted from recent report by EKN Research).  ECommerce sales over the same timeframe have grown 72%. Within this time, the world order of retail has changed. Con­sumers have discovered the power of smartphones, utility-like high-speed Internet connectivity, the power of social media, and tools and services that deliver instant access to product pricing, inventory and reviews.

According to a recent article from EKN Research, Division of Edgell Communications,
“Retailers need to re-organize their strategy, people, processes and technology to:
                        Re-imagine stores as a hub for delivering Omni-channel experiences
                        Re-vitalize stores to deliver unique, beneficial experiences
                        Weave in familiar digital experiences into the physical fabric of the store
                        Combine human intuition with deep consumer insight to develop truly personal relationships with customers.”

Retail/ECommerce businesses must embrace this new technology and use it to their advantage in improving customer retention and attracting new customers. This does not mean that we have to abandon old marketing strategies but re-think them in terms of today’s contact points with customers.

CONTRIBUTION MANAGEMENT.  Contribution management is defined as the amount of profit dollars generated from a retail store. If we reflect over the past several years, retailing hasn’t become any easier.  The fatality rate of all businesses that have operated without sound management techniques has been escalating.  With stores it is all about remaining viable and to avoid becoming a “dinosaur” in the new world order of consumerism. With ECommerce it is not just all about “improving the number of clicks” to your website but how long do they stay, do they come back and do they buy? The rewards for hard work with sound planning are still attainable. 

Contribution Management should be the first consideration, not the last.  If it is last, one can only hope that some profit will be generated by year’s end.  This situation would be similar to an airline pilot starting to fly east to New York without a flight plan.  Such a pilot does, however, have a flight plan.  It is constantly being monitored by his navigator to be sure they remain on course.  When deviations are noticed, corrections are made to get back on course so that the destination chosen will be reached safely.  Sound profit management uses the same principles.  A reasonable profit goal must first be set.  This goal then must be systematically tested to determine whether or not the profit goal is feasible.  Some of the test questions would be: What are the anticipated fixed and variable operating expenses as they relate to annual sales volume?  What is the anticipated markdown percentage as a percent of annual sales?  Is the average initial markup reasonable enough to meet these considerations and remain competitive? What are the inventory turn goals and are they achievable?  And lastly, are the merchandising techniques and tools in place to monitor all segments of the operation on a timely basis?  If the answers to these questions are positive in nature then contributions can be improved much like the airline pilot’s flight plan to New York.

SELF-CONTROL MANAGEMENT.  This management technique may be the most important of all and too often the least applied.  Most successful merchants operate and run their businesses with their heads and not their hearts.

Goal setting is the starting point.  Realistic and attainable goals must be set for all areas of the operation.  To reach these goals and to be a successful retailer, one must be dedicated to the successful implementation of all of the techniques we have discussed here.

Intuitive decisions based on a flare for merchandising are key to building a leading retail store.  At the same time, “Self-Control Management” means that one is willing to exercise good judgment in the decision-making process.  Don’t wildly buy merchandise based only on hopes and dreams of how much you can sell while totally ignoring the plans you so carefully developed!

RMSA is a merchandise planning and cash management company that has been assisting retailers improve their profit performance for over 50 years. RMSA is not just about OTB, but reviews any aspect of the business that impacts financial performance. RMSA continues to speak at industry seminars, workshops and webinars sponsored by a variety of organizations. RMSA has been working with thousands of retailers in the United States, Canada and South America for over 50 years and has established a reputation for optimizing performance and delivering the expected financial goals for our many retail clients.

These clients would be glad to share their stories . . . just let us know.

Dave Downard
Senior Merchandising Analyst & Consultant
626-705-3724 Cell