“We have been outperforming most of our major competitors, and we’re doing it by having the right product in the right place at the right time for each customer. This sounds so elementary, but it really is a complex process that requires a large amount of human intelligence.” – Terry Lundgren, Macy’s CEO Australian retail is on a conservative growth path, with retail spending showing acceleration in late 2013, however, many ASX-listed companies have failed to capital
lise on these improvements.
There are some simultaneous factors, but this week I thought it interesting to draw on a few influencing Australian retail growth.
Interestingly, it is the self fulfilling prophecy that in order to make real retail sales, you principally need retail footprint, that is, floorspace. Conversely, sales decline is almost guaranteed over both the short and longer term when contraction in retail footprint occurs.
As a case in point: Billabong, Harvey Norman, and Myer all reported a reduction in floor space in 2013, contributing to lower marketshare, owing principally to the fact they decreased capacity to make sales.
According to Citi Research, most large retailers are at or above long run profit margin growth, but again, businesses such as Harvey Norman and Pacific Brands are losing market share, which in turn makes it more difficult to recover margins.
What are the top five key trends of the fittest retailers over the past two to three years?
They maintained floor space. The fittest retailers maintained and even grew store numbers, or increased floor space, despite a contraction of the economy.
They are strategic rather than tactical. Retailers with the bigger picture in mind are better equipped for future opportunities. Indeed, thinking strategically means getting your retail business into fit condition, thus avoiding the tactical reduction of margins, floorspace, and staff.
They have a solid brand differentiation. You cannot be in the business of retail without a solid product or service differentiation and a plan of how you will market this to your employees and your customer base. The fittest retailers continually audit their brand consistency at every touch point, both internally and externally, and articulate their vision and mission with absolute clarity.
They concentrate on controlling all aspects of their operations. With a focus on being the best they can be, the fittest retailers stop worrying about the financial markets and interest rate decisions and turn their attention internally to ensure these areas are fit for business:
o Supply chain efficiency and speed to market
o Multi-channel distribution model
o Product ranging, profile depth, quality, and design
o The utilisation of technology to derive fitter business decisions
o The culture of the business – “the way we do things around here”
o The leadership of people, creating a motivating goal driven sales environment
o The selling performance of people and customer service
o The measurement of vital business health signs (KPIs)
o Operating expense ratio
o The retail economics/cash flow and planning.
They understand their customers. With implicit knowledge of their consumer segments, the fittest retailers understand how and, importantly, why, they buy. Highly tailored, relevant experiences along every touchpoint connect with them, building loyalty, and advocacy.
The year ahead looks better, with Citi Research predicting growth in the region of two per cent compared with 2013. But these are just numbers.
Retailers that maintain and grow store numbers, protect gross profits and control operating expense ratios tend to have the fittest results. They’re not sucked into the economic cycles and tend to maintain a reasonable line through the ups and the downs.
It was Warren Buffet who once said, “Rule No. 1: Never lose money; Rule No. 2: Don’t forget Rule No. 1.”
It’s about spending on the down and saving on the up, and that’s why fit retailers reign.
Happy fit retailing!
Brian Walker
Retail Doctor Group
We welcome you to find out your complimentary business fitness result by visiting our website.