An innovative product, good business processes, new technology, or competitive strategy can place you at the top of the retail tree, but only seamless and consistent execution will keep you there. In my last article I talked about how relevance, or a lack thereof, is the number one reason why retailers fail. Retail execution is one of the other reasons. Indeed, poor retail execution can lead to customers introducing their own execution strategy – albeit of a different kind. Execution is the li
nk between planning and results. While planning and developing a strategy can be hard work, turning a plan into action, sustaining, and evolving that action can be even harder, and this is often where retailers come undone.
In my time working with retailers I have seen some classic retail execution mistakes.
Poor understanding of product planning disciplines
At its core, product and range planning drives the range architecture, product mix, and qualification to produce your targeted sales and margin outcomes.
Too often I see little or no range planning. Products are selected and the range is bought for each season purely based on last year, rather than with any strategic thought in mind.
The consequences of allowing a weak product planning process to exist can lead to a fragmented range, poor merchandising, lack of customer clarity around what the brand stands for, and most importantly, failure to optimise sales and margin objectives.
Little or no OTB planning
The open to buy (OTB) is the tool that plans inventory levels and inventory flow.
Having the right amount of inventory in your stores is critical. Having too little stock risks losing sales and potential customers due to lack of product availability. Having too much stock ties up your working capital and can result in obsolescence issues and potential stock write offs in the future.
OTB planning ensures you have the right level and monthly flow of inventory to support your sales plan. An efficient OTB plan prevents over buying or under buying by comparing your opening and closing inventory with your sales plan for the next period to determine your volume needs.
Having a well structured OTB is also beneficial for reporting and analysing results, allowing you to track your progress on an ongoing basis.
I have seen both small and large retailers operate with no OTB function what so ever.
Management team skill sets are weak
Being able to successfully execute your strategy ultimately hinges on the capabilities of your workforce, particularly your senior management team.
A retailer cannot expect to achieve sustained growth if its employees are not equipped with the requisite skills (and motivation) to action the business plan. In the short term, identifying resource gaps and recruiting the right talent may be required. In the longer term retailers need to continually invest in helping existing staff develop new skills.
So what does all this mean?
Failure to execute has consequences.
Research papers suggest that customers are likely to stop shopping at a retailer after three bad experiences. These can vary between bad customer service, stock outs, limited range of products, and minimal purchasing options (online, click and collect etc.). These negative customer experiences can lead to substantial loss in sales and Goodwill. Retail giant Walmart estimates the lifetime value of a lost customer is circa $200,000.
Proper execution comes down to having the appropriate planning tools and a clearly defined strategy that is shared across all levels of the organisation. A clearly defined strategy needs to be engaging, relevant and articulated in a very simple manner. Having the right tools, knowledge and workforce is essential for turning a winning strategy into a successful business.
James Stewart is partner at Ferrier Hodgson.