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Unlocking store profits

etsy, pop up, customer, shop, serviceOver the past 12 months we have seen several Australian retailers close their doors, from Dick Smith to ABC Retail, with the most recent being Australian Geographic. Over the past couple of years, we have witnessed this iconic Australian store start to move towards a generic mix of merchandise, which ultimately left them open and vulnerable to the competition.

As they began to focus on Christmas trade, this meant they relied on a strong Christmas to have a good cash flow throughout the year – another sign of a vulnerable retail model. Additionally, the rise of general merchandise retailing through stores like Kmart and an increase in online retailing has certainly played a part in the stores closing.

Consequently, the rapid growth of the chain left it far too exposed, and perhaps if they halved the number of stores and returned to the core product range, the future would look a little different. It is clear to see that this retailer is an example to other retailers of the importance of keeping things simple, knowing your strengths and playing on them.

Knowing your strengths come from looking inside your business. Diagnosing the gaps in your model, and consequently evolving and implementing your strategy from these insights, allows a retailer to have the power to lead their stores and customers into a more positive and profitable future.

A strong understanding of your business becomes even more vital during periods of political and financial volatility. The interrelationships in a ‘fit’ retail business are tightly interconnected and the effect of change in one component, such as the supply chain efficiency by an external factor such as the Brexit result, can have dramatic effects on areas such as merchandise assortment, stock turn, depth of range and market positioning.

The response to market conditions are always the hallmark of a successful retailer but even the most successful retailers will have stored profits that a diagnosis process will identify require unlocking. None of these stored profits are likely to have anything to do with the external economy.

The following examples are among many we have diagnosed where the unlocking of store profits (and increasing sales) could be achieved with exactly the same number of transactions as in the prior period.

–          Up to 55 per cent of available hours in staffing where taken up in non-selling activities. That is staff facing the ‘back door’ as distinct from the customer engrossed with administration duties or moving and touching the product at every opportunity. Little wonder that achieving 100 per cent of sales targets were not occurring.

–          Staff coverage and actual transaction counts/flow only correlated on an average of 70 per cent resulting in times during the day when customers were under-serviced or staffs were over invested.

–          On average, up to 45 per cent of staff surveyed did not have an individual sales target and up to 65 per cent surveyed had no training measurement.

–          Average 15 per cent customer sales were not fulfilled due to ‘out-of-stocks’.

–          An average 20 per cent did not have an ‘open to buy’ buying forecast

–          Merchandise management software was not integrated with a point of sale system in over 25 per cent of cases

–          Aged inventory was on average in store 30-40 per cent longer than the target dates nominated by management

None of these examples (and there are many more) have anything to do with the external economy. Rather, they are examples of fitness factors that are achievable within the benefits of distinguishing between the fat and the muscle within your business.

Brian Walker is founder and CEO of Retail Doctor Group and can be contacted on (02) 9460 2882 or brian@retaildoctor.com.auVikki Weston, co-author of this column, is part of Retail Doctor Group’s Retail Insights team and can be contacted via email at vikki@retaildoctor.com.au .

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