Specialty Retail Blog

THE FUTURE OF RETAIL

By Evan Wise

The following analysis and conclusions are based on an article in WSR (Frugal Shoppers Appear Here To Stay by Lisa Lockwood 8/16/2010) about various observations of the direction of retail. Keep in mind none of these are absolutes but rather a continuum of change. We are at various stages of that continuum and it will affect some more than others.  I hope that these observations help you identify where you are situated in your own store with your own customer base. This Is an overview of the general  retail situation so there will be many individual examples of exceptions to these observations.  Like any forward looking analysis, the best use is to be aware of changes and see if there are signs in your business that reflect these observations.  If so, you then need to identify the changes in your marketing ,selling, buying and planning to be certain that you are ahead of the curve.

Thoughts about the future of Retail:

• More Technology
• Less Branding
• Move toward Need not Want

The “high end” retailers will be dealing with a smaller demographic. Those shopping the high end will be more aligned with that income and economic level, regardless of social level as in the past.  This will be offset by less competition and a flight from the big box environment to the stability of the independent. With a smaller pool of potential customers and fewer competitors, the high end is ripe for developing dedicated communities and networks of shoppers.  Those networks will be more critical to future success than any traditional marketing in print or broadcast mediums.

Technology

The overriding theme for the future of everything seems to be technology. The younger generations that will feed future purchases are so tuned in to technology that phone calls are becoming passé in favor of texting and other communication methods. Phones do so much and their worst feature is that it is becoming harder to talk to other people on it. People will want a relationship but it will be nurtured differently than in the past. Print media and radio are dying  as social networking, twitter, facebook, linked- in and word of mouth through technology takes over.  The website is a natural transition to the brick and mortar buying experience and no longer a separate experience as many retailers treated it in the past. That means that even if you are not into e-commerce, the website should display your top lines just like your window. Change the website even more often than you do your window.

The retailers that can adapt to the latest technology will gain an edge.  We are on the cusp of automatically sending  a text  or Twitter to prospects when they enter a radius ½ mile from your store  or closer and stores  will invite traffic that is potential business when they are close.  The more creatively you can use technology the more tuned in to growth you will be.  That means not only on the floor but in the back office too.  The need for forecasting and technology in managing your buying and your cash has increased. Lack of this technology has been a prime driver in who survived the recession and who succumbed and that pressure will only increase.

Technology will find its way into fashion products too.  I was at the WSR shoe show in Las Vegas last week and saw technology for comfort, cushioning and balance incorporated into shoes.  Technology to develop a custom fit in the store is here and serves to bring the customer into the technology of finding the right shoe.  Just like the phone has evolved to become a camera, texting device, internet access etc, fashion will provide muscle exercise, slimming, and health benefits too.  That means that every sales person must have more product knowledge about the features and benefits with details and background information. Communication of the technology of the product, how it is used  and its manufacture will be more important.  Organic stores, new materials, humanitarian manufacturing and just plain information about the features and benefits of each article is already on the scene. Look for more technology in the items sold in stores at all levels.  Shoppers want value and that comes with knowledge. As consumers get more thoughtful about what they buy, it must not only look and feel good but must be good for the environment and be made in quality ways that deliver greater benefits.

Less Branding

Brand loyalty is on the way out as people are looking to their friends and networks for the thing to buy; whats hot and whats not.  In some ways this is a logical extension of how shoppers get their information.  This is a fundamental shift and has many interesting ramifications!

Magazines, newspapers, and broadcast marketing to develop a brand is waning. That leaves vendors without a key tool they always used to develop their brand.  They are transitioning to the internet  and email but that is a personal medium where most email that is not personal gets filtered out with spam before it reaches the shopper.  That means the branding will shift to the local level.  Retailers will be in a stronger position with vendors since the market development will depend more on them.  Look for vendors to shift more marketing funds and efforts to the retailers!

Look for vendors to search for technology and other features to drive their lines.  No longer is fashion the key driver since those fashion statements were driven by mass marketing.  With people looking to what their own network is wearing, they will be less driven by a fashion trend than in the past. That being said, technology of new fabrics, function and design will eat away at the emphasis on fashion.

Brands will come under pressure from shareholders to maintain traditional profits.  To do that they will need to expand their customer base or raise their prices as those that qualify to buy at the high end shrinks. Some will dilute their brand to sell to the less affluent. Others will maintain their quality and brand image to sell to a smaller pool at a higher margin.  Retailers will have similar pressures to either stay the course and find ways to stay profitable or expand their target to change their focus to attract a larger client base.

Technology has redefined the fashion world. When a vendor could create a fashion and be exclusive for a season the brand image meant a lot. Today when a fashion is launched on the runways of Paris, technology allows it to be knocked off in the factories of China so the exclusivity may last a couple weeks.

One example of this move is the Vibram 5 finger toe shoe.  The design looks awful but has technology features designed into it all over! You probably have not seen an ad for it because their investment has gone into patents and aggressive protection of those patents.  The design is “foot functional” rather than fashion desirable and retailers can’t keep them on the shelf. Word of mouth in networks of runners and other young people are driving brisk sales.

More Need and Less Want

Future customer service will focus on developing networks and relationships through the networks.  More time will be spent communicating individually and electronically and less will be spent mass marketing in the media, direct mail and broadcast. Customer service means different things to each person and the best retailers will look for those differences and customize their “service package” for each customer. That will be a differentiator!  Technology can help log that information  and guide the building of a strong relationship.   Need will show up in more than just product and the best retailers will provide the retail experience, service and product that fills the need of each customer.

Events and experience will become more important than particular lines or brands.  The store experience will be much much more important. The words DYNAMIC AND SPIRITED jumped off the report.  What words define and depict your store and the experience your customers receive.  What feelings and emotions do your customers feel as they leave your store.

Mass media, broadcast and direct mail will all continue to wane. Why do you think the post office is hurting so badly!  Newspapers are going out of business on a consistent basis. The customer is smarter and more informed due to the internet and the networks of friends comparing information and data. When you are in a group of people under 30 and you want to go out to eat, phones come out and heads go down and  people get on their phones to type in yelp.com or some other evaluation site on the internet to see how many stars their friends rated the place!  They are doing that with your business too.

Summary

You must make sure that your customers are talking about you; you can’t be talking about yourself!

Vendors are becoming less important as customers are becoming more so.  Retail is changing in fits and starts. Nothing will always work but ideas that fit these changes will work more often as time goes on.

By Evan Wise and James Hallman

The most successful retailers focus on the fundamentals and not the excuses that surround us. If you can’t control it then it is likely an excuse. One very controllable and important aspect of your business is the turn rate of your merchandise. In fact, the best indicator of retail success is GMROI and Turn. This article will focus on turn.  In order to make sure clients were comfortable with the importance of turn rates, James Hallman, Management One retail consultant in Atlanta developed this explanation for his clients.

“A few folks have mentioned that they still get a little confused with merchandising terms like “inventory turns”, etc., and exactly how it affects profit in the business. The purpose of this story is to try to explain inventory turnover in an entertaining and enlightening way.

It’s enough to drive you BANANAS!

The phrase “going bananas” means that someone is “very frustrated”, or maybe even “gone crazy”. I don’t know how bananas got hung with such a rap as this, but let’s use this humble fruit to de-fuse some of the confusion on this whole issue of “inventory turn”

Bananas are an interesting fruit- they come in their own zip-lock covers, and they are good for you. I personally love to eat bananas. So do a lot of other people.  So, to better understand what inventory turn means, and also to help answer the question of “What does turn mean to me?” let’s go into the banana business together…

Let’s say we own a little fruit stand, and from this fruit stand we sell bananas. We buy our banana stock from a local wholesale market. We pay 40 cents for each banana, and we sell it to our customers for $1.00.  We sell, on average, 100 bananas per week (remember, it’s a small fruit stand).So, bright and early, each Monday morning, before our stand opens, we go to the wholesale market, show our ID cards to prove we are real-life retailers and have a right to buy at this wholesale market, and we buy our 100 bananas.

We pay $40 for these 100 bananas. Our inventory investment in these 100 bananas is $40.  We work hard for six days, and by Saturday night, we have sold all of our bananas. We made a $60 profit on our $40 investment.  We turned (bought and sold) our inventory of bananas one time that week. We take Sunday off- we deserve the rest!

Now, over coffee before going to market next Monday,  we discuss how can we do more business? “Well,” you say, “almost every customer who comes by the stand to buy bananas asks me if we carry apples. I think we could sell some apples, if we had them.”  I agree, since many of my customers also asked about apples.

We decide to do some high-tech market research.  All the following week, whenever anyone asked us about apples, we put a hash mark on a sheet of paper. By doing this, we determined
we could sell at least 40 apples per week. We can get the apples for 50 cents each, and sell them for $1.00.  We only have one problem. We don’t have an extra $20 to buy the 40 apples!  We only have $60, and we need $40 of that to pay for our 100 bananas. All the meager profit we make each week goes to pay the rent on the fruit stand, and for us to live on.

We think about borrowing the extra $20 from your Mom, but you don’t want to ask her – and she doesn’t like me at all!  Oh, what can we do?

“Eureka!”, you exclaim. “I know what we can do! This Monday morning, we’ll go to the market as usual, but instead of buying 100 bananas, we’ll only buy 50 bananas. With the $20 we save, we’ll buy our week’s supply of apples!”
“But if we only buy 50 bananas, we’ll run out of bananas”, I note.

“Not really”, you say, “because we’ll make an extra trip to the market Thursday morning, and with the money we made from selling all 50 bananas and half the apples the first half of the week, we’ll buy the other 50 bananas we’ll need for the second half of the week”.

So, that’s what we do, and of course, here is what happened: Rather than investing $40 once per week to sell the 100 bananas which brings us a $60 profit, we invest only $20 to buy 50 bananas, we sell those for a $30 profit, get our original $20 back, and then re-invest $20 of it in another 50 bananas which we sell the other half of the week.

Now, we are making the same $60 banana profit on a $20 investment because we buy 1/2 the bananas twice as often during the week. With the other $20, we buy our week’s supply of apples. By selling the apples, we make another $20 profit. So now, our same $40 invested in fruit is returning us a profit each week of $80, rather than $60.

That is what inventory turn is all about: buying, selling, and rebuying the inventory more often during the same time frame.  And, it won’t take us long to realize that we don’t really need to buy our entire week’s supply of apples all at one time, either.  After all, some customers have been asking about oranges…

Note: To improve your fruit stand’s inventory turn, it is vital, even critical, that you know how many bananas you can sell per week and apples, and maybe even oranges.. Of course you need to know the balance and flow of the inventory since some people that bought bananas may now buy apples INSTEAD of bananas.  Apples are not in season all year long so the price fluctuates as does the availability and demand for each fruit. That is where sales forecasting and inventory planning comes in…

This parable helps us understand why merchandise planning is at the heart of retail success. In our fruit stand we minimized our investment and maximized our return. This is not only critical to a retailer, it is obvious. The problem is that achieving that depends on understanding many important factors.  Let’s review a few:
The demand forecast for each classification must be accurately determined. That means that we know how sensitive the demand is to price. If we raised the price of our bananas, what would that do to  the revenue we earn on bananas? If the increased IMU does not decrease demand, we now are making more profit. If the demand drops so the margin drops, the IMU was too high. When we know the demand curve we can maximize the profit  or margin on that classification by applying the right IMU.  We must know that to determine the right balance and flow to the inventory plan.

In our fruit stand, the improvement worked because we had goods available every day. In a retail store, that is not the case. That means that the order cycle and delivery flow must match both the demand for merchandise from the customer AND the demand for payments from the factors and vendors. Imagine what happens to our ability to buy new bananas if we bought 100 last week and only sold 80 of them.  Since no one wants brown bananas, we need to take markdowns to get rid of them. The more extra bananas we bought, the more the markdowns will kill our profits. Now imagine the complexity in your business of projecting the flow of inventory months ahead of time. The need for accurate planning and implementation of the plan is critical.

The bottom line is that success starts with an accurate sales forecast. There are many methods to develop a forecast.

• Certainly a retailer can take an educated guess based on what he sees happening in his business.  Many do this but few are successful over the long term.

• Another method is to use statistics to review the past history of sales, markdowns and receipts and project that into the future.  This is a step up and will help factor in the store’s capabilities and customers.  Unfortunately that is not the whole story as many retailers found out when the recession hit. The past was not indicative of the future.

• Another method is modeling where many variables that determine demand and sales are formulated into an equation. Each variable is analyzed and a forecast made into the future. The formula then projects the future sales.  This was the method that told us of the impending recession and the subsequent turnaround.

• Certainly the BEST forecast comes from a combination of all of these methods.  Input from the retailer that is used to adjust the actual performance the retailer experienced is combined with the computer modeled forecast to arrive at an accurate sales prediction and demand forecast.

A successful fruit stand depends on a fast turn of merchandise. Your retail success depends on turn too.  Turn is controlled by sales and by inventory. A merchandise plan is only as good as the sales forecast. The better the forecast, the better the turn. Bank on it.

Nicki Weiss, a sales consultant that happens to be a cousin of Neal Esserman, writes an excellent newsletter (you can sign up at www.saleswise.ca)    She wrote an intriguing  article this month which is relevant to those hoping to benefit from consulting, discussiong how disturbances are necessary for effective consulting.

A disturbance is an “outbreak of disorder”  and it is a cause for reflection. On a grand scale the oil spill in the Gulf is a cause for reflection on drilling more wells, our environment and our sources and uses of energy.  The recession caused us to re-think our oversights and limits on the financial industry.

On a more meaningful scale for consultants and those who use them, disturbances are cause for evaluation and productive thinking about new solutions.  The monthly plans are a great tool to cause disruption and highlight disturbances. M1 plans help businesses highlight disturbances that are cause for re-thinking what is being done in the business AND changes that are needed to redirect efforts.

EVERY month a consultant’s role in the business is not just to deliver plans. To maintain maximum effectiveness they must:

1.       Create appropriate disturbances

2.       Collaborate to find appropriate actions

3.       FOCUS- FOCUS- FOCUS

Businesses are bombarded daily with personnel issues, inventory problems, sales issues, merchandising problems, marketing challenges, financial considerations and vendor queries. They probably are also dealing with family issues, parent problems, children and social demands as well.  If consultants are not providing FOCUS for them to make sure the most important things are being done, they risk becoming another complication in their lives and not a solution.

There is a dichotomy in that to get action consultants must create a disturbance. To get results they must create focus on which of the many disturbances in their lives are the most important.

Those are some of the conclusions I took from Nicki’s article.  Read it and let me know if you agree or find other conclusions.

Have a great Month

Evan

I just got off the phone talking to new business owner.  She told me, “ I
want  to make the right decisions from the start.”  The importance of making
key decisions correctly to get the new business off the ground is never more
important than in the months BEFORE the store opens. Many new retailers buy
way too much of the wrong merchandise and never get out of the hole they
create.  I have even seen the grand opening marketing paint a different
external perception than was evident in the merchandise and operation.
Enthusiastic customers were quickly turned off.  Everything must be focused
and consistent as you never again have the chance to make a first impression
on as many people as you do your first month. The mistakes you make early
can linger for a long time.  Having a well defined direction and strategy is
critical for success.

I’ve even talked to a number of experienced retailers whose efforts to
improve their business are lacking a well defined strategy. They lack a
methodology for defining their goals, measuring improvement and then
gathering feedback on what they attempt. That approach introduces waste into
their efforts to grow their business and blurs their successes into their
failures. Consider the toll a lack of strategy places on marketing efforts.
Questions like “Who is the target of a campaign?” “What is the message?” and
“What are the definitive goals?” are frequently never addressed or
understood before spending $1000 on an ad in the Sunday paper. Too often the
importance and  value relative to the cost for social networking and email
contact are significantly underestimated. The result of this lack of
information is, ultimately, lost opportunities and a correspondingly
diminished ability to adapt and improve.

Without a solid understanding of the target customer, the desired image they
should have of the business and ideal merchandising and sales techniques to
solidify that image and close the deal, what could be profit is squandered
shooting at a target that isn’t clearly visible. Effectiveness is diminished
across the business. Nearly all aspects of the business are impacted
negatively; assortment planning lacks a consistent theme, choosing the right
goods is not focused on the target customer and identifying  what skills and
traits are needed as part of the process of hiring a new employee is
neglected, leaving a weak staff. The list of actions that can benefit from
decisions based on  a clear direction and strategy is long.

In Management One there is a strong underlying theme that growing a business
is paramount. Growing a business means getting the most return on the
investment in inventory WR (Winning@Retail), people WB (Winning@Business)
and cash WF (Winnning@Finance).

We start with W@R for retail clients because it is easier and the return is
faster. Owners can identify with it. The reason for starting on merchandise
planning and Winning@Retail before W@B is that it allows us the chance to
pick some low hanging fruit while helping businesses ramp up for the slower
yet critical process of changing culture and practices.

When a retailer has only one eye to watch his business, strategically
focusing that eye on continuously improving the bottom line is critical.

The Future of Shopping

This may change brick and mortar instead of just fitting rooms!  WOW! How do you see this changing the strategy for your client base?  Imagine loading your inventory into your pos system and then customers just pick what they want from a unit like this.
Thanks to affiliate <a href=”http://www.management-one.com/about/affiliates.php?affiliate=r-natelson#bio” title=”Rick Natelson in Monmouth Junction, New Jersey” alt=”Rick Natelson in Monmouth Junction, New Jersey”>Rick Natelson, in Monmouth Junction, New Jersey</a> for sharing.

I am sitting on Southwest Airlines flight #621 from Jacksonville, Florida to Vegas on my way back to Tucson. I have often read about how SWA is able to be profitable due to better efficiency, but seeing is believing.Imagine a contest where you have 100 numbered chips and 100 numbered holes. Your task is to put each chip in the hole with the matching number. Your opponent has 100 chips and 100 holes. His only restriction is there is only one chip per holes; he can put a chip in any empty hole. Who would win the contest to fill the spaces the fastest?

Other airlines assign each passenger to a particular seat while the SWA group flows into the empty spots. In addition, before the inbound plane landed, the crew was already lining the next load of passengers in an organized queue.

This is just one of many clear examples of the need for a well crafted system to create efficiency and productivity. SWA does not necessarily hire better people than other airlines but they do provide the training system to assure success.

When I go to retailers who have huge stacks of inventory in back rooms where it can’t be sold, I wonder what system change could be implemented to increase productivity. There are many systems in retail that contribute to success and consistency. Don’t believe it? The biggest retailer in history, Walmart, figured out the importance of the right system for buying, selling and distribution and then used it to crush competition.

Retail is Detail and the more organized your decision making, planning, operations, buying, marketing and selling can be, the more smoothly your business will flow. The more your systems are focused on your strategy and goals, the more successful you will be!

Thanks very much to Cathy Wagner for sharing <a href=”http://www.stores.org/stores-magazine-april-2010/guess-what-men-shop-too”> this article!</a>

Imagine it’s the old west. There’s a scrufty man who looks older than his years because he is unshaven and worn from the sun and time spent looking for gold in mountain streams.  He has a pack on his back and a shovel by his side.  His only protection is the gun lodged in the holster strapped to his belt. His boots, once black, are a gray from the scuffs and years of hard use and abuse. He is sitting by a stream looking for his fortune in nuggets of hope.

Fast forward to 2010 and the streets of NY. There is a scrufty man who looks older than his years because he is unshaven and wron from the sun and time spent pan handling for loose change and morsels of food to get through the day.  His only protection is from a blanket lodged in the bag hoisted over his shoulder that contains all of his possessions.

Two strikingly similar pictures that evoke two strikingly different responses. The first reaction is romantic and nostalgic while the second is pathetic and sad.  I struggled to find the reasons why our emotions are sent in such vastly different directions. It might be because one is here and now and the other seems far away. It might be that there is no chance we see ourselves in the first picture but in our heart we know that the second picture does not contain us due to the grace of god.

I prefer to think that the difference is lodged in the hope for the future that the first picture paints. There is a man with nothing, full of hope that he will find a morsel of gold that will lead to the strike that will bring him riches and good fortune.  That hope brings purpose and direction to his life.
The second picture is of a man that has given up hope and is trying to survive each day. He has no direction and no future.  In our mind he has no vision for the future.

Purpose is so important to our mental health and health of our businesses. What we hope for powerfully influences the way we think and feel. Our customers form impressions of our businesses based on what purpose they see a business as having.  I was at a client this week in Norfolk Virginia. They have a jewelry shop and they also have a strong commitment to make their business be a part of making a better community. They give generously to charity and community functions. When there are no requests the seek  out chances to make a difference.  Now they are adopting a drive to get the entire staff more involved.  Their business has a purpose that transcends jewelry and their shops and it affects the entire community.  Their business is growing as well.

A lot of our clients ask us about taking on consignment goods.  At first,
this seems like a dream come true – you get goods in the store that you
don’t have to pay for until they sell.  And if they don’t sell, you just
send them back.  Great, right?  Well, maybe…

There are a few definite downsides to consignment goods that retailers
should be aware of:

• Sure, you can send the goods back, but that means you are paying double freight for stuff that didn’t sell.

• What is the cost to you to have your staff (or yourself) pack up these goods?

• What about accounting?  This definitely adds time to any accounting that you do to keep your books straight (not to mention your POS system!)

• Moving goods in and out this way can confuse your customer. A retail store has no better marketing than having the right goods at the right time.

We do recommend consigment goods when you are learning about a new line that is untested, or if you are having very difficult cash flow scenarios.  Of
course, difficult cash flow scenarios typically come from either buying too much inventory in the wrong classifications, or too much inventory in
general, and that’s what solid open to buy planning prevents (OK, a not-so-subtle hint, but I do believe in that strongly, so I had to stick that in there.)

The recession isn’t over yet, so these kinds of issues must be carefully studied to ensure positive cash flow and success.

Dan Jablons
Retail Smart Guys
www.retailsmartguys.com

Adapting has been a series of topics as to how the recent changes in the market, economy and retail world are affecting your business. This is the fourth of the series by Evan Wise.

Another trend that the recession has accelerated is the rapid change in marketing. In days gone by, retailers would send direct mail pieces frequently and fill the newspapers with weekly advertisements. Today that is quickly changing. The postal service is upside-down economically, so twice a year we see postage rates increasing to keep up with its finances. Certainly the drop in mail volume is due in great part to the e-mail that is sent for free over the internet. Another factor, however, is the drop in bulk mail and direct mail advertising sent by retailers and other businesses. Newspapers are shutting down their presses too as there is less print advertising being done which supports the papers.

The replacements to these forms of advertising are many, including social networking (Twitter, Facebook etc.) that are more targeted and less expensive. Marketing has become more fluid as customers move from venue to venue. An upscale customer may shop in a luxury boutique in the morning and stop into a local shop on the way home.

The ability to stay in contact with customers rather than advertise to them has become the key. A successful retailer stays at the top of his/her clientele’s mind so at any time a shopping decision needs to be made, his/her store is the first option the customer sees. That is difficult to do with a weekly ad or a monthly postcard.

New breakthroughs in communication technology have created the opportunity to provide a more targeted, personal way to match your offerings with the customers’ interests. With Twitter reaching them once a day and e-mails reaching them three times a week, the historical goal of sending a message seven times is easily reached.

In addition, the technology is becoming so sophisticated that customers can be broken down into 30 different groups with like needs and wants, and targeted communication that hits their personal hot buttons is more effective. Hitting those personal hot buttons is more important now as people are bombarded by more marketing all the time. The close contact and personal messages that the independent retailer provides are a major way to rise above the din created by constant marketing by competitors. That is one reason it is critical to define your niche and stay there! You must mean something to your target market.

Another important marketing tool is your website. Although internet sales are beyond the scope of many independent retailers, an attractive and targeted website is essential. The Yellow Pages are struggling like newspapers and the post office because people now search the web to find stores. A website provides much more information and is more adaptable to exactly what the customer is looking for. Isn’t it time to give your marketing a makeover?