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.

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.

Please help us give her a warm welcome to the M1 team.

Cheers

Evan and Marc

David is anxious to learn and looks for new and constant challenge. We all look forward to providing him with that challenge.

David’s contact information is below.

Cheers

Evan and Marc

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’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.

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.

During the meeting many affiliates were honored and recognized for their accomplishments.  The most notable achievement was  received inducted by James Hallman as he was inducted into the Founders Club for Management One. The Founders serve as an Advisory Board to the Management One directors as they endeavor to continuously improve and provide the very best state of the art management tools and resources for all affiliated consultants to bring to the aid of clients. James said, ‘I am proud to be associated with this network of affiliates throughout the country and in Europe, and serving in the Founders Club will allow me the opportunity to both receive and provide more insight and direction for the future.” We welcome the many contributions that James will offer and congratulate him on this lifetime achievement.

James also received the first Client Retention Award for having retained the highest % of clients over the past year, which just happened to be, as you are well aware, one of the toughest years in history for retailers. James kept more total clients than any other affiliate in the group during the year.  The meeting and the focus for this coming year will be on client retention and service.  The competition for this first retention award was stiff as John Adams and Ken Rodriguez challenged in second and third place.

In addition, the first sales contest was held and the winners were Dan Jablons and David Leib of Retail Smart Guys  and also Alan Roseman and John Adams who teamed together for the contest.  Cash awards accompanied the sales contest winners.

Dennis Levine, another member of the Founders was recognized for his 20 years of dedicated affiliation to Management One. Dennis was the first affiliate to join Management One and he has been a steady contributor through the years.  Dennis and John Adams are both serving as mentors for new affiliates in a new program to bring affiliates to the team with the training and support needed to assure each client will get the best information and guidance possible.

Overall, the mood and tone of the meeting was much lighter and much more upbeat than this time last year reflecting the rebound our clients have made. The best performing stores are beating their numbers from 2008 and, while no one’s crystal ball is perfect, our feeling is that economically the bottom has been hit, and now we can stabilize and grow forward. Where during most of 2009 we were focused on defensive measures, now is the time to go on the offense. There are fewer competitors but the  competition out there in every market will be more intense and effective. There is  large pool of qualified and experienced labor to draw from, and customers are much more confident and more willing to spend more often for what they want. We are poised for a great year!