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Take stock for tough times
Opinion: Even with falling sales, innovation creates an edge

By Ged Keogh-Peters

Published: Thursday 24 July 2008

Retail sales figures out today show the sharpest monthly decline for decades. History suggests those retailers that continue to focus on innovation now will emerge as winners, says Ged Keogh-Peters.

For retailers, now is the time to be looking at ways of maximising value. But not all changes need to cost a lot of money.

Retailers can gain significant benefits by focusing on the following key areas:

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Manage the top line Think about price positioning and how this is being communicated to the customer. With recent research suggesting up to 30 per cent of customers are much more actively seeking promotions, it is important that pricing is in line with the market and that the message is delivered clearly.

Control markdowns Poorly managed markdowns not only hit the bottom line but are also a real issue for brand integrity. Customers quickly learn when to shop the sale periods. By adopting a more focused price reduction policy - aimed at pulling demand forward and clearing stock more quickly - real benefits can be achieved. A gross profit improvement of 21 per cent in this area can be gained by taking more aggressive reduction decisions earlier in the sales cycle.

Remember the customer matters The conversion rate doubles if a customer receives help within 30 seconds of needing it. When no contact is made within four minutes, half the shoppers will choose to leave rather than remain in the store. Staff need to be aware of the importance they play in the sales process and be incentivised appropriately.

Too much choice isn't always a good thing In a tough market, there is a danger of stock-keeping unit (SKU) proliferation. Complex ranges confuse customers and typically lead to higher markdown levels. There are excellent examples where retailers have reduced SKUs by 20 per cent and enjoyed a three per cent increase in sales. Reducing range complexity can improve all other parts of the business - from forecasting through to supply chain - and can unlock working capital.

Make the most of space Customers decide whether they wish to pursue a product within eight seconds of seeing it, so it is crucial to make sure they can find it displayed in the best way possible. With limited investment in fixtures and fittings it is possible to create a much more appealing shop environment. By addressing display adjacencies, a 17 per cent sales increase can be achieved over and above the store average.

Maximise staff Labour is the largest controllable expense for most retailers, yet many fail to fully understand how long tasks allocated to their staff can actually take. Typically, the end result is reduced time interacting with customers. Retailers who can lower their labour costs equivalent to one per cent of sales can typically expect an improvement worth between 10 and 20 per cent of gross margin.

Manage stock wisely If stock is not available on the shelf at the time of intended purchase up to 40 per cent of customers will either not buy or go somewhere else. Maximising on-shelf availability can have an enormous impact on the sales line. With no investment in additional stock it is often possible to improve availability by between 10 and 15 per cent simply by redistributing products already in the business to the areas where it is most needed.

Optimise the sourcing mix The desire to reduce costs has led to rapid growth in Far Eastern sourcing, yet this may not always be the best solution for a business. Speed to market can often result in improved sales through competitive advantage. Retailers should be looking to balance their supply portfolio to achieve the best results. For instance, a potential five per cent reduction in landed cost price should be set against the potential two per cent margin benefit available from reducing lead times by two months.

Work with suppliers, not against them Collaboration with suppliers offers some very real benefits. Through initiatives such as category management, design for manufacture, administration reduction and product flow re-engineering, there are very real gross margin benefits to be realised.

Ged Keogh-Peters is head of the UK strategy team at specialist retail consultancy Kurt Salmon Associates