Retail: maximising performance in challenging times

Launched in the lead-up to the always critical Christmas trading period, Deloitte’s 2018 Retailer’s Christmas Survey revealed many operators were feeling optimistic about what was in store, perhaps off the back of increasingly popular Black Friday and Cyber Monday sales.

However, as we now see, Christmas 2018 didn’t deliver the sales performance many had hoped. With shopping centre foot-fall traffic the worst we’ve ever seen in the last two weeks of the year, many bricks and mortar retailers brought forward their Boxing Day sales to before Christmas, and then experienced a very quiet January.

The financial stresses of staying competitive in this perpetually challenging environment haven’t tapered. Common pressures such as increasing “sale” promotions and effectively (and economically) navigating digital disruption to innovate their offering and increase customer engagement are only increasing against the backdrop of increasing overhead costs.

While increasing top line is always at the forefront of a retailer’s mind, the success stories come from those that are constantly assessing profitability (at a granular level) and are agile enough to adjust their operations in a timely manner to respond to changes in both the market and consumer trends.

For retailers, data is literally everywhere, and it can be harnessed to tackle this incredibly competitive landscape.

Effective data analysis

Retailers are data rich, but we often encounter operators that spend disproportionate time and resources collating and analysing, and even duplicating across different teams, large data sets. The key is to swiftly translate available data into key insights that can then inform timely operational changes.

With the numerous data visualisation tools available today, interpreting data into instant insights that enable operational agility is increasingly easy.

We recently helped a retailer instantly view gross margin trend by location, category and product that drove a more agile approach to updating staff KPIs with the appropriate rewards to drive desired cultural behaviours.

Effective inventory management

Increasing “sale” seasons means retailers need to be smarter with their inventory management (movement) and discounting strategies. Having instant, data-led insights into what product moves best in what location, while maximising gross margin, enables strategic inventory management and drive sales volumes in the right location that positively impacts working capital.

Daily and weekly insights can help effectively manage inventory for investment into new products, and a range of innovative solutions are also available to move old inventory effectively and deliver value by unlocking (and improving) working capital.

Many retailers are using online discount sale channels to clear end of season or dated inventory. This can release working capital back to the business and allow investment in new inventory. The downside can be in the timing, as these options generally require placing stock on consignment and accepting low pricing. In-house data led inventory management decisions can be a more effective (costs and timing) way to increase realisations.

Maximise the operating model

Setting the appropriate KPIs and regularly measuring the effectiveness of the operating model is vital in identifying underperformance so changes can be made efficiently before profitable parts of the business are impacted.

Having the correct measures in place will make it easier to inform and influence the business to act with a sense of urgency when change is required to exit non-performing channels to optimise the operating model.

We’ve helped retailers quantify the true cost of doing business so that they can see whether their strategic investment is making a real impact on the bottom line. For example, investment strategies for bricks and mortar compared to factory outlets compared to concession stores compared to online must make sense and ensure that none cannibalise a retailer’s profitable footprint.

Stay out of insolvency

We’ve also seen many retailers entering into insolvency that have been caught with an inflexible business model (and usually a growing number of unprofitable stores) and that have been unable to reduce their high overhead cost structure.

These weaknesses make retailers vulnerable to ever-increasing competitive pressures. The right response can be the difference between survival (and success) and the demise of a business and its brand.

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