7 things that retail must keep in mind to forge profitability

Over time, through trial and error, strategic and tactical shifts, many a retailer is now turning the all important corner, on their way to seeing sunshine at the end of the proverbial dark tunnel.

The first step for most retailers lies in achieving breakeven and profitability at the store level, followed by the same at the business level.

Here are a few pointers for those who may still be struggling :

a)      Remain consistent with your proposition – Do your home work right before you select and then execute the chosen proposition. Nothing confuses customers more than rapidly changing propositions and promises. Consistency in execution of your chosen proposition through stores, through the assortment mix, through communication and through staff is key. Frequent changes can hurt sales growth rates and set you back by a few months, if not years.

b)      Push like to like sales growth – (1) Look at a retail business granularly as a sum of individual parts and not always from the top through the prism of the brand name. Understand and review issues plaguing individual stores, unlock their potential by co-relating what issues may be preventing growth basis an understanding of their sales trends, their customer complaints, their category level sales, inventories, their manpower and attrition levels etc; work with downstream teams and form your own hypothesis of what ails the store or a specific catchment. Unlock growth potential by working on solutions that impact customers. (2) create positive network effects through multiple initiatives and engagement with diverse sections of the target audience who value the brand for completely different set of reasons and ongoing engagement with whom can unlock both positive buzz for the brand as well as enhanced sales. (3) Add new or missing links to the portfolio. These in most cases tend to be either obvious gaps that for reasons of brand fit / cultural fit / competitive differentiation are often left out of the portfolio or are completely new additions which add to true variety in the store and can have a dramatic effect in the way customers perceive the brand and buy from it.

c)       Enhance sales throughput across the business – this is essentially about enhancing productivity at each point of sale. Given the large proportion of rentals in the overall cost structure, it is important to ensure that space in the store is utilized well and turned around optimally. This means (1) that every store must carry the most optimal mix where each range serves a designated and predefined purpose (as say the mass mover / image enhancer / for the connoisseur etc) and achieves its desired velocity. (2) For ranges that are underperforming evaluate a change in visibility or position.  While every store does carry some additional range over and above what sells, it is critical to refine the mix being carried to better reflect the taste of the catchment where the store is located. (3) Add categories if required or give double facings to potentially large categories. (4) Ensure that random and thoughtless layout changes are minimized and changes that are made must be monitored for effectiveness. (5) And if everything seems fine while the sales throughput is still low, evaluate whether giving up a part of the store space could help save valuable rental outflow. Almost all successful retailers have optimized their store sizes over time. (6) Additionally evaluate multiple times a week deliveries into the stores for faster moving goods

d)      Nudge retained gross margins higher – (1) the first part is to push earned gross margins higher through fundamental programs like a planned change in the merchandising mix in favour of higher margin categories or change suppliers or negotiate better returns with existing suppliers (through higher margins, better supply fill rates, higher samplings and promotions, lower inventory holding  etc). (2) Enhance the proportion of private label in the portfolio has been a favourite for many of the retailers as have been (3) avenues to earn more through in-store advertising, events, promotions and even listing of new products. (4) Moving from an owned stock to a concessionaire model in key categories could also greatly help shore up margins. (5) Identifying stores where margin mix is relatively lower will help you understand and develop specific initiatives to push margins there and help the overall business.

e)      Monitor and plug leakages, wastages, et all. Just as it is important to nudge earned margins upwards, it is also critical to establish all potential sources of margin leakages. There could be potentially several areas to look at. These include – pilferage by customers and employees, cash points where cashiers get away by not punching a few bills or not punching all items in every bill but collecting the money from customers; deliberate in-warding of stock in excess of what is physically received on the shop floor to the benefit of the supplier;  outward movement of material for home delivery in excess of what is ordered by customers or even outward movement of good stock in the guise of garbage disposal are just some of the potential leakage sources of revenue and margins. In-accurate counting and collating of stock remains one of the big bugbears of the retail industry in general and identifying sub categories that contribute to greater Wastages and inaccuracy can help plug some of the gaps through more frequent and continuous counts and checks. Dump especially of fresh produce can add up to potentially huge numbers and optimizing that loss by reviewing order and sales patterns and having specific programs to enhance daily sales to reduce wastages could work wonders.

 f)       Be frugal in your expenses – retail businesses in general have struggled to make money and in this context it is pertinent to understand that controlling expenses of all kinds and being frugal in the way the business is conducted helps send the right signals to the rank and file across the organisation. Simple structures is the need of the hour where employees must be encouraged to multi-task. This means controlled or no hiring at the store and at the business level unless absolutely necessary in the interest of generating higher revenue; negotiating hard for every rupee to be spent including for repair and maintenance; evaluating models from the perspective of reducing long term expense outflow where you pick up the entire fixed cost vs only the variable cost and evaluating whether feel-good programs pushed by different individuals or functions need to be acted upon at all. Marketing expenses unless absolutely necessary from the perspective of adding value to the business fall in this category.

g)      Speed of decision making – For day to day decisions, - efficient retail businesses are somewhat partial to faster decision making not just because the response can be almost immediate but also because decision points are several and speed in thinking and in execution really sets the pace for everyone down the chain and more often than not results in visible and discernible differences for regular consumers, something that they appreciate and keeps bringing them back.