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INDUSTRY INSIGHTS

  • 10 Nov

The critical measures of retail

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Alan Morris

By Alan Morris, Managing Director of Retail Assist

According to research published recently by Steria and Verdict Consulting, the barometer of success or failure for almost every retail business can be evidenced by five critical measures: footfall, spend per customer, market share, margin; and operations. Now more than ever, retailers need to ensure that their activities and strategies link directly to one or more of these measures. Failure to link to them and to monitor them on an ongoing basis can lead to declining sales, weak profits and eroded market share.

But why are these five measures so important? More significantly, what can retailers do to improve them, and do software solutions such as supply chain ERP have a role to play?

Footfall: The retailer’s lifeblood

Without customers, there is no business. But with more shopping destinations than ever before, winning footfall is getting harder. In 1999, 24% of clothing consumers visited just one store; today that figure is down to 15%. Fewer shoppers are hitting the high street and they are shunning the stores they once visited in favour of those that better meet their present needs. But, on the flip side, this promiscuity offers retailers the opportunity to attract new customers.

Given the different routes to market: the high street, internet, catalogue and concessions, the battle to win customers means that retailers now need complete visibility of spend and activity, presented as consolidated intelligence, across each and every channel that customers use, regardless of location, retail format and time of day.

As recently reported in The Times, UK fashion sales are currently worth £45 billion annually. Of this massive figure, 5% – 6% is currently derived from online sales, a share which is expected to grow to 10% – 15% within the next three years.

There can be no doubt that e-commerce has come of age. The unquestioned multi-channel dimension of retail has created a new imperative for supply chain solutions. They can no longer position themselves as primarily supporting high street trading, with additional channels as ‘add-ons’.

In terms of optimising footfall, supply chain solutions contribute significantly by streamlining warehouse and stock management. They automate numerous manual processes, resulting in improved stock availability in store. In particular, customer-facing processes such as effective ordering and communication that includes SMS messaging increase satisfaction and loyalty.

Spend: Where browsers become buyers

Fundamental to success is the ability to convert browsers into buyers and to encourage them to spend as much as possible in one transaction, thereby maximising the average transaction value. The key to improvement is to understand what customers want and to put compelling offers in front of them. Minor tweaks to the retail proposition can have a major impact.

Companies that have automated their supply chain enjoy access to tools including business intelligence and performance management that generate accurate and consistent information across the business. Real-time stock views and integrated WSSI give insights that can support precise, timely and profitable decision-making. Where system-led stock management is in place, buyers and merchandisers can focus on the new season’s buy and product exception management rather than waste their time behaving as glorified stock controllers.

Market share: Steal, gain and defend

In a contracting sector, retailers can grow share by stealing it from competitors, or by picking up sales from retailers that have gone out of business. In 2008, Verdict Consulting estimates that retail space accounting for £1.6bn of home furnishings sales was closed. Around half of this sales value will be picked up by other retailers. And, at the same time as winning share, retailers need to defend it. The trick is to stay aware of what competitors are doing to avoid missing out on any opportunities.

A critical element of competitiveness is being able to predict customer tastes and requirements, and then fulfilling them by having suitable product available at a compelling cost-point. Supply chain solutions equip retailers to improve supplier management and visibility, by facilitating harder negotiation that leads to better deals. Then, when it comes to supplier replenishment, functions such as the system-led creation of Purchase Orders can give greater stock accuracy, improved cash flow and better productivity.

Margin: It’s time to get creative

Current trading conditions have resulted in increased discounting activity. This practice, whilst aimed at increasing transactions, can reduce overall turnover and, when combined with the weak pound, is putting immense pressure on retailer margins.

With reported sales figures down, retailers need to question how discounting is affecting transaction volumes. If they are comparable or, worse still, down year-on-year, then launching promotions geared at increasing basket size becomes more relevant than discounting. In general, retailers need to be creative about supporting margins, whether by adding value to a product or being selective about when to discount prices.

Margin management is certainly made easier by the availability of accurate business intelligence, and by the consequent introduction of greater efficiencies throughout the supply chain. That depends upon the ability to automate wherever possible and use system functions to eliminate unnecessary manual interventions and time-wasting administration. Efficient processes and integration of as many the functions across the supply chain as possible into a cohesive mechanism can significantly improve productivity and margins.

Operations: Flexibility is the key

Many retailers have achieved cost savings by increasing operational efficiencies. Flexibility is the key. In these uncertain times, being able to quickly respond to new developments is critical. Savings can be made across the operation – from the supply chain and staffing, to back-office processes such as Finance and Accounting. And cost savings are not the only by-product. For example, a more efficient supply chain can mean better in-store product availability, which can improve sales.

A single integrated database for accurate stock management, managed by the supply chain solution, can deliver cost savings. Accuracy of information and stock inventory that seamlessly covers all routes to market means reduced inventory costs and improved ROI on stock. An automated solution enables retailers see where inbound stock is in the supply chain at any time, giving visibility of stock position. Plus a multi-channel single stock pool managed by the supply chain solution means improved stock availability and can lead to increased sales without the need to move stock around.

In summary, these five critical measures are a good barometer of retail trading health, and software solutions such as supply chain ERP are the ideal tools to monitor and manage them.

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