By Paula Rosenblum, Managing Partner
9/30/2008
Okay, we get it. We’ve got ourselves a real problem with the economy.
Even the most festive rose-colored glasses won’t shade our eyes from the specter of a $700 billion dollar bail-out of the financial industry coupled with the implosions and/or fire sales of Lehman, Goldman-Sachs, Morgan-Stanley, Fanny, Freddy, WaMu and most recently Wachovia, just to name a few.
Ironically, the spate of bank and investment bank failures hasn’t affected consumers directly so far. If anything, amid talk about inflation, gas prices have stabilized and food prices are creeping down (at least for some staples). Nonetheless, even an economic neophyte can see the writing in the tea leaves. This isn’t pretty.
Prognostications on expected holiday sales have also begun. The National Retail Federation (NRF) predicts an anemic rise – 2.2%, while more Grinch-like TNS Retail Forward predicts the worst holiday season since 1991. We’re not sure what TNS based its prediction ON exactly, but the US mass media (including the Wall Street Journal) picked it up and spread it like cream cheese on a bagel. We sometimes wonder if the media understands it’s busily sawing off the same branch it is sitting on. Get people nervous enough, and advertising revenue will really plummet. Every action has consequences.
So what the heck is a retailer to do? Just going down market doesn’t seem to be the answer – dollar stores (the cheapest of the cheap) aren’t haven’t a very merry time. And the high end of the retail marketplace, hitherto “recession-proof,” is getting the stuffing knocked out of it. This also presents something of a dilemma for us at RSR. What can we advise our retail readers when there’s a good chance there won’t be a lot of Winners this Christmas?
As retailers ourselves, the first thing we do is hit the stores, and see what “feels” good and what feels bad. We then look at our research and seek correlations. Here’s what we came up with.
Resist the temptation to hit your open-to-buy numbers at the expense of in-store inventory positions.
When sales decline, open-to-buy evaporates. Without a sound technology foundation and very granular views into demand, retailers run the risk of presenting empty shelves to consumers, while they have back rooms stocked with merchandise no one wants to buy (that’s one very bad way of keeping turn constant). This may sound like Retailing 101, but you’d be surprised how many stores have huge holes in their planograms at the same time as they are reporting sales shortfalls. It really is time to move beyond spreadsheets and department level plans and get to sku/store assortments.
Price sensibly, and focus on value
Wal-Mart’s recent success indicates that shoppers are, indeed, trading down. But at the same time, Wal-Mart’s messaging has changed. Commercials no longer show pictures of bouncing yellow smiley faces and people in blue aprons. Instead they show vignettes of savvy consumers enjoying their lifestyle with friends and relatives, at bargain prices. Heck, they’re even eating steak. The keyword is VALUE. Higher-end Whole Foods Market has begun to falter…not necessarily because customers are trading down, but because key items are priced too high. On the one hand, a Whole Foods shopper can certainly afford to pay a dollar for a bottle of seltzer. But when that exact same seltzer is available at the local supermarket up the street for fifty cents, the credibility of the entire chain starts to come into question. This is the value of price optimization technologies…helping a retailer come to the right pricing mix.
Resist the temptation to cut payroll to the bone. The customer still has a lot of options.
We know many retailers have made investments in workforce management and task management systems. Use those systems to allocate the workforce wisely, not just cut labor hours. Retailing’s graveyard is filled with executives who trimmed their in-store workforce to the bone, only to find customers and shareholders revolting.
Consider SaaS for technology investments
Over the short term, capital may be hard to come by. Software as a service (or SaaS) allows a company to buy only the number of transactions and horsepower it needs. Non-intrusive optimization technologies can often bring rapid ROI by taking sales and order information and spitting out better assortment and pricing plans.
Don’t forget sustainability is also cost-saving
The green movement is more than just a feel-good exercise to placate customers. Hard savings can be achieved through a reduced carbon footprint. Reducing energy consumption at stores and distribution centers translates into cash conservation too. And reduced energy consumption is more than just putting a lock on the thermostat in stores. Investigate those technologies with gain sharing as a means of payment.
Create a new short term definition of “Winning”
RSR typically define Retail Winners as those whose year-over-year comparable store sales exceed the average, which we somewhat arbitrarily peg at 3%. Now we have to ask ourselves, is it possible we won’t have a quorum of winners at the end of 2008? And if that’s true, what can we use to measure success in the short-term? At the end of the day, it may well be all about the brand. Coming out of this holiday season, which retailers’ brands will stand strong, and which will be tarnished? Which retailers will be poised to bounce back, and which retailers will be still making amends into 2010? We believe following the steps above will help retailers get ready for the next upswing.
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