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Resolving Conflict

Why Are Vendors Still Running The Show?

After 30 years in this business I am still amazed how retail can literally be screwed by their suppliers.  I am not saying it is a lack of knowledge, a lack of systems or perhaps just a lack of scale or all of the above.  I thought the old days were over where it was every person for themselves but a recent assignment changed all that.  I am currently working in a very fragmented retail market.  Geographic obstacles as well as a lack of merger and acquisition consolidation has prevented the outlets in this trade area from reaping the supply chain advantages that most larger chains or chains with better density already enjoy.  This particular chain is a start up and does suffer from the all of the above scenario but in examining other chains in the area for a possibility of an acquisition or a roll up, most are years behind in inventory control, cash management and supply chain tightening.  An “independent” culture seems to reign here, usually the result of an entrepreneurial founder that has passed down the business to second or third generation private owners.  While in some cases, such as wholesale and supply, those markets can withstand competition due to high cost of entry, retail is no such animal.  Where there is dirt, a competitor can come in and if there isn’t enough dirt, cash or leverage can accomplish the same effect. Porter’s Five Forces still have credence in our economy and is very relevant in fragmented markets such as this.  Once the geographic barriers provided insurance but with information going global and price inefficiencies being exposed quicker, competition is quicker to respond.  To the good, the company I am working with is making a commitment to install IT systems that will provide them with good data.  To the down side, numbers are just numbers unless you have the human infrastructure to interpret and act on the numbers.  This variable cost as opposed to the fixed cost of the IT purchase is what they still balk from and what could be their undoing in the future.  Even armed with numbers, what is the guarantee that suppliers will provide better costs and services?  None unless there is a larger threat to their survival.  National pressure from parent company?  Very unlikely.  Unified front from retailer market through co-op, buyer groups or brokers?  Have not seen it yet.  Not only are we trying to leap into the future, we are trying to break years of ingrained behavior established by what worked in the past.  Yes, there are some young Turks or nationally controlled chains that are taking advantage of this inequality.  Dollar General is making impressive gains in this market as is McDonalds.  Does anybody see the writing on the wall yet?  If they have, they have not reacted.  Maybe we need to model Nebuchadnezzar and find our Daniel to interpret.  Even so, that is no guarantee to action.  Only when we can truly show a win-win for both supplier and retailer and actually have both parties believe in it will change ever occur.  In personal life and professional life….

Experience It!!

It has been a long time.  I have been working with a start up company and really enjoying working with the great people at this firm.  BUT.  Time to get back to the blog.  There has  been a lot written about Apple and the experience they provide for their customers.  The launch of the new I Phone proved again they are the leaders in tech but it is amazing how their stores are doing.  If you don’t believe me, check out their sales per square foot numbers.  Over $6,000 per square.  Try getting that in your box.  Why is the question?  We always try to model best practices or at least that is a minimum we should do as leaders of our companies.  Innovation and creating for the future is also critical.  Check out the HBR blog on the three boxes for a CEO.  What we need to focus on now is what the experience the customer has when they are in our location.  Questions, questions.  How is the curb appeal?  What do they see when they first walk in?  Are they greeted?  What is the appearance of the sales assistant?  Does the assistant have the product knowledge they need?  Do they up-sell without being obnoxious?  Does your team have the value added or servant leadership mission statement ingrained in their heads?  And most of all, is it a happy store?  I spend so much time harping on this I need to write a whole blog about it.  Happy stores create happy employees and happy customers.  If your store doesn’t meet these criteria you have some work to do.  Once we get past the basics then we can tune the customers’ experience.  What are customers looking for now.  If we look at Apple, they have hands on experience with items that make life “cooler”.  Many of the items are not exclusive but customers prefer Apple’s solution.  Why?  Because it is cooler.  But why is it cooler?  Because for the most part it looks cooler and the people that use them or explain them are “cool people”.   People feel cool when they leave and the emotion continues when they use the product.  The emotion is anchored to the product.  The only problem Apple has is that is not a consumable product.  That is why they have to keep coming out with new products and new applications to keep revenues growing.  Back to your store.  How can you improve customer experience and increase sales and profits?  One of my suggestions is to open up your store.  Many retailers believe in the pile it high and watch it fly merchandising philosophy.  If you are in bulk business or close outs that may work fine but in standard retail or the new retail, it is a killer.  No one wants to walk into a location and feel suffocated.  It amazes me how many retailers crowd their counter with crap.  Many counters have so much stuff on them that you can’t even see the cashier.  Clear it out!  Next, consider having someone on the floor that greets and assists customers.  Your customers will freak out at first because they are not used to being taken care of.  We have become so used to a self serve economy that human contact scares us.  That does not mean we still do not need it, even crave it.  Remember Alvin Toffler and Third Wave and Future Shock?  His words still ring true and we actually see it happening now.  People may embrace technology and the isolation it creates but still seek and need the “soft touch” in their lives.  As our stores become more complex with food service and other services that we provide, many customers are intimidated.  Do you have a coffee program that offers 10 different core coffees and 100 condiments?  Nice.  How much is used?  At NACS Coca Cola was demonstrating their 125 fountain.  125 options?  A little overkill in my opinion.  I did a survey after I tried it and I told Coke that I was not impressed.  I felt that such a machine would create a bottleneck at the fountain and I would not be able to serve customers.  Only one customer at a time?  Big problems.  Look at ATM or Redbox to see the lines they create.  We are in the convenience business and customers do not find lines convenient.  Look at fast food drive through.  How many businesses are going to remote kiosk or offering I Pads to customers so they can process their orders more efficiently?  All are our attempts to provide the customer more options but nothing is more helpful than a well trained employee.  I watched a webinar recently and it reminded me that the primary responsibility of a employee in a retail setting is to SELL.  Technology can help with passive options for the customer but we need to embrace the best of both.  Have a well trained employee that has technology to process the order quickly.  I believe that is where we need to go and with clean, open stores that are happy stores, we will go far.  Take care and be well.

Merchandising 101

One of the most challenging jobs a store manager has is placing merchandise in his store in a pleasing and effective manner.  Many times companies try to reduce the stress of this task by providing planograms, hiring field merchandisers, etc but yet I still see managers struggling with how to fit 10 pounds into a five pound sack.  Many times it is the marketing department that is at fault since we should not be trying to fill the stores to over flow for any reason other than insanity.  If a manager is struggling with the 10 pound dilemma, someone in the office needs to revisit the marketing plan and determine why we have so much stuff in our locations.  As someone that has been on both sides of the table when it comes to merchandising, I know that the best marketing plans do not always work out the way we would like them to.  But one of the most disturbing trends in our business today is the lack of execution in marketing programs.  Recent surveys have shown that as much as 60% of the marketing programs in retail are not implemented to specification.  Signs are wrong or missing, product not correct or quantities wrong or the entire program is missing.  When we set up our stores, we need to ask ourselves just what is the customer going to experience?  Recent additions to retail such as Apple have done excellent jobs in creating an exciting and captivating experience for the customer and their sales numbers show that they are headed in the right direction.  Of course they have a product line that has strong demand but how many obstacles can you put in the way of a customer when they are looking for their desired purchase before you lose them to competition?  Why would Apple open retail locations when they could just as easily sell their products over the internet?  For one reason only and that is they are increasing their sales by letting the customer experience the product in a controlled environment.  That is what retail is about.  Driving sales through customer experiences in an environment that can be measured and replicated, much like a scientific experiment.  So in looking at retail, what are some of the rules we need to follow to have a good shopping experience? 

One:  All product needs to have differentiation.  So many times I enter a store and it is a blur of product.  Tons of color, signs, and the pile high merchandising philosophy are the main characteristics.  Everything seems to blend into each other.  A customer goes into sensory overload and then usually shuts down.  As human beings we have to be conditioned to tolerate this setting.  If is usually only accepted during the holiday season when guilt and other emotions over ride the self preservation factor.  Even now though, we see a shift away from this merchandising philosophy.  The erosion of sales from brick and mortar to the internet where the customer is in control of the flow of products shows that even with such weighty emotional triggers such as Christmas, our need to escape this assault on the senses is winning.

Two:  Everything must have a price.  Not just a price but a price the customer can see and understand.  I keep reminding my clients that as our population gets older, signage needs to be more striking.  White space, font size and design become critical so confusion is avoided. 

Three:  What are you trying to sell?  What does a customer see when they enter the store?  What profit centers are you steering your customer towards?  If you have high margin products that you want to move, how does a customer get to them?  In grocery, we know that the perimeter of the store is the high margin areas while the inside of the box is the commodity section.  How does your store sell your higher margin items?

Four:  Watch your customers.  How do they move through your store?  As human beings we do not like to make hard turns but almost every retailer designs their stores as if we are robots making hard left and rights when really we like to move through a space in a circular motion.  How many Zen pathways is there that are left right left right?  Most are in circles so we may relax and move in a manner less stressful.

Five:  Where are you pointing your customers’ attention?  Most right handed people will look and move to their right.  Did you put all your great display and impulse items behind the customer?  Will they even see them as they move through or are they in the customers’ blind spots?

Six:  Impulse vs. destination purchase habits.  We draw people to our stores with destination desires but the goal of merchandising is to sell them more while they are in the store on an impulse basis.  Increasing customer count and average ticket are the only ways to really drive sales so if your merchandising program does not address both of these key performance indicators, you are in trouble.

So there we have it.  Some basic merchandising guidelines.  If your stores are following all of them, you are well on your way to taking care of basics and can move on to controlled experiments in your stores.  With social media, new sign mediums and other technological improvements, retailing is going to be an increasingly exciting arena.  Take some time and see how your customers experience is measuring up in your stores.

Marketing: Always On

There has been so much buzz lately about new ways to go to market.  How to be the first on the street with the most effective or latest tool such as viral marketing.  What is really happening is a shift from a concentrated effort such as a marketing campaign to a 24/7 approach where you are always speaking or interacting with your customer.  What the new information age with all the tools such as Facebook and Twitter has created is a platform where your customer can access your message or product on their schedule, not yours.  While this has presented some incredible opportunities for marketers as far as ways to get your message out to the target audience, it has also created significant pressure, especially for those brick and mortar operators.  What has happened is a gap between what the marketing message has promised and the actual experience that the customer is having in the store.  While our message on our internet site is blaring exceptional, new and improved, fantastic etc., when the customer enters the store, we have out of stocks, rude service and a less than friendly shopping experience.  All of us have had such shopping experiences and as the old saying goes, if you have a good time you may tell one or two people.  If you have a bad time you will tell fifty people.  Therein lays the issue with major retailers that have failed in the last few years.  My favorite is Circuit City.  I am a minor electronics nut and love to have a few toys every year.  I used to shop Circuit City faithfully.  But then things began to change.  I would go to the store to find my latest toy only to be buried in junk that I was not looking for but the store being out of stock for the item that I needed.  Items of inferior quality were being hyped as a better solution but once they were taken home, the truth was evident and the experience was horrible.  Now let’s try and return that same item.  Five hours later and even more frustrated because I still do not have what I was looking for, I end up looking on line to find what I really wanted.  I did not get the immediate gratification I was looking for but at least I found it and the retailer would usually provide something to offset the lost immediate gratification such as a discount, free shipping or a bundle purchase that provided the value added experience we were looking for as a consumer.  So what does this mean for retail today?  Be prepared for the battle.  As our customers expect more and more value because the message is playing 24/7 and we are conditioning them to that experience, execution at store level, whether electronic or bricks and mortar, is going to be critical.  We will see retailers scale back so that their focus can be on one or two offerings as opposed to being all things to all people.  Retailers will be examining their marketing plans to determine what it is they really are to their market.  What is their key offering?  How can you guarantee that your customer is going to get the experience you desire to insure that your analysis of your marketing efforts is accurate and you are headed in the right direction and not just reaping accidental or spillover benefits?  How are you going to find the right people to execute your vision 100%?  These are the questions facing marketers today along with millions others.  As the speed and number of channels of disseminating your message increases, how are we as retailers going to create the desired experience in our locations?  More to come shortly…

EvaluSys Business Diagnostics

Retail Strategies & Solutions has partnered with EvaluSys Business Diagnostics.  For a one time investment of $499, you will receive a complete business diagnostic and a two hour consulting review to help you develop a Balanced Scorecard to achieve your goals.   Call Andrew Pochatko at (432) 599-3272 or email him at retail.strategies.solutions@gmail.com for more information or click on the link under Cool Stuff for a free Business Primer.

Big Oil and the Exit from Retail

What is happening this year as all the major oil companies decide to get out of the retail business?  In the past few months we have seen BP, Conoco Phillips, Super America and now Exxon Mobil decide to pull up stakes and let the smaller players buy sites while the majors just want to sell the fuel.  We all know that retail can be a set of headaches that many of the deep pockets in oil do not want to deal with but why would it reach such a critical mass now?  Here are some of my thoughts:

• Big Oil doesn’t know what they are doing.  In my opinion I have yet to see a major oil company really do an excellent job in store design and merchandising.  There have been so many individuals that I have interviewed for different positions in companies I have run that know nothing about retail.  They know to watch the street price of gasoline like their own blood pressure and know that the parent company will probably give them another few thousand dollars per site this year to try the next big thing.  They only thing that these managers do know how to do is spend money.  When put on a tight budget with aggressive numbers to hit you can see their eyes roll up into their heads and watch them go tilt.  Not a good experience.
• It is too much hard work.  Many large retailers have been through the tough growth stage and are now trying to keep growing and avoid the lethal contraction phase.  That is when it really gets to be tough.  Even the big guns like Walmart are struggling.  It is only the exclusive brands that have a very unique niche that are staying ahead of the GDP at a decent multiple.  How long before we just give up and go back to T bills as the gold standard investment.  Now there is a scary thought.
• The age of being everything to everyone is over and now they need to specialize.  True hogwash.  The only reason someone specializes is because they can’t figure what else to do.  If we could all master multiple revenue streams rather that just one, don’t you think our shareholders would prefer several revenue and profit streams?  Isn’t this why conglomerates were created in the first place? 

Even as the rest of us gladly buy up the assets major oil has offered to us for sale, some of us still have to sit back and ask what is really going on?  Major oil says they want to focus on their core businesses of exploration, development and refining.  Of course just a few years back they were telling us the reason for becoming vertically integrated was to absorb the output of the refineries and control their product from finding crude to selling the finished product to the end use consumer.  What has really happened is they are finding out that even though retail may not be the most difficult business in the world, it does take a high level of commitment, dedication of capital and focus on adding value to the customer every day of your life.  What really has happened with Big Oil is they just do not want to be bothered with trying to keep adding value to customers every day.  With a monopoly, why bother with customers?  Why bother with stores? 

Everyone is in Retail

There have been many times people asked me in the past “What do you do?”  When I replied I was in retail I got a lot of funny looks.  There were a lot of people that didn’t think retail was a career.  They look at it as only a minimum wage entry position with no future.  Well, after more than 40 years in the business, (Yes I started very young.  I was five working at my Grandfather’s store.)  I can tell you that yes there is a career.  I started as a cashier and worked my way to Executive Vice President and then to another company as COO.  I can’t say that I loved all of it but there were many good times.  So why did I stay in retail?  One word and that is people.  Retail is a people business.  Whether you are dealing with your team or your customers, they are all wonderful.  One book that a huge impact on me was Service America.  It spoke of the moment of truth when you exchange money for goods at the counter and how important both people on each side of the counter are.  This is why I tell everyone they are in retail.  In business, there is no business without the overlap of resources between two organizations, people etc.  I believe it was Drucker that drew the circles and said that this overlap is your market share.  So any and all business to me comes down to how do I take care of my customer?  What is their experience with my organization?  And how many businesses never really ask this question or give it a real answer?  I have been in so many long term strategy sessions in my career my head hurts.  Do you know what most of those meetings focused on?  Products and expenses.  I cannot remember when a real budget was allocated to finding out what our customers think of us and even more important, what do the people who are not our customers think of us?  The only way to increase sales is very basic.  You increase traffic or you increase average ticket.  All strategy is based on this.  So how do you increase traffic?  By taking market share from your competition.  Ah yes.  I remember that from biz school.  Crush the competition.  Drive them out of business.  Blah, blah, blah.  My philosophy is pretty simple.  Keep your customers happy.  I always talk to my team about happy stores.  Happy stores are locations when you walk in you feel good and you walk out feeling even better.  Happy stores are clean and well merchandised of course but more than anything, the people in them are happy to be there and that rubs off on everyone.  In “Good to Great”, they speak of having the right people on the bus.  That is so true.  So, the first question you have to ask yourself is do you have the right people?  Andrew Carnegie used to speak of universal accord and how he had one man that did nothing but get rid of the bad apples in his business.  Napoleon Hill speaks of the universal mind and getting a club together of people that think like you do.  I have to admit that there have been times in my career that I have been the bad apple.  I begin to think that no one knows better than I on how to run the business.  This can be a lethal attitude if you have a boss and that boss finds out.  Even worse, eventually it spills out to your customers and team members.  So, in your business, where are the attitudes?  You must be disciplined enough to deal with this every day and not just at review time.  You must insure that all your customers are happy, ecstatic with your product.  People buy solutions.  Every salesperson knows that.  Whether you are providing a major solution such as reorganization or a simple solution like a pack of gum, you have to make someone happy.  Try it this year and maybe it will even rub off on you.  Then you can be happy too….

Special Offer

Retail Strategies & Solutions is now offering EvaluSys Business Diagnostics.  We are offering an introductory offer of a complete business analysis as well as a two hour consultation for $499.  Call Andrew Pochatko at (432) 599-3272 or email him at retail.strategies.solutions@gmail.com for more information or visit us at http://retailstrategiessolutions.blogspot.com/

Retail Change

Another one bites the dust.  Headlines this week tell the story of Borders giving up on saving any of its stores and shuttering all locations by September.  Many websites are speculating why Borders went from a market leader to loser.  The rise of the electronic book, Amazon’s increased muscle in the marketplace or a plethora of demographic changes.  The truth is that they did not plan for change.  As Heracleitus stated 2500 years ago:”Nothing endures but change.”  We know that most business leaders do not devote enough time to planning for change and even fewer create change that drives their industry or the world.  No matter what you do in today’s world, you are involved in selling and therefore you are involved in retail.  The delivering of a product or service to a customer.  So how do you avoid the Borders syndrome?  First of all, pay attention to your key metrics.  No matter what you do, you need to have sales and costs that are in line with those sales.  If either begins to get out of line, not hit your targets, you need to immediately react.  Do not wait for the elves to come in and fix the problem.  It will not happen.  Next, do not spend your time looking at the past to the point it erodes your ability to focus on the future.  Too many businesses continuously chew on past performance.  I like professional sports as an example to model.  While you may look at the game films after the big match, you spend most of the time getting ready and playing your next contest.  Now what else can you do?  Assemble trusted advisors and listen to what they have to say.  Every business needs to have a sounding board.  Whether that is a board of directors, consultants or even a good friend, listen to their advice and see if it will help you in your business plan.  It is wiser to spend some money now and adapt to and create change than to play ostrich and lose it all.  Just ask Borders…

Retail Strategies & Solutions New Partners

Retail Strategies & Services is growing to provide additional services to clients.  This past week we became affiliated with Blackmore Partners LLC to provide private equity funding to eligible businesses.  Blackmore has several hundred private equity firms interested in mid cap businesses in the retail and services channels.  Candidates need to have revenues in the $50 to $100 million range and EBITDA of at least $5 million.  Interested parties should contact us at retail.strategies.solutions@gmail.com for more information.  Also new this week is a powerful business diagnostics tool provided by EvaluSys.  This web based analytic provides a detailed look at eight aspects of your business from Executive Leadership to Sales and Marketing.  Once you have completed your analysis, Retail Strategies & Solutions provides detailed steps in a Balanced Scorecard format so your organization may track the necessary improvements to improve revenues and profits.  We are excited at both of these additions. 

We will discuss in our next blog that everyone is in retail.  Whether you are providing a product or service, you are selling to your customer and the laws of retail apply.  Look for our next post to learn how you can improve your customer’s experience and your profits.

Retail: Learning to Serve Someone

I was reading another consultant’s blog the other day and they were giving tips on how to obtain business.  Their advice was to ask questions until the client could not give you an answer and then bingo that was your way into their organization and how to start advising your client.  It got me to thinking.  So many times, we think of people in terms of objects.  Whether it is an employee that we consider a resource as in human resources, a client who is a source of billing or someone that is just a pain in the butt who we regard as a….Maybe that is better off not said.  What came to me though is in the past few months there seems to be something larger pulling at me.  Is it time to change my business plan?  Is it time to get out of the business all together?  What has been slowly ticking away in my brain really has been, how can I be of service?  The reason the questions given in the article I read seemed to strike home was because each of them were ways I could be of service to someone.  And not to a company but to a person.  Questions that an individual could be struggling with and that I may be able to help.  Granted, I may look at the situation as a bottleneck of resources or inefficient use of cash or any number of different challenges we face in business.  I remember teaching a class and telling my students that everything in retail boiled down to sales, shrink or staffing.  Nice and clean, nothing messy about it.  Everything fit into nice little compartments.  When really, we all know life is nothing like that at all.  Last week I was speaking with a client and they were using another consultant and I asked to see the notes so far.  They felt the consultant was doing a good job but something wasn’t quite adding up.  I asked how many questions they asked the consultant, what was the give and take and they replied they hadn’t asked any questions, they just read the reports.  We talked a bit and I ended up giving them a full page of questions I felt they needed to ask their consultant.  Nothing was meant to take away from the other consultant; I just wanted the client to get the most out of their experience.  So many times the relationship suffers because one of the parties does not ask the questions that they really have on their mind and may not know how to ask.  Their may be fear of hearing what they really don’t want to hear.  There could be fear that they may ask the questions incorrectly.  I guess my point is not to be afraid, just ask and keep asking until you get where you want to be.  Whether that is in a working relationship or a personal relationship.  Keep going until you get where you want to be.  In a consulting relationship with a retailer some of the questions you could ask are:

Are you getting the best turns in our store?

Is the middle of the box helping you or hurting you?

How much time does your office staff or store staff spend on each part of your store?

Are you getting the return of their efforts as well as your space to sales?

What is your ROI or IRR on store sales and on the profit centers/departments in your store?

How many SKU are driving your sales and how many are just impairing your pack out?  Are you functioning at the typical 80/20 rule or are you doing better than the norm?

What is the flow in your store?  Is it shopper friendly?

Where are your equipment, facility and personnel at in their lifecycles?

And the biggest question of all is “Do you want to change the way you are doing business?”

This last question is really the first question we need to ask and get an honest answer to.  If we can’t get past this step, we will never be able to help them, to serve them and solve the issues they may face.  Ask you questions, peel back the layers carefully and hopefully they will be able to see the benefits of your services. 

Rant and Rave!!

Sometimes a blog can turn into a bit of a rant and apparently that is what this will be.  I was just in a client’s location in Ohio and for the life of me I cannot figure out what is so difficult to grasp regarding cash flow.  We all say we understand cash flow and what is so important about it.  After all, if you don’t have cash, you can’t pay your bills.  That is what cash flow is all about right??  Oh wait a minute, maybe it is a little more complicated.  Maybe you have to pay your bills at different times during the accounting period.  Maybe your floats are a little different.  Maybe there is an extra payroll in the period.  Maybe your shrink is a little higher than forecast.  (Darn those thieves!!)  Oops, forgot about taxes and oh yes there is that increase in cost on beer this month.  Oh no, said Mr. Bill.  We are out of money.  Chapter what?  7, 11, 13??  Sounds like Vegas and if that is how you are managing your cash, that is what it is. 

The biggest bit about cash is you have two major categories that nibble away at your cash.  First is cost of goods.  No matter what, you have to keep product in the store or you have nothing to sell.  I believe that pretty much puts you out of business.  The next issue is your operating expenses.  Now you have something to sell, you just don’t have anyone to sell if for you or keep the lights on.  Labor alone can be 50% of your revenue.  Ouch.  Goodness, what is an honest man to do?  Back to my original reason for the rant.  I am walking a location with this operator and I am looking at his merchandising.  The bottom shelves of his liquor department which also handles most of his slow sellers is packed out.  Two rows all the way front to back filled with every SKU available.  And of course, my first question is why?? Well, I got a good deal if I bought full cases.  And do you sell full cases?  No.  Well that is probably why he tried to sell you full cases.  Now, whose money are you using to purchase these cases?  Well, mine of course.  Duh!!  Now we have to wonder who to duh refers to, don’t we?

And over and over again, this scenario is played out in stores all across the world.  I got a good deal, everyone is selling it, my competition is doing it, etc.  What we neglect in this scenario is what the best is for us as an operator?  Cash.  And to be more specific, cash flow.  In and out.  Cash is like blood or any other vital medium necessary to support an organism.  Cash supports an economic society just like oxygen supports our bodies.  If you do not think you need an economic society to survive, I hope you have some very large gardens planted.  As a matter of fact, I am watching a program on CNBC about end of the world scenarios.  Not too pleasant to be sure.  The same happens when cash dries up.  Just look at the credit crisis in 2006 after CDO started melting down. Ouch. For everyone in business and everyone who was trying to start a business.  Or anyone who just tries to make a purchase.  So why would someone who has been bitten by this ignore it in their business plan?  It is like someone going to Costco or Sam’s buying ten cases of toilet paper when they use one roll a month.  So, why do we doi it?  Same reasons as before.  I GOT A GOOD DEAL ON IT!!  In sales, the only time you get a good deal is when you can sell it shortly after purchasing it.  Inventory turns are the usual metric monitored to insure you are getting the best bang for your buck.  In the world today, that metric is becoming quickly outdated.  The best retailers are using much more sophisticated metrics in measuring cash flow which is what we will discuss in our next post.

Noteworthy News

Retail Strategies & Solutions, in an effort to better serve its clients, has moved its offices to the Great Lakes region.  This move will allow Retail Strategies & Solutions to devote its resources to the greatest number of retail locations for the lowest cost possible.  Our new headquarters is centrally located between Chicago, New York, Pittsburgh and other retail hubs.  Retail Strategies & Solutions has directly or indirectly managed and assisted management of retail stores in every region of the United States.  From one location to greater than one thousand locations, our consulting team is dedicated to helping you achieve the greatest sales and profits for the lowest operating expense.  Visit this site for tips and news regarding our new structure and resources for retail operators.

Inventory Control and Management

There has been a lot of discussion among retailers on tightening inventory controls and improving their supply chain.  Walmart is famous for negotiating deals with its vendors to allow them an edge over their competition.  Their automatic replenishment system is supposed to keep their turns at the highest level and avoid out of stocks but as most of their customers have discovered, execution still relies on human beings and we cannot expect 100% if we are realistic.  This has been an argument I have had my entire career with marketing departments.  My favorite quote was from one of my former bosses who said we do not have all angels or all devils working for us.  True.  The recent discussions on inventory control have been on how to reduce overstock while not missing sales.  I was in a location yesterday and the shopping experience was all too common.  The retailer was working on reducing cigarette inventory.  Of course this is an admirable task.  Most retailers carry way too much of this high priced SKU.  The store had followed its suggested order from the back office system and had reduced the number of cartons it carried on hand.  Unfortunately it had reduced them drastically.  And now they were missing sales.  During my visit, three customers came in to purchase a cigarette carton.  This chain averages 50% of its sales in cigarettes.  It also has $70,000 in other product in the store.  The HBA section is peg items and has eight feet of too many items to count.  It has 15 cooler doors and is a flagship store for this operator.  So why are they missing sales?  Too many times we pressure a manager to achieve a reduction in inventory but do not provide additional guidance on how to do it effectively.  Every time I have asked stores to cut cigarette inventory, guess what gets cut?  Marlboro.  Not a good strategy.  The store manager sees numerous cartons of Marlboro and that is what he is ordering so that is what he stops ordering.  The 200 other SKU that he does not sell are still sitting there.  He can’t reduce that inventory.  It has no where to go.  So what can he do?  Stop ordering what is selling.  Now the customer suffers.  Next the store manager is getting “the call”.  Why are you out of stock? What is wrong with you?  All too common.  A more sensible approach is to pressure the supplier to buy back the dead inventory and then de-authorize those items.  Stop sending them to the store.  Each department in the organization needs to take responsibility for inventory.  Accounting and IT need to provide the reports needed for marketing and operations to reduce SKU in a sensible manner with an exit strategy for each product.  Marketing then needs to only allow true sellers into the stores.  No rebate up front and carry it for a year type deals should be allowed.  There are retailers such as 7-Eleven that are putting all discounts into on invoice cost and review their turns religiously.  No wonder they are still a gorilla in the convenience store arena.  Recent earnings reports for soft goods retailers showed that not only were commodity cost increases not being passed along to customers but additional inventory markdowns were needed to get rid of old inventory.  Fashion is much more ruthless than food.  At least with food you know when it is going out of date.  Fashion can turn much more quickly and without warning.  This led to most retail stocks being hammered this past week as Wall Street became skittish.  How can retailers convince investors they have the next new thing?  Retail has always been described as “not rocket science”.  We have product lines, four brick walls and customer service.  Location and presentation help us convey the selling message to the customer but all this can be wiped out by the dreaded words, out of stock.  The worst thing we can do is place this all too important process in the hands of our least experienced people.  Again, the whole organization needs to take responsibility for the process.  Only then will inventory be controlled without disastrous results.  For more discussion on inventory management, see discussions on the groups featured on Linked In. 

Quality in Retail

Quality means doing the right thing when no one else is looking.  Henry Ford

Ford has been in the press lately as a prime example of an American success story.  The turnaround story of the year, done without a huge bailout from the American taxpayer.  Which during the past year, that alone is a huge vote of confidence in management and a story worth carrying on the news.  How many other businesses were unable or not willing to try to do the difficult things needed to pull their business out of the pit and back to success?  The quote from Henry Ford not only demonstrates Ford’s mission statement in the early years but the Puritan work ethic from the early years in American industrial revolution.  When our actions are placed in the light where they are able to be seen by not only our customers but our friends and family, our actions may not need formal quality control, six sigma, or any other fancy management buzz philosophy to produce a quality product.  If we use the philosophy set forth by Ford, Christianity or what mom and dad taught us, we are guaranteed that we will do our best.  Our efforts will be backed up by everyone we work with.  Everyone will be working for the same goal.  A product or service that we are all proud of and that represents our best efforts, intentions and skills.  During a recent trip to Florida to look at C store operators in the Tampa market, I was disappointed in the lack of customer focused merchandising and services.  Instead of focusing on providing value to the customer, most operators were trying to cram shoddy products and merchandise or poorly prepared food service down the customers wallet.  I never saw so many crowded counters or burnt hot dogs in my life.  It was quite the throwback to mom and pop store operations.  What I don’t understand is why these businesses survive or why their customers tolerate such poor service.  Our customers are so precious and our profits so hard to come by that I cannot understand why so many operators give them away.  Even more damning is the fact that operators with poor standards give all convenience store operators bad reputations.  Not only does an operator with a commitment to quality have to strive to maintain operations to their demanding standards but they have to overcome the customers perception that all convenience stores are dirty, stocked with expensive product and staffed by rude employees.  Nice.  Just where we would like to shop and what business we want to be associated with. 

Retail Inventory Control

Inventory Control

There has been a lot of information going back and forth about item management, category management and inventory control.  Actually, considering this is the biggest line on a retail financial statement, the amount of discussion is sadly lacking.  What is the actual cost of inventory?  What is your true cost of a promotion, write off of inventory?  There are many questions but retailers sadly keep to the old metrics of inventory turns and margin.  Unfortunately, these numbers are mostly after the fact.  We are building bigger and bigger stores, yet most of the SKU we carry do not carry their weight of cost of capital.  How do we justify the use of all this square footage?  There are retailers that do an excellent job of maximizing sales per square.  But how do you truly arrive at a top quartile, best practices assortment.  Not through dealing with vendors.  No matter what, their goal is opposed to yours.  We talk about partnerships but if you realistically look at the business, they are making money off of you.  So how do we tighten our supply chain and assortment?

There are new metrics being introduced to retail.  After a long, long time, quantitative analysis and analytics are being used in retail.  Wall Street has been using them for years but retail management has for the most part been relying on outdated analysis.  Will your customer substitute?  What is the cost of out of stocks?  What is the cost of carrying additional inventory to make sure you are not out of stock? 

As more retailers switch to enterprise based software and have access to OLAP item level transaction data, the choice is not having data to look at but how to look at such a multitude of data.  The modern C store management team is increasingly heavy on analysts or quants that provide filters for management and marketing to allow them to make sense of the reams of data.  All one has to do is look at one daily transaction file and your head begins to hurt.  Even now as we attempt to distill this new data into KPI that make sense, we have to start lumping data together to try and make sense.  Most of the material I deal with now is item level logarithms but rely on assumptions that lump items together based on some quality so we can make some type of relationship appear and make sense in execution.  There is no doubt the average store carries way too much inventory.  How do we justify carrying three cans of something that we may only sell once every several months but need to have some presentation or we will not sell any at all?  What is the best use of cash?  I struggle with stores that are getting larger and larger but yet really have no unique offering.  Perhaps services are the new key to utilizing all this space.  They have a low carrying cost, usually have some barrier to entry and do provide value added to the customer.  And maybe most importantly, they provide the human factor to the shopping experience.   Our next blog post will examine this in more detail.  Future shock as the term was first coined years ago.  Take care….

Retail Strategies and Failure

So, what leads to failure?  There is a wide range with everything from basic human performance to acts of God and Murphy’s Law which is probably my favorite.  Another one of my mantras is expect the best but plan for the worst.  Again this shows how we always have failure in the equation but it is not our favorite agenda to deal with it.  Failure ranges from deliberate deviation, lack of competence to something that is just so complex it cannot be executed.  I used to love those cardboard display pieces that would come into a store with the easy to assemble directions that I could never ever get it to come out like the picture.  Please send two because I was guaranteed to destroy the first one.  There is another level of failures that exist in a controlled environment to prove or disprove a hypothesis but we will not address that in any great detail in this article.  As we explore the spectrum of failure, the increased ratio of variables to a process or policy makes it increasingly difficult to execute and increases the predictable failure rate.  We all want the 100% execution or return on our assets and efforts but myself at least have always planned for a predicted failure rate.  Whenever trying to estimate sales revenue, margins and expenses I have to build that “pad” into the equation.  I quickly became tired of having my head handed to me after not taking this into effect. 

We try to avoid failure for the most part by building structures to reduce the variables we have been discussing.  Everyone from Ford to Ray Kroc developed structures to reduce the variables or improve the speed of the required task by repetition of the task.  Turning men into machines was a common criticism of this process.  It took the soul out of man.  As we move down the timeline of history, we continue to seek the balance necessary. Using policies and procedures also allows us to establish benchmarks to measure productivity and improve working conditions.  Back in the day, there were just a few issues such as child labor, hazardous working conditions and just about every other abuse of human we could imagine.  And it is always worse than what is documented in the movies.  Anyone who has traveled to developing nations knows the struggles they have trying to achieve growth, reduce income disparities and not establish so many governmental controls that free enterprise is strangled. 

Case studies at Harvard ranged from a Toyota assembly plant to the R & D department of Eli Lilly.  Toyota was cited as having one of the best production and quality lines in the business.  Tasks were doable, codified, internal customer specifications well established and quality control verified at multiple check points during the process.  The Eli Lilly system was as controlled but the outcomes of these systems were entirely different.  While Toyota was looking for a zero defect outcome, Eli Lilly wanted failures to establish new frontiers and break away from the outdated medications of the past years.  The issues with Toyota’s production system were inattention not by the actual workers on the line but with plant management which was not holding the line accountable.  As a general rule, human beings we know take the easiest path possible. 

So how do we get away from the notorious blame game?  First, you must have a psychologically safe environment.  If no one wants to stick their neck out, no one will and you will be the one in the dark.  Integrity, walking the talk and truly encouraging open communication is essential.  I used to love walking into an office to relay a poor result and being screamed at until if felt like my face was melting.  There is venting about a situation and there is killing the messenger.  Neither is professional and should be avoided.  Next, make sure status is not a necessary component of the communication process.  You want the entry level line worker to feel as comfortable as the senior VP.  In studies conducted in various organizations, status could be directly linked to psychological safety while in others there was no correlation at all.  Rather than the caste system in some cultures and/or companies, management in the safe feeling companies had done an excellent job in truly abolishing barriers.  A recent article in the Wall Street Journal on India discussed the difficulty a growing economy was having trying to eliminate or even just reduce the caste system.  The country is experiencing the increased division that new money can cause.  With history and habit patterns as established as India’s are, it will be very difficult to break down the walls.

Next, a company must have a way to measure, evaluate and correct the failure.  All of these must be conducted in a framework that still maintains accountability.  The worst integrity breach of all is losing accountability and letting poor performers drag down your A team.  Not only will failure not be reported and corrected, it will become the new norm.  At that point you can say bye bye.  To recap establishing a safe environment, frame the work accurately, embrace the messenger, acknowledge limits, invite participation and make sure to hold people accountable.

More To Come 

Retail

RETAIL FAILURE

Learn From Failure & Grow

A Harvard Business School webinar this week was on learning from our failures.  A premise that we remind ourselves of in sayings such as “If we do not learn from history, we are doomed to repeat it” and others in every culture in the world.  Growing up, it was constantly hammered into me that failure is bad, success is good.  Over and over.  The world seemed to be very clearly divided between good and bad and it wasn’t until later down the timeline, that the grey areas in life start to become apparent.  There is a direct correlation between maturity and the ability to deal with those grey areas in life.  As a manager, it can be very difficult to deal with a grey area.  A real human being vs. a policy or procedure may pull at all aspects of a human being.  Intellectual debate, emotional attachment and sometimes even physical effects can be triggered as we try to reconcile all these energies and establish a win-win situation.  While many companies will state that they have an “open door” policy how many times do we shoot the messenger for bringing that wonderful tidbit of information at 4:55 pm on Friday.  We know we have to deal with it but I don’t believe it makes anyone’s day a wonderful occurrence.  We know we have to keep notes on our team for review time because our impressions tend to be what has happened most currently.  If our recollections are of a recent failure and not success, the individual being reviewed could have a very nasty time.  Even if the failure was close to a career ending event, we do not want it to wipe out what may have been a record year. 

So we as managers know we need to discover failure, address it and manage it, how much of our time is really spent towards this?  How many of us have “Discover failure” on our to do lists?  Sound a little absurd?  I know I have never written such an item down.  As many times as I have encouraged people not to be afraid, that I was not going to tear their heads off if they brought me bad news, it wasn’t anyone’s favorite thing to do.  It is one of those evil necessities that business brings to our world.  The welcomed results that come from discovering failures or disappointing outcomes are well documented.  We will first drill down on some of the whys before we get to outcomes.

In organizations that individuals learn to be comfortable with know knowing, not being right or reporting mistakes have precious espionage so to speak about their company.  Some companies have such a culture that they actually have to hire in cognito reporters to let them know what is actually going on.  One of my most hated processes is duplication of effort and this to me is one of the worst.  Degrees of failure can range anywhere from out and out insubordination to controlled failure in a scientific environment.  Depending on the degree of difficulty it may be a challenge to pin down where the variation from the desired outcome may be.  As well, the spill over effect and impact on others can be tied exponentially to the failure. 

MORE TO COME  PT. 2

Retail Branding

Branding Your Stores

Many smaller operators are envying the big boys name.  An established trademark can set you apart from others.  We all know the brand names.  In convenience retailing, 7-Eleven ranks as the best known brand.  It establishes a pre-conception such as McDonalds does.   You know or think you know what you are getting before you enter the box.  Brands as we know can also establish a negative connotation.  That of course is the trick.  Once you hang your shingle out with a promise to the customer, you have to fulfill that image every minute of every day.  So many times we spend the money to build the box to a certain specification to establish the brand but we lose it on the people end.  How do you convey that message to every employee?  In Good to Great, they talk of having the right people on the bus.  We can’t spend the time to motivate employees.  They have to be self motivated.  As in all things, the people factor is the hardest to achieve.  Some markets seem to be hopeless.  I have operated stores in rural or metro markets that never came around on the human factor.  Frustrating every day.  Store standards and losses from employees were horrendous and yet we could not get the right person.  What do you do then?  When you are planning to brand, what do you look at in the human resources aspect?  A balanced scorecard will help you take all aspects of the plan into consideration but do retailers do this on a regular basis?  Do you examine how you can recruit and train before you implement construction?  I remember building stores in markets and then having to relocate employees from existing facilities to achieve the standards we needed. 

Of course, the primary requirement of really establishing a brand is value added to the customer.  What is unique about your offering?  In speaking with retailers, many of them look for the “one thing”.  What one thing is setting you apart?  What is the reason a customer would enter your box instead of your competitor.  Many times, the primary catch is a credit card base related to a fuel purchase.  The premier brands, Chevron and Shell, provide an offer to the customer.  It is in their comfort zone and repeat business is not only sustained by the quality of the product but the financial service the retailer provides.  As we know, in the past years financial services have provided much of the GDP for the country.  Convenience retailers have struggled with this part of the business.  Money order programs, while complex, provide cash flow and banking services for customers without accounts.  Unfortunately, the benefit is more for the company and does little to separate you from the crowd.  So what questions do you ask yourself and your customers?  The real question behind basic marketing.  Are you first on the street?  Are you cheaper or provide superior service?  Do you offer a product mix no one else can provide?  Is there barrier to entry once you do achieve your unique offering or can competition copy it quickly so you lose your edge?  How cost effective is the development of your offering? 

My advice, talk to your employees and customers on a regular basis.  Watch your customers.  Be in the stores that you operate.  Know your business.  You might just be the next big thing.