The #1 Retail U sound bite reflects current retail reality
Workshops this past week mark more than 20 years of IMS Retail University. The basic fundamentals and metrics of retailing have not changed much in two decades. In fact, the “science” of retail is more critical than ever. What is new in Retail U are the key strategic insights on how these fundamentals and metrics apply. In today’s market place, both retailers and manufacturers must differentiate or die!
The Law of the Retail Jungle is brutal and clear – Differentiate or Die!
In retail, the lines between channels are blurring and even being erased. Circuit City and CompUSA were not just competing against Best Buy as their nearest consumer electronics competitor. When Walmart and e-tailers focused on electronics, it did not take rocket science to determine who would take share based on commodity pricing. But, taking temporary share means nothing if you don’t have the execution excellence to make operations and inventory dynamics profitable.
The slippery slope of eroding retail price and margins CompUSA and Circuit City dramatically underscore the prerequisites of being world class in SG&A and operational excellence, if attempting to compete on price. In the current economic environment, there is neither credit nor investor patience to develop the infrastructure to compete with the capabilities of Amazon and Walmart. The comparative overall stats from the retailer’s own 2007 financial reports clearly tell the story:
|
Retailer |
SG&A% |
GM% |
Turns |
“Rule of 100” (GM X Turns) |
GM $ / sq.ft. |
|
Amazon |
18.1% |
22.6% |
13.5 |
311 |
NA |
|
Best Buy |
18.5% |
23.9% |
6.1 |
145 |
$ 212 |
|
Circuit City |
23.6% |
20.7% |
5.0 |
103 |
$110 |
|
Walmart |
18.6% |
23.4% |
8.1 |
191 |
$141 |
Source: 2007 Annual retailer financial filings When SG&A “operating costs” exceeds gross margin profit by 3 points, you can’t make it up on sales volume or turns! Retail Survivors sell “basket solutions” not products Best Buy survives and thrives by differentiating services to build a profitable market basket. On the consumer front, the sales processes and Geek Squad are critical to attaching profitable accessory sales to “loss leaders” of PCs and printers. Even more importantly, Best Buy has literally transformed beyond consumers into an authorized VAR (Value Added Reseller) offering integrated solutions and services to businesses. Some manufacturers don’t “get it” either – Differentiate Products or Die! Consumers are selectively focusing where to “trade down” on price, and where to “splurge” to enhance their lifestyle. For example, consumers are buying low cost notebooks or switching to even lower cost netbooks. But at the same time, they are upgrading to smart phones, which enable ease of mobility with lifestyle “apps” to stay even more connected expanding social networks. Retailers are still cutting both labor and inventory costs to reduce SG&A. As they go through “SKU rationalization”, they are looking beyond manufacturers that can build products at a price point. They are searching for “partners” who can “think like a merchant” to help solve: · Profitably growing basket through high margin attachments · Creating high margin solution and service opportunities · Driving long term relationships through maintenance & upgrades · Increasing repeat trips and overall customer satisfaction · Increasing consumer engagement and conversion rates In short, retailing has transformed beyond just “moving boxes at a price”.
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