Who REALLY Has First Dibs on Your Customer's Wallet?

Quick: Who are your major competitors? Amazon? Target? Wal-Mart? Other specialty store retailers in your market? 

Yes, all those and more.

But, what about the "stealth competitors" affecting every retailer – whether you are selling apparel, furniture, motorcycles, books, smart phones, or whatever?

These competitors are hiding in plain sight. And, in our view, they significantly impact – and reduce – retail sales.

What are they? The monthly recurring charges that support our digital lifestyle.

Just think about it:

  • There are the monthly cell phone data plans, for every member of the household. (Yes, even the grade schoolers. And, maybe even Grandma & Grandpa.)
  • Then, the monthly cable TV charges.
  • Plus, the monthly charges for high speed internet access in your home.
  • Of course, there are the monthly charges for "streaming" online entertainment services, such as Netflix, Amazon, now Wal-Mart, and others.
  • And, monthly online access to newspapers, magazines, etcetera
We call these kinds of monthly expenses "the enablers" of our digital lifestyles. And for retailers, each one represents a major "stealth competitor."
For many households, these monthly charges can add up to hundreds of dollars! And today, essentially no one can avoid them; they are treated like another "utility" charge. Is it any wonder consumers feel like they have less "spending money"?

The High Cost of Connectivity: Erosion of Retail Spending

All of this connectivity comes at a cost to retailers. Money that is being dedicated to these monthly enabling charges is not available to be spent "at retail."
  • Traditional "disposable income" is significantly eroded. And that happens every month, essentially out of sight. And to almost every household. 
  • Overall retail sales, by definition, are reduced. That is, "retail spending" tracks sales of merchandise, not services.
Enabling Our Digital Lives
So, given the stealth competition of enabling our digital life, can Holiday retail sales meet the predictions of some prognosticators to be up 4%-5% over last year? If so, that would represent quite a feat.

Or, more likely, consumer spending will be up, but... spending on what?!

Amazon's "Store" In New York City – Our Contrarian View

Not a Store, But a Brilliant Service Center

There has been a bit of a buzz about Amazon's plans to open a "store" in New York City, on 34th Street. This storefront will enable customers to pick up their Amazon purchases, versus having them shipped; to return merchandise; and, likely, to see and purchase Amazon products such as the Kindle Fire, etc.

  • We imagine that Amazon will have a real "Wow!" effect available at this location. Perhaps digital displays of their television programming? Showcasing of their products. Demonstrations of how to use their various shopping apps. And no doubt, a special line/faster service for their Amazon Prime customers.

Some pundits claim Amazon is trying to emulate Apple; others compare it to e-commerce specialists like Warby Parker opening brick-n-mortar locations. 

But our comments, when contacted by the American Business Journals, revealed a far different perspective. In our view, what Amazon is opening, on 34th Street, is a service center, NOT a "store."

  • That location is at the confluence of virtually all of the transit choices in NYC: Penn State, Grand Central Station, major subway stops, and of course, taxis. Perfect for commuters to pick up their items on the way to their train.
  • If Amazon really wanted to "do retail", it would have selected a retail location: SoHo, or Madison Avenue north of 57th; etc.
  • By offering this service, Amazon is able to promote "same day delivery" without having a fleet of delivery trucks entangled in NYC traffic. (NY traffic cops and – cabbies – will be delighted with that news!)

Maybe a Defensive Move?

Here's another thought: this could be viewed as a defensive move by Amazon, in response to other retailers' in-store pick up programs. (Also known as "click-n-pick", where the customer orders online, and picks up from the store.) 

As always in retailing, this will be fun to watch!

With That Inventory...What Could/Should/Would Your Sales Be?

The Retail Owners Institute® has just added another online "gadget" that is kind of fun. Quick and easy to use, of course.

  1. You enter your inventory on hand (@ cost);
  2. You choose which retail segment you are in;
  3. It immediately shows you the annual sales of the "median-performing retailer" in your segment
Here's an example for an owner of a women's boutique.
Index of Sales Potential Calculator

"Your Mileage May Vary"

Of course, this only means something when you compare the sales volume in your segment to your own sales results. Are your sales usually better than that? Or not?

And, if your sales from that level of inventory are significantly lower, does that mean that you should make changes?

Remember, there is no one "right answer". If there are differences, you get to decide what, if anything, you want to do about it. 
  • If you want to concentrate on growing sales, you have a target for the increase.
  • Or, if you elect to raise turns to reduce inventory on hand, you have perspective on what is reasonable for your retail segment.
  • And, of course, you have 12 month's time to realize the effects of any changes.
Every retailer will have different answers, depending on their particular stores and situation. 

That is the whole point! 

This is another free, time-saving tool from The ROI to enable you to compare your choices, and apply your best judgment.

So have fun with it! Go here to check it out for yourself. 

"Listening" to Customers? How to Really Hear Them!

Who knows the most about your customers? Their whims, their likes and dislikes? 

Your front line sales staff!  Even in this environment of social media, online reviews, and pleas to "like us on Facebook", it's the front line staff who are listening to – and actually hearing! – the customers.

Day in and day out. In every retail operation, they are the first ones to know of problems, and, even better, to recognize opportunities.

Now, think for a moment about any large retailer. 
  • How many layers of management do you suppose are between their front line sales staff, and senior management at headquarters?
  • Contrast that with your own operation. How few layers are there between your front line sales people, and you as the owner or manager?
Therein lies your true competitive edge! But – it must be cultivated!
For example: The sales staff at one specialty boutique recognized that customers ask for products by color, not by brand. So, after much discussion among themselves, they went against the prevailing policy, and reorganized the displays by color.

They then anxiously followed the daily sales to see whether it really was a good idea.

That's the test: did it increase sales?
In that case, the front line staff took the lead, albeit with some trepidation. 

But, the owner wisely recognized the value of encouraging their involvement – after all, they were looking for ways to increase sales – and moved to formalize the approach in all of his stores. Everybody wins - especially the customers! 
  • Ask your front line staff for their input. Create an environment that routinely encourages them to pay attention, and welcomes their feedback.
  • Give your front line staff the authority to use their insights, and test changes and improvements.
  • Demonstrate a willingness to experimentas long as there is accountability!
  • Agree from the start, "How will we know whether it is working?"
And yes, keep monitoring the comments on social media. You might see a nice uptick there as well.

Size Does Matter. Advantage: "Small Retailer"

Consider this assortment of seemingly random events:

  • Stephen Marche, former college professor turned novelist, wrote a great commentary for Esquire  on "How to Quit Amazon and Shop in an Actual Bookstore."   An actual bookstore, he contends, is a place of discovery"The book in the bookstore that you actually want is the one you don't know exists. Somewhere in there is something that's entirely fresh to you, and will reward your soul by exposure."
  • An owner of  four specialty stores laughingly described the Millennial Generation shoppers in her stores: "So, they stand in front of the display, checking online reviews on their phone, and ask, 'How come you only have three different brands to choose from?' When I explain that we have already evaluated all those other brands, and selected the ones that are the best, they look baffled. They don't know what a store is! That's what we do; we edit the selections!"
  • Wal-Mart announced that quarterly results overall were flat. However, sales at their small-format Neighborhood Markets grew nearly 6%. 
  • Meanwhile, Nordstrom announced that its online sales for the quarter grew 22%, while sales at its flagship and mall-based stores declined 1.2%
  • Amazon's announcement of its Local Register mobile credit card reading device - competing with Square and PayPal - emphasizes the availability of its 24/7 customer support via phone and email. 

Here are some of the patterns that we take from these events:

  1. Yes, customers continue to behave very differently than ever before. Even as the economy continues a slow-growth recovery, we will not be "getting back to normal." And that means customers will not use bricks-n-mortar stores the same as before.
  2. Knowledgeable, accessible, and personalized customer service is increasingly a strong competitive edge.

But, most important, we believe this shows that today's customers are hungry for exactly what specialty retailers can provide.

  • Edited selections (the Millennials would call that "curated"). But they must have the rationale for those selections well-explained.
  • Knowledgeable customer service and product know-how. (YouTube cannot explain everything!)
  • Responsiveness, especially when an incoming phone call is answered by a real person!
  • Human scale. Smaller formats with personal service are in.
  • "Multi-channel" - You know, both online and real life stores that are coordinated, and let the shopper shop as they choose. 

Size DOES Matter

As an independent retailer, you already have an important competitive edge. And if improvements are needed, you still have the advantage: much easier to make changes with fewer stores. 

So, size DOES matter. Advantage: the "small retailer." As Anita Roddick, Founder of the Body Shop, so famously observed:
"If you think that being small means you can't have an impact, try going to bed with a mosquito!"

Herding Cats: Those Ever-Changing Demands of Retailing

Warren Buffet, the "Oracle of Omaha", is widely considered the most successful investor of the 20th century. But what is his "Achilles heel"? What investments does he self-describe as "failures"? According to Mr. Buffet, it is his investments in the retail industry. 

The problem? The constant change in retailing makes it difficult to achieve economies of scale. 
"Mr. Buffet has said that retail is challenging because shopping habits and sales channels are constantly changing, making it difficult for businesses to build and maintain competitive advantages, or what he calls 'economic moats,'" reported Anupreeta Das in the July 17 Wall Street Journal.
Meanwhile, there is Amazon. At one point, in their postings for retail jobs, Amazon stated their goal was to "Turn the art of retailing into the science of retailing." Oh really?! They, too, believe that retail should be easily reduced to an algorithm.

Retailing defies predictability. There are no straight-line projections. And, not everyone has the stomach for retailing's unpredictability.  

Today, it is common to cite the internet as the major competitive threat to retailing. Indeed, e-commerce has challenged retailing.

But, so did the big box stores. And mail order. And before that, outlet malls. Before that, regional shopping malls. And shopping centers. And before that, department stores. 

Responding to change is not news to seasoned merchants. In fact, it is this dynamism of retailing that attracts so many people into the industry! 

The true merchants thrive on this ever-changing environment. Instead of being dismayed by change, they relish its challenges.

In retailing, being nimble and responsive offers a decided competitive advantage. And with today's technology, any retailer, anywhere, can gain that advantage, and compete far more effectively. 

Quickly Assess a Retailer's Financial Viability

The Retail Owners Institute® is well-known for its focus on GMROI - Gross Margin Return on Inventory (Investment). 

In our view, this dynamic tool is the #1 measure of inventory productivity. And frankly, if you are in retail, you had best be focused on inventory productivity!
As a reminder, GMROI tells us this: "How many Gross Margin dollars am I getting each year for every dollar I have invested in inventory during that year?"

Why Is GMROI So Important?

  • It is multi-dimensionalInstead of looking only at margins, or only at inventory turns, it combines them. That's why some call it "earn 'n turn". It shows you which merchandise is delivering the most bang for your buck.
  • It is quick to calculate, and a wonderfully objective measurement, whether you are comparing stores, departments within stores, or, especially, vendors!

New, Insightful Application of GMROI

Quick • Verifiable • Sophisticated • Uniquely Retail

When used to compare a given retailer's performance versus their retail segment, we suggest that GMROI can be the single-most-telling measure of a retailer's financial viability.

To make this new use of GMROI easy and fast, The ROI has built an online calculator - the GMROI Growth Rater (go here). Available for free, 24/7, at The Institute. 

In just 2 quick steps, you can:
  1. instantly calculate GMROI for a specific retail operation;
  2. compare that GMROI to the average for that retailer's segment. 

And, here's what that comparison reveals (in just seconds!)
If your GMROI is below the average for your retail segment, beware. A cash crunch or weakening profits could be in the offing. 
Is your GMROI above the average? Inventory productivity is strong; positive cash flow and/or strong profits are very likely!  

Revealing Insights About Any Retailer

This works for any retailer for which you have the numbers, whether your own stores or publicly-traded companies. Or, of course, you can see how your operation compares.

Just go here on The ROI site to test this for yourself. Free!

The Competitive Edge of Specialty Retailing

What makes "specialty retailers" special? 

The special shopping experience they deliver.

How Specialty Retailers Differentiate Themselves Beyond "Customer 9Self) Service"

It doesn't matter what a retailer is selling – tires, hardware, electronics, books, apparel. Or, how big or small they are; Nordstrom, after all, is a specialty store!  

A specialty retailer's distinctive competitive edge is the special value they add to the shopping experience. 

See above for some quick examples of the difference between just "customer service" – which, increasingly, is customer self-service – and the specialty store retail experience

"Bank Lending Loosens", Say the Reports. Opportunity for Retailers?

According to an Associated Press report on June 18,
"Banks are making it easier for small businesses to get loans, and they're giving companies better terms and lower interest rates. 
"Banks are taking more steps to persuade small businesses to borrow,' said Dun & Bradstreet Credibility Corp. CEO Jeff Stibel. 'Interest rates are falling. Banks are willing to lend for longer terms. We're entering a New Normal,' he said."
This sentiment was echoed elsewhere.
"As the economy improves, businesses are able to get funding from traditional sources, and they are less desperate. We are starting to see a flight away from short-term, high cost money," stated Biz2Credit CEO Rohit Arora on their May Lending Index. 
Well. That sounds encouraging, doesn't it? It also might mark a fine opportunity for retailers looking to refinance, expand, or even acquire other stores.

How to take advantage? As always, especially as retailers, it is essential to do your homework.

  • Make a strong case for where your business is now
  • Show how your business compares favorably to others in your retail segment (the Retail Benchmarks at The ROI can help)
  • Prepare a cash flow plan, showing how and when you will repay the loan 

Approach Banks That Actually Lend to Small Business

And, not to be overlooked, search out those banks most likely to lend to retailers: the community banks. 

Here are 2 useful links for you from the Resources for Retailers page of Retail Startup (one of our microsites.)

  • Independent Community Banks Locator, from the Independent Community Bankers of America. Just enter your ZIP code, say how many miles you are willing to travel (from 25 to 100), and they immediately identify all the community banks in that area.
  • Banking Grades.  Based on data provided by the banks to the FDIC, this organization assigns a letter grade (from A to F) to banks for their small business lending. You can search by bank name, by ZIP code, by City & State, or by county. 

And here's another one from The Retail Owners Institute site:

All 3 of these resources might save you time, and hopefully, frustration! And, they're all free!