Baseball Is Back! And Like Retailing, "It Ain't Slow Pitch!"

Question: Why is specialty retailing like Major League Baseball? (And, why is online shopping a lot like Spring Training?)

  • Much like shopping at Amazon, eBay, etcetera, Spring Training games offer lots of selection! Each team's Spring Training rosters number 60 to 70 players! Talk about an "endless aisle"...
  • With that "breadth of selection" comes variation in quality. Some are young "prospects"; others are players attempting comebacks; still others are veterans trying to hang. Plus, there are the big-name free agents establishing themselves with a new team.
  • Just like online shopping, Spring Training offers every imaginable price point (that is, total team payroll, as well as individual player's contracts.) From prospects to free agents, there is much variation.
  • And, while the scouting reports from the pros aren't available, there is no lack of "reviews": newspaper columns, TV reports, blog posts, tweets, etcetera about the relative merits of each player. Opinionated? Yes! Informed? Maybe.

But then, the "regular season" approaches. Rosters must be trimmed to 25 players on each team. As they say, "It ain't slow pitch!" 

That "editing" of the assortments - cutting the roster to the best 25 players - is why specialty retailing is like the Major Leagues. Retailing isn't slow pitch either!

The competitive advantage of specialty retailers is much like that of the baseball manager: wisely editing for the most success and the best fan appeal.

  • Specialty retailers decide every day which merchandise "makes the team", and of that, which is in the starting lineup.
  • Specialty retailers are dispassionate about trying new merchandise, as well as taking markdowns on under-performing merchandise. (Just like baseball managers send players back to the minor leagues, or trade them, or cut them from the team.)
  • And yes, just like a baseball manager, a retailer's livelihood depends on how good a job of "editing" has been done, and how it performs.

When it comes down to it, the toughest decision in retailing is what merchandise to NOT carry. (Especially when the vendors want you to carry everything!)  And baseball managers risk their jobs with their decisions of which players to not have on the team.

See, good specialty retailing IS the Big Leagues!! 

Retailers: Are You Protecting Your Most Valuable Asset?

What does it take to survive in retailing today? 
Profitable lines of merchandise? Sure, but that may not be enough. Profitable stores? That may not be enough either. Instead, only those retailers with the most profitable customers, whether instore and online, are those who are destined to thrive.

That's why your knowledge of your very best customers is the bedrock of your competitive edge. The more you can know, document and analyze about your customers, the more equity you are growing in your business.

We think this explains what has puzzled some observers of Amazon, who wonder why Amazon is not growing its advertising revenue to its capacity. 
"As big as Amazon's ad business already is, it could be much larger," writes Jay Greene, Seattle Times business reporter. "The data that Amazon collects gives it the ability to see patterns Google and most of its other ad rivals could never find.  
"That's data nirvana for advertisers. 
"But here's the interesting part", Greene continues: "Amazon won't share the most coveted of its data with advertisers for fear of alienating shoppers. 
'Customer trust is paramount to us,' said Lisa Utzschneider, vice-president of gloabl advertising sales at Amazon Media Group. 'We would never do anything to infringe on that trust.'" 
Amazon has chosen to not sell their customer data to other advertisers. While they claim it is out of respect for their customer's privacy, their decision to preserve this knowledge for only their own uses demonstrates their recognition of the true worth of this information.

In our view, that provides some key takeaways for all other retailers:

  1. Are you gathering – and documenting! – this valuable customer data in your business? (Your POS system may have more data available than you realize, and/or could capture even more.)
  2. Are you protecting and preserving this asset your true competitive edge – as zealously as you should?

Want to grow the value of your business? Invest more – time, resources, even money – in your most valuable asset: knowledge of your best customers. 

Yes, the Web IS a "Location" (And increasingly the preferred location of shoppers!)

We're continuing to read and also hear anecdotal reports from retailers about foot traffic being way down, especially in the malls. Currently, the shoppers are just not showing up as they once were. 

How to account, then, for the increases in retail sales? Yep, it's the internet. 

Shopping isn't declining. People still need to buy what retailers sell.  But to survive, retailers must be where the shoppers are. And that means being on the internet.

However, having a robust e-commerce capability can be very daunting. And expensive. But not having those choices for your customers can be fatal. And that's where "shopping platforms"  - like Amazon Merchants - must be considered.  

We know. Some retailers reject this as a matter of principle. "That's like getting in bed with the devil", they grumble. 

We understand that concern. But, in our view, retailers should regard these shopping platforms as the contemporary shopping mall. 

It used to be that when considering where to lease space for your store, you would compare a shopping mall to a free-standing location. The mall required higher rent, plus CAM charges. And rules about what hours to be open. Grumble, grumble.

But, that's where the shoppers were! As a free-standing store, even a "destination retailer", your advertising budget was just a drop in the bucket versus the mall's presence.

Retailers always must be where the shoppers are. Today's shoppers increasingly are on the web, not in the malls. If you are not already there, or need to expand your presence, we urge you to investigate the increasing array of options. Not just Amazon and eBay, but now Facebook and Pinterest, for example. 

The Decline of "Retailing On Steroids"

Retailing's extended infatuation with "Bigger Is Better" is what we refer to as Retailing on Steroids. You know, the category killer "big box" stores, the ever-larger "super stores". It's been going on for decades.

According to the International Council of Shopping Centers, retail square footage in the United States has now grown to 23.1 square feet per capita, by far the highest in the world. Yikes! We seem to be over-stored (or under-demolished!)

Now, Downsizing Is In

  • Best Buy is touting its "Stores within the Store", as they deal with their excess space. 
  • Radio Shack and Staples are closing hundreds of stores. 
  • Sears is trying to "reposition its real estate assets". 
  • Target is opening City Target stores, with smaller footprints, and products scaled to smaller urban condos and apartments. 
  • And Wal-Mart is doing the same thing.

Better Is Better! Bigger may not be.

And what these initiatives have in common - besides the need to shed retail square footage - is the attempt to replicate the "specialty store" shopping experience. Yes, they're now going after the fundamental competitive advantage of independent retailers: Better Is Better! Bigger may not be.
 The advantages that smaller stores offer:
  • improved "theater of retailing"
  • much closer connections between the sales staff and customers
  • financially, higher sales per square foot.   
Therefore, in our view, independent retailers need not worry when they read and hear the media reports. What these "big guys" do not have is the agility and responsiveness that independent retailers and their customers thrive on.

Easy Tool to Motivate Sales Productivity

Here's a useful rule-of-thumb when discussing compensation with your front-line sales staff:
  • Each employee should expect to generate sales per hour that are 10 times their hourly pay.
  • So, someone being paid $12 per hour would be "expected" to ring up $600 in sales during a 5 hour shift.
Now, clearly that 10X multiplier will be different, based on your retail industry, margins, etc. For some stores, it will be 8X; for others, maybe 12X.
But, there IS a number you can determine. And, then you can and should share it with your staff!

Ready Feedback for Each Sales Associate

Since each employee knows how much they are being paid per hour, they can do the math for themselves. Each day. Each week. Even each hour, if they want.

Especially today, people want to believe that they are making a contribution, making an impact. And they want to get frequent feedback on how they are doing.

This way, they can "Do it myself!"
Best of all, by giving this tool to your staff, everyone can properly refocus on productivity.

Whether your store's "number" is 10X, 8X, 12X, whatever: You'll know you have a winner when you hear employees bragging that they beat the multiple!

New! Look What Else GMROI Can Reveal

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 do we like GMROI so much?

It is multi-dimensional. Instead 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!

And now, a new, insightful use for GMROI

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.

Quick • Verifiable • Sophisticated • Uniquely Retail

To make this new use of GMROI easy and fast, The ROI has built an online calculator (go here), available for free at The Institute. In 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. 

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

New Insights on Major Retailers

This works for any retailer for which you have the numbers, whether your own stores or publicly-traded companies. 

Just for fun, using their most recent financial statements (for 2012), here are the discoveries about some major retailers.

Wonder about other retailers? Or want to know how your stores compare? Go here on The ROI site to test this for yourself. 

Retailers: "Turn on Your Financial Headlights!"

In our work with retail situations across North America, we have observed three kinds of owners:
  1. Those who make things happen
  2. Those who watch things happen
  3. And those who say, "Uhh, what happened?!?"
Think for a moment about these owners who have become mere bystanders in their business. It's as if they are driving a car at night without the headlights on! 
    The car goes just fine; it doesn't need headlights to run. But no one would drive like that, especially on a freeway at high speeds. You want to be able to see ahead, to know what's coming, to anticipate adjustments, and make them in time to stay on the road. 

The same is true in every retail business. 

Your business may be barreling down the highway without you being able to see ahead. Meanwhile, especially at this time of year, the accountants and bookkeepers will be very concerned with tabulating financial history. They are just recounting - to the penny! - where you already have been.

But as the owner of a business, your major strategic responsibilities include projecting and preparing for the future. No crystal ball required; just your experience and good judgment!

As this new calendar year begins: 

  • Take time to look ahead: What trends are affecting your customers? Your competitors? Your suppliers? Your local community?
  • Anticipate "what's next?" in your retail segment, from new products to fickle customers. Tap into the opinions of others, whether through your buying groups, trade associations, business magazines, online resources.
  • Then, turn your attention inward. As you consider how best to respond to these pressures in the marketplace, compare the varying financial implications of those "What would happen if I...?" choices. 
Or, in other words, now is the time to "Turn on your financial headlights!"  

Latest Key Retail Benchmarks Now Available

How Do Your Stores Compare? 

One of the most popular features of The ROI is the unique Performance Benchmarks Trends we focus on, chart out and display for 54 separate retail segmentsThese are available to you online, anytime, 24/7, for free. 

The ROI has selected 6 Key Ratios (of more than 40) for retailers to regularly monitor. Then, The ROI presents 5-Year Trend Charts for each of these key ratios.
  • Pre-Tax Profit
  • Gross Margin
  • Inventory Turnover
  • Debt-to-Worth Ratio
  • Current Ratio
  • Return on Assets (ROA)
Go here to find your retail segment. How do your stores compare? Are you trending the same ways as other stores like yours?

"So, how can these benchmark numbers be used by retailers?"

  • For perspective. Calculate these ratios for your own business, and then see how you compare to your retail industry segment.
  • Use these benchmarks when you are setting your own target ratios for the next year.
  • You should know that when you are seeking a bank loan for your business, the bankers will look at these industry benchmarks as they assess your store's performance. 

Have questions about these benchmarks or what they mean?

Be sure to take advantage of the free Benchmarks Resource Center, and its How, Why and Do-It-Now Resources. 

All these specialized resources are available online, anytime, 24/7, for free. And only from The ROI!

Meanwhile, here are some useful reminders about the Benchmarks

  • The 54 retail segments featured at The ROI reflect the definitions and designations of the North American Industrial Classification System.
  • Retailers may need to examine the benchmark numbers in more than one segment to get perspective on their own store's performance, particularly if their store does not exactly fit the NAICS category.

  • The numbers used for the charts on The ROI site are from the middle two quartiles; that is, neither the top quartile (top 25%) nor the bottom quartile (bottom 25%).  

Ready? NOW Is the Time to Edit That Seasonal Merchandise. 4 Keys to Being Artful

As of today, there are only 9 really good selling days left before Christmas. So now, right now, is the time for merchants to edit.  And that, of course, means being smart about markdowns.

Take a dispassionate look at your inventory, especially the seasonal goods. The goal: NO seasonal merchandise left over at the end of the season! 

Whether you call it "editing", or "thinning the herd", the point is the same. Do whatever it takes to move out that seasonal merchandise! 
But of course, you also want the most margin from those goods (some of which sell only at this time of year.) So, that's where the fun begins: you must be the Artful Merchant. Just don't wait!

4 Keys to Artful Seasonal Markdowns

  1. As you know, in markdowns, timing IS everything.
    You must act now, when you have the most customer traffic in your stores. And, these shoppers are still focused on buying gifts! (The folks who come in after Christmas - the price-hounds, bottom-fishers, cherry-pickers - are a different group altogether.)

  2. Use a scalpel, not a machete.
    Be a merchant! Those  "entire store on sale" tactics
 shriek desperation.

  3. Make your markdowns matter.
    Be at least 1/3 to 1/2 off. Even "below cost" if needs be. (The pros know the original cost is irrelevant.) Get whatever cash you can for the merchandise. Otherwise, 3 weeks from now, well after Christmas, those markdowns will cost you 60%, 70% or 80% off. 

  4. Start now, and stay on it.
    Every day, find more slow-selling (or non-selling) seasonal goods, and mark them down.
Remember the goal: NO seasonal goods left after the season is over! Let's go! Take markdowns now. And have fun!

Want More Tips for Smart Markdown Management?
Sit back and watch this lively webinar - Markdowns: Timing Is Everything! - from our Recorded Live at TOPICAL TUESDAYS archive. 
(Unlimited free access, online anytime, for ROI Members. Or, get 3-Day Online Access for just $9.95.)