Now Look Who's Reinventing the Grocery Store

No one goes into a hardware store to buy a 3/4” drill.

What they want is a 3/4” hole!

That basic Marketing 101 concept applies to grocery stores, too. Who goes to the grocery store to buy, well, groceries? What we want is DINNER! 

• But, can you go into a grocery and find “dinner”? Or “breakfast”? Or, “great lunches”? No. Instead, there is a produce section. And then a canned goods section. And then the frozen foods section. Plus, an overwhelming assortment of choices, whether it is mustards or pickles or pasta or….

Meanwhile, consider the shoppers, who are increasingly purposeful. They have a shopping list, and they stick to it. They are spending less time (and money) in the grocery stores. And, a greater proportion of their in-store time is spent simply navigating the store (what they want is on the perimeter), or checking out. 

This is an industry that is ripe for disruption. And sure enough, that is happening. Consider how the meal-in-a-kit delivery services – e.g., Blue Apron, Plated, HelloFresh  – essentially are re-inventing the grocery store.

• You sign up online; they deliver to your doorstep a box that contains the fresh, raw ingredients for 3 to 5 meals, all in the proper proportions (no wasted food or languishing jars of spices), along with explanatory recipes (with pictures) from their in-house chefs. 
• You do the chopping, cutting, and cooking.
• In 35 minutes or so, you sit down to a home-cooked meal.
• All without the time-consuming demands of meal planning or traditional “grocery shopping”

Yes, This IS Retailing!

Alas, these new businesses do not regard themselves as retailers(!) But to us, everything they are doing is what retailers do: 

• Selling to the ultimate consumer
• Sourcing product from carefully-selected suppliers
• Editing the selections - limited meal choices each week
• Educating about new products or cooking techniques
• Engaging the customer in an experience - in this case, home cooking

But Wait...There's More!
Very High GMROI
Plus, they do it all essentially on special-order. That is, customers sign up for next week’s meals; these services don’t carry inventory, but instead, buy only what they already have sold. 

High Growth Potential with Low Fixed Costs
And, as a web-based delivery service, they can grow their customer base at a faster rate than fixed costs. The 3 services we cited can deliver to 85%-95% of the continental U.S. (And HelloFresh also operates in Australia, Europe, and the UK.)

Remember, “value” for customers is benefits received for the burdens endured. 
In our view, these meal-kit delivery services are delivering great burden-reducing value to the customer! And, whether they realize it or not, they are reinventing the grocery store in the process.



We believe this offers, ahem, much food for thought for all retailers. 

• What are the burdens that your shoppers must tolerate? 
• How might you relieve those burdens?
• How can you increase the value they receive from your stores?
• And how can you do that before some “disruptive” competitor steals their hearts away??

Be Ready! New Patterns for Peak Shopping Days

You noticed it, right? That traditional lull in shoppers, between Thanksgiving Weekend and the 10th of December.  

That is just one of the predictable patterns within the Holiday shopping season. Next up: the surge this weekend, and then of course, next weekend, the last one before Christmas. That's when the shopping malls ask many stores to be open till midnight, right?

But, sure enough, especially this year, these "traditional" patterns are subject to another trend, the "digital disruption".

• First, accept that the shoppers will certainly be busy doing their thing; it just may not be in your stores yet.
• Instead, more folks will rely on the web for their window shopping, browsing, price comparisons, etc.
• When they do show up in your stores, they are on a mission! Not browsing; just buying. 

This Year's Peak In-Store Shopping Days

So, when will in-store shopping peak? Not on the traditional last weekend before Christmas. Instead, watch for it to peak on Monday the 22nd and Tuesday the 23rd, and of course Wednesday, Christmas Eve. 

Why? Two main reasons:

1. The "traditional" reason: those are the days when most men (and women who shop like men) actually do their buying.
2. The "digital disruption" reason: the deadlines for buying online and having guaranteed delivery by Christmas will have passed. At that point, the customers will show up, and depend on stores to come through!

Those retailers who are anticipating these changes will be better able to effectively schedule their staff. You can likely schedule in anticipation of the Monday-Tuesday crunch.

• And therefore, having "paced" yourself and your staff, you will be well positioned to deliver great customer service on those crucial, crunch time shopping days and evenings.

What better way to keep the Ho! Ho! Ho! in the Holiday Season?

Start Now to "Beautify" Year-End Financial Statements

For most of you, your fiscal year end (i.e., 12/31; 1/31; 2/28; etc) is rapidly approaching.

"So what?", you ask.

Well, whatever your year-end financial statement says about your business, you will have to "live with" for the next year or longer. And each vendor, bank, or landlord you share it with will judge your business by it. So, now is the time to dress it up! 

Is there a beauty parlor for retail businesses? Yes!

We just conducted two workshops at a huge trade show in Chicago. We taught those retail dealers how to financially beautify their businesses. (And some of these retailers are already making "dress up" plans.)

How Your Business Is Judged for the Next Year

Always remember: your debt-to-worth ratio is the #1 measurement of the financial strength (or weakness) of your business. So, how can that be improved? Here are 3 choices.

1. Obviously, the more net profits that are added to your retained earnings from your P&L, the greater your equity/net worth will be.
2. But, shrinking your liabilities (any and all debt) is the most impactful and controllable way to improve your year-end debt-to-worth ratio.
3. "Controllable?" Yep. Shrink (sell off; liquidate) any assets you can (especially excess inventory) and apply that cash to paying down debt.

If you take these steps vigorously, there is a Miss or Mister America Pageant you can enter!! 

And best of all, this "financial beautification" is far more than skin deep. It makes for a much healthier business as well. 

The ApplePay "Wow!" Effect

 Consider these early experiences with ApplePay:

• Both cashier and customer say "Wow!" as transaction completes.
• Cashier explains "I haven't yet processed a return, but let's try it. Oh, it's done. That was easy!"  
• The really telling sign: customer admits to feeling giddy(!) when paying.

Talk about a new "Wow! effect" in retailing. But for paying?!

Apple as "Enabler" of Online Retail Success

With the iPhone and iPad, Apple pioneered the user-friendly devices for accessing the web. In our view, Apple thus became the enabler for the success of Amazon and all online merchants.

Now, the ApplePay "Wow! effect" may make Apple the enabler for brick-n-mortar retailers as well. 

Seems only fair, doesn't it?

That Haunting Halloween Question (and January Payables....)

As Halloween arrives, here's a really spooky thought:
Will you have enough cash to get you through the next 3 months? 

How to answer that? With a quick cash flow calculation. No retailer should ever be without it! 

And don't worry. This does not have to be hard. A Cash Flow plan has just 3 parts:

1. Cash coming in
2. Cash going out
3. The difference

And now, any retailer can know in minutes whether they will have enough cash to get through November and December and those January payables. 

• Go to our online "Speedy Form for Cash Control." It is available free at our Banks4Retailers.com microsite. 
• Then, fill it in for the next few months. It's like shining a light on that (Halloween) monster in the closet!

Then, one of two things will happen:

1. You'll discover that you will be "cash flow positive"! Sweet! You can sleep at night!
2. Or - gulp! - you will see that you will have a cash shortfall. But, better to know in advance, isn't it?! 

In either event, you still have time to make some adjustments.

Yes, You Have Choices

• As you start filling in our Online Speedy Cash Flow form, you will see that you can put in numbers for up to 6 months. 
• Or, choose to focus on a shorter time frame.
• Or, disregard the column labels and have each column represent a week.
• Or, you could choose to do it with The ROI's 3-in-1 INTEGRATED Cash Flow Calculator.  The choice is yours.

Depend on The Retail Owners Institute

Whenever you are haunted by cash flow questions, depend on The ROI. 

Nowhere else can retailers so easily look ahead, and "Turn on your financial headlights!" 

Time for Your "Inner Merchant" to Shine

As we have taught for years, anyone selling something to the ultimate consumer is a "retailer." 

However, only a small portion of these retailers are truly "merchants".

And now is the time the merchants can shine!

While we certainly are not economists (among other things), we are sensing that consumer confidence is generally stronger now than it has been in many Holiday seasons. 

And merchants recognize there is an opportunity to benefit greatly from a few carefully-selected additional markups this Holiday Season, and perhaps into the first quarter of 2015 as well. 

Don't by shy! If you have discovered unique merchandise and brought it in, do not undervalue your discerning choices!

• Identify that unique, non-commodity merchandise you have. (Perhaps 5%-10% of the total.)
• If you haven't already, take a markup that is bit higher on those carefully-selected items.

What's the worst that can happen? It ends up being marked down in 7 weeks?! Hmmm.

• During that time, those 5–10 days before Christmas, all true merchants will be "dumping" (that's understood, right?) merchandise they do not want come December 26. 
• So what if you still have some of this specialized merchandise at that time; you still are likely to generate some revenue from it.

But, between now and then, get that extra markup wherever you can! This is not the time to leave money on the table.

The merchants of the world assure you: this is not being greedy. It is being strategic! 

You know, like a merchant!!

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.

"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 experiment, as 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-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!

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.

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:

• The GMROI "Bankability" Rater, a very unique approach that could give you a competitive edge when making your case with lenders.

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

Are You Growing Jobs...for Your Customers?

The "Job" of the Customer Just Keeps Growing

Think about some of the programs  becoming more commonplace in retailing, either for their promised cost or time-savings:

• More "self-service" (e.g., less staff on the selling floor)
• Self check-out by the customer
• Online searches by the customer for product information
• Price lookup kiosks in the store
• Online shopping   

Hmm.  Time savings – for who? Generally, not for the customer. They are being asked to take on more and more of the work.

This is happening in many retail settings, whether the shopper is buying coffee or blouses or tires. It requires the customer to use their own time and effort. And their smart phone! 
"Attention Shoppers: Bring your own cash register."  

Focus Now on the Transaction

Many of these technology “advances” are focused on the transaction. And as they become more commonplace, sure enough, it seems to us that the pendulum might be starting to swing back. 

Consider these two news items from early June:

• “Legendary Los Angeles retailer Fred Segal is going global. They envision a ‘major reinvention’ of the luxury shopping experience, under the Fred Segal brand. which will combine fashion with dining, entertainment, cultural events and health and wellness programs.”
• “Target names a new senior vice-president of media and guest engagement. Target continues to accelerate our efforts to innovate and evolve, and connect with Target’s guests in new and different ways.”

Showcasing Your Competitive Edge

But, here's the deal. “Customer engagement” is already alive and well in most specialty stores. It's what makes you "special". It does not need to be re-invented. However – it may need to be exploited! 

Especially in today's technology-driven environment, the customer engagement and shopping experience you already deliver differentiates your stores. It puts the "special" in specialty retailing. 

So, since you've got it, flaunt it! Dust it off a bit, spruce it up, bring it front and center, and shine a light on it!

And since it is difficult for many prominent retailers to match that (in fact, some are just getting started thinking about it), for you it can be a great competitive edge. 

Will "Retail Democracy" Impact All Retailers?

A newly announced "global study" by Oracle, the international hardware and software data management firm, of "what customers expect today", leads to what Oracle dubs "Retail Democracy." 

“The newly-emerging ‘access anywhere, commerce anywhere’ consumers are demanding access to availability, product information and price in a variety of ways."

Oracle's notion of Retail Democracy is an interesting concept, and, in our view, a likely harbinger of an important trend in retailing. (In fact, we see it as a continuation of the power shift we called "Retail Populism" some years ago, as online commerce was bursting onto the scene.) 

This is all well and good for analysts, consultants, bloggers, futurists, academics, etc. And for retailers who enjoy thinking about lofty issues.

But, once Oracle suggests that this study “requires that retailers re-orchestrate their operations”, we really slow up. Yikes! Such sweeping prescriptive "shoulds" for retailers must be viewed very carefully.

• You see, asking survey participants about their preferences and aspirations just produces their wish list.
• Similarly, asking how they would act in a hypothetical future situation elicits their good intentions. 

Predictions for Business Decisions

In our experience, wish lists and good intentions seldom – if ever! – translate into actual buying behavior. (Steve Jobs, among others, understood this very well.) 

While we relish reading about studies such as Oracle conducted, we always encourage retailers faced with business decisions to examine and learn from the actual behaviors of their present (and coveted prospective) customers. We find that past actions and behaviors are far more telling predictors of future actions.

Best of all, doing so does not require an international market research project. Instead, you can glean a great deal from the data you already have about your customers.

This “data mining” of your POS and ZIP code data, for instance, can provide new, invaluable insights – for free! Yes, it will take some time, especially at the start. Tally and analyze the numbers, compare-and-contrast the findings, and give thought to what it tells you and how to get the most benefit from it.

Have fun discovering more about your customers. But base your business decisions on their behaviors, NOT their wish lists or good intentions!

Remember, when it comes to your decisions about business spending, what your customers actually do is far more telling than what they say they will do. 


For more on the Oracle study, go here

Inventory Turnover...So What?!

We had an inquiry recently from a three-store owner asking about inventory turnover.

"Is it really important?" he asked.

Our reply, after being struck by the question, started out as less than adequate, to be sure. We explained the formula (Cost of Goods Sold divided by Average Inventory @Cost) and he politely agreed.

Then we explained the difference that turnover rates can make:

• "For example, for every $1 Million in sales at 40% margin, the COGS would be $600,000. If turns were 3, average inventory would be $200,000.
• "But – if turns were 4", we continued, "inventory would be $150,000, helping cash flow by $50,000."

Again, he politely agreed. Then, after a pause, he asked, "But, is it really important?" 

Finally, we got it! And our answer improved.

Key Number Each Month

An Open-to-Buy system that uses turnover rates as the "governor" projects not only the buying budget for each month. It also projects the targeted ending inventory levels for the end of each month.

"Like the white or yellow lines on highways," we offered.

"Wow!" came his reply. "You mean that our buyers should steer their inventory levels to hit those planned ending inventory numbers?"

"Well, that's what the pros do," we responded.

"Hmmm.  Now I see how it's all connected!

"Hitting those ending inventory targets will control my inventory levels. That will help the cash flow. And that will reduce our debt. All of which will help me get some sleep at night!! 

"Guess turnover IS pretty darn important!"

Then we tossed out the classic line from Michael Gould of Bloomingdales, who so famously told his buyers: "No retailer ever filed bankruptcy because their turns were too high."

Just a Retailer? Or, a True Merchant?

Everyone, and anyone, can be a retailer.

If you put on a garage sale, you are in retail; you are selling to the ultimate consumer. By selling on eBay or Amazon or Etsy or a farmer's market or your own stores, by definition, you are a retailer. And every day, The ROI is helping many of them worldwide.

But, just as in education, or in sports, there exists a highest, ultimate level of professionalism. In retailing, this is to be a "Merchant".

Acres of Merchants

A few weeks ago, we visited the huge outdoor Orange County Market Place® in Southern California.

• It covers acres!
• Open Saturdays & Sundays only, 7 a.m. to 4 p.m. 
• The vendors sell all new merchandise – everything and anything – to the throngs that come each weekend. 
• And, each year, in the 100 or so days it operates, it attracts 2 million visitors! 

It was absolutely fascinating to watch! 

We came away with a great deal of respect for the Orange County Market Place vendors who survive. They are pure Merchants. And, in our view, retailers who become Merchants will survive. (The others will contribute to the deplorable 8-9% annual failure rate.)

How Do We Define a "Merchant"?

These are the attributes that separate Merchants from "just retailers":

• Merchants source for a particular group of customers. They are agents for the customers, not agents for - or beholden to - any vendor. 
• Merchants closely monitor any changes in their customer group. 
• Merchants judge every piece of inventory they own on whether it (still) appeals to their customer group. 
• Merchants dispassionately add or delete products, services, locations, personnel as needed to best serve "their" customers. 

Think of retailers around you. 

• Clearly, some are or have been led by Merchants: Starbucks, Costco, Nordstrom, Crate & Barrel, etc. 
• Now, think of recent or pending retail failures.

See the difference? Whether large or small, the distinction between success in retail or failure is traceable to the Merchant-instincts between the ears of the top people.

Can any retailer become a Merchant? 

Indeed, yes! But to do so, 110% of their mindset must be on getting and doing what a specific group of customers will pay for. And to do that better than the competitors.

Want to see lots of Merchants?

Go to the largest Farmer's Market or Street Fair you can find. In that environment – as in yours – only the Merchants survive!

Mother's Day Promo That's Really About the Millennials

Retailing is a wonderful spectator sport. We pay attention  to retailers of all sizes, in all merchandise segments, at all price points.

And often, what we see is inspiring! The creativity and resourcefulness of merchants is a major part of the magic of retailing. We enjoy sharing examples of creativity in one segment to retailers in other segments.

For instance, consider the cleverly multi-faceted way one retailer, in this case Nordstrom, is approaching Mothers Day.

First, they're using major window displays that feature likely Mothers Day gifts. But what sets them apart is the intended audience for these displays: those "digital natives", the Millennials. 

Here's the message Nordstrom has on these windows:

"Here's How to Wow Your Mom. 

Download our app, scan the barcode on the window display of the item you want, and order by May 1 for delivery by Mothers Day."

In our view - (Note: We're just speculating; we've not discussed this with anyone at Nordstrom) - the Mothers Day merchandise Nordstrom will sell through these windows is secondary. We suspect that Nordstrom's #1 priority for this two week time frame is to connect with more of the Millennials.

• This is a powerful prompt for Millennials to download the Nordstrom app. That's the key metric!
• The emphasis is on ease and speed. That's spot on for this group! No need to go into the store. Just make your choice from the window display (or the app itself.) They barely need to slow down while walking by!
• And then there's the reassurance angle. These time-pressed 20 to 35 year olds being targeted are the offspring of Nordstrom's established customer base. (So a Mothers Day gift from Nordstrom is a safe choice. Or, of course, it always can be returned!)

The Benefit for All Other Retailers

But, as clever as we think this is, here's why we are describing it: 
How might you be able to leverage this kind of thinking in your own stores?

You don't have to have an app, or a full time window display department. Just some inspiration, and a good idea of who you want to reach.

Then, 3 basic steps:

• reach them, connect with them on their terms
• make shopping easier for your desired customers
• reassure them that they're making the right choice

So, That Question Again

We are asked frequently - and again last week it occurred - “Well, Pat & Dick, what’s your view on the economy for retailers?”

We began by recounting the challenges: 

“Well, this is the New Normal. That is, modest population growth, many fewer people in the Generation X valley between the Baby Boomers and the Millennials, and the sense that worldwide events may at any moment substantially impair our economy." 

Then, we also noted the positive indicators:

• consumer confidence continues to rise
• last week the stock market hit an all time record high
• and of the 54 retail segments we follow, although some are suffering, most are doing quite well. (see Monthly Sales comps on The ROI site - compare your sales trends to your segment).

"Actually, It's Just Like the Weather"

But, here's the real key: in every retail sector, some retailers are declining, and others are doing quite well indeed.



What separates those succeeding retailers from all the others?

• Those who are thriving tend to be focused on the “controllable variables” - managing inventory, expenses, people issues, cash flow.
• Of course, they're always doing what they can to improve sales. But that's not as controllable!
• And, they consciously choose to not be drawn into the distractions of the 24/7 bad news cycle, even though those around them tend to be.

In other words, the economy, like the weather, does have an impact on retailers. But, like the weather, the economy is beyond their control.



The best one can do is:

• pay attention
• stay nimble
• adapt
• and control the controllables!

That's why it seems to us the answer to the question - “Well, Pat & Dick, what do you think of the economy for retailers?” - is this:

Three things: Execution. Execution. Execution.

Monthly Sales Results Are Interesting. Here's How to Make Them Significant!

The "international greeting" among retailers is "How are sales?"

The response almost invariably includes a reference to Last Year. Sales are up versus LY, or flat, or down. This is the common metric among retailers.

• The U.S. Census Bureau collects data on retail sales each month. Once again, The Retail Owners Institute® has analyzed the monthly retail sales by retail sector, compared those results to the same month Last Year, charted the results for the trailing 6 months, and posted them on The ROI site.
• Go here to see how your results compare to other retailers in your sector. Now, thanks to The ROI, it's easy for retailers to get perspective. (For instance, maybe you find that everybody else in your sector also was down. Misery loves company!)

Interesting. But NOT Significant!

Comparing your own results to Last Year, or even to others in your retail sector, is interesting. How to make it significant? Just one way: compare your results to Plan!

Once you know whether sales are ahead of plan or behind, you can use the "lead time" to make adjustments!


And the most important adjustment for retailers is, of course, inventory!

For instance, take another look at your Open-to-Buy plan. 

The key number to be watching with an eagle eye: your targeted Ending Inventory for each month. 

• Sales ahead of plan? You may need to adjust your buying to bring in more merchandise to meet your targets
• Sales lagging from plan? Good thing you found out now! You still have time to make adjustments, and avoid excess inventory.

The ROI makes it easy for you to do all this. Just take advantage of our online BUYING PLAN Forecaster.  Available 24/7. Free!

• Entries are easy and fast. Planned sales and margins for each month, plus Beginning Inventory at the start, and turnover rate. That's it!
• Immediately see a monthly Open-to-Buy, including targeted Ending Inventory for each month.
• Powerful. Fast.  Free, 24/7. Only at The ROI. Go here to use it for yourself.

Now THAT is significant!

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.