You probably saw the news. McDonald's is launching a $1 Billion "makeover" of their stores.
The remodeled restaurants will replace bright reds and yellows with subtle colors. They can feature flat-screen TVs, lounge chairs and electric fireplaces. They also are adding free Wi-Fi in most of its U.S. restaurants. Thanks to "seating zones", customers who want to linger will be separated from those who want a quick bite.
What does this mean - or matter - to independent retailers? Simply this: heightened expectations!
When was the last time your store was remodeled? Or, put another way, how many fast-food franchises in your town have been remodeled since your last update? If the price points on your merchandise are somewhere north of a Big Mac, but your store's look places you squarely in the Bush Administration, it may be time to reconsider how you are re-investing in your business. The customers expect no less!
Will McDonald's Remodel Chase Away Families?
Some observers have assumed that this makeover is meant to appeal to laptop-toting workers, and worried that it would drive away the families-with-young-children who depend on McDonald's as a reliable place for food their kids will eat. After all, as her kids run around, how many scowls from someone hunched over a laptop can any mom endure?
Our view is that this remodel is focused on a different market segment: teenagers! Think how Starbuck's has become a cool place for teens to hang out. What if McDonald's could attract them back? Offer a more "grown up" atmosphere, flat screen TVs, Wi-Fi for their texting - and those fries - might McDonald's become a cool place for teens?
The "Theater of Retail"
The "look" of your store says a great deal. It IS an arms race, no question. Once you accept that you need to remodel with some frequency, be certain to keep focused on that customer you most covet. Then make your store a place where that shopper wants to spend her time (and her money!)
Retailers' "Digital Divide"
According to a research study, mobile shopping from a smart phone "is more frustrating than sitting in traffic or visiting the D.M.V." Get this: Some 85% of the shoppers interviewed expect the shopping experience on their phones to be as good or better than on a computer!
Wow! That's quite a high standard!
The pressure for retailers is relentless: build e-commerce websites optimized for the small screen. And while you're at it, create shopping apps. It is an arms race that just keeps escalating.
Happily, a fast pace and rapid changes are not new to retailers. (In fact, that's what attracted many of you to retailing in the first place!)
As you take on these challenges of integrating new technology into your operation, remember to take advantage of "in the cloud" services. These let you experiment without a major investment in hardware/software.
Just remember: "Don't let the perfect be the enemy of the good." It's better to be in the game than on the sidelines.
Wow! That's quite a high standard!
The pressure for retailers is relentless: build e-commerce websites optimized for the small screen. And while you're at it, create shopping apps. It is an arms race that just keeps escalating.
Happily, a fast pace and rapid changes are not new to retailers. (In fact, that's what attracted many of you to retailing in the first place!)
As you take on these challenges of integrating new technology into your operation, remember to take advantage of "in the cloud" services. These let you experiment without a major investment in hardware/software.
Just remember: "Don't let the perfect be the enemy of the good." It's better to be in the game than on the sidelines.
Big Box Store's Dilemma: Great Customer Service...for Amazon's Customers?!?
Ironic, isn't it? Big Box stores are being morphed into specialty stores.
Not so long ago, shoppers were using the specialty stores and their knowledgeable staff as their source for knowledge about the newest products...and then buying from the Big Box stores! The specialty stores were the "showrooms" for the Big Boxes, who as low-cost providers, could offer lower prices.
This is a long-standing "specialty store dilemma": hire, train and keep a knowledgeable sales staff who can educate the consumer about new products (aka "great customer service"), only to lose the sale to the lower cost, lower-priced competitor. This has been long known to specialty retailers in all retail segments, whether audio/video products, art supplies, power tools, whatever.
But now, look what's happening to the Big Box stores. Customers go there to see, hear, and touch the latest products (think Best Buy), so they can decide which one they want to buy. Then - customers being customers - they buy it at a lower price from online providers (think Amazon)!
The Big Boxes have become the "showroom" for the online retailers of the world! In their efforts to provide better customer service, the Big Boxes incur added costs (both in-store for people as well as robust web sites chock-full of more information) only to lose sales to the new low-cost providers of the world.
What goes around, comes around.
Or, consider the impact of category killers like Barnes & Noble and Border's Books on independent bookstores. Now these "category killers" have become dinosaurs themselves. Increasingly, more books are bought online, and/or in digital form, for a lower price at greater convenience.
Retail Darwinism at work.
Not so long ago, shoppers were using the specialty stores and their knowledgeable staff as their source for knowledge about the newest products...and then buying from the Big Box stores! The specialty stores were the "showrooms" for the Big Boxes, who as low-cost providers, could offer lower prices.
This is a long-standing "specialty store dilemma": hire, train and keep a knowledgeable sales staff who can educate the consumer about new products (aka "great customer service"), only to lose the sale to the lower cost, lower-priced competitor. This has been long known to specialty retailers in all retail segments, whether audio/video products, art supplies, power tools, whatever.
But now, look what's happening to the Big Box stores. Customers go there to see, hear, and touch the latest products (think Best Buy), so they can decide which one they want to buy. Then - customers being customers - they buy it at a lower price from online providers (think Amazon)!
The Big Boxes have become the "showroom" for the online retailers of the world! In their efforts to provide better customer service, the Big Boxes incur added costs (both in-store for people as well as robust web sites chock-full of more information) only to lose sales to the new low-cost providers of the world.
What goes around, comes around.
Or, consider the impact of category killers like Barnes & Noble and Border's Books on independent bookstores. Now these "category killers" have become dinosaurs themselves. Increasingly, more books are bought online, and/or in digital form, for a lower price at greater convenience.
Retail Darwinism at work.
Greatest Growth Opportunity in Retailing? Better Owners!
Winston Churchill once said, "Some are born great. Others achieve greatness. And some have greatness thrust upon them." And so it is with business ownership. Some are born to it; others achieve it; still others have it thrust upon them.
Whatever their route to retail ownership, few recognize or appreciate that being the owner is its own job, separate and distinct from any other job in retailing. Whether the "Owner" is one person (perhaps the founder); several people (perhaps family members, business partners, even investors); or, as in the case of a corporation, represented by the Board of Directors, the job of the "Owner" is the most under-performed and overlooked job in retailing!
Indeed, The Retail Owners Institute believes that failures in retail are traceable not to weak management, nor to weak CEOs. Instead, most retail failures can be traced directly to under-performing ownership.
Meeting the Owner-Only Responsibilities
The ROI has identified that every retail business - no matter its size - has three levels of management issues, or responsibilities, each with its own unique demands. The Institute has defined these three levels: Owner level; President level; Management level.
Too often, these three levels of issues are entangled and overlapping. And, just as often, the word "owner" is used interchangeably with "boss" or "president" or "manager". This confusion can no longer be tolerated. Even when one person must fulfill all responsibilities, it is important that the differing roles and obligations be separated.
The #1 responsibility of the Owner? Survival of the business. That in turn demands consensus at the Owner level on this fundamental question: What constitutes success? Without that consensus, a business will flounder. Only the Owner(s) can answer that question.
Success in retail does not depend on "location, location, location." Nor does selling the latest "must-have" product assure success. Today, the true retail success stories will be written by those companies whose Owners are effectively performing their actual job; doing those things that only the Owner can do.
Whatever their route to retail ownership, few recognize or appreciate that being the owner is its own job, separate and distinct from any other job in retailing. Whether the "Owner" is one person (perhaps the founder); several people (perhaps family members, business partners, even investors); or, as in the case of a corporation, represented by the Board of Directors, the job of the "Owner" is the most under-performed and overlooked job in retailing!
Indeed, The Retail Owners Institute believes that failures in retail are traceable not to weak management, nor to weak CEOs. Instead, most retail failures can be traced directly to under-performing ownership.
Meeting the Owner-Only Responsibilities
The ROI has identified that every retail business - no matter its size - has three levels of management issues, or responsibilities, each with its own unique demands. The Institute has defined these three levels: Owner level; President level; Management level.
Too often, these three levels of issues are entangled and overlapping. And, just as often, the word "owner" is used interchangeably with "boss" or "president" or "manager". This confusion can no longer be tolerated. Even when one person must fulfill all responsibilities, it is important that the differing roles and obligations be separated.
The #1 responsibility of the Owner? Survival of the business. That in turn demands consensus at the Owner level on this fundamental question: What constitutes success? Without that consensus, a business will flounder. Only the Owner(s) can answer that question.
Success in retail does not depend on "location, location, location." Nor does selling the latest "must-have" product assure success. Today, the true retail success stories will be written by those companies whose Owners are effectively performing their actual job; doing those things that only the Owner can do.
Tale of the Tape: What Retail Benchmarks Show
The Retail Owners Institute(R) has updated the charts and graphs of performance benchmarks for 52 retail segments, and recently posted them on The ROI site. These are the ratios prepared for and used by virtually all lending personnel. We show charts and graphs of five year trends for 6 key ratios for retailers to monitor (Turnover, Gross Margin, Pre-Tax Profit, Debt-to-Worth Ratio, Current Ratio, Return on Assets).
Most users of the Store Benchmark numbers displayed at The ROI are focused on their specific retail segment. Depends on what kind of retail business they have: gift shop? apparel store? hardware store? pet store? However, we have spent some time reviewing all of the segments. What did we discover? Generally, they look awful!
While there are improvements vs LY (going against "soft numbers"), few retail segments are back to even with 2008 performance levels. That Recession, you remember.
Gross Margin and Pre-Tax Profit Trends
After topline sales, what do most retailers pay most attention to? You got it! Gross Margin, and "the bottom line". And sure enough, over half of the 52 segments showed increases in Gross Margins vs 2009; same with Pre-Tax Profit.
Of course, we are going against "soft numbers", since 2009 was so grim.... Comparing 2010 to 2008, a somewhat different picture emerges:
The Lenders & the Vendors
Meanwhile, what do the bankers watch? They keep an eagle eye on your Debt-to-Worth ratio. (Their focus is on getting any and all loans repaid.) There are some promising trends here to report!
Comparing 2010 to either 2009 or 2008, a scant 23 retail segments (only 44%) showed improvements in the Current Ratio. In fact, as you look at the benchmark trends, note for yourself how many segments have Current Ratios below 2.0 (a C grade).
Inventory Turnover
What really drives these ratios? Inventory turnover. Here again, the overall indicators are not promising. Twenty-six of the retail segments showed declines in turnover. That means more cash is tied up in (old) inventory. And only 17 segments showed increases in turns for 2010 vs 2008.
As Michael Gould Bloomingdale's Chairman noted, "No retailer ever filed bankruptcy because their turns were too high!"
What's the "bottom line" of all this?
Opportunity abounds! Those retailers who can better manage these key metrics of retail financial strength can quickly separate themselves from the more mediocre performers.
Most users of the Store Benchmark numbers displayed at The ROI are focused on their specific retail segment. Depends on what kind of retail business they have: gift shop? apparel store? hardware store? pet store? However, we have spent some time reviewing all of the segments. What did we discover? Generally, they look awful!
While there are improvements vs LY (going against "soft numbers"), few retail segments are back to even with 2008 performance levels. That Recession, you remember.
Gross Margin and Pre-Tax Profit Trends
After topline sales, what do most retailers pay most attention to? You got it! Gross Margin, and "the bottom line". And sure enough, over half of the 52 segments showed increases in Gross Margins vs 2009; same with Pre-Tax Profit.
Of course, we are going against "soft numbers", since 2009 was so grim.... Comparing 2010 to 2008, a somewhat different picture emerges:
Margins up: for a whopping 2/3rds of the reported segments (35 out of 52), 2010 GM% exceeded 2008 Gross Margins
Profits down: On the other hand, for 34 of the 52 retail segments, Pre-Tax Profits are still below 2008 levels.
The Lenders & the Vendors
Meanwhile, what do the bankers watch? They keep an eagle eye on your Debt-to-Worth ratio. (Their focus is on getting any and all loans repaid.) There are some promising trends here to report!
2010 vs 2009, only 15 retail segments showed increases in the Debt-to-Worth ratio. And that's a good trend! It shows these businesses are getting financially stronger.What ratio do the credit departments at your vendors pay most attention to? The current ratio. It measures your ability to pay your bills on time. The benchmarks on that measure show how tough the retail environment continues to be.
And 20 retail segments showed improvements in the Debt-to-Worth ratio vs 2008. (Might be something to that "survival of the fittest" idea. The retailers still here are in fact stronger.)
Comparing 2010 to either 2009 or 2008, a scant 23 retail segments (only 44%) showed improvements in the Current Ratio. In fact, as you look at the benchmark trends, note for yourself how many segments have Current Ratios below 2.0 (a C grade).
Inventory Turnover
What really drives these ratios? Inventory turnover. Here again, the overall indicators are not promising. Twenty-six of the retail segments showed declines in turnover. That means more cash is tied up in (old) inventory. And only 17 segments showed increases in turns for 2010 vs 2008.
As Michael Gould Bloomingdale's Chairman noted, "No retailer ever filed bankruptcy because their turns were too high!"
What's the "bottom line" of all this?
Opportunity abounds! Those retailers who can better manage these key metrics of retail financial strength can quickly separate themselves from the more mediocre performers.
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