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.